The norm regarding the competence of arbitration court to determine jurisdiction regarding a dispute is incompatible with the Satversme
On 28 November 2014 the Constitutional Court has pronounced the judgement in case No. 2014-09-01 “On Compliance of Section 495(1) of the Civil Procedure Law with the first sentence in Article 92 of the Satversme of the Republic of Latvia”.
The prohibition to a court of general jurisdiction to verify the jurisdiction of an arbitration court is disproportional
The Contested Norm
The contested norm of the Civil Procedure Law envisages that an arbitration court itself decides as to the jurisdiction regarding a dispute, also in cases where one of the parties disputes the existence or being in effect of the arbitration court agreement.
The Norm of Higher Legal Force
The first sentence in Section 92 of the Satversme: “Everyone has the right to defend his or her rights and lawful interests in a fair court”.
The Facts
The case was initiated having regard to the constitutional complaint submitted by Ltd. “Hipotēku bankas nekustamā īpašuma aģentūra” (since 1 October of the current year Ltd. “Hiponia”), noting that the applicant had had a civil law dispute with Ltd. “Resort Management”. The dispute was heard by an arbitration court. The applicant maintains that it had not signed an agreement on examining the dispute before an arbitration court, i.e., the agreement has been forged. Therefore the particular dispute should not be subject to adjudication by an arbitration court.
The applicant had applied to a court of general jurisdiction, filing a petition to recognise the agreement (on adjudicating the dispute at an arbitration court) as being invalid. However, the claim was rejected at all court instances. The rejection was founded upon the contested norm.
The applicant holds that the contested norm restricts a person’s rights and accessibility of court in situations, where a person wishes to contest the existence or the validity of an arbitration court agreement; moreover, the restriction to the right is incompatible with the principle of proportionality.
The Court Findings and Ruling
On the content of the right to a fair court
The Constitutional Court recognised that an arbitration court is not part of the system of the judicial power, and the State is not responsible for the procedure before an arbitration court. However, the first sentence in Article 92 of the Satversme envisages the obligation of the State to create an effective legal mechanism that would ensure the possibility to eliminate serious breaches that have occurred in the procedure before an arbitration court, as well as the obligation not to recognise the result of the procedure before an arbitration court, where such breaches have occurred. [14.1]
In those instances, when the parties have freely chosen to transfer the hearing of disputes to an arbitration court, it is being presumed that they waive their right to a fair court. The State is not responsible for the fairness of hearing cases by arbitration courts, however, in those cases, when a court of general jurisdiction controls the process of arbitration, it should verify, whether the legal proceedings before the arbitration court have been fair. [14.2]
The obligation to create a legal mechanism, which allows verifying, whether a person has voluntarily waived his or her right to a fair court, follows both from the second sentence in Article 92 of the Satversme and the international documents binding upon Latvia, [14.2], for example, European Convention on International Commercial Arbitration, [15.2] New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards [15.3], UNICTRAL Model Law on International Commercial Arbitration of 1985. [15.4]
The Constitutional Court noted that the first sentence of Article 92 of the Satversme envisaged the subjective rights of a person to turn to court and defend his or her infringed rights. If a person has not agreed that the case will be heard by an arbitration court, then the procedure before the arbitration court and its potential outcome, obviously, can significantly infringe upon the rights of this person. On such occasions a person should have the right to turn to court to defend his or her infringed rights directly and immediately, independently from other persons’ will or actions. [20.2.4.]
On the restriction on fundamental rights
The Constitutional Court recognises that the restriction on fundamental rights that is included in the contested norm has been established by law [18] and that it has a legitimate aim – the protection of the rights of other persons, which manifests itself as decreasing the work-load of courts [19].
In assessing the validity of the restriction on the fundamental rights, the Court recognised that the legitimate aim of the restriction on the fundamental right could be achieved by other means, less restrictive upon a person’s rights and lawful interests. [20.2.7] The Court found, inter alia, that in this particular case the work-load of general jurisdiction courts has not decreased, since in connection with the jurisdiction of the particular arbitration court and the enforcement of judgement courts already had adopted, in total, six various decisions. [20.2.1.]
The Constitutional Court also recognised that by contesting the jurisdiction of an arbitration court before a court of general jurisdiction, the process before the arbitration court is not impeded. Bringing a claim before the court of general jurisdiction to recognise the agreement on arbitration court as being invalid has no impact upon the arbitration procedure – the arbitration procedure, which has already been initiated, can continue, whereas if the arbitration procedure has not yet been initiated, it can be initiated parallel to the procedure before the court of general jurisdiction. [20.2.7.]
Hence, the Constitutional Court recognised that the contested norm is incompatible with the principle of proportionality. Thus, the norm, insofar it prohibits contesting the jurisdiction of an arbitration court at a court of general jurisdiction, is incompatible with Article 92 of the Satversme. The Constitutional Court rules that with regard to the person submitting the constitutional complaint the contested norm becomes invalid as of the moment when the infringement of fundamental rights occurred.
On the validity of the contested regulation in the future
The Constitutional Court took into consideration the fact that the Saeima has adopted Law on Arbitration Courts, which comprises a norm that is identical to the contested norm (Section 24(1) of Law on Arbitration Courts). It is envisaged that the Law will enter into force on 1 January 2015. [23]
The Constitutional Court, considering the concept of close connection, decided to expand the claim and recognised Section 24(1) of Law on Arbitration Court, insofar it prohibits contesting the jurisdiction of an arbitration court before a court of general jurisdiction, as being incompatible with Article 92 of the Satversme.
The Judgement by the Constitutional Court is final and not subject to appeal, it has entered into force.
Linked case: 2014-09-01