This article was featured in Jus Mundi‘s 2023 Arbitration Year in Review, in collaboration with VYAPs, a yearly collection of articles from jurisdictions all around the globe updating you on arbitration-related developments from the previous year.
THE AUTHORS:
Felicita Argaña, Senior Associate at Altra Legal
Lucía Cazal, Senior Associate at Altra Legal
Raúl Pereira, Senior Associate at Ferrere Abogados
Mota Engil v. Paraguay
On December 8, 2023, a Permanent Court of Arbitration (“PCA”) tribunal composed of José Emilio Nunes Pinto (president), Guido Tawil (claimant’s appointee), and Claus von Wobeser (respondent’s appointee) issued its final award in Mota-Engil v. MOPC
The dispute arose out from a failed rapid-bus transit system called Metrobus. The project – backed by Inter-American Development Bank funding – started in 2017 and encountered difficulties and problems related to access to the construction site. After several months of negotiations and two Memorandum of Understanding (MoU), the contract was terminated by the MOPC in February 2020. Mota Engil lodged its request for arbitration in December 2019.
In its final award, the tribunal found the MOPC and Paraguay liable for:
- Failure to grant access to the construction sites;
- Failure to obtain the necessary permits for the works; and
- For executing the performance bond and advanced payment guarantee in violation of the tribunal’s provisional order forbidding so.
In this context, the tribunal awarded Mota Engil damages for around US$ 16 million, which includes damages for breach of contract, restitution of withheld amounts, and damages for the State’s decision to draw on the performance bond in its entirety, in violation of the tribunal’s provisional orders.
However, the tribunal also awarded damages to Paraguay for defects in the works and decided that the MOPC correctly terminated the contract because of Mota Engil failed to maintain the performance bond. Mota Engil was also awarded 40% of its costs. The tribunal indicated that 10% of this award on costs was due to the MOPC’s defiance of the tribunal’s order, preventing it from drawing on the performance bond, which the MOPC did anyway.
The MOPC also objected to the admissibility of Mota Engil’s claims, arguing that they were time-barred because it failed to comply with the multi-tiered dispute resolution clause provided for in their contract, which established the submission of the dispute, first, to an engineer, then to a dispute resolution commission, then to direct negotiations, and then finally to arbitration (a mechanism typical of FIDIC contracts).
The tribunal rejected this argument, indicating that in a memorandum of understanding of 2018 (MoU), the parties agreed to submit any controversy arising from their contract directly to arbitration, deviating from the original mechanism established in the contract and therefore, Mota Engil’s claims could not be time-barred. Otherwise, the relevant clause in that MoU would have lacked effet utile, which was not the correct interpretation under Paraguayan contract law. The tribunal also noted that the dispute resolution commission was never constituted, and therefore compliance with that step before resorting to arbitration was impossible.
The Attorney General’s Office Decision to Publish Arbitral Awards Involving the Paraguayan State as a Party
On September 20, 2023, the Office of the Attorney General of the Republic of Paraguay (Procuraduría General de la República – PGR) ordered that the arbitration awards that involve the Paraguayan State as a party shall be published on the Institution’s website. This was established through PGR Resolution No. 265/2023, based on Law No. 5282/2014 “De libre acceso ciudadano a la información pública y transparencia gubernamental”.
PGR Resolution No. 265/2023 mentions that the public order is considered an exception to the confidentiality of arbitration and that there is a legal obligation for the Attorney General’s Office to disclose the arbitral awards that involve the Paraguayan State as a party. It also mentions that arbitral awards are comparable to resolutions of the Judiciary, so they must also be considered public information.
The awards are now published on the PGR website in a simple and user-friendly manner. The cases are listed with a summary that includes the cover of the case, the subject matter and the amount of the claim, the status of the case, and who the members of the arbitral tribunal were. The full texts of the awards are also available in PDF format.
Currently, 23 arbitral awards are available on the PGR website, of which 14 were resolved against the Paraguayan State and 9 in favor. The latest and most recent award published in the case of Mota Engil v. Paraguay, which we allude to in this publication.
Recognition of Local Arbitral Awards Before Enforcement?
Law 1879/2002, the Paraguayan Arbitration Law, is an almost exact copy of the UNCITRAL Model Law on International Commercial Arbitration (1985) (“Model Law”). However, while the Model Law was designed primarily with international arbitration in mind, the Paraguayan legislator also decided to extend the local law’s scope of application to national arbitrations. Thus, Paraguay’s arbitration law applies to national and international arbitrations seated in Paraguay.
Article 2 of the Paraguayan law clarifies that certain articles, including those on the recognition and enforcement of arbitral awards, apply “even when the seat of arbitration is outside the national territory”. In other words, these articles apply to arbitral awards issued in arbitrations seated in Paraguay and foreign arbitral awards.
In this context, the question arises: should an arbitral award issued in an arbitration seated in Paraguay – national or international – go through the recognition process before its enforcement, just like a foreign arbitral award? Or is there a different applicable process, only of enforcement?
Another year has passed, and there is still no consistent case law on the matter.
There is one line of case law according to which an arbitral award in a Paraguayan seated arbitration should not be subject to the recognition process. This position is based on first, an interpretation of the scope of application of the New York Convention (1958), of which Paraguay is a contracting State, according to which the recognition process should only apply to foreign arbitral awards; and second, on a provision of the local Code of Civil Procedure, according to which a judicial or arbitral ruling can be enforced under its rules once said ruling is “consented, executed or firm”. The courts have held that since judicial and arbitral rulings are treated equally, there is no need to go through a recognition process particular to arbitral rulings, and instead, direct enforcement should be sought.
The other line of case law suggests that a harmonic interpretation of the Paraguayan arbitration law and the Code of Civil Procedure results in the same approach for the recognition and enforcement of arbitral awards, which applies to awards issued in Paraguay as to foreign awards. According to this position, when the procedural norm provides that an arbitral award can be enforced only once it is firm or executed, one must first look at the arbitration law. Arbitration law clearly provides that its scope of application encompasses local arbitrations and, thus, arbitral awards rendered in Paraguay. Further, the specific articles that deal with the recognition and enforcement of arbitral awards, following the terminology of the UNCITRAL Model Law, provided that they apply “irrespective of the country [in which the award] was made”, including awards issued in Paraguay.
The lack of predictability of the approach of the local courts considerably impacts the decision on how to file an action to obtain enforcement of an arbitral award issued in a Paraguayan seated arbitration. It is desirable that the courts adopt a uniform stance in the future to ensure legal certainty. Ultimately, however, the pro-arbitration stance that the local courts have frequently reaffirmed is auspicious for enforcing arbitral awards, irrespective of the country in which they were made.
ABOUT THE AUTHORS:
Felicita Argaña is a Senior Associate at Altra Legal (Asunción, Paraguay), with experience in national and international commercial arbitration and in litigation. She is currently leading the Arbitration Department at Altra Legal. In this role, she is in charge of several arbitration cases before the “Centro de Arbitraje y Mediación Paraguay” (CAMP) – Paraguay’s only arbitration institution, the International Chamber of Commerce (ICC), among other arbitral institutions, and before ad hoc tribunals. Felicita obtained her law degree from the Catholic University of Asunción and has an LL.M from the London School of Economics and Political Science. She is also a co-founder of the group for young arbitration practitioners in Paraguay, PYVYAP.
Lucía Cazal is a Senior Associate at Altra Legal (Asunción, Paraguay), specializing in commercial and investment arbitration cases. Lucía has an LL.M with a specialism in International Business Law by the London School of Economics and Political Science. She is an assistant professor at the School of Law of the National University of Asunción and a coach of its arbitration moot teams. Lucía is a member of the ICC Commission on Arbitration and ADR, appointed by Paraguay, and a co-founder of the group for young arbitration practitioners in Paraguay, PYVYAP.
Raúl Pereira is a Senior Associate at Ferrere Abogados (Asunción, Paraguay). He’s part of Ferrere’s regional dispute resolution practice, regularly advising on arbitration related matters, including recognition and enforcement, and annulment of arbitral awards. Raúl is a member of the ICC Commission on Arbitration and ADR, appointed by Paraguay, Assistant Editor of ITA in Review, and co-founder of the Paraguay Very Young Arbitration Practitioners group – PYVYAP. Raúl obtained his law degree from the Catholic University of Asunción and holds an LL.M from the American University Washington College of Law.
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