THE ARBITRATORS ’ QUANTIFICATION OF DAMAGES and the Polish ordre public clause

1. THE ARBITRATORS’ QUANTIFICATION OF DAMAGES and the Polish ordre public clause Austrian/Polish Twin Conference Warsaw , June 16-17, 2011 Rafal Kos, LL.M.

2. Set of general standardsfor quantification of damages(1) • Principle of restitution (natural or financial) and the compensatory function of damages/compensation • The differential method principle • Principle of liability for normal consequences of action which resulted in damage • The fault principle – an exceptional nature of the equity principle

3. Set of general standardsfor quantification of damages(2) • Lack of the impact of the degree of fault (in case of fault-based liability) on the extent of damage • Principle of absolute liability for intentional guilt (dolus) • Exceptional nature of liability for non-material damage (redress) • Relevance of the contribution of the injured party (contributory negligence) • Exceptional nature of ius moderandi (mitigation of damages by courts)

4. General standards for application of theordre publicclause In examining the compliance of an arbitration award with the Polish public policy clause, the courtshall not examine whether: • It is compliant with substantive law, • It is based on facts, • The facts were established correctly. (The judgement of the Supreme Court of 3rd September 2009, I CSK 53/09)

5. Confronting ordre public with the general rules for quantification of damages • Is it possible to quantify the damages in arbitration without applying all of the abovementioned standards? • If so, which of them are deemed to be the principles of the Polish ordre public and have to be applied?

6. Issues considered by Polish Courts when quantification of damages was questionable (1) • Awarding damages where no injury has been sufferedis contrary to the restitution principle (principle of restitution) (The judgement of the Supreme Court of 30th September 2010, I CSK 342/10) • Compensation ought to reflect the damage due to its compensatory function (the full compensation principle) (The judgement of the Supreme Court of 11th June 2008, V CSK 8/08) • Compensation may not lead to enrichment through obtaining compensation exceeding the amount of the damage (The judgement of the Supreme Court of 11th June 2008, V CSK 8/08)

7. Issues considered by Polish Courts when quantification of damages was questionable (2) • The correct establishment of the compensation requires an earlier explanation of the grounds on which the damage has arisen as well as the amount thereof (differential principle) (The judgement of the Supreme Court of 30th September 2010, I CSK 342/10) • The necessity to establish a regular causal relationship (The judgement of the Supreme Court of 18th October 2006, II CSK 123/06) • The obligation to mitigate a blatantly excessive contractual penalties (The judgement of the Supreme Court of 11th April 2002, III CKN 492/01)

8. Conclusions (1) • From the 9abovementioned standards of damages quantification 3(A,B,C) have already been declared as a part of the Polish ordre public • The Supreme Court have not decided yet if the violation of the remaining standards is contrary to the Polish ordre public

9. Conclusions (2) • It is likely that at least some of the standards for damages quantification may be recognized in the future as a part of the Polish ordre public • The arbitrators should take this fact into account when quantifying damages to avoid the risk of their awardsbeing set aside as contrary to Polish ordre public clause

10. Thank you for your attention! Rafal Kos, LL.M. rafal.kos@kkg.pl