What is an arbitration case and why is it a problem?

Arbitration is an out-of-court method of resolving disputes. It is regulated by the International Commercial Arbitration Act (ICAA). Essentially, arbitration is a judicial procedure conducted not by a state court, but by arbitrators (private judges) chosen by the parties.

When is arbitration admissible?

According to Article 19, paragraph 1 of the Civil Procedure Code (CPC), the parties may agree that their property disputes will be resolved by arbitration instead of a state court. This is completely legal and is often used between traders (for example, in international transactions).

However, in consumer disputes (such as credit contracts, mobile services, or utility contracts) arbitration is expressly prohibited.

How was arbitration abused?

Before 2017, many payday loan companies and debt collection agencies included clauses in their contracts stating that disputes would be resolved by an “arbitration court” (usually close to the creditor).

As a result, the debtor had no real opportunity for defense.

The arbitration court would issue an “award,” which was treated as equivalent to a court judgment and could be enforced directly by a bailiff.

Thousands of consumers faced garnishments and liens without ever having the chance to contest their debts.

Changes in the law – consumer protection

With the 2017 amendments to the CPC (SG No. 8/2017), the legislature put an end to this practice:

• Arbitration no longer has the right to hear disputes under consumer contracts.

• Arbitration awards in such cases are null and void and have no legal effect.

• If a bailiff nevertheless initiates enforcement proceedings based on such an award, the debtor may file a complaint under Article 435 CPC and the enforcement proceedings will be terminated.

What should you do if you receive an arbitration award?

• Check the date – if it is after 2017 and concerns a consumer dispute, the award is invalid.

• File an objection – if a collector or bailiff relies on such an award.

• Notify the competent authorities:

  • Consumer Protection Commission (CPC);

  • Prosecutor’s Office, in case of abuse.

Supreme Court practice

The Supreme Court of Cassation consistently holds that arbitration clauses in consumer contracts are invalid and arbitration awards are null. This applies even if the debtor initially signed a contract containing such a clause.

Conclusion

Arbitration is a legitimate method of resolving disputes between traders, but it is prohibited in consumer relations. If you receive an arbitration award regarding a loan, credit, or service, it is null and void. Do not give in to pressure – you have the right to contest and request the termination of any enforcement proceedings.

If you face such a case, consult a lawyer specialized in consumer and contract law.