Update On The Arbitration Legislation In Argentina: A Step Forward Or Backward?

by Ezequiel H. Vetulli (associate at Pérez Alati, Grondona, Benites, Arntsen & Martínez de Hoz)

 

(a) Introduction

Argentina has recently adopted new legislation on arbitration. Historically in Argentina, civil and commercial law were regulated in separate national codes; however, after many unsuccessful attempts, they have finally been unified, as the National Congress has enacted a new Civil and Commercial Code (“the Code”), effective as of August 2015. This Code contains the new regulation on arbitration.

Until now, arbitration in Argentina has been governed by the procedural code of each province and in Buenos Aires, the capital of the country, by the National Code of Civil and Commercial Procedure (“the Procedural Code”). Consequently, the most obvious change is that arbitrations across the country will now be governed by a single code. Given that the current provincial regulations are quite old fashioned, a new regulation has long been awaited. On this basis, Argentina seems to follow the line of many countries passing national laws on arbitration, which is a plausible way to modernize the Argentinean legal system.

 

(b) A Little Bit of Drafting History

Achieving this change has not been easy. Pursuant to the Argentine National Constitution, “substantive” matters (including contract law) are governed by national law, whereas “procedural” matters are governed by provincial law. Therefore, arbitration was previously regulated by each province because it was considered a matter of procedure.

Thus, in order to pass a national law on arbitration, it was necessary to first qualify arbitration as a matter of “substance.” In this regard, a discussion arose on whether arbitration – which arises out of a contract, but also involves procedural matters – should be considered a “procedural” or “contractual” matter. Although it may have looked like a simply philosophical discussion, the desire to unify and modernize Argentinian arbitration legislation lent it a practical dimension.

Finally, since arbitration certainly has a contractual origin, the Code settled the discussion by including a section named “arbitration contract” (article 1649 et. seq.). While this section contains many features representing real improvements in the field of arbitration, it also contains some concerning provisions.

 

(c) Arbitration Contract

The Code provides a definition of the arbitration contract. An arbitration contract exists where the parties decide to submit to the decision of arbitrators all or some of the disputes, which have arisen or might arise between them, with respect to a certain legal relationship of private law (whether or not it is contractual), in which public policy is not involved.

As to the formal requirements, the arbitration contract must be in writing. Although this requirement is consistent with the wording of the New York Convention (1958), it is inconsistent with its current interpretation as well as with other instruments allowing other means of communication. For instance, the MERCOSUR Agreement on International Commercial Arbitration (1998) (“the MERCOSUR Agreement”), to which Argentina is a contracting party, expressly permits the formation of an arbitration agreement via electronic communications. In fact, there are some instruments admitting oral arbitration agreements, such as the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”).

 

(d) Principles

Fortunately, the Code has expressly incorporated some fundamental principles of arbitration that are universally accepted.

The fact that the arbitration agreement is defined as a “contract” implies that it is different – and therefore separable – from the main contract. Nevertheless, the Code includes the principles of autonomy and separability of the arbitration agreement. In a similar positive vein, it adopts the well-known competence-competence principle, although the parties may agree to exclude that principle. Since the competence-competence principle is one of the most important features of arbitration and without it there would be frequent court intervention, such exclusion would be exceptional and should, therefore, be express. To some extent, these principles were already part of the Argentine legal system, as they are both contained in the MERCOSUR Agreement and recognized in judicial precedents.

Furthermore, the Code provides that the arbitration contract excludes the jurisdiction of the courts unless the arbitral tribunal is not hearing the case and the agreement seems manifestly null or inapplicable, which is similar to article 1448 of the French arbitration legislation. Additionally, the Code includes a default rule favoring arbitration: in case of doubt, the arbitration contract should be interpreted to ensure its effectiveness (favor arbitri).

 

(e) Interim measures

Under the Procedural Code, arbitrators did not have the power to grant interim measures and they had to request them from the courts. Now, the Code has turned the rule around, empowering arbitrators to grant interim measures, unless otherwise agreed. However, they naturally cannot enforce them. Moreover, the parties may request interim measures from state courts, which does not entail a breach or waiver of the arbitration contract. This framework is consistent with most of the renowned arbitration acts, rules and treaties (e.g. the Model Law, the ICC Rules, the MERCOSUR Agreement).

On the other hand, the Code also states that measures taken by arbitrators may be challenged before state courts if they violate constitutional rights or are deemed unreasonable. This provision seems to go a step back by opening the doors to broad court review. In particular, granting state courts the power to determine the reasonableness of an interim measure is practically the same as analyzing its substance, which is generally not permitted under, for example, the Model Law.

 

(f) Arbitrability

The new regulation excludes disputes regarding typical matters such as matrimony, capacity and family law. In addition, it includes objective and subjective exclusions such as (i) consumer law, (ii) adhesion contracts, (iii) disputes involving the State and (iv) disputes involving public policy, according to the definition of “arbitration contract” (see above).

Some of these exclusions are highly questionable. For instance, the determination of whether a dispute involves public policy is very likely to become controversial and one can envisage possible conflicts of jurisdiction. Overall, if such exclusions are construed in a wide manner, the scope of arbitrability might be substantially reduced to the detriment of arbitration.

 

(g) Rules applicable

The Code sets forth a default rule by which, in principle, arbitrators shall base their decision on the law. Even though this position may seem obvious, the Procedural Code contained the contrary rule, stating that in the absence of an agreement of the parties, arbitrators should decide the dispute as amiable compositeur. The solution now provided by the Code is appropriate and consistent with the ICC Rules and the Model Law. Without such a rule, given that contractual parties do not dedicate enough time to drafting their arbitration clauses, there would be a risk of having disputes decided as amiable compositeur, when that was not the parties’ real intention.

 

(h) Court review

The Code states that arbitral awards may be reviewed before state courts on the grounds of nullity. However, it further states that, “the judicial challenge of a final award contrary to the legal system cannot be waived in the arbitration contract” (free translation and emphasis added). In this regard, the key question is whether the “judicial challenge” (which cannot be waived) is the annulment recourse or something else. If it refers to the annulment recourse, then it is an appropriate approach. Conversely, if it refers to another recourse, it would imply that, in addition to annulment, there is another non-waivable recourse. The latter interpretation would undermine one of the most important advantages of arbitration, which is having the proceedings run with as little court intervention as possible. Unfortunately, the expression “contrary to the legal system” seems to refer to something other than the application for annulment. For this reason, this provision is particularly problematic.

 

(i) Concluding Remarks

In order to reach a goal, it is necessary to take incremental and consistent steps toward it. Argentina has definitely taken a big step by passing this legislation. Now, the core question is whether this step is made in the right or the wrong direction. While there are many plausible modifications in favor of arbitration, some others raise some concern as to its viability. In fact, in some aspects, the Code seems to create strong and unnecessary barriers, which could lead to the demise of arbitration in Argentina.

Wherever the Argentine regulation stands, there are further steps to take. The courts will play a relevant role and hopefully they will construe these provisions in favor of arbitration. However, it would have certainly been better not to include such complex provisions and take full advantage of this special opportunity. Of course, drafting a law is not an easy task and what seems clear at first may turn out to be problematic afterwards. Nevertheless, passing a law that is controversial at the outset is definitely not a safe path. In order to enhance arbitration as a dispute resolution mechanism, the whole arbitration community should seek to apply these new provisions in the most arbitration-friendly manner possible.

 

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