Polish Supreme Court ruling
dated 29 September 1948
Case No. Wa C 162/48
Summary by arbitraz.laszczuk.pl:
In August 1943, Jachta B., a Polish citizen of Jewish origin, entered into an arbitration clause with Izabella R., a Gentile, concerning real estate in Warsaw. An arbitral tribunal in the person of a sole arbitrator, Eugeniusz G., issued an award vesting title to the real estate with Izabella R., for a price specified and deemed paid.
In February 1946, Izabella R. applied to the Warsaw Regional Court for issuance of an enforcement clause for the award. Jachta B. objected that the award violated public policy and the transaction was entered into under duress. It was undisputed that the arbitration clause, the dispute and the proceeding were all fictitious. As a Jew during the German occupation, she was prohibited from selling the property, which would normally be done (under Polish law) by entering into a notarial deed. Instead, the buyer and the seller entered into a fictitious arbitration clause. The award was also backdated so that any attempt by the respondent to seek to set aside the “award” would be time-barred. The price was 1/20th of the market value of the property, but the respondent needed the money to survive. The “arbitrator” was actually an intermediary who retained a portion of the price as a commission. The respondent did not challenge the award until after the war, when she opposed the petitioner’s application for enforcement. At the same time she also filed a criminal complaint in the matter. (The authorities declined to prosecute, finding that no crime had been committed.)
The regional court issued the enforcement clause, finding that the award did not violate public policy because under the circumstances during the occupation, the form of the transaction was the only way Jews could sell their real estate. By agreeing to buy their property, Gentiles were helping Jews, at risk to themselves, and should not later be deprived of the benefit of the transaction.
The Warsaw Court of Appeal denied the appeal on the same grounds, adding that the lack of a dispute did not render the arbitration illusory because the parties could also seek to arbitrate an issue related to a declaration of rights.
The Supreme Court denied the cassation appeal, on the grounds set forth by the lower courts. The court further explained that the parties’ circumvention of the law was due to the fact that “in a manner unprecedented in history, the German occupants deprived a portion of the Polish citizens of the ability to dispose of their property. In consequence, these citizens were unable to conduct a transaction in the normal form of a notarial deed. Thus the parties’ selection of the form of an arbitration clause, making it possible to conceal the transaction from the occupants, was essentially intended to foil the unlawful orders of the occupation authorities. This was certainly contrary to public policy as understood by the occupiers, but cannot be regarded as contrary to Polish public policy, which is the only one relevant for the Polish courts. Polish public policy is based on equality before the law of all citizens, regardless of race or religion; it was lawlessly violated by the occupier, also by exploiting provisions of Polish law to achieve its purposes. Without judging the degree to which circumvention of Polish legal provisions, guarding the Polish legal order, should be regarded as contrary to public policy, it must be stated that circumvention of these provisions, exploited by the occupier for purposes grossly violating Polish public policy, does not offend that policy.”
The court rejected the respondent’s claim that duress and exploitation invalidated the transaction. Under the Obligations Code, “Exploitation becomes contrary to the public policy in People’s Poland when exploitation is also a manifestation of the battle by capitalist elements against the working class.”
Furthermore, the claim of violation of public policy as a defence against issuance of an enforcement clause for an arbitration award—unlike the case of asserting such violation as grounds for setting aside an award—must be based on evidence from the record in the arbitration proceeding. Here it was based only on extraneous evidence.
According to the court, the respondent could have applied after the war to set aside the award or the transaction: “In light of the abnormal situation in Polish lands during the occupation, Art. 16 of the Decree on the Binding Force of Judicial Rulings Issues During the German Occupation in the Territory of the Republic of Poland dated 6 June 1945 provided for extension of deadlines of substantive and procedural law.”
Excerpts from the text of the court’s ruling:
1. [Civil Procedure Code] Art. 503 §1(4) regards it as sufficient grounds for a petition to set aside an arbitration award if in its substance the award violates public policy or fair practices, but Art. 502 authorizes the court to take notice of the inconsistency between the substance of the award and public policy and fair practices only when such appears from the arbitration record submitted to the court.
2. Pursuant to a petition to set aside an arbitration award, a normal adversarial proceeding is held (Civil Procedure Code Art. 505), during the course of which evidence may be admitted in accordance with general rules.
3. By its nature, a proceeding for issuance of an enforcement clause should be short and simple, and this could not be achieved if it were necessary to admit evidence in proof of the factual circumstances necessary to determine whether in its substance the arbitration award violates public policy or fair practices. For this reason as well, the Parliament restricted the state court to just one source of information, namely the arbitration record, i.e. written documents whose consideration and assessment generally do not entail any difficulties which could prolong the proceeding. If there were no such restriction, with respect to defects in an arbitration award as discussed here, there would be no difference between the two types of proceedings in the state court, which would be inconsistent with the one-track nature of the proceeding, which is consistently implemented in Polish procedural law.