The extent of the parties’ freedom

Unlike a state court (litigation), an arbitral tribunal (arbitration) is generally not bound by (1) statutory substantive law, or (2) state procedural regulations. Together, they constitute the “rules of the game” in any arbitration: institutional, ad hoc, administered. Therefore, as a party, it is worthwhile to be proactive, and specify them in the arbitration agreement (clause), or at a later stage of the dispute.

There is a general hierarchy for applying the “rules of the game.”

1. The most important thing is the consensual will of the parties;
2. The lack of consensus means that the arbitrators will determine the “rules of the game.”
3. significant freedom of their choice by the parties or arbitrators is not unlimited.

Relevant substantive law

Substantive law determines the existence of a given claim.

First, arbitrators should apply the law chosen by the parties. It is therefore crucial that the parties be proactive in this regard. The choice of substantive law is particularly important in cross-border arbitrations (foreign law is often chosen).

Second, the parties may expressly stipulate a demand for settlement of the dispute not according to the statutory norms of substantive law, but principles of equity, general principles of law. The Court may take into account, for example, good faith or established customs.

Third, the absence of a choice of law (even if only as a result of the parties’ disagreement) means that the arbitrators apply the law applicable to the legal relationship. It can also be a foreign law, determined in accordance with national law, governing cross-border relations.

Fourth, more important than the applicable law is the determination of the place of issuance of the arbitral award. This must be done in the arbitration agreement (parties) or in the award itself (arbitrators). The judgment can be issued abroad, even if the dispute was submitted to Polish law, because the parties can specify the place of the proceedings. If the award was not made, for example, in Poland, the Polish rules governing, for example, an action to set aside an arbitral award, recognition or enforceability of domestic arbitral awards do not apply.

Fifth, even the determination of substantive law does not imply an absolute obligation on the part of arbitrators to follow it. However, they should apply the rules that are included in the canon of so-called basic principles of the legal order. These principles in the domestic legal order are defined by doctrine and case law.

“The less substantive law – the greater the arbitrators’ discretion,” especially when arbitrators rule on principles of equity.

Practical Notes:

1. it is worth choosing the applicable law, not forgetting to indicate the place (country) where the arbitral award was issued;
2. equity award is zero chance of challenging the arbitrators’ award before the state court. Such a judgment, on the other hand, can be more easily recognized or declared enforceable;
3. Parties’ passivity in choice of substantive law = ceding choice to arbitrators;
4. The arbitrator may refuse to apply foreign law, especially if he does not know it. It is advisable to choose an arbitrator familiar with the legal order in question.

Rules of conduct

Unlike substantive law, the rules of arbitration determine how a dispute is resolved.

First, arbitration is not a dispute identical to a state court. Parties may choose to apply the rules of the procedural law (e.g., the Code of Civil Procedure); this is not practiced.

Second, be sure to specify the number of instances. The lack of agreement in this regard means, in practice, single-instance arbitration.

Third, the lack of definition of the rules of the dispute usually means the use of statutory regulations ( ad hoc, administered arbitration), the rules of a permanent arbitration court (institutional arbitration). The application of national laws governing the basic principles of the procedural legal order (such as the principle of equality of parties) is required.

Fourth, a violation of the parties’ agreed rules of conduct is more significant than a violation of substantive law. A judgment that violates the “basic rules of conduct set forth by the parties” can be challenged (e.g., by an action to set it aside). There may also be a refusal to recognize it, or to declare it enforceable.

It is important to keep in mind the less formal nature of the procedure vis-à-vis lithification.

Practical Notes:

1. In arbitration, institutions and customs based in the procedural law do not generally apply. Attorneys do not appear in togas, hearings are held seated, objections to the minutes are not made under Art. 162 of the Code of Civil Procedure, and the announcement of the judgment does not take place at the hearing;
2. Like substantive law, it is useful to define the rules of conduct in arbitration;
3. an arbitrators’ award cannot be challenged by claiming a violation of the rules of procedure at the pre-award stage; it is the award that must violate those rules;
4. Even less formalism in arbitration does not guarantee proper handling of the dispute.

Let’s talk about arbitration: lukasz.wydra@jklaw.pl