Reform of the Arbitration Reform Act in Spain

Arbitration continues to be one of the best forms of alternative dispute resolution to avoid or overcome the disadvantages that arise from the Public Administration of Justice. The growing internationalization of trade relations makes it a very attractive option given its characteristics of speed and accessibility.

The new Law 11/2011, of May 20, amending Law 60/2003 of 23 December on Arbitration and the Regulation of Institutional Arbitration in State Administration aims to contribute to the promotion of methods of alternative dispute resolution, particularly arbitration. It should be noted that in judgments 62/1991 and 43/1988 of the Constitutional Court arbitration was recognized as having equivalent jurisdiction.

As stated in the preamble of the Act, the most important innovations that have been introduced related to the reallocation of judicial functions, the clarification of doubts about arbitration in corporate entities, the increasing of legal certainty and effectiveness of these procedures, the language of the arbitration and certain developments regarding the regulation of arbitral awards.

The only additional disposition in the Arbitration Act is the establishment of a new procedure of a governmental nature to resolve conflicts between the state administration bodies and their branches.

In addition, the Civil Procedure Act and the Insolvency Act 22/2003 are amended to reconcile certain of its provisions to arbitration.

The following is an analysis of each of the most relevant elements of the reform:

The Reallocation of Judicial Functions in Relation to Arbitration

The Chambers of Civil and Criminal Superior Court of Justice will have jurisdiction for the judicial appointment and removal of arbitrators [section 8.1 of the Arbitration Act (AA)], to hear any action for annulment (Article 8.5 AA) or recognition of arbitral awards (Article 8.6 AA). With this Act, the Courts of First Instance remain competent to enforce arbitral awards (Article 8.6 AA).

This reallocation of functions facilitates a reduction in the number of competent courts with the resulting unification of criteria, the acquisition of experience by these courts and the allocation of powers to a hierarchically superior court as the Superior Court of Justice.

Concerning international arbitration, a major development is included in terms of competence establishing that the Civil Court and Criminal Court of Justice will be competent to recognise foreign arbitral awards.

In our view, these developments signal the intention of the legislature to create a greater role for the institution of arbitration and to confer jurisdiction on hierarchically superior judicial courts.

Moreover, the practical consequence of this measure should lead to greater specialization of judicial organs to use arbitration and ultimately a better functioning system.

Statutory Arbitration within Corporate Entities

The Arbitration Act introduces the possibility for the Memorandum and Articles of Association of Commercial Entities to provide for the submission to arbitration of internal disputes. To introduce this statutory provision it is necessary to have the agreement of at least two-thirds of the Shareholders. The Articles may also establish that any challenge to shareholders agreements by directors may be submitted to arbitration (Article 11a AA).

It may also be possible to annul registered corporate resolutions by arbitral award. The decision to declare the invalidity must be entered in the Commercial Registry. If the agreement has been signed, the award may also provide for the cancellation of its registration and the cancellation of any previous entries that may be contradictory (Article 11a AA).

These developments provide for a greater possibility for the submission of corporate disputes to arbitration. This legal certainty is strengthened by establishing as mandatory the necessary entries in the Registry to ensure that the arbitral award is recorded to the company concerned, and the effects of this decision on acts or entries already registered.

Regarding Arbitrators

In line with the policy of Freedom of Movement of Workers and Services of the European Union and international experience, the Arbitration Act opens up the range of professionals who can perform the duties of an Arbitrator in Spain: it removes the requirement for lawyers and substitutes a jurist requirement in its place. On the other hand, it also provides that if the arbitration is adjudicated by three or more arbitrators and it is not an Arbitration in Equity, at least one of them will have to have the status of lawyer (Article 15.1 AA), but it is not a requirement for the others.

This reform has the advantage of being able to incorporate other professionals with lawyers who are not necessarily legal practitioners. This rule may allow for the appointment of professionals from areas of particular expertise in the subject as arbitrators to an Arbitration with three or more arbitrators. However, there may be a risk that the dispute may not resolved under the law.

The new law solidifies the incompatibilities about the intervention of mediation. Except where otherwise agreed between the parties, the arbitrator will not be able to intervene as a mediator in the same conflict. (Article 17.4 LA). This will facilitate the neutrality and independence of the arbitrator.

The New Language System in Arbitration

For the sake of legal certainty, there is no provision for an established language. The Act allows for arbitration to be conducted in any of the official languages of the place in which the proceedings are held. Before the reform, the language was the decision of the arbitrator.

However, a new provision provides that witnesses, experts and third parties involved in the proceedings may use their own language (Article 28.1 AA), which will facilitate the activities of these parties.

Recent Provisions Regarding the Arbitral Award

Unless otherwise agreed by the parties, the deadline for the final decision will not affect the validity of the arbitration agreement (Article 37.2). This development could have positive results and again reinforce the importance of arbitration as though the deadline has expired without the award having been declared, the validity of the arbitration award is preserved. The disadvantage of this may be that this could contribute to delays in the arbitration process.

Additional Amendments Introduced by Law 11/2011

With the amendment of Article 722 of the Civil Procedure Act 2000, particular emphasis is placed on the fact that anyone who proves that they have agreed to use arbitration as a means of dispute resolution may make a request for interim measures to the Court (Second Final Provision, AA).

The Arbitration Act also modifies among others, Article 52.1 of Law 22/2003 of July 9, about Insolvency, which provides that a bankruptcy declaration by itself does not affect the covenants of mediation or arbitration agreements signed by the insolvent. This modification is introduced to maintain the validity of the arbitration agreement on civil actions that might have arisen independently of the declaration of insolvency. These actions could be, for example, actions on the existence, validity or amount of credit on debt collection on behalf of the debtor or the actions claiming ownership of property of a third party in possession of the debtor in bankruptcy, and so on. However, importantly, it also provides that the competent court may suspend agreements or covenants previously signed if they decide that these may prejudice the conduct of the Arbitration (Third Final Provision LA). This reform is in line with community solutions in the field of bankruptcy.

Finally, a procedural channel is regulated by an ordinary and institutional framework for resolving conflicts between the General State Administration and its instrumental branches. These conflicts should be resolved by the government and a Standing Committee is created for this, chaired by the Ministry of the Presidency (Single Additional Provision).

The legislature has used this law to introduce innovations in other areas as well as to the regulation of the recognition and enforcement of judicial and mediation decisions (not arbitration). Article 955 of the Civil Procedure Act of 1881 has been amended to establish that the Courts of First Instance in the domicile or place of residence of the party against whom recognition or enforcement is sought are competent to hear applications for recognition and enforcement of judgments and foreign judgments and foreign mediation agreements.(First Final Provision AA). Previously only the Supreme Court was competent to do this.

We can conclude, then, that the reform contained in Law 11/2011, 20 May 2011 does not provide for drastic change in the current arbitration system. However, it introduces important developments whose ultimate objective is to strengthen and promote arbitration in Spain, so that the country is an attractive venue for handling international arbitrations.

For additional information regarding the Arbitration Reform Act in Spain,

Please note that this article is not intended to provide legal advice.

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