A. LEGISLATION AND RULES
A.1 Legislation
On 21 December 2023, Royal Decree 1130/2023 came into force. It included a new article (Article 16 bis) on Royal Decree 1023/2015, introducing a mandatory arbitration proceeding for disputes arising from authorizations granted by newspaper publishers and news agencies to information society service providers, as foreseen in Article 129 bis.3.d) of the Spanish Intellectual Property Law.
This proceeding must be held before the First Section of the Intellectual Property Commission following the procedure established in Chapter V of Royal Decree 1023/2015, with the following particularities: (i) the authorization from newspaper publishers has to be submitted with the arbitration request; (ii) the proceeding should not be suspended when the respondent does not appear before the First Section within the period determined for this purpose; and (iii) the final award might include the agreements reached by the parties, which could fully or partially resolve the dispute.
A.2 Approval of the new Arbitration Rules of the Madrid International Arbitration Center
On 19 October 2023, the new Arbitration Rules of the Madrid International Arbitration Center (MIAC) were published. The rules entered into force on 1 January 2024, and will be applicable to arbitration applications filed from that date. Among the most important changes are: (i) the introduction of the highly expedited procedure, which: a) can only be initiated by express agreement between the parties, b) has no limitation of amount, c) can only be processed before a sole arbitrator, and d) establishes a time limit for rendering the final award of three months since the filing of the statement of claim; and (ii) the elimination of the specific regulation on corporate arbitration.
B. CASES
B.1 Award annulment proceedings: An arbitration agreement cannot prevail over the consumer protection regulation in the context of EU public order (Judgment of the Madrid High Court of Justice no. 2/2023, dated 24 January 2023)
This proceeding arose from a contractual dispute between a consulting service provider and a French customer. The customer filed a claim for malpractice against the service provider before the French courts, ignoring the arbitration clause in the contract. The claim was based on the EU directive on unfair terms in consumer contracts, which allows a customer to file a claim before one’s homeland jurisdiction.
When the proceedings before the Appealing Court of France ended, the consulting service provider filed an arbitration claim in Spain, seeking compensation for all the expenses from the French proceedings on the grounds of an arbitration clause breach committed by the customer.
The award stated that the customer must compensate the service provider for the costs incurred during the French proceedings since the previous contractual arbitration clause had been overlooked. Moreover, the arbitrator declared the existence and correctness of the arbitration clause, as agreed by the parties, in an interlocutory award, which was not appealed by the customer during the arbitration proceedings.
On these merits, the client filed an award annulment claim, alleging that: (i) the arbitration clause was not valid pursuant to the European Consumer Rights Directive; and (ii) the Appealing Court of France had previously declared the arbitration clause not valid, given that the intra-EU judgments are directly effective in Spain.
On the other hand, the service provider alleged that the arbitration clause was valid, and the arbitrator had also declared its own competence by virtue of the kompetenz-kompetenz principle, which was not challenged by the client.
Finally, the Madrid High Court of Justice chimed in with the client’s argumentation, declaring that consumer protection regulation is an essential principle of EU public order, and therefore of Spanish public order (Article 41.1.f Spanish Arbitration Act). Consequently, the Madrid High Court of Justice clarified that a provision that limits the customers’ right to bring a claim before the jurisdiction is null and void.
Additionally, the Madrid High Court of Justice’s judgment stated that the judgment of the Appealing Court of France must be observed, which led to the annulment of the award.
B.2 Arbitration in law or in equity (ex aequo et bono): Preference of arbitration in law in the absence of clear agreement between the parties (Judgment of the Madrid High Court of Justice No. 26/2023 dated 23 June 2023)
In this case, two parties entered into two contracts (one in 2004 and the other in 2013) for the provision of catering and cafeteria services. The parties agreed to an identical arbitration clause in both contracts, which established that the parties expressly submitted to arbitration in law or in equity, to be chosen by both parties, to resolve any differences that might arise regarding the performance or interpretation of the contract.
The defendant unilaterally terminated the contracts, and the plaintiff claimed compensation for the contractual termination and urged them to go to arbitration to settle the dispute. However, the defendant refused to pay the compensation and to submit the dispute to arbitration. Consequently, the plaintiff filed a claim requesting the court to appoint an arbitrator and that the arbitration be carried out in equity. The defendant opposed the claim, agreeing to the appointment of the arbitrator but arguing that the arbitration should be in law.
The Madrid High Court of Justice established that although the two arbitration clauses admitted both types of arbitration (in law or in equity), in the absence of an agreement between the parties, the Spanish Arbitration Act establishes a preference for arbitration in law when it is to be decided by a single arbitrator (Articles 15.1 and 35.1 of the Spanish Arbitration Act). Moreover, in view of the nature of the legal matter at issue, which was the examination of the unilateral termination of the contracts and its consequences that have a broader content than the economic, the court determined that it is more appropriate that the arbitration be conducted in law.
B.3 Award annulment proceedings: The limits of the revision of the courts on the annulment proceedings through a dissenting vote (Judgment of the Madrid High Court of Justice no. 1/2023, dated 17 January 2023)
In this case, the award annulment claimant seeks the annulment of the equity award rendered by the Court of Arbitration of the Official Association of Architects of Madrid.
The arbitration was initiated by a constructor who asked for the payment of the extra costs incurred during a construction project and for the extension of the execution period of 54 labor days. The award granted compensation for the extra costs of the extension during 59 labor days.
The contractor filed an award annulment proceeding. As principal merit, the contractor claimed that the award should be annulled according to the Spanish public order (pursuant to Article 41.1.f. Spanish Arbitration Act) since the award contained a serious miscalculation, which was sustained by the inability of the contractor to produce a relevant document which was in fact produced during the arbitration proceeding. In the alternative, it is alleged that the compensation held by the arbitrator was also larger than what was claimed.
The constructor alleged that the arguments of the contractor referred to the substance of the matter and could not be invoked during the annulment procedure since the annulment proceeding is not a second instance proceeding.
The Madrid High Court of Justice dismissed the constructor’s main contention (i.e., the miscalculation), stating that the action for annulment is not a second instance action and it is not possible to re-examine the disputed facts on the merits. The Madrid High Court of Justice also understands that the claimants’ arguments are attempts to re-evaluate the evidence submitted during the arbitration proceeding, which is out of the scope of the award annulment proceeding.
However, the Madrid High Court of Justice also considered that the compensation set out in the award was blatantly higher than requested by the applicant, and it was therefore agreed to uphold the correction of the difference, according to Article 41.1.c. of the Spanish Arbitration Act.
The most interesting aspect of this case is the dissenting opinion of one of the magistrates of the Madrid High Court of Justice. In view of the extensive Constitutional Court case law, the magistrate concludes that the review of compliance with public order enables the courts to study and review the internal logic of the arbitrators’ decision beyond the existence of a statement of reasons of any kind. In the opinion of the magistrate, the award contains illogical reasoning that leads him to apply the excess of compensation challenged and concludes that the Madrid High Court of Justice’s review should have been sufficiently thorough to identify and remedy the arbitrator’s error.
B.4 Extension of statutory arbitration clause: The corporate director’s liability cannot be submitted to arbitration under a statutory arbitration clause, which only provides for arbitration for disputes between shareholders (Judgment of the Navarra High Court of Justice No. 15/2023 dated 9 October 2023)
A shareholder of a limited liability company filed an application for the judicial appointment of an arbitrator against the company to file a corporate liability action against its director. The request was based on the grounds that the articles of association contained a submission to the arbitration clause, which provides that: “Any dispute between the shareholders and the company or between the shareholders themselves shall be submitted to arbitration.”
The company opposed the request for the judicial appointment of an arbitrator, arguing that the subject matter of the claim was to file an action for corporate liability against the company’s director, not a dispute between shareholders or the company, and therefore, the claim would not fall within the scope of application of the arbitration clause.
The Navarra High Court of Justice considered that, in addition to the fact that the request for the appointment of an arbitrator should have also been addressed against the concerned director, the literal wording of the arbitration clause did not include in its scope of application the liability actions against the administrators, and in no case could it be interpreted in an extensive manner to include the liability actions against directors.
B.5 Award annulment proceedings: The acquiring company of one of the parties in an arbitration proceedings has the right to replace the acquired party once the merger is duly notified to the Arbitration Court (Judgments of the Castilla La Mancha High Court of Justice no. 2/2023, dated 2 October 2023)
During a transport-related dispute before the Transport Arbitration Court of Albacete, the defendant company was acquired by a third company, who duly notified the Transport Arbitration Court of Albacete of the merger and claimed its right to formally appear replacing the acquired defendant. However, the absorbing company was not further notified of the course of the proceeding by the Transport Arbitration Court of Albacete. As a consequence, the absorbing company, who then was acting as a defendant, did not appear in the hearing and lost the opportunity to refute the plaintiff’s allegations.
Given the situation, the absorbing company filed an award annulment claim with the Castilla La Mancha High Court of Justice, alleging that Spanish public order and the fundamental right to effective judicial remedy had been infringed since both parties should have the same opportunities and legal remedies on a civil dispute resolution proceeding, as granted on the Spanish Constitution (Article 24).
In this regard, the Castilla La Mancha High Court of Justice required the Arbitration Court to provide further explanations and finally considered that the Transport Arbitration Court of Albacete was unable to clarify its actions in this regard since the absorbing company was unable to appear on the hearing as the new defendant, resulting in an infringement of the Spanish public order. The award was consequently annulled.
B.6 Exequatur proceedings: Refusal of the partial recognition of an award requested by a party that only sought the recognition of the beneficial provisions but not the recognition of the unfavorable provisions of the award (Judgment of the Cataluña High Court of Justice No. 92/2023 dated 15 June 2023)
Within exequatur proceedings of a Croatian arbitral award rendered by the ICC, one of the parties to the proceedings requested the full recognition of the award in Spain, and the other party only requested its recognition in relation to those provisions of the award that were favorable to it, pursuant to Article 50 of the International Legal Cooperation in Civil Matters Act (ILCCM) and Article VI of the Convention on the New York Convention.
The Cataluña High Court of Justice stated that Article 50.3 of the ILCCM establishes that “partial enforcement of a decision” may be requested, but not its partial recognition. On the other hand, that Article 49 of the ILCCM provides that “[w]hen the foreign decision has been pronounced on several claims and the totality of the decision cannot be recognized, recognition may be granted for one or several of the pronouncements.” However, the court clarified that: (i) the two articles alleged by the party that sought the partial recognition of the award only refer to the recognition and enforcement of foreign judicial decisions, not arbitral awards; and (ii) the ILCCM does not directly regulate the exequatur of foreign awards, so it would be necessary to apply the New York Convention.
The court finally rejected the request for partial recognition, reasoning that the recognition only of the beneficial provisions of an award cannot be claimed, leaving the unfavorable decisions outside the scope of recognition, especially when the other party had requested the full recognition of the award and all the decisions of the award arise from the same contract.
B.7 Award annulment proceedings: Each party involved in the arbitration agreement must take part in the arbitration proceeding to preserve the fundamental right to an effective judicial remedy (Judgment of the Madrid High Court of Justice no. 18/2023, dated 3 May 2023)
Four seller companies entered into a sale-purchase agreement with a buyer company related to the shares of a third company. The contract included a submission to arbitration for any dispute, also stating that all the sellers must appear as the initial shareholders in the arbitration proceedings arising from the contract.
Three of the four seller companies filed an arbitration claim for the buyer’s contractual liability and pursued a price adjustment of the contract. The remaining seller company, who had signed an arbitration waiver agreement, filed the claim against the buyer before an ordinary court on the same merits.
The arbitration award stated that the last company should have appeared as an interested third party. However, the administration services of the arbitration court denied this procedural condition. The arbitrator agreed with the administration services of the arbitration court’s decision and finally denied the participation of the buyer company through an interlocutory award.
Under these circumstances, the buyer company filed a counterclaim seeking a contractual liability compensation against the claimants (three of the four initial shareholders, as mentioned). On these merits, the buyer company also filed an award annulment claim before the Madrid High Court of Justice since it was not possible to file its counterclaim against the four initial shareholders while the arbitration clause stated that all the seller companies should appear on the arbitration proceeding (as granted by the Article 24 of the Spanish Arbitration Act).
The Madrid High Court of Justice rendered a judgment declaring the interlocutory award annulled. Firstly, the Madrid High Court of Justice stated that what the arbitration court administration decides is not relevant since only the arbitrator’s final decision is relevant to the case. Secondly, the decision considering one of the buyer companies as a third party and considering that the company should not appear in the arbitration procedure is a clear infringement of public order (according to Article 41.1.f. Spanish Arbitration Act).
The Madrid High Court of Justice also stated that the arbitrator did not respect the right to be heard of one of the buyer companies (granted by Article 24 of the Spanish Constitution), which was directly affected by the award resolution and unequivocally included in the arbitration agreement.
Additionally, the annulment judgment also declared that the waiver agreement does not affect the existence of the arbitration clause, and any sign of a lack of opportunities to exercise the right of defense may cause the invalidity of the proceeding.
B.8 Interim measures: Impossibility for a court to grant an interim measure to suspend arbitration proceedings (Judgement of the Barcelona Court of Appeal No. 1/2023 dated 9 January 2023)
In this case, a company and an individual entered into an architecture contract in 2017 and into a construction contract in 2018, both in connection with a construction project of the individual’s house. In the construction contract, the parties submitted to arbitration; in the architecture contract, there was no submission clause.
As a result of disagreements between the parties in relation to the works performed, the owner of the house filed a request for arbitration. In the arbitration proceedings, the claimant filed some petitions that were not related to the construction contract but to the architecture contract. After this arbitration request, the construction company filed a claim before ordinary courts, seeking: (i) the declaration of nullity of the arbitration clause due to the absence of consent and, subsidiarily; (ii) a declaration that the arbitration clause contained in the construction contract could not be extended to the disputes related to the architecture contract, as it did not contain a clause of submission to arbitration.
Furthermore, the company filed an interim measure requesting that the Arbitral Tribunal be required to suspend the actions related to the architecture contract until the final decision in the judicial proceedings on whether the Arbitral Tribunal could hear the issues that were raised in relation to said contract is handed down.
It should be noted that prior to the filing of the claim and the interim measures, the parties held a procedural conference before the Arbitral Tribunal, in which they agreed that the decision on the jurisdiction of the Arbitral Tribunal would ultimately be dealt with in the award. Therefore, according to the company, when the interim measures were requested, the Arbitral Tribunal did not have jurisdiction and therefore could not and should not be hearing the issues related to the architecture contract. On the other hand, the claimant in the arbitration objected to the interim measures, alleging that determining whether the issues related to the architecture contract are subject to arbitration is one of the issues expressly submitted to the arbitrators.
In view of the above, the Barcelona Court of Appeal established that Spanish courts are not legally empowered to suspend arbitration proceedings, so the request for interim measures was dismissed.
B.9 Award annulment proceedings: Any procedural defect is not a ground for annulment of the award (Judgment of the Madrid High Court of Justice no. 43/2023, dated 5 December 2023)
In this case, two spouses divorced with judicial approval of a regulatory agreement that submitted the related disputes to arbitration. The regulatory agreement included compensatory maintenance, which the debtor divorced spouse had to pay to the creditor divorced spouse. However, the debtor did not pay the compensation, and the creditor filed an arbitration claim, which sentenced the debtor to pay the compensatory maintenance.
During the arbitration proceeding, the debtor filed a request to orally expose the final pleadings of the case. The arbitrator decided not to attend to the request, and therefore, the final pleadings were submitted in writing. The debtor filed the annulment claim grounded on, among other arguments, a breach of the right to be heard and the imperative regulations of the arbitration proceeding.
The Madrid High Court of Justice dismissed the claimant’s merits and stated that the claimant did not submit nor request any personal evidence (which had to be conducted with the arbitration court’s presence). Therefore, both parties had the same opportunities to present their arguments in their respective procedural statements. Consequently, a mere procedural irregularity does not necessarily represent a breach of the procedural rights of the parties. The annulment claim was eventually dismissed.
