How to resolve disputes when the courts are not working?
An interview with Łukasz Lasek and Piotr Golędzinowski from the Dispute Resolution & Arbitration practice on the possibilities of out-of-court dispute resolution, planning in the event of a dispute, and costly traps to avoid.
Justyna Zandberg-Malec: How is it with the courts in Poland? Are they working or not? The reopening of the courts has been announced, and the running of time limits has resumed. How does it really look?
Łukasz Lasek: The courts are already starting to work, and hearings are slowly beginning. The amendment to the Anti-Crisis Act has introduced the possibility to conduct remote sessions, so if the technology allows we are likely to participate in remote sessions, mainly in commercial matters, which we both perceive positively.
It is high time for the digital transformation of the justice system. Many technical matters can be successfully handled online without any risks, saving everyone time and money. Also, most commercial cases are suited to being conducted virtually. This is confirmed by the positive experience of arbitration, as well as in other jurisdictions that were already conducting proceedings via videoconference before the pandemic.
Of course, we must be careful, and not all cases are best handled this way. The parties or their representatives may not feel comfortable with this type of procedure. It may also prove vital for the court to have direct contact when hearing certain witnesses. Particular care should be taken when conducting family and criminal cases online. Especially in criminal cases, virtual trials can raise concerns from the perspective of fundamental rights. Defendants’ contact with their counsel may be a problem. Research around the world also suggests that on average, more severe sentences are pronounced in online cases. This could mean that the lack of personal contact between the judge and the defendant reduces the court’s empathy.
However, it should be remembered that the courts buried under cases even before the pandemic acted quite slowly, especially in major urban centres. The waiting time for an appeal to be heard before the Warsaw Court of Appeal was one and a half years. Now, a two-month suspension of the courts’ work has added to this—work was suspended in terms of setting sessions and conducting hearings, and the judges largely worked on documents, catching up. However, two months without hearings, combined with the expected number of post-pandemic disputes, will undoubtedly block the courts even more and cause these cases to take even longer. Our colleagues warned on the In Principle site about the wave of post-pandemic disputes and suggested what needs to be done to flatten the litigation curve.
That is why it is worthwhile to think about the proper planning of dispute resolution methods, which is often forgotten. In most cases, businesses have the opportunity to plan ahead, either when entering into a contract or when a problem arises in a relationship with a contractor or a colleague.
Does it mean that if we have an agreement signed with someone that provides for disputes arising from the agreement to be resolved by the state court, we can add a clause to an existing agreement to regulate this differently?
Piotr Golędzinowski: In fact, the parties are free to regulate how to resolve disputes, even after signing a contract. They may still include a clause for a specific court, i.e. a prorogation clause or an arbitration clause, in the agreement. They can also make such a provision after a dispute has arisen (when it is called a compromise). The appropriate form must be fulfilled, i.e. it is not enough to make an agreement over the phone, but formal requirements must be met. However, there is no problem for the parties to make such a decision later.
An interesting solution was introduced at the lawyers’ initiative in Sweden and England. If the parties want the dispute to be heard quickly and the waiting period for a hearing is prolonged for objective reasons, the parties may transfer their case to arbitration even when court proceedings are pending. In those jurisdictions, the parties often wait for a hearing about a year; the main difference from Poland is that the case is resolved in an unbroken sequence of hearings, taking as long as necessary, without interruptions between scheduled hearings for unpredictable periods.
In the solutions proposed in Sweden and England, the arbitrators will take over all the evidence admitted so far, so it does not have to be readmitted. This allows the arbitration courts to offer much lower fees for resolving the dispute, as the arbitrators will perform much fewer tasks, some tasks having already been performed by the court.
However, I am afraid that this solution will rarely be applied in practice, as usually one of the parties has an interest in keeping the dispute unresolved. Besides, there is not yet such an initiative in Poland.
Generally speaking, what are the advantages of out-of-court dispute resolution, other than speed?
Łukasz Lasek: First of all, in most cases the dispute resolution clause which the parties agree on will not usually change the outcome of the process, but can help to plan it well.
Above all, a well-planned dispute resolution process may allow for the parties to solve their problem without involving the court or arbitration. A well-planned formula channelling and systematising the dispute often allows the parties to negotiate a settlement without having to file a claim with the court or arbitral tribunal. The parties can plan the whole path they should follow when a problem arises in their relationship. This pretrial protocol is important, as it forces the parties to hold talks. And such talks can be difficult when the parties are in conflict. The parties can also plan, for example, that at an early stage a mediator will help them solve the problem—a neutral person will meet with the parties, ask what the real problems are, and try to find some kind of amicable solution. Our experience shows that this works. And in post-pandemic disputes, where both parties are experiencing problems and disruptions in their business, there may be even more scope for finding solutions through negotiation or mediation.
On the other hand, if the dispute cannot be resolved amicably, which always involves less stress, shorter, less formal proceedings, and significantly lower costs, then the parties can choose the forum where they want to resolve the dispute. This might mean, for example, moving the dispute from Warsaw to Wrocław or Radom, where the courts operate much faster. So, if we care about the speed of the proceedings, we can resolve the dispute in a smaller city where there are generally fewer disputes and the courts act faster.
We can also arrange for arbitration, domestic or international, administered by the International Chamber of Commerce, the London Court of International Arbitration, or the Stockholm Chamber of Commerce, for example. We see in practice that Polish businesses are increasingly opting for such international arbitration centres. This does not mean that these disputes will always be decided by foreigners, as it can be agreed that the dispute will be resolved under the ICC rules and administered by the ICC, while the arbitrators will be chosen from among Polish practitioners.
We can also agree that we do not want to go to arbitration, only to the court, but not necessarily a Polish court. At the moment, we can basically agree on any court in the world. More and more international commercial courts are being established, e.g. in Brussels, Paris, Rotterdam, and Singapore. The proceedings before them are conducted in English, according to an international procedure, and very often international judges serve on these courts. So, for example, the judges in Singapore are not just from Singapore, but include a group of experienced practitioners from different jurisdictions, and we can arrange for such a court.
Resolution of a dispute by a court in Singapore or in international arbitration in Stockholm will usually be more expensive than resolving a case before a Polish court, but an advantage is the possibility to choose the persons who will resolve the dispute. If we deal with a highly specialised dispute in the energy sector, we may prefer to have such a dispute resolved by people with extensive experience in these types of cases, rather than a young judge from the commercial division with a heavy load of small cases and no time to bite into the technical aspects of the problem.
Compared to domestic courts, arbitration also gives greater flexibility, as the parties have an influence on the procedure. They can agree on how the arbitration will proceed: how quickly, in what language, how and where. The only limitation is the need to ensure equal treatment of the parties and allow the parties to present their case to the arbitrators.
In conclusion, a well-planned clause that systematises a dispute at the initial stage allows for the parties to identify precisely what is at the heart of the problem, makes it easier to enter into talks without having to start expensive proceedings, and, if unavoidable, regulates mundane but potentially costly issues such as the language of the proceedings. If all documents are in Polish, a provision that the proceedings are to be conducted in English may unnecessarily generate additional costs associated with the need to translate the entire documentation. Perhaps then it is worth agreeing that the people resolving the dispute will be arbitrators who speak both Polish and English. Therefore, it is necessary to take care of practical issues that do not affect the resolution, but can significantly accelerate the resolution of the dispute and reduce its costs.
Piotr Golędzinowski: In the now-frequent disputes concerning disrupted supply chains, some alternative dispute resolution methods also offer the possibility to resolve disputes in a different configuration than the usual court proceedings. For example, participants from different levels in the supply chain could be involved in negotiations or mediation, and a dispute potentially requiring five court proceedings could be resolved in a single multilateral negotiation or mediation.
ADR also offers the possibility to solve a dispute which is not provided for in court or arbitration proceedings. So, for example, the parties do not have to agree that one party will or will not pay money to another party. An arrangement can be made that one party will make a new delivery on better terms in exchange for waiving claims. Or, for example, the parties will jointly undertake a business initiative that one entity cares about and the other cares less about but is willing to get involved in to avoid a dispute. Thus, there is much greater flexibility in how a given dispute will be handled and how it will affect the operations of the businesses involved.
But how to start? If someone has never dealt with such institutions but only the state courts in Poland or elsewhere, how can they know whether it is better to turn to the ICC, to a mediator or elsewhere?
Łukasz Lasek: We know from experience that when negotiating an agreement, businesses rarely make an informed decision on including a dispute resolution clause. And if such a clause is included in the contract, it is often agreed as one of the “sunset clauses,” i.e. clauses negotiated at the very end of the process, when everyone is tired and wants to go home, so a clause is included that is ready to hand but will not necessarily work in the given business relationship. A dispute resolution clause must be tailored to the nature of the relationship and the type of dispute that may arise from it. It should not be the case that a contract for, say, the purchase of windows, includes a clause for a foreign arbitration court, when filing a claim before the tribunal would cost many times more than the goods themselves.
There is a lot of material on the web about different dispute resolution methods. International commercial courts and arbitration centres publish guides on how to draft such agreements and the standard clauses that most often appear in contracts. So the parties can examine these solutions and find out how the procedure is conducted, the costs, and best practice. However, we always recommend contacting a lawyer who will tailor such a clause to the specific dispute and propose a bespoke solution, rather than taking it off the shelf. This may increase the cost of drafting the contract but generate considerable savings in case of a dispute. It may also salvage the business relationship if for example thanks to mediation, the parties manage to come to an understanding without going to court. That would be a good investment. Besides, this is the origin of commercial arbitration. Arbitration was not created as an alternative to judicial dispute resolution, but as an institution of civil society, where a merchant of the highest standing helped others to resolve their disputes. The idea was to solve mutual problems in such a way that the parties could continue to work together.
Piotr Golędzinowski: A large proportion of the disputes we face are conflicts that could have been avoided if the parties invested a little more at an earlier stage.
Łukasz Lasek: We also know from practice that often court or arbitration disputes escalate because the parties do not know how talk to each other calmly and constructively. Often, when a case goes to court it turns out that the problem could have been solved very easily, but the parties had already invested so much money in the dispute that they no longer sought the simplest solution. A platform such as mediation or a contractual attempt to force negotiations often allows emotionally charged parties to reach an agreement. That is why we encourage them to pursue these avenues.
Interview conducted by Justyna Zandberg-Malec