case law

id : 20442

id: 20442

Warsaw Court of Appeal judgment

dated 16 March 2017

Case No. I ACa 1070/16

Summary by arbitraz.laszczuk.pl:

In September 2011, a contractor preparing a new central banking system for a Polish bank entered into an implementation agreement with a software supplier for delivery of a component of the system, along with a licence agreement under which the subcontractor would grant the contractor a non-exclusive licence to the software package, a non-exclusive licence to the software package documentation, and a temporary licence to use the software package as needed to perform the implementation agreement until the date of the final acceptance under the implementation agreement.

The first stage of the implementation agreement was completed in June 2012 with delivery by the subcontractor of the implementation specification design, for which the contractor paid over PLN 8 million. Then, in July 2012, the contractor gave notice of termination of the implementation agreement, and two days later the subcontractor gave its own notice of termination of the agreement.

In March 2013 the subcontractor filed an arbitration claim against the contractor for over PLN 31 million for its unpaid fee under the implementation agreement and other damages. The contractor counterclaimed for return of the fee already paid to the subcontractor. The arbitral tribunal issued an award in February 2014, ruling under principles of equity as authorized in the arbitration clause, permitting the subcontractor to retain the payment already received under the implementation agreement but denying its claim and also denying the contractor’s counterclaim. The parties did not challenge that award.

There the tribunal found that under the licence agreement, the contractor had paid the subcontractor over PLN 6 million for the “temporary licence” and nearly PLN 13 million for the licence to the software documentation. It was due to pay a further fee of over PLN 15 million for the software licence for the period following final acceptance under the implementation agreement, but that licence was never granted because the implementation agreement was dissolved.

Then, in April 2014, the contractor gave notice of termination of the licence agreement and the licence itself. Subsequently, the contractor filed a claim against the subcontractor before the Court of Arbitration at the Polish Chamber of Commerce seeking the return of over PLN 15 million received by the subcontractor under the licence agreement. The arbitral tribunal held that the fee for the temporary licence should be returned because it was granted for a period ending with the final acceptance under the implementation agreement, which date would never occur because of dissolution of the implementation agreement, rendering that licence moot. However, the tribunal held that the subcontractor should retain the fee for the software documentation because it was the equivalent of payment of the purchase price for a product which was delivered and could be used and modified by the contractor to implement the system itself or with other suppliers. Again ruling on the basis of principles of equity, the tribunal issued an award accordingly in March 2016 in favour of the contractor for over PLN 6 million, but denied the rest of the claim.

The subcontractor applied to the Warsaw Court of Appeal to set aside the award on the grounds that it violated public policy, including principles of equal treatment, freedom of contract, and the enforceability of contracts. The court held that the subcontractor had not demonstrated that the award violated any of these principles, and denied the petition accordingly.

Excerpts from the text of the court’s ruling:

1. Although it is a form of review, a petition [to set aside an arbitration award] is not an appellate instrument, as unlike in an appellate proceeding, the role of the state court is not to reconsider the case resolved by the arbitration award, applying provisions of substantive and procedural law. In the proceeding before the state court initiated by the petition, the court does not examine whether the arbitration award is contrary to substantive law or is grounded in the facts cited in the award, or whether these facts were properly established. The state court considers the case only from the perspective of the grounds for setting aside the award and evaluates the soundness of the petition only in light of the grounds set forth in Civil Procedure Code Art. 1206 §§ 1 and 2, considering at its own initiative only the grounds set forth in Art. 1206 §2.

2. By adopting an arbitration clause, the parties limit their own constitutional right to resort to the courts. When deciding to submit a potential dispute to an arbitration court for resolution, they must be aware of both the positive and negative consequences of including relevant provisions in the arbitration clause. Unlike a state court, an arbitration court considering cases need not strictly apply provisions of substantive law, but may also base its ruling on principles of equity, or rule on the basis of general principles of law. Consequently, review by the state court of rulings by arbitration courts is limited to the instances strictly defined by law.

3. Ruling under principles of equity (ex aequo et bono) consists of seeking a resolution to a dispute in accordance with the directives of fairness and justice, as understood by the arbitrators, regardless of the legal norms in force. This does not mean arbitrariness in the assessment of the case or the ability to ignore the state of facts, and thus the arbitrators must also admit evidence, analyze the collected material, and take into consideration the provisions of the contract in force between the parties.

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