Polish Supreme Court ruling
dated 4 November 1935
Case No. C III 1156/34
Summary by arbitraz.laszczuk.pl:
Albert S. entered into a contract in 1914 with the Prussian Treasury under which the treasury would purchase land at a lakeside resort at Jezioro Góreckie, near Posen, and buildings erected there by him. The contract was subsequently assumed by the Polish State Treasury when the Polish state was re-established at the end of the First World War and the area fell within Polish territory. Then in 1924 (or 1929) Albert S. entered into an agreement with the Polish State Treasury under which he leased the land from the state. The lease contained an arbitration clause.
When the state brought a claim in arbitration against Albert S., he asserted a counterclaim arising out of the 1914 sale contract. The State Treasury objected to arbitration of the counterclaim as not covered by the arbitration clause. Then it joined issue on the merits and, in July 1932, the arbitration court rendered an award in favour of Albert S.
In September 1932, the State Treasury notified Albert S. that it was setting off against the award amounts allegedly owed by Albert S. to the State Treasury.
Albert S. applied to the Poznań Regional Court for enforcement of the award, which was granted. The court held that the State Treasury had implicitly acquiesced to the jurisdiction of the arbitration court. It also rejected the attempted setoff by the State Treasury, because it found that the claim asserted in the setoff had arisen prior to the close of hearings in the arbitration proceeding.
On appeal to the Poznań Appellate Court, the State Treasury also asserted that the award exceeded the bounds of the arbitration clause. The court denied the appeal, affirming the findings of the lower court and holding that the objection of exceeding the arbitration clause could not be raised on appeal.
The State Treasury sought review by the Polish Supreme Court. The court set aside the judgment of the appellate court on the grounds that the justification for the judgment was unintelligible, as it merely affirmed the reasoning of the lower court without making any factual findings or stating the legal grounds for the judgment. The Supreme Court also found that the objection of exceeding the arbitration clause could be raised for the first time before the appellate court, and that the appellate court had incorrectly interpreted provisions of the former German Civil Procedure Code concerning when setoff could be alleged subsequent to an arbitration proceeding.
Excerpts from the text of the court’s ruling:
1. The allegation in the petition for review that the objection that the arbitration court exceeded its authority and overstepped the arbitration clause is not an objection that halts the dispute (§ 274 of the [former German] Civil Procedure Code) is correct. Such objection may be raised for the first time at the second instance (§ 529 of the [former German] Civil Procedure Code).
2. Whether the procedure before the arbitration was permissible must be ruled on by the state court which has been requested to issue an enforcement judgment (§ 1042(1) of the [former German] Civil Procedure Code), as the ruling by the state court must be independent, i.e. must be based on its own findings and legal views.
3. Joining issue in the dispute after assertion of a defence may not be deemed implicit consent to arbitration, because the party joins issue in the dispute in order to defend its rights in the event that the defence asserted and maintained by it proves to be unjustified.