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A New Framework for Arbitration of Corporate Disputes in Poland

Sun, 2019-12-22 02:00

Marcin Olechowski and Anna Tujakowska

As discussed in our previous post (available here), Polish civil procedure, including arbitration law (contained in Part V of the Polish Code of Civil Procedure or ‘CCP’) has undergoing significant changes. This post focuses on those amendments that substantially modify the legal framework for arbitration of corporate disputes.

 

Problems with the Arbitrability of Shareholder Resolutions

Until now, the question whether corporate disputes concerning the validity of shareholder resolutions in limited liability (spółka z ograniczoną odpowiedzialnością) and joint-stock (spółka akcyjna) companies are arbitrable was a source of considerable controversy in Poland. This was due to a less than fortunate formulation of the criteria of arbitrability under Article 1157 CCP, as well as problems inherent to the challenge of corporate resolutions (who should participate, binding effect, etc.).

Article 1157 CCP originally provided that parties can submit to arbitration any disputes over patrimonial rights (prawa majątkowe) and non-patrimonial rights (prawa niemajątkowe) that are amenable to judicial settlement, except for disputes relating to alimony. This wording raised two questions: (i) whether the requirement of being amenable to judicial settlement determined arbitrability for all types of disputes (or only non-patrimonial disputes) and, if so, (ii) what exactly was meant by amenability to judicial settlement in the case of patrimonial disputes. In particular, some commentators considered that corporate disputes concerning the validity of shareholder resolutions cannot be settled. Other commentators relied on Article 1167 CCP (which explicitly confirms the effectiveness of an arbitration agreement in companies’ statutes), arguing that it constituted a lex specialis to the general rule encapsulated in Article 1157 CCP and thus was tantamount to legislative recognition of the arbitrability of all corporate disputes. Courts were also divided on the subject. To add more confusion, the Polish Commercial Companies Code (‘CCC’) puts in place a number of special rules applicable to corporate disputes over the validity of shareholder resolutions, including strict cut-off dates for making such challenges (generally six months from the moment of adoption of the resolution, and three months in listed companies – cf. Articles 249 § 1, 251 CCC and Article 422 § 1, 424 CCC).

As a result, in practice, when parties went to arbitration with a corporate dispute concerning the validity of shareholder resolutions, such disputes would usually involve complex jurisdictional discussions, as well as rather frequent parallel proceedings. In particular, the strict cut-off dates applicable to challenges of shareholder resolutions prompted some parties to initiate court proceedings simultaneously with arbitration – as a precaution in order not to lose the right of challenge should the arbitral tribunal ultimately refuse jurisdiction.

 

Scope of Amendments

A number of amendments to the CCP which entered into force on 8 September 2019 (the Polish version of the act is available here) aim to remedy the confusion described above.

First of all, the amendments resolve any prior doubts in favor of the arbitrability of disputes about the validity of shareholder resolutions. Article 1157 CCP has now been reformulated to make it clear that all patrimonial disputes, except alimony claims, are arbitrable. A revised Article 1163 CCP now also expressly mentions disputes about the validity of shareholder resolutions in the context of arbitration.

Secondly, the amendments seek to limit the risk of parallel proceedings. They extend the scope ratione personae of the arbitration agreement included in a company charter as binding upon not only the company and its shareholders, but also the company’s statutory bodies (organs) and their members (Article 1163 § 1 CCP). Previously, those provisions did not refer to a company’s statutory bodies and their members. As a result, it was possible for action against a shareholders’ resolution to be taken in parallel proceedings in arbitration and in the common courts. For instance, a shareholder would be bound by an arbitration clause and challenge a resolution in arbitration, while a member of the board (officers of a company have their own standing in such suits) would claim not to be bound by the arbitration clause and bring the challenge in front of a common court. Consequently, it was possible that the court and the arbitral tribunal could issue conflicting decisions on the same case. The amendment not only limits this risk, but also aligns the CCP with the relevant substantive provisions of the CCC (Article 250 § 1 CCC and Article 422 § 2 point 1 CCC and the provisions of Article 295 § 1 and Article 486 § 1 CCC governing actio pro socio). A new Article 1163 § 2 CCP also provides for a type of mandatory consolidation of arbitration proceedings by operation of law. In the case of a challenge brought in arbitration regarding a shareholder resolution, the arbitral tribunal which is the first to be appointed will have jurisdiction over all other claims concerning the same shareholders’ resolution.

Thirdly, the amended provisions also seek to address the tension between the private nature of the arbitral process and the broader effect of a shareholders resolution on all shareholders. They do this by introducing a number of formal pre-requisites for arbitration agreements included in the articles of association (statutes) of a commercial company (Article 1163 § 2 CCP). These pre-requisites appear largely inspired by the German BGH’s Arbitrability II decision of 2009 (which spelt out the requirements that need to be fulfilled in order for a corporate dispute to be arbitrable under German law; a blog post discussing this decision is available here) and aim to ensure the ability for all concerned shareholders to participate in the arbitration while avoiding the pitfalls of parallel proceedings.

From now on, for an arbitration agreement to be valid, and encompass corporate disputes, it must provide for the obligation to publish information on the commencement of arbitral proceedings in the manner required for announcements of a given company (be it in the Court and Business Gazette (Monitor Sądowy i Gospodarczy), via the company’s website, or through registered mail). The announcement must be made within one month of the date of commencement of arbitration proceedings. The announcement may be made either by the company or by the claimant, and any shareholder may join the arbitration proceedings, either on the claimant’s or respondent’s side, within one month of the date of such announcement. This new framework is an attempt to address, in an arbitral context, the problem of so-called “extended effectiveness” (rozszerzona prawomocność) of decisions dealing with shareholder resolutions. Indeed, under the CCC, a final and non-appealable judgement annulling a resolution is binding on the company, all of its shareholders and the members of the company’s governing bodies. Before the amendment, the possibility that an arbitral award could also bind shareholders or individuals who did not participate in the arbitration was vigorously debated. The new provisions seek to put an end to those debates and give each shareholder the ability to make a conscious decision whether to join the proceedings.

 

Implications of the Amendments

The assessment of those changes by the legal community is mixed.

A clear positive of the recent amendments is the resulting legal certainty of the arbitrability of shareholder resolutions. In doing so, the Polish legislator joins a trend prevailing in leading European jurisdictions. This not only serves to bolster the position of arbitration in a broader ecosystem of dispute resolution mechanisms, but also underlines the importance of the shareholders’ freedom to shape their corporate relationship. Similarly, the effort to limit parallel proceedings is also welcome.

However, the new framework also raises a number of questions.

First, the new regime applies indiscriminately to all limited liability and joint-stock companies without making any distinction between company types or sizes. On the one hand, this raises a number of challenges in larger organizations – particularly, with ensuring that smaller shareholders are duly heard, as well as purely logistical issues in case, for example, of joint-stock companies with very large shareholder bases (by and large, arbitrators are not best prepared for dealing with mass claims). On the other hand, the mandatory publication mechanism appears to be somewhat of an “overkill” for small closed corporations (e.g., a limited liability company with one or two shareholders will also need to comply with such publication requirements).

Second, the new provisions are silent on the modalities of introducing (and amending) an arbitration agreement into the statutes of a corporation. While in the case of smaller corporations it is possible to preserve the necessary link with shareholder consent (consent being a cornerstone of arbitration), this is much more tenuous in the case of larger companies with many shareholders. For instance, one may easily imagine a majority shareholder imposing an arbitration agreement on minority shareholders who will have no real possibility to negotiate the wording of the arbitration agreement included in the statutes when joining the company (or a majority shareholder removing or amending such an arbitration agreement). Unfortunately, the amendments do not shed any light on those questions.

Third, it remains to be seen how the mandatory publication and consolidation mechanisms will work in practice – notably, to what extent they risk creating a new-found space for dilatory or even guerrilla tactics (in particular, the CCP is silent on the effects of such a joinder and the modalities of exercising such right of joinder). The mandatory consolidation mechanism also introduces a certain disconnect with the parties’ basic right to select their arbitrator (and may raise questions in view of the Dutco doctrine1)In the Dutco decision, the French Supreme Court found that in case of multiparty arbitration “any procedure for designating an arbitral tribunal set out in a pre-dispute arbitration agreement that does not ensure the strict equality of all parties in constituting that tribunal may not be implemented against a party unless, after the dispute has arisen, all parties confirm their earlier-agreed designation method.” See Ricardo Ugarte and Thomas Bevilacqua, ‘Ensuring Party Equality in the Process of Designating Arbitrators in Multiparty Arbitration: An Update on the Governing Provisions’, Journal of International Arbitration, (Kluwer Law International 2010, Volume 27 Issue 1) pp. 9 – 49. jQuery("#footnote_plugin_tooltip_3990_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3990_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });). All of those question marks are potential sources of challenges and disruption that may affect future proceedings.

Finally, in the absence of any express transitory provisions, it is unclear what should happen with the existing arbitration agreements contained in corporate charters that do not provide for publication requirements, with pending arbitrations based on such agreements, and on awards that have been issued in disputes over shareholder resolutions. This is a material failure of those amendments that negatively impacts on legal certainty.

In light of those concerns, it remains to be seen whether in practice those changes will indeed contribute to the increased use of arbitration in resolving disputes over shareholder resolutions. Certainly from a practical perspective, it seems easier – at this stage at least – to imagine efficient arbitral proceedings of that sort in the context of smaller to mid-sized limited liability companies rather than large joint-stock companies.

References   [ + ]

1. ↑ In the Dutco decision, the French Supreme Court found that in case of multiparty arbitration “any procedure for designating an arbitral tribunal set out in a pre-dispute arbitration agreement that does not ensure the strict equality of all parties in constituting that tribunal may not be implemented against a party unless, after the dispute has arisen, all parties confirm their earlier-agreed designation method.” See Ricardo Ugarte and Thomas Bevilacqua, ‘Ensuring Party Equality in the Process of Designating Arbitrators in Multiparty Arbitration: An Update on the Governing Provisions’, Journal of International Arbitration, (Kluwer Law International 2010, Volume 27 Issue 1) pp. 9 – 49. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Sports Arbitration in Egypt: The Utterly Baffling Experience

Fri, 2019-12-20 19:00

Ibrahim Shehata

Introduction

There have been three main long-standing controversies concerning arbitration in Egypt. First, interest rates and whether they are truly part of Egyptian substantive public policy.1)Ismail Selim, ‘Egyptian Public Policy as a Ground for Annulment and Refusal of Enforcement of Arbitral Awards’ (2016) 3 BCDR International Arbitration Review, Issue 1, pp. 65–79. jQuery("#footnote_plugin_tooltip_7862_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Second, whether the ministerial approval for conclusion of arbitration agreements in administrative contracts should in fact be considered of Egyptian procedural public policy.2)See, Article (1) Paragraph (2) of the Egyptian Arbitration Law No. 27/1994 as amended by the Law No. 9 of 1997. (the ministerial approval was only introduced by the 1997 amendment). jQuery("#footnote_plugin_tooltip_7862_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Third, the challenge of arbitrators in institutional arbitrations seated in Egypt and whether they should be referred to the court or could be rather decided by the arbitral institution itself (i.e., International Chamber of Commerce (ICC), or Cairo Regional Center for International Commercial Arbitration (CRCICA).3)Ibrahim Shehata, ’25 Years of Model Law Arbitration in Egypt’ Kluwer Law International (2019) 37 ASA Bulletin, Issue 3, pp. 631, 641. jQuery("#footnote_plugin_tooltip_7862_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Each of the above are recurring provocative themes and deserve their status as controversies that warrant heated debates between arbitration practitioners. However, in my opinion, a fourth subject, on which this article focuses, definitely tops any other controversial arbitration topic in Egypt. Simply, it is the story of an arbitral institution – incorporated by virtue of the Egyptian Sports Law No. 71 of 2017 – that excludes any annulment actions with respect to any arbitral award issued under the auspices of such institution regardless of the location of the seat of such an arbitration.

 

The Baffling Rules on Sports Arbitration

The Rules of the Egyptian Sports Arbitration Center envisage that arbitral awards should be subject to (a) an appeal; and (b) an annulment action.4)The internal annulment regime was introduced in March 2018 by virtue of amendments to the rules of the Egyptian Sports Arbitration Center. jQuery("#footnote_plugin_tooltip_7862_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In both cases, the appeal and the annulment could be adjudicated only internally within the same arbitral institution itself. The appeal regime is something that is not novel in the Egyptian arbitration world. It is recurrent in other sector-specific arbitrations, most notably, the customs arbitration regime.

What is truly original is having an internal annulment action within the Egyptian Sports Arbitration Center. The rules simply exclude the review of its arbitral awards through annulment actions by any domestic courts, whether Egyptian or foreign-based. The approach may be considered akin to the ICSID internal annulment regime, which excludes also the review of ICSID awards by any domestic courts.

Further, the rules were later amended once again in July 2018 to explicitly provide that the internal annulment regime apply to any arbitral award whether seated in Egypt or abroad. In other words, the rules have an extraterritorial reach beyond the borders of Egypt whereby they apply to domestic and foreign arbitral awards alike.5)See Article 92-bis (c) of the rules of the Egyptian Sports Arbitration Center. jQuery("#footnote_plugin_tooltip_7862_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

The Egyptian Courts’ View

The question then becomes whether Egyptian Courts (or foreign-based courts) would defer to these rules that very much interfere with one of the main duties of Egyptian Courts in the field of arbitration: reviewing annulment actions of arbitral awards seated in their jurisdiction. If you tried to guess, you probably guessed wrong.

A useful example is provided by a recent case presented to the Cairo Court of Appeal. On the 15th of April 2018, one of the candidates to the elections of an Egyptian sports club initiated an annulment case before the Cairo Court of Appeal concerning an arbitral award issued by the Egyptian Sports Arbitration Center. The candidate based its annulment lawsuit on two grounds, namely, (a) the non-existence of an arbitration agreement concerning the dispute in question; and (b) the alleged unconstitutionality of the sports arbitration regime as pronounced by articles (66) and (67) of the Egyptian Sports Law No. 71/2017. The counterparty has alleged that the annulment case should be held inadmissible in light of the new changes to the rules of the Egyptian Sports Arbitration Center as amended in March 2018.

The Cairo Court of Appeal6)Challenge No. 40/ JY 135 (Hearing Dated 5th of December 2018). jQuery("#footnote_plugin_tooltip_7862_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); – quite surprisingly – ruled that annulment actions concerning arbitral awards issued by the Egyptian Sports Arbitration Center are inadmissible (“December 2018 Appeal Judgment”). The Court did not find any legal issues with these utterly baffling rules. The Court explained its position by stating that the annulment procedures under the Egyptian Arbitration Law No. 27/1994 do not apply to sports arbitration awards as the latter follow a special regime for annulment as provided for under the new amendments to the rules of the Egyptian Sports Arbitration Center. In a nutshell, the Cairo Court of Appeal followed the literal interpretation of the newly amended rules of the Egyptian Sports Arbitration Center without providing any reservation in that regard.

 

The Utterly Baffling Experience

There are several unacceptable legal issues with these rules and the outcome they provide. The first two issues concern arbitral awards seated in Egypt, and the third issue is in relation to foreign-seated arbitral awards in particular.

First: The Egyptian Sports Arbitration Center has assumed within its rules one of the core function of the domestic courts of any seat; that is being the review of arbitral awards through annulment actions. This is usually an exclusive function for the domestic courts of the seat that can only be waived by these courts themselves. For instance, one can recall the very brief Belgian experience which allowed for the parties in arbitrations seated in Belgium to exclude the review of such awards through annulment actions.7)Margaret Moses, The Principles and Practice of International Commercial Arbitration: Third Edition, Cambridge: Cambridge University Press, pp. 120-1. jQuery("#footnote_plugin_tooltip_7862_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This experience has been replicated more recently in Bahrain in what was termed as the “free arbitration zone”.8)See generally, John Townsend, The New Bahrain Arbitration Law and The Bahrain “Free Arbitration Zone” – Part 1 – Chapter 4 – ICDR Awards and Commentaries. jQuery("#footnote_plugin_tooltip_7862_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Accordingly, it is only up to the jurisdiction itself to decide upon this issue and not the arbitration center.

Second: Sports arbitration in Egypt is mandatorily referred to the Egyptian Sports Arbitration Center. This has raised some concerns on whether such mandatory arbitration is constitutional or not. In April 2019, the Cairo Court of Appeal refused to refer such a matter to the Egyptian Constitutional Court as it considered that sports arbitration might be mandatory, however, it is still constitutional as it falls within the exception previously carved out by the Egyptian Constitutional Court itself for mandatory arbitrations.9)Challenge No. 16 / JY 135 (Hearing Dated 4th of April 2019). jQuery("#footnote_plugin_tooltip_7862_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such exception applies to sector-specific disputes that specify in advance the concerned parties, and when the regime governing such mandatory arbitration keeps in place all core principles relating to due process in such arbitrations. The Court in this case did not consider whether the new internal annulment regime envisaged by the rules would in fact endanger the constitutionality of mandatory sports arbitration. This is because the arbitral award in question was issued before such internal annulment regime was introduced by the rules.

In this author’s opinion, this internal annulment regime is to a great extent unconstitutional as it places parties in sports arbitration on an unequal footing with other types of arbitration. This is because the parties in sports arbitration would be entitled under this regime to a one-time opportunity to have their arbitral award reviewed under the annulment route, in contrast to the dual-step route available to parties in other types of arbitrations where their award gets reviewed by the appeal court then the cassation court.

Third: The extraterritoriality of these rules whereby they exclude the annulment actions before foreign-based courts runs in clear violation of the New York Convention which has set forth the principle that the courts of each seat are the ones having jurisdiction over annulment actions for all arbitral awards rendered in such seat. If this is the case with Court of Arbitration of Sport (CAS) arbitral awards which are regularly reviewed in annulment actions before Swiss courts, how it could be any different with the Egyptian Sports Arbitration Center foreign-seated arbitral awards?

 

Conclusion

The landmark December 2018 Appeal Judgment10)Challenge No. 40/ JY 135 (Hearing Dated 5th of December 2018). jQuery("#footnote_plugin_tooltip_7862_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7862_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which held annulment actions for arbitral awards issued under the umbrella of the Egyptian Sports Arbitration Center to be inadmissible has not been yet reviewed by the Court of Cassation. The author truly hopes that the Court of Cassation refers the matter to the Egyptian Constitutional Court to review these utterly baffling rules and consider how far they contravene with both the Egyptian Constitution and International Conventions alike.

References   [ + ]

1. ↑ Ismail Selim, ‘Egyptian Public Policy as a Ground for Annulment and Refusal of Enforcement of Arbitral Awards’ (2016) 3 BCDR International Arbitration Review, Issue 1, pp. 65–79. 2. ↑ See, Article (1) Paragraph (2) of the Egyptian Arbitration Law No. 27/1994 as amended by the Law No. 9 of 1997. (the ministerial approval was only introduced by the 1997 amendment). 3. ↑ Ibrahim Shehata, ’25 Years of Model Law Arbitration in Egypt’ Kluwer Law International (2019) 37 ASA Bulletin, Issue 3, pp. 631, 641. 4. ↑ The internal annulment regime was introduced in March 2018 by virtue of amendments to the rules of the Egyptian Sports Arbitration Center. 5. ↑ See Article 92-bis (c) of the rules of the Egyptian Sports Arbitration Center. 6, 10. ↑ Challenge No. 40/ JY 135 (Hearing Dated 5th of December 2018). 7. ↑ Margaret Moses, The Principles and Practice of International Commercial Arbitration: Third Edition, Cambridge: Cambridge University Press, pp. 120-1. 8. ↑ See generally, John Townsend, The New Bahrain Arbitration Law and The Bahrain “Free Arbitration Zone” – Part 1 – Chapter 4 – ICDR Awards and Commentaries. 9. ↑ Challenge No. 16 / JY 135 (Hearing Dated 4th of April 2019). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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The South African High Court Erring in the Application of Law: Does a Foreign Arbitral Award ‘Cease to Exist’ When Made a Court Order?

Fri, 2019-12-20 02:00

Jackwell Feris and Vincent Manko

In this post we consider the soundness of the legal conclusion of the Johannesburg High Court in the recent matter of Government of the United Republic of Tanzania v Hermanus Philippus Steyn (28994/2019) [2019] ZAGPJHC 312 (4 September 2019); 2019 JDR 1690 (GJ) (“Reconsideration Judgment“) to confirm jurisdiction over foreigners in South Africa in order to institute future proceedings for the enforcement of a foreign arbitral award under the South African International Arbitration Act 2017.

It is a well-established principle under South African law that for a South African court to exercise effective jurisdiction over a foreigner in South Africa such jurisdiction must be confirmed or founded by means of attachment of property owned by such foreigner in South Africa. Thus, any legal proceedings for the recognition and enforcement of a foreign arbitral award under the South African International Arbitration Act will not be competent without an order to confirm or found jurisdiction over a foreigner in South Africa. The relevant background facts are:

  • In July and September 2010, Hermanus Philippus Steyn (“Steyn”) obtained an arbitration award against the United Republic of Tanzania (“Tanzania”) in the sum of US$36,375,672.81 for land compensation claim that dates back to the 1980s (“Steyn Award”). The arbitration award was made an order of court of the High Court of Tanzania, Commercial Division on 3 May 2011.
  • On 17 July 2012, the parties thereafter concluded a settlement agreement with the Republic of Tanzania agreeing to pay Steyn the amount of US$30,000,000.
  • During 2018, Tanzania then unsuccessfully attempted to set aside the arbitration award made an order of court on 3 May 2011 on the basis that it was fraught with errors which needed to be reconsidered. This application was dismissed by the High Court of Tanzania on 4 December 2018 on the basis that the arbitration award was non-existent in Tanzania by virtue of it being made an order of court.
  • In June 2019, Tanzania launched its maiden flight to Johannesburg.
  • On 21 August 2019, Steyn obtained an ex parte order from the Johannesburg High Court by Judge Wepener J, who ordered the attachment of the aircraft owned by Tanzania in order to confirm, alternatively to found jurisdiction, to enable Steyn to seek the recognition and enforcement of an arbitration award.

The Reconsideration Judgment related to a reconsideration application brought by the Government of Tanzania before Judge Twala to reconsider the ex parte order of Judge Wepener J rendered on 21 August 2019 resulting in the attachment of the aircraft owned by the Government of Tanzania. The attachment order established the jurisdiction of the Johannesburg High Court “in proceeding to be instituted” by Steyn for the enforcement of a foreign arbitral award under the South African International Arbitration Act 2017.

In Judge Twala’s Reconsideration Judgement, he granted an order in favour of Tanzania setting aside the attachment order of the aircraft to confirm jurisdiction of the Johannesburg High Court on the following grounds:

[16]     I am of the considered view that the arbitration award ceased to exist on 3 May 2011 when it was made an order of Court. ….

[…]

[18] … The ineluctable conclusion is that the first respondent does not have an arbitration award which requires recognition and enforceability as envisaged by section 3 of the IA Act but is armed with a Court Order.

Even though the Reconsideration Judgment was in relation to an application to confirm or found jurisdiction over foreigners in South Africa, the reasoning which underpins this decision was pronounced on fundamental legal principles of the enforcement of foreign arbitral awards in South Africa. As the reasoning for Reconsideration Judgement by Judge Twala is essentially pegged to the date the arbitral award was made an order of court in Tanzania (3 May 2011), this post will not address the developments that took place during the period between 3 May 2011 and 4 December 2018, i.e. with the compromise reached between the parties and the recent unsuccessful setting aside proceedings in Tanzania.

The relevant facts for purpose of considering whether the Johannesburg High Court was dealing with a “foreign award” (also called “non-domestic award”), as contemplated by the South African International Arbitration Act, under Article I of the New York Convention were:

  • Steyn (a Namibian national) and the Government of Tanzania were parties to an arbitration relating to a land compensation claim in respect of land owned by Steyn in Tanzania;
  • The arbitral tribunal seated in Tanzania rendered an arbitration award in September 2010 in favour of Steyn; and
  • The arbitral award rendered in September 2010 was made an order of court of the High Court of Tanzania on 3 May 2011 for purpose of enforcement of such award in Tanzania.

Section 14(d) of the South African International Arbitration Act defines a foreign arbitral award as “an arbitral award made in the territory of a state other than the Republic”. Once a court is satisfied that it is dealing with a “foreign award”, it must give effect to Article I and III of the New York Convention to such award during proceedings for the recognition and enforcement of the award. Article I and III of the New York Convention obliges contracting states to recognise foreign arbitral awards as binding and to enforce such award in accordance with the rules of procedure applicable in such contracting state. The Steyn arbitral award appears to qualify as a foreign arbitral award, as the arbitral award was a) rendered in Tanzania and b) the parties involved are Namibian and Tanzanian.

On a prima facie basis, the attachment order to confirm the jurisdiction of the Johannesburg High Court should have been confirmed by Judge Twala in order for Steyn to proceed with the enforcement proceedings.  However, instituting enforcement proceedings would not imply that enforcement of the Steyn Award would necessarily have been granted by the court dealing with such proceedings against the Government of Tanzania. The Government of Tanzania would have been entitled during such enforcement proceedings to raise specific grounds for the refusal of recognition and enforcement of the Steyn Award as contemplated by the section 18 of the South African International Arbitration Act (which is a verbatim adoption of Article V of the New York Convention). This could, amongst others, have been on the grounds that the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made, including public policy considerations in South Africa. In addition, the Government of Tanzania would have been entitled to raise defences based on the procedural rules of South Africa, including defence of potential prescription of the award and state immunity.

The fact that the Steyn award was made an order of court on 3 May 2011 in Tanzania, for enforcement purposes in Tanzania, had no legal effect on its separate existence as a foreign arbitral award rendered in favour of Steyn, as contemplated by the New York Convention. Any legal conclusion that the Steyn Award ceased to exist on 3 May 2011 violates the entire foundation on which international arbitration and the recognition and enforcement of foreign arbitral awards are based, i.e. that a contracting state shall recognize foreign arbitral awards as binding and enforce such award, unless a party is able to convince a court that recognition and enforcement be refused on the grounds listed in Article V of the New York Convention. The Steyn Award was never set aside or annulled by the court at the seat (Tanzania).

Only once a foreign arbitral award has been set aside or annulled in the seat of arbitration in accordance with article V(1)(a) of the New York Convention and section 18(1)(b)(vi) of the South African International Arbitration Act it is considered to cease to have legal existence and has become null. However, courts in France, Switzerland and other jurisdictions have held that even foreign awards that have been set aside or annulled in the seat of arbitration (i.e. awards set aside) remain binding and are enforceable in other jurisdictions.1)Judgement of 10 June 1997, Omnium de Traitement et de Valorisation v Hilmarton, XXII Y.B Comm. Arb 696(1997); G. Born, International Arbitration: Law and Practice at page 338 – 341 (2012); posts about this discussion are available also at the Kluwer Arbitration Blog here. jQuery("#footnote_plugin_tooltip_9487_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9487_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  In other words, they do not “cease to exist”.  Thus, even if the Steyn Award was set aside in the seat of arbitration, i.e. Tanzania, it could possibly still be recognized and enforced in any other New York Convention jurisdiction. The approach adopted by Judge Twala in the Reconsideration Judgment to consider the Steyn Award as having ceased to exist for recognition and enforcement purposes in South Africa, therefore, does not accord with what is contemplated by the New York Convention and the South African International Arbitration Act.

Judge Twala’s task in the reconsideration application was merely to ascertain whether prima facie a foreign arbitral award existed for the purposes of the attachment order in order to confirm South Africa’s jurisdiction over the foreigners. Thereafter, Steyn would need to submit an application for the recognition and enforcement proceedings before another court, which would then deal with any grounds for the refusal of the recognition and enforcement of the foreign arbitral award. The conclusion by Judge Twala that “the arbitration award ceased to exist on 3 May 2011 when it was made an order of Court resulting in the setting aside of the ex parte attachment order was based on an error in law, i.e. applying a legal principle applicable to domestic arbitral awards, as opposed to the legal principles applicable to a foreign arbitral award. In addition, the reasoning of Judge Twala is inconsistent with the fundamental international principles discussed above, that underpin the recognition and enforcement of foreign awards as contemplated by the South African International Arbitration Act and the New York Convention.

Fortunately, the Reconsideration Judgement has no precedent setting effect and will most probably be corrected in future recognition and enforcement applications in the Johannesburg High Court or other high courts in South Africa. However, these types of pronouncements have the effect to undermine Johannesburg as a seat for international arbitration.  If one has regard to the arguments made by counsel during the reconsideration application and the reasoning of Judge Twala, it does highlight the need for South African professionals and the judiciary to ensure we invest in education and training on various aspects of international arbitration. If not, South Africa’s development as “Go-To” seat for international arbitration in Africa could be undermined.

References   [ + ]

1. ↑ Judgement of 10 June 1997, Omnium de Traitement et de Valorisation v Hilmarton, XXII Y.B Comm. Arb 696(1997); G. Born, International Arbitration: Law and Practice at page 338 – 341 (2012); posts about this discussion are available also at the Kluwer Arbitration Blog here. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Latest Changes in Polish Civil Procedure: An Opportunity for Arbitration?

Thu, 2019-12-19 02:00

Marcin Olechowski and Anna Tujakowska

Polish civil procedure is in the midst of a very significant makeover. The bulk of amendments came into effect on 7 November 2019 (the Polish version of the amending act to the Polish Code of Civil Procedure (CCP) is available here). This blog post discusses the nature of those amendments and their significance for arbitration.

 

Arbitration Is Still Struggling to Gain Traction

For a number of years now, arbitration in Poland has been struggling to gain traction. This is despite a fairly modern procedural framework, and efforts to streamline post-arbitration proceedings (with only one instance of judicial control in setting-aside proceedings). Indeed, while over 10 million civil and commercial matters are referred to the common courts every year,1)See Concise Statistical Yearbook of Poland, GUS (Statistics Poland, Warsaw 2019, p. 83). jQuery("#footnote_plugin_tooltip_2498_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2498_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the combined annual inflow of the two main Polish arbitral institutions (SA KIG and Lewiatan) has consistently hovered around 200-300 new cases per annum over the past several years. Arguably, the disproportion is smaller for high-stakes commercial cases – court statistics include all cases combined (including small claims, registry matters, etc.) and there is evidence that complex contracts tend to include arbitration clauses – but it is still very significant.

In the absence of more in-depth research, the exact reasons for this remain unclear. However, some factors can be identified.

One of the culprits is clearly a broader lack of awareness as to the availability of arbitration and its advantages. Recent data collected by the Polish Ministry of Justice in 2018 indicates that over 50% of entrepreneurs have no idea what arbitration is at all. Professional training of lawyers also emphasizes court litigation rather than arbitration (and, based on topical observations, the availability of having a second bite of the apple afforded by appellate review in court proceedings remains an important factor). Although, at the same time, in our experience, in more complex contracts, when clients are assisted by more “sophisticated” counsel, arbitration is often the favored means of settling future disputes.

Another factor is the costs of proceedings. Until recently, court fees in Poland were capped at a maximum level of PLN 100,000 (i.e., approx. EUR 23,000). This meant that for any case with a value of EUR 700,000 or more it was a priori cheaper to litigate than to arbitrate.

Finally, despite recurring complaints about the efficiency of the court system, Polish courts enable relatively speedy resolution of most cases. According to the 2018 EU Justice Scoreboard, going through both instances in a civil or commercial matter takes, on average, about 11 months (7.2 months in the 1st instance and 3.5 months in the 2nd instance).

 

The Reform Makes Litigation More Expensive and Procedurally Challenging

Those statistics are, of course, quantitative only. In reality, the duration of court proceedings varies significantly depending on both geography and subject matter. In Warsaw, which is the busiest appellate circuit, over 17% of cases take more than 12 months in the first instance (and over 3% take more than 3 years).2)Data for 2017 available from the Polish Ministry of Justice. jQuery("#footnote_plugin_tooltip_2498_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2498_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Complex commercial cases that involve a large number of witnesses and/or require court-appointed experts also last longer (3 to 4 years for the first instance is not uncommon in large construction litigation).

As a result, there is a broadly perceived need to increase the speed and efficiency of court proceedings. The most recent reform of the CCP introduces sweeping procedural changes which are supposed to achieve this goal. We consider, however, that those changes are just as likely to make arbitration a more attractive dispute resolution mechanism insofar as they increase the rigidity of the procedural framework in certain key areas and potentially lead to significant procedural pitfalls.

Firstly, the amended rules impose stricter time limits. For instance, any counterclaim will have to be submitted together with the statement of defense within 14 days of service of the statement of claim which may constitute a serious challenge in more complex cases. Set-off claims will also be more difficult as the revised rules limit the ability to raise set-off during litigation.

Secondly, the amendment reintroduces separate proceedings in commercial matters that will be procedurally much more demanding than ordinary civil proceedings. In particular, they include strict cut-off dates for submission of evidence. All supporting evidence will have to be invoked in the statement of claim and the statement of defense, respectively, under the sanction of being disregarded by the court. In addition, the admissibility of witness evidence will be considerably limited. In principle, demonstrating that a contract (or other legal action) was made will only be possible based on documents.

The more flexible procedural framework in arbitration – which can be crafted by the parties and the tribunal to accommodate the specifics of a particular case – may thus offer a much more appealing alternative, particularly in high-stakes disputes and factually complex cases.

Finally, insofar as the amendment also significantly increases court fees in civil and commercial matters (in some cases by even several thousand percent) and doubles the maximum applicable court fee (from PLN 100,000 to PLN 200,000), it also partly reduces the cost gap that previously existed between court litigation and arbitration. Accordingly, from now on, arbitration administered by Polish arbitral institutions will be cheaper than litigation for disputes of up to EUR 3,000,000.3)For a EUR 3,000,000 claim the arbitration costs will be at the level of approx. PLN 200,000, which is the same as the court fees. jQuery("#footnote_plugin_tooltip_2498_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2498_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Arbitration Law Is Being Clarified 

On the sidelines of this broader reform of the CCP, a number of changes have also been made to Part V of the CCP which contains the provisions of Polish arbitration law. These changes were enacted by a separate amendment which came into effect as of 8 September 2019 (the Polish version of the amending act is available here). They follow prior reforms aimed at creating a more arbitration-friendly environment (see prior posts by other authors showcasing the development of consumer arbitration here and the simplification of setting aside and enforcement proceedings here), and clarify or resolve a number of points that were previously controversial.

Firstly, the Polish legislator has finally decided to clarify the matter of arbitrability of disputes. Until recently, Article 1157 CCP – which deals with this point – was drafted in a manner that raised doubts  about whether all patrimonial disputes were arbitrable or only those which were capable of settlement. The original language of this article provided that parties can submit to arbitration any disputes over patrimonial rights (prawa majątkowe) and non-patrimonial rights (prawa niemajątkowe) that are amenable to judicial settlement, except for disputes relating to alimony. This wording raised two questions: whether the requirement of being amenable to judicial settlement determined arbitrability for all types of disputes (or only non-patrimonial disputes) and, if so, what exactly was meant by the amenability to judicial settlement in the case of patrimonial disputes (for instance, whether nullity of a contract or shareholders’ resolution was subject to judicial settlement or not). This provision has now been reworded in a way that makes it clear that all patrimonial disputes, except for matters related to alimony, are arbitrable (the condition of being amenable to judicial settlement now expressly applies only to non-patrimonial disputes). Accordingly, the amendment should finally put prior uncertainties to rest.

Secondly, the amendment makes clear that disputes over the validity of shareholder resolutions in limited liability and joint-stock companies are also arbitrable and puts in place a new framework for the resolution of these disputes (we will be discussing this in more detail in a separate blog post).

Thirdly, a newly introduced Article 1169 § 21 CCP addresses the problem of arbitral appointments in multi-party arbitration. The matter was not previously regulated in any clear manner. From now on, the applicable rule is that where there is more than one person (or entity) on the claimant or respondent side of a dispute, all such persons have to act jointly (unanimously) in order to appoint an arbitrator (unless otherwise provided for in the arbitration agreement).

Finally, the amendment deals with the very practical issue of determining the applicable version of the rules of procedure of a permanent arbitral institution to which the parties have submitted their dispute (Article 1161 § 3 CCP). The change consists of giving precedence to the arbitral rules in force at the date of commencement of arbitration proceedings (rather than the rules in force at the time of conclusion of the arbitration agreement).

 

A Chance for Arbitration?

We consider that the combined effects of those amendments opens new opportunities for the growth of arbitration in Poland. This is because, on balance, we expect the sweeping changes to civil procedure to create confusion and uncertainty rather than contribute to the efficiency of court proceedings. Litigation will thus become more expensive, complicated and, potentially, even more lengthy.

By comparison, the procedural framework for arbitration is almost an island of stability that recent changes merely strengthen. In addition, the procedural flexibility offered by arbitral proceedings has now become even more attractive, and the proceedings themselves have become comparatively less expensive for users. Of course, none of those changes addresses arbitration’s main problem, namely insufficient awareness of potential users, but they create a good starting point for arbitral institutions to step up their efforts to reach such users with their message.

It can thus be hoped that a more robust framework for arbitration, against the backdrop of increased difficulty in safely navigating through procedural pitfalls in court litigation, will provide arbitration with more traction in Poland.

References   [ + ]

1. ↑ See Concise Statistical Yearbook of Poland, GUS (Statistics Poland, Warsaw 2019, p. 83). 2. ↑ Data for 2017 available from the Polish Ministry of Justice. 3. ↑ For a EUR 3,000,000 claim the arbitration costs will be at the level of approx. PLN 200,000, which is the same as the court fees. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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