id: 20242

Polish Supreme Court judgment

dated 19 October 2007

Case No. V CSK 181/07

Summary by arbitraz.laszczuk.pl:

In 1999 Irena P. issued a power of attorney to Piotr P. to dispose of shares she held in C. SA on the terms and condition the attorney deemed suitable, and to take other necessary related actions. The attorney entered in three agreements with P. SA under which Irena P.’s shares in C. SA would be exchanged for treasury bonds. The agreements contained an arbitration clause calling for arbitration before the Court of Arbitration at the Polish Chamber of Commerce.

In 2001, Piotr P. and Przemysław P. filed a claim against P. SA with the Court of Arbitration at the Polish Chamber of Commerce seeking PLN 10 million in contractual penalties under the share exchange agreements. Irena P. was listed as claimant, but she did not sign the statement of claim herself or the power of attorney issued to claimants’ counsel in the proceeding. In March 2002, the arbitration court issued an award denying the claim.

In May 2002, all three claimants (Piotr P., Przemysław P. and Irena P.) filed a petition with the regional court to set aside the award. In December 2002 the petition was dismissed with respect to Piotr P. and Przemysław P. for failure to pay the filing fee, and in October 2003 the petition was dismissed with respect to Irena P. as having been filed too late.

In February 2003, the three claimants filed a new petition to set aside the award, with a motion to reinstate the deadline. In 2005, the regional court rejected the motion by Piotr P. and Przemysław P. as filed too late. It found that Irena P.’s motion was not filed late (because she had not been served with the award), but denied her motion.

On interlocutory appeal, the appellate court vacated the order with respect to Irena P. and remanded the case to the regional court. In 2006 she supplemented her motion to allege that the arbitration clause was invalid because she had only authorized Piotr P., as her attorney-in-fact, to dispose of her shares in C. SA but had not specifically authorized him to enter into an arbitration clause in that respect. The regional court agreed that Piotr P. had exceeded his authority and the arbitration clause was invalid with respect to Irena P. The court issued a judgment setting aside the arbitration award with respect to Irena P., finding that it had to consider her allegation on the court’s own motion because issuance of an arbitration award against a person who did not enter into an arbitration agreement violated the rule of law.

The appellate court denied the respondent’s appeal, finding that Irena P. had not ratified the ultra vires action of the attorney-in-fact, and holding that the fact that lack of an arbitration clause is a separate ground for setting aside an arbitration award (if asserted by the litigant on a timely basis) does not prevent the court from considering the lack of an arbitration award on its own motion as grounds for setting aside the award as contrary to public policy.

On cassation appeal, the Supreme Court reversed, holding that the fact that Irena P. failed to allege on a timely basis the lack of an arbitration agreement as grounds for setting aside the award prevented the court from considering that allegation later, on the court’s own motion, as a violation of public policy.

Excerpts from the text of the court’s ruling:

1. It is accepted in the literature and in the precedent that res judicata effect, governed by Civil Procedure Code Art. 366, is ascribed only to rulings on the merits. … An order dismissing a petition to set aside an arbitration award, which does not belong to the category of listed merits determinations, does not enjoy res judicata effect and cannot justify an allegation of the invalidity of the proceeding based on Civil Procedure Code Art. 379(3).

2. Given that the petition to set aside the arbitration award was not based on Civil Procedure Code Art. 712 §1(1), it was impermissible for the court to consider sua sponte the issue of the invalidity of the arbitration clause.