Arbitrating disputes with Polish partners: Why, where, how?
An arbitral award can only be set aside for grave procedural faults or for reasons of public policy, the latter being interpreted restrictively by state courts. Poland is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which makes any award effectively issued in one of more than 120 member jurisdictions enforceable here. Hopefully, the situation will improve further with the promulgation of the Act on International Commercial Arbitration (based on the UNCITRAL model law, a recognized international standard) which is currently under preparation.
"That is all very good, but why should we choose arbitration, in Poland or elsewhere, instead of seeking solace in our own national courts, if we have a negotiating position strong enough to impose our will?" you may ask. Indeed, negotiating a jurisdiction clause is often viewed as a trial of wills or, sometimes, a test of patience. However, a jurisdiction clause is an unpredictable animal, quite capable of biting the hand that feeds it. The winner may find out that he fought his opponent's battle, sometimes because of an unexpected change in circumstances, but more often by following some pattern without deeper analysis.
There are four essential factors that make up a good jurisdiction clause.
• First of all, have an effective clause. If you negotiate an exclusive clause, watch out that it does not strip you of any possibility to bring a claim.
As a preliminary matter, I would like to clarify that "effective" means that you will be able to sue on the basis of this clause. Each contract has one or more "natural" jurisdictions, meaning that the claim will be accepted without a separate understanding of the parties.
A jurisdiction clause is effective if the selected jurisdiction will accept the claim (in contractual matters this is generally the case unless the dispute concerns real property). In addition, an exclusive clause calls for a release by all other "natural" jurisdictions; which release, in turn, is usually but not always granted if the target jurisdiction accepts the claim. Beyond the concerns of whether a jurisdiction will accept the claim, there may be misunderstandings as to the interpretation of the law of one country by the courts in the other country. As a result of these sorts of problems, unexpected delays and hefty costs (related to very complex legal analysis) may arise, and in the worst case, you may find out that you have successfully eliminated all other jurisdictions without making the selected one accept the claim.
• Second, try to obtain a sympathetic and competent forum. Some national courts tend to be more objective than others, but you will probably only find real compassion at home, and even there, not always. A judge for whom the strict letter of law means more than commercial reason may be a problem. In an arbitration panel of three people, you will have at least one friend (the person whom you select) even though this person is obliged to be objective. If you have selected the right counsel, he or she will also take care that at least two of the members of the panel are familiar with the branch of trade the dispute concerns and understand deeply (and not just according to the letter) the law to be applied. A truly good arbiter with an understanding of commercial realties should prefer, in drastic cases, to disregard the law rather than do injustice.
• Keep the court inexpensive and fast moving. No dispute is ever really cheap and fast, but some forums are more expensive and considerably slower than others. Arbitration is usually cheaper than state courts, at least in Poland, and is always faster. Of course, from time to time one hears of arbitrations lasting several years (when you scratch deeper, usually both parties are to blame in such cases) or a state court case resolved within months (if you have an example from Poland, I am deeply interested). As a rule, however, a simple arbitration rarely lasts longer than five or six months and a simple court case in Poland rarely lasts under two years (not counting appeal and remand).
As far as costs are concerned, probably the cheapest arbitration on the market is the version "ad-hoc administered" under the auspices of the Warsaw Court of Arbitration at the Polish Chamber of Commerce. Most arbitrators are of the opinion that it is too cheap, by at least half. Arbitration in Poland is generally less expensive than in the West. However, even if you could point to a court that is cheaper than the arbitration standard, with arbitration you always know that you pay good money to real experts for specific work (and not a fixed fee to the state budget for governmental services).
One factor, which must be taken into account concerning not so much the speed as the effectiveness of the proceedings, are interim measures (injunctions). In Poland an arbitration court, local or foreign, is not considered authorized to grant injunctions, unless they are "self-executory," meaning that failure to abide by the injunction may be vindicated in the award granted. All measures to be performed in Poland that require the use of the force of law (such as placing the object of dispute under neutral administration or prohibiting the transfer of rights) may only be granted by Polish state courts. However, this is the only type of case in which Polish law sets a time-limit for decision (one week) and this time-limit is usually kept.
• When you have all three, come back to the effectiveness problem from the reverse end: Will a favorable judgment be of any use to you? In plain language, will you be able to catch your opponent with enough assets in a jurisdiction where the award will be enforceable?
First of all, don't let yourself fall into the trap that in the early 1990s became a standard used against Polish small exporters of agricultural products. A legal counsel came back from negotiations quite triumphant: He managed to force, by smart legal reasoning of course, his opponent to recognize the exclusive jurisdiction of Polish courts. Success indeed. As the next step, the importer rejected the goods for alleged nonconformity, the proof of which was never to be submitted and requested a 50% or more reduction in the price. Combined with payment by a check that physically could not be presented for payment until it became revocable, such blackmail was unerringly successful. Why? Because despite having a Polish judgment, you would never catch a careful opponent with any assets in Poland and suing in the opponent's country was out of the question: Polish jurisdiction was made exclusive ...
The moral of the story is to be careful about successfully forcing the exclusive jurisdiction of your national courts, unless you are sure that in case of need you will locate the sufficient assets of your partner. It is true that recently Poland agreed, on the basis of reciprocity, to enforce foreign state court awards; however, the procedure is still complex and there is not yet enough practical experience. As compared with the above, enforcement of an arbitral award issued under the New York Convention is simplicity itself and may be sought in any of more than 120 member countries.
Andrzej Wisniewski is a leading scholar on Polish commercial law and arbitration and is of counsel with the Warsaw office of Hunton & Williams.
"That is all very good, but why should we choose arbitration, in Poland or elsewhere, instead of seeking solace in our own national courts, if we have a negotiating position strong enough to impose our will?" you may ask. Indeed, negotiating a jurisdiction clause is often viewed as a trial of wills or, sometimes, a test of patience. However, a jurisdiction clause is an unpredictable animal, quite capable of biting the hand that feeds it. The winner may find out that he fought his opponent's battle, sometimes because of an unexpected change in circumstances, but more often by following some pattern without deeper analysis.
There are four essential factors that make up a good jurisdiction clause.
• First of all, have an effective clause. If you negotiate an exclusive clause, watch out that it does not strip you of any possibility to bring a claim.
As a preliminary matter, I would like to clarify that "effective" means that you will be able to sue on the basis of this clause. Each contract has one or more "natural" jurisdictions, meaning that the claim will be accepted without a separate understanding of the parties.
A jurisdiction clause is effective if the selected jurisdiction will accept the claim (in contractual matters this is generally the case unless the dispute concerns real property). In addition, an exclusive clause calls for a release by all other "natural" jurisdictions; which release, in turn, is usually but not always granted if the target jurisdiction accepts the claim. Beyond the concerns of whether a jurisdiction will accept the claim, there may be misunderstandings as to the interpretation of the law of one country by the courts in the other country. As a result of these sorts of problems, unexpected delays and hefty costs (related to very complex legal analysis) may arise, and in the worst case, you may find out that you have successfully eliminated all other jurisdictions without making the selected one accept the claim.
• Second, try to obtain a sympathetic and competent forum. Some national courts tend to be more objective than others, but you will probably only find real compassion at home, and even there, not always. A judge for whom the strict letter of law means more than commercial reason may be a problem. In an arbitration panel of three people, you will have at least one friend (the person whom you select) even though this person is obliged to be objective. If you have selected the right counsel, he or she will also take care that at least two of the members of the panel are familiar with the branch of trade the dispute concerns and understand deeply (and not just according to the letter) the law to be applied. A truly good arbiter with an understanding of commercial realties should prefer, in drastic cases, to disregard the law rather than do injustice.
• Keep the court inexpensive and fast moving. No dispute is ever really cheap and fast, but some forums are more expensive and considerably slower than others. Arbitration is usually cheaper than state courts, at least in Poland, and is always faster. Of course, from time to time one hears of arbitrations lasting several years (when you scratch deeper, usually both parties are to blame in such cases) or a state court case resolved within months (if you have an example from Poland, I am deeply interested). As a rule, however, a simple arbitration rarely lasts longer than five or six months and a simple court case in Poland rarely lasts under two years (not counting appeal and remand).
As far as costs are concerned, probably the cheapest arbitration on the market is the version "ad-hoc administered" under the auspices of the Warsaw Court of Arbitration at the Polish Chamber of Commerce. Most arbitrators are of the opinion that it is too cheap, by at least half. Arbitration in Poland is generally less expensive than in the West. However, even if you could point to a court that is cheaper than the arbitration standard, with arbitration you always know that you pay good money to real experts for specific work (and not a fixed fee to the state budget for governmental services).
One factor, which must be taken into account concerning not so much the speed as the effectiveness of the proceedings, are interim measures (injunctions). In Poland an arbitration court, local or foreign, is not considered authorized to grant injunctions, unless they are "self-executory," meaning that failure to abide by the injunction may be vindicated in the award granted. All measures to be performed in Poland that require the use of the force of law (such as placing the object of dispute under neutral administration or prohibiting the transfer of rights) may only be granted by Polish state courts. However, this is the only type of case in which Polish law sets a time-limit for decision (one week) and this time-limit is usually kept.
• When you have all three, come back to the effectiveness problem from the reverse end: Will a favorable judgment be of any use to you? In plain language, will you be able to catch your opponent with enough assets in a jurisdiction where the award will be enforceable?
First of all, don't let yourself fall into the trap that in the early 1990s became a standard used against Polish small exporters of agricultural products. A legal counsel came back from negotiations quite triumphant: He managed to force, by smart legal reasoning of course, his opponent to recognize the exclusive jurisdiction of Polish courts. Success indeed. As the next step, the importer rejected the goods for alleged nonconformity, the proof of which was never to be submitted and requested a 50% or more reduction in the price. Combined with payment by a check that physically could not be presented for payment until it became revocable, such blackmail was unerringly successful. Why? Because despite having a Polish judgment, you would never catch a careful opponent with any assets in Poland and suing in the opponent's country was out of the question: Polish jurisdiction was made exclusive ...
The moral of the story is to be careful about successfully forcing the exclusive jurisdiction of your national courts, unless you are sure that in case of need you will locate the sufficient assets of your partner. It is true that recently Poland agreed, on the basis of reciprocity, to enforce foreign state court awards; however, the procedure is still complex and there is not yet enough practical experience. As compared with the above, enforcement of an arbitral award issued under the New York Convention is simplicity itself and may be sought in any of more than 120 member countries.
Andrzej Wisniewski is a leading scholar on Polish commercial law and arbitration and is of counsel with the Warsaw office of Hunton & Williams.
