International Arbitration Report Madrid update: Spanish Courts Have The Authority, Ex-Officio, To Nullify Arbitration Agreements Where Neither Party Has Challenged The Validity Of The Arbitration Agreement In Cases Where Consumer Protection Is Involved — Genner Spain S.L. v. Enrique [Audencia Provincial de Madrid (Sección 20a) Auto núm. 73/2008 de 13 febrero]
by Calvin A. Hamilton HAMILTON Madrid, Spain
A commentary article reprinted from the December 2008 issue of Mealey’s International Arbitration Report
MEALEY’S International Arbitration Report
Vol. 23, #12 December 2008
Commentary Madrid update: Spanish Courts Have The Authority, Ex-Officio, To Nullify Arbitration Agreements Where Neither Party Has Challenged The Validity Of The Arbitration Agreement In Cases Where Consumer Protection Is Involved — Genner Spain S.L. v. Enrique [Audencia Provincial de Madrid (Sección 20a) Auto núm. 73/2008 de 13 febrero] 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 concerns a decision by the Madrid Court of Appeals in Genner Spain S.L. v. Enrique. Genner Spain S.L. sought to enforce an arbitral award granted in its favor in June of 2006 by AEADE (Asociación Europea de Arbitraje). However, in this instance the lower Spanish court refused to enforce the arbitral award based on a finding that the arbitration clause was null. As a result, Genner Spain filed an appeal of this decision before the Madrid Court of Appeals. In its opinion, the appellate court noted that in evaluating these types of appeals, the central question to consider is inherently linked to the authority and discretion vested in courts of law with respect to arbitral award enforcement. The specific question was, whether or not a court of law has the authority to nullify an arbitration agreement or clause when neither of the parties to the arbitration has sought to challenge the agreement itself.
First, the appellate court analyzed its implied responsibility derived from both the Spanish Arbitration Act of 20031 and Rules of Spanish Civil Procedure,2 which in essence prohibit courts from adopting a passive attitude when it comes to the judicial oversight of arbitral awards. On the other hand, the court noted that the aforementioned rules do not require judges to review the merits of the award, prior to enforcing or nullifying an arbitral award. Second, the court acknowledges that Article 41 of the Spanish Arbitration Act grants courts the authority to nullify an arbitral award in instances where: 1) one of the parties is not notified of the selection of an arbitrator, the arbitral proceedings, or has been unable to defend its claim; 2) the subject matter of the arbitration is not capable of settlement under the laws of Spain or; 3) the award is contrary to public policy. However, while the court understood its authority under Article 41, it was not clear whether it had the power to examine the validity of an arbitration agreement, when neither of the parties had challenged it during the appeal, nor during the actual arbitration proceedings. The court then noted that based on its own precedent, it lacked the power to examine arbitration agreements in these instances. However, the court argued that modern jurisprudence and legislative developments concerning consumer protection required it to distin1
MEALEY’S International Arbitration Report
Vol. 23, #12 December 2008
guish cases involving arbitration agreements between consumers and business entities, because consumers lack the power of negotiation and access to information. The court discussed the legislative trend in the European Union for consumer protection alluding to both the Spanish Consumer Protection Act3 and the European Union Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. Article 6(1) of the Council Directive 93/13/EEC reads in relevant part: “Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.” As a result, the court found that it did have the authority to examine arbitration agreements involving consumers and nullify agreements deemed to be “abusive” where neither party has challenged the validity of the arbitration agreement. The court here held that the arbitration clause contained within the contract between Genner Spain S.L. and Enrique was null and abusive in nature. Aside from being an adhesion-type agreement, it prohibited the consumer from seeking recourse in traditional courts, arbitration institu-
tions which cater to consumers and also required the consumer to defend in a jurisdiction distant from his residence. The Madrid Court of Appeals dismissed the appeal, thus confirming the lower court’s decision to deny the enforcement of the arbitral award granted to Genner Spain S.L. Practitioners should take into account the special legislative protection afforded consumers. This decision highlights that in arbitrations involving consumers and unfair contract terms, courts may nullify the arbitration agreement and deny enforcement of an arbitral award, even in instances where nullification was never sought by the parties. The consumer legislation is peculiar in that in most other circumstances the courts would not be able to nullify arbitration agreements where the parties have not sought nullification of the same.
La Ley de Arbitraje de 23 de diciembre de 2003.
La Ley de Enjuiciamiento Civil.
La Ley 26/1984, de julio 19, General para la Defensa de los Consumidores y Usuarios. 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.
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Published on Dec 20, 2010