Spanish court confirms validity of asymmetric dispute resolution clauses

The Madrid Court of Appeal has, for the first time, upheld the validity of a hybrid jurisdiction clause.¹ In light of recent decisions which have created doubts over the validity of such cases, this decision, together with the English High Court's decision of 2013, is welcome.²

Asymmetric dispute resolution clauses

Asymmetric dispute resolution clauses (also referred to as unilateral, split or hybrid clauses) typically provide that either:

• one party (usually the weaker party) can only commence proceedings in one particular court but the other party can commence proceedings in any competent court; or
• one party has the right to choose between litigation or arbitration, but the other party can only litigate or arbitrate (so for example, the clause provides for exclusive jurisdiction of English courts but Party B has the unilateral right to refer the dispute to arbitration).

Facts

The respondent objected to the jurisdiction of the Spanish court based on the asymmetric dispute resolution clause in the contract. This provided that disputes should be resolved either in arbitration in The Hague under the Arbitration Rules of the Netherlands Arbitration Institute or in the Dutch courts of 's-Hertogenbosch. The claimant claimed that the jurisdiction clause was invalid and that the dispute could be heard by the Spanish courts.

The Court of First Instance held that the jurisdiction clause was valid. It refused to accept that the Spanish court had jurisdiction on the basis that the contract did not provide for the Spanish courts as a forum to resolve the parties' dispute. The claimant appealed the decision.

Court of Appeal decision

The Madrid Court of Appeal upheld the decision of the lower court. It held that Spanish law did not prevent the parties from agreeing to combine arbitration with other dispute resolution processes which it considered to be in line with international practice. It also held that arbitrators can consider claims related to breaches of EU Competition law, such as those brought by the claimant.

Comment

Although the decision in the Madrid Court of Appeal confirms that it is possible for parties to agree in advance to hybrid clauses that provide for both litigation and arbitration, it is important to be aware that other jurisdictions may take a different approach. Caution should be exercised whenever such hybrid clauses are considered. Always take local advice and consider whether the benefits of using such a clause outweigh the risks. In addition, careful drafting is essential and the wording of the clause must be decisive, clear and unambiguous.

Please click on the links below for the other articles in the April 2014 Arbflash:

• The impact of corruption on the ability to arbitrate
• Procedural fairness when a respondent fails to participate: the English High Court decision in Interprods -v- De La Rue
• The Indian Supreme Court decision in World Sport Group: fraud allegations referred to arbitration
• Joining a non-signatory to an arbitration: Singapore High Court judgment in The Titan Unity (No.2)
• Intervention by the courts: the Chief Justice of the Supreme Court of Western Australia quashes an award for lack of procedural fairness
• International news
• New JCAA Rules

_{¹ Madrid Court of Appeal decision, Auto no. 147/2013 of 18 October 2013.}

_{² See our briefings: Asymmetric dispute resolution clauses: proceed with caution and Asymmetric jurisdiction clauses valid as a matter of English law.}