SPAIN
Carmen Alonso and Enrique Silvente
A. LEGISLATION AND RULES
A.1 Approval of Royal Decree-Law 3/2020, dated 4 February, that adopts urgent measures for the transposition into Spanish Law of various European Union directives in the field of public procurement in certain sectors: private insurance; pension plans and funds; taxation and tax disputes.
Royal Decree-Law 3/2020, includes an amendment to the Law on Spanish Public Sector Contracts No. 9/2017, dated 8 November. In particular, article 123 of the aforementioned decree introduces into law the possibility for contracting parties to submit to arbitration disputes that may arise with regard to the effects, performance and termination of public procurement contracts, in accordance with the provisions of the Spanish Arbitration Act 60/2003, of 23 December. Furthermore, the body in charge of settling these disputes, which will be defined in the tender specifications (pliego de condiciones), must be collegiate and at least one of its members must be proposed by the contractor.
A.2 Approval of Royal Decree-Law 1/2020, dated 5 May, approving the revised text of the new Spanish Insolvency Law.
On 6 May 2020, Royal Decree-Law 1/2020, of 5 May, approving the revised text of the new Spanish Insolvency Law was approved, which entered into force on 1 September 2020. Regarding arbitration, it clarified that, as well as with ongoing judicial ordinary proceedings, ongoing mediation and arbitration proceedings will continue until their completion and the issuance of the award.
On the other hand, the court in charge of the insolvency can suspend the arbitration agreements if it is understood to be potentially detrimental to the insolvency proceedings, but only before the mediation procedure commences or before the arbitration procedure is initiated. By means of this provision, the new Spanish Insolvency Law incorporates the case law issued in this regard[1]. The referred case law has held that while ordinary jurisdiction is generally excluded in relation to actions that fall under the sole and excluding authority of the insolvency judge, the same does not occur with regard to disputes submitted by agreement of the parties to arbitration, insofar as the arbitration agreement remains in force as a general rule and the arbitration proceedings in progress are inviolable and withstand the insolvency proceedings, being conducted until their conclusion.
A.3 Approval of the Catalan Regional Law 11/2020, dated 18 September, on urgent measures regarding rent control in housing rental contracts.
It provides for the possibility that, in the case of disputes related to lease agreements for housing purposes between a private company and a consumer, the parties may refer the disputes to consumer mediation or arbitration.
B. CASES
B.1 Infringement of the parties’ constitutional right to effective judicial protection, based on the Court’s pursuing award annulment proceedings without the parties’ consent. Constitutional Court Judgment No. 46/2020 dated 15 June 2020
The case results from an award annulment claim filed before the Madrid High Court of Justice (the “High Court“), based on a public policy infringement. In particular, the claimant (formerly, the defendant party in the arbitration case), alleged that the relevant arbitration clause had been unilaterally inserted by the opposing party, who was the landlord in the underlying consumer contract (a lease agreement) and, as such, was null and void, based on applicable consumer regulations.
Shortly after the filing of the award annulment claim, the parties entered into a settlement agreement and consequently requested the High Court to terminate proceedings without giving a judgment on the merits, based on the parties’ right to delimit the scope of the case (principio dispositivo) under civil procedural laws. However, the High Court rejected this request on the grounds that the award might entail a public policy infringement which the High Court had the legal duty to examine ex officio, regardless of the parties’ willingness to end proceedings, pursuant to section 41.2 of Spanish Arbitration Act. Remarkably, the High Court’s public policy concern was not, however, the one raised by the claimant, but rather the potential lack of impartiality and independence of the arbitration court, due to its connections with the winning party.
In spite of both parties’ opposition, the High Court eventually pursued the annulment proceedings and issued its judgment[2], whereby it annulled the award, based on the arbitration court’s lack of independence and impartiality (as opposed to the nullity of the arbitration clause, originally raised by the claimant).
The defendant party in the annulment case challenged the High Court judgment before the Spanish Constitutional Court, seeking constitutional redress (recurso de amparo), based on the infringement of the parties’ right to effective judicial protection under article 24 of the Spanish Constitution, which challenge was granted by the Constitutional Court.
By means of its Judgment No. 46/2020 dated 15 June 2020, the Constitutional Court granted the challenge for constitutional redress, and consequently, set aside the High Court judgment. In particular, the Constitutional Court found that, by annulling the award in spite of the parties’ prior request to terminate proceedings without giving a decision on the merits (due to their settlement agreement), the High Court had acted unreasonably and without any legal support, which, in turn, entails a breach of the constitutional right to effective judicial protection under article 24 of the Spanish Constitution.
Firstly, the subject matter of the case (i.e., the potential annulment of an award ordering the termination of a lease agreement), was strictly commercial and private, i.e., it did not affect any third-party, or any general public interests reasons. Consequently, the parties maintained their right to control the course of proceedings, and the High Court was legally obliged to close proceedings at both parties’ request, regardless of the fact that the annulment claim was originally based on a public policy infringement. Therefore, by rejecting this request, the High Court’s judgment infringed the parties’ procedural right to delimit the scope of the case (principio dispositivo), and, consequently, undermined their constitutional right to effective judicial protection.
Secondly, the Constitutional Court finds that the High Court unduly extended the restrictive concept of public policy (as it is set forth by the Spanish Arbitration Act and applicable case law), for the purposes of doing a substantive revision of the award. Such a review on the merits is contrary to the legal conception of the award annulment action, as an “external control” resource, to be triggered only in those limited cases specifically set forth by article 41 of the Spanish Arbitration Act.
The judgment reinforces arbitration, as a valid means to settle private disputes, by acknowledging the parties’ constitutional right to have, and retain, control over the evolvement and potential settlement of the arbitration dispute, even if escalated to an annulment action before a court.
In this context, the Constitutional Court prevents the courts from acting without the parties’ consent when examining and deciding on an award annulment action, even if it had been originally based on a public policy infringement, to the extent that such a cause does not allow the courts to circumvent the parties’ willingness to settle the case.
B.2 Arbitrator’s lack of jurisdiction, resulting from claimant’s prior submission to courts in a related dispute. Judgment of Madrid High Court of Justice No. 11/2020 dated 28 February 2020
The case refers to award annulment proceedings started before the High Court based on the arbitrator’s lack of jurisdiction to decide on the case. In particular, the plaintiff (a lawyer having a dispute with their client due to unpaid professional fees) alleged that, even if the underlying contract (a legal services agreement) included an arbitration clause, the defendant (their client), had tacitly submitted to the Spanish courts’ jurisdiction prior to starting the relevant arbitration proceedings against the lawyer, hence the arbitration clause becoming null and void.
In particular, the plaintiff alleged that the defendant (their former client) had tacitly waived the arbitration clause by failing to challenge the court’s jurisdiction in the context of a special type of court proceedings (jura de cuentas), initially started against it by the lawyer, before the arbitration took place. The jura de cuentas procedure is a special type of proceeding set forth by the Spanish Procedural Act, for the lawyers to expeditiously recover their outstanding fees from their clients, which are heard by the court clerk instead of a judge, and do not have a res iudicata effect.
After having followed the jura de cuentas proceedings against their client (without the client challenging the court’s jurisdiction), the lawyer eventually obtained a favorable ruling from the court clerk, ordering the client to pay outstanding legal fees. In order to set aside this ruling (which does not have a res iudicata effect), the client subsequently started an arbitration claim against the lawyer, seeking an award on the merits which revoked the amounts awarded in the jura de cuentas procedure.
In spite of the lawyer’s objection, the arbitrator confirmed their jurisdiction to decide on the merits, based on the arbitration clause included in the underlying contract, which resulted in an award favorable to the lawyer’s client.
The court granted the plaintiff’s merits and annulled the award, due to the arbitrator’s lack of jurisdiction. Pursuant to the court’s legal grounds, once the lawyer had filed a claim against the defendant before the Spanish courts, the defendant should have challenged the court’s jurisdiction based on an arbitration agreement between the parties, instead of filing an opposition on the merits, which may actually qualify as a waiver to enforce the arbitration agreement and as a tacit submission to the Courts’ jurisdiction to solve the dispute.
Therefore, even if the jura de cuentas procedure did not have a res iudicata effect (meaning that the client could still pursue legal actions aimed at revoking the court clerk’s decision on the legal fees), the new legal actions should be heard and decided upon by the Spanish courts, instead of the arbitration court initially chosen by the parties.
As a rule, pursuant to Spanish law and case law, a tacit submission may set aside a forum selection, or arbitration clause, whenever a defendant fails to challenge the court’s jurisdiction after the claimant has filed full-fledged ordinary court proceedings (i.e., those involving a claim, answer to the claim, evidence proposal, a trial, and a judgment on the merits with a res iudicata effect).
Conversely, a tacit submission is questionable in the case of other special types of civil proceedings regulated by the Spanish Procedural Act (such as jura de cuentas proceedings, or certain proceedings for recovery of debts formalized in invoices), which generally have their own mandatory forum provisions (usually, the courts corresponding to defendant’s address), and do not have a res iudicata effect. Since, in those cases, the court’s jurisdiction is set forth by the law (i.e., may not be modified by the parties), any jurisdictional challenge, even if based in an arbitration clause, would hardly succeed, hence it being debatable to impose such a burden on the defendant.
In spite of the above, the High Court’s judgment extends the notion and effects of the tacit submission, in the sense of imposing on the defendant (i.e., the lawyer’s client) the burden of challenging the court’s jurisdiction, in a case when it was mandatorily set forth by law, or otherwise miss the opportunity to enforce the arbitration clause to obtain a decision on the merits.
Therefore, in order to ensure the enforceability of an arbitration clause (or an award), it seems a good practice to carefully monitor any submission or procedural act to be performed in a related court dispute, so as to avoid that it is construed as a tacit submission to the court’s jurisdiction, resulting in the annulment of the award.
B.3 Chambers of Commerce’s exclusion from impartiality and independence duties imposed on arbitrators and arbitration courts. Judgment of Madrid High Court of Justice No. 49/2020 dated 16 September 2020
The High Court decided on an award annulment claim, which was based on the nullity of the relevant arbitration clause. Amongst others, the plaintiff alleged that the court in charge of the arbitration (i.e., the Spanish Arbitration Court), failed to comply with its impartiality standards, as it was a service offered by the Spanish Chamber of Commerce, which, in turn, had been sponsored by the counterparty (an insurance company).
The High Court rejected the nullity of the arbitration clause based on the Spanish Arbitration Court’s alleged lack of impartiality and confirmed the award.
After an extensive analysis of both the IBA Rules on Conflicts of Interests in International Arbitration dated 23 October 2014, and the Spanish Arbitration Act, the High Court concludes that the impartiality and independence duties (including the duty to disclose any potential conflict of interest) apply to both arbitrators and arbitration courts (such as the Spanish Arbitration Court) but, as a rule, not to the Chambers of Commerce.
In particular, the High Court highlights that the Chambers of Commerce shall ensure and respect the impartiality of both the arbitration courts and arbitrators -who are governed by their own separate rules-, and it would be the latter (not the Chamber of Commerce) who are subject to a legal duty to disclose to the parties any circumstance potentially affecting their impartiality or independence. In turn, these legal guarantees may not in principle be undermined as a consequence of the administrative support provided by the Chambers of Commerce.
Moreover, the High Court points out that the plaintiff had not challenged the arbitrator’s appointment based on any impartiality concerns, neither had it based the nullity of the award in a breach of a public policy, arisen from the Spanish Arbitration Court’s lack of impartiality.
On this basis, the Court dismissed the plaintiff’s annulment claim, given that there were no justified doubts to challenge the Chamber of Commerce’s (and ultimately, the Spanish Arbitration Court’s) independence and impartiality in these proceedings, neither had they been questioned by the plaintiff in due course within the arbitration.
The High Court’s judgment is particularly relevant in view of the significant amount of arbitration cases (both domestic and international) heard by arbitration courts who, in turn, are related to, or dependent on, a Chamber of Commerce (such as the ICC Arbitration Court would be).
By acknowledging that the impartiality and independence duties do not apply, as a rule, to Chambers of Commerce (but only to arbitrators and arbitration courts), the High Court’s judgment may contribute to limiting potential grounds for challenge of awards (or, if the case may be, of arbitrators’ appointments), based on the relevant Chamber of Commerce’s connections with one of the parties. It also implies a remarkable precedent in Spanish case law in analyzing and applying the IBA Rules, as a useful body of guidelines to put into practice the legal duties of independence and impartiality applicable to arbitrators and arbitration courts.
B.4 Exequatur proceedings: The evidentiary assessments of the arbitral tribunal or the interpretation of the agreements concluded between the parties are not subject to review within exequatur proceedings. Judgment of the High Court of Justice of Catalunya No. 43/2020, dated 24 April 2020
In this judgment, the defendants opposed the arbitration claim by alleging that the non-competition obligation set forth in the shareholders’ agreements does not establish a fixed duration, thereby rendering those clauses restricting the transferability of the shares null and void. Said infringement of antitrust rules was rejected by the arbitral tribunal in its award, thus declaring the non-competition clauses to be valid. In the exequatur proceedings of the award, said defendants opposed the recognition of the award, by considering that the decision of the award was contrary to public order, invoked under article V(2)(b) of the New York Convention of 1958.
In view of the above, the High Court of Justice of Catalunya rejected that the concept of public order could be alleged to discuss a misinterpretation of the contract by the arbitral tribunal. Thus, the Court recalls that the procedural nature and function of the exequatur procedure is merely homologating, not allowing to review the merits of the award, except to the extent necessary to ensure the respect of the essential legal principles that define the concept of public order.
B.5 Public order cannot be invoked to oppose the enforcement of an arbitral award and the grounds already rejected within annulment proceedings cannot be raised again to oppose the enforcement. Ruling of the Court of Appeal of Madrid 135/2020 dated 13 July 2020
This judgment issued by the Court of Appeal of Madrid outlined that the opposition to the enforcement of an arbitral award can only and exclusively be based and sustained either on the existence of any of the procedural defects expressly listed in article 559 of the Spanish Civil Procedural Act or in the opposition grounds for any judgment, set forth in article 556.1. In particular, the infringement of public order does not fall within these grounds and, in any event, it cannot be invoked to oppose the enforcement to the extent that it has already been rejected within annulment proceedings against the same award.
B.6 Appointment of an arbitrator on the basis of an arbitration agreement whose administration was entrusted to an arbitral court that had been dissolved at the time of the commencement of the arbitration. Judgment of Madrid High Court of Justice No. 5/2020 dated 4 February 2020
The Judgment of the High Court of Justice of Madrid dated 4 February 2020 accepted to appoint an arbitrator filed by one of the parties on the basis of an arbitration agreement whose administration was entrusted to an arbitration institution dissolved at the time the arbitration was initiated. In fact, the appointed institution had already been dissolved at the time the contract was signed. In opposition to said appointment, the defendant argued that the non-existence of the arbitration court meant that the arbitration agreement was invalid.
The High Court upheld the arguments of the claimant, since it deemed that there was an unequivocal prior act of the defendant in expressing its willingness to submit to arbitration at the time of signing the contract in dispute. In this sense, the court concluded that, despite the dissolution of the arbitration institution designated in the agreement, the arbitration agreement was fully effective, and applied article 15.2 of the Spanish Arbitration Act, which provides that courts will appoint the arbitrator.
B.7 Possibility for a Court to appoint the arbitral institution when the parties agree to institutional arbitration but there is no agreement on the institution or court to administer it. Judgment of the High Court of Justice of Canarias No. 1/2020 dated 6 February 2020
In this Judgment, the High Court of Justice of Canarias stated that the competence legally attributed to the courts to appoint arbitrators also entails the authority of courts to designate an arbitration institution to manage the arbitration, provided that it is not expressly determined in the arbitration agreement.
According to the High Court of Justice of Canarias, the omission to designate in the arbitral agreement the specific arbitration institution to which the arbitration is to be submitted cannot be understood as a case of nullity or ineffectiveness of the arbitration agreement, since, in accordance with the provisions of article 9.1 of the Spanish Arbitration Act, the arbitration agreement must just express the will of the parties to submit to arbitration all or some of the disputes related to a legal relationship.
In view of the foregoing, since the parties failed to designate a specific arbitration institution in the arbitration agreement and considering that the agreement complies with the legal requirements to be effective, the High Court of Justice of Canarias designated an arbitration institution to manage the arbitration proceedings.
B.8 Appointment of an arbitrator by means of an arbitration agreement contained in the articles of association of a Temporary Business Association that had already been dissolved. Judgment of the High Court of Justice of Madrid No. 8/2020 dated 6 February 2020
In this case, the dispute concerned two companies belonging to a Temporary Business Association (Unión Temporal de Empresas (UTE)) already dissolved when the arbitration was brought. The bylaws governing the UTE provided that any dispute arising out of their business activity would be settled by arbitration.
The claimant applied to the court for the appointment of an arbitrator on the basis of the aforementioned agreement. However, the defendant objected that the dissolution and liquidation of the UTE prior to the dispute entailed the termination of the arbitration agreement set out in the articles of association. Consequently, an arbitration tribunal was no longer competent to resolve the dispute. This judgment finally considered that the dissolution of the UTE was not an obstacle to appoint an arbitrator.
B.9 The effects of the arbitration clause cannot be extended to third parties when actions are brought in the interest of collectivity. Judgment of the Court of Appeal of Zaragoza No. 9/2020 dated 20 January 2020
The court ruled on a case where the scope of application of the arbitration clause contained in a technical assistance contract was disputed by one of the parties, which alleged that the actions brought by the other party (for breach of contract and on the basis of the provisions of the Law of Construction Planning) fell within the sphere of the arbitration clause provided for in the contract between the developer and the planner. The defendant claimed that this clause should be extended to the technicians appointed to carry out the object of the contract, either because they were to be regarded as part of the contract, or alternatively because it was understood that this extension was directly supported by article 17 of the Law of Construction Planning.
The court considered that, as natural persons, the aforementioned technicians are not part of the contract and therefore cannot be held liable under the Law of Construction Planning. The Zaragoza Court of Appeal found that the will of the parties to submit a potential dispute to arbitration must be unequivocal (ECHR Judgement of 28 October 2010). Consequently, the Court declared that it could not apply criteria of convenience or opportunity to extend the effects of the arbitration clause in the absence of an agreement explicitly accepted and agreed by third parties, despite that said third parties performed all or part of a contract and were closely connected to it.
B.10 Liability of a sole arbitrator for gross negligence due to deciding on an arbitration dispute despite being in a situation of conflict of interest. Judgment of the Court of Appeal of Asturias No. 362/2020 dated 4 September 2020
The Court of Appeal declared an arbitrator liable for gross negligence and ordered them to pay compensation for damages, after concluding that he was in a situation of conflict of interest, since he had provided separate legal advice to both parties of the arbitration and even continued to bill for their services when the arbitration proceedings had already commenced. Furthermore, they dismissed the challenge filed against them within the arbitration.
In support of its decision, the court referred to the IBA guidelines on conflicts of interest, thus illustrating that the arbitrator’s conduct would fall within the non-waivable red list of situations giving rise to a conflict of interest. It was held that the sole arbitrator was liable for gross negligence given that there were objective facts that would reasonably doubt the arbitrator’s impartiality and independence. In this case, the Court of Appeal applied article 21 of the Spanish Arbitration Act, which holds arbitrators personally liable for damages caused in bad faith, recklessness, or willful misconduct.
[1] Ruling of the Court of Appeal of Barcelona No. 69/2016, dated 19 April, or Judgment of the High Court of Justice of the Valencian Community No. 1/2017, dated 23 January
[2] Judgment No. 33/2017 of Madrid High Court of Justice dated 4 May 2017.
