Arbitration Is Not a Tool for Thieves

The Supreme Commercial Court has ruled, roughly, that arbitration must not be used to cheat your business partners.

Rona Ltd entered into an agreement with Svarschik Ltd for the purchase of metal mesh and paid an advance, but did not receive the product. The parties went to arbitration which resulted in a settlement agreed by both sides, ordering Svarschik to hand over its hangar to Rona as compensation.

In court the plaintiff, then a shareholder of Svarschik, claimed that the debt was created to get round the rule which requires the shareholders’ consent for the sale of company’s property. The arbitration clause was signed by the director of Svarschik who was also the sole owner of Rona Ltd.

It is not surprising that the Justices of the Supreme Court took the side of the plaintiff, what is baffling is that the lower courts did not.