What Does It Mean for an Action to Be Subject to a Limitation Period?
In legal proceedings, two main types of time limits are distinguished: prescription and limitation. Limitation periods, unlike prescription, do not allow for the suspension or restarting of the timeframe. Once the stipulated period elapses, the right to bring the action expires irrevocably.
This general principle applies to the challenge of corporate resolutions as set out in Article 205.1 of the Spanish Corporate Enterprises Act (TRLSC), which establishes a limitation period of one year—except where the resolution contravenes public policy, in which case the action becomes imprescriptible.
Case Analysis: Judgment STSJ Madrid 41/2024 of 29 October
The case revolved around a challenge to corporate resolutions dated 16 March and 7 October 2022. The relevant clause in the company’s bylaws stated:
“Any doubt, issue, or disagreement arising between the company and its shareholders, or among the shareholders themselves in their capacity as such, either during the life of the company or its liquidation period, shall be resolved exclusively by amicable mediators in accordance with the provisions of Law 60/2003 on Arbitration, regulating Arbitration in Equity, except where mandatory jurisdiction applies.”
On 21 February 2023, a claim was filed with the Madrid High Court of Justice (TSJ) seeking the judicial appointment of an arbitrator. However, the claim was dismissed by judgment STSJ Madrid 25/2023 of 19 June, as no prior formal request had been made.
Subsequently, on 4 July 2023, arbitration proceedings were initiated before an Arbitration Court, where the claimant had previously challenged other corporate resolutions. The second arbitration concluded with an arbitral award dated 27 March 2024, which dismissed the challenge to the resolutions of 16 March 2023 on the grounds that the action was time-barred. The award was based on the following reasoning:
1.The claim for the appointment of an arbitrator “was in no way necessary for the viability of a subsequent challenge to the corporate resolutions.”
2.The claimant had “acknowledged the Arbitration Court’s jurisdiction in prior arbitral proceedings and by submitting the arbitration request.”
3.The recognition of the Arbitration Court’s jurisdiction was “not contingent on the judicial proceedings before the TSJ, especially since all the claims in those proceedings were dismissed.”
Public Policy Violation: Restriction of Access to Justice
Despite the detailed rationale supporting the arbitral award’s conclusion that the action was time-barred, the TSJ annulled the award on public policy grounds under Article 41.1(f) of the Spanish Arbitration Act (LA), ruling that the claimant’s access to justice had been restricted. The TSJ’s reasoning directly contradicted that of the arbitral award:
1.It rejected the notion that seeking the judicial appointment of an arbitrator was unnecessary or futile. It further stated that interpreting the limitation period rigorously would lead to an undue procedural formalism
2.It noted that “seeking judicial assistance from this Court did not delay the arbitration proceedings and, in fact, facilitated subsequent agreement between the parties.”
3.The defendant had opposed the arbitrator’s appointment, citing an inapplicable shareholders’ agreement and failing to respond to prior correspondence addressing the need to agree on the arbitral institution.
4.It concluded that the claimant’s actions were neither abusive nor fraudulent and could not be dismissed as ineffective concerning the limitation period for challenging the resolutions of 16 March 2022.
Conclusions
The TSJ Madrid’s decision highlights a balancing act between two principles: the right to access justice and the clarification of ambiguities in arbitration clauses (in this case, regarding the Arbitration Court’s jurisdiction), and the strict application of limitation periods.
In this balancing exercise, the TSJ prioritised the former, adopting a more flexible interpretation of the limitation period. The Court reasoned that:
“It cannot be inferred, without falling into an overly rigid interpretation of the limitation period for annulment actions, that the period continued to run while the need to establish who would arbitrate the dispute remained unresolved.”
