New investment could lead to greater use of arbitration – CMS Albiñana & Suárez de Lezo

Arbitration could increase as new companies and joint ventures – involving local businesses and international partners – are established in Spain

Alternative dispute resolution is not used frequently in Spain, at least in the commercial field, where firms are much more likely to enter into litigation, according to Javier Mendieta, a partner at CMS Albiñana & Suárez de Lezo in Madrid.
Among clients´ reservations about alternative dispute resolution, are – with regard to arbitration, for example – the extent of the independence and impartiality of the arbitrator, as well as the likelihood of being able to predict what the outcome of an arbitration will be. However, on the positive side, arbitrators are often extremely knowledgeable about the matters subject to the arbitration, which is not necessarily the case with judges in courts.
With regard to arbitration, despite the fact the Spanish arbitration law – enacted in 2003, amended in 2009 and 2011 and aimed at allowing Spain to become a centre for dispute resolution between Latin America and Europe – is technically good and provides for flexibility, Mendieta says he has noticed a decrease in its use, particularly in the case of domestic disputes.
This is because clients do not perceive arbitration as being faster or cheaper than litigation in Spain, even though the judicial process has become more expensive in recent years, according to Mendieta. The legal right to provisionally enforce a first instance judgment, subject to appeal, without the need for posting a bond, has in most cases reduced the attractiveness of an award rendered in an arbitration procedure due to the impossibility to file an appeal against it.

More arbitration?
However, Mendietta adds that the increase in investment in Spain, as the country begins its economic recovery, may lead to a rise in the number of arbitration cases, particularly international ones, due to the incorporation of new companies and joint ventures in Spain involving local businesses and international partners.
That said, in some sectors, such as construction, it is much more likely that firms will use the courts for conflict resolution, rather than seeking arbitration. In this regard, there could be opportunities for more legal work in instances of arbitration involving a private company and a foreign public company or government as arbitration clauses may be inserted into contracts regarding investment.
Mendieta – who specialises in litigation, pre-litigation and arbitration in civil, commercial and bankruptcy law – says this is because when a case involves two companies from different countries, there is always a “certain mistrust toward the legal system of the counterpart and that frequently determines the inclusion of an arbitration clause in the relevant agreement”.

Client concerns
Clients are always concerned about two main issues when considering the inclusion of an arbitration clause in an agreement. First, they want to know about the independence and impartiality of the future arbitrators, and second, the predictability of the decision in a potential controversy.
The first concern justifies and explains the common assignment of the administration of the arbitration procedure to a reputed international or domestic arbitration institution, as well as the agreement of the parties to submit themselves to the rules and regulations of that relevant institution, especially for the purposes of the appointment of the arbitrators.
“The arbitration institutions have made an effort to establish the relevant proceedings to ensure, as far as possible, the independence and impartiality of arbitrators,” says Mendieta.

Judgment of Solomon
Regarding the second issue, some of the main concerns of clients are uncertainty about the procedures of the arbitration and the possibility of facing a “judgment of Solomon” award. This has led to a substantial reduction in the arbitration clauses which order the disputes to be settled or ruled in equity.
But those concerns are balanced with the usually greater and more extensive experience of the arbitrators on the relevant issues raised in the case subject to arbitration compared to that of the judges in the ordinary courts.