Facts and myths about arbitration

There exist many unreasonable concerns about settling disputes by way of arbitration. Therefore, although the number of cases resolved in this manner is increasing, it is still a fraction of cases that are addressed to common courts .Despite the growing number of cases heard in Poland by arbitration tribunals in 2012, they settled only less than 0.1 % of all disputes. For comparison, according to the Oxford Study on Civil Justice Systems in Europe, in the case of international trade, arbitration is chosen by as much as 63 % of European entrepreneurs. On the one hand, this reflects a huge, still untapped potential of this institution in Poland, and on the other hand it shows that Polish entrepreneurs are still not fully convinced to arbitration.

On the one hand, entrepreneurs recognize the advantages of arbitration, especially the option of referring a dispute to the persons who have expertise in a given area of business and of obtaining a decision in a much shorter time than in the case of court proceedings. On the other hand, however, they indicate the disadvantages, which include high costs, unclear rules of conduct and doubts as to the impartiality of arbitrators. However, these concerns are not so much a reflection of the facts of the Polish arbitration practice, but rather myths based on the concerns related to the institution. Certainly in Poland arbitration is a viable, business- attractive alternative to excessively lengthy court proceedings that do not satisfy the needs of entrepreneurs.

Speed of arbitration 

According to the statistics of the Ministry of Justice, in 2012 more than 1.4 million commercial cases were brought before the Polish courts and approx. 800 (own estimates) were brought before arbitral tribunals at the same time. Although the difference is still huge, the number of disputes referred by entrepreneurs to arbitration continues to grow year by year. This is attributable, among others, to the speed and predictability of arbitration. While the average duration of a court case is roughly two years, it may take only a few months to have an award issued in the case of arbitration. For example, in 2013 in the Court of Arbitration at the Polish Confederation Lewiatan, cases were concluded within 4.5 months on average following the appointment of the arbitral tribunal by the parties, despite the nearly twofold increase in the number of cases heard. This indicates that the courts of arbitration have better organizational facilities that allow them to proceed efficiently even with a significant increase in the influx of new cases. In addition, as early as at the beginning of the procedure, the parties to the dispute, in consultation with the arbitrators, organize the entire procedure, which allows us to know the approximate date of conclusion, already in the very beginning. From a business point of view, this type of knowledge is particularly valuable, because it eliminates uncertainty and liquidity risk associated with long-term expectation of the final court decision. However, the time during which cases are heard and the manner in which they are heard differ depending on the courts of arbitration. Therefore, when drafting an arbitration clause you should pay attention to the statistics and rules of the court selected.

Discretion in selecting arbitrators 

The option of selecting arbitrators is another advantage of arbitration which may prove important for entrepreneurs. In case of disputes arising out of contracts for the implementation of complex or specialised projects (e.g. in respect of mergers and acquisitions, information technology, construction), where the lack of expertise may prevent the proper understanding of the nature of the dispute, this advantage seems not to be underestimated. Even in less complex cases, however, the possibility of having them settled by professionals or business practitioners is assessed positively. The combination of the arbitrator’s expertise with more business -friendly rules of evidence and standards of conduct make the practice of business dealings and the specificity of the market, which so rarely penetrate from behind the door of the courtroom, gaining more significance in arbitration.

Although the discretion in selecting arbitrator is also indicated as a potential disadvantage of arbitration, such concerns are unfounded. The courts of arbitration and the arbitrators themselves understand that even a single case of violation of the principle of impartiality may adversely affect the approach of entrepreneurs to arbitration for many years and, therefore, they deal with the issue with due diligence and care. Standards in this respect are defined by the rules of the International Bar Association (IBA ) which in practice are also applied in Poland.

H ow much does it cost? 

When analysing the approach of Polish entrepreneurs to arbitration, you cannot ignore the costs of arbitration. Many entrepreneurs decline arbitration precisely because they believe that such procedure is much more expensive than court proceedings. In reality, such approach often turns out to be unfounded. The difference between the costs of the two procedures is usually insignificant and arbitration often proves to be actually cheaper than court proceedings. Of course, it depends on the institution and the relief sought, but the analysis of the tables of fees of the two most popular courts of arbitration in Poland, i.e. the Court of Arbitration at the Polish Confederation Lewiatan and the Court of Arbitration at the Polish Chamber of Commerce (KIG), shows the economic benefits of arbitration. In the case of court proceedings, the maximum permitted fee of PLN 100 thousand on lawsuit will be payable in ordinary proceedings involving the claimed amount of PLN 2 million. In contrast, in the analysed courts of arbitration, the fee on such claim will be much lower (Lewiatan – PLN 61.1 thousand, KIG – PLN 71.2 thousand). A fee of PLN 100 thousand due to the Court of Arbitration at the Polish Confederation Lewiatan is not payable unless you assert claims of PLN 6.86 million, in the case of the KIG Court of Arbitration – PLN 5.2 million. Importantly, these calculations concern the examination of the case by a panel composed of three arbitrators. If the case is heard by one arbitrator, the costs are even lower (the limit of PLN 100 thousand applies on average to the amounts claimed in excess of PLN 15 million). In addition, the court proceedings may result in the need to lodge an appeal or cassation complaint (which may generate the costs three times that high), while an award of the arbitral tribunal is final and, as a rule, enforceable regardless of an appeal lodged against it with the common court. Therefore, when entering into a contract, it is worth to draw up a simulation of the costs of arbitration and see whether it will actually be more expensive than the court proceedings.

Good alternative 

When combined with other advantages of arbitration, in particular confidentiality and less formal nature of conduct, all these factors make entrepreneurs choose arbitration more and more often as an alternative to litigation. Arbitration fits perfectly to the currently observed tendency to incorporate in commercial agreements the so-called multi-stage dispute resolution clauses (e.g. FIDIC clauses ), which allows the parties to optimize the structure of dispute and to maximize the chances of an amicable settlement.