CJEU ruling poses threat to the stability within the EU of judgments issued by Polish state courts

On 6 October 2021, the Court of Justice of the European Union (CJEU) issued a ruling in which it found that the system of appointing state court judges introduced by Poland in 2018 infringes EU law (Case C-487/19).

The CJEU ruling was issued in response to a request for a preliminary judgment made by the Polish Supreme Court in the context of legislative changes in Poland in 2018. Under Polish law, candidates for judge positions in Polish state courts are nominated by the National Council of the Judiciary (KRS), and subsequently appointed by the President. Pursuant to the Polish Constitution, the KRS serves to ensure the independence of the courts and the judiciary. Up to 2018, members of the KRS were elected from the judiciary by their peers. In 2018, the Polish Parliament enacted several judicial reforms. Among others, the reforms cut short the ongoing terms of office of some of the members making up the KRS and remodelled the composition of the KRS, so that most of the members making up the KRS are designated by the Polish executive and legislature or are members of those branches of government.

In the case that constituted the basis for the application to the CJEU, a state court judge seeking to vacate a non-consensual order for his transfer to another division of the court raised reservations as to the impartiality and independence of the judges making up the chamber of the Supreme Court (which was to hear his case) and applied for their recusal. In the case put to the CJEU, the referring court expressed concerns as to the independence of the KRS, stemming from the mechanism by which it was appointed.

Following a review of the application, the CJEU intimated, among other things, that there may exist legitimate doubts as to the independence of the KRS. The CJEU found that the referring court could vacate a non-consensual order if it followed from the circumstances of the case that the appointment of the judge issuing the order (1) took place in clear breach of the fundamental rules which form an integral part of the establishment and functioning of the judicial system, and (2) the integrity of the outcome of that procedure is undermined, giving rise to reasonable doubt as to the independence and impartiality of the judge concerned. In essence, the CJEU called into question the impartiality and independence of judges elected by the new KRS. The implication of the CJEU’s ruling is that national courts could use EU law to refuse to recognise the authority and rulings of such judges.

The CJEU ruling may have a significant impact on the stability and reliability within the EU of judicial decisions handed down in Poland. An investor seeking enforcement based on a final Polish court judgment issued by a judge appointed by the KRS since 2018 may encounter obstacles in obtaining recognition and enforcement of such a judgment from other EU Member courts. Having successfully obtained a favourable award, often after several years of proceedings, an investor could find himself facing objections to the legality of such an award. Such objections could ultimately lead to a refusal with regard to recognition and enforcement under EU law. Consequently, the effectiveness of enforcement based on a Polish court judgment against assets outside of Poland may be severely diminished, if not completely compromised.

However, there are options available to investors to rule out this new risk. One of those options is the inclusion of a contractual dispute-resolution mechanism providing for the resolution of disputes in arbitration. The submission of disputes for arbitration by way of an arbitration agreement eliminates the risk of potential challenges against the award itself based on its illegality under EU law. Moreover, investors can completely exclude the participation of Polish courts in their arbitration and potential post-arbitration dispute by indicating a seat of arbitration outside of Poland.