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CONVERSION OF COURT PROCEEDINGS INTO ARBITRATION PROCEEDINGS TO BECOME EASIER

In yet another effort to address the problem of protracted court proceedings and the growing backlog of cases to be heard, the Polish Parliament has decided to make it easier for parties to transfer a pending case from the common courts to arbitration. The idea is not new and was hotly discussed when the courts were grappling with Covid-19 related restrictions. The new regulations may be of interest to parties embroiled in complex court litigation, especially when it is still in the preliminary stages.

Why move a dispute to arbitration?

As a general rule, arbitration proceedings are faster than court proceedings, if only because they are usually limited to only one instance. Unlike court proceedings, in arbitration, as a rule, it is the parties who decide on the personal composition of the panel that will adjudicate their case. They can, therefore, choose persons in whom they have full confidence in terms of impartiality, knowledge, and experience. Despite repeated attempts to simplify and streamline court proceedings, arbitration proceedings remain much more flexible, particularly in terms of gathering evidence.

In assessing which dispute resolution mechanism would be better in a given case, one must also keep in mind the fees associated with each of these mechanisms. Depending on the value of the dispute, arbitration may be a cheaper or more expensive option. It should also not be forgotten that the choice between litigation and arbitration will affect the possibility of enforcing the obtained decision outside of the country where the dispute is decided.

Taking all these considerations into account, it is not uncommon, once the case has been brought to a common court, to conclude that arbitration would have been a better way to resolve the dispute.

Conversion requires the agreement of the parties

Under the new regulations, the court hearing the case will be bound by an agreement by the parties to transfer the case to arbitration, regardless of the stage of the proceedings at which this agreement is reached. Such an agreement will have to have all the contents and meet all the requirements prescribed by law for an arbitration agreement. Once such an agreement is made, the court will, at the unanimous request of all parties, discontinue the proceedings, upon making sure that the agreement is valid and effective.

Discontinuation of the proceedings will not lead to the expiration of the statute of limitations, the course of which was interrupted by the initiation of the discontinued proceedings. This is because the new regulations provide specifically that the statute of limitations for claims asserted in proceedings will begin to run anew from the date the decision on discontinuation becomes final.

If the discontinuation of the proceedings as a result of the parties’ decision to move the case to arbitration takes place before a first instance decision is handed down, the plaintive will have the right to a refund of 75% of the court fee paid in the case. This is a kind of incentive for the plaintiff, but it should be remembered that they will still have to pay the full lawsuit fee due in the arbitration proceedings.

Pitfalls of moving a case to arbitration

The new law does not change the regulations on cancellation of injunctions granted to a plaintiff in court proceedings, which seems to be an important drawback. The unchanged general regulations on injunctions granted by the common court provide for a cancelation of all injunctions granted in connection with proceedings in the case of discontinuation. This is all the more important as the cancelation of the injunction in turn gives rise to a defendant’s claim for compensation of damage suffered because of the injunction.

The newly introduced legislation contains one more pitfall for the party that initiated the court proceedings and is willing to move them to arbitration. The new provisions state specifically that there is no return to the state court after the proceedings are discontinued on account of the arbitration agreement made by the parties. Consequently, if the arbitral tribunal to which the case was transferred eventually rules that it does not have jurisdiction over the case for whatever reason, that exhausts all the possibilities of obtaining an enforceable decision in a given case. The general principle that if the party-appointed arbitral tribunal refuses to deal with the case, the state court will have to proceed with and adjudicate it will not apply.

The amendment discussed above will take effect on July 1^st 2023. The introduced mechanism of transferring the case to arbitration is certainly not perfect. It involves a number of difficulties and risks, especially for the party instituting the proceedings. In reality, reaching an agreement between the parties to the court proceedings will in most cases be unlikely, for the parties usually have different interests in the speed and rules of the proceedings. Nevertheless, it seems that there may be situations in which it would be convenient for both parties to change the mechanism for resolving their dispute. The amended regulations facilitate such a change.