Argentina: the New York Convention and the Issue of Arbitrability
On the 50th anniversary of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958 (the New York Convention) and 20 years since it became law in Argentina,1 there have been relatively few reported cases that have applied it. In addition, Argentina adopted the Inter-American Convention on International Commercial Arbitration, Panama, 30 January 1975 (the Panama Convention) in 1994,2 which, except for some minor differences with the New York Convention, sets forth identical grounds for refusal of recognition and execution of foreign awards.3 In Argentina, in the absence of a bilateral or multilateral treaty, the National Civil and Commercial Procedural Code (CPN) applies to the enforcement of the arbitration agreements and to the recognition and enforcement of arbitral awards.4
The New York Convention, which was ratified by almost 150 countries, enhanced the use of international commercial arbitration, in what was characterised as a monopoly in the adjudication of disputes in international trade.5 However, after 50 years, the international community is discussing whether it would be convenient to launch the 'new' New York Convention. Among those in favour, Professor Albert Jan van den Berg submitted the Hypothetical Draft Convention on the International Enforcement of Arbitration Agreements and Awards (the Hypothetical Draft Convention 2008)6 at the plenary session of the International Council for Commercial Arbitration Conference in Dublin.
On the issue of arbitrability, the Hypothetical Draft Convention 2008 suggests that this concept should be included in that of international public policy.7
Although the New York Convention deals with the issue of arbitrability at the stage of enforcement of the agreement to arbitrate (article II(1)) and of the award (article V(1)(a)), the latter has been applied in very few cases.
Of these few cases one of the most cited is Audi-NSU Auto Union AG (Germany) v Adelin Petit Cie (Belgium) (1980).8 In the distribution contract, the parties agreed to submit their disputes to arbitration in Zurich under German law. After a dispute arose related to the termination of the contract, Audi started an arbitration proceeding. The arbitral award favoured Audi and Adelin instituted a judicial action in Belgium, arguing that said dispute was not suitable to be settled by arbitration under the Belgian law on unilateral termination of concessions for exclusive distributorship of an indefinite time. The Belgian Cour de Cassation accepted Adelin's motion and did not recognise force of res judicata to the arbitral award.
There are many more examples of cases dealing with the issue of arbitrability when one of the parties requests that the national court refer the dispute to arbitration. These include cases such as Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc, 473 US 614 (1985) (admitting the arbitrability of antitrust claims), Sherk v Alberto-Culver Co, US 506 (1974) (admitting the arbitrability of securities claims), among others.9
The New York Convention text does not determine which law applies at the stage of enforcement of the arbitration agreement to questions of arbitrability. However, as article V(2)(a) refers to the law of the forum a reasonable interpretation would be that the same law applies under article II(1).10
Therefore, the issue of arbitrability might arise at the stage of enforcement of the arbitration agreement (either at the seat of arbitration or in a third country) or at the stage of enforcement of the award (in any country where the losing party has assets). Although some precedents had made a difference between domestic arbitration and international arbitration to assess the issue of non-arbitrability, national courts showed more flexibility in the latter to honour the agreement of the parties and the election of a neutral forum to resolve their disputes.11 However, the arbitrability concept still refers to local laws.
We will now analyse the issue of arbitrability under Argentine law and how it has been construed by precedents concluding that Professor van den Berg's suggestion to include the concept of arbitrability in that of international public policy is highly appropriate. Furthermore, we will support his view that a future reform of the New York Convention would benefit international commercial arbitration.
Arbitrability in Argentina
Domestic and international arbitration in Argentina is regulated in the CPN. Although the CPN is outdated (and in need of urgent reform to include the modern principles of arbitration),12 it clearly favours it.
Articles 736 and 737 of the CPN establish that any dispute can be submitted to arbitration before or after a judicial action has been instituted, unless the dispute cannot be subject of a transaction between the parties. Moreover, articles 844 to 849 of the Civil Code establish that any property right can be subject of a transaction. Therefore, only very few claims cannot be arbitrated, such as those related to criminal or family law. Thus, the CPN is even broader than the New York Convention, because the former allows arbitration of civil and commercial claims.13
However, arbitration might not be allowed when the matter of the dispute conflicts with the public order (orden público), such as in competition or patent law, among others. This article will not focus on the concept of public order but it is fair to say that its definition is as problematic as in other jurisdictions.14 Instead we will analyse some contradictory precedents15 of different sections of the Court of Appeals in commercial matters (the Commercial Court of Appeals; CNCom) relating to arbitrability of Emergency Laws and Business Association Law matters as well as others from the Highest Federal Court on Constitutional and Federal Matters (the Argentine Supreme Court; CSJN). We consider that decisions against misconstrue the law and tend to show unreasonable hostility towards arbitration.
Arbitrability of Emergency Laws matters
After the Argentine financial crisis in 2001, the Argentine government enacted the Emergency Law 25,561, followed by several other laws and decrees (the Emergency Laws), the main result of which was the amendment of Law 23,928 of 1991, which fixed the Argentine currency (peso) to the US currency (US$) at the parity of 1 peso=US$1. The Emergency Laws chaotically provided alternatives to settle differences among parties who had entered into agreements with the assumption and expectation that the parity between the peso and US$ would remain. Nevertheless, those parties found from one day to another that the exchange rate reached 4 pesos to the dollar.
Although article 19 of Law 25,561 sets forth that its provisions were of a public order nature, most of the disputes that involved the scope of its applicability could be the subject of a transaction and, therefore, arbitrable.
Two precedents of the Commercial Court of Appeals (CNCom) reached opposite decisions on this matter, which are outlined as follows.
Otondo v Cortina Berauto
In Otondo, César A et al v Cortina Berautto SA et al,16 a domestic arbitration, the Commercial Court of Appeals, section E, decided that matters related to Emergency Laws or to their constitutionality were arbitrable.
The parties, Otondo (buyer) and Cortina Berauto (seller), signed a stock purchase agreement in 9/9/99 payable in US$ and in installments. After the financial crisis in 2001 and the enactment of the Emergency Laws, Otondo tried to cancel the remaining balance in pesos at the parity of 1 peso to US$1 fixed by Law 23,928, but Cortina Berauto refused, insisting it had to be cancelled in US$. The stock purchase agreement contained an arbitration clause that provided for arbitration before the Permanent Court of Arbitration of the Buenos Aires Stock Exchange.
Following a period of negotiations and mediation, Otondo instituted a judicial action requesting the Commercial Court of First Instance to declare that the Emergency Laws were constitutional and that the remaining balance had to be cancelled in pesos. In addition, Otondo argued that the matter was 'non-arbitrable', because it involved the constitutionality of the Emergency Laws.
The Commercial Court of Appeals, following the arguments of the Commercial Court of First Instance and of the attorney general before the Commercial Court of Appeals (we include all the arguments as those of the Commercial Court of Appeals) referred the parties to arbitration.
The Commercial Court of Appeals found that the parties had agreed to arbitrate 'any dispute arising out of or in connection with the fulfilment of the contract' without any exclusion. In addition, it also found that the claimants admitted the dispute was related to one of the elements of the fulfilment of the contract, the purchase price.
Finally, the Commercial Court of Appeals concluded that the analysis of the constitutionality of the law, in this case the Emergency Laws, was to be decided by the arbitral panel whenever it was necessary to adjudicate the dispute and was not excluded in the arbitration agreement.
Rivadeneria v ABN AMRO Bank NA
In contrast, in Rivadeneria, Hugo Germán v ABN AMRO Bank NA et al,17 another domestic arbitration, the Commercial Court of Appeals, Section D, reached the opposite conclusion.
Rivadeneira had invested in a mutual fund managed by ABN AMRO Bank NA. He signed the contract in 1999. After the enactment of the Emergency Laws, he instituted an action in a judicial court requesting the recovery of the funds in US$. ABN AMRO Bank NA answered the claim and presented a motion to refer the parties to arbitration as it was agreed in the contract. The Commercial Court of Appeals decided that the parties could have not foreseen the financial crisis that was to come when signing the arbitration agreement and dismissed the motion.
We consider this to be an erroneous interpretation of the law as this would also exclude from arbitration any issue involving unforeseeable facts (ie, hardship).
Although the Commercial Court of Appeals did not mention the issue of non-arbitrability or whether arbitration panels can decide matters related to constitutionality, in an obiter dictum it showed some hostility towards arbitration.
The Commercial Court of Appeals added that arbitration agreements should be construed narrowly. Furthermore, it added that arbitrators can only decide on matters related to the interpretation of contractual provisions or facts, while those related to the application of the law are for the exclusive jurisdiction of national courts. However, we understand that no provision in the CPN authorises the foregoing construction of the law.
Arbitrability of business association matters
The Business Association Law 19,550 (BAL) does not include any provision related to arbitration.18 This means that the general rule of articles 736 and 737 of CPN apply, namely all matters that can be subject of a transaction are arbitrable.
However, national courts have found that some actions which involve issues related to the alleged 'public order' might not be arbitrable (ie, nullity of decisions adopted in shareholders' meetings; claims against members of the board of directors for breach of their fiduciary duties, among others).19 The main concern of national courts seems to be that arbitral awards may affect the legal entities or third parties. Without focusing heavily on the issue of public order within the BAL, we would like to mention that actions usually associated with it can be subject of a transaction.
Most legal scholars understand that a recent amendment to the Securities Law 17,811 (the Securities Laws),20 which submits controversies against issuers to arbitration at the discretion of the claimant before the Permanent Court of Arbitration of the Buenos Aires Stock Exchange,21 shows a favourable attitude towards arbitration. On the one hand, the Securities Laws have recognised the advantages of arbitration (ie, confidentiality, speed, reduced costs), but on the other hand, we have to say that the award is subject to appeal before the Commercial Court of Appeals, and thus some of the mentioned advantages can be finally lost.
On business association matters, national courts have traced a line between two different types of claims. While claims between shareholders (ie, shareholders' agreements and stock purchase agreements, among others) or between shareholders and directors and officers related to breaches of contractual obligations are arbitrable, other claims which involve the legal entity (ie, nullity of shareholder's meetings, breach of fiduciary duties by directors and officers) might not be arbitrable.
In Goijman, Mario Daniel v Gomer SACI,22 an international arbitration, the CSJN dismissed the motion of Mr Goijman, who tried to avoid the arbitration proceeding that was agreed in Illinois (US) under ICC Rules. The attorney general before the CSJN argued that the arbitration agreement was valid under the CPN, because the dispute (a conflict that arose out of a shareholder agreement between foreign and local parties) was international. Furthermore, the CSJN dismissed the appeal on the ground that there was no federal grievance. Neither the parties nor the lower courts seemed to raise the issue of arbitrability. Had the national courts understood that shareholder agreements might have posed a public order problem, they could have raised the issue on their own motion.
In Nova Pharma Corporation SA v 3MArg et al,23 the Commercial Court of Appeals, section E, found that a dispute involving the nullity of contracts and issues related to the alleged abuse of a controlling shareholder were non-arbitrable. Similarly, in Lorusso Elba Susana et al v Gioffre Angel Antonio,24 a domestic arbitration, the Commercial Court of Appeals, Section D, decided that matters related to breach of fiduciary duties by officers of the entity or nullity of shareholder's meetings were non-arbitrable. In Lorusso, the by-laws of the entity included an arbitration clause that submitted disputes to arbitration. However, the Commercial Court of Appeals implicitly excluded arbitration on the ground of public order.25 Had the Commercial Court of Appeals had the intention to respect party autonomy, it could retain those matters related to "public order" and refer others to arbitration. But it did not.
We believe that Nova Pharma Corporation and Lorusso precedents misconstrued the law by arguing that arbitration agreements should be interpreted narrowly. In Lorusso, the Commercial Court of Appeals reiterated the argument that arbitrators can only decide on matters related to the interpretation of contractual provisions or facts, while those related to the application of the law are for the exclusive jurisdiction of national courts. As we previously expressed, no provision in the CPN authorises the foregoing construction of the law.
We also understand that it would be highly desirable that the sections of the Commercial Court of Appeals unify their opinions in favour of arbitration.
Preliminary conclusions on arbitrability in Argentina
After analysing the law26 and national court precedents, we can draw the following preliminary conclusions:
- Argentine law favours domestic and international arbitration, although it is outdated;
- while some national court precedents (ie, Otondo and Goijman) have interpreted arbitration agreements broadly allowing the proceedings even when the disputes involved alleged 'public order' issues, others (ie, Rivadeneira, Nova Pharma Corporation, Lorusso) have misconstrued the law excluding arbitration narrowing the concept of arbitrability whenever parties raised issues related to the vague term of 'public order'. These precedents show a parochial standpoint and hostility towards arbitration. Furthermore, we believe the reasoning to be of a dogmatic nature;
- national court precedents that restrict arbitrability neither consider the modern principles of separability or Kompetenz—Kompetenz doctrines nor respect party autonomy splitting arbitrable claims from those that are allegedly non-arbitrable; and
- the enactment of a national arbitration law (including principles of modern arbitration) may not be decisive in terms of solving arbitrability challenges, but it would force national courts to take a closer look at them.27
Moving from a local to a wider context, it seems that a future reform of the New York Convention including the concept of arbitrability in that of international public policy shall limit the power of national courts to misconstrue the law in arbitrability issues. Thus, party autonomy and the bargained neutrality are honoured.
The New York Convention enhanced the use of commercial arbitration as the preferred method for adjudicating private international disputes. A report of the ICCA edition in Global Arbitration Review28 describes the opinion of practitioners and scholars on whether it would be convenient to amend the New York Convention.
Among those in favour, van den Berg proposed the inclusion of the concept of arbitrability in that of international public policy arguing that this amendment would narrow national courts interpretation of non-arbitrable disputes.
Although there are not many precedents where the issue of arbitrability of the dispute arose, we have focused on some local and international decisions that did not refer the parties to arbitration as article II(1) of the New York Convention mandates. Some of those precedents have misconstrued the law and show a parochial view or hostility towards arbitration.29 This hostility is not exclusive to developing countries.30
A future enactment of a national arbitration law in Argentina or the amendment of the New York Convention may prove helpful to reduce the challenges of arbitration proceedings when non-arbitrability or public order issues are brought by the parties, although the necessary link between arbitration and national courts may not eliminate the risk of an undesirable outcome.
Finally, within the current international context it is not easy to predict whether the approximate 150 countries that have adopted the New York Convention would be willing to amend it.
1. Law 23,619, enacted on 28 September 1998 (Adla, XLVIII-D, 4230). Under the Argentine Federal Constitution (CN), treaties prevail over other national laws (article 75:22).
2. Law 24,322, enacted on 11 May 1994 (Lexis No. LNACLY24322).
3. For the scope of applicability of the New York and the Panama Convention, see Antonio Aljure Salame, 'ámbito de aplicación de las convenciones de Nueva York y de Panamá sobre arbitraje internacional', Revista Internacional de Arbitraje 1, June-December 2004 (Bogotá), ed Universidad Sergio Arboleda, Comité Colombiano de Arbitraje, Legis.
4. Argentina is a federal country. Each of its provinces has a Procedural Code that may differ from the CPN. As it would exceed the purpose of this article to point out those differences, we will only refer to the CPN provisions.
5. Jan Paulsson, 'International Arbitration is not Arbitration', available at www.arbitration-icca.org/media/0/12144869830940/paulsson_international_arbitration_is_not_arbitration_2.pdf, last visited 22 September 2008.
6. Albert Jan van den Berg, 'Hypothetical Draft Convention on the International Enforcement of Arbitration Agreements and Awards', www.arbitration-icca.org/media/0/12133674097980/hypothetical_draft_convention_ajbrev06.pdf, last visited 22 September 2008.
7. The Hypothetical Draft Convention 2008 also suggests that the concept of public policy should be narrowed in that of 'international public policy'. See id, Explanatory Note, at www.arbitration-icca.org/media/0/12133703697430/explanatory_note_ajb_rev06.pdf, last visited 22 September 2008.
8. V Yearbook Commercial Arbitration 257.
9. Those cases are cited by Michael W Reisman et al, International Commercial Arbitration — Cases, Materials and Notes on the Resolution of International Business Disputes, University Casebook Series. We will not expand on those cases because they are well known.
10. Albert Jan van den Berg, 'The New York Convention of 1958: An Overview', at www.arbitration-icca.org/media/0/12125884227980/new_york_convention_of_1958_overview.pdf, last visited 22 September 2008.
11. William W Park, 'National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration', 63 Tulane Law Review 647.
12. Those of Kompetenz—Kompetenz and the separability of the arbitration clause have been recognised in some precedents, but these are not consistent as the CPN does not include them.
13. Argentina reserved the applicability of the Convention only to differences that are considered commercial.
14. The Argentine Civil Code differentiates between international public order (article 14) and domestic public order (article 21).
15. Under Argentine law, precedents do not bind other courts of the same jurisdiction, except when all sections of the same court of appeals are call to unify their opinions on a certain matter (fallos plenarios; articles 288 to 303 of the CPN).
16. CNCom, section E, 06/11/03, Lexis n° 20033392.
17. CNCom, section D, 02/28/2008.
18. Before the enactment of the BAL, business associations were regulated within the Commercial Code. Article 448 of the Commercial Code set forth that any controversy among partners shall be submitted to arbitration, unless partners opted out from this provision.
19. The issue of public order is also problematic in matters covered by the BAL.
20. Public Offer Transparency System, Decree 677/2001.
21. Also, including those that national courts usually held non arbitrable.
22. CSJN, 05/11/04, ED, 209-202.
23. CNCom, section E, 04/28/00, ED 194-151.
24. CNCom, section D, 03/03/08.
25. Section D did not mention 'public order' but the exclusion of certain matter can only be determined on said ground.
26. We use the concept of law as a primary resource that includes the legislation enacted by national or provincial Congresses or government decrees (ie, New York Convention and other bilateral treaties, CPN, Civil Code, BAL, Decree 677/01, etc). Court precedents are considered a secondary resource as they are not binding on other courts even those of the same jurisdiction.
27. Under the Kompetenz—Kompetenz doctrine, national courts shall analyse the issue of arbitrability after the arbitral panel rendered a preliminary award on the issue, and thus, courts would have to reason thoroughly before reversing an award.
28. 11 June 2008.
29. The reason of this unjustified hostility is well described in Paulsson, 'International Arbitration is not Arbitration', and other articles cited therein.
30. See, S 1782 (Senate); HR 3010 (House), US, cited by Paulsson.