What can one do to prevent a commercial dispute from lasting years on end?
The proclivity of commercial litigation to proceed with all the haste of a snail has repeatedly been pointed to as a major impediment to business growth in Poland. Through 2014, the number of disputes pending before the courts has been consistently increasing, attaining a record of almost 1.6 million cases in 2013. The net result is that a plaintiff submitting her statement of claim to the Circuit Court in Warsaw faces a wait of up to 11 months (!) before the first hearing is held, and the average duration of a court case is well on its way to reaching 3 years. All along, factors such as the tying up of capital, uncertainty as to the final outcome, strained business relationships, and snowballing legal costs render the duration of a court case a time of “commercial erosion” for the businesses concerned. Little wonder, then, that business – striving as it does for constant growth and for abandoning inefficient solutions – has been exploring alternatives to the courts. This has led business leaders to look towards arbitration, an institution hereto underappreciated in Polish commercial life. A tribunal tailored to business
A businessman who has had any dealings with the Polish courts may suffer a bit of a culture shock upon his first contact with an ADR tribunal. The pervading friendliness, expediency, and – first and foremost – professionalism make him feel that the arbitrators and their auxiliary staff are focused on equitable, conscientious, and efficient resolution of the dispute and that he himself is more than a barely tolerated supplicant. These are some of the reasons why, statistically speaking, more and more companies are seeking recourse to arbitration. Once again, this should come as no surprise – after all, arbitration was created by business people, rather than by members of parliament or by lawyers. When it comes to the latter, incidentally, any lawyers involved in arbitration proceedings should be chosen very carefully – a lawyer who does not bring to the table that elusive “business sense” and who cannot reconcile rigid laws with fluid realities will not pass muster, much as he wouldn’t in real-life business. This knowledge comes from practice, which has generally not put a premium on lawyers who did not know – or who forgot – that arbitration presents an opportunity to repair frayed business ties, to assess the evidence on its merits, and to reach a settlement which is acceptable to the parties, and that only once all else fails should arbitration become a forum for “waging law”. Even once the gloves come off, though, arbitration remains an exceptional adversarial forum in that it has been devised with a mind for business, not for the state and its apparatus. Accordingly, at all stages of the arbitration process the basic business soundness of arguments assumes equal importance to the letter of the law.
Expedient, professional, discreet
By combining effective procedures with an open mind-set and a solid work ethic, arbitrators may reach their decision within a few months. To cite the example of the Lewiatan Arbitration Court, the average duration of proceedings is 5 months following appointment of the arbitrators. Given due management of their assets by the respective parties, such expedient proceedings reduce liquidity risk to a manageable minimum. Also, the parties do not have to wait long for the outcome which all of them eagerly anticipate. GESSEL’s own practice likewise confirms that arbitration proceedings tend to be much shorter than court proceedings, and that they often result in settlement already at an early phase.
Example: Dispute re a PLN 2,000,000 payment
Arbitrators are not theoreticians ... they are practitioners with hands-on experience of business and the law. This professionalism and expertise contribute much as regards expediency of the proceedings. In this context, the fact that arbitrators are appointed by the parties themselves assumes especial value; a specialist with experience in the given realm of industry, technology, or the law will have no difficulty with perusal of the case files and with gleaning the relevant information. The parties may choose arbitrators who understand the nuances of the given line of business, and how the given sector is regulated in commercial agreements. Of course, the fact that arbitrators are nominated by the parties remains without prejudice to their duty of impartiality, which is much emphasised in all arbitration standards and in the house rules of specific arbitration tribunals. Again, GESSEL’s considerable arbitration experience bears out these assumptions.
An added cachet of arbitration lies in the confidential nature of the entire process. The legends of secret locations and smoke-filled rooms may be a bit overdone, but it is standard practice to ensure that no person not expressly invited by the parties can observe arbitration hearings and that no information may be circulated outside the strict confines of the proceedings and the case files. In some cases, this may be of fundamental importance to the entities engaged in arbitration.
Arbitration is less expensive than the courts
Probably the greatest myth surrounding arbitration, and one which badly needs debunking, is that of mind-boggling costs. This particular legend may be fed by the fact that, generally, the rules of arbitration tribunals do not set an upper limit on the arbitration fee (which is remitted upon the lodging of a claim). Accordingly, if the object of the dispute is valued in the hundreds of millions, the arbitration fee may in fact be hefty. That said, arbitration proceedings of the sort most usually encountered in practice, where the value of the dispute ranges from approximately PLN 500,000 to PLN 2,000,000, are most often cheaper than proceedings before the general courts, and the price difference may run into tens of per cent. No mean consideration is comprised in the tax benefits. There is also the fact that, as they calculate the cost of proceedings, the courts do not take into account hidden costs, such as the freezing of capital for years on end or legal fees (it is but rarely that the latter are recovered in full on the basis of court rulings).
The gradual upswell of cases brought before Polish arbitration courts demonstrates that arbitration is poised to enter the commercial mainstream – especially seeing as, once they have had their first opportunity to appreciate the benefits of arbitration in person, business people make sure to incorporate arbitration clauses in all important contracts. GESSEL’s own experience shows that arbitration is coming into its own as an attractive option to the creaky general courts.