case law

id : 20438

id: 20438

Polish Supreme Court order

dated 27 October 2016

Case no. V CSK 66/16

Summary by arbitraz.laszczuk.pl:

A franchise agreement was signed in 2008 between franchisor S. BV, a Dutch company which was the European subsidiary of an American chain of sandwich shops, and the Polish individuals Ł.M. and Z.M. as franchisees. The franchise agreement, a form contract, was governed by the law of Liechtenstein and included a clause calling for arbitration at an arbitration centre in New York.

In 2011 the franchisor obtained a default arbitration award against the franchisees finding them in breach of the franchise agreement, terminating the franchise agreement and requiring them to pay certain fees. The franchisor applied to the regional court in Poland for recognition and enforcement of the award, which was denied in May 2015. The court of appeal granted the appeal by the franchisor, issuing an order in July 2015 granting recognition and enforcement of the award in Poland and ordering the franchisees to pay the franchisor about PLN 40,000 (USD 15,000).

On cassation appeal by the franchisees, the Supreme Court of Poland recognized that a range of European courts, particularly in Germany, had held that the arbitration clause in question, in the standard agreement between S. BV and its European franchisees, was one-sided and “grossly detrimental” to the franchisees under §879(3) of the Austrian Civil Code (applicable pursuant to Liechtenstein law) because it was unduly burdensome to require the franchisees to defend their rights before an arbitration court in the US, which had no rational connection to franchise agreements between a Dutch company and European franchisees beyond the fact that the franchisor’s parent company was based in the US. Polish franchisees faced an additional barrier not applicable in Western Europe because they were required to obtain a US visa before they could appear in New York to defend their rights.

The court rejected the franchisor’s argument that the franchisees, as respondents in the application for recognition and enforcement of the award, had failed to meet their burden of proof under the New York Convention of showing that the arbitration agreement was invalid. The invalidity of the arbitration agreement (pursuant to the applicable law) was apparent from the totality of the evidence before the court, including the evidence presented by the franchisor in its application for recognition and enforcement of the award. The court also rejected the franchisor’s objection that the cassation appeal was impermissible because the amount in dispute was below PLN 50,000, as the availability of a cassation appeal in proceedings for recognition and enforcement of arbitration awards was governed by different regulations.

The Supreme Court issued an order accordingly setting aside the order of the court of appeal.

Excerpt from the text of the court’s ruling:

The assertion of the impermissibility of the cassation appeal because it does not meet the requirement set forth in Art. 3982 §1 of the Civil Procedure Code concerning the amount in dispute in the cassation appeal is groundless. The requirement set forth in that provision does not apply to a cassation appeal in a proceeding for recognition and enforcement of an arbitration award or a settlement concluded before an arbitral tribunal (Civil Procedure Code Art. 1215 §3), because the permissibility of a cassation appeal is governed in each proceeding in a specific manner, which means that the reference provided in Civil Procedure Code Art. 13 §2 does not apply to the issue of the permissibility of this instrument of review in proceedings other than a civil trial.

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