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Pro-bank arbitration awards annulled by Madrid court: Should banks be arbitrating in Madrid?

The High Court of Justice of Madrid (Tribunal Superior de Justicia de Madrid) has annulled five pro-bank arbitration awards in interest rate swaps disputes. The court said that the arbitral tribunals incorrectly interpreted the mandatory Spanish Securities Market Act (the Act), and that this violated Spanish public policy. The rulings undermine the finality of arbitration awards in Madrid (and, more widely, Spain) and will almost certainly boost challenges to awards, particularly in misselling claims. This, is turn, will increase risk, delay and cost for banks. 

Swaps arbitration awards annulled

The arbitration awards were in favour of two banks − Banco Popular and BBVA. In each case the investors − medium-sized companies (categorised as retail investors for MiFID purposes) – had alleged that, during the sale of swaps, the banks gave financial advice and breached their duties to inform. The tribunal in each case had found that the bank did not provide an advisory service and that information duties were not breached. The disputes had been arbitrated because each swap agreement had provided for domestic arbitration seated in Madrid under the rules of the Madrid Chamber of Commerce. In each case the investor appealed to the Madrid court.

The court found that the tribunals had violated Spanish domestic public policy because they had not correctly applied the Act. In particular, the court found that each bank had not performed a MiFID test for each client, as required by the Act and had not properly informed clients about interest rate swap risks. This, said the court, contravened “basic rules and principles of contracting that are especially serious or in need of special protection”, such as the general principle of good faith. The court stated that this error in the application of the Act was a violation of Spanish public policy and entitled it to annul the awards. 

Finality of Spanish arbitration awards threatened 

As with the vast majority of legal regimes, the Spanish Arbitration Act (Law 60/2003) allows the annulment of arbitral awards before the court of the seat in very limited cases1 mostly related to an absence of consensus to arbitration or a breach of due process.

Until these decisions from the Madrid High Court of Justice it seemed settled that, in the context of setting aside an arbitral award, the Spanish courts could not review the merits since it was not possible to re-open the debate either on the facts or on the applicable law. This meant that any mistakes made by a tribunal were never considered to be a basis for challenging an award.

However, these rulings suggest that it is possible for an award to be challenged on the basis of an incorrect interpretation of the substantive law applicable to the merits.

Voice of dissent 

The Madrid High Court of Justice is composed of three magistrates, and one of them has issued a dissenting opinion on the last three judgments. According to the dissenting Magistrate, the Madrid High Court of Justice is wrongly acting as an appeal court, in the sense of reviewing both the facts and the merits of the case, which is not allowed in the current legal framework established by the Arbitration Act. 


These five judgments have damaged Madrid’s (and, consequently, Spain’s) arbitration-friendly reputation.

Financial institutions face additional risk, delay and expense in misselling disputes that are arbitrated in Spain, since any arbitration award could be declared null and void if the High Court deems that the arbitrators did not correctly interpret the applicable law.  

The recent rulings will almost certainly boost the number of challenges to awards. Given that arbitration is an alternative to court jurisdiction for banks, it is very likely that, if Madrid Court’s trend continues, financial institutions will decide not to arbitrate these types of disputes in Spain and remove arbitration clauses from their contracts.

Additional risks may arise regarding enforcement of a foreign arbitration award in Madrid, since it is the same court which will decide whether the award is consistent with public policy. 

Editor’s note: English arbitration law allows an appeal on a point of law, provided the parties have not contracted out of this right to appeal. However, this is a peculiarity of arbitrating in England and is not mirrored in the UNCITRAL Model Law or most other key arbitration jurisdictions, where the right to challenge international arbitration awards is generally limited to grounds relating to jurisdiction and procedural fairness. A potentially expensive appeal on a point of law may, therefore, not be the expectation of many parties entering into arbitration.



1. Grounds for challenging an award are rather similar to those contained in the 1958 New York Convention for refusing recognition of an award. Specifically, Spanish Arbitration Acts provides that the action for challenging an arbitral award must be based in one of the following grounds: (i) that the arbitration agreement does not exist or is not valid; (ii) that proper notice of the appointment of an arbitrator or of the arbitral proceedings was not given, or the party was otherwise unable to present its case; (iii) that the arbitrators have answered questions not submitted to their decision; (iv) that the appointment of the arbitrators or the arbitral procedure was not in accordance with the agreement of the parties; (v) that the arbitrators have decided questions not capable of arbitration; and (vi) that the award is in conflict with public policy

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