Warsaw Court of Appeal judgment
dated 9 October 2015
Case No. I ACa 2048/14
Summary by arbitraz.laszczuk.pl:
In 2004 the parties entered into a tenancy agreement for commercial premises. The agreement included a clause calling for arbitration before the Court of Arbitration at the Polish Chamber of Commerce of any disputes between the parties arising out of or related to the agreement or its breach, dissolution or invalidity. In October 2011 the tenant served notice of termination of the tenancy agreement, but continued to occupy the premises and continued to pay rent and fees under a reservation that it could seek refund of the rent and fees paid after termination of the tenancy agreement.
The tenant then commenced arbitration against the landlord and obtained an award in January 2013 holding that there was no legal relationship in force between the parties under which the tenant was required to pay rent to the landlord. The award also required the landlord to refund almost PLN 3 million in rent and fees paid between termination of the tenancy agreement and March 2012.
The tenant applied to the Warsaw Regional Court for enforcement of the award, which was granted on 2 April 2013. On 12 April 2013, the tenant issued a demand to the landlord for payment of over PLN 7 million as the difference between the total amount of rent and fees to be refunded for the period between termination of the tenancy and the end of 2012, and the amount of the refund included in the arbitration award. Consequently, the total amount of the refund allegedly owned by the landlord for 2011–2012 was about PLN 11 million. On 19 April 2013, the landlord submitted a statement to the tenant declaring that it was setting off the amount allegedly owed of about PLN 11 million against its own claim for about PLN 12 million which it alleged that the tenant owed to the landlord for non-contractual use of the premises from October 2011 through January 2013.
The landlord then applied to the regional court for an order quashing the enforceability of the arbitration award on the grounds that it was defeated by an event arising after issuance of the order on enforcement of the award, i.e. the setoff declared by the landlord. The regional court held that the landlord had to demonstrate that it was entitled to the amount claimed in the setoff, which was disputed by the tenant in principle and in amount. The court held that the setoff of the landlord’s claim required an arbitration award in favour of the landlord because the claim was covered by the arbitration clause in the tenancy agreement. Thus the landlord’s claim did not exist yet, the setoff was ineffective, and the action to quash the enforceability of the order enforcing the arbitration award was premature. The regional court denied the landlord’s application accordingly.
On appeal, the Warsaw Court of Appeal held that the landlord’s claim did not have to be reduced to an arbitration award (or judgment) in order to be effectively asserted as a setoff. And, as consistently demonstrated in subsequent arbitration between the parties, in which the landlord did not assert its claim for non-contractual use of the property, once the setoff was asserted the landlord’s claim was extinguished and could no longer be pursued before the arbitration court. Meanwhile, the landlord’s claim to quash the enforceability of the arbitration award could not be asserted in arbitration, because only the state court can issue or quash an enforcement clause for an arbitration award. This meant that the regional court could not deny the landlord’s application as premature but had to examine the effectiveness of the setoff asserted by the landlord. Because the regional court had erroneously refused to consider the substance of the case, the judgment denying the application had to be set aside.
The court of appeal granted the applicant’s appeal accordingly and remanded the case to the regional court for consideration of the merits.
Excerpts from the text of the court’s ruling:
1. An arbitration clause included in an agreement of the parties cannot be a limitation on exercise of a subjective right. Such a clause has a different purpose; if the relevant objection is raised, it excludes the possibility of pursuing a claim covered by the clause before the state court. An arbitration clause aims at exerting procedural effects, preventing resolution of the dispute by the state court. It does not automatically carry over to a proceeding to defeat execution, as that does not serve to pursue a claim. It is a claim to establish a right.
2. Civil Code Art. 498 does not contain a requirement that a claim be undisputed or that the claim presented for setoff be undoubted as to its existence and easy to demonstrate. All the more, there are no grounds for requiring that it be reduced to a judgment, including an arbitration award.