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13 December 2018
One of the main reasons for choosing arbitration as a method of dispute resolution has always been the finality of arbitral awards. Once the tribunal has rendered its award, the dispute should be over and the parties should be able to put it behind them. At the same time, to reconcile finality with the need to correct the most fundamental irregularities, arbitration laws in all established jurisdictions set out a limited list of grounds for setting aside an award. Essentially, this limited list contains:
Such defects can be raised in an application for setting aside an award. The United Nations Commission on International Trade Law (UNCITRAL) Model Law specifically states that the proceedings concerning such application are the only recourse against an award.
In Slovakia, the finality of arbitral awards has often been called into question – even the Constitutional Court has assumed jurisdiction to review arbitral awards.
Slovakia has come a long way in bringing the review of arbitral awards into line with international standards. A major amendment to the Arbitration Act (adopted in 2014) reconciled the grounds for setting aside an award with the UNCITRAL Model Law. A major ruling of the Constitutional Court handed down in 2015 reversed the views taken by some judges that it has jurisdiction to review arbitral awards.
However, despite these positive developments, there is still one stage where reviews of arbitral awards are somewhat unpredictable: enforcement.
Under Slovak law, domestic arbitral awards are enforceable without the need for any further recognition or declaration of enforceability. In this respect, Slovak law is even more arbitration friendly than the UNCITRAL Model Law. Under the Arbitration Act, an arbitral award constitutes a title for launching enforcement proceedings. In theory, the underlying title should no longer be reviewed in enforcement proceedings (save for some basic formalities) and the enforcement court should grant the bailiff authorisation to proceed with the enforcement.
However, although the powers of the courts in reviewing arbitral awards at the enforcement stage are not clearly set out in law, the enforcement courts have asserted some limited jurisdiction for conducting such review. This is not unreasonable. Obviously, the courts cannot enforce arbitral awards that would be manifestly contrary to public policy, such as an arbitral award condemning someone to personal servitude or, somewhat less outlandishly, an award giving effect to a cartel agreement. Equally, the courts cannot enforce arbitral awards concerning matters that are non-arbitrable, such as an arbitral award divorcing a couple or an award in a consumer dispute.
Arbitration laws in related jurisdictions, such as Austria and Germany, also recognise that arbitral awards that are contrary to public policy or issued in non-arbitrable matters cannot be the basis of enforcement proceedings, even if they have not been formally set aside.
The problem in Slovakia is that since these grounds for refusing enforcement are not set out in law and the power of the enforcement courts to review arbitral awards is thus not clearly circumscribed, the courts need to base such reviews on general legal theory. Needless to say, the boundaries of such theories are blurred and the extent of review is thus hard to predict.
On the one hand, there is a line of case law pursuant to which an enforcement court cannot review whether an arbitral award was issued on the basis of a valid arbitration agreement because the party opposing enforcement should have filed an application for setting aside the award and raised that argument in such application (Constitutional Court, II ÚS 300/2018; Supreme Court, 6 ECdo/7/2013).
On the other hand, there is also a line of case law pursuant to which an arbitral award issued based on an invalid arbitration agreement is null and void and parties which fail to raise this objection in set-aside proceedings can still raise the objection in enforcement proceedings (Constitutional Court, IV ÚS 484/2018; Supreme Court, R 46/2012).
This case law carries repercussions for legal certainty. Normally, once the period for filing an application for setting aside an award has expired, the parties should be able to rely on the finality of the award. This is not the case if the award can still be reviewed in enforcement proceedings.
Moreover, the review of arbitral awards by an enforcement court is also impractical. Usually, the enforcement courts do not hold hearings, taking evidence before them is problematic (Constitutional Court, PLz. ÚS 1/2014) and most of their caseload is handled in a rather mechanical way. In this sense, they are certainly not as well placed to examine intricate arguments concerning the validity of an arbitration clause as the courts hearing set-aside applications against awards.
All of these difficulties could be overcome if the only recourse against an invalid arbitration agreement were set-aside proceedings and if this objection was not admissible at the enforcement stage.
In recent years, there has been immense progress in standardising and modernising the legal framework of arbitration in Slovakia. In particular, a major amendment passed in 2014 largely brought the Arbitration Act in line with the UNCITRAL Model Law. On the back of the new legislative framework, commercial arbitration is slowly regaining the standing that it lost by being associated with perceived problems in consumer arbitration.
Even when it comes to the finality of arbitral awards, significant progress has been made. The 2015 opinion of the Constitutional Court closed a loophole for an extremely unusual recourse against arbitral awards. The 2014 amendment reconciled the grounds for setting aside arbitral awards with the UNCITRAL Model Law and limited the scope of review at the enforcement stage. Most importantly, there is no doubt that the courts do not have jurisdiction to review an arbitral award on its merits.
With all of that being said, some uncertainty remains. Most notably, it is unclear whether the enforcement courts can review the jurisdiction of an arbitral tribunal even if the party opposing enforcement did not initiate set-aside proceedings. This uncertainty could be resolved by an amendment to the Arbitration Act or the Enforcement Code or by clear case law of the courts; unfortunately, none of this appears likely in the near future.
For further information on this topic please contact Juraj Gyárfáš at Allen & Overy Bratislava by telephone (+421 2 5920 2400) or by email (email@example.com). The Allen & Overy LLP Bratislava website can be accessed at www.allenovery.com.
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