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Belgian Supreme Court Reverses Decision to Set Aside UNCITRAL Award in MSC vs. Poland Case
Belgian Supreme Court Reverses Decision to Set Aside UNCITRAL Award in MSC vs. Poland Case
Background and Initial Dispute:
In a landmark decision on April 12, 2024, the Belgian Supreme Court reversed a 2022 ruling by the Brussels first instance court, which had set aside a UNCITRAL arbitral award involving a claim against the Republic of Poland under the US-Poland bilateral investment treaty (US-Poland BIT). This case has garnered significant attention as it marks the first instance of a Belgian court setting aside an investment treaty award.
The dispute originated in 2006 when Manchester Securities Corp. (MSC), a US investor, acquired bonds issued by a Polish real estate developer for projects in Krakow. Mortgages secured these bonds. However, the developer defaulted and went bankrupt in 2009. MSC’s attempts to enforce the mortgage led to contentious legal battles. The Polish Supreme Court 2012 invalidated MSC's mortgage on grounds of "social co-existence," deeming MSC’s actions dishonest. Contrarily, in 2014, the same court upheld the enforcement of another mortgage by MSC under similar circumstances.
Arbitration Proceedings and Brussels First Instance Court's Decision:
Frustrated by the inconsistent rulings, MSC initiated arbitration proceedings against Poland in 2015 under the US-Poland BIT, claiming a denial of justice. In December 2018, the arbitral tribunal ruled in favour of MSC, finding that Poland had breached the fair and equitable treatment (FET) clause by denying justice and awarded MSC approximately 10 million euros in damages.
Poland challenged the award in the Brussels first instance court, arguing that the arbitral tribunal had overstepped by acting as an appellate body to the Polish Supreme Court, thus violating Belgian international public policy. The Brussels court agreed and set aside the award on February 18, 2022, emphasizing that the arbitral tribunal had not demonstrated a structural breakdown of the Polish judiciary or established any fraudulent behaviour.
Belgian Supreme Court’s Ruling:
MSC appealed the decision, and the Belgian Supreme Court reviewed the case. The Supreme Court clarified the role of a set-aside judge under article 1717, §3(b)(ii) of the Belgian Judicial Code, which permits the annulment of an award if it contravenes international public policy. However, the Supreme Court stressed that this does not allow the set-aside judge to re-examine the merits of the dispute but to ensure the award itself does not violate public policy.
The Supreme Court found that the Brussels court had overstepped its boundaries by delving into the arbitral tribunal’s assessment of the Polish judiciary’s conduct rather than focusing on the public policy implications of the award itself. The Supreme Court reiterated that the judge’s role is limited to verifying the effects of the award on public policy, not reassessing the merits of the case.
Implications and Future Proceedings:
This ruling aligns with the Supreme Court’s previous guidance on the scope of review in set-aside proceedings, emphasizing a cautious approach under the favour arbitrageur principle, which favours arbitration. The case has now been remanded to a first-instance court in Liège for re-evaluation consistent with the Supreme Court’s directives.
While some commentators have expressed concerns that this decision might complicate Belgian arbitration law by introducing a novel test of public policy, the Supreme Court's clarification reinforces the established principle that the set-aside judge’s review should focus on the award’s compliance with public policy, not the underlying dispute's merits.
Conclusion:
The Belgian Supreme Court's decision underscores the importance of maintaining the integrity and limited scope of judicial review in arbitration cases, reaffirming the principle that set-aside proceedings should not serve as an appellate mechanism for arbitral decisions. As the case returns to the first instance court in Liège, it will be pivotal in shaping future interpretations of public policy in the context of international arbitration within Belgium.
- This case has garnered significant attention as it marks the first instance of a Belgian court setting aside an investment treaty award.
- Poland challenged the award in the Brussels first instance court, arguing that the arbitral tribunal had overstepped by acting as an appellate body to the Polish Supreme Court.
- The Supreme Court reiterated that the judge’s role is limited to verifying the effects of the award on public policy, not reassessing the merits of the case.
