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International Arbitration Report Madrid Update: Res Judicata As Applied To Arbitral Awards

by Calvin Hamilton� and Eva M. Vázquez

Monereo, Meyer & Marinel-lo Madrid, Spain

A commentary article reprinted from the August 2007 issue of Mealey’s International Arbitration Report

MEALEY’S International Arbitration Report

Vol. 22, #8 August 2007

Commentary Madrid Update: Res Judicata As Applied To Arbitral Awards By Calvin A. Hamilton and Eva M. Vázquez

[Editor’s Note: Calvin A. Hamilton is a partner with the firm Monereo Meyer Marinel-lo, Abogados, Madrid and heads the arbitration department. He is admitted to the New York and the Madrid Bar. Eva M. Vázquez is an associate with the firm and practices in the arbitration department. She is admitted to the Madrid Bar. Copyright 2007 by the authors. Replies to this commentary are welcome.] The subject of this month’s analysis is Spanish Supreme Court Decision no. 881/2006 (Civil Matters, Section 1) of 22 September (RJ 2006\8646). This judicial decision addresses the problem of the defense of res judicata in relation to an arbitral award that rejected a claim for damages for lack of evidence. The Plaintiff took the matter to court, pleading the nullity of the arbitration agreement that had given rise to the arbitration proceedings between the parties. The Defendant, in his Answer to the Complaint, entered a plea of res judicata, basing his objection on the fact that these claims had already been considered and dismissed by the arbitral tribunal which had previously heard the case. The Court of the First Instance dismissed the complaint brought, upholding the Defendant’s plea of res judicata and acquitting the Defendant of all claims brought against him. The Plaintiff then appealed to the Provincial High Court, which decided to uphold the appeal in this case insofar as the claim for damages was concerned,

ruling that the Defendant should be ordered to pay such sum as might be set by way of damages in execution of the decision. The Defendant now filed an appeal to quash the decision of the Provincial High Court, an appeal that is examined in the decision reviewed below. We shall confine ourselves here to the ground for quashing the decision, insofar as it refers to the plea of res judicata. The Appellant based his appeal on a breach of Article 37 of the 1988 Arbitration Act (Ley de Arbitraje), whereby any matter decided in an award rendered by duly appointed arbitrators under the Act is final and has the effect of res judicata. In the present case, the designated arbitrators were asked to decide: whether the current Appellant would have to reimburse the claimant for any penalties that the latter might have had to pay to the purchasers of dwellings for delay in delivery; and, at the time of making the award, whether the amount due by way of damages had already been paid. Proof of this was not produced by the claimant, and he was thus barred from bringing a claim at a future date in respect of the same item, since he had failed to plead this fact before the arbitral tribunal, which, unaware that the penalty had already been paid, went on to make its award -an award that by now was final. The third legal reason cited in support of the decision under review concluded that the first ground pled was of a formal nature, inasmuch as the plea of res judicata had been re-entered pursuant to Article 37 of the Arbitration Act of 5 December 1988. This defense plea 

Vol. 22, #8 August 2007

had already been accepted by the Lower Court in its decision, thereby leading to the Defendant’s acquittal at this instance, without the court’s considering the substantive issue in dispute. This same plea was then rejected by the decision of the High Court, which turned to rule on the substantive issue, with said Defendant continuing to argue that the award made by the arbitral tribunal (to which the litigants had submitted under the pertinent arbitration agreement) had in fact already settled the matter. The Supreme Court allowed this plea, without troubling to consider the remaining grounds. It thus quashed the decision of the High Court and confirmed that of the Lower Court, which had handed down a correct decision, on holding that: “In accordance with said Article 37, the plea of res judicata was applicable, since the issue had been decided in the nonjudicial settlement of the matter, i.e., in arbitration. Acting in its capacity as the body vested with jurisdiction (in lieu, by agreement between the parties, of the courts of justice, albeit with the same power of decision as the latter), the arbitral tribunal settled the claim brought in these proceedings, ruling, inter alia, on the point examined here, yet, as will be seen, rejecting the order sought against the Defendant for lack of evidence.” On its perusal of the arbitral award, the Supreme Court concluded that, in accordance with the brief submitted to the arbitral tribunal, the award had, inter alia, settled the matter relating to the “claim for compensation to purchasers of apartments for delay

MEALEY’S International Arbitration Report

in delivery of keys.” The Court further concluded that the tribunal had indeed ruled on the point, stating in this respect that, “without prejudice to the fact that said damages (claimed from the vendor as compensation for such delay) might arise at any given time due to possible claims from purchasers by reason of an equally possible delay or lateness in contractually agreed delivery of keys,” this was nevertheless a merely hypothetical eventuality, which flew, per se, in the face of settled case law on the issue of damages. For such an action to prosper, case law teaches that evidence of the reality of the damage is required, and that mere hypotheses or conjectures do not suffice. The Supreme Court thus concluded that, “by virtue of the above, and without prejudice to the fact that the above-mentioned damages might possibly arise in the future, the Appellant’s said claim must be dismissed as improper for this specific reason.” From this, the Supreme Court determined that the arbitral tribunal had indeed ruled upon the matter laid before it with respect to the damage caused, and had dismissed this claim for lack of proof. Accordingly, once a tribunal’s award becomes final (no action being brought to have it set aside), any dismissal by said tribunal is likewise final with respect to the point submitted for decision, constitutes res judicata, and so bars said point being raised again. An arbitral tribunal’s decision is final and leaves no possibility of a subsequent claim being brought in the courts. Where a claim is dismissed, it is thus rendered unrepeatable, as would indeed be the case with any other proceedings in such matters before the ordinary courts, proceedings for which arbitration is a substitute of identical status and effectiveness. n

Arbitration and the Fisc: NAFTA’s ‘Tax Veto’ by William W. (Rusty) Park Professor of Law at Boston University Vice President, London Court of International Arbitration Arbitrator, Claims Resolution Tribunal for Dormant Accounts in Switzerland

A case of note reprinted from the May 2001 issue of Mealey's International Arbitration Report.

© Copyright 2001 Mealey Publications. All rights reserved. Reproduction strictly prohibited without written permission.

MEALEY'S International Arbitration report edited by Edie Scott The Report is produced monthly by

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MEALEY’S ™ A commentary article reprinted from the August 2007 issue of Mealey’s International Arbitration Report by Calvin Hamilton and Eva...

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