International Arbitration: A New Paradigm for Dispute Resolution in Latin America

The decade of the 1990s was the beginning of a new era for dispute resolution in Latin America, one with a growing emphasis on the use of international arbitration. Two important developments in international law – the New York Arbitration Convention and the UNCITRAL Model Law on International Arbitration – are responsible for the upward trend in the use of international arbitration in the region. Both instruments reflected a universal sharing of international arbitration principles, and thereby changed the legal world of international commercial arbitration in a revolutionary way: they established the framework of what Professor Michael Reisman has called the “normative architecture of international commercial arbitration.”

According to Reisman, the effectiveness of this normative infrastructure depends on substantial and predictable governmental and intergovernmental support. The two elements necessary are (1) the existence of international agreements among all pertinent jurisdictions to compel arbitration when the parties have contractually agreed to arbitration; and (2) domestic legislation that supports arbitration and enforces arbitral awards. The New York Convention has been adopted in almost 150 countries around the world. In Latin America, over the last two decades, a large number of  countries amended or passed new arbitration legislation, many of them (Chile,  Peru, Costa Rica, and the Dominican Republic) drafted almost verbatim from the UNCITRAL Model Law. All Latin American countries have ratified the New York Convention and most of them have also ratified the Panama Convention, a regional version of the NYC.

The region’s enthusiasm for international arbitration is evident also in the proliferation of arbitral institutions. In Brazil alone, more than 150 such institutions have been established. The International Chamber of Commerce, reports a growing number of arbitrations in Latin America. According to the ICC, Brazil and Mexico are ranked among the top ICC jurisdictions.

For international commercial arbitration to achieve its goals of certainty, uniformity, and simplicity, it is essential that the proceedings be conducted in conformance with strong principles of party autonomy, as expressed in the arbitration agreements, and the rules the parties choose to govern the dispute. Though arbitration is conducted in the sphere of private law, its operation and effectiveness are inexorably tied to the actions and behavior of national courts. This aspect of international arbitration manifests one of the great tensions, even a paradox, present in the interaction between international arbitration and local courts:  on the one hand, international commercial arbitration requires a huge exercise of restraint by local courts, which are allowed to intervene only with express authorization. On the other hand, the arbitration relies heavily on local courts for the enforceability of the award. This tension represents for the local judges a form of clash of cultures. International arbitration must coexist with the more traditional forms of exercise of jurisdictional powers, where concepts such as territorial powers of the jurisdiction, public order, or the national constitution interact with the limited form of intervention of judges and local legal systems that international arbitration demands.

In Latin America, judges remain parochial to a large extent. They are influenced strongly by an historically different legal culture characterized by strong notions of territoriality of jurisdictions. There are differences among the countries in Latin America with respect to their approaches to international arbitration. Several jurisdictions are moving in the right direction by creating an increasingly consistent set of precedents: Chile, Colombia, Brazil, Mexico, and Peru have adopted arbitration laws that lead to increasing consistent enforcement of foreign awards and avoid review of the merits of arbitral decisions.

The thorniest problems occur in commercial arbitration proceedings that involve state entities or state interests. In those cases, courts have had the greatest difficulty in isolating international arbitration from the traditional views and interests of the public. When some form of public interest is involved, the role of local courts in reviewing arbitral decisions is less well-settled.

Over the next few years, the number of arbitrations that take place in Latin America is certain to continue to grow. There is an expanding pool of fine lawyers in the region with the expertise to handle complex commercial arbitrations.  The proceedings can be conducted more efficiently, including less money, in Latin America than in the traditional arbitration centers in Paris or London.  For the first time, five jurisdictions in the region are competing to become the regional center for international arbitration: Mexico, Chile, Colombia, Costa Rica, and Peru. Some of these countries start receiving cases that are truly international that involve involving regional participants. An increasing number of cases are being heard by local arbitration centers in the region, rather than in ad-hoc proceedings. This development is likely to facilitate the harmonization of procedural rules and other norms. Significant challenges and legal questions remain, especially with respect to the resolution of disputes that involve state interests. How those challenges will be met by the global arbitration community and local jurisdictions will become clear over the coming years.

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