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The Amendment of Spain’s Arbitration Act: A Promising But Unfinished Agenda

By Guiller­mo Bayas Fer­nán­dez
Attor­ney-at-law in Spain
Fun­dación Rafael del Pino schol­ar
NYU LL.M. Can­di­date, Class of 2011


Last Sep­tem­ber, the Span­ish Gov­ern­ment sent to the Par­lia­ment a bill (the Bill) to reform the cur­rent Span­ish Arbi­tra­tion Act (Ley 60/2003, de 23 de diciem­bre, de Arbi­tra­je), which is now being dis­cussed in Con­gress. The Bill improves dif­fer­ent aspects of the exist­ing reg­u­la­tion, main­ly those con­cern­ing the action to set aside the award, arbi­tra­tors’ lia­bil­i­ty, arbi­tra­tion of cor­po­rate dis­putes and the effect of insol­ven­cy pro­ceed­ings on arbi­tra­tion agree­ments. How­ev­er, the pos­si­ble sup­pres­sion of dis­sent­ing opin­ions prej­u­dices arbi­tra­tion and the reg­u­la­tion on chal­lenge of judi­cial juris­dic­tion favors friv­o­lous attempts to avoid abid­ing by arbi­tra­tion agree­ments. respec­tive  Addi­tion­al­ly, the pro­posed assign­ment of func­tions among judi­cial bod­ies in arbi­tra­tion issues lacks coher­ence and does not cre­ate a long-demand­ed uni­fi­ca­tion appeal on arbi­tra­tion mat­ters. While this arti­cle wel­comes some of the intend­ed mod­i­fi­ca­tions, it rais­es con­cerns that Spain might be los­ing a unique oppor­tu­ni­ty to adopt a mod­ern reg­u­la­tion that would advance its chances of becom­ing a prime inter­na­tion­al arbi­tra­tion seat.

I. Intro­duc­tion

Last Sep­tem­ber, the Span­ish gov­ern­ment sub­mit­ted to the Con­gress — the low­er cham­ber of the Span­ish Par­lia­ment — a bill (the Bill) to reform the cur­rent Span­ish Arbi­tra­tion Act (Ley 60/2003, de 23 de diciem­bre, de Arbi­tra­je). This arti­cle exam­ines the intend­ed mod­i­fi­ca­tions through an inter­na­tion­al per­spec­tive. I will start by briefly dis­cussing the ori­gins of the cur­rent Span­ish Arbi­tra­tion Act and how it adapts the UNCITRAL Mod­el Law. In the next sec­tion, I study the main changes in the reform, leav­ing the ones con­cern­ing judi­cial com­pe­tence on arbi­tra­tion issues for the last sec­tion. Final­ly, I will address how to improve the cur­rent reg­u­la­tion. Specif­i­cal­ly, I pro­pose a scheme for judi­cial com­pe­tence on arbi­tra­tion issues, which includes a uni­fied appeal for such issues.

II. The Arbi­tra­tion Act and its need for an update

The enact­ment of the Arbi­tra­tion Act (AA) in 2003 was a real break­through for arbi­tra­tion in Spain. The AA is based on the UNCITRAL Mod­el Law on Inter­na­tion­al Com­mer­cial Arbi­tra­tion (UNCITRAL Mod­el Law) but, unlike in oth­er Span­ish speak­ing coun­tries (e.g. Mex­i­co and Chile), Spain’s law does not mir­ror the text of the Mod­el Law word for word. Instead, it encom­pass­es inter­nal as well as inter­na­tion­al arbi­tra­tions, and both com­mer­cial and non-com­mer­cial dis­putes. More­over, the AA includes pro­vi­sions that dif­fer from the UNCITRAL text, such as those describ­ing the con­sti­tu­tion of the arbi­tral tri­bunal, the chal­lenge of arbi­tra­tors and the arbi­tra­tion pro­ceed­ings. Final­ly, the AA reflects the influ­ence of oth­er sources, such as the French and Swiss arbi­tra­tion acts or the ICC Rules of Arbi­tra­tion.

Nev­er­the­less, with the increas­ing use of arbi­tra­tion in Spain in the last years, sev­er­al flaws in the AA have emerged that need to be addressed. More­over, the Span­ish author­i­ties are com­mit­ted to pro­mot­ing arbi­tra­tion and oth­er means of alter­na­tive dis­pute res­o­lu­tion with a focus on speed and effi­cien­cy. As a mat­ter of fact, the amend­ment of the AA is accom­pa­nied by anoth­er bill that intro­duces medi­a­tion in civ­il and com­mer­cial cas­es, in an effort to reduce lit­i­ga­tion in Span­ish courts.

III. Main aspects of the reform

The pro­posed amend­ment of the AA intro­duces rel­e­vant changes, some of which are a step for­ward, while oth­ers are dif­fi­cult to under­stand, to say the least. Apart from the changes relat­ed to com­pe­tence on arbi­tra­tion issues, which I dis­cuss in the next sec­tion, the fol­low­ing changes war­rant clos­er exam­i­na­tion.

  1. Action to set aside the award.
  2. Chal­lenge of juris­dic­tion based on the mat­ter hav­ing been sub­mit­ted to arbi­tra­tion.
  3. Manda­to­ry insur­ance for arbi­tra­tors.
  4. Arbi­tra­tion of cor­po­rate mat­ters.
  5. Effect of insol­ven­cy pro­ceed­ings in arbi­tra­tion agree­ments.
  6. Pub­lic insti­tu­tions’ arbi­tra­tion.
  7. Lim­i­ta­tion of dis­sent­ing opin­ions.

1. Action to set aside the award

The reform includes three pos­i­tive changes.

a)     Until now, the AA pro­vid­ed for a manda­to­ry hear­ing before the court decid­ed on the annul­ment, regard­less of the par­ties’ opin­ion, which delayed the deci­sion and was often futile, as coun­sel would often just repeat what they had said in their writ­ten state­ments. The amend­ment estab­lish­es that a hear­ing will only be sched­uled if both par­ties ask for it, thus speed­ing the pro­ce­dure.

b)    When the action for set­ting aside is based on the ground that the arbi­tra­tors have decid­ed ques­tions not sub­mit­ted to their deci­sion (art. 41.1.c AA), the claim­ing par­ty shall first sub­mit the ques­tion to the pan­el with­in 10 days of the issuance of the award. This will give the arbitrator(s) an oppor­tu­ni­ty to cor­rect the mis­take before the par­ty files the judi­cial action, which will help reduce lit­i­ga­tion.

c)     The ground for annul­ment based in the cur­rent text on the award being “in con­flict with pub­lic pol­i­cy” would now demand that the award be “man­i­fest­ly in con­flict with pub­lic pol­i­cy,” there­fore lim­it­ing the abuse of this rea­son to chal­lenge arbi­tral awards.

2. Chal­lenge of juris­dic­tion based on the mat­ter hav­ing been sub­mit­ted to arbi­tra­tion

Chal­lenges to the juris­dic­tion of a court on the basis of the dis­pute hav­ing been sub­mit­ted to arbi­tra­tion will no longer be filed by the defen­dant with­in 10 days from ser­vice of the claim, but with­in the time giv­en to file the state­ment of defense, which is longer (20 days). Once the chal­lenge has been filed the court will stay the pro­ceed­ings and sched­ule a hear­ing before tak­ing a deci­sion. This is due to the fact that the Gov­ern­ment does not con­sid­er the chal­lenge as an objec­tion to juris­dic­tion stric­to sen­su, but rather as a pro­ce­dur­al obsta­cle (excep­ción proce­sal).

The legal ratio­nale for the change is not com­pelling since, accord­ing to a major­i­ty of authors, the agree­ment to arbi­trate deprives the courts of juris­dic­tion to adju­di­cate the claim, and hence the chal­lenge should be treat­ed as a real objec­tion to the court’s juris­dic­tion. But aside from this argu­ment, what is clear is that the amend­ment length­ens the dura­tion of the chal­lenge process, both through the longer time peri­od to file the chal­lenge as well as the manda­to­ry hear­ing. To avoid such undue delay, the hear­ing should be left to the judge’s dis­cre­tion upon request of one of the par­ties, as the sub­mis­sion to arbi­trate is often clear and there is no need to pro­duce any evi­dence to assess it (apart from the doc­u­ment con­tain­ing the arbi­tra­tion agree­ment), ren­der­ing a hear­ing inutile.

To sum up, even if the chal­lenge does not pre­vent the ini­ti­a­tion or con­tin­u­a­tion of the arbi­tral pro­ceed­ings, this amend­ment intro­duces uncer­tain­ty in the arbi­tra­tion process and incen­tivizes par­ties to take their claims to the courts even when their con­tract is explic­it­ly sub­ject to arbi­tra­tion. We can­not wel­come such inef­fi­cient change at all.

3. Manda­to­ry insur­ance for arbi­tra­tors

The reform demands that arbi­tra­tors have insur­ance to cov­er what­ev­er dam­ages they cause the par­ties by rea­son of bad faith, reck­less­ness or will­ful mis­con­duct. This is a pos­i­tive inno­va­tion, since it con­sti­tutes a guar­an­tee for any­body reluc­tant to resort to arbi­tra­tion as a means of dis­pute res­o­lu­tion, putting arbi­tra­tion on a lev­el with judi­cial lit­i­ga­tion, where judges’ lia­bil­i­ty is cov­ered by the State.

4. Arbi­tra­tion of cor­po­rate mat­ters

The Bill elim­i­nates any doubts that may exist regard­ing the arbi­tra­bil­i­ty of cor­po­rate dis­putes, pro­vid­ing that com­pa­nies’ by-laws may estab­lish the pos­si­bil­i­ty of decid­ing the chal­lenge of a social agree­ment through arbi­tra­tion. Such a pro­vi­sion will be laid out either in the orig­i­nal by-laws or by way of an amend­ment agreed upon by all the share­hold­ers. In short, this is a pos­i­tive step that but­tress­es legal cer­tain­ty.

5. Effect of insol­ven­cy pro­ceed­ings in arbi­tra­tion agree­ments

In the cur­rent text of the Span­ish Insol­ven­cy Act (Ley 22/2003 Con­cur­sal), arbi­tra­tion agree­ments are deemed void and with­out effect dur­ing insol­ven­cy pro­ceed­ings. In con­trast, the reform mea­sures state that arbi­tra­tion agree­ments will not be affect­ed by the dec­la­ra­tion of insol­ven­cy, a mea­sure undoubt­ed­ly ben­e­fi­cial for arbi­tra­tion prac­tice. As a con­se­quence of this change, actions relat­ed to the exis­tence or quan­ti­ty of a cred­it sub­ject to an arbi­tra­tion agree­ment would have the ben­e­fit of being solved through a sep­a­rate arbi­tral pro­ce­dure, where­as those that have to be decid­ed on the courts would be dealt with with­in the insol­ven­cy pro­ceed­ings.

6. Pub­lic insti­tu­tions’ arbi­tra­tion

The Bill intro­duces a manda­to­ry arbi­tra­tion sys­tem to decide in rel­e­vant dis­putes between cer­tain pub­lic bod­ies of the Span­ish state admin­is­tra­tion, putting an end to a loop­hole in Span­ish laws that was ordi­nar­i­ly filled by a de fac­to (that is, ad hoc and non-reg­u­lat­ed) regime. The reg­u­la­tion empow­ers an ad hoc gov­ern­men­tal com­mis­sion to deal with such dis­putes. While this reform makes sense, it con­cerns more admin­is­tra­tive mat­ters than arbi­tra­tion, and thus an amend­ment to the AA does not seem to be the prop­er occa­sion to intro­duce it.

7. Lim­i­ta­tion of dis­sent­ing opin­ions

The most sur­pris­ing change pro­posed by the Gov­ern­ment is the elim­i­na­tion of the ref­er­ence to dis­sent­ing opin­ions in sec­tion 37 AA. The Bill does not express­ly for­bid them, but where the AA said that “The award shall be made in writ­ing and be signed by the arbi­tra­tors, who might express their dis­sent­ing opin­ion,” it would now just say “The award shall be made in writ­ing and be signed by the arbi­tra­tors,” which could be con­strued as an implic­it pro­hi­bi­tion of opin­ions dif­fer­ent than the one sus­tained by the major­i­ty of the pan­el.

If the intent of the Gov­ern­ment is to elim­i­nate dis­sent­ing opin­ions, it should recon­sid­er such idea. From the arbi­tra­tors’ per­spec­tive, dis­sent­ing opin­ions allow them to express their par­tic­u­lar cri­teri­um on a legal mat­ter, thus pre­serv­ing their dig­ni­ty and rep­u­ta­tion before the arbi­tra­tion com­mu­ni­ty, if not their pos­si­ble lia­bil­i­ty in cas­es of a man­i­fest­ly ille­gal award pur­suant to sec­tion 21 AA. From the point of view of par­ties, such opin­ions are some­times the way of con­firm­ing that their case, even if it has not pre­vailed, has been ful­ly tak­en into con­sid­er­a­tion. For the devel­op­ment of arbi­tra­tion in gen­er­al, dis­sent­ing opin­ions fur­nish argu­ments that may in the future devel­op into gen­er­al­ly accept­ed legal doc­trines.

While they are some­times crit­i­cized on the grounds that they open the door to an action to set aside the award, and are almost always writ­ten by par­ty-appoint­ed arbi­tra­tors in favor of the par­ty that des­ig­nat­ed them, dis­sent­ing opin­ions are pos­i­tive and should not be elim­i­nat­ed. After all, many inter­na­tion­al arbi­tral insti­tu­tions pro­vide for them in their Rules (ICSID, rule 47.3) or oth­er­wise admit them when they do not express­ly reg­u­late them (ICC, LCIA). We will have to see if the leg­isla­tive process clar­i­fies the sit­u­a­tion as to the per­ma­nence of dis­sent­ing opin­ions in sec­tion 37 AA, but three dif­fer­ent polit­i­cal par­ties in Con­gress have already object­ed to this change.

IV. Com­pe­tence of the courts in arbi­tra­tion mat­ters: a great oppor­tu­ni­ty

The Act con­fers com­pe­tence on the Supe­ri­or Court of Jus­tice (Tri­bunal Supe­ri­or de Jus­ti­cia, TSJ) of each region to decide on the exe­quatur of for­eign awards, as well as on the action to set aside the award and the appoint­ment of arbi­tra­tors. These changes deserve indi­vid­ual treat­ments.

a) Exe­quatur of for­eign awards

While the main statute deal­ing with civ­il pro­ce­dur­al issues in Spain is the Civ­il Pro­ce­dure Act of 2000 (CPA 2000), the recog­ni­tion and enforce­ment of for­eign arbi­tral deci­sions in Spain is still reg­u­lat­ed by the Civ­il Pro­ce­dure Act of 1881 (CPA 1881), which until recent­ly empow­ered the Supreme Court (the top of the Span­ish judi­cia­ry) to deal with exe­quatur. Due to the Court’s work­load, enforc­ing a for­eign award could take many years. Thus, inter­na­tion­al arbi­tra­tion prac­ti­tion­ers were relieved when the leg­is­la­ture decid­ed to change this attri­bu­tion, only to learn that the First instance courts (the low­est in the judi­cial pyra­mid) were empow­ered in its place, and that the amend­ment did not pro­vide for an appeal to their deci­sion. Despite wide­spread crit­i­cism of the reform, it was approved in 2003, and quite pre­dictably in the years since we have wit­nessed a dis­may­ing vari­ance of judi­cial cri­te­ria regard­ing the enforce­ment of for­eign awards. Not even when the CPA 1881 was amend­ed in 2009 to con­fer com­pe­tence to the Com­mer­cial courts when the for­eign award dealt with cer­tain com­mer­cial dis­putes did the leg­is­la­ture take the oppor­tu­ni­ty to intro­duce a more ratio­nal reg­u­la­tion.

With the described sit­u­a­tion, I wel­come the amend­ment of CPA 1881 to con­fer com­pe­tence to the TSJs on the exe­quatur of arbi­tral deci­sions, as there are only 13 TSJ in the coun­try, com­pared to hun­dreds of First instance and Com­mer­cial courts, and this will cer­tain­ly bring uni­for­mi­ty to the Span­ish regime on the sub­ject.

How­ev­er, it is some­how sur­pris­ing that the Bill does not grant com­pe­tence to the TSJs for the exe­quatur of for­eign judi­cial deci­sions as well. To be sure, the exe­quatur of for­eign awards is not iden­ti­cal to the exe­quatur of for­eign judg­ments, as the first is sub­ject in Spain as in most coun­tries to the 1958 New York Con­ven­tion on the recog­ni­tion and enforce­ment of for­eign arbi­tral awards. But the pro­ce­dure laid down in CPA 1881 is the same for both, and the issues and legal con­sid­er­a­tions courts face when deal­ing with them are cer­tain­ly sim­i­lar. All in all, it would seem wise to empow­er the same courts to hear both kinds of exe­quatur.

b) Action to set aside the award

The pro­pos­al to trans­fer the com­pe­tence on the annul­ment action from the Provin­cial Courts to the TSJs seeks the same pur­pose of uni­for­mi­ty (there are 50 Provin­cial Courts in Spain, some of them hav­ing dif­fer­ent sec­tions with poten­tial­ly dif­fer­ent legal views). Some authors have expressed con­cerns on the change, since the Provin­cial Courts have well trained jus­tices who have already gained con­sid­er­able exper­tise regard­ing the set-aside action. How­ev­er, giv­en the over­all ben­e­fit of con­cen­trat­ing juris­dic­tion on arbi­tra­tion mat­ters in a few judi­cial bod­ies, I think the change deserves praise.

c) Appoint­ment of arbi­tra­tors

Final­ly, the Bill assigns com­pe­tence on the appoint­ment of arbi­tra­tors (when the par­ties do not agree on this issue) to the TSJs as well, to the detri­ment of First instance courts as we saw with the exe­quatur.

This means that arbi­tra­tion mat­ters would be dis­trib­uted with­in the Span­ish judi­cia­ry as fol­lows:

  • TSJs would have com­pe­tence on the exe­quatur of for­eign awards, as well as the action to set aside the award and the appoint­ment of arbi­tra­tors.
  • First instance courts would retain com­pe­tence regard­ing judi­cial assis­tance in the tak­ing of evi­dence, the adop­tion of inter­im mea­sures and the enforce­ment of domes­tic awards issued in Spain.

One issue raised by this struc­ture is that the Bill fails to clar­i­fy whether judi­cial deci­sions on the exe­quatur of for­eign awards and the refusal to appoint an arbi­tra­tor can still be appealed, as CPA 1881 and AA cur­rent­ly allow. Until now, when First instance courts were empow­ered to adju­di­cate these issues, it was clear that Provin­cial courts could hear such appeals, as they have gen­er­al juris­dic­tion on appeals against low­er courts’ deci­sions. TSJs deci­sions, on the oth­er hand, can­not gen­er­al­ly be appealed. Thus, if the Bill was approved as it is now, we would have seem­ing­ly con­tra­dic­to­ry pro­vi­sions, and we would be left to won­der whether TSJs deci­sions on arbi­tra­tion mat­ters can be appealed (quite unlike­ly) and in such case which judi­cial body will be empow­ered to hear the appeal.

Beyond that spe­cif­ic issue, the gen­er­al objec­tion I have to the scheme laid down in the Bill is that it lacks a log­i­cal ratio­nale. If the Gov­ern­ment intends to spe­cial­ize TSJs in arbi­tra­tion, why does it still reserve some of the com­pe­tences for the low­er courts? If the Bill pur­ports to assign the “super­vi­sion” com­pe­tences (action to set aside and enforce­ment of awards) to a high­er court, while leav­ing the “assis­tance” com­pe­tences to the low­er courts, why does it empow­er the TSJs to decide on the appoint­ment of arbi­tra­tors as well, which is by all accounts a judi­cial assis­tance com­pe­tence? Addi­tion­al­ly, as men­tioned before, it makes lit­tle sense for First instance and Com­mer­cial courts to retain com­pe­tence for the exe­quatur of for­eign judg­ments.

Nev­er­the­less my biggest con­cern with the Bill, again from a gen­er­al per­spec­tive, is that it miss­es the oppor­tu­ni­ty to solve an eter­nal claim among prac­ti­tion­ers: the need to cre­ate an appeal to uni­fy cri­te­ria in arbi­tra­tion issues. As we have seen it is most prob­a­ble that TSJ’s deci­sions on appoint­ment of arbi­tra­tors, action to set aside and exe­quatur of for­eign awards will be final, since they can­not be appealed. As to the rest of the issues, some of the judg­ments by the low­er courts can be appealed before the Provin­cial courts, but the Provin­cial courts’ deci­sions are final as well. There­fore, arbi­tra­tion mat­ters will be sub­ject to a great vari­ety of cri­te­ria, which is clear­ly incom­pat­i­ble with legal cer­tain­ty. Unfor­tu­nate­ly, none of the amend­ments to the Bill sub­mit­ted by the polit­i­cal par­ties in Con­gress even men­tions the pos­si­bil­i­ty of intro­duc­ing a uni­fi­ca­tion appeal.

In my opin­ion, a rea­son­able struc­ture for judi­cial com­pe­tence on arbi­tra­tion mat­ters could be the fol­low­ing:

  • Low­er courts (First instance and Com­mer­cial courts) would hear all mat­ters relat­ed to judi­cial assis­tance, that is appoint­ment of arbi­tra­tors, tak­ing of evi­dence, adop­tion of inter­im mea­sures, and the enforce­ment of domes­tic awards. Their deci­sions would be sus­cep­ti­ble of appeal to the region­al TSJ.
  • The TSJs would enter­tain the enforce­ment of for­eign awards (exe­quatur) and the action to set aside an award, and their deci­sions would not be sus­cep­ti­ble of (ordi­nary) appeal.
  • An extra­or­di­nary ‘uni­fi­ca­tion appeal’ against TSJs deci­sions, both in first instance and as appeal court, should be cre­at­ed before the civ­il sec­tion of the Supreme Court. This device would only be avail­able in sit­u­a­tions of split between TSJs, and the Supreme Court would act as a Cour de cas­sa­tion, that is it would not review the mer­its of the case but lim­it itself to estab­lish doc­trine on arbi­tra­tion issues, fol­low­ing a sort of cer­tio­rari ratio­nale, to use an Amer­i­can legal term.

V. Con­clu­sion

The Bill sub­mit­ted by the gov­ern­ment to reform the Span­ish Arbi­tra­tion Act takes steps in the right direc­tion for the pro­mo­tion of nation­al and inter­na­tion­al arbi­tra­tion in Spain. It improves the reg­u­la­tion to set aside the award, arbi­tra­tors’ lia­bil­i­ty, arbi­tra­tion of cor­po­rate dis­putes and the effect of insol­ven­cy pro­ceed­ings on arbi­tra­tion agree­ments.

How­ev­er, the amend­ment con­cern­ing the chal­lenge of judi­cial juris­dic­tion favors friv­o­lous attempts to avoid abid­ing by arbi­tra­tion agree­ments, and the elim­i­na­tion of dis­sent­ing opin­ions in the award is a mis­take that prej­u­dices par­ties, arbi­tra­tors and arbi­tra­tion in gen­er­al. More­over, the mea­sures con­cern­ing com­pe­tence of judi­cial bod­ies on arbi­tra­tion mat­ters lack coher­ence and do not fur­ther uni­form legal cri­te­ria on arbi­tra­tion mat­ters.

Span­ish pub­lic author­i­ties have empha­sized on many occa­sions their desire to make Spain, and par­tic­u­lar­ly Madrid, a first class inter­na­tion­al arbi­tra­tion seat. This is the first time the Span­ish leg­is­la­ture has attempt­ed to bring a gen­er­al amend­ment to the AA since its enact­ment in 2003. It will be long before Spain has an equal­ly promis­ing oppor­tu­ni­ty to estab­lish a coher­ent reg­u­la­tion that ensures legal cer­tain­ty, which can only be achieved with a uni­fi­ca­tion appeal. Unfor­tu­nate­ly, despite its great progress it seems that, once again, Spain is going to be late to its appoint­ment with inter­na­tion­al arbi­tra­tion.

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