Damages in Arbitration – A Perspective from Spain

In Spain’s civil law-based legal system, the assessment of damages is firmly rooted in substantive law. This means that any issues relating to damages—whether their admissibility, scope, or calculation—will be governed by the law applicable to the substance of the dispute, not by procedural or arbitral rules.

Types of Damages and Their Quantification in Arbitration

In arbitration proceedings seated in Spain, arbitrators pay close attention to the assessment of damages and their economic quantification.

Although evaluating damages and their quantification in an arbitration proceeding in Spain shares many similarities with court proceedings in ordinary jurisdiction, one notable distinction is the greater procedural flexibility it allows, particularly in the evidentiary phase. In practice, this often leads to a more dynamic and detailed presentation of expert evidence.

Expert reports play a central role in this process. These are usually prepared by specialists in a specific field, who analyse the events at issue and provide a detailed breakdown of the damage suffered and the compensation they consider appropriate. Their conclusions must be supported by verifiable data, documentation, and clear reasoning.

Crucially, Spanish law requires not just alleging but proving the existence of actual damage. If a claimant cannot demonstrate that they incurred the loss, compensation will likely be denied.

In fact, the quantification of damages can become so central to the dispute that, in certain arbitral proceedings—particularly those involving coverage issues—it is common to bifurcate the procedure. This entails dividing the arbitration into two distinct phases:

• A first phase focused on determining the existence of coverage or liability; and
• A second phase dedicated exclusively to assessing the quantum of damages.

Typical Heads of Damage

While the specific types of damages claimed will depend on the nature of the dispute, certain categories appear frequently in Spanish-seated arbitrations:

• Material damages: resulting from the physical deterioration, destruction, or loss of tangible property;
• Actual losses: the real, quantifiable costs directly suffered by the injured party;
• Loss of profit: earnings or economic advantages that were expected but not obtained due to the breach or harmful act; and
• Moral damages: non-material damage, such as emotional distress, these are often more difficult to quantify and prove.

Even intangible damages, like reputational damage, can be subject to compensation, provided they are properly substantiated. In such cases, experts may rely on factors such as income fluctuation, market presence, brand valuation before and after the event, and media impact, to offer a credible analysis of the reputational damage suffered.

Limits Under Spanish Law: Punitive Damages vs. Penalty Clauses

A limitation under Spanish law is the exclusion of punitive damages. These are damages awarded not to compensate a loss, but to punish the wrongdoer. The Spanish Supreme Court, in its judgment of 30 September 2009 (EDJ 2009/245287), clearly states that punitive damages are incompatible with the reparative function of Spanish civil liability, which is based on the principle of restitutio in integrum.

Under this doctrine, the goal is to compensate only for the actual loss that has been incurred. Any award exceeding that value could be considered an unjust enrichment of the injured party.

The enforcement of foreign arbitral awards that include punitive damages remains a topic of debate in Spain, as it may conflict with the country’s concept of public order. There is no consistent legal approach on this issue yet.

Nevertheless, it is important to distinguish between punitive damages and penalty clauses under Spanish law. While punitive damages are not permitted due to their punitive nature, penalty clauses are generally valid as long as they are clearly defined, mutually agreed upon, and proportionate. Their purpose is not to punish the breaching party, but to strengthen contractual compliance by setting in advance the economic consequences of a potential breach. For example, penalty clauses are abundantly included as a consequence of breaches regarding non-compete clauses.

Interest on Damages: What Rules Apply?

Interest, whether compensatory (to reflect the time value of money), default (due to late payment), or related to an execution procedure, plays a key role in many awards. Spanish arbitration law (Law 60/2003) does not regulate interest directly, so the matter is governed by the substantive law chosen by the parties.

Conclusion

In Spanish arbitration, damages are a core component of the substantive dispute. The governing law determines their admissibility and quantification, with arbitrators placing significant emphasis on expert testimony and documentary evidence.

Compared to ordinary litigation, arbitration in Spain offers greater procedural flexibility, particularly in terms of the timing and presentation of evidence. This can be advantageous when dealing with complex damage claims.

Ultimately, a successful damages claim must be credible, well-documented, and legally sound. Without these elements, even the strongest arguments on liability may fall short.

This article was originally published on Daily Jus on Friday 23rd of May, with thanks to Jus Mundi & Jus Connect.