Admissibility of a claim before a court of law in cases involving a breach of an arbitration agreement
Rights of the defence and fair trial
Weighing of interests
RULING Nº 311/08
30 of May of 2008
Official recognition of courts of arbitration makes it possible, where there are enforceable rights, for the parties to a conflict to choose to make use of them in accordance with the provisions of an arbitration agreement. Proceedings of this type are similar to legal and procedural cases.
The drawback to assigning authority to a court of arbitration through an arbitration agreement is that this prevents a judicial settlement of a dispute.
Arbitration is an example of the constitutional principle of self-determination in that it ensures that private freedom of action can be properly exercised, contributing to its implementation in the specific field of legal relations.
Yet implementation of this principle cannot be entirely separated from legal aspects relating to the constitutional protection of other rights and values, which would also seem, on the face of it, to apply to the situation in question and are liable to conflict with the results of an arbitration procedure.
In the face of conflicting demands, it is possible to arrive at an arrangement in line with the Constitution only by weighing up the interests at stake in a manner in keeping with the actual circumstances of the case.
The Court was asked to rule on the constitutionality of an interpretation of the Code of Civil Procedure whereby the breach of an arbitration agreement was considered to render a claim before a court of law inadmissible, even though the party attempting to institute judicial proceedings had insufficient resources (and therefore required legal aid) and the dispute was over certain acts which may have been the cause of this situation. This had prevented the Court from ruling on the case and had meant that no judgment had been handed down.
A language training centre had brought proceedings in a court of first instance against another centre of the same type and a consultancy and marketing firm. It had lodged two claims: firstly, it had applied for the first defendant to be ordered to pay it the sum owed as the result of the illegal termination of the franchise agreement and unpaid rent under a leasing agreement signed between the applicant party and certain third parties (for the purposes of establishing the training centre to which the franchise agreement related); secondly, it had requested that both defendants be ordered to pay it the sums owed in connection with work and refurbishments carried out on the premises which had been sublet (in which the applicant had set up the centre to which the franchise agreement related).
It had been found in this case that it had been impossible for the applicant to pay legal costs as it did not have sufficient resources. To exercise its right of access to the courts and hence to defend its rights and interests, it had been entitled to legal aid, which it had actually been granted in full in the context of proceedings it had brought before a court of law. However, the applicant, which had actually become the defendant in these proceedings, had challenged the authority of the Court on the ground that an arbitration clause had already been negotiated, and demanded that it be fully implemented.
Given that no provision was made for legal aid to be granted in the courts of arbitration, the strict application of this agreement would have made it impossible for the applicant to appoint a legal representative. The conflict derived precisely from the fact that it was impossible simultaneously to uphold both of these constitutionally protected rights, namely freedom of negotiation, reflecting the principle of self-determination, whose binding effects must be observed without fail, and the principle of effective judicial protection.
There were two possible solutions to this conflict of rights, which were mutually exclusive. Either the arbitration agreement was applied, in which case justice would be denied to one of the parties because of its financial difficulties, or it could be considered that in order for this party to be given proper legal protection, the jurisdiction of the Court of law had to be recognised. The latter solution, however, meant denying the effectiveness of what had been freely agreed to under the arbitration agreement. In cases of this type, account could be taken of the interest that had been sacrificed only by pinpointing the circumstances of each case and attributing "compelling reasons" to the protected interest.
All the factors to be weighed in the balance in this case tipped the scales in favour of the second solution described above. When an arbitration agreement was negotiated, it was not some abstract aspect of self-determination that was at stake but the very practical matter of the way of implementing this principle, and this implementation was linked to the fact that the agreement assigned authority to a court which did not form part of the judicial system. This specific means of putting freedom of negotiation into practice could not be said to have anything to do with the personal fulfilment of individuals. It did not therefore fall within the sphere of self-determination, for which "maximum protection" had to be provided.
The judgment went on to state that the court of arbitration's decision-making power, although based on the parties' desires, did also have a clear institutional dimension and was subject to conditions and restrictions deriving from national law. The freedom to negotiate an arbitration agreement, which was reflected by the granting of authority to a court of arbitration, did not come about all on its own. For it to work properly, the way in which the latter court administered justice had to be entirely consistent with the way in which a court of law operated, otherwise it could not offer equivalent safeguards. It was for this reason that, during proceedings before courts of arbitration, it was essential to abide by fundamental procedural principles, whose infringement constituted grounds for invalidating any decision taken by the Court. This also meant that clauses in arbitration agreements establishing arbitration procedures which failed to secure legally prescribed procedural guarantees had to be completely prohibited.
Consequently, the Constitutional Court found that the way in which the rule in question had been interpreted was unconstitutional.