Warsaw Court of Appeal judgment
dated 18 November 2019
Case No. VII AGa 804/19
Summary by arbitraz.laszczuk.pl:
…, a limited liability company, and …, a joint stock company, entered into a framework sales contract. In the contract the parties concluded an arbitration agreement under which the Court of Arbitration at the Polish Chamber of Commerce in W. (the “Court of Arbitration”) was competent to resolve disputes arising out of the contract. According to the contract, the parties entered into 3 contracts for supply of energy by …, a limited liability company, to …, a joint stock company. On these grounds …, a limited liability company, issued 3 invoices.
On 16 August 2015 (…), a limited liability company, filed a statement of claim to the Court of Arbitration. In the statement of defense of 25 September 2015, the respondent demanded that the claim be dismissed and the costs of the proceedings be awarded. The respondent raised a plea of a set-off against a receivable on the ground of another contract concluded by the parties, i.e. the contract of 25 June 2013.
In the order of 11 April 2016, an arbitral tribunal at the Court of Arbitration (“Arbitral Tribunal”) found that it did not have jurisdiction to consider the allegation of set-off. Additionally, in the order of 7 March 2017, the Arbitral Tribunal dismissed the allegation of the lack of jurisdiction in terms of the main action and refused to consider a counterclaim. It was found that the respondent filed the counterclaim many months after submitting the statement of defense. A counterclaim filed after the relevant deadline is inadmissible.
The Arbitral Tribunal delivered an award on 9 June 2017. It found that mere invoices are not sufficient evidence of the existence of the receivables indicated therein. However, since the recipient of the invoices questioned neither the existence of the liabilities nor their amount, the invoices could be given a different meaning. It should be stated with utmost probability that if the respondent had had any doubts concerning the existence or the amount of the claimant’s liabilities, as a professional participant of economic turnover, it would at least have taken steps aimed at clarifying them.
It was added that the Arbitral Tribunal dismissed all the respondent’s evidence motions aimed at proving the existence and the amount of the liabilities and the efficiency of set-offs made by the respondent, as well as all the evidence motions aimed at proving the existence and the amount of claims sought in the counterclaim. The evidence could not be useful in resolving the dispute in a situation when the Arbitral Tribunal did not have jurisdiction to recognize the set-off allegation and the counterclaim could not be recognized due to the failure to observe the time limit specified in § 29 of the Rules.
The respondent filed a petition to set aside the arbitration award to the Court of Appeal in Warsaw. It alleged that it was deprived of the possibility to protect its rights before the Arbitral Tribunal, which constituted a failure to comply with the basic rules of procedure and an infringement of the public policy clause.
The Court of Appeal in Warsaw found the petition legitimate, because the arbitration award was contrary to the fundamental principles of the legal order of the Republic of Poland (Art. 1206 § 2 point 2 of the Polish Civil Procedure Code) (the “PCPC”). The above results from the delivery of the arbitration award by the Arbitral Tribunal without considering the merits of the petitioner’s set-off allegation and, in fact, the expiration of the obligation – thus, first of all, the principle of trading security and the principle of trading certainty were infringed. Additionally, the Court of Appeal found that in the case there were no grounds for the Arbitral Tribunal’s failure to consider the raised set-off allegation .
The above results from the said award having been delivered without consideration of the merits of the set-off allegation raised by the petitioner … S.A. and, in fact, the expiration of the liabilities - thus, first of all, the principle of security of trade and the principle certainty of trade was violated.
What is noteworthy is that in its judgment the Court of Appeal in Warsaw made a reference, among other things, to the followings rulings of the Polish Supreme Court: dated 27 May 1998, Case No. I CKN 709/97, dated 8 December 2006, Case No. V CSK 321/16, dated 11 May 2007, Case No. I CSK 82/07, dated 12 September 2007, Case No. I CSK 192/07, dated 3 September 2009, Case No. I CSK 53/09, dated 9 March 2012, Case No. I CSK 312/11, dated 15 March 2012, Case No. I CSK 286/11, dated 15 May 2014, Case No. II CSK 557/13, dated 7 February 2018, Case No. V CSK 301/17, dated 9 January 2019, Case No. I CSK 743/17.
The Court of Appeal in Warsaw made also a reference to the followings judgments of the Court of Appeal in Warsaw: dated 25 April 2008, Case No. VI Aca 928/07, dated 15 January 2014, Case No. VI Aca 663/13.
Excerpts from the Court of Appeal judgment:
1. [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 off 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 not subject to a state court’s assessment either. The essence of a petition to set aside an arbitration award is to create a control mechanism respecting, on the one hand, the separateness and autonomy of arbitration, and on the other hand, preventing non-state court rulings infringing the rule of law from functioning in the legal circulation. 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 petitioner’s allegations as to the existence of the grounds raised in the petition, as provided for in Art. 1206 § 1 of the PCPC. The aim of the petition is to prevent only an arbitration award which fails to comply with the elementary formal requirements of dispute resolution from remaining in the legal circulation.
2. The grounds resulting from Art. 1206 § 2 point 2 of the PCPC are legitimate, if the effect of an arbitration award is contrary to the fundamental principles of the legal order of the Republic of Poland. (…) The fundamental principles of the legal order which are the basis for assessment of an arbitration award shall be understood not only as constitutional rules, but also as ground rules in particular areas of law, and examination of a case with respect to the ground for setting aside of an award under Art. 1206 § 2 point 2 PCPC shall not go beyond a qualified infringement of law. The public policy clause covers both the procedural and substantive fundamental principles of the legal order. Procedural public policy may be a ground for assessing an arbitration award in two aspects. First, the procedure which led to issuance of an arbitration award is assessed for its compliance with the fundamental procedural principles of the legal order. Second, the effects of the arbitration award are assessed from the perspective of their consistency with the procedural public policy, i.e. whether they are reconcilable with the system of procedural law. Then, an infringement by an arbitral tribunal of the substantive law applicable to the resolution of the legal relationship from which the dispute referred to arbitration arose, legitimates setting aside of the award, only if it is connected with an infringement of the fundamental principles of the legal order. Simultaneously, in the event of a lack of compliance of an award with the fundamental principles of the legal order, the question is not whether the award is compliant with all absolutely binding provisions of law, but whether the award has had an effect which is irreconcilable with the fundamental principles of the state legal order (…). Indeed, the application of the public policy clause does not serve to remove all irregularities and defects of arbitration awards, but is intended to protect the integrity of the public policy.
3. The right to a fair trial is a pillar of a democratic state of law and for this reason its infringement justifies the conclusion that the rule of law has been infringed. (…) such a situation will occur especially in the event of non-consideration of a set-off allegation raised by a party. The principle of the fair trial dictates consideration of a set-off allegation properly raised by the respondent.
4. [T]he Arbitral Tribunal erroneously refused to hear the set-off allegation, because the mere fact of the respondent’s liability not being covered by the arbitration agreement is not an obstacle to consider such an allegation.