The judgment of the Spanish Constitutional Court (“SCC”) of June 15, 2020 has upheld an appeal (“recurso de amparo”) against a judgment of the Madrid Superior Court of Justice (“TSJM”) regarding an action for annulment of an arbitration award despite the fact that the parties had withdrawn from the appeal.

The STC means an important reinforcement for arbitration in Spain, because it makes very relevant considerations in relation to the power of disposition of the parties regarding the process and the limited nature of public order as grounds for annulment of the arbitration award. This will help to increase the confidence of companies and investors in arbitration, since they will be able to see that the awards rendered are not subject to annulments by the courts for substantive reasons related to the object of the process.

A) Background:

On June 15, 2020, the SCC has upheld has upheld an appeal (“recurso de amparo”) filed against a judgment of the Madrid Superior Court of Justice (“TSJM”) and certain additional Court orders that prevented the parties from materializing the withdrawal of an annulment action against an arbitration award. The SCC declares the right to effective judicial protection (art. 24.1 CE) has been violated and declares the nullity of the TSJM court orders.

Although the application for annulment of the award was filed before the TSJM based on certain circumstances related to the clause of express submission to arbitration, the TSJM ex officio requested the opinion of the parties regarding the possible violation of ordre public due to the lack of objective impartiality of the Arbitration Court. After the defendant's appeal against this Court order, the parties filed a brief requesting the termination of the procedure due to an extrajudicial agreement. None of the requests was granted by the TSJM, nor was a subsequent joint request for filing for withdrawal, as it was understood in a ruling by the TSJM that there is a general public interest in purging awards contrary to ordre public that prevails over the parties' power of disposition. In short, it justified the ex officio preservation of ordre public. Faced with this Court order, the two parties raised an extraordinary incident of nullity of proceedings, which was also dismissed because the Court did not consider that any constitutional rights had been violated (basically, the right to effective judicial protection).

After holding a hearing without the parties appearing in it, a judgment was handed down in favour of the application for annulment of the award on the understanding that, in addition to the arbitration agreement being radically null, it had been issued with a manifest loss of objective impartiality and, therefore, was contrary to ordre public.

After a new incident of nullity of proceedings, which was again rejected by the TSJM, an appeal before the SCC was filed, which the SCC decided to examine after appreciating that there was a special constitutional significance in the case, which affected an area of a fundamental right on which there was no doctrine . The aspect of the right to effective judicial protection (art. 24.1 CE) analysed by the SCC is that of the right to a motivated Court order that does not incur in unreasonableness, arbitrariness or manifest error.

B) The decisión of the SCC:

The SCC agrees with the Public Prosecutor that, by not agreeing to the request to shelve the process filed by the parties, there has been a violation of the right to effective judicial protection and an absence of free disposition of the procedure by the parties, as well as an "extensive and unjustified interpretation of the concept of ordre public" by the TSJM.

The SCC states that, prior to the writs requesting the nullity of proceedings, the shelving of the procedure was requested up to three times: on two occasions, expressly, and on one occasion tacitly, when the parties did not appear at the oral hearing (ex art. 442.1 LEC).

The SCC concludes that "the contested decision is, at least, unreasonable and violates the right to effective judicial protection without creating defenselessness (art. 24.1 CE)" and that the TSJM "denies the subjective nature of the rights that are exercised in the process to annul awards, granting the parties only the power to initiate the process, but without them being able to assert, afterwards, any changes that may affect their interest in obtaining the judgment. On the contrary, it must be understood that this falls within the scope of the parties' power of disposition in a civil process, such as is the process of annulment of an arbitration award, without there being a prohibitive legal provision in this regard. ”

The SCC recalls the basic principle of disposition of the parties of the civil process, to point out that it is obvious that the parties' intention was to express to the Court their lack of interest in pursuing the litigation, with the TSJM thus obviating “that in order to decide in favour of such a lawsuit several circumstances have to occur: not only the existence of the defect of annulment that is invoked, but also the existence of the legitimate interest, a question that belongs to the strict subjective scope of the parties, especially when the existence of interests of third parties is not proven. For this reason, regardless of whether the cause to request the annulment affects ordre public or not, it is true that the fundamental issue is legally-private and in the power of disposition of the parties, so that, in our civil procedural system, in order to reach a decision, the parties are required to prove their interest in litigating ”, even more so when in the present case it was a joint petition.

In relation to the much disputed question of the limits of ordre public order as a reason to annul an arbitration award, the SCC considers that:

“The broadening of the concept of "ordre public" carried out by the contested Court orders in order to carry out a substantive review of the dispute, which belongs in essence only to the arbitrators, goes beyond the scope of the action for annulment and despises the power of disposition from the parties to the process. ”

No less relevant is the mention to the judgment of the SCC 1/2018, of January 11, Legal Reasoning 3, noting that in "the arbitration mechanism, the renunciation to the exercise of the fundamental right comes from the legitimate autonomy of the will of the parties, which, freely and voluntarily, submit to the decision of a third party outside the courts to solve their conflict, and this, properly understood, does not imply a general renunciation to the fundamental right of Article 24 of the Spanish Constitution, but rather its exercise at a certain time, without violating any constitutional principle (SCC judgments 174/1995, 75/1996 and 176/1996) ”.

By mentioning the aforementioned judgment (and also SCC judgments 174/1995, Legal Reasoning 3, SCC 75/1996, Legal Reasoning 2 and SCC 43/1988), the SCC affirms that the jurisdictional control of the arbitration award excludes substantive issues since the causes of review are numbered and limited to formal guarantees.

Recalling also "the minimal intervention of the jurisdictional bodies by virtue and in favor of the autonomy of the parties' will", the SCC emphatically concludes that "the annulment action must be understood as a process of external control over the validity of the award that does not allow a review of the merits of the arbitrators' decision”.

The SCC warns of the risk of subverting the limited causes for annulment in art. 41.1 of the Spanish Arbitration Law, as well as neutering the very purpose of the arbitration, in case the arbitration award could be subject to revision as to the merits (SCC Order 231/1994, of July 18, Legal Reasoning 3). The CJEU is also mentioned, when it states that the “requirements regarding the effectiveness of the arbitration procedure justify that the control of arbitration awards is limited and that the annulment of an award can only be obtained in exceptional cases” (CJEU judgment of October 26 2008, 'Case C-168/05, Mostaza Claro).

The SCC specifies that "ordre public order is configured as the set of formalities and necessary principles of our procedural legal order, and only the arbitration that contradicts any or some of such principles may be considered null and void for violation of ordre public" and ends by pointing out that:

"Precisely because the concept of ordre public is not very clear, the risk multiplies that it becomes a mere pretext for the judicial body to reexamine the issues debated in the arbitration procedure, distorting the arbitration institution and ultimately violating the autonomy of the will of the parts. The judicial body cannot, with the excuse of an alleged violation of ordre public order, review the merits of a matter submitted to arbitration and show what is a mere discrepancy with the exercise of the right of withdrawal of the parties. ”

For all these reasons, the SCC understands that the decision of the TSJM was contrary to the constitutional canon of reasonableness of judicial decisions and that the actions of the Court went beyond the constitutional limits of the duty of motivation and consistency.

In short, insofar as the parties' power of disposition was denied without a prohibitive norm authorizing it, the decision of the TSJM must be considered contrary to the right to effective judicial protection.

In addition, the SCC warns of the risk of the "domino effect" that the filing of the application for annulment can generate if the parties are prevented from exercising their power of disposition over the process.

C) Assessment:

The SCC judgment of June 15, 2020 is an important boost for arbitration practice in Spain, since not only does the principle of autonomy of the parties' will and their power of disposition over the process prevail, but also limits the extensive interpretation of the concept of ordre public as a reason for annulment of an award by the TSJM.

If you want to check the complete judgment, click here.