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Commercial arbitration reform

On 1 January 2015 sweeping changes to Slovakia's arbitration legislation finally came into effect. Of most relevance to international finance parties are the changes to the regulation of commercial arbitration in Slovakia, which is now fully harmonised with the 2006 version of the UNCITRAL Model Law. There is also a new alternative dispute resolution system applicable to contracts involving consumers, and a new framework for the operation of domestic arbitration institutions. This article considers the key changes for finance parties.

In Slovakia, commercial parties often rely on arbitration as a means of resolving disputes because of the lack of commercial expertise in state courts, and to avoid lengthy court proceedings. In addition, banks are obliged by law to offer to all clients, consumers as well as businesses, arbitration clauses submitting disputes to the Permanent Arbitration Tribunal of the Slovak Banking Association.

Since 2002, Slovakia had an arbitration friendly Arbitration Act based on the 1985 UNCITRAL Model Law. However, several crucial provisions were not aligned with the 1985 Model Law. Moreover, the judiciary often displayed a rather hostile stance towards arbitration, which gave rise to effective restrictions on arbitration. By way of example, courts held that actions for declaratory relief (eg regarding the validity of a contract) are non-arbitrable or that arbitration clauses incorporated by reference are null and void. Whilst many of these court decisions were in consumer claims, many argued that the same restrictions applied in commercial arbitration too.

The Ministry of Justice appointed an expert group with a wide mandate to draft an amendment to the Arbitration Act and to separate consumer arbitration into a separate piece of legislation with distinctive principles and stricter oversight. The law relating to commercial arbitration is now contained in a new Arbitration Act, and the following key changes have been made.

First, the definition of arbitrability has been widened significantly. The previous definition referred only to matters seeking proprietary relief as being arbitrable, which led to confusion as to whether certain types of request for declaratory relief may be heard by arbitrators or not. The new definition of arbitrability removes these restrictions and essentially makes all private law relationships, which do not involve a consumer contract, arbitrable.
Secondly, the formal requirements for arbitration agreements have been clarified. The new Arbitration Act retains the condition of the written form for a valid arbitration agreement. Nevertheless, the writing requirement is clarified in order to reflect modern business usage, eg by specifically referring to electronic communication. The amendment also explicitly acknowledges that an agreement to arbitrate can also be incorporated by reference (eg to general terms and conditions). There has previously been conflicting case law on this issue.

Thirdly, the amendment restricts the establishment of arbitration institutions. Similar to some other Central and Eastern European countries, Slovakia is contending with an unwelcome proliferation of arbitration institutions, many of whom are either inactive or, more alarmingly, used as private law enforcement tools by certain businesses and law firms. Before the amendment, there were more than 150 so-called "permanent arbitration courts" in Slovakia, which have mainly been established by private companies. Under the new regime, the only legal entities which will be allowed to establish a new permanent arbitration court are: (i) chambers of commerce; (ii) non-profit professional associations; and (iii) specifically named private law entities, such as the Slovak Olympic Committee.

Calls for a complete monopolisation of institutional arbitration in favour of a handful of existing institutions have not been followed. The new regime will allow for healthy competition between arbitral institutions, but will put a much greater emphasis on the transparency of their dealings and will prevent situations involving conflicts of interest from arising. Each domestic arbitral institution will be required to publish an annual report listing, in summary form, relevant information on its activities in the previous year. 

Fourthly, the amendment removes options for opposing parties to sabotage or torpedo the arbitral proceedings. Arbitral tribunals will have comprehensive powers based on the 2006 UNCITRAL Model Law. The grounds for setting aside of an award are now brought fully into line with the provisions of the Model Law and Art. V of the New York Convention on Recognition of Foreign Arbitral Awards.
By adopting a Model Law-compliant regime for commercial arbitration, and by separating it from rules on consumer ADR, Slovakia has sent a strong signal that it wants to be recognised as an arbitration-friendly and "safe" jurisdiction. It should therefore be able to attract more interest as a place for international arbitration, but a lot will depend on whether or not this clear pro-arbitration stance of the legislator is echoed by that of the Slovak courts. In any event, arbitration is likely to remain the preferred dispute resolution mechanism for international financial institutions in Slovakia.
Partner Martin Magàl and Senior Associate Juraj Gyérfàš were the principal drafters of the Model Law inspired text dealing with commercial arbitration.