Łódź Court of Appeal judgment
dated 3 March 2017
Case No. I ACa 1139/16
Summary by arbitraz.laszczuk.pl:
On 28 April 2015, P. S., operating business activity under the name of …, based in Ł., and Law Firm (…), a limited liability company, based in Ł. (the “Law Firm”), entered into a contract titled “single mandate for pecuniary debt collection”. § 6 (5) of the contract provided that all disputes arising out of the contract shall be resolved by the Arbitration Court maintained by …, a limited liability company, based in Ł. – according to the Arbitration Rules of the Arbitration Court. On the same day P. S. – on the basis of the concluded contract – authorized P. B., an attorney-at-law, to represent him in a case concerning payment against the member of the management board of …, a limited liability company, based in S.
The website of the Law Firm features information that the company maintains the Arbitration Court. The company has two partners, i.e. K. C. and P. B., who is at the same time the chairman of the one-person management board of the company. The address of the Law Firm and of the company is the same, also in terms of the premises number. At the same address, in the same premises, advocate W. S., advocate K. M. and attorney-at-law P. B. operate their business activities in the form of advocate or attorney-at-law offices. P. B. is the chairman of the Arbitration Court and M. J., K. M., K. O., A. O., M. R. and W. S. are the arbitrators thereof.
The Law Firm filed a lawsuit against P. S. The respondent filed a statement of defense in which he raised procedural claims before entering into the dispute as to its merits: lack of jurisdiction of the Arbitration Court, invalidity of the arbitration agreement, ineffectiveness of the arbitration agreement. He additionally requested arbitrators M. J., K. M., K. O., A. O., M. R. and W. S. to be excluded due to their lack of impartiality.
On 5 May 2016 J. K. issued a document regarding the composition of the Arbitration Court in the case. The letter contained a statement concerning lack of grounds for the request to exclude the arbitrators.
On 9 May 2016, the Arbitration Court delivered an award in which it ordered the respondent to pay the claimant approx. PLN 11,730.00 with statutory interest rate for late payment and the costs of the proceedings. The award was delivered by arbitrator M. J. In the reasoning of the award he indicated that “as it was declared in a separate statement, arbitrator M. J., adjudicating in this case, is impartial and independent.” A separate statement regarding impartiality and independence of the arbitrator was made on 9 May 2016, that is on the same day when the award was delivered. Such a separate statement was served on the claimant’s attorney on 30 May 2016. However, earlier, that is on 19 May 2016, the respondent filed a letter titled “Notice of violation by the Arbitration Court”.
Moreover, P. S. filed a petition to set aside the arbitration award. He alleged violation of the following provisions: 1) Art. 1206 § 1 point 1 of the Polish Civil Procedure Code (the “PCPC”), because there had been no valid or effective arbitration agreement between the parties, 2) Art. 1206 § 1 point 2 of the PCPC due to the fact that the Arbitration Court had multiple times violated the procedural provisions including its own Arbitration Rules and the PCPC, which had infringed the principle of equality of the parties to the proceedings and had deprived the petitioner of the ability to defend his rights before the arbitral tribunal, 3) Art. 1206 § 1 point 4 of the PCPC, as the requirements with regard to the fundamental rules of procedure before such tribunal had not been observed, 4) Art. 1206 § 2 point 2 of the PCPC, since the award was contrary to the fundamental principles of the legal order of the Republic of Poland, i.e. the nemo iudex in causa sua principle.
The Court of Appeal found the petition well-founded and set aside the arbitration award. The issue of removing of arbitrators was stipulated in § 4 of the Arbitration Rules of the Arbitration Court. However, the provision did not concern the situation when only one of the parties filed an application to remove an arbitrator and the second party raised an objection thereto, therefore Art. 1176 of the PCPC was applicable. In the assessment of the Court of Appeal, firstly, the respondent’s application to remove the arbitrator was rejected without implementing any objective procedure. Secondly, until the date of the award, none of the arbitrators referred to in the application made a relevant statement. Thirdly, such a statement was made only by one arbitrator, however, first at the time when the award was delivered by him. The Court of Appeal stressed that even if the application to remove an arbitrator had not been ruled on, a party which complied with the deadline for filing such application did not lose the right to rely on the existence of grounds to remove the arbitrator in the petition to set aside the award.
Pursuant to the Court of Appeal in Łódź, it was of great importance in the case that the Arbitration Court, so an entity which was set to resolve the dispute, existed at the entity which was the party to the dispute. What is more, the chairman of the Arbitration Court is the person who acted on behalf of the claimant as the executor of the contract of 28 April 2015. Additionally, the same person was a partner and the chairman of the one-person management board of the company which maintained the Arbitration Court. This fact also raised justified doubts as to impartiality of the remaining arbitrators adjudicating in the Arbitration Court. Therefore, the petition to remove all arbitrators was well-founded and, additionally, there was a violation of the procedure in force applicable to the examination of a party’s application to remove an arbitrator within the meaning of Art. 1206 § 1 point 4 of the PCPC. Furthermore, the nemo iudex in causa sua principle was violated in an obvious manner and that fact deprived the respondent of his fundamental right to defense, therefore the prerequisites indicated in Art. 1206 § 2 point 2 of the PCPC had been fulfilled. Another violation of the respondent’s right to defense was the failure to schedule a hearing, although both parties had requested it.
The Court of Appeal also found that the petitioner’s stance that the fundamental principles of the legal order had been violated could not be accepted. Such a violation has to result out of mere wording of the award, not out of infringements of the provisions regarding the procedure before an arbitral tribunal.
It is worth noting that in this judgment the Łódź Court of Appeal made a reference to the Polish Supreme Court order dated 16 October 2014, Case No. III CZ 39/14.
Excerpts from the text of the court ruling:
1. A petition [to set aside an arbitration award] in the current shape, maintaining its distinct character with all its limitations, in particular concerning the grounds of the petition, is similar to an appeal. If a petition is well-founded, a state court may only revoke an arbitration award, which does not lead to expiration of the arbitration agreement (Art. 1211 of the PCPC) and should not be treated as consideration of the merits of the case submitted to arbitration. A ruling of a state court frustrates the effects of an arbitration award if any of the grounds indicated in Art. 1206 of the PCPC occurred, however, a ruling of a state court does not resolve, as a matter of principle, the legal dispute between the parties which was referred to arbitration with the exception of determining that an arbitration agreement does not exist, is invalid, ineffective or lost its legal power according to the applicable law.
2. Commencement of proceedings to remove an arbitrator before the conclusion of the proceedings before an arbitral tribunal results in the proceedings regulated in Art. 1176 of the PCPC being the proper procedure to consider the application and the assessment whether there were grounds to remove an arbitrator. However, in the situation of conclusion of proceedings before an arbitral tribunal, the only way to challenge the composition of the arbitral tribunal delivering the award in the case are proceedings initiated by a petition to set aside an arbitration award.
3. In evaluating whether an arbitration award in inconsistent with the fundamental principles of the legal order, the content of the award should be considered, and not the correctness of the procedure before the arbitral tribunal or the correctness of the composition thereof.
4. Because of the fact that the relationships between the arbitral tribunal and the claimant are of institutional and permanent character and the mere arbitration agreement concerns purely and simply one relevant arbitral tribunal, it should be deemed consequently that the arbitration agreement of such content is at least ineffective, i.e. it does not bring any legal effects. It is also reasonable to assume that the arbitration agreement is invalid because the dispute cannot be adjudicated by the indicated arbitral tribunal, i.e. the arbitration award has no relevant content.