Katowice Court of Appeal judgment
dated 30 October 2012
Case I ACa 634/12
Summary by arbitraz.laszczuk.pl:
In July 2008, individual business owner K.M. and a Polish bank entered into a framework agreement for transactions on the financial market. From August to October 2008 the customer conducted several currency hedging transactions (“zero-cost” offsetting put and call options) pursuant to the framework agreement. He began losing money on these transactions in September 2008, and in March 2009 ceased paying amounts owed to the bank under the transactions, which at the time totalled over PLN 1.2 million. In May 2009 the bank cancelled the framework agreement with the customer and closed out all positions, applying certain algorithms to determine the amounts owed in the event of early termination, resulting in an increase in the amounts owed by the customer to over PLN 2.8 million.
The framework agreement included a clause calling for arbitration before the Court of Arbitration at the Polish Bank Association.
In June 2009 the customer commenced arbitration seeking to invalidate the transactions, alleging mistake and deception, including inter alia violation of principles of prudential banking. The bank counterclaimed for the balance allegedly owed under the hedging transactions. In November 2010 the arbitral tribunal issued an award denying the relief sought by the claimant and granting the bank’s counterclaim in full.
The customer applied to the regional court to set aside the award, alleging inter alia that the award violated the constitutional guarantee of economic freedom. He also alleged that the arbitration agreement was invalid because the rules of the arbitration court violated the principle of equal treatment of the parties; the bank, as a member of the Polish Bank Association, had an influence on the appointment of the presiding board of the arbitration court, which in turn selected the members of the permanent list of arbitrators, thus influencing the composition of the arbitral tribunal, particularly the presiding arbitrator. The customer had no such influence (although he did exercise his right to appoint an arbitrator who was not on the list of arbitrators maintained by the arbitration court).
The regional court held that the award did not violate public policy and that the arbitration agreement was valid because in accepting the arbitration clause the customer voluntarily agreed to be bound by the rules of the arbitration court. The court denied the application to set aside the award accordingly.
On appeal, the Katowice Court of Appeal held inter alia that the award could not violate the constitutional right of economic freedom because the parties’ contract was itself an expression of that principle in the form of the freedom of contract. The court also rejected the claim that the arbitration clause was invalid because of the parties’ allegedly unequal position under the rules of the arbitration court. The parties’ intention in selecting the Court of Arbitration at the Polish Bank Association was that the arbitral tribunal should be made up of experts on banking. By its nature the arbitration court was intended to hear disputes arising out of banking transactions, and to exclude disputes in which one of the parties was a bank that was a member of the Polish Bank Association would defeat the very reason for existence of the arbitration court.
Excerpt from the text of the court’s ruling:
In assessing the factual situation in terms of error, it cannot be accepted that the arbitral tribunal committed a violation of the constitutional principle of economic freedom (Polish Constitution Art. 20) or the constitutional principle that courts are bound by statute (Polish Constitution Art. 178(1)).