It has been stated that one of the reasons why parties to an arbitration submit their disputes to a panel of three arbitrators, is to ensure objectivity. The principle of collegiality in arbitration is no longer a fleeting or passing fancy. An arbitral Tribunal therefore has an obligation to deliberate, before rendering an award. If there was ever any doubt about the implications of failing to comply with this time-honoured doctrine in arbitration, such doubt was dispelled in the recently concluded case between the Spanish company, Estudio 2000 S.A. ("Estudio") and respondent Puma AG Rudolf Dassler Sport (Puma). In this case, the Court emphasized once again that well thought out decisions and equal treatment, remain the fulcrum of the arbitral process. The underlying premise of collegiality as a fundamental component of the arbitral procedure; and the fact of its absence, or abuse, forming the basis of annulment of proceedings, was emphatically highlighted.
On August 6, 2009, Estudio, a former Spanish distributor of Puma apparel, initiated an ad hoc arbitration against a Puma subsidiary. Estudio sought €250 million in damages following Puma's refusal to renew a distribution contract.
A conflict arose after the hearing at a panel deliberation on May 31, 2010 when, in addressing the quantum of damages, Puma's Appointee disagreed with the other Arbitrator's on the Panel, over the amount of compensation Estudio should be entitled to. Further panel discussions were then put on hold as Puma's Appointee had scheduled travel for the beginning of June.
Aware that Puma's Appointee was travelling, the other Arbitrators reconvened deliberations without him, and issued a formal arbitral award on June 2, 2010, without his knowledge or consent. Puma's Appointee was notified of the Arbitrators' decision on that same day at 9:11 pm Spanish time, by email.
The arbitrating parties did not request an expedited decision and, under the rules in place, the arbitral award did not have to be issued until July 4, 2010, over a month later.
On June 10, 2011, Puma obtained an annulment of the arbitral award before the Twenty-Eighth Judicial District of the Provincial Court of Appeal of Madrid (la Sección 28 de la Audiencia Provincial de Madrid).
In a subsequent arbitration that followed, the initial €98 million award against Puma was reduced to €42 million and Puma commenced a civil liability claim against the Arbitrators shortly thereafter.
On September 20, 2013 the Court of First Instance No. 43 of Madrid (el Juzgado de Primera Instancia No. 43 de Madrid) determined that each of the Arbitrators was liable to pay Puma €750,000 (Puma's entire portion of the fees paid to the Arbitrators during the arbitration) plus interest and costs.
On October 27, 2014, the Eighth Judicial District of the Provincial Court of Appeal of Madrid (la Sección 8 de la Audiencia Provincial de Madrid) dismissed the Arbitrators' appeal, setting the stage for a further appeal by the Arbitrators to the Spanish Supreme Court.
In addition to €1,500,000 plus interest and costs, personal reputations were at stake. The panel chair in the initial arbitration was a former Vice President of the Comisión Nacional del Mercado de Valores (the Spanish Securities and Exchange Commission) and Estudio's appointee at the initial arbitration was the sitting president of the Madrid Court of Arbitration at that time.
In upholding the decision of the Eighth Judicial District of the Provincial Court of Appeal of Madrid, the Supreme Court on March 7, 2017 held that the actions of the Arbitrators, amounted to a violation of the principle of arbitral collegiality and, additionally, a breach of arbitrator duty under Article 21 of the Spanish Arbitration Law.
Article 21.1 of the Spanish Arbitration Law, which is based on the UNCITRAL Model Law on International Commercial Arbitration, provides:
. . . acceptance obliges the arbitrators and, where appropriate, the arbitral institution to comply faithfully with their responsibilities, being, if they do not do so, liable for damage and losses caused by bad faith, recklessness or willful misconduct. In arbitrations entrusted to an arbitral institution, the injured party may take direct action against said institution, regardless of the remedies that such institution may seek against the arbitrators. [Emphasis added]
The Supreme Court held that while it is theoretically possible that two or more arbitrators may, depending on the circumstances, exclude others when discussing certain aspects of an arbitration; the conduct the Arbitrators engaged in; when they determined and issued the arbitral award without the participation, consent, or knowledge of Puma's Appointee, was unacceptable.
The Supreme Court found it significant that there was no objective need for the Arbitrators to act as they did, considering that an arbitral award was not required (and the parties had no expectation of receiving one) until over a month after it was hastily issued on June 2, 2010. The Supreme Court also considered as important, the fact that Puma's Appointee had not unilaterally attempted to obstruct, prejudice, or otherwise negatively affect the proceedings or outcome in any way.
This decision has certainly sent shock waves around the international arbitration community, particularly regarding the direction by the Court to the Arbitrators to refund the fees paid to them – with interest and costs.
The issue of want of collegiality, as discussed in the Puma case, is not a novel one. In Sweden, for example, the absence of a proper deliberation on contentious issues, has been relied upon as a ground for annulment as early as 1924 (see Årsbackaträvaruaktiebolag v. E. Hedberg, NJA 1924 p. 569). More recently, the award in Czech Republic v. CME was challenged, though unsuccessfully, on the basis of the alleged exclusion of an arbitrator from the deliberations (Svea Court of Appeals, Case no T 8735-01). The case revolved around an investment dispute concerning a bilateral investment protection treaty which was settled by arbitration in Stockholm, Sweden. Subsequently, one of the parties challenged the award and requested that the Svea Court of Appeal should declare the award invalid or, alternatively, set aside under the Swedish Arbitration Act, on amongst others; whether one of the arbitrators was excluded from the deliberations. The Court however found as a fact that the arbitrator received all essential communications and was given due time to submit his comments. The chairman had a responsibility to issue the award without unnecessary delay. The allegations therefore that the arbitrator was excluded from the deliberations were considered to be unproven and groundless.
In France, the Court de Cassation considered the principle of collegiality in a similar context in the case of Papillon Group Corporation vs. Arab Republic of Syria and others; decided in 2011. In this case, the Court de Cassation held that given that the Paris Court of Appeal had found that a collegial meeting had taken place and that the third arbitrator had had an opportunity to voice his opposition through a dissenting opinion, the presumption that the arbitral award was rendered after deliberation, had not been refuted by the challenging party. As such, the Court de Cassation held that the Paris Court of Appeal was right in concluding from these elements that there had not been any violation of the principle of collegiality described by it as "suppose[ing] that every arbitrator has the right to debate any decision with his colleagues" (Decision n° 706, F-D, R 09-17.346, 29 June 2011).
While the rules applicable by any given Court when faced with such a scenario remains unclear, it can be argued that collegiality is an implied right of the parties derived from their right to be heard and their right to equal treatment. The decision in this case has understandably generated mixed reactions. It must be borne in mind however that this case is not merely that of two members disagreeing with the views of a third member. It is the complete disregard of the third member's views, and the total denial of the opportunity of having those views form part of the deliberation leading up to the eventual award.
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