In safe hands

Almost two decades after the successful introduction of economic reforms, Poland has transformed itself from a sluggish centralised economy to one of Europe’s most successful economies, with an annual growth rate often exceeding six percent.

Kubas Kos Gaertner specialises in comprehensive legal services for commercial entities and has years of many experience assisting Polish companies within Poland as well as foreign enterprises setting up shop there.

The New Economy: You have a very strong position on the Polish market of legal services. Could you let us know what are your strengths that brought you to win Best Dispute Team Poland 2008 award as well as the latest ranking of  the largest Polish business daily Gazeta Prawna in the category of the medium-sized law firms?

Kubas Kos Gaertner Associates: Despite our medium size, we are one of the leading Law Firms in these sectors, which we see as our specialisations. KKGA’s case profile enables us to offer our clients solutions which are legally effective and have already been put in practice, both inside and outside the courtroom. As opposed to other law firms which only deal with out of court matters, we are very aware of the real effectiveness of the applied legal instruments and this ensures that our work is very business oriented.

What is also important is that our work is characterised by a high standard of organisation, frequent and clear communication with the client, as well as creation of a foreseeable timeframe and a reasonable fee for all the rendered services.

The rules of cooperation with our clients are very flexible thanks to our limited size; KKGA employees are able to carry out their tasks all over Poland and also abroad, through leading local lawyers that we cooperate with, depending on the client’s needs. Building our network of cooperating overseas lawyers we focus on central and east European leading national law firms.

TNE: As we can see you are able to successfully compete with the largest firms in the given sector, proving that contrary to Marx’s saying – quantity does not always guarantee quality.Talking about your employees, could you highlight how the KKGA team has been built?

KKGA: As a company, KKGA’s origins date back to 1995, when Professor Andrzej Kubas, KKGA’s Senior Partner, co-founder and also one of the most eminent civil law scholars in Poland, set up the law office. The team of KKGA partners is currently comprised entirely of his former students.

Thanks to the long-term cooperation with the Faculty of Law at the Jagiellonian University, the oldest and most prestigious lawyer training university in Poland, KKGA has the possibility of selecting the best Law Faculty graduates to join its ranks as part of a scholarship programme which it runs in cooperation with the University.

Presently, the KKGA team consists of almost 50 lawyers from the Warsaw and Krakow offices, the vast majority of whom are experienced attorneys at
law, legal counsels and trainee attorneys at law with several years of experience.

TNE: Can you briefly give some general information about the kind of cases you have worked on in recent years?

KKGA: At present, we ensure comprehensive legal services for Deutsche Bank PBC, while our list of steady clients includes: BRE Bank Hipoteczny, GATX Rail Poland, Grupa Lotos, Gerda group and PLIVA Kraków Zaklady Farmaceutyczne. KKGA represents, among others, companies from the Deutsche Telekom group in the dispute against Vivendi Universal on the share rights in Polska Telefonia Cyfrowa before Polish courts.

KKGA has also conducted many precedent-setting transactions, including the delisting of Deutsche Bank PBC from the Warsaw Stock Exchange or the squeeze-out procedure of the minority shareholders of the bank.

TNE: Litigation is one of strong fields of KKGA practice. Could you describe what kind of general problems are faced by foreign entities and investors involved in litigation in Poland?

KKGA: The basic issue is the time of duration of judicial proceedings. It follows from the European Commission’s reports that Poland ranks among the countries with the longest time of pursuing claims, in Poland the average time of duration of proceedings from the lodgement of a statement of claims to the enforcement of the claim is more than 800 days!

This necessitates the securing of personal interests already at the contracting stage, so that if a dispute arises, the necessity of recourse to full judicial proceedings is limited, or, alternatively its separate, faster modes are employed. Frequently, simple solutions allow us to entirely prevent the need for court action in order to pursue undisputed claims or to use qualified documents which constitute a cheaper and faster way of pursuing claims in the so-called proceedings by writ of payment.

TNE: How can foreign enterprises guard against the possibility of litigation in Poland?

KKGA: The possibilities are vast; however, we should confine ourselves to listing only the most important ones. In the first order, it must be remembered that after the last change of Polish provisions regulating arbitration, the scope of disputes which can be submitted to arbitration, including foreign arbitration, has been broadened. Presently, almost all property disputes with participation of entrepreneurs from Poland may be submitted to settlement by arbitration courts abroad, both permanent and those established ad-hoc. Poland, as a NYC signatory, in principle is under the obligation to recognise such awards quickly. Such a verdict, upon its recognition or establishment of its enforceability, acquires the force equal to that of judgements of Polish state courts.

Such a situation means that foreign investors, almost in each situation, enjoy the possibility of negotiating an arbitration clause which renders it impossible for Polish adversaries to sue them before a Polish judicial forum. However, the devil is in detail, thus in such a situation, the key issue is utmost care and diligence applied in negotiating provisions pertaining to the law applicable for a clause, the law applicable for the subject of a litigation, the court competent to decide such disputes as well as the correct definition of the scope of disputes which may arise from an agreement and which are to be submitted to arbitration.

TNE: So what are the most important steps foreign enterprises need to take to make sure contracts in Poland are suitable and will prevent the possibility of legal disputes?

KKGA: An entrepreneur willing to minimise risk thanks to the conclusion of appropriately formulated contracts has two fundamental instruments at disposal: a contractual allocation of risk onto a contractor and a contractual limitation of liability.

The first of these elements is worth taking advantage of, by concluding an agreement which entails unusual but predictable types of risk, especially of substantial financial consequences. Let us imagine that an entrepreneur concludes an agreement with a company that undertakes to construct an office building.

Although he knows the location of the new seat, he does not know what the under-surface land conditions are and what their influence on the object under construction shall be. In this situation, the entrepreneur should take care to transfer the risk related to the unknown land conditions onto the general contractor.

In turn, the second instrument – a contractual limitation of liability – is of particular significance when the so-called damage potential, also known as a negative contractual interest, many times exceeds the sum of remuneration or the so-called positive contractual interest.

The limitation of the entrepreneur’s liability in the contract lowers the risk of liability if the project is not completed. If an architect designs a building for $1m, construction costs $2m and the completed building could be sold for $3m, the level of damages for errors could potentially exceed the architect’s fee many times over.

On the other hand, in the described situation, the investor should place the risk of occurrence of design errors onto the general contractor, imposing thereon the duty to check the project. That means the architect and the investor need to be protected.

TNE: The principal legal act governing business activity in Poland is the Economic Freedom Act of July 2nd, 2004, which regulates undertaking, running and closing businesses in Poland. Can you briefly outline some of the most important aspects of this Act?

KKGA: The Act is based on the principle “what is not forbidden by the law, is allowed”. According to the Act, foreign entities from the European Union can conduct business in Poland based on the same principles as Polish citizens. The Act stipulates a simple business registration procedure.

Furthermore, it will soon be possible to take care of all application and registration procedures in one office through the submission of forms in an electronic format. The act stipulates a small number of business activities subject to licensing.

The lack of necessity to obtain permits for running a business is the rule, regulated activities may be taken up upon the fulfilment of specific conditions determined by appropriate provisions of the law and obtainment of an entry in the regulated activities register.

TNE: Poland’s tax regime is generally said to be well set up to attract investment. Can you give some examples of why the tax regime is beneficial to foreign investors?

KKGA: The Polish tax system is undergoing gradual reform, the objective of which is the simplification and lowering of taxes, and in effect its formation in a manner that will encourage investment in Poland. The basic corporate income tax rate is set up on a quite law level of 19 percent.

The government offers investors various forms of state aid and investment incentives in 14 special economic zones (SEZs). Those incentives include income tax exemption, real estate tax exemption, and competitive land prices.

Most of the SEZs offer income tax exemption of the maximum value, equal to 50 percent of the investment expenditure. In other words, the annual corporate income tax due is reduced by 50 percent of investment expenditure. In the case of small entities, the maximum exemption is 70 percent of the investment expenditure.

TNE: Can you explain why the organisation of a business in Poland – the “building of optimal organisation structures” – is so crucial in terms of complying with regulations and legislation?

KKGA: The organisation of a business in Poland, so-called “the building of optimal organisation structures”, is one of the most crucial business decisions in terms of complying with regulations and legislation.

The choice of an appropriate legal form for a business is a decision that could influence whether legal issues might hinder the development of the enterprise and later become an obstacle to its transformation into another organisational form.

When deciding on the best legal form for an enterprise, investors must consider the core purpose of the business as well as the best way of allowing maximisation of profits while limiting the personal liability of senior executives.

Nowadays in Poland, increasingly, companies are of hybrid nature, combining advantages of both legal forms while eliminating the risks attached to both. A good example of this is a GmbH & Co. company, whose founders are not liable for its obligations.

We can see that Poland as the heart of continental Europe can be very attractive to the foreign investors and entrepreneurs. We should mention that Poland is among the countries that the global financial crisis had only limited influence on their situation.

It needs to be highlighted that the sub-prime market has never existed in Poland and banks do not possess a portfolio of bad credits that could threaten their liquidity, economy is stable and its growth is predicted despite of the global crisis.