First instance decision
On September 14 2010 the Barcelona Court of Appeal issued a ruling in a case concerning the evaluation of the validity of a submission to arbitration and the application of the UN Convention on Contracts for the International Sale of Goods and the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
In 1994 Spanish company 1994 Continental Distribution, SA signed a distribution agreement with US company Guess Inc. This agreement established that the goods would be delivered to Guess Inc's warehouses. Three years later, Italian company Macco Apparel, Spa subrogated itself in the agreement, and on July 14 1997 it entered into a distribution agreement with Continental. The parties established in this agreement that the UN convention would be the applicable law, and that any disputes arising from their agreement would be settled by arbitration before the Arbitration Commission of the Paris Chamber of Commerce (ACPCC). A dispute between the parties arose and, according to Continental, when it intended to resolve the dispute before the ACPCC it was unable to do so, as the ACPCC Rules of Arbitration in force on that date required that at least one of the parties be French. As none of the parties are French, on October 2 2001 Continental filed a claim against Apparel before the Villafranca Court of First Instance (Continental's headquarters was located in Villafranca).
Continental argued that the UN convention was applicable, and that it led to the application of the Brussels Convention. The ruling referred sometimes to the Brussels Convention and sometimes to the EU Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (44/2001). However, as the claim was filed by Continental on October 2 2001 and EU Regulation 44/2001 entered into force on March 1 2002,(1) this regulation should not have been considered in this dispute, as the Brussels Convention was applicable at that time.
Article 5.1 of the Brussels Convention sets out that a contractual claim against a foreign party may be filed in the place where the obligation on which the contract is based has been or must have been fulfilled, according to the relevant contract. In the case of sales of goods, the obligation on which the contract is based is that of the delivery of the goods. Article 30 of the UN convention establishes that the place of delivery will be the place specified in the contract. However, it seems that the claimant understood that the Brussels Convention referred not to the place of delivery of the goods, but to the place in which the respondent should have fulfilled its obligations; on that basis, the claimant argued that the Villafranca court was competent.
Apparel filed a plea for lack of jurisdiction, arguing that:
- the ACPCC Rules of Arbitration had been amended on June 14 2005 and the current rules did not establish a certain country requirement for the parties; hence, the dispute should be settled through arbitration as agreed by the parties; and
- even if the dispute were not to be resolved by arbitration, the Villafranca court was not competent because the place of delivery of the goods was Florence. According to Apparel, the Florence court therefore had jurisdiction.
The Villafranca Court of First Instance declared that it had no jurisdiction to solve the dispute, given that the parties had signed an arbitration clause. This decision appears reasonable as, in accordance with the widely recognised principle of competence-competence, a court should not decide whether an arbitral tribunal is competent, since this decision can be taken only by the arbitral tribunal itself.
Continental appealed the court's decision before the Barcelona Court of Appeals. It argued that:
- the ACPCC Rules of Arbitration of June 14 2005 could not be applicable as they were not in force at the time of filing the claim on October 2 2001; and
- since the place where Apparel had to fulfil its obligations was Villafranca, the Villafranca Court of First Instance was competent.
As for the first point, the appeal court established that the rules governing the arbitration were those which were in force when the first claim was filed (October 2 2001), as this was the moment when the effects of litis pendens (suit pending) took place. This meant, therefore, that the amended ACPCC Rules of Arbitration could not be taken into consideration. As the rules in force on October 2 2001 established a nationality requirement, the appeal court concluded that the dispute could not be resolved by means of arbitration. However, it should be highlighted that the litis pendens effect cannot be extended to other disputes that may arise between the parties, and that in this event, the parties must resort to arbitration (not the courts) as agreed in the contract.
As for the second point, the appeal court considered that the provision of the 1994 agreement, which specified the place of delivery, was not superseded by the 1997 agreement. Moreover, the court declared that the Spanish Civil Code stipulates that the place of delivery of the goods is the place where the seller is located. Therefore, the place of delivery of the goods was still Florence and, in accordance with Article 5.1 of the Brussels Convention, the Florence courts were competent to hear the dispute. However, given that the parties had agreed that the UN convention was the applicable law, it seems that the provisions of the Spanish Civil Code should not have been invoked in this case.
In light of the circumstances, the ruling of the Villafranca Court of First Instance was reasonable. After all, it is the arbitral tribunal itself which should decide whether it is competent, and its potential decision not to resolve a specific dispute does not affect its competence to resolve subsequent disputes between the parties.
For further information on this topic please contact Félix J Montero at PEREZ-LLORCA by telephone (+34 91 436 04 20), fax (+34 91 436 04 30) or email ([email protected]).