International Arbitration 2021

Last Updated August 17, 2021

Chile

Law and Practice

Authors



Bofill Mir & Alvarez Jana Abogados has an international arbitration team composed of multilingual and highly skilled lawyers who have gained international work experience in important global firms, have studied at some of the leading universities in the world, and are at ease in multicultural environments. Clients receive expert representation in international commercial disputes under global arbitration rules including ICC, UNCITRAL, LCIA, AAA, and CAM Santiago. The team regularly acts as a lead counsel in investment arbitrations under ICSID, representing both State and foreign investors. The firm's lawyers have successfully represented clients in ICSID arbitrations in the only cases to have involved Chilean companies: Quiborax v Bolivia, and Flughaufen Zurich & Gestión e Ingenería IDC v Venezuela, both of which were expropriation claims. The team has also intervened in the vast majority of international arbitration enforcement proceedings held in Chilean courts, including the defence, execution and appeal of international awards issued in Santiago.

Given the extensive development of domestic arbitration in Chile, in most cases, both with respect to foreign companies that incorporate companies in Chile or in the case of Chilean companies, parties refer to domestic arbitration, instead of international arbitration.

In this regard, domestic arbitration is more widely used than international arbitration, and it is rare for domestic parties to resort to the use of international arbitration in Chile (see 1.4 Arbitral Institutions).

Notwithstanding the above, there has been a tendency in the case of agencies of foreign companies to opt for international arbitration, mostly when the seat of arbitration is Santiago de Chile.

In some cases, measures adopted by the authorities in relation to COVID-19 have been considered force majeure. As a result, there has been an impact on the execution of certain contracts, increasing conflicts and an impact on both national and international arbitration.

Regarding the conduct of international arbitral proceedings, in general, there has been flexibility in the management of hearings through online platforms, which has been encouraged by arbitral institutions. For example, the Santiago Arbitration and Mediation Center (CAM Santiago) issued a statement dated 16 March 2020 that urged the use of online platforms, including for the holding of hearings (see 1.4 Arbitral Institutions).

On the other hand, because of the COVID-19 pandemic, Law No 21.226 was enacted in Chile, which establishes a legal regime of exception for judicial processes, hearings and judicial proceedings. It also establishes new deadlines for the exercise of some rights. Regarding arbitration tribunals, a regulation is established in relation to the suspension of hearings, suspension of deadlines and a special regime for claiming delays.

Industries with Increased International Arbitration Activity

There are no statistics on international arbitration activity during 2020-21. However, as a consequence of the effects of the COVID-19 pandemic, the execution of many public concession contracts and infrastructure contracts among others, has been affected, leading to disputes between the parties. In this sense, there has been an increase in construction and mining disputes, linked to the discussion of whether or not the pandemic travel restriction measures have generated a fortuitous event in these contracts, in order to distribute this risk; as well as cases related to sports.

Industries with Decreased International Arbitration Activity

There is not enough information to conclude which industries are experiencing a decrease in international arbitration activity, but in general there have not been a decrease in the any particular industry.

By far the most widely used arbitration institution for international arbitration cases in Chile is the International Court four Arbitration of the International Chamber of Commerce. Since 2017, the International Chamber of Commerce has a National Committee in Santiago. ICC Chile has joined forces with CAM to administer mediations and arbitrations in Chile under the ICC rules.

Furthermore, the Santiago Arbitration and Mediation Center (CAM Santiago) also administers both domestic and international arbitrations. The Rules of International Arbitration have been in force since 1 June 2006.

However, due to practices adopted by some lawyers, parties in Chile have continued including the domestic arbitration model clause in contracts that qualify as international arbitration under Law No 19.971 on International Commercial Arbitration (ICAL). As a result, CAM Santiago has over the last few years administered various international arbitrations governed by the ICAL, but under its domestic arbitration rules. Notwithstanding the above, the general trend is to conduct arbitration under international arbitration rules.

There have not been any new arbitral institutions established in Chile in 2020-21.

Domestic Arbitration

National courts may hear disputes related to domestic arbitrations in matters involving:

  • challenging and enforcement of the award;
  • the nomination of the arbitrator(s);
  • preliminary relief;
  • the production of evidence; and
  • the enforcement of the award, etc.

The challenges against arbitral awards rendered by domestic arbitrators are heard by the Court of Appeals of the place of arbitration, and the Supreme Court. Moreover, the decision of the Court of Appeals or the second-instance arbitral tribunal “in law” that reviewed the arbitral award by the arbitrator “in law” in appeal, can be set aside on specified grounds by the Supreme Court.

In this regard, in Chile, the waiver of challenges against arbitral awards rendered by domestic arbitrators is allowed and is the general rule. However, for reasons of public policy there are two challenges that cannot be waived: the “recurso de queja” and the “recurso de casación en la forma” on the grounds for lack of jurisdiction and ultrapetita.

Moreover, whether the parties wish to appoint a single- or multi-member tribunal, if no agreement can be reached on the name(s) of the arbitrator(s), a national court will appoint a single arbitrator by default (Article 232 of the Code of Judicial Organization).

Regarding preliminary relief, if the arbitral tribunal has not yet been constituted, parties must necessarily request the preliminary relief before a national court (see 6.2 Role of Courts).

Parties can request national courts to order the enforcement of an arbitral award. Moreover, national courts may also aid domestic arbitrators or parties on the taking of evidence.

International Arbitration

National courts may hear disputes related to international arbitrations in matters involving the following.

  • Setting aside the award – according to Article 11 of the ICAL (see 2.1 Governing Law), the court that has jurisdiction to hear challenges against the decisions of an arbitral tribunal is the Court of Appeals of the place of arbitration (see 11.1 Grounds for Appeal). The Supreme Court has no jurisdiction.
  • The recognition and enforcement of the award – national tribunals also have jurisdiction to hear cases regarding recognition and enforcement of a foreign arbitral award (see 12.2 Enforcement Procedure).
  • The nomination of the arbitrator(s) – the President of the respective Court of Appeals has jurisdiction to resolve matters related to the jurisdiction of the arbitral tribunal (see 5.3 Circumstances for Court Intervention).
  • Jurisdiction of the arbitral tribunal and the impediment to be an arbitrator – the President of the respective Court of Appeals has also jurisdiction to resolve nomination of arbitrators (Article 11 of the ICAL) and the impediment to be an arbitrator (Article 14 of the ICAL)
  • The challenge or removal of arbitrators – the President of the respective Court of Appeals has jurisdiction to hear the challenge or removal of arbitrators (see 4.4 Challenge and Removal of Arbitrators).
  • Preliminary relief – regarding preliminary reliefs, if the arbitral tribunal has not yet been constituted (see 6.1 Types of Relief), parties must necessarily request the preliminary relief before a local court (see 6.2 Role of Courts).
  • The production of evidence – the arbitral tribunal and the parties, with previous authorisation of the former, may recur to the local courts for assistance on the taking of evidence (Article 27 of the ICAL).

International commercial arbitration in Chile is ruled by Law No 19.971 on International Commercial Arbitration, in force since 2004. This law was drafted on the basis of the UNCITRAL Model Law and has no relevant deviations from it.

As the history of ICAL shows, the Chilean legislature deemed necessary to maintain as much as possible the original law redaction proposed by UNCITRAL, in order to promote the development of international arbitration in Chile. Therefore, the modifications made to ICAL in respect of the Model Law are minimal and specifically related to the jurisdiction of the local courts. In this regard, the intervention of the local courts was limited to specifically regulated cases, such as the appointment of arbitrators on behalf of the parties (Article 11 of the ICAL), challenge (Article 13 of the ICAL), removal (Article 14 of the ICAL), issues of jurisdiction (Article 16 of the ICAL) and the request for annulment (Article 34 of the ICAL).

Domestic arbitration in Chile is ruled by the Code of Civil Procedure and the Code of Judicial Organization (CJO). There have not been significant changes in these rules because domestic arbitration works properly in Chile. Although there is a pending legislation to reform the Code of Civil Procedure (CCP), the bill does not include relevant changes to domestic arbitration.

Notwithstanding the above, there have been several attempts to reform the domestic arbitration regulation. The first came at the beginning of the 1990s with the introduction of a formalistic bill aimed at maintaining the procedural focus on arbitration, instead of to grant greater scope to the autonomy of the will of the parties. The bill was not successful and was withdrawn in 2002.

Another effort to change the domestic arbitration law has been the discussions at government level since 2013 to present a new reform bill, that may change the arbitration landscape in Chile, but it has not yet materialised. It is a new and comprehensive draft bill that regulates domestic arbitration activity both in its functional and organic aspects. The most relevant change of this bill is that the current dualist system is left behind, according to which two models coexist, one for international commercial arbitration that is flexible and deformalised and the other for domestic arbitration that is more rigid and formalist. By making the rules for domestic arbitration and international arbitration more alike, the need for normative coherence will be satisfied, and domestic arbitration will be guided by modern and more flexible principles as a result of the evolution in this matter.

For international arbitration, Article 7(1) of the ICAL (see 2.1 Governing Law) determines that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Article 7(2) establishes that the agreement must be in writing. Under such provision, an agreement is considered to be written when it is “contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another”.

Chilean law prohibits arbitration for:

  • criminal cases;
  • minor offenses and city ordinances;
  • issues related to family law such as child support and requests for the division of marital property;
  • disputes between a legally incapacitated person and their legal representative; and
  • disputes that must be heard by the Fiscal Judicial and therefore affect the public interest (Articles 229–230 of the CJO).

Disputes arising under the Labor Code are also excluded from arbitration, due to public policy aspects of labour issues and the prohibition on waiving labour rights. The Labor Code does, however, allow for arbitrations related to the collective bargaining process, in the form established by the Labor Code.

Reluctance or Refusal to Enforce Arbitration Clauses

Although not addressed by the Chilean legislation or judiciary to date, Chilean courts might be reluctant to enforce an arbitration clause with respect to self-executing instruments such as securities, cheques, or promissory notes.

In addition, Chilean courts might refuse to enforce an arbitration clause relating to environmental issues, the registration of intellectual property rights or civil responsibility for violations of anti-trust or competition law because such matters are part of Chilean public policy.

However, since 2014, NIC Chile, an institution dependent on the Universidad de Chile, which is responsible for the registrations of “.cl” domains names that identify Chile on the internet, has been submitting disputes arising from the “.cl” domain to arbitration.

In addition, in 2018 the Chilean Institute of Industrial Property (Instituto Nacional de Propiedad Industrial) signed a memorandum with the World International Intellectual Property Organization to promote alternative dispute resolution procedures.

Accordingly, Article 1(5) of the ICAL specifically states that the law does not change the domestic regulations on non-arbitrable matters. Furthermore, the legislative history of ICAL (See 2.1 Governing Law) indicates that matters related to public policy such as labour, family or consumer rights cannot be subject to international arbitration.

The ICAL (see 2.1 Governing Law) does not define which law should govern the arbitration agreement.

Since it is not expressly established, it has been understood that the parties are free to determine the law or laws by which the arbitration agreement shall be governed. In the absence of such a decision, the implicit will of the parties must be sought among the provisions of the agreement regarding rights and obligations arising out of such provisions. If this is not possible, the Chilean law, as the law of the host State shall apply.

In this regard, in one case, the Supreme Court considered only Law 19.971 as applicable law to revise an arbitration agreement (Almendra y Miel S.A v G.L.G, Supreme Court, case number 82.442-2016).

In another case, the Supreme Court, when reviewing an arbitration clause in a contract governed by the laws of the state of Minnesota, used the rules of the Chilean Civil Code to interpret it (Medtronic USA Inc. v Med Implant y Compañía Limitada, Supreme Court, case number 9248-2013).

In general, National courts have been inclined to enforce arbitration agreements, see 5.6 Breach of Arbitration Agreement.

The doctrine of separability of the arbitration clause is expressly acknowledged in the ICAL (see 2.1 Governing Law), which, following the UNCITRAL Model Law, states that “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract” for the purposes of establishing the tribunal’s jurisdiction (Article 16(1) of the ICAL).

Therefore, under ICAL, the invalidity of a contract may not affect the validity of its arbitration clause. This has been recognised by the Santiago Courts of Appeals (Tampico Beverages, Inc. v Productos Naturales de la Sabana SA Alquería, Santiago Court of Appeals, case number 6975-2012).

The ICAL (see 2.1 Governing Law) specifically establishes that nationality shall not be a barrier for the naming of an arbitrator (Article 11(1) of the ICAL).

Therefore, unless otherwise agreed by the parties, a person’s nationality will not be an obstacle for him or her to act as an arbitrator (Article 11(1) of the ICAL).

Although discussions have arisen as to whether arbitrators need to be lawyers under Article 526 of the CJO in the case of international arbitration, part of the doctrine considers that such a conclusion would be erroneous. This can be corroborated by the history of the ICAL. When this discussion was raised, it was noted that there was consensus that, in the field of international commercial arbitration, the parties themselves are called upon to decide the quality of the arbitrator or arbitrators who will hear and resolve a dispute. It was considered that, if the parties decide that it should be a lawyer or other professional, the principle of autonomy should be respected. In addition, it was also considered that for disputes related to essentially technical aspects, it may be more appropriate to appoint an engineering arbitrator, a possibility that the law should not limit.

According to national law, judges cannot be appointed as arbitrators (Articles 226 and 317 of the CJO) and, even though this is self-evident, parties to the dispute cannot be appointed as arbitrators in their own case (Article 226 of the CJO).

As was said before, ICAL poses no restrictions on who may act as arbitrator, but since Articles 226 and 317 of the CJO are considered to relate to public policy, they necessarily act as a limitation on the appointment of arbitrators in international arbitrations that take place in Chile.

Selecting Arbitrators

In international arbitrations with a sole arbitrator, where the parties have not agreed on an appointment procedure and cannot reach agreement on the appointment of the arbitrator, the appointment will be made by the President of the respective Court of Appeals.

In the case of a three-member tribunal, each party will name a co-arbitrator and the co-arbitrators will together nominate the President. Where the co-arbitrators cannot reach agreement, or where one of the parties fails to name a co-arbitrator, any party may request the President of the respective Court of Appeals to make the appointment (Article 11(3) of the ICAL).

The President shall make the appointment with due regard to “any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator and, in the case of a sole or third arbitrator, shall take into account as well the advisability of appointing an arbitrator of a nationality other than those of the parties” (Article 11(5) of the ICAL).

There is no appeal available against the appointment of an arbitrator by the President of the Court of Appeals.

Multiparty Arbitrations

There are no provisions in international arbitration law for multiparty arbitrations. Parties may choose to incorporate the same arbitration clause in various related contracts or appoint the same arbitrator for related disputes.

In multiparty cases under the ICAL, if the President of the Court of Appeals is called to assist in the appointment of arbitrators, he or she may choose to concentrate the various disputes before tribunals of the same composition.

Although there is little if any published guidance, there is no reason why the multiparty solutions suggested in Article 10 of the ICC Rules, Art. 8 of the LCIA Rules and Article 3(7) of the Rules of the International Centre for Dispute Resolution could not be applied. 

To a greater extend, Article 14 of the Rules of International Arbitration of CAM Santiago (2006) provides that where multiple claimants or respondents cannot agree on the appointment of their respective arbitrator, that arbitrator will be appointed by CAM Santiago.

For sole arbitrator cases, the President of the Court of Appeals will be entitled to intervene and designate the arbitrator when the parties fail to reach an agreement. This designation mechanism is activated upon party request (see 4.2 Default Procedures).

In the case of a three-member tribunal, where the co-arbitrators cannot reach agreement to appoint the president, or where one of the parties fails to name a co-arbitrator, any party may request the President of the respective Court of Appeals to make the appointment (see 4.2 Default Procedures).

In addition, the President of the Court of Appeals is also entitled to intervene in the arbitrators’ appointment:

  • when one of the parties’ does not comply with the agreed method; and
  • when a third party, including an arbitral institution, does not comply with the rules previously agreed on by the parties for the arbitrators’ appointments. (Article 11(4)(a)(b)(c) of the ICAL.)

Regarding the limitations, ICAL provides some guidance to select the arbitrator. Nonetheless, there is no appeal available against the appointment of an arbitrator by the President of the Court of Appeals.

Under ICAL an arbitrator may be challenged “only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.” (Article 12(2) of the ICAL).

Unless the challenged arbitrator withdraws or the other party agrees on the challenge, the tribunal will decide on the challenge (Article 13(2) of the ICAL). If the tribunal rejects the challenge, the challenging party may request the President of the respective Court of Appeals to decide on the challenge, within 30 days of receiving notice of the decision of the tribunal.

The decision of the President of the Court of Appeals is not subject to appeal, and the arbitral tribunal may in the meantime continue the proceeding and even issue its award (Article 13(3) of the ICAL). Recent Chilean Court of Appeals’ case law does not show an increase in the number of challenges against arbitrators under the rules of the ICAL.

Parties arbitrating under the CAM Rules of International Arbitration must be aware that CAM Santiago will decide on the challenge without having to state reasons for its decision. However, if the challenge is rejected, Article 13(3) of the ICAL applies, and the party that requested the challenge may “appeal” the decision by requesting the President of the Court of Appeals to decide on the challenge.

The ICAL specifically requires a potential arbitrator before confirmation and throughout the proceeding to “disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence” (Article 12(1) of the ICAL).

Regarding arbitral institutions, the ICC Rules require that a prospective arbitrator sign a statement of acceptance, availability, impartiality and independence in which shall disclose any facts or circumstances which might be of such a nature as to call into question the arbitrator’s independence in the eyes of the parties, as well as any circumstances that could give rise to reasonable doubts as to the arbitrator’s impartiality (Article 12 (2) of the ICAL).

For that purpose, the notes to parties and arbitral tribunals on the conduct of arbitration establishes a list of potentially relevant circumstances regarding arbitrator’s independence and impartiality. Furthermore, CAM Santiago does not specifically define conflicts of interest for arbitrators under its rules of international arbitration and has not yet issued a code of ethics for arbitrators under its framework. 

The CAM Rules of International Arbitration do require, however, that a candidate arbitrator sign a written declaration confirming their independence and impartiality in the specific case (Article 11 of the Rules of International Arbitration). 

To a greater extent, if the arbitrator is Chilean, the Chilean Bar Association, to which membership is optional, has a code of ethics providing guidelines regarding the counsel-client relation, counsel’s confidentiality duty and conflict of interest. Regarding arbitrators, it provides restrictions to avoid conflicts of interest and it also regulates the determination of arbitration fees.

See 3.2 Arbitrability.

The ICAL recognises the principle of competence-competence, stating in Article 16(1) that the arbitral tribunal may decide on its own jurisdiction, even if exceptions arise in regard of the existence or validity of the arbitration agreement.

This recognition of the principle of jurisdiction comes from domestic arbitration. In domestic arbitration law, there is no explicit provision that confirms the competence-competence of an arbitral tribunal. Nonetheless, Chilean courts acknowledge that arbitral tribunals, just as local courts, are entitled to decide issues related to their own jurisdiction.

Consequently, in case a party commences an arbitral proceeding in apparent breach of an arbitration agreement, the matter shall be submitted to the decision of the arbitral tribunal, since such tribunal is the authority entitled by law to rule on its own jurisdiction.

Jurisdiction of an Arbitral Tribunal

If, as a preliminary matter, the arbitral tribunal declares itself to have jurisdiction (see 5.1 Matters Excluded from Arbitration), either party, within 30 days of receipt of notice of such decision, may request the President of the respective Court of Appeals to resolve the matter, and the decision of this court shall be final. This rule does not apply in cases where the arbitral tribunal, as a preliminary matter, declares that have no jurisdiction.

In general, Courts of Appeals are reluctant to intervene in jurisdiction matters (see 5.2 Circumstances for Court Intervention).

Negative Rulings on Jurisdiction

The respective Court of Appeals could address issues of jurisdiction of an international arbitral tribunal if a party asks for an international arbitral award to be set aside.

Nonetheless there are no cases in which a court of appeals has reviewed a negative ruling on jurisdiction by an arbitral tribunal.

In international arbitrations, objections to jurisdiction must be raised before or together with the statement of defence.

A plea that the arbitral tribunal exceeds the scope of its authority must be raised as soon as the matter that is allegedly beyond the scope of the tribunal is raised during the arbitral proceedings. In either case, the tribunal may admit a later plea if it considers the delay justified (Article 16(2) of the ICAL).

Once the award is rendered by the arbitral tribunal parties can challenge the jurisdiction of the arbitral tribunal before the respective Court of Appeals.

See 11.1 Grounds for Appeal.

In cases where a party commences court proceedings in breach of an international arbitration agreement, the courts approach is to refer parties to arbitration, unless the agreement is null and void, inoperative or incapable of being performed.

There is therefore a general reluctance of national courts to allow such proceedings.

There are no specific rules in Chilean domestic or international arbitration law on the effects of the assignment of an agreement that contains an arbitration clause to a third party. Parties to an assignment are therefore well advised to agree specifically that the arbitration clause will also be part of the assignment.

Regarding Chilean law, the general rule is that third parties or non-signatories to an arbitration agreement or to the contract that contains the arbitration agreement, are not bound by such agreement or by the award issued in the arbitration proceeding.

A third party may only be part of an arbitration prior its consent and the consent of the actual parties of the agreement.

However, there are some exceptions to this rule. A third party may be bound by an arbitration agreement that has been assigned to it by law, as it occurs in legal subrogation and succession cases.

The ICAL allows parties to request interim measures from the arbitral tribunal as well as from the domestic courts (Article 9 of the ICAL). The Chilean ICAL is based on the UNCITRAL Model Law of 1985, without the 2006 amendments that regulate in more detail interim measures and preliminary orders.

Under Article 17 of the ICAL, unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute. Therefore, the interim relief of the arbitral tribunal is binding.

In this regard, it is possible for the arbitrator to order the issuance of a bank guarantee or attachments. The arbitral tribunal may also require the relevant party to provide appropriate security.

Local courts may also grant interim measures while the constitution of the arbitral tribunal is still pending. When the interim relief is granted by a local court, the Code of Civil Procedure shall apply (see 6.2 Role of Courts).

Preliminary Reliefs

If the arbitral tribunal has not yet been constituted (see 6.1 Types of Relief), parties must necessarily request the preliminary relief before a national court, while proceeding with the constitution of the arbitral tribunal.

Once the preliminary relief has been granted, the party must submit its request of arbitration within ten days (which can be extended to 30 days). At the moment of presenting its claim, the party must also request for the continuation of the measure. If it fails to do so, or if the request is rejected, the party that had requested the preliminary relief in the first place will be considered liable for any damages and will be presumed to have acted with malice (Article 280 of the CCP).

The ten-day (or extended 30-day) period for presentation of the request for arbitration may be problematic if the preliminary relief had been issued by a local court, pending constitution of the arbitral tribunal, since the tribunal may not yet have been constituted during this period. Legal practice has established that, in this case, the continuation of the preliminary relief may be requested before the same court that had issued it.

Regarding interim relief in aid of foreign-seated arbitrations, the Chilean courts have ruled in favour of its admissibility, affirming the jurisdiction of Chilean local courts to order them based on Article 9 of the ICAL and affirming the non-necessity of exequatur for this type of judicial proceedings. Thus, in the case No 5468-2009 "Western Technology Services International Inc. with Cauchos Industriales S. A", the Supreme Court, rejecting a request for exequatur from an international arbitral tribunal constituted in Dallas, aimed at guaranteeing the effective compliance with the obligation not to compete that fell on the other party, resolved that "an interim and extendable relief, according to the arbitral tribunal, does not comply with the standard for requesting exequatur, so that it must be filed directly before the ordinary Chilean courts, according to Article 9 of the ICAL".

Emergency Arbitrators

Emergency arbitrator relief is not contemplated in the ICAL. Thus, if the arbitral tribunal has not yet been constituted, the only alternative to the party seeking interim relief is to resort to the ordinary jurisdiction, as stated in Article 9 of the ICAL. In such cases, the interim measures requirement will be regulated under the rules of the Chilean Code of Civil Procedure.

However, in the event that the parties agree to conduct the arbitration under ICC Rules, which does contemplate the figure of the emergency arbitrator, the appointment of an emergency arbitrator will be valid.

The ICAL does not specifically contemplate the institution of security for costs. Article 17 of the ICAL allows the arbitral tribunal to order preliminary relief in respect of the subject matter of the dispute (see 6.1 Types of Relief).

However, the wording of Article 17 of the ICAL and preliminary relief regulation are wide enough to contemplate security for costs as a relief, especially considering it refers to an arbitration proceeding and not to a proceeding before national court. There have been no known cases regarding security for cost.

The procedure is regulated in the Law No 19.971 on International Commercial Arbitration.

ICAL does not order any particular procedural steps for arbitral proceedings. Nevertheless, the requirement to comply with certain procedural steps required in domestic arbitration in the case of international arbitration, such as the call for conciliation or the need for an order of proof, was discussed before the Santiago Court of Appeals.

This discussion arose in connection with requests for annulment based on the lack of these essential procedural steps requested in domestic arbitration law. Finally, it was decided that it was not necessary to comply with these procedural steps in international arbitration, and the nullity actions were rejected.

Regarding powers, the arbitral tribunal is empowered to:

  • decide on its own jurisdiction (Article 16 of the ICAL);
  • order interim measures of protection that it deems necessary with respect to the subject matter of the dispute (Article 17 of the ICAL); and
  • conduct the arbitration in the manner it deems appropriate, in the absence of agreement and subject to the law, including determining the admissibility, relevance and value of evidence (Article 19 of the ICAL), among others.

Regarding duties, an arbitrator must:

  • disclose all circumstances that may give rise to justifiable doubts about their impartiality or independence and , once appointed and during all arbitral proceedings, promptly disclose such circumstances to the parties (Article 12 of the ICAL); and
  • decide the dispute in accordance with the rules of law chosen by the parties as applicable to the merits of the dispute (Article 28 of the ICAL), among others.

To a greater extent, in case of failure to act in accordance with their duties, under national criminal law, the arbitrator may be criminally prosecuted for the crime of prevarication (Articles 223, 224 and 225 of the Criminal Code).

See 4.1 Limits on Selection.

Under Article 19(2) of the ICAL, unless parties can reach an agreement, the arbitral tribunal may direct the arbitration in the way it considers appropriate, having the power to determine the admissibility, relevance and weight of the evidence. However, parties tend to apply in international arbitration procedures the IBA Rules on the Taking of Evidence.

The procedure will depend on the rules applicable to the arbitration, ie, whether the ICC or CAM rules apply. In the case of ICC Rules, the arbitral tribunal may decide not to allow requests for document production or to limit the number, length and scope of written submissions and written witness evidence; decide the dispute solely on the basis of documents submitted by the parties (Article 3 of the ICC Rules 2021); hear witnesses, experts appointed by the parties or any other person; summon any party to provide additional evidence; and decide the case solely on the documents submitted by the parties unless any of the parties request a hearing (Article. 25 of the ICC Rules 2021).

In the case of CAM Rules, the parties shall attach to their pleadings all documents they deem relevant or refer to the documents or evidence to be submitted at a later date, and the tribunal may request a summary of the documents and evidence, request the delivery of additional exhibits and evidence and also decide whether or not to hold evidentiary hearings (Articles 24–25 CAM International Arbitration Rules).

Also, under Article 27 of the ICAL, the arbitral tribunal and the parties, previous authorisation of the former, may recur to the local courts for assistance on the taking of evidence. The requested local court may execute the request within its jurisdiction and according to its rules on taking evidence.

To review the rules of international arbitration, see 8.1 Collection and Submission of Evidence. These rules are different from the ones that apply to domestic arbitration.

Arbitral tribunals may request that all parties, including third parties, appear to testify. In the event of refusal, the arbitral tribunal shall request the assistance of the corresponding national court to carry out the proceeding. The courts of law may entrust this proceeding to the arbitrator themselves, assisted by a minister of faith.

There is no confidentiality rule applicable to international arbitrations and therefore the arbitration file is public. Given the existence of a request for annulment, which is heard by the Court of Appeals, and given the nature of this request, the court will necessarily have knowledge of the arbitration file, which is eminently public.

If the parties prefer the arbitration not to be public, it will be necessary for them to agree to do so by means of an express agreement and, only in the case of highly confidential parts of the file, it will be necessary to request the itemisation and exclusion of those parts of the file before the award is rendered or just after this, so those sections are not made public.

Furthermore, in the case of the ICC Rules, the arbitration will be public as a general rule, but it is contemplated that, upon the request of any party, the arbitral tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information (Article 22.3 of the ICC Rules).

At last, in the case of international arbitrations subject to CAM Rules, a rule of confidentiality of the award is established, except when its disclosure is necessary for a proceeding to challenge, comply with or enforce the award, when disclosure is required by law or any other judicial authority, or when the parties by mutual agreement agree to its non-confidentiality. Even so, CAM Santiago, while safeguarding the identity of the parties, may publish the awards (Article 33.8 of the CAM International Arbitration Rules).

According to the ICAL, the arbitral award shall state the reasons on which it is based unless the parties have agreed otherwise. With respect to a time limit, the ICAL does not contemplate a time limit for rendering the award.

The limits are set by the type of arbitrator involved and public policy. If it is an arbitrator of law, he must decide in accordance with the law, according to which, is empowered to grant to a party in its award effective damage, loss of profit and moral damages. The latter even in cases of breach of contract as the national case law has evolved in this matter during the last decades.

Monetary awards may include interests. The arbitral tribunal may also order the specific performance or termination of a contract, in both cases with damages (Article 1.489 of the Chilean Civil Code). Nevertheless, the arbitrators may not grant punitive damages, since they are not recognised under Chilean law.

Parties are entitled to recover interest and legal costs. In this regard, there are several cases of international arbitration in Chile in which different rules of costs have been applied. It depends mostly on the composition of the arbitral tribunal. If the arbitral tribunal is composed of Chilean arbitrators, there is a tendency to follow the "costs sharing approach" rule as it is the default rule applied by almost all courts and in almost all cases in Chile. Conversely, if the arbitral tribunal is composed of foreign arbitrators, there is a tendency to apply the rule generally used at international level of "cost follow the event".

For example, in the case "Constructora EMEX Limitada vs European Organisation for Astronomical Research in the Southern Hemisphere" the arbitral tribunal made a distribution of costs different from the approaches commented before, that was later challenged through the nullity of the award. Finally, the Court of Appeals rejected the request for annulment determining that there was no violation of public policy and that the Court ruled reasonably and in use of its powers (Case No 9211/2012, Court of Appeals of Santiago).

Annulment

The ICAL establishes the request for annulment as the only means of challenging the arbitral award, which may be based on the grounds specifically set forth in Article 34 (the same as those established in the New York Convention). Article 34 also regulates procedural aspects of this recourse, such as the time limit for its filing, the power of suspension granted to the court, as well as its preference for hearing and ruling.

As for the legal nature of the petition for annulment, although the ICAL defines it as a remedy, part of the jurisprudence has qualified it as an action that would give rise to a new and independent proceeding from the previous arbitration proceeding. Thus, it can be concluded that, unlike domestic arbitration, the ICAL recognises the petition for annulment as the only action against arbitral awards.

In addition, this petition, which will be heard by the Court of Appeals, is structured "on the basis of specific grounds that point to the examination or external review of the award and not to the merits or content of the decision on the merits", which is undoubtedly consistent with a modern arbitration institute.

With regard to the request for annulment, the Court of Appeals has ruled that it is an extraordinary recourse, of strict law and in accordance with the grounds established by law, granting jurisdiction to the Court to examine compliance with the forms of the arbitration trial, especially with regard to the formal guarantees that the law itself establishes in an imperative manner (Court of Appeals of Santiago, Rol No 9134-2007 dated 4 August 2009).

In turn, the Supreme Court has ruled that a request for annulment is the only means of challenging an arbitration award, rejecting a complaint against the judges who ruled on the request for annulment (Supreme Court, Rol No 7701-2012 dated 29 January 2012 and in Rol No 7341-2013 dated 16 November 2013). It has also been held that parties may waive the possibility of challenging an award in advance (Supreme Court, Rol No 7854-2013 dated 21 April 2016).

Varying Recourse Based on Principles of Free Will and Good Faith

In 2020, in a completely exceptional decision, the Supreme Court ruled allowing the parties to vary the recourse regime based on the principles of free will and good faith. Thus, the parties had agreed in their Arbitration Agreement that appeals and cassation appeals would be allowed against the final judgment. The Court of Appeals rejected the appeal against the arbitration award to which, according to the latter, the rules of the ICAL were applicable, and therefore, only the request for annulment could be filed against the award.

The requesting party filed a complaint appeal, which was dismissed by the Supreme Court. However, the Supreme Court invalidated the decision of the Court of Appeal by stating that due to the autonomy of the will and good faith, the parties may vary the recourse regime (Supreme Court, Rol No 19.568-2020 dated 14 September 2020).

Although it is not a developed discussion, it can be noted that according to the new jurisprudential twist adopted by the Supreme Court explained in 11.1 Grounds for Appeal, just as it is recognised that the parties may vary the system of remedies on the basis of free will and good faith, it can be understood that they may also agree to exclude or expand the scope of appeal or challenge under the national law based on the above principles.

As mentioned in 11.1 Grounds for Appeal, the motion for annulment is structured on the basis of specific grounds that point to the examination or external review of the award and not to the merits or content of the decision on the merits, which is undoubtedly consistent with a modern arbitration institute.

Chile was one of the first Latin American States to ratify the New York Convention in 1975, which, in the Chile, applies to all foreign arbitral awards without omission, given that Chile did not formulate the reciprocity reservation contained in Article 1 No 3 of the Convention.

Enforcing Awards

The enforcement of international arbitral awards based in Chile is regulated in Articles 35 and 36 of the ICAL. Under Article 35 of the ICAL an arbitral award shall be considered as binding, irrespective of the country in which such award was issued.

The execution is requested before the civil court with jurisdiction and the executed party may raise the exceptions contained in Article 36 of the ICAL, which set the standards for the recognition or enforcement of international arbitral awards. For example, in case of incapacities or lack of validity of the arbitration agreement, lack of notification of the executed party, exceeding the provisions of the arbitration agreement, when the subject matter of the dispute is not susceptible to arbitration or when the execution would be contrary to Chilean public policy, among others.

Refusing Recognition

One of the grounds recognised by the ICAL for refusing recognition or enforcement of an international arbitration award is precisely that the award has been annulled or suspended by a court of the country in which, or under the law of which, it was rendered (Article 36 letter v) of the ICAL).

The suspension of the arbitral award by a court of the country in which, or under the law of which, the award was rendered constitutes an exception to refuse enforcement of the award (Article 36(v) of the ICAL).

Also, in the case of a nullity action pending abroad, the Supreme Court has ruled that the award is not binding on the parties. Citing Article 28 No 6 of the Rules of Arbitration of the International Chamber of Commerce, it has stated that the award rendered by such court is unreformable in the system provided by such rules, so that the appeal filed before such court does not suspend the effects of the award, which remains in force and it is possible to enforce it as long as there is no contrary resolution (Supreme Court, Rol No 5228-2008 and Rol No 7854-2012).

Immunity from Execution

As a general rule, the Chilean state and its entities are subject to immunity from execution. Nevertheless, the state and its entities may waive such immunity in some cases. Specifically, Decreto Ley No 2.349 which regulates the international contracts for the public sector, states in its Article 2 that the state and its organisations, institutions and companies, may renounce to its immunity from execution. It must be noted that this renounce has a restricted scope, since it will be limited to the execution of awards rendered in proceedings directly related to the international contracts that contains such renounce.

Recognition and Enforcement of Arbitral Awards

The national courts have adopted the general approach of recognising and mostly accepting the enforcement of arbitral awards, regardless of the country in which they were rendered and as long as they comply with the legal requirements. For example, regarding the enforcement of a foreign arbitral award, the Supreme Court’s case law accepts the exequatur as opposed to a minority that rejects it.

Thus, in the case Klion S.R.L with Pesquera Villa Alegre S.A Rol No 41.841-2017 dated 26 July 2018, the Supreme Court states "that it has become evident that, in the case of the enforcement of an arbitral award, according to the wording of Law 19.971, regardless of the country in which it was issued, it is recognized as binding in Chile if it complies with the requirements of Articles 35 and 36 of that law, which otherwise constitute a repetition of the relevant provisions of the New York Convention".

This has been executed in a  number of cases allowing the enforcement of foreign arbitral awards, including:

  • Gold Nutrition Industria y Comercio v Laboratorios Garden House S.A.;
  • Laboratorios Garden House S.A., Supreme Court Rol No 6615-2007, dated 15 September 2008;
  • Almendra y Miel S.A with G.L.G, Supreme Court Rol No 82.442-2016, dated 30 November 2017;
  • Bose Corporation with MusicWorld Audiovisión Limitada, Supreme Court Rol No 12.710-2018, dated 9 July 2019; among others.

Refusal to Recognise

Regarding the refusal to recognise or enforce an arbitral award on the grounds of public policy in general, it is understood that this should be applied restrictively and limited only to infringement of basic and fundamental rules of the Chilean state, avoiding limiting the enforcement of international awards in Chile by simply invoking local public policy (Court of Appeals of Santiago, Rol No 9.134-2007 dated 4 August 2009, rejecting causal No 2, letter b), ii) of Article 34 of the ICAL).

Therefore, in relation to ground No 2, letter b), ii) relating to public policy, the Court of Appeals has understood that it must point to the infringement of the most basic and essential rules of the Chilean State, the simple invocation of local public policy not being sufficient.

Similarly, in relation to the concept of public policy, this implies distinguishing between national public policy and international public policy. The latter being applicable in matters of international commercial arbitration, which would not include all local rules, but only those that respond to the most essential legal principles of the legal system. As such, those allegations that refer to formalities provided for in the codes of civil procedure or organic codes of courts must be rejected, except in cases where they relate to the most fundamental principles of Chile's legal system (see Corte de Apelaciones de Santiago, ROL No 9.134-2007 (4 de agosto de 2009; Corte de Apelaciones de Santiago, ROL No 1.971-2012 (9 de septiembre de 2013), Corte de Apelaciones de Santiago, ROL No 11.466-2015 (28 de junio de 2016), and others).

Chile does not provide for class-action arbitration or class arbitration.

The Code of Professional Ethics of the Chilean Bar Association, in force since 1 August 2011, in the case of affiliates. In the case of non-affiliates, since 2012 it is possible to find Supreme Court rulings defending the thesis that the 2011 Code of Professional Ethics applies to all lawyers in Chile.

Chilean law does not contemplate any rules or restrictions for third-party financiers.

The ICAL does not contemplate a specific regulation in this regard. Notwithstanding the foregoing, in view of the power granted to the arbitral tribunal to decide the arbitration in the manner it deems appropriate, in the absence of agreement of the parties (Article 19 of the ICAL), it may be understood that it would be possible to consolidate separate proceedings for the purpose of efficiency.

Regarding arbitral institutions, ICC rules specifically regulate this subject matter. Thus, Article 10 provides that the court may, at the request of a party, consolidate two or more arbitrations pending under the Rules into a single arbitration, where the parties have agreed to consolidation or all of the claims in the arbitrations are made under the same arbitration agreement or agreements or the claims in the arbitrations are not made under the same arbitration agreement or agreements, but the arbitrations are between same parties and the disputes in the arbitrations arise in connection with the same legal relationship, and the court finds the arbitration agreements to be compatible.

Furthermore, it is possible to identify a similar rule in CAM Santiago Arbitration Rules, whichrecognise the power of the arbitral tribunal to adopt all relevant measures for the valid, effective and prompt conduct of the arbitration (Article 19 CAM Rules for National Arbitration) in order to avoid unnecessary delays and to ensure efficient and fair means to resolve the dispute (Article 21 of the CAM Rules for International Arbitration), which also could include this faculty if it is efficient and if the parties have not agreed otherwise.

Binding Third Parties to Arbitration Agreements or Awards

The general rule under Chilean law is that third parties or non-signatories to an arbitration agreement or to the contract that contains the arbitration agreement, are not bound by such agreement or by the award issued in the arbitration proceeding. A third party may only be part of an arbitration prior its consent and the consent of the actual parties of the agreement. However, there are some exceptions to this rule. A third party may be bound by an arbitration agreement that has been assigned to it by law, as it occurs in legal subrogation and succession cases. Another exception are cases where the corporate veil or alter ego theory is applicable.

Both comparative law and national jurisprudence have extended the application of the arbitration clause to non-signatory third parties under certain assumptions related to:

  • cases in which the non-signatory assumes or comes to occupy the place or legal position of one of the contracting parties;
  • cases in which the initial contracting parties are maintained but a non-signatory third party is incorporated, such as through the stipulation in favour of a third party, the lifting of the veil of legal personality, the group of companies, the estoppel or theory of own acts, among others.

In these cases, there would not properly be a violation of pacta sunt servanda or of the relative effect of contracts, since they assume that those who are affected by an arbitration clause have consented to it in some way.

The jurisprudence of the Supreme Court has been mainly in line with the general rule in Chile of not extending the arbitration agreement or the award to third parties, mainly on the basis of the relative effect of the contracts (in this line, Supreme Court, Rol No 29.699-2014).

Recent Jurisprudence

However, some recent Chilean jurisprudence leads to the conclusion that it is possible to impose the arbitration agreement to a non-signatory party in view of the circumstances of the case, with substantive elements prevailing over the formal element of the absence of the non-signatory signature. For example, in relation to the application of the arbitration clause to a non-signatory that participated in a bidding process but did not sign the arbitration clause, the Court of Appeals has ruled to reject the legality of the argument of disregarding it, since at the time of participating in the process, it accepted the existence of the clause and consented to it (Court of Appeals of Santiago, Rol No 1886-2011).

Even so, there is also jurisprudence of the Supreme Court in the sense of not extending the arbitration clause to third parties because otherwise it would be an infringement of the relative effect of the contracts (Supreme Court, Rol No 29.699-2014).

No special rule has been found in Chilean law regarding the capacity of the national court to bind foreign third parties.

Bofill Mir & Alvarez Jana Abogados

Av. Andrés Bello 2711, Piso 8
Las Condes, Santiago
Chile 7550611

+56 227 577 600

+56 227 577 813

info@bmaj.cl www.bmaj.cl
Author Business Card

Trends and Developments


Authors



Bofill Mir & Alvarez Jana Abogados has an international arbitration team composed of multilingual and highly skilled lawyers who have gained international work experience in important global firms, have studied at some of the leading universities in the world, and are at ease in multicultural environments. Clients receive expert representation in international commercial disputes under global arbitration rules including ICC, UNCITRAL, LCIA, AAA, and CAM Santiago. The team regularly acts as a lead counsel in investment arbitrations under ICSID, representing both State and foreign investors. The firm's lawyers have successfully represented clients in ICSID arbitrations in the only cases to have involved Chilean companies: Quiborax v Bolivia, and Flughaufen Zurich & Gestión e Ingenería IDC v Venezuela, both of which were expropriation claims. The team has also intervened in the vast majority of international arbitration enforcement proceedings held in Chilean courts, including the defence, execution and appeal of international awards issued in Santiago.

Challenges Facing Chilean Foreign Investment and Investment Treaty Arbitration

Chile has a long tradition of respect for its institutions and has adopted strong and consistent policies to encourage and protect foreign investment. It is this stance that has largely kept Chile on the outer edge of the boom of conflicts in the investment treaty arbitration arena. There have been comparatively few claims against Chile compared to other emerging economies, and the claims that it has lost are even fewer.

However, the political environment, both domestically and globally, and the impact of the pandemic, and the regulatory measures arising from both, have focused the country’s attention on international obligations regarding foreign investors and the mechanisms required for solving controversies in case of conflict.

The Chilean Constituent Process

The social outbreak, the constituent process and the high expectations placed on it

Around the world, governments are facing at least two common challenges: tackling climate change and reducing social inequality. It is the undeniable sign of our time that these are the issues that will set, at a global level, political – and, therefore, legislative – guidelines for the coming years.

Chile has not been exempt from this. In October 2019, the country faced its deepest institutional crisis since returning to democracy 30 years earlier when Augusto Pinochet left government. This social outbreak (estallido social) exposed a generalised discontent among the population about various aspects of the Chilean economic and social model. Deep legal reforms were demanded.

The crisis was channelled into a constituent process, agreed by the majority of the political parties in November 2019. This process was subsequently endorsed in a plebiscite with the approval of approximately 80% of the popular vote in October 2020.

Chile's new constitution will be drafted by a Constitutional Convention of 152 members, who were elected in May 2021. Each article of the constitution must be approved by at least two thirds of the Convention. Subsequently, the draft constitution will have to be approved by the majority of the Chilean population, in a plebiscite with a mandatory vote. Should the proposed constitution be rejected, the current constitution will remain in force. These rules ensure that the new Chilean constitution will have transversal support and that it will embody long-lasting agreements.

The expectations for this constituent process are very high. The resulting constitution (and the adjustments to the legal system necessary thereunder) is expected to reform the pension system (today managed almost entirely by private companies), the current regulation on the ownership of water rights and other natural resources, the way private companies act as providers of health services, the distribution of public duties and benefits, and the role of the state in the economy, among others.

The Chilean challenge: to carry out profound reforms within the margins of its international obligations

The constitutional reform process initiated by Chile may generate tensions with foreign investors. Significant foreign capital and investments are present in practically all the economic sectors that are expected to be reformed.

It should not be forgotten that Chile is, and has for decades, been one of the most liberal countries in the world in relation to foreign investment. Chile is committed to protecting investments from more than 50 countries through Bilateral Investment Treaties and the investment chapters of different free trade agreements. In essence, these treaties impose on Chile international obligations to provide fair and equitable treatment or to ensure a minimum standard of treatment to foreign investors, not to discriminate against them, and not to expropriate their investments without fair and timely compensation.

It is important to note that the Chilean constitutional process has sought, from its origin, to ensure respect for international treaties, both on human rights and on investment law. In fact, the reform to the current constitution that gave rise to the constituent process states that one of the only three limits the Constitutional Convention will face when drafting the new Constitution is that it must respect "the international treaties signed by Chile and that are in force." The other two limits refer to issues as central and elementary as Chile not ceasing to be a democratic Republic (ie, the Convention cannot dictate that Chile will become a monarchy), and that it cannot revisit what has already been established by judicial rulings with the effect of res judicata.

The foregoing shows the importance that Chile has given to respecting its international obligations.

Advisory bodies

In the described framework, the technical advisory bodies that will attend the Constitutional Convention (the existence of a Technical Secretariat has already been agreed for this purpose) will have to duly analyse the scope and content of the obligations assumed by Chile under the different international treaties, to advise the Constitutional Convention in order to prevent the State from incurring international responsibility when carrying out the reforms demanded by society.

The exact definition and content of these international obligations is beyond the scope of this article. However, it is possible to anticipate that the challenge the Chilean Constitutional Convention is facing is very complex from a legal point of view. As is known, the obligations assumed by states under investment treaties are characterised by having a broad and open formulation (providing “fair and equitable treatment” or a “minimum standard of treatment” are the clearest expression of this). For this reason, international investment tribunals are the ones that have specified the obligations assumed by the states, when dealing with concrete cases. These guidelines from investment treaty arbitration case law should be carefully considered by the Constitutional Convention. And this is not an easy job to do.

The first thing that should be established in this debate is that international investment treaties do not grant investors a right to "immunity" from legislative reforms. On the contrary, the State retains its right to regulate, even if legal reforms harm foreign investments. Legislative or regulatory changes are a risk inherent to any business, which the foreign investor must consider before carrying out an investment.

Chilean treaty obligations

Notwithstanding the foregoing, the Constitutional Convention must be very attentive to whether Chile has assumed treaty obligations to protect the foreign investments that could be affected within the economic sectors subject to significant constitutional modifications. To this purpose, the advice of the Technical Secretariat of the Constitutional Convention will be essential in avoiding the adoption of measures that can be considered as a violation of the international investment law.

In this sense, infractions of Chilean investment treaty obligations will only be verified when the measures adopted by the state can be regarded as arbitrary, surprising, discriminatory, unfair or disproportionate. As has already been ruled in investment arbitrations, “the deference to the State’s regulatory powers cannot amount to condoning behaviours that are manifestly arbitrary, idiosyncratic, or that show a complete lack of candour in the conduction of the regulatory process.” (TECO v Guatemala, Award, 19 December 2013). This, of course, must be analysed in concrete terms, paying due attention to the specific characteristics of the measure adopted by the State, its context, and the investment alleged to be unfairly affected.

Deference

Beyond these specific commitments, there is a transversal understanding in international investment law that a certain degree of "deference" must be granted to states in the exercise of their regulatory powers.

Procedural safeguards

In the case of the Chilean constitutional process, the procedural safeguards adopted ensure, prima facie, that the new Constitution (and the legislative adjustments that will follow) will be the result of the will of the majority of an entire country, expressed democratically and after an in-depth discussion on each topic. This suggests that, at least in principle, the outcome of the process will not be unfair or arbitrary.

In conclusion, when addressing the social demands that are necessary for the modernisation of the country, the Constitutional Convention will face the challenge of not breaching the international treaties subscribed by Chile. This is not only because maintaining the international commitments assumed is relevant, but also because public funds should not be used to pay million-dollar compensations, since they are needed to finance the necessary reforms that the vast majority of the country is demanding.

For this challenge to be successfully overcome, permanent advice from experts in investment law matters will be essential.

Tensions between Chile and Foreign Investors Derived from the Pandemic

In March 2020, only a few months after the social outbreak, the COVID-19 pandemic knocked on the country’s doors. In response, the Chilean government and congress have had to take a series of general measures to protect the population. Among them, the declaration of a state of catastrophe, the closure of borders, the establishment of a strict curfew and mandatory quarantines, the closure of shops and restaurants, and intervention in hospitals, among others.

As with the rest of the world, the measures that have had to be adopted by the State to confront the pandemic have generated tensions with the relevant actors of certain economic areas where foreign investment is involved. Two of the most relevant cases have been expanded on below.

Potential ICSID claim against Chile related to the Santiago airport operation concession

The most widely publicised case relates to the concession for the operation of the Arturo Merino Benítez airport in the country’s capital, Santiago. This concession was awarded to Nuevo Pudahuel, a consortium conformed by –among others– the French companies Groupe ADP (Aéroports de Paris) and Vinci Airports.

The concession includes the remodelling and expansion of the airport. This demanded significant resources form the consortium. However, the irruption of the pandemic - and the border-closure measures in Chile and most of the world - has meant that the flow of passengers and the activity of the Santiago airport has been lower than expected during 2020–21.

In this context, Nuevo Pudahuel has demanded from the Chilean Ministry of Public Works an extension of the airport’s operating concession beyond the 20 years originally awarded in 2015. This, as a measure for allegedly “rebalancing” the concession contract.

The Chilean government has adamantly refused to extend the concession. In its view, there are no legal or contractual grounds for transferring the economic risk of the contract to the Chilean State through an economic “rebalancing”. A revision of the already agreed contractual conditions is simply not justified.

Nuevo Pudahuel referred this conflict first to the Concessions Panel of the Ministry of Public Works. This is a non-binding administrative dispute resolution mechanism. Notwithstanding this, Groupe ADP and Vinci Aeroports have already announced their decision to resort to ICSID to present their claims under the IPPA in force between Chile and France.

Tensions between insurance companies that participate in the pensions “market” and the State

As in the rest of the world, the pandemic gave way to a deep economic crisis in Chile. To confront it, the Chilean State allowed, through constitutional reforms, for those who wished to do so to withdraw 10% of their individual pension savings, which in Chile are individual and private, since there is no public fund for that effect as in other countries.

The authorisation of a 10% pension savings withdrawal has since been repeated twice. However, for this measure to reach people who needed help and who had not benefited from previous measures, the last authorisation was extended to people who were already retired under a “life annuity” modality. This gave place to a conflict between the State and insurance companies.

Life annuities are a retirement alternative through which the pensioner transfers their pension funds to an insurance company, which in return is obliged to pay a pension to the retiree until the day of their death. In this way, the business is more or less profitable for the insurer depending on the number of years its counterpart lives.

With the extension of the third 10% withdrawal to life annuities, pensioners were allowed to obtain a part of the pension funds that they had already transferred to an insurance company (seeing the life annuities to which they are entitled proportionally reduced).

Insurance companies are firmly opposed to this measure. In essence, they have alleged that the pension funds are not the pensioner’s property from the moment they decide to enter into a life annuity contract, therefore, it is not appropriate that they be allowed to "withdraw" 10% of what no longer belongs to them.

Currently, the dispute resolution mechanisms of Chile’s Free Trade Agreements with the United States and Switzerland have been formally activated by the Ohio Group and Zurich Insurance Company, respectively.

Conclusion and Looking Forward

The successive social and health crises have put Chile in the spotlight of international arbitration at a global level. The measures that have been adopted and that are intended to be adopted will put to test the capital that this country has earned due to its well-known respect for its international obligations. What will happen in the Chile during the upcoming months should be closely followed by international arbitration practitioners.

Bofill Mir & Alvarez Jana Abogados

Av. Andrés Bello 2711, Piso 8
Las Condes, Santiago
Chile 7550611

+56 227 577 600

+56 227 577 813

info@bmaj.cl www.bmaj.cl
Author Business Card

Law and Practice

Authors



Bofill Mir & Alvarez Jana Abogados has an international arbitration team composed of multilingual and highly skilled lawyers who have gained international work experience in important global firms, have studied at some of the leading universities in the world, and are at ease in multicultural environments. Clients receive expert representation in international commercial disputes under global arbitration rules including ICC, UNCITRAL, LCIA, AAA, and CAM Santiago. The team regularly acts as a lead counsel in investment arbitrations under ICSID, representing both State and foreign investors. The firm's lawyers have successfully represented clients in ICSID arbitrations in the only cases to have involved Chilean companies: Quiborax v Bolivia, and Flughaufen Zurich & Gestión e Ingenería IDC v Venezuela, both of which were expropriation claims. The team has also intervened in the vast majority of international arbitration enforcement proceedings held in Chilean courts, including the defence, execution and appeal of international awards issued in Santiago.

Trends and Development

Authors



Bofill Mir & Alvarez Jana Abogados has an international arbitration team composed of multilingual and highly skilled lawyers who have gained international work experience in important global firms, have studied at some of the leading universities in the world, and are at ease in multicultural environments. Clients receive expert representation in international commercial disputes under global arbitration rules including ICC, UNCITRAL, LCIA, AAA, and CAM Santiago. The team regularly acts as a lead counsel in investment arbitrations under ICSID, representing both State and foreign investors. The firm's lawyers have successfully represented clients in ICSID arbitrations in the only cases to have involved Chilean companies: Quiborax v Bolivia, and Flughaufen Zurich & Gestión e Ingenería IDC v Venezuela, both of which were expropriation claims. The team has also intervened in the vast majority of international arbitration enforcement proceedings held in Chilean courts, including the defence, execution and appeal of international awards issued in Santiago.

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