81-381 Gdynia, ul. Świętojańska 118/9
tel. + 48 504 628 929

Arbitration - pros and cons

Arbitration is often presented as an alternative to state courts - its alleged advantages include speed of proceedings, lower costs and the ability to hear the case by experts in a given field. In practice, however, the decision to submit a dispute to an arbitration court must be carefully considered - apart from the advantages described above, there may also be pitfalls that can greatly complicate the situation of the entrepreneur.
Many entrepreneurs often use standard contracts containing an arbitration clause, not fully aware of the legal consequences of such a clause. Meanwhile, a poorly formulated, too general or ill-considered arbitration clause - already at the initial stage of the dispute - may be a source of problems and make it difficult to pursue the claim.
First, if a case is brought before a Polish state court, an arbitration clause may result in the state court rejecting the claim for formal reasons (lack of jurisdiction of the Polish court). Of course, the rejecting of the claim is open to challenge, the case does not create the state of res iudicata, but at this stage the entrepreneur risks forfeiting his court fee, and he will have to pay the opponent the costs of the trial for the case before the state court. In addition, there is the risk of the entrepreneur becoming involved in an arbitration matter that he did not plan and the possible limitation of the claim in the event that all this legal confusion lasts too long.
It may also happen that a party may wish to refer the matter to arbitration, but does not first check whether the arbitration clause meets the formal conditions for its validity (under Polish law the arbitration clause requires written form, also understood here as an exchange of e-mails, faxes, etc.) or whether the signatory was authorized to enter into such a clause (a written power of attorney is obligatory). Deficiencies in this respect may lead either to the arbitration court considering itself incompetent to conduct the case, or - in the longer term - to the annulment of the arbitration award. Time and financial losses are also a certainty here.
An additional problem is often the enigmatic wording of the arbitration clause. The Polish Code of Civil Procedure requires that the arbitration clause indicate only the subject of the dispute or the legal relationship from which the dispute has arisen or may arise. Other additional provisions are not mandatory. Thus, if there is an arbitration clause with such a minimum content, the matter will be heard by ad hoc arbitration (i.e. appointed solely for that particular case). In other words, the burden of organizing the entire arbitration will be on the party initiating the arbitration with very little control over the actions of such court.
While the selection of the composition of the arbitration panel should not be a problem (it is clearly regulated in the Polish Civil Procedure Code - each party appoints its arbitrator, and the arbitrators selected by the parties appoint a super-arbitrator - the chairman of the panel), the procedure used by such arbitration and the costs of the proceedings are completely beyond control of any party. The arbitration panel in ad hoc arbitration is not bound by the provisions of civil procedure or the provisions on court fees, nor - as in the case of permanent arbitration courts - the rules of procedure before such a court or the table of costs, which can be consulted in advance. Additionally, anyone can be appointed as an arbitrator (except judges of state courts).
In addition, arbitration proceedings under Polish law are by default one-instance (two-instance arbitration requires an express agreement between the parties). Of course, a party dissatisfied with the award may file a petition to the state court to set aside the arbitration award. However, this complaint may be based only on a closed list of charges - mainly formal and concerning the validity and effectiveness of the conclusion of an arbitration clause or the appointment of arbitrators. However, the state court will not have the power to consider, for example, a breach of substantive law or incorrect findings of fact made by an arbitration court, which may happen in the same way as in any other court proceeding.
Bearing in mind the above, every entrepreneur considering resorting to arbitration should ask themselves whether they want their case to be heard by an arbitration court, and if so, should they formulate their arbitration clauses used in the contract in such a way that such proceedings would be carried out in a predictable manner and consistent with criteria that the party considers important.
Recommended solution is to submit a possible dispute to some permanent arbitration court that has established rules of procedure and rules of costs (permanent arbitration courts have their model arbitration clauses), another - a detailed formulation of ad hoc arbitration rules in such a way that such key elements as the place of proceedings , language, costs, and rules of procedure before the court have been clearly established (it is enough to refer to the existing and practical rules - e.g. ICC rules). In other words, the decision as to whether and how to use arbitration should be an informed and deliberate decision - otherwise, it may be a source of frustration, additional legal complications and costs.