ARBITRATION
Introduction
Commercial disputes in Lithuania are currently most commonly adjudicated through the courts. Alternative dispute
resolution, including arbitration in the first place, is still a comparatively
new notion in Lithuania. Prior to the restoration of independence of Lithuania
in 1990, commercial arbitration in its true sense was non-existent in
Lithuania. The development and practice of arbitration institutions began after
the Law on Commercial Arbitration was enacted in 1996. Since then arbitration
has been continuously gaining popularity and trust among commercial entities,
particularly in relation to international business transactions.
Applicable Legislation
International Agreements
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The 1958 New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards ("the New York Convention") was ratified by the Republic of
Lithuania on 17 January 1995. When ratifying the New York Convention, Lithuania
made a reservation (on the basis of Article 1(3) of the Convention) that awards
made in the territories of non-contracting states will be recognised and
enforced only on the basis of reciprocity;
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The 1965 Washington Convention on the Settlement of Investment Disputes between
States and Nationals of Other States was ratified by the Republic of Lithuania
on 6 July 1992.
National Legislation
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The 7 July 1964 Code of Civil Procedure of the Republic of Lithuania;
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The 2 April 1996 Law No. I-1274 of the Republic of Lithuania "On Commercial
Arbitration";
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Regulations on the Registration of the Statutes of Commercial Arbitrations,
approved by the 21 June 1996 Order No. 43 of the Minister of Justice of the
Republic of Lithuania.
Point of Interest
The Law on Commercial Arbitration was drafted on the basis of the UNCITRAL Model Law on International Commercial Arbitration ("the UNCITRAL Model Law"), with several modifications.
National and International Commercial Arbitration
In contrast to the UNCITRAL Model Law, the Law on Commercial Arbitration applies to both national and international commercial arbitration. In particular, it applies to arbitration where the place of arbitration is in the territory of the Republic of Lithuania as well as if separate procedural actions are carried out in the territory of the Republic of Lithuania. Certain provisions also apply when the place of arbitration is in any other state.
According to the Law on Commercial Arbitration, national commercial arbitration is defined as arbitration for
resolution of disputes between economic entities of the Republic of Lithuania,
except the cases which fall under the definition of international commercial
arbitration. Arbitration is considered international if:
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at the time the arbitration agreement is concluded the parties have their
places of business in different states;
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the place of arbitration is situated outside the state in which the parties
have their places of business;
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the location where, a substantial part of the performance of the obligations
arising from the commercial relations of the parties takes place, is situated
outside the state in which the parties have their places of business;
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the place most closely connected with the subject matter of the dispute is
situated outside the state in which the parties have their places of business;
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the parties have expressly agreed that the subject matter of the arbitration
agreement relates to more than one country; or
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one or both parties to the dispute are Lithuanian economic entities in which
foreign capital is invested.
There are two major differences between national and international commercial
arbitration:
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in international arbitration, the parties may agree on the language or
languages to be used in the arbitral proceedings, while in national arbitration
the case will be heard in the Lithuanian language;
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in international commercial arbitration, in absence of any indication by the
parties, the arbitral tribunal shall apply the law determined under applicable
conflict of laws rules, while in national commercial arbitration the laws of
the Republic of Lithuania will apply, unless parties have agreed otherwise.
Point of Interest
The Law on Commercial Arbitration contains an additional criterion, as compared to Article 1 of the UNCITRAL Model Law, for determination whether arbitration is considered as international, i.e. if one or both parties to the dispute are Lithuanian economic entities in which foreign capital is invested.
Commercial and Non-Commercial Disputes
The Law on Commercial Arbitration applies to the resolution of commercial disputes. According to Article 2 of
the Law on Commercial Arbitration, a commercial dispute is a controversy
between parties arising from contractual or non-contractual legal relations,
but does not include disputes that may not be submitted to arbitration. Article
11 lists non-arbitrable disputes as follows:
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disputes arising from constitutional, employment, family or administrative
legal relations;
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disputes related to competition law, patents, trademarks and service marks, and
bankruptcy;
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disputes arising from consumer contracts;
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disputes in which State or municipal enterprises, institutions or organisations
are parties may not be submitted to arbitration unless advance consent to
arbitration has been given by the founder of such an enterprise, institution or
organisation.
Institutional and Ad Hoc Arbitration
The Law on Commercial Arbitration recognises both institutional and ad hoc arbitration.
According to Article 3 of the Law on Commercial Arbitration, Lithuanian public organisations representing Lithuanian economic entities engaged in industry, business and legal activities (for example, a chamber of commerce or trade association) are entitled to establish separate legal persons (permanent arbitration institutions) with a permanent function of administering arbitration and other functions as agreed by the parties.
Currently, there are a few permanent arbitration institutions in Lithuania, among which the Arbitration Court at the Association International Chamber of Commerce - Lithuania (established in 1997) is more known.
Point of Interest
Though arbitration institutions in Lithuania do not have solid operational background yet, they offer relatively inexpensive and prompt dispute resolution services, including for international commercial disputes.
Form of Arbitration Agreements
An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement concluded by the parties.
According to the Law on Commercial Arbitration, the arbitration agreement must be executed in writing. The
requirement of the written form is satisfied if:
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the agreement is made in a document jointly signed by the parties;
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the agreement is concluded by an exchange of letters, telefaxes, telegrams or
other documents that provide a record of the agreement;
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the parties exchange statements of claim and defence, in which the existence of
an arbitration agreement is alleged by one party and is not denied by the
other, or there is other written evidence confirming that the parties have
concluded an arbitration agreement or recognise its existence.
Where an executed contract of the parties refers to a document containing an
arbitration clause, such reference will constitute the arbitration agreement
provided the contract is in writing and the reference is an inseparable part of
such contract.
Powers of Arbitral Tribunal Pertaining to Interim Measures
Article 20 of the Law on Commercial Arbitration provides that, unless otherwise agreed by the parties, the arbitral tribunal may, at a party's request, order the other party to pay a deposit to secure the claim. Furthermore, unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, apply to the district court at the location of the arbitral tribunal for interim measures of protection.
Point of Interest
In significant departure from Article 17 of the UNCITRAL Model Law, Article 20 of the Law on Commercial Arbitration does not allow the arbitral tribunal to order any party to take such interim measures as the tribunal may consider necessary. Rather, Article 20 only provides the arbitral tribunal with the right to order a security deposit, while any other interim measures may only be granted by the court.
Appeals against Arbitral Awards
Article 37 of the Law on Commercial Arbitration provides that an appeal of an arbitration award may be made to the Lithuanian Court of Appeals (on procedural grounds similar to those enumerated in Article 34 of the UNCITRAL Model Law).
An arbitral award may be set aside by the Lithuanian Court of Appeals if the party making the application
furnishes proof that:
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a party to the arbitration agreement was under some incapacity, or the said
agreement is not valid under the laws to which the parties have subjected it,
or, failing any indication thereon, under the laws of the country where the
arbitral award was made; or
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the party was not given proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was unable to present its case for other valid
reasons; or
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the award deals with a dispute not contemplated by or not falling within the
terms of the arbitration agreement, or contains decisions on matters beyond the
scope of the arbitration agreement; or
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the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in
conflict with provisions of the Law on Commercial Arbitration from which the
parties could not derogate, or, failing such agreement, was not in accordance
with the Law on Commercial Arbitration.
An arbitral award may be set aside by the Lithuanian Court of Appeals if it
finds that:
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the subject matter of the dispute is not arbitrable under the laws of the
Republic of Lithuania; or
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the award is in conflict with public order established by the laws of the
Republic of Lithuania.
Effect and Enforcement of Arbitral Awards
An arbitral award is effective and binding on the parties from the moment it is made. After the arbitral award is made, the parties to the dispute no longer have the right to initiate action on the same subject-matter and on the same grounds.
If one party refuses to implement the award, the other party has the right to apply to the district court operating in the same location of the tribunal for a writ of execution. The court may refuse to issue a writ on the basis of the grounds similar to those established in Article V of the New York Convention. A court ruling whereby a writ of execution is granted or refused may be appealed against under the procedure established by the Code of Civil Procedure of the Republic of Lithuania.
Arbitral awards are enforced under the same procedure as court decisions, as prescribed by the Code of Civil
Procedure of the Republic of Lithuania.
Recognition and Enforcement of Foreign Arbitral Awards
An arbitral award made in any state which is a party to the New York Convention is recognised and enforced in the Republic of Lithuania according to the provisions of the Law on Commercial Arbitration and the New York Convention. An award made in a state that is not a party to the Convention might be recognised and enforced on the grounds of reciprocity.
The party requesting recognition and enforcement of a foreign arbitral award has to supply the Lithuanian Court of Appeals with the authenticated original award or a certified copy, together with the original arbitration agreement or a certified copy thereof. If the arbitral award or arbitration agreement is not in Lithuanian, a certified translation into the Lithuanian language should be submitted.
A request to recognise and enforce a foreign arbitral award is considered in a open sitting of the Lithuanian Court of Appeals. The parties are informed of the date and place of the session, however absence of the opposing party is not an obstacle for adoption of the decision. Decisions of the Court of Appeals may be appealed against in the period of three months to the Lithuanian Supreme Court which considers appeals without oral hearings.
Recognition or enforcement of an arbitral award made in a country which is a party to the New York Convention
may be refused in Lithuania only on the grounds contained in Article 5 of the
Convention. Recognised foreign arbitral awards are enforced in Lithuania in
accordance with the procedure prescribed by the Code of Civil Procedure of the
Republic of Lithuania.
