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21 May 2020
On 2 January 2020 the arbitration court of the Slovak Bar Association (SBA) adopted new corporate dispute resolution rules. The SBA arbitration court is one of the most prominent arbitral institutions in Slovakia and the first to adopt specific rules for corporate disputes. This initiative was inspired by other arbitral institutions, particularly the German Arbitration Institute. The new framework aims to pave the way for more effective and specialised resolution of corporate disputes in Slovakia.(1) This article discusses the main features of the new rules, which have yet to be tested in practice.
The arbitrability of corporate disputes under Slovak law has been a hot topic among scholars and practitioners in recent years.(2) It was not until the 2015 reform of the Arbitration Act that the legislature explicitly recognised the arbitrability of corporate disputes.(3) Previously, this issue was barely considered as the ordinary courts applied a strict black-letter approach when interpreting arbitration agreements.(4)
Although the new wording of the Arbitration Act was a big step in the right direction, many practical questions – such as an arbitral award's effect on all shareholders and the corporation regardless of their participation in the arbitration – remained unanswered. This was because the exact scope of the arbitrability of corporate disputes was intentionally left to be determined by jurisprudence and legal doctrine.(5) However, no uniform view on the conditions for the arbitrability of corporate disputes has been formed; there is neither established jurisprudence of the ordinary courts nor an agreement among legal scholars and practitioners.(6) As a result, uncertainty as to the arbitrability of some corporate disputes persists, and clarification in the near future is unlikely without further practical guidance for commercial parties.
Therefore, the SBA arbitration court's recent initiative is a welcome development. Besides the supplementary procedural rules, the new framework contains a model arbitration clause that parties can incorporate into their corporate documents. The model clause reflects many peculiarities of Slovak corporate law and relevant arbitral jurisprudence of countries with comparable legal systems.(7) This detailed guidance is likely to increase the use of corporate arbitration in Slovakia, particularly as it provides answers to many crucial questions, including the following:
When and how does the new framework come into play?
The supplementary rules for corporate arbitrations are particularly useful in disputes requiring a single decision that is binding on all shareholders and the corporation in which a party intends to extend the arbitral award's effects to shareholders or the corporation which are not named parties to the arbitration.(8) The rules can also apply to disputes that can be decided by only a single decision that is binding on specific shareholders or the corporation.(9)
The rules are triggered only if the parties have referred to them in their arbitration agreement or have otherwise agreed to their application.(10) The new framework recognises that an arbitration agreement can be incorporated into any constitutional corporate document, including:
The model arbitration clause should ideally be included in each corporate document whose content the parties wish to arbitrate.
Which corporate disputes are arbitrable under the new framework?
The new corporate dispute resolution framework can generally be used in all disputes between:
In particular, the model arbitration clause specifically refers to disputes regarding:
These are the most contentious corporate issues that are likely to arise under Slovak law.
Notably, the wording of the model arbitration clause is ambiguous, allowing it to apply to other types of corporate dispute as well.
Who is bound by an agreement to arbitrate and what are the main implications thereof?
Besides named parties to the arbitration, an arbitration agreement enshrined in the model arbitration clause also applies to designated affected shareholders, former shareholders and the corporation itself (affected others).(13)
The most notable implication is that designated affected others are granted the opportunity to join the arbitration and thus affect the course of the proceedings.(14) By allowing affected others to join the proceedings, the named parties to the arbitration have less control over the proceedings. For example, the consent of all designated affected others is required for an extension or amendment of a claim's subject matter, including any counterclaims.(15)
However, affected others which are designated within the prescribed time limit agree to accept the arbitral award's effects regardless of whether they used their right to participate in the arbitration.(16) Further, the corporation agrees to include the arbitration agreement in an agreement on the execution of the function of a member of its statutory or other body and to raise the existing arbitration agreement as a defence against any related claim filed in the ordinary courts.(17)
Who can join the proceedings, when can they do so and what is the scope of their rights?
In its statement of claim, the claimant designates, in addition to the respondent, any shareholders or the corporation itself to which the effects of the arbitral award will extend.(18) The claimant must also provide the addresses of the affected others, to which the SBA arbitration court will deliver the statement of claim and an invitation to join the proceedings.(19)
The affected others have 30 days from the receipt of the statement of claim to advise in writing whether they wish to join the proceedings (either on the claimant's or the respondent's side).(20) The respondent also has 30 days from the receipt of the statement of claim to designate any additional affected others.(21)
If the prescribed time limits are met, the affected others which have expressed their wish to join the proceedings become parties to the arbitration with all of the pertinent rights and obligations.(22) From the moment of their joinder, the affected others are also entitled to name additional affected others to which the effects of the arbitral award will extend.(23)
Conversely, if the prescribed time limits elapse without any designations or a response from the affected others, the affected others are deemed to have waived their participation in the arbitration.(24)
The late entry of affected others into the proceedings is permitted but the scope of their rights may be limited.(25) In particular, the arbitral tribunal must decide, at its discretion, to approve the late joinder or the late entrants must accept the state of the arbitration as it stands at the time of their joinder.(26) This means that they may be prohibited from raising objections to the arbitral tribunal's composition or the place of the oral hearings if these have already been determined before their entry into the proceedings.(27) Therefore, the timing of joining the proceedings is crucial and should be carefully considered.
What are the rights of affected shareholders which do not join the proceedings?
Affected others which decide not to join the proceedings are not left completely empty handed.
First, they are entitled to be informed about the course of the proceedings by having copies of the parties' written statements, the arbitral tribunal's substantive and procedural decisions and any other significant communication transmitted to them.(28)
Second, they may request that the arbitral tribunal grants them leave to file a written submission on the dispute's subject matter. Such a request must be filed before the oral hearing has taken place and it is solely for the arbitral tribunal to decide whether to grant it.(29)
Finally, they are entitled to attend oral hearings as observers.(30) Normally, this does not include the right to submit motions and present oral arguments unless all parties to the arbitration have given their consent.
Notably, affected others which do not join the proceedings as a party have no input on the arbitral tribunal's composition or the determination of the procedural timeline. They are also not entitled to reimbursement of their costs.(31)
The new corporate dispute resolution framework adopted by the SBA arbitration court provides a solid base for Slovak entities wishing to arbitrate their intra-corporate disputes. If the model arbitration clause is adopted, the risk of having a corporate dispute declared inarbitrable is minimised. However, it remains to be seen how the new framework will be perceived among commercial parties and the ordinary courts.
For further information on this topic please contact Martin Magal or Lucia Dulovičová at Allen & Overy Bratislava sro by telephone (+421 2 5920 2400) or email (firstname.lastname@example.org or email@example.com). The Allen & Overy LLP Bratislava sro website can be accessed at www.allenovery.com.
(2) For examples please see Csach K and Gyárfáš J, "Arbitrability of corporate disputes:terra nova, terra inkognita", Justičná Revue 3/2015; Patakyová M, Hrušovský M and Lacko P, "Arbitrability of corporate disputes in Slovakia", Súkromné právo 1/2018; Eichlerová, K, "Arbitrability of corporate disputes of corporate enterprises", Právní rozhledy 19/2017 and Galandová M, "A hope for faster and more specialized corporate dispute resolution before the SBA's arbitration court", SAK Bulletin 3/2019.
(3) Act 336/2014 Coll has been in force since 1 January 2015 (available in English here). In particular, please see Paragraph 4(5), where the legislature clarified that:
An agreement is in writing even in the case of acceding in writing to a contract under a special law which includes a valid arbitration clause. This also applies to situations of acquiring a membership in an association or in another legal person, the internal governance documents of which contain an arbitration clause.
(6) For examples please compare Csach K and Gyárfáš J, who conclude that a limited liability company is bound by the arbitration agreement incorporated in its memorandum of association ("Arbitrability of corporate disputes:terra nova, terra inkognita", Justičná Revue 3/2015), with Patakyová M, Hrušovský M and Lacko P, who conclude the opposite ("Arbitrability of corporate disputes in Slovakia", Súkromné právo 1/2018).
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