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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.

The efficiency and attractiveness of arbitration depends on several factors: the applicable arbitration laws of the seat of arbitration, the national courts’ attitude towards arbitration as a separate dispute-settlement method, the standard of arbitration fees, the competence of arbitrators, the geographic location and development of the State itself.

Taking all these criteria in mind, Lithuania could be seen as an arbitration-friendly country upholding Western principles regarding international commercial arbitration and its management.

To start with, it is worth mentioning that Lithuania is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since June 12, 1995 (the NY Convention). Moreover, Latvia’s arbitration rules are in harmony with the UNICITRAL Model Law although not explicitly adopted. The Supreme Court of Lithuania (the SCL) in its 2002 ruling concluded that the court when applying and interpreting the NY Convention must analyze and rely on foreign case law, and  in 2010 held that if the parties had entered into an arbitration agreement, in the absence of the plea for the invalidity of such arbitration agreement, neither the party nor the court may modify such agreement – the dispute is not capable of being litigated in the court. 

Between 2010 and 2012 there were around 400 arbitral awards issued, with 28 of them challenged in the Court and only 3 awards being set aside, while one decision to set aside was reversed by the SCL. (The grounds for setting aside the awards were: (1) the transportation of railroad cars is not covered by railroad cargo transportation contract; (2) non-arbitrability of bankruptcy proceedings; (3) an issue regarding contractual term setting the price in a contract entered into through the public-procurement procedure). 

In June, 2012, the Lithuanian Parliament amended the Law on Commercial Arbitration (LCA), which advanced the modern approach of arbitration in Lithuania. The LCA shortened the list of non-arbitrable disputes and provided more situations of court assistance in arbitral proceedings. Recent case-law on the new LCA has upheld the competence-competence doctrine, as the SCL in 2013 stated that the arbitral tribunal has the primary right to decide upon its own competence. Moreover, it is acknowledged that even if the arbitration clause is pathological in some way it shall be interpreted in favor of arbitration (in favor contractus). Lastly, the applicability of the arbitration clause to parties who are not signatories is also accepted.  

According to recent research, approximately 98% of the foreign arbitral awards are recognized in Lithuania. Thus the arbitration laws and courts of Lithuania are becoming more and more pro-arbitration, and reluctance to recognize and enforce an arbitral award is most common in cases where a strong public interest is at stake. This is not a surprise, as all modern arbitration countries, including France, Switzerland, and Sweden, have maintained the relevance of ‘ordre public’ as an exception from arbitral proceedings. 

Referring to arbitral institutions, there are four permanent arbitral institutions established in Lithuania, but for the purpose of this Article the statistics and relevant information of the Vilnius Court of Commercial Arbitration (the VCCA) will be presented, because the VCCA prevails over the other arbitral institutions in terms of the amount and complexity of cases. 

One of the important factors when considering which Arbitral institution could take up this ‘golden mean’ in a particular dispute is the standard of arbitration fee. Whereas the registration fee for the initiation of arbitration in the Stockholm Chamber of Commerce is almost USD 2000  and in the International Chamber of Commerce USD 3000,  the VCCA takes less than USD 400 – 6 to 7 times cheaper. It is cheaper even than in neighboring countries like Russia or Estonia. In addition, there is no differentiation between the fees for national and international disputes.

Last but not least, according to VCCA statistics, business actors are the main participants in the arbitration proceedings. Most of the time, one of the parties in proceedings is an international subject. For example, 50% of disputes came from Eastern and Central Europe, 38% from Western Europe, and North America and Asia each provide 6 %.

Since arbitration is favored by business and commerce, the majority of cases are also of economic character: 48% involve Trade, Construction and Design; 17% involve Services and Finance; and 10% involve Insurance.

To summarize, Lithuania is going hand in hand with modern legal thinking, providing ‘arbitration-friendly’ legislation based on international commercial arbitration principles, and offering arbitration costs which can be described as best for quality. The location of Lithuania between East, West, and Nordic Countries provides cultural commonalities, shared values, and understanding with those regions, so it can be seen as a particularly convenient and neutral forum for businesses from different regions, offering both highly competent arbitrators who have worldwide arbitration experience and a broad, business-promoting point of view. 

By Kestutis Svirinas, Partner, Sorainen

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.