THE ENFORCEMENT IN SPAIN OF A FOREIGN ARBITRATION AWARD (Partner of Litigation, Arbitration and Insolvency at EVERSHEDS NICEA Lecturer of Civil Procedural Law and Insolvency Law at Universidad Pontificia de Comillas, ICADE Member of the Madrid Bar Association Arbitration Court) Abstract The increasing prominence of Spanish companies in the international economic arena, the progressive and unstoppable advance of arbitration as an alternative dispute resolution mechanism and the intentional breach of international arbitration awards make it appropriate to consider, in general terms, how to enforce such awards in Spain. I. THE PRIOR RECOGNITION OF THE AWARD 1. Under the Arbitration Act No. 60/2003 of 20 December 2003 ( the LA ), a foreign award is one issued outside of Spain (article 46.2 LA). In order to be valid and effective - especially in terms of enforcement before the Spanish courts - it must be previously recognized in accordance with the provisions of the New York Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Since this Convention was not made subject to any reservation by Spain, it is applicable to any foreign award, regardless of whether the dispute resolved was of a contractual nature or whether it was issued in a State which is a party to the Convention. 2. The bodies responsible for recognising arbitration awards are, according to Article 8.6 LA (which restates the existing provisions of Article 955.III of the Civil Procedural Act 1881 and Art. 73.1 c) of the Organic Law of the Judiciary), the Civil and Criminal Chambers of the High Courts of Justice of the Autonomous Regions. Jurisdiction depends on the domicile or place of residence of the party against whom recognition is sought, or the domicile or residence of the person to whom the effects of the award refer and, on a subsidiary basis, to the place where the award is enforced or where its effects are to be felt. 3. Since the New York Convention establishes no procedure for the recognition of foreign awards, Spanish legislation was forced to fill this lacuna, which it did through article 46.2 in fine of the LA. This provision refers to the procedure laid down in the civil procedure rules for judgments issued by foreign courts, i.e. the exequatur procedure contained in article 955 et seq of the Civil Procedure Act of 1881. That said, this procedure is also subject to the particular circumstances regarding recognition laid down in the Convention. 1
4. The exequatur procedure is initiated at the request of a party, by lodging a claim, which must be accompanied by the original of the duly authenticated award as well as the arbitration agreement or, in the absence of the original documentation, any duly authenticated copies 1 and an official translation into Spanish (or any other co-official language, where this is officially spoken in the Autonomous Region in question). Once the claim is filed and admitted, the party from whom recognition is sought will be heard by the Court and, within nine days, he shall state in writing whether he considers the approval requested to be admissible. In any case, whether or not the latter has been heard, and regardless of whether he accepts or opposes the request for approval or not, the Attorney General has to intervene so as to be heard. Thereafter, the Court shall decide whether the recognition of the foreign award is correct by means of a court order, which cannot be subject to appeal. 5. The New York Convention sets out the main grounds for refusing the recognition of the foreign award in Spain. In summary, these grounds are as follows: a) Grounds considered ex officio by the Court: (i) the dispute is not capable of being resolved by arbitration and (ii) the award is contrary to public policy, both in procedural and substantive terms. b) Grounds only considered at the request of a party: (i) the parties to the arbitration agreement were incapacitated in some way; (ii) non-existence or invalidity of the arbitration agreement under the law that governs it; (iii) failure to notify any party of the arbitrator s appointment or any failure to notify the existence of the arbitration proceeding; (iv) failure to respect the defence rights of the party opposing the recognition of the award during the arbitration proceeding; (v) the appointment of the arbitrators or of the arbitration proceedings is not in accordance with that agreed by the parties or, subsequently, with the law of the country which governs the arbitration; (vi) the award goes beyond the scope of those matters submitted to arbitration; (vii) the award is not binding on the parties; and (viii) the award has been set aside or suspended by a duly competent authority under the law regulating the arbitration or under the law of the country in which the award was issued. II. ENFORCEMENT OF THE AWARD 6. It is only once the foreign award has been recognized or approved by the High Court that it can be enforced in Spain. Enforcement will be carried out according to the provisions of Law 1/2000, of January 7, on Civil Procedural (LEC), 2 with the exception of certain specific provisions concerning the documentation that must accompany the petition for enforcement. 1 It is possible that the award may have been rectified, clarified or supplemented by a partial award. Where this is the case, the partial award must also be attached. 2 Referral to the LEC as a whole is contained in Article 44 LA. 2
7. Initiation of the enforcement of the award shall correspond as in any enforcement proceeding to the person who has obtained in his favour, following the filing of a claim, a declaration of liability. Substantive and territorial jurisdiction is exclusive to the Court of First Instance in the territory of the High Court which has approved the award, on the basis of the same territorial jurisdiction criteria as those set out in article 955.III of the Civil Procedural Act of 1881, i.e. the domicile or residence of the person to whom the effects of the award refer, and, on a subsidiary basis, to the place of performance of the award or where it should produce its effects. 8. The claim that seeks to initiate the enforcement procedure must be signed by a lawyer and a procurador (Spanish official court lawyer) and, in outline, must contain the following: a) Identification of the parties; b) Identification of the award approved, i.e. the document on which the enforcement is based; c) The specific enforcement protection claimed; d) Identification, if it is possible for the enforcing party to know this, (or, alternatively, the appropriate investigation measures) of the assets owned by the party enforced against which should be sufficient enough to satisfy the judgment and that can be assigned to the enforcement, with respect to money judgments. In addition, the enforcement action must be accompanied by the original arbitration award, duly authenticated, as well as the agreement or in the absence of the original documentation, duly authenticated copies, an official translation into Spanish, and a transcript of the court order containing the recognition or approval of the award. 9. Once these requirements are met, the enforcement is commenced by means of a court order without the need for the party enforced against to be heard. This court order cannot be appealed against, without prejudice to the contents of point 13 below concerning the possibility of the party enforced against defending himself in the enforcement proceedings. 10. In terms of the further procedural steps required to enforce the award, it is important to note that the Civil Procedural Law differentiates the following types of rulings, which have a different procedural treatment: (i) money judgments, (ii) nonmoney judgments, which are sub-divided into judgments where the defendant must give something other than money, do something and not do something. However, regarding non-monetary rulings, underlying the legislation is the possibility that their enforcement would not be carried out on their own terms (in natura) or that they are not complied with within the time period allowed for each type of judgment. Accordingly, in these cases monetary judgments are established as a subsidiary means of 3
enforcement; i.e. the original order is replaced by compensation of any loss or damage suffered. 11. In the event that an award orders the payment of money, the main steps in the enforcement process are as follows: a) At the same time as the Court orders the start of the enforcement procedure, it will order the seizure 3 of the property of the party enforced against and/or the taking of investigatory measures to verify the existence of such property 4 in order to subsequently seize them. b) Once the goods have been seized, it is necessary to ensure or guarantee the seizure. Thus, depending on which assets have been confiscated, the Court shall order (i) their deposit; (ii) the judicial management thereof; (iii) their retention but without the party enforced against losing ownership of his assets and (iv)the entry of a caution in a public register. c) The next phase of the process consists of realising the assets seized, which will depend on the assets in question: 1) If the assets seized are, for instance, cash, salaries, pensions, current account balances, credits which can be realised immediately, etc., they will be made available to the Court and then delivered to the enforcing party. 2) If the assets seized are securities listed on an Official Secondary Market, their realisation will consist of their sale through the corresponding market in accordance with the provisions that regulate said market. If the securities are not listed on an Official Secondary Market, the sale will be made through a notary. 3) If the asset seized is a company which is trading, the Court shall order its compulsory administration; in such case, a liquidator shall be appointed. 4) As regards the seizure of goods other than those listed in the above paragraphs, they will (usually) be sold at a public court auction. 12. When the award is of a non-monetary nature, a distinction must be made between when the respondent is ordered to give something other than money and when is ordered to do something or not do something. 3 Seizure is an essential prerequisite for the validity of any subsequent enforcement action, as any act disposing of goods without any prior seizure is illegal and ineffective. 4 The main requirements which must be met for enforcement against goods to take place are: (i) the goods must belong to the party enforced against, (ii) they must be of a financial nature, (iii) they must be validly enforced; and (iv) they must not have been declared incapable of being seized. 4
a) An order to give something other than money: the Court will order the party enforced against to immediately make available the thing that must be delivered at the same time that the enforcement procedure begins. The Court may take any adequate measure requested by the enforcing party, such as the entry to closed premises with police assistance. If it ultimately proves impossible to deliver the goods to the enforcing party (because they have been destroyed or because they now belong to a third party acting in good faith), the enforcing party can seek compensation for all loss or damage suffered. b) An order to do something: after an enforcement order against the party enforced against has been issued, the Court shall grant the latter a reasonable period of time to comply, taking into account the nature of the act which he has been ordered to carry out; if the party enforced against fails to perform the act or does so incorrectly or in a manner which conflicts with what was decided in the award, the enforcement will follow a different path depending on whether the conduct required of the party enforced against is ordinary (when the order could be carried out by a person other than the party enforced against, achieving the same content and results as if the latter had carried it out) or personal in nature. 1) An order to do something which is ordinary, fungible or impersonal: if the party enforced against does not comply with the order, the enforcing party may choose either (i) to obtain the court s authorisation to enter into a contract with a third party, who will carry out the act in question, the expense of which will be charged against the estate of the party enforced against, or (ii) to seek compensation for all loss or damage incurred. 2) An order to do something which is personal or non-fungible: the party enforced against will be required to carry out the act in accordance with the terms established in the award. At the same time, he will be given a period of time to submit the main reasons explaining the impossibility of performing such conduct or his refusal to do it. In any case, if the party enforced against does not comply with the order, the enforcing party may seek compensation for all damage caused by such breach. c) Order not to do something: in the event that the party enforced against is ordered in the award to refrain from doing something yet he does it, the court will require him to undo what he has done and, if this is not possible, the party enforced against must pay compensation for any loss or damage that he may have caused to the enforcing party. 13. In point nine above, mention was made of the fact that the court order by means of which the Court initiates the enforcement procedure cannot be appealed against. Nevertheless, this does not mean that the party enforced against cannot defend himself during the enforcement procedure, as the LEC allows him to oppose the existence of the procedure itself or specific enforcement acts. 5
a) The enforcement procedure may be opposed on two main grounds: procedural (unlikely in practice with respect to an approved arbitration award) and substantive. 1) With respect to procedural grounds, the party enforced against may claim (i) lack of the capacity or representative capacity in which the action is brought against him, (ii) the lack of capacity or representative capacity of the enforcing party or the fact that he does not show the nature or representative capacity on the basis of which he has filed the claim, (iii) any formal defect in the claim for enforcement, (iv) or that the award does not contain any declarations which impose orders against the party enforced against. 2) For substantive reasons: (i) the termination of the enforcement action, which shall occur after five years of the award becoming final, (ii) the (total or partial) performance of the orders made in the award, (iii) any agreements or transactions made so as to avoid the enforcement. b) The opposition to specific acts of enforcement: the enforcement activity has a regulatory nature, and both parties and court should strictly comply with its rules (except where the LEC expressly grants some discretion), because, otherwise, there will an infringement of the procedural rules. Such violation may consist of (i) the breach of a mandatory rule, (ii) the act of enforcement ordered by the Court at its discretion causes loss; and c) it may also prevent the exclusion of any operative provisions when its application favours the enforcing party. 14. In conclusion, in order to enforce an award issued in another country in Spain, it must first be recognised or approved by the Spanish courts. Once approved, it can be enforced in accordance with the terms established by the Civil Procedural Law, depending on the type of order made in the award, the assets enforced against and the satisfaction (or otherwise) in natura, of the order. 6