March 11 2010
Article 45.1 of the Arbitration Law (60/2003) provides that "an award is enforceable even if an action has been brought to set it aside". However, case law has established a number of requirements with regard to the enforcement of arbitral awards which are not final and binding. Moreover, Article 44 of the law establishes that awards must be enforced in accordance with the Civil Procedure Law and are therefore subject to the rules and requirements of civil procedure.
In a case on the framework of enforcement proceedings of an arbitral award, Madrid Court of First Instance 74 declared the award unenforceable. The case dealt with the distribution of inheritance assets between five heirs. The inheritance assets were mainly shares in companies which the heirs already controlled. Due to disputes between the heirs, they decided to divide the inheritance by allocating the shares among themselves and entered into an arbitral agreement to resolve the situation. However, the final decision in the award was vague and inaccurate - neither the assets nor the company shares were well identified and their value was unclear.
The heirs' claims concerned the division of the inheritance assets in order to distribute them between themselves. However, the award dealt only with the transfer of the company shares and made no mention of the title of the holder or the shares' value. The heirs requested clarification of the award, but the court decision failed to clarify the matter.
An action to set aside the award was initiated and subsequently dismissed by the Madrid Court of Appeal. However, within the framework of the enforcement proceedings, the award was declared unenforceable as it did not accurately identify the different aspects of the division of the inheritance. Madrid Court of First Instance 74 accepted the motion opposing the February 20 2006 decision. The appeal court stated that:
"in accordance with the terms of the award it is not possible to divide the inheritance and therefore the award cannot be enforced… the purpose of the annulment proceedings is to avoid every possible effect of the award or to consider it as nonexistent, whereas the opposition to the enforcement only affects the enforcement proceeding without any impact on the validity of the award. Validity and effectiveness of the award is a different thing from its enforceability. The reason why in this case the award is not enforceable is not related to the fact that this award has the effect of res iudicata, thus it will be necessary to take it into account in future proceedings."
A court judgment may contain three types of relief or pronouncement: declaratory relief, constitutive relief or sentencing pronouncement. In a declaratory pronouncement the court declares the existence of a given situation (eg, the jurisdiction of a court); a constitutive pronouncement creates a situation (eg, the termination of a contractual relationship); and a sentencing pronouncement orders someone to do something (eg, to pay another person a given sum).
The first instance court considered that the award included declaratory relief, but not condemnatory relief. According to Article 521 of the Civil Procedure Law, declaratory and constitutive relief are unenforceable; only obligations to pay or perform duties are subject to court enforcement. Article 559.1.3 of the Civil Procedure Law also states that an award that includes no condemnatory relief is unenforceable. It therefore appears that in this case the award was unenforceable.
The award included declaratory relief on the inheritance and required the parties to comply with certain obligations in the future. Thus, to obtain condemnatory relief and therefore a successful court enforcement in this case, it would have been necessary to determine accurately the moneys and assets to be distributed between the heirs.
Article 708 of the Civil Procedure Law regulates how to enforce relief in cases where the court orders a party to issue a declaration of assent. Such situations are especially relevant under Spanish law, as certain contracts must be granted before a notary public in order to have full effect. This is the case in the transfer of real estate and corporate participations in limited liability companies. This issue was dealt with by the Barcelona Court of Appeal in a June 2 2008 decision in which the stakeholders of a limited liability company decided not to vote on a resolution to reduce company capital despite having previously agreed thereto. The arbitral tribunal ordered the defendant to issue the appropriate declaration of assent in order to grant a public deed for capital reduction to amend the company stake.
The following three issues were presented to the Barcelona Court of Appeal under Article 708:
With regard to third-party interventions in enforcement proceedings, Article 538.2.3 of the law provides that it is possible to commence such proceedings against a party which is not the debtor, but the title holder of the assets directly affected by the judgment. However, the Barcelona Court of Appeal failed to apply this rule; rather, it considered that the stakeholder's intention and assent were derived from the company's intention, as its vote adhered to the company decision. This argument takes into account case law - in particular, a February 10 1992 Supreme Court decision which stated that an agreement reached in a contractual framework by all shareholders was binding on the company.
The Barcelona Court of Appeal considered that a preliminary contract or a contract to be incorporated in a notarial deed was not necessary in order to apply Article 708. The court considered that the award, imposing a reduction in the company's capital had to be considered as sufficient, given that it was (i) rendered within the framework of an arbitral proceeding to which all stakeholders were a party, and (ii) based on an agreement entered into by all parties. In addition, the award established the essential elements of the declaration of intent.
Finally, the court did not consider the order to issue a declaration of assent to be of a personal nature. Shareholders may delegate their votes and thus their voting rights cannot be considered as personal.
The Barcelona Court of Appeal found that a declaration of assent can be replaced by the court in enforcement proceedings, provided that all the essential elements of the obligation are contained in the award, under Article 708. This is irrespective of the possibility of enforcing personal obligations contained in a judgment by means of assigning a financial value to such obligations if the party sentenced by the judgment refuses to perform them.
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