Arbitration Yearbook Spain

By: José María Alonso1, Alfonso Gómez-Acebo2, José Ramón Casado3, Víctor Mercedes4 and Fernando de la Mata5

A. Legislation, Trends and Tendencies

A.1 Legislation

The main change in Spanish arbitration legislation in 2015 relates to the exequatur procedural formalities. Articles 955 to 958 of the Civil Procedural Act dated 1881 governed this procedure until recently. However, those articles were revoked by Law 29/2015, dated 30 July, on International Cooperation (Cooperación Jurídica Internacional), which establishes a new procedure in Article 54. One of the main changes brought about by the International Cooperation Act is the possibility of filing a joint petition for enforcement and recognition in a single application. However, this is not an option when the award is foreign, because the Courts having jurisdiction for recognition and enforcement are different: the High Court of Justice for recognition and Courts of First Instance for enforcement. The exequatur procedure also now expressly permits interim relief.

Article 11 of the Spanish Arbitration Act (Law 60/2003, of 23 December, on Arbitration) was also amended, in accordance with the Fifth Final Provision of Law 42/2015, dated 5 October, which reformed Law 1/2000, dated 7 January, of civil procedure. According to the former version of the Civil Procedure Act, prior to Law 42/2015, there were two main declaratory proceedings: ordinary and oral. Opting for either proceeding depended on the amount and subject matter of the dispute. In ordinary proceedings, a defendant was required to file a written response to the claim within a 20-day period, and any plea on jurisdiction had to be filed within the 10 days following the defendant’s summons. In oral proceedings, the defendant filed its response to the claim orally in a hearing scheduled by the court, and any plea on jurisdiction had to be filed within five days following the summons to the hearing.

Pursuant to the provisions of Article 11 of the Spanish Arbitration Act, if an arbitration agreement is in place but a court action is filed in breach of the arbitration agreement, the defendant may challenge the jurisdiction of Spanish courts by means of a plea to the jurisdiction of the court. Under the previous wording of Article 11, a distinction was made between ordinary proceedings, where a defendant is required to file a written response to the claim, and oral proceedings, where before Law 42/2015, no written response was required from a defendant.

In its current wording, Article 11 establishes a common term of 10 working days within which to file the plea to the jurisdiction in both cases, in ordinary and oral proceedings.

B. Cases

B.1 The Defendant’s “Place of Residence”

The Catalonia High Court of Justice issued a ruling (Ruling nº 14/2015 dated 16 February 20156) in respect of an arbitration award issued by the LCIA. The defendant argued that the Catalonia High Court of Justice lacked jurisdiction under Article 8.6 of the Spanish Arbitration Act because the defendant was a citizen of Ukraine domiciled in Kiev. The defendant was neither a Spanish citizen nor did he have his domicile or habitual residence in Spain, nor did he hold a residence permit in Spain. However, he had a summer residence in the country.

The court rejected the defendant’s arguments. The court stated that Article 8.6 of the Spanish Arbitration Act does not require the defendant to have its habitual residence in Spain, as argued by the defendant. The rule only requires the defendant to have a residence in Spain. This interpretation of Article 8.6 of the Spanish Arbitration Act aims to promote the effectiveness of the procedure for the recognition of foreign awards.

B.2 Public Policy Doctrine and Right of Defense

The Madrid High Court of Justice issued a ruling (Ruling no. 7/2015 dated 23 June 20157) in respect of an arbitration award issued by the ICC. The opposition to enforcement was based on the public policy exception. According to the defendant, there was a limitation on his right of defense during the arbitration proceedings, as he had been prevented from submitting four expert reports and one legal report.

The court ruled that an award that infringes the fundamental rights and liberties recognized in Chapter II, Title I of the Spanish Constitution is contrary to public policy. However, the potential fairness of an award, any deficiencies in the ruling and the appropriate way of resolving the case fall outside the scope of this concept. As regards the right to evidence (derecho a la prueba), the court ruled that this right is not unlimited: only evidence that is relevant and has been submitted in due time and form must be examined. The court also stated that it is the Arbitral Tribunal that needs to evaluate the relevance of the evidence on a reasoned basis. The opposition was therefore dismissed.

B.3 Formalities and Right to Amend

The High Court of Justice of Catalonia issued a ruling (Ruling nº 5/2015 dated 15 January8), in a case where exequatur of an award issued by the ICC had been requested. The defendant raised two lines of defense, both of which were essentially dismissed.

The first opposing argument was the lack of an apostille and legalization of the award. According to the court, Article 4 of the New York Convention (NYC) requires the original award or an authenticated copy to be submitted to obtain exequatur. If an unauthenticated copy is initially presented, the party has the right to amend this formal defect at a later stage.

The second opposing argument was the lack of evidence of the notification of the award. In the case, the Arbitration Court recorded the wrong year of notification (2012 instead of 2013). However, the court ruled that, provided that the claimant amended the formal mistake at a later stage by requesting to the Arbitration Court that the correct date of notification be recorded, there were no sufficient grounds to deny the recognition and enforcement of the award.

The ruling was based on “a principle favorable to obtaining the exequatur, to the extent that the regularity, validity and legal force of the foreign award must be presumed, and is only compromised when any of the requirements to refuse recognition under the NYC is met, … which is clearly intended to be an efficient tool for international business relations.”

B.4 Setting Aside Applications and Impartiality of the Arbitrator

The High Court of Justice of Andalusia issued a ruling (Ruling 29/2015 of 29 July 20159), in a case in which exequatur of an Italian award had been requested in Spain. An application to set aside the award had been filed in Italy. The defendant opposed the exequatur and alternatively requested the suspension of proceedings as a consequence of the setting-aside application. The Official Prosecutor was in favor of exequatur and opposed to the suspension request.

The court’s first discussion dealt with whether the court had jurisdiction to decide on the suspension foreseen in Article 6 of the NYC. The question was whether the High Court of Justice (which is in charge of recognition) was competent to do so, or whether it was a competence of the Court of First Instance (which is in charge of enforcement.) The High Court ruled that the Court of First Instance had jurisdiction.

As regards exequatur, the defendant argued that the award was contrary to public policy, since the arbitrators had been partial. However, the court stated that even if it accepted that the impartiality of the arbitrators could be a part of public policy, this did not mean that the court dealing with exequatur had to find as a matter of fact whether there were reasons for objection when the issue was more properly to be decided upon in the country of origin. Therefore, unless there is a final ruling in the country of origin declaring the partiality of the arbitrator, exequatur in Spain cannot be rejected.

B.5 Annulment of Awards for Breach of “Economic Public Policy”

Early in the year, the Madrid High Court of Justice issued five rulings annulling arbitral awards for an alleged breach of “economic public policy.”10 In all five proceedings, a party had initiated arbitration proceedings against a bank for alleged wrongdoing in the sale of financial products and, in particular, interest rate swaps. The requesting party claimed that the bank had not provided the required information in order to adequately assess the risk associated with this type of product and that, therefore, the contract was null. It requested indemnification for losses suffered. In all awards, the arbitrator or tribunal ruled that the client had received sufficient information from the bank and that, therefore, the contract was valid. Considering that the arbitrators had grossly erred in their judgment and misapplied EU Directives protecting consumers in such situations,11 the Madrid High Court of Justice annulled all the awards on the basis of a breach of “economic public policy.”

In particular, the Madrid High Court of Justice identified as part of “economic public policy” the duty of dealing in good faith, of notorious significance in situations where the contracting parties are in unequal bargaining positions due to the complexity of the product or an asymmetric availability of information. The High Court ruled that the awards breached public policy by: (a) unduly categorizing interest rate swaps as noncomplex financial products, contrary to the applicable law; and thus (b) inadequately categorizing the bank’s duty of information pursuant to the MIFID Directive.

Public policy has been traditionally identified in Spain with constitutional rights and principles and mostly limited to procedural issues of due process and right to be heard. The annulment of awards on the basis of material public policy, and particularly this concept of “economic public policy” is a rare occurrence. These decisions have received strong criticism from scholars and arbitration practitioners for unduly extending the scope of review of arbitral awards by national courts.

B.6 Arbitrability of Disputes

The Madrid High Court of Justice issued a judgment dated 13 July 201512 (Judgment nº 56/2015) annulling a partial award on jurisdiction, as the subject matter of the dispute was not capable of settlement by arbitration. An arbitral tribunal seated in Madrid had issued a partial award upholding jurisdiction on a dispute regarding capacity reductions on a natural gas transmission infrastructure at the international connection between the Spanish and French networks, under contracts entered into in 2009. The High Court of Justice ruled that, pursuant to EU Regulation 715/2009, capacity allocation agreements in natural gas connection networks are not capable of being settled by arbitration under Spanish law. The arbitrability of the dispute must be assessed at the time when the dispute arises and not at the time when the parties entered into the arbitration agreement. Although in 2009, capacity allocation agreements may have been capable of being settled by arbitration, they were now nonarbitrable as: (a) Regulation 715/2009, as amended by the European Commission’s decision of 24 August 2012, provides minimum, absolutely nonwaivable regulations for the adequate functioning of the EU gas market, ensuring a safe, sustainable and quality supply of a scarce but essential resource; (b) the Spanish regulator (Comisión Nacional de los Mercados y la Competencia) is given specific powers to ensure the effective application of this Regulation, which may not be avoided by parties resorting to arbitration; and (c) any decision regarding capacity allocation may economically affect third parties that would be unable to intervene in the arbitration proceedings.

B.7 Application of the Group of Companies Doctrine

In a ruling dated 5 May 2015 (Ruling nº 13/201513), the Valencia High Court of Justice rejected a request for annulment of an award that had accepted, as a party to the arbitration, a company that did not appear as a signatory of the arbitration agreement. In rejecting the request, the Valencia High Court of Justice suggested that an arbitration agreement may apply to a nonsignatory when the latter is a company belonging to the same corporate group as one of the signatories of the arbitration agreement and such company has actively participated in the negotiation, execution, performance or termination of the contractual relationship.

B.8 Issues on the Admission and Practice of Evidence

Various recent decisions have ruled on whether an award may be challenged on the basis of a violation of the right to be heard when an arbitral tribunal refuses to accept evidence submitted or carry out investigations requested by one of the parties. In this regard, a ruling of the Madrid High Court of Justice dated 12 May 2015 (Ruling nº 40/201514) and a ruling by the Catalonia High Court of Justice dated 27 July (Ruling nº 61/201515) both decided that a denial to admit evidence or a defect in the practice or hearing of evidence by the arbitrators does not necessarily amount to a breach of the right to be heard. In order to annul an award for a breach of the right to be heard on issues related to the admission or practice of evidence, a party must prove that the evidence referred to would have been decisive to its defense, potentially altering the result of the arbitration.

B.9 Duty of Disclosure of Arbitrators

A recent judgment by the Spanish Supreme Court, dated 6 October 2015 (Judgment nº 522/201516), denied a party’s request for the revision of an arbitral award, but, by means of obiter dicta, raised questions on the duty of disclosure of arbitrators. The Supreme Court denied a request for the revision of an arbitral award that claimed collusion between the arbitrators and one of the parties. Revision proceedings are very rare and limited to very specific grounds such as collusion, violence or forgery. However, when assessing the alleged collusion, the Supreme Court stated that an arbitrator’s relationship with one of the parties (two limited professional dealings that took place almost 10 years before the arbitrator’s appointment) should have been made known to the parties at the time, pursuant to Article 17.2 of the Spanish Arbitration Act, which regulates the arbitrators’ duty of disclosure. The Supreme Court did not state whether nondisclosure would have justified a challenge to the arbitrator or the annulment of the award under normal set-aside proceedings.

B.10 Extension and Interpretation of Arbitration Agreements

In a judgment dated 13 January 2015 (Judgment nº 2/201517), the Madrid High Court of Justice annulled an award for unduly extending the effects of the arbitration agreement to a contractual relationship that preceded the agreement. In January 2010, the parties to the arbitration entered into a written contract for the supply of goods, which contained an arbitration agreement. Prior to this contract, however, the parties had a longstanding commercial relationship, established only through verbal arrangements. The seller initiated arbitration proceedings, requesting payment of amounts arising from goods ordered and delivered before January 2010. The arbitral tribunal upheld jurisdiction and ordered the buyer to pay all requested amounts, stating that: (a) the arbitration agreement referred to any claim arising or in connection with the contract without any specific temporal limits; and (b) the written contract was the continuation of the parties’ commercial relationship that was, previously, in verbal form. According to the High Court of Justice, the arbitrators unduly extended the arbitration agreement to disputes not submitted to arbitration by the parties. There was no proof that the parties had agreed to extend the effect of the written contract’s arbitration agreement to their early verbal arrangements.

In a similar vein, the High Court of Justice of the Canary Islands, in a ruling dated 19 June 2015 (Ruling nº 3/201518), annulled an award that interpreted a pathological arbitration clause in favor of arbitration. In this case, the agreement provided for arbitration but, in the same article, also stated the parties’ submission to the courts of Las Palmas, in the Canary Islands.

C. Costs in International Arbitration

C.1 Allocation of Costs

The Spanish Arbitration Act contains no specific rules for the allocation of costs. Article 37.6 of the Act merely provides that awards should contain a decision as to the costs of the arbitration, including arbitrators’ and institutional fees, as well as the cost of defense of the parties (i.e., counsel, experts and other costs). The arbitrators’ decision is only bound by the parties’ agreement on the issue. When reaching a decision, Spanish arbitrators tend to find guidance in the general “costs follow the event” principle, as established in the Civil Procedure Act (cf. Articles 394 et seq.).

Considering that arbitrators are bound by the parties’ agreement and that any rules to which the parties submit themselves are deemed to be a part of the arbitration agreement (cf. Article 4.b of the Arbitration Act), the rules of the most important arbitration institutions are of relevance. All of them provide, basically, for a “costs follow the event” rule that may be adapted by the arbitrators to the specific circumstances of the case.

C.2 Security for Costs

Security for costs is not specifically addressed in the Spanish Arbitration Act. However, it is also not explicitly forbidden and can therefore in principle be requested and ordered by arbitrators as an interim measure. Although in principle, issues such as the existence of a third party funder could influence the arbitrators’ decision, at the moment, both security for costs and third party funding are not frequent in arbitration in Spain, and no common practice exists.

C.3 Recovery of Costs

In general, as provided in Article 37 of the Arbitration Act, recovery of costs include not only arbitrators’ and institutional fees, but also the fees due to outside counsel, experts, etc. Arbitrators have broad discretion in determining their reasonableness based on hourly rates or ad valorem criteria.

Before state courts, when dealing with arbitration-related cases, costs, including counsel fees, are also recoverable. However, before national courts the reasonableness of costs is normally determined by courts based on ad valorem considerations rather than hourly fees. When deciding on the reasonableness of costs, state courts request local bar associations to report on the issue. These bar associations tend to issue their opinion based on their own costs tables and regulations.

The Arbitration Act does not contain any rule regarding the recoverability of a party’s costs for in-house counsel and other members of its staff, and they are rarely granted. In litigation before state courts, in-house counsel fees are not recoverable (cf. Article 241.1 of the Act on Civil Procedure).

Although the Arbitration Act does not contain specific guidance, it is common practice that a party must provide sufficient evidence regarding the costs incurred. Invoices and proof of payment are generally considered sufficient evidence.

  1. José María Alonso is a managing partner and Head of the Litigation & Arbitration Department in Baker & McKenzie’s Madrid office. He is also a member of the Steering Committees of the Global Arbitration Practice Group and the International European Disputes Practice Group.
  2. Alfonso Gómez-Acebo is a partner in Baker & McKenzie’s Madrid office. He practices in the area of international arbitration and co-heads the International Arbitration Group at Baker & McKenzie Madrid.
  3. José Ramón Casado is a partner in Baker & McKenzie’s Madrid office. He practices in the areas of corporate, commercial and civil litigation and arbitration.
  4. Víctor Mercedes is a partner in Baker & McKenzie’s Barcelona office and co-head of the Litigation & Arbitration Department.
  5. Fernando de la Mata is a partner in Baker & McKenzie’s Barcelona office and co-head of the Litigation & Arbitration Department.
  6. ECLI:ES:TSJCAT:2015:73A.
  7. ECLI:ES:TSJM:2015:369A.
  8. ECLI:ES:TSJCAT:2015;51A.
  9. ECLI:ES:TSJAND:2015:174A.
  10. Ruling of the Madrid High Court of Justice nº 13/2015 of 28 January (ECLI:ES:TSJM:2015:10185); Ruling of the Madrid High Court of Justice nº 27/2015 of 6 April (ECLI:ES:TSJM:2015:4051); Ruling of the Madrid High Court of Justice nº 30/2015 of 14 April (ECLI:ES:TSJM:2015:4052); Ruling of the Madrid High Court of Justice nº 31/2015 of 14 April (ECLI:ES:TSJM:2015:4054); and Ruling of the Madrid High Court of Justice nº 45/2015 of 26 May (ECLI:ES:TSJM:2015:9756).
  11. In particular, EU Directive 2004/39/CE on Markets in Financial Instruments (the MIFID Directive) and its Spanish transposition.
  12. ECLI:ES:TSJM:2015:8881.
  13. ECLI:ES:TSJCV:2015:3413.
  14. ECLI:ES:TSJM:2015:6565.
  15. ECLI:ES:TSJCAT:2015:8117.
  16. ECLI:ES:TS:2015:4125.
  17. ECLI:ES:TSJM:2015:197.
  18. ECLI:ES:TSICAN:2015:773.