Issuu on Google+

MEALEY’S™

International Arbitration Report Madrid Update: A Party In A Proceeding Does Not Waive The Right To Arbitration Under A Valid Arbitration Agreement By Responding With Substantive Pleadings In A National Court Proceeding [Tribunal Supremo (Sala de lo Civil, Sección 1a) Sentencia núm. 1219/2007 de 14 noviembre]

by Calvin A. Hamilton

HAMILTON Madrid, Spain

A commentary article reprinted from the September 2008 issue of Mealey’s International Arbitration Report


MEALEY’S International Arbitration Report

Vol. 23, #9 September 2008

Commentary Madrid update: A Party In A Proceeding Does Not Waive The Right To Arbitration Under A Valid Arbitration Agreement By Responding With Substantive Pleadings In A National Court Proceeding [Tribunal Supremo (Sala de lo Civil, Sección 1a) Sentencia núm. 1219/2007 de 14 noviembre] By Calvin A. Hamilton

[Editor’s Note: Calvin A. Hamilton is founding partner with the firm HAMILTON, Madrid and heads the arbitration department. He is admitted to the New York and the Madrid Bar. The author would like to acknowledge the contributions to this comment of Gabriela M. Torres Benitez, Juris Doctor, CWSL 07. Copyright 2008 by Calvin A. Hamilton. Replies to this commentary are welcome.] This month’s comment examines a decision handed down by the Spanish Supreme Court (Civil Chamber, Section 1)1 in Limber, S.A. v. Cutisin, A.S. This controversy arose out of a distribution contract entered into on August 15, 1990 between Cutisin, A.S., a Czechoslovakian2 company and Limber, S.A. a Spanish company. Article VII of the distribution contract between the parties provided that disputes arising out of the distribution contract would be governed pursuant to Czechoslovakian law and resolved in conformity with the rules of the arbitration tribunal of the Prague Chamber of Commerce. Despite the presence of an arbitration clause in the initial contract, Cutisin, A.S. filed a small claims complaint against Limber, alleging breach of contract in the Court of First Instance of El Prat de Llobregat3 requesting that the court, among other things, legally rescind the distribution contract between the parties without Limber’s right to indemnification against Cutisin. Limber, S.A. responded to the complaint

claiming improper jurisdiction, asserting that the dispute should be submitted to arbitration proceedings as previously agreed under the contract. Furthermore, Limber, S.A. submitted a legal defence and filed a counterclaim against Cutisin claiming monetary damages for the early termination of the contract. The Court of First Instance rendered a judgment and dismissed the jurisdictional challenge of Limber, S.A., stating that in responding to the initial complaint and raising a counterclaim, Limber, S.A. effectively waived its right to arbitration and consented to the jurisdiction of a conventional court. As parts of its decision the court did rescind the distribution contract and ruled on monetary damages for both Cutisin and Limber. On appeal the judgment and rationale were affirmed by the Barcelona Court of Appeals.4 Limber, S.A. filed an appeal of this decision before the Spanish Supreme Court. The Spanish Supreme Court ruled in favor of Limber, thus quashing the lower court decisions on the grounds that Limber’s counterclaim and defence were filed “ad cautelama.”5 The lower court decisions were thus overturned and the dispute was submitted to arbitration proceedings. In its analysis the Court alluded to Spain’s adoption of the New York Convention, specifically Article II.1 which states that: 1


MEALEY’S International Arbitration Report

Vol. 23, #9 September 2008

“Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not, concerning a subject matter capable of settlement by arbitration.”6 The Court gave great weight to Spain’s obligations under both the New York Convention and pursuant to the European Convention on International Commercial Arbitration, stating that said supranational governing regulations take precedence over arbitration agreements created under the National Arbitration Act7 when issues of enforcement, validity and breadth are concerned. The Court also mentioned Article II.3 of the New York Convention noting that: “The court of a Contracting State, when seized of an action in a matter in respect of which parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”8 Furthermore, the Court relied on its own jurisprudence in similar cases where it held that when a party submits substantive pleadings (answer, counterclaim, defence, etc) in a national court proceeding, it does not waive its right to arbitration, so long as, said party expressly raises its objection to conventional court jurisdiction.9 The Court emphasized that both parties validly executed and signed the distribution contract that provided for an arbitration clause. Furthermore, there was no evidence that either of the parties suffered incapacity at the time of signing or that the arbitration agreement was invalid under any legal principles or against public policy. The Court argued that finding any other conclusion to this case would be contradictory to its own jurisprudence, to the doctrines contained in the Spanish Arbitration Act of 1988, and incongruent with the principles of maximum efficacy which stem from the New York Convention and the 2

European Convention on International Commercial Arbitration. Practitioners in the area of international commerce should carefully draft an arbitration agreement in order to ensure the agreement’s legitimacy if questioned before a conventional court. Furthermore, if called to submit substantive pleadings before a conventional court, practitioners should file said pleadings “ad cautelam” to avoid waiver of the right to arbitration. Importantly, the “ad cautelam” claim must be raised at the onset, when the answer is filed. The Spanish Supreme Court decision in this case is significant because it evidences the intensifying importance, weight and deference being afforded to international commercial arbitration agreements and arbitration generally by the national court system. This movement is likely to continue as companies privy to cross-border agreements opt for arbitration to resolve international commercial disputes.

Endnotes 1.

Tribunal Supremo (Sala de lo Civil, Sección 1a).

2.

On January 1, 1993 Czechoslovakia was divided into two countries, the Czech Republic and Slovakia. Cutisin is a Czech Republican company.

3.

El Juzgado de Primer Instancia Numero 2 de los de El Prat de Llobregat.

4.

Audencia Provincial de Barcelona (Seccion Decimosexta); Sentencia en fecha 11 de octubre de 2000 (PROV 2001, 22689).

5.

Meaning, as a precautionary measure in the event that the jurisdictional challenge was thrown out.

6.

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958.

7.

Formerly, Ley 36/1988, de 5 de diciembre (RCL 1988, 2430 Y RCL 1989,1783 replaced by the current arbitration Act known as, Ley 60/2003, de 23 de diciembre (RCL 2003, 3010).


MEALEY’S International Arbitration Report

8.

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958.

9.

See, Calvin A. Hamilton & Fiona Borthwick, Madrid Update: Submission of Arbitration As a Dec-

Vol. 23, #9 September 2008

linatory Exception, 22-12 Mealey´s Int´l Arb. Rep. (2007). Discussion of Supreme Court judgment no. 897/2007 (Civil Branch, Section 1), of July 16 [RJ 2007\4975] also discussed by the Spanish Supreme Court in this decision. n

3


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


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 Joan Grossman The Report is produced monthly by

1018 West Ninth Avenue, 3rd Floor, King of Prussia Pa 19406, USA Telephone: (610) 768-7800 1-800-MEALEYS (1-800-632-5397) Fax: (610) 962-4991 Email: mealeyinfo@lexisnexis.com Web site: http://www.lexisnexis/mealeys ISSN 1089-2397


2008_09