Javier García Urbano, associate at Pérez-Llorca
Juan Manuel Ramírez, Ph.D. candidate in Commercial Law at University Charles III of Madrid
Víctor Javier Lana is a Ph.D. candidate in International Law at the University of Navarre
There have been interesting developments in the field of arbitration in the Kingdom of Spain (“Spain”) in 2022. From a commercial arbitration perspective, we detail herewith recent court decisions addressing arbitral matters of the utmost importance, as well as the latest developments in the Prestige dispute affecting Spain.
This year has also been highly significant in terms of investment arbitration: new developments affecting treaty cases against Spain are on the table, along with Spain’s announcement to withdraw from the Energy Charter Treaty (“ECT”).
Court Decisions in Spain Concerning Arbitration in 2022
The Spanish Constitutional Court (“SCC”) issued a major judgment regarding the effects of criminal proceedings and investigations parallel to arbitration proceedings. In the judgment of 4 April 2022, the SCC upheld a constitutional appeal, filed against the judgment of the High Court of Madrid of 4 October 2019. The key points of this decision were the following:
- In the underlying arbitral dispute, one of the parties argued that there were ongoing criminal proceedings regarding the financing of several contracts, including the contract disputed within the arbitration. It was argued that these circumstances implied the existence of criminal lis pendens (prejudicialidad penal), which should have led to an immediate stay of the proceedings by the arbitral tribunal. The tribunal concluded that there was no such criminal lis pendens and thus did not stay the proceedings, and instead decided on the merits.
- The High Court of Justice of Madrid (Tribunal Superior de Justicia de Madrid, “HCJM”) annulled the above-mentioned award on the grounds that the arbitral tribunal should have observed the criminal lis pendens and stayed the proceedings, and, by not doing so, the award violated public policy and due process.
- The SCC’s judgment concluded, however, that the HCJM relied on an extensive notion of public policy, upon which the HCJM intended to supersede the award’s conclusions about the existence of such criminal lis pendens and the decision not to stay the proceedings.
Additionally, there have been a substantial number of new court resolutions regarding domestic and international proceedings within the regional High Courts of Justice in Spain, such as the judgment of the High Court of Catalonia of 31 January 2022. This decision clarified that the scope of an award-annulment court’s judgment can be partial, in the sense that courts are able to partially annul awards in cases where the claimant has addressed several fully separable claims.
Moreover, the judgment of the High Court of the Basque Country of 21 February 2022 confirmed that annulment claims are not a sort of appeal in law, and thus courts are not tasked with verifying that the decisions taken by arbitrators are in accordance with the law, rather only that they respect the essence of the Spanish constitutional system.
The judgments of the HCJM dated 2 November and 13 July 2022 are also notable, as they reinforce the role of Spain as a safe arbitral venue. In both cases the HCJM concludes that annulment actions cannot serve to review the application of substantive law, and thus, as indicated by the HCJM in the second case cited, annulment actions against awards are not a “second instance in which facts and law can be reviewed, nor a mechanism to control the proper application of the case law”.
Commercial Arbitration Cases Involving Spain
In June 2022, the Court of Justice of the European Union (“CJEU”) issued an arbitration-relevant decision in case C-700/20 within the Prestige saga. This decision arises from the request for a preliminary ruling from the High Court of Justice of England and Wales (“HCJEW”), which was dealing with the recognition of a decision issued by the Spanish Supreme Court (“SSC”) in proceedings involving the insurer of the Prestige (“Insurer”) and Spain.
In 2003, Spain brought civil claims in its territory against the Insurer. In 2012, while waiting for a decision, the Insurer commenced arbitration proceedings in the UK seeking declarations that (i) Spain, in accordance with the arbitration clause included in the insurance contract, would pursue its claims through arbitration; and (ii) given the existence of a pay to be paid clause, the Insurer could not be liable. In 2013, the arbitral tribunal concluded that the claims for damages brought by Spain before the Spanish courts should have been referred to arbitration in London. Subsequently, a judgment by the HCJEW was entered in the terms of the arbitration award (“HCJEW Judgment”).
In 2018, after numerous provisional decisions and appeals, the SSC issued a final judgment against the Insurer (the “Spanish Decision”). Consequently, Spain requested its recognition before the HCJEW. The HCJEW’s corresponding order was appealed by the Insurer on the grounds that (i) the Spanish Decision was irreconcilable (in the sense of Article 34(3) of Regulation 44/2001) with the HCJEW Judgment; and (ii) in any event, following Article 34(1) of Regulation 44/2001, the recognition would be contrary to public policy in accordance with the principle of res judicata.
In this context, the HCJEW raised the issue before the CJEU, asking whether: (i) a judgment entered in the terms of an arbitration award qualifies as a judgment within the meaning of Article 34(3) of Regulation 44/2001; (ii) a judgment not qualifying as such may be relied on to prevent recognition; and (iii) if it is permissible to rely on Article 34(1) of Regulation 44/2001 regarding res judicata effects to refuse recognition.
In its decision, the CJEU reasoned that a judgment dictated in the terms of an arbitration award can be regarded as a judgment within the meaning of Article 34(3) of Regulation 44/2001. However, it also stated that “the position is different where the award in the terms of which that judgment was entered was made in circumstances which would not have permitted the adoption, in compliance with the provisions and fundamental objectives of [the Regulation 44/2001], of a judicial decision falling within the scope of that regulation” (para. 54).
In the case at hand, the CJEU notes that the content of the arbitration award “could not have been the subject of a judicial decision falling within the scope of Regulation No 44/2001 without infringing two fundamental rules of that regulation concerning, first, the relative effect of an arbitration clause included in an insurance contract and, secondly, lis pendens” (para. 59). Therefore, it concluded that the HCJEW judgment cannot prevent recognition of the Spanish Decision.
Finally, the CJEU stated that the force of res judicata is already covered by Articles 34(3) and (4) of Regulation 44/2001, thereby excluding recourse to the public-policy exception (Article 34(1)).
Recent Developments in Spain Regarding Investment Treaty Arbitration
For yet another year, the Spanish overview on investment arbitration is marked by the conflict between intra-EU investment arbitration and the doctrine established by the CJEU in the Achmea and Komstroy cases.
In Achmea, the CJEU declared that arbitration clauses contained in intra-EU Bilateral Investment Treaties (“BITs”) are not compatible with EU law, since an arbitral tribunal cannot be considered equal to a court of a Member State. Furthermore, the Komstroy ruling extended this reasoning to intra-EU arbitrations under the ECT.
Following Achmea and Komstroy, a new chapter of the intra-EU investment arbitration dispute took place in 2022, as the Spanish Government announced its intention to withdraw from the ECT. The reasoning behind this decision is that the ECT is not in line with the Spanish Government’s climate objectives. The proposed reform of the ECT would be insufficient, according to the Spanish Government, an opinion shared by other countries and international organisations.
Exiting the ECT may have important consequences for the investor-state dispute settlement system. In this regard, Spain has already faced more than 60 investor claims through the procedure established by the ECT. Nonetheless, it should be noted that the ECT contains a so-called sunset clause, according to which States would be subject to arbitration for 20 years from the date of withdrawal. It is not yet clear how this clause will operate.
On another note, the Achmea doctrine continues to spark debate in Spain. On 16 June 2022, an arbitral tribunal –constituted under the Stockholm Chamber of Commerce– ruled in favour of Spain and decided that it did not have competence to hear the case of an investor claiming €74 million (the “Green Power” case). The Green Power case marks the first time that an investment arbitral tribunal has upheld a State’s intra-EU objection to deny its own jurisdiction.
In order to support its decision, the arbitral tribunal described EU law as a lex superior that overrides EU Member States’ obligations under treaties, including the ECT. Although it is too early to understand how far-reaching this award will be in subsequent cases, for the time being, it seems that no other tribunal has followed this rationale.
It is in fact noteworthy that Spain has brought up this precedent in annulment proceedings filed against the award rendered in the 9REN case, where Spain was ordered to pay €42 million to a foreign investor. However, ICSID’s ad hoc committee dismissed Spain’s action for annulment, on the grounds that the procedural law of the arbitration in the Green Power dispute was Swedish law, which “recognises the primacy of EU law”. On the contrary, the ICSID tribunal that heard 9REN’s case was not subject to the laws of an EU member state, but to the ECT alone.
ABOUT THE AUTHORS:
Javier García Urbano is an associate in the Dispute Resolution practice area at Pérez-Llorca (Madrid) and a co-coordinator of MAD VYAP.
Juan Manuel Ramírez is a Ph.D. candidate in Commercial Law at University Charles III of Madrid. He is admitted to practice in Spain, where he used to work as an international arbitration lawyer.
Víctor Javier Lana is a Ph.D. candidate in International Law at the University of Navarre and a qualified lawyer in Spain whose practice areas are international litigation and arbitration. He is a co-coordinator of MAD VYAP.