By: Claudia Benavides1Claudia Benavides is a partner in Baker & McKenzie’s Bogotá office. She heads the Dispute Resolution practice group of the Bogotá office and represents a variety of clients in domestic and international arbitrations. and Catalina Brando2Catalina Brando is a middle-level associate within the Dispute Resolution practice group admitted to the bar in Colombia.
A. Legislation, Trends and Tendencies
A.1 Legislation
Domestic and international arbitration in Colombia continue to be mainly governed by Law 1563 of 2012 (“Law 1563”). This entered into force in October 2012, and the interpretation of several provisions in the area of international arbitration is yet to be consolidated. Law 1682 of 2013 (“Law 1682”) includes specific provisions to regulate arbitration when state-owned companies or public entities are involved in transport infrastructure disputes.
A.2 Trends and Tendencies
As a consequence of Law 1563, the Center of Arbitration and Conciliation of the Chamber of Commerce of Bogota (the most important arbitration center in Colombia) produced new sets of rules for domestic and international arbitration. The rules entered into force on 1 July 2014 and apply to all requests for arbitration filed after that date.
After the entry into force of Law 1563 and by applying the internationality criteria set forth by that law, the number of international arbitrations seated in Colombia has been continuously increasing.
Rules Applicable to Transport Infrastructure Projects
Infrastructure projects are vital to Colombia’s economic development. Law 1682, which regulates transport infrastructure, determines the standards with which to solve through arbitration the controversies that arise from transport infrastructure projects. Law 1682 allows the parties to an agreement with a state-owned company or a public entity to enter into arbitration under the rules of Law 1563. However, Law 1682 establishes that parties may only resort to arbitration when the case is going to be decided under the rule of law and not ex aequo et bono. It also echoes previous jurisprudence, which establishes that the arbitral tribunal does not have jurisdiction to decide upon the legality of an administrative act issued by the state-owned company or public entity when exercising exceptional powers (i.e., unilateral termination, interpretation or modification of the contract). This means that the arbitration tribunal may only decide upon the economic effects of such administrative acts.
Law 1682 provides that arbitration does not immediately impede the state-owned company or public entity from exercising exceptional powers inherent to this type of legal entity unless interim relief has been granted. Also, parties cannot appoint the arbitrators within the arbitral agreement. Arbitrators should be appointed as established in Law 1563. Nevertheless, the qualifications of the arbitrators must be defined in the bidding documents.
Law 1682 establishes that arbitrators and secretaries may not serve simultaneously on more than three arbitral tribunals when a state-owned company or public entity to which Law 1682 applies is involved. In general, according to Presidential Directive No. 4 of 2014, arbitrators may serve simultaneously in a maximum of five arbitral tribunals when a state-owned company or public entity is a party to such arbitration.
In addition, Law 1682 provides that the arbitral agreement must delimit the maximum amount of arbitrators’ fees. However, the arbitral agreement may contain a formula to readjust arbitrators’ fees.
The arbitrators’ fees and the costs of arbitration must be included in the budget of the state-owned company.
The National Infrastructure Agency (Agencia Nacional de Infraestructura – ANI) has a model concession contract that contains a clause to regulate the dispute resolution mechanisms applicable to such contracts. Although the model dispute resolution clause is not exactly the same in every concession contract, there are certain common features to highlight. It usually contains provisions to constitute an amiable compositeur panel, which shares some of the characteristics of the dispute boards, but is not precisely the same. The amiable compositeur usually resolves the issues that arise during the performance of the agreement, as they occur, by a binding decision. The decisions delivered by the amiable compositeur may be subject to arbitration if a party questions their validity.
The model clause also contains provisions for domestic and international arbitration. According to the model clause, the international nature of the arbitration is defined by the parameters established by Law 1563. International arbitration cases could be administered either by the ICDR or the ICC. The arbitral tribunal will be seated in Bogota and the merits of the case will be decided under Colombian law.
New Rules by the Superintendence of Corporations
In August 2015, a new set of rules put forth by the Superintendence of Corporations (SoC) came into force (“SoC Rules”). The SoC Rules contain a general set of rules (“General Rules”) and a specialized set of rules (“Specialized Rules”).The General Rules contain a proceeding similar to domestic arbitration established under Law 1563 and aim to resolve any type of dispute.
The Specialized Rules aim to regulate the arbitration of corporate matters, resolving the disputes faster and with less associated cost. The Specialized Rules provide for shorter terms and a more expedited proceeding. This allows the tribunal and the parties to establish a procedural schedule for the gathering of evidence. The SoC handles the administrative costs of the tribunal and the costs of the secretary.
B. Cases
B.1 Applicable Regime to Determine Document Requirements
In two cases this year, the Supreme Court of Justice (CSJ) has applied the more stringent requirements of the New York Convention to requests for recognition of arbitral awards that should arguably fall within Law 1563.
In the first case, Tampico filed to seek the recognition of a foreign award before the Supreme Court of Justice (CSJ). The award was rendered by an arbitration tribunal seated in Chile in 2009. Unfortunately, the CSJ did not admit the recognition request, given that it did not comply with the requisites set forth in the Civil Procedural Code and in the New York Convention.3Information about this case was kindly provided by E. Zuleta at the 2015 meeting of the ICC Latin American group. However, the request did comply with requisites under Law 1563, which simplified the recognition proceeding for arbitral awards. The CSJ argued that Law 1563 entered into force in October 2012 and would only apply to the recognition of awards rendered in arbitrations initiated after that date. The CSJ required Tampico to provide additional documents required under previous legislation. Tampico challenged the decision of the CSJ in June 2015, but the challenge is still pending.
This unfortunate precedent may mean that the simpler recognition proceeding will only apply to arbitrations that were started after October 2012, leaving a significant number of awards to be recognized through the more complex exequatur proceeding established in Colombian procedural law.
In the second case,4Information about this case was kindly provided by E. Zuleta at the 2015 meeting of the ICC Latin American group. HMT filed for recognition of a foreign award rendered by an arbitration tribunal seated in Houston, Texas. The submission was made according to the requisites determined under Law 1563. The CSJ admitted the submission, but later required HMT to provide additional documents determined under the New York Convention and not under Law 1563. HMT challenged the CSJ’s decision in July, but this has also not yet been resolved.
B.2 International Nature of Arbitration
Law 1563 (Article 62) partially adopted the scope of application set forth in Article 1 of the UNCITRAL Model Law. Now, under Colombian law, arbitration is international only when the parties to an arbitration agreement have their places of business in different states at the time the arbitration agreement is executed, or when a substantial part of the obligations of the commercial relationship are performed outside the state where the parties have their place of business. In addition, Law 1563 adopted a criterion from French law that states arbitration is international when the controversy affects the interests of international trade.
The previous Law 315 required the parties to agree on the international character of the arbitration proceeding plus the completion of at least one objective criterion in order for the arbitration to be international. In its place, Law 1563 does not require parties to agree on the international character of the arbitration and determines that arbitration will be international when one of the criteria mentioned above is fulfilled.
This modification in the criteria to define the international character of an arbitration proceeding has brought controversy to arbitration proceedings filed after Law 1563 entered into force (October 2012). A section of litigators argues that Article 62 of Law 1563 is a substantive rule that may only apply to those contracts executed after October 2012. Another group argues that Article 62 is imperative and procedural and must be applied to all arbitration proceedings filed after October 2012.
This disagreement is being solved case by case by the arbitration tribunals that face the decision. Nevertheless, as it is a recent issue, as yet we have no judicial decisions with which to resolve the matter.
In a group of pending cases, a state-owned foreign company with a branch in Colombia. is participating in three arbitral proceedings: two arbitrations against the same counterparty in relation to the same civil works agreement, and a third arbitration against a state-owned Colombian company in relation to an EPC agreement. Both the civil works and the EPC agreements were executed and performed in Colombia.
The first arbitration was filed as domestic by the opposing party, and hence, the arbitrators were chosen from the list of domestic arbitrators of the Arbitration and Conciliation Center of the Chamber of Commerce of Bogota (CAC). That tribunal decided the arbitration was to be tried as domestic without a thorough analysis. The counterparty argued that Article 62 of Law 1563 is a substantial rule that may only be applied to arbitration agreements executed after October 2012. As a consequence, as the parties did not expressly agree to an international arbitration, the arbitration must be tried as domestic. The tribunal did not provide a thorough explanation for its decision on the domestic character of the arbitration proceeding.
In the second arbitration, the foreign company filed the request for arbitration in the manner required to initiate an international proceeding. As a consequence, the arbitrators were chosen from the list of international arbitrators available in the CAC. This tribunal established that the arbitration proceeding filed had an international character and should be tried as such. This second tribunal decided that Article 62 of Law 1563 was procedural and must be applied to all arbitration proceedings begun after October 2012. Additionally, the tribunal considered that the foreign company’s main place of business of our client was outside Colombian territory, hence complying with the first criterion established by Article 62 of Law 1563. Furthermore, the tribunal considered that this controversy affected the interests of international trade.
Subsequently, the foreign company filed the third arbitration against the Colombian state-owned company. The request for arbitration was filed so as to constitute an international arbitration proceeding. Once again, the arbitrators were chosen from the list of international arbitrators available in the CAC. Both parties were given an opportunity to present their arguments on the international or domestic character of the proceeding. The counterparty argued that according to the rules in force at the time the agreement was executed, the proceeding should be domestic. In a partial award, the third tribunal determined that the internationality of this proceeding should be analyzed under Law 1563 and that the proceeding was international given the domicile of the parties. Nevertheless, it also concluded that the proceeding would also have been international under Law 315. These three cases involving the same party illustrate the uncertainty created by the introduction of Law 1563.
C. Costs In International Arbitration
Costs in international arbitration are regulated both by law and in the rules of the different local arbitration institutions. Colombia has various local arbitration institutions, the most recognized and used of which is the Arbitration and Conciliation Center of the Chamber of Commerce of Bogotá (CAC). The regulation of costs in international arbitration both in the law and in the CAC International Rules is discussed below.
C.1 Allocation of Costs
Neither Law 1563 nor Decree 1829 of 2013 (which regulates certain aspects of arbitration costs) addresses the determination of the arbitrators’ fees and costs of arbitration and the allocation of costs for international proceedings.
The CAC International Rules do provide a framework for the allocation of costs. As a general rule, the costs of the arbitration will be assumed by the defeated party. However, in some cases, the tribunal may assign a share of the costs to each of the parties, depending on the circumstances. In addition, the party that requests the gathering of a certain piece of evidence must assume the associated costs.
In any case, the decision of the tribunal on how to allocate the costs must be done following the principles of international arbitration, and under no circumstance must it consider the local procedural rules to define the allocation.
C.2 Security for Costs
Under Law 1563, when a party requests a precautionary measure, the arbitral tribunal may demand the posting of a security bond to cover the eventual damages caused to the counterparty by the imposition of the measure. At any time, the arbitral tribunal may order the party who requested a precautionary measure to pay the costs of the measure and the damages caused to the other party.
The CAC International Rules determine that once the arbitral tribunal is constituted, the CAC may require that each party deposit an equal sum as an anticipated payment of the costs. Occasionally, the CAC may require additional deposits during the proceeding. If a deposit is not made by a party, the other party will have the opportunity to make the deposit on its behalf. If neither deposit is made, the CAC may order the suspension or the termination of the proceeding.
C.3 Recovery of Costs
Law 1563 does not regulate the recovery of costs by the winning party. Nevertheless, after annulment or recognition proceedings, the state court settles procedural costs and grants the defeating party a portion of the costs spent on legal representation. During an annulment proceeding, the Court may grant up to 20 times the monthly minimum wage (approximately US$4,290).
The CAC International Rules establish that the tribunal settles the costs of the proceeding in the award or other decisions as deemed appropriate. The costs include: (ii) the fees of the arbitrators; (ii) travel and other reasonable expenses incurred by the arbitrators; (iii) the reasonable costs of an expert whose advice is required by the tribunal; (iv) when approved by the tribunal, reasonable travel expenses sustained by the witnesses heard within the proceeding; (v) legal and other kinds of costs incurred by the parties when the amount is considered reasonable by the tribunal; and (vi) fees and reasonable expenses of the Arbitration Center.
Hence, the defeated party may be forced to reimburse a considerable portion of reasonable expenses of the proceeding. In the award (or in other decision as deemed appropriate), the tribunal must determine the sum that one party must pay the other party as a consequence of the cost allocation.
The costs of in-house counsel and staff are not generally considered recoverable. Nevertheless, under these rules, a party could try to justify a certain reasonable cost as caused by the dispute and request its reimbursement. The tribunal will decide whether the cost can be recovered.
Neither the law nor CAC International Rules specify whether the parties must provide support for every expense for recovery purposes. Nevertheless, in order to justify the expenses and prove that the cost was reasonable, it would be advisable to provide all the support available. In any case, the tribunal is not obligated to grant supported costs.