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PUBLIC POLICY AND THE POLISH LANDSCAPE

- By Zuzanna Ewa Cieplińska


Keywords: public policy, enforcement, Poland


“[public policy is] a very unruly horse, and when once you get astride it you never know where it will carry you. It may lead you from sound law. It is never argued at all, but when other points fail.”[1]


Burrough J in Richardson v. Mellish

Introduction


As true as Judge Burrough’s reflection in the English case Richardson v. Mellish on public policy can be, Polish scholars and case law developed certain guidelines which can be followed in order to determine what falls under the scope of the public policy exception.[2] However, there is still no formal standardization of the application of rules which the courts would follow to assess public policy matters. This essay will present the legal basis for refusal to recognize and enforce arbitral awards as well as the setting aside of the awards on the ground of violation of public policy. Further, it will present the understanding of public policy in the Polish jurisdiction, judicial standing on the issue and provide de lege ferenda perspective on public policy exception in Poland.


Legal basis for resisting recognition and enforcement of arbitral awards and setting aside


Article V 2. (b) of the New York Convention which allows for the refusal of recognition and enforcement of an arbitral award on the basis that it is contrary to public policy is embodied in Article 1214 § 3 point 2 of Polish Code of Civil Procedure (k.p.c.). Furthermore, public policy may also be a ground for setting aside an award, which is observed in Article 1206 §2 point 2.


The definition of public policy in the Polish legal system


Public policy in Polish law is referred to as “public legal order of the Republic of Poland” (public order clause).[3] Public order is usually defined as comprising the basic principles of the legal order with a primary function to protect sovereignty[4] and fundamental constitutional principles regarding the socio-economic system.[5] It also includes the main principles governing individual areas of substantive and procedural law.[6] It is also important to notice that the concept of public order can only be understood up to the point in time until it is referred.[7] There is relativity of the concept of public order and it varies in accordance with the time in which it is applied.[8]


Judicial and academic interpretation and application of public policy exception


When it comes to jus cogens and the application of public policy, this exception for refusal of enforcement or recognition of an award will only be applied in relation to fundamental overriding mandatory rules of Polish law.[9] The examples of fundamental principles are: the principle of pacta sunt servanda, the tenet of liability for injury, compensatory function of damage, economic and contractual freedom.[10]


The ‘public policy exception only applies to such irregularities of the arbitral award […] which materially or procedurally interfere with very essence of legal order’.[11] These irregularities would only be considered if there are cases of ‘the gravest and most serious discrepancies’ between Polish legal order and the arbitral award.[12] When it comes to material interference in public order, an example of a situation may be awarding damages in a contractual dispute in a way that is inconsistent with the law or good mores.[13] However, some scholars notice that in some cases Poland has a markedly interventionist judiciary, which may be related to an unpredictable standard of judicial review.[14] Johannes Koepp’s and Agnieszka Ason’s point of view is that the judicial interpretation of the public policy in Poland ill-serves the international arbitral process and damages the reputation of Poland as a desirable seat of arbitration.[15] This is a quite strong opinion, and one may argue that in recent years the Polish courts have demonstrated a very pro-enforcement approach to public policy, which may be observed in number of cases.[16]


The fundamental principles that cannot be violated are however not clearly stated in legislation and the application of the basis for the refusal to enforce an award on the grounds of public policy are determined on a case by case basis.[17] In the following Supreme Court cases, even when it was established that certain mandatory statutory provisions were violated, the awards were not declared to be violating public policy: Supreme Court judgment dated 26 May 2017, I CSK 464/16, Supreme Court judgment dated 15 May 2014, II CSK 557/13 and Supreme Court judgment dated 16 May 1997.[18] For example, in I CSK 743/17, Polish Supreme Court held that the arbitral award was not contrary to the fundamental principles of legal order of the Republic of Poland in the case where the Arbitral Tribunal dismissed the applicant's claim for statutory interest.[19] The Arbitral Tribunal did not order the respondent to pay statutory interest, which was claimed to breach public legal order.[20] The statutory interest on the principal claim was resulting from the VAT invoices. The Court highlighted that such breach would not be inconsistent with the public policy of the Republic of Poland.[21]


The Polish courts are acknowledging the need to ensure fast and effective enforcement of awards, thus they are quite cautious in accepting the public policy ground as refusal to enforce an award, or to set it aside.[22] However, in the case of 19 March 2018, V AGo 13/18 in the Appeal Court of Katowice, which concerned the validity of resolutions of the General Shareholder’s Meetings of a Polish company, the court determined that ‘there are no grounds for recognizing an arbitral award which may pursue other goals than those which it should’. In that case, the Court of Appeal found that if the arbitral tribunal knows ex officio that court proceedings aimed at clarifying the issue of effectiveness of the person’s acquisition of shares are still pending, and if the award was made despite the fact that the arbitration clause was conducted by unauthorized persons’, then this will be the basis for refusal to enforce an award, as being contrary to fundamental principles of legal order of the Republic of Poland under Art. 1214 § 3 point 2 of k.p.c.[23]


De lege ferenda perspective on the issue of public policy in Poland


In this author’s view, the approach to public policy could still improve in the future. As it was mentioned before, there are still cases in which the courts would refuse to enforce arbitral awards on the basis of the public policy. The interventionist approach of Polish courts is still observed and brings much concern. One of the areas of improvement could be adapting some form of certain criteria for the review. As in Germany, for example, when examining the compliance with general principles, the criterion is whether there are ‘manifest and obvious’[24] breaches of public policy, and more qualitative thresholds are in place.[25] By introducing these criteria, the compliance check procedure would be much clearer to the judiciary as well as interested parties and it would make public policy an exceptional ground for refusal of enforcement of arbitral awards.[26]


Conclusion


To conclude, Polish courts may refuse to enforce an award on the basis that it is contrary to public policy, which is codified in Article 1214 § 3 point 2. The courts will only refuse the enforcement of awards in situations of “the gravest and most serious discrepancies” between the award and public legal order.[27] There is still however a lot of uncertainty in the criteria for the assessment of these discrepancies by the judiciary, and some scholars believe that the Polish judiciary is too interventionist in these matters. The possible area for improvement as suggested by this author and some referenced scholars is to standardize the criteria for the judicial review. An example of such standardization could be introducing the German approach, which provides certain criterion for such assessment. The Courts could be obliged to apply the ‘manifest and obvious’ breach test.[28]


Zuzanna Ewa Cieplińska is currently an LLM candidate at Stockholm University. She was a former trainee at Australian Centre for International Commercial Arbitration and Australian Disputes Centre (Sydney).

Preferred Method of Citation - Zuzanna Ewa Cieplińska, ‘Refusal to Recognize and Enforce Arbitral Awards and the Setting Aside of the Awards on the Ground of Violation of Public Policy’ (ICAR, 6 December 2020) <https://www.investmentandcommercialarbitrationreview.com/post/public-policy-and-the-polish-landscape>



ENDNOTES

[1] Richardson v. Mellish [1824] 2 Bing 119, 152 per Burrough J. cited in A Redfern, M Hunter, N Blackaby & C Partaside, Redfern and Hunter on International Commercial Arbitration (Oxford University Press, 2009), 10.85.

[2] R Kos, M Durbas ‘The Arbitrator’s Power to Revise a Contract vs. The Power of the Public Policy Clause’ 139 <https://www.kkg.pl/wp-content/uploads/2015/02/6_2014_PDF_EN1.pdf>.

[3] Polish Act of 17 November 1964 Code of Civil Procedure 2 (Dz. U. of 1964, no. 43, item 296) Art 1214 § 3 point 2.

[4] A Wiśniewski ‘Klauzula porządku publicznego jako podstawa uchylenia wyroku sądu arbitrażowego (ze szczególnym uwzględnieniem stosunków krajowego obrotu gospodarczego)’ <http://arbitraz.laszczuk.pl/_adr/91/Klauzula_porzadku_publicznego_jako_podstawa_uchylenia_wyroku_sadu_arbitrazowego__ze_szczegolnym_uwzglednieniem_stosunkow_krajowego_obrotu_gospodarczego_.pdf> accessed on: 1.11.2020.

[5] IV CSK 443/14 [2015] Polish Supreme Court.

[6] Wiśniewski (n 6).

[7] Ł Błaszczak ‘Kontrola orzeczenia arbitrażowego ze szczególnym uwzględnieniem klauzuli porządku publicznego’ 7-8.

[8] M Sośniak ‘Klauzula porządku publicznego w prawie międzynarodowym prywatnym’ Warszawa 1961, 8.

[9] K Weitz ‘Klauzula porządku publicznego jako podstawa uchylenia wyroku sądu polubownego na tle praktyki sądów’ Biuletyn Arbitrażowy 2010, Nr 1, 20.

[10] J Koepp, A Ason ‘Anti- Enforcement of the Substantive Public Policy Exceptin in Polish Annulment Proceedings’ JIA (Scherer (ed.) 2018.

[11] B Gessel-Kalinowska vel Kalisz, M Trąbalski ‘Public Policy in Poland and its Application by Polish State Courts’ https://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/Recogntn_Enfrcemnt_Arbitl_Awrd/publicpolicy15.aspx.

[12] R Kos, M Durbas ‘The Arbitrator’s Power to Revise a Contract vs. The Power of the Public Policy Clause’ <https://www.kkg.pl/wp-content/uploads/2015/02/6_2014_PDF_EN1.pdf>.

[13] Błaszczak (n 9) 7.

[14] Gary Born, International Commercial Arbitration 3320 (2d ed., Kluwer 2014); Koepp (n 11).

[15] Koepp (n 12); J Szpara, Postępowanie postarbitrażowe in Arbitraż Handlowy. System Prawa Handlowego, Band 8, 43–44 (Andrzej Szumański ed., 2d ed., Beck 2015).

[16] I CSK 464/16 [2017] Polish Supreme Court; II CSK 557/13 [1997] Polish Supreme Court.

[17] Ibid.

[18] I CSK 464/16 [2017] Polish Supreme Court; II CSK 557/13 [1997] Polish Supreme Court; Ł Nowak, T. Sychowicz, M. Jochemczak ‘The International Arbitration Review, Poland’<https://thelawreviews.co.uk/edition/the-international-arbitration-review-edition-11/1229002/poland> .

[19] I CSK 743/17 [2019] Polish Supreme Court; English summary available at: <http://arbitration-poland.com/case-law/731,polish_supreme_court_judgment_dated_9_january_2019__case_no_i_csk_743_17.html>

[20] Ibid.

[21] Ibid.

[22] Nowak (n 20).

[23] V AGo 13/18 [2018] Polish Supreme Court; Koepp (n 12).

[24] Koepp (n 12); III ZB 17/08 [2008] German Federal Court of Justice; III ZB 40/13 [2014] German Federal Court of Justice.

[25] Ibid.

[26] Ibid.

[27] Kos (n 14).

[28] Koepp (n 12); III ZB 17/08 [2008] German Federal Court of Justice; III ZB 40/13 [2014] German Federal Court of Justice.


The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.

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