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18 September 2008
On July 31 2008 the Ministry of Justice published its proposal for an amendment to the Arbitration Act which aims to strengthen consumer protection. Consumer protection was the driving force behind a recent amendment to the Civil Code, which had an impact on arbitration by prohibiting arbitration clauses that oblige consumers to settle all disputes exclusively through arbitration proceedings and thereby deprive them of the option of seeking a court decision on the case’s merits.
The amendment to the Arbitration Act envisages the following key changes:
Under the wording of the Arbitration Act, an award is deemed delivered if it is personally served on a party or sent to its permanent residence address (ie, its registered office or place of undertaking). The amendment proposes that a personal delivery be mandatory for arbitral awards. Although this proposal is motivated by consumer protection, in order to uphold the equality of arms principle, the other non-consumer party to the arbitration proceedings would also be subject to the same delivery regime.
This is a new and peculiar element to Slovak procedural law. Even in regular court proceedings, if a court decision cannot be repeatedly delivered in person to a party (at its permanent residence, registered office or workplace), it is deposited at a post office and a notice of deposition is delivered to the party’s mailbox. In other words, if the obliged party is uncooperative and refuses to accept the delivery, there are legal ways to deem the court decision delivered. Since arbitration proceedings are supposed to ensure faster dispute resolution and enforcement of awards, it should go without saying that this latter method should apply.
If the amendment is passed, these changes will have two negative consequences. First, suppliers will be discouraged from settling disputes with consumers by means of arbitration proceedings, due to the risk of an uncooperative consumer refusing to accept delivery of an arbitral award and thereby preventing its enforcement and enforceability. In addition, it will be more difficult to enforce consumer claims as suppliers may also adopt an uncooperative approach. In these circumstances, the proposed wording of the amendment would go against its purported goal.
Redundant consumer protection provisions
The existing wording of the act lays down the arbitration tribunal’s obligation to decide on disputes brought before it in accordance with the laws and regulations of the Slovak Republic. This broad wording undoubtedly includes legal provisions designed to protect consumers (eg, the Civil Code and the Consumer Protection Act). Therefore, specific provisions stating that “the arbitration tribunal must take into consideration provisions aimed at consumer protection” and "the arbitration tribunal may not in its award request the performance of a consumer contract that breaches generally binding laws and regulations” are duplicates and therefore redundant.
Judicial review of arbitral awards
Under the wording of the act, a party to arbitration proceedings may seek annulment of the arbitral award before a court only on the grounds of breach of statutorily listed procedural rules. The amendment extends such grounds to include breaches of consumer protection provisions in the course of deciding on the award. This implies that the court must review not only whether the procedural rules of arbitration were compliant with the law, but also whether, in deciding the merits of the case, the arbitral tribunal had correctly applied rules concerning consumer protection. By reviewing the merits of the arbitral award, the court becomes another instance in the dispute settlement procedure. This contradicts the basic tenet of arbitration proceedings as single-instance proceedings, the decisions of which are subject to court review only with respect to procedural rules.
In an explanatory memorandum to the amendment the Ministry of Justice claims that the changes envisaged by the amendment are necessary to bring the Slovak Republic into line with EU legislation on consumer protection. Nevertheless, the existing broad provisions guarantee sufficient protection for consumers. It is claimed that the amendment will not discourage the use of arbitration; however, undermining two of the fundamental principles of arbitration proceedings (ie, speedy enforcement and limiting court review to procedural aspects) is likely to inhibit the wider use of arbitration in cases where one of the parties is a consumer.
For further information on this topic please contact Martin Magal or Ivan Kisely at Allen & Overy Bratislava sro by telephone (+421 2 5920 2400) or by fax (+421 2 5920 2424) or by email (firstname.lastname@example.org or email@example.com).
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