The jailing of an arbitrator for contempt of court in a ‘highly unusual’ case following the intervention of a foreign government highlights the need for arbitrators to be ‘alive to risk’ of potential breaches of process, experts have warned.
Dr Gonzalo Stampa has been sentenced to six months in prison after being found guilty of contempt by the criminal court in Spain. He was also banned from practising as an arbitrator for one year for knowingly disobeying rulings and order from the Madrid High Court of Justice.
Stampa was found guilty of contempt for his role as arbitrator in an international contract dispute which centred on an alleged breach of contract against the government of Malaysia.
The Madrid High Court of Justice issued an order that annulled Stampa’s appointment as arbitrator and all his procedural actions after it was found Malaysia had been improperly summoned.
Stampa moved the case to a Parisian court and eventually awarded $14.9 billion to the claimants, descendants of a former sultan.
The Madrid Criminal Court found Stampa had deliberately acted with the aim of preventing the Madrid annulment order from becoming effective.
Litigation funder Therium, based in the UK, is said to have funded the claimant’s case.
In a press statement, Malaysia said it welcomed the ruling as a ‘significant victory for the rule of law that will help preserve the sanctity of international arbitration as an alternative form of dispute resolution’.
International arbitration specialist Tsegaye Laurendeau, a partner at Signature Litigation, said the case was ‘highly unusual’. He added: ‘Given its historical, legal and even political ramifications, this is a complex matter warning against any definitive conclusions. That said, the optics are not good for Madrid’s continuing perception as a safe seat for international arbitrations. The Spanish courts are seen to be intervening in an ongoing arbitration and issuing direct instructions to a sitting arbitrator. If nothing else, this is highly unusual.’
Leigh Crestohl, partner at Zaiwalla & Co, told the Gazette the case raises important questions including the need for ‘abritrators to be alive to possible risks’. He added: ‘It is a complex case with a long history but, speaking of the issues generally, there are a couple of competing issues that arise. One is, at one level, what do you do when you’re an arbitrator and feel there may be undue attempts to intimidate or intefere in the arbritration process by a state or court locally in the place of the arbitration.
‘Another issue is around funding. Litigation funders do a lot of due diligence. It is important, because when you’re a funder you’re in the position of an investor in the claim and looking for a return in the investment means getting an enforceable award. The interesting issue around the funder is what is the responsibility of the funder if it is going to get involved in a massive claim like this.’
Crestohl added that changing seats during an arbitration does happen. He said: ‘The criminal law of the state [in Stampa’s case] was being used as remedy to try to extinguish what is percieved as, on one level, a sham case. It is very rare, but the [arbitration] process is open to abuse. Rather than rely on state power or the power of the seats, arbitrators have to be alive to possible risks, they must look for red flags and where necessary be enquiring and investigating something that is a concern.’
