Transparency of the Regulatory System
The Polish Constitution contains a number of provisions related to administrative law and procedures. It states administrative bodies have a duty to observe and comply with the law of Poland. The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decision, and forms of appeal and review.
As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation. Rule-making and regulatory authority exists at the central, regional, and municipal levels. Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Entrepreneurship and Technology. Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.
Polish accounting standards do not differ significantly from international standards. Major international accounting firms provide services in Poland. In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied. However, investors have complained of regulatory unpredictability and high levels of administrative red tape. Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment. Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.
Poland has improved its regulatory policy system over the last years. The government introduced a central online system to provide access to the general public to regulatory impact assessment (RIA) and other documents sent for consultation to selected groups such as trade unions and business. Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations. Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem. Participation in public consultations and the window for comments are often limited.
New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation. Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making. The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem. OECD considers steps taken to introduce ex post evaluation of regulations encouraging.
Bills can be submitted to the parliament for debate as “citizen’s bills” if authors can collect 100,000 signatures. NGOs and private sector associations most often take advantage of this avenue. Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized. Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.
Administrative authorities are subject to oversight by courts and other bodies (e.g., Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsman, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees. Polish Parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads. Committees’ oversight of administrative matters consists of: reports on state budgets implementation and preparation of new budgets, citizens’ complaints, and reports from the external audit agency (NIK) reports. In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention. The Ombudsman’s institution works relatively well in Poland. Polish citizens have a right to complain and to put forward grievances before administrative bodies. Proposed legislation can be tracked on the Prime Minister’s webpage, http://legislacja.rcl.gov.pl/ and Parliament’s webpage: http://www.sejm.gov.pl/Sejm8.nsf/proces.xsp
Poland has consistently met or exceeded the Department of State’s minimum requirements for fiscal transparency: https://www.state.gov/e/eb/ifd/oma/fiscaltransparency/273700.htm. Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online. The budget was substantially complete and considered generally reliable. Poland’s supreme audit institution (NIK) audited the government’s accounts and made its reports publicly available, including online. The budget structure and classifications are complex and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures. State budget encompasses only part of the public finances sector. In 2018, Poland continued its work to reform the budgetary process to increase the effectiveness and efficiency of spending and to simplify the budget structure. The completion of the first stage of these efforts is expected by the end of 2019.
International Regulatory Considerations
Since Poland’s EU accession (May 2004) Poland has been transposing European legislation and reforming its regulations in compliance with the EU system. Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry.
In 2018, Poland saw significant increases in wholesale electricity prices due largely to an increase in the price of coal and EU emissions permits. The government’s initial plans of proposing a new law to protect household consumers from rising electricity prices put it at odds with the European Commission (EC) for the lack of notification of what amounted to state aid measures before they took effect. The Polish energy market regulator (URE) also criticized the proposed bill for household power bills not reflecting the market rate and claimed the proposed law threatened URE’s independence.
Poland participates in the process of creation of European norms. There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization. In areas not covered by the European normalization the Polish Committee for Standardization (PKN) introduces norms identical with international norms i.e., PN-ISO and PN-IEC. PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN is a member-founder of International Organization for Standardization (ISO) and a member of International Electro-technical Commission (IEC) since 1923.
PKN also cooperates with ASTM International (American Society for Testing and Materials) (ASTM) International and the World Trade Organization’s WTO Agreement on Technical Barriers to Trade (WTO/TBT). Poland has been a member of WTO since July 1, 1995, and was a member of GATT since October 18, 1967. All EU member states are WTO members, as is the EU in its own right. While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs. PKN runs the WTO/TBT National Information Point in order to apply the provisions of the Agreement on Technical Barriers to Trade with respect to information exchange concerning national standardization.
Legal System and Judicial Independence
During the year the government continued to implement and introduce new measures related to the judiciary that drew strong criticism from some legal experts, NGOs, and international organizations. Some observers have criticized in particular the introduction of an extraordinary appeal mechanism in the recently enacted Supreme Court Law, which they believe could affect economic interests, in that final judgments issued since 1997 could be challenged and overturned in whole or in part over the next three years, including some long-standing judgments on which economic actors have relied. As of February 6, 2019, the Justice Minister has submitted five extraordinary complaints to the Chamber. The first complaints are to be reviewed on April 3.
In December 2017, the European Commission triggered a disciplinary proceeding under Article 7 of the Lisbon Treaty for what it considered “systemic threats” to the independence of the Polish courts. The key concerns focused on the Polish government’s ability to remove up to 40 percent of the Supreme Court’s judges and the justice minister’s power to discipline judges. Separately, the Commission has sought redress through the European Court of Justice.
In April and May 2018, the Polish President signed into law amendments to the common courts law, the National Judiciary Council law, and the 2017 amendments to the Supreme Court law in response to the December 2017 European Commission rule of law recommendation and infringement procedure. In December 2017, the European Commission triggered a disciplinary proceeding under Article 7 of the Lisbon Treaty for what the Commission considered determined to be “systemic threats” to the independence of the Polish courts. The key concerns focused on the Polish government’s ability to remove up to 40 percent of the Supreme Court’s judges and the justice minister’s power to discipline judges. Separately, the Commission has sought redress through the European Court of Justice. The Polish government has countered that its reforms do not infringe judicial independence and are intended to make court operations more efficient and transparent.
On July 2, 2018, the European Commission launched an infringement procedure against Poland two days before provisions of the revised Supreme Court law lowering the mandatory retirement age for judges went into effect (affecting 27 of the 74 Supreme Court justices at that time). On August 2, 2018, the Polish Supreme Court ruled to suspend further implementation of the mandatory retirement age provisions of the amended Supreme Court law, and requested that the European Court of Justice rule on whether these provisions comply with EU law. The Polish President Andrzej Duda refused to acknowledge the Supreme Court’s suspension of the mandatory retirement provisions. On September 24, the European Commission referred the country’s amended Supreme Court law to the European Court of Justice (ECJ), stating “the Polish law on the Supreme Court is incompatible with EU law as it undermines the principle of judicial independence, including the “irremovability” of judges.” The European Commission asked the ECJ to review the law and order interim measures to restore the Supreme Court to its composition before the revised law was implemented. In September and October, the president continued to implement the amended Supreme Court law by appointing judges to the newly created disciplinary and extraordinary appeals chambers and to positions vacated by voluntarily retired judges. Some judicial experts, NGOs, and international organizations saw the Polish President’s appointments as an attempt to preempt any adverse ruling by the ECJ. On October 19, the ECJ issued an interim injunction requiring the government to reinstate those judges who had been retired under the amended law. On November 19, the government submitted legislation to automatically reappoint all justices retired under the Supreme Court law to fulfill the ECJ’s interim measures, and President Duda signed the legislation into law on December 17. By the end of 2018, the ECJ had not announced a date for considering the European Commission’s case against Poland’s Supreme Court law.
The Polish legal system is code-based and prosecutorial. The main source of the country’s law is the Constitution of 1997. The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory. Poland accepts the obligatory jurisdiction of the International Court of Justice (ICJ), but with reservations. In civil and commercial matters first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels. District Courts (Sad Rejonowy) handle the majority of disputes in the first instance. When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as in intellectual property right matters), Circuit Courts (Sad Okregowy) serve as first instance courts. Circuit Courts also handle appeals from District Court verdicts. Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.
The Polish judicial system generally upholds the sanctity of contracts. Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized. However, there are many foreign court judgments which Polish courts do not accept or accept partially. One of the reasons for delays in the recognition of judgments of foreign courts is an insufficient number of judges with specialized expertise. Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights. Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration (More detail in Section 4, Dispute Settlement)
Laws and Regulations on Foreign Direct Investment
Foreign nationals can expect to obtain impartial proceedings in legal matters. Polish is the official language and must be used in all legal proceedings. It is possible to obtain an interpreter. The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code. The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships, professional partnerships). These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.
With few exceptions, foreign investors are guaranteed national treatment. Companies that establish an EU subsidiary after May 1, 2004, and conduct, or plan to commence business operations in Poland must observe all EU regulations. However, in some cases they may not be able to benefit from all privileges afforded to EU companies. Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company. Parties can freely determine the content of contracts within the limits of European contract law. All parties must agree on essential terms, including the price and the subject matter of the contract. Written agreements, although not always mandatory, may enable an investor to avoid future disputes. Civil Code is the law applicable to contracts.
Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:
Competition and Anti-Trust Laws
Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty. Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK. This is set to change to be in line with EU norms in 2019 with implementation of EU directive 2019/1.
All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland.
Examples of competition reviews can be found at:
In 2015, the President of UOKiK was granted the power to impose significant fines on people in management positions in companies that violate the prohibition of anticompetitive agreements. The recently adopted amendment to the law governing UOKiK’s operation, which entered into force on December 15, 2018, provides for a similar power to impose significant fines on the management of companies in the case of violations of consumer rights. The maximum fine that can be imposed on a manager may amount to PLN 2 million (approx. USD 526,000) and, in the case of managers in the financial sector, up to PLN 5 million (approx. USD 1.32 million).
Expropriation and Compensation
Article 21 of the Polish Constitution states: “expropriation is admissible only for public purposes and upon equitable compensation.” The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest. The government must pay full compensation at market value for expropriated property. Acquiring land for road construction investment and recently also for the Central Airport and the Vistula Spit projects has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act. Most acquisitions for road construction are resolved without problems. However, there have been a few cases in which inability to reach agreement on remuneration has resulted in disputes. Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.
ICSID Convention and New York Convention
Poland is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention). Poland is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
Poland is party to the following international agreements on dispute resolution, with the Ministry of Finance acting as the government’s representative: The 1923 Geneva Protocol on Arbitration Clauses; The 1961 Geneva European Convention on International Trade Arbitration; The 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation Claims under the U.S.-Poland Bilateral Investment Treaty (BIT) (with further amendments).
The UNCTAD database lists four cases involving a U.S. party. The majority of Poland’s investment disputes are with other EU member states. According to the UNCTAD database, over the last decade, there have been some 19 known disputes with other foreign investors.
There is no distinction in law between domestic and international arbitration. The law only distinguishes between foreign and domestic arbitral awards for the purpose of their recognition and enforcement. The decisions of arbitration entities are not automatically enforceable in Poland, but must be confirmed and upheld in a Polish court. Under Polish Civil Code, local courts accept and enforce the judgments of foreign courts, however, in practice; the acceptance of foreign court decisions varies. Investors say the timely process of energy policy consolidation has made the legal, regulatory and investment environment for the energy sector uncertain in terms of how the Polish judicial system deals with questions and disputes around energy investments by foreign investors, and in foreign investor interactions with state owned or affiliated energy enterprises.
A Civil Procedures Code amendment in January 2016 implements internationally recognized arbitration standards, and creates an arbitration-friendly legal regime in Poland. The amendment applies to arbitral proceedings initiated on or after January 1, 2016, and introduced one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings). This change encourages mediation and arbitration to solve commercial disputes and aims to strengthen expeditious procedure. The Courts of Appeal (instead of District Courts) handle complaints. In cases of foreign arbitral awards, the court of appeal is the only instance. In certain cases it is possible to file a cassation (or extraordinary) appeal with the Supreme Court of the Republic of Poland. In the case of a domestic arbitral award, it will be possible to file an appeal to a different panel of the Court of Appeal.
International Commercial Arbitration and Foreign Courts
Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedures of 1964, as amended, is based to a large extent on UNCITRAL Model Law. Under the Code of Civil Procedure, an arbitration agreement must be concluded in writing. Commercial contracts between Polish and foreign companies often contain an arbitration clause. Arbitration tribunals operate through the Polish Chamber of Commerce, and other sector-specific organizations. A permanent court of arbitration also functions at the business organization Confederation Lewiatan in Warsaw and at the General Counsel to the Republic of Poland (GCRP). GCRP took over arbitral cases from external counsels in 2017 and began representing state-owned commercial companies in litigation and arbitration matters for amounts in dispute over 5 million zloty (approx. USD 1.5 million). The list of these entities includes major Polish state-owned enterprises in the airline, energy, banking, chemical, insurance, military, oil and rail industries as well as other entities such as museums, state-owned media, and universities.
In 2018, the Court of Arbitration at the Polish Chamber of Commerce in Warsaw, the biggest permanent arbitration court in Poland, adjusted its arbitration rules to the latest international standards, implementing new provisions on expedited procedure. In recent years, numerous efforts have been made to increase use of of arbitration in Poland. Polish state courts generally respect the wide autonomy of arbitration courts and show little inclination to interfere with their decisions as to the merits of the case. The arbitral awards are likely to be set aside only in rare cases. As a rule, in post-arbitral proceedings, Polish courts do not address the merits of the cases decided by the arbitration courts. An arbitration-friendly approach is also visible in other aspects, such as in the broad interpretation of arbitration clauses.
On April 3, 2018, the Polish Supreme Court introduced a new legal instrument into the Polish legal field: an extraordinary complaint. Although this new instrument does not refer directly to arbitration proceedings, it may be applied to any procedures before Polish state courts, including post-arbitration proceedings (see Section 3 for more details).
Poland’s bankruptcy law has undergone significant change and modernization in recent years. There is now a bankruptcy law and a separate, distinct restructuring law. Poland ranks 25 for ease of resolving insolvency in the World Bank’s Doing Business report 2019. Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time, or if a company ceases to pay its liabilities. https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings