Polish Supreme Court order
dated 1 December 2017
Case No. I CSK 170/17
Summary by arbitraz.laszczuk.pl:
In April 2010 the Polish company B. SA entered into a consortium agreement with three Irish entities, S. (consortium leader), J. and R., concerning their joint bid for a public contract for construction of a section of motorway in Poland. The consortium was awarded the construction contract, which was signed in June 2010. The consortium agreement and the construction contract included identical arbitration clauses providing that disputes which could not be resolved amicably by the consortium members would be submitted to an arbitral tribunal under the ICC rules.
In September 2010 B. SA took out a line of credit with P. SA for PLN 35 million and made an assignment to the lender for security of its claims against S. as consortium leader. Subsequently, B. SA entered bankruptcy.
Outside of the bankruptcy proceedings involving B. SA, P. SA filed a claim in the Polish regional court against the Irish entities in the consortium seeking payment of over PLN 9 million, alleging that because its claim against the borrower under the credit agreement was not satisfied, it was entitled to sue the defendants pursuant to the assignment of the borrower’s claims against them. The defendants sought to dismiss the case due to the existence of the arbitration clause in the 2010 agreements.
The regional court dismissed the case, holding that the plaintiff, as assignee of the claim, stepped into the shoes of the assignor of the claim under the agreement including the arbitration clause and was thus subject to the clause. The court rejected the plaintiff’s argument that the arbitration clause had lapsed upon declaration of the assignor’s bankruptcy, under the Bankruptcy and Recovery Act of 2003 in force at that time, because it occurred after the assignment.
On interlocutory appeal, the plaintiff argued that because the assignment was made for security, the claim should be regarded as belonging to the bankruptcy estate, but segregated so that the plaintiff would have a separate right to satisfaction out of the proceeds of the claim, on the same basis as a pledgee. Thus the plaintiff was asserting the claim in the trustee’s place, and the trustee could not be bound by the arbitration clause. The plaintiff further alleged that the arbitration clause was ineffective because it did not specify the legal relationship out of which the claims would have to arise to be covered by the arbitration clause.
The court of appeal denied the interlocutory appeal. It held that once the assignor’s bankruptcy was declared, an assignee for security could no longer assert the claim independently outside of the bankruptcy proceeding. Nonetheless, the arbitration clause remained in force and binding on the assignee. The claims in question were covered by the arbitration clause because they involved performance of the contracts which contained the arbitration clause.
On cassation appeal, the Supreme Court of Poland held that upon the assignment, the plaintiff here, P. SA, assumed the position of the original holder of the claims, B. SA, including being bound by the arbitration clause. As B. SA was no longer a party to the claims, its bankruptcy could not cause the arbitration clause between third parties to lapse. The court found that there was no definitive position in Polish law on whether, in the case of an assignment for security, the right to pursue the claim passed to the bankruptcy trustee upon the declaration of the assignor’s bankruptcy. But that issue involved the merits of the case, not the procedural issue of whether the assignee was bound by the arbitration clause. According to the Supreme Court, “The order appealed against did not rule on the plaintiff’s lack of substantive standing, but on the procedural issue of the permissibility of conducting a proceeding before the state court in light of the arbitration clause. In this context, it should be assumed that in asserting the claim for payment, the plaintiff was guided by the rational belief that it holds the substantive right to demand payment of the assigned claim by the defendant. Consequently, it should also be found that as the acquirer of the assigned claim, the plaintiff is subject to the effects of the arbitration clause concerning the claim.”
The court denied the cassation appeal accordingly.
Excerpts from the text of the court’s ruling:
1. If an assigned claim was covered by an arbitration clause, the clause also exerts effects with respect to the assignee, which means that the assignee is bound inter alia by the negative effect of the clause in the form of exclusion of the jurisdiction of the state courts over disputes concerning the claim.
2. Declaration of the bankruptcy of the assignor of a claim after the assignment is made does not affect the effectiveness of the arbitration clause covering the assigned claim in relations between the current holder—the legal successor of the bankrupt (the assignee)—and the defendant. In that situation, at the time of declaration of bankruptcy the bankrupt is no longer a party to the clause, the effects of which passed to the assignee as properties of the assigned claim. Art. 142 and 147 of the Bankruptcy Law [prior to the 2015 overhaul introducing the Reorganization Law] referred to disputes to which the bankrupt is a party.
3. Although Art. 142 and 147 of the Bankruptcy Law used the broad phrase “arbitration clause made by the debtor,” this provision cannot be understood to mean that it provides for the loss of force of an arbitration clause to which the bankrupt was originally a party, regardless of whether this entity is still a party to the legal relationship covered by the clause.
4. Under Art. 1161 §1 of the Civil Procedure Code, an arbitration clause must indicate the subject of the dispute or the legal relationship under which the dispute has arisen or may arise. This necessity is intended to eliminate clauses covering the totality of existing or future disputes between the parties. However, the assessment of whether the clause meets this requirement must consider not only the wording of the clause, but also, in interpreting it, the other relevant circumstances in which the parties’ declarations were made, in this context linguistic and situational circumstances, as well as the parties’ intent.
5. The legal relationship to which the arbitration clause applies need not be expressly stated in the clause, but may also be determined through interpretation of the clause. As an arbitration clause is an expression of the autonomy of will of rationally acting parties, its interpretation should also comply with the principle of favor validatis, seeking, within the limits of permissible interpretation, to uphold the effectiveness of the parties’ declarations.
6. The recent legal literature and case law stress the trend toward broad interpretation of an arbitration clause, based on avoiding a split of competencies between the arbitral tribunal and the state court within the same legal relationship. The demand of this interpretation of an arbitration clause (in favorem jurisdictionis arbitrii) is apt, particularly in international trade, in disputes between businesses.
7. Submission to an arbitral tribunal of disputes arising out of a contractual relationship means that the competence of the tribunal extends to all claims for performance of the contract, claims arising in the event of non-performance or improper performance of the contract, claims for disgorgement of unjust enrichment arising in the event of invalidity or repudiation of the contract, as well as tort claims if they arise out of an event that also constitutes non-performance or improper performance of the contract.