Polish Supreme Court judgment
dated 15 March 2012
Case No. I CSK 286/11
Summary by arbitraz.laszczuk.pl:
In 2004, H.K.B. GmbH, a German company, entered into a contract with the General Director for National Roads and Motorways (GDDKiA) for construction of a section of a ring road in Poland. The contract was based on FIDIC terms, with provisions for disputes to be decided by a Dispute Resolution Board, but if the parties were dissatisfied with the ruling of the board they could pursue arbitration before the Court of Arbitration at the Polish Chamber of Commerce. Following unforeseen delays, the parties entered into successive annexes to the contract in 2005 to extend the performance deadline and increase the contractor’s fee. The contractor then applied to the Dispute Resolution Board in 2006 for a further extension of the deadline and a further increase in the fee. The board granted a limited extension and an increase in the fee. Both parties filed notices of dissatisfaction, and thus the board’s ruling did not become binding.
The contractor then filed a claim in arbitration for some EUR 1.8 million and sought a preliminary ruling on liability. The arbitration court issued an award in 2008 denying the claim entirely, on the grounds that the parties had agreed in annexes to a new price and a new deadline, and thus there was no basis for the contractor to seek compensation for costs of reorganizing the work in order to meet the deadline because, it alleged, the authority had refused without justification to grant a further extension.
The contractor filed a petition with the regional court to set aside the award, which was denied in 2009.
On appeal, the court of appeal set aside the award, holding on the basis of its review of the law and the facts that the award violated public policy because the arbitration court had failed to consider the contractor’s claim for contractual damages, in violation of the fundamental legal principle that damages should fully compensate for the injury suffered due to breach of contract.
On cassation appeal, the State Treasury argued for reversal of the judgment of the court of appeal because the court had erroneously held that the principle of full contractual damages is a fundamental element of public policy, had made new factual findings different from the findings by the arbitration court, and had misapplied the constitutional right to a fair trial to an arbitration proceeding.
The Supreme Court held that while the right to full damages to compensate for injury caused by breach of contract is one of the fundamental principles of the legal system in Poland and thus could be grounds for setting aside an arbitration award under the public policy clause, in this case, after an exhaustive consideration of the evidence, the arbitration court had found that the State Treasury was not liable for breach of contract and therefore had properly refused to consider the amount of the alleged damages. The court also held that the right to a fair trial guaranteed by the Polish Constitution applies only to proceedings in state courts and does not apply to arbitration.
The court vacated the judgment of the court of appeal accordingly and denied the contractor’s petition to set aside the award.
Excerpts from the text of the court’s ruling:
1. Factual findings by the arbitration court are generally binding on the state court hearing a petition by a party dissatisfied with the resolution of the case by the arbitration court. The proceeding before the state court is not in the nature of the review proper to a common court of second instance, however, but is limited to the grounds expressly stated by the regulations, which are the permissible legal grounds for a petition to set aside an arbitration award (Civil Procedure Code Art. 1206 §§ 1 and 2).
2. Only if the state court finds that the [evidentiary] procedure was not conducted at all or was conducted incompletely, or was clearly conducted defectively, in violation of the rules of logical understanding and linking of facts in a chain of cause and effect, with selective admission of evidence in the case, admitting evidence only from one side, excluding without justification evidence offered by the opposing side, and the like, may it be found that the requirements referred to in Civil Procedure Code Art. 1206 §1(4) were not met. ... This provision should be interpreted narrowly, limiting the possibility of upsetting an arbitration award to the principles of a fair trial and procedural violations that could have an effect on the arbitration award.
3. The defendant’s argument that the principles of civil liability for injury do not belong to the fundamental principles of the legal order in Poland cannot be sustained. Under the civil law, and thus in private legal relationships, as a result of various events—particularly dangerous acts, acts arising out of commercial activity, vehicular traffic, as well as legal acts—the occurrence of injury is of universal dimensions and requires legal regulations guaranteeing liability in damages. Regulations in this respect belong to the fundamental norms of the law of obligations, and under tort liability and contractual liability may be regarded as forming some of the fundamental principles of the legal order of the state.
4. Art. 45 of the Polish Constitution does not refer at all to arbitration, but only to the state courts.