Contributed By Morales & Besa
Setting Aside Arbitral Awards in Chile
Chilean courts and legislation have fostered a pro-arbitration and pro-enforcement environment, favouring arbitration and recognising the benefits that are generally attached to it. The Civil Procedure Code, the Code on the Organisation of Tribunals, the New York Convention on the Recognition and Enforcement of Arbitral Awards (in force in Chile since 1975) and Law No 19,971 on International Commercial Arbitration (also known as “LACI”) demonstrate a clear commitment towards arbitration.
Such commitment is particularly strong in connection with the finality of arbitral awards. Accordingly, Chilean law and courts have been supportive of the parties’ right to solve their differences by means of a final and conclusive award, and to waive any available legal recourse.
However, it is important to note that, as a matter of law and public policy, parties cannot waive certain recourses against domestic and international awards.
Alternatives to Setting Aside a Domestic Award
In domestic arbitration, parties that waive all their legal recourse against an arbitral award are still entitled to two limited alternatives: a disciplinary recourse against the arbitrator that rendered the award with manifest abuse of the law (recurso de queja), or a special cassation recourse on the grounds of ultra petitaor lack of jurisdiction (casación en la forma).
Recurso de Queja
This recourse aims to control the behaviour of an arbitrator that has issued an award with manifest misapplication or abuse of the law and, as a result, to obtain the amendment of the award. The recourse is available when there are no other recourses against an award or judgment or, exceptionally, along with the recurso de casación when the arbitrator renders the award ex aequo et bono. It must be filed before the Court of Appeals that has jurisdiction in the city in which the arbitral award was rendered, within five days of the notification of the award.
Due to the main objective of the recourse (control over the arbitrator), higher courts have ruled that it cannot be waived. Indeed, the Supreme Court overruled some recent judgments of the Court of Appeals of Santiago ruling that this recourse would not be available if parties had waived all legal recourses based on its disciplinary power to control arbitrators with jurisdiction within the Chilean territory, as established by the Chilean Constitution.
As the “manifest abuse of the law” test set forth in the law is quite ample, Chilean higher courts have specified its scope. They have ruled that it is available when the award contains a formal contravention of the law, a misinterpretation of the law, or an incorrect assessment of the factual background of the process.
The formal contravention of the law occurs when the judge deviates from the content of the law in a judicial decision, despite the clear and express wording of the law. The misinterpretation of the law occurs when the tribunal applying the law erred in its interpretation of the applicable rules and infringed their established scope, especially by breaching the rules on interpretation contained in Articles 19 to 24 of the Civil Code. Finally, the wrongful assessment of the factual background of the process occurs when a judicial decision or judgment is issued in an arbitrary way by erroneously assessing the facts of the process (Supreme Court, Case No 6188-2014, May 19, 2014).
The apparently general grounds of this special recourse have been limited by Chilean higher courts, which have developed a strict scrutiny test. The courts have ruled that the recourse cannot revisit the subject that was under discussion before the arbitral tribunal – ie, it is not an appeal. Therefore, there must be “evident errors, manifest omissions or other defects that, due to their scope and meaning, do not satisfy the essential contents of the jurisdiction decision-making function, affecting the jurisdiction and rationality guarantees” (Court of Appeals of Santiago, Case No 13108-2015, July 27, 2016).
Such scrutiny is even narrower in connection with awards rendered by arbitrators acting ex aequo et bono, in which case the Supreme Court has ruled that this remedy may only be admitted “if there is a manifest iniquity, or in other words when the lack of fairness and equity is apparent, and if there is absolutely no justification for the decision. A decision that is not adjusted to a legal tradition or that does not seem plausible from the standpoint of national law, and even a decision that chooses an interpretation not sympathising with the common opinion of doctrine and jurisprudence, is not sufficient, if the decision is reasonably justified and complies with basic principles of justice and equity” (Supreme Court, Case No 2403-2013, August 5, 2013).
Therefore, consistent with the pro-arbitration bias developed in Chile, courts have been reluctant to set aside arbitral awards and, on the contrary, have shown great deference to arbitral awards.
If the recourse is rejected, parties have attempted a disciplinary recourse against the judges of the Court of Appeal that issued the decision, but the Supreme Court has denied such attempts because, by express provision in the law, this recourse is not available against such judgment. Nevertheless, some parties have attempted this recourse in expectation that the Supreme Court would use its disciplinary powers and annul the award ex officio, when reviewing the recourse.
On the other hand, if the recurso de queja is accepted and the arbitral award is amended by the Court of Appeals, a new disciplinary recourse against this acceptance and before the Supreme Court would not be possible (although parties have attempted it based on the same rationale referred to above).
Therefore, the party affected by the Court of Appeals’ decision would only be entitled to file a recurso de casación before the Supreme Court and based on ultra petita or lack of jurisdiction committed when issuing the judgment accepting the recurso de queja and amending the award.
Recurso de Casación en la Forma
Even if the parties have waived all legal recourses against an award, they can still attempt its annulment by means of a special cassation recourse based on two limited grounds: lack of jurisdiction of the arbitral tribunal, and ultra petita.
This recourse aims directly to annul an award when the arbitrator has acted beyond the powers granted by the parties, or when the award contains decisions beyond the arbitration agreement or the submission to arbitration. The recourse must be filed before the Court of Appeals that has jurisdiction in the city in which the arbitral award was rendered, within 15 days of the notification of the award.
This recourse would be available against an award rendered by an arbitrator acting ex aequo et bono,or by an arbitrator that issues its award under Chilean law if the affected party does not file a disciplinary recourse.
Chilean courts have been reluctant to admit this recourse against a domestic award and have developed a strict scrutiny test that, overall, favours arbitration and grants great deference to arbitrators.
Furthermore, it has been ruled that a cassation recourse based on ultra petitamay only be admitted if the arbitrator has acted arbitrarily, adding that such conclusion must be the result of comparing the terms of the claims and defences submitted to arbitration against the decisive section of the relevant award exclusively. Thus, an obiter dictathat is inconsistent with the decision of the tribunal cannot be the base of this recourse.
The annulment of an award for lack of jurisdiction of the arbitrator would require an analysis of the terms of the arbitration agreement and the submission to arbitration, which determine the limited parameters within which the arbitrator is entitled to issue an award. In addition, under Chilean law, it would be necessary to “prepare” this recourse, meaning that the affected parties should exercise every right they may have to contest the jurisdiction of the tribunal during the arbitral proceeding.
However, it should be noted that, in general, these recourses are rejected by higher courts, which acknowledge the right of arbitrators to rule on their own jurisdiction and determine the scope of the arbitration agreement. Therefore, in order to prevail in this recourse, it would be necessary to prove that arbitrators acted arbitrarily in issuing those decisions, or that the arbitration agreement did not exist.
Finally, whether the recourse is rejected or admitted, under Chilean law parties are entitled to a cassation recourse before the Supreme Court (as the Court of Appeals’ superior tribunal). To file this recourse, the affected party must argue that the Court of Appeals issued its judgment beyond its jurisdiction or beyond the claims or defences submitted by the parties during the proceeding (ultra petita).
Annulment as the Sole Recourse against an International Award
Article 34 of Law No 19,971 provides that annulment is the exclusive remedy against an international arbitral award. In line with the UNCITRAL Model Law on the subject and the New York Convention, Article 34 sets forth limited grounds to annul an international award, and the request must be filed before the Court of Appeals that has jurisdiction in the city in which the arbitral award was rendered within three months of the notification of the award.
Chilean courts have entertained some annulment recourses against international arbitral awards and, in doing so, have confirmed the same pro-arbitration attitude that they have shown in domestic arbitration.
Indeed, all the reported applications for annulment have been rejected by Chilean courts, ruling that awards are presumed valid and that this application does not allow for a review of the subject matter of the dispute nor a cassation request for breach of the law, nor any other recourse aimed at reviewing the facts of the dispute or the applicable law. Therefore, the request to set aside an international award would be “an autonomous challenge process in which the court has specific and restrictive jurisdiction” (Court of Appeals of Santiago, Case No 11466-2015, June 28, 2016) in order to assess whether the specific grounds for annulment “are manifest, evident or obvious in such a manner that they openly tumble down the minimum basis of morality and justice” (Court of Appeals of Santiago, Case No. 2685-2016, September 1, 2016).
Considering this pro-arbitration attitude, does the disciplinary recourse remain available against the international arbitral award or the decision rendered on the annulment recourse?
Based on the alleged constitutional grounds for the disciplinary recourse, the answer would be affirmative, at least in theory. However, in practice, decisions of the Supreme Court and the Court of Appeals of Santiago have clarified that the disciplinary recourse cannot be opposed in connection with international arbitration proceedings as provided in Article 34 LACI, and because the disciplinary recourse is available solely when there is no other possible recourse against an arbitral award.
Moreover, higher courts have added that, by challenging an award by means of a disciplinary recourse, parties seek to modify and amend an award that cannot be admitted under the rules governing the special nature of the disciplinary recourse and the special purpose and regulation that is behind international commercial arbitration (Supreme Court, Case No. 30976-2015, December 3, 2015; Supreme Court, Case No. 8699-2014, April 30, 2014; Supreme Court, Case No 6648-2013, September 9, 2013).
In summary, Chilean law provides different alternatives to set aside a domestic or international award, particularly in connection with the former. However, consistent with the country's pro-arbitration attitude, Chilean courts have been reluctant to accept such challenges and have developed strict tests to assess their admissibility, leading to the rejection of most of those attempts, particularly in connection with international arbitration.