Polish Supreme Court judgment
dated 16 December 2010
Case No. I CSK 112/10
Summary by arbitraz.laszczuk.pl:
In February 2000 Jacek G. and Jacek K. entered in an agreement in which G. sold shares in A.Z. sp. z o.o. to K., for the PLN equivalent of USD 384,300, payable in two instalments due in October 2000 and December 2000. The share sale agreement included an ad hoc arbitration clause. To secure the claim for payment, K. issued two in blanco promissory notes to G., guaranteed by T. sp. z o.o.
Jacek G. subsequently filled in the promissory notes, in the amounts of PLN 200,721 and 327,471, both payable to Jacek G. in August 2002.
In 2002 Jacek G. brought a claim seeking payment against Jacek K. and T. sp. z o.o., and in November 2002 the regional court issued an order to pay the plaintiff PLN 528,192 plus interest and costs. However, in September 2004 the order for payment was vacated with respect to Jacek K., upholding his assertion of the arbitration clause in the share sale agreement as a defence, and the case was dismissed as against T. sp. z o.o. on the grounds that it had no standing to be sued in the case because before changing its name to T. sp. z o.o. in July 2000 the company was known as W. sp. z o.o., and thus it was not in fact the company that guaranteed the promissory notes in February 2000.
In a subsequent case, on 29 June 2005, E.C. sp. z o.o. filed a claim against Jacek K. and T.I.P. sp. zo.o. (known as T. sp. z o.o. prior to a name change in July 2000) for payment of the amount stated in the promissory notes, relying on acquisition of the notes from Jacek G. by endorsement in June 2005. E.C. sp. z o.o. filed the promissory notes with the court. On the front of each there was a notation that they were guaranteed by T. sp. z o.o., and on the back was a declaration by Jacek G., dated 6 June 2005, endorsing them to E.C. sp. z o.o.
The regional court overruled the defence of res judicata asserted by Jacek K. based on the ruling in September 2004, as well as the defence of the arbitration clause asserted by both defendants. The court also overruled the defence that the promissory note had been filled in contrary to the promissory note declaration, holding that E.C. sp. z o.o., as an endorsee, was protected from such defence. In September 2007 the regional court issued a judgment granting the claims in full.
The appellate court denied the appeal by both defendants.
On cassation appeal, the Supreme Court held that the defence of res judicata had been properly rejected because the claims and parties in the earlier case were not the same. The defence of the arbitration clause was also properly denied with respect to Jacek K. because the claim did not arise under the share sale agreement, and the defence could not be asserted by T.I.P. sp. z o.o. because it was never a party to the arbitration clause.
However, under the Promissory Note Law, the Supreme Court held that because the promissory notes were endorsed to E.C. sp. z o.o. more than three years after the deadline for payment and after the deadline for protest for non-payment, the endorsement only had the effect of an ordinary assignment and thus the endorsee was not protected against the defence that the promissory notes were filled in contrary to the promissory note declaration. The judgment of the appellate court was thus vacated and the case remanded for reconsideration of that issue.
Excerpts from the text of the court’s ruling:
1. It is clear that an arbitration clause may be binding also on legal successors with respect to the relationship under which disputes were submitted to the arbitration court for resolution, ... but an endorsee is generally protected by Art. 17 of the Promissory Note Law against defences by the promissory note debtors based on their personal relations with the prior holders of the note. This also includes protection against the defence that the promissory note dispute is subject to an arbitration clause. ... The promissory note debtor could assert against the endorsee the defence that the promissory note dispute is subject to an arbitration clause agreed with the prior holder of the promissory note only if the endorsee, in acquiring the promissory note, consciously acted to the injury of the debtor, i.e. knew of the existence of grounds for the debtor to assert the arbitration clause against the prior holder and also sought, to the injury of the debtor, to deprive the debtor of such defence. ... The promissory note debtor’s assertion against the acquirer of the promissory note, without any limitations, of the defence that the promissory note dispute is subject to an arbitration clause, could come into play only in instances where the promissory note was acquired by way of an assignment agreement or endorsement after protest for non-payment or after the deadline for protest, having the effect of an assignment (Promissory Note Law Art. 20(1), first sentence).
2. Although a clause submitting a promissory note dispute to an arbitration court is theoretically permissible under Civil Procedure Code Art. 1157, to do so must be regarded from the perspective of the promissory note creditor as highly irrational, as it deprives the promissory note creditor of the benefits afforded it by seeking payment of the promissory note in a proceeding for an order of payment before the common court. ... The position cannot be accepted ... that benefits comparable to those afforded to the party enforcing payment of a promissory note by a proceeding for order of payment may be assured in an arbitration proceeding by reference to the regulations concerning proceedings for order of payment within the parties’ agreement concerning “the rules and manner of proceeding before the arbitration court” (Civil Procedure Code Art. 1184 §1).
3. In light of the irrationality of submission of a promissory note dispute to an arbitration clause, it should be accepted that the effectiveness of such a clause requires an express reservation with respect to the given promissory note claim which in each instance does not raise any doubts. ... This rules out extending an arbitration clause included in the agreement underlying the issuance of the promissory note, with respect to disputes connected with such agreement, to a promissory note claim against the issuer.