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Anna Smagowicz-Tokarz

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The act of 4 July 2019 which amended the Code of Civil Procedure and certain other acts has introduced a number of changes concerning the costs of litigation incurred by the parties to the proceedings. As part of the changes, not only have the fixed fees increased, but also the method of calculation of a filing fee has changed, and a provision has been added to regulate the fee for extending the claim.

The only legitimate basis for exempting the parties from the costs of proceedings is proving that the parties do not have sufficient funds to cover the costs. This should be understood as a permanent inability of a natural person, legal person, another organisational unit which is not a legal person but with legal capacity, to obtain money for meeting the statutory obligation to pay all or part of litigation costs (see the decision issued by the Supreme Court dated 18/01/2013, file no. IV CZ 144/12). In the case of natural persons, the lawmakers oblige them also to prove that the subsistence necessary for them and their families is or is at risk of being compromised.

Exemption criteria

As far as the exemption of legal persons is concerned, it needs to be noticed that the previous wording of Article 103 of the Act on Court Fees in Civil Lawsuits described the criteria for the exemption rather tersely. Pursuant to that old wording, the court could exempt a legal person from the costs of litigation if that person proved that it did not have sufficient funds to pay them. Due to the vague and imprecise wording it was left entirely up to the court whether to acknowledge the application for exemption on the basis of the attached documents (evidence) or whether they were insufficient to grant the exemption. With the provision formulated in this way the parties could freely decide how to prove the lack of funds for covering the costs of the proceedings. The type of the evidence depends on the type and nature of the legal person applying for the exemption, as well as on the specific background and financial standing of that person. The parties evidenced the insufficient funds, among other things, by presenting their financial documents (such as a balance sheet), bank statements or notices from court enforcement officers about initiation of enforcement proceedings.

What is important for many enterprises, the amended act has introduced additional requirements which legal persons must meet to be exempt from the costs of litigation. This is supposed to limit the number of exempt entities to those which are really unable to incur the costs, as well as to limit the number of filed applications already at the stage of their first-instance verification.

Companies and partnerships

The amended act obliges also enterprises, and namely companies and partnerships, to prove that their partners or shareholders do not have sufficient funds to increase the company’s equity (i.e. their contributions to the company – additional contributions or issue of new shares) or to grant a loan to the company (Article 103(2) Act on court fees). It should be emphasised that that requirement does not apply to companies wholly owned by the State Treasury.

As follows from the statement of reasons behind the draft amended act, the practice of courts regarding the exemption from court fees, especially commercial courts, is insufficient to identify the exemption criteria for commercial companies. The legislators indicate that while a company/partnership may not have sufficient funds or assets to pay the court fees, its shareholders or partners may. The lawmakers have concluded that if the shareholders/partners earn profits on the business activity, it seems reasonable to expect them to support the business in the payment of the court fees when the enterprise is facing difficulties (see the justification to the bill – Parliament paper no. 3137).

Loyalty and justice principle

The above reasoning seems correct, and through the loyalty and justice principle the lawmakers are right to link the partners and shareholders to the enterprise. Shareholders/partners have very often earned large profits for many years of the business operations, thus it seems reasonable to expect them to make additional contributions to the company when the situation is difficult.

Unfortunately, in the justification to the bill the lawmakers have not specified how to prove that the partners/shareholders do not have sufficient funds to increase the equity. We can only assume that the rules of hearing the evidence under Articles 227–234 Code of Civil Procedure should apply here, and so should the current approach of the judiciary in that respect. Bearing in mind the current case law, we should consider the risk connected with a lawmakers’ large interference into the privacy of the partners/shareholders. It may happen that in order to become exempt from the costs of proceedings they will have to disclose in too much detail of their financial standing (the requirement to submit bank statements, printouts from the mortgage registers showing the contracted and secured liabilities of the partner/shareholder). That is why it is so important to file the relevant documents from the shareholders/partners.

The above remarks do not apply when another company is a shareholder/partner in a company/partnership. Perhaps an interesting idea would be for the lawmakers to prepare a standard application for exemption from the costs of litigation, similar to the one filed by natural persons when they are to be exempt, in order to harmonise the requirements for evidencing the lack of options and means to finance the business.

If you would like to know more on the new amendment, our advisers will be happy to help you. Come and meet us in our offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw.

Adrian Cop

28.10.2019