The recent decision of the Spanish Constitutional Court will be of great interest to parties, who are choosing the seat of arbitration when concluding the arbitration clause in their contract or when submitting a pre-existing dispute to arbitration. This is because the seat of arbitration is the forum where an arbitral award can be challenged i.e., sought to be annulled, and so considered null and void. This can, in turn, significantly decrease the chances of the award being recognized and enforced by courts of other jurisdictions where the assets to satisfy the award may be located. It is therefore important for the parties to be assured that the relevant courts of the seat show deference to the arbitral tribunal’s findings and do not seek to “re-open” the merits of the case decided in the award. It is this assurance that the First Chamber of the Spanish Constitutional Court gave in its decision of 15 February 2021, buttressing a robust fabric of Spanish case law endorsing the integrity of the arbitral process. The position in Spain now warrants favorable analogies with the approach of courts in pro-arbitration jurisdictions such as France.
The decision overturned the determinations of the Madrid High Court regarding an award, rendered ex aequo et bono (“en equidad”) pursuant to an arbitration clause in a company’s articles, in respect of a EUR 600 million dispute. The High Court held that award should be annulled –on the basis of (i) failure to resolve all of the issues presented, (ii) reasoning which was insufficient and arbitrary, and (iii) failure to adequately evaluate the evidence adduced. The High Court found that, for these reasons, there had been a violation of the right to judicial protection guaranteed under art. 24(1) of the Spanish Constitution.
Although the arbitration clause in question may be considered quite specific, it is noteworthy that the Constitutional Court’s statements were broad and strongly supportive of arbitration as a method, distinct from the courts, for parties to obtain a decision with res judicata effect. For example, the Court held that:
- Arbitration is synonymous with minimal judicial intervention in accordance with the constitutional principle of party autonomy (art. 10, Constitution) and waiver of judicial protection under art. 24 of the Constitution;
- Annulment actions have a limited purpose of addressing a) procedural errors that violate fundamental guarantees such as the right to a defense, equality etc., b) awards that lack reasoning, are inconsistent, breach mandatory law or the inviolability of a prior decision with res judicata effect;
- Annulment actions do not allow a court to revisit the merits of the issues decided by the arbitrator using public policy as a pretext. The award in question could have been annulled on public policy grounds only if it were “arbitrary, illogical, absurd or irrational”;
- The requirement for reasoned awards has a merely legal basis (art. 37.4 of the Spanish Law on Arbitration (“LA”)) which is distinct from the constitutional requirement for reasoning that applies to judicial decisions (art. 24, Constitution). Article 37.4 LA merely requires the fundamental grounds for the decision to be set out and that the award not be “unreasonable, arbitrary or containing a patent error”, without requiring the grounds of the award to be “convincing or sufficient” from the perspective of the courts.
The Court reaffirmed the definition of public order, from its 15 June 2020 decision, as “the fundamental rights and liberties guaranteed by the Constitution, as well as essential principles, inalienable by the legislator by requirement of the Constitution or through application of internationally accepted principles”. This definition is, in itself, pro-arbitration to the extent that the reference to “internationally accepted principles” – as potentially the sole “essential principles” to be examined alongside the Constitution – shows an openness to the concept of international public policy (which is widely regarded as narrower than domestic public policy) despite the context of the case being entirely domestic. It may, therefore, be considered that the Court was making a powerful statement for the institution of all types of arbitration in Spain.
The Court concluded that the High Court had breached the constitutional canon of reasonableness of judicial decisions enshrined in art. 24.1 of the Constitution, all the more so because the High Court had surpassed its constitutional limits by delving into the merits of the case. The Court reinstated the arbitral award.
The position regarding public policy review of awards in annulment actions can now be said to be increasingly comparable to jurisdictions such as France and Switzerland, where courts restrictively interpret grounds to set aside awards, including public policy. This increasing rapprochement of Spanish arbitration law to its European counterparts is welcome news for the Spanish arbitration community. This is particularly the case in respect of annulment proceedings which, unlike recognition and enforcement proceedings, are not covered by the New York Convention but constitute a crucial consideration at the time of choosing the seat of international arbitrations.