Polish Supreme Court judgment
dated 16 November 2016
Case No. I CSK 780/15
Summary by arbitraz.laszczuk.pl:
P. W. and the Agricultural Property Agency (the ‘Agency’) entered into a land lease contract (the ‘Contract’) on 25 July 1994. The land which was the object of the Contract covered of 181.17 ha and was located in the D. municipality (Gmina D.). The Contract was concluded for the period ending on 30 September 2004 with the possibility of extension for further 10 years. The Contract contained an arbitration clause, whereunder all disputes were to be settled by an arbitration court. In § 17 point 1 of the Contract, the parties agreed that all disputes which may arise in the course of performance of the Contract should be submitted to an arbitration tribunal. In point 3 they decided that: “an arbitration tribunal is obliged to resolve a case no later than within 2 weeks of filing of a claim by either party. A hearing was to take place regardless of the appearance of the parties.”
An arbitration tribunal was constituted on 19 January 2009. On 3 March 2009 P. W. brought a lawsuit for declaration that the Contract was still in force and the Agency had not effectively terminated it. What is more, the claimant sought over PLN 7,000,000. In reply to the lawsuit filed on 21 April 2009, the Agricultural Property Agency stated that the arbitration agreement had expired as a result of expiration of the 14-day period established in § 17 point 3 of the Contract and demanded the lawsuit be dismissed and the case be recognised by a state court. On 5 May 2009 at a hearing, the arbitration tribunal found itself competent to recognize the dispute and decided to handle the case in accordance with the previous arrangements. Despite the request of the Agency, the legal decision of the arbitration tribunal was not argued and delivered, so the Agency was unable to file a request with the tribunal to issue a ruling pursuant to Art. 1180 § 3 of the Polish Civil Procedure Code (the ‘PCPC’)
On 11 February 2013 an ad hoc arbitration tribunal at the Regional Chamber of Legal Advisers G. issued an initial and partial award – it resolved to dismiss the claim in the part concerning the declaration that the Contract was still in force. The arbitration tribunal also found that the other parts of the claim, i.e. the demand for payment of damages for expenditures made and lost profits (points 2-8 of the claim) was in principle justified.
The Agency filed a petition to set aside the arbitration award. The Regional Court stated that the demand of payment of damages concerned the land lease contract of 27 December 1993, but that agreement had been terminated and had not contained an arbitration agreement. In this situation, the claimant had been unable to pursue claims related to this contract before an arbitration court; therefore in this respect the contested ruling was voided. However, with regard to the other claims arising from the Contract, the Regional Court found that the Agency’s allegation that the arbitration agreement had expired as a result of expiration of the term to deliver an award was unjustified. The 14-day time limit resulting from the land lease contract of 25 July 1994 was, according to the Regional Court, an instructional time limit. The Court stated that in the then applicable legal condition there existed no provision that would stipulate that an arbitration agreement lost its force in case of expiration of the time limit when the arbitration tribunal was obliged to issue an award, and therefore contractual setting of such a time limit did not have any legal effects.
The Agency and P.W. filed appeals to the Appeal Court. The Appeal Court decided to reverse the contested ruling of the Regional Court and change the initial award in the scope of point 2. In the remaining part, it dismissed the appeals. The Appeal Court found that the arbitration agreement included in the Contract had not expired despite the lapse of the time limit agreed by the parties for the arbitration tribunal to resolve the dispute. The Appeal Court subjected § 17 point 3 of the Contract to interpretation and stated that the phrase used by the parties – “is obliged to” – indicates a strict deadline for performance of the obligation to resolve the dispute. It was also important to take into consideration how the parties had interpreted the content of the Contract not only during the arbitration proceedings, but also in earlier judicial proceedings for delivery of the property covered by the land lease contract of 25 July 1998. At that time, P. W. had agreed that the arbitration court could act despite the lapse of the 2-week term and in the appeal it had raised an objection that the arbitration agreement had ceased to be in effect. The Appeal Court found that Art. 1168 of the PCPC indicated when an arbitration agreement could cease to be in effect. The aforementioned article contained an open list of situations, and therefore the parties could add in the Contract other situations which would result in the expiration (loss of binding force) of the arbitration agreement. The term resulting from the Contract had not been an instructional term.
P. W. filed a cassation appeal to the Polish Supreme Court. The claimant maintained that substantive law had been infringed by misinterpretation of Art. 65 § 1 and § 2 of the Civil Code in connection with Art. 1161 of the PCPC. It stated that the arbitration agreement was still in force.
The Polish Supreme Court denied the cassation appeal. It found that only one objection was raised that the Appeal Court had misinterpreted the arbitration agreement contained in the land lease contract of 25 July 1994 and as a consequence it had mistakenly found that the arbitration agreement had not been in force. The objection was not relevant.
The Polish Supreme Court also found that the term which the parties had indicated in the Contract was not an instructional term and there had been no grounds for another interpretation. The lapse of the time limit which the parties had set for an arbitration tribunal to resolve their dispute had resulted in the expiry of the arbitration agreement.
Excerpts from the Supreme Court judgment:
1. The Polish Civil Procedure Code in Art. 1157 enables the parties to subject to arbitration certain categories of disputes. The provisions of part five of this Code and any other regulations contained in the procedural act do not indicate, however, that this type of examination of civil law cases is treated by the legislator as either being better or worse than judicial proceedings. To the contrary, it should be assumed that it is of equal character and it should be treated in the same way.
2. Therefore, by rejecting the strict (restrictive), and conversely, extended interpretation, which would be aimed at maintaining the jurisdiction of the arbitration tribunal at all costs, the arbitration agreement should be interpreted in a way that shall ensure finding of the joint will of the parties and respecting thereof.
3. To use arbitration as a method of dispute resolution, it is essential for the parties to conclude a special agreement – an arbitration agreement (…), in which they shall indicate the subject of the dispute or the legal relationship under which the dispute has arisen or may arise. This minimum content specified by the legislator is both necessary and at the same time sufficient, because in the absence of other provisions, the relevant provisions of the Polish Civil Procedure Code apply, which have enabled both appointment of an arbitration tribunal as well as conduct of arbitration proceedings and issue of an award.
4. Apart from the minimum content, an arbitration agreement may also contain additional provisions (Art. 1161 § 2 of the Polish Civil Procedure Code) by means of which the parties may shape the arbitration procedure according to their expectations and needs. Including in an arbitration agreement of such additional provisions (exceeding the statutory minimum) is always voluntary and is not necessary to have a case heard by arbitrators. So, if the parties had made additional arrangements and included them in the arbitration agreement, these arrangements cannot be treated as meaningless, quite to the contrary, they should be given the meaning resulting from the will of the parties.
5. Regulation of certain issues relating to the arbitration procedure in the broad sense in an arbitration agreement is an expression of the autonomy of the will of the parties and demonstrates unequivocally that the intention of the parties was not to subject their dispute to arbitrators, but to subject it on the terms and conditions specified by the parties. Moreover, it is justified to argue that since the content of the arbitration agreement was agreed upon by the parties, their consent to arbitration was conditional upon inclusion of certain provisions in the arbitration agreement.
6. An arbitration agreement is not only the source of judicial power of arbitrators (along with the relevant basis resulting from the statutory law, but also delimits this power (which an arbitration court cannot exceed) and the way of its exercise. Consequently, arbitrators must, by default, know the content of the arbitration agreement and should conduct proceedings in such a way that the will of the parties disclosed in the arbitration agreement is respected to the fullest extent possible.
7. [W]hen the parties include specific provisions in an arbitration agreement, they must be aware of their meaning and consequences which these provisions may have. When the parties include in an arbitration agreement a relatively short time limit for issue of an award, they should be aware that compliance with this time limit may be difficult or even impossible.
8. From the fact that the arbitrators did not comply with the provisions of the arbitration agreement and adopted a manner of proceeding which in advance excluded keeping the time limit specified in the arbitration agreement, under no circumstances can it be inferred what the original will of the parties was. Arbitrators are obliged to comply with the provisions of the arbitration agreement and they should be aware that failure to comply with the will of the parties expressed in the arbitration agreement may consequently result in setting aside of their award.