Polish Supreme Court judgment
dated 26 May 2017
Case I CSK 464/16
Summary by arbitraz.laszczuk.pl:
Under an agreement signed in 2003, the German limited partnership B. KG contracted with the individual R.S. to provide investment consultancy services. The agreement was governed by Polish law and included a clause calling for ad hoc arbitration (apparently under the UNCITRAL rules). R.S. commenced arbitration seeking fees due for 2004, resulting in issuance of an award in his favour in December 2006 for over EUR 105,000. B. KG applied to the Polish regional court to set aside the award on the grounds that it had not been duly notified of the arbitration, because the claimant had erroneously attempted to serve pleadings on the respondent under an outdated name, D.B. KG, and most of the pleadings were returned accordingly. In 2008 the court granted the application and set aside the 2006 award.
Relying on the same arbitration clause, R.S. recommenced arbitration against B. KG. In this case, the parties appointed P.K. and M.R. as arbitrators, and M.Ł. was appointed as presiding arbitrator. The panel issued an award in R.S.’s favour in 2012 for over EUR 104,000.
B. KG applied to the regional court to set aside the award on the grounds that the arbitral tribunal was not properly constituted, as M.Ł.’s appointment as presiding arbitrator was documented only by an email from one of the party-appointed arbitrators, M.R., and there was no record of the involvement in M.Ł.’s appointment by the other arbitrator, P.K. The applicant also alleged that the award violated public policy because the arbitral tribunal had violated the principles of the limitation of claims by finding that the claim was not time-barred.
The regional court granted the application and set aside the award, holding that the arbitral tribunal was not properly constituted. It also held that the award violated public policy, but on grounds different from those asserted by the applicant—namely, violation of the principle of finality of judgments. Although the court in the previous case had set aside the award because the respondent was not duly notified of the arbitration, the arbitral tribunal in the second case found that it was not bound by that finding and examined the issue again. This time the arbitral tribunal found that the respondent had been duly notified of the previous arbitration, and the claimant’s effort to commence the prior arbitration had successfully interrupted the running of the statute of limitations on the claim, and thus the second arbitration claim was not time-barred. According to the court, the arbitral tribunal was bound by the earlier finding that the respondent had not been notified of the arbitration, which would mean that the statute of limitations was not interrupted and the claim had become time-barred.
On appeal, the court of appeal held that the lower court erred in finding that the arbitral tribunal was not properly constituted, as the other arbitrators did not dispute M.Ł.’s appointment and signed the award. The respondent did not challenge M.Ł.’s appointment, nor did it prove that he was not duly appointed. The email correspondence was not dispositive as an arbitrator does not have to be appointed in writing. The court of appeal further held that the arbitral tribunal was not bound by the finding by the court in the previous case that the respondent was not notified of the arbitration. It was bound only by the operative wording of the judgment, not the secondary grounds underlying it. Whether the findings of the second arbitral tribunal were erroneous or not was not reviewable by the state court. The court of appeal set aside the judgment of the regional court accordingly and denied the application to set aside the award.
On cassation appeal, the Supreme Court of Poland held that the court of appeal had correctly found that the arbitral tribunal was bound only by the operative wording of the previous judgment, not the preliminary grounds underlying it, and therefore could re-examine whether the previous arbitration was properly commenced and thus the running of the statute of limitations had been interrupted. The Supreme Court pointed out that the arbitral tribunal had exhaustively examined this issue, finding that the statute of limitations had indeed been interrupted more than once, upon commencement of the first arbitration and then again upon filing of the application for enforcement of the first award. The correctness of the findings of the arbitral tribunal in this respect could not be reviewed by the state court on an application to set aside the award.
The Supreme Court denied the cassation appeal accordingly.
Excerpts from the text of the court’s ruling:
1. Between the arbitral tribunal ruling again on the basis of the same arbitration clause (Civil Procedure Code Art. 1211) following setting aside of the previous award under Civil Procedure Code Art. 1205 et seq., and the court that granted the application to set aside the award, there is not a relation analogous to that between the courts of first and second instance in the structure of the state courts. The Civil Procedure Code does not adopt the construction encountered in some legal systems in which a state court granting an application to set aside an arbitration award can remand the case to the arbitral tribunal for reconsideration. The arbitrators’ duties generally last until issuance of the arbitration award (Civil Procedure Code Art. 1199); granting of the application results in setting aside the award, while the further proceedings depend on the decisions of the parties, provided however that the arbitration clause remains in force unless the parties agreed otherwise (Civil Procedure Code Art. 1211). A consequence of this is that there is no room for the arbitral tribunal to be bound by the legal evaluation or directions as to the further proceedings, in line with the rule adopted in Civil Procedure Code Art. 386 §6, and this state of affairs was not changed by the amendment of Civil Procedure Code Art. 1207 made by the Act of 10 September 2015 Amending Certain Acts to Support Amicable Dispute Resolution Methods (Journal of Laws Dz.U. 2015 item 1595), calling for application by analogy of regulations on appeals in proceedings on an application to set aside an arbitration award.
2. The fact that the legal evaluation is not binding as it would be in the model of appellate review does not mean that the findings and legal views expressed in the judgment of the state court granting an application to set aside an arbitration award are irrelevant to the arbitral tribunal considering the case anew; the arbitral tribunal must take the judgment into account and draw the relevant conclusions from it within its general obligation to seek an award that will not be subject to being set aside pursuant to review by the state court. The possibility of indirectly instructing the arbitral tribunal by the court considering an application to set aside an arbitration award is provided for only in Civil Procedure Code Art. 1209, but this provision is exceptional, and considering the autonomy of arbitration it cannot serve as the source of generalizations.
3. Guided by the assumption of the complementarity and equal importance of both aspects of substantive legal finality, as well as purposive considerations, the position should be approved that [Civil Procedure Code Art. 1206 §1(6)] also covers the case where an arbitration award is issued in violation of the binding legal finality of a court judgment. Leaving aside the question of whether in this state of affairs the conflict between the arbitration award and the judgment of a state court can be reviewed pursuant to the public policy clause or must be pleaded in the grounds for cassation as a violation of Civil Procedure Code Art. 1206 §1(6), such a conflict can be said to exist only when the arbitration award substantially interferes with the findings covered by the binding force of the state court judgment.
4. Submission of a case to the jurisdiction of an arbitration court removes the dispute between the parties from the jurisdiction of the state courts. The competence of the arbitral tribunal in this respect is not merely in the nature of a preliminary jurisdiction; to the contrary, pursuant to the parties’ intentions, the arbitral tribunal takes the place of the state court with the purpose of independent and complete resolution of the dispute between the parties. The autonomous position of arbitration as an alternative to the state courts means that the parties to the arbitration must expect that review of the arbitral tribunal’s resolution by the state court does not, and must not, constitute the equivalent of appellate review typical for the state court system. Such review, while necessary and universal in a comparative-law context, must serve first and foremost to eliminate abuses of arbitration and the most far-reaching violations, relevant not only from the perspective of the parties but also for the legal system in general.
5. The nature of the review exercised by the state courts over rulings by arbitral tribunals means that a possible error in interpretation of substantive law cannot per se lead to setting aside the arbitration award, unless the error would result in violation of a fundamental principle of the legal order.
6. One element of public policy is the general assumption of the need for stability of long-term states of facts, while the consequences of application of regulations realizing this assumption in specific situations essentially affect the individual interests of the parties, and possible errors in this respect are generally errors in interpretation, escaping the review of the state courts. This is how the view already expressed in the case law of the Supreme Court that an erroneous interpretation of regulations on the limitation on claims does not make an arbitration award inconsistent with fundamental principles of the legal order, should be understood.
7. Violation of a regulation of mandatory applicability is not tantamount to violation of fundamental principles of the legal order.