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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Pannonia Bio Zrt v Marciniak & Anor [2025] EWHC 1005 (Comm) (09 April 2025) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2025/1005.html Cite as: [2025] EWHC 1005 (Comm)

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IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KBD)

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		9 April 2025

HHJ Pelling KC:

Introduction

1. This is the hearing of the claimant's claim under section 67 of the Arbitration Act 1996 challenging the decision of an LCIA arbitration tribunal contained in an interim award dated 1 July 2024 by which the tribunal concluded that it had substantive jurisdiction to determine a claim brought against the claimant by the first defendant referred to hereafter as D1. This being a challenge under section 67, I must arrive at my own conclusions concerning substantive jurisdiction - see National Iranian Oil Company v Crescent Petroleum Company [2023] EWCA Civ 826 [2024] 1 WLR 7 at [25].However, I refer as necessary below to the award in order to set the claim in its correct context.

The facts

2. The claimant is a Hungarian company which produces and sells industrial alcohol. The first defendant is a Polish national who, while a sole trader, entered into two contracts with the defendants known respectively in these proceedings as the July contract and the September contract. Each contract was governed by English law and each was subject to an LCIA arbitration clause. The July contract was entered into on 30 July 2018, and the September contract on 24 September 2018. The industrial alcohol, the subject of the contracts, was delivered by the claimant to the defendants and transported by truck to Poland via the Czech Republic. The July contract product was inspected on arrival in Poland by Polish customs officials and the September contract product was inspected by Czech customs officials when it passed through the Czech Republic on its way to Poland.
3. On 14 June 2019, after delivery of the product had been completed under each of the contracts concerned, the first defendant incorporated his business under Polish law by establishing a limited company called Chemia Bomer Edward Marciniak Sp.z.o.o pursuant to Article 551 and 584 of the Polish Commercial Companies Code. That company was later converted to another company but the subsequent conversion is immaterial for present purposes. In the result, the company succeeded to the business formerly carried out by the first defendant upon the initial transformation I have referred to. This claim is concerned with the effect of that transformation on the ability of the first defendant to bring a claim for damages for alleged breach of each of the July and September contracts in respect of losses which, as I explain below, were not transferred from the first defendant to the successor company when the transformation to which I have referred occurred.
4. Returning to the chronology, about six weeks later on 24 July 2019 the Polish tax authorities imposed fines and duties on the first defendant because the industrial alcohol, the subject of the July contract, did not meet EU denaturing requirements, and so was not exempt from EU excise duty. On or about the same date the Polish authorities passed on a decision to similar effect by the Czech tax authorities arrived at for similar reasons in respect of the product, the subject of the September contract.
5. On 12 May 2023 the first and second defendants commenced arbitration proceedings by two references for arbitration prepared in accordance with the LCIA Rules, one in respect of a claim under the July contract, the other in respect of a claim under the September contract. Each proceeded on the basis that the first defendant and the second defendant as ultimate successor to the first defendant were entitled to claim damages for breach of the July and September contracts. No non-contractual claims were made by either of the arbitral claimants. If such a claim was now to be made it would require either a further reference and consolidation with the existing references or, possibly, amendment of the existing references for arbitration so as to raise a new non-contractual cause of action if such is available.
6. The first defendant has claimed to be entitled to commence arbitration proceedings under the arbitration agreements in each of the July and September contracts on the basis that he was "original party" to each agreement, and is entitled to recover from the defendant damages for breach of contract in respect of losses said to have been suffered by him in the form of duties and fines imposed on him by the relevant tax authorities in Poland and the Czech Republic as a result of the supply by the defendant of product which was supplied in breach of the terms of the July and September contracts.
7. It is common ground that by Article 112(b) of the Polish Tax Ordinance a single shareholder company established under the procedure used by the first defendant to transform his business into one operated by a company is liable jointly and severally with the individual for tax arrears that accumulated from the individual's economic activities down to the date when his business was transferred or transformed into that of the successor company applying the principles to which I refer below.

The parties' cases.

8. The claimant's case is, and it is common ground that, the first defendant chose to transform his sole trader business to that carried on by a company pursuant to Article 584(2) of the Polish Commercial Companies Code. The claimant maintains that by operation of Article 584(2).1, upon transformation being completed "the transformed company shall have all the rights and obligations of the entrepreneur ...". In this context, the first defendant is the entrepreneur in relation to the business or enterprise formerly carried on by him and which was the subject of the transformation.
9. It is submitted on behalf of the claimant that the effect of this was that all rights and obligations under the July and September contracts, including the right to have any disputes thereunder resolved by arbitration, were transferred from the first defendant to the "transformed company" with the result that he had no continuing claim for damages for breach of contract under either the July or September contracts with any such claim as he had being transferred to the successor company.
10. In the result, the claimant maintains that the first defendant had no claim for breach of contract available to him at the time he purported to refer his claim for damages for breach of contract to the tribunal, nor any right to have any claim against the claimant resolved by arbitration under the arbitration agreements contained in the July or September agreements to which he had ceased to be a party following transformation, so it is submitted as a matter of Polish law and in the result, the tribunal has, and should have concluded that it had, no substantive jurisdiction to determine the first defendant's claim.
11. The first defendant's case is more complex. He maintains that on a proper construction of Article 584 its effect is not to achieve a universal succession to the successor company, as the literal wording of Article 584(2).1 might suggest, and that on a proper analysis either the transforming entrepreneur, here the first defendant, retains the right to sue for damages for breach of contract or the liabilities said to give rise to the loss the subject of the claim are not themselves transferred to the successive company when transformation is completed, so that in consequence where the first defendant remained jointly and severally liable with the successor company for the duties and penalties levied by the Polish and Czech tax authorities following transformation, it therefore followed that he retained the right to have his claim for damages for breach of contract determined by arbitration in accordance with the arbitration agreements embedded within the July and September contracts. This necessarily means, if correct, that the effect of transformation was not to substitute the successor company for the first defendant as party to the July and September contracts, but to add the successor company as a party. The claimant's case is that such an analysis is heterodox as a matter of Polish law and ought to be rejected.
12. The suggestion that the first defendant may have recourse to a non-contractual claim was a new issue, and, in my judgment, is unarguable for at least the following reasons: firstly, the first defendant has not any claim other than a claim for damages for breach of contract which has been referred to arbitration down to the date of this judgment, and in my judgment, and as already explained, such a claim is not one that is available to the first defendant in the current references to arbitration as they are currently framed.
13. Secondly, I do not see how any non-contractual cause of action that might have been available to him before transformation will remain any more available to him after transformation than his alleged contractual claims if, on proper analysis, all the rights and liabilities he had in his capacity as an entrepreneur operating the business that was to be transformed, transferred to the successor company on transformation.
14. Thirdly, even if that is wrong and he has a non-contractual claim that is available to him, I do not see how he is able to require the claimant to arbitrate that claim, assuming (without deciding at this stage) that following transformation the first defendant ceased to be a party to the arbitration agreements within the July and September contracts.
15. Finally, if that is wrong and the first defendant has a non-contractual claim available which, however, is not the subject of -- or capable of being subjected to arbitration in the circumstances that have arisen -- I don't accept that there is no forum available to the first defendant because the first defendant will be able to resort to the relevant state courts.
16. In those circumstances, the first defendant, as it seems to me must succeed by reference to his contractual claim, or fail in his case concerning jurisdiction.

The Tribunal's Decision

17. As I have indicated, the section 67 challenge takes effect as a new hearing and is not merely a review of the arbitrator's decision. That said, it is relevant to note, if only for contextual purposes, the decision of the tribunal and the reasons for it.
18. The tribunal determined that it had substantive jurisdiction in relation to the first defendant's claim against the claimant. At paragraph 22 and following of its first interim award, having noted that the first defendant had incorporated his business well after the delivery of the product but before the taxation's decisions had been communicated to him, the tribunal concluded that Article 584(2).1 had the effect of transferring to the successor company only those rights and obligations capable of being transferred from the original contracting party, here the first defendant - see paragraph 32 of the award.
19. The tribunal concluded that since the first defendant retained his tax and penalty liabilities following transformation, it followed that the first defendant " ... retained the right to invoke the arbitration agreements so as to have the right to bring and enforce whatever rights remained vested in him because the benefit of the arbitration agreement would only transfer to the first defendant's successor insofar as it was necessary to enforce rights that were transferred to them".
20. The tribunal rejected an argument by the first defendant based on the Contracts Right of Third Parties Act 1999 which was not relied upon at the hearing before me. It also rejected an argument based on a Polish judgment dated 19 July 2022 to the effect that there was an issue estoppel between the parties that precluded the claimants from concluding that the first defendant was not entitled to rely on the arbitration agreement within the July and September contracts. Again, the defendant did not rely upon that point in these proceedings.

Parties' submissions on this hearing.

21. The submissions of the parties were as I have summarised earlier, and, in essence, remained the same as those that were made to the arbitral tribunal.
22. In support of its submissions that literal effect was to be given to Article 584(2)(i), the claimant further submitted (a) the claimant's expert evidence was to this effect and was to be preferred; (b) the defendant's approach was flawed because it focused in part on Polish law relating to the effect of arbitration agreements which was ultimately a question of English, not Polish, law; and (c) the defendant was wrong to contend that the outcome for which the claimant contended should be rejected on the basis that it was surprising in its effects. That outcome was merely the result of the first defendant failing to appreciate the effect in law of the steps he chose to take leading to the transformation of his sole trader business into that of a business operated by a successor company using the provisions to which I have referred. It was entirely inappropriate, so it was submitted, for this court or for the arbitrators to depart from an orthodox application of the law in order to protect the first defendant from the legal consequences of his own acts.
23. The defendant's submissions were as summarised above, and in addition was that Article 584(2)(i) could not be read as having the effect for which the claimant contended as a matter of literal construction, given that the claimant accepted that there were exceptions to the literal effect of the language used. It was submitted that since it was common ground that the loss remained with the first defendant, there was no reason why his ability to claim damages by reference to losses that could not be transferred on transformation would be lost to him on transformation of his business to that of the successor company.
24. In support of that submission it was submitted by Mr Atkins KC on behalf of the defendant that if the test for what was transferred was what was required to conduct the business following transformation, it would follow that the first defendant's claim would not be transferred since it was for historical losses that remain vested in the first defendant. The defendant further submitted that it made little sense to talk of an assignment of the benefit of an arbitration clause which, of itself, confers no substantive rights and obligations.

Discussion

25. In my judgment it is important to maintain a very clear distinction at all stages between the tax liabilities on the one hand and the effect, as a matter of Polish law, of the statutory transformation of a business carried on by a sole trader to one carried on by a corporate entity on commercial agreements entered into before transformation and on arbitration agreements embedded within any such commercial agreements.
26. Whilst I accept, and indeed it is common ground that the tax liabilities which form the basis of the first defendant's claim against the claimant, are liabilities that the first defendant retained following transformation, I do not consider that of itself assists in resolving the issues that arise, which depend exclusively on the effect of transformation as a matter of Polish law. The true focus of the claim is not on the tax liabilities that were incurred by the first defendant at the time when he was a sole trader but with what happened to the benefit and burden of the July and September contracts and their associated arbitration agreements following transformation. I do not accept that because the liabilities, the subject of the claim by the first defendant, remain with the first defendant following transformation, it therefore followed that he continued to be a party to the July and September contracts. The two issues are, as I have said, unrelated other than by coincidence.
27. It is difficult to see how, on any view, the effect of transformation could be to change the July and September contracts from contracts between the claimant and the first defendant to a contract between the claimant and both the first and ultimately the second defendants when the effect of Article 584(2).1 is expressly transform the contracts from contracts between the claimant and defendant to contracts between the claimant and the successor company. There is nothing in the commercial companies code, the decisions of the Polish courts to which my attention has been drawn, or the academic literature on which the experts rely that suggest that the effect of transformation could be to create a tripartite contract out of what was formerly a bipartite contract.
28. In many cases that would defeat the legitimate purposes of transforming a sole trading business into that of a business carried on by a company, and if any such principle applied it would be necessary to spell out in either the primary legislation or the academic writing in relation to it the basis on which such an exception could work and its parameters. As I have said, there's nothing within the literature which comes close to identifying and then delineating such an exception.
29. I do not accept the submission that there is any credible reason for concluding that the remaining benefit of the July and September contracts would not be transferred to the successor company on completion of the transformation. Firstly, there's nothing on the face of Article 584(2) that would justify such a conclusion. Subsection (1) is expressed in general terms, as I have recorded earlier in this judgment.
30. Whilst I accept that subsection (2) recognises that there may be rights that may not be transferred on transformation, it does not follow from that provision that the remaining benefit of the July and September contracts would not be transferred to the successor company on transformation. The contracts, or the first defendant's remaining rights thereunder, are not, on any view, any of " ... the permits, concessions and reliefs granted to [D1] before ... transformation ..." I accept the evidence of Professor Szumanski that what is referred to within subsection (2) of the Article are public law exceptions to what is otherwise the general effect in law of transformation. This much is apparent in my judgment from the reference within subsection (2) to " ... the act or decision granting the permit, concession or relief ..." with the word "act" referring to primary legislation and decisions to secondary legislation and/or administrative decisions by statutory or quasi-statutory bodies. This point derives further support from the exception applying only where the act or decision concerned provides for the permit, concession or relief not to transfer on transformation. The existence of the narrowly cast exception in subsection (2) serves to emphasise the otherwise general effect of transformation. It is that general effect that gives rise to the need for the public law derived exceptions referred to in subsection (2). There are obvious public law reasons why express exceptions to what is otherwise a general principle should apply in relation to particular permits granted by public bodies where, for example, there was a fit and proper person qualification or a financial solvency test applicable to the grant or continuation of the permit or concession concerned. There is nothing within the statute or the jurisprudence which is connected with it that suggests that the provision within sub-subsection (2) of the Article extends to any private law relationships or indeed to any relationship at all other than those which are expressly identified within the documents referred to in the sub-subsection.
31. It was submitted that there were implied qualifications to what was otherwise the general effect of Article 551(5) and 584(2) of the Commercial Companies Code. This was said to follow, for example, from the fact that on transformation the sole trader ceases to be an entrepreneur because the relevant enterprise has been transferred to the successor company on transformation, but nonetheless that continues physically to exist, unlike the position that would apply where a business was transformed from Company A to Company B with the transferring company being dissolved by operation of law after transformation.
32. In my judgment this does not lead to the conclusions for which the first defendant contends. The entrepreneur only ceases to be an entrepreneur in relation to the enterprise being transformed with the result that what is transferred are all the rights and obligations connected with the enterprise being transformed. Although Mr Adkin submitted that there was no obvious purpose in transferring the rights under a performed agreement, I do not agree. It will be of importance to a successor company to receive as part of the rights and obligations of the commercial entrepreneur the right to enforce contractual or claim damages or other financial compensation due in respect of past breaches. Indeed, that is precisely what the second defendant has used the July and September contracts to do in respect of the current arbitral references. Now is not the time to comment on whether the ultimate successor company is entitled to recover an indemnity or contribution from the claimant in respect of the pre transformation tax liabilities to which it became jointly and severally liable following transformation. However, even if that is not so, the claim transferred to the successor company was, nonetheless, valuable because it enables it to make the claims it does in the current arbitral proceedings aside from the tax liabilities the subject of the first defendant's claim.
33. Returning to the general principles of Polish law, I'm satisfied that Professor Szumanski's evidence is evidence I should accept. His careful analysis based on well-established legal principles satisfied me that I should accept his evidence. He identifies three jurisprudential routes that lead to the conclusions identified above. Of these, universal succession, while applicable to the transformation of one company to another, is not, in all respects, the most satisfactory jurisprudential basis on which to analyse the transformation of an enterprise carried on by an individual sole trader to a corporation. I accept his evidence concerning the doctrine of quasi-continuity because conceptually Article 584(2).1 is intended to operate in relation to individuals as Article 553.1 operates in relation to companies in all material respects, other than the obvious one in relation to the continued existence after transformation of the individual who was formerly the entrepreneur in relation to the transformed enterprise. The key feature of all the theories which Professor Szumanski identifies is that the right and obligation of the individual passes to the company. To that principle there are only narrowly-defined, principally public law, exceptions, but they are narrowly-formulated exceptions to what is otherwise a general rule which underpins the concept of transformation as a matter of Polish law.
34. Although the claimant places some reliance on the suggestion that the transfer is limited only to the enterprise concerned does not assist. What matters is the content of the way in which the concept operates in relation to particular individually-operated businesses subjected to the transformation process. Once the underlying jurisprudential concept is understood then it is clear that what is transferred is the whole of the sole trader's business to a single shareholder company. It is a transfer from one entity to another. I accept, therefore, that at the point when transformation takes effect, the natural person, here D1, ceases to be subject to the rights and obligations relating to the relevant enterprise other than the narrow defined and express exceptions to which I have referred, and all the rights and other obligations of the business are transferred to the successor company subject to those exceptions.
35. That being so, the contractual causes of action on which the first defendant relies in the arbitral references transferred to the successor company on completion of the transformation process prior to the commencement of the arbitral references. Included within what was transferred was whatever rights the first defendant had formerly had against the claimant under the July and September contracts and in consequence there was no contractual right left to the first defendant, and thus nothing he could refer to arbitration, at the date when he purported to commence the arbitral proceedings and therefore no basis on which the tribunal could acquire substantive jurisdiction in relation to claim by the first defendant against the claimant for breach of either contract.
36. If and to the extent the first defendant has a non-contractual claim against the claimant arising out of the supply of the allegedly contractually non-conforming alcohol, something I express no view about, and if and to the extent such a claim is capable of surviving transformation, again something which I express no view about because the issue was not one that was or could be explored at this hearing, I would be prepared to accept that (as the first defendant's Polish law expert contended) as a matter of construction, such a claim would come within the scope of the arbitration agreements. However, that is wholly immaterial because following transformation the first defendant ceased to be a party to the arbitration agreement, just as he ceased to be a party to the substantive July and September contracts. If and to the extent the first defendant has such a claim available to him that survives transformation, there is nothing to prevent him litigating it in the relevant state court.
37. In the course of her oral evidence, the defendants' Polish law expert endeavoured to suggest that at any rate, if looked at from a Polish law perspective, then the arbitration agreement did not contain rights or liabilities or obligations that could be transferred as part of the transformation process. The question of what substantive content there is in an arbitration agreement is, as it seems to me, a matter of English law rather than Polish law. I see no basis for concluding as a matter of English law that an arbitration agreement is incapable of statutory assignment or novation or otherwise so lacks substance as to be incapable of transfer as part of the Polish statutory transformation process. An arbitration agreement binds both parties to resolve any disputes the subject of the arbitration agreement exclusively by arbitration and to use only the arbitral process for the purposes of resolving their dispute. Those are obligations that can be and routinely are enforced by anti-suit claims as breach can result in claims in damages for breach of contract by reference to wasted costs and delay as well. There is for those reasons clear substance in an arbitration agreement to the extent that it is relevant. In my judgment, the arbitration agreements were agreements that were capable of being transferred and were transferred upon transformation if just the same way as the contracts within which the arbitration agreements were included.
38. I reject the evidence of the defendant's expert because I consider the evidence of Professor Szumanski to be more soundly wedded to established legal theory, and to be, on analysis, entirely orthodox in its approach. The defendant's Polish legal expert maintains ultimately that an entrepreneur retains the causes of action acquired prior to transformation, but fails to explain at all convincingly how it is that that is consistent with either the express terms of Article 584(2) of the code or any principled or identifiable exception to it or how, even if that is so, that results in the arbitration agreements being only partly transferred or made tripartite agreements when previously they were not. It is entirely unclear how the concept works with any of the underlying theories identified by Professor Szumanski or why those theories and, in particular, the theory of quasi-continuity that he sets out does not underpin Article 584(2) and lead to the conclusions for which the claimant contends.
39. Although some reliance was placed on a judgment of the Supreme Court of Poland of 3 September 2019, in my judgment that does not assist in the current debate. In my judgment, what is said in that case is consistent with what I have said above. It excludes the concept of general succession but that is not the jurisprudential basis on which Professor Szumanski relies for the conclusions that he reaches. Rather, what that case emphasises is that there may be public law exceptions that apply to what would otherwise be the general principles that follow from transformation. The Supreme Court recognised expressly the effect of Article 584(2) was the transformation of the subject matter of the enterprise activity. In my judgment, that is consistent with the theory of quasi-continuity, and, in particular, with the transfer of the rights and obligations that arise under a contract to the exclusion of the sole trader following transformation.

Disposal

40. In those circumstances, and for those reasons I conclude that the tribunal was wrong to decide that it had substantive jurisdiction in relation to the first defendant's claim against the claimant, and I'll hear the parties now as to the appropriate order to make.
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