Polish Supreme Court judgment
dated 28 February 2019
Case No. V CSK 63/18
Summary by arbitraz.laszczuk.pl:
S.B., who operated business activity under the name (…) ‘H.’, was the leader of a consortium established under an agreement of 4 July 2008 for performance of the ‘Extension (…)’ task. The task performance contract (the ‘Contract’) was concluded with the W. municipality (gmina W.) on 6 October 2008.
A dispute concerning implementation of investments arose between the parties. Consequently, on 30 June 2014 S.B. filed a claim against the W. municipality before the International Court of Arbitration at the International Chamber of Commerce (the ‘Arbitration Court’) claiming certain amounts of money as, among other things, payment of a part of remuneration, and as compensation for damages related to non-performance or improper performance of the Contract or to commission of a tort.
The parties to the arbitration proceedings failed to agree on who the sole arbitrator responsible for dispute resolution would be. The claimant, relying on Art. 12 (3) and Art. 13 (4)(a) of the ICC Rules of Arbitration applicable as from 1 January 2012 (the ‘Rules of Arbitration’), demanded that the sole arbitrator be French or German. It argued that the arbitrator should not be Polish, because, in its opinion, the respondent was a state entity. The Arbitration Court proposed appointment of J. P.-L. as the sole arbitrator, but the claimant objected to that idea. S.B. claimed that J. P.-L. had worked for the Minister of Foreign Affairs and was a university lecturer, so he could be biased. Finally, the Arbitration Court decided, pursuant to Art. 13 (4)(a), that K. P. would be the sole arbitrator in this case. The respondent objected to this appointment, arguing that this arbitrator did not represent the Republic of Poland and was not a state entity. Responding, the claimant stated that the municipality, as a local government unit, was dependent on the state administration. The Arbitration Court informed that, according to the Art. 11 (4) of the Rules of Arbitration, its decisions concerning the appointment, the approval, the exclusion or the change of the arbitrator are final and their motives are not disclosed.
The sole arbitrator issued three procedural orders (number 1, 5 and 8) on the basis of which it allowed the parties to submit private expert opinions, among others things, with regard to the damage and the causal nexus between the damage and the respondent’s actions consisting in imposing on the claimant of a contractual penalty in the amount of over PLN 120,000,000 and publishing information about this circumstance.
The sole arbitrator issued an award on 8 May 2017. In the statement of reasons the sole arbitrator found that the respondent’s failure to pay a part of the remuneration, as well as calculation, deduction and publication of the contractual penalties had been in breach of the Contract and constituted a tort. However, the claimant was not eligible to compensation for damages caused by the respondent, because the claimant had failed to demonstrate that there was an adequate causal nexus between the lack of payment of a part of the remuneration, calculation, publication of the contractual penalties by the respondent and the damage of the claimant.
Both the claimant as well as the respondent brought a petition to set aside the arbitration award in the contested part.
The Appeal Court stated that there had been a violation of the Rules of Arbitration concerning the choice of the sole arbitrator. Therefore, there existed grounds specified in Art. 1206 § 1 (4) of the Polish Civil Procedure Code (the “PCPC”) for setting aside the arbitration award. Moreover, the principle of equal rights of parties, resulting from Art. 1206 § 1 (2) of the PCPC, had been also violated.
The respondent filed a cassation appeal to the Polish Supreme Court. The Polish Supreme Court accepted the dispute for consideration.
In this dispute, the arbitration proceedings were conducted in accordance with the Rules of Arbitration, which provide for the possibility of taking evidence in the form of opinions of private experts appointed by either party (Art. 25 (3)) and in the form of opinions of expert(s) appointed by the arbitration tribunal (Art. 25 (4)).
Finally, the Polish Supreme Court found that the cassation appeal in these circumstances had no reasonable grounds.
Excerpt from the Supreme Court judgement:
Although one cannot exclude the admissibility of modification of the Rules of Arbitration by the parties, it needs to be assumed that in this respect the claimant and the respondent have not made any modifications. It cannot be assumed that such modifications resulted from the fact that the sole arbitrator preferred – by issuing procedural orders – the use of opinions of private experts appointed by each of the parties, since these orders could not modify the Rules of Arbitration and none of the parties understood them that way (…).