A. Legislation, Trends and Tendencies
Arbitration in Poland continues to be governed by the Civil Procedure Code (CPC). In 2015, there were two amendments that will have an impact on arbitration proceedings. The first was an amendment to the Bankruptcy Law, while the second was an amendment to the CPC. Both amendments entered into force on 1 January 2016.
Arbitration Clauses in Bankruptcy Proceedings
Under the old Bankruptcy Law, an arbitration clause made by a bankrupt party lost effect on the day bankruptcy was declared, and any pending proceedings were terminated. This regulation was explained by the Polish legislator as allowing the possibility for arbitration courts to rule on cases on the basis of equity. In order to ensure the best protection for the rights of creditors, possible disputes should be decided by the common courts because of their obligation to rule on cases on the basis of applicable law. The choice of court should not be left solely to the bankrupt party.
This rule was the subject of criticism, mainly because arbitration awards may be set aside by common courts, in accordance with the CPC. These proceedings ensure appropriate oversight of the outcome of arbitral proceedings; as a result, the old Bankruptcy Law was widely recognized as impractical.
The new Bankruptcy Law introduces a new procedure where proceedings are pending before an arbitration court at the time of bankruptcy. The court will stay such proceedings ex officio and will resume them upon the appointment of a receiver. The arbitration clause will no longer lose effect on the day of the bankruptcy declaration; however, the receiver will be entitled to withdraw from the arbitration clause with the consent of the judge in charge if proceedings before the arbitration court have not already been initiated.
Amendment to the CPC
The amendment to the CPC mainly relates to motions to set aside arbitral awards, as well as recognition and enforcement of awards. As a result, the impact of these changes on arbitration will be indirect, but will be of great significance for practice due to the following reasons:
Firstly, proceedings for setting aside an award and proceedings for recognition and enforcement of awards will be conducted only by the court of first instance. This change will limit the time consumed by post-arbitral proceedings in common courts, which previously could take as much time as the arbitration proceedings themselves (or even more) and as a result could excessively extend the period before the dispute was finally resolved.
Secondly, the time limit for submitting a motion to set aside arbitral awards will be shortened from three to two months. This will leave less time for the losing party in the arbitration to submit such a motion and will therefore accelerate the proceedings even more.
The amendment contains one interesting change regarding the duties of a person appointed as an arbitrator. The current provision stipulates that a person appointed as an arbitrator should immediately disclose to the parties any circumstances that could raise doubts as to his or her impartiality or independence. The amendment increases the requirements for arbitrators – in every case, they will have to submit to the parties and to other arbitrators a written statement of impartiality and independence. This confirms the general principle of impartiality and raises the standards of arbitrators’ conduct.
A.2 Trends and Tendencies
The abovementioned amendments to the Bankruptcy Law and to the CPC express the government’s attitude towards and goals regarding arbitration in Poland: simplification and acceleration of the proceedings. We anticipate that the government’s actions will contribute to the strengthening of the position of arbitration proceedings as a faster and more effective alternative to the inefficient common courts system. We believe that it is a step in the right direction that will attract more entrepreneurs to arbitration.
Endeavors to increase the efficiency of arbitration proceedings are visible outside the legislature as well. On 14 October 2014, the main arbitration court in Poland ‒ the Court of Arbitration at the Polish Chamber of Commerce in Warsaw (Sąd Arbitrażowy przy Krajowej Izbie Gospodarczej – SAKiG) – adopted New Rules, which became effective on 1 January 2015.
Jurisdiction of the Court of Arbitration
Compared to the old Rules, the New Rules are more precise as to the jurisdiction of the Court of Arbitration for three reasons:
Firstly, the Court of Arbitration has jurisdiction if the respondent takes part in the proceedings and does not raise the plea of lack of jurisdiction of the Court of Arbitration in the statement of defense or earlier.
Secondly, the New Rules specify until when the plea of lack of jurisdiction of the Court of Arbitration may be raised (namely not later than in the statement of defense).
Finally, the New Rules provide that the arbitral panel is to rule on a plea of lack of jurisdiction of SAKiG in an order.
Rules Applicable to the Parties to the Proceedings
The New Rules introduced a fundamental change in the rules of conduct that are applicable to the parties. The parties are now bound by the rules in force on the date on which the proceedings are opened.
Consolidation of Proceedings
Under the New Rules it is possible to consolidate two or more proceedings pending between the same parties before SAKiG into a single action. Such a consolidation needs to be made at the request of one of the parties. Furthermore, the New Rules provide that proceedings can also be consolidated if the parties are not identical, provided the conditions specified in the New Rules are met and the parties to all of these proceedings agree to this. Proceedings can even be consolidated if there is a different membership of the arbitral panel, provided that the conditions specified in the New Rules are met and the parties to all the proceedings agree, specifying the membership of the arbitral panel for hearing the consolidated proceedings.
Joinder of Parties
A completely new matter presented in the New Rules is the joinder of parties. According to the New Rules, after consulting both parties, the arbitral panel may, at the request of a third party, allow an intervening third party to be joined to the proceedings on the claimant’s or respondent’s side, if the applicant can demonstrate a legitimate interest in such a joinder, and the party which the third party is to join agrees.
The intervening third party will need to pay an arbitration fee of the amount specified in the tariff of fees in force on the date on which the statement of claim is filed. If the third party fails to pay this fee, it will not be admitted to the proceedings. The intervening third party will not be entitled to choose an arbitrator and will not be able to take actions and make statements that are in conflict with the actions and statements of the party it joined in the proceedings.
Request for Arbitration
The New Rules also introduced a new legal instrument ‒ the request for arbitration. According to the New Rules, in addition to filing a statement of claim it is now also possible to initiate arbitration by filing a request for arbitration with the Court of Arbitration. The request for arbitration must include, among other things:
• the identity of the parties to the proceedings and their addresses;
• an indication of the arbitration provision;
• a specification of the subject matter of the dispute; and
• a statement of the value of the dispute.
If proceedings are initiated by a request for arbitration, the respondent must file a response to the request for arbitration within a time limit of not more than 30 days. The response to the request for arbitration should only contain:
• the identity of the parties, together with their addresses; and
• the respondent’s position with regard to the claimant’s claims.
The arbitral panel will set the dates for filing a statement of claim and a statement of defense. A registration fee and an arbitration fee will be payable on the request for arbitration, at the amount and on the conditions laid down for the statement of claim.
Course of Proceedings
The New Rules introduced regulations relating to the timetable of arbitration proceedings. The arbitral panel, after consultation with the parties, sets down the timetable of the proceedings. The timetable should set the sequence and time limits for the parties to file pleadings, the time limits for submitting and examining evidence, the dates of hearings, and the anticipated date of issue of a ruling closing the proceedings.
According to the New Rules, the burden of proof rests entirely on the parties to the proceedings. The plaintiff has to present evidence in support of its claims as early as in the statement of claim, whereas the defendant has to do so in the statement of defense. In addition, the arbitral panel may set a deadline for submitting evidence, beyond which evidence will not be admitted and will be ignored.
The New Rules have introduced different rules for hearing witnesses. A witness hearing can be a two-stage process: written depositions, to be followed by oral testimony during the hearing. Subject to the parties’ consent, the arbitral panel has the right to decide that witnesses will only testify in written depositions.
To conclude, it is worth mentioning a few minor but intriguing changes in the New Rules. One of these permits the arbitral panel to decide that pleadings may additionally be served, subject to the parties’ consent, by email. The old Rules do not provide for such a possibility.
According to the New Rules, § 16, para. 1 regarding the qualifications of arbitrators, the arbitrator may be a natural person, regardless of nationality, with full legal capacity. The requirement that the arbitrator must be able to fully benefit from public rights (e.g., the right to vote, to be a candidate for a public post, etc.) will no longer apply. The grounds justifying the introduction of these changes are puzzling.
In conclusion, the amendments introduced by the New Rules are beneficial to arbitration proceedings. These amendments are a move towards the modernization of proceedings, and should increase their effectiveness and efficiency. It is also worth noting that the amendment to the old Rules is in line with the current international trend of improving the rules of proceedings before individual courts of arbitration. Examples include the Arbitration Rules of the UNCITRAL of June 2010, the ICC Arbitration Rules of January 2012 and the Swiss Rules of International Arbitration of July 2012.
B.1 Supreme Court Rules on Parties’ Alterations of Arbitral Rules4
The Supreme Court ruled that parties to a contract that includes an arbitration clause entitling the parties to resolve disputes in arbitral proceedings before a permanent arbitration court may alter the provisions of that court’s rules in the contractual provisions accompanying the arbitration clause or in other, subsequent agreements. The other key issue is the court’s acceptance of the alterations made by the parties to the contract. The Supreme Court ruled that the arbitration court may agree to conduct the proceedings in accordance with the altered rules; however, the court may also refuse to do so. In this case, the permanent arbitration court cannot conduct the proceedings in accordance with the unaltered rules, unless the parties are willing to withdraw their alterations. If the permanent arbitration court decides to hear the case, it is obliged to respect the agreement concluded by the parties.
On the basis of the above arguments and the facts of the case, the Supreme Court ruled that it is acceptable to alter the rules of arbitration proceedings by extending the proceedings from the first to a second instance. If the parties decide to do so, their agreement should be given priority and the proceedings should be extended, even if the rules of the court limit the proceedings only to the first instance. The Supreme Court took the view that hearing the case only in the first instance should be considered a violation of the requirements concerning the basic principles of proceedings before the arbitration court.
In our view, the Supreme Court took a very interesting stance and decided on a matter that may be of importance in future cases. Even though parties to a contract rarely agree to alterations to a permanent arbitration court’s rules, the possibility to do so remains, and there are occasional cases where such agreements are concluded. The possibility that hearing a case in accordance with the unaltered rules (when the parties agreed otherwise) might be considered a violation of the requirements concerning the basic principles of proceedings before the arbitration court is of great significance. This is due to the fact that such a violation might be grounds for a party to the arbitration to file a motion to set aside the judgment of the arbitration court.
The case constitutes another example of a violation that may lead to the arbitration award being challenged before a common court. It may warn the arbitration courts of the scope of their right to accept or refuse to hear a case and – what is even more important – may serve as a reminder for the parties to a contract to be diligent and careful when agreeing alterations to rules for their future dispute resolution.
C. Costs in International Arbitration
C.1 Allocation of Costs
There is no statutory rule providing a basis for allocating the costs of proceedings before an arbitration court. According to the New Rules, the arbitral panel decides on the allocation of the costs of the arbitral proceedings at its discretion, taking into account the outcome of the case and the important circumstances of the case. In practice, the arbitral panel decides on the costs of the proceedings on the basis of the outcome of the case.
C.2 Security for Costs
There are no rules with regard to obliging one party to provide security for the other party’s costs of the proceedings. The costs of the proceedings could be secured in the general interim proceedings, together with the main claim.
C.3 Recovery of Costs
In arbitration proceedings, the parties present their costs claim, and it is then for the arbitral panel to decide on the reimbursement of costs that it considers justified. Parties may, for instance, seek to recover counsel’s time charges, costs of the party’s in-house counsel and other members of the party’s staff (contract managers, engineers, etc.), and the arbitral tribunal will decide whether these are justified There is no limit for the costs claim. It is enough to simply provide the arbitral panel with a schedule of costs without any proof. However, at the request of the other Party, proof should be presented.
In proceedings before the common court, the court decides on the reimbursement of legal fees based on the Resolution of the Ministry of Justice. The maximum amount of costs that can be reimbursed is PLN43,200 (approximately EUR10,000), depending on the value of the proceedings and counsel’s time charges. The costs of a party’s in-house counsel and other members of the party’s staff (contract managers, engineers, etc.) are not recoverable. The party is not obliged to prove that the legal costs were incurred.
- Lukasz Hejmej is a partner in Baker & McKenzie’s Warsaw office and heads the Firm’s Litigation and Dispute Resolution Practice Group there. Mr. Hejmej specializes in the liability of financial institutions and securities litigation, mainly advising insurance companies, banks and securities brokers on issues related to D&O, IPO, BBB and PI insurance claims, professional malpractice claims, currency and commodity derivatives, as well as restructuring and bankruptcy.
- Sylwia Piotrowska is a senior associate in Baker & McKenzie’s Warsaw office and a member of the Firm’s Global Dispute Resolution Practice Group. She specializes in commercial proceedings before arbitration and common courts. She closely cooperates with other Baker & McKenzie departments in litigation matters, in particular with the Real Estate department and IT department.
- Michal Mozdzen is an associate in Baker & McKenzie’s Warsaw office and a member of the Firm’s Global Dispute Resolution Practice Group.
- Ruling of the Polish Supreme Court of 20 March 2015, case II CSK 352/14.