Arbitration of corporate disputes

Bernardo M Cremades
B Cremades & Asociados, Madrid
bcremades@bcremades.com

One of the most innovative and impactful initiatives of the Arbitration Committee of the International Bar Association, also known as Committee D, has been the establishment of the International Arbitration Day. This event is hosted annually in a different location across the world, offering a unique opportunity for legal experts from diverse cultural backgrounds to come together and discuss issues relevant to the field of international arbitration.

In 2002, I presided over the fifth International Arbitration Day in Brussels, where the focus was squarely on the arbitration of corporate disputes. Back then, essential issues such as (i) whether the arbitration of corporate matters was legal and admissible, and (ii) if so, what unique challenges it posed, were topics of debate in our respective countries. 

The aftermath of this event was nothing short of spectacular, with its agenda serving as a guide for future discussions. The different sessions of the event covered, inter alia:

(a)    legislative restrictions on the right of public companies to enter into arbitration agreements;
(b)    whether all types of corporate disputes can be subject to arbitration;
(c)    specific issues concerning the validity and scope of the arbitration clause, such as (i) the validity and scope of arbitration agreements contained in bylaws or in private agreements, and (ii) who has the authority to bind a corporation to arbitration;
(d)    extension of the arbitration clause to non-signatory corporations or individual claimants or respondents; and
(e)    issues concerning decisions of arbitral referees on urgent corporate matters.

At the time, the central issue in the background revolved around the nature of corporations and whether they were a product of contractual agreements or the result of an intricate web of social relations. Professor Pilar Perales had aptly observed that discussions on corporate arbitration inevitably invoke the concepts of social interest, public order, the acceptance by third-parties, and the mandatory nature of certain regulations.¹ Over time, the view of corporations as a product of contract gained prominence, paving the way for corporate arbitration under two scenarios: 

(a)    when the bylaws contain an arbitration clause; or 
(b)    when the parties enter into an agreement to submit the dispute to a neutral third-party adjudicator.

With the recognition of the possibility of corporate arbitration, it was understood that any controversy involving matters that are freely negotiable under the law are capable of resolution by arbitration. Consequently, discussions on the topic shifted from the admissibility of arbitration in corporate matters to the limits of its application in relation to specific disputes. It was generally agreed that the following corporate disputes could be resolved through arbitration: 

(a)    the transfer or assignment of shares or interests; 
(b)    restrictive clauses on transfer of shares or interests; 
(c)    the removal of directors and officers from their roles and related severance disputes; 
(d)    issues pertaining to executive compensation; 
(e)    the civil liability faced by directors and officers; 
(f)    matters related to voting rights, including those related to voting agreements and the syndication of shares; 
(g)    the distribution of dividends or other benefits to stakeholders; and 
(h)    the valuation of shares.

The concepts discussed by Professor Perales have been featured in a range of topics, encompassing, but not limited to the following: the challenge of social contracts, the annulment of corporate entities, the process of capital contributions and the distribution of passive dividends, the dissolution of corporations, and the protection of minority shareholders. These issues have been at the forefront of our discussions since the International Arbitration Day in Brussels in 2002.

Corporate arbitration has sparked intense debates, often placing conventional commercial law scholars in opposition to progressive advocates of arbitration as a means of resolving corporate disputes. For instance, in my country, Spain, the possibility of including an arbitration clause in corporate bylaws was called into question. This matter escalated to the point where arbitration advocates had to argue for the admissibility of such clauses before the Directorate-General for Registries and Notaries at the Ministry of Justice. The controversy reached the Supreme Court and subsequently the Constitutional Court, which consistently upheld the legal viability of corporate arbitration. 

In 2011, the Arbitration Law in Spain was amended to introduce a new article—11bis—that legitimised statutory arbitration and clearly established its regulatory framework. Article 11bis states that (i) corporations may submit international disputes to arbitration, (ii) an arbitration clause in the corporate bylaws requires approval by votes corresponding to at least two-thirds of the company’s share capital; and (iii) corporate bylaws can stipulate that challenges to corporate decisions by shareholders or administrators are subject to the decision of one or more arbitrators, with the administration of the arbitration and the appointment of arbitrators delegated to an arbitral institution.

This development in the arbitration of corporate disputes in Spain has recently culminated with a landmark ruling by the Constitutional Court which established the legitimacy of including clauses for equity arbitration in corporate bylaws.² The judgment validates arbitral awards that uphold claims of abuse of rights and discrimination which could warrant the dissolution and liquidation of a company. Furthermore, the Constitutional Court has clarified that an arbitrator operating on the basis of equity is not strictly bound by the bylaws or statutory laws that govern corporations.

The 2002 International Arbitration Day in Brussels marked a pivotal moment in the field of corporate arbitration, serving as a catalyst for the recognition of corporate arbitration across the world. I have presented an example of what I consider to be the impact of this event in Spain, and I am certain legal professionals from other countries can share similar experiences. It is important to remember that during the act of sowing, we may not immediately recognise the long-term significance of the seeds we scatter. Their impact usually becomes apparent only over time.

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1 Pilar Perales Viscasillas, Arbitrabilidad y Convenio Arbitral (2005), 189.
2 STC Judgment of 15 February 2021.