Category: Uncategorized

General

International business always seeks stability and predictability. Legal instruments are reasonably expected to serve this stability and predictability as well. This should not be perceived as a simple requirement and desire of international business. It is also one of the indispensable components of the rule of law.

It is quite understandable that business people in particular prefer arbitration as a dispute resolution mechanism instead of state courts. Although this preference has long been explained by reference concerns about state courts’ practices and impartiality, we believe that the phenomenon is not directly related to impartiality. Instead, both domestic and international investors are inclined to use arbitration because of well-established rules and the long-standing prestige of arbitration, which, combined, ensure a high level of quality and predictability.

Historically, it is fair to say that Turkish legal practitioners have remained aloof from arbitration mostly because of a lack of sufficient knowledge and experience in practice. However, arbitration is now becoming more widespread in Turkey, along with soaring economic figures and legislative initiatives driven by international trends.

Chronological Development of Arbitration in Turkey

Until recently, Arbitration in Turkey was mainly governed by Civil Procedure Law No. 1086 (the “CPL”), which entered into force on October 4, 1927. Nevertheless, application of arbitration was very limited under the CPL. Additionally, the arbitration provisions of the CPL only regulated domestic arbitration but not international disputes. Therefore, Turkish International Arbitration Law No. 4686 (the “International Arbitration Law”) governing disputes with foreign elements was enacted, and entered into force on July 5, 2001. Subsequently, the CPL and the arbitration rules contained therein were replaced by the New Civil Procedure Law No. 6100 (the “New CPL”), which entered into force on October 1, 2011.

Thus, two different laws governing the voluntary arbitration mechanism now exist in Turkey. The New CPL governs, among other things, domestic arbitration, and the International Arbitration Law governs disputes with a foreign element. Both laws are based on the UNCITRAL Model Law. Accordingly, they are indeed compatible with modern practices.

Some Specific Observations on Arbitration Practice in Turkey

Whether arbitration can flourish in a country depends heavily on the attitude of state courts when their intervention is required. As long as state courts employ a liberal interpretation favoring arbitration, the availability of the process can ultimately be a “value” for that country (as it has been for Switzerland for many years, for instance). In contrast, an excessively conservative approach by state courts may decelerate or block the development of arbitration. 

Indeed, arbitral awards rendered under the CPL were subject to the appeal process, and the Turkish Court of Cassations unexpectedly examined the merits of disputes as well. Pursuant to the New CPL, however, arbitral awards can only be subject to set-aside proceedings based on procedural challenges. Substantive issues ruled by the award cannot, in principle, be examined. This is in line with international arbitration practices. 

As set forth above, the International Arbitration Law is applicable to disputes involving foreign elements, where Turkey is designated as the place of arbitration. Similarly, arbitral awards rendered under this law can only be challenged based on procedural grounds (except where the substantive issues affect or contravene matters of public policy).

Needless to say, enforcement of foreign arbitral awards is another ingredient of international arbitration. Turkey is one of the signatories of the 1958 New York Convention. Accordingly, we should stress that there is normally a legal mechanism facilitating enforcement of foreign arbitral awards. Nonetheless, Turkish courts are generally prone to interpret the notion of “local public policy” as widely as possible. This often leads to unexpected enforcement bans in Turkey. We thus believe that Turkish courts should refrain from supervising the merits of foreign arbitral awards and should rather adopt a more liberal approach promoting “universal public policy principles” when they hear enforcement requests.

Istanbul Arbitration Center

The Turkish government intends to ensure that Istanbul become an internationally recognized finance and arbitration center. The government has decided to realize this intention by a law, which is still under debate. In other words, establishment of the Istanbul Arbitration Center (arbitration court) is on the way. Obviously, the potential success of this center will be extremely dependent on what kind of operational, economic, and scientific autonomy it would have. Furthermore, in order for this arbitration center to compete with other eminent arbitration courts worldwide, the arbitration rules to be applied have to be well-defined, rigorous, and transparent, in line with international theory and practice.

Result and Conclusion 

Awareness and consciousness in relation to arbitration have started recently to increase in Turkey. The theoretical mainstay of arbitration has also been fortified, but arbitration practice should also parallel the theory. Accordingly, arbitration should be prioritized in legal education, public officials and judges should be heavily trained, and private sector representatives should also contribute to the development of arbitration by following applicable global trends and regulations in a close manner. 

By Cem Cagatay Orak, Partner, Cakmak Avukatlik Burosu

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The legal environment in the Czech Republic can be described as relatively friendly and supportive of arbitration. While the Czech Arbitration Act of 1994 (CAA) is not specifically based on the UNCITRAL Model law, it does recognise the most fundamental principles of modern commercial arbitration, including the doctrines of separability of arbitration agreements and competence-competence, the applicability of which has been tested in Czech Courts.

It is not common for the Czech courts to interfere with arbitration. The CAA gives them a rather standard set of tools to set aside domestic awards and to refuse their recognition and enforcement. On the other hand, in some cases courts may assist with the constitution of arbitral tribunals and, if asked by the arbitrators, take evidence on their behalf. Also, upon request of a party, courts may issue interim measures in cases where future enforcement of an award could be jeopardized. However, Czech courts would not protect arbitration by interfering with foreign court proceedings, for example by issuing anti-suit injunctions.

Nevertheless, the Czech Republic cannot be described as a typical seat of major international commercial arbitrations. There are various reasons for that. First, there are jurisdictions in the region – most notably Austria and Switzerland – which have been traditional choices as arbitration seats for many years and which  parties trust. Secondly, for the conduct of arbitration, the CAA refers to the application of the civil procedure rules of the Czech courts. The character of these rules is very “continental” and as such there is, for instance, almost no disclosure of documents between the parties, and cross-examination of witnesses is limited. Such an approach is not compatible with the modern practice of international commercial arbitration. Thirdly, the main arbitration organization in the country, the Arbitration Court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic, does not seem to be able to fully keep up with current international trends, which is reflected in, among other things, its new rules (effective as of July 1, 2012), which merged the previously divergent rules for international disputes with those for domestic disputes and which consequently do not sufficiently address the specific nature of disputes with an international element.  

Also, the prestige of arbitration as a whole has recently suffered in the Czech Republic from the fact that arbitration clauses were routinely used to decide disputes from consumer contracts by private entities other than permanent arbitration courts established on the basis of a statute. These entities appointed arbitrators, issued “arbitration rules”, etc., which were perceived to be unfair to consumers, and which resulted in 2012 in the most extensive amendment of the CAA to date. This amendment introduced numerous consumer protection provisions, including additional requirements as to the form and content of arbitration clauses and selection of the arbitrators in the area of consumer disputes and two new grounds for setting aside awards issued in such disputes.  

By contrast, the general overhaul of Czech private law (effective as of January 1, 2014) did not have any major impact on the regulation of arbitration in the Czech Republic. The most significant change in this context was that the provisions on various aspects of arbitration with an international element were moved from the CAA into the new International Private Law Act. However, save for a few technicalities, the substance of those provisions did not change.

As regards the recognition and enforcement of foreign arbitral awards, the Czech Republic is a signatory of the New York Convention, which in most cases remains the primary legal basis for recognition and enforcement, despite the fact that: (i) as a result of the Czech Republic’s reservation it only applies to awards from other signatory states; and (ii) more favourable provisions of bilateral treaties on legal aid entered into between the Czech Republic and certain countries on occasion take precedence. It is regrettable that in the context of enforcement of foreign awards Czech courts may from time to time also require other documents than those mentioned in Article IV of the New York Convention, such as extracts from the commercial register, which is in violation of the Convention. Also, doubt has been expressed as to whether the only way to enforce foreign awards in the Czech Republic is through Czech courts, or whether they can also be enforced through private executors, which is usually more efficient.

As for the separate and rather distinct area of investment treaty arbitration, the Czech Republic is currently a signatory of more than 80 investment treaties and has been sued by foreign investors under those treaties at least fifteen times, including famous cases like CME, Saluka, and Phoenix. However, the number of actions filed against the Czech Republic has been dropping, with the notable exception of claims filed by solar investors. On the other hand, Czech investors are becoming increasingly aware of the rights and remedies available under those treaties, and some of them have already taken actions to protect their foreign investments in this way.

Martin Magal, Partner, and Otakar Hajek, Associate, Allen & Overy

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The movement of tectonics plates is ordinarily associated with earthquakes, volcanic activity, mountain-building, and oceanic trench formation occurring along the plate boundaries. The present status and prospects of International Arbitration in Ukraine resembles in some respects the movement of the lithosphere resulting in the active landscape formation. The geopolitical situation, the reinforcement of commercial cooperation with the EU, and the significant slow-down of Ukrainian-Russian trade are the driving forces for such movement. The general collapse of the economy and volatile foreign currency rate adds to the seismic activity in the region, which is abundant in disputes. This affects International Commercial Arbitration and International Investment Arbitration. 

Legal framework

To understand fully the arbitration geology of the region some words should be mentioned about the legal framework. Ukraine adopted its International Arbitration Act in 1994, following verbatim the 1985 UNCITRAL Model Law on International Commercial Arbitration. The rules governing the recognition and enforcement of foreign arbitral awards contained in the Civil Procedure Code were drafted in full compliance with the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The positive image of the legislation, however, is somewhat diluted by the unavailability of interim measures in support of international arbitration in state courts and the fact that efforts to have arbitration awards either set aside or recognized and enforced must be made first to the lower court, with the Appellate Court, the High Specialized Court, and even the Supreme Court available for potential reconsideration, while most other European countries limit the judicial-review process (and expense) considerably.

Since 1992 two permanent arbitration entities have acted under the auspices of the Chamber of Commerce and Industry of Ukraine: the International Commercial Arbitration Court (ICAC) and the Maritime Arbitration Commission (MAC). ICAC earned popularity with more than 300 international disputes resolved each year; its caseload reflects a consistent trend of growth characterized also by prompt resolution.  

Anticipated changes

International arbitration follows the economy. Significant changes in economic activity and the direction of economic relationships influence the number of cases and the preferred choices in arbitration. 

The 2008/2009 crisis provides relevant background for understanding the effect of a slow down in the economy. International arbitration lawyers recollect that 2009 was marked by the proud announcement by a number of arbitration institutes of a dramatic increase in their caseload. On average the increase in the number of cases for European institutes was between 10 and 34%. ICAC experienced an unprecedented increase of 100% – 651 cases registered against the usual number of 300-350. The predominance of trade disputes (over 80%) in the portfolio of ICAC played a significant role in this increase. International sales of goods is traditionally more reactive to economic changes and a volatile foreign-currency exchange rate. Accordingly, the institute may experience an even more significant increase in the number of cases for the same reason in this and the coming year. 

Furthermore, changes in the choices of preferred forums is becoming more evident in recently concluded and negotiated contracts. Less enthusiasm appears to exist for the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, and a greater preference is expressed for ICAC and European institutions like the Stockholm Chamber of Commerce Arbitration Institute, the International Chamber of  Commerce International Court of Arbitration, the London Court of International Arbitration, and the Vienna International Arbitral Centre.

The level of preferences and referrals remains unaffected by the situation in specific commodities, such as the arbitration institutions of the Grain and Trade Feed Association (GAFTA) and the Fat, Oil and Seed Federation of Associations (FOSFA) for the grain and vegetable oil industries, where Ukraine retains a leading worldwide exporting role. This business is traditionally conducted pro forma in the specialized associations, with ready-made choices for dispute resolution known to Ukrainian companies. 

As to investment arbitration, the changing political situation inside the country has unsurprisingly stimulated the growth of a number of international investment disputes. The International Centre for Settlement of Investment Disputes has already registered two cases (ICSID Case No. ARB/14/17 and No. ARB/14/9). A number of mandatory negotiations preceding filing in Investment Arbitration are pending, so Ukraine risks appearing in the list of the most frequently sued countries again. 

The renewed picture of the International Arbitration landscape in Ukraine will be seen in full some time from now. Although any geological movement brings some level of uncertainty, one thing is beyond any doubt: changes will keep International Arbitration practitioners quite busy. 

By Yuliya Chernykh, Partner, Arbitrade

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Arbitration has become an indispensable alternative to often expensive, extended, and inefficient proceedings before state courts. The reasons for the success of (mainly international but also domestic) arbitration include the ability to have the dispute settled by a panel of experts who can be nominated by the parties based on their specific qualifications, and, most significantly, the almost universal enforceability of arbitral awards under the umbrella of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Additional benefits include confidentiality, (cost) efficiency, and the generally shorter duration of arbitral proceedings.

Against this background, competition for international arbitral proceedings has become fierce in recent years, especially from the arbitration institutions’ perspective. Austria’s history as a strategically well-located and neutral country has made it a popular place for international arbitral proceedings – which it remains today. Beyond that – or perhaps because of that – Austria is an arbitration-friendly jurisdiction. Austrian courts in general have a positive approach towards arbitration agreements and show a strong preference for upholding arbitration agreements as valid, provided that formal and minimum content requirements have been met. With the Austrian Arbitration Act of 2006, Austria has adopted (with only minor changes) the UNCITRAL Model Law as its law of arbitration, thereby ensuring that the internationally acknowledged standards for arbitration are incorporated into Austrian law. Furthermore, under Austrian arbitration law there are only a limited number of grounds on which arbitral awards may be challenged. 

However, most recently, international arbitration has been scrutinized, and questions have been raised about whether arbitral proceedings actually are as flexible and time-and-cost efficient as arbitration practitioners have claimed. As a result, Austria took up the challenge of modernizing its procedural rules in order to meet the expectations of parties interested in arbitration. Additionally, the Vienna International Arbitral Centre (VIAC) amended its rules to adapt to recent trends (such as an increase in multi-party proceedings), and to address concerns about a lack of flexibility or efficiency (e.g. by introducing fast track proceedings).

Single Instance to Challenge Awards

By virtue of the Austrian Arbitration Law Reform Act of 2013 (which entered into force on January 1, 2014), the number of court instances empowered to review arbitration matters has been narrowed from three to one. Parties now have direct access to the Austrian Supreme Court, which acts as first and last instance for all appeals to have arbitral awards set aside and for decisions on the validity and existence of awards and procedures regarding constitution of the arbitral tribunals. Arbitration proceedings involving consumers and labor law matters are still regulated under the former regime and thus may pass three court instances.  

VIAC Rules 2013

As of July 1, 2013, the new Vienna Rules of the VIAC apply to all proceedings initiated on or after that date. Particularly by introducing the possibility of a fast track procedure, VIAC has reacted to critical voices saying that arbitral proceedings are not as efficient as they should be. The new VIAC Rules also introduced new regulations regarding the joinder of parties and the consolidation of proceedings, which is now allowed if: (i) the parties agree; or (ii) the same arbitrators were nominated or appointed and the place of arbitration in all of the arbitration agreements on which the claims are based is the same. The responsibility for approving consolidation lies with the VIAC Board after having heard the parties and the arbitrators. Furthermore, the parties can now agree to fast track proceedings, in which the final award will be rendered within six months from the transmission of the file to the arbitral tribunal, unless this time frame is extended. Additionally, the arbitral tribunal now has wider discretion in ordering third parties to join proceedings upon the request of a party or a third party.     

The amendments to Austrian arbitration law and the adoption of the new VIAC Rules are important steps to maintaining and increasing the attractiveness of Austria as a player in the field of international arbitration. From the perspective of Austrian lawyers nowadays it is in any case state of the art to inform and advise clients about the possibility or – depending on the circumstances of the contractual relationship in question and on the parties to the contract – even the necessity of including arbitration clauses in international contracts. With the modernization measures taken over the last two years, Austria is perfectly prepared for new arbitral proceedings to come in the future. 

Arbitration is rapidly paving its way into the Polish market as a fast, efficient, and cost-effective dispute resolution alternative to Polish state courts. In recent years, economic growth in Poland has gone hand-in-hand with the development of arbitration as a dispute resolution method. Meanwhile, the growth of arbitration has also been accompanied by an arbitration-friendly approach of Polish state courts, which have consistently accepted the limited scope of review of arbitral awards.

Katharina Kitzberger and Stefan Weber, Partners, Weber & Co.

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The modern Romanian law system, including its rules on commercial arbitration, was influenced by Occidental laws. Conceived as a private way for solving disputes based on the parties’ agreement, ad-hoc arbitration has been regulated since 1865 under the Romanian Civil Procedure Code, which was inspired by the 1819 rules of the Geneva canton and by the French procedural rules of 1807 (as amended in 1842).

The architecture of the rules applying to ad-hoc arbitration was slightly amended during the intervening years, in particular in 1993. The first norms on institutional arbitration – introduced in 2010 under the New Romanian Civil Procedure Code – are to a certain extent similar to the UNCITRAL Model Law and are significantly harmonized with international practices. The New Romanian Civil Procedure Code of 2010 provides rules applying to any form of voluntary arbitration (domestic and international, institutional and ad-hoc, substantive law and ex equo et bonum), except for compulsory arbitration, set forth by the law or by international agreement.

In light of the international standards applied in this field, institutional arbitration is defined as an alternative to ad-hoc arbitration, being of a private nature, enjoying a permanent character, and being independent of ordinary jurisdictions, as it is selected and organized based on the written agreement of the parties in the dispute following the lex voluntatis principle. In addition, one of the main features of institutional arbitration is that it is not economic, not for profit, and benefits from an autonomous character in relation to the institution or the organization that established it. In Romania, institutional arbitration is organized in a specific form attached to organizations of associative nature (the most representative is the system of  “courts of arbitration attached to chambers of commerce”), and established and operating in accordance with the law. To a significant extent, arbitration activities regarding both domestic and international disputes arising from civil contracts are organized on a permanent basis by the National Chamber of Commerce through an International Court of Arbitration (the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania (the “CICA”)), as the leading permanent institution for arbitration in Romania.

During recent years, the CICA was questioned both about its independence from the organisation which created it and about the impartiality of its arbitrators; thus, a certain reluctance towards arbitration organised by this institution was obvious until new court rules were adopted in June 2014. The newly amended rules of arbitration facilitate a more efficient and professional arbitration by an independent institution, with the support of qualified arbitrators. The current court arbitral rules completely revised the CICA procedures for the arbitration of disputes, and a new set of principles was introduced to generate more confidence in the institution and in its main actors, the arbitrators. The court of arbitration cooperates with other arbitral institutions attached to county chambers of commerce and keeps the record of the arbitral practice, leading the arbitral activity in Romania.

International arbitration in Romania is organised mainly along the lines of institutional arbitration, but it is fairly rare in the country, as the existing arbitration institutions generally lack sufficient capacity and expertise in handling international cases; thus, ICC Paris or arbitration in Vienna or Zurich enjoy priority in international claims. In conformity with the abovementioned new rules of procedure, the parties to an international arbitration before the CICA may apply its rules, the rules arising from international conventions to which Romania is a party, and additional rules they select to apply to their dispute. The parties may also determine, by mutual agreement, the applicable law on the merits of the dispute. In the absence of this determination, the arbitration tribunal itself shall decide, based on the conflictual norms considered to be applicable in the subject matter. With respect to the conflict of laws, in order to determine the substantive law in an arbitral case, since Romania became a member of the European Union in 2007, the rules provided by Roma I and II Regulations have also applied.

Romania is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (ratified in 1961), to the European Convention on International Commercial Arbitration (ratified in 1963), and to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ratified in 1975). Foreign awards are enforced in Romania if recognised following a special procedure based on the 1958 New York Convention or on domestic law. The judicial system has no involvement in the performance of the arbitral proceedings except for cases expressly provided by Romanian procedural law (e.g., challenging the award for reasons of cancellation, which does not imply in itself a new debate of the case). 

By Cristiana Irinel Stoica, Founding Partner, Stoica & Asociatii 

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Arbitration has become an indispensable alternative to often expensive, extended, and inefficient proceedings before state courts. The reasons for the success of (mainly international but also domestic) arbitration include the ability to have the dispute settled by a panel of experts who can be nominated by the parties based on their specific qualifications, and, most significantly, the almost universal enforceability of arbitral awards under the umbrella of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Additional benefits include confidentiality, (cost) efficiency, and the generally shorter duration of arbitral proceedings.

Against this background, competition for international arbitral proceedings has become fierce in recent years, especially from the arbitration institutions’ perspective. Austria’s history as a strategically well-located and neutral country has made it a popular place for international arbitral proceedings – which it remains today. Beyond that – or perhaps because of that – Austria is an arbitration-friendly jurisdiction. Austrian courts in general have a positive approach towards arbitration agreements and show a strong preference for upholding arbitration agreements as valid, provided that formal and minimum content requirements have been met. With the Austrian Arbitration Act of 2006, Austria has adopted (with only minor changes) the UNCITRAL Model Law as its law of arbitration, thereby ensuring that the internationally acknowledged standards for arbitration are incorporated into Austrian law. Furthermore, under Austrian arbitration law there are only a limited number of grounds on which arbitral awards may be challenged. 

However, most recently, international arbitration has been scrutinized, and questions have been raised about whether arbitral proceedings actually are as flexible and time-and-cost efficient as arbitration practitioners have claimed. As a result, Austria took up the challenge of modernizing its procedural rules in order to meet the expectations of parties interested in arbitration. Additionally, the Vienna International Arbitral Centre (VIAC) amended its rules to adapt to recent trends (such as an increase in multi-party proceedings), and to address concerns about a  lack of flexibility or efficiency (e.g. by introducing fast track proceedings).

Single Instance to Challenge Awards

By virtue of the Austrian Arbitration Law Reform Act of 2013 (which entered into force on January 1, 2014), the number of court instances empowered to review arbitration matters has been narrowed from three to one. Parties now have direct access to the Austrian Supreme Court, which acts as first and last instance for all appeals to have arbitral awards set aside and for decisions on the validity and existence of awards and procedures regarding constitution of the arbitral tribunals. Arbitration proceedings involving consumers and labor law matters are still regulated under the former regime and thus may pass three court instances.  

VIAC Rules 2013

As of July 1, 2013, the new Vienna Rules of the VIAC apply to all proceedings initiated on or after that date. Particularly by introducing the possibility of a fast track procedure, VIAC has reacted to critical voices saying that arbitral proceedings are not as efficient as they should be. The new VIAC Rules also introduced new regulations regarding the joinder of parties and the consolidation of proceedings, which is now allowed if: (i) the parties agree; or (ii) the same arbitrators were nominated or appointed and the place of arbitration in all of the arbitration agreements on which the claims are based is the same. The responsibility for approving consolidation lies with the VIAC Board after having heard the parties and the arbitrators. Furthermore, the parties can now agree to fast track proceedings, in which the final award will be rendered within six months from the transmission of the file to the arbitral tribunal, unless this time frame is extended. Additionally, the arbitral tribunal now has wider discretion in ordering third parties to join proceedings upon the request of a party or a third party.     

The amendments to Austrian arbitration law and the adoption of the new VIAC Rules are important steps to maintaining and increasing the attractiveness of Austria as a player in the field of international arbitration. From the perspective of Austrian lawyers nowadays it is in any case state of the art to inform and advise clients about the possibility or – depending on the circumstances of the contractual relationship in question and on the parties to the contract – even the necessity of including arbitration clauses in international contracts. With the modernization measures taken over the last two years, Austria is perfectly prepared for new arbitral proceedings to come in the future. 

Arbitration is rapidly paving its way into the Polish market as a fast, efficient, and cost-effective dispute resolution alternative to Polish state courts. In recent years, economic growth in Poland has gone hand-in-hand with the development of arbitration as a dispute resolution method. Meanwhile, the growth of arbitration has also been accompanied by an arbitration-friendly approach of Polish state courts, which have consistently accepted the limited scope of review of arbitral awards.

Wojciech Kozlowski, Partner and Michal Jochemczak, Counsel, Dentons

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Arbitration is a relatively new but rapidly developing dispute-resolution method in Belarus. Although the “arbitration tradition” in Belarus has not yet developed to the level of many Western European countries, we note that Belarusian companies resort to arbitration and include arbitration clauses in their foreign-trade and domestic agreements much more frequently than they used to a decade ago.  

The history of institutional arbitration in Belarus dates back to 1994, when the International Arbitration Court at the Belarusian Chamber of Commerce and Industry (the “IAC at BelCCI”) was established. The IAC at BelCCI operates in accordance with the Law of the Republic of Belarus “On International Arbitration (Intermediate) Court” adopted on the basis of the UNCITRAL 1985 Model Law on International Commercial Arbitration. 

The IAC at BelCCI handles not only international economic disputes (involving at least one foreign party) but also disputes in which both parties are Belarusian entities. The IAC at BelCCI may also consider cases not involving Belarusian residents. In practice the IAC at BelCCI considers both minor disputes and complex and multi-jurisdictional cases. In 2012 the IAC at BelCCI considered 143 disputes, involving 92 foreign respondents and 46 foreign claimants. The number of disputes considered by the IAC at BelCCI per year is small in comparison with the number of cases considered by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (the “ICAC at the RF CCI”) or the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (the “ICAC at the UCCI”), which may be explained by the fact that the IAC at BelCCI is much smaller than either the ICAC at the RF CCI or the ICAC at the UCCI. At the same time, in the course of negotiations over the inclusion of a dispute resolution clause in agreements between Belarusian companies and foreign counter-parties, the IAC at BelCCI is often among the top options, due to its often being perceived by Belarusian companies as a “local” dispute resolution authority (located in Minsk, with local Russian-speaking lawyers that may be selected as arbitrators) and therefore a convenient forum. Although the facilities of the IAC at BelCCI may appear rather limited, this does not affect the quality and impartiality of the awards. In practice, the IAC at BelCCI often tends to be the only arbitration institution to which large Belarusian state companies or state bodies agree in their contracts with foreign partners. 

It is noteworthy that the minimum arbitration fee at the IAC at BelCCI is almost one third of the ICAC at the RF CCI’s, and half of the ICAC at the UCCI’s. As for the term of the arbitration proceedings at the IAC at BelCCI, generally the arbitral tribunal considers a dispute within 6 months from its initiation (3 months if the parties are Belarusian entities). 

As an alternative to the IAC at BelCCI in Belarus, there is the International Arbitration (Intermediate) Court, the “International Chamber of Arbitrators at the Union of Lawyers” (the “ICA at UL”), which was established in 2010. The minimum arbitration fee at the ICA at UL amounts to EUR 300 + VAT 20 % (less than the IAC at BelCCI’s). The terms for arbitration proceedings at the ICA at UL are also shorter than the ones at the IAC at BelCCI. 

The recommendatory lists of arbitrators of the IAC at BelCCI and the ICA at UL include not only Belarusian legal experts but also foreign legal experts from Russia, UK, Austria, Germany, Lithuania, France, Poland, Ukraine, and Kazakhstan, and the parties are also entitled to appoint arbitrators who are not included in the recommended lists.

In view of the great flexibility, short time, and low cost of Belarusian arbitration institutions – and as arbitral awards of the IAC at BelCCI and the ICA at UL are recognized and enforced under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (to which Belarus is a party) — these international arbitration options should be considered by foreign investors doing business in Belarus, interacting with Belarusian companies, or simply seeking a flexible, professional, and expedient dispute resolution institution.

All things considered, there is a strong and legitimate foundation in Belarus for further development of arbitration as an alternative dispute-resolution method in compliance with international arbitration practice and the enhancement of its availability and frequency.

Dennis Turovets, Managing Partner (Minsk), and Nataliya Ulasevich, Associate, Egorov Puginsky Afanasiev & Partners

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

There has been a steady increase in the number of national and international arbitration proceedings held in Bulgaria in recent years. The number of arbitrations for the past four years, for instance, is more than 4,000 (compared to the 20,000-30,000 disputes that state courts in Bulgaria deal with each year).

The average amount at stake in international arbitration cases is approximately EUR 500,000, while  domestic arbitrations traditionally involve far less.

Arbitration in Bulgaria is governed by the International Commercial Arbitration Act (ICAA), which follows the UNCITRAL Model Law on International Commercial Arbitration and borrows some rules from the New York Convention and the European Convention on International Commercial Arbitration 1961. The ICAA is applicable to international arbitration, which it defines as settlement of disputes where the venue of the proceedings is Bulgaria and at least one of the parties to the case does not have a permanent residence (domicile) or place of business in Bulgaria. According to the Bulgarian Civil Procedure Code, arbitrable disputes should have a proprietary nature (i.e. be capable of monetary valuation) or alternatively concern filling gaps in a contract or adjusting an existing contract to newly emerged circumstances. Disputes encompassing rights in, or possession of, real estate property as well as maintenance obligations and labor relations fall outside the scope of arbitrability. Furthermore, disputes regarding trademarks, patents, insolvency, or competition law are also not arbitrable. 

By contrast, public contracts and concession agreements can be subjects of arbitration clauses. Under the ICAA, there cannot be ex aequo et bono jurisdiction of tribunals seated in Bulgaria. Any of the parties may ask for court support and assistance in the course of arbitral proceedings (for freezing assets or collecting evidence) and the same may be requested by the tribunal on its own motion. An arbitration clause is a bar to a claim brought before a state court. Any award rendered under the ICAA (on Bulgarian territory) does not have to undergo a recognition procedure and can be directly enforced under local Bulgarian rules of enforcement. The award can, however, be set aside by the Supreme Court of Cassation.

Bulgaria is one of the few jurisdictions where it has been established that an optional (i.e., split or hybrid) arbitration clause is contrary to good faith and therefore invalid. In 2011, the Bulgarian Supreme Court of Cassation (Decision No. 71 of September 2, 2011, of Second commercial chamber of the Supreme Court of Cassation under commercial case No. 1193/2010) reviewed an application for setting aside an arbitral award under an optional clause and found that it gave advantage to one of the parties to alter the rights and obligations of the other in a way that only statutes may do. This rendered the clause illegal and was found void in its entirety.

The most common venue for arbitration in Bulgaria is the Arbitration Court at the Bulgarian Chamber of Commerce and Industry. During the past 10 years it has handled approximately 1350 international arbitrations, with a great number of them (around 60%)  decided within 6 to 9 months. Other commonly used and reputable organizations that support international arbitration courts are the Bulgarian Industrial Association and the Bulgarian Stock Exchange.

Bulgaria is a New York Convention (Convention for the Recognition and Enforcement of Foreign Arbitral Awards of 1958) jurisdiction. Bulgaria is also a contracting party to a number of international treaties for investment promotion and protection that envision international arbitration as dispute-resolution mechanism. Bulgaria is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965), which establishes the International Center for Settlement of Investment Disputes (ICSID). The investment treaties usually refer arising investor-state disputes either to institutional arbitrations like ICSID or the Arbitration Court at the Stockholm Chamber of Commerce or to ad hoc proceedings under arbitration rules such as UNCITRAL or the rules of the International Chamber of Commerce. To this date, there has been only one concluded investment dispute with Bulgaria and it was conducted in ICSID (Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24), with several more currently pending proceedings there.

Assen Georgiev, Partner, Head of Commercial and Dispute Resolution at CMS Sofia

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Arbitration, mediation or litigation? Which is cheaper? Quicker? More efficient and more suitable for my client? These are the questions that international lawyers practicing in commercial and dispute resolution have been facing on a regular basis for decades.

In Croatia, these questions were more an exception than a rule. But for a number of reasons the last few years has seen an upward trend in the use of alternative dispute resolution methods.

An inefficient justice system is one of the key obstacles for Croatia’s economic recovery and the inducement of foreign investments. Although there have been notable improvements over the last few years, especially due to the harmonization of Croatia’s legislation with the EU acquis communautaire (Croatia became an EU member state on July 1, 2013), the court case backlog is still substantial. In 2013, Croatia had approximately EUR 2.4-million in court cases – a very high number in comparison to its population (approximately 4.3 million as of 2011). In 2013, the average duration of the first-instance proceeding in municipal courts was 140 days, with an 86-day average in commercial courts (including summary proceedings), and 493 days in administrative courts. The average duration of the second instance proceedings in the County Courts was 220 days, with 938 days in High Commercial Court, 228 in the High Administrative Court, and 611 in the Supreme Court.

Many judicial system reforms have been implemented over the years to increase the level of judges’ expertise and expedite proceedings. In 2013, comprehensive amendments to the Civil Procedure Act came into force, with the goal of accelerating dispute procedures, increasing the efficiency of the courts, and reducing procedural costs. Some noteworthy amendments include shortening of time limits for procedural actions, introducing the obligation to present the entire case (submit all facts and evidence) in early stages of the proceeding, introducing the possibility for re-trial (i.e., a second instance court may set aside a first-instance judgement and return the matter to the first-instance court for re-trial), and implementing new rules to facilitate mediation.

Furthermore, the government has proposed to reorganize the judicial system by reducing a number of first-instance courts from the current 67 municipal courts to only 24. This decrease in the number of local courts, combined with the specialization of judges in larger towns, should be a recipe for improving the level of court expertise, expediting  proceedings, and eliminating local influences, which should finally lead to an overall enhancement of legal security.

Mediation has been one of the government’s strategic measures for resolving overcrowded courts, especially in social-sensitive matters like family disputes, personal and fatal accident claims, natural-persons civil disputes, and so on. The Mediation Act entered into force in 2011, pursuant to which a new Mediation Centre with the Croatian Chamber of Economy was established and expert mediators appointed. Furthermore, judges are encouraged to invite parties to resolve disputes through mediation. Pursuant to the Civil Procedure Act, mediation can take place with the court and is conducted by an expert mediator. Settlement agreements concluded between the parties in a mediation proceeding with the court have the same legal effect as a  court-approved settlement agreement. Despite the government’s efforts, however, mediation has not yet become popular, and only a small percentage of disputes are settled in this manner.   

In comparison to the overburdened courts, arbitration may seem more appealing because of efficiency, confidentiality, and expertise that very often even the judges of the Commercial Courts do not have. Historically, as in other socialist countries, arbitration proceedings were not encouraged (or even allowed). Arbitration reform started after Croatia’s independence in the early 1990s, finally resulting in a new Arbitration Act in 2001. In practice, the new legal platform was applied gradually and slowly due to a traditional orientation towards the courts, as well as a lack of information and understanding of arbitration proceedings.  

Today, the Permanent Arbitration Court of the Croatian Chamber of Economy – the only institutional arbitration court in Croatia – handles on average between 30 and 70 matters per year, with a total value up to EUR 130-million. In comparison to international courts of arbitration, this is a rather small number; however, arbitration still remains a valuable alternative to traditional-court dispute settlements,  not only because arbitration proceedings are more expeditious, but also because judges lack knowledge and experience in more complex areas that require specialization (e.g., in international commercial trading disputes and energy and construction matters).  The ability to choose arbitrators who are experts in the relevant field should increase the possibility of adjudicating the case ”fairly” in accordance with applicable law. On the other hand, court proceedings in Croatia are significantly cheaper than arbitration proceedings, which may sometimes be a decisive factor in the final choice between the two.

Arbitration or litigation? Meditation? From a lawyer’s perspective, the answer is always – it depends. Although there are a number of issues to be considered before initiating any proceeding, arbitration appears to be the right choice for complex disputes that require a higher level of expertise. 

By Miroljub Macesic, Senior Partner, Ivana Manovelo, Partner, Macesic & Partners

This Article was originally published in Issue 5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.