case law

id : 20147

id: 20147

Polish Supreme Court judgment

dated 16 May 1997

Case No. I CKN 205/97

Summary by arbitraz.laszczuk.pl:

A French company (M. SA) and a Polish company (S. sp. z o.o.) brought a claim before the Court of Arbitration at the Polish Chamber of Commerce against the City of Warsaw seeking a declaration that a June 1994 agreement between the claimants and the Union of Warsaw Municipal Districts was binding on the parties, but with the City of Warsaw in place of the Union of Warsaw Municipal Districts. The agreement involved a contract to supply machines for cancelling municipal transit tickets. One clause of the agreement (Art. 23) provided that if certain obligations were not performed by the parties before a certain deadline, the agreement would be deemed “expired” (in the Polish version) or “invalid” (in the English version). The claimants took the view that the non-fulfilment of such condition did not in and of itself terminate the legal relationship between the parties. The city took the view that because of failure of the condition set forth in that article, the agreement never went into effect. The arbitration court ruled that the agreement continued in force among the parties, with the City of Warsaw becoming a party instead of the Union of Warsaw Municipal Districts because the City of Warsaw was the legal successor of the original party pursuant to the Act on the Organization of the Capital City of Warsaw dated 5 March 1994, and Art. 23 of the agreement was a “renegotiation clause”.

The city applied to the Warsaw Province Court to set aside the award as contrary to the rule of law, on grounds including violation of the 1994 Act on the Organization of the Capital City of Warsaw or the Act on the Organization of the Local Government of the Capital City of Warsaw dated 18 May 1990, and the arbitration court’s failure to consider the allegation that the agreement was not signed by the proper municipal authorities or without obtaining the proper municipal approvals. In June 1996 the court denied the petition, holding that the award did not violate overriding principles of the legal system and that the city failed to allege the invalidity of the agreement before the arbitration court. The court also found that the contract in question had been properly approved by the municipal government.

In November 1996 the appeal court affirmed based on the findings by the province court and denied the appeal.

On cassation appeal, the city alleged procedural errors by the arbitration court affecting the result in the case, as well as violations of substantive law related to the claim that the arbitration award was unlawful because it violated the 1994 Act on the Organization of the Capital City of Warsaw or the 1990 Act on the Organization of the Local Government of the Capital City of Warsaw.

The Supreme Court held that the alleged procedural errors had to do with the procedure before the arbitration court, not the procedure before the appeal court, and therefore were not proper grounds for a cassation appeal. The court found substantial support in the public record for the position that the contract in question had been properly approved by the municipal authorities, and any irregularities in this respect were attributable to the city, rather than a violation of the rule of law by the arbitration court. The city also failed to identify any overriding principles of the Polish legal system in an overall, nationwide sense, that were allegedly violated by the award. The laws governing the organization of the local government of Warsaw did not, in the court’s opinion, qualify as overriding principles of the legal order of the Republic of Poland. The Supreme Court denied the cassation appeal accordingly.

Excerpts from the text of the court’s ruling:

1. Civil Procedure Code Art. 705 §2 specifies the procedure only before the arbitration court, as demonstrated at least by its placement in Chapter 3, Title 3 of the Civil Procedure Code, containing regulations governing the procedure before the arbitration court. Thus because Art. 705 §2 imposes specific duties only on the arbitration court, it could not be violated by the court of second instance, which is a state court.

2. Civil Procedure Code Art. 714 defines the bounds of action by the common court hearing a petition to set aside an arbitration award, based on the grounds listed in Art. 712 §1. It is thus clear that Art. 714 defines the bounds of the action of the common court, but it is the court hearing the case in the first instance. Thus the allegation of violation of Art. 714 cannot be addressed directly to the court of appeal, which is a court of second instance.

3. The regulations of the Civil Procedure Code concerning the procedure before the arbitration court do not contain a requirement that the arbitration court is absolutely bound by the rules of substantive law when it considers the merits of the dispute. Art. 712 §1(4) and a linguistic interpretation thereof justify the conclusion that it is the duty of the arbitration court to apply imperative legal norms whose violation would also violate the rule of law or principles of social coexistence.

4. Even violation of norms of substantive law by the arbitration court will not always be tantamount to violation of the rule of law or principles of social coexistence, because it will depend on the circumstances of the specific case.

5. Civil Procedure Code Art. 712 §1(4) will be met only by a violation of substantive legal norms, even those of a peremptory nature, made by the arbitration award, as a result of which the ruling by the arbitration court will also cause a clear violation of the overriding principles of the legal order in force in the Republic of Poland, or conflict with clearly defined principles of social coexistence.

6. There may be said to be a violation of systemic statutes having such effect with respect to statutes governing the system and principles for functioning of the State as a whole or its highest bodies, but not the functioning of one specific local governmental unit.

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