Interview With Professor José Carlos Fernández Rozas: “Madrid Remains A Very Friendly Place For International Arbitration”

From this month, iarbnews will begin publishing interviews with leading figures in international arbitration. On this occasion, we are pleased to publish an interview with international arbitrator Professor José Carlos Fernández Rozas, which was conducted on the sidelines of the X International Seminar on Investment Arbitration held in Santa Cruz de la Sierra, Bolivia.

Prof. Fernández Rozas delivered the seminar’s inaugural address which covered a wide range of topics. The address touched upon the differentiation between investment arbitration and international commercial arbitration, concluding that despite the merger that has been taking place in recent decades, these two types of arbitration continue to represent two different worlds.

In his view, this can be easily seen in the different ways in which arbitrators are appointed. For example, in the ICSID context there is an official list of arbitrators which is normally used to appoint the chairman of a tribunal (although arbitrators can be appointed outside this list). In international commercial arbitration, however, the rules of the International Bar Association (IBA) are generally used in this respect.

Prof. Fernández Rozas’ address also dealt with the issue of the functions of state courts with regard to arbitration, highlighting that there are three of them: support, control and enforcement. As for enforcement, which comes into play when an award is consented to and becomes res judicata, with the same effects as a court judgment, Prof. Fernández Rozas told the audience about the recent evolution in the enforcement function in Spain.

He explained that over a period of more or less five years – between 2015 and 2020 – the Civil and Criminal Division of the Madrid High Court of Justice had issued several decisions annulling arbitration awards based on an overly broad interpretation of the concept of public policy, an incorrect statement of reasons for the award or a deficient assessment of the evidence by the arbitrator. This, in turn, led to the development of a line of case law hostile to the recognition and enforcement of arbitral awards, especially those of an international nature.

However, this hostile environment – which could have become entrenched – was finally mitigated by a decision of Spain’s Constitutional Court (46/2020 of 15 June). With this judgment, the Constitutional Court redeemed the concept of “public order” in the framework of an action to set aside an award, restoring its fair boundaries, without expanding the notion beyond what is strictly necessary. This brought the situation back to normal and re-established that in Spain an action to set aside an award will be construed as a process of external assessment of the award’s validity, but will never allow for a review of the merits of what was decided by the arbitrators.

Afterwards, Prof. Fernández Rozas explained the current case law in Spain regarding the vacatur of arbitral awards to iarbnews in more detail. He says that nowadays, if an award has to be quashed because of a formal defect, “it is quashed and nothing happens.” However, the case law trend “is back to the same as it was before the hostile period between 2015 and 2020” (i.e. in favour of the recognition and enforcement of arbitral awards).

Prof. Fernández Rozas says that this can be seen in the fact that “more and more ICC awards are being rendered in Spain, despite the emergence of a competing arbitration institution.”

Prof. Fernández Rozas further explains that, as is publicly known, in 2019, “the different arbitration institutions in Madrid together set up a special arbitration centre” for the administration of international arbitrations, namely Madrid International Arbitration Centre (CIAM).

This new centre was created as a result of the merger of the international branch of the Madrid Court of Arbitration(which is closely linked to export issues), the Civil and Commercial Court of Arbitration (which is sponsored mainly by State lawyers, and before which arbitrations involving larger amounts of money are administered) and the Spanish Court of Arbitration (which is a highly active court of arbitration, where the largest number of arbitration cases are handled), with the participation of the Court of Arbitration of the Madrid Bar Association as a strategic partner. Thus, the three main courts of arbitration fund the CIAM, and undertook to refer all international arbitrations to that court, thus avoiding any conflict between the competences of the various arbitration institutions that make up the CIAM.

iarbnews asked Prof. Fernández Rozas whether he considered that the establishment of the CIAM could also contribute to challenging the hegemony of the ICC in Latin America, given the close cultural, linguistic and idiosyncratic ties between Spain and this region of the world. He says the issue does not depend so much on the CIAM, but rather on “the major Spanish law firms, most of which still turn to the ICC.”

In his opinion, “the challenge for the CIAM is to compete on equal terms with the ICC so that these large international arbitration firms have even more possibilities to choose which institution to turn to, because it has to recognised that over the years the arbitration procedure before the ICC has proved to be very efficient.” The CIAM – he adds –  “has been very unlucky to have been created only a few months before the outbreak of the Covid-19 health crisis,” which prevented it from making a formal on-site launch of the institution. Instead, all of the Centre’s inauguration events had to take place online, something he believes has been “detrimental to the institution’s visibility.”

Lastly, with regard to investment arbitration, iarbnews asked whether it was necessary for the CIAM to issue new rules for conducting investment arbitration. In Prof. Fernández Rozas’s view, “it is not necessary to have specific rules to administer investment arbitrations – in fact, the ICC does not have specific rules for this type of arbitration – so the CIAM would be fully authorised to carry out investment arbitration without the need to issue specific rules.”

In the event that CIAM ultimately administers investment arbitrations, it would find itself competing with the SCC Arbitration Institute in Stockholm rather than with the ICC, as a large number of investment arbitrations are conducted under the aegis of the SCC, in particular those involving energy-related issues, where the Energy Charter Treaty applies, which is currently torn between disappearing in its current format or being completely modernised. We will see the results of the conference on the modernisation of the Treaty to be held in Mongolia in April 2023.

Consequently, in the event that CIAM clauses are included in BITs or concession contracts between foreign investors and States, any action for annulment of the award will be brought before the courts of the seat of arbitration – that is, Madrid.

As to the persistence of the myth that Spain is not a friendly place for international arbitration, Prof. Fernández Rozas told iarbnews that “after the aforementioned Constitutional Court ruling, the broadened concept of “public order” no longer poses a threat.” Madrid, he says, is “once again a very friendly place for international arbitration.”

On behalf of its readers, iarbnews warmly thanks Prof. Fernández Rozas for his thoughtful responses and the pleasurable interview.

The X International Seminar on Investment Arbitration was jointly organised by the IPA (Peruvian Institute of Arbitration) and the IBAC (Bolivian Institute of Arbitration and Conciliation) and was held between 22 and 23 September 2022. Attendees included experts in investment arbitration from several countries, namely Argentina, Bolivia, Brazil, Colombia, United States, Spain, France, Peru and Switzerland. Amongst them, Juan Manuel Rivero Godoy (Secretary of the Permanent Review Tribunal of Mercosur - Uruguay), Antolín Fernández Antuña (Antuña & Partners - Spain), Carlos A. Soto Coaguila (Founder of the IPA - Peruvian Institute of Arbitration - Peru), Nahid Cuomo (YPFB TRANSPORTE S. A. - Bolivia), Gonzalo Stampa (Stampa Abogados - Spain), Carlos Ferreira Vásquez (Ferreira Vásquez Estudio Jurídico - Bolivia) and Professor José Carlos Fernández Rozas (Universidad Complutense de Madrid - Spain).

The Seminar addressed a varied range of subjects, from the role of BITs and FTAs in the promotion of international arbitration, international standards of full protection and security, expropriation, the applicable law in investment arbitration: international law vs. domestic law from the perspective of the Latin American experience, including issues such as indirect expropriation before ICSID and measures tantamount to expropriation, as well as topics related to arbitral dialogue with judicial powers: judicial control of arbitral awards, the motivation of arbitral awards (obligation or power of the arbitrators?).