POLAND: An Introduction to Dispute Resolution
Force Majeure, Price Adjustment, and Renegotiation Clause Disputes
Dispute resolution in Poland continues to be affected by the economic conditions. The problems of rising energy prices, surging inflation, and disruptions of supply chains caused by the war in Ukraine still have a great impact on the Polish economy. Those problems are reflected in many force majeure, price adjustment, and renegotiation clause disputes.
Recent arbitral practice in Poland shows that disputes relating to price or remuneration adjustments require claimants to carefully calculate the amounts set out in their requests for relief. One of the aspects that need to be taken into account while calculating the amounts requested based on the rebus sic stantibus provision or contractual adaptation clauses are tax consequences. More specifically, it is VAT that frequently causes problems to claimants in arbitral proceedings over such disputes. In such cases, arbitral tribunals are requested to increase, by a certain amount, the contractually set remuneration of the contractor because of an unusual change of circumstances, mainly related to the costs of the works. Furthermore, in practice, a claimant usually demands that the respondent be ordered to pay either the amount of the increased remuneration without VAT or that amount plus VAT. The implications of the differences between those two formulations of the request for relief may be far-reaching. According to Polish tax authorities, if a claimant is an active VAT payer, it is obliged to pay VAT on the amount of the increased remuneration received based on a court judgment or arbitral award. Consequently, if a claimant does not include in its request for relief the amount of VAT on the increased remuneration, it will have to bear the costs of VAT on its own, out of the increased remuneration granted by the court or arbitral tribunal. Under Polish arbitration law, the arbitral tribunal is not entitled to increase the claimed remuneration by the VAT amount or award the amount of VAT in addition to the increased remuneration without a proper request for relief encompassing that amount. Claimants should also be mindful of the applicable procedural rules that may prevent raising a claim for the additional amount of VAT at a later stage of the proceedings. Thus, it is advisable to address the VAT issues at the beginning of the proceedings.
Recent developments in the case law of the Polish Supreme Court
The Polish Supreme Court has recently dealt with two important arbitration-related issues (see judgment of 29 March 2023, case No II CSKP 702/22).
The first issue concerned a question whether an arbitration agreement may be deemed unenforceable, or to possibly have lapsed, as a result of changes to the rules of procedure and organisational structure of the arbitral institution after the conclusion of that arbitration agreement. In the case decided by the Polish Supreme Court, the respondent argued that the arbitration agreement was unenforceable, or had lapsed, because the rules of the chosen arbitral institution had been changed as to the procedure for challenging arbitrators and the procedure for deciding on jurisdictional objections. The structure of the institution had changed as well, which resulted in vesting certain powers to another body within the institution’s internal structure. The Polish Supreme Court decided that such changes had not affected the enforceability of the arbitration agreement. According to the Polish Supreme Court, the parties place their trust in an arbitral institution and accept that the chosen rules may change. However, an arbitration agreement would be unenforceable if the amendments to the institutional rules were of such a kind as to substantially limit the procedural guarantees of the parties, in particular, party equality and the right to be heard.
Unenforceability of an arbitration agreement would also result from amendments that make conducting proceedings objectively impossible. Given that these days arbitral institutions regularly update their arbitration rules, the guidelines given by the Polish Supreme Court may help to protect arbitration from obstructive jurisdictional objections based on the amendments to those rules.
The second issue was whether an arbitration agreement contained in a framework agreement covers disputes arising out of implementation agreements. The Polish Supreme Court confirmed that an arbitration agreement in a framework agreement that refers to the performance of the framework agreement constitutes a sufficient basis to establish jurisdiction of the arbitral tribunal in disputes arising out of implementation agreements. The Polish Supreme Court noted that such an arbitration agreement sufficiently identifies future legal relationships out of which disputes might arise because, under Polish law, legal relationships covered by an arbitration agreement should be determinable and need not be determined in this agreement. It is the task of an arbitral tribunal or a state court to assess in the case of each dispute whether that dispute arises out of an agreement implementing the framework agreement which contains the arbitration clause. The judgment confirms a very positive trend in the case law of the Polish Supreme Court to interpret arbitration agreements in favorem iurisdictionis arbitrii.
New political landscape
Dispute resolution in Poland for the past five years has been affected by doubts as to the legitimacy of judicial appointments made by the National Council of the Judiciary impanelled in 2018, and consequently the long-term certainty of judgments rendered by the newly appointed judges of the Supreme Court of Poland and the lower courts. In October 2023, the former opposition parties won the parliamentary election. One of their major election promises was the restoration of the rule of law and freeing judiciary from political influence. If the reform is successful, it will certainly increase the quality and stability of the Polish courts. However, until the reform is completed, the abovementioned risks will still affect resolution of commercial disputes before Polish courts. Those risks may be mitigated by submitting commercial disputes to arbitration.