In a ruling dated 12 August 2011, the Circuit Court in Warsaw dismissed a petition for the enforcement in Poland of a judgment issued by a US court awarding punitive damages. This decision is expected to have far-reaching consequences in relation to the enforcement of both the judgments of foreign courts and awards issued in arbitration proceedings.
The underlying judgment, issued by the Circuit Court in Cook County, Chicago, had been issued in 2009 as a result of a complaint filed by a Polish-American couple against the Polish weekly magazine “Wprost”. The plaintiffs sued the publisher, the editor-in-chief and one of the journalists of the news magazine, following the publication in 2005 of an article accusing them of failure to declare their foreign currency transactions to the relevant Polish authorities. The case attracted significant attention due to the involvement of the father of one of the plaintiffs, a former prime minister of Poland, who himself was the subject of allegations of possible insider trading in relation to this matter.
Following an unsuccessful attempt by the plaintiffs to sue in South Carolina, legal action was finally brought in Chicago where the American distributor of the Polish magazine had its registered office. In a 2009 judgment the plaintiffs were awarded USD 1,000,000 in actual damages, as well as USD 4,000,000 in punitive damages. The plaintiffs then proceeded with a petition for the enforcement of the judgment in Poland.
When dismissing the enforcement petition the Warsaw court ruled that the judgment of the U.S. court was “unenforceable and contrary to public policy”. While the specific motives behind the decision have not been made known, in oral submissions the court stated that this was due to the fact that Polish law does not allow the awarding of “punitive damages”. This reflects the basic rule of most continental legal systems, that awarded damages should compensate and reflect an actual loss suffered by the plaintiff. Also, the court considered the fact that amounts awarded by Polish courts in defamation proceedings have been quite moderate, the highest such award to date being in the area of EUR 50,000. The court stated further that if enforcement of the Illinois judgment had been permitted, this would have led to unjust enrichment of the plaintiffs and at the same time might have caused the bankruptcy of the defendant. According to the court such an outcome of defamation-related proceedings would be contrary to the basic principles of Polish law.
The ruling of the Warsaw court is subject to appeal and the plaintiffs have announced their intention to do so. The ruling of the Warsaw Circuit Court is in line with similar recent court rulings in other EU states, including the German Bundesgerichtshof and the Italian Corte Suprema di Cassazione. Both courts have found punitive damages to be contrary to the public order principles of the respective states, since the continental law regulations on torts do not provide for measures aiming at either punishing the defendant for his/her actions (punitive damages) or setting an example for the future (exemplary damages). German, Italian (and now also Polish) courts have therefore held that the compensatory nature of the remedy of civil damages should be respected as a matter of public policy.
In Poland the ruling of the Warsaw court has attracted a lot of attention in the legal community not only as a result of the high-profile subject matter, but also due to the fact that “public policy” is rarely used as grounds for denial of enforcement of a foreign judgment (with most recent examples being restricted to family law). Practitioners have also commented on the decision as being based predominantly on economic factors (the court’s hesitation to bring about the possible bankruptcy of the defendant), rather than on sound legal reasoning. Furthermore, it is worth noting that while opposing the institution of “punitive damages” as alien to the Polish legal system, the court also denied the enforcement of the judgment insofar as it concerned the award for the actual damage suffered by the plaintiffs. Namely, the court stated that it considered the sum of USD 1,000,000 to be excessive and not reflecting the “local reality”, in comparison with the sums usually awarded by Polish courts in defamation suits. For the above reasons the ruling is considered highly controversial among legal practitioners.
While the ruling of the Circuit Court may still be changed on appeal, it nevertheless constitutes a significant setback in relation to the enforcement of similar judgments by courts from the United States and other jurisdictions where the institution of “punitive damages” exists. Furthermore, the conservative approach of the court and its concern for the defendant may also affect the practice related to the enforcement of foreign arbitral awards. In particular Polish courts may now start to consider the public policy clause as a ‘back-door’ method of reviewing a foreign judgment or arbitration award on its merits, rather than concentrating on legality and procedural aspects.