In a controversial decision, the Spanish Supreme
Court has annulled an award on grounds that the tribunal was not
properly constituted where an award was made without the presence
or signature of the third arbitrator.
This controversial decision arose out of an ad hoc arbitration
seated in Spain under the UNCITRAL arbitration rules between the
claimant Spanish company Estudio 2000 S.A. (Estudio 2000) and
respondent Puma AG Rudolf Dassler Sport (Puma).
The arbitral award in question was issued on 2 June 2010,
ordering Puma to indemnify Estudio 2000 for the unilateral
termination of a supply contract executed between the parties.
However, the award was issued without the presence and consent of
the third arbitrator, nominated by Puma. The third arbitrator was
in fact traveling at the time, which the other two members of the
As a result, Puma sought annulment of the award before Spanish
Courts, alleging that the award violated public policy and ignored
the Principle of Collegiality (one of the key principles of
arbitration established in article 41 section 1 subsection f) of
the Spanish Arbitration Law).
The Spanish Supreme Court annulled the award on alternative
grounds, namely that the arbitral tribunal had not been properly
constituted at the time the award was rendered. Surprisingly, the
Spanish Supreme Court also ordered the two tribunal members to
reimburse the fees paid to them by Estudio 2000 for issuing the
Professional liability action
Once the award was annulled, Puma commenced a professional
liability action against the two arbitrators who rendered the
award. Article 21 of the Spanish Arbitration Law establishes that
arbitrators that do not faithfully discharge their functions, can
be considered professionally liable for their conduct, if their
actions were carried out with willful misconduct, bad faith or
recklessness. The First instance Court and subsequently the Supreme
Court found the arbitrators to be reckless and were ordered to each
pay Puma € 750,000 plus interest and costs.
The Spanish Supreme Court found that the core of the dispute did
not relate to the fact that the award was rendered without the
presence of the arbitrator or the fact that there was not a
unanimous decision among the arbitrators. In fact, Article 35 of
the Spanish Arbitration Law establishes that if the arbitrators
cannot reach a unanimous decision, the President of the tribunal
will take the final decision.
As the arbitrator designated by Puma did not hinder the process
in any way, nor did he prevent the arbitrators from reaching a
decision (the deadline for the arbitrators to issue the award had
not yet passed) the arbitrators had no justification to issue an
award without the third arbitrator having an opportunity to take
part in the process.
On the one hand this case could be seen as damaging for
Spain's reputation in international arbitration. The
arbitrators' conduct is clearly not of the expected standard
and the Spanish courts have not been quick to deal with the matter
(the First Instance decision being in 2013). However, the fact that
the Supreme Court has made this robust ruling shows that the
Spanish Courts will step in to support arbitration and sanction as
The case may also impact arbitrators' desire to be appointed
in arbitrations seated in Spain if they could be found liable for
their actions. This must however be considered in the context that
complete immunity to suit is generally unavailable in most
jurisdictions and, while findings of liability against arbitrators
are rare, it is likely that the circumstances of this case, which
were particularly extreme, would also lead to liability in
jurisdictions other than Spain.
On 26 October 2016, the Court of Appeal delivered its judgment in Kazakhstan Kagazy Plc & 6 others v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva  EWCA Civ 1036.
With high cost and inefficiency top of the list of party concerns about the arbitral process, institutions, arbitrators, practitioners and indeed legislators are keen to find ways to address those concerns.
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