We’re not going to court until…

Despite the best efforts of the business and legal communities, alternative dispute resolution yet has to break through to the market mainstream in Poland. 

This state of affairs may give rise to certain questions concerning not only general ADR awareness among Polish business people and lawyers, but also the extent to which the Polish legal environment is conducive to development of ADR tools and their use in practice. Whatever their potential, some ADR solutions cannot be translated into actual benefits without certain statutory amendments. A case in point is provided by multi-stage dispute resolution clauses.

What are the clauses about? 

Multi-stage dispute resolution clauses stipulate recourse to one or more ADR mechanisms before a dispute is, as it were, taken out of the parties’ hands and brought before the general courts or an arbitration tribunal. The most common of these mechanisms include all and sundry negotiations, mediation, expert opinions, and appointment of a reconciliation commission. For example, the parties to a contract may agree that any dispute arising with respect to such contract’s provisions or performance shall be resolved by way of negotiations, failing which they will defer to an independent expert, and only if application of these mechanisms does not result in a mutually satisfactory outcome will they refer the matter to the courts or to arbitration.

Until recently, clauses of this type were used first and foremost in international contracts. The models drawn up by FIDIC (e.g. clause 20 of the FIDIC Red Book) present archetypal solutions in this regard. The rationale underlying such provisions lies in expedient and inexpensive resolution of the contentious issue without deterioration of the long-term business relationship. By taking such an approach, the parties also afford themselves flexibility in adapting the resolution mechanism to the nature of the given contract; they can, for instance, stipulate that the reconciliation commission be composed of experts in the relevant field, or that negotiations be conducted by representatives at a specified level of seniority. Also, a multi-stage dispute resolution clause may provide for interlocutory measures, providing that performance of the contract shall proceed – at least to some limited extent – even as the dispute is pending; such a solution offers manifest advantages in the case of contracts for performance of construction works and for implementation of infrastructure projects.

The business utility, or otherwise, of a multi-stage dispute resolution clause is predicated upon two factors, namely correct formulation of the clause as such and the mandatory nature of the entire procedure. Accordingly, the multi-stage dispute resolution provisions should not only be aligned with the needs and interests of the parties, but should also be enforceable, with any possibility of bypassing any successive stage obviated. In practice, whether or not a clause is enforceable boils down to the question of whether a general court or an arbitration tribunal may consider a claim brought by a party which has not first exhausted all the dispute resolution stages provided for in that clause.

In light of the Polish laws now in force, the answer to this question will depend on the ADR method opted for by the parties. Only an allegation of execution of a mediation agreement will lead a court to suspend its proceedings (art 2021 of the Civil Process Code). If, meanwhile, a party bound by a multi-stage dispute resolution clause does not participate in the negotiations provided for in such clause, fails to cooperate in appointment of an expert, or otherwise fails to implement all the ADR solutions provided for in that clause, there is little that the general courts may do to give force to the contract, and they have no choice but to consider the claim, failure to exhaust all the ADR mechanisms notwithstanding. It might be noted that the situation is quite different in jurisdictions such as the United Kingdom or Germany, where the courts have authority to give effect to multi-stage dispute resolution clauses in their full extent. This powerlessness of the Polish courts in this respect casts doubt on the effectiveness of multi-stage dispute resolution clauses in the Polish legal system, and it leaves Polish business people less willing to employ ADR solutions in their day-to-day dealings.

Things are quite different before ADR tribunals. Lines of authority developed by arbitration tribunals and by the general courts considering complaints against arbitration rulings stipulate conditions which a multi-stage dispute resolution clause must fulfil in order to be enforceable. This difference in approach is rooted in the tendency to regard multi-stage dispute resolution clauses as part and parcel of the arbitration clause as such, the net effect being that an arbitration tribunal will be competent to rule on the matter only once the successive stages of the dispute resolution process originally envisaged by the parties have been exhausted.

So, as the law now is, submission of a dispute to arbitration enables enforceability of a duly constructed multi-stage dispute resolution clause to its full extent. The same possibility, arguably, ought to exist also before the general courts; this, however, will require certain amendments of the applicable laws.

Growing awareness

Critical comments from some quarters notwithstanding, there are significant arguments militating in favour of enforceability of multi-stage dispute resolution clauses. Firstly, recognition of multi-stage dispute resolution clauses at the statutory level would do much to increase awareness of ADR and the advantages which it offers in business practice. Agreement of mutually satisfactory dispute resolution mechanisms would, hopefully, become one of the aspects of a commercial / contractual relationship negotiated on a standard basis by business people and their counsel. The latter would gain new possibilities in devising dispute resolution mechanisms best suited to the needs of their clients and to the nature of the relationship.

Statutory amendments geared at enforceability of multi-stage dispute resolution clauses would be conducive to upholding the intent of the parties (as expressed in their contract) who have embarked on cooperation and agreed upon mutually acceptable dispute resolution mechanisms should that cooperation somehow go awry. Critics of such solutions are right to some extent when they argue that nobody can be forced to the negotiating table, but this does not detract from upholding the intent of parties who bound themselves in a valid contract to seek good faith resolution of any dispute arising between them with respect to such contract’s performance.

If the entire mechanism were devised on an opt-in basis, parties unwilling to submit to ADR would still be free to seek recourse before the general courts.

De lege ferenda dilemmas

Needless to say, amendments of the sort posited above give rise to a number of legislative issues. The first one concerns definition of the degree to which the intent of the parties is to predicate litigation (its commencement as well as the ensuing legal process). In other words, should failure to go through all the dispute resolution stages stipulated in the clause before bringing a suit before the general courts automatically lead to a temporary freeze on commencement of proceedings, or only to suspension of proceedings ? Only the first solution would be true to the spirit of multi-stage dispute resolution clauses.

In this context, regard should be had to the fact that initiation of court proceedings is always tantamount to escalation of the underlying dispute – to mention only the psychological effect – and that, accordingly, amicable resolution becomes less likely once the courts become involved. As a result, the practical worth of measures devised as conciliatory solutions taken during any subsequent suspension of a legal suit should not be overestimated. On the other hand, the impossibility of instigating a legal suit until the multi-stage dispute resolution clause has been fully implemented may have serious ramifications, to mention only the statute of limitations on claims connected with the dispute. Thus, it may be that – as was previously the case with the Polish laws regulating mediation – any amendment of the laws with direct relevance to the subject matter may be coupled with certain adjustments of the broader legal environment.

The parties themselves may go a long way towards dispelling some of these doubts by attending to due formulation of their clauses. For these purposes, reference may be had to past adjudication and to arbitration doctrine. The general idea is that any multi-stage dispute resolution mechanism ought to be described to a high level of detail, facilitating assessment of whether every successive stage has been duly implemented. Also, the wording of the clause ought be such so that inaction or bad faith of one party does not detract from the rights of the other – the non-offending party must be able to exhaust the stipulated procedure and, should this prove ineffective, to bring a statement of claim before the courts. The parties should furthermore be free to devise their own ADR mechanisms so that the criteria discussed above are fulfilled and no one party benefits from an unfair advantage over the other.

Professionally prepared multi-stage dispute resolution clauses indubitably offer discrete advantages to the business enterprises concerned. Recognition of such clauses at the normative level promises to contribute to more widespread use of ADR solutions by Polish business people.