Buenos Aires Cityscape, Capital City of Argentina

On November 6, 2018, the Argentine National Supreme Court (“Supreme Court“) ruled on a case regarding the annulment of a domestic arbitration award. The Supreme Court found that the award was not subject to annulment, since it had complied with the requirements of Sections 760 and 761 of the National Procedural Code (“NPC“) and it did not affect public policy.

The background of the case refers to a contract executed between the National State (“National State“) and a joint venture of small companies (“Propyme“, and together with the National State, the “Parties“) in 1999, related to an economic support program for small companies. The contract contained an arbitration agreement and the law that established the economic support program stated that any dispute had to be resolved by arbitration. The National State terminated the contract in December 2000. In 2001, Propyme filed a claim for alleged damages related to the termination of the contract.

The Parties entered into an arbitration with a sole arbitrator. The award ordered the National State to pay ARS 931,124.57 and US$ 96,508.80 to Propyme. Against this, the National State filed an annulment claim before the Federal Chamber of Appeals (“Chamber“) alleging that (i) the award was not based neither in the contract nor in the applicable law, (ii) the evidence had not been assessed properly and (iii) the arbitrator omitted to apply public policy laws on currency exchange and consolidation. The Chamber conceded the annulment only regarding the omission to apply public policy laws on currency exchange and consolidation and dismissed the annulment on the basis of applicable law and evidence assessment, since such points exceeds the annulment recourse and would revise the merits of the award, which is not allowed by the NPC.

The National State appealed the decision before the Supreme Court stating that an arbitral award can be revised in the merits when there are reasons of public policy, as it happened in this case. The Supreme Court used two standards to analyze the annulment claim. First, it analyzed if the award fell within the grounds of annulment contained on Sections 760 and 761 of the NPC. Second, it analyzed if there were reasons of public policy to revise the merits of the case.

Regarding the first question, the Supreme Court stated that judicial revision of arbitral awards is restricted, and cannot encompass the revision of the merits of the dispute, but only the compliance with the grounds of Sections 760 and 761 of the NPC. In this sense, the courts shall only review that (i) the award does not have essential flaws of procedure, (ii) it was not rendered out of term or (iii) it decides disputes that were not submitted to arbitration. Since the National State did not prove any of this ground, but rather stated reasons of applicable law and evidence assessment, the award was not subject to annulment by the grounds of the NPC. Regarding the second question, the Supreme Court understood that the National State did not prove any affectation of the public policy, but only a discrepancy with the outcome of the award. For this, the Supreme Court take into account that the National State voluntarily agreed to arbitrate, and waived the right to appeal the award.

This decision shows the support of the Supreme Court to arbitration, since it limits the possibilities of annulment, and therefore, gives legal certainty to arbitral awards. Moreover, this is in line with the recent enactment of Law 27,449 on International Commercial Arbitration, which is a verbatim of the UNCITRAL Model Law, and contains grounds for annulment fairly similar to those upheld by the Supreme Court and contained in the NPC.

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