In this note we aim to set forth how arbitration in corporate matters is regulated in Spain, that is to say as an alternative dispute resolution method for resolving disputes which arise within a particular company (concept which does not include conflicts which may arise between businesses in the development of their commercial activities, so-called commercial arbitration), and to give some insights into the legal issues posed by said regulation.
Although corporate arbitration has a long historical tradition in Spain (interrupted by the Commercial Code of 1885, which is still in force), we cannot find any legal provision allowing corporate arbitration until the reform of Arbitration Act 60/2003 of 23rd December (Ley de Arbitraje “LA”) operated by Law 11/2011 of 20th May, which reforms the LA with the introduction of articles 11bis and 11ter.
Article 11bis of LA establishes the following:
Article 11 bis Bylaws Arbitration
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- Companies may submit conflicts to arbitration which arise there within.
- The introduction of a clause of submission to arbitration to the company bylaws will require the vote in favour of at least two thirds of the votes corresponding to the shares or membership interests into which the share capital is divided.
- The company bylaws may provide that the challenge of the corporate resolutions by the shareholders or partners be subject to the decision of one or more arbitrators, with the administration of the arbitration and the appointment of the arbitrators being entrusted to an arbitral institution.
In view of this, the following observations can be made:
a) The term “bylaws arbitration” includes only the arbitration agreements contained in the company bylaws, leaving aside the inter partner or inter shareholder agreements provided for in article 29 of the Spanish Companies Act (Ley de Sociedades de Capital – LSC), to which the regime established for corporate arbitration in article 11 of the LA shall not apply, but instead the general system.
b) The term “capital companies” is reduced to limited liability companies, joint stock companies and limited partnerships with membership interests (in accordance with article 1 of the Spanish Companies Act), and therefore omits other legal entities such as joint partnerships, companies in process of incorporation or irregular companies, joint-property entities, etc.
In these cases, in order to support the arbitrability of intra corporate matters in reference to commercial companies in general -arbitrability understood as the possibility of submitting certain matters to arbitration-, one shall resort to the doctrine, as no legal provision exists, for example, to the Resolution of the Directorate General for Registers and Notaries (Dirección General de los Registros y Notariado – “DGRN”) of 19th February 1998 and to the Judgement of the Supreme Court number 355/1998, of 18thApril.
c) The reference to “conflict arising therein” makes it possible to assert the arbitrability of all disputes arising within commercial companies -in the broadest sense- provided, of course, that the claims refer to matters that are suitable for arbitration under the Law, in accordance with article 2 of the LA.
d) In order to include a clause on submission to arbitration in the company bylaws, article 11bis, paragraph 2 of the LA requires a reinforced “super” legal majority of two thirds (equivalent to that required by article 199 of the LSC for the authorisation of directors to carry out, on their own behalf or on behalf of others, the same, analogous or complementary type of activity that constitutes the corporate purpose; the suppression or limitation of pre-emptive rights in capital increases; the transformation, merger, spin-off, global assignment of assets and liabilities and transfer of domicile abroad, and the exclusion of shareholders; while an enhanced legal majority of more than half of the votes is required for the amendment of the bylaws).
Thus, if at the time of incorporating the company the submission to arbitration was not included in the company bylaws, a modification to the bylaws may be carried out at any time in this respect, provided that the reinforced “super” majority of two thirds is complied with. The requirement for this majority, instead of unanimity, has been severely criticised by part of the doctrine, given that it raises questions regarding the scope of the arbitration agreement for dissident or absent partners.
Likewise, the fact that the arbitration clause provided for in the company’s bylaws binds the partners who join the company once said clause has been included therein. However, the majority of doctrine deems that the publication of the bylaws in the Commercial Registry shall entail the submission to arbitration of the partners who join the company at a later stage, while the minority of doctrine considers that the treatment of a general condition of contract shall apply by analogy.
Conversely, if a private agreement is signed (inter partner), between one, several or all of the partners with submission to arbitration, only the signatories shall be able to invoke (and shall be the only ones who may be opposed) the arbitration, for which express adhesion to the arbitration agreement will be required.
e) With respect to the subject matter of the conflict, a distinction must be made between the following duality:
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- Conflicts arising in corporations in general, which may be submitted to institutional arbitration or ad hoc arbitration, arbitration in law or arbitration in equity, since the LA does not provide for any limitation; and
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- The challenge of the corporate resolutions by the partners or directors, in which case paragraph 3 of article 11bis of the LA requires that both the administration of the arbitration as well as the appointment of the arbitrators be carried out by an arbitral institution, since a priori arbitration institutions offer greater guarantees of control and predictability than ad hoc
Furthermore, the LA only mentions the partners or directors, and omits third parties who prove a legitimate interest in challenging a certain corporate resolution as per article 206.1 of the LSC, so they are not bound by the submission to arbitration and may go to the corresponding Commercial Courts (or voluntarily submit to statutory arbitration).
Likewise, article 11ter of the LA establishes that:
Article 11 ter Cancellation by award of registrable corporate resolutions
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- An arbitration award declaring the invalidity of a registrable corporate resolution must be registered at the Commercial Registry. The “Official Gazette of the Commercial Registry” will publish an extract.
- Where a challenged corporate resolution is registered at the Commercial Registry, the award will also determine the cancellation of its registration, as well as any subsequent entries which may contradict it.
The following conclusions may be extracted from said Article:
a) The provisions of the first paragraph of article 11ter of the LA constitute a legal exception to the requirement that the entries in the Commercial Registry are carried out by virtue of public documents provided for in articles 18.1 of the Commercial Code and 5.1 of the Commercial Registry Regulation. Therefore, any award which declares registrable resolutions invalid, despite being a private document, shall be directly registrable at the Commercial Registration without the need for notarisation.
b) With regard to the second paragraph, in the event that the challenged corporate resolution is registered at the Commercial Registry, a mandate is established for the arbitrator or the arbitral tribunal so that the award determines the cancellation of its registration, as well as any subsequent entries which are contradictory. In the event of omission of such references, it is understood that the award would incur a formal and material defect which may entail the responsibility of the arbitrator and/or the arbitration institution, although it would not cause the exercise of the annulment action as per article 40 and thereafter of the LA.
Carla Villavicencio
Vilá Abogados
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13th November 2020
