One-way Dispute Resolution clauses under Polish law
December 2012
International financing agreements often provide an optional jurisdiction or arbitration clause in which one party can choose either litigation in state courts or arbitration, or can choose between different jurisdictions, while the other party is bound to arbitrate or litigate in a particular jurisdiction.
These types of clauses which offer one party greater choice in the selection of a dispute resolution form have recently come under scrutiny by the Russian Supreme Arbitrazh Court in the case of optional arbitration clauses (see European Finance Litigation Review September 2012 edition) and the French Supreme Court on hybrid jurisdiction clauses (see page 4). This article considers whether finance parties may expect a similar approach to be adopted by Polish courts.
Equality of the parties to arbitration clauses
As a general rule, when faced with a foreign law governed optional arbitration clause1, a Polish court will look at the governing law of the clause and not refer to any Polish law concepts. As long as the governing law allows for optional clauses, there should be no doubts regarding its enforcement. This would apply both when an action is being brought in a Polish court in breach of the arbitration agreement, or when a Polish court is being asked to enforce an arbitration award that results from an arbitration based on such an optional clause.
However, under the Polish Code of Civil Proceedings (PCCP), provisions of a Polish law governed arbitration clause which violate the principle of equality of the parties are deemed to be ineffective. The interpretation of this rule proves difficult in practice as it may be construed either as extending the option to litigate to both parties or, conversely, restricting the originally optional clause to arbitration only.
Although this rule applies specifically to Polish law-governed arbitration clauses, the risk cannot be excluded that a Polish court would tend to resort to the equality concept when being called upon to scrutinise a non-Polish law governed arbitration clause. The choice between these two possible interpretations will be within the court's discretion and largely dependent on the intention of the parties when providing an optional mechanism and the purpose of the contract itself.
Equality of the parties to jurisdiction clauses
The right to opt for a jurisdiction of choice is granted both under the PCCP and the Brussels Regulation, which applies if one of the parties to the jurisdiction clause is domiciled in an EU member state. Thus, with some exceptions, the parties may agree to submit their disputes to the exclusive jurisdiction of a foreign court.
A jurisdiction clause that is valid under its governing law would normally divest the Polish courts of jurisdiction. As a consequence, a Polish court will decline the proceedings commenced in the breach of such clause. When interpreting the jurisdiction clause under the Brussels Regulation, the court will not normally resort to concepts taken from Polish law.
However, when dealing with Polish law-governed jurisdiction clauses, the PCCP once again provides an equality standard which stipulates that a jurisdiction clause granting the right to opt-out of the jurisdiction of the Polish courts to one party only, is deemed to be ineffective.
Given that this standard applies to Polish law-governed contracts and concerns opting-out rather than opting-in, which is usually the case in international finance agreements, we believe the risk of the Polish court striking down a hybrid jurisdiction clause is remote. However, in light of this standard, the www.allenovery.com 15 European Finance Litigation – Review December 2012 finance parties should try to avoid a unilateral opt-out mechanism if, in the absence of the agreement, a Polish court would be competent to hear the dispute.
Comment
The PCCP provides for a general prohibition against optional dispute resolution clauses which breach the principle of equality. This is only true for the clauses governed by Polish law. Where a clause is valid under its governing law, Polish courts should respect the parties' choice and uphold the validity of the clause in question. Thus, the potential risks for the enforcement of optional clauses with a Polish nexus would appear to be rather limited. However, in the absence of any Polish jurisprudence and given the recent Russian and French decisions, this risk cannot be completely excluded.
Footnotes
1. The question of which law governs an arbitration agreement is not always straightforward. In the context of this article we are referring to an arbitration agreement contained in a contract governed by a foreign law or where the parties have expressly chosen the arbitration agreement to be governed by a foreign law.
