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case law

id : 20401

id: 20401

Warsaw Court of Appeal judgment

dated 18 June 2015

Case No. I ACa 1822/14

Summary by arbitraz.laszczuk.pl:

In 1993, a farmer, P.W., entered into an 8-year tenancy agreement with the State Agricultural Farm (PGR) for over 181 hectares of farmland. The agreement did not include an arbitration clause. In 1994, P.W. agreed with the successor to PGR, now known as the Agricultural Property Agency, to dissolve the 1993 agreement in exchange for conclusion of a new tenancy agreement, partially involving different property. In 1994, P.W. and the agency signed a tenancy agreement accordingly for over 182 hectares, for 10 years with an option to extend the agreement for a further 10 years. This agreement included an arbitration clause which stated in part, “The arbitral tribunal is required to resolve the matter within 2 weeks at the latest following filing of a statement of claim by either of the parties.”

After an ad hoc arbitral tribunal was appointed, on 22 February 2009 P.W. filed a claim in arbitration against the Agricultural Property Agency seeking a declaration that the 1994 tenancy agreement remained in force, and seeking over PLN 200,000 in damages for investments in the land pursuant to the 1993 tenancy agreement. After a delay in paying the fee on the claim, on 19 March 2009 the arbitral tribunal served the claim on the agency and set a deadline of 21 days for it to file a statement of defence. On 21 April 2009 the agency filed a statement of defence which included an allegation that the arbitration clause had lapsed because of failure to comply with the 14-day deadline for issuing an award. The first hearing was held on 5 May 2009, and after further hearings and exchanges of pleadings the arbitration tribunal issued a partial and preliminary award on 11 February 2013 denying the request for declaratory relief but upholding the claimant’s right to damages in principle (with the amount of damages yet to be determined).

The Agricultural Property Agency applied to the Warsaw Regional Court to set aside the award. The court held that the finding of liability for damages under the 1993 agreement was beyond the scope of the arbitration clause because the 1993 agreement did not include an arbitration clause, and set aside this part of the partial, preliminary award. The court held that the arbitration clause had not lapsed because of the failure to issue an award with 14 days after the claim was filed because this was only an instructive deadline, was unrealistic, and was not legally binding on the arbitral tribunal.

Both parties appealed. The Warsaw Court of Appeal found that under the facts of the case, the parties understood the 14-day deadline for ruling on the arbitration case to be mandatory, and thus intended that the sanction for failure to meet the deadline was that the arbitration clause ceased to be in force. For example, in an earlier arbitration between the same parties, the parties had consented to the arbitral tribunal’s exceeding the two-week limitation in the arbitration clause and continued to litigate the matter. Here, if the two-week limitation proved unrealistic, the arbitral tribunal should have requested the consent of the parties to extend the proceedings beyond that period. Instead, the tribunal continued the proceedings for another four years despite the loss of its authority to decide the matter.

The court of appeal issued a judgment setting aside the remaining portion of the award accordingly.

Excerpts from the text of the court’s ruling:

1. An arbitration clause, which is an agreement to submit a dispute to an arbitration court for resolution, may be limited in time; that is, it may be in force only until a certain time, at the end of which it ceases to be in force; it may also be made under a condition applicable to the clause itself or the manner of proceeding and resolution by the arbitral tribunal.

2. Civil Procedure Code Art. 1168 governs situations in which the arbitration clause may cease to be in force (if the parties have not agreed on other legal consequences of events covered by the clause). The list set forth in this provision is therefore only exemplary, and the parties may also indicate other situations which will result in expiration (loss of force) of the arbitration clause. This is not changed by the fact that the current law does not regulate the loss of force of an arbitration clause in a situation where the time agreed by the parties in which the arbitral tribunal was required to issue an award expired, because the parties can provide otherwise. In the case considered here, the contractual specification of the deadline for completion of the proceeding before the arbitral tribunal with an award exerts the effect of expiration of the arbitration clause. Therefore this is not an instructive deadline whose only purpose was to encourage all of the participants in the arbitration proceeding, including also the arbitral tribunal, to seek a quick and effective resolution of the dispute.

3. Even when specifying its own rules for proceeding before the arbitral tribunal, the arbitral tribunal is not authorized to modify the mutual position of the parties with respect to the deadline set by them for resolution of the case. Such modification may be made by the parties themselves, but not by the arbitral tribunal.

4. In the event of doubt with respect to the scope of the arbitration clause, a restrictive interpretation should prevail. In interpreting the arbitration clause, it is not permissible to employ any presumptions which would indicate broader application of the arbitration clause. The declarations of will in the arbitration clause may not be supplemented by way of interpretation to include further external elements, events or occurrences.

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