There are a huge number of disputes in the Real Estate sector and each of them involves huge costs, not only financial, but also those associated with the threat for business relationships and company reputation. To a court proceeding which often lasts many years and introduces much uncertainty, which a company from this sector cannot afford, mediation is an excellent alternative.
Mediation can be initiated at any stage of a court proceeding
Approx. 15 mln cases are filed in courts each year out of which appox. 9 mln are civil cases and 1.5 mln are commercial cases. According to estimates, approx 3.8 mln disputes could be solved by means of mediation. Therefore it is particularly important for the legislator to encourage the parties to solve their disputes through mediation before filing a case in court or even during a court proceeding, as well as to ensure good quality mediation services. Entrepreneurs can also instigate solving the dispute out of court in a private centre with the help of a mediator who specialises in a particular industry and understands its nuances.
An entrepreneur does not conduct its business activity in order to go to court. Even a successful proceeding very often relates to frustration and tiredness after many years of fighting in court. Moreover, despite a favourable judgement, with an enforcement clause and decision on a debt collection proceeding, there may be problems with enforcing them. We should rememeber that currently courts are obliged to encourage to solve a dispute amicably at each stage of a proceeding.” – comments Ewelina Stobiecka, Attorney at Law, Managing Partner of Taylor Wessing in Warsaw, initiator and coordinator of the International Mediation Centre, as well as a member of the Commercial Law Think Tank at the Ministry of Development.
The most common grounds for conflict
The most common grounds for disputes are, of course, issues related to settlements where refund of a guarantee deposit or settlement of a particular stage of work, as well as issues related to the quality of work or deadlines. As regards commercial lease disputes, they are often related to the settlement of media costs and participation in costs of maintenance of common areas. A frequent field of conflict is also faults of the acquired properties, both legal and factual.
“Real Estate is an industry with a huge number of conflicts, though parties act in good faith, there are many situations where problems may arise. Conflicts are usually caused by irregularities in the performance of obligations arising from the concluded agreements between the parties, which may be construction contracts, commercial lease agreements and also purchase or sale of property agreements. Therefore we should not leave any field open to conflict and we need to forsee any possibilities in a contract, as well as use mediation clauses in all contracts.” - comments Grazyna Kuzma, Attorney at Law, Partner Taylor Wessing Warsaw, co-author of “Construction Law and Real Estate” (CH Beck).
Willingness to amicably solve future disputes may already be expressed at the stage of concluding an agreement, when emotions are positive and a dispute has not yet arisen. It is adequate to include a mediation clause in an agreement which is a preventive measure and provides for a fast and more cost effective dispute resolution.
Grażyna Kuźma underlines that, “When there is a conflict it is worth performing a short calculation and evaluate two factors i.e. high cost and time consuming in a court proceeding versus low cost and much shorter time in a mediation proceeding. Longstanding court proceedings are always more or less destructive for both parties. However mediation offers an opportunity to solve the dispute where huge risks are not being taken and the benefits are significant.”
“Entrepreneurs very often complain about the negative attitude of the public sector to use mediaiton. Very often, when conflicts appear, some psychological obstacles appear such as fear to make a decision on a settlement with a particular financial level and potential responsibility for this decision.” – adds Ewelina Stobiecka.
It can be better thanks to the Act
The most important changes which came into force on 1st January 2016 may include the obligation to inform in a law suit to attempt to amicably solve a dispute before going to court. If a plaintiff does not make such an attempt, he/she should explain the reasons why mediation is not a viable solution. Judges are also obliged to encourage mediation at every stage of the court proceeding.
“Changes are related to three aspects; namely procedural, economic and tax. One of the key factors for business is the fact that among the new solutions are tax incentives. The Act introduces a series of amendments in a civil procedure including court costs i.e. costs of mediation conducted as a result of a court order which can be included into the court expenses.” - informs Ewelina Stobiecka.
Exemplary Mediation Clause
“Any dispute which results from such an agreement or which is connected, can be settled amicably by the International Mediation Centre at the International Chambers of Commerce in Poland. If the parties cannot reach a settlement through a mediation proceeding within 60 days from filing the motion for mediation or other term agreed in writing by the parties, both parties can file a case in the appropriate court.”
Parties: a developer and an architectural design studio
Amount In Dispute PLN 1 200 000
Short description of the matter, including the reached settlement:
The parties concluded an Agreement on the fit-out and design of a new retail project i.e. a shopping centre in a Polish city. The value of the agreement in relation to the whole shopping centre totalled PLN 6 000 000.
Due to the macro-economic situation, the developer had to stop the investment process and terminate the agreements with the contractor. The contractor i.e. the architectural design studio had already generated some costs as a result of the performed design work which was valued at PLN 1200 000.
The architectural design studio demanded payment for the already performed work, however the developer claimed that the work had not been finished and that the whole investment had to be stopped because of the poor financial situation. The parties were at loggerheads.
The agreement between the parties for disputes provided arbitration, which, after the initial calculations, would incur additional costs amounting to approximately USD 60 000. An arbitration clause, included in the agreement, blocked the parties before claiming their rights in a court proceeding. Therefore the parties decided to use out of court dispute resolution methods namely mediation.
As a result of the mediation proceeding, the parties reached a settlement in which they agreed that the developer will pay a substantial portion of the remuneration for the performed work to the architectural design studio and for the architectural design studio to reduce some additional costs and interest related to this claim. The due payments were planned according to a schedule convenient for both parties and assuring that the developer who was in a difficult financial situation could fulfill its liabilities.
The parties decided to confirm the settlement in court and they filed a petition for the issuance of a summons to a conciliation hearing which cost just PLN 40. The hearing took place within a few days, during which the parties officially approved the settlement.
This case is also an example of how mediation effectively reduces the costs of a court proceeding. The cost of this arbitration proceeding which was USD 60 000 was reduced to PLN 40 which was paid in relation to the court motion for the court hearing during which the settlement was approved.