The parties, The Travelstead Group Spain, S.A. (Travelstead) and USA Sogo Inc. (USA Sogo), had entered into a joint venture agreement which provided for the incorporation of a new company in Spain. The agreement was subject to the laws of Spain and contained a clause conferring exclusive jurisdiction in favour of the Courts of Barcelona. A dispute arose between the parties and Travelstead brought a claim before a District Court in Florida (the Court of Florida), essentially in order to claim punitive damages, a remedy which is not available in the Spanish legal system. The Court of Florida stayed the proceedings, giving effect to the choice of the Courts of Barcelona, and referred the parties to litigate there. USA Sogo subsequently initiated proceedings before the Court of First Instance of Barcelona (the Court of Barcelona), claiming damages on the basis of Travelstead's breach of its obligation to litigate in Barcelona. The damages claimed included the attorneys' fees and travel expenses incurred by USA Sogo to defend the case in Florida, which were not recoverable before the Court of Florida.

The Court of Barcelona dismissed USA Sogo's claim, on the grounds of a distinction between procedural provisions on the one hand, and economic/commercial provisions of the contract on the other, holding that damages were recoverable only for a breach of provisions falling in the second category.

The jurisdiction clause belonged to the first category. Breach of the jurisdiction clause would therefore not give rise to right to damages since the economic/commercial content of the contract would not be deemed infringed. This ruling was confirmed by the Court of Appeal of Barcelona.

The Supreme Court took a different approach to the case and overturned the previous rulings. It found that a jurisdiction clause is binding between parties and that its procedural nature does not excuse the parties from the obligation to comply with it. The Supreme Court laid down the principle that the breach of any obligation, irrespective of its procedural or economic/commercial nature may give rise to damages. In particular, it took into consideration the fact that the jurisdiction and the choice-of-law clauses had been decisive for the parties to enter into the contract, and therefore their breach could amount to frustration of the purpose of the contract. The Supreme Court also highlighted the fact that Travelstead had purposefully breached the clause, as it was aware that the parties had explicitly chosen the courts of Barcelona.

The Supreme Court found that the costs which USA Sogo incurred in defending the proceedings before the Court of Florida were the consequence of Travelstead's breach and USA Sogo was therefore entitled to be compensated for them.

This judgment raises the following question: would the same conclusion apply if the clause breached was an arbitration agreement? In our view, the answer should be affirmative. There are no reasonable grounds to contend that an arbitration agreement should be treated differently from a choice of jurisdiction clause. Both jurisdiction and arbitration agreements require the parties to resolve their disputes before one specific forum (positive effect), and prevent the parties from bringing proceedings before other fora (negative effect).

Therefore, an arbitral tribunal with its seat in Spain could, applying this ruling, order a party to pay the damages caused to the other party as a consequence of having breached the arbitration agreement and having improperly initiated proceedings before another court, should those damages be not recoverable before the forum inappropriately seised.

Even where damages are partially recoverable before the court improperly seised (as would be the case before the Spanish courts, where only lawyers' or experts' fees are recoverable, but not, for example, travel expenses), the arbitral tribunal could sensibly order the payment of any remaining expenses.

Further questions may arise: for example, could an arbitral tribunal with its seat in Spain give a ruling on damages, even when the court seised in breach of the arbitration agreement determines, unlike the Court of Florida in the case at issue, that it is competent? Such a ruling would be an expression of the kompetenz-kompetenz principle, and a useful weapon against widely debated "Italian torpedo" action, in which a party brings a claim before its own courts seeking a declaration that the arbitration agreement is invalid. In such a case, if the arbitration agreement provides for arbitration in Spain, the other party could then initiate arbitration proceedings seeking damages arising out of the court proceedings brought in breach of the arbitration agreement, irrespective of its ruling.

In any event, it will be interesting to see how this doctrine develops, and whether further rulings confirm its applicability in arbitration cases.

Judgment of the Supreme Court (Chamber 1, Civil), 6/2009, of 12 January 2009 (Judgment not available).