The Santiago Court of Appeals has upheld the applicability of Chile's law on international commercial arbitration (Law No. 19,971, the "International Arbitration Law"). Relying on an analysis of retroactivity rules, the court held that the International Arbitration Law (enacted in September 2004 and based on the UNCITRAL Model Law on International Arbitration) governs the procedure of disputes arising from contracts executed prior to its enactment, confirming at the same time the limited role of judicial courts in the conduct of arbitral proceedings. See D'Arcy Masius Benton & Bowles Inc. (Chile) Ltda. c. Otero Lathrop Miguel, Recurso de Hecho, Rol No. 865-2000, Corte de Apelaciones de Santiago, Primera Sala, 25 May 2006.
The parties had entered into a share purchase and shareholders agreement on May 12, 1996. The agreement contained an arbitration clause, and sometime after the enactment of International Arbitration Law, the parties submitted a dispute to arbitration. On December 26, 2005, the arbitrator ruled that, given that one of the parties was domiciled in Paris, France (both at the time of the contract and at the time of the dispute), the arbitral procedure should be governed by the International Arbitration Law. D'Arcy Masius Benton & Bowles Inc. (Chile) Ltda. ("DMB&B") requested the arbitrator to reconsider and filed alternatively for an appeal. The arbitrator denied both petitions and DMB&B challenged that denial before the Santiago Court of Appeals.
DMB&B argued that pursuant to the Law on the Retroactive Effect of the Laws (Ley de Efecto Retroactivo de las Leyes, or "Retroactivity Law"), legal provisions effective at the time of execution of a contract should be deemed to be incorporated in such contract. Thus, reasoned DMB&B, the arbitration should be governed by the laws in force at the time of execution of the agreement. However, the Santiago Court of Appeals upheld the arbitrator's decision, pointing out that the very same Retroactivity Law provided that laws related to the filing of claims or to the conduct of judicial proceedings are effective immediately and are excepted from the rule cited by DMB&B (although procedural deadlines and judicial acts already commenced are subject to the laws in force at the time of their commencement). In the court's view, only substantive legal provisions should be deemed incorporated to contracts and should prevail over laws enacted after the contract's execution; procedural laws, on the other hand, should not be deemed incorporated to contracts and therefore new laws governing procedure should prevail. The court held that the International Arbitration Law is procedural in nature and therefore it should apply to all international arbitration proceedings from the date of its entry into force.
The court also confirmed that the role of domestic courts in international arbitration proceedings is limited. Citing Article 5 of the International Arbitration Law (which mirrors Article 5 of the UNCITRAL Model Law), the court emphasized that regarding matters governed by the International Arbitration Law, court intervention in arbitral proceedings is limited to the situations specifically provided in that law. Accordingly, the court held that the decision issued by the arbitrator was not subject to appeal and therefore the challenge brought by DMB&B should be rejected.
The court's unequivocal decision suggests that Chilean courts may be likely to uphold Chile's new international arbitration framework when their intervention is sought in arbitral proceedings.