In the future, artificial intelligence may replace arbitrators

If a contract is being considered, it is necessary to pay special attention to the regulations regarding the resolution of disputes, which are usually set out in their entirety in the final articles of the contract, points out Lukáš Štefánik from the law firm Soukeník - Štrpka.

When is it worthwhile to resolve a dispute through international arbitration? What are the advantages of such a procedure compared to general courts?​

​In most cases, arbitration proceedings tend to be more efficient because there is a large degree of freedom. This concerns not only the composition of the tribunal, which decides whether it’s a sole arbitrator or a multi-member tribunal, but also the process itself. This concerns, for example, the combination of online and face-to-face formats, be they hearings or procedural meetings, and the location of the arbitration proceedings, which can change or can be fixed during the entire process. So freedom is the biggest benefit.

Although arbitration is said to be cheaper, this may not always be the case. In particular, better-known institutions such as the Arbitration Court of the International Chamber of Commerce in Paris have relatively significant fees for conducting arbitration proceedings, including remuneration for arbitrators.

When we look at the acceptance of the decisions of such tribunals, which operate under the management of these institutions, it is significantly higher than in the case of the judgments of general courts. This is precisely because of flexibility. Given that the parties have the opportunity to determine who will decide their dispute, they are ultimately more able to accept the outcome, because at the end of the day they know that it was judged by someone who understands the issue at hand.

So, trust in the judgments of general courts is lower because the judges in these courts are not experts?

In the case of general courts, the problem can arise that if the judge decides disputes from different areas of law, then they cannot be a complete expert in, say, construction law and contracts that follow the yellow FIDIC regime [the version of standardised contract models issued by the International Federation of Consulting Engineers – Ed.]. So this is historically a big win for arbitration. We will see how the situation changes as part of the judicial reform, as there is a tendency there to specialise judges.

On the other hand, it probably won’t be news when I say that there are both good and bad people everywhere. Even among judges we can find experts, but also so-called formalists. There is a group of judges who approach backlog cases precisely through the prism that sometimes they don’t go into depth, but try to decide the case based on some formality. Not infrequently, they look for a way to get rid of the court proceedings, so to speak, without deciding on the merits. And that can be harmful.

On the contrary, this hardly ever happens in arbitration proceedings. But it is true that even here we can find black sheep. But these are really rare cases, as the tribunal of people who decide on arbitration proceedings is relatively narrow. Bad reputations spread relatively quickly and this has the effect that such people will probably no longer be assigned to arbitration proceedings.

If the disputing parties agree to arbitration, what should the disputing parties be aware of?

It is absolutely ideal to resolve as many things as possible, which may be disputed in the future, before the dispute itself arises. This means that if we are considering a contract, more attention should be paid to the dispute resolution provisions, which are usually mentioned entirely in the final articles of the contract.

The parties often tire themselves out when writing and commenting on the body of the contract. When they come to the final provisions, which are often a copy-and-paste matter, they don’t pay as much attention to them anymore, which is a shame. Many problems arise precisely as a result of underestimating the wording of the arbitration clause in this part of the contract.

An arbitration clause forms a separate arbitration agreement, although it is sometimes only a one-line or four-line provision. It is de facto a separate contract, although it is contained in the contract itself. However, it is a separate contract for assessment purposes. This means that if the main contract is invalid, it does not mean that the arbitration clause is also invalid.

Neglecting the final provisions, in particular the arbitration clause, can take its toll in the form of an unnecessary prolongation of the proceedings.

And what if the contract does not contain an arbitration clause?

The parties can subsequently agree, even if they don’t have an arbitration clause and the proceedings begin in the general court, that it is more efficient, faster, and more reliable for their dispute to be decided by an arbitration court. They can even supplement a closed arbitration clause if it is insufficiently defined.

What should an arbitration clause definitely contain?

First of all, it is necessary to ensure the certainty of the arbitration clause.

For example, it would be absolutely ideal if it were clearly distinguished which substantive law should govern the contract and the arbitration clause and which law should govern the process itself.

The place of arbitration does not have to be the same as the chosen institution. Say, the headquarters of the ICC International Court of Arbitration is in Paris, but the place of arbitration can be Prague or Vienna. However, this means that unless both parties agree otherwise, the procedural law that will be applied would be either Czech or Austrian, respectively. If, on the other hand, the contract stipulates German substantive law, this limits the choice of arbitrators, because they may not know, for example, Czech procedural law.

Who are the arbitrators? We know that they are not regular judges.

There are arbitration proceedings where you have a tribunal composed exclusively of persons who come from the legal field. They can be lawyers, former judges, but they can also be people who have no legal education at all. On the contrary, they may have a technical background, an advantage if you have a technical dispute on the table. It depends on the specific case.

This brings us back to that flexibility. Parties can mix their own cocktail to suit them. The person assigned as the arbitrator can be determined at the beginning, but it can also be a bit limiting. Parties don’t have to foresee all the matters that they would like to decide according to the concluded contract. There is a really wide range of disputes that can arise within the framework of the contractual relationship or outside of it, which should then be resolved within the framework of arbitration. So sometimes they don’t want to limit the arbitrator’s language or education.

Unlike general courts, arbitrators are not legally empowered to make decisions. Only the parties to the contract, i.e. later parties to the dispute, have this right, who entrust this authority to a third impartial entity and are willing to submit to the decision of such an entity.

Is it possible to annul the arbitration award?

Yes. When you want to demand the annulment of an arbitration award in Slovakia, the whole process takes place through the general courts and you pay a court fee of around €331.50.

If you had the place of arbitration in Austria and the procedural law of Austria, a motion to annul the arbitration award would cost you 5 percent of the value of the case, while the amount of the fee is not limited. In Austria, the Supreme Court of Austria is competent to decide on the annulment of the arbitration award, whose decision is final.

Depending on the country, a party’s consideration of whether to file a lawsuit for the annulment of an arbitration award can be significantly influenced by the amount of the court fee, or the fact whether the lawsuit will be decided by a maximum of one or, possibly, several courts. This must also be taken into account when you formulate the arbitration clause and choose the institution and at the same time the place of arbitration, which will later be determined in advance, unless the parties agree otherwise, also the procedural law.

Can you think of any major arbitration proceedings related to Slovakia?

Historically, disputes with health insurance companies were among the biggest. These were disputes over the ban on the payment of insurance company profits, where shareholders sued the state.

In 2015, the Regional Court in Bratislava ruled on the invalidity of the 2006 contract for the operation of the Gabčíkovo hydropower plant between Vodohospodárska Výstavba, a state-owned enterprise as the operator of the power plant, and Slovenské Elektrárne. Following this domestic dispute, Slovenské Elektrárne initiated a lawsuit against the National Property Fund (later MH Management) and the Economy Ministry. This approximately €700-million dispute ended up before the Vienna International Arbitration Centre. Slovakia succeeded in the case.

Are you currently aware of any ongoing arbitration proceedings?

In 2021, an arbitration award was made according to the rules of the International Court of Arbitration. That was the dispute between the concessionaire of the Bratislava bypass, D4/R7 Construction, and the Transport Ministry. [The dispute was related to the fact that Slovakia delayed the valid issuance of construction permits by nine months. Slovakia had to pay the concessionaire almost €40 million of the € 30 million it had claimed – Ed.] And there is now an ongoing dispute between the former contractor of the Višňové tunnel, the Salini Impregilo and Dúha consortium, and the National Highway Company. But here we are bound by confidentiality.

What are the current trends in arbitration?

Implementation of part of the motions in arbitration today relies on computer technology. Face-to-face meetings were abandoned in most cases. Hearings are held in a hybrid fashion. If necessary, it is possible to conduct the entire hearing online. Abroad, it is common for major disputes to test the arguments of the parties using artificial intelligence before the actual hearing. Artificial intelligence could sooner or later be used in the prediction of decisions. Once these technologies become more affordable, they will be used more often as an add-on that will need to be controlled.

China has made very significant progress in the integration of computing technology and artificial intelligence into the decision-making process. Since 2017, the so-called internet courts, where the entire proceedings take place in online form, function. The first-instance decision is generated by artificial intelligence, and a human judge subsequently decides on any appeal. The hearings are held entirely online and the judge (AI in the first instance) is represented by a hologram.