Polish Supreme Court order
dated 13 October 2017
Case No. I CSK 33/17
Summary by arbitraz.laszczuk.pl:
In 2011 the German company M. entered into a contract with Polish company P. SA to purchase liquid helium. The contract included a clause calling for arbitration before the Court of Arbitration at the Polish Chamber of Commerce of “disputes arising out of or relating to this agreement.”
M. filed a claim against P. SA in the Polish regional court seeking a declaratory judgment that P. SA did not have a right to demand payment of over EUR 185,000 from M. for providing a container of liquid helium on a “take or pay” basis, as it alleged that this provision of the contract was invalid. P. SA asserted the arbitration clause in the contract as a defence, and in 2015 the regional court dismissed the case, holding that the dispute was subject to the arbitration clause, as claims seeking a declaration of the existence or nonexistence of a right were arbitrable.
On interlocutory appeal by the plaintiff, in 2016 the court of appeal issued an order overturning the order of the lower court dismissing the case, agreeing that the claim for a declaratory judgment would be arbitrable but finding that the lower court had failed to examine the effectiveness of the arbitration clause, which the plaintiff alleged exceeded the authority of the defendant’s signatory based on a proxy to enter contracts within the ordinary course of business and capped at a value of PLN 10 million.
On remand, the regional court refused to dismiss the claim, holding that making an arbitration agreement was outside the ordinary course of business and thus exceeded the authority of the defendant’s signatory.
This time the defendant filed an interlocutory appeal. The court of appeal issued an order in 2016 amending the order below and dismissing the claim. The defendant enclosed with the interlocutory appeal a resolution by its own management board ratifying the contract signed by its proxy allegedly beyond the proxy’s authority (allegedly acting ultra vires and thus as a falsus procurator). The court held that the ratification provision of the Civil Code (Art. 103 §1) was applicable. Under that provision, when a signatory acts without authority or beyond his authority, the other party may set a period for the signatory’s party to ratify the signatory’s act, and if that deadline is not met then the other party is released from the agreement. Here, the plaintiff had not sought such ratification, but the defendant ratified the arbitration agreement unilaterally. The court found that this did not violate the principle of arbitration law requiring equal treatment of the parties, because it was also within the plaintiff’s power to seek ratification of the arbitration agreement.
The plaintiff filed a cassation appeal with the Supreme Court of Poland, alleging violation of the Civil Procedure Code provisions on declaratory judgments and the effectiveness of arbitration agreements.
On the declaratory judgment issue, the plaintiff argued that the claim for a finding of the nonexistence of an obligation under the contract did not arise out of or relate to the contract and thus was not covered by the arbitration clause. The Supreme Court followed a pro-arbitration interpretation and found that the arbitration clause here was intended to cover such a dispute. It rejected the argument that to prove the nonexistence of an obligation, one had to overcome any potential basis for the obligation, including possible non-contractual grounds in tort, such as unjust enrichment. The Supreme Court found that those arguments were irrelevant here because in their pleadings neither the plaintiff nor the defendant raised the issue of any non-contractual basis for the existence or nonexistence of the alleged obligation.
On the issue of the signatory’s authority to sign the arbitration agreement on behalf of the defendant, the Supreme Court held that the ability of one party to ratify the agreement made by a proxy exceeding his authority did not violate the principle of equal treatment of the parties to an arbitration agreement, which had to do with the substance of the arbitration clause, for example a clause permitting one of the parties to unilaterally elect between arbitration and litigation before the courts. In any event, under the 2005 overhaul of the Polish arbitration law, in the case of businesses a proxy’s authorization to conclude a transaction includes the authority to conclude an arbitration agreement regarding that transaction. In the case of a proxy limited to acts in the ordinary course of business, this was controlling regardless of whether or not making a standalone arbitration agreement would fall within the ordinary course of business. As it was apparent that the proxy was authorized to conclude the principal agreement on sale of liquid helium, which was within the ordinary course of business and within the euro limit specified in the proxy, the proxy’s authority also covered the arbitration clause included in the agreement. The Supreme Court also held that the wording of the 2005 amendment was not intended to limit this effect to cases in which the proxy held a specific type of power of attorney, i.e. a proxy to conclude a specific transaction. The amendment intended the same effect when, as in this case, the proxy held a general power of attorney. So long as the principal transaction was within the proxy’s authority, the arbitration clause covering that transaction also fell within the proxy’s authority.
Ultimately the Supreme Court held that the court of appeal had reached the correct result in holding that the dispute was subject to arbitration, even though it reached that result partially on incorrect grounds. The Supreme Court denied the cassation appeal accordingly.
Excerpts from the text of the court’s ruling:
1. The provisions of the Civil Code may be applied to an arbitration agreement only on issues not covered by a separate procedural regulation, and taking into account the specific nature of an arbitration agreement as an institution of procedural law. In other words, reference to substantive law in the event of a gap in the procedural regulation must be preceded in each instance by a consideration of whether the provisions of substantive law are appropriate in this case, given the procedural nature of an arbitration agreement, and if so, in what shape they should be applied.
2. [Art. 1161 §2 of the Civil Procedure Code] excludes framing an arbitration clause so that it violates the principle of equality, in particular by entitling only one of the parties to elect between commencing a case before the state court or the arbitral tribunal. This therefore applies to the wording of the clause and does not bar a situation in which one of the parties to the arbitration agreement, as a consequence of making of the clause by a falsus procurator, obtains the power to ratify it, and in consequence to be bound by the clause. If ratification occurs, both parties will be bound by the clause, and the assessment of its content will be governed inter alia by Civil Procedure Code Art. 1161 §2. This situation does not differ from instances in which ratification under Civil Code Art. 103 would involve an agreement of substantive law.
3. Civil Procedure Code Art. 1167 establishes the rule that a power of attorney to make a legal act granted by a business, regardless of the nature of the act, also empowers the holder to enter into an arbitration agreement. The legislature thus accepted that empowerment to make a transaction also implies empowerment to select arbitration as the procedure for resolving disputes arising out of the transaction, unless otherwise provided in the power of attorney. This provision erases the distinction between authority to enter into a legal act and authority to enter into an arbitration clause with respect to disputes involving that act. The type of power of attorney necessary to make the legal act is determined by statute (Civil Code Art. 98), and if the power of attorney is effectively granted, empowerment to make an arbitration clause is a derivative of that power of attorney.
4. Civil Procedure Code Art. 1167 should be regarded as the legislature’s response to the interpretation adopted in the case law, regarded as rigorous, with respect to the requirements for empowerment to conclude an arbitration clause. Considering that the scope of application of this solution is limited to businesses, this argues for giving it broader meaning than being limited to a power of attorney of a specific nature.
5. Civil Procedure Code Art. 1167 detaches the effectiveness of authority to conclude an arbitration agreement from its autonomous classification as an act that is or is not within the ordinary course of business, making it dependent only on the existence of effective authorization to make a legal act.