Case No. SPC-55
On the legality of an arbitration court
Riga, 3 December 2003
The Senate of the Supreme Court of the Republic of Latvia in the following composition – chairman of the hearing, senator R.Krauze, senators O.Druks-Jaunzemis and R.Saulite-, with participation of prosecutor of Prosecutor General Office of the Republic of Latvia D.Kalnina, in an open court hearing tried the case regarding the protest of the Prosecutor General of the Republic of Latvia on decision of 31 July 2003 by Riga Latgale Regional Court in the case of application by Ziedonis Jorens on the issue a writ of execution for enforcement of the arbitration court judgment.
Having heard the report by a senator R.Saulīte, explanations of the administrator of LLC „Liksna” and authorized person of Z.Jorens, as well as the opinion by a prosecutor D.Kalnina, that the court decision shall be cancelled, the Senate of the Supreme Court of the Republic of Latvia
According to the decision of 31 July 2003 by Riga Latgale Regional Court it was ruled to issue a writ of execution for enforcement of a judgment made by arbitration court ABBA on 15 July 2003, according to which the debt in the amount of LVL 1000,- and contractual penalty in the amount of LVL 27.720, - were collected from LLC „Liksna” in favor of Ziedonis Jorens.
The Prosecutor General of the Republic of Latvia has submitted a protest on this decision, asking to cancel court decision and to forward the case for a new trial.
The protest is based on the fact that court has substantially violated the procedural rules which regulate enforcement of arbitration court judgment.
The court, when sustaining the application on the issue of a writ of execution, has violated Article 536, part one, point 3 of Civil Procedure Law, pursuant to which a judge shall refuse to issue a writ of execution, if the arbitration court itself is not established or arbitration procedure is not held in compliance with arbitration agreement or provisions of part „D” of Civil Procedure Law.
The author of the protest considers that this arbitration court is founded by infringing Article 486, part three of Civil Procedure Law, which states that legal persons can establish an independent arbitration court, but LLC arbitration court ABBA is founded by two natural persons.
The provisions of arbitration procedure are also infringed, as the authorization of the person, who concluded the transaction on behalf of LLC "Liksna" is not examined and all correspondence in relation to this case were given exactly to this person, thereby not allowing the director of LLC "Liksna", who is the only person with representative rights on behalf of this company, to submit to the arbitration court and court the objections pursuant to procedure set forth in Articles 525 and 536 of Civil Procedure Law.
Besides, the protest emphasizes the violation of Article 530, part two, point of Civil Procedure Law, which states an obligation to specify in the arbitration court judgment the expenses of the arbitration procedure and distribution of these expenses among the parties.
Having considered materials of the case and motives of protest, the Senate acknowledges that the submitted protest shall be sustained.
The Senate deems that the motive of the protest, stating that the court has infringed Article 536 of Civil Procedure Law, which states conditions that stand as a ground for issue of a writ of execution, is grounded.
In accordance with point 3 of the above mentioned article, a judge shall refuse to issue a writ of execution, if the arbitration court itself is not established or arbitration procedure is not held in compliance with provisions of the arbitration agreement or Civil Procedure Law.
From the credit agreement, where the arbitration clause is included, as well as from the assignment agreement it can be concluded that contractual parties have agreed on dispute settlement in arbitration court “ ABBA", as an independent arbitration court. This is attested by the agreement on the appointment of arbitrator in accordance with rules of this arbitration court Article 499, part three of Civil Procedure Law).
The arbitration court ABBA, which pursuant to the agreement were trusted to settle disputes, is not established in compliance with requirements of law (Article 486, part three of Civil Procedure Law). Thus there is no ground to deem that an arbitrator, who tried this case, was appointed pursuant to provisions of Article 499, part three of Civil Procedure Law.
The evidence that the arbitration court "ABBA” was established by Limited liability company “Amerikas Baltijas Biznesa Attistibas skirejtiesa” [American Baltic Business Development Arbitration Court], as it was indicated in the court judgment, cannot be found in the materials of the case.
In this case the existence of such evidence would not make the establishment of the arbitration court legal either, because the arbitration court ”ABBA”, as a limited liability company, has acted in contradiction with provisions of Article 486, part four of Civil Procedure Law, which forbids to perform dispute settlement in arbitration as an commercial activity.
Issue of a writ of execution for enforcement of an arbitration court judgment made by an illegally established arbitration court is a sufficient ground for the conclusion, that the court has roughly violated procedural rules, which regulate arbitration procedure, and sufficient for cancellation of the court decision.
Thus the Senate deems that there is not a necessity to consider the other motives indicated in the protest.
Pursuant to Article 448, point 2 of Civil Procedure Law, the Senate of the Supreme Court of the Republic of Latvia
To cancel the decision of 31 July 2003 by Riga Latgale Regional Court and to forward the case for a new trial to the same court.
Chairman of hearing, senator R.Krauze