Generally speaking, arbitration has evolved as a private system of dispute resolution that tries to stay away from the control of domestic courts as much as possible. This so-called 'minimal intervention' principle is recognised in model laws and national statutes across the world.
Chile is no exception. Article 5 of Act 19,971, which governs international arbitration, establishes that local courts can intervene in arbitral proceedings only in limited situations. The Code of Civil Procedure, which regulates domestic arbitration, allows parties to arbitration to waive most of the procedural recourses contemplated by the law in order to avoid the intervention of the civil courts, except where the arbitrator commits a disciplinary fault or the award contains decisions on matters that are beyond the scope of the arbitrator's competence.
However, a recent decision of the Santiago Court of Appeal has limited the right for parties to waive procedural recourses and confirmed the power of local courts to intervene in arbitral proceedings where constitutional rights are at stake.
This decision was issued in the context of a domestic arbitration between Colbún SA and CGE Distribución SA, two major energy companies. The dispute was initiated by Colbún, which sought a declaratory award concerning the interpretation of different power purchase agreements and the effects of an administrative decree that fixed sub-transmission tariffs.
Once Colbún submitted its claim, CGE challenged the jurisdiction of the arbitrator, alleging – among other issues – that the dispute involved public affairs that must be decided by the governmental authority. The arbitrator denied this objection and continued with the proceedings.
CGE then filed a proposal to disqualify the arbitrator on the grounds that in his decision on jurisdiction, he anticipated his judgment on the merits. The arbitrator dismissed this proposal too.
CGE then requested leave to appeal, which was also rejected by the arbitrator on the grounds that the parties had waived the procedural recourses against his resolutions, including the decision on CGE's disqualification proposal. CGE challenged this decision, seeking the intervention of the Santiago Court of Appeal.
The court overturned the last resolution of the arbitrator and recognised CGE's right to seek its intervention on the disqualification incident, regardless of the parties' agreement to waive procedural recourses against the arbitrator's decisions. This judgment departs from a previous decision of the same court in which it reached the opposite conclusion (Cuerotexa SA v Banco de Chile, October 17 1994).
The Santiago Court of Appeal judgment underscores the precept that every litigant has the right to a fair trial before an impartial tribunal. This constitutional right cannot be limited by the private, consensual nature of arbitration. Therefore, although parties to arbitration can generally waive the procedural recourses contemplated by the law in order to avoid the intervention of the civil courts, this waiver has several limitations.
As explained above, in the context of domestic arbitration, Chilean doctrine and case law have established two circumstances in which court intervention is non-waivable:
- The arbitrator commits a disciplinary fault at rendering his sentence; or
- The award contains decisions on matters that are beyond the scope of the arbitrator's competence.
In these cases the affected party can always seek the intervention of the civil courts in order to amend or overturn the arbitrator's decision.
The recent judgment adds a third scenario: even if the parties agree that no recourse will proceed against the arbitrator's decisions, that agreement does not affect the right of a party to appeal before the competent court against an arbitral tribunal's decision regarding its own independence or impartiality. Therefore, if the arbitral tribunal dismisses a disqualification proposal, the requesting party can always seek the intervention of the court in order to revise that decision.
CGE's disqualification proposal is still pending before the Santiago Court of Appeal. Nevertheless, whatever the final decision, the case has set an important precedent that enhances the power of the national courts over arbitral proceedings where constitutional rights are at stake.
For further information on this topic please contact Francisco Gonzalez or Andrés Germain at Barros Letelier & González by telephone (+56 2 431 2700) or email ([email protected] or [email protected]). The Barros Letelier & González website can be accessed at www.blg.cl.
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