polish

case law

id : 20589

id: 20589

Polish Supreme Court judgment

 dated 17 June 2021

Case No. V CSKP 30/21

Summary by arbitraz.laszczuk.pl:

V., S.p.A., based in C. (Italy) is an Italian company and a minority partner of S., a limited liability company, based in T. (Poland). V. holds a 49.5% share in the share capital of S. One of the management board members of S. is E. A., who is also a member of V.’s management board.

A shareholders’ meeting of S. was held on 29 October 2015. At the meeting, among other things, certain resolutions were adopted: no. 4 on dismissal of all management board members, including E. A.; no. 5 and 6 on appointment of A. R. and W. Ł. as members of the management board, no. 8 on the adoption of a company development strategy, no. 9 on dividend policy and no. 10 on granting consent to the acquisition of new shares in one of limited liability companies.

A representative of the minority shareholder challenged the correctness of the manner in which the meeting had been convened and did not take part in the meeting. V. filed a lawsuit with the Regional Court in K. in which the company sought declaration of invalidity, or, alternatively, revocation of the aforementioned resolutions. Additionally, S. filed a motion for injunction i.a. in the form of suspension of the execution of the resolutions. The Regional Court granted the injunction on 11 December 2015. During the proceedings before the Regional Court, S. relied on the request for arbitration received in the meantime, and raised that an arbitral tribunal should decide the dispute. The Regional Court did not reject the lawsuit stating that declaration of invalidity of resolutions of shareholders or revocation thereof cannot be a subject of a court settlement, so the dispute could not be decided by an arbitral tribunal.

On the day when the Regional Court granted the injunction, i.e. on 11 December 2015, S.’s management board appointed by resolutions no. 5 and 6 of 29 October 2015 convened a shareholders’ meeting which was held on 28 December 2015. At the shareholders’ meeting, among other things, the following resolutions, with the same contest as the resolutions adopted on 29 October 2015 were adopted: resolution no. 3 on dismissal of all the members of the previous management board, resolution no. 4 and 5 on appointment of A. R. and W. Ł. as members of the management board, resolution no. 6 on A. R. and W. Ł.’s remuneration, resolution no. 7 on granting consent to the acquisition of new shares in one of limited liability companies.

V., relying on the court injunction, challenged the correctness of the manner in which the meeting had been convened. V. extended its claim by seeking, in addition, declaration of invalidity, or, alternatively, revocation of the resolutions adopted on 28 December 2015. The Regional Court granted another injunction in the form of suspension of the execution of the resolutions adopted on 28 December 2015.

On the same day when V. filed a lawsuit, i.e. on 30 November 2015, S. received from V. the request for arbitration. In the same request, V. appointed J. M. as an arbitrator and demanded that the second arbitrator be appointed by S. The basis for such request was § 31 of the articles of associations of S. According to the provision “all disputes between shareholders and between shareholders and the company shall be resolved by an arbitral tribunal appointed by the parties to the dispute.” The request was signed by M. A., i.e. a son of E. A. In the letter of 29 December 2015, S. appointed G. M. as an arbitrator. However, in the letter of 14 January 2016, V.’s representative informed S. that S. had already appointed an arbitrator, as a statement regarding the appointment of M. B. as an arbitrator was made by E. A on behalf of the company on 24 December 2015.

Subsequently, S. challenged the method of appointment of M. B. as an arbitrator due to the fact that this arbitrator had been appointed by E. A. and raised lack of arbitrability of the dispute. V. stated that the arbitral tribunal should resolve the dispute.

On 18 April 2016, the arbitral tribunal found that all the arbitrators had been appointed in compliance with Polish law and the rules of international arbitration, so the arbitral tribunal had a jurisdiction in the case. The presiding arbitrator, i.e. M. B., expressed a dissenting opinion. According to him, the aforementioned award had not been correct due to the fact that one of fundamental principles of international arbitration, i.e. the principle of equality of the parties by appointment of the arbitral tribunal, had been infringed. As a result, the presiding arbitrator resigned from being an arbitrator in the dispute.

S. filed a petition to set aside the abovementioned award of 18 April 2016. The pleading was deemed a motion referred to in Art. 1180 § 3 of the Polish Civil Procedure Code (the “PCPC”) and due to the fact that the deadline envisaged therein had not been met, the Regional Court and then the Court of Appeal dismissed it.

Afterwards, the remaining arbitrators appointed A. M. as the presiding arbitrator in the case.

On 2 March 2018, the arbitral tribunal ruled on the basis of Polish law that all challenged resolutions had been invalid due to the irregularities in convening of the shareholders’ meetings. However, S. filed a petition to set aside the arbitration award.

The Court of Appeal found that the petition was well-founded. It stated that E. A. could not represent S. in the arbitration proceedings, also at the stage of appointing of the arbitrators, due to a conflict of interests. Additionally, although S. had failed to comply with Art. 1176 § 4 of the PCPC, this did not deprive it of its right to raise allegations in a petition to set aside the arbitration award. The Court of Appeal found that the prerequisite indicated in Art. 1206 § 1 point 4 of the PCPC applied in the case. Nevertheless, the appointment of an arbitration made by E. A. on behalf of S. could not be accepted also in the light of Art. 1206 § 2 point 2 of the PCPC.

V. filed a cassation appeal to the Polish Supreme Court.

The Polish Supreme Court found the cassation appeal meritless. It stated that due to the improper representation of S. in case of activities connected with constitution of the arbitral tribunal, which had resulted in an incorrect appointment of M. B. as an arbitrator, the requirements concerning composition of the arbitral tribunal within the meaning of Art. 1206 § 1 point 4 of the PCPC had not been met.

It is worth noting that in this judgment the Polish Supreme Court made a reference to, among other things, the following rulings of the Polish Supreme Court: dated 17 September 1956, Case No. 3 CR 505/56, dated 18 January 2007, Case No. I CSK 330/06, dated 4 January 2008, Case No. III CZP 113/07, dated 7 May 2009, Case No. III CZP 13/09, dated 27 March 2013, Case No. V CSK 222/12, dated 11 October 2013, Case No. I CSK 769/12, dated 8 February 2019, Case No. I CSK 757/17.

Excerpts from the text of the court's ruling:

1. Provisions regarding grounds of a petition to set aside an arbitration award (Art. 1206 § 1 and 2 of the PCPC) in proceedings initiated thereby constitute a basis for a substantive ruling on the merits of the case, which justifies treating them, in the context of the grounds for a cassation appeal, as a functional equivalent to substantive law provisions… .

2. [A]rbitrability of a dispute, which is one of the prerequisites of the effectiveness of an arbitration award, is subject to assessment by the court considering the petition to set aside an arbitration award, regardless of whether the petitioner has raised particular allegations in the arbitration proceedings or not, or has invoked particular allegations in the petition or not … .

3. Compliance with the requirements regarding the composition of an arbitral tribunal, including the correct appointment of arbitrators, may be … subject to assessment in the proceedings to set aside an arbitration award irrespective of whether an arbitral tribunal has decided on this matter previously.

4. Art. 1206 § 1 point 4 of the PCPC shall apply with regard to irregularities in the composition of an arbitral tribunal at all stages of the proceedings, including the stage of appointment of the arbitrators by the parties or a third party. This applies also to incorrect representation of these persons by appointment of the arbitrators.

5. Failure to comply with the requirements on composition of an arbitral tribunal constitutes a basis for setting aside an arbitration award regardless of its effect on the outcome of the case … .

6. Proceedings to set aside an arbitration award are proceedings separate from the prior arbitration proceedings and its aim is not to consider the dispute resolved by the arbitral tribunal on merits.

7. [S]pecific rules of representation of the defendant company in the proceedings regarding revocation or a declaration of invalidity of a shareholders’ resolution (art. 253 of the Commercial Companies Code) apply also in proceedings to set aside an arbitration award delivered in a dispute whose object is a claim for revocation or declaration of invalidity of a shareholders’ resolution.

8. The entity structure of the proceedings initiated by the petition to set aside the arbitration award, including the ability of the management board in corpore having special judicial capacity to act as a party is the same as in the prior arbitration proceedings, in which the arbitral tribunal ruled on potential defectiveness of a resolution, although procedural roles of the entities participating in the proceedings may change. A judgement delivered in the proceedings to set aside an arbitration award is decisive for the fact whether consideration on the merits of a resolution’s effectiveness remains in force, and indirectly, whether such consideration may acquire the same permanent legal force as a judgment of a state court (Art. 1212 § 1 of the PCPC). Therefore, the same risks regarding a conflict of interests on the side of the representatives of a company, which justify application of specific rules of representation in proceedings concerning revocation or declaration of invalidity of a shareholders’ resolution, are present in proceedings to set aside the award. In conjunction with a protective function of Art. 253 § 2 of the Commercial Companies Code, the aforementioned arguments are in favor of extending those specific rules to the proceedings to set aside an arbitration award, in which the arbitral tribunal ruled on a claim for declaration of invalidity or revocation of the shareholders’ resolution, regardless of the fact whether in such proceedings a company whose shareholders have adopted the resolution is the petitioner or the other party in the dispute.

9. The grounds of a petition to set aside an arbitration award are not of a disjunctive character; they may also be in a causal relation with respect to each other… .

10. One of the fundamental principles of arbitration is the principle of equal treatment of the parties (Art. 1183 of the PCPC). The principle is of a fundamental and axiological character in arbitration… . The principle concerns not only the equal treatment of the parties in the arbitration proceedings in the context of the right to be heard and the procedural means available to the parties, but also at the stage of formation of the arbitral tribunal. A violation thereof results, i.a. from the lack of the necessary equilibrium between the parties by appointment of the arbitrators, which may result not only from the wording of the arbitration agreement (Art. 1161 § 2 of the PCPC), but also from factual circumstances in which the appointment of arbitrators takes place.

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