Arbitration- Spain

Legal requirements

Article 8 of the Arbitration Law 2003 establishes the formal requirements for arbitration agreements. According to Article 8, an arbitration agreement must be in writing, in the form of a document signed by the parties or an exchange of letters, faxes, telexes or other communication methods that leave a record of the agreement. This requirement is met where the arbitration agreement is contained in a digital or electronic format, provided that it is accessible for further scrutiny. An arbitration agreement can take the form of an arbitration clause in a contract or a separate agreement to arbitrate; it must show consent to arbitrate disputes that have arisen or that may arise out of a determined legal relationship, either contractual or otherwise.

If the arbitration agreement is contained in a standard form of contract, the consent to arbitrate will be valid only if the party using the standard form gave sufficient notice of the existence of the arbitration agreement to the other party. The party against which an agreement contained in a standard form is sought to be enforced must have had a reasonable chance to have knowledge of the arbitration agreement. Signature of the standard form is not strictly necessary.

There are no special requirements or formalities where an individual is party to an arbitration agreement. General requirements applying to individuals under the Law of Contracts must be met with regard to the individual's capacity to enter into a contract.

Other elements that must be incorporated in an arbitration agreement

Under the law there is no minimum content for arbitration agreements; however, the parties must have agreed to resolve disputes through arbitration. As in Article 7(1) of the United Nations Commission on International Trade Law (UNCITRAL) Model Law, Spanish law requires that the dispute arise out of a defined legal relationship; such relationship may be contractual or non-contractual. The parties are free to agree on, among other things:

• the place of the arbitration;
• the language of the arbitration;
• the arbitrators;
• the method for their appointment;
• the applicable law; and
• the procedural rules.

However, such provisions are not necessary for there to be a binding arbitration agreement.

Approach of national courts

Spanish courts have recently changed their traditionally hostile approach to arbitration.

International commercial arbitration was previously met with the same reluctance as domestic arbitration. According to Article 5(1) of the (now abrogated) Arbitration Law 1988, Spanish courts enforced arbitration agreements only where they found that there was an unequivocal agreement to arbitrate. In practice, the courts equated unequivocal consent to arbitrate to the signature of a written arbitration agreement. As a matter of fact, the party against which the arbitration agreement was being enforced had to sign the arbitration clause to enforce the arbitration agreement. Unequivocal consent to arbitration was not to be found in other circumstances.

The position on international commercial arbitration changed in 2001 and 2003 following three judgments of the Supreme Court (July 23 2001, February 6 2003 and July 3 2003). In these cases the court refused to apply Article 5(1) of the Arbitration Law 1988 to international commercial arbitration. The court refused to require unequivocal consent (as provided for in Article 5(1)) to enforce an international commercial arbitration agreement. The court affirmed that the requirement for the existence of a valid agreement to arbitrate in international commercial arbitration should be sought in Article II of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, not in the Spanish legislation. Hence, the existence of a written arbitration agreement is required, but the signature of the arbitration clause is not necessary. The lower courts must determine, in the circumstances of each case, whether a party consented to an agreement to arbitrate.

The new Arbitration Law establishes the requirements for arbitration agreements in Article 8 and clarifies the requirements for the formal validity of arbitration agreements.

Governing Legislation

Legislation governing the enforcement of arbitration agreements

Article 9 of the law governs the requirements for the enforceability of arbitration agreements. However, Article 9(6) states that an arbitration agreement is valid and the dispute will be arbitrable if the requirements under any of the following rules of law are met:

• the rules of law chosen by the parties to govern the arbitration agreement;
• the law applicable to the merits; or
• Spanish law.

Does the same law govern both domestic and international arbitration proceedings?

Spain has adopted the so-called monist system. The law applies to both domestic and international arbitration if the place of arbitration is in Spain. Most of the provisions of the law are not mandatory. Therefore, the provisions of the arbitration agreement or the rules of the arbitral institution will apply, regardless of whether the arbitration is domestic or international.

An arbitration is international where:

• the parties to the arbitration agreement have their places of business in different states at the time of the conclusion of the agreement;
• one of the following places is situated outside the state in which the parties have their places of business: (i) the place of arbitration pursuant to the arbitration agreement; or (ii) the place where a substantial part of the obligations under the commercial relationship is to be performed or the place with which the subject matter of the dispute is most closely connected; or
• the legal relationship from which the dispute arises has an impact on international trade.

The differences between domestic and international arbitration under the law are the following:

• If a party is a state or a company, organization or undertaking controlled by a state, it will be unable to rely on principles of domestic law to avoid the enforceability of an arbitration agreement in international arbitration. It will be allowed to do so only where the arbitration is domestic.
• In international arbitration the arbitration agreement will be valid and the dispute will be arbitrable only if it is arbitrable under either the rules chosen by the parties to govern the arbitration agreement, the rules applicable to the merits or Spanish law. If the arbitration is domestic, validity and arbitrability will be considered only under Spanish law.
• In international arbitration the time limit to request clarification, rectification or completion of the award is 20 days. The time limit is 10 days in domestic arbitration.

Is the law governing international arbitration based on the UNCITRAL Model Law?

The Arbitration Law follows the UNCITRAL Model Law 1985. However, there are some differences, as follows:

• A dispute is arbitrable under the Arbitration Law if the parties are free to contract - that is, using the terminology of the law, if they have free disposition of the subject matter of the contract. The UNCITRAL Model Law does not address this issue.
• In Spanish law, if the arbitration is international and a party to the arbitration agreement is a state or a company, organization or undertaking controlled by a state, the party will be unable to rely on principles of domestic law to avoid the enforceability of the arbitration agreement. Under Article 1(5) of the UNCITRAL Model Law, national laws may determine whether a state or state entity is bound by an arbitration agreement notwithstanding the principles of domestic law.
• In contrast to the provisions of Article 1(3) and (4) of the UNCITRAL Model Law, an arbitration will be international in Spain if it affects international trade.
• If the arbitration is international, Spanish law provides that an arbitration agreement will be valid and the dispute will be arbitrable only if the agreement is valid or the dispute is arbitrable under either the law chosen by the parties in the arbitration agreement, the law governing the merits of the dispute or Spanish law. Therefore, Spanish law goes beyond the UNCITRAL Model Law with regard to the validity and arbitrability of arbitration agreements.
• If the parties have not agreed on the number of arbitrators, the default rule in Spain is that one arbitrator will be appointed. The default rule under Article 10 of the UNCITRAL Model Law is that three arbitrators will be appointed. In Spain, the number of arbitrators must be odd; the UNCITRAL Model Law does not impose such restriction.
• Arbitrators may be liable for bad faith or negligence under the UNCITRAL Model Law. Under Spanish law, arbitrators may be liable only for wilful misconduct, bad faith or gross negligence.
• The arbitrators, the parties and the arbitral institutions are bound by the confidentiality undertaking under Article 24(1) of the Arbitration Law. This provision on confidentiality does not exist in the UNCITRAL Model Law.

Jurisdiction

Subject matter that may not be referred to arbitration

Article 2 of the Arbitration Law states that a dispute is arbitrable if the parties are free to decide the subject matter of the obligation. The law no longer lists the matters which do not fall within the scope of this freedom to decide (in contrast to the Arbitration Law 1998). If the arbitration is international, a dispute will be arbitrable if it is arbitrable under either the law governing the arbitration agreement, the law governing the merits of the case or Spanish law. Contracts with states or state entities are arbitrable if the arbitration is international under Article 2(2) of the Arbitration Law.

May arbitrators rule on the issue of their own jurisdiction?

The law spells out the rule - which is key in modern arbitration - that arbitrators have the authority to rule on their own competence (kompetenz-kompetenz principle). Moreover, the authority of arbitrators to rule on their own competence is not dependent on the validity of the contract which contains the arbitration agreement.

May courts address the issue of the jurisdiction and competence of arbitral tribunals?

The courts may be called upon to rule on the competence and jurisdiction of arbitrators in the following cases:

• In ad hoc arbitrations the intervention of the court may be necessary to appoint the arbitrator(s) where the parties have failed to appoint the arbitrator(s) or an appointing authority. The courts exercise a screening power under Article 15(5) of the law; they may refuse to appoint the arbitrator(s) only where it cannot be concluded (from the documents attached to the application) that an arbitration agreement exists. The appointed arbitrator(s) will decide on their competence to hear the claim.
• If one of the parties to the agreement containing an arbitration clause files a claim in court and the defendant seeks to enforce the arbitration agreement, the court must rule on the existence, scope and binding force of the arbitration agreement.
• If the losing party in the arbitration files an application to nullify the award on the grounds that the arbitration agreement was invalid, the courts must rule on this issue.
• If the winning party applies for the recognition and enforcement of the arbitration award and the defendant raises an objection under Article V(1)(a) or (c) of the New York Convention 1958, the courts must rule on the existence, validity and scope of the arbitration agreement applying the provisions of the convention.

May arbitration agreements be binding on non-signatory third parties?

The law does not provide that arbitration agreements are binding on third parties that have not signed or are not party to the agreement. However, under Spanish case law, arbitration agreements may be binding on non-signatory third parties in some specific cases:

Subrogation - the Supreme Court has ruled that if a third party is subrogated by law to the contractual rights and obligations of a party which is a signatory to a contract containing an agreement to arbitrate, the subrogating party is bound by the agreement to arbitrate. This decision refers mostly to insurers exercising the right (set forth by the Insurance Law) to claim damages against the insured which caused the damage once the insurer has compensated the insured. If the contract between the insured which caused the damage and the victim of the damage included an arbitration clause, the insurer must go to arbitration to claim compensation.

Corporate veil/group of companies doctrine - the Supreme Court used these doctrines in exequatur proceedings in which the party opposing the recognition and enforcement of the award alleged that it was not party to the arbitration agreement. The court found that although the arbitration agreement was contained in a contract signed by the mother company, its subsidiary was bound by the arbitration agreement as it was the executive arm of the mother company and had the same headquarters and the same managing team.

Arbitration clauses contained in corporate bylaws - the Supreme Court has found that arbitration agreements included in corporate bylaws are binding on all shareholders regardless of whether they are founding shareholders.

Mergers - a provincial court found that in a merger the absorbing company was bound by the arbitration agreement included in a commercial contract executed by the merged company. The reasoning follows the principle of legal subrogation: since the merging company succeeds the merged company in commercial relationships with third parties by the effect of the law, the arbitration clauses contained in contracts executed by the merged company are binding on its successor.

Selection of Arbitral Tribunal

Limits to the parties' autonomy to select arbitrators

The parties are free to agree on a procedure for appointing arbitrators, provided that it does not breach the principle of equal treatment and that there is an odd number of arbitrators. In the absence of an agreement on the number of arbitrators, arbitration shall be submitted to a sole arbitrator. Individuals in full exercise of their civil rights may be arbitrators, provided that this is not prohibited by the laws regulating their profession. In local arbitration the arbitrator shall be a qualified lawyer (unless the parties have agreed otherwise). This rule does not apply to international arbitration.

Default procedure

If the parties fail to agree on a procedure to appoint arbitrators, the arbitration agreement is still enforceable and the parties may follow certain procedures to obtain the appointment of an arbitrator or arbitrators. In any case there must be an odd number of arbitrators; if there is no agreement on the number of arbitrators, there will be a sole arbitrator (in contrast to the UNCITRAL Model Law). In arbitrations with a sole arbitrator, the arbitrator is appointed at the request of one party by the court of first instance of the district of the place of arbitration. If there is no determined place of arbitration, the competent court will be (i) the court of the place of domicile or residence of any of the defendants, and (ii) if the defendants do not have a domicile or if their domicile is located outside Spain, the court of the place of domicile of the plaintiff or the court chosen by the claimant. In arbitrations with three arbitrators, each party appoints one arbitrator and the two party-appointed arbitrators appoint the third arbitrator. If a party fails to appoint an arbitrator, the appointment is made by the court upon request of the other party. The same rule applies if the party-appointed arbitrators do not reach agreement on the appointment of the third arbitrator.

Requirements of independence, neutrality and/or impartiality

Arbitrators must be and remain independent and impartial during the arbitration. Under the law, arbitrators must have no personal, professional or commercial relationship with the parties. Arbitrators must disclose all facts which could give rise to a justifiable doubt as to their impartiality and independence. As of the date of appointment, arbitrators must disclose any new circumstances that may affect their independence or impartiality. Arbitrators may be challenged on the grounds of doubts as to their impartiality or independence.

Procedural Rules

Rules governing arbitration

Articles 24 to 33 of the law apply to arbitration proceedings. Only Article 24(1) is mandatory. Under this article parties must be treated with equality and each party must be given sufficient opportunity to present its case (under Article 18 of the UNCITRAL Model Law, parties must have a "full opportunity" to present their case). The basic principles of fair hearing must be respected and each party must have the opportunity to challenge the other party's submissions. As the remaining provisions of the law are not mandatory, any agreement between the parties (including any agreement referring to the rules of an arbitral institution) shall prevail over the provisions of the law.

There is only one procedural step required by law: under Article 30(1) of the law, there must be a hearing at some stage during the proceedings (except if the parties have agreed to the contrary).

Rules governing the conduct of an arbitration hearing

Under Article 30(1), there are no rules on the conduct of arbitration hearings. Article 24(1) applies to the arbitration procedure; therefore, in the conduct of a hearing the parties must be treated equally and given sufficient opportunity to present their case.

Do national courts have jurisdiction over procedural issues arising during an arbitration?

Under the new Article 7 of the law (which follows Article 5 of the UNCITRAL Model Law), the courts must refrain from interfering in arbitration proceedings. Under Article 25(2) of the law (which follows Article 19(2) of the UNCITRAL Model Law), only arbitrators have the authority to determine procedural issues.

Multi-party arbitrations

The law refers to multi-party arbitrations only at the stage of appointment of the arbitrators. Article 15(2) provides that where there is more than one claimant or more than one respondent, the claimants (or respondents, as the case may be) will appoint an arbitrator jointly. If either the claimants or the respondents fail to agree on the appointment of an arbitrator, the court will appoint all three members of the arbitral tribunal upon request of any party.

The law does not contemplate the consolidation of proceedings and the joining of third parties. These issues must be dealt with under the rules of certain arbitration institutions (eg, the Barcelona Arbitral Tribunal).

Preliminary Relief and Interim Measures

Are arbitrators permitted to award preliminary or interim relief?

Unless the parties have agreed otherwise, arbitrators may, upon request of a party, adopt any interim protective measures deemed necessary in light of the subject matter of the dispute. The law does not establish specific types of interim or precautionary measure and does not specify which standards must be followed to grant interim or precautionary measures. As arbitrators have no enforcement authority, interim measures granted by the arbitrators must be enforced by the competent court.

Are courts entitled to grant preliminary or interim relief in proceedings subject to arbitration?

The courts may grant interim relief unless the parties have expressly agreed otherwise. The courts will apply Spanish procedural law to requests for interim or precautionary measures. Therefore, the type of interim or precautionary measure and the test applied by the courts to grant such measures are governed by procedural law and practice.

The civil procedural rules contain a list of typical interim measures, which range from interim attachment of property to secure enforcement of a future judgment (or arbitral award) to an injunction ordering a party to refrain from a defined act. The new civil procedural rules state that the list of interim measures is non-exhaustive; therefore, the parties are free to choose the type of interim measure, provided that this is not contrary to public order or the law. The civil procedural rules require that the petitioner limit the interim or precautionary measures to those that are less burdensome for the defendant.

Conditions

The requesting party must demonstrate that the following conditions have been met:

• There is a prima facie case;
• There is danger in delaying the grant of the interim measure;
• The measure is proportionate to the right to be protected; and
• A monetary amount has been deposited to ensure that the other party will be compensated for any damage resulting from the interim relief.

Evidentiary Matters

Rules of evidence applying to arbitral proceedings

The Arbitration Law contains almost no provisions on the taking of evidence in arbitration proceedings. Almost all the provisions on procedural matters are not mandatory. As a result, the agreement between the parties or the rules of the arbitral institution will determine which rules apply to the taking of evidence. As arbitration agreements rarely regulate the taking of evidence and the rules of arbitral institutions are generally not detailed, the arbitrators will control the admissibility of the evidence and the way in which the evidence is submitted.

The only article of the law on the taking of evidence is Article 32 (copied from Article 26 of the UNCITRAL Model Law), which deals with the appointment of experts by the arbitral tribunal. According to Article 32, unless the parties have agreed otherwise, (i) the arbitrators may appoint one or more experts and determine the terms of reference of their expertise, and (ii) if a party deems it necessary or if the arbitrators so decide, the experts must attend the hearing to answer the questions submitted by the parties or the arbitrators. This article is not mandatory.

Limits on the scope of arbitrators' authority

There are no limits on the scope of arbitrators' authority to order disclosure of documents under the law. Arbitrators have a wide discretion to order disclosure or production of documents from any of the parties to the arbitration. However, arbitrators have no power to enforce such orders, but may draw negative inferences from a party's failure to comply with the order. Courts are likely to assist arbitrators in enforcing orders to disclose documents (or a defined category of documents) in the possession of one of the parties, but not across-the-board discovery orders.

The reluctance of Spanish courts to comply with across-the-board discovery orders is demonstrated by their unwillingness to comply with pre-trial discovery orders under Article 23 of the Hague Convention 1970 (taking of evidence abroad). A Spanish court will not assist a foreign court in obtaining discovery of documents. Parties to an arbitration will expect a similar response from the courts if a discovery order is sought in arbitration proceedings.

Can courts intervene in matters of disclosure/discovery?

There is no rule on disclosure or discovery in the law. Under Article 33 of the law, the courts have jurisdiction to assist arbitrators in the taking of evidence. An order seeking the production of documents or a defined category of documents in the possession of one of the parties is accepted in Spanish litigation. Hence, the courts are likely to intervene to help the arbitrators enforce an order of disclosure if a party refuses to comply with the order. However, the authority of the courts is limited to the enforcement of the order issued by the arbitrators. Under Article 7 of the law, the courts are otherwise barred from intervening in arbitration proceedings.

General practice for disclosure/discovery in international arbitration proceedings

The disclosure or discovery of documents or witness deposition, as practised in common law countries, is unknown in Spain. Spanish lawyers acting as arbitrators and Spanish courts do not issue disclosure or discovery orders.

Rules applying to the production of written and/or oral witness testimony

The production of written and oral witness testimonies is governed by principles of freedom and flexibility for the parties and the arbitrators. In Spanish civil litigation, witness statements are not prepared and taken beforehand. Witnesses give evidence before the judge during the trial. However, this practice is not followed in arbitration proceedings. Witnesses need not swear to tell the truth in arbitration proceedings, although it is not uncommon for arbitrators to request that witnesses make such commitment.

Documents subject to privilege

Only documents produced by lawyers who are not employed by the company benefit from the professional secrecy privilege. The privilege can be waived only by the client. The arbitrators or the courts may order disclosure of documents protected by confidentiality or secrecy by agreement of the parties.

Making an Award

The rules on arbitral award are as follows:

• Unless otherwise agreed by the parties, the arbitrators may rule on the dispute in either one single award or several partial awards, as deemed appropriate;
• Unless otherwise agreed by the parties, the arbitrators shall rule on the dispute within six months of filing of the written statement of defence or the expiry of the time limit to file the written statement;
• The arbitral award shall be made in writing and signed by the arbitrators, who may express their disagreement to the award;
• The arbitral award shall state the grounds on which it is based, unless the parties agreed otherwise or if the award is on agreed terms;
• The award shall state the date and the place of arbitration;
• Subject to agreement by the parties, the arbitrators shall rule on the costs of the arbitration in the award;
• The arbitrators shall notify the parties of the award in the form and within the time limit agreed; and
• The award may be recorded by a public notary (notarization is no longer a requirement under Spanish law).

Appeals

Are parties entitled to appeal an arbitral award?

Arbitral awards cannot be appealed under Spanish law, but may be subject to an annulment action. Article 41 of the law establishes the following grounds for annulment:

• The arbitration agreement does not exist or is invalid;
• A party has not been properly notified of the appointment of an arbitrator or of the arbitral proceedings, or has been unable to present its case;
• The arbitrators have ruled on issues which were not submitted to arbitration;
• The appointment of the arbitrators or the arbitral proceedings did not accord with the agreement between the parties, unless such agreement was contrary to a provision of the law;
• The arbitrators have ruled on issues which cannot be settled by arbitration; or
• The award is contrary to public policy.

Can parties agree to exclude a basis of appeal or challenge against an arbitral award?

An action for annulment of an arbitration award can be filed before the courts only on the grounds set forth in Article 41 of the law. Articles 40 and following (actions for annulment of arbitral awards) are mandatory. The parties to an arbitration cannot waive the possibility of filing an action for annulment.

However, Article 6 of the law provides for an implied waiver of the right to challenge. Where a party, having knowledge of a breach of a mandatory provision of the law or a requirement of the arbitration agreement, fails to denounce the breach within the applicable time limit (or, in the absence of a time limit, as soon as possible), that party waives its right to seek annulment on these grounds (however, a general waiver of the right to challenge is inadmissible).

The parties cannot agree to expand the grounds for annulment of an arbitral award.

Enforcement

International conventions and national legislation

Spain is a contracting party to the New York Convention. Spain has made no reservations under Article I(3) of the convention. Therefore, the convention applies to the recognition and enforcement of arbitral awards rendered in any country, regardless of whether that country is a contracting party to the convention. Article 46 of the law provides the rules on the enforcement of foreign arbitral awards.

Approach of national courts

A line must be drawn between old and recent cases. The courts have refused to recognize arbitration agreements mainly on the grounds of non-existence of an agreement to arbitrate or breach of the due process principles. The courts have refused to enforce arbitral awards on the grounds of public policy principles only in recent cases (ie, the principle of due process). The Supreme Court has refused to enforce arbitral awards on the grounds of public policy principles only where:

the respondent was not duly notified of the commencement of the arbitration proceedings;

• it did not have sufficient time to prepare its defence;
• it could not intervene in the appointment of the arbitrators (in breach of the arbitration agreement);
• it could not defend its case; or
• the due process principles were infringement.

Effect of an arbitration award in terms of res judicata

Article 43 of the law provides that arbitral awards have res judicata (ie, final and binding) effect. However, an award may be reviewed on the following limited grounds (provided for by the civil procedure laws):

• Decisive documents which were unavailable due to force majeure or the action of one of the parties have been recovered or obtained;
• The award was made on the basis of documents that have been found to be forgeries in criminal proceedings;
• The award was made on the basis of evidence from witnesses or experts who have subsequently been convicted of giving false testimony; or
• The award was obtained unfairly through bribery, violence or fraud.

Confidentiality

Are arbitral proceedings confidential?

In contrast to the UNCITRAL Model Law, Article 24(2) of the Arbitration Law imposes an obligation of confidentiality on the arbitrators, the parties and the arbitral institutions. Article 24(2) was inserted in the Arbitration Bill in the latest stages of the legislative process. The parties usually believe that confidentiality is an advantage of arbitration over court litigation, but the interpretation and scope of the new Article 24(2) are open to discussion. Arguably, the confidentiality obligation under Article 24(2) is not mandatory, as the parties are free to agree otherwise.

As the confidentiality obligation arises from the arbitration agreement, the law governing the agreement should apply to the obligation of confidentiality. The Arbitration Law 1988 contained conflict-of-laws rules which determined the law applicable to arbitration agreements. The Arbitration Law 2003 contains no conflict-of-laws rules. If the parties have chosen a law to govern the arbitration agreement, that law will apply.

Can information disclosed in arbitral proceedings be relied on in subsequent proceedings?

Confidentiality agreements between the parties do not bind the courts. The courts will accept evidence presented by the parties or requested in compliance with the rules of civil procedure even where this breaches private confidentiality agreements. However, a difficulty arises where the confidentiality obligation originates from the law (and not from an agreement between the parties). As the Arbitration Law 2003 is still recent, there is no authority on the scope and interpretation of Article 24(2) in the context of civil litigation. Arguably, civil courts are not obliged to comply with Article 24(2). If this provision is not mandatory and the parties can opt out of the obligation of confidentiality, the duty to keep information or documents confidential represents a private agreement between the parties. Therefore, the civil courts, applying the rules of civil procedure, will be able to order disclosure of confidential information from the parties despite the existence of an arbitration agreement.

In what circumstances are proceedings not protected by confidentiality?

The courts are not bound by confidentiality agreements between the parties. They may order disclosure of information and documents according to the rules of civil procedure. In Spain, criminal courts have an overriding authority to investigate facts. If a criminal court so requests, the parties are bound by the duty of confidentiality. However, the extent to which civil courts must respect a duty of confidentiality imposed by law is unclear.

Damages, Interest and Costs

Limits on damages

Damages are not considered as a matter of jurisdiction of the arbitrators and are thus governed by the lex arbitri (ie, typically, the law governing the place of arbitration). Arbitrators are likely to consider damages as a remedy for non-performance and breach of contact, and will thus determine damages under the applicable law. However, the applicable law must respect the public policy principles of the place of arbitration. High punitive damages awards (ie, punitive damages which are disproportionate compared with compensatory damages) are unlikely to be accepted under Spanish public policy.

What interest is available?

There are no provisions on interest under the Arbitration Law. Article 37(6) requires that arbitrators decide on the costs of the arbitration, and Article 34 requires that arbitrators decide on the dispute according to the law or ex aequeo et bono (ie, according to what is right and good), taking due account of the terms of the contract and usage in the trade. However, both provisions are silent on the issue of interest. This gap in the law must be filled by practice. In civil litigation the courts award statutory interest (ie, the interest rate to be applied to amounts in arrears which have accrued interest). Spanish arbitrators tend to use the same system. Article 10(c) of the Rome Convention 1980 on the law applicable to contractual obligations determines that the law of the contract will determine the consequences of a breach.

Interest is regarded as a consequence of breach of an obligation and is thus governed by the applicable law. Arguably, if the obligation is denominated in a foreign currency, the law of that foreign jurisdiction should apply and the interest rate should be the mid or long-term interest rate of the currency of payment. This rule is the only provision that ensures full compensation of the loss of the creditor.

Are parties entitled to recover fees and/or costs?

Under Article 37(6) of the law, the arbitrators must rule on the recoverability of costs (if any). Costs should include:

• the fees and expenses of the arbitrators;
• the fees and expenses of counsel for the party's representatives;
• the fees of the arbitral institution; and
• any other costs accrued during the arbitral process.

Article 37(6) is not mandatory, which means that the parties are free to agree on the recoverability of costs, including:

• which costs are recoverable;
• the principles to be applied by the arbitrators; and
• the level of recoverable costs (full recovery versus reasonable costs recovery).

An agreement on costs exists if the parties have submitted to arbitration under institutional rules (eg, International Centre for Dispute Resolution and International Court of Arbitration rules). The institutional rules on costs will displace the provisions of the Spanish law where the place of arbitration is in Spain.

The Arbitration Law does not specify whether the recoverability of costs 'follow the event' (ie, the losing party pays the costs of the winning party) or whether costs are recoverable only from bad-faith or grossly negligent litigants. In Spanish civil procedure the principle is that costs follow the event. These procedural rules may have spill-over effects in the field of arbitration and Spanish arbitrators may be inclined to impose costs on the losing party. The law is silent as to whether the winning party should recover full or only reasonable costs. Based on the experience developed in civil litigation, reasonable costs only should be awarded. The law is unclear on the issue of party autonomy in respect of agreement on costs. Arguably, arbitrators should respect agreements on costs provided that they are not abusive.

Are awards subject to tax?

Arbitral awards rendered in Spain are not subject to taxes. If one of the parties requests the notarization of the award, notary fees and stamp duty on the notarized document will be payable.

Investor State Arbitrations

Spain is a contracting party to the Washington Convention 1965. It ratified the convention on June 20 1994. Spain has entered into bilateral investment treaties with several countries.(1) Spain is also party to the Energy Charter Treaty. It ratified this treaty on December 11 1997.

Arbitration is (almost invariably) the agreed dispute resolution system. Almost all the bilateral investment treaties contain a clause submitting to International Centre for Settlement of Investment Disputes (ICSID) arbitration or to ad hoc arbitration subject to UNCITRAL rules. A large number of bilateral investment treaties contemplate International Court of Arbitration arbitration (in addition to ICSID and ad hoc arbitration) and arbitration before the Arbitration Centre of the Stockholm Chamber of Commerce.

Spain was the defendant in one ICSID case.(2) There are no reported cases or precedents in Spain on the enforcement of ICSID awards by Spanish courts, against either Spain or other countries. Spain has not yet appointed a competent authority under Article 54(2) of the Washington Convention. Therefore, enforcement should be sought before the courts.

Trends and Issues

The main change in Spain is the Arbitration Law 2003. It has been in force since March 2004 and has replaced Law 36/1988. There was a significant rise in the number of arbitrations in Spain while the Arbitration Law 1988 was in force.

The new law aims to promote new and important advances in the regulation of arbitration by including Spain in the increasing list of states which have adopted the UNCITRAL Model Law. It also aims to make Spain the place of reference for international arbitration involving Latin American interests.

Arbitration proceedings under the bilateral investment treaties, the Energy Charter Treaty and the Washington Convention 1965 are attracting significant attention given the high level of investment by Spanish companies in Latin American countries.

International Law Office