Spain | Request for annulment of arbitration awards and Public Order

The arbitration procedure in Spain is characterized, and constitutes one of its great advantages, by the difficulty of judicially annulling or revoking the award; the parties know that the award that is issued is in most cases firm and final and ends the conflict.

The art. 41 of the Spanish Arbitration Law only allows the annulment of the award for formal reasons (nonexistence or invalidity of the arbitration agreement, failure to notify any of the parties of the appointment of the arbitrator or of the arbitration proceedings, improper appointment of the arbitrators or that the arbitrators have ruled on matters that were not or could not be arbitrated by rule of law). And additionally the award is also voidable when it is contrary to “public order“.

That “public order” is such as to give rise, in case of violation, to the annulment of the award, is a matter that has always been controversial and debated; already in the 1958 New York Convention, “public order” is alluded to as a cause of refusal to recognize foreign awards. As the Constitutional Court (“CC”) recalls in the judgment that we commented, citing its own jurisprudence, “the material public order is the set of public and private, political, moral and economic legal principles that are absolutely obligatory for the preservation of society in a town and in a certain time and the procedural public order is configured as the set of formalities and necessary principles of our procedural legal order and only arbitration that contradicts any or some of such principles may be considered null and void for violation of public order”.

As an example, during 2018, 38 requests for annulment of awards were filed before the Superior Courts of Justice (“SCJ”), of which 31 were based on violation of public order; 8 of the lawsuits (21%) were estimated, 5 for violation of public order, and 3 for invalidity of the arbitration agreement.

The Madrid SCJ has been maintaining in recent times a very “expansive” interpretation of public order, which has generated doubts and fears in the institutions and Arbitration Courts, due to the dissuasive effect that this position could have when choosing Madrid as the seat of arbitrations, national or international.

And in the interpretative line to which we refer, the Madrid SCJ has maintained the following and surprising criterion: once an award was made and a request for annulment was filed by one of the parties, the litigants reached an out-of-court agreement and jointly requested the filing of the cancellation request; that is to say, both gave the award as good and final; the SCJ rejected the petition and continued to issue a judgment annulling the award, arguing that since the application for annulment was based on the violation of public order, then the matter was no longer available to the parties and was not, in the opinion of the Court, subject to transaction or resignation.

This was not the first time that the SCJ of Madrid had adopted this position: impeded the annulment of an award as being contrary to “public order”, the parties no longer had the possibility to compromise and renounce the demand for annulment.

For the first time the matter has reached the Constitutional Court (CC): in a recent ruling on June 15, 2020, the CC has been clear and resounding; recalls in its ruling that the civil process is based on the principle of “the parties’ willingness to regulate their private interests, that is, to initiate jurisdictional activity, determine the purpose of the process and end it when they deem appropriate”. It is what we call “justice begged for”; and this principle applies not only to civil proceedings before ordinary courts but also to arbitration proceedings. The judgment also affirms that arbitration is configured by law as a heteronomous mechanism for conflict resolution, to which the minimal intervention of the judicial bodies in favor of the autonomy of the will is essential.

And it concludes by stating that the annulment action must be understood as a process of external control over the award that does not allow a decision on the merits of the arbitrators’ decision, since the causes are assessed, which justifies that “the control of the awards are limited and annulment of the award can only be obtained in exceptional cases”.

Summarizing, the CC understands and proclaims that it is contrary to the right to effective judicial protection protected by art. 24 of the Constitution, the Court’s refusal to recognize the validity of an agreement reached between the litigants based on the parties’ power to act without a prohibitive norm authorizing it, and imposing a decision that subverts the “justice” principle that inspires the civil process; reason why it grants the requested protection and orders to roll back the proceedings to the moment before the order that denied validity to the joint request for file, so that the SJC dictates another resolution accompanied by the CC’s criteria.

Therefore, the SCJ will no longer be able to prevent litigants from settling and ending a claim for annulment of the arbitration award (as it usually occurs peacefully and with appeals or cassation remedies) and it must also take into consideration the restrictive interpretation of the concept of public order that the CC has established in this important judgment. Indeed, Spanish arbitration is greatly reinforced by this judgment of the CC.