Katowice Court of Appeal judgment
dated 23 March 2017
Case No. V ACa 415/16
Summary by arbitraz.laszczuk.pl:
A bank’s corporate customer won an arbitration award against the bank for about PLN 6.5 million, the outstanding balance under a banking product intended to cover losses previously suffered by the client under currency option (forex hedging) contracts, under a theory of unjust enrichment and the invalidity of the underlying transactions. During the arbitration proceeding, the respondent bank filed a challenge against the arbitrator appointed by the claimant, Dr P.K., on the ground that he was biased against banks as demonstrated by the fact that, inter alia, he had appeared as an expert for customers in other proceedings against banks, had published articles opposing forex hedging contracts, and was involved in an association supporting bank customers who had lost money to banks under forex hedging contracts in the 2008 financial crisis. The arbitration court twice refused to remove the arbitrator, finding that his experience in this field did not demonstrate an actual conflict of interest (the “red list” under the IBA Guidelines on Conflicts of Interest in International Arbitration) or a potential conflict of interest (the “orange list”), but fell in the “green list” of permissible activities under the IBA guidelines.
The bank applied to the Katowice Regional Court to set aside the award on the grounds that the arbitral tribunal was not properly empanelled because there were justified doubts as to the independence and impartiality of arbitrator Dr P.K. The bank also alleged that the award violated public policy because it did not determine the merits of the case, granting the award on the basis of unjust enrichment without ruling on the validity of the underlying transactions.
The regional court found that there was no objective basis for challenging Dr P.K. It also found that the award did not violate public policy because of failure to rule on the merits of the dispute, as it was clear from the justification for the award that the arbitral tribunal regarded the finding of unjust enrichment as sufficient regardless of whether or not the underlying transactions were invalid and thus there was no need to rule on that issue.
On appeal, the Katowice Court of Appeal agreed with the lower court that the objections to arbitrator Dr P.K. fell within the “green list” under the IBA guidelines. The court further pointed out that after the bank’s challenge to the arbitrator was denied by the arbitration court, the bank had failed to seek a ruling from the state court. Consequently, the bank forfeited the right to rely on those objections as grounds for setting aside the award. That would be permissible only if the objections to the arbitrator were equivalent to those included in the “non-waivable red list” under the IBA guidelines. The court of appeal found that the allegation that the award violated public policy because of the failure to rule on the merits of the case was not well-developed by the appellant, but in any event the finding by the arbitral tribunal that there was no need to rule on the validity of the underlying transactions because the customer’s claim was justified either way under a theory of unjust enrichment did not constitute a failure to rule on the merits of the dispute.
The court denied the appeal accordingly.
Excerpts from the text of the court’s ruling:
1. That an arbitrator has knowledge about a given legal institution and presents it, evaluates specific legal institutions and financial instruments, conducts lectures and writes publications, does not constitute a circumstance raising doubts, let alone justified doubts, as to his impartiality and independence.
2. Publication of comments of an expert nature on specific subjects, analyzing them, preparing private opinions for other entities resulting from a broader analysis of practices on the foreign exchange market, reflecting all of the market participants and their intentions, does not constitute a circumstance disqualifying an arbitrator.
3. Under Civil Procedure Code Art. 1173 §1, an arbitrator must be an independent and impartial person. These are fundamental characteristics required of an arbitrator, as an element of the right to a fair trial is the party’s right to consideration of its case by an impartial and independent court. This has to do with the absence of relations between the arbitrator and the parties to the dispute that could affect the substance of the award.
4. The IBA Guidelines on Conflicts of Interest in International Arbitration … are designed to assist in the practice of determining the circumstances that may generate justified doubts as to an arbitrator’s impartiality and independence, which circumstances are subject under applicable national law to mandatory disclosure by a candidate for arbitrator, and which are justified by the open-ended nature of the concepts of “impartiality” and “independence.” The guidelines are not of normative relevance, but establish certain standards on how to evaluate specific situations from the point of view of the requirement for the arbitrator’s impartiality and independence. They are commonly recognized in arbitration practice as a document in the nature of best practice, indicating circumstances that enable an assessment, particularly in ambiguous situations. The document sets forth general standards concerning impartiality, independence and disclosure, and a detailed section with examples of conflict of interest, classifying them in terms of the possible occurrence of justified doubts as to an arbitrator’s impartiality and independence.
5. Civil Procedure Code Art. 1174 §2 is devoted to the issue of removal of an arbitrator, providing that an arbitrator may be removed only when circumstances exist generating justified doubts as to his impartiality or independence, although there is a sound argument that the circumstances involving a state court judge can help interpret this section by analogy. When evaluating this condition, objective criteria of assessment are relevant, not the subjective beliefs of the party filing the challenge.
6. In a situation where a party aware of circumstances that could give rise to justified doubts as to an arbitrator’s impartiality or independence does not exercise its rights, it forfeits the right to reserve them until filing an application to set aside the arbitration award (Civil Procedure Code Art. 1193). A party aware of a given circumstance cannot passively wait to see what kind of award is issued in the case and then condition its actions with respect to challenging the arbitrator on the result. What is relevant is that the circumstances relied on by the party were known to the party, and when they were known.
7. Whether a party exercised its right to present to the state court the ruling on the issue of the existence of grounds to remove an arbitrator is relevant to the further course of the proceedings. In a situation where the party did not challenge the arbitrator before the state court pursuant to Civil Procedure Code Art. 1176 §2, the party forfeits this basis for subsequent challenge to the arbitration award using an application to set aside the award relying on the grounds concerning the arbitrator which were previously existing and known to the party.