Tacit Agreement not to Arbitrate? 

November, 2016 - Rapolas Kasparavicius

Although neither of the parties objects to solving the dispute in the state court, the Supreme Court of Lithuania sends the parties to arbitration after it discovers a prior written agreement to arbitrate.

The issuer of a promissory note (Claimant) requested the state court to declare the promissory note null and void. Although the promissory note contained an arbitration clause providing for arbitration of all disputes related to the promissory note in the Vilnius Court of Commercial Arbitration, the payee (Respondent) did not dispute the state court’s competence. The court ruled in favour of Claimant and declared the promissory note invalid.

Respondent appealed the decision. Although in the appeal proceedings as in the earlier proceedings Respondent did not request the court to refer the parties to arbitration, the court stayed the proceedings after it discovered that parties included an arbitration clause in the promissory note. Respondent submitted a cassation claim to the Supreme Court of Lithuania.

The Supreme Court of Lithuania by its judgment of 4 May 2016 dismissed the cassation claim. The Supreme Court of Lithuania explained that before 2011 a court was under duty to refer the parties to arbitration if the one of the parties to arbitration agreement objects to the proceedings in court. This provision reiterated Article II.3 of the New York Convention to which Lithuania is a signatory. In 2011, the domestic arbitration regulations were amended and now the court refers the parties to arbitration if it ex officio discovers a written agreement between the parties to arbitrate. The parties’ request to have the dispute referred to arbitration is, therefore, no longer a prerequisite for stay of the proceedings.

Although Lithuanian civil law recognizes tacit agreements as such, the Supreme Court of Lithuania disagreed that by litigating in the state courts the parties revoked their earlier agreement to arbitrate. The parties may conclude an arbitration agreement by exchanging submissions in support of claim and defence where neither of the parties objects to arbitration. However, the same does not hold for the parties’ agreement to litigate in the state courts.

Such practice goes beyond what is established in Article II.3 of the New York Convention. Article II.3 requests the state courts to refer the parties to arbitration only if one of the parties so requests. But does it contradict the New York Convention? It may be argued that the New York Convention sets only a minimum standard for enforceability of arbitration agreements and does not prevent the signatory states to implement a higher standard. Lithuania does so by giving superiority to written arbitration agreements over the parties’ conduct showing amendment of their prior agreement.

However, Lithuanian case law seems to deviate from the court practice in other jurisdictions. In Sweden, for example, the parties’ conduct may constitute a new dispute resolution agreement superseding the earlier agreement to arbitrate. In England such actions may function as a waiver of a party’s right to arbitrate.



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