id: 20537

Polish Supreme Court judgment

 dated 9 January 2019

Case No. I CSK 743/17

Summary by arbitraz.laszczuk.pl:

In March 2004, T. sp. z o.o., a limited liability company, entered with J. S.A., a joint-stock company, into a contract for storage of mandatory reserves of liquid fuels. J. S.A. terminated the contract by a notice dated 19 April 2012 on 13 June 2013 on the basis of § 9(3)(c) of the contract, as amended by Annex No. 9 of 20 February 2009, which stipulated that the contract may be terminated by any party at any time, but not before the lapse of 5 years from the date of its entry into force, upon a 12-month notice, which could commence no sooner than after the lapse of 5 years under the contract.

Consequently, a dispute arose between the parties. T. sp. z o.o. filed a claim against J. S.A. before the Court of Arbitration at the Polish Chamber of Commerce seeking over PLN 7 million together with statutory interest on specifically indicated amounts. In turn, J. S.A. requested that the claim be dismissed and made a counterclaim for being issued 3,000 m³ of gas oil and for being awarded damages in the amount of over PLN 4 million together with statutory interest.

The Court of Arbitration at the Polish Chamber of Commerce issued an award in December 2015. T. sp. z o.o. submitted to the Court of Appeal an application to set aside the award, alleging that the award violated fundamental principles of legal order of the Republic of Poland and the fundamental principles of arbitration procedure. 

The Court of Appeal dismissed the case and stated that none of the aforementioned grounds for setting aside the award deserved consideration. Although the Court found that the award with regard to the interest claim could raise certain doubts, they were not sufficient to set aside the award.

T. sp. z o.o. filed a cassation appeal to the Polish Supreme Court. It argued that in that situation Article 1206 § 1 of the Polish Civil Procedure Code had been infringed, because it had not been applied. In response to this appeal, J. S.A. stated that the applicant should have linked a relevant legal standard whose infringement could be classified as a breach of the fundamental principles of legal order with the basis for the appeal.

The Supreme Court found that although the award issued by the Court of Arbitration was too general, eventually it had to be recognised that the award was not contrary to the fundamental principles of Polish legal order and the judgement of the Court of Appeal was lawful. It was confirmed that Annex No. 9 had been an addition to the contract, but it had not been a new contract. This was particularly important in the case, because, as the Polish Supreme Court found, the date of termination could be different depending on whether Annex No. 9 created a new contract or only modified the terms and conditions of the contract dated 1 March 2004.

The Supreme Court denied the cassation appeal accordingly.

Excerpt from the Supreme Court Ruling:

1. The public policy exception (…) is indeterminate, which leaves a court seized of a particular case with a wide range of discretion. If the exception is applied, the question is not whether an arbitration award is consistent with all relevant mandatory rules of the law, but whether it has caused an effect contrary to the fundamental principles of State legal order. Substantive review of arbitration awards is therefore limited to violation of the principles of legal order (…). If parties decide to submit a dispute to arbitration, they need to take these circumstances into account, including also little external control of arbitration awards (…). This does not mean, however, that if a dispute is submitted to arbitration, the parties have to agree to all kinds of procedural and substantive shortcomings of the arbitration tribunal.

2. The fundamental principles of legal order being the basis of assessment of an arbitration award shall be understood not only as constitutional norms, but also as ground rules in particular fields of law (…), and examination of a case in the scope of the grounds for setting aside an award under Art. 1206 § 2 (2) of the Polish Civil Procedure Code shall not go beyond a serious violation of law (…).

3. The public policy exception covers both the fundamental principles of procedural and substantive legal order. Public policy may procedurally be the basis for assessment of an award in two aspects. Firstly, subject to assessment is the compliance of the procedure which led to issue of an arbitration award with the fundamental procedural principles of legal order, and secondly, subject to assessment are the effects of an award from the point of view of their compliance with the procedural legal order, i.e. whether they are compatible with the procedural law system (…).  

4. Compliance or non-compliance of an arbitration award with the fundamental principles of legal order is determined by the wording thereof; it is however not allowed to make such an assessment on the basis of facts and evidence unknown to the arbitration tribunal.

5. It cannot be (…) excluded in advance that due to the consequences for the appealing party, an award adjudicating interest from a different date than the date resulting from the terms of the contract and relevant legal regulations will be in breach of the fundamental principles of legal order, especially if the time lag is significant (…).