Spanish Supreme Court Holds Arbitrators Liable for Breach of Arbitral Collegiality
On 15 February 2017, the Spanish Supreme Court (the Supreme Court) dismissed an appeal brought by two arbitrators against a decision of the lower courts ordering them to pay EUR 1.5 million to the German athletic product manufacturer Puma (Puma) for violating the principle of arbitral collegiality.
This decision by the Spanish Supreme Court arose in the context of a dispute between Puma and one of its Spanish distributors who claimed that Puma had illegally refused to renew its distribution contract. The dispute was referred to arbitration.
Although all the arbitrators agreed that Puma was liable for a breach of the distribution contract towards its distributor, a disagreement between the arbitrator appointed by Puma, on the one hand, and the two other arbitrators, on the other hand, arose concerning the amount of the damages that the distributor should be entitled to.
As a result, the arbitrator appointed by the distributor and the chairman of the tribunal met secretly without notifying this to the arbitrator appointed by Puma. Both arbitrators decided to issue an arbitral award requesting Puma to pay over EUR 98 million to its distributor. The award was notified to the parties as well as to the arbitrator appointed by Puma on the same day.
Puma subsequently obtained the annulment of the arbitral award and a new award was rendered for EUR 42 million.
Puma, however, initiated legal proceedings against the two arbitrators which had ruled against it.
This dispute ultimately ended up before the Supreme Court.
The Supreme Court found that the fact that the two arbitrators had failed to notify to the third arbitrator the existence of the meeting during which they issued the arbitral award against Puma was a breach of the Spanish Arbitration Act.
In particular, the Supreme Court held that both arbitrators should be held responsible for the damages caused as a result of the violation to the parties’ right to an impartial tribunal and to the principle of adversarial proceedings.
More particularly, the Supreme Court said that while arbitral awards could be decided by a voting majority in cases involving a panel of arbitrators, such a decision would still have to be taken pursuant to full deliberation. According to the Supreme Court it was therefore not possible to reach a decision by majority if, in the course of the proceedings, one of the arbitrators had been excluded from the deliberations and the final vote.
At the end of the day, the Supreme Court confirmed the ruling by the lower courts which condemned both arbitrators to pay to Puma EUR 750,000 each (i.e. Puma’s portion of the fees paid to the arbitrators as well as the interests and costs).