Why is Arbitration in Slovakia a no-go?

I. Introduction

It cannot be said that arbitration works in day-to-day realities in Slovakia. Businessmen, in-house counsels and even external legal representation opt for civil litigation. When considering all of the positive implications, which arbitration as a dispute resolution method can have on a particular situation, it seems surprising.

Based on these axiomatic facts, I will now analyze potential reasons for this state of the legal and business environment in Slovakia. I cannot help but reiterate that it is not the aim of this blog post to go into complexities, it rather offers my view of the issue presented. I will accordingly address the possibility to establish an arbitration institution responsible for Arbitration in Slovakia (II.), the enforceability and annulment of a potential arbitral award in Slovakia (III.) and formulate why wouldn’t I recommend a client to arbitrate in Slovakia today (IV.).

II. Arbitral Institutions

The issue of the so-called Permanent Arbitration Courts is comfortably regarded as the most serious problem of the Slovakian Arbitration Act (Act No. 244/2002, henceforth referred to as “SAA”). Under the currently applicable article 12 of the SAA, any legal entity can establish a Permanent Arbitration Court and conduct arbitration proceedings. The only legal requirement is the publication of a statute. Pursuant to these, not-so-stringent predispositions, it comes as no surprise that there are more than 130 such courts currently functioning.

A Committee set up by the Ministry of Justice of Slovakia identified this problem but only offered an incomplete solution. Only generically restricted circle of entities is going to be able to establish a Permanent Arbitration Court under the amendment (which was supposed to be in application by the beginning of summer). Given the fact that the registration of such an entity („Občianske združenie“ in Slovak) is not subject to much control from the government, it is in my opinion still easy to infer that the system will continue to be subject to abuse.

Although arbitration is from the outset liberal and offers great deal of party autonomy, I still find the Czech Arbitration Act (Act No. 216/1994) as the better solution of the described problem. Article 12(1) of the mentioned act prescribes a very restrictive system, where an arbitration institution can only be established by law. It could be argued that it goes against what arbitration should stand for, however in the current state of Arbitration in Slovakia, I would have to disagree.

One of the reasons why the Permanent Court of Arbitration (henceforth “PCA”) opened in Mauritius is that if a country seriously wants to become a frequent forum for arbitrations, it has to have a well-known institution upon which the parties can rely. Judith Levine, who represents the PCA in Mauritius, mentions here that a mouthwatering 86% of the awards rendered in the past decade were under the rules of an institution and not ad hoc. Therefore, I am persuaded that in order to regain the trust of businesses in Slovakia, a reliable arbitration institution has to be set up without the hundreds damaging its reputation. This can be done by law, as it is in the Czech Republic.

The alternative would be to go the path Mauritius went and become a host country to the PCA. It obviously requires a fair amount of lobbying and finance but it would prove its worth. Bratislava could then combat Vienna as an arbitral forum for the Central and Eastern European businesses with the reputation of the PCA in hand. Now that seems like an interesting contest.

III. Enforcement and Annulment of Awards

This topic has been subject to a lot of controversy lately. Right from the outset, it is perplexing as to why the “violation of public policy” was not included as one of the reasons for the annulment of an arbitral award under the SAA. This is going to be amended by the previously mentioned Committee, which also adjusted all of the reasons for annulment of awards to the article 34 of the UNCITRAL Model Law.

Nevertheless, the SAA is not deficient in this regard because the articles regarding enforcement and annulment already reflect modern acts on arbitration (except perhaps for one particular provision, which I have saved for the conclusion). What could help the efficacy of the proceedings and indeed save the parties’ a lot of money is the court, which deals with them in the first instance. Today, it is possible to appeal the decision of the district court and of the regional court (although only on points of law). The possibility to then go on to the Slovak Constitutional Court is also open. It can hence take years to actually enforce or annul an arbitral award. It then seems logical to cut this process by at least one instance like in Belgium or Holland. It is also possible to opt for the most extreme option like Austria, where the Supreme court is the only instance, to which parties can turn (information on the amendment can be found here).

What seems to be however most dangerous is the stance taken by the Slovak Constitutional Court on several occasions (e.g. in III. ÚS 162/2011 and most recently in III. ÚS 49/2014 – I would have included a link but the site seemed to be down at the time of writing). The Constitutional Court has conceded that it is possible to turn to it right after the arbitration itself and ask for a relief based on the violation of due process pursuant to the Slovak Constitution and the European Convention on Human Rights.

I hence believe that the proper cooperation between arbitral tribunals and courts is yet to be developed in Slovakia. Although I must admit that it is difficult to deal with awards rendered by one of the hundreds of Permanent Arbitration Courts, where inter alia the neutrality of arbitrators is questionable (very nicely put) and mostly consumers are involved.

IV. My take on Arbitration in Slovakia and Conclusion

Before I conclude, I wanted to address one more provision of the SAA. Article 43(1) of the SAA states that if an arbitral award was annulled because the arbitration clause was invalid or the dispute was not arbitrable, the court shall continue in the proceedings as if the claim was brought to it originally. In my opinion this is in flagrant contradiction with the principle of party autonomy. It can be argued that claimant can always withdraw its claim under Slovak procedural law. That might be true but it does not change the fact that the intention of the parties was not to litigate in Slovakia. Moreover, respondent can effectively oppose the claimant’s withdrawal of the claim under Slovak procedural law. Article 43(1) of the SAA thus raises more obstacles than efficacy.

Given the above, I believe the question why local and international businesses choose not to arbitrate in big volumes in Slovakia has been implicitly answered. It is most probably based on the lack of experience with arbitration and the resulting inconsistencies and restrictions in the legal provisions dealing with arbitration and in the decisions of courts (most notably in the mentioned practice of the Constitutional Court). That is to say that I do not mean to argue that the underlying provisions are badly drafted or that the judges lack quality. Far from it actually. Both the judiciary and legislature only had merely 22 years to adapt to modern means of business. Moreover, the public belief in the alternative dispute resolution processes also lacks extraordinarily. In conclusion, until these issues (and others, not addressed here) are dealt with, it is safer to opt for a different forum.

written by Peter Plachy

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