In one of the first cases brought under the new Law on Mediation, Conciliation and Arbitration, a court of appeals of the San Salvador district has vacated an award on the grounds that the arbitral tribunal was not legally constituted. The decision deals with interesting issues concerning the developing doctrine of Salvadoran arbitration law and the interplay between the law and the freedom of the parties.
An arbitral tribunal issued an award against a government agency which was the defendant in a contractual dispute. The arbitral clause provided for a three-member tribunal: each party was to appoint one arbitrator, the third arbitrator being appointed by the first two arbitrators. It stipulated that if one party failed to appoint its arbitrator within the specified term, the arbitrator would be appointed by the chief justice of the Supreme Court. One of the requirements was that the arbitrators should have no interest in the matter.
Within the agreed term, the defendant appointed as arbitrator a member of a government committee overseeing its operations. The plaintiff argued that the membership disqualified that person under the arbitral clause, and that the defendant had therefore failed to appoint an arbitrator in the given term. The plaintiff thus filed a request with the chief justice to appoint the arbitrator. The chief justice agreed with the plaintiff, disqualified the defendant's arbitrator and appointed one in its stead.
The arbitration went ahead, but the defendant expressed reservations as to the legality of the tribunal. Following the final award for the plaintiff, the defendant used the only remedy allowed by the new law - that is, the recourse of nullity. Under the law, the grounds for vacating an award must be based on the proper and strict observance of the arbitral clause or public policy. The alleged grounds for nullity of the award were that the tribunal had not been legally constituted, as one of the arbitrators had been appointed by the chief justice exceeding the authority granted by the parties in the arbitration agreement.
El Salvador has a simple and expeditious procedure for vacating an award. The recourse is decided by a civil court of appeals (Cámara de lo Civil).
The court decided that the arbitration agreement had not granted the chief justice authority or power to decide on the qualifications of a party-appointed arbitrator, but merely to appoint the arbitrator in default of the party. Therefore, the chief justice had exceeded the will of the parties in deciding that an arbitrator appointed within the agreed term did not qualify and that the party was thus in default for such appointment. The court also found that the chief justice, when acting as appointing authority, did not do so in the exercise of his legal powers, but of powers granted by the arbitration agreement. Therefore, his authority could not extend beyond the express terms of the agreement. Consequently, the tribunal thus constituted was illegal.
This decision is a crucial precedent in that it recognizes and strengthens the freedom of the parties as a fundamental principle of arbitration in Salvadoran law.
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