CHAPTER 17 COMMERCIAL ARBITRATION IN LATIN AMERICA (ENGLISH VERSION)

• Jurisdiction: United States

Mineral Development in Latin America
(Nov 1997)
CHAPTER 17
COMMERCIAL ARBITRATION IN LATIN AMERICA (ENGLISH VERSION)
Antonio Ortúzar V.
Cruzat, Ortúzar & MacKenna / Baker & McKenzie
Santiago, Chile

1. Overview

Arbitration is an institution of great usefulness in diverse areas of the law and it is precisely in the commercial area, both national and international, that arbitration reaches its greatest development. This is not surprising, as commercial exchange has expanded significantly worldwide through the years, transforming the different countries into members of this "global village" where most economies, if not all of them, are based on the commercialization of assets granting favorable advantages to its members. If we consider the number of business transactions made in one minute in the world, we will understand the need of having procedures, resources and agencies which are quick to react and highly specialized in order to resolve the eventual flood of conflicts that may arise between parties when they see no clear answer in the text of their agreements. Arbitration is sure to be seen as one of the most effective means of resolving the controversies and disputes resulting from the growing commercial exchange between countries.

Arbitration is defined as "that chosen by the parties by mutual agreement or by injunction and which is carried out before special tribunals different from the ones established permanently by the country, elected by the interested parties themselves or by the judicial authority in subsidy, or by a third person in a specific situation". International commercial arbitration ("ICA") is not defined by Chilean law, but doctrine provides "that arbitration which resolves a conflict of international trade, that is, of the exportation or importation of merchandise, goods, services, technology, etc."

To have ICA, there must be:

— A juridical relationship of a commercial nature which contains elements of international relevance, such as the nationality of the parties, their domicile, place of execution of the agreement, among others.

— A controversy, litigation or conflict as a result of such juridical relationship.

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In addition, three fundamental requirements must be fulfilled in order to submit a conflict to ICA.

1. Arbitrality

2. Commercial nature of the difference

3. International nature of the controversy

Arbitrality implies that the discussion subject must be susceptible to agreement in conformity with the law of the country with jurisdiction, namely, that the public order of such country does not prevent that a specific issue be subject to ICA. If that is the case, both the recognition and the enforcement of the arbitral ruling could be rejected by the country whose law was violated. This principle was established in the 1958 New York Convention and the 1975 Panama Convention, both signed by the Republic of Chile.

With respect to ICA being restricted solely to commercial issues, "such limitation may give rise to difficulties, not only because it sets a specific field for private arbitration but because the commercial concept is neither absolutely accurate nor standard". Thus, some existing commercial laws do not coincide with what the line separating commercial from non-commercial would be. Another conflict which arises from such laws is that certain issues, such as foreign investment and transfer of technology, can not be withdrawn from the national jurisdiction and, therefore, cannot be subject to ICA. An example of this can be seen in Chile, where there are restrictive norms regarding the submission to international jurisdictions in specific agreements entered into with Chile, agencies or other entities thereof, as described in Decree Law No.2349 of 1978.

With respect to the international nature of the agreement and the determination of whether such requirement has been satisfied, we can point out that there are broad and limited rules, depending on the various factors involved, such as the nationality and domicile of the parties, place of execution of the agreement and place of performance of the main provisions of the agreement, among others.

2. Evolution of ICA

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ICA is a rather recent phenomenon which originated from the social changes undergone in our countries during the last years, politically and economically.

In the past, Latin American countries were parties to the Calvo Doctrine, a theory that favored the exclusive jurisdiction of the national courts in the case of conflict between the international contracting parties. In virtue of the existence of this provision in foreign investment contracts, the parties were obliged to resolve the conflicts in the jurisdiction of the country where the investment was made. This situation hindered the foreign investor from requesting, in any form, the jurisdictional protection of its own country, putting the foreign investor at a disadvantage to the country where the investment was made. Political and economic reforms which have taken place recently in Latin America and the obvious disadvantage of the Calvo provision to encourage investments in certain countries, have prompted the slow abandonment and consequent disuse of the Calvo provision.

The economic opening of foreign investment and commercial exchange experienced by most countries in Latin America in the last 20 years have prompted the need to create a private system for the resolution of international disputes. This not only for the convenience of granting foreign investors more favorable alternative solutions, safe and flexible for the possible conflicts, but also because of the fact that the national judicial institutions are usually overloaded, both in the number of cases they have to resolve and in the complexity that certain matters involved.

All this has generated in the last decades the creation of alternative dispute resolutions ("ADR") such as arbitration, mediation and subscription by various countries of covenants and agreements of promotion and protection for foreign investment, as an additional safeguard for foreign investors.

3. ICA Sources

The main sources of ICA are, inter alia, provisions of law and arbitration agreements.

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The law encompasses not only the internal law provisions which authorize the arbitration, but also the international treaties and conventions, be they of a bilateral or multilateral nature, that once approved by the countries in accordance with their respective constitutional mechanisms also become part of the internal law of the ratifying country. This is the case, for example, in the promotion and protection agreements of foreign investments between certain countries, which expressly stipulate the subjects that may be submitted to arbitration and the corresponding arbitration centers.

Another source is the arbitration agreement or covenant. This convention may have two forms. The first, such arbitration covenant which is included in an agreement whereby the parties agree that all controversies and disputes under such agreement shall be submitted to arbitration, whether of one or more arbitrators designated by the parties therein or thereafter, or of an arbitral institution, which arbitration shall be carried out pursuant to the rules governing said institutional arbitration. This type of convention is known as the "cláusula compromisoria". On the other hand, the so called compromise or "submission agreement" is convened after the conflict between the parties has ocurred, the parties having agreed to resolve such conflict through arbitration.

Despite the foregoing, it is important to note that the autonomy of the parties to submit the solution of their conflicts to a special jurisdiction, will be effective insofar as the laws of the countries involved authorize the execution of this type of international arbitration agreements.

It should be noted that arbitration agreements can include not only those entered into by private individuals, businessmen or industrialists, but also those agreements entered into by the country or other entities thereof.

4. ICA Rating

There are...