SPAIN: An Introduction to Dispute Resolution: Most in Demand Arbitrators

In the past three years, the Spanish Constitutional Court has rendered six judgments, in which it has overturned various decisions of the High Court of Justice of Madrid concerning the annulment of awards.

The significance of these judgments lies in the fact that the Constitutional Court has clarified (and narrowed down) the boundaries of the power of the judges when deciding on an action for annulment, and it has firmly closed the door to the use of such proceedings as a mechanism to review the merits of the case or the correctness of arbitrators’ decisions.

To that end, most of these rulings have sought to address the elephant in the room and, specifically, to clarify when it can genuinely be asserted that a violation of “public order” has occurred, or when the reasoning of an award can be questioned. And the Constitutional Court’s resolute response has been that public order, as a ground for setting aside an award, can only be invoked to denounce “procedural errors that may have occurred in the arbitral process” and, therefore, to ensure respect for the rights of defence, equality, contradiction and evidence.

Consequently, using the Court’s own words, the notion of public order “cannot be taken as a catch-all or a false door” allowing a review of the merits of the case. Mostly because the decision by the parties to submit a dispute to arbitration demands that the intervention of the judicial bodies be kept to a minimum.

In the same vein, the Constitutional Court has taken the opportunity to clarify that the annulment proceedings cannot be used as a pretext to review the correctness of the award, or to reconsider the assessment of the evidence or the arbitrators’ interpretation of the law, unless the arbitrator’s reasoning goes against a previous final ruling or breaches a principle which, according to constitutional requirements, is essential and inalienable. This is because, in the view of the Court, the duty to provide reasons does not guarantee the correctness of arbitrators’ decisions, but rather that the award will contain the reasons for the decision, and that these reasons will not be arbitrary, unreasonable or contrary to public policy rules. In fact, according to the Constitutional Court, the duty to provide reasons does not require arbitrators (i) to address in a detailed manner every allegation made by the Parties; (ii) to identify every single piece of evidence upon which they have relied to reach their decision; or (iii) to justify their preference for one piece of evidence over another.

Therefore, it is now beyond doubt that, in Spain, an award may only be annulled on the grounds of defective reasoning if it lacks any reasoning or if such justification is unreasonable, arbitrary, or involves an evident error (such as an internal inconsistency or a failure to abide by public policy rules). On the contrary, a judge cannot annul an award by the mere fact that, had the dispute been submitted to its assessment, it would have reached a different conclusion.

Consequently, today, the annulment proceedings in Spain, far from being a risk or pathology, constitute a guarantee and a tool that can only be used for strictly limited reasons. This is because (i) on the one hand, the annulment proceedings do not allow judicial bodies to substitute their own judgment for that of the arbitrator; but (ii) on the other hand, they do permit judicial bodies to annul awards that were rendered without respecting due process or that involved arbitrariness. And, what is more, these proceedings constitute a comparatively swift mechanism, since the decision adopted in annulment proceedings brought in Spain cannot be appealed, as opposed to what happens, for example, in France.

Although these are the rulings that have had the greatest impact on the arbitration community, the Spanish Constitutional Court has rendered a second set of judgments in which it has acknowledged that the parties have the right to terminate annulment proceedings early through settlement agreements, the claimant’s withdrawal or waiver, or even through the respondent’s admission of the claims.

With this, the Constitutional Court has put an end to the trend that the High Court of Justice of Madrid followed for some years (albeit inconsistently) of continuing the annulment proceedings in which a violation of public order had been invoked even if both parties had requested the termination of the proceedings due to extrajudicial satisfaction, or if the claimant had withdrawn the action it had brought.

In practice, this means that, even if the parties bring an action for annulment alleging a violation of public order, they retain control over the process and, therefore, are free to reach a settlement agreement, which shall be respected by the court.

This doctrine, binding on all Spanish judicial bodies, has been endorsed by the Spanish High Courts of Justice (including that of Madrid), which are the ones in charge of resolving the annulment actions brought in Spain against an award. In fact, since the issuance of these judgments by the Constitutional Court, the High Court of Justice of Madrid alone has rendered more than 50 judgments in which it has (i) applied the doctrine established by the Constitutional Court; (ii) refused to review the merits of the case or the assessment of the evidence carried out by the arbitrators; and (iii) recognised the parties’ right to terminate the proceedings early.

Therefore, the doctrine established by the Constitutional Court has provided clear and decisive support for arbitration, dispelling any doubts about the advisability of choosing Spain (and particularly Madrid) as the seat for international arbitrations.

The issuance of these judgments has coincided with an increase in the number of cases where parties have chosen Madrid as the seat of arbitration, as well as with the integration of Madrid’s main arbitral institutions into a single and new institution (the Madrid International Arbitration Centre or CIAM), which aspires to be a top-tier institution in the management of international arbitrations in Spanish and Portuguese, and which has an innovative and robust set of rules.

Evidence of this is that, in its first four years of existence, CIAM has already administered 36 cases, with an aggregate value of approximately EUR140 million, demonstrating the centre’s competence and the high level of trust it has garnered among businesses in a very short time. And these statistics are not only explained by the recent judgments, but mainly because, in addition to having lawyers and arbitrators with extensive legal training, Spain shares the same language as the Ibero-American countries, it has a legal system very similar to theirs, and it has practically the same Arbitration Act (since the Spanish Arbitration Act is based, like that of many Ibero-American countries, on the Model Law).

Thus, Madrid was and is a reliable place for arbitration, where proceedings can be conducted with the same legal quality as those conducted in Miami, Geneva, London or Paris, but are much more affordable.