The applicability of arbitration clause to non-signatories: A Lithuanian view

By Rimantas Daujotas (PhD Candidate at Queen Mary, University of London) and Justinas Jarusevicius (PhD Candidate at Vilnius University, Associate at Motieka & Audzevicius in Vilnius)

On 2014-04-02, the Lithuanian Supreme Court revisited the issue of applicability of the arbitration clause to non-signatories in a case between the shareholders of a major retail chain in the Baltics.

The Supreme Court had established that the arbitration agreement shall be applied only to signatories to the agreement and that an arbitral clause could be extended to non-signatories only in special circumstances. According to the Court, such special circumstances could include: 1) when there is a separate agreement; 2) a party’s tacit consent, i.e. in cases a party participates in arbitration procedure; 3) when the arbitration agreement was concluded by the agent/representative of the respective party; and 4) in case juridical persons are very closely connected, then arbitration agreement bounds both of them.

R. Daujotas observes that this latest ruling of the Supreme Court of Lithuania is significant in respect of issues on non-signatories in commercial arbitration, as it has enumerated accurate conditions under which an arbitration agreement may be applied to non-signatories. This guarantees certain level of legal certainty for the litigants regarding possible application of a non-signed arbitration clause. Although not extensively, the ruling sheds some light on the court’s approach to assigning the arbitration clause to parties who were not originally signatories to original arbitration agreement. It seems that the Court also accepted some concepts found in contemporary western law traditions which are used in cases of non-signatories, such as the tacit consent, agency, group of companies, alter ago, piercing the corporate veil, and others. While these are not specifically established in Lithuanian law, these concepts had long been used in western law such as US and French law.

In this respect, it must be added that the latest judgment reaffirms the positive attitude towards the doctrine of non-signatories which was started to be formed by the Supreme Court in its earlier case law. In particular, at the end of 2013, in Kistela case, the Supreme Court of Lithuania decided that an arbitration clause was applicable to the enterprise, whereas the arbitration agreement was signed by the shareholders of the company as part of the shareholders agreement. The latest case law reflects positive practical approach of the modern arbitration practice.

The Serbian Privatization Agency case is currently pending before the Lithuanian Court of Appeal. This case will allow to evaluate the case law on the non-signatories doctrine in the Lithuanian jurisprudence. It concerns the applicability of arbitral clauses to companies which were formed in the process of a financial reorganization and where the spin-off terms did not specifically assign liabilities arising from the arbitration agreement to the new (reorganized) company or to a company left as an empty shell after reorganization.

J. Jarusevicius notes that, from the procedural point of view, according to the case-law of the Lithuanian courts in Icor case, the arbitration agreement is an independent agreement, separable from the commercial contract. In addition, pursuant to the Lithuanian Statute of Law on Companies, when a company is divided by the reorganization, the spin-off conditions must stipulate and define which assets, rights, and obligations are to be assigned to companies operating after the reorganization. If, under the reorganization terms, some duties and obligations are not assigned to any of the parties to be formed after the reorganization, all companies formed after reorganization shall be jointly liable for the obligations.

Therefore, it will be seen if companies operating after reorganization shall be jointly bound in respect of duties arising from the arbitration agreement (as well as the obligation to arbitrate).