Latin American Arbitration Practitioners EU Second Annual Conference (2024)
THE AUTHOR:
Laura D. Jaroslavsky Consoli, Deputy Counsel at the International Chamber of Commerce
Latin American Arbitration Practitioners EU (LATAP EU) is an association aimed at building a network of practitioners focused on international arbitration and with strong ties to, or experience in, Latin America and based in Europe. On September 2024, LATAP EU organized its second Annual Conference in Paris, France, hosted by Freshfields.
Introducing the Panel
On 25 September 2023, the Latin American Arbitration Practitioners EU (“LATAP EU”) organized its second Annual Conference in Paris, France, hosted by Freshfields Bruckhaus Deringer.
The third panel, composed by Emmanuel Kaufman Argentinean counsel at Wolf Theiss, José Miguel Júdice, Independent Portuguese Arbitrator based in Lisbon, Jose Alzate, Colombian Managing Director for FTI Consulting, and Isabela Lacreta Brazilian Counsel at Mayer Brown Paris, discussed existing trends and challenges in arbitration in infrastructure projects in LATAM. Yuri Mantilla, Senior Associate at Freshfields, moderated the panel.
Mr Mantilla introduced the speakers and shared interesting statistics. According to Global Data report, Latin American infrastructure and construction market size for 2023 was worth US$ 230 billion and seems to be rising. He also pointed out the relevance of the South American region in the ICSID 2023 Caseload Statistics, and for commercial cases that for 2023 in ICC the Latin American region represented the second place by origin of the parties; the third as the selected seat; and second as the law applicable to the merits of the case.
Construction Disputes in Latin America
Having set the tone of the panel, Mr Mantilla inquired the panellist on types of construction disputes.
Ms Lacreta mentioned that 49% of infrastructure projects in Brazil are related to road construction, which is explained by the dimension of the country and the last 15-year policy which focused on road transportation. Accordingly, disputes usually relate to airports (following the concessions privatisation), dams, wind projects, and biomass power plants.
Mr Alzate agreed with Ms Lacreta, pointing to similarities between disputes observed in Brazil and Colombia. He stated that, in Colombia, there is a large number of toll road concessions, and common issues leading to disputes are delays, cost overruns, and in general issues with governmental decisions not to update tariffs or the ways in which Covid-19-related effects are being compensated, as well as environmental or social issues. Mr Alzate pointed out that, although the scene is set for more disputes to come, there is currently a relative quietness.
Mr Júdice also mentioned private partnership projects, in coal and gas and generally energy related disputes. He introduced that among the region’s distinctive features are allegations of corruption and public policy rules, complex issues which need to be addressed by the parties.
Mr Kaufman said that the general characteristics and number of construction disputes do not vary a lot from region to region, but that disputes will follow from energy transition projects. He added that in Argentina, cases come from the building up of infrastructure and foresaw that disputes will likely arise from benefits offered by the new government for new investments in infrastructure, in particular, in connection with gas pipelines, plants projects and overall projects associated with energy transition.
Following a question by Mr Mantilla, Mr Júdice emphasised that the involvement of State-Owned Entities (“SOE”) is unavoidable in construction contracts, even when the state is not directly involved, as licensing, zoning and other administrative law issues are supervised by State entities. Accordingly, complex issues of arbitrability, criminal investigations, administrative law and constitutional law may arise. He noted particular challenges for common law-trained lawyers, as opposed to civil law trained, who may not be used to the impact administrative law has in a dispute, irrespectively of whether it entails a private or public contract.
Mr Mantilla inquired Ms Lacreta on Brazil’s perspective of SOE’s acceptance of arbitration agreements, and she mentioned a favourable attitude, especially found in its public procurement law, law-statute of regulatory agencies, and laws on ports and airports. She clarified that arbitration is not mandatory but available for claimants. The reasons for a positive attitude towards arbitration lay in the courts being slow and investment-financed funds push for arbitration or Dispute Boards (“DB”). She pointed out that in Brazil, 11% of disputes are against the public administration. Those arbitrations apply Brazil’s laws, are seated there, and the Portuguese is the language of the proceedings.
Afterwards, the panelists discussed existing common trends. Mr Alzate pointed out that a common factor in the disputes he has observed in Latin America are social and environmental issues which in turn lead to rejections or revocations of permits or changes in regulations. He cited the example of the lifting of road tolls to respond to social manifestations, which affected the returns of investors.
Mr Júdice also referred to some key issues he noted in construction cases in the region, including:
- Pre-existing regulations that may be reinterpreted with government changes;
- New regulations impacting the provisions in the contract that may be enacted after its negotiation;
- Collision between the sophisticated set of rules for procurement under the contract and pre-existing laws;
- Nullity of the contract for corruption, including complex quantifications especially when such allegations are made at a late stage of the project, the duty of the parties to act in accordance with public interest, if construction contracts are qualified as administrative contracts, and public policy, which in Latin America is usually interpreted in a broader fashion than in Europe.
Mr Kaufman touched upon cultural shocks and mentioned that in Argentina, as probably in other countries of the region, parties tend to be fiercer, while in Austria, where he practices, parties are more prone to settlement. On that point, he is seeing broader discussions about procedural orders that foresee settlement facilitation techniques and a shift towards DB in construction contracts. He shared positive feedback on DB, as it provides fast solutions facilitating the completion of construction projects. He sees that in Argentina (as opposed to Peru, Chile and Brazil), the shift towards alternative solutions is slower. Nonetheless, he mentioned that public administrations are implementing FIDIC model contracts.
Mr Mantilla then asked Mr Júdice about cultural reasons for the choice of applicable law, arbitrators, and seat of arbitration. Mr Júdice highlighted the importance of the language of the arbitration. Although the contract may be translated from Portuguese to Spanish or English, he stated that this usually creates problems. He also reminded the audience about confidentiality, as requirements of transparency may apply when public entities are involved.
Ms Lacreta then focused on trends from Brazil and agreed with Mr Kaufman in seeing a shift towards dispute avoidance, mostly towards DB. However, in her experience, the quality is usually very low, due to an imbalance between the engineering and legal aspects of the dispute. She also picked up on Mr Alzate’s point on the impact of social and environmental issues. Interestingly, she emphasised the impact that climate change may have in projects where climate-related assumptions are needed (i.e., availability of wind, sunlight, rain). She further opined that, although there are many dispute avoidance techniques, proper contract drafting is key.
With respect to the use of FIDIC, Mr Kaufman agreed with Ms Lacreta that good contract drafting significantly reduces risks. He added that adapting FIDIC model contracts may be challenging as some clauses are inapplicable, and concluded that good planning is key.
On best practices, Ms Lacreta added that the key was to be very short and follow the standard practice, which is recognised across cultures, while Mr Júdice agreed with her previous point on contract drafting and risk allocation. Mr Júdice mentioned that from his experience in Portugal, a party loses if they have a weak technical analysis. He also mentioned that we will have to live with extensive document production in construction cases, which is also adopted in Latin America, and accordingly, a good organisation of the file is key. Mr Kaufman picked up on the document production topic and said that in his experience, a way to avoid excessive document production is for the arbitrators to require the requesting party to show that it bears the burden of proof on the allegations underlying the specific document production request. Adding to the theme of efficiency, from the expert’s point of view, Mr Alzate commented that a great deal of the difference between the experts’ assessments is sometimes explained by differences in the parties’ legal positions and assumed fact patterns which the experts are instructed to assume, and said that the jury is still out on whether tools such as joint expert reports or hot tubbing are the most efficient or effective tools for narrowing those differences.
The panel ended with a brief comment on challenges in enforcing awards. Mr Kaufman and Ms Lacreta agreed that ‘public policy’ exception remains the main hurdle. However, both mentioned that, with minor exceptions, courts in Argentina and Brazil (the latter with a slightly more formalistic approach) tend to go towards the right direction.
Conclusion
In sum, the speakers agreed that Latin America has some particularities in dealing with construction disputes. Good contract drafting, adapting risk allocation and dispute avoidance techniques may help navigate these challenges.
ABOUT THE AUTHOR
Laura D. Jaroslavsky Consoli is Deputy Counsel for the Swiss-Italian team in the International Chamber of Commerce (“ICC”) in Paris. She is an Argentinian qualified lawyer (Universidad de Buenos Aires) and a graduate from the Geneva LL.M in International Dispute Settlement (Lévy Kaufmann-Kohler Scholar). She also holds a specialization in International Contracts and Judicial Litigation (Universidad Austral) and a postgraduate course in Energy Law (Universidad Católica Argentina).
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
