The Perils of Imprecision: Defective Arbitration Agreements

The Perils of Imprecision: Defective Arbitration Agreements

2026-01-23

A poorly drafted arbitration clause may prove entirely worthless. In a landmark 2022 decision, the Polish Supreme Court demonstrated that even minor ambiguities in designating an arbitral tribunal may open the door to adjudication before ordinary courts. This analysis examines the circumstances under which an arbitration agreement becomes void, unenforceable, or otherwise ineffective—and whether parties may “cure” a defective arbitral clause after a dispute has arisen.

Grounds for Ineffectiveness of Arbitration Agreements

Even when a defendant properly and timely raises an objection based on an arbitration clause, the court may decline to honor it. Article 1165 § 2 of the Polish Code of Civil Procedure enumerates the circumstances under which such an objection fails to produce its intended effect:

  • the arbitration agreement is void;
  • the arbitration agreement is ineffective;
  • the arbitration agreement is unenforceable;
  • the arbitration agreement has lost its binding force; or
  • the arbitral tribunal has ruled on its own lack of jurisdiction.

Each of these grounds possesses distinct characteristics and warrants individualized analysis—much like other procedural prerequisites examined in the course of judicial proceedings.

The “Szczecin Civil Court” Case: A Study in Defective Arbitration Clauses

The Supreme Court’s decision of October 27, 2022 (Case No. II CSKP 470/22) constitutes a comprehensive treatment of defective arbitration agreements. The dispute concerned remuneration for ship repairs under a contract executed on BIMCO’s standard Repaircon form—a template widely employed in the maritime industry and, more broadly, in international commercial practice.

Factual Background

The BIMCO form contemplated three alternative dispute resolution mechanisms:

  • Clause 12(a): English law and arbitration in London;
  • Clause 12(b): American law and arbitration in New York;
  • Clause 12(c): Law and arbitral forum as agreed by the parties.

In Box 18, however, the parties inscribed: “Polish law, Szczecin civil court, POLAND”—without selecting any of the prescribed options.

When a Polish shipyard brought suit against a Norwegian shipowner before the Regional Court in Szczecin, the defendant raised an objection predicated upon the existence of an arbitration agreement. The court of first instance declined to dismiss the complaint, concluding that the parties had entered into a prorogation agreement (selecting an ordinary court) rather than an arbitration clause. The Court of Appeals reversed, ordering dismissal of the complaint. The matter proceeded to the Supreme Court.

The Supreme Court’s Ruling

The Supreme Court vacated the appellate decision, identifying fundamental errors in the interpretation of the arbitration clause. The essential holdings of this decision carry significance well beyond the maritime sector.

Minimum Requirements for Valid Arbitration Agreements

The Supreme Court emphasized that an arbitration agreement constitutes a contract to which the interpretive directives of Article 65 of the Civil Code apply—the same principles governing the construction of other commercial agreements, including those arising in the context of corporate governance and transactional practice. Simultaneously, the Court underscored the distinctive character of arbitration clause interpretation:

“The interpretation of an arbitration agreement, being a form of ‘self-limitation of the right of access to courts,’ must also take into account that the content and form of such an agreement are governed by procedural law, which is public law in nature.”

Essential Elements (Essentialia Negotii) of Arbitration Agreements

Designation of a permanent arbitral institution or expression of intent to submit the dispute to an ad hoc tribunal constitutes an essential element (essentialia negotii) of an arbitration agreement. Absence of this element renders the agreement void or unenforceable.

The Minimum Threshold for Effectiveness

An arbitration clause need not be “lexically unambiguous.” Within the bounds of permissible interpretation, one should strive to give effect to the parties’ declarations (the principle of favor validitatis).

Nevertheless, the minimum threshold for an effective arbitration agreement requires that interpretation enable identification of:

  • the parties to the agreement;
  • the specific arbitral tribunal; and
  • the subject matter of the dispute or the legal relationship from which the dispute arose or may arise.

Where interpretation cannot establish which arbitral tribunal is to hear the case, the arbitration agreement is unenforceable.

Two Competing Interpretive Principles

The Supreme Court identified the necessity of balancing two ostensibly conflicting principles in construing arbitration agreements:

Restricting Exclusions from Judicial Jurisdiction

The Polish Constitution guarantees the right of access to courts (Article 45(1)). An arbitration agreement represents a form of voluntary “self-limitation” of this right. In cases of doubt, therefore, arbitration clauses should be interpreted narrowly—in favor of ordinary court jurisdiction.

Party Autonomy (Favor Validitatis)

Conversely, within the bounds of permissible interpretation, one should endeavor to give effect to the parties’ declarations. Where rationally acting parties intended arbitration, interpretation should respect that intent.

Practical implication: These two principles are not of equal weight. In cases of genuine, irresolvable ambiguity, the right of access to state courts takes precedence.

Prohibition Against Post-Dispute Specification of the Arbitral Forum

The Supreme Court unequivocally precluded the possibility of “curing” a defective arbitration agreement after a dispute has materialized:

“The possibility of the parties specifying the arbitral tribunal—not adequately identified in the arbitration agreement—only after the dispute has arisen must therefore be excluded.”

This represents a significant constraint: where an arbitration agreement fails to identify the arbitral forum with sufficient clarity, the parties cannot remedy this deficiency during the pendency of proceedings. The agreement remains unenforceable.

Prohibition Against Conversion to Ad Hoc Arbitration

Another crucial holding concerns the impossibility of “salvaging” a void arbitration agreement:

“Conversion through interpretation of an unenforceable or void agreement designating a permanent arbitral institution into an effective agreement for ad hoc arbitration is precluded.”

Rationale

Execution of an agreement designating a permanent arbitral institution is typically motivated by the specific characteristics of that institution—its reputation, procedural rules, roster of arbitrators, and fee structure. One cannot assume that parties who sought institutional arbitration would accept ad hoc arbitration as a “fallback solution.”

Practical Consequence

Where an arbitration agreement designates a non-existent arbitral institution, or is so ambiguous that no arbitral body can be identified, the court cannot “divine” the parties’ intentions and direct the matter to ad hoc arbitration. The ordinary courts will have jurisdiction.

The Court’s Obligation When Dismissing Based on an Arbitration Agreement

The Supreme Court articulated an unambiguous standard:

“An ordinary court dismissing a complaint on the basis of an arbitration agreement must be certain that it is valid, effective, and enforceable.”

Practical Implications

A court adjudicating an objection predicated on an arbitration clause cannot rest upon the finding that “the parties intended arbitration.” It must specifically determine which arbitral tribunal is to hear the case. Where such determination proves impossible, the court cannot dismiss the complaint.

In the “Szczecin civil court” case, the Court of Appeals committed precisely this error: it found that the parties had entered into an arbitration agreement without specifying which tribunal was to adjudicate the dispute. The Supreme Court deemed this premature and vacated the decision.

Void Arbitration Agreements

An arbitration agreement is void for the same reasons that render legal acts void under civil law generally.

Common Grounds for Voidness

Failure to observe written form requirements: An arbitration agreement must be executed in writing (Article 1162 § 1 of the Code of Civil Procedure) or in an equivalent form (exchange of correspondence, electronic documents). An oral arbitration agreement is void.

Lack of legal capacity: Where a party to the agreement lacked capacity to contract, the agreement is void. This issue may arise with clauses executed by companies undergoing transformation or restructuring.

Disputes lacking arbitrability: Certain categories of disputes cannot be submitted to arbitration. For example, an arbitration agreement encompassing employment disputes (including those concerning board member remuneration), executed prior to the dispute’s emergence, is void.

Failure to register cooperative charter provisions: An arbitration clause contained in a cooperative’s charter that has not been registered is void (Article 2 et seq. of the Cooperative Law).

Absence of essentialia negotii: As the Supreme Court indicated, failure to designate the arbitral tribunal (permanent or ad hoc) renders the agreement void or unenforceable.

Autonomy of the Arbitration Clause

It bears emphasis that invalidity of the underlying contract does not automatically entail invalidity of the arbitration clause. Article 1180 § 1 of the Code of Civil Procedure provides that “invalidity or termination of the underlying contract in which the arbitration agreement was included does not, in itself, signify invalidity or termination of the agreement.” This principle of arbitral clause autonomy carries particular significance in disputes involving unfair contract terms or contractual fraud.

Ineffective Arbitration Agreements

Ineffectiveness of an arbitration agreement may assume various forms:

Relative Ineffectiveness

The arbitration agreement does not produce legal effects vis-à-vis specified persons while remaining effective with respect to others. Example: An agreement executed by a person lacking authority to represent a company—a question frequently arising in the context of director liability for corporate obligations.

Suspended Ineffectiveness

Where validity of a legal act requires consent of a third party who did not participate in the act, and such consent has neither been granted nor refused, the arbitration agreement remains “suspended” and produces no effects.

Unenforceable Arbitration Agreements

This constitutes the most common ground for unsuccessful objections in practice. An arbitration agreement is unenforceable when—notwithstanding formal validity—arbitral proceedings cannot be commenced on its basis.

Typical Instances of Unenforceability

Designated arbitral institution has ceased to exist: Where an arbitration agreement designates an institution that has been dissolved, and the parties made no provision for an alternative, the agreement is unenforceable.

Reference to a non-existent tribunal: As in the “Szczecin civil court” case, where no arbitral tribunal bearing the designated name exists in a given city, and interpretation fails to identify an alternative institution, the agreement is unenforceable.

Internally contradictory clauses: E.g., simultaneous reference to the rules of different arbitral institutions without specifying which takes precedence.

Ambiguous agreement precluding identification of the tribunal: The Supreme Court stated expressis verbis: “An arbitration agreement that is unclear, internally contradictory, and does not permit identification through interpretation of the arbitral tribunal selected by the parties, should be treated as unenforceable.”

Designated arbitrator’s refusal to serve: Where the agreement names a specific individual as arbitrator who refuses or is unable to serve, and no substitute mechanism was provided (Article 1168 § 1 of the Code of Civil Procedure).

Loss of Binding Force

The Code of Civil Procedure contemplates several circumstances in which an arbitration agreement loses its binding force:

Arbitrator’s refusal and absence of alternative: Where the person designated in the arbitration agreement as arbitrator refuses to serve, or service becomes impossible, unless the parties provided otherwise (Article 1168 § 1).

Designated tribunal’s refusal to accept the case: Where the arbitral tribunal designated in the agreement declined to accept the case, or adjudication proved otherwise impossible, unless the parties agreed otherwise (Article 1168 § 2).

Failure to achieve required majority in deliberations: Where the required unanimity or majority of votes concerning resolution of all or part of the dispute cannot be achieved (Article 1195 § 4).

Mutual termination by the parties: The parties may at any time, by mutual consent, terminate the arbitration agreement. Such a decision should be preceded by strategic analysis, ideally in the context of comprehensive legal counsel.

Expiration of time limit for rendering award: Where the arbitration agreement prescribed a deadline for the tribunal to render its award, and that deadline passed without result.

Practical Guidance: Avoiding Defective Arbitration Clauses

Analysis of Supreme Court jurisprudence permits formulation of concrete recommendations for enterprises negotiating contracts:

What to Avoid

Ambiguous terminology: The term “civil court” may denote either an ordinary court or an arbitral tribunal. Employ unambiguous language: “the Court of Arbitration at the Polish Chamber of Commerce in Warsaw” rather than “an arbitration court in Warsaw.”

References to non-existent institutions: Before executing a contract, verify that the designated arbitral tribunal actually exists and operates.

Modifications to standard templates without legal consultation: The “Szczecin civil court” case demonstrates that improper completion of a form may render an arbitration agreement unenforceable. Industry templates (BIMCO, FIDIC, ICC) are precisely constructed; modifications require caution and, ideally, comprehensive legal review prior to execution.

Assumptions that defects can be remedied later: The Supreme Court precluded the possibility of specifying the arbitral tribunal after a dispute has arisen.

Recommended Practices

Use complete, official institutional names: “The Court of Arbitration at the Polish Chamber of Commerce in Warsaw, in accordance with the Rules of that Court in effect on the date of commencement of proceedings.”

Specify the law governing the arbitration agreement: An arbitration clause may be governed by a law different from that governing the underlying contract. This is particularly significant in structures involving foreign entities or transactions governed by private international law.

Provide substitute mechanisms: What happens if the designated institution declines the case? Include an escalation clause. Such safeguards are standard in professionally drafted agreements in the context of M&A transactions.

Obtain legal review of the clause: Comprehensive legal audit of a contract prior to execution may prevent years of litigation over jurisdictional questions.

Conclusion

The Supreme Court’s decision in Case No. II CSKP 470/22 provides clear guidance:

An arbitration clause must unambiguously identify the arbitral tribunal: Where interpretation cannot determine which tribunal is to hear the case, the agreement is unenforceable.

A defective clause cannot be “cured” after the dispute arises: Neither through party specification nor through conversion to ad hoc arbitration.

The court must possess certainty: When dismissing a complaint based on an arbitration agreement, the ordinary court must know that the agreement is valid, effective, and enforceable.

In cases of doubt, ordinary courts prevail: The right of access to state courts takes precedence over party autonomy in selecting arbitration.

Prevention is paramount: Proper drafting of the clause at the contract negotiation stage eliminates the risk of protracted jurisdictional disputes.

Current as of January 2026

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