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International Arbitration Report Madrid Update: Arbitral Awards May Be Set-Aside By Spanish Courts In Instances Where The Awards Themselves Are Contrary To Public Policy — This Occurs When Fundamental Rights And Liberties Guaranteed By The Spanish Constitution Are Infringed

by Calvin A. Hamilton

HAMILTON Madrid, Spain

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


MEALEY’S International Arbitration Report

Vol. 23, #10 October 2008

Commentary Madrid Update: Arbitral Awards May Be Set-Aside By Spanish Courts In Instances Where The Awards Themselves Are Contrary To Public Policy — This Occurs When Fundamental Rights And Liberties Guaranteed By The Spanish Constitution Are Infringed 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 studies two distinct cases heard before the Madrid Court of Appeals. In each of these instances the Court was requested to set aside the arbitral awards pursuant to Article 41 of the Spanish Arbitration Act1 on the grounds that they were contrary to public policy. Request to set aside arbitration award as being inconsistent with public policy — Denied (Dona Paula v. Gil Stauffer) [Audiencia Provincial de Madrid (Sección 18a) Sentencia núm. 58/2008 de 13 febrero] Claimant in this case, Mrs. Paula, requested that the Madrid Court of Appeals set aside an arbitral award granted by Madrid’s Transportation Arbitration Board (Junta Arbitral de Transporte de la Communidad de Madrid) issued on November 15, 2006. The Claimant here argued that the arbitral award was inconsistent with public policy because the arbitrator in the matter denied Respondent’s request for the compulsory joinder of other potential

respondents. The Court here denied the request to set aside the arbitral award based on the following rationale. First, the Court first noted that pursuant to Title VII2 of the Spanish Arbitration Act, the Court could set aside the arbitral award on grounds such as: the infringement of constitutional rights; in instances where the award contains decisions concerning matters beyond the scope of the submission to arbitration; in situations where the arbitration agreement is invalid; or where the award is contrary to public policy. However, the Court clearly denoted that it was beyond the Court’s authority to evaluate or correct the arbitrators legal reasoning used in granting the award, for purposes of setting aside the award. The Court did not find Claimant’s arguments persuasive, reiterating that the Claimant in the appeal was also the Claimant in the arbitration. Therefore, it was Claimant who was in the best position to indicate in its initial application for arbitration which parties it felt should have been joined as respondents from the onset. The Court went on to note the failure to join these parties did not constitute a constitutional violation of due process. Moreover, the Court noted, the only consequence from the failure to join the parties is that the other “prospective respondents” are not be bound by the arbitration award. The Court also stated that given the fundamental and voluntary nature of arbitrations, parties not subscribed to 1


MEALEY’S International Arbitration Report

Vol. 23, #10 October 2008

arbitration agreements cannot be joined as parties to arbitrations. Request to set aside arbitration award as being inconsistent with public policy — Approved (Egson Construction v. Canteras y Construcciones S.A.) [Audiencia Provincial de Madrid ( Sección 9a) Sentencia núm. 43/2008 de 25 enero] Claimant in this case, Egson Construcciones requested that the Madrid Court of Appeals set aside an arbitral award granted by an arbitral tribunal appointed by the COAATM (Colegio Oficial de Aparejadores y Arquitectos Tecnicos de Madrid) pursuant to Article 41 (b) and (f ) of the Spanish Arbitration Act, which permits a set aside in instances where: (b) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (f ) the arbitral award is contrary to public policy This arbitration initially arose out of a dispute concerning the construction of a home. During the course of the arbitration proceedings and given that the home was the main object of the dispute, an inspection of the home was requested by Complainant and subsequently ordered by the arbitrator. In this instance, Respondent intervened and refused to allow the property to be inspected. Thus, the arbitrator reached a final decision and issued an award without having inspected the property in dispute. Claimant in the appeal argued that this denied it an opportunity to defend its case, stating that the arbitrator should have compelled Respondent to permit the inspection and failing that, the arbitrator should have sought judicial assistance as permitted by the Spanish Arbitration Act. The Court here noted that for an arbitral award to be deemed contrary to public policy, it must violate the fundamental rights and liberties contained within the Spanish Constitution. According to the Court,

2

Article 24 of the Spanish Constitution protects the right to due process as a fundamental right and the right to obtain evidence for one’s defense falls under due process considerations. As a result, the Court was of the opinion that courts are obliged to protect this fundamental right. The Court found that in failing to compel the evidence or to request judicial assistance3 that the arbitrator in the matter denied Claimant its due process rights of defense. Based on the aforementioned, the Court set the arbitral award aside. Conclusion

Title VII, Article 41 of the Spanish Arbitration Act clearly lists and limits the grounds on which an arbitral award may be set-aside by a traditional court. These are when: 1) the arbitral agreement is invalid; 2) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; 3) the award contains decisions concerning issues beyond the scope authorized to the arbitral tribunal; 4) the appointment of the arbitral tribunal or arbitral procedures are contrary to that agreed to by the parties; 5) the award contains decisions concerning matters beyond the scope of submission to arbitration, and; 6) the arbitral award is contrary to public policy. While, the ability to pursue set-aside procedures is available to parties, Spanish Courts of Appeal scrutinize very carefully the instances in which said remedy is granted in order to not supersede the legitimacy arbitrations.

Endnotes 1.

Ley de Arbitraje de 2003, Ley 60/2003, de 23 de diciembre (RCL 2003, 3010).

2.

Title VII of the Spanish Arbitration Act (Ley de Arbitraje de 2003) deals solely with the set aside and recourse against an arbitral award.

3.

Article 33 of the Spanish Arbitration Act permits arbitrators to turn for judicial assistance in obtaining evidence for use in arbitrations. 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 Joan Grossman, Esq. The Report is produced monthly by

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