International. Arbitration Report. Madrid Update: Sole-Option Arbitration Clauses Under Spanish Law MEALEY S

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1 MEALEY S International Arbitration Report Madrid Update: Sole-Option Arbitration Clauses Under Spanish Law by Calvin A. Hamilton and Luis Capiel HAMILTON Madrid, Spain A commentary article reprinted from the August 2010 issue of Mealey s International Arbitration Report

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3 MEALEY S International Arbitration Report Vol. 25, #8 August 2010 Commentary Madrid Update: Sole-Option Arbitration Clauses Under Spanish Law By Calvin A. Hamilton and Luis Capiel [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. Luis Capiel is an associate with the firm and is admitted to the Madrid and the Munich Bar. Copyright 2010 by Calvin A. Hamilton and Luis Capiel. Replies to this commentary are welcome.] Many Spanish bar associations make available a model attorney-client-agreement 1 which is widely used. It often includes the following forum selection clause: In case of disagreement with the invoice amount, the client may choose to bring proceedings before the courts or to challenge the invoice before the Board of Governors of the [xyz] Bar Association, thus submitting to its arbitral decision, which the attorney hereby accepts as binding and agrees to observe and comply with its resolution. 2 This clause confers a unilateral right in favor of the client to opt for arbitration. Such forum selection clauses have been coined as sole-option, 3 asymmetrical, 4 unilateral, 5 or optional 6 arbitration clauses. In contrast to other countries where there is a great deal of case law regarding the validity and operation of sole-option arbitration clauses, 7 Spanish courts have not dealt with the issue until most recently. 8 In 2005 the Madrid High Court had to decide a motion involving an attorney-client agreement including a clause as quoted above. 9 An attorney had requested payment of professional fees from his client, to which the client had opposed invoking a declinatory exception of arbitration (comparable to a motion to stay proceedings and compel arbitration). However, the court did not address the validity of the sole-option arbitration clause rather found that, in any event, an interpretation of the clause did not warrant granting of the motion since from the terms of the clause it can only follow that while the client reserved the right to opt for either forum, nothing obliges the attorney to resort to arbitration to file his claim since the faculty to chose either jurisdiction cannot be considered exclusive if it is the attorney who claims. In 2010, however, in an almost identical attorneyclient case, the Madrid High Court ( the Court ) granted the stay requested by the client by virtue of the declinatory exception based on the sole-option arbitration clause, thus accepting its validity. 10 The attorney had opposed the motion to stay arguing that the clause was not very clear and actually ambiguous, but in no way allows for a change of jurisdiction, rather confers upon the client an option to file suit before the courts or challenge the invoice before the bar association, but the client has not pursued either alternative; moreover, its object would be, exclusively, to determine the invoice s amount, not whether the invoice is actually due. The client also alleged that the clause was not applicable [...] since the attorney has tried one thousand one hundred and fifty times to obtain the client s consent to resolve 1

4 Vol. 25, #8 August 2010 MEALEY S International Arbitration Report their differences by means of arbitration before the bar association. The Court first stated that the attorney, being the drafter of the attorney-client-agreement, was barred from alleging its ambiguity. It went on to explain, that, in any event, the will of the parties to submit the invoice to arbitration before the bar association was clear, with any such dispute not being limited to a disagreement regarding the amount but also regarding whether the invoice is actually due since it is the attorney himself who confers upon the client the faculty to challenge the invoice in case of disagreement with its amount, for which, given the terms in which the clause is drafted and the personal circumstances of the intervening parties, the clause not only includes challenges based on the professional fees being excessive but also on them being undue. The Court sardonically added: Further, since for once the attorney s preferences are fulfilled, considering he insisted on arbitration 1150 times, the motives for his opposition cannot be quite understood. Conclusion In the authors opinion, the interpretation of the sole-option clause in the 2005 decision was the more appropriate. These clauses would seem to afford the client the option to challenge the invoiced amount through arbitration proceedings within the limited scope of a declaratory award determining the amount due (this would be in accord with the bar associations intention when providing this model clause, which does not seem to include the Board of Governors acting as arbitrators in any dispute regarding the merits of the attorney-client relationship). The client could then invoke the declaratory award against any claims in excess of the amount set by the Board of Governors. Most likely, the client could also request a temporary stay of the court proceedings if sued by the attorney before the courts while the arbitral decision is pending. Nevertheless, given the wording of the clause, whatever the personal circumstances alluded to by the Court, it does not seem reasonable that the clause should allow the client to refer to arbitration the attorney s actual action for performance (payment), including issues such as unenforceability of the claim due to statute of limitations, set-off claims, etc. Beyond the issue of the scope of the particular soleoption arbitration clause, what is noteworthy is that for the first time a Spanish Court has examined a sole-option arbitration clause. While the Court did not analyze in much detail the issues relevant to the validity and operation of sole-option arbitration clauses, the Court has not found obstacles to the validity of a sole-option arbitration clause, it has determined that said clause could be invoked by the defendant if sued before the courts, and that it could be so invoked regardless of the defendant s previous attitude (i.e. not to acquiesce to arbitration when asked by the other party 1150 times ). The latter means that the party not favored by the sole-option arbitration clause cannot compel the other party to exercise its option at any given time, but must file suit assuming the risk that the other party will exercise its option otherwise. Of course this situation can be avoided by an appropriate drafting of the arbitration clause. Endnotes 1. Hoja de Encargo. 2. Translations by the authors. 3. Paul D. Friedland, Arbitration Clauses for International Contracts 114 (Juris Publishing 2007). 4. Id. 5. Simon Nesbitt and Henry Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22 Arbitration International 133, 133 (2006). 6. Id. 7. For the US see Paul D. Friedland, Arbitration Clauses for International Contracts 114 n. 256 (Juris Publishing 2007); for England see Simon Nesbitt and Henry Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22 Arbitration International 133, 133 et seq. (2006); for Italy, France, Germany and Australia see id. at 144 et seq. 2

5 MEALEY S International Arbitration Report Vol. 25, #8 August Marco de Benito Llopis-Llobart, El Convenio Arbitral. Su Eficacia Obligatoria 59 (Civitas/ Thomson Reuters 2010); Álvaro López de Argumedo Cláusulas híbridas en el arbitraje Expansión, June 16, Sentencia de la Audiencia Provincial de Madrid (Sección 19ª) nº 534/2005 de 25 de noviembre de Auto de la Audiencia Provincial del Madrid (Sección 12ª) nº 340/2010 de 25 de mayo de n 3

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7 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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