I. FACTUAL BACKGROUND AND CONTENT OF THE APPLICATION
The complicated factual background which gave rise to the present decision was as follows. Two Spanish construction companies (Bauen and Marbau) entered into a contract with two Moroccan companies (Noche Partners and Les Palmes de LAtlas) for the construction by the former of a turnkey project in Morocco in which the latter companies were the developers. The parties submitted to arbitration to be held in Morocco.
The developers had to provide the contractors with a provision and the latter in turn had to provide a bank guarantee to ensure the proper performance of the contractual obligations they had assumed. In this way, La Caixa – hereinafter Caixabank S.A. – issued a first demand guarantee to Noche Partners for the correct performance of the commitments arising from the real estate development contract.
In view of the serious breaches by the developers, which prevented the work from being carried out, and after the failure of amicable negotiations, a claim was brought before the Moroccan Arbitration Court, which issued an arbitral award basically declaring that the contractor had not breached the works contract and therefore refused to order it to pay any compensation, and declared the termination of the contract for reasons attributable to the company Les Palmes de LAtlas and ordered the latter to pay compensation to Marbau. When the arbitral award became final, it began to be enforced in Morocco.
Consequently, the relationship underlying the bank guarantee had been declared terminated, without any liability for the guaranteed entities. However, although the construction companies did not owe any amount since the contract had been terminated for reasons attributable to the developers, the latter approached Caixabank to demand payment of the guaranteed sum. Caixabank replied that as it was not a party to the arbitration proceedings, it was not appropriate to cancel the guarantee, unless the arbitral award was recognised in Spain, or it was ordered by the competent authority to suspend or cancel the guarantee.
In this situation, the two Spanish construction companies filed what they formally called a claim for recognition of the arbitral award rendered in Morocco, but in reality they were only seeking an interim injunction related to the aforementioned award, which was already being enforced in Morocco and not in Spain. In this sense, they were suing Caixabank, requesting the Court, in the plea of the claim, exclusively the adoption inaudita parte, on the basis of art. 733.2° LEC, of a precautionary measure against the aforementioned financial institution consisting of issuing an injunction to the same to refrain from making any payment, enforcement action or reimbursement against the guarantee referred to above.
Once the claim had been filed, the Legal Adviser for the Administration of Justice issued a Measure of Organization requesting that the constitution of the procedural relationship be corrected. The plaintiffs filed a pleading stating that the recognition was not directed against the defendant in the arbitration, since the award was already being enforced in Morocco, but against Caixabank, insofar as the termination of the contract had effects on the bank guarantee that had been provided at the time and which was therefore subject to Spanish jurisdiction, and for this reason the guarantor entity was brought into the proceedings, insofar as the award implied the termination of the underlying contractual relationship. The Legal Adviser for the Administration of Justice did not transfer the claim to Caixabank and proceeded to inform the reporting Judge.
II. REFLECTIONS ON THE CONTENT OF THE ORDER
- Dismissal of the application and consequently refusal of the interim measure which is the subject of the proceedings
The Chamber dismissed the plaintiffs’ claims on a number of grounds, but all of them stemmed from the fact that the application was not seeking recognition in Spain of a foreign arbitral award, but only an interim measure of protection in relation to a Moroccan award, the enforcement of which was already underway in the country where it had been rendered. In other words, the plea of the application for recognition focused exclusively on the request for the interim measure. In this sense, it must be made clear that we are not dealing with a case of application of the provisions of Art. 54.2 of the Law on International Legal Cooperation in Civil Matters (LCJIMC) when it establishes that “the adoption of precautionary measures may be requested, in accordance with the provisions of the Law on Civil Proceedings, to ensure the effectiveness of the judicial protection sought”, since we are not dealing with a case in which the precautionary measure is requested to ensure the effectiveness of the recognition procedure. Likewise, we are not in the presence of a process in which the recognition in Spain of a precautionary measure adopted abroad is requested, specifically in the framework of an arbitration carried out in Morocco.
In addition to the above-mentioned basic reason, the Chamber essentially put forward the following grounds for rejecting the claim: the court in question lacked jurisdiction to decide the case and the procedural relationship was ill-constituted in that the claim was directed against someone who had not been a party either to the original contract or to the arbitration in Morocco, and the requirements of the necessary passive co-consortium had not been taken into account.
- Lack of jurisdiction of the Chamber before which the application for recognition was brought
The objective competence to decide on the recognition of foreign arbitral awards is determined by Article 73.1°.c) LOPJ (Judiciary Act), which attributes it to the Civil and Criminal Divisions of the High Courts of Justice of the Autonomous Communities. Territorial jurisdiction is regulated in Art. 8.6 LA.
In the present case, the Chamber, being aware that it is not really dealing with an application for recognition of a foreign award but exclusively with a ruling on the adoption of an interim measure, rightly considers that it lacks objective jurisdiction to decide the case, since it would only have such jurisdiction if it were dealing with a genuine application for recognition.
Likewise, when it comes to controlling its territorial jurisdiction, the Chamber applies art. 52 LCJIMC, and not art. 8.6 LA. Certainly the solutions of both precepts are relatively coincident, but from the moment that the Chamber, which must control its jurisdiction ex officio on the basis of paragraph 4 of the aforementioned article, appreciates that it is not faced with the recognition of a foreign arbitral award, it is coherent to control territorial jurisdiction in accordance with the provisions of the International Legal Cooperation Act and not with the provisions of the Arbitration Act. However, in this case, regardless of which provision is applied, the lack of territorial jurisdiction of the judicial body seems clear since the domicile of the bank against which recognition is sought and to which the effects of the foreign award also refer is domiciled outside the Autonomous Community of Madrid.
In this respect, we must bear in mind that by means of recognition, the foreign award has its effects in Spain. In addition to his, our system, which traditionally used to practice a model of extension of effects (1), but now it is clearly enshrined in Article 44.30 LCJIMCI. Consequently, it is not possible to recognise in our country effects of the foreign decision not provided for therein, and in the present case the award rendered in Morocco, and which was already being enforced in that State, did not provide for the adoption of a precautionary measure such as that requested in the application for recognition.
On the other hand, although as we have already pointed out we are not dealing with a case of application of Art. 54.20 LCJIMC, it should be remembered that when precautionary measures are requested to ensure the effectiveness of the recognition procedure, the competent court to grant them is not the court that decides on the said procedure but the court of the place where the foreign decision must be enforced, or failing that, of the place where the measures requested are to be effective. This is a solution repeatedly accepted by the case law in decisions such as ATS Civ 9 October 2001 (2) , 27 November 2001(3), 29 January 2002 (4), 28 May 2002 (5) and AAP Balearic Islands 3a 4 November 2008 (6), and which currently has some support in Art. 8.3 LA, although it is true that this precept refers to interim measures related to any arbitration award and not only to those issued abroad.
- Incorrect constitution of the procedural relationship, in that the claim for recognition has been directed against a party who has not been a party to the foreign arbitration.
In the aforementioned Order, it is held that the procedural relationship giving rise to the same was wrongly constituted, since the claim was directed against a third party (a guarantor of the contract) and not against those who were party to said contract. In this sense, it goes on to state that it is necessary to analyse the passive standing and therefore determine who should be a party to the recognition proceedings and concludes that “in the present proceedings it will necessarily have to be those who were party to the same contract”. The Chamber interprets that when article 54.3 of the LCJIMC states that “The claim must be directed against the party or parties against whom the foreign judicial decision is sought to be enforced”, it confers on the claimant the right to choose from among the parties the one against whom it wishes to enforce the effectiveness of the award, but the provision cannot allow the party to be substituted by a figure alien to the original contractual relationship, such as the guarantor, and vetoing the participation of those who were bound by the contract and therefore a party in the strict sense of the word.
n this regard, he argues that there is a situation of passive litisconsortium, which makes it necessary to call to the recognition proceedings the parties concerned, i.e. those who were party to the contract, and in general those to whom the Court’s decision could cause prejudice. Finally, it concludes that the legal-procedural relationship is not properly constituted as those who were party to the award whose recognition appears to be sought have not been sued, although this is not in fact the object of the claim. These assertions of the Chamber deserve some critical considerations.
Beforehand, and although it is a purely tangential question, it must be said that the entities claiming recognition unquestionably have, as the order itself states, the “legitimate interest” required by art. 54.1° of the Law on International Legal Cooperation in Civil Matters to be able to bring such a claim; in other words, their active legitimisation cannot be called into question.
When addressing the issue of standing to sue, the Chamber confusingly understands at some points that those who were party to the original contract, which subsequently gave rise to the arbitration in Morocco, must necessarily be parties to the proceedings, and at other points maintains that “the legal-procedural relationship is badly constituted, as the plaintiff … dispenses with the summons to the proceedings of those who were party to the arbitral award whose homologation appears (as this is not in fact the central object of the claim) to be sought”. In other words, it seems to use the concepts of party to the original contract and party to the award interchangeably, on the understanding that by the latter it means party to the arbitration proceedings. This assimilation is inadmissible, since it refers to two different situations and we can find cases in which, having been a party to the contract, the party in question does not participate in the arbitration.
Certainly, Art. 54.30 LCJIMC is imprecise and uses not very technical terms when it defines the passive standing in the procedure for recognition of foreign decisions (7) . It seems clear that the application for recognition can be directed against any person who has been a party to the proceedings that have given rise to the foreign decision, and this has been pointed out in case law (8). But much more complex is the situation of the person who, having participated in the original contract, has not subsequently been a party to the arbitration proceedings arising out of that contract. The imprecise and generic terms of the aforementioned Article 54.30 can give rise to extensive and somewhat daring interpretations. For example, in doctrine it has even been stated that the defendant in the recognition proceedings “must be a person against whom recognition can reasonably be invoked … (= person who has been a party in the State of origin or a person affected to a greater or lesser extent by the foreign judgment)” (9). From this perspective recognition could be sought against a person who, having been a party to the original contract, was affected to some extent by the foreign arbitral award.
However, this last thesis, although very suggestive, must be taken with great caution and its application must be very punctual, since it may end up involving in the recognition persons who are not very close to the original procedure, it may give rise to situations of defencelessness that favour the refusal of recognition or at least give rise to invoking this problem and in general it is a solution that suffers from imprecision and may favour legal insecurity. In this sense, it seems more reasonable to uphold a more balanced argument that the applicant for recognition can raise his claim “against those whom the foreign decision authorises him to do so” (w). In the present case, the arbitral award rendered in Morocco does not authorise the claim against Caixabank, which did not take part in the arbitration and even in the original contract merely provided a guarantee.
As regards the existence of a possible necessary passive litisconsortium, we must start from the premise that Article 54.3 LCJIMC allows the applicant for recognition to limit its claim to one or part of the persons against whom it can be directed on the basis of the provisions of the decision issued abroad (11), therefore, it is not obliged to address itself against all of them. Consequently, it cannot be said, as the order now under discussion does, that those who were party to the original contract must necessarily be party to the recognition proceedings. This assertion is not admissible insofar as the claimant in the arbitration may not be obliged to sue all those involved in the contract and, having obtained a favourable award, is not obliged to direct the recognition in Spain against all those ordered to pay in the same or against all those who were party to the arbitration. On the other hand, Art. 54.3°, despite its imprecise and vague terms, does not allow the recognition procedure to be brought against a person who was a mere guarantor of one of the contracting parties.
III. FINAL CONSIDERATIONS AND PROPOSED SOLUTIONS
The Order commented on is quite correct in the final solution it arrives at of rejecting the plaintiffs’ claim. Indeed, it is not possible to bring proceedings for recognition of a foreign arbitral award when all that is being requested of the Chamber is the adoption of an interim measure of protection. In fact, the application was not really bringing an action for recognition, but merely seeking an interim measure of protection in relation to a Moroccan award, the enforcement of which was already under way in the country where it had been made.
However, the arguments put forward by the Chamber in support of its decision occasionally deserve some critical clarification. It is correct in its position, and in the way it justifies it, with regard to its lack of objective and territorial jurisdiction. On the contrary, although the Chamber correctly rules that a party who was merely a guarantor of one of the contracting parties cannot be brought into the recognition proceedings, it tends to use the concepts of party to the original contract and party to the award interchangeably, which is inadmissible. Likewise, it does not seem correct, in the light of Article 54.3 LCJIMC, to maintain the existence of a situation of necessary passive litisconsortium, which obliges those who were party to the original contract to be parties to the recognition proceedings.
In this case, the position of the two Spanish companies was very complicated given the risk that the existence of the first demand guarantee and the behaviour of the two Moroccan entities implied for them, but the approach of this demand for recognition did not make sense. We do not know the terms under which the guarantee was constituted and for this reason what we are going to say from now on may be somewhat adventurous. We believe that the Spanish companies had three possibilities: the first was to enter into an amicable negotiation with Caixabank in which the Moroccan award would be used as an argument. The second possibility would be that, given that we must remember that first demand guarantees are characterised by their autonomy and abstraction, in such a way that the guarantor waives the right to discuss the incidents of the contract whose performance it guarantees, we could argue that, taking into account the intrinsic nature of this type of guarantee, any procedure in which an attempt is made, either principally or accessorily, to link the effectiveness of the guarantee to the termination of the underlying contractual relationship is doomed to failure.
The only possibility to stop the execution of the guarantee would be by means of a possible main procedure in which, based on the conditions of the guarantee contract itself, the scope and validity of the guarantee could be discussed. But this would necessarily require a very precise knowledge of the terms under which the guarantee was provided. A third option would be, apart from the Moroccan procedure, the vicissitudes of which we do not know, to file an exequatur in Spain against the developer companies requesting, as a precautionary measure, either to require CaixaBank not to pay the guarantee on first demand, or to seize the bank assets of the developer companies into which the amounts guaranteed by CaixaBank must be paid. Both possibilities lead to the same result, although the former could encounter difficulties due to the inherent characteristics of stand-alone guarantees.
See publication (only in Spanish): The application for the adoption inaudita parte of an interim measure as the subject matter of an application for recognition of a foreign arbitral award
JOSÉ LUIS IRIARTE – Senior Legal Counsel
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