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Court or Arbitration

It is perfectly clear to every lawyer that nobody can avoid irreconcilable differences arising between parties even to the most perfectly drafted and carefully negotiated contracts. This is probably even more relevant to international business transactions (including real estate transactions in Bulgaria) involving parties from different nations and sometimes huge amounts of money.

Inevitably every practicing lawyer in this field is confronted with the task either to provide legal advice to a client seeking to make sure that his contract contains a provision for the most effective and convenient settlement of disputes which are likely to arise in the future, or to actually argue a case as counsel in disputes.

While the scope of international commercial litigation is relatively easy to be defined, the scope of arbitration may vary considerably as you will see.

The key for approaching the topic is by examining the law applicable and governing both the procedural and substantive matters in the dispute. This is the nucleus of the dispute resolution mechanism and dominates all considerations - whether it is advantageous to resort to the law or not.


The "ad hoc" arbitration is the one in which the parties establish their own procedural rules and so become the masters of their arbitral proceedings. So they can shape them to meet their own will and adapt them with regard to the specifics of the particular dispute. Along with the advantages of this approach, there are some disadvantages. Obviously, it is a long and expensive process for the parties to draft their own procedural rules.

The other class of international arbitration is the "institutional" one, which is conducted in accordance with the procedural rules of a particular arbitral institution. This is usually the most common way to go. It saves them time to argue about the arbitral procedure at the time when the main contract is being drafted or the submission agreement is negotiated after the dispute has already arisen.

The international reputations of institutions such as the International Chamber of Commerce (ICC) and its Court of Arbitration, the London Court of International Arbitration (LCIA) and so on, are additional guarantees that the dispute will be handled by qualified arbitrators in a fair and just way.

Despite its apparent advantages, the institutional system may not be chosen, dependent upon what the parties are trying to achieve. Even the most perfect institutional procedural rules can leave the door open for delays, because the draftsmen of such rules are inevitably aiming for a balance between expediency of proceedings and the necessity to ensure that equal and fair treatment to both parties is given.

That leads usually to compromises. As a consequence, if a party is relying on delay tactics, it will always find a way to use the institutional rules as a vehicle to success. Moreover, although the parties may use the administrative facilities of the institution to their advantage, that can expose another limitation of the system - the administrative expenses of the institution. The outcome is increased arbitration costs which can be considerable, if the administrative expenses are calculated as in the ICC arbitrations as a percentage of the amounts in dispute.

By far the most reputable and the oldest arbitral institution in Bulgaria is the Court of Arbitration of the Bulgarian Chamber of Commerce and Industry.

It is submitted that, if a foreign buyer in Bulgaria opts for this type of dispute resolution, he is well advised not to choose any other forum than than this: at least until we have more evidence of the impartiality and professionalism of other arbitral institutions.


Litigation (Court)

The litigation proceedings may be started by submission of a dispute to a court of law. Judges are to be distinguished from arbitrators because their powers are derived from the national law of the relevant state and not from agreement of the parties in dispute.


An advantage of arbitration becomes immediately apparent. The court judges are appointed by the government and as a matter of public policy, the parties are not allowed to choose the particular judge to sit on the dispute.

Being more flexible and divorced from the rigidity of the court rules, the arbitration procedure allows the parties firstly to appoint judges of their own choice and secondly, to challenge them without being compelled to limit their rights to numerous clauses cases listed in the statute, for instance. This freedom is usually usually considered by lawyers when advising their clients to have recourse to one of the adjudication methods.


Particular Pluses for Arbitration

It is probably worth mentioning another inherent quality of arbitration in comparison to litigation. That is the confidential character of the proceedings, which are less likely to jeopardise the business relationships between the parties, as well as the position of the parties towards other parties in the international commercial arena.

The awards are only published where the parties' agreement is firstly obtained. Litigation as a matter of definition is subjected to strong public policy standards and the principle of publicity of the acting of the judiciary is supreme regarding the issue. This usually implicates more hostile relationships between the parties and decreases the chance for an out-of-court settlement.

Probably the most obvious advantage of arbitration in comparison to litigation is the shorter procedure. The former does not take years and it finishes in one single instance.



There is no problem with the worldwide enforceability of the arbitral award. Bulgaria is a state party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. The Convention is designed to ensure for the states that are parties to it that the recognition and enforcement of arbitral awards issued in another state party is done through a relatively straight forward and simple procedure. The Convention enjoys almost universal application. The effect of the New York Convention is that in most of the main trading countries in the world, arbitration awards are more easily enforceable than judgments, which in itself supplies a great spur to arbitration.

Roumen V. Petrov
GPNG Law Firm, Sofia email : This email address is being protected from spambots. You need JavaScript enabled to view it.