Time travel, alas purely theoretical for the time being, has its fair share of practical problems. One of them, known in the world of science as "the grandfather paradox", may be presented as follows:
"Imagine a time traveler who goes back in time to meet her grandfather before he meets her grandmother. Time traveler accidentally kills her grandfather, therefore erases the possibility of her own existence. This obviously makes the time travel impossible in the first place, hence the paradox."*
As it turns out arbitration has (had)** its own “grandfather paradox” which deserves similarly concise presentation:
“A dispute is submitted to arbitration arising out of a contract containing an arbitration clause. In its argument, one of the parties raises objection to the validity of the container contract. Arbitrators, shall they proceed with resolving the dispute, stand before a problem of what might seem a paradox - if the container contract turns out to be invalid, the arbitration clause itself is invalid and the arbitration proceedings shouldn’t have taken place.”
This article aims to provide the reader with understanding of how the problem in question has been solved throughout time and by the most distinguished fora in the world. Slowly progressing evolution shaped the solution currently consisting of two principles known as of “separability” doctrine.
The need of principles. In the early beginnings of arbitration, the effectiveness of an arbitration clause was dependent and limited by the validity and content of contract it was contained in. This notion was present throughout history up to mid-20th century. Strict contractual approach gave rise to a tempting opportunity for a party wishing to “escape” previously agreed forum simply by refusing tribunal’s jurisdiction by stating the clause was invalid or too narrow to cover the dispute.
Practical nature of the problem required a practical solution and English House of Lords marked one of the first steps towards one:
In Heyman vs Darwins Ltd.  a dispute arose between an English steel manufacturer and their New York selling agent as to whether (i) the contract between the parties effectively came to an end and (ii) who was responsible for damages arising out of this termination. The arbitration clause contained in the contract was as follows:
“If any dispute shall arise between the parties hereto in respect of this agreement or any of the provisions herein contained or anything arising out of the same shall be referred for arbitration in accordance with the provisions of the Arbitration Act 1889, or any then subsisting statutory modification thereof.”
The case went to the House of Lords which concluded that there is no doubt that a dispute concerning termination of a binding contract and consequential damages does fall within the terms of a broad arbitration clause. Such differences should be regarded as differences which have arisen ‘in respect of’, or ‘with regard to’ or ‘under’ the contract, and an arbitration clause which uses there, or similar, expressions should be construed accordingly. Such an arbitration clause would also confer authority to assess damages for breach, even though it does not confer upon the arbitral body express power to do so.
Interestingly, the court also concluded that “if the dispute is as to whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view this clause itself is also void”. It is clear therefore that the standing of the House of Lords at the time was that the dispute concerning a validity of the contract, which proves that getting to separability and competenz-competenz principle was an evolution rather than revolution. This was probably due to strong conviction that private adjudication process is somehow not as trustworthy as one provided by the state and should not be left “unattended”.
This approach be noticed in another milestone judgement made by US Supreme Court in Prima Paint Carp. v. Flood & Conklin Mfg , especially in judge Black’s votum separatum.
In Prima Paint Carp. v. Flood & Conklin Mfg  the American Supreme Court stated that a challenge based on fraudulend induction of the main contract does not per se deprive the arbitral tribunal of jurisdiction. Judge J. Black issued a dissenting opinion stating that: "The Court holds, what is to me fantastic, that the legal issue of a contract's voidness because of fraud is to be decided by persons designated to arbitrate factual controversies arising out of a valid contract between the parties. And the arbitrators who the Court holds are to adjudicate the legal validity of the contract need not even be lawyers, and in all probability will be nonlawyers, wholly unqualified to decide legal issues, and even if qualified to apply the law, not bound to do so. I am by no means sure that thus forcing a person to forgo his opportunity to try his legal issues in the courts where, unlike the situation in arbitration, he may have a jury trial and right to appeal, is not a denial of due process of law. I am satisfied, however, that Congress did not impose any such procedures in the Arbitration Act".
In Mitsubishi Motors vs Soler Chrysler-Plymouth the U.S. Supreme Court noted that the separability principle is not absolute. The courts "should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds for 'the revocation of any contract.'" In such case the court proceedings should be given priority over arbitration clauses put in such faulty contracts.
Separability nowadays. Probably to J. Black's dissatisfaction, the separability principle has been used manyfold in the following jurisprudence of the U.S. Supreme Court and also has been introduced to the UNCITRAL Arbitration Rules (art. 21 sec. 2) and UNCITRAL Model Law (art. 16 sec.1). It is currently widely recognised - also in Polish procedure (art. 1180 § 1 of Polish Code of Civil Procedure).
Exceptions and reservations. As it has been stressed in Hayman vs. Darwins, the exception to the separability principle may be a situation, where the issue affecting enforceability directly touches upon the existence of the arbitration agreement or the main contract . Some scholars advise cautious application of this exception and limiting it only to situations where a strong case exists that the arbitration agreement might be non-existent. The doctrine itself is also questioned by some scholars operating under German Law which reffer to art. 139 of BGB. The article follows on a Latin phrase "ex nihilo nihil fit" ("nothing may come out of nothing") and states that a nonexistent or non-effective, from the legal point of view, action may not be a source of any legal relationship.
The principle is a construct of a practical nature, a meta-rule of a sort. It provides an elegant solution to the needs of contractual relations. It disarms possible ill-willed practices and, as it is widely recognized in Model Law - based jurisdictions, it also gives the parties to an arbitration agreement a basic sense of security about legal fate of the awards. One should only hope that the Grandfather Paradox mentioned above will see a similarly elegant solution.
*Many solutions of this paradox have been proposed. Some prominent scientists state that the paradox itself proves time travel impossible. Stephen Hawking for example, to make his stand in this regard, had organized a party complete with balloons, hors d’ouevres and champagne. The party commenced precisely on 28th June 2009, 12:00 UT and invitations were sent afterwards. Nobody from the future came to the party, arguably proving Hawking’s theory.
**Douglas Adams stated that the problem of solving the time-traveling conundrum in question does not lie as much in finding a solution as in one’s lack of understanding of advanced grammar. Quoting Adams, “the main work to consult in this matter is Dr. Dan Streetmentioner's Time Traveler's Handbook of 1001 Tense Formations. It will tell you, for instance, how to describe something that was about to happen to you in the past before you avoided it by time-jumping forward two days in order to avoid it.”. The handbook however, as of time being and to the Authors knowledge will surely have been written.
Entrepreneur, especially one operating in international market, should be aware of the opportunities and risks associated with negotiation and conclusion of an arbitration agreement. Content of a seemly inconspicuous arbitration clause may often influence - or even determine - the outcome of a dispute. This is what makes knowledge of the possible practical consequences of implementing arbitration clause in the contract so crucial for entities functioning on international markets.
This article aims to provide the reader with knowledge of basic aspects of commercial arbitration in its international dimension. Some references are made to current Polish regulations, however the principles standing behind the laws quoted are quite uniform in most civil law systems.
1. Duration of the proceedings. Proceedings before courts may last for years and parties to the dispute have a limited impact on the time spent in court. For example, average duration of a case brought in front of a (Polish) court - from submission of the application to obtaining a judgment - is more than 500 days, and, in disputes which are commercial in nature, even more than 800 days.
Arbitration proceedings are shorter, but still far from perfect - in Poland they are, on average, 352 days long. The general average of EU states is 647 days for the proceedings before the courts and 503 days for arbitration.
One should be aware that the parties entering the arbitration agreement may determine in advance the maximum time by which the tribunal's decision should be made. Moreover, some arbitration rules may pre-set a specific deadline binding the arbitrators, for example, up six to months (as it is the case of the art. 30 of ICC Arbitration Rules).
2. Flexibility of contractual determination of the rules governing the proceedings. Litigation in civil law systems is quite formalized (which is quite an understatement!). The result is that the court's final judgement may at times be unrelated to the reality of the case (for example - according to Polish regulations, if a party does not provide all the relevant evidence as promptly, it may be deprived of being able to present it later on during the proceedings and, thus, loose the case on lack of evidence only).
Arbitration, on the other hand, does not impose stringent formalities on the parties. Moreover, the parties themselves can decide most of the rules governing the proceedings. For example - they may specify that the Court shall be guided by the principles of fairness, be ruling ex aequo et bono or operate otherwise taylored-to-the case set of rules.
An interesting option is arbitration directed by the principles of amicable compositeur, where the role of the Tribunal is not not only to settle the dispute, but also lead to such a conclusion, which would keep the business relationship between the parties as unharmed as possible, taking into conideration the circumstances of the case.
3. Confidentiality. Proceedings before the courts of law are, in general, open to the public. This may be changed, f.e. for the protection of trade secrets, but the final judgment, at least in Poland, always has to be announced publicly. Arbitration proceedings are held behind closed doors, and the publication of the decision is entirely at the discretion of the parties. This feature of arbitration may be important in cases where the business is dependent on keeping the occurrence of the dispute a secret. Some arbitration rules (f.e. Rules of the Court of Arbitration at the Polish Chamber of Commerce in Article 12) imposes an obligation of confidentiality not only on the arbitrators, but also on the parties.
4. Forum selection. Settlement of commercial disputes, particularly those international in nature, many times requires not only a very extensive knowledge of law, but also an expertise covering many specialized fields and ability to communicate in foreign languages to a degree that may be beyond the reach of the ordinary courts. Lack of such knowledge may translate directly to the quality of the court's decision. In arbitration this problem is solved to a great extent, as leading arbitration centers maintain lists of arbitrators consisting of experienced professionals of many fields of life.
5. Choice of law, language, and place of the proceedings. This feature is particularly important in international relations. If there is a dispute between natural persons or companies established in different countries whose representatives speak different languages, one of the parties may be handicapped in defending its rights. Arbitration Agreement, properly negotiated, allows the parties to taylor a "neutral ground" for future disputes. This includes, but is not limited to, choice of the place and language in which the proceedings are to be conducted.
6. Lack of appeal. Proceedings before the courts of law usualy grant a dissatisfied party a right to appeal from the decision of the court of first instance and the appeal may be based on a wide spectrum of grounds. Arbitration proceedings - on the other hand - give a very limited opportunity to appeal from the award.
7. The costs. It is often stated that the cost of arbitration is usually lower than this incurred by litigation. As it turns out in - this is not always the case. For example, research carried out by the Roman ADR Center shows that the average cost of arbitration with a dispute value of EUR 200 000 in the EU is 34 385 euros. In case of proceedings before the courts, the average is 25 357 euro. However, one should keep in mind that this is a calculation of the costs associated strictly with the administration and legal services. The estimation does not address many issues like, for example the costs of rising interests. Current statutory interest rate in Poland is 13% per annum. Given the 200 000 euro dispute value this rate would translate into an additional 2 000 euro for each month of the proceedings.
8. Summary. Regular part of conducting a business is contracting and negotiating. Knowledge of the consequences of specific provisions of the various clauses allows one to properly evaluate the situation and defend the parties' interests effectively. As proven above, arbitration clause is an element worth considering while drafting an agreement an, by itself gives a vivid space for negotiation.