Warsaw Appellate Court judgment
dated 25 April 2008
Case No. VI ACa 928/07
Summary by arbitraz.laszczuk.pl:
In 1999, A. G.-T., a sole trader who was married, entered into a lease with a limited-liability company for retail space at a shopping centre. Her husband did not give express consent for her to enter into the lease. The lease included a clause calling for arbitration at the Court of Arbitration at the Polish Chamber of Commerce. The lessee allegedly made improvements in the space, but failed to pay her rent, and in 2001 the lessor terminated the lease.
In 2002, the lessor filed a claim in arbitration against the lessee, seeking about PLN 140,000 in back rent and an eviction order. In her response to the arbitration claim, the lessee alleged that the lease was invalid and that the arbitration court lacked jurisdiction, because her husband had not consented to her entering the lease or the arbitration clause contained in the lease. The parties agreed to suspend the arbitration while the lessee sought a ruling from the state court on jurisdiction. In 2004, the Warsaw Regional Court held that the arbitration agreement was valid notwithstanding the lack of consent by the lessee’s husband because it was made in the ordinary course of business, and the Warsaw Appellate Court denied her interlocutory appeal.
The arbitral tribunal then took up the suspended case again. In January 2005 the lessor dropped its claim for eviction because the lessee had vacated the space. In February 2005 the lessor amended the relief sought to include a total amount of about PLN 506,000 in back rent and lease fees. The lessee asserted a setoff of about PLN 172,000 for improvements she had allegedly made in the space. In March 2005, the arbitral tribunal issued an award in favour of the lessor for the full amount sought plus interest. The tribunal refused to rule on the alleged setoff because the lessee had failed to pay the fee on her defence in the nature of a counterclaim, pursuant to the arbitration court’s rules and fee schedule in effect from 1 January 2003.
The Warsaw Regional Court denied the lessee’s application to set aside the award.
On appeal, the Warsaw Appellate Court held that the arbitration court should have applied its rules and fee schedule from 1 January 2000, in effect when the arbitration was commenced in 2002, rather than the rules and fee schedule that went into effect on 1 January 2003. Under the earlier rules and fee schedule, no fee was payable on the respondent’s assertion of a setoff for improvements made in the leased space. The arbitral tribunal’s refusal to consider the setoff thus violated the court’s own rules, which the parties had agreed to apply, and justified setting aside the award in the amount of PLN 172,000 (corresponding to the amount of the disallowed setoff) plus the relevant interest. The appellate court further held that such violation of the arbitration court’s own rules also constituted grounds to set aside the award in part on the basis of violation of public policy. The court issued an order amending the order of the regional court accordingly to set aside the award in part.
Excerpts from the text of the court’s ruling:
1. The schedule of fees for actions of the arbitration court constituting an annex to the rules of the court in force from 1 January 2000, which does not require payment of an arbitration fee on a defence of setoff, was applicable to the case decided by the arbitration court. … As the arbitration court failed to consider the defence of setoff because of failure to pay the arbitration fee, the allegation in the appeal that the procedure before the arbitration court was not observed in the arbitration proceeding is correct. … In consequence, it should be held that the petition to set aside the arbitration award on the basis of Civil Procedure Code Art. 712 §1(3) is justified by the wording of this provision.
2. Submission of the dispute existing between the parties for resolution by the arbitration court does not justify the conclusion that the parties waive the right to a fair and thorough procedure assuring the ability to satisfy the legal interests of the parties which are worthy of protection. The right to a fair procedure is a pillar of a democratic state governed by the rule of law, and for these reasons violation of such right justifies the conclusion that the rule of law was violated. This will be the case more specifically in the event of failure to consider the defence of setoff asserted by the party as a result of the arbitration court’s application of a regulation that was not in force with respect to payment of a fee as a condition for consideration of the motion. The principle of fair procedure requires consideration of the defence of setoff duly asserted by the respondent.