Contributed By Diaz Reus & Targ LLP
In recent decades, Latin America has seen a massive shift in the way the region views and participates in international arbitration. Latin America has gone from being an area of the world somewhat unfamiliar with the benefits and processes behind arbitration to being an area with some of the most active advocates and participants. In 2017 alone, 365 parties from Latin America and the Caribbean participated in International Chamber of Commerce (ICC) arbitrations, accounting for 15.8% of all ICC parties that year.
The majority of the arbitration disputes within Latin America involve domestic parties, although many more foreign parties are beginning to participate. Of all the cases submitted to Latin American arbitral tribunals in the past years, more than three quarters were between domestic parties as opposed to foreign parties. The recent growth in local arbitral institutions within Latin America, such as the Centro de Conciliación y Arbitraje de Panamá, has also led to an increase in the use of arbitration instead of litigation. Interestingly, despite the increase in arbitral forums in many Latin American countries, the United States remains a key figure in venue selection for arbitrations arising out of Latin America disputes.
Disputes related to infrastructure projects make up the vast majority of international arbitration disputes in Latin America. This is principally due to the changes in national laws within various countries that favour the use of arbitration as it relates to these types of contracts. Through international arbitration, international companies feel more secure in executing these typically publicly financed large-scale national projects. In addition, Latin American countries have tailored their laws, in some instances, to draw from a larger pool of international companies to execute these projects. For example, Brazil has seen many public-private contract disputes dealing with infrastructure investments go through arbitration. Additionally, Colombia has passed a law permitting that disputes arising from public-private contracts may be submitted to arbitration if the case will be decided by the rule of law. This has also led to an increase in the amount of arbitration proceedings related to infrastructure.
Local arbitral institutions have contributed greatly to the rise in international arbitration within Latin America. These local arbitral institutions have also promoted the growth of arbitration in the region through conducting seminars, publishing in arbitration journals, working with local arbitral forums to promote arbitration, and pairing international arbitration leaders with local practitioners. Local arbitral institutions have also aided the growth of arbitration in Latin America by forming alliances with the more recognised institutions, such as the ICC. Recognising the potential for growth of international arbitration in the region, the ICC itself has created committees in 14 countries within Latin America, along with the Grupo Latinoamericano de Arbitraje de la CCI, which connects leading international arbitration practitioners in Latin America to talk about arbitration issues specific to the area.
Within Latin America, the most-used arbitral institutions for international arbitration are the Court of Arbitration of the ICC in Paris, the London Court of International Arbitration (LCIA), the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), and the International Centre for Dispute Resolution (ICDR). In the context of investor-state arbitration, the International Centre for Settlement of Investment Disputes (ICSID) plays a key role. The reasons for the popularity of their use are tradition, their caseloads that allow for more established and predictable case management, and their well-established and well-respected arbitration rules. While there are differences between their rules, their development comes from the fundamental principles of international arbitration, allowing consistency and predictability in their application. Consequently, these are the institutions that set the global trends in international arbitration, and it is no different in Latin America.
Generally, there are many subject-matters in Latin America that may be referred to arbitration. However, not everything can be arbitrated and particular note should be paid to local laws which may preclude arbitration of certain matters. Some matters that are typically excluded from arbitration are property of natural resources, agrarian disputes, tax matters, issues related to family law and civil status, criminal liability, and any other issue affecting the public interest. Notwithstanding, some countries in Latin America, such as Ecuador, provide an almost carte blanche approach to which matters may be arbitrated. In Latin America, then, the interplay between national law and international treaties is crucial to understand which claims may and may not be referred to arbitration. In order to determine whether a dispute is 'arbitrable' a party needs to look at the arbitration clause to determine which country’s law is applicable, as well as which arbitral body’s laws may govern a dispute. In this sense, Latin America is no different from any other part of the world. Then, depending on local laws, treaties, protocols, covenants, and other acts of international law that each individual country has signed and ratified, the scope of which claims are arbitrable will become clearer. As Latin America evolves and grows in the international arbitration space, the adoption of new laws focused on arbitration also provides clarity as to which disputes are arbitrable.
Arbitration agreements are usually enforced in Latin America. The Latin American countries that have ratified the New York Convention and other international agreements have, as a consequence, become pro-arbitration, enforcing most judgments in favour of arbitration. Indeed, not dissimilarly to other jurisdictions, some countries in Latin America hold that an arbitration clause forms a severable agreement, and, even if the rest of the contract is determined to be invalid, the arbitration clause may still be valid. This principle requires challenges to the validity of the contract as a whole — in the absence of the arbitration clause — to be determined by an arbitral panel, and only the validity of the arbitration clause itself may remain subject to court challenge. Mexico follows the rule of separability, as set forth in Article 1432 in its Commerce Code.
The arbitration agreements are also enforced in regard to the parties’ chosen method for selecting arbitrators. If that method fails, there are default procedures in place to help facilitate the arbitration process. For example, the Peruvian Arbitration Act includes an article to appoint arbitrators in situations where the parties cannot agree to one or in case the method agreed by the parties fails. Bolivia also has a default procedure where, if the parties’ chosen method of selecting arbitrators fails, the selection will be conducted according to the methods of the arbitration centre that applies. As another option, in cases of disagreement between parties, Bolivian law has allowed for an appointing authority, including a judge, to make the selection. A note of caution should be sounded when parties are dealing with bi-lateral or multi-lateral investment treaties that contain arbitration procedures for the resolution of commercial disputes. Some of those treaties require the appointment of a panel from a list of pre-determined arbitrators for certain claims.
Some countries provide procedures for a court to intervene in the selection of arbitrators. In Ecuador, for example, the parties involved in the arbitration can agree that a court will appoint the arbitrators. In Peru, although the law is not as clear, the parties may nevertheless agree on permitting the courts to intervene in the selection of arbitrators. Bolivia, however, takes a more restrictive approach to when courts can be involved in the selection process of an arbitrator. There, courts are only allowed to intervene in selecting arbitrators if the parties do not choose the arbitrators themselves or no other authority can carry out this task. What is largely consistent throughout Latin America is that the various countries’ courts are limited by the national laws of that country as it relates to granting courts the authority to intervene in the selection of arbitrators.
The different countries in the region generally rely on the various arbitral institutions for guidance on challenges and removal of arbitrators, such as the rules of the ICC. Laws relating to the independence and impartiality of arbitrators are prevalent in almost every Latin American country. These requirements are codified in each country’s arbitration laws. In Brazilian Arbitration Law, Chapter III, The Arbitrators, contains Articles 13 and 14 which state that, “arbitrators must be independent and impartial and must disclose, before the acceptance of the appointment to act as arbitrators, any facts likely to give rise to justified doubts as to their independence and impartiality.” Similarly, Bolivian law requires arbitrators to provide a Statement of Acceptance, Availability, and Independence once they have been chosen and accepted the role of arbitrator. Similar requirements exist in Panamá.
Regarding whether a tribunal can rule on the question of its own jurisdiction, the principle of competence-competence is generally followed in the region. This principle states that an arbitral tribunal has jurisdiction to decide the issues concerning the existence, validity, and effectiveness of the arbitration agreement, as well as of the contract containing the arbitration clause. This principle includes an arbitral tribunal’s authorisation to rule on a party’s challenge to the tribunal’s jurisdiction. The decision should be made during the first hearing of the arbitral proceedings. Some arbitral institutions, however, allow a tribunal to defer ruling on its own jurisdiction until the final award.
Courts typically can address the issue of jurisdiction of an arbitral tribunal if the parties have not implemented rules in the arbitration clause, or otherwise expressly stated, that a tribunal can determine its own jurisdiction. While the courts understand that the arbitral agreement is mandatory between the parties, the court still has authority to intervene in certain instances. When an award is challenged or set aside based on lack of jurisdiction of the tribunal, the court must remind itself that the arbitral agreement is mandatory between the parties but, in some instances, it can provide clarity and guidance. If the issue is one of doubt or competence of the jurisdiction, the courts should decide in favour of the arbitration. However, if the judge finds that the arbitration agreement is void, he or she may continue with the case.
Parties generally have the right to challenge the jurisdiction of the arbitral tribunal. While any challenge should be raised before the statement of defence is given, issues relating to jurisdiction may exist during the enforcement stage as well. In these cases, Article V of the New York Convention states that enforcement of awards may be refused if there is no valid arbitration agreement or the award provides for relief outside the scope of the arbitration agreement. The standard of judicial review as it relates to questions of jurisdiction and admissibility seems to be deferential treatment to the arbitral tribunals in Latin America. Because the region adheres to the principle of competence-competence, this lends itself to ruling in favour of arbitration and the decisions of the tribunals. As a result, jurisdictions such as Brazil limit the ability for courts to assess the jurisdiction and competence of arbitral tribunals only after an award and a challenge by a party of the award.
Arbitral tribunals are generally permitted to award preliminary or interim relief if they think it is necessary to aid the effectiveness of the proceeding, protect assets, and ensure an award is not illusory. The parties may request preliminary or interim measures from the courts and the courts may grant any measures it thinks appropriate in the case. In some Latin American countries, parties may only seek provisional measures before the arbitration has begun. In those cases, parties can seek relief without waiving the arbitral agreement. If the parties seek provisional measures during arbitration, they must request relief from the arbitral tribunal directly, because not doing so would be seen as an impediment in the arbitral tribunal’s jurisdiction. Notably, the extent to which a Latin American court will enforce an interim order from an arbitral tribunal seated in a foreign jurisdiction is fact- and country-specific. Where arbitral orders are as binding as court orders, such measures are likely to be enforced more readily than in countries where that is not the case.
Each country in Latin America has its own set of arbitration rules. Most countries have modelled theirs after the 1985 UNCITRAL Model Law. These rules lay out the procedure for arbitration in each country when the laws of that country apply. In addition, the procedure of the various arbitral institutions sets forth that an agreement would govern the procedure of an arbitration, be it foreign or domestic. Various other treaties also exist which govern arbitral procedure, including the Convention on the Recognition and Enforcement of Arbitral Awards (commonly known as the New York Convention), which gives effect to private parties’ agreements to arbitrate and governs the enforcement of arbitral awards. There is also the Treaty on International Procedural Law (TIPL) which provides that any decision or judgment issued by arbitrators in one country that is party to the agreement will have the same force in the territory of the other countries. The TIPL then goes on to list procedural requisites, such as “[t]hat the judgment was rendered by a court which is competent in the internationally accepted meaning of that word[.]” The combination of national law, institutional rules, and treaties come together to form an interconnected web of rules to govern the procedure in an arbitration.
What is characteristic of the region is that each country has particular procedural steps that must be adhered to within an arbitration proceeding. For example, Peru and Ecuador both adhere to specific procedural rules in international arbitration, which focus on a determination that the parties have indeed agreed to arbitrate, and the dispute falls within that agreement. In Ecuador, the procedural steps focus on requirements associated with what must be included in a statement of claim and the statement of defence. Evidence is required in Ecuador, and other countries, to be provided at the outset. This is, in many ways, a fundamental contrast to the common-law mentality of providing evidence through discovery and presenting evidence at the end. There are also some Latin American countries, such as Bolivia and Mexico, that do not require any procedural steps by law. However, at the very minimum, Bolivia and Mexico’s laws provide that all parties are to be treated equally and have a full and fair opportunity to present their case.
The general approach to collecting and submitting evidence varies depending on each country in Latin America. For example, in Ecuador, there are certain requirements during the pleading stage that must be followed. More specifically, in filing a statement of claim or a statement of defence, evidence to support those statements is required. Nonetheless, if parties do not have access to all the evidence supporting their claim, they are not expected to include it, but should state that they need certain evidence in their statements. Panamá follows a similar system. If parties in an arbitration in Latin America follow the Arbitration Rules of the ICC, the production of documentary evidence is a case-management technique that the arbitral tribunal may rely on to control time and costs. The parties are also free to incorporate other rules by written agreement or agreement during the hearing (with the consent of the tribunal), such as the application of the International Bar Association Rules on the Taking of Evidence in International Arbitration. However, the recent trend in Latin America has been to adopt a single framework of rules applicable both to domestic and international arbitration. In that sense, the majority of countries in the region maintain the same rules of evidence for domestic and international arbitration.
However, when it comes to powers and duties of arbitrators, Latin American countries have similar requirements. For instance, the region as a whole agrees that the primary function of arbitrators is to serve in an impartial capacity, while making sure to act within the confines of the arbitration agreement signed by the parties. Arbitrators’ duties also include rules of confidentiality, as detailed in Peru’s arbitration rules, for example. Essentially, all of Latin America provides for established and universal duties on arbitrators, including impartiality and independence, following of due process, and allowing the parties an opportunity to be heard. One of the clearest examples of a violation of that duty is corruption through bribery and pay-offs, which is an issue in Latin American-based arbitrations, that has become a recent hot topic and concern among practitioners.
On the subject of confidentiality, some Latin American countries have express rules on confidentiality in arbitral proceedings while others make no mention of it, leaving it up to the discretion of the parties. For example, the Peruvian Arbitration Act explicitly states that arbitral proceedings are confidential, and there is no exception to this rule. In Brazil, the Brazilian Arbitration Law does not address confidentiality, but the parties may agree to rules of confidentiality which will then govern their proceedings. In Brazil, confidentiality is permitted by agreement unless the State is a party to the arbitration; in this case, under Chapter I, General Provisions, Article 2 of the Brazilian Arbitration Law states that the arbitral proceedings must remain public. Whether information in arbitral proceedings may be disclosed in subsequent proceedings is usually dependent upon the rules of confidentiality within each country.
By 2003, the entire region of Latin America had signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Thus, the New York Convention governs the recognition and enforcement of foreign arbitral awards. Article IV of the Convention states that the party seeking enforcement of a foreign award must provide the court with the arbitral award and the arbitration agreement. The party against whom enforcement is sought may object by providing evidence of one of the grounds listed for refusal of enforcement in Article V(1). The court can itself refuse to enforce the arbitral award for public-policy reasons. Article VI of the New York Convention provides that when an award is subject to an action for setting aside in the country in which it is made, the foreign court can adjourn its decision on the enforcement of the award and require the other party to give security.
Domestic courts in Latin America may refuse to enforce foreign arbitral awards on public-policy grounds, particularly as they relate to constitutional violations. Violations of due process are among the most important reasons for refusing to enforce a foreign award. Some countries also refuse to enforce awards due to the absence of an arbitration agreement, lack of acceptance of arbitration, or issues related to the nature of the dispute (some rights cannot be arbitrated in certain countries).
In conclusion, international arbitration is growing in Latin America. Despite each country’s idiosyncrasies, uniformity is being reached in regard to the increasing sophistication of their practitioners as well as their rules. In that sense, the local arbitral institutions that have been created in the region and the different arbitral bodies have contributed greatly, and continue to contribute, to the development of international arbitration in Latin America.