The Appellate Court in Wrocław, Poland [Case No. I ACa 1109/17[1]] considered the question of whether the principle that a case must be examined comprehensively and that doubts must be cleared to the fullest extent possible before the tribunal renders an award constitutes one of the basic principles of Polish public policy. Additionally, the Court analyzed the validity of the appointment of the sole arbitrator and its compliance with the applicable arbitration rules.
Background facts
The Claimant, S.B., was the leader of a consortium which entered into a contract with the Respondent, the Municipality of W. The contract concerned the construction of sewerage in one of the Respondent’s districts. In the course of the contract, a dispute arose between the parties. The Claimant commenced arbitration proceedings under the ICC Arbitration Rules, in which it sought payment of remuneration, damages and further compensation from the Respondent. The case was heard by a sole arbitrator.
In the initial phase of the proceedings, there was a dispute as to the appointment of the sole arbitrator. The Claimant requested that the ICC Court appoint the arbitrator pursuant to Articles 12(3) and 13(4)(a) of the ICC Arbitration Rules. It further requested that the arbitrator be of German or French nationality. The Respondent objected to this, stating that there is no reason for the arbitrator to be of a different nationality than Polish, in particular since the language of the proceedings was Polish. Given there was no agreement between the parties, the ICC Court proposed a candidate. However, they were rejected by the Claimant. In return, the Court made a choice based on Article 13(4)(a) of the ICC Rules, and appointed a German national. Only the Respondent objected to this appointment; however, the appointment was final.
The main substantive issue to be considered by the Tribunal was whether there was a causal link between the damage incurred by the Claimant and the actions of the Respondent, as well as the quantum of damages due. To that end, each of the parties presented their expert reports. The conclusions of the parties’ experts were contradictory. Thus, during the hearing, the experts testified in order to explain these discrepancies. This was however to no avail. The Respondent – before the hearing, requested that the Tribunal appoint an independent expert. After the hearing, the Claimant stated that it would agree with the Respondent’s motion if the Tribunal was to decide that based on the submitted evidence it is not yet possible to rule in favor of the Claimant. The Tribunal decided, however, to dismiss these motions, and rendered an award in which most of the claims were dismissed as unproven.
Both parties filed motions for setting aside the award with regard to the parts that were unfavorable to them.
The factors considered
In its motion to set the award aside, the Claimant argued that:
- the Tribunal was composed in breach of the agreed rules, as the ICC Court appointed the arbitrator without consulting the National Committee, which was necessary, as the Respondent was not a state/state owned entity, which precluded the ICC Court from relying on Article 13(4)(a);
- the Tribunal breached the rules of the proceedings, such as the obligation to consider all the facts and evidence, the rules of fair trail, as well as the public policy of Poland by, among other things, disregarding the expert reports filed by the Claimant and not fully establishing all the facts of the case necessary for the dispute to be properly resolved.
The Respondent raised the following grounds to set the award aside:
- the Tribunal was composed in breach of the ICC Arbitration Rules for the same reasons as raised by the Claimant, as well as on the basis of the unequal treatment of the parties during the appointment of the sole arbitrator, as they were of the nationality requested by the Claimant (German), while the Respondent’s objections in this respect were unfairly dismissed;
- breach of public policy due to the breach of several principles of law, including (1) the breach of the obligation to treat the parties equally, (2) the breach of the principles of freedom of contract and party autonomy, as well as (3) the obligation to assess the evidence properly.
The decision
The court set aside the entire award.
The court decided that the Respondent’s objection with regard to the formation of the Tribunal was justified. The court agreed with the Respondent that the appointment should have taken place with the input from the National Committee, and not at the ICC Court’s discretionary decision. Moreover, the court agreed with the Respondent that it was treated unfairly during this phase of the proceedings, as all the objections of the Claimant were sustained by the Tribunal (both with regard to the nationality of the arbitrator, as well as the objections to the first candidate proposed by the ICC Court), while none of those raised by the Respondent were taken into account.
At the same time, the court dismissed the Claimant’s challenge as to the formation of the Tribunal in the absence of the Claimant’s objection to the appointment in the course of the arbitration proceedings.
Finally, the court agreed with the Claimant that by not appointing an independent expert, the Tribunal had breached the basic principles of Polish law. In this respect, the court relied on earlier case law, which confirmed that a tribunal is in breach of Polish public policy if they do not consider the evidence presented by the parties if it is crucial for the proper adjudication of the case. The court further found that the Tribunal had breached the parties’ equality in arbitration by failing to establish the key issue at stake (the existence of a causal link). The Tribunal assumed that it was the Claimant’s duty to provide the necessary evidence and its insufficiency burdened the Claimant.
The significance
In its decision the court made it clear that every step of the procedure agreed by the parties (including by reference to the arbitration rules) has to be adhered to. The court also confirmed that the requirement to treat the parties equally also applies to the first stage of the proceedings, during which the arbitral tribunal is formed. The court, however, emphasized that a party has to raise the objections in a timely manner in the arbitration proceedings, in accordance with the applicable arbitration rules and applicable law, rather than wait for the award and only then try to challenge it if it is unfavorable. In this respect the court’s decision confirms the long-standing case law.
This demonstrates that party autonomy, expressed among others by the choice of arbitration rules, remains a prevailing principle of arbitration, and that the Polish courts recognize this rule.
On the other hand, quite surprisingly, the court stated that the arbitral tribunal should have acted in a more inquisitorial manner, which includes taking an active part in the collection of evidence. The fact that the national court assessed the findings made by the arbitral tribunal on the merits of the case could be alarming. The limited jurisdiction of the national court in proceedings challenging an arbitral award is a cornerstone of arbitration. The assessments made by the court are on the border of a thin edge leading to direct judicial interference in the merits of arbitration cases, which – in other case law in Poland – was on many occasions clearly frowned upon.
Nevertheless, it should be noted that though this latter issue was referred to the Supreme Court due to the Respondent’s cassation appeal, the Supreme Court dismissed it.[2] The Supreme Court noted that the objections of the cassation appeal were improperly drafted and this precluded it from scrutinizing the legal reasoning of the Appellate Court. If the case was properly presented, the final outcome could have been different.
[1] Judgment of the Appellate Court in Wrocław of 17 October 2017, Case File No. I ACa 1109/17; Available here (in Polish).
[2] Judgment of the Supreme Court of 28 February 2019, Case File No. V CSK 63/19, Available here (in Polish).
