Warsaw Court of Appeal judgment
dated 2 August 2018
Case No. VII Aga 1162/18
Summary by arbitraz.laszczuk.pl:
J.S. and (…), a limited liability company, based in W., entered into a trade cooperation contract of 29 May 2012, setting out the conditions of J.S. selling the goods of the company (…) based in Warsaw. On the same day, the parties concluded a service contract comprising a list of services provided by the company to J. S. within the framework of the trade cooperation. A condition to establish the trade cooperation was to sign both contracts at the same time. The contracts provided for the obligation of J. S. to make certain payment for the benefit of the company. For the aforementioned payments, the company issued VAT invoices and debit notes to J.S. for the total amount of PLN 532,696.63. The payment of the indicated amount was made by means of a set-off of the company’s receivables against the receivables due to J.S. for sale of goods.
On 31 May 2015 J.S. filed a statement of claim against the company before the Court of Arbitration at the Polish Chamber of Commerce in Warsaw (the “Court of Arbitration”) seeking over PLN 530,000.00 with statutory interest from 7 October 2013 up to the day of payment and over PLN 25,000.00 with statutory interest from the day of filing of the statement of claim up to the day of payment.
According to the claimant, some payments indicated in the contract constituted charges other than trade margins, collected from the supplier of goods by way of the so-called marketing services, so under Art. 15 (1) point 4 of the Act on Unfair Competition Suppression of 16 April 1993 (consolidated text: Journal of Laws Dz.U. 2018, item 419) (the “UCS Act”) collecting of such payments constituted an act of unfair competition. This is why the claimant demanded that the unjust benefits be released under Art. 18 (1) point 5 of the UCS Act. In the statement of defence, the respondent demanded that the claim be dismissed claiming that: the offered marketing services were not covered by Art. 15 (1) point 4 of the UCS Act, these services were actually provided to the claimant, the content of the concluded contracts resulted from the principle of freedom of contracting and the claimant entered into the contracts without duress. The case was to be resolved by an arbitral tribunal composed of: Prof. K.K., attorney-at-law, (as the presiding arbitrator), Prof. R.N., advocate, (as the arbitrator appointed by the claimant), and Dr M.R., advocate, (as the arbitrator appointed by the respondent). All arbitrators submitted declarations of impartiality and independence in the case.
In the letter of 6 October 2015, the claimant filed a request to exclude two arbitrators: Prof. K.K. and Dr M.R. In the reasoning, the claimant argued that Prof. K.K. was the author of a critical commentary to the Polish Supreme Court judgment dated 26 January 2006, Case No. II CK 376/05 concerning prohibition of the so-called shelf charges. According to the claimant, the arbitrator had an established view on the legal issue appearing in the case and the view was in favour of sales networks. Dr M.R. had been working for 16 years in the legal office which represented the respondent in the case and Dr M.R. still cooperated with that legal office. Prof. K.K. explained that the commentary had the character of a scientific publication, was not her only opinion on shelf charges and should not determine the outcome of the case. Dr M.R. explained that he had ended his cooperation with the legal office on 31 December 2009 and currently Dr M.R.’s legal office was handling only one proceedings with the aforementioned legal office and with another legal office representing the same client.
In the order of 16 November 2015, the Arbitral Council of the Court of Arbitration decided to dismiss the claimant’s motions to exclude Prof. K.K. and Dr M.R. In the reasoning it was explained that there were no prerequisites to exclude any of the arbitrators. In respect of Prof. K.K., the fact that he was an author of scientific publications presenting his views on legal issues which are significant to resolve the dispute was not a prerequisite to exclude him from the arbitral tribunal. A different stance would lead to undesirable exclusion from adjudication of people being arbitrators who due to their knowledge, experience and academic achievements, were the best qualified to do so. The content of the commentary did not indicate that the views of Prof. K.K. made him unable to resolve the case impartially and independently. With regard to Dr M.R., the Arbitral Council claimed that the fact that the arbitrator had been appointed by the legal office with which he had cooperated previously was not a prerequisite to exclude them from the case. Although long-term cooperation could have resulted in a strong intimacy relationship between the arbitrator and the counsel, thus making the arbitrator unable to remain impartial, nonetheless, it should not be assumed a priori that this occurred in every case of this kind. In the case, it was significant that 5 years had passed already from the time when the arbitrator had ended his cooperation with the legal office representing the respondent, and currently there was no other form of cooperation between them except for one case handled for the same client with participation of another legal office. Moreover, the circumstances of the arbitrator’s separation from his former law office were not insignificant.
The order with the reasoning was served on the counsel to the claimant. From the record of the hearing of 6 April 2016 before the Court of Arbitration it follows that the counsel to the claimant made a statement that he had no new reservations to the composition of the Arbitral Tribunal.
After the hearing of evidence and of the positions of both parties, the arbitral tribunal delivered an award of 3 July 2017 in which: it ordered the company to pay J.S. the amount of PLN 135,000.00 with interest from 31 March 2015 up to 31 December 2015, and with interest for delay from 1 January 2016 up to the day of payment, dismissed the statement of claim in the remaining part and ruled on the costs of the proceedings.
J.S. filed a petition to set aside point II of the arbitration award to the Court of Appeal in Warsaw. He demanded that the costs of the proceedings be awarded in his favour. He alleged:
1) that J.S. was deprived of the possibility to protect his rights and the infringement by the Arbitral Tribunal of the fundamental principles of the legal order of the Republic of Poland in the form of applicable rules of evidence proceedings and the principle of equality of the parties;
2) the infringement by the Arbitral Tribunal of Art. 1206 § 1 point 4 of the Polish Civil Procedure Code (the “PCPC”), because fundamental rules of procedure before an arbitral tribunal, arising under the Arbitration Rules of the Court of Arbitration, were not observed, by failing to comply with § 6 (1) and (4) of the Arbitration Rules (in force as from 1 January 2015) and, consequently, the infringement by the Arbitral Tribunal of Art. 22 of the Constitution of the Republic of Poland;
3) the infringement by the Arbitral Tribunal of Art. 1206 § 1 point 4 of the PCPC by failing to comply with § 22 (1) of the Arbitration Rules (in force as from 1 January 2015). According to J.S., as a result of the infringement, the Arbitral Tribunal issued the award although the circumstances of the case raised reasonable doubts as to the impartiality of the arbitrators;
4) the infringement by the Arbitral Tribunal of Art. 1206 § 1 point 4 of the PCPC by failing to comply with § 22 (7) of the Arbitration Rules (in force as from 1 January 2015) by issuing one order concerning exclusion of two arbitrators.
The company based in W. demanded that the petition be dismissed and the costs of proceedings be awarded in its favour.
The Court of Appeal in Warsaw found the petition meritless and dismissed the case.
Pursuant to Art. 1207 § 1 and § 2 of the PCPC, Art. 368 of the PCPC shall apply as relevant to a petition to set aside an arbitration award. Unless otherwise provided herein, the provisions governing an appeal shall apply as relevant to a petition to set aside an arbitral award. These provisions indicate the controlling nature of a petition to set aside an arbitration award.
The Court of Appeal found that the course of the arbitration proceedings had been reflected in the parties’ letters and records of trials. It followed from the content of the documents that J.S. had had an opportunity to present his stance, had been granted the opportunity to speak freely, including the opportunity to refer to the company’s statements and allegations. Taking all this into consideration, there was no ground to formulate an allegation that the arbitral tribunal had deprived him of the opportunity to protect his rights.
The Court of Appeal agreed not only with the assessment, but also with the reasons indicated by the Arbitral Council of the Court of Arbitration concerning the matter of exclusion of the two arbitrators appointed in the case.
§ 22 (7) of the Arbitration Rules of the Court of Arbitration stipulates that “If the challenge concerns more than one arbitrator, the Arbitral Council shall issue a separate order with respect to each arbitrator.” The applicant alleged that the Arbitral Council of the Court of Arbitration, recognizing his request to exclude two arbitrators, had issued only one order. In spite of the fact that such a situation had occurred, the allegation of the applicant could not have any effect, because the aforementioned miscarriage had not constituted an infringement of the fundamental principles of arbitration proceedings. The purpose of the cited provision of the Arbitration Rules was to have the motion concerning exclusion of each arbitrator considered individually, not collectively. The order of 16 November 2015 fulfilled this criterion, because it contained 2 separate rulings regarding each arbitrator and separate parts of the reasoning for each of them.
What is noteworthy is that in its judgment the Court of Appeal in Warsaw made a reference to the followings rulings of the Polish Supreme Court: dated 13 December 1967, Case No. I CR 445/67, dated 21 December 2004, Case No. I CK 405/04, dated 8 December 2006, Case No. V CSK 321/06, dated 11 May 2007, Case No. I CSK 82/07, dated 3 September 2009, Case No. I CSK 53/09, dated 9 March 2012, Case No. I CSK 312/11, dated 15 May 2014, Case No. II CSK 557/13, dated 7 October 2016, Case No. I CSK 592/15.
Excerpts from the Court of Appeal judgment:
1. The scope of a state court’s review and its determinations are limited to allegations raised in a petition to set aside an arbitration award. A state court has the authority only to review whether the reasons for setting aside of an award are present (…) and only in this limited scope the proceedings are similar to the proceedings before a state court of II instance.
2. [I]f a party had the possibility to raise before an arbitral tribunal an allegation of being deprived of the right to protect their rights, but they did not do that, it is inadmissible to raise a plea that the party was deprived of the ability to protect their rights before the arbitral tribunal in view of the party not being actually deprived of the ability to protect their rights.
3. [I]n the proceedings commenced as a result of a petition to set aside an arbitration award, a state court does not examine the arbitral tribunal’s assessment of the accuracy of evidence, the correctness of factual findings or interpretation and application of substantive law. The legitimacy of particular means by way of which an arbitral tribunal has resolved the disputed legal relationship is neither subject to a state court’s assessment (…). The essence of a petition to set aside an arbitration award is to create a control mechanism respecting, on the one hand, separateness and autonomy of arbitration, and on the other hand, preventing non-state courts’ rulings infringing the rule of law from functioning in the legal circulation.
4. Competence of the court hearing a petition to set aside an arbitration award does not – as a matter of principle – include the control of the award’s compliance with substantive law and review of correctness of factual findings, except for ruling based on obviously selective and unreliable examination of evidence.
5. [T]he proceedings concerning a petition to set aside an arbitration award do not result in reconsideration of the merits of the dispute between the parties, but are intended only to verify the applicant’s allegations as to the existence of the grounds raised in the application provided for in Art. 1206 § 1 of the PCPC and assess whether any of the prerequisites provided for in Art. 1206 § 2 of the PCPC exist, whether or not asserted by the applicant.
6. “The public policy clause”, like any general clause, is not precisely defined, which leaves great discretion to the court ruling on a specific case. Nevertheless, on the basis of this clause, review of the constitutive elements of an arbitration award may not take on the dimensions proper for a review of the merits (correctness) of the award. The prohibition of a review of the merits of an award is related to the essence of the application of the public policy clause. By application of this clause, the point is not to determine whether the award is consistent with all relevant mandatorily applicable legal regulations, but only to determine whether the award effected a result contrary to the fundamental principles of the domestic legal order (…).
7. In the case-law, it is indicated that an infringement, by an arbitral tribunal, of substantive law applicable to the resolved relationship, compliance with which – as a matter of principle – is prescribed in Art. 1194 § 1 of the PCPC, may result in setting aside of an award of this tribunal only when it is connected with an infringement of the fundamental principles of the legal order (…). The primary difference between proceedings commenced by an appeal and proceedings commenced by a petition to set aside an arbitration award is demonstrated by the permitted scope of interference of a state court in the rulings of arbitral tribunals.