Arbitration in Spain

Alternative dispute resolution and arbitration1 are gradually becoming popular in Spain.2 As in other jurisdictions, people and particularly business concerns in Spain are disillusioned by the complexity and delays associated with most formal procedures.

Following the lines of the Spanish Constitution (art. 38), arbitration allows for the freedom of choice of proceedings. This gives private persons the right to make free dispositions in their best interests, including the option of whether or not to resort to judicial proceedings to defend these interests.

Among the different theories of the nature of arbitration-contractual, jurisdictional, mixed-the Spanish arbitration system falls under the category of mixed theory because although arbitrators and judges share many similarities, the arbitration convention clearly shows the contractual nature of arbitration.3

There are a large number of institutions administering arbitration in Spain.4 Some of them specialize in a particular type of dispute (consumer, labor, maritime, etc.) Among those dealing with general commercial disputes are the Tribunal Arbitral de Barcelona, Corte de Arbitraje de Madrid, Sociedad Espanola de Arbitraje de Madrid and Corte Civil y Mercantil de Arbitraje de Madrid. The number of arbitration proceedings in Spain is still limited, but growing. For instance, arbitrations administered by the Tribunal Arbitral de Barcelona totalled 68 in 1997, 84 in 1998, and 84 in 1999.5

The Arbitration Act

According to the Spanish Arbitration Act of 1988 (the "Arbitration Act"), arbitration is the institution by "which natural or legal persons may submit, upon prior agreement, to the decision of one or several arbitrators, such litigious issues arising or which may arise in matters of which they may make free disposition pursuant to law" (art. 1).6

Thus, only topics in which the parties have free disposition pursuant to law can be the subject matter of arbitration. Issues that may not be arbitrated are those where a final judicial resolution has been rendered, matters joined with others of which the parties may not make free disposition, and issues in which the attorney general must intervene in the representation of those who are unable to act on their behalf. Labor arbitrations are also excluded (art. 2).

Advantages and Disadvantages of Arbitration

As in all arbitration in general, Spanish arbitration offers the following advantages and disadvantages:

Advantages

a) Control

Arbitration permits parties to have a greater control over the conduct of the proceedings than is the case with court proceedings. The parties can agree as to who will be the arbitrators, or on an institution to designate them. The duration of the procedure, the form of the submission of evidence, the law applicable, the language of the proceedings, etc., also may be decided by the parties.

b) Time

Lawsuits are like the winter nights, long and wearisome. Businesses require speedy and effective solutions of controversies. The normal duration of arbitration is six months, with possible extensions.

C) Privacy

The judicial process is public, and publicity may negatively affect the parties. Arbitration facilitates confidentiality.

d) Expertise

Parties are able to resort to arbitrators with expertise in the subject matter at hand.

e) Win- Win Situation

The judicial procedure usually entails the existence of winners and losers. The arbitration procedure does not, and often the companies in dispute may continue their business relations after the award is rendered.

Disadvantages

a) Cost

Arbitration does have its costs, which include remuneration of arbitrators and of experts, travel expenses, etc. This is compensated by the speediness of"the procedure.

b) Non-Enforceability

Arbitrators do not have the ability to execute the award and judicial intervention may be needed.

c) Injunctions

Arbitrators do not possess the power to issue effective injunctions to guarantee the execution of the award unless the courts intervene.

Types of Arbitration

An arbitration procedure may be institutional or ad hoc, "at law" or "in equity."

Institutional arbitration is provided by a specialized organization which normally chooses the arbitrators, determines the procedural rules, and administers the arbitration proceeding. "Ad hoc" refers to the parties agreeing on their arbitrators and rules to run the proceedings. One of the improvements of the Spanish Arbitration Act of 1988 over its precedent, the Arbitration Act of 1953, is the possibility for the parties to submit to institutional arbitration (art. 10).

Arbitration may be "at law" when the award rendered by the arbitrators is done according to the law, or "in equity" if the arbitrators grant an award to the best of their knowledge (art. 4).

Revolution of Arbitration in Spain

The Arbitration Act of 1988 paved the way for the manner in which disputes in commercial business are resolved. This Act was the first successful attempt over a long period of failed efforts to replace the Arbitration Act of 1953. At that time, lawmakers viewed arbitration unfavorably because it broke the monopoly of the state, through its public officials in the judicial system, to decide conflicts.

The current Arbitration Act eliminates the distinction between an arbitration clause, which is the promise to submit to arbitration, and the actual agreement, which contains the guidelines which need to be abided. In accordance with the Arbitration Act of 1953, ad hoc arbitration was the norm, with institutional arbitration being forbidden. Before the Arbitration Act, the default arbitration procedure (unless expressed otherwise) was at law. The Arbitration Act reversed this, making equity the default procedure. For law and equity, the only guidelines for the proceedings were the right to be heard and the right to present evidence; the rest of the procedure was unregulated. The Arbitration Act eliminates the former distinction, providing general procedural rules to both types of arbitration. The old Act only required that the agreement be witnessed by a notary public and registered. Today, such agreements must be in writing to be valid.

Arbitration Agreement

The arbitration agreement must express the unequivocal will of the parties to submit the resolution of their disputes to the decision of one or more arbitrators and to comply with such a decision (art. 5,1).

The Arbitration Act has introduced as a novelty the principle of freedom of form in the arbitration agreement. However, the agreement must be in writing as a single document or an exchange of letters or any other form of communication, which provide documentary evidence of the will of the parties to submit to arbitration (art. 6,2).

An arbitration agreement which places one of the parties in any situation of privilege whatsoever with respect to the appointment of the arbitrators would be void (art. 9,3).

The arbitration agreement prevents courts from hearing the litigious issues submitted to arbitration, provided that the interested party raises the matter in the appropriate exception (art. 11,1).

Arbitrators

Eligibility

Individuals who, as of their acceptance, are in full enjoyment of their civil rights, may serve as arbitrators. As regards arbitration at law, it is required that the arbitrators be practicing lawyers (art. 12).

Independence and impartiality are essential characteristics of arbitrators. Those who have any relationships with the parties or are involved in the dispute may not act as arbitrators (art. 12,3). In addition, the following are ineligible to serve as an arbitrator: acting judges, magistrates, attorney generals, and certain civil servants (art. 12,4).

Number

The parties may choose the number of arbitrators they wish to appoint (so long as it is an odd number). However, if the parties fail to come to an agreement the law establishes a default of three (art. 13). In practice, small matters are decided by a single arbitrator and the rest by three. In the case of multiple arbitrators, they will choose a chairman who will render the award in the event there is no majority agreement.

Designation

The parties may choose the arbitrator, either directly or indirectly through an institution which administers the arbitration (art. 14). If the parties do not agree on the appointment of an arbitrator, the court will make the appointment in a proceeding called "judicial formalization of the arbitration" (arts. 38 and 39).

Acceptance

The acceptance by the arbitrators must be in writing and received within 15 days from the date they receive the formal request (art. 15). Once the response is returned and accepted, the arbitration procedure has begun (art. 22,1).

Objections

Arbitrators may be recused on the same ground as judges (art. 17.1). Persons appointed as arbitrators are required to disclose any circumstances which may give rise to their recusal as soon as they discover them (art. 17.3).

Responsibility of Arbitrators

It is the arbitrators' duty to use their experience, knowledge, abilities and resources to bring about the just, timely, and cost-effective resolution of the proceedings. Acceptance obliges the arbitrators to "faithfully fulfill their assignment," incurring, if they do not do so, liability for damages caused by fraud or negligence (art. 16.1). This also will preclude them from performing this role in the future (art. 14).

Arbitration Procedure

Essential Principles

The arbitration procedure is largely relegated to the freedom of contract (preamble). The arbitration procedure will in all cases conform to the provisions of the Arbitration Act, and is subject to the essential principles of: a) audience (right to be heard); b) contestability (right to adversarial proceedings); and c) equality of the parties (art. 21,1).

Rules of Procedure

The development of arbitration procedure will be governed by the will of the parties or by the rules established by the institution to which the administration of the arbitration has been entrusted or, lacking such, by agreement of the arbitrators (art. 21,2).

Calendar

The calendar of action also includes the different timeframes for each phase of the proceedings. The arbitrators are not subject to specific terms in the development of arbitration, unless otherwise agreed by the parties. Nevertheless, the arbitrators set precise terms for the parties to formulate their allegations (art. 25).

Phases

a) Precautionary measures (injunctions)

A contracting party that is confident of its ability to perform a contract is likely to prefer arbitration where an injunction is available.7 Injunctions ensure the effectiveness of the arbitration awards. Injunctions in arbitration share characteristics with those in judicial procedures, including: (i) appearance of standard laws governing procedures; (ii) danger of delaying proceedings; (iii) performance of a contract.8 However, arbitrators are not able to execute an injunction; this is left in the hands of the court. Since art. 50 allows parties to ask for preliminary injuctions "when the award has been appealed," courts disagree on granting preliminary injuctions before the award is granted. Nevertheless, the new Civil Procedure Act, which will become effective in January 2001, allows courts to grant injunctions from the beginning of the arbitration procedure.

b) The initiation

The arbitration procedure begins when the arbitrators have notified the parties in writing of their acceptance of the arbitration (art. 22.1).

c) The allegations

There are two basic methods of filing allegations by the parties, simultaneously or separately. Objections to the arbitration due to a lack of subject-matter jurisdiction of the arbitrators, and the non-existence, nullity or expiration of the arbitration agreement must be raised at the time initial allegations are presented (art. 23).

d) The evidence

The parties can propose the means with which they wish to support their allegations, such as documents, witnesses, expert witnesses, arbitrators' inspection of property, etc. The arbitrators hear the evidence they consider relevant and admissible, if the parties so request or at their own initiative. The parties receive summonses to all evidence hearings and they or their representatives may participate (art. 26). The arbitrators may solicit the assistance of the court of the place where the arbitration is held, to hear the evidence they are unable to hear themselves (art. 27).

e) The conclusions

Normally the parties submit conclusions (oral or in writing) to the arbitrators comparing the allegations and the evidence submitted by both parties.

f) The award

The arbitration award decides the dispute and creates effects identical to res judicata, preventing new arbitration or judicial proceedings on the issues decided therein, between the same parties (art. 37).

Unless there is a single arbitrator, the award will be granted by majority vote, and in case of a tie, the award is rendered by the chairman (art. 34).

The award must be rendered in writing. It will at least express the personal circumstances of the arbitrators and the parties, the place in which it is rendered, the issue decided through arbitration, a succinct list of the evidence heard, the allegations of the parties, and the decision of the arbitrators. The award will be reasoned when the arbitrators decide the litigious issue at law, and the award must be signed by the arbitrators, who may dissent if appropriate (art. 32 and 33).

The Arbitration Act introduces the regulation of the possibility of correcting material errors or omissions in the award.

Unless otherwise agreed upon by the parties, the arbitrators must issue the award six months from the moment of their acceptance, or in case of the changing of one of the arbitrators (death, refusal, requisition, etc.) from the moment the change occurred. The timeframe may be extended by agreement of the parties, but only before the initial deadline. The award issued beyond the deadline is null and void and the arbitration agreement has no further effect (arts. 30 and 45).

The award must be notarized and communicated in an authenticated manner to the parties.

The costs of arbitration (arbitrators' and experts' fees, expenses, etc.) are usually shared by the parties. However, if one of the parties acts in bad faith, then the arbitrators may force the losing party to cover part or all of the costs (art. 35). The arbitrators must include a section referring to the costs of the procedure in the award.

Judicial Intervention

Judicial intervention has been limited by the Arbitration Act to the amount strictly necessary: the inability of the parties to agree on the appointment of the arbitrators (art. 38); the hearing of evidence when the arbitrators are unable to hear it themselves (art. 27); the appeal for the annulment of the award (art. 46); the adoption of precautionary measures (injunctions) (art. 50); the forcible execution of the award (art. 53); and the execution of foreign arbitration awards in Spain (art. 57).

Enforcement of Award

Awards rendered in conformity with the provisions of the Arbitration Act will be enforceable within the extension and limits of Spanish jurisdiction (art. 52). The award is enforceable as of the notification of the parties (art. 53). The arbitrators have no ability to enforce the award. Judicial intervention with respect to forcible execution begins with a petition filed to a competent judge of the first instance of the place where it was rendered. The petition soliciting execution must be in writing and be filed with the following: a) a certified copy of the award; b) documents verifying the notification of the parties and of the arbitration agreement; c) if an appeal for annulment was brought, a transcript of the judgment of the Provincial Court (art. 54).

Foreign arbitration awards are understood as being awards not rendered in Spain.10 These awards, in order to be recognized, are brought before the Civil Chamber of the Supreme Court, by any of the parties. The awards will be executed pursuant to international treaties, which form part of domestic legislation, and in the absence of such treaties, the Arbitration Act takes precedence (art. 56).

Annulment of Award The arbitration agreement does not imply a waiver by the parties of their fundamental right to judicial redress set forth in art. 24 of the Constitution. For this reason Title VII of the Arbitration Act regulates an appeal for the annulment of the award, for the purposes of guaranteeing that the initiation, development and conclusion of the arbitration proceedings are in accordance with the provisions of the law.

The award may only be annulled in the following cases (art. 45):

a. the arbitration agreement being void

b. the formalities and essential principles set forth in the Arbitration Act not having been observed in the appointment of the arbitrators or in the development of the proceedings of the arbitration

c. the award is rendered outside the established term

d. when arbitrators have resolved issues not submitted for their discretion or which, having been submitted, may not be the subject of arbitration

e. when an award is contrary to public order (there is no guideline for public order other than to use the principles of the Spanish Constitution).

Law Reform

In spite of the novelty and the advances which were brought by the Arbitration Act of 1988, there are still some issues which many feel need reform. Such issues basically center on preventive injunctions, evidence, appeal of awards, and international arbitration. Experts in the field are asking the government to update the Arbitration Act.

A favorable attitude to arbitration by lawyers, judges, and the public in general is perceived. Lawyers and businessmen increasingly understand the advantages that arbitration involves, such that a new flourishing of this institution in Spain can clearly be foreseen.