Arbitration Clause: How to Avoid a Lengthy Lawsuit?

A lawsuit can drag on for years for a business owner. Even if the business owner ultimately wins the case, the debtor may have been stripped of their assets in the meantime, and the original claim may have lost much of its economic significance. In commercial relationships, however, there is an alternative: arbitration. A properly drafted arbitration clause can lead to a faster decision, a higher level of expertise, and confidentiality of the proceedings. When does arbitration make sense for a business owner, and what should one watch out for? Peter Varga and Tomáš Demo discussed this and more in the next episode of Highgate Talks.

Why can a traditional lawsuit be a problem for a business owner?

In a business dispute, it is not enough to consider only who is legally in the right. The economic aspects of the dispute are also important—how much the proceedings will cost, how long they will take, and whether it will ultimately be possible to actually enforce any awarded claim.

Even a relatively simple dispute over an unpaid invoice can escalate into standard court proceedings once an objection to a payment order is filed. In more complex commercial disputes, there is also a need for a high degree of professional specialization and predictability in decision-making.

Time plays a significant role in this process. If a business owner does not receive a final judgment until several years later, it may be that the debtor company no longer has any assets or may not even exist anymore. Thus, a formally successful lawsuit does not necessarily mean that the money will actually be recovered.

That is precisely why, when establishing contractual relationships at Highgate Group, we look not only at the substantive provisions of the contract itself, but also at how and where any future dispute will be resolved.

Peter Varga and Tomáš Demo discussed why arbitration can be a practical alternative to traditional courts for businesspeople and in what cases it makes sense in Episode #53 of the Highgate Talks podcast.

You can listen to the entire podcast here:

Arbitration tribunals are no longer what they used to be

Arbitration still has a problematic reputation in Slovakia today. However, its roots lie primarily in the period when a wide range of legal entities could establish arbitration courts, and there were numerous arbitration courts operating in the market, including those linked, for example, to non-banking companies.

In the past, there were cases where arbitration tribunals were established directly within lending institutions, and the debtor might not learn of the proceedings until the enforcement phase. It is precisely such practices that have significantly damaged the reputation of arbitration as a whole.

However, the legal landscape has changed significantly in the meantime. Consumer arbitration has been separated into a distinct regime, and there are now significant restrictions on who may establish a permanent arbitration court.

In commercial law relationships today, therefore, arbitration cannot automatically be equated with the arbitration tribunals of ten or fifteen years ago. Relevant arbitration institutions work with professional arbitrators, including experienced attorneys and experts in specific areas of commercial law. Furthermore, the procedural rules are based on internationally recognized standards.

Historical distrust of arbitration thus persists to a large extent, even though the conditions under which it operates today are fundamentally different.

Speed, Expertise, and Confidentiality: Why Might Arbitration Make Sense?

One of the greatest advantages of arbitration is its speed. While a typical commercial dispute can take several years, including proceedings before higher courts, arbitration is, in principle, a single-instance process. Unlike traditional court proceedings, therefore, it generally does not go through the entire system of ordinary appeals.

Another significant benefit is the ability to organize the proceedings themselves more efficiently. For example, the parties and the arbitration institution can concentrate the hearings into a shorter time frame or, under certain circumstances, conduct them online. Instead of hearings spread out over a long period, a substantial portion of the dispute can thus be addressed intensively over the course of a few days.

The second argument concerns the arbitrators’ expertise. This can be particularly important in complex M&A transactions, IT disputes, or other specialized business relationships. An arbitrator who has long been professionally involved in a specific field may have significantly more detailed experience with the subject matter of the dispute.

The third advantage is confidentiality. Arbitration awards and case files are not typically made public in the same way as in proceedings before general courts. In sensitive commercial disputes, maintaining confidentiality can be crucial for a business.

The cost aspect is also important. In disputes involving higher stakes, the costs of arbitration may not differ significantly from those of a traditional court proceeding. In a sense, the business owner is “buying” time—that is, the opportunity to reach a resolution and, potentially, recover their money sooner.

And finally, there is enforceability. An arbitral award is not merely a non-binding opinion issued by a private institution. Provided that the statutory conditions are met, it constitutes a binding decision and an enforceable judgment.

The grounds for challenging it subsequently are, however, significantly more limited than in the case of a traditional appeal. When considering a motion to set aside an arbitral award, the court does not, as a rule, re-examine the entire dispute, but rather reviews the grounds specified by law, such as the validity of the arbitration clause or compliance with fundamental procedural rules.

An arbitration clause is not just a single sentence at the end of a contract

For a commercial dispute to be brought before an arbitration tribunal at all, the parties must agree to it. In practice, therefore, an arbitration clause is included in contracts.

However, it is precisely the wording that may be critical.

It is not sufficient to simply state that “all disputes shall be resolved through arbitration.” An incorrectly or ambiguously worded arbitration clause may lead to a dispute over the very jurisdiction of the arbitral tribunal and, in extreme cases, to problems with the arbitral award.

In practice, the term “pathological arbitration clauses” is also used to refer to provisions that are incorrectly or incompletely worded. If one of the parties needs to challenge or delay arbitration proceedings, the validity of the clause may be one of the first issues it raises.

Arbitration institutions therefore publish standardized model clauses. Depending on the specific relationship, matters such as the number of arbitrators, the venue, the language, and other procedural issues are then addressed.

At Highgate Group, we handle litigation matters as well as the drafting of complex commercial contracts. When it comes to arbitration clauses, we therefore recommend evaluating not only their formal validity but also whether arbitration is economically feasible for the client, given the value and nature of the potential dispute.

Not every dispute can be resolved through arbitration. For example, labor disputes and certain disputes involving real estate are excluded from arbitration. A special regime also applies to consumer relations.

Furthermore, arbitration may be economically inefficient for smaller claims. For example, in a dispute over an unpaid invoice of relatively low value, the additional costs associated with conducting arbitration proceedings may not be commensurate with the value of the claim. However, the more valuable the business relationship and the more complex the dispute, the more relevant an alternative arbitration may be.

A foreign arbitration court even for a Slovak contract?

Arbitration does not have to be limited to Slovakia. Particularly in the case of cross-border contracts, a foreign business partner may request a neutral forum that is not directly associated with the country of either party.

In practice, therefore, renowned foreign arbitration institutions—such as those in Vienna, Paris, or London—are also considered. In complex or high-stakes disputes, their tradition, international reputation, and experience can represent a significant advantage.

This does not automatically mean that the contract must be governed by foreign law.

Even a contractual relationship governed by Slovak law may, under certain circumstances, be adjudicated under the auspices of a foreign arbitration institution. The arbitrators of such institutions may include Slovak attorneys and lawyers who apply Slovak law on a daily basis.

Furthermore, the proceedings themselves do not necessarily have to take place physically abroad. Under certain circumstances, hearings may also be held in Bratislava, with the foreign element consisting primarily of the selection of the arbitration institution and its procedural framework.

In significant cross-border or technically complex disputes, a business owner thus has the option of turning to an established international institution without necessarily having to waive the application of Slovak law.

An arbitration clause can therefore be one of the practical tools for increasing the predictability of business and reducing the risks associated with a potential future dispute.

At our conference, we will also discuss from a practical perspective how to increase legal and business predictability, protect assets, properly structure business relationships, and operate more effectively in Slovakia“Why and How to Stay in Slovakia?”, which will take place on November 25, 2026, in Bratislava.