Referral of dispute to arbitration
On January 27 2011 the Commerce Code was modified to include a chapter entitled "Judicial Intervention in Commercial Transaction and Arbitration", which includes several provisions regarding judicial involvement in arbitration procedures. The effects of the revision are mainly procedural; its aim is to regulate the cases and circumstances in which judicial intervention is required. The revision was necessary, but many commentators have criticised the changes relating to injunctions.
The main changes introduced by the new chapter of the code are as follows.
Referral of dispute to arbitration
The code provides that referral to arbitration must be at the request of one of the parties. The request must be made in the first writ filed by the requesting party. The judge must decide on the matter immediately. If the decision is in favour of referral, the judicial procedure must be suspended, and must be concluded when the dispute is finally settled under the arbitration procedure. If the dispute is not settled in this way, any of the parties may request the judge to continue with the judicial procedure.
A judge can refuse a referral to arbitration only if:
- the arbitration agreement has previously been annulled by a court decision or arbitration award; or
- the annulment of the award or the impossibility of enforcing it is clear from the beginning.
The code states that the following matters are subject to voluntary jurisdiction:
- requests for the appointment of arbitrators;
- requests for judicial assistance in the presentation of evidence; and
- consultations regarding tribunal fees.
The code provides that a special trial procedure applies for:
- deciding on a challenge against the appointment of an arbitrator;
- deciding on the competence of the arbitral tribunal (when it is determined in a resolution other than an award on the merits);
- issuing injunctions;
- recognising and enforcing injunctions issued by an arbitral tribunal;
- annulling commercial transactions and arbitral awards; and
- recognising and enforcing arbitral awards, except when such recognition and enforcement is pleaded as a defence in a trial or other procedure.
Once the claim is accepted, the judge must notify the parties and grant them 15 days in which to file a reply. If no evidence is filed, and if the judge does not deem such evidence necessary, he or she will summon the parties to a hearing on the claim within three days of the term for filing a response; otherwise, an additional period of 10 days is allowed for filing evidence.
Once the hearing on the claim takes place, the judge will summon the parties to hear the decision. Intermediate resolutions and final decisions issued under this procedure are not subject to appeal.
Special trials regarding annulment, recognition and enforcement of arbitral awards can be combined before the hearing on the claim.
The code states that all injunctions ordered by an arbitral tribunal must be considered binding and must be enforced at the competent judge's request, unless the arbitral tribunal instructs otherwise.
A party that requests the enforcement of an injunction before a judge must give notice of the revocation, suspension or modification of the injunction.
A judge who is called on to rule on the recognition or enforcement of an injunction is entitled to request a guarantee from the requesting party.
Among other reasons, a judge may refuse the enforcement of an injunction for one of the reasons set forth in Article 1462 of the code for rejecting recognition of an arbitral award - namely:
- incapacity of one of the parties;
- failure to give notice of appointment of the arbitrators;
- an attempt to arbitrate a dispute that is not covered by the arbitration agreement; or
- an arbitration procedure or composition of the arbitral tribunal that is contrary to the agreement.
A judge may also refuse enforcement if:
- a guarantee requested by the arbitral tribunal has not been provided;
- the arbitral tribunal has revoked or suspended the injunction;
- the injunction is incompatible with the judge's judicial powers; and
- the enforcement of the injunction is contrary to legislation or public order.
The arbitral tribunal and the requesting party are liable for the injunction and any damages that it causes to the other party.
The amendments to the code include various issues that will expedite the arbitration procedure by clarifying the judiciary's scope of action. However, for all the positive changes, the provisions relating to injunctions represent a risk to the arbitral tribunal and the scope of its decision-making powers.
Members of an arbitral tribunal will be reluctant to grant an injunction if they are liable for damages caused to one of the parties by its enforcement. Some experts argue that the arbitrators will be protected by the internal rules of the arbitration institutions, which limit an arbitrator's liability. However, it is strongly arguable that the amendments regarding injunctions put arbitrators in a worse postition than before.
For further information on this topic please contact Luis Alberto Aziz Checa or Rebeca Sanchez Perez at SAI Abogados by telephone (+5255 59 85 6618), fax (+5255 59 85 6628) or email ([email protected] or [email protected]).