Recent Spanish Constitutional Court case law strengthens Spain as a seat for arbitration

May 2021

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Background

There has always existed an open debate in Spain amongst scholars and arbitration practitioners around the limited grounds for annulment of arbitral awards based on the Spanish Arbitration Act (the “SAA”). The reason: over the last decade, the majority of the decisions from the Spanish High Courts of Justice have allowed the setting aside of awards based on (in the opinion of many scholars) a rather flexible interpretation of the margins of public policy.  It has been argued that in practice, this has on occasion, led to a review of the merits of a case.

In a welcome sign for the future of arbitration in Spain, the Spanish Constitutional Court (the “CC”) has recently issued a series of judgments (the “CC Judgments”) that will (hopefully) put an end to the above controversy.  These decisions confirm that it is not permissible for a Tribunal to interpret the concept of public order in a manner which in effect allows it to review the grounds of a case.  This is because, due to the jurisdiction imposed upon the arbitral panel arising from the private and consensual nature of arbitration, the arbitral tribunal is the only body empowered to make a ruling about the merits of the case.

The Position prior to the CC Judgments

The Spanish arbitration system, following the UNCITRAL Model Law, allows annulment of awards only based on limited grounds expressly listed in the SAA.  Amongst these, public policy is the one that, without doubt, has been utilized by applicants in most nullity actions.

In recent years, the attractiveness of Spain as an arbitral seat has been adversely impacted as a result of a numerous awards (relating to a diverse range of subject matter) being successfully set aside on the basis that the awards infringes public policy. In doing so, the High Court of Justice had broadened the public policy ground of annulment by maintaining that lack of motivation and arbitrariness in awards violates public order and, consequently, constitutes a breach of the constitutional right of effective judicial protection guaranteed by the Spanish Constitution.

Such an extensive interpretation (defended by the Madrid High Court of Justice) has allowed Tribunals to re-examine the points of a case submitted to arbitration, which goes against the original intent of arbitration proceedings and, infringes upon the autonomy of the parties: which is the essence of arbitration.

The Position after the CC Judgments

Judgment no. 46/2020, of the Spanish Constitutional Court, handed down on 15 June 2020, (“CCJ 46/2020“) was the first decision to set a clear precedent clarifying the limits of review of arbitration awards by the Spanish Tribunals.  This decision was quickly followed by Judgments no. 17/2021, of 15 February 2021 (“CCJ 17/2021“) and no. 55/2020 and no. 65/2020, of 15 March 2021 (“CCJ 55/2021” and “CCJ 65/2021“).

All of these judgments have upheld the appeals brought by the successful party in the arbitral proceedings, against the rulings of the Madrid High Court of Justice that had previously annulled the arbitral awards issued on the basis that they infringed public order, for the following reasons:

  • The concept of public policy as a ground for setting aside arbitral awards must be interpreted restrictively (rather than broadly). In CCJ 17/2021, the CC stated that judicial control of an award and of its compliance with public policy shall never result in the court superseding the arbitral tribunal in its duty to apply the law to resolve a dispute. The CC confirmed that a mere disagreement by the court with the legal conclusions reached by the arbitral tribunal does not imply a violation of public order and, therefore, does not provide reason to conduct a review of the merits of a case.
  • The reasoning of the awards. CCJ 17/2021 addressed the arbitrators’ duty to provide reasoning in arbitral awards, stating that it is not necessary for an arbitral award to contain an exhaustive justification of all the arguments and facts presented by the parties, but rather that is sufficient for it to simply provide the criteria upon which the award is based. Further, the Court in CCJ 65/2021 held that an award cannot be annulled simply because the conclusions reached by the arbitrator are, in the eyes of the court, erroneous or insufficient. Rather it is necessary to show that the procedural guarantees of the arbitration proceedings were not followed. In essence, the duty to provide reasoning for judicial decisions differs that applicable to arbitral awards.
  • Finally, the parties’ autonomy is fundamental to arbitration proceedings, and must be guaranteed at all times. In this regard, both decisions of the Court in CCJ 46/2020 and CCJ 55/2021 upheld a constitutional appeal brought against the decision of the High Court of Justice of Madrid that previously had ruled on an action for annulment of an award, despite the fact that parties had withdrawn the action (having reached an out-of-court agreement). The CC considered that the Madrid High Court of Justice’s decision not to close the case and, instead, opting to review the reasoning of the award was contrary to the standard of reasonableness of judicial decisions and to the dispositive principle inherent to civil proceedings and, therefore, infringed the applicant’s constitutional right to effective judicial protection.

Conclusion

These recent judgements of the Spanish Constitutional Court have confirmed the adoption of a pro-arbitration stance by Spanish Courts and will undoubtedly contribute to the promotion Spain as a seat for international arbitration. Time will tell if this change of criteria is definitive, as it is now envisaged by scholars, and what future developments we will see.  Watch this space for regular updates on how this topic evolves.

 

 

 

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