Gdańsk Appellate Court judgment
dated 9 July 1996
Case No. I ACr 560/96
Summary by arbitraż.laszczuk.pl:
In 1992, a ship owner entered into a contract with a shipyard to renovate a ship for over USD 800,000. The agreement included an arbitration clause. It also provided that the final payment of about USD 175,000 was due 3 months after completion of the repairs, but before the ship was released from the port the ship owner would have to submit a promissory note for the balance.
The ship owner disputed the quality of the work and refused to pay the last instalment or issue the promissory note. The shipyard consequently arrested the ship. The parties subsequently agreed on a final, reduced price for the work, and the ship owner signed a protocol accepting the work and issued a promissory note for the unpaid balance.
In 1993, upon ex parte application by the shipyard, the district court issued an order for payment of over USD 150,000 under the promissory note issued by the ship owner. The defendant asserted objections to the order for payment, including the defence of the arbitration clause.
In the meantime, the ship owner claimed that it had signed the acceptance under economic duress, and in 1994, the parties appointed an ad hoc arbitration court to rule on the dispute. The arbitration court issued a partial award in 1995 denying the ship owner’s claims.
In 1996, the province court issued a judgment upholding the order for payment. The court held that the existence of the arbitration clause could not be asserted as a defence against issuance of an order for payment under the promissory note, because the court was required to rule on the face of the promissory note, as a standalone and unconditional obligation, and could not consider the circumstances of the underlying relationship between the parties. As to the defendant’s claims on the merits, the court held that they had been resolved against the defendant in the arbitration award and were barred from reconsideration by the doctrine of res judicata.
The defendant sought review by the Gdańsk Appellate Court on the grounds, inter alia, that the partial arbitration award was not legally final. The appellate court agreed with the province court that the dispute over enforcement of the promissory note was not arbitrable. The appellate court found that the arbitration award was legally final, but could not constitute res judicata with respect to the claim that the promissory note was signed under economic duress, because as a defence to enforcement of the promissory note such claim was not arbitrable. On the merits, however, the appellate court held that the promissory note was issued pursuant to a lawful contractual obligation by the defendant, and therefore the claim that the promissory note was issued under economic duress had to be denied. Although the province court had based its judgment on the wrong legal analysis, its result was correct and therefore the judgment had to be upheld. The court denied the review accordingly.
Excerpt from the text of the court’s ruling:
The essence of an obligation under a promissory note prevents it from being subject to an arbitration clause. … No arbitration court has the authority to issue an order for payment. Submission of a dispute under a promissory note obligation to arbitration would thus negate the function of the promissory note and the very purpose for issuing it.