Global Development

Introductory remarks

In Poland, arbitration still has not reached its full potential. The legislator is however introducing new regulations in phases aimed at popularising arbitration in Poland. After ensuring that the Polish law was compatible with the UNCITRAL Model Law in 2005, the arbitration community was focused on lobbying activities to shorten the post-arbitration procedure. This was achieved in 2015 by a regulation which provides that a motion to set aside an arbitration award and a motion to enforce the arbitration award were to be filed directly to the appellate court. Consequently, the appellate court judgment is final and provides only limited recourse, i.e. cassation to the Supreme Court remains an option. Those amendments to the law shortened the post-arbitration procedure significantly. The only request the proponents of arbitration in Poland still had from lawmakers concerned the arbitrability of corporate disputes, and this issue has been a point of focus of many arbitration conferences, almost ritually. Participants in the discussion were divided into proponents and opponents of the recognition of the arbitrability of corporate disputes. The wording of the Code of Civil Procedure (before the Amendment of 31 July 2019)¹ did not provide any clear answer. However, in June 2019, when a wave of amendments to the Polish Civil Procedure was surprisingly voted through by Parliament, the amendments also impacted arbitration. In particular with the Amendment, establishing that corporate disputes are now arbitrable.

Even though the problem may seem local and applying only to Poland, it has an international dimension. The very issue of arbitrability of corporate disputes has been debated in Germany,² Austria,³ and Russia.⁴ The actual issues encountered in those countries are dealt with in Poland slightly differently. Also, due to the internationalisation of the Polish economy, investors from other jurisdictions may be surprised to find arbitration clauses in their Polish companies’ statutes or articles of association. The arbitration clauses might be included in the statutes or articles of the association of any company currently acting under Polish law. Such an arbitration clause might indicate any arbitral institution as competent to handle a given corporate dispute.

Definitions

To understand the issue and the ongoing debate in Poland, it is crucial to understand how the terms of corporate disputes and arbitrability are defined under Polish law.

Corporate disputes

The term ‘corporate disputes’ plays a pivotal role in this regard. It should be understood in two ways – broadly and narrowly.⁵

• The broad definition encompasses disputes arising from any corporate relationships (i) between shareholders, (ii) shareholders and the company, (iii) the company and its bodies, individual members of corporate bodies, (v) a corporation and persons acting to the detriment of the company. The majority of such disputes are not problematic when subject to arbitration, as an award should be limited just to the legal relationship between the plaintiff and respondent.
• The narrow definition includes disputes based on resolutions of corporate bodies which can be challenging i.e. disputes arising as a consequence of a challenge of shareholders’ resolutions by its shareholders, management board, supervisory board or its individual members. The Code of Commercial Companies provides for a legal action if a resolution of a shareholders’ meeting breaches the law or is adopted to the detriment of a shareholder. These actions were traditionally furnished to the courts and those types of disputes, according to the majority of academics and jurisprudence, were not arbitrable, even though the Code of Civil Procedure contained provisions that indicated the potential arbitrability of some types of corporate disputes if an arbitration clause was introduced in the statutes or articles of association.⁶ Those disputes can turn out to be challenging due to the consequences of invalidating shareholders’ resolutions on all shareholders, regardless of whether they participated in the proceeding.

Arbitrability

The notion of ‘arbitrability’ refers to the ability of a dispute to be resolved by way of arbitration.⁷ In Poland, arbitrability is defined by under Article 1157 of the Polish Code of Civil Procedure. Before the Amendment, Article 1157⁸ stated that:

Unless otherwise stipulated by specific regulations, the parties may bring disputes involving property or non-property rights which may be resolved by a court-approved settlement agreement, except alimony, before an arbitral tribunal.⁹

This wording in the context of the arbitrability of corporate disputes has caused many disagreements in the jurisprudence and legal doctrine. The main point of contention was whether a party’s competence to settle a dispute in the court-approved settlement referred to in Article 1157, which is a token of the ability of a party to freely dispose of its rights, leads to the arbitrability of non-property rights or whether it concerns also property rights. There was no dominant opinion either way but the issue turned into a stumbling block for the arbitrability of shareholders’ disputes. Antagonists argued that one cannot settle a dispute as to whether a given resolution of the shareholders’ meeting complies with mandatory laws, as the parties do not have a free hand to decide on the issue. Supporters of the arbitrability of corporate disputes constituted a majority, but doubts as to the effectiveness of such provisions meant that arbitration clauses would generally not find their way into the statutes and articles of association.

After the Amendment, the wording of Article 1157 has changed, and the notion of a dispute being arbitrable has become wider and clearer:

Unless otherwise stipulated by specific regulations, the parties may bring the following disputes before an arbitral tribunal:

1. disputes involving property rights, except alimony;

2. disputes involving non-property rights, if they can be resolved by a court settlement agreement.¹⁰

The changes to the wording seem to be minor, but the reformulation of the Article eliminates some uncertainty. Now it is evident that the eligibility of a court settlement as the determinative criterion of arbitrability applies only to disputes involving non-property rights. According to the majority of commentators, corporate disputes always involve property rights,¹¹ and corporate disputes are therefore arbitrable.

Arbitrability of corporate disputes under the Amendment and potential challenges

Following the Amendment, corporate disputes are now arbitrable, but there are still many concerns regarding arbitration of corporate disputes. The main challenges relate to the fact that shareholders’ relations are – by their nature – multilateral and not binary. This causes logistical issues for arbitration institutions, as shareholders wishing to challenge the shareholders’ resolution may number hundreds, but more importantly, this creates multi-level legal challenges. Critical are, for instance, the consequences for non-participating shareholders in the arbitration proceedings of awards; as an award that annuls a shareholders’ resolution will affect all shareholders, not only those who participated in the proceedings.

As traditionally corporate disputes were ruled on by national courts, the Code of Commercial Companies set the rule of the extended effectiveness of a judgment,¹² i.e. a judgment rendered in a corporate dispute setting aside a shareholders’ resolution was binding on all shareholders of a given company even if they did not participate in the proceedings.

In order to address those concerns, the Amendment introduces some procedural rules that should be included in the arbitration agreement in order to safeguard some principal rights of all shareholders.¹³

First, a shareholder initiating a corporate dispute does not prevent others from doing the same. To streamline the proceedings regarding the same corporate dispute, the Polish legislator provided in the Amendment that an arbitration clause included in the statutes or articles of association is effective if it provides for the obligation of the company to publicly announce the commencement of proceedings. The announcement must be made within one month of the date of commencement of arbitration proceedings. The announcement may also be published by the plaintiff. In consequence, each shareholder may join the proceedings with one of the parties within a month from the date of their announcement. Therefore, the Amendment seems to provide an effective procedure to allow any shareholder to be aware of a shareholder dispute that may affect its rights and to participate.

Second, the Polish legislator addresses the problem of multiple proceedings under the new Article 1163(2) of the Code of Civil Procedure providing that the arbitral tribunal appointed in the earliest commenced case will examine all other cases concerning the same shareholders’ resolution.¹⁴ This regulation, however, does not clarify what should be done if several arbitral tribunals have already been constituted (i.e. if all proceedings are to be consolidated or if they will be decided separately by the same tribunal). For more clarity, the Polish legislator should have taken a leaf out of the Arbitration Rules of the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit e.V. – ‘DIS’), which after the jurisprudential influence of the Federal Supreme Court (Bundesgerichtshof)¹⁵ adopted the ‘Supplementary Rules for Corporate Law Disputes’.¹⁶ Under the above- mentioned decisions and the DIS Arbitration Rules, multiple cases concerning the same resolution cannot be ruled on in parallel.¹⁷ There is no possibility to initiate parallel proceedings referring to the same resolution, as the duly announced interested entities who are not named as parties to the arbitration should be granted an opportunity to join the arbitral proceedings as a party or intervenor.

Third, this regulation deserves a dose of criticism as it promotes ‘the first, the better’ rule. Therefore, a shareholder who joins the proceedings or initiates subsequent arbitration has no influence on the appointment of the arbitrators deciding on his case. Thus, such a party is deprived of one of the single most important decisions during an arbitration – the appointment of the arbitrator. As the right to nominate the arbitrator is one on the greatest advantages of arbitration and constitutes a crucial right of a party guaranteeing equitable and fair proceedings as well as the equality of the parties, it should be concerned whether such a practice, even though statutory, will not be challenged by a motion to set aside the arbitration award.¹⁸ As arbitration of corporate disputes concerns a multitude of participants, and they all should have the opportunity to join the proceedings concerning them, the necessity to announce the commencement of the arbitral proceedings is a threat to another great advantage of arbitration, i.e. confidentiality. None of the provisions provides a solution on how to announce a dispute without breaching the confidentiality of the arbitration.

A side issue is the lack of intertemporal rules. The Amendment did not provide any transitional solutions, so there are doubts about whether the new provisions apply to the already initiated arbitrations or just to the ones that are to be initiated, as well as whether the new provisions apply to already existing arbitration clauses, or if they need to be amended in order to be effective.

Now that the green light to resolving corporate disputes by arbitration has been given, practical assistance to the parties and arbitrators should be provided. Since corporate disputes could be yet another source of business, arbitration institutions need to take responsible and strategic decisions as to whether they are able to shape such regulations and procedures that will guarantee that the arbitration procedure and awards are resilient to both the guerrilla tactics of the parties and their attempts to set aside awards in the public courts. Polish arbitration institutions need for instance to tailor their arbitration rules to the new regulations of the Code of Civil Procedure and go beyond those regulations to provide basic procedural guarantees for all shareholders. There might be a need for a specific set of rules addressing both logistical challenges and setting a rule of compulsory consolidation of the proceedings initiated during the statutory period of two months from the announcement of a dispute. Without such an adjustment, arbitration of corporate disputes in Poland will be purely illusive.

It does not help that the amendment regarding arbitrability of corporate disputes was not included in the initial draft of the Amendment submitted to the Parliament, but supplemented during parliamentary works. As the Amendment was passed with remarkable speed, which by some may be perceived as a positive factor, there are no related interpretational guidelines. Therefore, all the possible indices for the arbitral institutions and the parties may be found only by referring to foreign experience. But as each country or even each arbitral institution has its own rules, adopting foreign solutions may be particularly difficult and consequently cause uncertainty as to the legal application.

Conclusions

The questions concerning arbitrability of corporate disputes are multiple and for now yet unanswered as the Polish legislator opened the floodgates leaving the arbitration institutions with the task of working out actual procedures. Now that the green light to resolving corporate disputes by arbitration has been given, practical assistance to the parties and arbitrators should be provided.

Polish arbitration institutions need to consciously review their logistical capabilities and procedures and bear in mind that some corporate disputes may attract a large number of parties, taking into consideration the number of shareholders participating in the shareholders’ meeting of some public companies.

Similarly, it is a time for investors to review their arbitration clauses in the statutes or articles of association ahead of any dispute on the horizon and ensure that they fall in line with the Amendment.

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