A short history of arbitration in Poland
The advantages of arbitration were recognised in Poland as early as the 1930s, as modern arbitration bloomed throughout Europe. The 1933 Code for Arbitration Courts stated at that time that:
"[i]f state courts try cases in a lengthy manner, regardless of the fact whether because of unfit and outdated procedure or because there are too few judges or because litigation before the state court is too costly, then the parties are, in some measure, forced to avoid such state courts and to submit their disputes to arbitration courts."
During World War II and in the period of Communist rule that followed, the role of arbitration in Poland became far less prominent. However, since the re-establishment of the free market economy in 1990, the number of commercial disputes has increased rapidly and consequently the demand for arbitration has become greater then ever. Arbitration has once again become "fashionable" in Poland, with many Polish enterprises (both state-owned and private) preferring to arbitrate rather than litigate.
Today, Polish arbitration law is based on the UNCITRAL model and as such does not differ too much from the relevant laws of other European countries. Currently, there are approximately 22 courts of arbitration operating in Poland. The Court of Arbitration at the Polish Chamber of Commerce was established in 1950, and deals with in the region of 400 to 500 cases every year; making it the largest court of arbitration in Central and Eastern Europe. It is also one of the founder members of the International Federation of Commercial Arbitration Institutions, a member of the International Council of Commercial Arbitration, a member of the European Arbitration Group at the International Chamber of Commerce (ICC) in Paris and a member of the Special Committee at the UN Economic Commission for Europe in Geneva.
The Court of Arbitration of the Polish Confederation of Private Employers Lewiatan, although with a smaller capacity, is similar in character to the Court of Arbitration at the Polish Chamber of Commerce. There are also a number of arbitration courts at regional chambers of commerce and specialist courts. For example, The Arbitration Court at The Polish Chamber of Information Technology and Telecommunications deals with domain name disputes.
To arbitrate or to litigate?
There are strong arguments in favour of choosing arbitration rather than litigation. Firstly, arbitration courts can operate much faster – potentially avoiding the years which a Court can take to give final judgment. In contrast, arbitral awards can sometimes be delivered in a matter of months. Secondly, and primarily as a result of the duration of litigation proceedings, arbitration can be much cheaper than litigation. Thirdly, arbitration is capable of being more flexible and more professional-oriented since the parties can appoint arbitrators who are real experts in the field which forms the legal and business background to the dispute.
"The Court of Arbitration at the Polish Chamber of Commerce deals with in the region of 400 to 500 cases every year; making it the largest court of arbitration in Central and Eastern Europe"
All of that said, there is one major weakness in the Polish legal system that undermines all of the benefits of arbitration. Ultimately, parties to arbitral proceedings who receive an arbitral award can end up rehashing the dispute in slow and ineffective court litigation.
Recognition/enforcement – the time trap
Every arbitral award or settlement, irrespective of the country in which it was made, has to be recognised/enforced in the Polish Courts.
Recognition/enforcement of awards by the Court of First Instance can take about three months, but the Court's decision can still be appealed after this time. This means that the time for recognition/enforcement of an arbitral award can exceed the total time for the arbitral proceedings themselves. In addition, the Polish Courts can refuse to recognise/enforce the arbitral award if, for example, the award was delivered by a domestic arbitration court and domestic law provided that the dispute was not capable of submission to arbitration, or if recognition/enforcement of the arbitral award or settlement reached before the arbitral tribunal would be contrary to fundamental public policy rules (the public order clause).
The same criteria apply to awards issued by arbitral tribunals outside of Poland, but the range of reasons to refuse recognition/enforcement of such awards is even wider. Under the Polish Code of Civil Procedure (1964), the Polish Courts may refuse recognition/enforcement of a foreign arbitral award or settlement if a party can establish:
- there was no arbitration agreement or that any arbitration agreement was (a) invalid; (b) ineffective; or (c) had expired under applicable law;
- it was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present its case before the arbitral tribunal;
- the award deals with a dispute which is beyond the scope of the arbitration agreement - although, if findings in the award which are within the scope of the arbitration agreement can be separated from those which are beyond it, the court may refuse only to recognise/enforce those parts of the award which are beyond the scope of the arbitration agreement;
- the composition of the arbitral tribunal, or the arbitral procedure followed, was not in accordance with the agreement between the parties or with the law of the country in which the arbitration took place; or
- the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which (or under the law of which) that award was made.
Such court proceedings can delay recognition/enforcement of arbitral awards for years rather than months - especially in difficult or complex cases. An example of this is the arbitration in the so called "Elektrim Case" in 2006 (Vivendi -v- Deutsche Telekom), the award from which has still not been recognised by the Polish Courts. As a result of this delay, Vivendi has brought a claim against Poland under the Polish-French Bilateral Investment Treaty, which has reportedly already cost Poland over €175,000.
Challenging the award – the vertical journey through the Polish Courts
Polish arbitration law also allows an unsuccessful party to challenge the arbitral award itself in the Courts. The grounds for such an action include those listed above, but also extend to cases: (a) where the award was obtained in a criminal or fraudulent way (e.g. on the basis of a forged or falsified document); and (b) where a final judgment had already been made in some other forum in respect of the same dispute between the parties.
If a challenge to an arbitral award is rejected by the Polish Court of First Instance, a party may appeal to the Court of Appeal and then to the Supreme Court (court of cassation). This vertical path can, in some cases, be repeated several times where multiple procedural errors are made by the lower courts. Consequently, even though the scope for interference in arbitral awards by the common courts is usually limited and the courts tend to uphold the original awards, it can nevertheless sometimes take years for awards to be finally and successfully recognised/enforced in Poland.
It is unclear whether Polish law will be changed to simplify recognition/enforcement of arbitral awards but, either way, arbitration can still be – for the right parties in the right situations – a fast and cost-efficient alternative to litigation. The most important thing for businesses is to ensure that, in advance of entering into commercial deals, they are advised of the benefits and potential risks surrounding referral of disputes to arbitration, and carefully consider whether arbitration is suitable for them.