Polish Supreme Court judgment
dated 19 March 2015
Case No. IV CSK 443/14
Summary by arbitraz.laszczuk.pl:
In 2006, in a public procurement procedure, the contracting entity P. sp. z o.o. entered into a contract for construction of a water and sewer network with contractor Przedsiębiorstwo Wielobranżowe W.-K.-G. sp. z o.o. based on the FIDIC Red Book conditions (1999). The Particular Conditions provided that the appointing authority for dispute adjudication boards under clause 20 of the contract was the president of the Polish Association of Consulting Engineers and Experts (SIDIR) or the president of the Polish Federation of Engineering Associations (NOT), and provided for arbitration before the Court of Arbitration at the Polish Chamber of Commerce.
In 2009, during the course of performance, a dispute arose over payment for additional water-removal work. The contractor proposed an individual from the FIDIC list to serve as the single-member dispute adjudication board, and reserved the right to seek arbitration if the contracting entity did not agree to the proposed DAB. The contracting entity objected to the person proposed by the contractor, but neither party applied to SIDIR or NOT to appoint the DAB. The contractor commenced arbitration before the Court of Arbitration at the Polish Chamber of Commerce, claiming over EUR 1.5 million. The arbitral tribunal determined that the additional work had been done and the fee had been correctly calculated, and issued an award in 2012 granting the claim in full.
The contracting entity applied to the regional court to set aside the award, claiming that the award exceeded the bounds of the arbitration clause because the contractor was required to obtain a ruling from the dispute adjudication board before seeking arbitration. The contracting entity also alleged that the award violated public policy because the additional work was not agreed in writing as required under the Public Procurement Law. In 2013, the regional court issued a judgment setting aside the award in its entirety, holding that it was mandatory to obtain a ruling from the DAB before seeking arbitration. The contractor was at fault for not applying to SIDIR or NOT to appoint the DAB; the contracting entity was not at fault because, as the party against whom the claim was made, it had no interest in resolving the dispute.
On appeal, the court of appeal held that the arbitration clause calling for disputes to be resolved by the Court of Arbitration at the Polish Chamber of Commerce had been complied with, and first seeking a ruling from the DAB was optional. The court also held that the provisions of the Public Procurement Law relied on for the allegation that the award violated public policy were irrelevant to the dispute. The court amended the judgment of the regional court accordingly to deny the petition to set aside the award.
On cassation appeal by the contracting entity, the Supreme Court of Poland held that under clause 20 of the FIDIC conditions adopted by the parties, it was generally mandatory to seek a ruling from the DAB before commencing arbitration. However, because the parties failed to reach agreement on appointment of the DAB, and therefore for objective reasons no DAB was in place, an exception under the FIDIC conditions applied permitting the contractor to proceed directly to arbitration. The allegation of violation of the Public Procurement Law was not sustained because it would require review of the substance of the findings by the arbitral tribunal and would not rise to the level of a violation of public policy. The Supreme Court denied the cassation appeal accordingly.
Excerpts from the text of the court’s ruling:
1. The FIDIC conditions are a set of procedures and conditions describing the course of construction projects. Among other things, they describe the rights and obligations of the participants in the construction process, including in clause 20 the procedure for disputes and arbitration. … Interpretation of the provisions included in the FIDIC conditions included in the contract in force between the parties is made in accordance with the principles of interpretation of declarations of will (contracts) set forth in Art. 56 and Art. 65 §§ 1 and 2 of the Civil Code.
2. Pursuant to FIDIC clause 20.4, “If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, … either Party may refer the dispute in writing to the DAB [dispute adjudication board]”. The use of the word “may” in this clause should be understood only to mean that pursuit of claims is a right and not an obligation of a party. But if the party does decide to pursue the claim, according to FIDIC clause 20 it must submit the claim to a dispute adjudication board.
3. Pursuant to FIDIC clause 20.8, “If a dispute arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works and there is no DAB [dispute adjudication board] in place, whether by reason of the expiry of the DAB’s appointment or otherwise: Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision] and Sub-Clause 20.5 [Amicable Settlement] shall not apply, and the dispute may be referred directly to arbitration under Sub-Clause 20.6 [Arbitration].” Under the circumstances of this case, the possibility of referring the dispute directly to arbitration arose “otherwise,” i.e. by the parties’ failure to agree on the composition of the dispute adjudication board and failure by either of them to apply to the appointing authority to appoint the DAB.
4. The fundamental principles of the legal order are fundamental constitutional principles and the leading principles governing specific fields of substantive and procedural law.