Highlights of the Arbitration Act of Puerto Rico of 2024

On 9 August 2024, the Legislature of Puerto Rico enacted Law No. 147, the Arbitration Act of Puerto Rico (AAPR). The AAPR supersedes Puerto Rico’s International Commercial Arbitration Act of 2012 and the prior Commercial Arbitration Act of 1951. The AAPR adopts the Uniform Revised Arbitration Act (or LUAR, by its Spanish acronym) and respects as a guiding principle the contractual autonomy of the parties. It also expedites the arbitration process and makes it more efficient, supplements the rules of any arbitration administration agency that may be chosen by the parties, and – most importantly – limits the grounds for judicial review of arbitration awards. The Statement of Motives explains the rationale:

“The LUAR honours the contractual autonomy of the parties that adopt arbitration as a mechanism for the resolution of their disputes. Consequently, the LUAR comes into operation only when the parties have not agreed on a particular platform to channel the arbitration of their disputes. Also, in deference to the contractual autonomy of the parties and with the federal interpretative law of the Federal Arbitration Act [the FAA], the LUAR limits the review function of awards when appeals arise before the courts. On the other hand, the LUAR seeks to make arbitral processes more efficient and, therefore, make them more attractive to the parties.” (Translation ours)

Context is important for understanding the purpose of the AAPR. A dichotomy in the standards of judicial review of arbitration awards existed in Puerto Rico. Under the FAA, for transactions involving interstate or foreign commerce, the Supreme Court of the United States held in Hall Street Associates, LLC v Mattel, Inc., 552 U.S. 576 (2008), that the narrow grounds specified in the FAA to vacate, modify or correct an arbitration award apply exclusively. The FAA does not state that an arbitrator’s error of law or manifest disregard of the law are grounds to disturb an award; hence, such grounds cannot be invoked under the FAA. Under then-governing Puerto Rico law and the Puerto Rico Supreme Court’s holding in Constructora Estelar v Autoridad, 183 P.R. Dec. 1, 33 (2011), an error of law could provide a basis for vacatur of an award. That is, where the parties specified in the arbitration agreement that the award must conform to law, a court had authority to review the merits of the award. This dichotomy between federal and Puerto Rico law in the standards of review governing the enforcement of arbitration awards provided fertile grounds for collateral litigation. The AAPR settles that disparity once and for all.

Pre-AAPR litigation featuring this dichotomy includes Bacardí v V. Suarez, 719 F. 3d 1 (1st Cir. 2013). V. Suarez was Bacardí’s sub-distributor in Puerto Rico. The sub-distribution agreement included an arbitration clause which provided for the arbitration locale in Puerto Rico under the rules of the American Arbitration Association (AAA) and a Puerto Rico choice of law. Importantly, the sub-distribution agreement also contained a provision similar in effect to liquidated damages. The provision contemplated that if V. Suarez could not prove at termination that its money damages exceeded the value the parties had assigned to the line when they executed the contract, then V. Suarez would be deemed to have suffered no actual damages. It was a novel provision, legally untested until then. Bacardí terminated the contract and arbitration ensued. After bifurcating the proceedings and holding evidentiary hearings, the majority of the Panel concluded, in a two-to-one reasoned award, that the liquidated damages provision was valid and enforceable. The Panel rejected V. Suarez’s argument that the contractual formula waived the right of compensation guaranteed by Puerto Rico’s Dealer’s Contract Act, known as Law 75. It was not a waiver, the Panel ruled, because Law 75 allows for recovery of actual damages, if proven, and V. Suarez could not prove that its termination damages under Law 75 exceeded the value of the line calculated in the contract at the moment of its execution. In other words, the net profit of the distributor at the time of termination was less than the value of the line when it assumed its obligations as a dealer. It was important for the majority of the Panel that Bacardí had developed the goodwill and clientele for its products in Puerto Rico for many years before V. Suarez took over the sale and distribution without paying a franchise fee to become the sub-distributor. Reasonable persons might differ on the validity of the formula under Law 75, as shown by one panellist who dissented, but applying the FAA, the Panel did not exceed its powers to rule as it did. Had Constructora Estelar governed the analysis, however, judicial review of the award would have been de novo or far less deferential.

Collateral enforcement litigation of the final award followed in federal and state courts. Invoking complete diversity jurisdiction, Bacardí sought to enforce the award in federal court arguing that the FAA provided the exclusive grounds for review and confirmation of the award. Bacardí argued that V. Suarez’s petition to vacate in Puerto Rico state court would be prejudicial because judicial review under Puerto Rico law permitted scrutiny of the legal correctness of the award. Eventually, the federal case reached the First Circuit, where it reversed the dismissal by the district court on procedural grounds but stayed the case pending confirmation proceedings in state court. Meanwhile, the state trial court confirmed the award under the FAA and the intermediate appellate court affirmed. V. Suárez v Bacardí, KLCE201201176, 2013 WL 4037215 (TA June 25, 2013). Although the dichotomy created by two standards of review precipitated collateral litigation, no conflict of laws materialised in those cases because the state court correctly applied Hall Street rather than Constructora Estelar, which V. Suarez had urged.

Against that backdrop, the significance of the AAPR comes into focus. What the AAPR accomplishes is de facto to revoke Constructora Estelar because the narrow grounds it provides for judicial review of awards track the FAA and do not allow vacatur for errors of law. The threshold question is: when does the AAPR apply? Article 1.02 of the AAPR provides that it applies to arbitration agreements “subject to the laws of Puerto Rico”, regardless of the date of execution of such agreements. The phrase “subject to the laws of Puerto Rico” is not defined by the AAPR. There are two reasonable meanings. Under the first, a choice of law clause in the arbitration agreement also references Puerto Rico law, so the arbitration is subject to its laws. Under the second, where the agreement contains a choice of law clause pointing to another jurisdiction or none at all, a strong public policy of Puerto Rico requires applying its laws to the arbitrable claims at issue.

A third question, not apparent from the text of Article 1.02, is temporal. The reference to the date of execution suggests that the AAPR reaches agreements concluded before August 2024. Yet in the first decision of the Supreme Court of Puerto Rico to address arbitration after the AAPR came into force – Sierra Lugo v Sunrun PR Operations, LLC, 2026 TSPR 76 (10 July 2026), discussed below – the Court applied the repealed Commercial Arbitration Act of 1951 to an agreement executed in 2020 and litigated from 2023, on the ground that it was the statute in force at the time of the events in controversy. The point was not briefed, and the Court did not mention Article 1.02 of the AAPR, so the treatment is best read as sub silentio rather than as a holding on temporal reach. Until the question is squarely presented, parties litigating pre-2024 agreements should be prepared to brief which statute governs, and drafters of new agreements should consider stating expressly that the AAPR applies.

If the AAPR applies, the next issue is what the interplay is among the AAPR, the FAA, and the parties’ adoption of rules for arbitration in a contract, such as the AAA’s Commercial Arbitration Rules. On this matter, the AAPR’s Statement of Motives is explicit. The AAPR is not meant to displace the rules for the administration of the arbitration but rather to supplement them, if the parties have agreed to incorporate them. In turn, the AAA’s Commercial Arbitration Rules coexist with federal and state arbitration statutes when applicable to arbitration agreements.

One example is the remedy of injunctions in aid of arbitration. Before the enactment of the AAPR, the remedy was grounded on jurisprudence. The AAPR codifies the remedy in Article 2.06, which allows a party to file a motion in state court and, upon a showing of cause, obtain equitable relief until the appointment of an arbitrator. The motion would authorise the court to grant provisional remedies on the same grounds that such relief is available under the Puerto Rico Rules of Civil Procedure. For its part, the recently amended AAA Commercial Rules for Complex Cases also allow for the appointment by the AAA (within 24 hours) of an arbitrator solely for considering a request for emergency injunctive relief. That arbitrator must make the same pre-hearing disclosures as a party-appointed arbitrator, but it is not clear that the parties have any say in the AAA’s decision, or that the AAA will provide a roster from which to choose. The emergency arbitrator’s duties should conclude with the issuance of an interim award on the request for provisional remedies. The AAA Rules provide for an election of remedies: the applicant has a choice to seek provisional relief pending arbitration in court or request the AAA to designate an emergency arbitrator. This choice is consistent with contractual autonomy.

About the interplay with the FAA, it is worth noting that the FAA applies broadly to transactions involving interstate or foreign commerce. It is easy to see that most distribution agreements, most financing agreements and many other contracts involving stateside actors or transactions crossing interstate lines will lead to applying the FAA. There are other types of contracts, however, where the nexus with interstate commerce is tenuous. One could think of a purchase and sale contract for real estate in Puerto Rico, a real estate brokerage contract, or a partnership agreement between local actors, where a connection to interstate commerce is more remote. In those cases, if the arbitration agreement is subject to the laws of Puerto Rico, the AAPR comes into play where arguably the FAA might not. Even if it is not entirely clear from the contract or the claims at issue that one arbitration statute governs over the other, the substantive provisions of the AAPR for confirmation and vacatur of awards are in harmony with the FAA so that there is a low probability that conflict pre-emption will arise. This is another benefit that did not exist before the enactment of the AAPR.

Parties also have the autonomy to incorporate the AAPR to govern their written agreements to arbitrate and decide not to adopt the rules of any of the existing arbitration administration organisations. These so-called “arbitrajes criollos” or ad hoc arbitrations (those that apply AAA Rules but are not administered by the organisation) now have the protections of the AAPR whereas, before 2024, they did not.

What are the salient features of the AAPR? The AAPR has four chapters. Chapter 1 governs the three types of arbitration provided for in the Act, which are then set out in Chapter 2 (“Ordinary Arbitration”), Chapter 3 (“Abbreviated Arbitration”) and Chapter 4 (“International Commercial Arbitration”, which is beyond the scope of this article).

Chapter 1

Article 1.06 in Chapter 1 defines the form of the award. The AAPR requires a reasoned award unless the parties, with the arbitrator’s consent, provide differently. A reasoned award is not an award with findings of fact and conclusions of law (defined as a “laudo motivado” in Article 1.03(f)). Rather, a reasoned award explains briefly the arbitrator’s reasoning for deciding the controversy. Chapter 1 states the standards for modifying, confirming and vacating arbitration awards (Articles 1.07, 1.08, 1.09, 1.10). The intermediate appellate courts may review by certiorari motions concerning arbitration and awards and shall decide the petitions within six months (Article 1.14).

Importantly, confirmation should be initiated by motion or petition, not by formal complaint. If no litigation concerning the arbitration agreement is pending, motions shall be served by formal service of process (Article 2.02(b)). Awards shall be confirmed promptly by the court (Article 1.08). These procedures are similar to those in the FAA. Courts have discretion to allow costs and fees (Article 1.11). For arbitrations whose locale is Puerto Rico, “courts in Puerto Rico” shall have exclusive jurisdiction to execute arbitration awards (Article 1.12). The phrase “courts in Puerto Rico” means a court with jurisdiction in Puerto Rico (Article 1.03 (i)). For an award issued after a Puerto Rico arbitration, confirmation in federal district court in Puerto Rico is possible but requires complete diversity citizenship of the parties and meeting the jurisdictional amount, since the FAA does not create an independent federal question.

Chapter 2 (“Ordinary Arbitration”)

Ordinary arbitrations are more streamlined than litigation procedures and more suitable for complex disputes. Ordinary arbitration procedures in the AAPR are modelled after provisions in both the Uniform Revised Arbitration Act and the FAA. Unless agreed otherwise, courts shall decide the existence, validity and scope of arbitration agreements. The arbitration clause is severable from the contract as a whole, so it is for arbitrators to decide the validity of the underlying agreement or transaction. However, where the parties have delegated questions of scope, applicability or validity to the arbitrator (expressly, or by adopting the rules of an arbitral organisation), a court may not reach into those questions unless a party challenges the delegation itself, specifically and with particularity.

The Supreme Court of Puerto Rico’s first substantial engagement with these questions since the enactment of the AAPR came in Sierra Lugo v Sunrun PR Operations, LLC, 2026 TSPR 76 (10 July 2026). A residential customer sued the lessor of a photovoltaic system and its installation partner for breach and damages, pleading in the alternative that her consent had been vitiated by misrepresentations as to the identity of her counterparty and that she had signed electronically without an opportunity to review the document. The lease contained a broad arbitration clause that expressly submitted to the arbitrator “the determination of the scope or applicability of this arbitration agreement”, designated JAMS under its streamlined rules, and stated that the agreement to arbitrate was governed by the FAA. The trial court dismissed with prejudice; the Court of Appeals reversed and ordered an evidentiary hearing on the clause’s validity.

The Supreme Court modified. Applying the separability doctrine of Buckeye Check Cashing, Inc v Cardegna, 546 U.S. 440 (2006), adopted in S.L.G. Méndez-Acevedo v Nieves Rivera, 179 P.R. Dec. 359 (2010), and the delegation rule of Rent-A-Center, West, Inc v Jackson, 561 U.S. 63 (2010), the Court held that in the absence of allegations directed at the delegation clause itself, the judicial forum has no power to adjudicate the validity, scope or applicability of the arbitration agreement. Here the allegations of vitiated consent were aimed at the lease as a whole, and the later assertion that the arbitration clause specifically had been procured by fraud failed the particularity requirement of Rule 7.2 of the Rules of Civil Procedure. The Court also reaffirmed that neither a contract of adhesion nor an unnegotiated forum-selection clause is void for that reason alone.

Turning to remedy, the Court held, based on Smith v Spizzirri, 601 U.S. 472 (2024), and Article 3 of the repealed 1951 Act, that dismissal with prejudice was error: once all claims were held arbitrable and a stay had been sought, a stay was mandatory. The AAPR appears to go further. Article 2.05(d) provides that once the court is apprised that an action before it belongs in arbitration, it shall immediately stay the judicial proceeding and order arbitration – apparently dispensing with the party application that FAA Section 3 and Spizzirri presuppose. Notably, the Court declined to apply the AAPR, holding that the 1951 Act governed as the statute in force at the time of the events.

The Court was not unanimous. Three Justices dissented, would have ordered an evidentiary hearing on the formation of the contract, and questioned whether separability holds where consent is itself in issue and the agreement is one of consumer adhesion. The majority also reserved two questions in footnote 32: whether arbitration clauses in residential photovoltaic lease agreements offend public policy, and whether a clause that ousts the jurisdiction of a regulatory agency is voidable under Article 1249(g) of the Puerto Rico Civil Code of 2020.

The intermediate appellate courts have also swiftly rebuked challenges to the validity of arbitration provisions after the enactment of the AAPR. See Maisonet Rivera v Gobierno Mun. de Aibonito, TA2026CE00285, 2026 WL 1067890 (TA March 27, 2026) (did not issue certiorari, but in dicta rejected contention that a claim of dolus invalidating consent to the agreement, by itself an arbitrable claim, invalidated the separate arbitration clause; concluded that arbitration agreement was valid, and compelled arbitration under Article 2.05 of the AAPR); Román Martínez v Universal Properties Realty Gov’t Servs LLC, TA2025CE00478, 2026 WL 747394 (TA Feb. 5, 2026) (confirmed stay of litigation pending arbitration and rejected generalised attack to consent or unconscionability of agreement as grounds to invalidate separable arbitration clause).

Sierra Lugo further supplies the Supreme Court’s first reading of Article 2.03 of the AAPR. Footnote 19 states that the AAPR adopts the federal framework and harmonises it with local legal tradition: under Article 2.03(b), the court decides whether an arbitration agreement exists and whether a controversy is subject to it, unless the parties expressly agree otherwise or agree contractually that the arbitration will be governed by an arbitral organisation; and under Article 2.03(c), the arbitrator resolves the contractual conditions for triggering arbitration. On the Court’s reading, incorporating institutional rules – such as those of the AAA or JAMS – is itself an agreement to displace judicial determination of arbitrability. That reading reinforces the AAPR’s design as a supplement to institutional rules and gives drafters a straightforward route to a delegation. The observation is dictum, since the AAPR did not govern, but it is on-point dictum from the court of last resort and will be relied upon.

The balance of Chapter 2 provides what parties would otherwise have to draft for themselves, or borrow from institutional rules, to govern ordinary arbitrations. It provides for injunctive relief in aid of arbitration (Article 2.06), consolidation of arbitrations (Article 2.07), appointment and neutrality of arbitrators (Article 2.08, 2.09), absolute immunity for arbitrators (Article 2.11), motions for summary disposition and pre-merits hearings (Article 2.12 (g)), the subpoena power of arbitrators (Article 2.14), judicial review of interlocutory and final awards (Article 2.15), and remedies that exclude punitive damages unless permitted by law (Article 2.17).

Chapter 3 (“Abbreviated Arbitration”)

Parties can agree to have an abbreviated arbitration process. This avoids many of the trappings of litigation and may be suited for less complex disputes that do not require expert testimony, or where the sums in controversy do not justify the cost and fees of an ordinary arbitration. To keep it lean, abbreviated arbitration omits some of the procedures that make litigation and ordinary arbitration more expensive, though also more conducive to finding the truth. In particular, experts and dispositive motions are not permitted, discovery requires a showing of just cause, and any relevant evidence is admissible. The matter is heard by a single arbitrator in a one-day hearing that is held in person or by virtual means, and it is conducted either as an evidentiary hearing or on the documents. The award must be issued within 15 days after the hearing closes, and the entire proceeding must be kept private and confidential.

Conclusion

The AAPR should create more interest in arbitration as an ADR solution than existed under prior laws. While not all disputes are cut from the same cloth, an arbitration agreement that incorporates the ordinary or abbreviated procedures in the AAPR is capable of resolving disputes more quickly and efficiently than litigation. The careful planning and drafting of arbitration agreements remains essential. Sierra Lugo shows what turns on it: a clause that expressly delegated questions of scope and applicability carried the entire dispute – including a challenge to the formation of the contract itself – out of the courts and to the arbitrator. That was under the repealed 1951 Act; the AAPR now supplies the same allocation by statute. With the extensive procedures in the AAPR, the practitioner should consider whether or not to arbitrate under the auspices of an administration organisation, arbitrate solely under one of the chapters in the AAPR, or incorporate the AAPR to supplement the AAA rules, for example, in an ad hoc arbitration. Modelling the AAPR after the Uniform Revised Code and the FAA should lead to more predictability, more stability, and more acceptance of arbitration in the business and legal communities.