By: Santiago L. Capparelli, Luis Dates and Julian Bordacahar
A. Legislation, Trends and Tendencies
A.1 Legislation
In August 2015, Argentina enacted a joint Civil and Commercial Code (CCC) to replace the existing Civil Code and Commercial Code. The CCC includes a specific chapter regulating what it calls the “arbitration contract” (Sections 1649 to 1665). It will govern all issues related to arbitration, save those where the Acuerdo de Arbitraje Comercial del Mercosur (the “Buenos Aires Convention”), applies, such as when the seat of arbitration is in Argentina, and the dispute has a point of contact with another member State of Mercosur. It is clear that the latter will apply to matters on which the CCC is silent. It is less clear what might happen if an issue is regulated by both the CCC and the Buenos Aires Convention, as is the case with precautionary measures and judicial oversight of arbitration awards.
In any event, the country’s civil and commercial procedure codes contain arbitration regulations that will apply to all procedural issues not regulated by the substantive legislation referred to above. Because Argentina is a federal country, each province has its own civil and commercial procedure code. The National Code of Civil and Commercial Procedure (Codigo Procesal Civil y Comercial de la Nacion – CPCCN) applies to Buenos Aires, and in federal courts.4
1Código Procesal Civil y Comercial de la Nación, [National Code of Civil and Commercial Procedure], Law No. 17.454, 20 September 1967, as restated in Decree 1042/1981, 18 August 1981, et seq.Because the provincial codes tend to be consistent with the CPCCN as to arbitration regulation, this document covers only the CPCCN along with the new CCC.
In recent years, there have been several failed attempts to enact specific arbitration legislation, typically sponsoring the adoption of the UNCITRAL Model Law in whole or in part. The CCC will at last provide some substantive federal legislation on arbitration. It incorporates several well-known and useful arbitration principles favorable to the development of arbitration in Argentina. The most relevant provisions include: (i) the principle of kompetenz-kompetenz; (ii) the severability of arbitration agreements; (iii) the tribunal’s power to render interim measures; (iv) the exclusion of court jurisdiction when an arbitration agreement exists; (v) a presumption in favor of the efficacy of the arbitration agreement in the case of doubt; and (vi) the obligation of arbitrators to be available and to disclose any matter that might affect their impartiality. Several of these principles were already being applied by Argentine courts, but their express inclusion into the domestic legal system is a very positive development.
However, the new CCC also includes other potentially problematic provisions. Particularly, the vague and ambiguous wording of the provisions providing: (i) for the nonarbitrability of disputes where public policy is compromised (Article 1649); and (ii) that parties cannot waive their right to challenge an award in court (impugnación judicial) (see Article 1656), provide cause for some concern.
As to the former, in our view, the provision should be interpreted to uphold the arbitrability of private disputes featuring issues of public policy, as otherwise a party may too easily challenge the tribunal’s jurisdiction by contending that the dispute is not arbitrable because it touches upon public policy. This view is supported by the legislative explanation of the new Code, which indicates that this provision aims to prevent the state or any state entity from arbitrating disputes.
As to the latter provision, precluding parties from waiving their right to “appeal” awards would run counter to: (i) the CPCCN, which does not allow parties to waive the right to request the annulment of an award, but does allow parties to waive their right to appeal it; and (ii) the international principle of finality of arbitral awards. Since this statement is included in Article 1656, which deals expressly with a court’s power to revise awards when called upon to decided their validity, it should be interpreted as referring only to parties’ rights to challenge the validity of, or request clarification concerning, awards, rather than a right to appeal the merits of the award.
B. Cases
B.1 Jurisdiction to Issue Injunctions in Support of Arbitration in New York
In the case of Methanex Chile Limited (“Methanex”) v. Petrobras Energía S.A.
2Cámara Nacional de Apelaciones en lo Comercial (National Court of Appeals on Commercial Matters), Chamber “D,” 4/9/15, Methanex Chile Limited v. Petrobras Energía S.A. (ARGENTINA) s/ Medida Precautoria, Exp., N° 36715/2014.(“Petrobras”), the Court of Appeals found that it had international jurisdiction to issue an injunction even though the seat of arbitration was in New York.
Arbitration was initiated in October 2013, and the tribunal was constituted in December of the same year. Because of a series of events and circumstances that took place in 2014, Methanex argued that Petrobras was purportedly aiming to get rid of a substantial amount of assets located in Argentina, and that there was a real danger that this could result in insolvency proceedings. As a consequence, Methanex appeared before the Argentine courts and requested an injunction (anotación de litis) ordering the Secretary of Energy to take note in their public registries, and consequently inform third parties, of the fact that certain permits and energy concessions granted to Petrobras were subject to the result of the arbitration being conducted in New York.
The Chamber “D” of the Buenos Aires Commercial Court of Appeals (the “Court of Appeals”) found that it had international jurisdiction to hear the interim measure request. It first noted that according to Article 28 of the ICC Rules, the parties had the right to request interim measures from any competent judicial authority. It then stressed that while the general rule is that only the courts of the seat have jurisdiction to issue interim measures when an arbitration proceeding is in place, the courts of the domicile of one of the parties could, exceptionally, also exercise such jurisdiction.
Nonetheless, such analysis should be carefully conducted on a case-by-case basis, since concurrent jurisdiction may lead to abuse in the form of parties requesting the same measures in different places at the same time. Moreover, it would be reasonable for an Argentine court to be concerned in a request such as the one made by Methanex, given that its aim was to order an Argentine state entity to take note of certain litigation in its public records that may involve energy concession permits issued under Argentine soil.
Notwithstanding the above, the court stressed that: (i) its intervention did not mean that it would have jurisdiction to intervene in any future recourse against an eventual award; (ii) its ruling did not involve any judgment as to the merits of the case; and (iii) issues addressed in its ruling could be decided differently by the arbitral tribunal if it so considered. In the end, the court finally rejected the measure requested because it found that there was no real and urgent danger if the measure was not granted, and even if it was, the measure requested would not adequately protect Methanex in light of the circumstances of the case.
B.2 Local Enforcement of an ICSID Award
On 18 August 2015, the Chamber “A” of the Court of Appeals decided on the case of CCI – Compañía de Concesiones de Infraestructura S.A. (CCI) v. the Republic of Peru
3Cámara Nacional de Apelaciones en lo Comercial (National Court of Appeals on Commercial Matters), Chamber “A,” 8/18/15, CCI – Compañía de Concesiones de Infraestructura S.A. s/ Pedido de Quiebra (por República de Perú), Exp., N° 8030/2015.in a groundbreaking decision that represents the first judicial precedent regarding the enforcement of ICSID awards in Argentina. This is so because despite being the State that has received the highest amount of ICSID claims (51 out of 543 registered cases), no decision concerning the enforcement of ICSID awards against Argentina has ever been rendered in its own territory.
On 2 February 2010, Convial Callao S.A. (“Convial”) and CCI (hereafter, the “Claimants”) filed a request for arbitration before the ICSID Centre against the Republic of Peru. The Claimants, which are highway construction companies, had concluded a concession contract with the Municipalidad Provincial del Callao and argued that through its illegal acts, Peru was liable for violating certain legal standards contained in the Argentina – Peru BIT, which granted the Claimants specific legal protection for their investments.
On 15 May 2013, after having concluded that it had jurisdiction, the Tribunal found that Peru had not violated any legal standard of the BIT and that it should not therefore be held liable. In this context, while the Claimants should, in principle, bear the costs of the proceedings for being the losing party, the Claimants would only have to pay half of the costs incurred by Peru. After several unsuccessful attempts to collect payment of the costs awarded, Peru decided to enforce the award against CCI in Argentina and on 4 April 2015 initiated enforcement proceedings before a first instance commercial court sitting in Buenos Aires.
Relying on the provisions of the CPCCN, the Judge concluded that foreign awards are not exempted from going through the exequatur enforcement proceedings and that the ICSID Convention does not provide for any direct enforcement mechanism that would justify avoiding these exequatur proceedings. Peru appealed this decision on the ground that exequatur proceedings were not necessary in light of the self-contained enforcement mechanism provided by Articles 53 and 54 of the ICSID Convention.
The Court of Appeals started by stressing the binding nature of ICSID awards arising out the provisions of Articles 53 and 54 of the ICSID Convention. In addition, it stated that ICSID awards are not technically “foreign” awards but rather “international” ones. In this vein, the Court found that exequatur proceedings were not required for the enforcement of the award. Irrespective of this, the Court of Appeals made some interesting remarks as to the control that may be (and should be) exercised by local courts while enforcing ICSID awards. It noted that every judge should proceed carefully and cautiously while exercising jurisdiction in order to identify possible violations of Argentine public policy, especially when it comes to issues of due process, which form part of Argentine international public policy.
C. Costs in International Arbitration
C.1 Allocation of Costs
Despite the fact that Argentina now has federal legislation dealing with arbitration (please refer to Sections A.1.1 and A.2.), the relevant chapter of the CCC does not contain any guidance on the issue of allocation of costs in arbitration. Consequently, our analysis focuses on the provisions of the CPCCN.
In that regard, if the seat of arbitration has been set in Argentina (and the dispute has a point of contact with any state member of the MERCOSUR), then the general principle, absent an agreement between the parties indicating otherwise, is that the parties should equally bear the costs of arbitration. Absent a contrary agreement of the parties: (i) the arbitrators must rule on the issue of costs, applying the same principles set forth in Section 68 et seq. of the CPCCN (which deals with general litigation costs); and (ii) the estimation of the fees of the arbitrators, the secretary of the arbitral tribunal (when appointed), counsel and other professionals such as tribunal-appointed neutral experts must be set forth by the court.
Section 68 et seq. of the CPCCN establishes that the default provision, absent contrary agreement by the parties, is that “costs follow the event” or the “loser pays” (Section 68, paragraph 1 of the CPCCN). However, the arbitrators are entitled to allocate costs between the parties in a different manner, exempting the losing party from paying such costs in whole or in part in exceptional circumstances if they find sufficient merit in doing so (Section 68, paragraph 2 of the CPCCN). While this exception does not provide legal guidance on when such “exceptional circumstances” may be judged to exist, case law has established that one of the examples is when the losing party believed in good faith that it had reasonable grounds to litigate (for example, if the case law interpretation of a controversial matter was unclear).
Another possibility contemplated by the CPCCN (which, in fact, is consistent with the general principle that costs will follow the event) is that no party may prevail in full, but both parties may prevail in and lose some of their claims or defenses. In such a scenario, the arbitral tribunal is entitled to allocate costs in the same proportion as that of the admitted claims (Section 71 of the CPCCN).
It is very important to note that in the event of settlement, unless the parties agree otherwise, the general legal principle is that both parties shall equally share costs (Section 73, paragraph 1 of the CPCCN), and that if a claim is withdrawn after the other party is served, the claiming party must bear the opponent’s costs and counsel’s fees (Section 73, paragraph 2 of the CPCCN).
Local arbitration institutions adopted a similar approach to that of the CPCCN. For example, the arbitration rules of the Buenos Aires Stock Exchange Market Arbitral Tribunal provide that the award must include a decision on which party is to bear the costs (Section 61), and the same principle was adopted by the arbitration rules of the CEMARC (Section 43). Unless the parties agree otherwise, the estimation of the amount of those fees should be made by a local court. On the contrary, the arbitration rules of the Centro Empresarial de Mediación y Arbitraje (CEMA) provide that unless the parties agree with the Arbitral Tribunal on the amount of such costs, they shall be fixed by a committee of CEMA designated for that purpose (Section 7).
Finally, it should be noted that in the event the Buenos Aires Convention applies, the default provision regarding attorney’s fees and costs is that each party should be responsible for paying its own attorney’s fees and costs, absent any indication to the contrary. Consequently, if a party applying this convention wants to take a “loser pays” or “costs follow the event” approach, it must provide specific language to this effect in the relevant arbitration clause.
C.2 Security for Costs
Neither the CCC nor the Buenos Aires Convention contemplate the possibility of requesting that the opposing party provide security for costs. The CPCCN is also silent on this matter, and in fact, contains a chapter (Sections 78 to 86) regulating what is called beneficio de litigar sin gastos (authorization to litigate without paying litigation costs). This remedy is available to a party that wishes to file a monetary claim but lacks the relevant economic standing to pay the regular litigation expenses when due. The law favors the constitutional rights to access to jurisdiction and present a case, in detriment of the counterparty that might ultimately win that case. Of course, the applicant for such an exceptional remedy would need to demonstrate the underlying elements that prove that it cannot afford to pay litigation costs. Arguably, a party presenting claims in arbitration proceedings whose seat is in Buenos Aires may seek this procedural protection from a local court. However, the fact that arbitration rules generally provide for fixed costs for the proceedings may bar this possibility.
In the event that this exceptional remedy is not sought, in theory, nothing should prevent a party from requesting a precautionary measure whereby its counterpart provides for some security for costs. Although this is not customary, from a theoretical standpoint, this request should satisfy the general burdens for the grant of precautionary measures.
C.3 Recovery of Costs
Again, this matter is not dealt with either by the CCC or by the Buenos Aires Convention, but by the CPCCN. Section 77 provides that the party entitled to recover costs should receive all expenses incurred to avoid litigation and/or to present its case. Such provision also authorizes a court (and, when applicable, an arbitral tribunal) to reduce any excessive request in that regard at its discretion.
As stressed above, the law authorizes the recovery of expenses that were pertinent and useful for in pursuing the claim, and that are, additionally, reasonable. Consequently, although it is not customary to include in a local judicial claim a request for recovery of the attorney’s fees paid to the prevailing party, from a theoretical standpoint, nothing would prevent a party from including the claim for reimbursement of the fees already paid to its counsel in preparation (and/or in the pursuit) of the complaint, provided that after final scrutiny of the arbitral tribunal, these are found relevant and reasonable.
- Santiago Capparelli is a partner in Baker & McKenzie’s Buenos Aires office. He practices litigation, alternative dispute resolution, and international and domestic arbitration, and has represented and continues to represent parties in ad hoc arbitral proceedings, as well as in proceedings administered by the ICC and local arbitral institutions, such as the Buenos Aires Stock Exchange Market Arbitral Tribunal, the Buenos Aires Grain Market Arbitral Tribunal and the Private Center for Mediation and Arbitration.
- Luis Dates is the Head of the Dispute Resolution Practice Group in Baker & McKenzie’s Buenos Aires office and a member of the Firm’s Latin America Steering Committee. He represents several major clients in complex civil and commercial litigation before federal, provincial and municipal courts and is very active in domestic and international arbitration, representing several companies in such proceedings, mainly before the Buenos Aires Stock Exchange Market Arbitral Tribunal. Mr. Dates also has extensive experience across a range of public and administrative law litigation and regulatory disputes, including environmental litigation. He has been appointed as mediator and arbitrator for the Private Centre of Mediation and Arbitration. He has written books and numerous articles within his specialization for various legal publications. Additionally, he is a professor at the School of Law of the University of Buenos Aires.
- Julian Bordacahar is an associate in Baker & McKenzie’s Buenos Aires office. He practices litigation and international and domestic arbitration. He has been involved in proceedings administered by the ICC and local arbitral institutions, such as the Buenos Aires Stock Exchange Market Arbitral Tribunal. He graduated from the School of Law of the University of Buenos Aires, where he also completed a Masters Program in Oil & Gas. In addition, he teaches both International Commercial, and Investment Arbitration, and coaches the University’s Vis and FDI Moot teams.
- Código Procesal Civil y Comercial de la Nación, [National Code of Civil and Commercial Procedure], Law No. 17.454, 20 September 1967, as restated in Decree 1042/1981, 18 August 1981, et seq.
- Cámara Nacional de Apelaciones en lo Comercial (National Court of Appeals on Commercial Matters), Chamber “D,” 4/9/15, Methanex Chile Limited v. Petrobras Energía S.A. (ARGENTINA) s/ Medida Precautoria, Exp., N° 36715/2014.
- Cámara Nacional de Apelaciones en lo Comercial (National Court of Appeals on Commercial Matters), Chamber “A,” 8/18/15, CCI – Compañía de Concesiones de Infraestructura S.A. s/ Pedido de Quiebra (por República de Perú), Exp., N° 8030/2015.