INTERNATIONAL COMMERCIAL ARBITRATION IN SOUTH AMERICA
By:
R. Doak Bishop
King & Spalding
1100 Louisiana
Suite 3300
Houston, Texas 77002
(713) 751-3205 (Tel)
(713) 751-3290 (Fax)
and
James E. Etri
Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
(214) 978-3000 (Tel)
(214) 978-3099 (Fax)
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INTERNATIONAL COMMERCIAL ARBITRATION IN SOUTH AMERICA1
by R. Doak Bishop*
James E. Etri**
I.
Introduction
The United States and Latin American nations have historically taken different attitudes
toward arbitration. The United States developed an open litigation system that, in recent years,
has led to a plethora of litigation. At the same time, U.S. companies expanded beyond the
borders of the United States and invested in natural resources and trade throughout the world.
As a result of this domestic litigation flood, and a realization that the best way to protect U.S.
companies in international trade was through recognition of a neutral dispute resolution system,
U.S. courts developed a tolerant -- even embracing -- attitude toward arbitration.
Latin America, however, has been slower to embrace arbitration. In the early 1900's,
Latin America embraced the Calvo Doctrine to insulate themselves from intrusive foreign
pressures. Eventually, this doctrine transformed into the Calvo Clause. Latin American
countries and state-owned companies inserted the Calvo Clause into contracts to preclude foreign
parties from arbitrating disuptes. Gradually, the aversion to international arbitration found its
way into domestic policy, and Latin American nations also erected barriers restricting the use of
arbitration in domestic disputes.
Over the past two decades, Latin America's perspective on arbitration has evolved. As
Latin American economies mature, the amount of foreign investment has grown. Weary of Latin
America's hostility toward foreign entities, these companies seek a neutral way to resolve
disputes. To maintain foreign confidence in their economies, Latin American nations have
increasingly integrated arbitration into their policies as a way to resolve disputes. In fact, most
Latin American countries have ratified international treaties that promote a neutral dispute
resolution system.
This paper will trace Latin America's approach to arbitration. In this regard, the paper
will explain the development and ultimate rejection of the Calvo Doctrine. Next, the paper will
provide an overview of the arbitration laws of several Latin American countries. Finally, the
paper will analyze the Panama Convention, the New York Convention, and the ICSID
Convention. In particular, this section will discuss case law that apply these Conventions to
Latin American parties.
1
Portions of this article are reprinted from: R. Doak Bishop, The United States' Perspective Toward
International Arbitration with Latin American Parties, 8 INT'L L. PRACTICUM 63 (Autumn 1995), published by the
New York State Bar Association, One Elk Street, Albany, New York 12207.
*
Partner, Baker & McKenzie, Dallas, Texas, USA.
**
Associate, Baker & McKenzie, Dallas, Texas, USA.
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II.
Historical Hostility to Arbitration in Latin America: The Calvo Doctrine
The Calvo Doctrine was formulated by Carlos Calvo, an Argentine diplomat, and
published as part of his six-volume treatise, Le droit international theorique et pratique, which
appeared in five editions between 1868 and 1896.2 The doctrine was created in the wake of the
armed interventions in Mexico by France in 1838 and 1861 to effectuate certain claims of French
citizens against the Mexican government.3 At heart, the doctrine is a justification of the right of
governments to be free of interference of any sort.4 The Calvo Doctrine provides that aliens are
not entitled to rights and privileges that are not accorded to nationals of a given country, and
therefore, aliens doing business in a given country may seek redress for any grievances only
before local authorities.5 The corollary of this concept is that governments can have no greater
responsibility toward aliens than they have to their own citizens.6
The Calvo Doctrine was quickly accepted in Latin America,7 and was used to restrict
foreigners from resorting to diplomatic protection for disputes with the host country.8
Eventually, the Calvo Doctrine was transformed into the Calvo Clause, and many Latin
American countries attempted to implement the doctrine by negotiating it into treaties.9 Some
countries incorporated the doctrine into their constitutions,10 while others included it in domestic
legislation.11
Latin American governments and their state-owned companies insisted that international
contracts contain the Calvo Clause.12 The Calvo Clause obligated aliens to submit any disputes
to the local authorities of the host country and prohibited the alien from seeking diplomatic
protection in any disputes with the host country or its companies.13 Further, it provided that the
law of the host country governs the disputes.14
There are four variants of the Calvo Clause as found in national constitutions.15 First, the
clause may exclude diplomatic protection for alien investors under any circumstances.16 Second,
it may allow aliens to seek diplomatic protection from their own governments, but only in cases
of a denial of justice.17 Third, it may provide the same as the second example, but define a
2
Donald Shea, The Calvo Clause at 17 (1955).
Id. at 12-13.
4
Id. at 19.
5
Id.
6
See id.
7
Id. at 21.
8
Id. at 5-6.
9
Id. at 21-24.
10
Id. at 24-25.
11
Id. at 26-27.
12
See id. at 30-31.
13
Id. at 28-30.
14
Id. at 29.
15
Manuel Garcia-Mora, The Calvo Clause in Latin American Constitutions and International Law, 33
MARQ. L. REV. 205, 206-07 (1950).
16
Id. at 206-07 (Mexican Constitution art. 27, ¶ 1; Ecuadorian Constitution art. 177; Peruvian Constitution
art. 32; Venezuelan Constitution art. 108).
17
Id. at 207 (Bolivian Constitution art. 18).
3
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denial of justice narrowly so as to exclude an executory verdict unfavorable to the alien.18
Finally, it may provide simply that aliens are subject to treatment and obligations equal to
nationals.19 Undoubtedly, many of these constitutional provisions have been revised since
Manuel Garcia-Mora did his survey in 1950.
In addition to the constitutional provisions, the civil codes of many Latin American
countries required foreigners to renounce all diplomatic protection under penalty of forfeiture of
property. In Peru, for example, foreigners were required to submit to local law and tribunals, and
commercial questions affecting the property and financial interests of the state were not
arbitrable.20 Colombia’s Constitution had no Calvo provision, but (at least as of 1975) its civil
code contained a Calvo Clause (Art. 18, 19) that apparently had never been used.21 In Chile,
Article 16 of the Civil Code precluded third-party arbitral procedures. This provision tracked the
constitutional provision that “all assets located in Chile are subject to Chilean laws even when
the owners of said assets are foreigners and reside abroad.”22 In Costa Rica, it appears that the
Calvo Clause was required in government concession contracts, but the Constitution and Civil
Code emphasized equality of treatment of nationals and aliens.23 The Ecuadorian Constitution
(Art. 152) and Civil Code (Arts. 13 & 48) ensured equality to foreign nationals, but “renuncia
diplomatica” was required in contracts between the state or its nationals and foreigners
(Constitution art. 153).24 Article 52 of the Paraguayan Constitution ensured foreigners the same
rights and obligations as nationals, subject to legislative limitations (Art. 52), whereas the
Uruguayan Civil Code subjected all foreign residents to local jurisdiction, although typical
“renuncia diplomatica” language was absent (Arts. 3-5).25
The Andean Code, which was created by the Cartageña agreement in May 1969 with
Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela as members, contained an example of a
Calvo Clause. Decision 24 of the Andean Code stated:
In no instrument relating to investment or the transfer of technology shall there be
clauses that remove possible conflicts or controversies from the national
jurisdiction and competence of the recipient country or allow the subrogation by
states to the rights and actions of their national investors.26
The Latin American position has generally been summarized in two arguments in favor
of the Calvo Clause :
18
19
Id. (Nicaraguan Constitution art. 25; Honduran Constitution art. 19).
Id. at 207-08 (Cuban Constitution art. 19; El Salvadoran Constitution art. 45; Costa Rican Constitution
art. 12).
20
Peruvian Civil Code art. 14, 1913.2.
Roger Wesley, The Procedural Malaise of Foreign Investment Disputes in Latin America: From Local
Tribunals to Factfinding, 7 LAW & POL’Y IN INT’L BUS. 813, 823 (1975).
22
Id.
23
Id. at 825 n.62.
24
Id. at 825 n.63.
25
Id. at 825 n.65.
26
Id. at 837.
21
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(a)
an alien has no right legally to demand treatment better than that accorded to
nationals of the state; and
(b)
there is no logical or judicial reason under international law for not holding an
alien to his contractual waiver of diplomatic protection.27
Latin American governments have invoked the Calvo Clause in several international
arbitrations to challenge the jurisdiction or competence of the arbitral tribunal. Prior to 1926, the
Calvo Clause was denied its intended effect of barring international claims in eleven cases before
mixed claims tribunals, but was upheld to bar international claims in eight other cases.28
The U.S. government has taken the position that to the extent the Calvo Clause merely
requires that local remedies be exhausted, it accords with international law.29 But the U.S.
position demands that local remedies still satisfy an international minimum standard of justice,
and the U.S. view of what constitutes a denial of justice is broader than the definition set out in
the constitutions of many Latin American nations.30 Mainly, however, the U.S. government
claims that states possess the right of recovery for their citizens, and citizens cannot waive or
destroy the right of the state to intervene diplomatically to assert the claim.31
The leading arbitral decision addressing the validity of the Calvo Clause is North
American Dredging Co. of Texas (United States of America v. United Mexican States). That case
was decided in 1926 by the United States-Mexican Claims Commission, which was established
in 1923. The U.S. government asserted a claim for $233,000 on behalf of a U.S. corporation for
breach of a contract for dredging a Mexican port. The contract provided in Article 18 that the
U.S. company would be considered as a Mexican in all matters concerning the contract, it would
not have (or claim) any rights (or means to enforce rights) other than those granted to Mexicans,
and that diplomatic intervention on its behalf was not permitted. The Convention which created
the Claims Commission included in Article V a waiver of any necessity for the parties or their
citizens to exhaust local remedies as a condition precedent to asserting their claims.
In North American Dredging, the Claims Commission announced what has been referred
to as a “rule of limited validity” of the Calvo Clause.32 The Commission decided that the clause
(Article 18), as part of a contract, must be upheld unless it is repugnant to a generally accepted
principle of international law. The Commission, however, found no such principle of
international law, and in fact decided that an alien may lawfully promise not to seek diplomatic
protection from its government. At the same time, the Commission held that an alien cannot
deprive its government of the right to apply international remedies to violations of international
law that injure the government’s citizens. But, no rule of positive international law empowers a
government to intervene to strike down a lawful contract. Applying these principles, the
Commission held that the claimant was precluded by the Calvo Clause from presenting its claim
27
Comment, The Calvo Clause: Its Current Status as a Contractual Renunciation of Diplomatic
Protection, 6 TEX. INT’L L. FORUM 289, 290 (1971).
28
Shea, supra note 2,at 122.
29
Comment, supra note 27, at 294-95.
30
Id. at 294.
31
Id. at 294-95.
32
Id. at 296.
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to its government for breach of contract, and dismissed its claim. The Commission, however,
cautioned that if the claimant’s resort to Mexican tribunals resulted in a denial or delay of justice,
as those terms are used in international law, the Calvo Clause would not bar the claimant from
applying to its government for protection. In this situation, the claim would not be for breach of
contract, but for denial of justice under international law. Thus, although the Commission
upheld the efficacy of the Calvo Clause, it also held that the Clause did not bar a claim that the
host country’s courts have denied justice to the claimant under general principles of international
law.
Despite its acceptance in Latin America, the Calvo Clause has not been generally
accepted by nations outside Latin America, and has not become a generally accepted principle of
customary international law.33 Over the years, the clause seems to have lost much of its appeal
and controversy.34 Generally, the United States government today does not intervene
diplomatically on behalf of its citizens in disputes with Latin American governments except in
cases of flagrant denials of justice.35
III.
Changing Attitudes Toward Arbitration In Latin America
The traditional hostility of Latin American countries towards international arbitration has
changed dramatically in the past twenty years or so. Several Latin American countries have
amended their domestic legislation to facilitate the commercial arbitration process, providing for
the enforceability of an arbitration clause, the use of a foreigner as arbitrator and, in general,
creating a more hospitable climate to the process of international commercial arbitration.36
A softening of Latin American attitudes towards arbitration is evidenced also by the
changes made in the Andean Pact in May 1987, when Decision 24 was superseded by Decision
220.37 The new provision allows each member to choose, under its own domestic legislation, the
dispute resolution mechanism applicable to foreign investment or foreign technology contracts.38
The Andean legal framework, therefore, no longer prevents its members from agreeing on
foreign arbitration in these areas.39
As regards private-state disputes, arbitration has been used in Bolivia, Argentina, Peru,
Brazil, Mexico, Chile, Uruguay and Venezuela in international contracts to which the state or
state entities are parties concerning financing, insurance, and equipment or commodity
acquisition or sale.40 Article 136 of the Peruvian Constitution (1979) provides for the insertion
of arbitral clauses in international loan agreements to which Peru or its state entities are parties.41
33
Shea, supra note 2,at 20, 258; Comment, supra note 27, at 306.
Comment, supra note 27, at 308.
35
Id. at 306; Garcia-Mora, supra note 15, at 219.
36
Charles Robert Norberg, Current Issues in International Commercial Arbitration: Recent Developments
in Inter-American Arbitration, 12 J. INT’L L. BUS. 86, 91 (1981).
37
Grigera Naon, Arbitration in Latin America: Overcoming Traditional Hostility, 5 ARB. INT'L 137, 140
(1989).
38
Id.
39
Id.
40
Id.
41
Id.
34
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Except in matters of public policy, it appears that foreign arbitration is now possible when the
state contracts as a private person.42
The United States-Argentina Bilateral Investment Treaty (“BIT”), which entered into
force in 1994,, has been hailed as a model investment treaty for Latin America.43 The BIT
represents Argentina’s final abandonment of the Calvo doctrine because it provides for the
settlement of investment disputes through international arbitration without prior exhaustion of
local remedies.44
In recent years, an increasing number of Latin American nations have adopted this
philosophy and have ratified various international conventions requiring the enforcement of
foreign arbitral awards. For example, eleven Western Hemisphere nations are now parties to
both the Inter-American Convention on International Commercial Arbitration (Panama
Convention) and the United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (New York Convention): Argentina, Chile, Colombia, Costa Rica, Ecuador,
Guatemala, Mexico, Panama, Peru, the United States and Uruguay. Fifteen other nations are
parties to one of these two conventions: Panama Convention - Bolivia, Brazil, Dominican
Republic, El Salvador, Honduras, Nicaragua, Paraguay, and Venezuela; the New York
Convention - Antigua & Barbuda, Barbados, Canada, Cuba, Dominica, Haiti, and Trinidad &
Tobago. This trend provides perhaps the most concrete evidence of the changing attitudes
toward, and growing acceptance of, international arbitration in Latin America.
IV.
Individual Latin American Countries
A.
Argentina
Like many Latin American nations, Argentina traditionally opposed arbitration as a way
to resolve disputes. This view has substantially changed. Today, parties' dissatisfaction with the
judicial system, along with the imposition of a 3% tax on the amount in dispute before a court
even hears the lawsuit, has sparked a renewed interest in arbitration.
1.
Jurisdiction
The Federal Code of Civil Procedure ("CPC") establishes the guidelines for arbitration.
Arbitrations are subject to (1) the procedural arbitration laws of the province where the
arbitration is conducted, and (2) the supervision of the courts of that jurisdiction. Arbitrators
may entertain disputes of any kind, except matters relating to the validity of Argentine
legislation.45 Accordingly, the scope of arbitration is very broad. Notably, the CPC does not
distinguish between domestic and international arbitration.46
42
Id.
Edward Snyder, The Menem Revolution in Argentina: Progress Towards a Hemispheric Free Trade
Area, 29 TEX. INT’L L.J. 95, 113 (1994).
44
Id.
45
CÓD. PROC. CIV. Y COM. §§ 736-37.
46
But see Enrique C. Welbers S.A.I.C.A.G. v. Extrarktionstechnik Gesellschaft fur Anlagen-bav M.B.M.,
CNCom., [1988-E] (for purposes of interpreting and applying CPC rules, courts distinguish between domestic and
international arbitration).
43
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2.
Types of Arbitration
The CPC provides three types of arbitration: (1) expert arbitration, (2) amiable
compositeur arbitration, and (3) regular arbitration. The CPC rules specify cases to which expert
arbitration is applicable.47 Parties may select amiable compositeur arbitration for any matter.48
In this arbitration proceeding, the amiable compositeur reviews only the documents submitted
by the parties, and then reaches his decision ex aequo et bono. The amiable compositeur's award
does not need to contain the arbitrator's legal reasoning. The final method of arbitration is
regular arbitration.
3.
Arbitrators
The Argentine arbitrator follows a strict code of ethics. He receives formal training on
how to conduct questionings and how to ensure competitive negotiations. In domestic
arbitrations, only lawyers admitted to practice law in the place of arbitration may serve as
arbitrators.49 Based partly on necessity and nationalistic fervor, this requirement was imposed
because the arbitrators were required to interpret and apply Argentine law. The CPC also
imposes a heavy burden on the arbitrators. They are treated as party-appointed judges, and must
be sworn by a court official.50 Arbitrators are liable for damages for failing to release an
arbitration award within the appropriate time limit.51 In fact, arbitrators may even be criminally
liable in certain instances of misconduct.52
4.
Overview of the Arbitration Process
The CPC does not treat arbitration merely as a method to resolve a dispute. Rather, the
CPC treats arbitration as a "method to do justice." Therefore, the arbitral proceedings are
conducted pursuant to notions of due process. Once the dispute anticipated in the arbitration
clause becomes extant, parties initiate the arbitration process by executing a compromiso
arbitral. This document identifies the arbitrators and the issues submitted, as well as the
damages caused by the failure to comply with this document. All disputes over the interpretation
of the compromiso arbitral will be resolved by courts.53 Although the CPC does not specifically
deal with arbitration clauses, courts strictly enforce written arbitration clauses. The arbitration
clause is considered independent of the contract. Therefore, nullity of the contract will not effect
its validity. Parties willing to enforce this clause can obtain an order to stay litigation. However,
parties seeking to stay litigation only have a limited time to do so. Because a party can waive its
failure to stay litigation, they should immediately review the applicable CPC provisions. Once
the matter proceeds to arbitration, the arbitration proceeding is held where the compromiso
arbitral was executed, unless the parties agreed otherwise. After this document is executed, the
arbitrators are sworn and the proceedings commence.54
47
CÓD. PROC. CIV. Y COM. § 773.
Id. §§ 766-72.
49
Amura, Elso v. Goglino, Emilio Jose et al., CNCiv. [1948-A].
50
CÓD. PROC. CIV. Y COM. §§ 746-47.
51
Id. § 756.
52
CÓD. PROC. PEN. §§ 269.
53
CÓD. PROC. CIV. Y COM. §§ 739-742.
54
Id. §§ 739-44.
48
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5.
Enforcing Arbitral Awards
The CPC governs the recognition and enforcement of foreign judgments and arbitral
awards. Generally, the CPC is friendly towards enforcing foreign arbitral awards. As such, a
party may resist enforcement of a foreign award only when: (1) the matter was not arbitrable
pursuant to Argentine law by arbitrators acting abroad, (2) the defendant was not personally
served, or (3) the award is contrary to Argentine ordre public, or is inconsistent with a prior
Argentine judgment.55
Domestic arbitration awards, like court judgments, must have a date, the signature of the
arbitrators, and comply with all other requirements applicable to judgments. If a party chooses
to appeal an arbitral award, it must file its appeal with the court or ask the court to vacate the
award within five working days of the award.56 Failure to comply with the time requirements
results in a waiver of the party's right to appeal, unless there is a fundamental defect in the award,
such as (1) an essential flaw in the proceedings, (2) the award was issued after the date set forth
in the terms of reference, (3) the award decides matters not submitted to arbitration, or (4) the
award contains contradictory resolutions.57 Generally, parties have ten years to enforce an
arbitral award.
6.
Applicable Treaties and Conventions
Argentina is a party to the New York Convention, the Panama Convention, and the
ICSID. Argentina has also entered into bilateral investment treaties with thirty-eight countries,
including Bolivia, Chile, Ecuador, El Salvador, Peru, the United States and Venezuela.
B.
Brazil
Prior to 1996, Brazil was not receptive to commercial arbitration. Recognizing this
problem, Brazil adopted a new commercial arbitration law to provide a more hospitable
environment for commercial arbitration, particularly for international disputes.58 The new law is
comprehensive and addresses many enforcement and procedural issues. Perhaps most
importantly, it recognizes and enforces arbitral agreements and foreign awards.
1.
Jurisdiction
The new arbitration law allows parties to arbitrate any equity rights, including material
assets, rights, possessions, or anything else that is susceptible to economic value.59
55
Id. §§ 517-19.
Id. §§ 758-59.
57
Id. §§ 760-761.
58
Law No. 9.307, September 23, 1996, D.O.U. November 23, 1996.
59
Id. art. 1.
56
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2.
Arbitrators
Arbitrators are appointed in uneven numbers.60 The arbitrators may be selected by the
parties, an institution or even a court. There is no requirement that an arbitrator must be a
lawyer. After a panel of arbitrators are designated, the arbitrators should select a chairman
among themselves. If they fail to designate a member as chairman, the oldest arbitrator will
automatically be designated the chairman.
3.
Overview of the Arbitration Process
One of the most significant features of the Brazilian law is that it explicitly allows service
of process on the Brazilian party to be consummated by registered mail (with proof of receipt),
provided the party has adequate time to exercise its right of defense. Service by mail will not be
considered a violation of the national public order. Previously, if the defendant resided or was
domiciled in Brazil, the party was required to serve process by letter rogatory. The new
Brazilian law eliminates this time-consuming process.
The arbitration agreement is comprised of an arbitration clause (cláusula
compromissória) and an arbitration commitment (compromissó arbitral).61 The arbitration
clause is the agreement under which the parties agree to submit their differences to arbitration.62
The arbitration clause must be in writing, and may be contained either in the contract itself or a
separate document. The arbitration clause is independent from the rest of the contract.63
Therefore, any defenses to the remaining provisions of the contract will not necessarily apply.
Once a dispute arises, the parties must reach an arbitration commitment. The arbitration
commitment is a pledge by the parties to submit their dispute to arbitration.64 This commitment
may be judicial (an instrument attached to the case record in court) or extrajudicial (by private
written agreement signed before two witnesses or by public instrument) and should include the
names, professions, marital status, residences or domicile of the parties and the arbitrators, the
issues at stake, and the venue of the arbitration decision.65 In addition, arbitration commitments
may provide that the arbitration proceeding include discovery and be conducted according to the
rules of an institutional arbitration body or by a specialized entity.
The arbitration process begins when one party invites the other, either directly or through
the method mentioned in the contract, to execute a proper arbitration commitment. If one party
refuses to execute the arbitration commitment, the other party may request the courts to
intervene. The court will then either nominate an arbitrator or force the parties to select one
themselves.
The parties may select the legal rules governing the arbitration. The rules may include
general principles of law, custom, usage and international trade rules. Once the arbitration
60
Id. art. 13.
Id. art. 3.
62
Id. art. 4.
63
Id. art. 8.
64
Id. art. 9.
65
Id. arts. 9-11.
61
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process commences, the parties establish the length of time in which the arbitration panel must
decide the award.66 If, however, the parties fail to indicate a length of time, the arbitration panel
must make its written award within six months.67 The award must include a general and
descriptive report of the dispute, including a description of the parties and the nature of the
matter in dispute, the reasons for the final decision taken, the rulings on the various issues in the
case, a term for execution of the decision, and the place and date of issuance. The award's
decision should also detail the costs and expenses connected with the proceedings.68 Most
importantly, an arbitral award under Brazilian law has the same binding force of a state court
judgment.69
4.
Enforcing Foreign Judgments and Arbitral Awards
The Brazilian arbitration law distinguishes between foreign and domestic arbitrations.
Domestic arbitral decisions have the same effect as a decision rendered by courts. They are not
subject to appeal and do not need the judiciary's recognition.70 The procedure for enforcing
foreign awards is different. Any arbitral decision awarded outside the national territory of Brazil
will be considered "foreign."71 In order to be recognized or enforced in Brazil, a foreign
arbitration award is first subject to any international treaties, with due regard for Brazilian
legislation. In the absence of such a treaty, however, a foreign award is only subject to
confirmation by the Federal Supreme Court.72 In this instance, the interested party should file a
petition with the Federal Supreme Court which includes with the original or certified copy of the
arbitration award, authenticated by a Brazilian consulate (with a sworn translation), and the
original or certified copy of the arbitration agreement (with a sworn translation).73 After being
presented with the foreign award, the Federal Supreme Court can only refuse homologation in
limited circumstances, including when the arbitration deals with matters which, according to
Brazilian law, may only be decided by a court, and when the award is offensive to Brazilian
public order.74
5.
Applicable Treaties and Conventions
Brazil has ratified the Panama Convention. In addition, Brazil has entered into bilateral
investment treaties with ten countries, including Chile.
66
Id. art. 23.
Id. art. 24.
68
Id. arts. 26-27.
69
Id. art. 31.
70
Id. art. 18.
71
Id. art. 34.
72
Id. art. 35.
73
Id. art. 37.
74
Id. arts. 38-39.
67
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C.
Chile
Chile recently enacted a new law modifying its arbitration procedures. Although it is not
dramatically different, the new law does contain certain modifications. For example, the new
law establishes a list of arbitrators from whom the courts are exclusively limited to make
appointments. The arbitration system, however, still suffers from the excessive dependence on
the judiciary because parties require the court's authorization to enforce compliance with the
arbitrator's decision.75
1.
Jurisdiction
Chilean law resolves arbitration disputes depending upon the characterization of the case.
There are three different forms of arbitration, depending on whether the matter is civil,
commercial or labor. Civil arbitrators appraise the parties' evidence in accordance with the Code
of Civil Procedure. On the other hand, commercial arbitrators appraise the evidence in
accordance with the Commercial Code. Finally, the labor laws govern labor arbitrations. The
labor arbitration laws require that certain matters are subject to compulsory arbitration, such as
those that can cause serious damage to the national economy and security, to the supply of goods
and services to the population, and to public health.76
2.
Types of Arbitration
There are three kinds of arbitration: compulsory arbitration, prohibited arbitration and
optional arbitration. Compulsory arbitration are those matters that the law requires the parties to
arbitrate. These matters include, among others:
(a)
the liquidation of joint ownership or property by husband and wife, a general
partnership, a limited partnership or a joint ownership;
(b)
the differences which may arise between the partners of a corporation, a general
partnership, or a limited commercial partnership;
(c)
land, ocean and air transportation disputes;
(d)
insurance and reinsurance disputes; and
(e)
trademark, patent and license agreements.77
In addition, parties are prohibited from arbitrating certain matters, including alimony,
criminal cases, local police cases and those cases which should be heard by the Attorney
General's office. If the matter in dispute addresses issues covered by both compulsory and
75
Hernan G. Somerville, Arbitration in Chile, in International Commercial Arbitration in Latin America 20
(ICC Publishing S.A., 1997).
76
Id. at 15.
77
Id. at 18-19.
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prohibited arbitration, compulsory arbitration controls. Finally, optional arbitration includes
those matters which are not addressed by either compulsory or prohibited arbitration.78
3.
Arbitrators
There are two different types of arbitrators in Chile, arbitrators bound by legal principles
and amiable compositeurs. Arbitrators bound by legal principles render a decision pursuant to
the Code of Civil Procedure. On the other hand, amiable compositeurs judge the dispute in
accordance with the principles of equity. In this regard, they are bound to the procedures agreed
upon by the parties.
The only requirements for amiable compositeurs are that they be at least eighteen years
old (the legal age) and fully empowered to administer their assets. Foreigners may serve as
amiable compositeurs. While arbitrators bound by legal principles must also be greater than
eighteen years old and fully empowered to dispose of their assets, they must also be a lawyer and
cannot be a judge or officer of the Department of Justice. As such, foreigners cannot be
appointed arbitrators bound by legal principles.79
The parties are free to designate their own arbitrator. If they fail by agreement to select
one, the courts appoints the arbitrators. Under the new law, the court selects an arbitrator from a
national list of arbitrators compiled and kept by the Ministry of Justice. In essence, the new law
establishes a group of "professional arbitrators" from which the courts exclusively select.80
4.
Overview of the Arbitration Process
Parties designate arbitrators through a written contract known as a compromiso. Through
the compromiso, the parties decide to submit a specific issue to arbitration. The compromiso
should list the full names of the litigating parties, the designated arbitrator, the issue being
submitted, the powers conferred on the arbitrator, and the time and place the arbitrator shall carry
out his duty. The parties can stipulate which type of arbitrator governs the arbitration. If the
parties fail to do so, the arbitrator acts as one bound by legal principles. Once a case is submitted
for arbitration, the parties are precluded from seeking relief from the courts.81
Because the arbitrators' decision has the characteristics of a final award, it must satisfy
the same requirements as judgments rendered by a court. Accordingly, the award should include
the date of the award, the names of the parties, and a brief description of the claims submitted.
In addition, awards rendered by arbitrators bound by legal principles should include the factual
and legal foundations of the award. On the other hand, amiable compositeurs should state the
principles of justice on which their decision is based, the resolution of the case, and the place
where the decision was rendered.
78
Id. at 16-17.
Id. at 16.
80
Id. at 16.
81
Id. at 15-16.
79
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The procedure to appeal an arbitrator's decision depends on the type of arbitrator. Parties
appeal decisions rendered by arbitrators bound by legal principles in the same manner as they
would appeal a judgment of the court. On the other hand, appeals of amiable compositeurs'
decisions are limited. Parties may only appeal these decisions through clarification, correction
amendment and cassation.82
5.
Enforcing Foreign Judgments and Arbitral Awards
Chilean law distinguishes between foreign and domestic arbitral awards. Domestic
arbitral awards have the same effect as a court's judgment. Once the decision becomes final, the
party has three years to request compliance with the arbitrators' decision. Parties may use the
police to enforce the award and the arbitral awards will be enforced regardless of the parties'
nationalities.83
Contrary to domestic awards, a party must follow particular procedures to enforce a
foreign arbitral award. First, the party is required to abide by any applicable international treaty.
If a treaty does not exist, the Supreme Court of Justice follows a procedure called "Exequatur."
Under this procedure, the court analyzes whether the country which rendered the decision
recognizes decisions from Chilean national courts. If it does not, the court shall observe the
principle of Regularity. Applying this principle, the Supreme Court of Justice considers whether
the award is contrary to the laws of Chile or the national jurisdiction, and the aggrieved party's
ability to defend its case during trial. If the foreign award is declared enforceable, the Supreme
Court of Justice orders the court which should have entertained the suit in the first instance to
enforce the award. Courts will not enforce awards which fail the Regularity test. If a party
disagrees with a court's decision to enforce an award, their only recourse is to file within three
days a motion to set aside the award.84
6.
Applicable Treaties and Conventions
Chile has ratified the New York Convention, the Panama Convention and the ICSID.
Chile is also a party to twenty-nine bilateral investment treaties, including agreements Argentina,
Bolivia, Brazil, Ecuador, Uruguay and Venezuela.
D.
Ecuador
In order to facilitate Ecuador's integration to the global trading market, Ecuador recently
amended its laws on arbitration to broaden parties' rights to submit disputes to arbitration.85
1.
Jurisdiction
The new arbitration law does not specify the matters that parties may submit to
arbitration. Rather, the law simply states that parties may submit present and future disputes to
82
Id. at 18-19.
Id. at 17-18.
84
Id. at 19.
85
Law No. 145, September 4, 1997.
83
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arbitration.86 Ecuadorian law, however, imposes a hurdle for public sector entities seeking to
arbitrate disputes. Before agreeing to arbitrate, public sector entities must receive express
authorization of the State's General Attorney.87 Further, the agreement to arbitrate must select
the arbitral institution and must be signed by an authorized person on behalf of the public sector
entity.88
Notwithstanding international treaties, parties may agree to international arbitration if the
parties are domiciled in different states, a substantial part of the dispute is outside of the domicile
state of one of the parties or if the dispute refers to international trade operations.89
2.
Arbitrators
There are two types of arbitrators, those who decide the dispute "in equity" and those
who decide the dispute "by right."90 Arbitrators who decide disputes "in equity" render decisions
based on their personal knowledge and understanding. As such, they do not necessarily have to
be attorneys. On the other hand, decisions issued by "right" are those made pursuant to the law.
Accordingly, arbitrators "by right" must be attorneys.91 Parties may also submit their disputes to
arbitrage centers contained in the local jurisdiction.
3.
Overview of the Arbitration Process
The arbitration agreement must be written. If the agreement references a matter outside
the contract, the agreement must contain an additional document expressing the parties' intention
to submit this matter to arbitration.92 The parties may freely designate in the agreement where
the arbitration shall take place.93 Pursuant to this agreement, the parties submit their disputes to
arbitration.
The new law provides that each "region" may establish its own arbitration centers. In
addition to assigning the arbitrators, the arbitration centers are responsible for training
arbitrators. The center creates its own regulations, including the criteria for arbitrators, the
selection procedures and their fees.94 Once a dispute arises, the parties submit its demand for
arbitration to the arbitrator designated in the agreement or the appropriate arbitrage center.95 The
demand must include the names of the arbitrator or arbitral institution, the names of the parties,
the issue submitted and the amount in question. The arbitration agreement should also be
included.96 After the demand is submitted, the arbitrator or director of the arbitral institution will
gather the parties, along with an appointed mediator, for a mediation hearing. In an attempt to
86
Id. art. 1.
Id. art. 4.
88
Id.
89
Id. art. 41.
90
Id. art. 3.
91
Id.
92
Id. art. 4.
93
Id. art. 35.
94
Id. art. 40.
95
Id. art. 10.
96
Id.
87
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facilitate a resolution, the arbitrator or director of the arbitral institution and the mediator will
listen to the arguments and review the parties' evidence.97 If the parties fail to reach an
agreement during this hearing, the main arbitrators, if not already selected, will then establish a
tribunal to resolve the dispute.98 As a precautionary measure, the tribunal may require the party
requesting arbitration to submit a guarantee to cover the other party's costs of the arbitration.99
After the tribunal is formed, it analyzes the parties' evidence. At the conclusion of the
hearing, the tribunal must issue a decision within 150 days.100 The decision must be in writing
and signed by each arbitrator on the tribunal. Arbitration awards cannot be appealed by the
parties. The awards, however, may be clarified if a party files a motion within three days after
the tribunal renders the decision.101
4.
Enforcement of Foreign Judgments and Arbitral Awards
The parties must immediately comply with the tribunal's decision. Arbitration awards
issued have the same effect as a court's judgment and the parties may request the courts to force
compliance with the decision.102 Decisions rendered pursuant to international arbitration
procedures have equal force as domestic arbitral awards and are similarly enforced.103
5.
Applicable Treaties and Conventions
Ecuador is a party to the New York Convention and the Panama Convention. In addition,
Ecuador has entered into bilateral investment treaties with fourteen nations, including Argentina,
Bolivia, Chile, El Salvador, Paraguay, the United States and Venezuela.
E.
Peru
1.
Jurisdiction
Peru recently enacted a law which governs both domestic and international arbitration.104
An arbitration is considered international if: (1) the place of arbitration is outside Peru, (2) a
substantial part of the underlying obligations occurred outside Peru, or (3) the parties agreed that
the subject matter of the arbitration agreement relates to the laws of more than one country.
Section 1 (Articles 1-87) governs domestic arbitration and Section 2 (Articles 88-130) governs
international arbitration.
Generally, the parties have the right to submit to arbitration any existing or future
dispute.105 The parties are only precluded from submitting to arbitration disputes or claims that
97
Id. art. 15.
Id. arts. 16-17.
99
Id. art. 9.
100
Id. art. 25.
101
Id. art. 30.
102
Id. art. 32.
103
Id.
104
Law No. 26572, January 3, 1996 ("G.A.L.").
105
Id. art. 98.
98
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are within the exclusive competence of the judiciary or military jurisdiction, or disputes or
claims that are related to international public order.106
2.
Types of Arbitration
Arbitration made be either de jure or ex aequo et bono. In de jure arbitration, arbitrators
settle disputes according to the law, while arbitrators in ex aequo et bono arbitratrations settle
disputes according to equity principles. Unless agreed upon otherwise, all domestic arbitrations
are presumed ex aequo et bono arbitrations,107 while the default provision for international
arbitrations is de jure arbitration.108 In all cases, however, the arbitral tribunal resolves the
disputes according to the arbitration contract.
3.
Arbitrators
The parties can decide the number of arbitrators.109 If the parties fail to designate a
particular number, then three arbitrators are appointed. There are no restrictions prohibiting
foreigners from acting as arbitrators either in domestic or international arbitrations.110 The only
requirement is that arbitrators in de jure proceedings must be a registered attorney over the age
of twenty-five.
4.
Overview of the Arbitration Process
According to the G.A.L., parties entering into arbitration agreements agree to avoid
initiating a lawsuit, or to terminate one that exists. The parties themselves must invoke the lack
of jurisdiction of the state court. A court cannot intervene in an arbitration unless (1) the
agreement is manifestly null and void, (2) the issue is a matter of the exclusive jurisdiction of the
courts of the Republic, or (3) the agreement violates international public policy.111
The arbitration agreement must be in writing. The agreement can be included as a clause
in the main contract, or submitted as a clause in a separate agreement. The agreement may be a
single writing, or an exchange of correspondence which unequivocally gives documentary
evidence of the parties' desire to submit to arbitration.112 The arbitration agreement is
independent of the contract. Therefore, nullity, voidability, rescission, or total or partial
termination of a contract does not invalidate the arbitration agreement.113
The parties establish the rules governing the arbitration and designate the location of the
arbitration. If the parties cannot agree on a location, the arbitral tribunal may meet at any place it
considers appropriate.114 The parties to an arbitration may act on their own behalf or be
106
Id. art. 99.
Id. art. 3
108
Id. art. 117.
109
Id. art. 101.
110
Id. arts. 25, 101.
111
Id. art. 99.
112
Id. art. 98.
113
Id. art. 106.
114
Id. art. 109.
107
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represented by an attorney. There is no requirement that the attorney must be a licensed
Peruvian attorney. The parties then have five days to submit their position. The arbitral tribunal
determines the admissibility, relevance, materiality and weight of any evidence.115 After each
party presents their evidence, the arbitrator commences a hearing to settle the dispute. If no
settlement is possible, each party shall have another opportunity, not to exceed fifteen days, to
submit additional evidence. After both sides conclude their presentation, the arbitrator must
issue a written award within twenty business days. Unless the parties agreed otherwise, the
award must also state the factual and legal basis supporting the decision.
A party may not appeal a domestic award unless the arbitration agreement provides
otherwise. If the agreement does not permit an appeal, the party must within three days file its
appeal with either the judiciary or another arbitration panel. In any event, ex aequo et bono
awards are not appealable, and are only subject to annullment. With regard to international
awards, parties have fifteen days to file its appeal.
5.
Enforcing Foreign Judgments and Arbitral Awards
A party seeking to enforce a foreign arbitral award is required to obtain an exequatur. A
party submits its request for recognition of a foreign award to the Civil Division of the Superior
Court having jurisdiction over the domicile of the obligor on the date that the petition is filed, or
if the obligor does not have his domicile within Peru, the place where his assets are located.116
The parties submit the original or a certified copy of the arbitration award (with a sworn
translation), and the original or a certified copy of the arbitration agreement (with a sworn
translation).117 There is no time limit for filing this request, but the other party only has five days
to oppose its enforcement. If the exequatur has been refused in whole or in part by the Superior
Court, a party may file an appeal for cassation within ten days. If the foreign award is
recognized, it has the same value as a court judgment.
6.
Applicable Treaties and Conventions
Peru has ratified the New York Convention, the Panama Convention and the ICSID
Convention. In addition, Peru has signed bilateral investment treaties with twenty-three nations,
including Argentina, Bolivia, Columbia, El Salvador, Paraguay and the United States.
F.
Venezuela
Venezuela recently enacted a new law governing arbitration disputes.118 The new law,
replacing the old rules contained in the Code of Civil Procedure Articles 608-629, substantially
revamped Venezuela's arbitration policy. The new law eliminates the requirements that
arbitration be characterized by subject matter. Rather, the law establishes two types of
arbitration proceedings, "institutional" arbitration and "ad hoc" arbitration. The new law applies
to commercial arbitration, regardless of any multilateral or bilateral arbitration treaties.
115
Id. art. 108.
Id. art. 127.
117
Id.
118
Law No. 36.430, April 7, 1998.
116
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1.
Jurisdiction
In Venezuela, parties may submit all disputes to arbitration with the exception of the
following:
1.
Those that are contrary to public policy or related to crimes or unlawful activities,
except with respect to the amount of civil liability, provided such liability has not
been established under a definitive award or ruling by a court;
2.
Those directly related to the powers or functions of the Venezuelan State or of
public officials or entities;
3.
Those related to the civil status and capacity of persons;
4.
Those related to property and rights or disabled persons; and
5.
Those subject to a definitive award or ruling by a court, except with respect to the
consequences of such award or sentence that relate exclusively to the parties, and
which fall outside of the scope of such award or ruling.
Venezuelan law also imposes a hurdle on state-owned entities seeking to arbitrate
disputes. These entities must receive unanimous approval from its board of directors and written
authorization from the appropriate governmental entity. 119 In addition, the arbitration agreement
must specify the type of arbitration and the number of arbitrators, which can be no less than
three.
2.
Types of Arbitrators and Arbitration
There are two types of arbitrators, "ad hoc" arbitrators and "institutional arbitrators."120
Ad hoc arbitrators are those arbitrators appointed individually by the arbitration agreement.
They can either be arbitrators bound by legal principles or bound by equity.121 Arbitrators bound
by legal principles follow the law, while arbitrators bound by equity award their decisions
according to notions of equity. Both arbitrators, however, adhere to the restrictions established
by the arbitration agreement and apply industry customs and trade usage.122 If the parties do not
specify the type of arbitrator, then the arbitrator is one bound by legal principles.
The new law also provides "institutional" arbitration. This type of arbitration proceeding
can be performed by a broad range of organizations, including business groups, academics and
economists. In order to create a valid arbitration institution, the group must:
(1)
designate a director of the institution;
119
Id. art. 4. This rule, however, only applies to arbitration agreements signed after April 7, 1998.
Id. art. 2.
121
Id. art. 8.
122
Id.
120
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(2)
develop its own arbitral procedural rules;
(3)
create a list of arbitrators, including their criteria; and
(4)
establish a fee plan.123
The parties are free to appoint and decide the number and type of arbitrators as long as
they are appointed in odd numbers.124 If the parties fail to determine the number of arbitrators,
then three arbitrators will resolve the dispute. The parties can select the entire panel of
arbitrators themselves, or each party can appoint a single arbitrator and then both arbitrators will
elect the third arbitrator. If the parties cannot agree on the selection of the arbitrators, the
judiciary shall appoint them.125
3.
Overview of the Arbitration Process
The new law defines an arbitration agreement as "an agreement by which the parties
choose to submit to arbitration all or any of the disputes that may arise between them pursuant to
a legal contractual or non-contractual relationship."126 This agreement must be evidenced in a
written instrument. The arbitration clause does not have to be contained in a single written
instrument. Rather, it may be evidenced in an exchange of writings.127 Although the agreement
does not need to be in any particular form nor require the use of any particular language, in
practice, parties should include a separate signature block specifically attesting to their voluntary
consent.128
Once the arbitrators have been selected, the tribunal notifies the parties of the appropriate
fees and costs. The parties then have five days to object to the fees and costs.129 If there are no
objections or the parties mutually agree to other arrangements, the parties deposit the costs with
the tribunal. The law provides that all unused costs will be accounted for in the arbitral award.130
After each party deposits its costs, the tribunal notifies the parties of the time, date, and
place of the arbitration. At the first hearing, the parties read their respective complaints and
outline the issues to be heard by the tribunal.131 Once the initial arguments are presented, each
party has five days to file any preliminary motions for injunctive relief. If the tribunal decides to
grant an injunction, it might also require the party to post a "guarantee" to cover the costs and
damages of the injunction should they lose the arbitration.132
123
Id. art. 13.
Id. art. 16.
125
Id. art. 17.
126
Id. art. 5.
127
Id.
128
See id. art. 6.
129
Id. art. 19.
130
Id. arts. 19-21.
131
Id. art. 24.
132
Id. arts. 25-26.
124
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Next, the parties submit evidence supporting their positions. In this regard, they can
submit documents, and may call rebuttal and expert witnesses. Absent a provision in the
arbitration agreement indicating otherwise, the tribunal, however, can determine the scope of the
evidence the parties may submit.133 In any event, the arbitration may not last longer than six
months.134 The arbitral award must contain the date and the location of the arbitration. Most
importantly, it must also contain the reasons supporting the tribunal's decision.135 The decision
must also allocate the remaining unused costs and fees. The award is considered issued in the
place where the arbitration took place.136
4.
Enforcing Foreign Judgments and Arbitral Awards
Regardless of whether the award is domestic or foreign, the arbitral award is binding and
unappealable.137 The losing parties' only option is to seek annulment of the decision. The law,
however, states that annulment is appropriate only when:
(1)
the party was incapacitated when it signed the arbitration agreement;
(2)
the party did not receive notice of the arbitration, or was not afforded an
opportunity to present a defense;
(3)
the dispute was not covered by the arbitration agreement; and
(4)
the matter was not subject to arbitration, or was contrary to public order.138
The party must file within five days its written annulment petition with the Tribunal
Superior in the jurisdiction where the award was rendered.139 The filing of the annulment does
not suspend the judgment unless the Tribunal Superior so orders. In this event, the Tribunal
Superior requires the opposing party to file a "guarantee" with the court to cover the costs.140 If
the Tribunal Superior decides to review the annulment petition, the court makes its decision
pursuant to the Code of Civil Procedure.
Most importantly, the new law facilitates the enforcement of foreign arbitral awards. The
new law eliminates the onerous hoops parties were previously required to follow. Parties no
longer must obtain an "exequatur" to enforce foreign judgments.141 Now, parties enforce foreign
awards like their domestic counterparts. The party must only present a certified copy of the
133
Id. art. 27.
Id. art. 22.
135
Id. art. 30.
136
Id. art. 31.
137
Id. art. 48.
138
Id. art. 44.
139
Id. art. 43.
140
Id.
141
Id. art. 48.
134
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foreign award, along with an authenticated Spanish translation, if necessary.142 To enforce the
award, the parties follow the procedures established in the Code of Civil Procedure.143
5.
Applicable Treaties and Conventions
Venezuela has ratified the New York Convention, the Panama Convention and the ICSID
Convention. Venezuela has also entered into bilateral investment treaties with fifteen nations,
including Argentina, Chile and Ecuador.
V.
International Arbitration Conventions
A.
Inter-American Convention on International Commercial Arbitration
(Panama Convention)
The Inter-American Convention on International Commercial Arbitration - often referred
to as the Panama Convention - was concluded on January 30, 1975, in Panama City. The United
States ratified the Convention, and it entered into force for the United States on October 27,
1990. Nineteen nations have ratified the Convention. In addition to the United States, the
parties to the Convention include: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica,
Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama,
Paraguay, Peru, Uruguay and Venezuela.
The Panama Convention was patterned after the New York Convention. There are,
however, differences. For example, the Panama Convention expressly validates some principles
of international arbitration that are assumed, but not spelled out, by the New York Convention.
The Panama Convention also provides that if the parties fail to agree on the arbitral rules to be
used, the rules of the Inter-American Commercial Arbitration Commission shall be used. The
New York Convention contains no comparable provision.
The Panama Convention validates agreements to arbitrate commercial disputes as long as
the agreement is set forth in a signed instrument or in letters, telegrams or telexes.144 If the
parties fail to agree upon the rules of procedure for conducting the arbitration, then the rules of
the Inter-American Commercial Arbitration Commission will be applied.145 The parties are
expressly allowed to determine the manner of appointing arbitrators, and may delegate the power
of appointment to a third party.146 The Convention also validates the appointment of foreigners
to serve as arbitrators.147
Under the Convention, a non-appealable arbitral award is given the same force as a final
judicial judgment.148 An arbitral award is to be recognized and enforced in the same manner,
142
Id.
Id.
144
Inter-American Convention art. 1.
145
Id. art. 3.
146
Id. art. 2.
147
Id.
148
Id. art. 4.
143
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and according to the same procedure, as that provided for local court judgments, as modified by
the provisions of any applicable international treaties.149
The most important provision of the Panama Convention is article 5, which provides the
grounds for refusing to recognize and execute an arbitral award. The Convention expressly says
that the party against whom an award is made has the burden of proving one of the grounds for
refusing recognition.150 Local courts can only refuse recognition if:
(1)
the parties to the arbitral agreement are suffering from some incapacity, or the
agreement is invalid under applicable law;
(2)
the complaining party was not duly notified of the appointment of the arbitrator or
of the applicable arbitration procedure or was unable to present his defense;
(3)
a decided issue is not within the scope of the arbitral agreement;
(4)
the constitution of the arbitral tribunal, or the procedure followed, was not in
accordance with the parties’ agreement or applicable law; or
(5)
the award is not yet binding or has been annulled or suspended by a competent
authority of the state where the award was made.151
Two additional grounds for non-recognition are also provided if the state where recognition is
sought finds:
(1)
that the subject of the dispute cannot be settled by arbitration under the law of the
recognizing state; or
(2)
recognition would be contrary to the public policy of the recognizing state.152
The final substantive provision of the Convention allows a competent authority of the
state where the award is rendered to postpone a decision on the execution of the award.153 Upon
the request of the party seeking execution, the state may also require the party against whom the
award was made to provide appropriate guaranties.154
The Inter-American Convention has been interpreted by three cases in the United States.
In Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela,155 Petroleos de
Venezuela (PDVSA), the Venezuelan state-owned oil company, obtained insurance from a group
of Venezuelan insurance companies (the direct insurers) covering the risks of surface
149
Id.
Id. art. 5.
151
Id. art. 5(1).
152
Id. art. 5(2).
153
Id. art. 6.
154
Id.
155
802 F. Supp. 1069, 1070 (S.D.N.Y. 1992), rev’d, 991 F.2d 42 (2d Cir. 1993).
150
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blowouts.156 The direct insurers reinsured the risk with the defendant, C.A. Reaseguradora
Nacional de Venezuela (RNV). RNV retroceded the risk through a London-based broker who
placed 90% of the risk in the London reinsurance market and 10% in the U.S. reinsurance market
through New York Marine Managers, Inc. (NYMM), which acted as the underwriting agent for
the plaintiffs.
Defendant submitted to the plaintiffs a $1 million claim for a blowout of the CARI-6
well, which the plaintiffs paid. Defendant later submitted a claim for a blowout of the TEJERO
2E well, which the plaintiffs rejected. The plaintiffs sued and sought a declaratory judgment that
the TEJERO 2E well was not covered by the terms of the retrocession and for the return of the
$1 million payment for the CARI-6 well on the theory that the payment was made in error and
was not covered by the policy. Defendant moved to compel arbitration, and the plaintiffs sought
to enjoin it.
The 1989 insurance policy provided that it was “subject to” the Facultative Reinsurance
Agreement (FRA), a 1977 agreement among PDVSA, the direct insurers and certain
London-based reinsurers. Among other things, the FRA contained an arbitration clause
providing for arbitration in London of any disputes “concerning the interpretation of this
Reinsurance Agreement.” The plaintiffs were not parties to the FRA, except to the extent of the
“subject to” clause in the policy.
The U.S. federal district court held that the Inter-American Convention applies
retroactively to contracts entered into before the U.S. became a party to the Convention. The
court reasoned that the Convention does not contain any language stating that it will apply only
prospectively, and analogized it to the New York Convention, which had previously been held
by the Second Circuit Court of Appeals to apply retroactively.157
The plaintiffs contended that the Inter-American Convention applied because both the
United States and Venezuela are parties, and that the New York Convention did not apply
because Venezuela is not a party. Defendant RNV responded that the New York Convention
applied, even though Venezuela is not a party, because the arbitration would be held in the
United Kingdom, which is a party, and would be enforced in the United States, which is also a
party.
The district court did not directly decide whether the New York Convention could apply,
but instead assumed its applicability. The court then held that even if both Conventions applied,
the Inter-American Convention takes precedence because of the enabling legislation in the
United States - 9 U.S.C. § 305. Section 305 provides that if both Conventions could apply and a
majority of the parties to the arbitration agreement are citizens of states that have ratified the
Inter-American Convention and are members of the Organization of American States (OAS),
then the Inter-American Convention will be applied. Since the plaintiffs were U.S. companies,
RNV was a Venezuelan corporation, and both the U.S. and Venezuela had ratified the
Inter-American Convention and were members of the OAS, the court decided that the
Inter-American Convention applied instead of the New York Convention.
156
157
Id. at 1070.
See Fertilizer Corp. of India v. IDI Management, Inc., 517 F. Supp. 948, 951-53 (S.D. Ohio 1981).
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The plaintiffs next argued that the New York and Inter-American Conventions set
different standards for the type of arbitration agreements that were enforceable, and there was no
arbitration agreement under the standard created by the Inter-American Convention. The New
York Convention refers to a “contract or an arbitration agreement,” while the Inter-American
Convention references an “instrument.” The district court rejected any difference in the
standards of the two Conventions for an enforceable arbitration agreement, saying:
I am not inclined to build a brick of substantive difference from such frail straws,
particularly where Congress has recognized that the more recent convention was
‘modeled after’ the earlier one.
*
*
*
*
But there is no reason to accept, and every reason to reject, the notion that the
conventions differ with respect to the form and content of the writings sufficient
to contain an enforceable arbitration agreement.158
Finally, the court turned to the plaintiffs’ argument that even if the FRA were
incorporated into the policy, the FRA arbitration clause would not bind them. The court agreed
with this argument because the FRA was not signed by the plaintiffs, but was between the
Venezuelan direct insurers and certain English reinsurers. The arbitration clause specified that it
required arbitration of any dispute “concerning the interpretation of this Reinsurance
Agreement.” The district court held that “an arbitration agreement restricted to the immediate
parties does not bind a non-party, notwithstanding words of incorporation or reference in a
separate contract by which that non-party is bound.”159 The district court decided that the FRA
was restricted to the parties who signed it and did not apply to the plaintiffs.
On appeal, however, the Second Circuit held that the arbitration clause was worded
broadly enough to allow its incorporation into other agreements. The clause was not restrictively
worded by referring to the immediate parties by name. The appellate court also decided that the
clause may apply to agreements other than just the FRA itself because otherwise, it would be
almost impossible to incorporate an arbitration clause into a second agreement since they usually
always refer to the agreement in which they are contained. Thus, the Second Circuit reversed the
district court and stayed the lawsuit pending arbitration.
In another U.S. case, the Second Circuit Court of Appeals addressed two different issues
arising under the Inter-American Convention. In Productos Mercantiles E Industriales, S.A. v.
Faberge USA, Inc.,160 Productos Mercantiles E Industriales, S.A. (Prome), a Guatemalan
corporation, entered into an exclusive licensing agreement with Faberge USA, Inc. (Faberge) to
allow Prome to use Faberge’s trademarks on Prome products manufactured in Central America.
Later, Faberge’s business was acquired by Unilever United States, Inc. (“Unilever”) or by
Unilever, N.V., a Netherlands corporation, and the Central American business was assigned to
158
802 F. Supp. at 1074-75.
Id. at 1079.
160
23 F.3d 41 (2d Cir. 1994).
159
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Industrialas Unisola, S.A., an El Salvadoran corporation partly owned by Unilever, N.V. Prome
was then informed that its licensing agreement would not be renewed.
Prome sought arbitration before the American Arbitration Association. The arbitrators
rendered an award for certain amounts in favor of Prome. In one part of the award, the
arbitrators modified the amount awarded Prome on its principal claim from $58,949.94 to
$158,949.94, but did not modify this same amount in another part of the award. Prome brought a
lawsuit to modify the award and confirm it, while Faberge, Unilever and Unisola moved to
dismiss the action for lack of subject matter jurisdiction.
Faberge claimed that the court did not have subject matter jurisdiction because the award
was rendered in the United States, and the Inter-American Convention only applies to arbitral
awards rendered in foreign countries that are parties to the Convention. Faberge pointed to the
United States enabling legislation and the U.S. Senate’s third reservation to the ratification of the
Convention, which provides that the U.S. will apply the Convention on the basis of reciprocity to
the recognition and enforcement of awards made in the territory of another contracting state.
The court read the reservation and enabling legislation differently. It decided that these
statements were intended only to bar enforcement of arbitral awards rendered in nations that are
not signatories to the Convention. The court noted that if Congress had intended to exclude
awards rendered in the U.S., it could have done so expressly, but did not. The court analogized
to the case of Bergesen v. Joseph Muller Corp.,161 in which the Second Circuit held that the New
York Convention gave a U.S. court jurisdiction to confirm an award rendered in New York in a
dispute between two foreign parties. That award was held to be a nondomestic award, under the
terms of the New York Convention, because it involved foreign parties. The court in Faberge
noted the absence in the Inter-American Convention of any “strict territorial” language, like that
found in the New York Convention, and pointed to the implementing legislation that U.S. courts
should strive for uniformity in interpreting the two conventions. The court did so by applying
the Inter-American Convention in the same manner as the New York Convention -- to awards
rendered in the United States involving foreign parties.
Prome also sought to modify the award, but Faberge claimed that the Inter-American
Convention contains no language permitting such modification. The court disagreed, pointing
out that the Inter-American Convention incorporates the terms of the FAA unless they are in
conflict. The FAA grants courts the authority to modify awards when there has been a material
miscalculation of figures or the award is imperfect in form. Because the Inter-American
Convention is silent as to modification, the court held there was no conflict between the FAA
and the Convention. Therefore, the Second Circuit held that the trial court had authority to
modify the award.
The most recent U.S. case interpreting the Inter-American Convention addressed the
court's ability to determine arbitrability under the Inter-American Convention. In American Life
Ins. Co. v. Parra,162 American Life Ins. Co. ("ALICO") sued its former agents, Parra, ASIAT,
S.A. and Parkway. Parra is a citizen of Argentina, and ASIAT and Parkway are corporations
161
162
710 F.2d 928 (2d Cir. 1983).
25 F. Supp. 467 (E.D. Del. 1998).
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organized in Uruguay. ALICO appointed ASIAT, represented by Parra, as its master general
agent to sell policies and collect premiums in Argentina. The parties agreed that Parra was an
independent contractor and that either party could terminate the agreement without cause. The
parties' contract contained a provision in which the parties agreed to settle all disputes by
arbitration. Although Parra's efforts produced several million dollars of premiums, ALICO
terminated the agreement without cause. ALICO explained that it simply could not afford to pay
Parra his bonuses.
ALICO, Parra, ASIAT, and Parkway then entered into a general release agreement.
Pursuant to the agreement, Parra, ASIAT, and Parkway agreed to release four of Parra's agents
so they could contract directly with ALICO. Further, Parra, ASIAT, and Parkway agreed to
release all claims for commissions or bonuses for the policies sold by these agents. The parties
agreed that Delaware law would control the general release agreement. Notably, the general
release agreement did not contain an arbitration clause.
Shortly after executing the release agreement, ALICO formed a new subsidiary which
conducted business similar to Parra. In addition, ALICO lured away many of Parra's successful
agents. In response, Parra, ASIAT and Parkway served a demand for arbitration upon ALICO
and submitted a statement of claim pursuant to the Inter-American Convention. The demand
alleged that ALICO breached the release agreement and intentionally interfered with Parra's
business opportunities. After submitting its defense, ALICO filed a motion to enjoin Parra,
ASIAT, and Parkway from arbitrating disputes related to the general release agreement.
The court stated that it must first resolve whether the parties are bound to arbitrate
disputes related to the general release agreement. In this regard, the court faced the question of
whether it could make arbitrability determinations in an arbitration under the Inter-American
Convention. The court noted that the general release agreement did not contain an arbitration
provision. In addition, the court acknowledged the general principle that the parties do not
intend to arbitrate unless there is clear and unmistakable evidence which indicates the parties'
intentions to arbitrate.
Realizing that the general release agreement did not contain an arbitration clause, the
defendants argued that the general principle applies only to domestic arbitration proceedings, and
not international arbitration proceedings. The defendants attempted to distinguish arbitration
proceedings under the Inter-American Convention from domestic arbitration proceedings
because the arbitrations are enforced under different chapters of the Federal Arbitration Act. The
district court, however, rejected this argument. The court found no reason to treat international
arbitration proceedings differently from domestic arbitration proceedings. Instead, the court
concluded that the question of arbitrability is undeniably an issue for judicial determination,163
and held that there was no "clear and unmistakable" evidence that the parties agreed to arbitrate
arbitrability.164
Finally, the court rejected the defendant's argument that Article 21 of the Inter-American
Convention, which vests arbitrators with the power to resolve arbitrability disputes, overrides the
163
164
AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986).
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).
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principle that courts determine whether parties agreed to arbitrate a matter. The court reasoned
that principles recognized by the United States Supreme Court in actions to enforce arbitration
proceedings under the FAA apply with equal force to proceedings under the Inter-American
Convention. The court stated that it would not construe a statute in derogation of the common
rule unless the statute clearly expresses a Congressional intent to change well-established
common-law principles. Accordingly, the court determined that case law on arbitrability was not
"in conflict" with the Inter-American Convention.
In summary, U.S. courts have held that the Inter-American Convention applies
retroactively to contracts signed before the U.S. ratified the Convention, takes precedence over
the New York Convention when a majority of the parties to the arbitration agreement are citizens
of states that have ratified the Inter-American Convention and are members of the OAS, that the
standard for enforceability of arbitration agreements is the same for both the Inter-American and
New York Conventions, that the Inter-American Convention applied to confirmation
proceedings in the U.S. even though the award was entered in the U.S. (as long as it involved
foreign parties), that the Inter-American Convention (supplemented by the FAA) allowed U.S.
courts to modify arbitral awards, that the principle that there must be "clear and unmistakable"
evidence to arbitrate applies equally to proceedings under the Inter-American Convention and
that courts are empowered to resolve the issue of arbitrability under the Inter-American
Convention. These holdings form the beginnings of a jurisprudence of the Inter-American
Convention.
B.
United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (New York Convention)
The New York Convention was concluded in New York in 1958. Presently, 101
countries have ratified the Convention, and two others have signed, but not yet ratified it. The 18
Western Hemisphere countries who have ratified the New York Convention include: Antigua &
Barbuda, Argentina, Barbados, Canada, Chile, Colombia, Costa Rica, Cuba, Dominica, Ecuador,
Guatemala, Haiti, Mexico, Panama, Peru, Trinidad & Tobago, the United States, and Uruguay.
The Convention has also been signed, but not ratified, by El Salvador.
The New York Convention applies to arbitral awards made in the territory of a state other
than that where recognition and enforcement is sought.165 It also applies to awards not
considered as domestic awards in the state where recognition and enforcement is sought.166
Each contracting state is required to recognize a written arbitration agreement, whether
contained in a contractual clause or in letters or telegrams, and the courts of each contracting
state are instructed to refer the parties’ dispute to arbitration unless they find such agreements to
be invalid.167
165
New York Convention art. I.
Id.
167
Id. art. II.
166
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Contracting countries are also required to recognize arbitral awards as binding and
enforce them in accordance with their own procedural rules.168 The only requisites for
recognition of an arbitral award are the presentation of : (1) the duly authenticated original
award or a certified copy; and (2) the original arbitration agreement or a duly certified copy.169
If the arbitral agreement or award is not made in the official language of the country where
recognition is sought, then a certified translation by an official or sworn translator, or by a
diplomatic or consular agent, is required.170
Under the New York Convention, there are limited grounds for refusing to recognize and
enforce an award. Those grounds are set forth in article V. Under that provision, it is the
burden of the party against whom enforcement is sought to prove one of the following grounds:
(1)
the parties were suffering under some incapacity or the arbitral agreement was
invalid;
(2)
the party against whom the award is invoked was not given proper notice of the
arbitrator’s appointment or the arbitration proceedings or was unable to present
his case;
(3)
the award decides matters not within the scope of the arbitration agreement;
(4)
the composition of the arbitral tribunal or the procedure used did not accord with
the parties’ agreement or applicable law; or
(5)
the award has not yet become binding or has been set aside or suspended by a
competent authority of the country where the award was rendered.171
Under article I(3), any state ratifying the Convention may declare that it applies only to
commercial disputes.172 Most contracting countries have filed such a declaration, including:
Antigua & Barbuda, Argentina, Canada, Cuba, Ecuador, Guatemala, Trinidad & Tobago, and the
United States.
U.S. courts have been called upon to interpret the provisions of the New York
Convention in six reported cases involving Central and South American parties. Those cases
illustrate the types of legal issues that have arisen under the Convention generally. Perhaps, the
most extensive of these decisions is that in Sedco, Inc. v. Petroleos Mexicanos Mexican National
Oil Co.173 That case involved a blowout of the IXTOC I well in the Gulf of Mexico in June
1979, and a resulting oil spill. Sedco, a Texas company, owned a semi-submersible drilling
vessel, SEDCO 135, which was chartered to Perforaciones Marianas del Golfo, S.A. (Permargo),
a Mexican drilling company. Permargo was under contract with Petroleos Mexicanos Mexican
168
Id. art. III.
Id. art. IV(1).
170
Id. art. IV(2).
171
Id. art. V.
172
Id. art. I(3).
173
767 F.2d 1140 (5th Cir. 1985).
169
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National Oil Company (Pemex) to drill oil wells. The SEDCO 135 was on location in the Gulf
of Mexico when the blowout occurred, and the vessel was a complete loss.
Sedco filed a lawsuit in a Houston federal court into which was consolidated the claims
of shrimpers, hotel owners, and government entities. Sedco tendered its defense to Permargo
pursuant to an indemnity clause, but Permargo refused to defend Sedco. Sedco then filed a
third-party claim against Permargo and Pemex. Permargo challenged the U.S. court’s
jurisdiction for three years before filing an answer. In its answer, Permargo raised as a defense
the arbitration clause in the charter agreement, which called for arbitration in New York under
the arbitral rules of the ICC.
The Fifth Circuit Court of Appeals began its analysis by discussing the enforceability of
an arbitration clause under the FAA and the New York Convention. The court pointed out that
the purpose of the U.S. adoption and implementation of the New York Convention “was to
encourage the recognition and enforcement of commercial arbitration agreements” in
international contracts.174 The “Convention is the supreme law of the land” in the U.S. and
“must be enforced according to its terms over all prior inconsistent rules of law.”175 It is broader
than the FAA because it also authorizes U.S. courts to compel parties to arbitrate not only
within, but also outside, the United States,176 and by its ratification of the Convention, the U.S.
“obligated itself to enforce arbitration agreements between foreign and domestic contracting
parties.”177
The U.S. district court had refused to order arbitration and stay the lawsuit because
Pemex was not a party to the arbitration clause. The first issue before the Fifth Circuit was
whether the district court’s decision was appealable. A U. S. Supreme Court decision from the
1930’s seemed to indicate that the ruling was not appealable. Nevertheless, the appellate court
held that it had jurisdiction to hear an appeal from the district court’s order so that it could “carry
out the important congressional policy of insuring that arbitration contracts are enforced in the
courts pursuant to the Convention.”178
The second issue was whether the arbitration clause was broad enough to encompass the
disputes in issue. The clause covered “any dispute or difference between the parties arising out
of this charter . . ."179 The court pointed to language in the charter agreement indicating that the
parties anticipated a possible blowout, and said that “whenever the scope of an arbitration clause
is in question, the court should construe the clause in favor of arbitration.”180 The clause was
held to be broad enough to encompass the parties’ dispute.181 Absent allegations of fraud in the
inducement of the arbitration clause itself, the court held that the parties should be ordered to
arbitration.182
174
Id. at 1147.
Id. at 1145, 1148.
176
Id. at 1146.
177
Id. at 1148.
178
Id. at 1149.
179
Id. at 1144 n.8.
180
Id. at 1145.
181
Id.
182
Id. at 1148.
175
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The last issue before the court was whether Permargo had waived arbitration by waiting
three years before asserting the arbitral clause as a defense. The court held that Permargo did not
waive arbitration because under the appropriate procedural rules, it was not required to answer
until the trial court ruled on the challenge to jurisdiction, its three year jurisdictional battle was
not frivolous, and Sedco was not prejudiced by the “jurisdictional jousting.”183 Therefore, the
court ordered the parties to arbitrate their disputes.
In the case of Siderius, Inc. v. Compania de Acero del Pacifico, S.A.,184 Siderius (a New
York corporation) sued Compania de Acero del Pacifico (CAP) (a Chilean corporation) for
breach of a contract to supply rolled sheet steel. The steel was sold “F.O.B. Huachipato, San
Vicente [Chile]” and was shipped to the U.S., but Siderius objected to the quality and condition
of the goods. After the dispute arose, the parties entered into a written agreement in Santiago,
Chile, to submit the dispute to arbitration before a designated Chilean arbitrator under the Code
of Civil Procedure of Chile.
Following the commencement of the arbitration, Siderius filed suit in the U.S., and CAP
moved to dismiss the suit and to compel the plaintiff to arbitrate. The court granted CAP’s
motion, ordered Siderius to arbitration and dismissed the case. In doing so, the court found the
issue easy to decide. The parties agreed in writing to arbitrate their dispute, the dispute was “a
classic commercial relationship,” and therefore, the agreement fell within the terms of the New
York Convention. The court held that the Convention and its enabling legislation in the U.S.
foreclosed resort to the courts.
A more difficult issue arose in Warnes, S.A. v. Harvic International, Ltd.185 In that case,
Warnes (an Argentinian corporation) contracted to buy 60,000 garments for delivery in Buenos
Aires. Warnes refused to accept delivery of the goods as nonconforming. The parties’ standard
form, one-page contract included a statement on the front page that read, “Refer to General
Terms & Conditions on the back hereof.” One of the terms on the back included an arbitration
clause providing for arbitration in New York “in accordance with the Commercial Arbitration
Rules of the New York Commercial Arbitration Association.” Warnes received only a
photocopy of the contract, which did not include the back page. Warnes sued Harvic
International for breach of contract, and Harvic answered that the parties had agreed to arbitrate.
Warnes then filed a demand for arbitration with the American Arbitration Association (AAA).
Harvic objected to arbitration because AAA was not named as the administering agency in the
arbitral clause.
The court found there was an arbitration clause, even though Warnes never received the
portion of the contract including the arbitral clause, because Harvic alleged the arbitration
agreement as a defense, and Warnes accepted arbitration.
The court also rejected Harvic’s claim that AAA was not named in the arbitration
agreement; there is no New York Commercial Arbitration Association. The court held that an
183
Id. at 1150.
453 F. Supp. 22 (S.D.N.Y. 1978).
185
92 Civ. 5515 (RWS), 1993 U.S. Dist. LEXIS 8457, at * 1 (S.D.N.Y. June 21, 1993).
184
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agreement to a non-existent arbitration forum is the equivalent of an agreement to arbitrate that
does not specify a forum. What is important is the intent to arbitrate. Because the parties clearly
intended to arbitrate any disputes, and AAA seemed to be what the parties intended by the
reference to the non-existent New York Commercial Arbitration Association, the court ordered
the parties to arbitrate before AAA.
Another Argentinian company was a party to a U.S. case in International Standard
Electric Corp. v. Bridas Sociedad Anonima Petrolera Industrial Y Comercial.186 There, the
petitioner International Standard Electric Corporation (ISEC), a U.S. subsidiary of ITT,
contracted to sell 25% of its shares of Compania Standard Electric Argentina, S.A. (CSEA), an
Argentinian telecommunications company, to Bridas Sociedad Anonima Petrolera Industrial y
Comercial (Bridas), an Argentinian company. The contract called for arbitration with the ICC as
appointing authority and in accordance with its rules. Bridas filed a request for arbitration with
the ICC. The arbitral panel decided on Mexico City as the place of arbitration, and rendered an
award for Bridas in the amount of US $6,793,000 with interest of 12%, $1 million in attorneys’
fees and $400,000 in expenses.
ISEC filed a petition in U. S. court to vacate the award and to refuse it recognition.
Bridas claimed the court lacked jurisdiction to vacate the award, but petitioned to enforce it
under the New York Convention. ISEC argued that both the courts of Mexico, where the
arbitration proceeding was held, and the courts of the U.S., whose substantive law was applied
pursuant to the terms of the contract, had authority to vacate the award under the New York
Convention. Bridas argued that only the courts of Mexico could vacate. The U.S. court agreed
with Bridas and held that the country whose substantive law is applied does not, because of that
fact alone, have authority to vacate an arbitral award.
The New York Convention says that an application to set aside or suspend an award can
only be made to the courts of the country “in which, or under the law of which, that award was
made.”187 The court held this language means the country where the arbitral proceeding was
held and the country whose arbitral procedural law is applied, which will usually be the same.188
But the country whose substantive law is applied is not authorized, for that reason, to vacate an
award under the Convention.
With respect to Bridas’ petition to enforce the award, ISEC asserted two defenses. First,
it argued that it was unable to present its case, within the meaning of the Convention, because it
was not informed of the identity of the panel’s independent expert or given an opportunity to
rebut that expert’s opinion. It further argued that this contravened the public policy of the U.S.
by violating due process standards under the U. S. Constitution. The court rejected this argument
because ISEC was informed in advance of the panel’s procedure for its independent expert, yet
ISEC voiced no objection to that procedure.
Finally, ISEC argued that the panel exceeded its authority and acted beyond the scope of
the parties’ agreement by deciding the damage issue based on equitable grounds, rather than on
186
745 F. Supp. 172 (S.D.N.Y. 1990).
New York Convention art. V(1)(e).
188
745 F. Supp. at 178.
187
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the law, and therefore, acted as amiables compositeurs without the parties’ consent. It also
argued that this amounted to a manifest disregard of the law. The court noted that the “manifest
disregard” test is a domestic defense, and held that it does not amount to a contravention of
public policy, and is not a defense under the Convention. The court held it had no authority to
reconsider the panel’s fact findings, nor could it undertake a de novo inquiry into whether the
arbitrators properly applied the substantive law. The court also held that 12% interest is not
penal in nature and does not provide a reason to refuse to order enforcement of the award.
Therefore, the court rejected ISEC’s defense.
A significant issue was also raised in Andros Compania Maritima, S.A. v. Andre & Cie,
S.A.,.
There, Andros Compania Martima, S.A. (a Panamanian corporation) sued Andre & Cie,
S.A. (a Swiss corporation), claiming demurrage owed under a charter agreement. The agreement
provided for arbitration in London. Andros effected a maritime attachment on funds held for
Andre in New York by the Garnac Grain Company. Section 8 of the FAA permits such a
pre-arbitration attachment, but Garnac claimed that such an attachment was not authorized by the
New York Convention. The court held that FAA § 8 is not contrary to the Convention and that a
maritime attachment pending an international arbitration is authorized and permitted, despite the
applicability of the Convention.
189
Most recently, U.S. courts analyzed the New York Convention in connection with Latin
American parties in Skandia America Reinsurance Corp. v. Caja Nacional de Ahorro y
Seguro.190 Skandia, a United States corporation, sued Caja, an Argentine corporation, to collect
an arbitration award. Skandia requested that Caja post a security payment pursuant to New York
Insurance Code as a prerequisite to filing its response. Caja responded that, as an
"instrumentality of the Argentine government," it was immune from posting security under the
Foreign Sovereign Immunities Act. Skandia disagreed and countered that Argentine companies
waived any immunity claim when Argentina signed the New York Convention. After analyzing
the FSIA, the court determined that the New York Convention was an existing international
agreement to which the FSIA was subject. Noting that the purpose of the New York Convention
was to encourage the enforcement of arbitral awards, the court concluded that the New York
Convention allows the posting of pre-judgment attachments and ordered Caja to post security in
an amount not less than the amount of the arbitral award. The court also cautioned that if Caja
failed to post security, the court would consider granting Skandia's petition by default.
U.S. district courts have also addressed cases under the New York Convention involving
Caribbean parties to arbitration agreements. In Ledee v. Ceramiche Ragno,191 the parties entered
into a distributorship agreement giving the plaintiffs, two Puerto Rican corporations and an
individual, exclusive rights to sell defendant Italian corporation’s ceramic tiles in the Antilles.
The agreement contained an arbitration clause providing for a single arbitrator appointed by the
president of an Italian tribunal. Plaintiff sued defendants in Superior Court in Puerto Rico for
breach of contract for unjustifiably terminating the distributorship agreement. The federal
district court ordered arbitration and dismissed the complaint. Plaintiffs appealed.
189
430 F. Supp. 88 (S.D.N.Y. 1977).
1997 U.S. Dist. Lexis 7221 (S.D.N.Y. 1997).
191
684 F.2d 184 (1st Cir. 1982).
190
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The appellate court held that there were four preliminary questions that a district court
must answer in order to compel arbitration under the enabling statute for the New York
Convention. First, is there an agreement in writing to arbitrate the subject of the dispute?
Second, does the agreement provide for arbitration in the territory of a signatory of the
Convention? Third, does the agreement arise out of a commercial relationship? Finally, are both
parties foreign citizens or does the contract have a reasonable relationship with one or more
foreign countries? The court noted that if all questions were answered in the affirmative, then it
must order arbitration unless (under the terms of the New York Convention) the agreement is
null and void, inoperative, or incapable of being performed.
Plaintiffs argued that the arbitration agreement was null and void because the Puerto Rico
Dealers Act specifically provides that an arbitration clause in any dealer’s contract violates
public policy and is null and void. Therefore, plaintiffs argued that arbitration violated Puerto
Rico’s public policy. The court disagreed and held that the parochial interests of the
Commonwealth of Puerto Rico, of any state of the United States, or of the nation as a whole,
cannot be the measure of the null and void clause in the New York Convention. The null and
void clause in the Convention “must be interpreted to encompass only those situations - such as
fraud, mistake, duress, and waiver - that can be applied neutrally on an international scale.”
Consequently, the court held that the arbitration agreement was not null and void, and affirmed
the referral of the case to arbitration.
A question arose concerning a waiver of sovereign immunity by a foreign government’s
agreement to arbitrate in the case of M.B.L. International Contractors, Inc. v. Republic of
Trinidad & Tobago.192 There, M.B.L. International Contractors, Inc. (MBL), a Canadian
corporation, and Alves Contracting Co., Ltd. (Alves), a Trinidad & Tobago corporation, signed a
commercial contract with the Republic of Trinidad & Tobago to repair airfield pavements at two
airports. Disputes arose, the parties agreed to final and binding arbitration, the arbitrator entered
his award, and the Supreme Court of Judicature of Trinidad & Tobago allowed MBL and Alves
to enforce the award as a judgment or order of the court. MBL and Alves filed a petition to
confirm the award in federal court in the United States, and the Republic moved to dismiss the
petition. The Republic claimed sovereign immunity and lack of both subject matter and personal
jurisdiction. Petitioners claimed that the respondent had impliedly waived sovereign immunity
by agreeing to arbitration governed by the New York Convention. The Republic defended by
arguing that it had not waived its sovereign immunity because the arbitration agreement provided
specifically that any disputes would be governed by the law of Trinidad & Tobago.
The court held that the selection of the Republic’s own law to govern the dispute is not
tantamount to providing that only the respondent’s courts can enforce the arbitration award, and
therefore, does not prevent its arbitration agreement from constituting a waiver of sovereign
immunity. The court specifically held that by agreeing to arbitrate the dispute under the terms of
the New York Convention, the respondent Republic waived its sovereign immunity. Also,
because the U.S. Foreign Sovereign immunities Act governs both personal and subject-matter
jurisdiction, the Republic’s implicit waiver of immunity constitutes a waiver of both the defense
of subject-matter jurisdiction and the defense of personal jurisdiction.
192
725 F. Supp. 52 (D.D.C. 1989).
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An issue of the consolidation of two arbitral proceedings arose in Cable Belt Conveyors,
Inc. v. Alumina Partners of Jamaica.193 In that case, two arbitration proceedings were pending
before AAA, one between Paul N. Howard Company (Paul Howard) and Cable Belt Conveyors,
Inc. (Cable Belt), and another between Cable Belt and Alumina Partners of Jamaica (Alpart).
Petitioners Cable Belt and Paul Howard moved to consolidate the proceedings under FAA 9
U.S.C. § 2, while Alpart moved to dismiss the petition on the ground that the court lacked
authority to order consolidation.
The case involved a contract between Alpart and Cable Belt requiring Cable Belt to
supply and install a conveyor system to transport bauxite. The contract required Alpart’s express
consent to the sub-contracting of any part of the work. Nevertheless, Cable Belt sub-contracted
with Paul Howard for the installation of the conveyor system. Both contracts contained similar
arbitration clauses. As a result of delays and disruption in the sub-contract work, Paul Howard
demanded arbitration against Cable Belt, and Cable Belt demanded arbitration against Alpart.
The court noted that the liberal purposes of the FAA permit and encourage consolidation
of arbitration proceedings. Consolidation is proper when there are common questions of law and
fact and a possibility of conflicting awards or inconsistent results. In this case, the court held
that both disputes centered around the same construction project, and a principal issue in both
involved the question of who was responsible for extra costs incurred in the completion of the
project. The court also noted that numerous questions of law and fact were identical in both
disputes. Finally, the court held that a resolution of those disputes in separate arbitration
proceedings could lead to inconsistent findings. Therefore, under Rules 42(a) and 81(a)(3) of the
Federal Rules of Civil Procedure, the court held that it had authority to order consolidation of the
two arbitration proceedings.
A similar problem developed in the case of Jamaica Commodity Trading Co. v. Connell
Rice & Sugar Co.194 In 1986, Jamaica Commodity Trading Co., Ltd. (JCTC) contracted to buy
approximately 4500 tons of rice from Connell Rice & Sugar Co., Inc. (Connell). JCTC is a
corporation owned by the government of Jamaica, and Connell is a New Jersey corporation. The
commodity contract contained an arbitration clause providing for arbitration before AAA. JCTC
entered into a charter agreement with L&L Marine Service, Inc. (L&L Marine), to charter the
Ocean Chief tug and barges to carry the rice from a port in the United States to Jamaica. The
charter agreement also contained an arbitration clause, but it called for arbitration under the rules
of the Society of Maritime Arbitrators (SMA). Because of a delay in loading the rice, L&L
Marine sought to recover its demurrage costs from JCTC, which in turn sought indemnification
from Connell.
The court ordered a joint hearing to be held before both AAA and SMA to resolve the
disputes. Four joint hearings were held, after which the SMA panel rendered an award of
$92,792.35 against JCTC for demurrage and related expenses. A fifth hearing was then held
before the AAA panel, which issued a final award in favor of JCTC against Connell for
$91,772.52, plus pre-judgment interest at the rate of 10% per annum from the date of the award.
193
194
669 F. Supp. 577 (S.D.N.Y.), aff’d, 857 F.2d 1461 (2d Cir. 1987).
No. 87 Civ. 6369 (JMC), 1991 U.S. Dist. LEXIS 8976, at *1 (S.D.N.Y. July 2, 1991).
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JCTC moved to confirm the AAA award, but Connell moved to vacate that award under
the New York Convention. The court held that it had jurisdiction to recognize and enforce the
award under the New York Convention.
The first issue was whether Connell’s objections to the arbitral award were timely. The
New York Convention provides that a party has three years in which to move to confirm an
arbitral award, in contrast to the FAA’s one year time limit. Also, under the Convention, a party
may raise a ground for vacating an award at any time during the three year period in opposition
to a motion to confirm the award. In contrast, a party is limited to the three month period after
the award is filed or delivered for moving to vacate under the FAA. The court noted that the
FAA applies to the Convention to the extent that it is not in conflict with the Convention.
Connell’s motion to vacate was made within three years after the award was issued and was filed
in opposition to JCTC’s motion to confirm, but it was not made within three months after the
date that the award was filed or delivered. The court held that the Convention’s time limits apply
and take precedence over the FAA, and therefore, it ruled that Connell’s opposition was timely.
The second issue that arose was whether the confirmation of the arbitration award would
violate the public policy of the United States. Connell contended that the AAA panel was
determined to find in favor of JCTC because of the findings of the other arbitral panel, and that
the arbitrators failed to apply the commodity contract. The court noted that the public policy
defense must be construed to achieve the Convention’s goal of encouraging the recognition and
enforcement of commercial arbitration awards in international contracts, and that it should be
construed narrowly and applied only when enforcement would violate the most basic notions of
morality and justice.
The court noted that the arbitrators’ reasons demonstrated that they were aware of their
obligation to interpret the commodity contract. Their failure specifically to refer to the
commodity contract was held not to be fatal to the award. A mere ambiguity in an opinion
accompanying an award is not a ground for a refusal to enforce the award. The court held that
the AAA panel’s reasons showed that they independently concluded that Connell Rice was at
fault under the commodity contract and did not merely rubber stamp the other panel’s findings.
Since there was no basis for finding that the AAA panel exceeded its authority, there was no
ground for denying enforcement on public policy grounds. The court went on to find that
Connell’s motion was unjustified and granted attorneys’ fees to JCTC.
In Island Territory of Curacao v. Solitron Devices, Inc.,195 there, a contract was made
requiring Curacao to establish an industrial park and construct two buildings, which Solitron
agreed to lease for 20 years. Solitron also agreed to establish manufacturing industries that
would create at least 3000 jobs. The contract provided that the laws of the Netherlands Antilles
would govern and included an arbitration clause.
After Curacao constructed the buildings, Solitron refused to enter into a lease or develop
manufacturing industries because, in the interim, Curacao underwent a change of government
and the local wage rate increased from US $.45 per hour to US $1.10 per hour. Curacao initiated
arbitration, but Solitron declined to participate. The panel issued an arbitral award generally
195
489 F.2d 1313 (2d Cir. 1973).
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favoring Curacao, although rejecting some of its claims, and the government obtained a
judgment in Curacao on the arbitral award.
Curacao petitioned a U.S. federal court both to confirm the award and to enforce the
Curacaon judgment. The Second Circuit held that the Curacaon judgment was enforceable in the
U.S. and found it unnecessary to determine whether the arbitral award was independently
enforceable under the New York Convention. The court did say, however, that the Convention
on the Settlement of Investment Disputes between states and nationals of other states applies
only by the mutual consent of the parties and does not preclude other forms of arbitration or
settlement of international disputes, whether investment disputes or otherwise.
C.
International Centre for the Settlement of Investment Disputes (ICSID)
The International Centre for the Settlement of Investment Disputes (ICSID) was created
by the Convention on the Settlement of Investment Disputes Between States and Nationals of
Other States at Washington, D.C., on March 18, 1965. The U.S. became a party in 1966. ICSID
is an agency of, and is administered by, the International Bank for Reconstruction and
Development. Its headquarters are located in Washington, D.C.
The Convention that established the ICSID has been ratified by 131 countries, and signed
(but not ratified) by another 15 governments. Twenty-two countries from the Western
Hemisphere have ratified the Convention, including Argentina, Bolivia, Barbados, Chile,
Colombia, Costa Rica, Ecuador, El Salvador, Guyana, Grenada, Guyana, Honduras, Jamaica,
Nicaragua, Panama, Paraguay, Peru, St. Lucia, Trinidad & Tobago, the United States, and
Venezuela. In addition, Belize, Guatemala, Haiti, and Uruguay, have signed the Convention, but
not yet ratified it.
In addition to its normal Rules of Procedure for Arbitration and Conciliation Proceedings,
ICSID also maintains an Additional Facility to handle disputes that do not fall within its usual
jurisdiction. The Additional Facility is authorized to administer disputes that do not fall within
the scope of the ICSID Convention as long as they are between states (or subdivisions or
agencies of states) and nationals of other states and fall within one of three categories:
(1)
One of the parties is either not a contracting state or a national of a contracting
state.
(2)
At least one of the parties is a contracting state or a national of a contracting state
but the dispute does not arise directly out of an investment.
(3)
A fact finding proceeding.
Use of the Additional Facility for disputes falling under the first and second categories
requires the approval of the Secretary-General of the Centre and an agreement that the parties
will arbitrate under the Convention if both states ratify it by the time proceedings are instituted.
Use of the Additional Facility for fact finding proceedings is open to any state and national of
any other state (whether parties to the Convention or not), and no approval from the
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Secretary-General is necessary. Fact finding proceedings are intended for preventing (rather
than resolving) disputes, are not binding, and do not even contain recommendations. They
involve an impartial fact finding that may or may not be accepted by the parties, but it is
designed to prevent a disagreement from escalating into a legal dispute.
One advantage of ICSID arbitration lies in the ICSID Convention,196 which supports the
ICSID Arbitration Rules. Under the Convention, a government party is required to recognize an
ICSID award “as binding and enforce the pecuniary obligations imposed by that award within its
territories as if it were a final judgment of a court in that State.”197 An ICSID award may only be
appealed by means of the procedure provided in the ICSID Convention.198
Unlike any other arbitral institutions, ICSID imposes jurisdictional requirements that
must be met in order to arbitrate before ICSID. Thus, counsel must take special care in drafting
an ICSID arbitral clause. The jurisdictional requirements for ICSID may be summarized as
follows:
1.
The arbitration must involve an investment dispute.
2.
One of the parties to the dispute must be a State which is a party to the ICSID
Convention ("Contracting State") or a constituent subdivision or agency of a
Contracting State. For a State's subdivision or agency, the State must designate
the subdivision or agency to ICSID as an entity authorized to arbitrate under the
auspices of ICSID.
3.
The other party must be a private party that is a national of another Contracting
State. Nationality is determined as of the date of consent to ICSID arbitration,
which may occur when a contract containing an ICSID arbitration clause is
signed. If the private party is a company locally incorporated in the host country,
it may still qualify as a national of another Contracting State for jurisdictional
purposes of ICSID if the parties agree, explicitly or implicitly, to treat it as a
national of another Contracting State and if it is, in fact, foreign controlled.199
196
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States,
done Mar. 18, 1965, 17 U.S.T. 1270, T.I.A.S. No. 6090, 475 U.N.T.S. 195 (ICSID Convention).
197
ICSID Convention art. 54(1). See Societe L.T.D. Benvenutti et Bonfant v. Government of the People’s
Republic of the Congo, 26 June 1981 (Cour d’Appel de Paris, 1st chambre supp.), 7 Y.B. Com. Arb. 159, 160-61
(1982).
198
ICSID Convention art. 52.
199
Amco Asia Corp. v. Indonesia, ICSID ARB/81/1 (award dated 1 February 1994) (agreement to treat the
locally-incorporated private company as a national of another Contracting State can be derived from the context of
the arbitration agreement); Societe Quest-Africaine des Bétons Industriels v. Republic of Senegal, ICSID ARB/82/1,
Award of 1 August 1984, 17 Y.B. Com. Arb. 42, 48 (1992) (sufficient for ICSID jurisdiction that ultimate
controlling company, although not the immediate parent, was a national of a Contracting State); Vacuum Salt
Products, Ltd. v. Republic of Ghana, ICSID ARB/92/1 (award dated 16 February 1994) (for investment in Ghana,
company owned 20% by Greek and remainder by Ghanians was not foreign controlled as a matter of fact for
purposes of ICSID jurisdiction, and therefore, ICSID did not have jurisdiction even though parties agreed to treat it
as foreign controlled).
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4.
The Contracting State involved in the dispute must consent in writing to ICSID
jurisdiction. Consent may be given in the parties' contract, in a nation's internal
law,200 in a bilateral investment treaty,201 or in a multilateral treaty, such as the
North American Free Trade Agreement (NAFTA).
In drafting the ICSID arbitration clause, counsel should take these jurisdictional
requirements into account, and make sure the parties comply in the agreement, or otherwise, with
each. Because of the jurisdictional requirements of ICSID, it is wise to provide in the arbitration
clause for a back-up institution to administer the arbitration in the event ICSID jurisdiction fails.
ICSID has handled fifty-four (54) cases. Of these cases, eleven have involved Central or
South American governments or companies. These cases are listed below:
(1)
Compañia del Desarrollo de Santa Elena S.A. v. Government of Costa Rica (Case
No. ARB/96/1)
(2)
Fedax N.V. v. Republic of Venezuela (Case No. ARB/96/3)
(3)
Metaclad Corporation v. United Mexican States (Case No. ARB(AF)/97/1)
(4)
Compañia de Aguas del Aconquija S.A. and Compagnie Générale des Eaux v.
Argentine Republic (Case No. ARB/97/3)
(5)
Robert Azinian and others v. United Mexican States (Case No. ARB(AF)/97/2)
(6)
WRB Enterprises and Grenada Private Power Limited v. Grenada (Case No.
ARB/97/5)
(7)
Lanco International, Inc. v. Argentina Republic (Case No. ARB/97/6)
(8)
Houston Industries Energy, Inc. and others v. Argentine Republic (Case No.
ARB/98/1)
(9)
Victor Pey Casado and another v. Republic of Chile (Case No. ARB/98/2)
(10)
Eudoro A. Olguin v. Republic of Paraguay (Case No. ARB/98/5)
(11)
Compagnie Miniére Internationale Or S.A. v. Republic of Peru (Case No.
ARB/98/6)
200
Southern Pacific Properties, Ltd. v. Arab Republic of Egypt, ICSID ARB/84/3 (award dated May 20,
1992) (ICSID jurisdiction founded on the Egyptian foreign investment law of 1974).
201
Asian Agricultural Products, Ltd. v. Republic of Sri Lanka, ICSID ARB/87/3 (award of June 21, 1990)
(ICSID jurisdiction founded on the 1980 U.S.-Sri Lankan Treaty for the Promotion and Protection of Investments).
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VI.
Conclusion
Over the past century, Latin American hostility toward international arbitration has eased.
To encourage foreign investment, many Latin American nations enacted new legislation
receptive to, and even embracing, third-party dispute resolution. As more Latin American
countries ratify international arbitration treaties, such as the New York, Panama and the ICSID
Conventions, and remove domestic barriers, the need to resort to hostile local remedies
dissipates. Hopefully, this trend will continue and the Western Hemisphere can lay claim to a
uniform mechanism for international arbitration.
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APPENDIX A
1958
New York
Convention
**
1975
Panama
Convention
1975
ICSID
Argentina
**
**
**
Barbados
**
Antigua &
Barbuda
**
Belize
*
Bolivia
**
Brazil
**
Chile
**
**
**
Colombia
**
**
**
Costa Rica
**
**
**
Cuba
**
Dominican
Republic
**
Ecuador
**
**
**
El Salvador
*
**
**
Grenada
Guatemala
**
**
**
Guyana
Haiti
**
**
Honduras
*
**
Jamaica
Mexico
**
**
**
**
Paraguay
Peru
**
**
**
**
**
**
**
St. Lucia
Trinidad &
**
**
Nicaragua
Panama
*
**
**
**
Tobago
Uruguay
Venezuela
**
**
*
**
**
* = signed only
** = ratified
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