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Analysis of the procedure for the recognition and execution of foreign arbitral awards in MERCOSUR


  Fuente: dirigentesdigital.com
Natalia A. Dalenz Lorieto*
RESUMEN

Esta investigación contempla la situación actual del arbitraje de inversiones en el MERCOSUR. La legislación internacional actual ha establecido principios y un amplio abanico de procedimientos que deben ser implementados en el MERCOSUR en materia de reconocimiento y ejecución de los laudos arbitrales extranjeros. El presente trabajo recomienda armonizar el procedimiento legal de la institución del arbitraje y propone implementar una Corte de Arbitraje Supranacional para incrementar y hacer efectivo el arbitraje de inversiones, considerando que aún subsisten obstáculos para su desarrollo en la región.



1. INTRODUCTION 

Within the Latin American context, the international arbitration scene lately has been subject to various changes. In principle, the Latin American countries protected themselves from receiving foreign investments and did not regulate or even include normative provisions on arbitration and this has led to a negative impact on the practice of international arbitration. This is the case with the inclusion of the Calvo doctrine, regarding investments, as a clause within the Latin American civil law codes.

With the globalization of the markets and the massive injection of foreign capital during the last half of the twentieth century, Latin America saw itself forced to introduce the practice of international arbitration as an alternative mechanism for resolving disputes. Therefore, the recognition of arbitral awards in the region was initially obtained with the regulation of this institution within its constitutional norms, the adhesion to various international instruments and the creation of specific norms on the subject.

Despite the legislative recognition achieved in the field of international commercial arbitration, barriers still exist for the development of this institution in Latin America.

In the case of the South American trade bloc, Mercado Común del Sur (MERCOSUR), it is necessary to refer to the applicability of its rules of arbitration. One of the peculiarities that directly affect the procedure for the recognition and execution of foreign arbitral awards is the absence of a supranational character on MERCOSUR legislation.

The main objectives of this study are therefore to provide a detailed ruling description of the procedure for the recognition and execution of foreign arbitral awards in the MERCOSUR member states. It is necessary to analyze the merits of the dispute to suggest the best way to follow for the recognition and execution of foreign arbitral awards for investment arbitration.


2. THE PROCEDURE FOR THE RECOGNITION AND THE EXECUTION OF THE FOREING ARBITRAL AWARDS IN MERCOSUR

I. International legislation on the subject

The process for the recognition and execution of foreign arbitral awards in MERCOSUR member states presents a complex system composed of both national and international laws. Braghetta[1] states “treaties and model laws envisage that the international community shall treat the arbitration award in a similar way”.
MERCOSUR member states are bonded with the following international instruments regarding the recognition and execution of foreign arbitral awards: the New York Convention of 1958; the Inter-American Convention on International Commercial Arbitration of 1975 (also known as the Panama Convention (CIDIP I)); the Washington Convention on the settlement of investment disputes of 1965 (ICSID) and the UNCITRAL Model Law of 1985.

a) The New York Convention of 1958

The procedure for obtaining the recognition of the awards is indicated in Art. III[2] of this convention, which states that each contracting state will recognize the authority of a judgement and will grant it in accordance with the procedural rules observed in the territory where the decision is invoked.

With regard to the proof for obtaining the recognition and due enforcement of the award, Art. IV of the New York Convention of 1958 provides that the requesting party must provide at the time of the request: a) the original sentence, duly authenticated, or a copy of the original that meets the conditions required for authenticity; b) the original of the agreement referred to in Art. II, or a copy that satisfies the conditions required for authenticity.

The previous three requirements seek to simplify the process of proving the existence of an award. In this context, it can be inferred that there is a presumptive obligation to recognize the foreign arbitral awards, based on the “pre-enforcement” approach of this instrument. 

Even though during the last period the "culture of arbitration" has been promoted thanks to the increasing investments that have been carried out inside MERCOSUR, still the member states avoid neglecting the state´s fundamental interests to achieve an effective implementation of the awards. However, to arrive into an effective pre-enforcement approach the jurisdictional control must have minimum intervention. Generally, inside developing countries where the administration of justice is weak, the courts oppose arbitration due to a lack of effectiveness and intern corruption inside Latin-American Courts of Justice.
b) Washington Convention of 1965


The convention on the settlement of investment disputes between states and nationals of other states (ICSID) has been adopted by MERCOSUR members, apart from Brazil and Bolivia (the latter renounced the convention on May 2007).
In the specific case of Brazil, the resistance to adopting international arbitration on investments stands on the fact that “(…) it is the state itself or some of its entities that are involved. On the other hand, it is argued that if the direct recourse to an international instance is given to a foreign investor, this would be granted as privileged treatment with respect to nationals, who must resort in any case to the national courts in case of conflict” (Brill & Nijhoff, 2016, p.114).[3]
Additionally, in the matter of investments, the countries of MERCOSUR have often raised the issue of the conflict with human rights. The author Polanco[4] (2016, p.1) discuss the relationship between international investments and human rights represents a problematic issue for all of the Latin American states, who must balance the fulfillment of their international obligations under the human rights instruments, with the protection of the interests of the investors guaranteed by the international investment instruments.
For example, in the 2016 Philip Morris v. Uruguay case, it occurred that the new Uruguayan legislation called Single Presentation Regulation [SPR] required textual and graphical anti-smoking warnings to be printed on the lower half of cigarette packs. Besides prohibited the use of variants of any brand. In this situation Philip Morris company had to remove from their packages LightBlue and Fresh Mint, keeping Marlboro Red only.
This case “brought to centre-stage the right to health in investment arbitration in the context of the examination as to whether tobacco-control measures introduced by Uruguay in compliance with international agreements amounted to expropriation under a Bilateral Investment Treaty (BIT)”[5]After all, with its new packaging legislation, Uruguay was not only complying with its national law but also with their international legal obligations in the matter of public health, and the country did it in good faith, therefore there could not be indirect expropriation for the investment of trademarks in this case.
Another notorious case in the international arena regarding human rights, took place in the future MERCOSUR member state, Bolivia. Its city of Cochabamba has long lacked an adequate water system; almost half of its population still didn´t have running water by the year 2000. This is how Bolivia entered negotiations with the Bechtel Corporation, after forming a  consortium, resulting in a forty-year agreement for the exclusive provision of water services to the city of Cochabamba.
Immediately upon the signing of the concession agreement, water tariffs increased in Bolivia by more than 100% and the Bolivian government wanted to expropriate the drinking water and sanitation facilities constructed by the Bechtel Corporation. The author De Gramont (2006, p.3) states that the case was presented before the ICSID by the Bechtel Corporation; Bechtel and it´s co-investor, Abengoa, finally agreed to abandon the case for a token payment equal to thirty cents due to the social pressure that the Bolivian people presented with the so called “Water War”.[6]
In this case water rates increased dramatically in between, but there was also a desire for profit that created the conditions for a large-scale social conflict that not only affected the users of water but also the whole Bolivian population when also a military intervention occurred. The fact of speculating on the right to water carries out a violation of other human rights at the same time which is inadmissible.
The magnitude of income generated by the exploitation of the Latin American natural resources often leads to corruption cases by foreign investors, provoking the violation of human rights. Therefore, arbitration is the best way to resolve conflicts between the parties if human rights are respected using the United Nations Guiding Principles on Business and Human Rights (‘UNGPs’) from 2011 as a guideline in the field of business and human rights, as business enterprises are under increased pressure to ensure that human rights are respected throughout their operations
Additionally, in relation to the recognition and execution of foreign arbitral awards, the Washington Convention Art. 53 states: “The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this convention.”[7] Sommer (2011, p.6) has pointed out that an arbitration award issued by the ICSID provides a title comparable to a local final judgment. Therefore, it does not become reviewable or appealable by national law, even if it is subject to restrictions that may exist in the matter of forced execution of judicial sentences against the state (Art. 55, ICSID).[8]
It is important to note that the binding nature established by Art. 53 of the Washington Convention, only refers to pecuniary obligations and not to any other kind of obligation. This differentiation is based on the idea that the other type of obligations may not exist in every country but, pecuniary obligations are present in every state.
c) The Panama Convention of 1975


The Panama Convention has unified the main provisions from the American continent regarding international commercial arbitration, such as the Montevideo treaties and the Bustamante Code. Its ratification is open to all members of the Organization of American States and has been ratified by more than half of the American countries, including the MERCOSUR member states.
This Panama convention matches with the New York Convention by pursuing the recognition and execution of arbitral awards “(…) in accordance with the procedural laws of the country where it is to be executed and the provisions of international treaties”, as emphasized in its Art. IV.[9]
Unlike the New York Convention of 1958, which in article IV indicates the requirements that must be fulfilled by the party that requests the recognition and execution of the arbitral award, the Panama Convention of 1975 does not state any specific requirement for this procedure. In fact, such regulation remains subject to the national laws where the recognition of the award is required.
As a matter of fact, the Panama Convention is specific in commercial matters and the fact that this meets the necessary parameters to harmonize the procedure for the recognition and execution of foreign arbitral awards in the Americas according to this region’s requirements, makes it useful inside the MERCOSUR region.
d) MERCOSUR International Commercial Arbitration Agreement of 1998

This agreement has been signed by the four-member states that where part of MERCOSUR by the year 1998 (Argentina, Brazil, Paraguay and Uruguay). This instrument does not establish a supranational institution to govern arbitration. Furthermore, it also refers to the Panama Convention of 1975 to cover all the legal gaps in matters of procedure, appointment, challenge, replacement of arbitrators, as well as execution and recognition of the foreign arbitral awards

e) UNCITRAL Model Laws

In 1985, the wave of new arbitration laws in Latin America were based on the publication, of the UNCITRAL Model Law on international arbitration. In the specific cases of Bolivia, Brazil and Paraguay, these countries have mixed some of the provision of the Model Law with concepts and existing practices in their respective systems. Recently, Argentina and Uruguay have published new legislation on arbitration including this model law.
However, there are still some obstacles for two of the MERCOSUR member states with respect to the implementation of the Model Law. The so-called “Acción de Amparo Constitucional” (writ of security) in Bolivia, by which parties can effectively bring a constitutional mechanism as a means of immediate interlocutory appeal in arbitration matters and interfere with the execution of the foreign arbitral award.
Meanwhile, as stated by Arentsen (2014) in Brazil, the related action of so called “Mandado de Seguranca” (writ of security) has also been effectively used against arbitral awards.[10]
In any case, there continues to be significant issues about the future impact of Latin American constitutional law on international commercial arbitration, specifically on the issues of scope of arbitrability, the enforceability of choice-of-law clauses, and limitations of appeals.
3. THE LIMITS FOR THE RECOGNITION AND EXECUTION OF FOREING ARBITRAL AWARDS IN MERCOSUR

I. The notion of public order

On certain occasions, public order was considered as limiting the will of the parties. However, this principle is one of the most important in private international law. In most cases, the internal public order of the Latin American countries transgresses international public order. This situation arises in cases such as Rusoro Mining Ltd vs. Boliviarian Republic of Venezuela (Case No. ARB(AF)/12/5), when Venezuela approved a decree providing for the state control of the property and the mining rights of all gold producing companies, affecting the company’s investments in the state.[11]

Another example of the transgressions of international public order in MERCOSUR member states occurred in Argentina with the case of El Paso Energy International Company v. República Argentina (Case No. ARB(AF)/03/15).  In this case, the Argentine government went through a crisis with the devaluation of the currency that affected the contracts with the American company, thus changing the terms of the contract and causing the loss of large amounts of money.
These examples show in general terms the situation of MERCOSUR member states, in relation to the effective recognition and enforcement of arbitral awards in the Southern Cone. Statistics demonstrate the active role that the institution of international arbitration has achieved in the Latin American continent, however they also reveal the large number of pending cases in the region. To achieve a real change in the matter of regional trade, it is important to homogenize MERCOSUR legislation, argument that will be analyzed in the following paragraph.
4. CURRENT OBSTACLES AND CHALLENGES FOR THE FUTURE

I. The necessity of legislative harmonization in the matter of arbitration on the trade bloc and the constitution of a Supranational Arbitration Court in MERCOSUR


The circumstances of international arbitration in the MERCOSUR trade bloc have changed dramatically during the last quarter of the century. However, even if the countries are commercially joined together, a legislative harmonization is still necessary to achieve the normal functioning and development of the member states policies, aimed at strengthening international relation agreements between the member states with the purpose of expanding integration policies. 

Many commentators, therefore, have seen the necessity for creating a series of instruments to facilitate the formulation and adoption of measures for member states to achieve the purpose harmonization in accordance with Article 1 of the Treaty of Asunción [13]. 

The compromise assumed, in terms of legislative harmonization in Article 1 of the Treaty of Asunción, must be led by the cultural identity and the people that make up the integrated MERCOSUR space to achieve a balance between the need to solve the legislative disparities in matters of arbitration without altering the essence of the social features that constitute MERCOSUR member states.

On the other hand, within the concept of legislative harmonization it is possible to distinguish between different processes for the unification of the rules. The first process comes with the sanction of various conventions, treaties and specific agreements, that regulate the matter on a substantial form and that make part of International Private Law. With the other process, it is possible to find the issues regarding International Private Law, regulated and resolved by the internal law of each member state party, as indicated by the respective conflict of law rules.

MERCOSUR urgently needs a reform of its institutions to handle disputes and the insertion of a Supranational Arbitration Court inside the trade bloc to increase and make effective the institution of international commerce in the region.


Nowadays, there is only one permanent review court (Tribunal Permanente de Revisión) established with the Olivos Protocol of 2002[14], which resolves conflicts between states and guarantees the correct interpretation, application and compliance of the international law. In any case, it does not become a supranational body since not all the MERCOSUR member states give priority to international laws and treaties.
5. CONCLUSIONS

There is confusion caused by the numerous arbitral conventions in the same subject matter (the New York Convention, the Montevideo Convention, the Panama Convention and the Las Leñas Protocol). Not only this, but also the lack of provisions that differentiate the preference in the applicability of these arbitral conventions regarding the recognition and execution of arbitral awards, are a problem for the bloc. The Las Leñas Protocol (which seeks to establish its own supremacy) and the Montevideo Convention do not cover international commercial arbitration.

In the case of MERCOSUR, the bloc is at a stage of having its identity, in which it must be decided what type of regional organization is expected. On one hand, it must be decided if the purpose is to achieve an integration of states that have not fully harmonized their legislations (in this specific case the mechanisms for the settlement of  dispute resolution), and on the other hand if it should rather aim to an organization that, at least as far as the interpretation of law is concerned, is capable of doing so in a common and imperative way for all the member states.

The integration process can only have a real consistency and, above all, stability and duration, if it will be given a sufficiently solid institutional and legal framework. The challenge consists in the creation of stable structures, with enough aptitude to resist the assault of the crises and the erosion of time.

The picture in the case of international disputes in this trade bloc tends to be always administered in foreign countries outside MERCOSUR. Even if MERCOSUR legal rules were framed according to the model of legal rules in UNCITRAL, the resemblance is, in many cases, merely formal. In communities with a different tradition, a different social structure, a different economy and a different way of life, the requirements of good faith are not weighed nor appreciated as they may be in industrialized countries where commerce and industry are held in high consideration.

The challenge for developing countries that constitute MERCOSUR trade bloc, is to welcome arbitration under such conditions considering these countries have a different development, group interest and vision of the world. Experience furthermore, is conclusive: when a dispute arises between two litigants, one from South America and one from a developed country, the arbitrators, in most cases, make their decision in favor of developed countries. This is because Latin American countries involved in the international trade are expected to conform to the usages of the trade, although the commercial practice is based on principles and values of the western world. 

Currently, judicial intervention persists in the institution of arbitration. It is necessary to take judicial measures, such as the so-called anti-suit injunctions for MERCOSUR member states, to limit the judicial intervention and to prioritize the unavailability of the public interest. For sure, in response to the deficiencies of the system a need for adaptation of the methods of resolving conflicts to a more equitable mechanism and representative of different interests is required in the region.

* Licenciada en Derecho de la Universidad Católica Boliviana “San Pablo” - La Paz (Bolivia). Master en Derecho Empresarial Internacional en la Universitá degli Studi di Padova – Padova (Italia). Investigadora independiente. E-mail: natalia.dalenz@gmail.com


[1] Braghetta, Adriana. Poligamy of Treaties in Arbitration – A Latin American and MERCOSUL Perspective. (Madrid: La Ley, 2010), 1.
[2] Article IV, New York Convention, [1958].
[3] “(...) La tradicional resistencia de Brasil a aceptar el arbitraje se sucita cuando es el propio Estado o alguna de sus entidades quienes se ven involucradas. Por otro lado, se sostiene que, si se permite el recurso directo a una instancia internacional a un inversionista extranjero, se le estaría otorgando un trato privilegiado respecto de los nacionales, quienes deben acudir en todo caso a los tribunales nacionales en caso de conflicto.” Tanzi A, Asteriti A, Polanco R, Turrini P, International Investment Law in Latin America (Editorial Board, 2016) p.114.
[4] Polanco, R. Arbitraje de inversiones y casos de derechos humanos en América Latina, (2016) 1. Accesible at: https://law.yale.edu/system/files/area/center/kamel/sela17_polanco_cv_sp.pdf.
[5] Feria-Tinta M, Like Oil and Water? Human Rights in Investment Arbitration in the Wake of Philip Morris v. Uruguay. Journal of International Arbitration 34, no.4, (2017), 614.
[6] De Gramont, A. After the Water War: The Battle for Jurisdiction in Aguas del Tunari, S.A. v. República de Bolivia, (2006), 3.
[7] Article 53, Washington Convention, [1965].
[8] “Así, un laudo arbitral del CIADI constituye un título válido equiparable a una sentencia firme local, y por ende, no revisable ni impugnable por la ley local, aunque sí sujeto a las restricciones que pudieran existir en materia de ejecución forzosa de sentencias judiciales contra el Estado (artículo 55 del Convenio).” G. Sommer. RECOGNITION AND ENFORCEMENT TO ICSID AWARD: Direct Enforcement or Exequatur?. Revista Electrónica Cordobesa de Derecho Internacional Público 1, no.1, (2011), 6.
[9] Article IV, Panama Convention, [1975].
[10] Arentsen N, Weber MUNCITRAL Model Law: Still a Model or Second Best?,  [2014], para. 4. Accessible at http://arbitrationblog.kluwerarbitration.com/2014/07/01/uncitral-model-law-still-a-model-or-second-best/.
[11] Rusoro Mining Ltd.v. Bolivarian Republic of Venezuela ICSID Case No. ARB(AF)/12/5.
[12] El Paso Energy International Company vArgentine Republic ICSID Case No. ARB(AF)//03/15.
[13] Article 1, Asunción Treaty, [1991].
[14] Article 1, Modifying Protocol of the Olivos Protocol [2007].

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