Warsaw Appellate Court order
dated 24 September 2009
Case No. I ACa 995/08
Summary by arbitraz.laszczuk.pl:
The German shareholder (T.D. GmbH) of a Polish limited-liability company commenced arbitration before the International Arbitral Centre of the Austrian Federal Economic Chamber in Vienna against the seller (E. SA) and buyer (E.T. sp. z o.o.) under sale of shares in the company, seeking a declaration of the invalidity of the sale, on the grounds that the company had not consented to the sale of its shares as required in the articles of association. The arbitration clause was included in the articles of association of the company and in a shareholders agreement. The arbitration court ruled that the sale was ineffective, but at the same time the buyer did not become a party to the arbitration agreement and the arbitration court had no jurisdiction over the buyer, which was a respondent in the arbitration proceeding.
Upon petition by E. SA under the New York Convention, the award was recognized by the regional court in Poland, which order was upheld on appeal by the appellate court but reversed by the Polish Supreme Court and remanded to the regional court. On remand, the proceeding was joined with a petition for recognition of the award filed by T.D. GmbH. In the joined proceedings, the award was again recognized by the regional court, and this appeal followed.
The appellate court amended the order of the regional court to deny the motion for recognition. The appellate court held, among other grounds, that the dispute concerning the validity of the sale of shares was not arbitrable because the transaction required consent of a third party and that recognition of the award declaring ineffectiveness vis-à-vis only one party to the transaction would violate public policy.
Excerpts from the text of the court’s ruling:
1. The New York Convention does not contain provisions indicating the form in which the parties should make a choice of law governing the arbitration clause. Art. V(1)[(a)] of the New York Convention does not require that the choice of law governing the arbitration clause be made in writing. The term “indication” should be interpreted to mean behaviour by a person in the form of writing, or any other behaviour that sufficiently reveals the person’s intent. Art. VI(2) of the European Convention on International Commercial Arbitration made at Geneva on 21 April 1961 uses the term “indication” without specifying the form, and thus “indication” should be interpreted as any behaviour by the parties indicating their joint intent.
2. It is not possible to conclude a settlement where, based on the nature of the disputed legal relations, the parties cannot freely dispose of the rights. Thus the appellate court holds that a dispute over the effectiveness of an agreement on sale of shares in a limited-liability company is not arbitrable.
3. The plaintiff determines who is a party when it initiates a dispute. The attribute of being a party is purely formal in nature and is not tied to the existence of a substantive legal claim, nor does it determine the jurisdiction of the arbitration court to decide the merits of the case. In a case where the arbitration court finds that it lacks jurisdiction over a “party,” it cannot be inferred that the ruling on the merits of the dispute is binding on that party. The party was not a party to the dispute on the merits because the arbitration court did not have jurisdiction over it.
4. Assessment of procedural acts of the parties in an arbitration proceeding lies within the power of the arbitration court, and a court ruling on recognition of an award may not make assessments contrary to that of the arbitration court, or assessments under the Polish Civil Procedure Code, which was not applicable in the proceeding before the arbitration court.
5. The state court is bound by the ruling of the arbitration court concerning its lack of jurisdiction to resolve specific disputes, regardless of whether the arbitration court’s interpretation of the scope of the arbitration clause was correct or not. It is clear that the arbitration court is authorized to rule on its own jurisdiction.
6. In order to decide on its jurisdiction, the arbitration court must consider the grounds for or against its jurisdiction. This cannot mean, however, that in cases in which the same issues are decisive of both the jurisdiction of the arbitration and the resolution on the merits the authority to resolve the issue of jurisdiction is also authority to decide the merits of the dispute. Otherwise the party would de facto be deprived of the ability to effectively assert the defence of lack of jurisdiction on the part of the arbitration court.
7. None of the provisions of law providing the arbitration court the authority to decide on its jurisdiction and analyze all factual and legal issues necessary to perform this task provides it a priori authority to decide the merits of the case. If the jurisdictional determination is negative, the arbitration court must refrain from deciding the merits of case. Review of the merits in such instance serves only as a basis for the jurisdictional ruling.
8. It is impermissible that res judicata effect of a ruling by the arbitration court would exert effects in Poland with respect to persons not covered by the legal finality of such ruling in the country of origin.