A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Argentina continues to be governed by (i) the National Civil and Commercial Code (2015), (ii) the Law on International Commercial Arbitration (2018) and (iii) the New York Convention, to which Argentina is a signatory. No legislative amendments have been made since their enactment.
A.2 Institutions, rules and infrastructure
By 2021, local arbitration institutions’[1] proceedings were already adapted to the COVID-19 pandemic, with the conduction of virtual hearings upon the parties’ consent and the online submission of writs. In particular, the General Arbitral Tribunal of the Buenos Aires Stock Exchange implemented a new online system to be released in 2022, similar to that used by national courts, to allow parties and lawyers to access cases remotely.
B. CASES
B.1 Interpretation of the power of judges under the New York Convention
In Milantic Trans SA (“Plaintiff”) v. Ministry of Production (Río Santiago Shipyard et al.) (“Respondent”) on enforcement of judgment – extraordinary appeal of inapplicability of law and nullity[2] the Plaintiff requested the recognition and enforcement of the awards rendered by an arbitral tribunal (“Arbitral Tribunal”) seated in London, England:
- On 15 November 2004, regarding the substantive issue.
- On 1 July 2005 regarding court costs and attorneys’ fees, ordering Respondent to pay the owed amount.
On 17 November 2006, the Court of First Instance on Administrative Litigation Matters N° 2 of the judicial department of La Plata recognized and granted the request for recognition and enforcement of the foreign arbitration awards. The State Prosecutor’s Office of the Province of Buenos Aires filed an appeal against this decision, complaining only about the imposition of court costs and attorneys’ fees.
On August 30, 2007, the Court of Appeals on Administrative Litigation Matters for the city of La Plata (“Court of Appeals“) reversed the court of first instance’s decision and rejected the enforcement of the award. Although the Court of Appeals only had jurisdiction to rule on the imposition of court costs and attorneys’ fees, it understood that in the absence of an express provincial authorization (i.e., law), there was no consent to arbitrate and, therefore, the Argentine court system had jurisdiction to hear the case. Thus, based on the “manner in which the challenge had been articulated”, the Court of Appeals had been “forced” to deal with the main claim that constituted res judicata as the judgment was final and enforceable.
The Plaintiff lodged extraordinary appeals for nullity and inapplicability of the law against this decision. However, on 30 March 2016, the Supreme Court of the Province of Buenos Aires (“Buenos Aires Supreme Court“) rejected these appeals and upheld the second instance judgment. The Buenos Aires Supreme Court explained that, before moving forward with the enforcement of the decision issued by the Arbitral Tribunal, it should have been verified – even informally, in the terms of section V.2. of the NY Convention – whether a procedure had to be followed in order to reach the aforementioned award, and that any such procedure should be in accordance with the constitutional principles and public policy provisions pursuant to the NY Convention to reach an arbitration award. Thus, it concluded that entering into the arbitration agreement violated Argentine domestic law by not following principles of public policy, and the agreement had begun to be executed without having complied with the prior conditions for doing so. This was due to the lack of approval – and therefore its lack of validity – by means of a formal law of the Buenos Aires Province Legislature of the contract entered into between the parties and, consequently, of all its clauses, including the choice of arbitration as an alternative dispute resolution method.
Against that decision, the Plaintiff filed an extraordinary federal appeal before the National Supreme Court of Justice (“National Supreme Court”) on the grounds that the interpretation of federal norms such as the New York Convention was at stake.
On 5 August 2021, the National Supreme Court admitted the extraordinary appeal and revoked the judgment on appeal. The Supreme Court clearly established that the issue to be addressed was “whether the power provided for in section V.2. of the New York Convention, which enables judges to refuse a request for recognition and enforcement of a foreign arbitration award on grounds of public policy, authorizes them to reintroduce defenses on its own motion that had been asserted and rejected in the first instance as final and non-appealable”[3].
In this sense, the National Supreme Court reaffirmed that the New York Convention leaves to the judges of the place in which the recognition and enforcement of the arbitration award is requested the power to determine what should be understood by “public policy”. It also established that, like any international treaty, the interpretation must be made in accordance with the principles of public law established in the Argentine Constitution. Thus, the National Supreme Court considered the judgment that rejected the enforcement of the foreign arbitration award to be arbitrary, since the ex officio intervention of the local courts, justified by an alleged violation of public order, implied a violation of due process, the principle of consistency and the issue of res judicata.
From the analysis of the Supreme Court, it can be pointed out that the provision of section V.2.b of the New York Convention implies an interpretation of the constitutional principles, and that, given that the principle of consistency and res judicata is a limit within them, the judge could not deny the recognition or enforcement of the judgment if its own public policy does not allow it.
In short, the Supreme Court confirmed that both the Court of Appeals and the Buenos Aires Supreme Court ruled extra-petita (i.e. beyond what was sought by the claimant), going into the merits of the decision rendered by the Judge of First Instance, which was final and binding, and given that it constituted res judicata, it was not possible to revoke the decision by which the petition for recognition and enforcement of the arbitration award and its extension issued in London was granted[4].
This precedent highlights the relevance of respecting fundamental constitutional principles related to the due process of law and recalling the limits of the power of judges.
B.2 Rejection of the constitution of an arbitral tribunal
In Buhler, Lucia (“Plaintiff”) v. Buhler SRL and others (“Respondent”) on arbitral proceeding[5] the National Court of Appeals on Commercial Matters (“Court of Appeals”) upheld the decision of the lower court rejecting the Plaintiff’s request for the constitution of an arbitral tribunal on the grounds of the arbitration clause included in the social contract of Buhler SRL (“Company”).
The Plaintiff complained that the social contract had expressly established the duty to resort to arbitration in order to settle any disputes that might arise in the Company. In addition, it alleged that the court of first instance failed to assume jurisdiction to settle the dispute, which would deprive it of its constitutional right of access to justice.
The Court of Appeals recalled that the arbitration clause constitutes a true contract, which has a specific purpose, consisting in removing certain disputes from the ordinary jurisdiction, submitting to a private justice. Also, it noted that given that the Plaintiff’s request was initiated on the grounds of section 742 of the Civil and Commercial Procedural Code, the existence of a valid arbitration clause should be assessed.
In this sense, the Court of Appeals understood that the first instance ruling was correct. In the first place, it pointed out that the Company’s social contract was completely reformed in 1993, and that, in its new wording, no reference was made to arbitration, being replaced by the old arbitration clause. Despite the Plaintiff’s argument, the autonomy of the arbitration clause was not at stake for the Court of Appeals, who noted that this principle reflects the independence of the arbitration clause of the underlying contract, and, consequently, the intervention of the arbitral jurisdiction is maintained even in case of nullity of the contract for the arbitrators to rule on the rights of the parties. The validity of the social contract that included submission to arbitration was not questioned, but rather the fact that the parties desisted from extending the arbitration clause.
Therefore, the Court of Appeals found there were no grounds for maintaining the duty to resort to arbitration when the arbitration clause does not correspond to the social contract in force, nor does it arise from any agreement concluded by the parties.
The Court of Appeals also addressed the Plaintiff’s argument based on the kompetenz-kompetenz principle. In this regard, it recalled that it has been said that the implementation of this principle has both a positive and a negative effect: the first, aimed at allowing the arbitrators themselves to rule on their jurisdiction; and the negative, obliging the judicial courts to decline their jurisdiction upon the invocation of an arbitral agreement unless it is manifestly null or inapplicable.
The latter is what prevailed in the present case (which has normative reception in paragraph one of section 1656 of the Civil and Commercial National Code) since the Court of Appeals found that the contractual clause invoked by the Plaintiff was inapplicable, as it was subsequently terminated by the contracting parties. In this sense, the Court understood that when the terms or expressions used in a contract are clear and conclusive, they can only be limited to their application.
This precedent is relevant as it tends to enforce party autonomy that in this case was not to submit their disputes to arbitration. It also reminds of the importance of the clear election of arbitration as the means of dispute settlement, if any.
B.3 Partial enforcement of an arbitral award pending appeal
In Izo Corporate S.L. (“Plaintiff”) v. Socialtech S.R.L. (“Respondent”) on exequatur,[6] the National Court of Appeals on Commercial Matters (“Court of Appeals“) allowed partial enforcement of an arbitral award rendered by an ICC arbitral tribunal (“Arbitral Tribunal”) pending an appeal.
The Arbitral Tribunal, in its ruling, ordered the Respondent to pay the Plaintiff EUR 98,969.53 (approximately USD 107,500) for unpaid invoices plus interest. It also established a penalty of EUR 120,000 (approximately USD 130,000) for violation of the post-contractual non-compete agreement plus interest. Finally, it also ordered it to pay the administrative costs of the arbitration and the arbitrator’s fees, as well as the legal costs of the other party’s lawyers’ fees.
However, the Civil and Criminal Division of the High Court of Justice of Madrid (“High Court of Justice of Madrid”) ruling on 20 December 2018 partially annulled the arbitral award nullifying all sentences except for that relating to the debt for unpaid invoices which was precisely the amount claimed by the Plaintiff through the recognition and enforcement request.
In this scenario, the Court of Appeals understood that it is not disputed that the award on the unpaid invoices was final and binding, given that it constituted res judicata. Also, it noted that none of the grounds for refusal of recognition of the arbitral award were argued by the Respondent. Instead, the Respondent had only alleged (i) an attempt to invalidate the enforceability of the award on the grounds that it would contain convictions that are not final and have been set aside for the time being by the High Court of Justice of Madrid, which the Respondent claimed would not constitute res judicata, and (ii) a material error in the award in calculating the debt that was expressly recognized by the Plaintiff itself.
On one hand, the Court of Appeals explained that section 499 of the Civil and Commercial Procedural Code expressly provides for the possibility of partially enforcing a judgment – or arbitral award – pending an appeal “…for amounts corresponding to the part of the sentence that has become final”. Also, it noted that the judgment of a foreign court, once recognized in an exequatur procedure, is enforced in the same manner and under the same rules as the judgment of a national court. Therefore, if a local judgment can be partially enforced, no objection can be raised against giving that possibility to the foreign arbitral tribunal’s award.
On the other hand, the Court of Appeals agreed that the Plaintiff recognized a material error in the award in calculating the debt. In this sense, the Court of Appeals understood that even though the parties should have requested the arbitral tribunal for clarification in this regard, the arbitral award was already final and binding to the parties. Moreover, it noted that the Respondent should have sought such clarification in due time. In this sense, the Court of Appeals found that a minor error in the quantification of the sentence (a difference of 6.59 euros) is irrelevant in assessing the enforceability of the award.
Based on the foregoing, the Court of Appeals ruled in favor of the partial execution of the award.
This precedent is relevant as it rules in favor of arbitration, highlighting the importance of total or partial recognition and execution of arbitral awards when they become final and binding, and therefore constitute res judicata.
[1] General Arbitral Tribunal of the Buenos Aires Stock Exchange, the Arbitration Chamber of the Buenos Aires Grain Exchange and the Business Centre for Mediation and Arbitration.
[2] Corte Suprema de Justicia de la Nación (National Supreme Court of Justice), rulings 344:1857, 5 August 2021, “Milantic Trans S.A. v. Ministerio de la Producción (Astillero Río Santiago y otro) s/ ejecución de sentencia – recurso extraordinario de inaplicabilidad de ley y nulidad”, Exp. No. 1460/2016/CS1.
[3] Opinion of Judges Rosenkrantz and Highton de Nolasco, recital 10.
[4] All this, “without prejudice to the responsibility that may eventually fall on the professionals who acted in this case on behalf of Astilleros Río Santiago and the Province of Buenos Aires due to their lack of diligence in defending the interests of their clients” (vote of judges Rosenkrantz and Highton de Nolasco, recital 18; vote of judges Lorenzetti and Maqueda, recital 16).
[5] Cámara Nacional de Apelaciones en lo Comercial, Sala B, (National Court of Appeals on Commerical Matters), 22 March 2021, “Buhler, Lucia c/ Buhler S.R.L. y otros s/ Proceso arbitral”, Exp. No. 28510/2018.
[6] Cámara Nacional de Apelaciones en lo Comercial, Sala E, (National Court of Appeals on Commerical Matters), 25 June 2020, “Izo Corporate SL c/ Socialtech SRL s/exequatur”, Exp. No. 1789/2019.
