International Arbitration 2022

Last Updated August 16, 2022

Chile

Law and Practice

Authors



Jana & Gil Dispute Resolution is a law firm specialising in international and domestic arbitration and complex civil and commercial litigation. The team is composed of multilingual and highly skilled lawyers who have gained international experience in important global firms and studied at some of the world’s leading universities. 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. 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 and Chilean companies, parties use domestic arbitration rather than international arbitration.

As such, domestic arbitration is more widely used than international arbitration, and it is rare for domestic parties to resort to 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.

Chile is currently undergoing a constitution-making process that will most likely replace the constitution that has been in force since 1980. The new draft of the constitution will be subject to a vote on 4 September 2022; among its regulations is Article 320, which states that arbitration will always be voluntary and that the law may not establish mandatory arbitrations. It should be noted, however, that this only applies to domestic arbitration.

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, prolonged lockdowns in 2020 and 2021 required flexibility in the management of hearings through online platforms, which has been encouraged by arbitral institutions such as the Santiago Arbitration and Mediation Centre ("CAM Santiago"), which in its statement issued on 16 March 2020, urged the use of online platforms, including for the holding of hearings (see 1.4 Arbitral Institutions).

For its part, the Chilean government implemented a law to enable legal proceedings to comply with lockdown requirements placed on all citizens. Law 21.220 implemented restrictions across the judicial system that applied limits to proceedings, established a regulation with regard to arbitration tribunals relating to the suspension of hearings and deadlines, and created a special regime for claiming delays. 

Most recently, Law 21.394 was enacted on 30 November 2021 to assure that the administration of justice could continue while also reconciling the health and safety of all participants. The Law allows tribunals to continue to conduct hearings remotely by videoconference, either by its own stipulation or upon the request of the parties.

Industries with Increased International Arbitration Activity

There are no statistics on international arbitration activity during 2021-22. However, because 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 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 has not been a decrease in the any industry. 

By far the most widely used arbitration institution for international arbitration cases in Chile is the International Court for Arbitration of the International Chamber of Commerce. Since 2017, the International Chamber of Commerce (ICC) has had a national committee in Santiago, joining forces with CAM Santiago to administer mediations and arbitrations in Chile under the ICC Rules of Arbitration ("ICC Rules").

Furthermore, it should be noted that CAM Santiago administers both domestic and international arbitrations. The CAM Rules for International Arbitration (the "CAM Rules") 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 2021-22.

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 Appeal 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 specific 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: (i) el recurso de queja and (ii) el recurso de casación en la forma on the grounds of 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 Organisation).

Regarding preliminary relief, if the arbitral tribunal has not yet been constituted, parties must 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 in 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 also has jurisdiction to resolve the 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 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 apply to the local courts for assistance in 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 based on the UNCITRAL Model Law and has no relevant deviations from it. 

As the history of the ICAL shows, the Chilean legislature deemed it necessary to maintain the original law proposed by UNCITRAL as much as possible in order to promote the development of international arbitration in Chile. Therefore, the modifications made to the 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 (CCP) and the Code of Judicial Organisation (CJO). There have not been significant changes in these rules because domestic arbitration works well in Chile. Although there is pending legislation to reform the 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 granting greater scope to the autonomy of the will of the parties. The bill was not successful and was withdrawn in 2002. 

In other efforts to change the domestic arbitration law, there have been 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 contained in this bill is that the current dualist system is left behind. Under the current system two models coexist, one for international commercial arbitration that is flexible and deformalised, and another 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. 

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 defence 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 229–30 of the CJO). 

Disputes arising under the Labour Code are also excluded from arbitration, due to public policy aspects of labour issues and the prohibition on waiving labour rights. The Labour Code does, however, allow for arbitrations related to the collective bargaining process, in the form established by the Labour 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 the 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 the applicable law to revise an arbitration agreement (Almendra y Miel S.A v G.L.G, Supreme Court, Case No 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 No 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 the ICAL, the invalidity of a contract may not affect the validity of its arbitration clause. This has been recognised by the Santiago Court of Appeal (Tampico Beverages, Inc. v Productos Naturales de la Sabana SA Alquería, Santiago Court of Appeal, Case No 6975-2012).

The ICAL (see 2.1 Governing Law) specifically establishes that nationality shall not be a barrier to the appointment 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 them 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).

The 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 Appeal is called to assist in the appointment of arbitrators, they may choose to consolidate 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, Article 8 of the London Court of International Arbitration (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 CAM Rules for International Arbitration (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 an agreement on the appointment of 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, the ICAL provides some guidance to select the arbitrator. However, 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 for 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 they 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 arbitrators' 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 for 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 relationship, counsel’s confidentiality duty and conflict of interest. For arbitrators, it provides restrictions to avoid conflicts of interest and 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 like 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 in advance of 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 specifically agree 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 to its consent and the consent of the actual parties to 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 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 Relief

If the arbitral tribunal has not yet been constituted (see 6.1 Types of Relief), parties must 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 for arbitration within 10 days (which can be extended to 30 days). By the moment of presenting its claim, the party must also request 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 10-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 the 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 it based on Article 9 of the ICAL and affirming the non-necessity of exequatur for this type of judicial proceedings. Thus, in case No 5468-2009 "Western Technology Services International Inc. v 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 provided for 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 measure's requirement will be regulated under the rules of the Chilean CCP.

However, if the parties agree to conduct the arbitration under the ICC Rules, which do mention the figure of the emergency arbitrator, the appointment of an emergency arbitrator will be valid.

The ICAL does not specifically provide for the 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 the preliminary relief regulation are wide enough to allow for security for costs as a relief, especially considering they refer to an arbitration proceeding and not to a proceeding before a national court. There have been no known cases regarding security for costs.

The procedure is regulated in 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. It was decided that it was not necessary to comply with these procedural steps in international arbitration and the nullity actions were rejected.

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 other things. 

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 other things. 

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 223-25 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, in international arbitration procedures, parties tend to apply 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 the 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 the 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 of the CAM Rules for International Arbitration). 

Also, under Article 27 of the ICAL, the arbitral tribunal and the parties may apply to the local courts for assistance in the taking of evidence. The requested local court may execute the request within its jurisdiction and according to its rules on the taking of 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, 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 this by means of an express agreement and, only in the case of highly confidential parts of the file, will it 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, 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 the protection of trade secrets and confidential information (Article 22.3 of the ICC Rules). 

Lastly, 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 Rules for International Arbitration). 

According to the ICAL, the arbitral award shall state the reasons on which it is based unless the parties have agreed otherwise. The ICAL does not set 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, they must decide in accordance with the law, according to which they are empowered to grant to a party in their award effective damage, loss of profit and moral damages. The latter applies even in cases of breach of contract as the national case law has evolved in this matter during the last few decades. 

Monetary awards may include interest. 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). However, 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. The application 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 approach generally used at international level of "costs follow the event". 

For example, in the case Constructora EMEX Limitada v European Organisation for Astronomical Research in the Southern Hemisphere, the arbitral tribunal made a distribution of costs different from the above-mentioned approaches , which was later challenged through the nullity of the award. Ultimately, 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 the 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.

Regarding 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, Case 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, Case No 7701-2012 dated 29 January 2012 and in Case 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, Case 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 Appeals by stating that due to the autonomy of the will and good faith, the parties may vary the recourse regime (Supreme Court, Case No 19.568-2020 dated 14 September 2020).

Although it is not a developed discussion, according to the new jurisprudential twist adopted by the Supreme Court (see 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, 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 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.

Refusing Recognition

One of the grounds recognised by the ICAL for refusing recognition or enforcement of an international arbitration award is 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(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, Case No 5228-2008 and Case 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, Decree Law No 2.349, which regulates the international contracts for the public sector, states in Article 2 that the state and its organisations, institutions and companies may renounce their immunity from execution. It must be noted that this has a restricted scope since it will be limited to the execution of awards rendered in proceedings directly related to the international contracts that contain such renouncement.

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 v Pesquera Villa Alegre S.A., Case 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 recognised as binding in Chile if it complies with the requirements of Articles 35 and 36 of that Law, which otherwise constitutes a repetition of the relevant provisions of the New York Convention". 

In another case the Supreme Court accepted a request for the execution of an award issued in an international commercial arbitration, ruling that it is not relevant for its recognition in another country that reciprocity exists between the country in which it was rendered and Chile. According to the Court, whenever the requirements of Law 19.971 on International Commercial Arbitration are complied with, national legislation recognises its binding character as it is an international arbitration (I. Schroeder KG. (GMBH &CO) v Exportadora Las Tinajas Ltda., Supreme Court, Case No 104262-2020 dated 19 July 2021).

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

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 the 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, Case No 9.134-2007 dated 4 August 2009, rejecting ground No 2(b), (ii) of Article 34 of the ICAL).

Therefore, in relation to ground No 2 (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 is 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 Court of Appeals of Santiago, Case No 9.134-2007 dated 4 August 2009; Court of Appeals of Santiago, Case No 1.971-2012 dated 9 September 2013; and Court of Appeals of Santiago, Case No 11.466-2015 dated 28 June 2016; among 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, which recognise 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 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 party. 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.

Jana & Gil Dispute Resolution

Av. Andrés Bello 2711, Piso 9
Las Condes
Santiago
Chile 7550611

+56 227 577 600

+56 227 577 813

info@jg-disputes.com www.jg-disputes.com
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Trends and Developments


Authors



Jana & Gil Dispute Resolution is a law firm specialising in international and domestic arbitration and complex civil and commercial litigation. The team is composed of multilingual and highly skilled lawyers who have gained international experience in important global firms and studied at some of the world’s leading universities. 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. 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.

A New Constitution and International Arbitration 

In October 2019, the country faced its deepest institutional crisis since the ending of the military dictatorship led by Augusto Pinochet. Thousands of Chilean citizens marched the streets demanding changes in various aspects of the Chilean economic and social model. Even though Chile had grown tremendously in the last 30 years, Chileans were now demanding that such progress be extended to all citizens, improving equality. 

The crisis was controlled through a political agreement between all major political parties, leading to the call for a process to issue a new constitution. The “Agreement for Social Peace and a New Constitution” was executed on 15 November 2019. The Agreement provided for a referendum to give Chileans an opportunity to vote on the decision to draft a new constitution or to keep the constitution originally published in 1980. Chileans would also vote on who should draft the new constitution: an elected convention or a mixed convention composed of congresspeople and elected representatives (“entry referendum”). If a new constitution was drafted, the resulting proposed document should also be submitted to a confirmatory referendum (“exit referendum”).

On 25 October 2020, 78% of the voters approved the motion to draft a new constitution in the entry referendum. Chilean voters also decided that the draft would be developed by an elected and democratic assembly of citizens (the “Constitutional Convention”). The Convention members were elected in May 2021. 

The work of the Convention was followed closely in Chile and around the world and expectations were high. The newly elected Convention hit several landmarks that were highly praised at the beginning of its mission and with good reason: the Convention was the first of its type in the world to have complete gender parity by design: 155 members, 78 men and 77 women; the recognition and inclusion of indigenous representatives that granted them a leading role in politics for the first time in Chilean history; a large group of independent representatives, not bound by any political party, who represented a fresh look into politics.

However, during the work of the Convention, both the performance of some of its members and several of the preliminary proposed sections received acute criticism from certain academics, several journalists and a relevant portion of the general public. 

After a year of deliberations, on 4 July 2022, the Constitutional Convention issued a final draft of the proposed new constitution. The exit referendum is scheduled for 4 September 2022. As before, voters will be given two options: either approve or reject the new constitution. Voting in the exit referendum is mandatory. If voters reject the new text proposed by the Convention, the current constitution will remain in force, although almost all political parties have acknowledged that the constitutional process should continue, given the strong popular support for the decision to draft a new constitution in the entry referendum. 

It is uncertain whether the new constitution will be upheld by Chilean voters. However, analysing its draft is crucial to understand the potential regulations that will undoubtedly impact international arbitration if the exit referendum affirms the new constitution.

Mandatory arbitration will be forbidden under the new draft constitution

Section 320 of the new draft constitution provides that all arbitration will be voluntary. This rule could be considered irrelevant given the obvious voluntary nature of arbitration, but Chile is a country with a history of mandatory arbitrations that are regulated by law. The scope of issues submitted to mandatory arbitration is broad: disputes between shareholders, disputes between shareholders and the administration of companies, issues related to the liquidation of partnerships, the partition of assets, issues related to the accountability of managers, among other topics. Under the proposed Section 320 (2), said issues, contained in Section 227 of the Court Statutes Code, will no longer be submitted to arbitration as a mandatory rule. Parties will retain their right to agree to initiate arbitration as a matter of contract. This new rule is grounded on the principle of equal access to justice. A justice system that forces citizens to file for arbitration, considering that arbitration requires payment of fees and costs that are superior to the national court system, is unacceptable.

Under transitory Rule 39, the draft provides that all mandatory arbitrations that are currently ongoing will continue their course until termination.

Arbitration in matters related to the state

Currently, Chilean legislation does not contain a prohibition to arbitrate in contentious-administrative matters. In fact, it is quite the opposite.

One of the most relevant fields of controversy between the state and private entities is the concession system of public infrastructure. The Public Concessions Law in Chile provides for a mandatory dispute resolution system to solve controversies in public-private partnerships. A dispute board and a permanent arbitral commission are put in place for the duration of the concession contract to ensure a forum to solve discrepancies between the parties.

Under proposed Section 332 of the draft constitution, new regulatory courts will be created to solve claims addressed against the government. The Section adds that any issue that shall be within the jurisdiction of the new regulatory courts cannot be submitted to arbitration. 

If approved, and arguably once the new regulatory courts are established, the dispute resolution system for concessions in Chile will be terminated. This rule could have consequences from a foreign investment perspective. Several concessions in Chile are granted to foreign investors, in areas like the construction and operation of the new airport (involving French and Italian investors), urban highways (involving Spanish investors), etc.

From the creation of the modern concessional system in 1993, Chile has built a network of concessions worth USD18.378 million (up until 2020 according to data from the Ministry of Public Works). A constitutional rule that eliminates arbitration as was promoted and included in every concession in the country could have consequences in the near future. It is likely that foreign investors will have a greater incentive to address their concerns through investment treaty arbitration rather than submitting their claims to local courts under the new regime.

Transitory sections provide two relevant provisions that will enforce the proposed ban to arbitrations with the state: (i) under Rule 46, new claims that arise before the creation of the new regulatory courts must be filed before the civil courts – as long as there is no special procedure in place; and (ii) Rule 44 provides a deadline of 3 years for the filing of the bill that will create the new administrative courts.

Section 289 (12) of the new constitution provides important protection for investment-treaty arbitration

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" (Article 135, Political Constitution of Chile).

A relevant demonstration of such commitment is found in new Section 289, a rule that is located within the powers of the President of Chile, establishing a primary role for the President in conducting foreign policy. Under Section 289 (12), the new constitution states: “When negotiating treaties or international instruments of investment or similar agreements, whoever holds the presidency will procure those instances of dispute resolution are impartial, independent and preferably, permanent”. This rule provides reassurance that the submission of Chile to international arbitrations regarding foreign investment is not in question. On the contrary, the new constitution proposal obliges the President to provide impartial, independent and stable fora to resolve disputes.

In that sense, although the challenges that arise from the proposed new constitution are varied and complex, there is no indication that the new constitution will provide for a weakening of investment treaty arbitration. 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, it is international investment tribunals that have specified the obligations assumed by the states when dealing with concrete cases, and the new constitution does not impair the functioning of international investment tribunals at all. 

Protection of foreign investments

Significant foreign capital and investments are present in practically all the economic sectors that are expected to be reformed. 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. 

The proposed new constitution does include several sections that could have an impact on the relationships with foreign investors, including the following.

Regime for expropriation

The 1980 Chilean constitution provides, at Article 19, No 24, that any person who is subject to an expropriation has the right to be compensated for the property damage effectively caused, granting a constitutional right for compensation. Said compensation is determined by an agreement between the state and the private party who has been subject to expropriation. If the private party does not agree on the amount of the compensation, there is a judicial recourse to file a claim against the state in Chilean civil courts. Additionally, such payment shall be made in cash when there is no agreement.

The draft of the new constitution modifies the above-described compensation regime for expropriation. In this regard, Article 78 provides that the compensation will equal the fair price of the expropriated object following the approach of the Federal Constitutional Court of Germany on this matter. This proposed change raises concerns by some critics of the constitutional process, who have put forward that the compensation amount (fair price) could be lower in certain cases than the current market value of the property. The new proposition maintains the right to file a complaint before Chilean courts, to argue against the legality of the expropriation, the amount of compensation and the form of payment. 

Water rights

In Chile, water is considered a national good for public use. The current system provides for a right for any individual to apply to the appropriate administrative authority, the General Directorate of Water (Dirección General de Aguas), for a water use right. Therefore, usage rights are granted to private individuals. The holder of any such duly granted right then has complete ownership of those rights and may commercialise them freely. This system has been subject to extensive criticism from a large section of the Chilean population, who have rallied against private control over water rights, since those water rights have been largely used for speculative purposes and it is difficult and expensive to prioritise human consumption of water.

The proposed new constitution tackles that issue in several ways, including a whole chapter regarding water usage. 

  • Article 140 of the draft new constitution regulates the human right to water, sanitation and the equilibrium of the ecosystem. In particular, this article guarantees every person the right to water and sufficient, healthy, acceptable, affordable and accessible sanitation. In addition, the government must guarantee this right to current and future generations.
  • Article 134 of the draft constitution provides that the territorial sea and its seabed; beaches; waters, glaciers, and wetlands; geothermal fields; air and atmosphere; high mountains, protected areas, and native forests; subsoil, and other “goods” listed by the constitution and the law are natural common goods. Among these, the draft specifies that: (i) water in all its states (Article 134 (3); (ii) air; and (iii) those goods recognised by international law and those declared as such by the constitution or law are non-appropriable.
  • Article 142 of the draft new constitution provides for a rule to allow the usage of water. Said section provides that water use may be authorised by the government, which will ensure reasonable use of water. However, such use may not be commercial, and such authorisation is subject to the effective availability of water. This means that water-usage rights (derechos de aprovechamiento de aguas) that are currently in force would effectively be terminated but replaced if reasonable with new authorisations provided by the government. 
  • The new regulations will represent important challenges for industries that rely heavily on water usage. Mining, energy and agriculture endeavors (among others) will have to adapt their projects to the new reality. However, the proposed new constitution does provide an institutional organisation to grant water rights. 

Mining rights

Under the current constitution of 1980, mining rights have a special protection included in the property right regulation (Article 19, No 24). Minerals are property of the state; however, a fairly detailed regulation provided for concessional rights to investors.

After heated discussions in the Constitutional Convention (where a minor group of radicalised representatives pushed for the nationalisation of the mining industry as a whole), the rules for exploration, exploitation and use of mineral resources where confirmed, providing a constitutional frame that allows current investors in the mining sector to maintain their assets.

Article 145 establishes the cornerstone of this regulation. It provides that the government has the absolute, exclusive, inalienable and imprescriptible property right of all mines and mineral, metallic and non-metallic substances, deposits of fossil substances and hydrocarbons existing in the national territory, notwithstanding the fact that someone else may own the land on which they are located. This rule follows closely the disposition of the current constitution. The same rule also provides that exploration, exploitation and use of the substances shall be regulated by law, which needs to respect some basic boundaries regarding mining: (i) its finite and nonrenewable characteristics; (ii) intergenerational public interest; and (iii) the protection of the environment.

Even though there was no nationalisation in place, the draft constitution does not expressly contemplate the possibility of the government granting concessions over mining resources. According to some critics of the constitutional process, this decision could lead to conclude that the mining concession regime currently in force, over which owners have property rights over each concession, is devoid of constitutional protection in the draft. The answer to these critics has been that the property rights over the mining concessions is sufficient constitutional protection. Legal regulations related to granting and maintaining mining concessions are still standing in the applicable laws (mainly the Chilean Mining Code). 

Conclusion

To conclude this short analysis, international arbitration and the protection of investments is an area that requires a great deal of scrutiny in the Chilean constitutional process. Several of its proposed sections would have an impact on this field. 

Chile is undergoing a seismic and transformational process and 4 September 2022 will be a historical date for Chileans as they vote to decide whether the proposed constitution is enacted or not. It is important to keep in mind that, when addressing the social demands that are necessary for the modernisation of the country, the Constitutional Convention faced this challenge with an express mandate to avoid the breaching of any international treaties subscribed to by Chile. This is not only because it is highly relevant that Chile maintains its international commitments, but also because public funds should not be used to pay million-dollar compensations when they will be necessary to finance the required reforms that the vast majority of the country is demanding. 

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

Jana & Gil Dispute Resolution

Av. Andrés Bello 2711, Piso 9
Las Condes
Santiago
Chile 7550611

+56 227 577 600

+56 227 577 813

info@jg-disputes.com www.jg-disputes.com
Author Business Card

Law and Practice

Authors



Jana & Gil Dispute Resolution is a law firm specialising in international and domestic arbitration and complex civil and commercial litigation. The team is composed of multilingual and highly skilled lawyers who have gained international experience in important global firms and studied at some of the world’s leading universities. 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. 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



Jana & Gil Dispute Resolution is a law firm specialising in international and domestic arbitration and complex civil and commercial litigation. The team is composed of multilingual and highly skilled lawyers who have gained international experience in important global firms and studied at some of the world’s leading universities. 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. 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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