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Spain to Review Arbitration Law
Aug 31 2010

The Spanish Council of Ministers has approved a draft bill to amend the 2003 Spanish Arbitration Act, which will now be submitted for approval by the Spanish Parliament. The draft bill, which was approved in mid-July, contains provisions similar to draft proposals that were announced in February 2010 by the Spanish Minister of Justice.

The draft bill includes certain improvements in relation to international arbitration procedure, but could also introduce some controversial elements into arbitration in Spain. It is hoped that, as the Spanish Parliament reviews the draft bill, it will reconsider and then eliminate these controversial elements.

Involvement of higher courts
The draft bill provides for the power to support arbitration proceedings, including assisting in the appointment of arbitrators and the recognition of foreign arbitral awards (which are currently entrusted to first instance and commercial courts) as well as actions to set aside arbitration awards (which are currently decided by the provincial courts), to be reallocated to the high court of the corresponding autonomous community for both civil and commercial matters. Autonomous communities in Spain are regional governments (for example, in Catalonia and Andalusia) that have wide legislative and executive autonomy from the Spanish central government.

Although such a move to the higher courts would favour uniformity and reduce the risk of contradictory jurisprudence, there are also proposals to go further and leave the recognition of foreign arbitral awards to the Supreme Court. The proposed reallocation to the higher courts would also remove the current need to distinguish between civil and commercial matters (in Spain, the higher courts have jurisdiction over both civil and commercial cases, whereas the lower courts have jurisdiction over either civil or commercial matters).

Public policy
The draft bill restricts the use of public policy as a ground for setting aside an arbitration award. Under the proposed amendments, only a manifest breach of public policy would be a sufficient ground to justify setting aside the arbitration award. This proposal follows other international jurisdictions that are supportive of international arbitration by restricting the potential for review of arbitration awards and limiting challenges on the basis of public policy.

Exception to jurisdiction
If court proceedings are commenced despite the existence of an agreement to submit a dispute to arbitration, the current position in Spain is that the defendant may ask the court to refer the case to arbitration before filing its statement of defence in the court proceedings within a set deadline.

The draft bill proposes restricting the power of judges to consider whether the dispute should be submitted to arbitration only to cases where the arbitration agreement is manifestly null and void or unenforceable. There are also proposals for further restrictions so that the judge would only be able to consider whether the dispute should be submitted to arbitration on the grounds of manifest nullity and where the arbitration has not yet commenced. Such proposals favour arbitration by reducing opportunities for parties to engage in delaying or obstructive practices before the courts. However, the draft bill would also allow a defendant to defer its request for referral to arbitration until it files its statement of defence in the court proceedings, which does not seem to be justified and would reintroduce the risk that a tacit submission to jurisdiction could be mistakenly imputed into the statement of defence. A simple extension of the deadline for the statement of defence could accomplish the same objective and avoid a jurisdictional objection being dealt with concurrently with the substantive allegations in the case.

Insurance and guarantee of independence
The draft bill requires arbitrators or arbitral institutions to have insurance for the liability of arbitrators. Moreover, it is proposed that arbitral institutions be responsible for guaranteeing the transparency and independence of arbitrators.

These provisions are one of the major drawbacks of the new proposals for international arbitration in Spain. As other jurisdictions have moved toward providing arbitrators with immunity from claims (in order to favour arbitration), by comparison Spain would find it harder to attract qualified arbitrators, and it is less likely that Spain would be chosen as a seat of arbitration by international institutions if such insurance requirements and the guarantee are introduced. Further, given the amounts at stake in international arbitration, most arbitrators and institutions would not be able to assume the risk and find insurance at a reasonable cost.

Obligation to provide reasoning for the arbitration award
The draft bill introduces an obligation to provide reasoning in the arbitration award and eliminates the express right of arbitrators to issue a dissenting opinion. Although the concerns of the Ministry of Justice in introducing such proposals are understandable, these provisions seem very restrictive. The significant weight generally given in international arbitration to flexibility and agreement between the parties would favour a more open approach, which would allow the parties to an arbitration to agree to an unreasoned award and allow a dissenting opinion in the absence of an express prohibition by the parties.

Arbitration of corporate disputes
The Spanish Government also proposes to amend Spanish corporation law so that challenges to corporate resolutions by shareholders or directors can be submitted to institutional arbitration. However, even if such an amendment clarifies the existing contradictory jurisprudence on the arbitrability of challenges to corporate resolutions, there is no obvious reason for restricting this to institutional arbitration. Further, an explicit extension of this provision to other claims undertaken by or against shareholders, directors or liquidators would also be desirable.

In summary, although the project for the amendment of Spanish arbitration law contains some good proposals that will promote international arbitration in Spain, other proposed amendments could damage Spain as a venue for international arbitration. It is to be hoped that in the course of reviewing the draft bill, the Spanish Parliament will correct these proposals to overcome such objections.