case law

id : 20540

id: 20540

Warsaw Court of Appeal judgment

dated 17 October 2018

Case No. I AGa 11/18

Summary by arbitraz.laszczuk.pl:

R. B. operating business activity under the name of …, based in W., and …, a limited liability company, based in W., entered into an agency contract on 18 May 2011. The contract included an arbitration agreement. The amount of the commission, which was the basis for calculating the remuneration due to R. B., was changed many times.

A dispute arose between the parties. R. B. filed a lawsuit against the limited liability company. The claimant demanded payment of the commission under the agency contract. The subject of the dispute was the issue of effectiveness of the changes of the commission rates made by the respondent, which affected the amount of remuneration due and subsequently paid to the claimant.

The Court of Arbitration at the Polish Chamber of Commerce in Warsaw (the “Court of Arbitration”) delivered an award in which, among other things, it ordered the company to pay to the claimant approx. PLN 80,000.00 with statutory interests from the date of filing of the lawsuit until the date of the payment. The Court of Arbitration also found that the respondent’s statement that the documents submitted every month containing the balance sheet and the amount of the commission had not constituted a proposal to conclude an annex to the contract. The changes of the commission rates were made unilaterally by the company contrary to the contract of 18 May 2021, that is without concluding annexes in the written form and without observance of the term indicated in § 8 point 2 of the contract. Additionally, the statements regarding the changes of the commission were made by persons who had not been entitled to represent the respondent according to the register of entrepreneurs, therefore, such statements could not be binding and legally effective towards the claimant.

The limited liability company filed a petition to set aside the arbitration award. It alleged, among other things, that the award: 1) was contrary to the fundamental principles of the legal order of the Republic of Poland by violation, among other things, of the principle of equality of the parties before the law, 2) violated principles arising out of Art. 2, Art. 32 and Art. 45 of the Constitution of the Republic of Poland.

The Court of Appeal in Warsaw found the petition meritless. It found that although it is a form of review, a petition to set aside an arbitration award is not an appellate instrument, as unlike in appellate proceedings, the role of the state court is not to reconsider the case resolved by the arbitration award by applying provisions of substantive and procedural law. In proceedings before a state court initiated by a petition, the court does not examine whether an arbitration award is contrary to the substantive law or is based on the facts cited in the award, or whether these facts have been properly established. A state court considers the case only from the perspective of the grounds for setting aside an award and evaluates the soundness of the petition solely in the light of the grounds set forth in Art. 1206 § 1 and 2 of the Polish Civil Procedure Code (the “PCPC”), considering at its own initiative only the grounds set forth in Art. 1206 § 2 of the PCPC. The violation of the general provisions of the civil procedure law or the overriding principles of the civil procedure may serve as grounds for setting aside an arbitration award only if it results in violation of fundamental principles of the legal order of the Republic of Poland or the principles of social coexistence.

The Court of Appeal also pointed out that the assessment of whether an arbitration award violates fundamental principles of the legal order should thus be conducted on a case-by-case basis, narrowly, and an affirmative conclusion may be reached only if the effects of an arbitration award would result in a material violation of such principles. Additionally, there is a great deal of autonomy of arbitration, generally limiting the review by state courts.

The Court of Appeal also reminded that the Polish Supreme Court in its case law included into the fundamental principles of the legal order such principles as: the principle of civil liability for injury, the principle of restitutive nature of liability for damages, the pacta sunt servanda principle, the principle of economic freedom and freedom of contracts, the principle of contractual fairness, the principle of protection of property rights, the principle of the autonomy of the will of parties and of equality of entities. The aforementioned enumeration is, naturally, only of exemplary character, because the assessment regarding inconsistency of an arbitration award with the fundamental principles of the legal order may be determined based on an analysis of a given case, however, with the proviso that it must be a discrepancy of obvious, general and fundamental character, so a discrepancy which is incompatible with the principles of a democratic state of law, when an arbitration award infringes the governing legal principles in force in the Republic of Poland. Additionally, an arbitral tribunal does not have an obligation to indicate, especially with regard to testimonial evidence, in which part and why it found the testimony of each of the witnesses credible or unreliable.

The Court of Appeal also indicated that the public policy clause, like any general clause, is indeterminate, which leaves the court seized of a particular case with a wide range of discretion, nonetheless, review on this basis of the elements comprising the ruling of an arbitral tribunal cannot assume the dimensions proper to a review of the merits (correctness) of the ruling, which is related to the essence of the application of the public policy clause. In applying the clause, the point is not that the ruling being evaluated is consistent with all of the mandatorily applicable provisions of law entering into play, but that it does not exert an effect inconsistent with the fundamental principles of the national legal order.

It is worth noting that in this judgment the Warsaw Court of Appeal made a reference to, among other things, the following rulings of the Polish Supreme Court: dated 29 October 2015, Case No. I CSK 922/14, dated 13 February 2014, Case No. V CSK 45/13, dated 15 March 2012, Case No. I CSK 286/11, dated 9 March 2012, Case No. I CSK 312/11, dated 11 March 2011, Case No. II CSK 385/10, dated 11 May 2007, Case No. I CSK 82/07, dated 13 December 2006, Case No. II CSK 289/06, dated 8 December 2006, Case No. V CSK 321/06, dated 11 August 2005, Case No. V CK 86/05, dated 11 July 2002, Case No. IV CKN 1211/00, dated 28 April 2000, Case No. II CKN 267/00, dated 3 September 1998, Case No. I CKN 822/97, dated 13 December 1967, Case No. I CR 445/67.

Excerpts from the text of the court’s ruling:

1. [B]y entering into an arbitration agreement, the parties consciously waived submission to the strictures in place for the proceedings before a state court, including some procedural guarantees in such proceedings. Therefore, it is not unreasonable to state that by concluding an arbitration agreement, the parties limit their constitutional right to court. When deciding to submit a dispute for resolution by an arbitral tribunal, the parties must be aware of both positive and negative effects of including particular statements in an arbitration agreement.

2. Unlike a state court, an arbitral tribunal considering cases does not need to strictly apply the provisions of substantive law, but may also base its ruling on principles of equity or rule on the basis of general principles of law. Consequently, review by the state court of awards made by arbitral tribunals is limited to the instances strictly defined by the law … .

3. [E]xamination of a case with respect to the grounds for setting aside an arbitration award under Art. 1206 § 2 of the Polish Civil Procedure Code may not proceed beyond aggravated violations of law, and the parties cannot challenge an arbitration award when such an award was delivered after properly conducted proceedings, but does not satisfy their expectations. A petition is possible only when it has been demonstrated that an arbitration award violates the fundamental principles of the Polish legal order … .

4. [P]ursuant to Art. 1197 § 2 of the PCPC, an arbitration award shall contain the reasons for the award, but this does not mean, however, that the reasoning shall be constructed strictly according to the rules indicated in Art. 328 § 2 of the PCPC … . This follows from the character of the proceedings before an arbitral tribunal, which are not as formalized as the proceedings in civil procedure. Without any doubt, however, the grounds of an arbitration award should be clear and reflect a reasoning analyzable in terms of the grounds to dismiss the petition … .

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