In international commercial arbitration, parties have the freedom to choose the governing law applicable to:
- the substance of their dispute;
- the arbitration agreement; and
- the arbitral proceedings.
In relation to the last point, it is important to remember that "[t]he choice of a procedural law of the arbitration does not refer to the local rules of civil procedure of the chosen state. Rather, the choice of a procedural law refers to the arbitration law (including the arbitration statute) of the chosen state."(1)
Nonetheless, parties sometimes try to apply domestic civil procedural rules to arbitration and argue that arbitral awards made in violation of these rules should be vacated for being contrary to public policy. Therefore, it is important to define the concept of public policy in matters of procedural law correctly, as happened in a recent Santiago Court of Appeals ruling (Ingeniería Proyersa Limitada v Steag GMBH, September 1 2016, Case 2685-2016).
Ingeniería Proyersa Limitada sought to set aside an arbitral award issued by arbitrator Juan Figueroa Valdés, which held that Steag GMBH had to pay the claimant $376.979 and rejected the rest of the claim.
The annulment action sustained that the arbitral award was contrary to public policy because it violated the due process principle by infringing the Civil Procedure Code.
In particular, the claimant argued that the arbitral award:
- exceeded the arbitrator's competence;
- was not a reasoned decision; and
- omitted essential evidence that left the claimant without proper defence.
The plaintiff based the last point on the fact that the arbitrator had admitted the testimony of the respondent's legal representatives, but rejected the possibility of summoning them under a procedure of questioning where:
- anything that they said in favour of the respondent would have been unusable; and
- anything that they said against the respondent would have constituted a binding confession.
Further, the claimant argued that the arbitrator had denied it the possibility of cross-examining the witnesses.
The Santiago Court of Appeals held that the concept of public policy is part of Chilean law's basic rules of justice and morality and cannot be assimilated into rules that internal procedural regulations establish to safeguard that a procedure is adjusted to domestic procedural law. Assimilating public policy with domestic procedural law would be contrary to the autonomy principle and the requirement of minimal court intervention, according to which courts can act only when violations are manifest, apparent or ostensible.
Therefore, the court concluded that the claimant's allegations were unfounded because the parties had established voluntarily that the arbitrator should decide which evidence was admissible and pertinent. Therefore, summoning the defendant's legal representatives as witnesses only and not under a procedure that would result in confessions could not be considered contrary to public policy.
As regards the allegation that the arbitral award was not a reasoned decision, the court indicated that the procedural grounds for annulment according to domestic procedural law could not be assimilated into the grounds established by the parties. Further, the court indicated that by merely reading the ruling, it was possible to detect the presence of a reasoning that sustained the decision. As such, the claimant's allegations were deemed to be unfounded and constituted an expression of his disagreement with the decision.
Finally, with regards to the allegation that the award exceeded the arbitrator's competence, the court established that, as the defendant had denied his own non-compliance with the contract, this proved that the arbitrator had not exceeded his competence when he analysed the nature of the parties' obligations for determining whether the defendant had complied with the contract.
This ruling constitutes a laudable exercise of demarcation. It shows that the concept of public policy cannot be assimilated with every procedural rule and requirement applicable to domestic litigation, and should thus deter future parties from trying to vacate arbitral awards by invoking possible conflict with the Civil Procedure Code.
Only fundamental and mandatory requirements of procedural fairness, which are common in the international arena, should be considered to be part of the concept of public policy and to prevail over the parties' freedom to agree on the arbitral procedures and the tribunal's discretion to adopt such procedures (ie, an absent contrary agreement).
Otherwise, arbitration may lose its international character, as local procedural rules would always undermine the parties' self-regulation and the principle of minimal court intervention. Further, as Gary Born has said:
"The imposition of local procedural code or detailed procedural requirements for international arbitrations would be in tension with Articles II and V (1)(d) of the [New York] Convention, which afford primacy to the parties' agreed arbitral procedures. That reflects the parties' presumptive desire for internationally-neutral arbitral procedures tailored to individual cases, rather than a generic procedural code derived from domestic litigation systems."(2)
Therefore, this judgment should be welcomed as a good precedent for Chilean jurisprudence.
For further information on this topic please contact Francisco Gonzalez or Javier Maturana at González & Rioseco Abogados by telephone (+56 228 400 400) or email ([email protected] or [email protected]). The González & Rioseco Abogados website can be accessed at www.gonzalezrioseco.cl.
(1) Born, Gary, International Arbitration: Law and Practice (Wolters Kluwer 2012) 112.