When Arbitration Clauses Go Wrong

As proceedings before Poland's courts become increasingly lengthy, entrepreneurs are more often turning to arbitration clauses in their contracts. Arbitration is intended to provide a faster, single-instance dispute resolution mechanism.

However, during contract negotiations, such clauses – often placed among the “miscellaneous” or “final” provisions – may not receive sufficient attention. Poor drafting can have the opposite effect: prolonging proceedings, increasing costs, or even rendering the clause ineffective. This article examines two common pitfalls arising from insufficiently careful drafting.

Multi-step clauses: Precision is key

One pitfall concerns multi-step arbitration clauses, under which arbitration may begin only after completing prior steps aimed at amicable resolution, such as expert determination or settlement negotiations. If these steps are described vaguely, a party seeking to avoid arbitration may argue that they were not properly completed, raising questions about the tribunal's jurisdiction or the admissibility of the claim. As such issues are usually determined before the merits, an imprecise multi-step clause may significantly increase the cost and duration of proceedings, requiring separate submissions or even witness evidence solely on compliance with pre-arbitration requirements. Therefore, such clauses should define each step precisely, including appointment procedures, participants, deadlines, and consequences of inaction or obstruction. If this is not done, a simpler clause referring disputes directly to arbitration may be preferable.

Lost in translation: Naming the institution

A second pitfall arises where parties refer disputes to a permanent arbitral institution. The institution should be identified by its official name, particularly where that name differs from the language of the arbitration clause, to avoid being “lost in translation”. Minor inconsistencies may be resolved through contractual interpretation, but serious discrepancies could mean the parties referred their dispute to a non-existent institution. Polish legal doctrine is divided on the consequences: some favour treating the clause as a reference to ad hoc arbitration, while others consider it ineffective. Either outcome would, however, differ from the parties' original intention.

A strong clause is the best defence

Naturally, parties cannot prevent the other side from challenging the tribunal's jurisdiction. Careful drafting can, however, significantly weaken such challenges by removing potential arguments. At the very least, a well-drafted arbitration clause reduces the risk of being found ineffective and helps avoid the costs and delays of lengthy submissions or separate proceedings focused solely on jurisdiction. This is particularly relevant in Poland, where a tribunal's decision dismissing a jurisdictional challenge may be subject to review by a common court.