Changes in 2016: Civil Code - Interest, Code of Civil Procedure - Suit and Mediation

The process of major changes in Civil Code and Code of Civil Procedure began as early as January. 2016 can be easily referred to as the year of novelty - both in terms of substantive law, e.g. manner of calculating and types of interest, new layout of documents, as well as procedures - including in particular in the field of promoting mediation and attempts undertaken to accelerate proceedings. Certain amendments came into force already on 1 January 2016 and they will be discussed within this information.

I. The Act of 9 October 2015 on amendment of the Act on Payment Terms in Commercial Transactions - Civil Code and certain other acts changed the principles of calculating interest in the manner described below.

1. The present wording of Art. 359 of the Civil Code (changes underlined) - interest on capital

§1. Interest on sum of money shall be paid only when this results from a legal transaction, an act, a legal decision or decision of another relevant body.

§2. If the amount of interest has not been specified in a different manner, statutory interest in the amount equal to the sum of the reference rate of the National Bank of Poland and 3.5 percentage points shall be paid.

§21. The maximum amount of interest resulting from a legal transaction cannot exceed twice the amount of statutory interest on an annual basis (maximum interest).

§22. If the amount of interest resulting from a legal transaction exceeds the maximum amount of interest, maximum interest shall be paid.

§23. Contractual provisions cannot exclude or limit the provisions on maximum interest, also in the case of selecting foreign law. In such case, provisions of the Act shall be applicable.

§3. (waived).

§4. The Minister of Justice informs about the amount of statutory interest through an announcement published in the official journal of the Republic of Poland 'Monitor Polski'.

Despite the difficulties with interpretation reported by courts, it shall be adopted that this provision shall be applicable only for interest on capital agreed between the parties - e.g. in the case of interest charged with loans. 
In the current wording of the provision, e.g. in the case of a loan agreement, the borrower should return capital with interest in the amount of 5% (reference rate - 1.5% plus 3.5%), unless stipulated otherwise in the agreement. Maximum interest in the current legal state shall also be calculated in a new manner, because its amount is related to the amount of statutory interest referred to in §2 of this provision and currently amounts to 10% [2 x (1.5% + 3.5%)].

Therefore, the so-called contractual interest obtained new ratios to determine its amount.

It shall also be noted that 'statutory interest' referred to in the above-mentioned provision no longer refers to statutory interest that was always referred to in the provision of Art. 481 of the Civil Code and to which we were accustomed - within this provision, it is a new notion. In the new wording of the provision, 'statutory interest' means interest in the amount calculated in accordance with §2 Art. 359 of the Civil Code, i.e. in line with the following formula: reference rate of the National Bank of Poland + 3.5%. In the case of any doubts concerning the amount of such interest, the relevant announcement of the Minister of Justice can be referred to (currently: Announcement of the Minister of Justice of 7 January 2016 concerning the amount of statutory interest, Monitor Polski, Item 46).

For the record, it shall be mentioned that the removed §3 specified that the previous amount of statutory interest had been determined by the Council of Ministers by way of regulation in line with the guidelines described in this provision.

2. Current wording of Art. 481 of the Civil Code - interest for delay.

§1. If a debtor delays accomplishment of payment, the creditor may demand interest for the period of delay, even though they did not incur any loss and even if such delay was a result of circumstances for which the debtor shall not be liable.

§2. If the rate of interest for delay was not specified, the statutory interest for delay shall be paid in the amount equal to the sum of reference rate of the National Bank of Poland and 5.5 percentage points. However, if a receivable is subject to a higher interest rate, the creditor may demand interest for delay at the higher rate.

§21. The maximum amount of interest for delay cannot exceed twice the amount of statutory interest for delay (maximum interest for delay).

§22. If the amount of interest for delay exceeds the maximum amount of interest for delay, maximum interest for delay shall be paid.

§23. Contractual provisions cannot exclude or limit the provisions on maximum interest, also in the case of selecting a foreign law. In such case, provisions of the Act shall be applicable.

§24. The Minister of Justice informs, through an announcement published in the official journal of the Republic of Poland 'Monitor Polski', about the amount of statutory interest for delay.

§3. In the event of a delay caused by the debtor, the creditor may also demand compensation fordamages on general terms.

The above-quoted provision shall be applicable as before - in the situation of a delay in payment which constitutes mutual consideration, e.g. in the case of payment for the service provided (here, however, with certain restrictions, described below).

If a contractor delays payment of the amount specified on an issued invoice, statutory interest for delay may be demanded, whereas its amount is determined on the basis of the effective reference rate of the National Bank of Poland increased by 5.5%, i.e. it currently amounts to 7% (1,5% + 5.5%).

The legislator also introduced maximum interest in this case, allowing for contractual specification of the amount of interest for delay, however, only up to the amount of 14% [2 x (1.5% + 5.5%)]. Also with reference to this provision, in the case of any doubts concerning the amount of such interest, the relevant announcement of the Minister of Justice can be referred to (currently: Announcement of the Minister of Justice of 7 January 2016 concerning the amount of statutory interest, Monitor Polski, Item 47).

A significant semantic difference between the amended Art. 359 of the Civil Code and 481 of the Civil Code shall be noted. They both refer to statutory interest, whereas the second one specifies 'statutory interest for delay'. This difference shall be noted and relevant notions shall be applied in agreements and negotiations in order to avoid any doubts concerning what type of interest is referred to. So far, we would use briefly the term 'statutory interest' to describe a notion which should currently be referred to as 'statutory interest for delay' in order to distinguish it from statutory interest on cash amounts.

As specified in the explanatory note on the draft Act: 'The mechanism referring directly to one of the rates of the National Bank of Poland to determine the amount of interest is also proposed to be implemented in the Civil Code. Taking into consideration the fact that interest from the Code may perform the role of the so-called interest on capital or interest for delay, its amount should be diversified. Therefore, it has been proposed that statutory interest for delay should be higher, due to its 'penalty' function, which shall expressly diversify between behaviours compliant with the agreement (use of capital) and violation of the agreement (delays in payment of receivables). The change will therefore be a clear sign that the 'payment morality' aspect is important for the legislator. However, interest from the Code would be lower than interest for delay charged pursuant to the Act on Payment Terms in Commercial Transactions, which are applied in the so-called professional transactions.'

2. Interest in commercial transactions

What is important, the amendments also included a change of the principles for charging interest for delay in commercial transactions, amending the Act on Payment Terms in Commercial Transactions (of 8 March 2013, Journal of Laws Item 403).

The most significant amendment is the establishment of difference in the amount of statutory interest for delay in commercial transactions - so far interest for delay was the same for each transaction type, whereas a contractor who failed to pay in a timely manner, regardless of the fact whether the transaction was related to their activity or not, was obliged to pay interest in the same amount. The amendments made the 'penalty' stricter for entrepreneurs who fail to pay. This is due to the fact that in the new provision of Art. 4 Item 3 of the Act, the definition of statutory interest for delay in commercial transactions was established, calculated as the sum of reference rate of the National Bank of Poland and eight percentage points, i.e. currently 9.5%. At the same time, the new provision of Art. 4a excluded the provision of Art. 481 §2 of the Civil Code for commercial transactions, i.e. the provision establishing lower interest.
The above changes resulted in introduction of ordering amendments in the Act, and in consequence, in all commercial transactions, i.e. transactions with entrepreneurs on both sides, entities subject to public procurement law, freelancers, etc., the subject matter of which consists in supply of goods for consideration, or provision of service for consideration, if parties conclude such transactions in connection with the performed activity, statutory interest for delay in commercial transactions is applied, i.e. in the amount of 9.5% instead of 5%, as would result from the provisions of the Civil Code.

3. Interim provision

The Act contains an interim provision, which stipulates that the current provisions shall be applicable for commercial transactions within the meaning of the Act on Payment Terms in Commercial Transactions concluded before the date of entry into force of this Act (1 January 2016), as well as for transactions concluded as a result of procurement procedures pursuant to public procurement law initiated before 1 January 2016. In consequence, the new principles shall be applicable only for transactions carried out pursuant to agreements and proceedings initiated and concluded from 1 January 2016 onwards.
At the same time, the Act indicates that the current provisions shall be applicable for interest due for the period ending prior to the date of entry into force of this Act, which means that starting from 1 January 2016, in transactions other than commercial, interest shall be charged in line with the new principles, even if the agreement was concluded prior to that date.

II. The Code of Civil Proceedings

The changes from 1 January 2016 also concern the Code of Civil Proceedings, the amendment of which was contained in the Act of 10 September 2015 amending certain acts to support amicable methods of dispute settlement. To a large extent, these changes concern the provisions stipulating obligations of the court and mediator and are intended to make mediation a more frequently and willingly applied means for resolving a case (e.g. Art. 10, 1832, 1833a, Art. 1838 and Art. 1839). However, the amendment also includes modification of provisions concerning parties and their proxies, and therefore it creates new obligations, which are worth remembering.

In particular, a significant change was introduced in the provision of Art. 187 §1 of the Code of Criminal Procedure, i.e. with reference to formal requirements of a suit, where Item 3 was added). From 1 January 2016, apart from precise determination of the demand and value of the object of dispute, quoting factual circumstances and all elements required for a lawsuit document, a suit must also contain ‘the information whether the parties attempted to mediate or resolve the dispute in a different, non-judicial manner, and in the case when no such attempts were undertaken, also explanation of the reasons of a failure to undertake such attempts'. The lack of this element shall likely cause a call for removing formal irregularities in the suit, or else it shall be returned.

Demonstration that the proxies of the parties tried to 'settle the issue' at the pre-court stage, or at least that one of the parties undertook such attempts with the participation of their proxy, may also prove to be important and worth mentioning in the context of the amendment of Art. 109§2 of the Code of Criminal Procedure, which currently reads as follows: '§ 2. When deciding about the cost of court proceedings awarded to a party, the court shall take into account the purpose of incurred costs, as well the need of incurring such costs due to the character of the situation. When determining the amount of costs incurred by the party represented by the proxy who is an attorney, legal adviser or patent attorney, the court shall take into account the necessary amount of labour of the proxy, as well as the activities undertaken by the proxy in the case, including the activities undertaken in order to settle the dispute amicably, also before filing a suit, as well as the character of the situation and involvement of the proxy in its clarification and resolution.' The lack of any attempts to settle the dispute amicably shall then likely constitute a negative premise for awarding the reimbursement of legal representation costs at a rate higher than minimum.

For the record, it shall be emphasized that promotion of amicable dispute settlement also caused implementation of changes in the field of proceedings before the arbitration court. The amendment contains an interim provision, according to which the current provisions shall be applicable for the proceedings initiated but not completed before the date of entry into force of this Act, and therefore the courts shall not call for completion of suits filed before 1 January 2016.

Publication date: February 8, 2016, author: Małgorzata Tokarska - Piech - Legal Adviser

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