Arbitration clause in contracts
Every entrepreneur has certainly heard about arbitration (or arbitration - the name is used interchangeably, applies to the same institution) or has to deal with an arbitration clause in contracts signed with contractors. However, not always everyone is aware of what it is, for what purpose such provisions are placed in contracts and what it results in. This article will try to explain this.
Arbitration (arbitration) court - what is it?
Disputes that arise in the course of trade between its participants are civil law disputes, and therefore are subject to consideration in proceedings before a civil court. It is no secret that this procedure has many disadvantages: it is carried out for a long time, and the costs associated with it are often very high. Moreover, in modern legal transactions there are many disputes under civil law, which makes it difficult to settle them quickly. All this led to the fact that alternative dispute resolution methods, referred to as ADR, began to develop - Alternative Dispute Resolution. The leading position among them is taken by mediation and arbitration, also known as arbitration.
Arbitration is a method of amicable dispute resolution without the participation of a common court. A common court judge is replaced by an impartial arbitration judge - an expert in the field on which the dispute takes place. This person is usually very experienced in business - the arbitrator is selected for the case according to his specialization and practice.
The idea of arbitration is based on the autonomy of will and the equality of the parties, which are the basis of civil law relations. Thus, the parties may independently decide to whom to entrust the settlement of the dispute, if such occurs. Thanks to this, they have a direct impact on many elements of the proceedings: first of all, they themselves choose a specific court, arbitrators (their composition and method of appointment), place and time of proceedings, rules of dispute resolution, and arbitrators adjudicate within the limits of their powers. The procedure is therefore simpler and faster, and the costs are predetermined.
It should be remembered that an arbitration award or a settlement concluded before an arbitration court has the same legal effects as an award or settlement before a state court. The difference is that a common court has to enforce an arbitration award or settlement.
Arbitration clause - what conditions must be met?
An arbitration clause should be made in writing, and this is the only form required by an arbitration clause covering employment disputes.
Submission of a dispute for resolution by an arbitration court should be included in the agreement of the parties (however, pursuant to Civil Procedure Code Art.1162 § 2, such a provision may be included in letters exchanged between the parties, statements made by means of distance communication that allow for their content to be recorded; also refer in the contract to a document containing an order to submit the dispute to an arbitration court).
The provision may only be a part of the basic agreement between the parties (e.g. a cooperation agreement), constituting one paragraph. However, it should be remembered that it is spontaneous, so if the basic contract turns out to be invalid or expires, it does not mean that the provision is invalid or expires. The parties may also create a separate agreement to submit the dispute to an arbitration court (i.e. it will apply to a possible future dispute). The parties may also conclude such an agreement after the dispute has arisen (existing dispute). In addition, an arbitration clause may be included in the articles of association (it will apply to disputes arising from the relationship of the company and bind the company and its partners).
Limited scope of matters
The scope of cases that may be submitted to an arbitration court is limited. Pursuant to Art. 1157 of the Code of Civil Procedure:
Art. 1157. Unless a special provision provides otherwise, the parties may submit for resolution to an arbitration court disputes over property rights or disputes over non-property rights - which may be the subject of a court settlement, with the exception of cases concerning alimony.
The Code of Civil Procedure provides that the arbitration clause should include:
- precise indication of the subject of the dispute or indication of the legal relationship from which the dispute has arisen or may arise,
- in matters relating to labor law - submission to an arbitration court of a dispute that already exists between the parties at the time of drawing up the clause (disputes that may arise in the future cannot be submitted to an arbitration court - such clause will be ineffective),
- if the arbitration clause is a separate contract, it should contain such basic elements as: identification of the parties, date and place of conclusion of the contract, signatures of the parties.
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As the operation of arbitration is based on the will of the parties, they may also include in the clause:
- precise indication of the arbitration court before which the dispute will be resolved - this applies to permanent arbitration courts established by economic organizations (e.g. chambers of commerce), social organizations or commercial law companies. In such a case, the rules of the selected court will be binding on the parties (it specifies the procedure before that court). If the parties do not specify a specific court, they may agree to this after the dispute has arisen or the arbitration court will be appointed for their specific case, after which such a court will cease to exist.
- determination of the place of conduct of the proceeding before the arbitration court,
- issues related to the appointment of the arbitration court (indication of the number of arbitrators, the manner of their appointment, the procedure for excluding an arbitrator),
- issues relating to the proceeding before the arbitration court (rules of procedure, date of initiation of the proceeding, language, deadlines for filing a statement of claim, response to a statement of claim, etc., admissibility of evidence from an expert opinion),
- issues relating to adjudication and termination of proceedings (e.g. authorization to adjudicate according to general principles of law or principles of equity.
The parties may also specify the "validity date" of the arbitration clause (the clause loses its force after a specified period).
Record validity - the most common mistakes made when creating a record
As indicated above, in order for a record to be valid, it must meet certain conditions. First of all, it is necessary to define the subject of the dispute or to indicate the legal relationship from which the dispute has arisen or may arise.
The provisions concluded in matters that cannot be referred to arbitration courts (e.g. alimony) or an arbitration clause in matters relating to labor law concluded before the dispute arose will be invalid.
The clause may also be partially invalid, especially in a situation where the provisions of the clause infringe the principle of equality of the parties (they entitle only one party to bring an action before an arbitration court or grant one of the parties greater powers to appoint an arbitration court).
When creating a record, the parties also make mistakes such as: imprecise indication of the court (incomplete name, failure to indicate the seat, error in the name or address of the court), indication of several courts or court rules - such errors may also result in the invalidation of the record.
The award of the arbitral tribunal is binding on the parties. However, if it is not voluntarily executed by one of the parties, it must be recognized by a common court and obtained an enforcement clause. When granting an enforcement clause to an arbitration award, the court orders and orders all offices and persons affected by the award to comply with the provisions of the award.
As a rule, a common court may not set aside an arbitration award. The parties are entitled to a complaint to set aside an award only for formal reasons (e.g. defect in an arbitration clause, resolution in matters not covered by the clause, incorrectly appointed composition, an earlier award in the same case, award contrary to the fundamental principles of the Polish legal order).
Mediation and arbitration
Finally, a few words about the difference between mediation and arbitration. These terms are often confused and used interchangeably.
In mediation, the parties ask the mediator (impartial person) for help in reaching a compromise. The mediator "manages" the negotiations between the parties, tries to resolve the matter so that each party is satisfied. The fundamental difference between mediation and arbitration therefore boils down to the fact that in court the arbitrator decides who is right ("victory" lies on one side of the conflict), while the mediator conducts a dialogue and the settlement is in fact a victory for each party.