A court that means business
Choosing arbitration instead of judicial proceedings pays off.
Arbitration is an alternative method for resolving disputes. Its purpose is not to replace the state judicial system, however. In highly developed legal and economic systems, arbitration courts and state courts are not at war, but peacefully coexist and complement one another. Arbitration supplements the system for resolving disputes, adding new methods that enable conflicts to be resolved privately, without directly involving state institutions. Arbitration is a service—a private procedure for resolving disputes.
Why choose arbitration:
Arbitration is collegial and deformalized, allowing the parties to have a say in the procedures that will be used. It is flexible and open to changes and reduces the uncertainty of the procedure. The arbitration ethos also has certain advantages, because it is a mutual process rather than a scorched-earth battle.
Arbitration is a service designed for businesses who want to make a conscious choice on how to resolve a dispute. This conscious approach can be seen in the way that businesses faced with a dispute strive to take an active part in resolving it, on the basis of a dialogue, rather than turning everything over to the judicial system. Arbitration enables them to cooperate in resolving the dispute. The more dialogue, the more effective arbitration is. The state court is set up as a battleground, and arbitration is more like a discussion.
Influence on procedures:
If a business wants to have some control over the way the dispute resolution proceeding will be handled, it will choose arbitration. In arbitration the parties and arbitrators together decide on the nature of the procedure. The parties participate in selection of the arbitrators. Together they establish the rules of the game which will apply when resolving a conflict. The parties may select the place of arbitration and the language in which the proceeding will be conducted. Together with the arbitrators, they can decide on whether to hold hearings or not, as well as the schedule, and they can set a deadline by which the dispute should be resolved. Together with the arbitrators, they can select the type of evidence to be considered and how evidence will be admitted. They can establish the rules especially to suit the particular needs of the specific case, or they can use the “off the rack” procedure set forth in the regulations of a permanent arbitration institution. This freedom given to the parties makes them jointly responsible for the course of the arbitration proceeding.
As businesses have an influence on selection of the arbitration panel they may to submit the dispute to specific individuals who are professionals in the particular field, with recognized standing within that community. The parties know who will decide the case. An important case will not be decided by randomly chosen judges, as would be the case in a state court.
Arbitration requires agreement in the midst of disagreement. The parties disagree about the dispute, but they agree on an arbitration clause and the court that will decide the dispute. They are free to choose domestic or foreign arbitration, under the auspices of a permanent arbitration institution or using an ad hoc arbitration panel. Generally the parties select the arbitrators. As a rule, each party appoints one arbitrator and then the arbitrators together select the third member of the panel who will chair the panel. The parties agree on the course of the proceeding and the self-discipline that will apply throughout. There is no compulsion in a proceeding before an arbitration court. Finally, the parties voluntarily undertake to comply with the decision and enforce the award that is issued. All of this takes good will and greater commitment than would be required in a proceeding before a state court. There, the parties are required to comply with fixed procedures over which they have no control, and the dispute will be decided by an unknown judge.
Arbitration is not the place for procedural tricks, or exploiting technicalities to defeat the opponent. When companies fall into a dispute, they know full well that they may need to do business with their current opponent in the future. They are sensitive to the commercial realities, which encourages fair play.
Arbitration is a private process, and assures confidentiality to the businesses involved. An arbitration award is not public information and is not accessible under the freedom of information act. The parties decide whether the award issued by the arbitration court will be announced publicly, or if it is in their interest to maintain full confidentiality. Arbitration helps protect trade secrets.
Arbitration is a modern, flexible tool for resolving disputes. Arbitration responds quickly to economic change. The intent of the parties is decisive when it comes to selection of the method for proceeding— there are no inflexible procedures set in stone, such as fixed evidentiary rules that exclude certain types of relevant evidence from being considered. The parties decide how to use this tool most effectively. For example, they can select the language of the proceeding based on the contract between them, avoiding the need for translation of voluminous documentation. The quality of the arbitration is largely up to the parties, because they have significant influence over how it is conducted. In state courts the parties’ influence is negligible.
The parties’ choice of procedures and arbitrators clearly affects the speed of the proceeding. Together with the arbitrators, they establish the schedule and the deadlines. The parties’ self-discipline and the availability of the arbitrators make it possible to focus on the proceeding and save a significant amount of time. A dispute may be decided in a matter of weeks or months, not years.
Savings: Arbitration enables companies to budget their litigation costs, because the parties have an influence over the fees that will be charged for resolving the dispute. The fee structure may play an important role when selecting a permanent arbitration institution.
When a dispute arises between companies that operate under different legal and economic systems, there is a concern that submission of the dispute to the judicial institutions in one of the countries may come at the cost of objectivity, upsetting the principle of equality of the parties. International arbitration provides an opportunity to resolve disputes on neutral ground, with arbitrators selected from different legal systems and cultures. The parties are free to select an arbitration court abroad, in a neutral third country.
Force of award:
An arbitration award is a private document, but when it is recognized or enforced by a state court it obtains the binding force of a state court judgment. Both international and domestic arbitration awards are subject to recognition or enforcement. Advocate Justyna Szpara will address this topic in more detail in an upcoming issue of American Investor. An arbitration award issued in Poland may be challenged by either party through a petition to set aside the award, filed with the state court. The practice in recent years indicates that only a handful of arbitration awards are set aside each year under this procedure, which demonstrates that arbitration is achieving success in Poland.
The author is editor in chief of www.arbitration.pl
Published in: American Investor, November 2010