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Spanish Arbitration Act Scope of Public Policy Widened

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The Supreme Court of Justice in Madrid has recently rendered a decision to set aside an arbitral award on the grounds that the arbitral award contained errors in application of the law and is therefore in contravention with Article 41(1)(f) of the Spanish Arbitration Act, 60/2003.[1]

 

The Spanish Arbitration Act contains only six grounds of challenge for setting aside an award:

 

  1. that the arbitration agreement does not exist or is not valid;

  2. that the claimant was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case;

  3. that the award contains decision on questions not submitted to arbitration;

  4. that the appointment of the arbitrators or the arbitral procedure was not in accordance with the with the agreement of the parties, unless such agreement was in conflict with an imperative provision of this Act, or, failing such agreement, was not in accordance with this act;

  5. that the subject matter of the dispute is not apt for settlement by arbitration;

  6. that the award is in conflict with public policy.

 

The Courts have interpreted these grounds for challenge very narrowly. With respect to the ambit and scope of “public order” in Article 41(1)(f), before this decision, the Courts had consistently held that an award cannot be challenged on its merits (law and fact) and that the Courts do not have the authority to sit in appeal and review the award to correct deficiencies in the same.

 

The Court has, however, reversed this position with its recently published decision in the dispute between Repos I Repàs, S.L., a Spanish company and Banco Bilbao Vizcaya Argentaria, S.S., a Spanish Bank.

 

This decision has created a lot of apprehension regarding Madrid, Spain, as a seat for arbitration. Since this decision, the Court has rendered two more judgements (unpublished as of now) setting aside an arbitral award after conducting a review of the merits of the case. It could be argued that the approach of the Spanish Courts has been influenced by the financial crisis and social pressure vis-à-vis banking disputes but the judgement of the Court does undoubtedly impact every future arbitration taking place in Spain.

 

 

[1] REPOS I REPÀS, S.L. v. BANCO BILBAO VIZCAYA ARGENTARIA, S.A. Sentencia Nº 13/2015

By : Adv. Niharika Dhall
info@lawsenate.com