Does New York Convention really set maximum form requirements for arbitration agreements?

This post is written by Mr Denis Parchajev, an Associate Lecturer at QMUL and tutor for the online International Dispute Resolution LLM.

The New York Convention

It is generally accepted that arbitration agreements cannot be subjected to stricter requirements than those of Art. II of the New York Convention (see, e.g. Lew, Mistelis et. al, Comparative International Commercial Arbitration ¶ 6.39).

In other words, the general perception is that the signatory States are free to impose a more lenient regime in respect of the form of an arbitration agreement, however, the said agreement must in any case be considered valid if it meets the following criteria: (i) an agreement “in writing” (Art. II(1)); (ii) “signed by the parties or contained in an exchange of letters or telegrams” (Art. II(2) New York Convention).

This notion of ‘maximum standard’ is rarely challenged, however, what if the underlying agreement was notarised and provided for court jurisdiction: can parties still rely on the New York Convention to change the said dispute resolution mechanism by subsequently concluding an arbitration agreement in plain written form (i.e. not notarised)?

A case in Lithuania

A Lithuanian court recently considered this question.

The facts of the case No. e2A-1185-370/2018 can be summarised as follows:

Parties entered into a notarised real estate purchase agreement. The agreement provided for jurisdiction of Lithuanian courts. At a later point a dispute arose and the parties chose to conclude an arbitration agreement covering all disputes arising out of or in connection with the said purchase agreement. Parties asked the local notary to notarise the arbitration agreement. The notary refused to do so as the purchase agreement was already performed.

Parties asked a court to compel the notary to notarise the arbitration agreement, yet the court refused given that (i) the underlying contract was already performed, and (ii) arbitration agreement may be concluded not only in the form of an arbitration clause of the underlying contract, but also in the form of a separate agreement between the parties.

The latter separate agreement, according to the court, did not have to be notarised. As such, the parties request to compel the notary was rejected and “excessive“. In the end, the parties followed the New York Convention and concluded an arbitration agreement in writing (Art. II (1)) signed by both parties (Art. II(2)). Parties went to arbitration. Arbitrator accepted jurisdiction and rendered a final award.

The final award

Ultimately, the final award was challenged at the place of the seat (Lithuania), inter alia, because an arbitration agreement failed to observe the mandatory notarial form requirements. The party asking for annulment suggested that the arbitration agreement in question was invalid since any amendments to the dispute resolution clause contained in the notarised purchase agreement were only valid if notarised. One cannot amend a notarised agreement in plain written form.

The award creditor, resisting the annulment, put forward three counter arguments:

Firstly, he asked the court to follow the previous court judgment, where the other court refused to compel the notary to notarise the arbitration agreement and reasoned against notarial form thereof.

Secondly, the award creditor asked the court to follow the black letter of the law. Lithuanian law on commercial arbitration expressly provided that an arbitration agreement was valid as long as it was “executed as a joint document signed by the parties” (Art. 10(2)(1)). Clearly, the arbitration agreement in question met these form requirements.

Thirdly, the award creditor further relied on the doctrine of separability of an arbitration agreement. The doctrine allows an arbitration agreement to be considered entirely separately from the underlying contract. As expressly provided in Lithuanian law, “[a] decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause”. Likewise, an arbitration agreement, as an entirely separate agreement, was not bound by the form requirement of the underlying contract, i.e. did not have to be notarised.

The court seised with the annulment action established that the opinion expressed in the previous judgment re form of an arbitration agreement was merely an obiter dictum and did not have the binding effect. The court disagreed with the award creditor and annulled the arbitral award since the dispute resolution clause contained in the notarised purchase agreement could only be amended by another notarised agreement. The arbitration agreement was found null and void.

Conclusion

It remains to be seen whether this restrictive approach will be upheld in the later case law and whether it will be applied in the recognition context. Nevertheless, unfortunate as the result for the award creditor was, the case serves as a good reminder that one should always account for intricacies of a specific case and applicable law.

Mr Denis Parchajev is an Associate Lecturer at QMUL and teaches on the online International Dispute Resolution LLM. He’s a Senior Associate at Motieka & Audzevicius PLP in Vilnius, Lithuania and has been involved in arbitration cases under the Rules of ICC, SCC, LCIA, IAC at the BelCCI and Lithuanian Arbitration Court.

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