Arbitral award confirming arbitrator’s jurisdiction to hear a dispute arising out of an oral extension of a written contract containing an arbitration clause providing for arbitration under the FAI Expedited Rules

Claimant and Respondent had entered into a co-operation agreement, on the basis of which Claimant granted Respondent the rights to operate a restaurant under Claimant’s brand name in business premises leased by Claimant from a third party. Claimant and Respondent had also orally agreed that Respondent sublets the business premises from Claimant. In accordance with the co-operation agreement, Respondent paid Claimant a monthly co-operation fee. Additionally, the parties had orally agreed that Claimant sublets the business premises to Respondent at the same price as it itself leases them from a third party.

 

The co-operation agreement was valid until further notice and contained a clause for immediate termination without notice. The arbitration clause inserted in the co-operation agreement provided that any disputes arising out of the said agreement shall be finally resolved in arbitration under the Rules for Expedited Arbitration of the Finland Chamber of Commerce (“FAI Expedited Rules”) effective as of 1 June 2013. The seat of arbitration was Helsinki, and the co-operation agreement was governed by Finnish substantive law.

After Respondent had failed to make payments due under the co-operation agreement and pay the lease for the business premises, Claimant terminated the co-operation agreement and initiated arbitration under the FAI Expedited Rules in order to seek damages from Respondent on the basis of unpaid co-operation fees and overdue lease payments. Respondent failed to submit an answer to Claimant’s Request for Arbitration.

Due to Respondent’s passivity, the FAI Board had to evaluate in the light of Article 14(1)(a) of the FAI Expedited Rules whether it was prima facie satisfied that an arbitration agreement that binds the parties may exist. The FAI Board concluded, on the basis of the written arbitration clause contained in the co-operation agreement, that it was prima facie satisfied that such arbitration agreement may exist and referred the dispute to a sole arbitrator appointed by the Board.

In the arbitration, Claimant’s claims were based on both the co-operation agreement containing the written arbitration clause and the oral agreement regarding the sublease of the business premises. As a preliminary matter, the sole arbitrator had to establish pursuant to Articles 14.3 and 31.1 of the FAI Expedited Rules whether he had jurisdiction to decide not only the claims based on the co-operation agreement but also claims that were grounded on the oral sublease agreement. According to said provisions, the FAI Board’s decision to allow the arbitration to proceed is not binding on the arbitrator, who shall determine his/her jurisdiction independently on the basis of all the arguments and evidence submitted by the parties.

Claimant argued that the sole arbitrator had full authority to adjudicate the claims based on both agreements. In Claimant’s view, the arbitration clause embedded in the co-operation agreement also extended to the oral sublease agreement because the two agreements de facto formed one contractual relationship. Respondent, for its part, remained passive in the arbitral proceedings and never submitted any arguments in the matter.

Having assessed the evidence in the case, the sole arbitrator concluded that he had jurisdiction to decide also claims arising out of the oral sublease agreement. The sole arbitrator’s decision was based on the following three grounds:

(i) First, the arbitrator noted that the co-operation agreement contained several references to the business premises and the parties’ contractual obligations with regard thereto, such as a reference to Claimant’s duty to hand over the premises to Respondent. Consequently, the arbitrator found that the two agreements formed one economic transaction and contractual relationship. In making his decision, the arbitrator referenced Finnish and international authorities discussing extensions of arbitration clauses, including the following quote from “Comparative International Commercial Arbitration” (2003) by Messrs. Julian D.M. Lew, Loukas Mistelis and Stefan Kröll: “The arbitration clause in the main contract may also extend to follow up or repeat contracts concluded in close connection and in support of a main contract. This is usually a question of interpretation; this may be the case if the subsequent agreements amend or complete the main contract.”

(ii) Second, the arbitrator also noted that without the co-operation agreement, the parties would not have needed to enter into the sublease agreement at all. This provided further support to the conclusion that the two agreements actually constituted one contractual relationship.

(iii) Finally, the arbitrator also held that it could be assumed that the normal intent of commercial actors is to bring all disputes arising out of or relating to the same contractual relationship to be resolved in the same forum. This was a further factor leaning in favour of finding that also the claims brought under the oral sublease agreement should be resolved in the pending arbitration proceedings by virtue of the arbitration clause contained in the co-operation agreement.

Having thus determined that he had jurisdiction to hear the case, the sole arbitrator proceeded to issue an award on the merits.

Reported by Mika Savola
Chair, FAI Board

Posted in FAI cases |