There are three key considerations relevant to drafting an arbitration clause for a cross-border contract with a Latin American party. First, account for procedural differences in relevant jurisdictions. Failure to do so may ultimately impair access to arbitration or frustrate procedural expectations. Second, select a place of arbitration that will pose the fewest obstacles to the proceedings and the enforceability of the award. Finally, where the contract will constitute a foreign investment for purposes of investment treaties, the transaction should be structured to ensure access to the protections of such treaties.
Tip 1: Account for national laws requiring mandatory submission agreements
Parties arbitrating in either Argentina or Brazil should account for the requirement of a "compromiso" (or post-dispute agreement to arbitrate).
In Argentina, the compromiso is mandatory in all cases and cannot be waived, even if the parties have a pre-dispute arbitration clause. Parties that provide for ICC arbitration satisfy the requirement of a compromiso through the Terms of Reference envisaged in ICC procedure,1 but courts have retained the ultimate authority to determine the content of this document in case of disagreement between the parties.2 The risk of judicial intervention is therefore inevitable in extreme cases, but the risk of procedural delays is diminished by agreeing to ICC arbitration, which sets forth specific timeframes to establish the Terms of Reference.
In Brazil, the "compromiso" is required only when the constitution of the tribunal is not regulated in a pre-dispute arbitration clause.3 To avoid this requirement, parties should either provide for a mechanism to appoint the tribunal in their arbitration clause, or refer to institutional rules that establish a default method for constitution.
Tip 2: Provide for application of the IBA Rules on the Taking of Evidence
A provision requiring arbitrators to apply the IBA Rules on the Taking of Evidence in International Commercial Arbitration (1999) ("IBA Rules") is one way to overcome different assumptions of parties regarding discovery. Procedural laws in Latin American countries typically do not allow for the common law practices of document discovery and cross-examination of witnesses, except under very limited conditions. In addition, Latin American arbitrators are usually not agreeable to strictly enforce a contractual provision for U.S.-style discovery or rules of evidence. The IBA Rules provide for document production (with certain limitations), and cross-examination, but have nonetheless gained widespread acceptance among Latin American arbitrators. They are regarded as offering satisfactory solutions for both civil and common law practitioners,4 and have been increasingly applied in arbitrations in the region. Parties from common law jurisdictions interested in preserving their rights to access documents held by the other side and/or to cross-examine witnesses, should therefore provide for the application of the IBA Rules in their arbitration clauses, particularly when they foresee that the tribunal in a potential dispute will likely include Latin American (civil law) arbitrators.
Seat of Arbitration
Central and South American countries remain largely untested as places to hold major cross-border arbitrations. Despite the rise in the number of Latin American arbitrations, statistics reflect that parties engaged in complex deals in the region still prefer to seat their arbitrations in one of the established centers (e.g., New York, Miami, London or Paris). The ICC, for example, heard approximately 110 Latin American cases annually between 2000 and 2005, and approximately 12% of its 2005 docket featured Latin American parties, but only about 20 cases per year had a Latin American place of arbitration. Of these, most were seated in Mexico City, Buenos Aires and Sao Paulo.
As the following set of tips will show, if a Latin American forum will be selected, the main aspect to consider is the attitude of the courts toward arbitration in the selected jurisdiction, both as to their intervention during the arbitration and the enforcement of awards. Parties should, of course, also factor in the location of assets of the other side for purposes of enforcement, as well as their own convenience, the location of potential witnesses and documents, and the availability of facilities (e.g., hotels, translators and stenographers).
Tip 3: Avoid, where possible, jurisdictions with a record of judicial interference during the proceedings
Judicial interference inevitably leads to added costs of local litigation and jurisdictional battles and poses a disadvantage for these jurisdictions as places of arbitration. The principal form of intervention in Latin America has occurred when courts, rather than arbitrators, decided on the validity of arbitration clauses. Most Latin American arbitration laws recognize the power of arbitral tribunals to rule on such issues (i.e., kompetenz-kompetenz), but courts in certain countries, including Brazil and Venezuela, have nevertheless stepped into the jurisdiction of arbitrators.
Within Brazil, courts in the States of Paraná and Rio Grande do Sul have displayed higher levels of intervention, particularly in relation to arbitrations against state entities. Two recent cases in Paraná involving the electric utility Copel began with injunctions against arbitrations held in Paris and Brazil, respectively.5 The first case is pending before an appellate court in that State, and the second injunction was reversed by that same court.6 Two other arbitrations against the Paraná gas utility Compagas and the Rio Grande do Sul electric company CEEE, were initially enjoined by courts in these states, but the stays were later overturned at the appellate level.7 By contrast, courts in the States of Sao Paulo and Rio de Janeiro have displayed a pro-arbitration stance, making these locales preferred places in which to hold an arbitration in Brazil.In Venezuela, the Supreme Court enjoined ICC proceedings conducted in Miami in the 2004 Four Seasons case. It held that parties could seek constitutional protection from the courts by challenging the validity of the arbitration clause, notwithstanding that the Venezuelan arbitration law codifies the kompetenz-kompetenz principle and that an arbitral tribunal had already ruled it had jurisdiction over the dispute.8 Other instances of intervention have stemmed from parties' disagreements as to the manner in which arbitrators or institutions managed the proceedings. Such was the case with the 2004 Yacyreta decision by an Argentine district court, which stayed an international ICC arbitration seated in Buenos Aires and opened the door to extensive litigation.9 The court found jurisdiction to decide on whether the Terms of Reference included all the necessary points of the dispute and whether the ICC had properly ruled on the respondent's challenges against the three members of the tribunal. Similarly, in July 2007, an Argentine appellate court ordered the suspension of an ICSID-administered ad hoc investment arbitration brought by National Grid Transco against Argentina, and found jurisdiction to hear a dispute concerning a challenge against an arbitrator.10
Tip 4: Avoid jurisdictions offering non-waivable means of recourse
The principal treaties on enforcement of arbitral awards, adopted almost without exception in Latin America,11 permit denial of enforcement where the award has been annulled or set aside in the country of issuance. Parties should therefore seek to limit the opportunities of challenge against their awards, and select a place of arbitration where appeals, and other means of recourse, are either not afforded or may be waived. This does not apply to the right to request the annulment of arbitral awards (as distinct from challenges to the award on the merits), because this right is typically not subject to waiver, either in or outside Latin America.
As has been observed recently, non-waivable challenges can bog down the enforcement of awards for years in court litigation. For example, Mexican law, which follows the UNCITRAL Model Law, formally allows only annulment actions, but a practice has developed whereby parties resort to "amparo" proceedings, seeking constitutional protection against adverse court rulings in such annulment cases. This practice has resulted in considerable extensions of post-award litigation.12 By contrast, both Colombian and Venezuelan courts have held that constitutional actions may not be used to challenge arbitral awards.13
Another example exists in Argentina, where procedural law allows for waivers of appeals in the compromiso, but the extent to which such waivers will be upheld has become unclear. In its June 2004 Cartellone decision, the Argentine Supreme Court held that waivers were invalid when issues of public policy are at stake.14 More recently, in the 2006 Cacchione case, the high court affirmed a waiver clause,15 but the survival of the public policy exception remains uncertain.
Tip 5: Avoid jurisdictions prone to annul or overturn arbitral awards
One of the most frequently used bases for the annulment of awards is the violation of public policy. To safeguard the integrity of their awards, parties should avoid jurisdictions where the concept of public policy is interpreted expansively, or where the standards for vacatur are comparatively easy to meet.
In Brazil, the highest civil court refused to enforce an award in an international arbitration seated in Brazil, finding that the absence of a written arbitral agreement is contrary to Brazilian public policy.16 As mentioned above, Sao Paulo and Rio de Janeiro courts have generally demonstrated a stronger commitment to arbitration. Among other cases, a Sao Paulo court refused to set aside an arbitral award issued in New York in the CAOA case, and a Rio de Janeiro court dismissed annulment proceedings based on the alleged failure of the parties to agree on the limits of arbitral jurisdiction in the arbitration clause (Doux case).17
In Argentina, the Cartellone decision appears to have expanded the bases to vacate awards in this jurisdiction. There, the Supreme Court stated that an arbitral award may be overturned if found to be "contrary to public policy, unconstitutional, illegal or unreasonable."18 This broad scope of review was coupled with the Court's invalidation, noted above, of the parties' waiver of appeals on public policy grounds.
Tip 6: Structure investments so as to gain access to the arbitral jurisdiction established by international investment treaties
Where a transaction will constitute a foreign investment under bilateral or multilateral investment treaties signed by the host state, investors should structure the transaction (and their dispute resolution provisions) to avail themselves of the rights offered by those treaties. Most investment treaties, for example, provide investors access to arbitration venues to resolve disputes with host states, including the International Centre for Settlement of Investment Disputes ("ICSID"), ad hoc arbitration (e.g., under UNCITRAL rules), or private institutions.
To gain access to treaty jurisdiction, investors must be located in a state that has signed an investment treaty with the host state, granting investors such access. Companies from countries that have signed few or no investment protection treaties (such as Brazil and Colombia) may obtain protection of their investments in other Latin American states or elsewhere by structuring their investments through other countries with which the host State signed such a treaty. If a contract is entered into with the host state or state-owned entity, the arbitration clause should preferably give the investor the option to refer disputes to arbitration under the relevant treaty or to an alternative arbitration forum. This will clarify at the outset that the parties did not intend to foreclose investment treaty arbitration in their dispute resolution clause.
If the investor wishes to gain access specifically to ICSID jurisdiction, it must either meet the location requirement mentioned above, or sign a contract with the host state (or state-owned entity) providing for ICSID arbitration. In the latter case, the parties should preferably also establish an alternative arbitration forum, in case ICSID jurisdiction is denied, which can happen if the parties do not meet other jurisdictional hurdles under the ICSID Convention (e.g., the definition of "investment"). The parties may establish that the specific consideration to be provided by the investor is deemed an investment for purposes of the ICSID Convention. Such a provision is advisable, but will not guarantee jurisdiction.
Host states that are not parties to the ICSID Convention may still consent to ICSID jurisdiction under the ICSID Additional Facility Rules, either in a treaty or by contract with the investor. Two of the main Latin American economies, Brazil and Mexico, are not parties to the ICSID Convention and Bolivia has recently announced its withdrawal.19 Arbitration clauses in investment contracts with these countries should refer to the Additional Facility Rules as well as an additional default forum and may provide that the ICSID Convention will apply if adopted by the host State after the contract is signed.