Polish Supreme Court judgment
dated 18 July 2019
Case No. I CSK 323/18
Summary by arbitraz.laszczuk.pl:
On 18 April 2005 W. S.A., a joint-stock company (as the Investor) entered into an investment contract (the ‘Contract’) with K. sp. z o.o., a limited liability company (as the Contractor). The Contract provided for arbitration before the Court of Arbitration at the Polish Chamber of Commerce in W. (the ‘Arbitration Court’). The parties agreed that the remuneration due to the Contractor would be paid on the basis of invoices from which W. was eligible to deduct and deposit 20% to secure possible claims for non-performance or improper performance of the Contract. The deposit was to be returned at the request of K. within one year from the date of signing of the construction acceptance protocol, and if that did not happen by 31 December 2005 for reasons beyond K.’s control, the one-year period for the return of the deposit was to be counted as from 1 January 2006 (point 5.2 of the Contract).
On 8 January 2007 K. filed a claim against W. before the Arbitration Court seeking over PLN 272,000. The Arbitration Court issued an award in July 2008 and ordered W. to pay K. almost the entire demanded amount. The Investor’s petition to set aside this arbitration award was finally dismissed.
On 16 August 2010 K. filed another claim against W. before the Arbitration Court seeking over PLN 480,000 with statutory interest as from 19 August 2007 as refund of the remainder of the deposit. The Arbitration Court issued an award on 15 November 2013 in which it dismissed the main action (point 1) and cancelled the costs of the arbitration proceedings between the parties (point 3), having regard to the plea of limitation submitted by the respondent.
The Regional Court found that the action deserved consideration, because the contested award had been contrary to the fundamental principles of the legal order of the Republic of Poland. It reasoned that the Arbitration Court’s award of 15 July 2008, upon enforcement thereof by the court (Art. 1212 § 1 of the Polish Civil Procedure Code) (the ‘PCPC'), had legal effects equal to those of a court judgment, which means that both the principle of being bound by a final sentence (Art. 365 § 1 of the PCPC) and the principle of res iudicata (Art. 366 of the PCPC) applied thereto. As the Regional Court stated, Art. 365 § 1 of the PCPC had been infringed by the Arbitration Court.
The Appeal Court, as a result of an appeal filed by the opponent of the complaint, in the judgement of 1 February 2017 changed the contested judgment and dismissed the appeal. The Appeal Court to a large extent agreed with the Regional Court with regards to factual findings. However, the Appeal Court found that the contested award was not contrary to the fundamental principles of the legal order of the Republic of Poland.
K. filed a cassation appeal to the Polish Supreme Court. It argued that in this situation, among other things, the provisions of the Constitution of the Republic of Poland, the Convention for the Protection of Human Rights and Fundamental Freedoms and the PCPC had been infringed.
The Supreme Court found that, pursuant to Art. 1184 § 2 of the PCPC, an arbitration court may, subject to statutory provisions, conduct arbitration in such manner as it considers appropriate and shall not be bound by the provisions on procedure before the court. K. omitted, however, that unless otherwise provided by statute, the parties may agree upon the rules and procedure before an arbitral tribunal (Art. 1184 § 1 in connection with Art. 1184 § 2 of the PCPC). The parties had taken advantage of this opportunity, assuming that the proceedings would be conducted in accordance with the Rules of Arbitration of the Arbitration Court as of the date of filing of the claim. The Rules of Arbitration left no room for doubt that an arbitration award shall contain a decision on all demands of the claim (§ 43 point 3 of the Rules of Arbitration). Therefore, the groundlessness of the allegation of infringement of Art. 1184 § 2 of the PCPC made other allegations of the claim groundless as well. Consequently, the Supreme Court found the above allegations to be completely misguided and dismissed the cassation appeal.
Excerpts from the Supreme Court judgment:
1. The essence of arbitration is the autonomy and freedom of action of the parties and an arbitration tribunal is not bound by the provisions of the Polish Civil Procedure Code on proceedings before a state court (Art. 1184 § 2 of the Polish Civil Procedure Code). It is only bound by the mandatory provisions of the Polish Civil Procedure Code which regulate the arbitration procedure (…).
2. The scope of the final resolution by an arbitration tribunal of a submitted claim shall result from the conclusion of the arbitration award and cannot be derived from the statement of reasons (…).
3. [T]he basis in Art. 1206 § 2 point 2 of the Polish Civil Procedure Code is justified, if the effect of an arbitration award is contrary to the fundamental principles of the legal order of the state. These shall be understood not only as constitutional norms of fundamental importance, but also as the ground rules governing particular areas of substantive and procedural law.
4. A court, in proceedings to set aside an arbitration award, cannot resolve a dispute between the parties of arbitration proceedings as to the merits. Consequently, the court cannot examine, whether the arbitration award is not contrary to substantive law and whether this award is based on the facts given in its statement of reasons and whether these facts have been properly established.
5. The principle of the binding force of final court rulings (Art. 365 § 1 of the Polish Civil Procedure Code) as an element of the values protected constitutionally and in the international order is a part of the fundamental principles of the legal order of the Republic of Poland. This rule also applies to arbitration awards after their recognition or enforcement by a state court. Such an award, thanks to the state court judgment related to it, has the same legal effect as a court judgment (Art. 1212 § 1 of the Polish Civil Procedure Code) (…).
6. A state court shall not allow two rulings between the same parties whose enforcement is guaranteed by the state, but which would resolve the same issue differently, to be present in the legal system, since this would undermine the authority of the justice system and the confidence in the courts, colliding with the principle of the stability of final rulings and the principle of legal certainty (…).