The Court of Appeals recently issued a groundbreaking decision on the application of arbitrability provisions of the new Civil and Commercial Code. The court considered the arbitration agreement in a consumer contract to be null and void pursuant to the exclusions in Section 1651 of the new code.

Background

The new Civil and Commercial Code that entered into force in Argentina as from August 2015 has had a major impact on the legal system and legal practice. The significance of this legislative reform is that – like most Latin American countries – Argentina is a civil law jurisdiction and thus the legislature is paramount, while the role of courts is reserved to the interpretation and scope of the law in a specific case.

The new code introduces federal provisions on arbitration agreements not previously addressed by the civil and commercial codes that preceded this comprehensive novel corpus. Up to now, arbitration in Argentina was legislated by the local procedural codes of each province and the Federal Code of Civil and Commercial Procedure. Thus, Argentina has followed the example of many other countries by enacting national regulations on arbitration.

Among the innovative rules, Section 1651 of the new code regulates on arbitrability. The code explicitly excludes from arbitration agreements disputes relating to:

  • the civil status or capacity of persons;
  • family matters;
  • users and consumers;
  • standard form contracts;
  • labour law; and
  • Federal State or local states parties.

Section 1649 also introduces a controversial provision under which private law issues that compromise public policy are not arbitrable.

In this context, the Court of Appeals in Civil Proceedings recently issued a groundbreaking decision in Blanco Rodriguez v Madero Urbana,(1) which addressed the application of the new code's arbitrability exclusions to an agreement made before the code came into effect.

Facts

In 2011 Maria de las Mercedes Blanco Rodriguez and Madero Urbana SA – a real estate developer – entered into a property sales agreement for an apartment located in an upscale neighbourhood in Buenos Aires.

Section 9 of the property sales agreement included a multi-tier dispute resolution clause according to which any controversy that could arise in connection with the interpretation or performance of the contract would be submitted to arbitration under the rules of local arbitration institutions.

However, a disagreement between the parties arose and Blanco Rodríguez initiated proceedings before the state courts with territorial jurisdiction on the basis that the arbitration clause agreed with Madero Urbana was void. The claimant sought for the specific performance of the property sales agreement plus damages.

To that extent, Blanco Rodriguez first held that the property sales agreement involved a consumer relationship and should thus be governed by the relevant laws on that matter. The claimant alleged that the arbitral agreement constituted a standardised clause and had been imposed by the party of superior bargaining strength. Further, Blanco Rodriguez alleged that the displacement of the natural forum to hear the dispute (ie, the state courts) implied a more cumbersome proceeding to the detriment of the consumer. The claimant concluded that the arbitration clause was unfair and should be declared invalid in accordance with the Consumer Protection Act.

Madero Urbana rejected Blanco Rodriguez's claim and raised an objection regarding the court's jurisdiction on the basis of the existence of the arbitration clause. It did not dispute the application of the Consumer Protection Act but stood up to the validity of the arbitration agreement and argued that Blanco Rodriguez would suffer no specific damage from the application of the clause.

First-instance decision

In March 2015 – a few months before the new Civil and Commercial Code came into effect – the first-instance court handed down its decision on Madero Urbana's objection as to the court's lack of jurisdiction.

The court affirmed that any dispute may be arbitrable unless it was related to matters that cannot be subject to transaction under the Federal Code of Civil and Commercial Procedure – which constituted the only relevant guideline on arbitrability at that time.

Following this clarification, the court found that the arbitral clause contained in the property sales agreement was valid, as it did not undermine Blanco Rodriguez's access to justice. Therefore, it concluded that the dispute between the parties should be settled through the agreed arbitral proceedings.

Court of Appeals decision

On November 2015 the Court of Appeals in Civil Proceedings upheld Blanco Rodriguez's appeal and overturned the first-instance decision that denied the state court's lack of jurisdiction.

The Court of Appeals held at the outset that the application of the Consumer Protection Act to Blanco Rodriguez's claim was indisputable, as the issue had been addressed by the first-instance decision, which had not been challenged by Madero Urbana's appeal.

The court referred to the temporary application of the Civil and Commercial Code which had been in force since August 2015. To this end, the court merely quoted a fragment of the general transitional rule contained in Section 7 of the code which states, in part, that "as from its entry into force, the laws apply to the consequences of existing legal relationships and situations".

That said, the Court of Appeals noted that pursuant to Section 1651 of the new code, matters involving the rights of consumers were not arbitrable. Based on this provision, the court ruled that the arbitration clause contained in the property sales agreement was invalid. Therefore, the court ordered that the dispute be settled before the state courts and not before an arbitration tribunal, as agreed in the property sales agreement.

Comment

Typically, a legislative change of the new code's significance would provide a set of specific rules – whether in the new code itself or in a separate act – to resolve the conflicts that may arise from the transition from the old to the new legal regime. A clear example of this type of rules (ie, transitional or intertemporal law) can be found in the Quebec Civil Code of 1994, whose implementation act contains approximately 170 sections on transitional issues.

In contrast, the Argentine Civil and Commercial Code contains only a single generic standard regarding the application of the new law to existing legal relations or situations – Section 7 – and two other provisions specifically for statute of limitations and legal separation cases.

Therefore, some legal authors have argued that the regulation on temporary application of the code contains gaps that courts will have to fill when analysing each case submitted. This decision is yet another example in that regard.

The Court of Appeals' ruling in Blanco Rodriguez did not expand on its reasons for applying the new code to an agreement made before the new code's entry into force. However, it could be inferred that the court relied on the last paragraph of Section 7 – although it was not explicitly quoted in the ruling. According to this provision, the new code will not govern ongoing agreements, except for new public policy rules and those supplementary rules that are more favourable to consumers. It is therefore possible that the Court of Appeals may have considered that the arbitrability provisions contained in the new code were immediately applicable to the arbitration clause in the property sales agreement on the grounds that such provisions constitute public policy rules or that – despite being supplementary rules – they were more favourable to Blanco Rodriguez.

Finally, another possible explanation for the Court of Appeals' decision could rely on the well-established Supreme Court case law, according to which procedural rules are immediately applicable to ongoing proceedings. Under this approach, the court may have considered that the arbitrability provisions of the new code regulate – at least, indirectly – competence issues and, therefore, constitute rules of a procedural nature.

For further information on this topic please contact Ricardo Ostrower or Martin Vainstein at Marval O'Farrell & Mairal by telephone (+54 11 4310 0100) or email (rao@marval.com ormvai@marval.com). The Marval O'Farrell & Mairal website can be accessed at www.marval.com.ar.

Endnotes

(1) First-instance Court in Civil Proceedings 104; Court of Appeals in Civil Proceedings, Chamber F, Blanco Rodriguez, María de las Mercedes v Madero Urbana SA s/ Cumplimiento de contrato (Case 71416/2014).

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