Kraków Court of Appeal judgment
dated 14 June 2016
Case No. I ACa 197/16
Summary by arbitraz.laszczuk.pl:
In January 2014, M.P., a professional football player, entered into an 18-month contract with a football club for playing professional football and another contract for promotional activity. At the end of the current season, the club dropped into a lower football league and decided to terminate M.P.’s contract. After negotiations, the parties reached a settlement in June 2014 under which both contracts were dissolved. In the settlement, drafted by the club, the club agreed to pay the player the amounts currently due under the contracts at that date, i.e. PLN 1,800 for play and PLN 24,250 for promotion, net, by 15 October 2014. However, if the club missed the payment deadline, it would have to pay the full amount due through the end of the original term of the contracts, i.e. PLN 9,000 and PLN 63,400 respectively. The settlement included an arbitration clause.
When the club failed to pay on time, the player commenced arbitration seeking the full payment, totalling PLN 72,400 net. During the course of the arbitration the club paid the player PLN 24,250. In that amount the player withdrew his claim and the arbitral tribunal discontinued the proceeding in that respect as moot. The tribunal denied the rest of the player’s claim, finding that requiring the club to pay the full amount due through the original term of the contracts if it missed the settlement payment deadline constituted a contractual penalty for failure to perform a monetary obligation, which was prohibited under the Civil Code, which permits contractual penalties only for failure to perform a non-monetary obligation. Furthermore, reinstating the player’s entire claim in the event of failure to make timely payment under the settlement meant that the agreement did not constitute a true settlement because there was no mutual concession on both sides. Consequently, the settlement agreement was void.
The player filed a petition with the Kraków Court of Appeal to set aside the award, alleging that the award violated public policy by misinterpreting or failing to apply fundamental principles of contract law. The football club did not file a timely response to the petition to set aside the award or appear at the hearing. The court held that the arbitral tribunal had arbitrarily interpreted the parties’ settlement agreement, erroneously finding that the requirement for the football club to pay the player the amount he would have received over the term of the contracts if the football club failed to make timely payment of the lesser amount agreed in the settlement constituted an unlawful contractual penalty for failure to perform a monetary obligation. This led the tribunal to invalidate the settlement agreement, thus violating the principle of the right to compensation for breach of contract, which is a fundamental principle of contract law and a fundamental principle of the legal order in Poland. The court issued a judgment setting aside the award accordingly (except with respect to the amount of the player’s claim that was already paid by the club).
Excerpts from the text of the court’s ruling:
1. The defectiveness of an arbitration award consisting of violation of the fundamental principles of the legal order (formerly, the rule of law) must be evident from the substance of the ruling. In evaluating whether an arbitration award is inconsistent with fundamental principles of the legal order, the content of the award should be considered, and not the correctness of the procedure before the arbitral tribunal.
2. The principles of civil liability for redress of injury are among the fundamental principles of the legal order in Poland. Under the civil law, and thus in private-law relations, where as a result of various events, particularly actions that are hazardous, or arise out of economic activity or vehicular traffic, as well as transactions, the occurrence of injury is universal in nature and requires legal regulations guaranteeing liability for damages. The regulations in this area are included in the fundamental norms of the law of obligations, and under tort or contract liability may be regarded as making up some of the fundamental principles of the legal order in the state.