Wrocław Court of Appeal judgment
dated 31 August 2017
Case No. I ACa 536/17
Summary by arbitraz.laszczuk.pl:
A public construction contract under FIDIC rules provided for arbitration under the 2012 ICC Arbitration Rules. A Polish sole proprietorship which was the leader of a consortium of contractors pursuant to a consortium agreement from 2008, but acting in its own name, commenced arbitration in 2014 against the contracting authority, a Polish municipality, seeking fees, VAT and interest, and obtained a partial award in 2017 for most of the relief it sought, totalling some EUR 890,000 plus some PLN 880,000.
In the request for arbitration, the contractor asked the ICC to appoint a sole arbitrator of French or German nationality. In its response, the Polish municipality objected, on the grounds that the language of the arbitration was Polish and thus the arbitrator should be fluent in Polish. The claimant maintained that the arbitrator should be of a different nationality because the respondent, as a Polish municipality, was an organizational unit of the Polish state.
As the parties could not agree on the arbitrator, the arbitration court proposed the appointment of J.L. (nationality not mentioned in the judgment), but the claimant objected because J.L. had done work for the Polish Ministry of Foreign Affairs and was a university lecturer (apparently at a Polish university), and thus J.L.’s impartiality could be questioned.
The arbitration court then informed the parties that it had appointed instead as sole arbitrator K.P., of Czech nationality. The respondent objected, asserting that as a municipality it was independent of the Polish state, and the claimant reiterated its argument that the respondent was dependent on the Polish state administration. The arbitration court responded that under the arbitration rules, the appointment was final and did not require a justification.
In the arbitration, the respondent asserted that the entire claim had been discharged, as the contractor’s claim against the municipality was attached by the bailiff in 2010 to secure claims against the contractor by another company, and pursuant to an order by the bailiff the municipality had paid over PLN 7.7 million into the bailiff’s account as security, which amount was released in 2011, about half to the contractor and half to its creditor. In the partial award, the arbitrator rejected this defence, holding that attachment of the claim and payment into the bailiff’s account did not constitute payment of the contractor’s claim by the municipality.
The municipality applied to the Wrocław Court of Appeal to set aside the award on various grounds, including (1) violation of fundamental rules of arbitration procedure in improper appointment of the sole arbitrator and (2) violation of fundamental principles of law, in that (a) the contractor was not entitled to pursue in its own name amounts owed to other consortium members, thus infringing the interests of third parties, and (b) the parties were not treated equally and the municipality’s property rights were violated because of the failure to recognize that the contractor’s claim was discharged by the earlier payment into the bailiff’s account and subsequent release of that payment to the contractor and its creditor.
The court of appeal found that the contractor was properly authorized to pursue in its own name claims vested in all members of the consortium, as the consortium agreement constituted a contract granting this authority to the claimant.
However, the court of appeal found that the sole arbitrator had not been properly appointed because the arbitrator was appointed to meet the claimant’s requirements based on the legally erroneous assumption that the municipality was an organizational unit of the state. The arbitration court had thus improperly made a direct appointment pursuant to Art. 13(4)(a) of the 2012 ICC Arbitration Rules, on the inapplicable grounds that “one or more of the parties is a state or claims to be a state entity,” instead of consulting with the ICC national committee under Art. 13(3) of the rules.
The court further held that the award violated public policy in failing to recognize discharge of the respondent’s obligation through payment to the bailiff to secure claims against the contractor by its creditor and subsequent release of the funds to the contractor and its creditor.
The court of appeal entered a judgment setting aside the award accordingly.
Excerpts from the text of the court’s ruling:
1. Under Civil Procedure Code Art. 1183, “In a proceeding before the arbitral tribunal the parties shall be treated equally. Each party shall have the right to be heard and to present its arguments and evidence in support thereof.” Thus, in light of this requirement of Polish law, it should be recognized that the principle of equality of the parties is an overriding principle of civil procedure, even if not expressly addressed in any other provision of the Civil Procedure Code.
2. Impartiality is maintained when the arbitrator maintains the same distance in relation to each of the parties, is neutral, does not show favour, and also does not discriminate against either of the parties and is not prejudiced against any of the parties. These circumstances involving the failure to maintain impartiality by the arbitrator deciding the case are relevant under the grounds for setting aside an arbitration award. And thus, lack of impartiality of the arbitrator is the basis for an allegation of violation of the fundamental principles of procedure before the arbitral tribunal, as well as an allegation of inconsistency with fundamental principles of the legal order of the Republic of Poland (Civil Procedure Code Art. 1206 §1(4) and 1206 §2(2)).
3. The debtor of an attached claim should tender performance to the creditor. Fulfilment of such performance results in extinguishment of the debt to the original creditor. It is irrelevant whether this performance occurred outside a judicial enforcement proceeding or during the course of such proceeding as a result of measures taken by the court bailiff. Thus including such claim in an arbitration award violated a fundamental principle of the public policy of the Republic of Poland.