Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Dispute Resolution volume discussing topics including Brexit’s impact on choice of law and jurisdiction, market competition and the popularity of ADR within key jurisdictions worldwide.
1 What are the most popular dispute resolution methods for clients in your jurisdiction? Is there a clear preference for a particular method in commercial disputes? What is the balance between litigation and arbitration? What are the advantages and disadvantages of the most popular dispute resolution methods?
Litigation firstly and arbitration otherwise are the most popular methods in Spain. Regarding mediation, there is no rooted culture – not because no one, especially in the business world, believes that the best way to settle a dispute is extra judicially, but because the current law does not encourage mediation.
Certainly, the law is relatively recent and should still be promoted more and generate more mediators and mediation institutes. However, the law has not established a mechanism to dissuade the parties from resorting to litigation if there is a sensible proposal to avoid it. Neither has the law established that a litigant that has unfairly rejected mediation must suffer the consequences for this attitude. That is, in my opinion, the way in which mediation would be encouraged in Spain.
One of the consequences of the covid-19 pandemic is that many voices are encouraging mediation and other alternative disputes resolutions. In these circumstances, arbitration should be considered as a way to avoid the actual court delays. Nevertheless, mediation, as a quick and less expensive resolution method, is the solution for many disputes that, otherwise, would inundate our courts.
The government has prepared a draft bill that, if approved, would mean parties who refuse pre-litigation mediation would be penalised with regard to the imposition of costs. The draft text provides that the current rule of awarding costs in favour of the successful party would be modified so that they would be waived in cases where a party has refused expressly, or by conclusive acts, and without fair cause, to participate in a negotiation, mediation or any other appropriate means of dispute resolution to which it has been effectively summoned, when legally required or agreed by the court during the course of the proceedings.
In the case of a partial award, each party shall pay the costs incurred at its own request unless the defendant has failed, without good cause, to seek mediation or other appropriate means of dispute resolution, where legally required or agreed by the court during the proceedings, in which case the defendant may be ordered to pay the costs.
Finally, regarding the advantages and disadvantages of the most popular dispute resolution methods, I think they can be summarised in terms of time and money. For example, arbitration as a method of dispute resolution is expensive and obtaining an award can take as long or sometimes longer than a first instance judgment. But, in return, the parties are assured that the arbitral decision is virtually final, whereas the judgment may be subject to up to two further appeals in the jurisdiction. Mediation is the quickest and cheapest method of resolving a dispute and, if the draft bill finally goes ahead, it will perhaps be the most convenient. At the very least, it should not be rejected beforehand as is currently the case.
2 Are there any recent trends in the formulation of applicable law clauses and dispute resolution clauses in your jurisdiction? What is contributing to those trends? How is the legal profession in your jurisdiction keeping up with these trends and clients’ preferences? What effect has Brexit had on choice of law and jurisdiction clauses?
We are seeing more and more submission clauses to a pre-dispute negotiation method. Of course, the expected reform of the Procedural Law will clearly contribute to the increase of such clauses. I recommend that lawyers who are experts in drafting contracts pay close attention to the final wording of the Procedural Reform Law because, depending on how the regime for the application of costs is finally configured, the wording of such contracts will be of enormous importance.
We are also seeing a good deal of arbitration clauses in contracts, especially those entered into with parties from different countries. The covid-19 pandemic is influencing litigation and parties should rely on arbitration to avoid delays in the ordinary courts.
Regarding Brexit, there continues to be an increase in the attribution of jurisdiction to international arbitral courts to avoid the uncertainty associated with the current situation. Firms such as Squire Patton Boggs are devoting enormous efforts to advising clients to take into account the different variables of the upcoming months, including those arising from the parties’ inability to reach an agreement on services. The European Union’s recent refusal to include the United Kingdom in the Lugano Convention should be taken into account, which makes the situation even more complex.
3 How competitive is the legal market in commercial contentious matters in your jurisdiction? Have there been recent changes affecting disputes lawyers in your jurisdiction? How is the trend towards ‘niche’ or specialist litigation firms reflected in your jurisdiction?
The covid-19 pandemic is quickly changing the legal market. The current legal environment is similar to the one that originated following the 2008 financial crisis, with insolvency litigation-related matters, injunctions, enforcement of guarantees, force majeure related litigation, among others.
Firms in general are strengthening their litigation departments because of the increase in litigation that we expect in the coming months. We expect that the legal market will continue to be highly competitive, although fees reduction pressures should not constrain certain legal firms with an international clientele.
4 What have been the most significant recent court cases and litigation topics in your jurisdiction?
Pending the expiry of the transitional period that the government has extended until the end of this year in relation to insolvency matters, the key issue in the past 12 months have been the application of force majeure and rebus sic stantibus to the enforcement of contracts. Although we still do not have enough doctrine in this area because there has not been enough material time for such cases to reach the High Courts, the first instance courts have seen numerous cases in which either the termination due to force majeure or the modification of the contract due to the application of the rebus sic stantibus doctrine has been raised.
5 What are clients’ attitudes towards litigation in your national courts? How do clients perceive the cost, duration and the certainty of the legal process? How does this compare with attitudes to arbitral proceedings in your jurisdiction?
Before the covid-19 pandemic, my impression was that clients’ attitudes had improved slightly with regard to the functioning of the commercial courts, perhaps because they were gradually freeing themselves of the insolvency proceedings that had paralysed them during recent years. The pandemic may affect those attitudes, however, because of the expected increase of insolvency-related proceedings. Taking into consideration that those type of matters are decided by the commercial courts, other matters brought to those courts, such as IP or unfair competition-related matters, may be delayed because of the expected amount of work in those courts.
Therefore, parties should consider the convenience of introducing mandatory ADR clauses in their commercial agreements. It would also be advisable to include arbitration clauses, even though arbitration might be more expensive than ordinary litigation. Parties should carefully consider the different arbitration institutions’ costs before agreeing on submission to an arbitration institution.
6 Discuss any notable recent or upcoming reforms or initiatives affecting court proceedings in your jurisdiction.
As expected in the context of the pandemic, the government has composed a preliminary draft reform of the civil procedure law, which will affect the different areas that are considered to contribute to the speed of procedures.
As regards alternative dispute resolution, the draft bill lists various alternative means, such as negotiation, private conciliation, confidential binding offers, independent expert opinions, mediation, as well as other procedures provided for in special legislation, such as that concerning consumers. However, the most important novelty is what I highlighted in question 1, concerning the imposition of costs. If the preliminary draft is approved as it stands, this aspect will mark a turning point in the implementation of these alternative measures.
Along the same lines, it is proposed to reintroduce the obligation to attend a mediation-type dispute resolution procedure, or accreditation that a binding offer has been sent, among other similar measures. All of this is configured as a requirement to be able to subsequently file a lawsuit.
Another important reform is to promote the holding of hearings by videoconferencing.
7 What have been the most significant recent trends in arbitral proceedings in your jurisdiction?
The covid-19 pandemic will have an impact on arbitration. Some arbitral institutions have considered requesting suspension of the procedural terms during the state of alert. However, arbitration matters may move faster than ordinary court proceedings because of the actual suspension of ordinary court activity.
New arbitration matters will deal with the application of force majeure motions to contracts. However, enforcement of foreign arbitral awards should not be affected by the pandemic because the competent courts are the Superior Courts of Justice and these courts should not be overloaded with work.
That aside, investment arbitration filed against the Spanish state by investors in the photovoltaic field has definitely been a significant trend, specifically because recent decisions have rejected claims against the Spanish state.
8 What are the most significant recent developments in arbitration in your jurisdiction?
Investment arbitration filed against the Spanish state by investors in the photovoltaic field remains the most significant trend, specifically because recent decisions have rejected claims against the Spanish state.
New arbitration matters will deal with the application of force majeure motions to contracts.
Also highly significant was the judgment of the Constitutional Court of 15 June 2020, which clarified certain judgments of the higher courts of justice that had examined the merits of a case based on public policy. The judgment of the Constitutional Court is clear in stating that the courts cannot use the public policy argument as a means of entering into the merits of a case decided in arbitration.
9 How popular is ADR as an alternative to litigation and arbitration in your jurisdiction? What are the current ADR trends? Do particular commercial sectors prefer or avoid ADR? Why?
Mediation is still a pending subject. It is not the case that in Spain there is no culture of mediation, most directors of corporate legal advisers would be in favour of mediation if they did not perceive it as an impractical instrument. However, as explained in question 1, if the draft bill on the reform of civil procedure is approved as it is drafted, it will be a definitive step forward in the implementation of a culture of mediation in Spain.
For the time being, the initiatives that have been developed by some courts, such as summoning the parties to an explanatory meeting on mediation, are not likely to be more useful.
10 What is the position in relation to litigation funding in your jurisdiction? Is funding available? Have there been any significant developments in this area in your jurisdiction?
Spain can be considered as an emerging country in the field of litigation funding. Of course, the law does not prohibit this type of investment, but its limited tradition, as well as the fact that the usual type of procedure in which it is usually invested, class actions, do not exist as such in Spain and have a more limited scope, determines that this type of investment is not yet commonly used. On the other hand, investment in litigation also makes sense in countries where the cost of civil litigation tends to be very high, due to the need to obtain evidence or to carry out discovery, for example.
This does not mean that it will not be used. I think we will see it being used more and more, but possibly in the field of arbitration.
It will also be very important to know how the previous draft law on the reform of civil procedure will finally materialise, because the change of paradigm in mediation can also contribute to the implementation of investment in litigation.
The Inside Track
What is the most interesting dispute you have worked on recently and why?
Litigation concerning the modification of contract conditions as a consequence of the application of the rebus sic stantitus doctrine in the wake of the covid-19 pandemic. In Spain, the application of this doctrine, which allows the modification of certain conditions of a contract if the circumstances that gave rise to the contract have changed significantly, has always been very restrictive. For example, it was rarely applied by the courts in the aftermath of the financial crisis of 2008. However, the pandemic has created a different, totally unexpected and certainly catastrophic situation.
What do you consider to have been the most significant legal development or change in your jurisdiction of the past 10 years?
The first five years of the 2010s in particular saw numerous legal reforms, but perhaps the most significant was the digitisation of justice. It was significant for two important reasons. First, it changed the paradigm of justice in Spain, involving an enormous renovation effort and, second, because if it had not been for digitalisation, the current pandemic would have been much more difficult to overcome.
What key changes do you foresee in relation to dispute resolution in the near future arising out of technological changes?
I am convinced that everything related to artificial intelligence is going to revolutionise law and justice in particular. In the coming years, we will see an increase in legal trends that are beginning to be announced today, such as smart contracts. Litigation lawyers must make an effort to adapt to this new world that is revolutionising the field of justice. For example, the Ministry of Justice has recently successfully textualised 23,000 recordings of court hearings. The implications of this, in terms of improved productivity and quality, are impressive.