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MEALEY’S™

International Arbitration Report Madrid Update: The Intention Of The Parties Over The Formal Requirements For The Arbitration Agreement

by Calvin A. Hamilton and Guillermo Cano Guerrero

HAMILTON Madrid, Spain

A commentary article reprinted from the March 2010 issue of Mealey’s International Arbitration Report


MEALEY’S International Arbitration Report

Vol. 25, #3 March 2010

Commentary Madrid Update: The Intention Of The Parties Over The Formal Requirements For The Arbitration Agreement By Calvin A. Hamilton and Guillermo Cano Guerrero

[Editor’s Note: Calvin A. Hamilton is an International Arbitrator, founding partner with the firm HAMILTON, Madrid, and heads the arbitration department. He is admitted to the New York and the Madrid Bar. Copyright 2010 by Calvin A. Hamilton and Guillermo Cano Guerrero. Replies to this commentary are welcome.] This month’s comment concerns a decision by the Madrid Court of Appeals1 relating to a landlordtenant dispute, initially resolved through arbitration at equity. The request for arbitration was filed by the co-owners of a house against the tenant for nonpayment of rent. The award issued by the Spanish Economic Arbitration Court2 ordered the tenant to pay the rent due. The Respondent-Appellant filed an application before the Madrid Court of Appeals to set aside the award. The claim was based on two motivations. First that the arbitration agreement was invalid. Second, that the award violated public policy. The scope of this comment will focus on the invalidity claim. The Defective Arbitration Clause

The Respondent-Appellant argued that the arbitration agreement was invalid because it did not meet the requirements as set forth in Article 9 of the Spanish Arbitration Act (The Act) of 2003 which states that “The arbitration agreement, which may take the form of a clause written into a contract or separate agreement, must express the will of the parties to submit to arbitration all or certain disputes which have arisen or may arise from a

contractual or otherwise legal relationship.” The arbitration agreement at issue, contained no stipulation as to the types of disputes to be resolved by arbitration. In addition, the said agreement contained no stipulation as to whether the arbitration would be resolved at equity or at law; nor had the parties agreed upon an arbitral institution. Respondent-Appellant concluded that she had been denied her due process rights. The Madrid Court of Appeals expressed that, although a strict reading of the arbitration agreement reveals missing formal elements, the interpretation of the same unequivocally confirms the existence of a valid arbitration agreement. Although the agreement failed to define those disputes subject to arbitration, it was evident that the agreement covered disputes which arose from the rental contract. Furthermore, although the agreement did not mention the specific court of arbitration, there were three key factors present which resulted in a valid submission of the dispute to the Spanish Economic Arbitration Court. The Interpretation Of The Clause And The Pro-Arbitration Approach Of The Spanish Courts

First, the Court reasoned that a defective arbitration agreement is curable. This position is in line with the pro-arbitration approach of the Spanish Courts, and takes into account, the freedom of contract. The Court reasoned that the will of the parties was to subject the dispute to arbitration before the Spanish Economic Arbitration Court, since neither party had

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Vol. 25, #3 March 2010

objected to the arbitration during the proceedings. Article 1282 of the Spanish Civil Code, states that, for purposes of contract interpretation, the express conduct of the parties should be taken into consideration. Based on the above, the Court concluded that Respondent-Appellant intended to be subject to arbitration before the Spanish Economic Arbitration Court because it filed an answer and failed to object to the jurisdiction of the Arbitration Court. Failure To Object In The Answer To The Request For Arbitration

Second, article 9.5 of the Act expresses that a valid arbitration agreement exists when the parties exchange pleadings and where one party affirms the existence of the agreement and the other party does not raise an objection. Here, the Respondent-Appellant filed an answer without raising an objection to the validity of the arbitration agreement. This point is crucial because the law focuses on the will of the parties over technical and formal requirements for the arbitration agreement. Allegation Of Invalidity Precluded

Third, the Court concluded that Respondent-Appellant was precluded from alleging the invalidity of the arbitration agreement. Article 6 of the Act states, “Where a party is aware of the non-compliance with any provision of this Act or any requirement of the arbitration agreement but does not state its objection within the period provided or, in the absence of such a period, as soon as possible, it shall be deemed to have waived the rights of legal challenge provided for in this Act.”3 Article 22.2 of the Act stipulates that the objections relating to the existence or validity of an arbitration agreement, must to be raised (unless there is a justifiable reason for not doing so) at the moment of the filing the answer. Objections cannot be brought after this moment, certainly neither during the procedure, nor during a motion to set aside the award. In this case, the Respondent-Appellant was precluded from raising the objection because it waited to do so during a motion to set aside the award. The Active Participation In The Arbitral Procedure

Pursuant to the theory of estoppel, a party is prevented from making allegations or denials which contradict previous acts or statements. Thus, the Court reasoned 2

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that in the instant case Respondent-Appellant acted in a manner that could only be interpreted as having acquiesced to arbitration, given that she participated in all aspects of the arbitration procedure without raising an objection. Arbitration In Equity Or At Law

Further, and as previously stated, the RespondentAppellant’s application for setting aside the award relied partly on the argument that the arbitration agreement did not specify whether any dispute would be resolved at equity or at law. Specifically, Respondent-Appellant mentioned this issue in the context of article 41.1(a) of the Act which states that, “An arbitral award may be set aside only if the party making the application alleges and proves that the arbitration agreement does not exist or is not valid”).4 The Court however reasoned that while pursuant to art.34.15 of the Act (“The arbitrators shall decide ex aequo et bono only if the parties have expressly authorised them to do so”) the arbitrator should have decided at law, an award pronounced in equity, when it should have been pronounced at law, can only be set aside under article 41.1(d), which states that “The award may be set aside only if the party making the application alleges and proves that [. . .] the arbitral procedure was not in accordance with the agreement of the parties [. . .]”. Respondent-Appellant failed to raise this argument in its motion for setting aside the award. The Court’s opinion was that Respondent-Appellant’s failure to make the appropriate argument when filing the motion to set aside, precluded it from analyzing whether the award was null for having been pronounced in equity and not at law. The afore stated reflects the very formalistic Spanish approach to pleading before the Court. Set Aside Rejected

The Court rejected the motion, declaring that the award could not be set aside, despite the failure to rigorously satisfy the formal requirements of the arbitration agreement. The Court is to be applauded for its clarity of arguments and thought in this decision. There are three very clear reasons pronounced by the Court: the existence of a curable clause consistent with the “pro arbitration” attitude of the Spanish Courts; the doctrine of estoppel since Respondent-Appellant actively participated in the arbitral proceedings; and preclusion of the argument of


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the invalidity of the agreement for failure to timely raise the argument. With these arguments one may conclude that the unequivocal intentions of the parties in an arbitral proceeding are more important than the formal requirements for the arbitration agreement. The Arbitration procedure is conceived to be more flexible than the ordinary jurisdiction, not withstanding the formal requirements of the arbitration agreement. The intention of the parties to resolve their conflicts by arbitration to the exclusion of the ordinary courts is a tenet of the Spanish Arbitration Law.

Vol. 25, #3 March 2010

2.

Asociación Corte Española de Arbitraje Económico de Derecho y Equidad.

3.

Art. 6 Ley 60/2003 de Arbitraje “Si una parte, conociendo la infracción de alguna norma dispositiva de esta Ley o de algún requisito del convenio arbitral, no la denunciare dentro del plazo previsto para ello o, en su defecto, tan pronto como le sea posible, se considerará que renuncia a las facultades de impugnación previstas en esta Ley.”

4.

“El laudo sólo podrá ser anulado cuando la parte que solicita la anulación alegue y pruebe que el convenio arbitral no existe o no es válido.”

5.

Art. 34.1 “Los árbitros sólo decidirán en equidad si las partes les han autorizado expresamente para ello.” n

Endnotes 1.

Sentencia de la Audiencia Provincial de Madrid, Sec. 14ª, 3 de marzo 2009.

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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.


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MEALEY’S ™ A commentary article reprinted from the March 2010 issue of Mealey’s International Arbitration Report by Calvin A. Hamilton and G...

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