International Arbitration updates – Spring 2010

01 May 2010

Czech Republic
Vladimir Nyc, Prague

Recent developments in regulation of arbitration clauses in consumer contracts in Czech Republic

The validity of arbitration clauses in consumer contracts has been the topic of recent discussion, in particular with regards to the implementation of EU Directive 93/13/EEC on unfair terms in consumer contracts under Czech law.  According to the Directive, such arbitration clauses are deemed completely invalid.  However, owing to improper implementation and the questionable translation of the Directive into Czech, it appears that such clauses are still permitted under Czech law and they remain commonly used.  It is imperative that when incorporating an arbitration clause into a consumer contract, the parties adhere to the wording of the Directive and avoid any Czech law provisions in this respect.

Furthermore, the Czech Supreme Court (earlier this year) published a landmark decision of the High Court in Prague on arbitration clauses which refer the disputes to private arbitration companies. The decision states that arbitration clauses are invalid if (i) the dispute is to be resolved by an arbiter nominated by a legal entity that is not a regular arbitration court established under the relevant laws of the Czech Republic, and (ii) the arbitration procedure is to be governed by rules set by that legal entity. The Court ruled that an arbitration role can not be performed by private companies. Despite this decision, this type of arbitration clause is still broadly used in consumer contracts in the Czech Republic.

Tom Vapaavuori, Helsinki

Finland arbitration update

International arbitration in Finland has a similar definition to that under Singapore law.  However, there is no precise legal definition of "international arbitration" in the Finnish Arbitration Act (967/1992, as amended, the "Act") or in local Finnish arbitration rules such as the rules of the Arbitration Institute of the Central Chamber of Commerce of Finland (the "Rules").

The Act contains provisions regarding acknowledgement and enforcement of foreign arbitral agreements and awards.  Such proceedings or awards are considered "foreign" when they take place outside of Finland.

Further, the Rules contain a provision regarding security for costs of arbitration proceedings when the proceedings are "of an international character".  The provisions of the Act and the Rules reflect the Finnish view that arbitration is international when one of the parties is a non-Finnish entity or the place of the arbitration or the award is outside of Finland and this is reflected in practice.

As in Singapore, an arbitration agreement must be made in writing and foreign arbitration awards are disregarded only in cases of serious breaches of due process. This would be the situation when the proceedings or the award are considered to be in contradiction with the fundamental principles of the Finnish legal system (the 'ordre public-principle').

Alexander Duisberg and Henriette Picot, Munich

New arbitration rules on corporate law disputes

In September 2009, the German Institution of Arbitration ("DIS") presented a new set of arbitration rules relating to corporate law disputes.  The new rules, which work as an optional supplement to the regular DIS Arbitration Rules, deal with arbitral proceedings on intra-corporate disputes regarding shareholder resolutions.   

The new rules reflect a recent decision by the German Federal Supreme Court ("BGH") regarding the "arbitrability" of disputes over shareholders resolutions in limited liability companies1.  In its decision, which reinforces the reasoning of an earlier decision of 19962, the BGH has confirmed that disputes regarding shareholder resolutions can be solved by arbitration, provided that the proceedings meet certain formal requirements.  This decision has put an end to the debate on whether an arbitration award, which typically only produces an inter partes effect, would apply to disputes on shareholder resolutions, taking into account that such disputes do not only affect the actual parties to the arbitration proceedings (i.e. the shareholders involved in the dispute and the company), but also any remaining shareholders of the company. 

In order to safeguard the legal interests of those shareholders not directly involved in the dispute, the BGH has decided that the rules of the arbitral proceedings must ensure that all shareholders, whether a party to the dispute or not, enjoy the same level of legal protection as in proceedings before an ordinary state Court.  In order to achieve this, the following requirements must be met:

all shareholders must have consented to the arbitration agreement;
all shareholders must be able to participate in the arbitration proceedings as well as influence the choice of the arbitration body; and
in order to avoid contradictory decisions, all claims relating to one and the same shareholder resolution are necessarily decided by one and the same arbitration body.
As a result of this decision, companies which have an arbitration clause in their Articles of Association are well advised to review the relevant clauses and amend them so as to reflect the formal requirements established by the BGH.  In addition to the new supplementary rules themselves, the DIS has also presented a sample arbitration clause to be included in a company's articles of incorporation.

The new rules are likely to be used broadly in practice, as disputes over shareholders resolutions are typically sensitive on confidentiality and time constraints as well as being potentially very complex.   Such disputes should therefore benefit from the advantages of arbitral proceedings including confidentiality, flexibility and a specifically chosen expert arbitration body.

The new set of supplementary rules stands in line with the DIS's continued efforts to further improve and facilitate arbitration proceedings in Germany. It was not until 2008 that the DIS launched another set of supplementary rules relating to fast track proceedings. This new procedural framework supports the expedited  finalisation of arbitral proceedings within a pre-determined period of time from commencement of arbitration proceedings, namely within six months in the case of a sole arbitrator or nine months in the case of an arbitration body of three arbitrators.

[1] Decision of 6 April 2009, ref. II ZR 255/08.
[2] Decision of 29 March 1996, ref. II ZR 124/95.

The Netherlands
Elvira Bergansius, The Hague

Dutch arbitration update

Like Singapore, The Netherlands use two forms of arbitration: domestic and international, both of which are governed by the Dutch Code of Civil Procedure (article 1020-1073) ("the Code").  As the Code applies to all arbitrations held in The Netherlands, the distinction between domestic and international arbitrations is of no relevance - it is the place of arbitration that is decisive.
In general, arbitration proceedings are faster and more informal than court proceedings and the specific expertise of the arbitrator can be a significant advantage over the Court process.  However one should bear in mind the variable rates charged by arbitrators, which are usually higher than the fixed registry fees applied by the Courts. Another downside of arbitration is that there is generally no right to appeal an award.

Kuba Ruiz, Warsaw

Written statements of witnesses before arbitration courts according to Polish law

Until recently there has been no consensus among Polish scholars, courts and legal practitioners on the admissibility of written witness statements in place of oral questioning at arbitration hearings.
Such practice is excluded in civil proceedings before Polish civil Courts.  This was confirmed by the Appellate Court in Warsaw which stated in a significant judgment of 7 January 2005 (case reference number: VI ACa 477/04) that written statements of facts by third parties cannot be regarded as evidence in the absence of the party making that statement.  Significantly, the Court underlined the fact that witness evidence should be in oral form.  Following the judgment, there was a risk that admitting written statements as evidence before an arbitration could be regarded as contrary to the fundamental public policy rules of the Republic of Poland (the public order clause).  According to Polish law, that would lead to a mandatory refusal of recognition and/or enforcement of any arbitral award grounded on such evidence.

At the latest conference on practical problems of arbitration in Poland organised by The Court of Arbitration at the Polish Chamber of Commerce in Warsaw, speakers argued strongly against the abovementioned approach. The main arguments were:

it is against international standards (see UNCITRAL Arbitration Rules, Article 25.5.; LCIA Arbitration Rules, Article 20.3 and 20.4; IBA Rules on the Taking of Evidence in International Commercial Arbitration, Article 4.4);
it is not time effective (it takes far longer to question witnesses at a hearing);
it does not help to gather any further useful evidence (usually the representatives for the parties and the arbitrator are prepared to engage in only limited questioning);
it reduces the parties' control over the proceedings and makes the proceedings less predictable.
The widely accepted conclusion was that there are no legal reasons to treat written statements of witnesses presented before arbitral tribunals as a violation of fundamental Polish rules on public policy.

Henrik Bielenstein and Maria Grufman, Stockholm

Emergency Arbitrator
On 1 January 2010, new rules on arbitration agreements came into force in the Stockholm Chamber of Commerce.  Under the new rules, a party to an arbitration agreement may request interim measures from an 'Emergency Arbitrator' before the case is referred to an Arbitration Tribunal or a Sole Arbitrator.

Examples of such interim measures are:

orders to maintain or restore the status quo;
orders to take action or refrain from taking action; and
orders to preserve evidence pending determination of the dispute.
It is too early to assess the impact of the new rules and whether they will prove useful.  However, the changes will be monitored closely by those with an interest in arbitration agreements.
The new rules can be viewed in full at the Stockholm Chamber of Commerce website here.

Sarah Walker and Dan Eliasson, London

Bird & Bird's arbitration expertise

The feature article by Boey Swee Siang and Naresh Mahtani shows the recent developments within the arbitration market that have taken place and illustrate why Singapore is such a growing centre for arbitration in Asia.

This is a very exciting time for Bird & Bird's International Arbitration Group as - with offices in both the PRC and Hong Kong the global team already has a significant arbitration offering in Asia. Naresh, Boey and their Singapore team working with Matthew Laight in PRC/Hong Kong offer clients expertise in two of these key arbitration centres.

Combining the recognised expertise of our London arbitration practitioners and other members of our arbitration team across our international offices with that of our new colleagues in Singapore gives Bird & Bird a unique ability to provide clients with sector focussed arbitration expertise across the world.  The relationship between Singapore and other offices is already enabling clients to receive seamless support across jurisdictions. Bird & Bird's strong links with India has led also to increased instructions in arbitration matters. This is of particular interest to Bird & Bird's clients doing business and contracts in this part of the world given India's rapidly growing economy, whose interest in arbitration in Singapore is predicted to grow in the coming years.  Bird & Bird can offer clients respected arbitration expertise in key Asian arbitration centres and the experience of handling disputes in relation to the key emerging markets of India and China.