Does the specific provision of article 301 from the Commercial Law unfold its effect over the included in the Contract arbitrary clause?

In the judicial and arbitration practices the following question has been raised more than once: whether the confirmation of a commercial transaction within the meaning of article 301 from the Commercial Law (CL), conducted by an individual without representative authority, unfolds its effect over the incorporated arbitrary agreement. The answer to that question is of significant importance, as far as it defines to whom it would be ruled out the arisen commercial transaction dispute between the parties – to the national court or to the arbitral, indicated in the signed contract.

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The commercial transactions reveal a number of specifics, related to the conclusion, the subject and their termination. The provision of article 301 from the Commercial Law introduces a specific legal presumption, by virtue of which it is accepted that actions taken without representative authority (conclusion, respectfully implementation of a particular transaction) from the name of the trader, have legal consequences of the latter, if he/she doesn’t duly notify the other party, that he/she is not bind by them. By virtue of the citied provision, the commercial transactions could be validated by means of “tacit consent” from the party that has taken the actions without representative authority. “The tacit consent” is expressed in the lack of extraposition by the other party against the action taken without representative authority – immediately after learning about the same.

In this respect the following question has arisen – whether it is eligible for the legal presumption under article 301 from the Commercial Law to be automatically transferred to all mitigated arrangements of tacit consented commercial transactions and in particular – whether when the contract, as a commercial transaction, has been sanified by the order of article 301 of the Commercial Law, this also overcomes the defect of the arbitration agreement incorporated therein.

It should be noted that, we are facing a controversial practices of the Supreme Court of Cassation, as well as of the arbitration tribunals on the so addressed issue. There is more to it – in a lot of the cases, the Decision Chambers come to the conclusion that the presumption of article 301 is eligible to be interpreted broadly and to be attached to the included in the agreement arbitration clause. However, on one hand such a broad interpretation does not take into account a number of specifics regarding the purpose of the provision of article 301 from the Commercial Law, and regarding the characteristics of the arbitration clause on the other.

In the doctrine and in the judicial practices, the arbitration proposal is defined as a particular type of procedure contract, by which the parties have agreed to convey a future dispute or already arisen one between them on a private property legal relation for review and settlement of an arbitrary, by excluding this dispute from the jurisdiction of the general state courts. The specific legal framework of those type procedure contracts is included in the Law on International Commercial Arbitration. In compliance with article 7 and article 1, from the Law on International Commercial Arbitration, the arbitration agreement is the consent of the parties to assign to the arbitration all or some of the disputes, that could arose or have arisen between them, regarding a specific contractual or non-contractual legal relation.

This agreement could be a separate contract or arbitration clause in a contract. Despite the layout of the arbitrary agreement as a separate contract or as part of the content of a contract, settling specific substantive relations between the parties, in the legal doctrine it is accepted as undeniable, that the arbitrary agreement is a specific type of procedure contract, has an independent character and is aimed at settling procedural, and not substantive, relations between the parties. The Law on International Commercial Arbitration provides for a written form of the validity of the arbitration agreement. Generally speaking, a condition for its validity is also its conduct by person/people who is/are entitled by law or authority to express the will of the parties to this contract.

Consequently, even in relations between traders, the arbitration agreement doesn’t have the quality of a commercial transaction, because it has not been concluded in relation to their occupation, nor it is among the transactions, limitedly listed in article 1, paragraph 1 from the Commercial Law. As a provision to a specific law, article 301 from the Commercial Law, should only be applied to the relations, subject to the provisions of the specific law. It is not eligible the scope of the specific law to be expanded in an interpretative way, respectively they are applied analogically to the matter, in which scope qualitatively different relations are included. The scope of article 301 from the Commercial Law refers to the substantive relations, while the provisions of the arbitration and in particular – of the arbitration agreement, have procedural character.

Because of that it should be accepted that it is not eligible to apply the specific provision of article 301 from the Commercial Law, to the arbitration agreement, despite the fact that it is included as a clause in the Commercial Contract. The tacit consent from the side of the trader (by order of article 301 from the Commercial Law) on the concluded from him commercial transaction without representative does not automatically unfold its effect over the included in the contract arbitration clause.

The estimation, regarding the validation of the arbitration agreement as a contract, concluded by person without representative authority, should be executed on the grounds of the general legal provisions. In accordance to the provisions of article 42, paragraph 2 from the Law on Obligations and Contracts, the person who has conducted the transaction without representative authority, could be able to confirm this. To be valid, the confirmation should be conducted in the same form, provided for the relevant authorization. As to the form of validity of the authorization itself, by argument from article 37 from the Law on Obligations and Contracts, it should be in a form, envisaged by the Law for the conduct of the relevant contract (if and to the extent that such a specific form is provided as a condition for validity of the contract).

In view of the above and in relation to the requirement in article 7, paragraph 2 from the Law on International Commercial Arbitration, for a written form of arbitration agreement follows the conclusion that in order to validate an arbitration agreement, conducted by a person without representative authority, it is necessary explicit written confirmation. If the explicit written confirmation is absent, the arbitration confirmation is viewed as invalid due to lack of consent and consequently the arbitration tribunal is not competent to hear and resolve a dispute.

 

author: Kristina Terziyska, attorney-at-law

Member of “Velinov and partners” Consulting House

 

Note: The present article expresses the professional standpoint of the author and lays out arguments against the broad interpretation of the legal presumption of article 301 from the Commercial Law. In the specific arisen case, concerning the application of article 301 from the Commercial Law and the included clause in the arbitration clause, it is necessary to examine the contents of the provisions of the contract and the specific factual situation.