Source: http://arbitration-poland.com/case-law/662,warsaw_court_of_appeal_judgment_dated_15_january_2014_case_no_vi_aca_663_13.html
Timestamp: 2019-01-17 06:45:16
Document Index: 554644711

Matched Legal Cases: ['art. 1174', 'art. 1176', '§ 3', 'art. 1176', '§ 4', 'art. 1206']

arbitration-poland.com - Case Law - Warsaw Court of Appeal judgment dated 15 January 2014 Case No. VI ACa 663/13
id : 20388
art. 1174 CPC (from 1.7.2009), art. 1176 § 3 CPC (from 1.7.2009), art. 1176 § 4 CPC (from 1.7.2009), art. 1206 CPC (from 1.7.2009)
arbitration agreement, arbitration procedure, arbitrator, petition to set aside arbitration award
dated 15 January 2014
Case No. VI ACa 663/13
In October 2008, a joint-stock limited partnership entered into several agreements with a bank, including a framework agreement covering certain types of currency hedging contracts, which contained a clause providing for arbitration before the Court of Arbitration at the Polish Bank Association. In October and November 2008, the parties entered into currency hedging contracts for several million euros. The client lost on these positions, and the bank covered part of the negative balance out of security provided by the client and commenced arbitration against the client to recover the rest of its claim. The client counterclaimed for refund of the amount of the security retained by the bank and for the rest of its losses on the hedging transactions, alleging inter alia that it had been misled by the bank with respect to the timing of the transactions. Subsequently the client also declared that it was setting off the amount claimed by the bank with its own claims against the bank.
In an award issued in May 2012, the arbitral tribunal denied the bank’s principal claim as well as the client’s counterclaim. The tribunal held that the bank’s principal claim was undisputed. The tribunal further held that the defendant’s counterclaim was based on tort and therefore was not covered by the arbitration clause. However, the tribunal held that it could rule on the validity of the respondent’s setoff against the bank’s claim, which it upheld, thus resulting in a denial of both the bank’s claim and the client’s counterclaim.
The bank applied to the Warsaw Regional Court to set aside the award in part, with respect to denial of its principal claim and recognition of the validity of the respondent’s setoff.
The regional court denied the petition. It held that the existence of the bank’s principal claim was undisputed. Although the client’s setoff was based on events not covered by the arbitration clause, the arbitral tribunal had to rule on the basis of the overall circumstances, including the setoff. Moreover, because the bank’s claim was asserted in arbitration, the client’s setoff would also have to be considered in arbitration because otherwise it could never be asserted; it could not be asserted in state court because the client was not sued in state court. Moreover, the bank had not objected to consideration of the setoff as a matter outside the scope of the arbitration clause, and thus waived this objection.
The bank also alleged that the award should be set aside because the composition of the arbitral tribunal was improper. Specifically, the bank alleged that the arbitrator appointed by the client, M.R., was not impartial because he was a partner in a law firm which employed a legal adviser trainee who was also a member of the respondent’s supervisory board and the daughter of the CEO of the respondent’s general partner. When appointed, the arbitrator had submitted a statement declaring that he was impartial and independent, and had not disclosed his connection to the respondent. The bank did not challenge the arbitrator during the arbitration proceeding. The respondent argued that the bank should have known of the connection between the arbitrator and the respondent because it was public knowledge that could be gleaned from the law firm’s website and the commercial register for the respondent and its general partner. The regional court agreed that the claimant knew or should have known of the circumstances that could justify challenging the arbitrator, but waived its right to challenge the arbitrator by failing to assert a timely challenge. Asserting an objection to the composition of the tribunal in the petition to set aside the award was too late. And in any event, as a junior employee in the arbitrator’s law firm, the respondent’s supervisory board member could not realistically influence the arbitrator, who as a partner in the law firm was her superior.
The bank appealed to the Warsaw Court of Appeal. The court of appeal held that it was proper for the arbitral tribunal to consider the validity of the client’s alleged setoff of its counterclaims against the bank’s principal claim, and otherwise the award did not violate public policy on its merits. However, the award did violate public policy, specifically the constitutional right to a fair trial by an impartial court. Rather than making a subjective determination that the connection did not affect the arbitrator’s impartiality and independence, the disputed arbitrator was required to disclose his connection to the respondent so that the claimant could decide whether or not to challenge the arbitrator.
Consequently, the court of appeal amended the judgment of the regional court to set aside the award.