Globalized Americas
P U B L I C A T I O N S
Developments in Latin American Arbitration
Jonathan C. Hamilton, et al., “Developments in Latin American Arbitration Law,” Transnational Dispute Management (2009)
This article provides an overview of selected developments in Latin American arbitration law. It summarizes the arbitral framework across each Latin American jurisdiction, both with respect to commercial and investment arbitration. It examines recent events in Latin American commercial arbitration, including the passage of new arbitration statutes in the Dominican Republic and Peru, and the impact of commercial arbitration in Mexico. It then discusses developments in Latin American investment arbitration.
The field of Latin American arbitration has become increasingly dynamic over the past year. On one level, Latin America continues to experience growth in commercial arbitration, as reflected, for example, in the volume of Latin American parties to International Chamber of Commerce (“ICC”) proceedings. At the same time, certain Latin American states have taken steps to limit their exposure to investment arbitration.
This Article provides an overview of selected developments in Latin American arbitration law. Part I presents the Compendium of Latin American Arbitration Law 2009, a table which summarizes the arbitral framework across each Latin American jurisdiction, both with respect to commercial and investment arbitration. Part II examines recent events in Latin American commercial arbitration, including the passage of new arbitration statutes in the Dominican Republic and Peru, and the impact of commercial arbitration in Mexico. Part III discusses developments in Latin American investment arbitration.
I The Compendium of Latin American Arbitration Law 2009
The evolution of the legal and treaty framework for Latin American arbitration law is set forth in the Compendium of Latin American Arbitration Law, which is depicted in Diagram 1.[1] The Compendium tracks the progress of commercial and investment arbitration in 18 Latin American states.
With respect to commercial arbitration, the Compendium reflects the enactment of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”)[2] and the 1975 Inter-American Convention on International Commercial Arbitration (the “Panama Convention”)[3] throughout Latin America. The Compendium also notes the year in which each state adopted and/or amended its domestic arbitration law.
In the area of investment arbitration, the Compendium tracks the enactment of the International Centre for Settlement of Investment Disputes’ (“ICSID”) 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”).[4] The Compendium also notes the number of bilateral investment treaties (“BITs”) and free trade agreements (“FTAs”) currently in force in each jurisdiction. Most recently, the Compendium reflects the decision by certain states in the region to denounce or terminate certain treaties, effectively attempting to deconstruct the legal framework for arbitration.
II. Commercial Arbitration
The use of commercial arbitration in Latin America has increased over the past 15 years. To keep up with this pace, Latin American states have passed new arbitration statutes throughout this period. These changes are reflected in the Compendium. Today, arbitration considerations impact policy decisions throughout Latin America.
This section surveys certain recent developments in Latin American commercial arbitration, including: (A) arbitration institutions; (B) arbitration laws; and (C) other treaties.
Arbitration Institutions
The growth of commercial arbitration in Latin America is reflected in statistics published annually by the ICC.[5] Since 1997, approximately 7.8 percent of parties to ICC arbitrations have been Latin American (1,394 out of 17,977 parties). Additionally, the percentage of Latin American parties involved in ICC arbitrations has grown by nearly a third between 1997-2002 (6.6 percent of all ICC parties) and 2003-2008 (8.7 percent of all ICC parties).
Strong growth can also be observed in individual Latin American countries. For this exercise, one need only examine the six countries which, since 1997, have accounted for over 80 percent of Latin American parties to ICC arbitrations – i.e., Argentina, Brazil, Chile, Mexico, Panama and Venezuela. As reflected in Diagram 2, all but two of these countries (Panama and Venezuela) have seen an increase in the number of parties to ICC arbitrations as between 1997-2002 and 2003-2008. Moreover, in two of these countries (Brazil and Chile), the number of parties to ICC arbitrations has more than doubled over these same periods.
As further reflected in Diagram 2, Brazil and Mexico have seen particularly strong growth in commercial arbitration. In this respect, Mexico has produced more parties to ICC arbitrations than any other Latin American country (a total of 372 parties between 1997-2008). Brazil, meanwhile, has seen the highest growth rate in the region in terms of the number of parties to ICC arbitrations as between 1997-2002 and 2003-2008 – i.e., roughly 140 percent over these periods. As additional proof of the importance of commercial arbitration in Mexico, the International Centre for Dispute Resolution (“ICDR”) of the American Arbitration Association (“AAA”) maintains an office in Mexico City.[6]
The predominance of parties from Brazil and Mexico in international commercial arbitration proceedings may be attributable to the fact that neither jurisdiction is a party to the ICSID Convention.[7] Accordingly, aggrieved parties from both countries – as well as foreigners doing business in these jurisdictions – often resort to commercial arbitration to resolve their disputes. Nonetheless, Brazil and Mexico are both parties to the Panama and New York Conventions, with domestic courts that regularly recognize and enforce foreign arbitral awards.[8]
As evident from the Compendium, Mexico ratified the Panama Convention in 1978.[9] Mexico had ratified the New York Convention even earlier – in 1971 – and was in fact the second Latin American state to adopt this agreement.[10] Mexico passed its current arbitration law in 1993, which is largely based on the Model Law on International Commercial Arbitration drafted by the United Nations Commission on International Trade Law (the “UNCITRAL Model Law”).[11] Moreover, Article 133 of Mexico’s Constitution provides that the Panama and New York Conventions constitute “the Supreme Law of the State,” placing them above Mexican federal law.[12]
Unlike Mexico, Brazil did not ratify the Panama Convention until 1995, and the New York Convention until 2002.[13] Brazil’s Arbitration Act dates from 1996, and allows Brazilian courts to refuse the recognition and enforcement of foreign arbitral awards on largely the same grounds contained in Articles IV(1) and V of the New York Convention.[14] Brazil’s arbitration law was upheld by the Brazilian Supreme Court in 2001.[15]
B. Arbitration laws
The Dominican Republic and Peru enacted new domestic arbitration statutes in 2008, both of which are fashioned after the UNCITRAL Model Law.[16] In addition, Mexico has adopted new regulations for its stated-owned petroleum company that consider arbitration.
1. Dominican Republic
In the Dominican Republic, the adoption of a modern arbitration law (Ley No. 489-08) represents an effort to replace the prior regime contained in the Code of Civil Procedure.[17] The new law complies with the country’s international treaty obligations, including under the New York Convention which was enacted by the Dominican Republic in 2002.[18] In particular, Articles 9(4) and 42 of the new law establish that international treaties govern the enforcement of both: (1) awards rendered in the Dominican Republic but enforced abroad; and (2) awards rendered abroad but enforced in the Dominican Republic.
Article 9(6) of the new law provides that the enforcement of foreign arbitral awards shall be determined by Dominican Courts of First Instance located in the Distrito Nacional, whose orders shall have effect throughout the country. The procedure for the recognition and enforcement of arbitral awards is further outlined in Chapter VIII of the new law. In particular, Article 45(1) contains the grounds for non-recognition of arbitral awards in the Dominican Republic – irrespective of the country of issuance – which closely follow the grounds established in Article 36(1) of the UNCITRAL Model Law and Article V of the New York Convention.
The new law deems arbitration agreements in international cases valid as long as they meet the requirements of the jurisdiction specified by the parties, that is applicable to the controversy, or as established under Dominican law (Article 10(5)). Moreover, the statute limits the authority of Dominican courts over matters subject to arbitration. In this regard, Article 12(1) requires courts to declare themselves “incompetent” when faced with matters covered by an arbitration agreement. Additionally, Article 20 of the new law adopts the principle of kompetenz-kompetenz which allows arbitral tribunals to rule on their own jurisdiction, including determinations as to the existence and validity of the arbitration agreement.
The new statute additionally provides for interim relief by both Dominican courts and arbitral tribunals. In this regard, Article 9(3) allows interim measures to be adopted by courts located in the place where the award will be enforced or, alternatively, where the measures will have effect or where the goods affected by such measures are located. At the same time, Article 21 permits arbitral tribunals to order provisional measures upon the request of one of the parties to the arbitration.
2. Peru
Peru’s new arbitration statute (Decreto Legislativo No. 1071) entered into force on September 1, 2008, replacing the country’s prior 1996 General Arbitration Law (Ley No. 26572).[19] However, Peru’s 1996 law was already a modern statute based on the 1985 UNCITRAL Model Law. Thus, rather than being entirely novel, the 2008 law builds upon Peru’s experience with arbitration over the past decade, and also takes into account the 2006 amendments to the UNCITRAL Model Law.[20] This section examines the main features of the new statute – some of which were already present in the 1996 law.
In accordance with Peru’s international treaty obligations, Article 74 of the new law provides that foreign arbitral awards shall be recognized and enforced in accordance with: (1) the New York Convention, enacted by Peru in 1988;[21] (2) the Panama Convention, enacted by Peru in 1989;[22] and (3) any other convention on recognition and enforcement of arbitral awards to which Peru is a party. In the case of discrepancies between these agreements, the new law seeks to enforce foreign awards to the maximum extent possible, providing that – except where the parties have otherwise agreed – “the applicable treaty shall be that most favorable to the party who seeks the recognition and enforcement of the foreign award.”[23] Additionally, the new law contains a Complementary Provision (No. 14) expressly providing that the enforcement of awards rendered in investment treaty arbitrations administered by ICSID shall be in accordance with the 1965 ICSID Convention.
Under Articles 76 and 77 of the new law, the recognition and enforcement of foreign arbitral awards in Peru is designed as a two-step process where courts first recognize an award in whole or in part and then order its enforcement. Article 75(2) and (3) of the statute follows the grounds for non-recognition contained in Article 36(1) of the UNCITRAL Model Law and Article V of the New York and Panama Conventions. Pursuant to its terms, Article 75 shall apply: (1) when there is no applicable international treaty; or (2) when there is an applicable international treaty but the law itself is more favorable to the party seeking recognition of the foreign arbitral award, taking into account the prescription periods provided under Peruvian law (Article 75(1)).
The 2008 law further affords parties to arbitration proceedings autonomy to determine issues such as the selection of arbitrators and the applicable procedural rules. In this respect, Article 23 allows the parties to determine the procedure for naming arbitrators, failing which such appointments shall be made in international cases by either the Chamber of Commerce located in the place of arbitration, or by the Lima Chamber of Commerce. Article 34 allows the parties to determine the procedural rules they wish to govern the arbitration. In the absence of such a determination or an otherwise applicable procedure, the arbitral tribunal shall determine the rules it deems most appropriate in light of the circumstances of the case.
Peru’s new arbitration law also allows interim relief to be ordered judicially (Article 8(2)) or by the arbitral tribunal (Article 47). At the same time, the Peruvian statute contains detailed provisions in Article 47 clarifying that judicial measures should be sought before the arbitral tribunal is constituted. Indeed, once a tribunal exists, it has the discretion to “modify, substitute and leave in effect” such measures (Article 47(6)).
Other features of Peru’s new arbitration statute include: (1) the ability of the arbitral tribunal to decide the controversy in either a single award or as many partial awards as it deems necessary (Article 54); and (2) the extension of the arbitration agreement to include non-parties who actively participate “in the negotiation, celebration, execution or termination” of the contract containing the arbitration agreement or to which the agreement is related, or who “derive rights or benefits” from the contract (Article 14). Finally, the new Peruvian law also adheres to the principle of kompetenz-kompetenz, providing that “[t]he arbitral tribunal is the only one competent to decide its own competency, including as to exceptions or objections to the arbitration relating to the inexistence, nullity, annulability, invalidity or inefficacy of the arbitration agreement... “ (Article 41(1)).
In conclusion, the new arbitration laws enacted in 2008 in the Dominican Republic and Peru serve as positive developments for international arbitration in both jurisdictions.
3. Mexico [24]
The legal framework of the Mexican public entity Petróleos Mexicanos and its subsidiaries (collectively and indistinctively “PEMEX”), which controls the Mexican oil industry, was amended in November 2008. These changes were the result of long and intense discussions between the main political actors in Mexico. Following is a brief summary of the effect of the amendments with respect to PEMEX’s ability to enter into arbitration agreements.
In connection with arbitration agreements, it is important to consider that Mexico is a signatory of many international treaties concerning arbitration, including both the New York and Panama Conventions, and has a domestic arbitration statute that largely follows the UNCITRAL Model Law.[25]
Before the amendments were passed by the Mexican Congress, Article 14 of PEMEX’s Organic Law (Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios or the “Organic Law”), provided that PEMEX had the full capacity to enter into arbitration agreements or include arbitration clauses in any kind of agreements, whether domestic or international.
As a result of the recent amendments, the Organic Law was superseded by the Law of PEMEX (Ley de Petróleos Mexicanos or the “PEMEX Law”), which in Article 72 confirmed the rule provided under the Organic Law, permitting PEMEX to consent to arbitration. Furthermore, the Law Implementing Article 27 of the Constitution in the Oil Sector (Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo or the “Oil Law”) separately introduces a new rule with respect to PEMEX’s arbitration agreements.
In particular, Article 6, paragraph 2, of the Oil Law provides that:
Petroleos Mexicanos [i.e., PEMEX] shall not consent, in any case, to foreign jurisdictions in respect of controversies related to contracts for works and services in the national territory and in the areas where the Nation exercises sovereignty, jurisdiction, or competence. Contracts may include arbitral agreements in accordance with Mexican laws and international treaties to which Mexico is a party.[26]
As to the first sentence in this provision, it bears noting that the meaning of “foreign jurisdictions” is not spelled out. Traditionally, the concept of “foreign jurisdictions” has been understood as referring to foreign courts. Therefore, we consider that this first sentence provides the rule that all controversies related to contracts for works and services in the national territory will be subject to the exclusive jurisdiction of the Mexican courts.
Notwithstanding the above, PEMEX’s capacity to enter into arbitration agreements does not seem to be affected. Indeed, the second sentence of the new regulations provides that arbitration agreements are permissible in contracts, in accordance with Mexican law and international treaties to which Mexico is a party.
In sum, the new amendments to PEMEX’s legal framework do not restrict its capacity to enter into arbitration agreements related to contracts for works and services in Mexican territory. Furthermore, pursuant to the Oil Law, the place of arbitration may be located in a foreign country, although the current practice of PEMEX is to choose Mexico as the exclusive place of arbitration.
C. Other Treaties: Choice of Court[27]
One of the key reasons for the growth of commercial arbitration in Latin America has been the widespread acceptance of international treaties such as the New York and Panama Conventions. Historically, there has been no similar instrument in the litigation arena. Recently, however, the Hague Convention on Choice of Court Agreements (the “Convention”) has garnered additional support, signaling a possible trend that may impact international disputes.
On January 19, 2009, the United States became the second signatory to the Convention.[28] Following the lead of the United States (“US”), the European Community (“EC”) on April 1, 2009 became the third signatory to the Convention. The Convention aims to promote international trade and investment through uniform rules governing exclusive “choice of court”[29] agreements between parties to commercial transactions and the recognition and enforcement of judgments resulting from proceedings based on such agreements.[30] To date, only Mexico has acceded to the Convention[31] and commentators have often questioned whether the treaty will fail for lack of interest. With the signatures of the US and the EC, however, the Convention is one step closer to entering into force.[32] Moreover, the renewed interest of the US and EC in joining the Convention may provide incentive for other states to follow suit.
a. Purpose and Scope
The Convention aims to reassure contracting parties that where they agree upon an exclusive court to hear potential business disputes arising between them, that agreement and the resulting judgment will be recognized and enforced internationally As noted, there has been no international treaty framework for litigation that accomplishes this.[33] Mexico and the US, for example, have enforced each other’s judgments based on international comity alone. The enforceability of judgments has therefore been varied and uncertain, leading many parties to choose to arbitrate international disputes rather than to take their chances with domestic courts. The Convention seeks to provide certainty as to the enforcement of litigation judgments.
The Convention applies to international civil or commercial cases where the parties have entered into an exclusive choice of court agreement.[34] An “exclusive choice of court agreement” is an agreement between two or more parties that designates the courts (or one or more specific courts) of one Contracting State for the purpose of deciding disputes which may arise in connection with the parties’ legal relationship.[35] Under this definition, a court will presume that the contractual designation of the courts of one Contracting State is exclusive, unless the parties expressly provide otherwise.[36] The choice of court agreement must be concluded or documented in writing or by any other means of communication that makes the information usable for subsequent reference (e.g., e- mail).[37]
The Convention defines an “international” case differently for purposes of jurisdiction and for purposes of enforcing judgments. For the provisions relating to jurisdiction (Chapter II of the Convention), a case is “international” unless the parties are residents of the same state and both their relationship and the elements of their dispute only involve that state.[38] To come within Chapter II of the Convention, the parties cannot choose a court in a foreign state as their “chosen court.”[39] For purposes of recognition and enforcement of judgments (Chapter III of the Convention), the case is “international” as long as the judgment was rendered in a court of one Contracting State and is sought to be enforced in a court of another Contracting State.[40]
The Convention excludes certain subject matters. For example, the Convention does not apply to choice of court agreements entered into by consumers or relating to employment contracts.[41] Other areas outside the scope of the treaty include: personal injury, torts arising outside of contract, carriage of passengers and goods, insolvency, certain maritime issues, antitrust and competition, some intellectual property rights, family law, wills and succession and arbitration.[42]
b. Jurisdiction
Chapter II of the Convention governs the obligations of courts of Contracting States selected in an exclusive choice of court agreement (so-called “chosen” courts) and courts of Contracting States not selected under such agreements but seized with the matter (so-called “seized” or “non-chosen” courts) with respect to jurisdiction. First, Article 5 gives a chosen court jurisdiction to decide disputes arising out of a choice of court agreement, unless the agreement is null and void under the chosen state’s laws.[43] The chosen court is likewise prohibited from declining to exercise its jurisdiction on the basis that a different forum would be more appropriate. In addition, Article 6 instructs non-chosen courts to dismiss or suspend proceedings to which an exclusive choice of court agreement applies unless: (1) the agreement is null and void under the law of the state of the chosen court; (2) a party lacked capacity to assent to the agreement under the law of the state of the seized court; (3) enforcing the agreement would be manifestly unjust or contrary to public policy of the state of the seized court; (4) the agreement cannot be reasonably performed for exceptional reasons outside of the parties’ control; or (5) the chosen court has decided not to hear the case.[44]
c. Recognition and Enforcement of Judgments
Under Chapter III of the Convention, Contracting States must recognize and enforce judgments given by chosen courts.[45] When faced with a request for recognition or enforcement, the non chosen (or “requested”) court cannot review the merits of the judgment given by the court of origin and is bound by the findings of fact on which the chosen court based its jurisdiction, unless the judgment was given by default.[46] However, recognition or enforcement may be refused or postponed if the judgment is still under review in the state of origin.[47]
Pursuant to Article 9 of the Convention, a Contracting State may refuse to recognize or enforce a judgment of another Contracting State where: (1) the agreement was null and void under the law of the state of the chosen court; (2) a party lacked capacity to enter into the agreement under the law of the requested state; (3) the defendant did not have sufficient notice of the pending action in the chosen court; (4) the judgment was obtained through some kind of procedural fraud; (5) recognizing the judgment is against the public policy of the requested state; (6) the requested state has already rendered an inconsistent judgment in a dispute between the same parties; or (7) another Contracting State has rendered an earlier judgment between the same parties on the same cause of action, provided that the earlier judgment meets the Convention’s recognition requirements.[48]
Even if a judgment satisfies these requirements, under Article 11 of the Convention a Contracting State still may refuse to recognize a judgment to the extent that the award compensates the injured party for more than actual damages.[49] This limitation responds to the concern over frequency and size of exemplary and punitive damage awards in the United States. Awards that include these types of damages are still enforceable or recognizable as to the compensatory damages under Article 15 of the Convention, which severs the unenforceable or unrecognizable aspect of the judgment.[50]
Furthermore, the Convention prescribes the documents which should accompany an application for recognition or enforcement. The documents include, inter alia, a certified copy of the judgment, the exclusive choice of court agreement, and any doc5u2ments necessary to establish that the judgment has effect or is enforceable in the state of origin.[51]
The Convention does not become effective for agreements and judgments until it has been ratified by a second party, which could be either the US or the EC.[52]
III. Investment Arbitration
The prevalence of investment arbitration in Latin America has also changed over the past 15 years. On one hand, ICSID has registered 116 cases against Latin American states since 1996. On the other hand, Latin America’s investment treaty framework has also experienced contractions in recent years. These changes are further reflected in the Compendium.
This section surveys certain recent developments in Latin American investment arbitration, including: (A) Latin American treaty cases; and (B) treaty developments.
A. Latin American Treaty Cases
Investment treaty arbitration in Latin America continues to grow, even as certain states have sought to terminate a very limited number of treaties. The number of ICSID cases filed against Latin American states has grown steadily since the filing of the first such case in 1996.[53] As reflected in Diagram 3, a full 52.1 percent of ICSID’s pending case docket (63 out of 121 cases) now constitutes cases filed against a Latin American state.[54] By contrast, only 29.4 percent of concluded ICSID arbitrations (53 out of 180 cases) were brought against a Latin American state, thus demonstrating the region’s increased role in international investment cases in recent years.
Among Latin American states, one country alone – Argentina – accounts for roughly a quarter of all pending ICSID cases (29 out of 121 cases). Argentina further represents over half of pending ICSID cases involving a Latin American state (29 out of 53 cases). As reflected in Diagram 4, Argentina has been named in nearly four times as many ICSID cases as any other Latin American state (a total of 49 cases, as opposed to 13 each for Venezuela and Mexico, with Mexico participating in ICSID proceedings as a member of the North American Free Trade Agreement (“NAFTA”)).
The settlement rate of Latin American ICSID cases is comparable to that of ICSID arbitrations generally. For instance, according to figures available from ICSID, roughly 30 percent of all concluded ICSID arbitrations settled at some phase (56 out of 180 concluded arbitrations). Among Latin American ICSID cases, roughly 28 percent of cases settled (15 out of 53 concluded cases). These percentages do not include other cases that are listed by ICSID as having been discontinued, but do not specifically reference a settlement by the parties.
Latin America’s familiarity with investment arbitration extends beyond the party level, as the region is also home to many experienced arbitrators. In original ICSID proceedings involving a Latin American state, nearly a third of all arbitrators have themselves been Latin American (95 out of 299 arbitrators). In these same cases, however, nearly three quarters of tribunal presidents have been from outside Latin America (73 out of 99 tribunal presidents).
B. Treaty Developments
1. Peru[55]
With the enactment of the United States-Peru Trade Promotion Agreement (“TPA” or the “Agreement”), Peru becomes the second South American state (after Chile) to enter into a bilateral free trade agreement with the United States.[56] The Agreement had been signed on April 12, 2006, and entered into force on February 1, 2009.[57] The enactment of the Agreement was facilitated by an executive order signed by former President George W. Bush on January 16, 2009 – only four days before leaving office – following Peru’s compliance with the labor, environmental and intellectual property stipulations imposed by the United States in the Bipartisan Trade Agreement (“BTA”) dated May 10, 2007.[58] The following day, on January 17, 2009, Peru in turn published a Supreme Decree providing that the US-Peru TPA would enter into force on February 1, 2009.[59]
The Agreement eliminates tariffs and other barriers to trade. Chapter 10 of the Agreement contains the following guarantees for investors: national treatment, most favored nation treatment, fair and equitable treatment, full protection and security, protection against unlawful direct or indirect expropriation and free transfer of funds.
The US-Peru TPA further establishes dispute settlement procedures for investment disputes.[60] Specifically, the Agreement provides for arbitration pursuant to the 1965 ICSID Convention or the UNCITRAL Arbitration Rules, as well as in accordance with any other rules or arbitral institutions agreed to by the parties.[61]
2. Ecuador[62]
The Republic of Ecuador has taken a series of actions purporting to limit the State’s obligations to foreign investors under investment treaties and reduce its exposure to international arbitration.
Starting in the 1990s, Ecuador ratified multiple BITs and it previously ratified the ICSID Convention.[63] By 2002, Ecuador had signed 27 BITs with arbitration provisions, of which 24 had entered into force by 2005.[64]
With respect to the ICSID Convention, in 2007, Ecuador announced that it sought to withdraw its consent to the jurisdiction of ICSID for disputes involving activities related to the exploitation of natural resources such as oil, gas, minerals and others.[65] On July 6, 2009, Ecuador issued a notice purporting to denounce the ICSID Convention.[66]
On January 30, 2008, Ecuador announced its attempt to terminate its BITs with Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Paraguay, as well as an exchange of notes with Uruguay that did not contain a dispute mechanism.[67] Each letter stated that Ecuador was “in the process of reviewing its legal system and its national and international policies in investment matters.”[68] The BITs typically contain survival provisions of, for instance, ten years. Ecuador later announced the possible termination of certain additional BITs.
3. The Union of South American Nations[69]
The Union of South American Nations (Unión de Naciones Suramericanas) (“UNASUR”) has held additional gatherings and proposed that it should serve as a mechanism for resolving energy disputes involving Member States.
In December 2004, twelve South American states created the “South American Community” through the signing of the Cuzco Declaration.[70] Nearly four years later, in May 2008, representatives of those countries met in Brasilia, Brazil to execute the Constitutive Treaty (the “Treaty”) of UNASUR.[71] The general goal of UNASUR is to expand and build upon smaller regional organizations such as the Common Market of the South (Mercado Común del Sur) (“Mercosur”) and the Andean Community (Comunidad Andina).[72] In this respect, UNASUR encompasses the entirety of the South American continent with the exception of French Guiana – including the nations of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela.[73]
Article 19 of the UNASUR Treaty establishes that it will enter into force 30 days following the deposit of the ninth instrument of ratification. For Member States that ratify the Treaty after the ninth instrument of ratification, it will enter into force 30 days after the deposit date of that instrument of ratification. The legislative measures emanating from the organs of UNASUR will be binding on the Member States once they have been incorporated into each Member State’s domestic law, according to its respective internal procedures. To date, Bolivia and Ecuador have ratified UNASUR.[74]
With respect to UNASUR’s structure, the Treaty contemplates “an entity with international juridical character,” comprised of the following bodies: (i) the Council of Heads of State and Government; (ii) the Council of Ministers of Foreign Affairs; (iii) the Council of Delegates; and (iv) the General Secretariat.[75] UNASUR’s General Secretariat is permanently headquartered in the city of Quito, Ecuador, while a separate legislative body – the South American Parliament – is to be established in the city of Cochabamba, Bolivia.[76] The organization is further overseen by a Presidency pro tempore, which will rotate among the Member States on an annual basis.[77]
Article 2 of the UNASUR Treaty describes its task as “build[ing], in a participatory and consensual manner, an integration and union among its peoples in the cultural, social, economic and political fields.” In this regard, UNASUR has established a number of top priorities, including: the promotion of physical integration, social cohesion and political dialogue; the creation of asymmetries among member states; developments in the areas of the environment and telecommunications; and energy integration.[78]
In the area of dispute resolution, Article 21 of the UNASUR Treaty provides only for the resolution of disputes among Member States relating to the interpretation and implementation of the Treaty itself. As such, the UNASUR Treaty does not itself provide a framework for resolving investment disputes against Member States. Nonetheless, UNASUR’s Member States have begun the process of exploring options for the regional resolution of investment disputes relating to the energy sector.
UNASUR convened the First South American Energy Summit in April 2007 on Margarita Island, Venezuela, during which it was proposed that UNASUR should establish a mechanism for the resolution of energy disputes involving UNASUR Member States.[79]
Most recently, the leaders and representatives from the 12 UNASTUR Member States met in August 2009 in Quito, Ecuador for UNASUR’s Third Summit.[80] During this gathering, Ecuadorian President Rafael Correa assumed the rotating UNASUR Presidency from outgoing Chilean President Michelle Bachelet.[81] The Third Summit culminated in the signing of the Quito Declaration.[82] Among other things, the Quito Declaration contemplates the creation of a proposed Bank of the South, as well as a common reserve fund and monetary scheme.[83]
[1] See Jonathan C. Hamilton, Compendium of Latin American Arbitration Law, Int’l Disputes Q. (Summer 2009). An updated version of the Compendium is available at http://www.latinarbitrationlaw.com. The Compendium is based on an analysis of diverse sources and may only be reproduced or translated with credit.
[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 330 U.N.T.S. 38 (1968).
[3] The Inter-American Convention on International Commercial Arbitration, opened for signature Jan. 30, 1975, 1438 U.N.T.S. 245 (1975).
[4] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, opened for signature Mar. 18, 1965, 575 U.N.T.S. 159 (1966).
[5] The statistics contained in this section have been compiled from information available in the International Chamber of Commerce’s International Court of Arbitration Bulletin (the “ICC Bulletin”) (various volumes from 1997 through 2009).
[6] See International Centre for Dispute Resolution, About ICDR, http://www.adr.org/about_icdr (last visited Oct. 28, 2009).
[7] See supra Part I.
[8] See, e.g. Claus von Wobeser, Mexico, in International Arbitration in Latin America 155, 184 (Nigel Blackaby, David Lindsey & Alessandro Spinillo eds., 2002) (recognizing that international treaties ratified by Mexico, including the Panama and New York Conventions, “are situated above Federal legislation in the country’s legal hierarchy, and they bind both authorities and individuals”); Fernando Eduardo Serec & Antonio M. Barbuto Neto, The New York Convention and the Enforcement of Foreign Arbitral Awards, Int’l L. Office, Dec. 4, 2008, http://www.internationallawoffice.com/Newsletters (select “Brazil” under “Jurisdiction”; then select article) (demonstrating that between 1996 and 2004, Brazilian courts only denied recognition and enforcement in a total of 6 out of 22 cases). See also supra Part I.
[9] See supra Part I.
[10] Id.
[11] See Código de Comercio de México Title IV Book V (Mex.). See also supra Part I.
[12] See Claus von Wobeser, supra note 9.
[13] See supra Part I.
[14] Id. See also Fabiano Robalinho Cavalcanti, Enforcement of Foreign Arbitral Awards in Brazil, Global Arbitration Rev. (Arbitration Review of the Americas) (2009) (“The legislature used the text of the New York Convention as the basis for drafting [Articles 38 and 39 of the Brazilian arbitration law] which, in the end, basically provide that the homologation of foreign arbitral awards may be denied in Brazil in the same circumstances as the ones provided in article V of the New York Convention.”); Jonathan C. Hamilton, et al., Brazil: Enforcement of Arbitral Awards, Int’l Disp. Q., available at http://www.whitecase.com/idq/fall_2007/ca1/ (last visited Oct. 28, 2009).
[15] See M.B.V. Comm. v. Resil Indústria e Comércio Ltda., S.T.F., Ap. No. 2149-6, Relator: Ministro Presidente, 05.08.1997, 102 S.T.F.J. 958 (Brazil) (upholding constitutionality of Brazil’s 1996 arbitration law). See also Cristián Conejero Roos & Renato S. Grion, Arbitration in Brazil: Law and Practice from an ICC Perspective, 17 ICC Int’l Ct. Arb. Bull. 11, 13 (2006) (“For five years, the constitutionality issue left doubts hanging over the future of the framework which the 1996 Law sought to establish. However, in 2001, the Supreme Court rendered a majority decision [MBV], in which the Law was held to be constitutional.”)
[16] See supra Part I.
[17] See Ley No. 489-08 Sobre Arbitraje Comercial (Dec. 30, 2008) (Dom. Rep.), available at http://www.suprema.gov.do/pdf/leyes/2008/Ley_489-08.pdf. See also Dominican Republic Enacts Model Law, Global Arbitration Rev., Jan. 14, 2009, http://www.globalarbitrationreview.com/news/article/15040/dominicanrepublic- enacts-model-law/.
[18]See supra Part I.
[19] See Decreto Legislativo No. 1071 (June 28, 2008) (effective Sept. 1, 2008) (Peru), available at http://asadip.wordpress.com/2009/01/30/nueva-ley-de-arbitraje-peruano/. See also, Carlos Alberto Soto Coaguila, Presentación, http://asadip.wordpress.com/2009/01/30/nueva-ley-de-arbitraje-peruano/; Ley No. 26572 (January 5, 1996) (effective January 6, 1996), available at http://www.ftaa-alca.org/busfac/comarb/Peru/lgenarb1_s.asp.
[20] See Soto Coaguila, supra note 20.
[21] See supra Part I.
[22] See supra Part I.
[23] All quotations from Latin American arbitration laws contained in this Article are free translations from the Spanish original.
[24] The authors thank Lilia Alonzo for her assistance with the research and preparation of this section.
[25] See supra Part I. See also von Wobeser, supra note 9.
[26] “Petróleos Mexicanos no se someterá, en ningún caso, a jurisdicciones extranjeras tratándose de controversias referidas a contratos de obra y prestación de servicios en territorio nacional y en las zonas donde la Nación ejerce soberanía, jurisdicción o competencia. Los contratos podrán incluir acuerdos arbitrales conforme a las leyes mexicanas y los tratados internacionales de los que México sea parte.”
[27] The authors thank Erika Serran and Michelle Homes Johnson for their assistance with the research and preparation of this section.
[28] Hague Convention on Choice of Court Agreements, opened for signature, June 30, 2005, 44 I.L.M. 1294.
[29] In the United States, choice of court agreements are more commonly referred to as “forum selection” agreements.
[30] Convention, Preamble.
[31] Mexico acceded to the Convention on September 26, 2007.
[32] The Convention enters into force after it has been ratified by two state parties. See Convention, Art. 31.
[33] Multilateral treaties on jurisdiction and the recognition and enforcement of foreign money judgments do exist for certain regions; however, the United States is not a party to any of those treaties. See, e.g., Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended, 29 I.L.M. 1413 (1990) (among EC Member States); Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, 28 I.L.M. 620 (1989) (among EC and EFTA Member States); Inter-American Convention on the Extraterritorial Validity of Foreign Judgments and Arbitral Awards, 18 I.L.M. 1224 (1979) (among OAS Member States). See also Inter-American Convention on Jurisdiction in the International Sphere for the Extraterritorial Validity of Foreign Judgments, 24 I.L.M. 468 (1985). In contrast, the widely-ratified New York Convention governs the international enforcement of arbitral awards. See New York Convention, supra note 3.
[34] Convention, Art. 1(1).
[35] Id. at Art. 3(a).
[36] Id. at Art. 3(b).
[37] Id. at Art. 3(c).
[38] Id. at Art. 1(2).
[39] For example, parties who are residents of Mexico with a contract executed and performed entirely in Mexico will not have an international case (for the purposes of Chapter II) simply by choosing the courts of Florida in their choice of courts clause.
[40] Therefore, if the Florida court did render a judgment in the example above (see supra, note 40), under Chapter III, the case would be “international” for enforcement purposes in Mexico.
[41] Id. at Art. 2(1).
[42] Id. at Art. 2(2). However, under Article 17, an insurance or reinsurance contract is not excluded from the Convention even if the contract’s subject matter relates to one of the matters excluded by Article 2.
[43] This grant of jurisdiction does not alter the rules on subject matter jurisdiction, the value of the claim, or the internal allocation of jurisdiction among courts of a Contracting State. See id. at Art. 5(3).
[44] Id. at Art. 6.
[45] Id. at Art. 8(1).
[46] Id. at Art. 8(2).
[47] Id. at Art. 8(4).
[48] Id. at Art. 9(a)-(g).
[49] Id. at Art. 11(1).
[50] Id. at Art. 15.
[51] Id. at Art. 13. The recommended form for the application is provided as an annex to the Convention.
[52] In accordance with Article 30 of the Convention, upon signing, the European Community made a declaration that it exercises competence over all matters governed by the Convention and that its Member States would not each become members of the Convention but would be bound by the Convention by virtue of its ratification by the European Community.
[53] See Santa Elena v. Republic of Costa Rica (ICSID Case No. ARB/96/1).
[54] The statistics contained in this section have been compiled from information available on ICSID’s website, http://icsid.worldbank.org/ICSID/Index.jsp.
[55] The authors thank Javier Ferrero for his assistance with the research and preparation of this section.
[56] See United States-Peru Trade Promotion Agreement (“TPA”), U.S.-Peru, April 12, 2006, available at http://www.ustr.gov/trade-agreements/free-trade-agreements/peru-tpa/final-text. See also Office of the United States Trade Representative, Free Trade Agreements, http://www.ustr.gov/trade-agreements/free-trade-agreements (last visited Oct. 28, 2009).
[57] See Office of the United States Trade Representative, Peru Trade Promotion Agreement, http://www.ustr.gov/trade-agreements/free-trade-agreements/peru-tpa (last visited Oct. 28, 2009).
[58] See Office of the United States Trade Representative, Statement of U.S. Trade Representative Susan C. Schwab Regarding Entry into Force of the Peru FTA, http://www.ustr.gov/about-us/press-office/pressreleases/ 2009/january/statement-us-trade-representative-susan-c-schwab-r (last visited Oct. 28, 2009).
[59] See Tratado de Libre Comercio Suscrito Entre Perú y EEUU Entró en Vigencia, LA República, Feb. 1, 2009, http://www.larepublica.pe/economia/01/02/2009/tlc-suscrito-entre-peru-y-eeuu-entro-en-vigencia.
[60] See US-Peru TPA, Chapter 10.
[61] See US-Peru TPA, Art. 10.16.
[62] The authors thank Francisco Jijon for his assistance with the research and preparation of this section.
[63] See supra Part I.
[64] Id. These statistics have been compiled from information available on the website of the United Nations Conference on Trade and Development, http://www.unctad.org/sections/dite_pcbb/docs/bits_ecuador.pdf, and on the website of Ecuador’s Ministry of Foreign Affairs, http://www.mmrree.gov.ec. See also Ecuador Terminates BITs with Eight LatAm States, Global Arbitration Rev., Nov. 5, 2008, http://www.globalarbitrationreview.com/news/article/14919/ecuador-terminates-bits-eight-latam-states/.
[65] See ICSID, Ecuador’s Notification under Article 25(4) of the ICSID Convention, http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp (select from list of News Releases) (last visited Oct. 28, 2009).
[66] See ICSID, Denunciation of the ICSID Convention by Ecuador, http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp (select from list of Announcements) (last visited Oct. 28, 2009).
[67] See Global Arbitration Rev., supra note 65.
[68] See Registro Official No. 452 (Oct. 23, 2008) (Ec.).
[69] The authors thank Javier Ferrero and Guido Clichevsky for their assistance with the research and preparation of this section.
[70] See Press Release, South American Community to be Based on the CAN and Mercosur (Dec. 3, 2004), available at http://www.comunidadandina.org/ingles/press/press/np3-12-04.htm.
[71] South American Union of Nations Constitutive Treaty, May 23, 2008, available at http://www.comunidadandina.org/ingles/csn/treaty.htm.
[72] See, e.g. Christian Leathley, Latin America: The Proposed UNASUR Court – A Comment, Global Arbitration Rev., June 2008, at 37-38.
[73] Id.
[74] See Press Release, Ecuador Ratifica el Tratado Constitutivo de UNASUR (July 15, 2009), available at http://www.mmrree.gov.ec/2009/bol272.asp; Press Release, Bolivia Ratifica el Tratado Constitutivo de UNASUR (Mar. 10, 2009), available at http://www.mmrree.gov.ec/2009/bol074.asp.
[75] See UNASUR Treaty, supra note 72, at Arts. 1, 4.
[76] Id. at Arts. 10, 17.
[77] Id. at Art. 7.
[78] Id. at Art. 3.
[79] See, e.g. Cumbre del Cono Sur Propone una Unión Energética, La Razón, April 17, 2007, http://www.larazon.com/versiones/20070417_005879/nota_248_415336.htm. See also Leathley, supra note 73.
[80] See Press Release, Ecuador Impulsará la Integración Desde la Presidencia Pro Tempore de UNASUR (Aug. 3, 2009), available at http://www.mmrree.gov.ec/2009/bol292.asp.
[81] Id.
[82] See Declaration Presidencial de Quito (“Quito Declaration”), Aug. 10, 2009, available at http://www.comunidadandina.org/unasur/10-8-09Dec_quito.htm.
[83] Id. at ¶ 21. This Article does not reflect the views or positions of the authors, White & Case LLP or any clients thereof with respect to any particular matter. Due to the general nature of its contents, this Article is not and should not be regarded as legal advice.
Arbitration considerations impact policy decisions throughout Latin America.
Jonathan C. Hamilton