case law

id : 20330

id: 20330

Polish Supreme Court order

dated 18 June 2010

Case No. V CSK 434/09

Summary by arbitraz.laszczuk.pl:

Z – BM SA filed a claim against I.B.Ś. SA in regional court seeking a declaratory judgment setting aside a 2008 currency option transaction with the bank under a framework agreement from 2005. The framework agreement provided for arbitration before the arbitration court at the Polish Bank Association.

The defendant asserted the arbitration clause as a defence. The regional court overruled the defence, holding that even if the 2008 currency option transaction were covered by the arbitration clause from 2005, the claim seeking a declaratory judgment of the invalidity of the 2008 transaction was not arbitrable under Civil Procedure Code Art. 1157 because it could not be the subject of a judicial settlement. The relief sought in a claim for a declaratory judgment, the court reasoned, could not be settled by the parties because it could not be achieved through the parties’ own will but required the decision of the court. As a result, the claim was not arbitrable and the arbitration clause was invalid in this respect.

The regional court further held that the arbitration clause was invalid altogether because it violated the principle of equal treatment of the parties under Civil Procedure Code Art. 1161. The arbitration court at the Polish Bank Association could not provide the plaintiff a fair hearing, the regional court reasoned, because: (1) the defendant was a member of the association and the plaintiff was not, (2) the chartered purpose of the association included protection of the interests of Polish banks, and thus there was an institutional bias in favour of the bank, (3) the rules of the arbitration court did not provide sufficient protection against pressure on the president of the arbitration court, who is appointed or recalled by the association’s management board, of which the defendant’s CEO was a member, and (4) the association itself had already taken a public position supporting the validity of the type of currency transactions at issue in the case.

On appeal, the court of appeal reversed, held that the dispute was arbitrable, and dismissed the statement of claim. The court held that for the dispute to be arbitrable, the legal relationship in question, not the specific claim and relief sought, had to be capable of a judicial settlement, which in this case it was. The court also rejected the allegations with respect to the arbitration court, on the grounds that the arbitration court at the Polish Bank Association was separate from the association, and in any event claims of bias should be directed to the specific arbitrators rather than the arbitration court as an institution.

The plaintiff filed a cassation appeal with the Polish Supreme Court on these grounds, and also alleged that the parties to the arbitration agreement with respect to the transaction in question were not properly represented because the persons entering into the specific transaction in 2008 did not hold a special power of attorney to enter into an arbitration agreement.

The Supreme Court denied the cassation appeal. It held that arbitrability of a dispute arose out of the relationship between the parties, not the specific claims or relief sought in the dispute. It also held that the authority to enter into the arbitration agreement was not an issue because the arbitration agreement was made in the 2005 framework agreement, which covered subsequent specific transactions, not in connection with the 2008 transaction itself.

With respect to the claim of bias, the Supreme Court held that the Civil Procedure Code section relied on by the plaintiff did not apply because it was enacted after the parties had concluded their arbitration agreement. The court also found that the fact that the arbitration court operates at a specific trade association does not mean that the arbitration court itself is not independent. Claims of bias had to be asserted against specific arbitrators, not the arbitration court itself. In any event, arbitration courts typically operate under the aegis of trade associations. Here the plaintiff was aware of the nature of the association when it entered into the arbitration agreement.

Excerpt from the text of the court’s ruling:

1. The ability to submit a dispute to arbitration concerns specific legal relationships in the abstract sense, not the specific claims arising thereunder (for performance, for a declaration, or to establish a legal relationship or right), which are not the subject of the arbitration clause.

2. The condition for arbitrability is the abstract ability of the parties to dispose of rights arising under the legal relationship between then, not their ability to conclude a specific judicial settlement. It is thus not relevant ... whether the parties could by their own will bring about the non-existence or invalidity of the agreement between them ... or if they could, independently or through a judicial settlement, bring about the end of the dispute arising between them.

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