A modern legal system cannot be imagined without an arbitration institution that resolves commercial disputes arising between private business entities. In Lithuania the institution is the Vilnius International and National Commercial Arbitration, which began its work on Oct. 23, 2003.
Of course, arbitration can resolve disputes arising not only between private business subjects or from commercial relations. Disputes arising between a private business entity, on the one hand, and a public institution or a state or municipal enterprise (hereinafter Public Establishment), on the other hand, also be resolved by way of arbitration. The referral of disputes to arbitration is an alternative to applying to the court; the parties must agree in advance, i.e. they have to enter into the arbitration agreement whereby a dispute, which might arise between the parties, would be referred to arbitration.
In all cases, the main thing is not to violate provisions of Article 11 of the Law on Commercial Arbitration of the Republic of Lithuania (hereinafter LCA), establishing that a dispute arising between the parties must qualify for arbitration 's e.g. disputes arising from constitutional, employment, or family relations (a full list is given in the first paragraph of the Article) may not be referred to arbitration, and the advance consent of the incorporator of the Public Establishment to the arbitration agreement must be obtained.
It should be noted that the key factors promoting the referral of a dispute to the arbitration court are the dispute resolution term, price, possibility to appeal, confidentiality, etc. Considering these factors and the already mentioned possibility to refer disputes to arbitration even in cases where they arise between a private business entity and a Public Establishment, it is particularly important to have the clearly expressed advance consent of the incorporator of the Public Establishment to the arbitration agreement. However, the LCA does not provide any clear guidance as to what form the consent of incorporator should be expressed. The Supreme Court of Lithuania (hereinafter 's the Court) provides practice on the subject issue.
In the Court ruling of March 5, 2007 (case number 3K-3-62/2007), the Court clarified that the arbitration agreement entered between the parties could be invalidated in the absence of advance consent of the incorporator of the Public Establishment only in if the absence of such consent was obvious and did not need any further investigation. Moreover, given no provision in the LCA on the form of the incorporator's consent, the Court stated that such consent might be oral, written or with the help of concluding actions.
It should be noted that if there is any doubt over the existence and validity of the arbitration agreement, the international arbitration doctrine and practice clarification is given on behalf of validity of the arbitration agreement.
On the other hand, the Court stated that in assessing the validity of the arbitration agreement, the execution of the contract entered into by the parties, the time that the issue regarding validity of the arbitration agreement was raised must be taken into account because approval of the arbitration agreement can be verified by more than written evidence. This opinion is supported by both the international arbitration doctrine and by practice.
In the Court ruling of Feb. 10, 2009 (case number 3K-3-42/2009) the Court took the same stance as mentioned above. The Court noticed that a requirement to obtain the advance consent of incorporator shows that, contrary to the certain types of disputes, which per se may not be heard at the arbitration court, a Public Establishment, in principle, is not prohibited from entering into an arbitration agreement in civil relations like private legal entities; whereas the restriction that advance consent of incorporator must be obtained in order to refer the possible dispute to arbitration is introduced as a certain internal control over the actions of public legal entity.
In summarizing the above-described practice of the Court, one may conclude that clarification of the validity of the arbitration agreement is flexible and innovative as well as compatible with both the international arbitration doctrine and practice. On the other hand, Public Establishments are prevented from abusing procedural rights by raising the unreasoned issue of the validity of the arbitration agreement with the aim of being awarded a more favorable decision in the national courts. Such clarification of the Court does not give any clarity and stability for business entities since they cannot be sure that in case of any dispute between them and a Public Establishment, the latter party would not deliberately delay dispute resolution process. For this reason, the proposal is to enter into the arbitration agreement in order not to admit doubts over existence of the advance consent of incorporator. This would help not only to solve disputes arising between the parties in a more efficient and quicker way, but also would be time and money-saving solution as this is one of the main goals of the arbitration court.
Monika Kriunaite is a lawyer at Jurevicius, Balciunas & Bartkus, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality "one-stop shop" approach to clients' needs in the Baltics.