Contract terminations

In a recent case, two parties concluded a contract on the provision of services that included an arbitration clause.(1) Later, the parties terminated the contract with a new contract, but without expressly addressing the arbitration clause. A dispute arose between the parties under the original contract, which was decided in arbitration pursuant to the clause in the terminated contract. The question arose as to whether the termination of the original contract also affected the arbitration clause.

Section 5(3) of the Arbitration Act foresees only situations where one party unilaterally terminates a contract, in which case the arbitration clause survives. The Banska Bystrica Regional Court considered that this provision must also apply to the termination of a contract on the parties' mutual agreement. According to the court, because the parties did not expressly agree to terminate the arbitration clause, the clause survived. In support of its view, the court also relied on the wording of the arbitration clause, which included disputes regarding the validity and termination of the main contract. Such a stipulation is common to many arbitration clauses, so the court's decision can be relied on in future.

The conclusion that termination of the main contract does not affect the termination of an arbitration clause may arguably also be supported by the principle of the separability of arbitration clauses. However, the court did not discuss this principle – not because it would find it irrelevant, but rather it seems that the argument was not presented by the parties in the dispute.

Comment

This decision is one of many which provide a positive outlook for arbitration in Slovakia and can be equated with court decisions in arbitration-friendly jurisdictions.(2) A limited review of arbitral awards, with a focus on the procedural aspects of arbitration proceedings, reflects the aim of the Arbitration Act amendment of 2015. However, other court decisions have interpreted arbitration clauses more restrictively.

In another case, the Bratislava Regional Court considered the scope of an arbitration clause in a pledge agreement regarding the pledge of ownership interest in a private limited liability company.(3) The pledge agreement included a guarantee by the pledgors to the pledgee. According to the court, the scope of the arbitration clause was limited to the relationship under the pledge and not the guarantee.

Another case also related to a contractual guarantee, but in a settlement agreement between two companies.(4) The settlement agreement included a guarantee by the executive directors of one of the companies, acting in their capacity as private individuals, towards the other company. The executive directors apparently signed the settlement agreement only once, acting on behalf of the company, and did not sign it a second time as private individuals. The Zvolen District Court concluded that the executive directors were not personally bound by the arbitration clause.

Notably, these decisions were issued in commercial arbitration. There is a separate act on consumer arbitration where different rules apply. The main reason behind the Slovak courts' change of attitude is that Slovak law has started to distinguish between consumer and commercial arbitration. Previously, the courts applied the same standard to both commercial and consumer arbitration. This attitude changed following the Arbitration Act amendment of 2015 and the adoption of a new legal framework for consumer arbitration.

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Endnotes

(1) Banska Bystrica Regional Court decision of 29 November 2018 (43CoR/9/2018).

(2) This article is part of a series that examines whether Slovakia has become an arbitration-friendly jurisdiction. For the other articles in the series, please see:

(3) Bratislava Regional Court decision of 2 October 2018 (2Cob/210/2017).

(4) Zvolen District Court decision of 25 May 2018 (12C/156/2014).