Venezuela

The Venezuelan Judiciary: Controlling or Collaborating with Arbitration?

The accelerated progress of globalisation and the worldwide need for alternative dispute resolution (ADR) methods to solve commercial disputes effectively have led most countries to foster the development of these mechanisms, with a special emphasis on arbitration.
Arbitration in Venezuela dates back to colonial times. It was first incorporated in the legal system in the Constitutions of 1830 and 1857, and subsequently in the Civil Procedure Code of 1916. But modern regulations on arbitration were not adopted until Venezuela joined the Panama Convention in 1985 and the New York Convention in 1994. This was consolidated by the enactment of the Commercial Arbitration Act in 1998. The National Constitution of 1999 recognised the need to promote ADR mechanisms in Venezuela and established a solid modern legal framework for arbitration. Based on the UNCITRAL Model Law, this framework was on a par with most modern arbitration legislation worldwide and raised high hopes for the development of arbitration in Venezuela.
However, when viewed against the increasing internationalisation of trade and business actions, and the attendant need to speed up conflict resolution mechanisms at national and international level in private and public law contracts, it is clear that the development of arbitration in Venezuela has been too slow and has failed to keep up with current demands.
The Commercial Arbitration Act has been in force for 10 years, during which time arbitration has become the principal ADR mechanism. Many factors have affected this consolidation, one of the most important being the influence of the judicial branch. In most modern arbitration laws worldwide, it is established that the judicial branch shall 'collaborate' with arbitration, that is, it shall serve as an auxiliary to the arbitration procedure in matters such as the execution of precautionary measures. However, in many cases, Venezuelan courts have extended their function beyond 'collaboration' to 'control', thus limiting the development of arbitration in the country. This intervention is paradoxical since, by limiting arbitration, the judiciary is damaging itself: one of the benefits that was expected from arbitration was easing the burden on the judicial sytem, which often cannot deliver a prompt resolution to the disputes brought before it because of its caseload. Notwithstanding the above, by means of extremely rigid and sometimes wrong interpretations, the judiciary has hindered the development of arbitration by taking over its jurisdiction to adjudicate the merits of the dispute. This 'controlling' attitude has generated suspicion of arbitration in Venezuela. Several decisions by the lower and high courts and the Constitutional and Political Administrative Chambers of the Supreme Court of Justice have resulted in significant insecurity about arbitration in the country.
Contrary to what is established in the Constitution, the ruling case law doctrine of the Supreme Court does not acknowledge arbitration as part of the legal system, holding it to be subordinate to state justice. Therefore, such doctrine leans towards reducing the applicability of arbitration and works even against previous rulings of the Supreme Court itself when such decisions define arbitration as part of the legal scope of action of individuals acting impartially and independently, by means of a contradictory process. Such previous rulings result in res judicata, as an alternative justice entitled (as in the case of judges) to apply the widespread constitutional control.
In addition to the issue raised by case law to the detriment of alternative justice, the interpretations that deny arbitration its value do not acknowledge the right to a free contract and disposition of the rights inherent to economy and property, under our Constitution.
As the above makes clear, the judiciary in Venezuela tends to vest itself with the jurisdiction to address the grounds of controversies without any justification, thus preventing arbitration from fully devloping as an ADR mechanism in Venezuela. This approach makes it practically impossible for the courts of justice to lower their workload. As mentioned before, such courts have been failing to dispatch promptly the conflicts brought to their attention.
In detriment of international arbitration as an ADR mechanism, the Venezuelan government in recent enacted legislation related to the migration to 'mixed corporations', that is to say corporations constituted with a maximum of 40 per cent foreign equity, the association agreements executed between foreign corporations and PDVSA for the exploitation of the Orinoco belt and the profit sharing agreements providing that all the activities and anything related to such regulations should be submitted to the laws of Venezuela and any controversy arising out of them will submit to the Venezuelan jurisdiction. Arbitration law permits Venezuelan public corporations to submit to arbitration if the conditions precedent requested for such purpose are met but as a result of these regulations these agreements will be subject to Venezuelan jurisdiction
Similar dispositions were enacted in the regulations for the restructuring of the cement industry resulting from the nationalisation of the foreign corporations within this sector, submitting all the activities and anything related to such regulations to the laws of Venezuela and any controversy arising out of them to the Venezuelan jurisdiction.
There is a trend in certain countries of our region to limit international arbitration in contracts related to strategic sectors.
In my opinion, part of the solution to the current crisis affecting arbitration in Venezuela lies in the hands of all those who are part of our national legal system. That is, all of us, including attorneys, judges and magistrates must safeguard, promote and respect arbitration as an ADR mechanism so that it become more and more useful and reliable. We might also foster participation in debate fora, where we can analyse a number of issues on the role of judges in arbitration: control or cooperation? Generating debates among well-known judges, arbitrators and attorneys will lead to fruitful findings towards our common goal.
Last April, the International Bar Association and the International Court of Arbitration of the ICC organised the 'Arbitration and the Judiciary' conference in Caracas, discussing the judge's duties in arbitration: control or collaboration; the intervention of the courts in arbitration and arbitration and fundamental rights, an attack on arbitration or a protection against excesses of power. During the different sessions, several decisions issued by Venezuelan courts as well as courts from other jurisdictions in the region that implied 'control in arbitration' were analysed and discussed. The conclusion was that unfortunately, in many cases in different jurisdictions, courts control more than contribute to arbitration processes.