CHAPTER 11 INTERNATIONAL COMMERCIAL ARBITRATION IN SOUTH AMERICA
| Jurisdiction | Derecho Internacional |
(Mar 1999)
INTERNATIONAL COMMERCIAL ARBITRATION IN SOUTH AMERICA1
James E. Etri **
Baker & McKenzie
Dallas, Texas
I. Introduction
The United States and Latin American nations have historically taken different attitudes toward arbitration. The United States developed an open litigation system that, in recent years, has led to a plethora of litigation. At the same time, U.S. companies expanded beyond the borders of the United States and invested in natural resources and trade throughout the world. As a result of this domestic litigation flood, and a realization that the best way to protect U.S. companies in international trade was through recognition of a neutral dispute resolution system, U.S. courts developed a tolerant — even embracing — attitude toward arbitration.
Latin America, however, has been slower to embrace arbitration. In the early 1900's, Latin America embraced the Calvo Doctrine to insulate themselves from intrusive foreign pressures. Eventually, this doctrine transformed into the Calvo Clause. Latin American countries and state-owned companies inserted the Calvo Clause into contracts to preclude foreign parties from arbitrating disuptes. Gradually, the aversion to international arbitration found its way into domestic policy, and Latin American nations also erected barriers restricting the use of arbitration in domestic disputes.
Over the past two decades, Latin America's perspective on arbitration has evolved. As Latin American economies mature, the amount of foreign investment has grown. Weary of Latin America's hostility toward foreign entities, these companies seek a neutral way to resolve disputes. To maintain foreign confidence in their economies, Latin American nations have increasingly integrated arbitration into their policies as a way to resolve disputes. In fact, most Latin American countries have ratified international treaties that promote a neutral dispute resolution system.
This paper will trace Latin America's approach to arbitration. In this regard, the paper will explain the development and ultimate rejection of the Calvo Doctrine. Next, the paper will provide an overview of the arbitration laws of several Latin American countries. Finally, the paper will analyze the Panama Convention, the New York Convention, and the ICSID Convention. In particular, this section will discuss case law that apply these Conventions to Latin American parties.
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II. Historical Hostility to Arbitration in Latin America: The Calvo Doctrine
The Calvo Doctrine was formulated by Carlos Calvo, an Argentine diplomat, and published as part of his six-volume treatise, Le droit international theorique et pratique, which appeared in five editions between 1868 and 1896.2 The doctrine was created in the wake of the armed interventions in Mexico by France in 1838 and 1861 to effectuate certain claims of French citizens against the Mexican government.3 At heart, the doctrine is a justification of the right of governments to be free of interference of any sort.4 The Calvo Doctrine provides that aliens are not entitled to rights and privileges that are not accorded to nationals of a given country, and therefore, aliens doing business in a given country may seek redress for any grievances only before local authorities.5 The corollary of this concept is that governments can have no greater responsibility toward aliens than they have to their own citizens.6
The Calvo Doctrine was quickly accepted in Latin America,7 and was used to restrict foreigners from resorting to diplomatic protection for disputes with the host country.8 Eventually, the Calvo Doctrine was transformed into the Calvo Clause, and many Latin American countries attempted to implement the doctrine by negotiating it into treaties.9 Some countries incorporated the doctrine into their constitutions,10 while others included it in domestic legislation.11
Latin American governments and their state-owned companies insisted that international contracts contain the Calvo Clause.12 The Calvo Clause obligated aliens to submit any disputes to the local authorities of the host country and prohibited the alien from seeking diplomatic protection in any disputes with the host country or its companies.13 Further, it provided that the law of the host country governs the disputes.14
There are four variants of the Calvo Clause as found in national constitutions.15 First, the clause may exclude diplomatic protection for alien investors under any circumstances.16 Second, it may allow aliens to seek diplomatic protection from their own governments, but only in cases of a denial of justice.17 Third, it may provide the same as the second example, but define a
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denial of justice narrowly so as to exclude an executory verdict unfavorable to the alien.18 Finally, it may provide simply that aliens are subject to treatment and obligations equal to nationals.19 Undoubtedly, many of these constitutional provisions have been revised since Manuel Garcia-Mora did his survey in 1950.
In addition to the constitutional provisions, the civil codes of many Latin American countries required foreigners to renounce all diplomatic protection under penalty of forfeiture of property. In Peru, for example, foreigners were required to submit to local law and tribunals, and commercial questions affecting the property and financial interests of the state were not arbitrable.20 Colombia's Constitution had no Calvo provision, but (at least as of 1975) its civil code contained a Calvo Clause (Art. 18, 19) that apparently had never been used.21 In Chile, Article 16 of the Civil Code precluded third-party arbitral procedures. This provision tracked the constitutional provision that "all assets located in Chile are subject to Chilean laws even when the owners of said assets are foreigners and reside abroad."22 In Costa Rica, it appears that the Calvo Clause was required in government concession contracts, but the Constitution and Civil Code emphasized equality of treatment of nationals and aliens.23 The Ecuadorian Constitution (Art. 152) and Civil Code (Arts. 13 & 48) ensured equality to foreign nationals, but "renuncia diplomatica" was required in contracts between the state or its nationals and foreigners (Constitution art. 153).24 Article 52 of the Paraguayan Constitution ensured foreigners the same rights and obligations as nationals, subject to legislative limitations (Art. 52), whereas the Uruguayan Civil Code subjected all foreign residents to local jurisdiction, although typical "renuncia diplomatica" language was absent (Arts. 3-5).25
The Andean Code, which was created by the Cartageña agreement in May 1969 with Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela as members, contained an example of a Calvo Clause. Decision 24 of the Andean Code stated:
In no instrument relating to investment or the transfer of technology shall there be clauses that remove possible conflicts or controversies from the national jurisdiction and competence of the recipient country or allow the subrogation by states to the rights and actions of their national investors.26
The Latin American position has generally been summarized in two arguments in favor of the Calvo Clause:
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(a) an alien has no right legally to demand treatment better than that accorded to nationals of the state; and
(b) there is no logical or judicial reason under international law for not holding an alien to his contractual waiver of diplomatic protection.27
Latin American governments have invoked the Calvo Clause in several international arbitrations to challenge the jurisdiction or competence of the arbitral tribunal. Prior to 1926, the Calvo Clause was denied its intended effect of barring international claims in eleven cases before mixed claims tribunals, but was upheld to bar international claims in eight other cases.28
The U.S. government has taken the position that to the extent the Calvo Clause merely requires that local remedies be exhausted, it accords with international law.29 But the U.S. position demands that local remedies still satisfy an international minimum standard of justice, and the U.S. view of what constitutes a denial of justice is broader than the definition set out in the constitutions of many Latin American nations.30 Mainly, however, the U.S. government claims that states possess the right of recovery for their citizens, and citizens cannot waive or destroy the right of the state to intervene diplomatically to assert the claim.31
The leading arbitral decision addressing the validity of the Calvo Clause is North American Dredging Co. of Texas (United States of America v. United Mexican States). That case was decided in 1926 by the United States-Mexican Claims Commission, which was established in 1923. The U.S. government asserted a claim for $233,000 on behalf of a U.S. corporation for breach of a contract for dredging a Mexican port. The contract provided in Article 18 that the U.S. company would be considered as a Mexican in all matters concerning the contract, it would not have (or claim) any rights (or means to enforce rights) other than those granted to Mexicans, and that diplomatic intervention on its behalf was not permitted. The Convention which created the Claims Commission included in Article V a waiver of any necessity for the parties or their citizens to exhaust local remedies as a condition precedent to asserting their claims.
In North American Dredging, the Claims Commission announced what has been referred to as a "rule of limited validity" of the Calvo Clause.32 The Commission decided that the clause (Article 18), as part of a contract, must be upheld unless it is repugnant to a generally accepted principle of international law. The Commission, however, found no such principle of international law, and in fact decided that an alien may lawfully promise not to seek...
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