Polish Supreme Court judgment
dated 7 February 2018
Case No. V CSK 301/17
Summary by arbitraz.laszczuk.pl:
A consortium of contractors entered into a contract in 2009 with a local municipality for construction of a public project. The contract provided for arbitration before the Court of Arbitration at the Polish Chamber of Commerce. In 2012 the contractors renounced the contract, and subsequently commenced arbitration seeking an award declaring that their renunciation of the contract was effective. The arbitral tribunal issued a preliminary award in 2016 granting this relief.
The municipality applied to the court of appeal to set aside the award, alleging that the award violated public policy in the form of a fundamental principle of civil procedure, as the arbitral tribunal failed to consider the case and all the evidence exhaustively, and thus failed to consider the essence of the case (here, the effectiveness of the contractors’ renunciation of the contract). The applicant also alleged violation of fundamental principles of substantive law.
The court of appeal issued a judgment in 2017 setting aside the award, finding that the award violated fundamental principles of civil procedure because the arbitral tribunal failed to thoroughly examine the case and assess the evidence as a whole, but did so selectively, relying on a portion of the documentation, ignoring without explanation other evidence admitted by the tribunal. The court overruled the municipality’s other objections to the award.
On cassation appeal to the Supreme Court of Poland, the contractors alleged that the court of appeal had violated arbitration law by finding that the award violated public policy, and had overstepped the competence of the state court reviewing an arbitration award by assessing the relevance of the evidence in the arbitration. They also alleged that the court of appeal had improperly interpreted the applicable provisions of arbitration law and the rules of the arbitration court by applying the rules of procedure applicable to a state court trial but not applicable in arbitration, specifically by holding that the award had to set forth in detail the facts which the tribunal found to be proved, the evidence it relied on, and the reasons it found other evidence to lack credibility or probative value, when, in the appellants’ view, the arbitral tribunal was only required to state the grounds for the award.
The Supreme Court stated that if it is assumed that the requirement to examine a case thoroughly and consider the essence of the dispute is a fundamental principle of the Polish legal system, as the appellants admitted in their cassation appeal, then showing that an arbitration award violated this principle is grounds for setting aside the award as contrary to public policy.
The question then was to make a proper distinction between the justification for a state-court judgment and the statement of the grounds for an arbitration award. The appellants used many points in the statement of grounds for the award in this case, which ran to over 100 pages, to show that the award met this minimum. Nonetheless, the Supreme Court found that these arguments were outweighed by the opposing arguments, inclining the court to share the view expressed by the court of appeal. While the Supreme Court recognized that an arbitral tribunal is not a professional court, it must nonetheless be prepared to resolve the dispute before it. Freedom from the rules of the Civil Procedure Code did not relieve the tribunal from following “certain obvious standards of fair and equal treatment of the parties. The evidence offered by both parties to the proceeding should thus be admitted and addressed, not only that which supports the ultimate ruling but also the opposing evidence, its credibility and reliability, as this allows the reasoning of the arbitral tribunal to be followed.” This did not mean that each piece of evidence had to be addressed separately, but the tribunal must not, for example as the court of appeal found in this case, rely on evidence from a different period not relevant to the period in question, or ignore large portions of the evidence entirely. “Passing over some evidence in silence in the justification for the arbitration award makes the award unpersuasive in its grounds, particularly for the party for whom the award is unfavourable. This demonstrates the failure to consider the case thoroughly,” which according to the court was the issue in dispute in the cassation appeal. “The result of the failure to consider the essence of the case as it should have done … is failure to consider the essence of the specific matter in dispute, which is the effectiveness of the renunciation of the contract concluded between the parties to this proceeding.” The rules of the arbitration court also required the arbitral tribunal to consider the evidence thoroughly, its credibility and probative value.
In this light, the Supreme Court shared the view of the court of appeal that the statement of the grounds for the award in this case fell so short of an exhaustive consideration of the case that it was tantamount to a failure to consider the essence of the case, and thus the preliminary award of the arbitral tribunal had to be set aside.
The Supreme Court denied the cassation appeal accordingly.
Excerpts from the text of the court’s ruling:
1. The phrase “fundamental principles of the legal order” used in Art. 1206 §2(2) of the Civil Procedure Code refers to such a violation of provisions of substantive law that will result in violation of the principles of the rule of law, and the award infringes the overriding legal principles in force in the Republic of Poland and conflicts with the legal order, that is, it violates principles of the political and socioeconomic system.
2. The evaluation conducted in the specific case as to whether the ruling violates fundamental principles of the legal order must be made cautiously, and the wording used in the code should be interpreted narrowly.
3. When deciding to include an arbitration clause in a contract, the parties to a civil relationship consciously waive the formal protection provided to the participants in a judicial trial by various provisions of the Civil Procedure Code…. Consequently, they also agree to procedural conditions that are subject to significant autonomy in the course of the arbitration proceeding, leading to minimal external oversight of awards by the arbitral tribunal….
4. Procedural public policy may also be grounds for review of an arbitration award, in two aspects: the evaluation of the consistency of the procedure leading to issuance of the ruling by the tribunal with the fundamental procedural principles of the legal order, and the effects of such ruling from the point of view of their compliance with procedural public policy, that is, whether they can be reconciled with the system of procedural law.
5. The notion of the “grounds” [for an award] within the meaning of Art. 1197 §2 of the Civil Procedure Code does not literally mean “justification” [of a judgment] within the meaning of the Civil Procedure Code, and this provision deliberately uses the word “grounds” and not “justification.” However, the grounds must contain the elements of reasoning of the arbitral tribunal which demonstrate the correctness (soundness) of the ruling in light of the entirety of the material gathered in the case.
6. Conduct of a fair proceeding is the task of both the state court and the arbitral tribunal. That the arbitral tribunal is not bound by regulations of procedure before a state court and under the Civil Procedure Code itself establishes the rules and method of proceeding before it, as agreed by the parties and as it deems proper, does not mean arbitrariness with respect to the principles of judicial civil procedure of an adversarial nature.