Polish Supreme Court judgment

 dated 8 July 2022

Case No. II CSKP 349/22

Summary by arbitraz.laszczuk.pl:

E., a joint stock company based in G., and M., a joint stock company based in S., concluded a contract of 31 October 2008 for the period of 18 years from the date of commencement of sales of electrical energy generated at a wind farm in T. and N. The contract provided that M. would sell and E. would purchase all the property rights arising out of the Certificates of Origin issued to E. by the President of the Energy Regulatory Office in connection with the production of electrical energy generated at M.’s wind farm during the term of the contract. The price of the property rights was to be indexed annually. On 26 October 2012, M. and Bank…, a joint-stock company, based in W. (the “Bank”) entered into a contract of assignment under which M., among other things, assigned all its receivables to the Bank and waived collateral. The performance of the basic obligations of the parties under the contract of assignment was secured by contractual penalties; the possibility to claim damages exceeding the amount of the contractual penalty was excluded (§ 8 point 1-3 of the contract). On 11 September 2017, E. made a statement on withdrawal from further performance of the contract of 31 October 2008, as it pointed out that the contract was absolutely null and void, because, in its opinion, it was concluded in violation of the applicable law. In view of the above, M. charged contractual penalties under the contract, but E. persistently refused to pay them. E. decided to file a lawsuit with the Court of Arbitration at the Polish Chamber of Commerce in W. (the “Court of Arbitration”) against M. and the Bank. M. filed a counterclaim with the Court of Arbitration against E.

On 4 June 2018, the Court of Arbitration rendered a partial award in which it found the main action meritless and in this way it agreed that the contract was valid and binding for the parties. Therefore, E. stated that it was able to perform the contract. However, the parties were still unable to reach a compromise. As a result, the Court of Arbitration rendered a final award in which, among other things, it ruled that E. would pay the amount of approx. PLN 15,000,000 with interest for late payment to M. as contractual penalties.

E. filed a petition to set aside the final arbitration award. In its opinion, the arbitration award was, among other things, contrary to the fundamental principles of the legal order of the Republic of Poland (public policy clause), i.e. Art. 1206 § 2 point 2 of the Polish Civil Procedure Code (the “PCPC”). However, the Court of Appeal found the petition meritless. It stated that the petitioner had failed to demonstrate that the arbitration award was at odds with the public policy clause.

Then E. filed a cassation appeal alleging that, for example, Art. 1206 § 2 point 2 had been infringed. The Polish Supreme Court found the cassation appeal meritless. It stated that the public policy clause had not been violated in the case. It stressed that violation of substantive law may constitute a sufficient ground for setting aside an arbitration award if it would result in a determination that clearly violates the overriding principles of the legal order in force. Review exercised over arbitration by a state court is not tantamount to resolution of a case ex novo, either on the factual or the legal plane. It also indicated that a violation of the public policy clause means rendering a ruling which is not acceptable from the point of view of the rule of law and which is based on qualified violation of procedural or substantive law. In addition, the Polish Supreme Court stated that any irregularities in application of Art. 484 § 2 of the Polish Civil Code by the arbitral tribunal not resulting in the inconsistency of the award issued by it with the fundamental principles of the legal order cannot be relevant in the proceedings to set aside the arbitration award.

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 14 November 1960, Case No. II CR 1044/59, dated 13 December 1967, Case No. I CR 445/67, dated 28 November 2000, Case No. IV CKN 171/00, dated 26 August 2003, Case No. IV CK 17/02, dated 9 March 2012, Case No. I CSK 312/11, dated 13 February 2014, Case No. V CSK 45/13, dated 19 June 2019, Case No. I CSK 23/19, dated 15 June 2021, Case No. V CSKP 39/21, dated 15 June 2021, Case No. III CSKP 102/21.

Excerpts from the text of the court ruling:

1. [I]t cannot be accepted that an arbitration award violates the public policy clause solely on the ground that the award is not consistent with certain provisions of substantive law… . It should be stated that a violation of substantive law can be found to be a ground for setting aside an arbitration award only when it is contrary to the constitutional principle of the state of law (Art. 2 of the Constitution of the Republic of Poland). … a conclusion that the principles of legal order have been violated is justified, if as a result of an arbitration award the fundamental principles of the state and law are infringed (Art. 1206 § 2 point 2 of the PCPC).

2. The “public policy clause”, like any other general clause, is not precisely defined, which leaves a court seized of a particular case with a wide range of discretion, however, 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 thereof, 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.

3. The procedural public policy may be the basis for assessment of an arbitration award in two aspects. Firstly, the procedure which led to the delivery of the arbitration award is assessed for its compliance with the fundamental procedural principles of the legal order. Secondly, the effects of the arbitration award are assessed from the perspective of their consistency with the procedural public policy, i.e. whether they are compatible with the procedural legal system, for example, whether they do not infringe res iudicata or the rights of third parties.

4. A state court, hearing a petition to set aside an arbitration award, does not examine the case on the merits, but only examines the circumstances indicated in Art. 1206 § 1 of the PCPC, if the petitioner relies on them and the circumstances provided for in Art. 1206 § 2 of the PCPC ex officio… .