THE AUTHOR:
Adrian González Vizcarra, Legal Advisor at the Embassy of Mexico in the Kingdom of Norway and LL.M. candidate at the University of Oslo
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 2023, LATAP EU organized its first Annual Conference in Paris, France, hosted by Mayer Brown.
On 6 September 2023, the First Annual Conference of Latin American Arbitration Practitioners | EU (LATAP EU) was held at Mayer Brown’s Paris office.
Liliana Veru Torres (Partner, Veru Torres & Partners, London), Pedro Saghy (Of Counsel, Dentons, Paris), Nicolás Gálvez Solís (Counsel, ICC, Paris), and Marie-Isabelle Delleur (Counsel, Clifford Chance, Paris), moderated by José Caicedo (Partner, Mayer Brown, Paris), discussed the “Enforcement of Arbitral Awards in Latin America”.
State of Affairs in Latin America Amid the New ‘Pink Tide’
José Caicedo introduced the topic, noting that although there are conflicting notions about Latin America’s friendliness (or otherwise) towards arbitration, the region boasts a 90% rate of arbitral award enforcement. Mr. Caicedo then proceeded to enquire the panelists as to their initial impressions on the topic, prompting Mr. Gálvez to agree that, in general, arbitral awards are enforced in Latin America. Yet, he cautioned against generalizing when considering the efficiency of the enforcement process across the region, as Latin America is a heterogeneous region with different degrees of sophistication in legal systems. Some States’ constitutions, for instance, contain constitutional remedies that can affect enforcement, while some others, e.g., Guatemala, can be unpredictable to a certain degree.
Nevertheless, Mr. Gálvez emphasized positive developments across the region, for example, in Mexico, Colombia, and Costa Rica, which have taken steps to reduce obstacles to the enforcement of awards. Moreover, Mr. Gálvez mentioned that according to the ICC statistics, in 2022, there was an 18% increase in parties and a 17% increase in arbitrators originating in Latin America, which, in his opinion, shows the growing confidence in the region.
Mr. Saghy noted that he does not necessarily see a correlation between the increasing Latin American parties and arbitrators in ICC proceedings and the effectiveness of recognition and enforcement of awards, as the statistics could be attributable to a combination of factors such as increased investments in the region, the language of the proceeding, the convenience of seats, etc.
The speakers then discussed Mr. Caicedo’s question as to whether there are new trends in recognising and enforcing awards as a result of the “Pink Tide” in the region (i.e., the trend of many Latin American States moving toward more economical or socially progressive policies). Ms. Veru Torres explained that the nationalist governments in some States have adopted policies that affect key investment sectors, moving away from the ’90s trend of privatizing public companies and promoting foreign investment. Ms. Veru Torres also explained that in some States, there is a perceived lack of independence of national judges and a clash with international conventions as a result of the attempts to delay or even evade enforcement through constitutional avenues. Accordingly, Ms. Veru Torres highlighted the importance of crafting a good enforcement strategy ‘by design’ from the initial stages of an arbitration, as opposed to waiting until the award is rendered.
Ms. Delleur noted that, in her opinion, the need to craft the enforcement strategy from the outset of arbitration is not exclusive to arbitrations related to Latin America. Similarly, as regards the backlash against international arbitration in Latin America discussed by the other panelists, she mentioned that a similar trend had been seen in other regions, notably in Europe, with several countries withdrawing from the Energy Charter Treaty, or, for instance, in the context of mediatised cases such as the Tapie case in France.
The Impact of Sanctions on the Recognition and Enforcement of Arbitral Awards
Ms. Delleur explained that recognition and enforcement are different concepts and that the concept of recognition is only relevant for commercial or non-ICSID awards. She explained that sanctions are likely to have an impact at both the recognition and the enforcement stage. At the recognition stage, although the New York Convention does not foresee that sanctions are a ground for refusing recognition of an arbitral award, in most jurisdictions, the issue of sanctions violation will fall within the ambit of international public policy. This is straightforward when the jurisdiction where enforcement is sought is the jurisdiction having issued the relevant sanctions. If the relevant sanctions were issued by a foreign authority, then there may be an issue of whether the foreign sanctions are recognized/applied by the jurisdiction where recognition or enforcement is sought as part of its relevant international public policy. This is likely to be considered through mechanisms similar to that of the application of foreign lois de police. Once an award has been recognized, its enforcement may also raise issues of sanctions violation.
Ms. Delleur, for instance, mentioned the Crystallex v. Venezuela case where, even though the claimant succeeded in having the award recognized in the United States, the claimant faced significant challenges for its enforcement in the same jurisdiction due to the US sanctions against Venezuela.
Ms. Delleur further explained that, as far as ICSID awards are concerned, their enforcement does not require prior recognition, which removes a big hurdle.
However, enforcement against States presents unique challenges as opposed to enforcement against private parties, such as the issue of immunity from enforcement. Since the ICSID Convention does not address this issue, the State’s immunity from enforcement of an ICSID award is subject to the domestic law of the place of enforcement (such as the US FSIA or the Sapin II Law in France) and to international conventions entered into by the country where enforcement is sought.
Ms. Delleur mentioned the cases Crystallex v. Venezuela and OIEG v. Venezuela as good examples of the different assessments of whether certain assets belonging to state-owned entities are subject to attachment in different jurisdictions. In each case, US and Dutch courts reached opposite conclusions as to whether assets belonging to PDVSA could be attached to enforce an award against Venezuela since there is no Dutch equivalent of the US ‘alter ego’ doctrine.
Referring to cases involving economic sanctions, Mr. Gálvez noted that from an institutional point of view, there is a need to consider access to justice as paramount.
Settlement Agreements as a Useful (and Often Misunderstood) Tool
Subsequently, the discussion turned to the topic of the possibility of reaching a settlement agreement after an award is delivered. Mr. Saghy opined that settling the dispute could be a good strategy instead of going straight for enforcement in State courts. He explained that although the Latin American States generally remain open to negotiation, there is no ‘clean and clear’ answer, as it generally depends on how the settlement is executed. Specifically, he referred to three situations which may prevent the parties to arbitration from settling a dispute.
The first one is the so-called ‘winner’s syndrome’, where the successful party approaches the negotiation with a victorious’ attitude, and thus the settlement agreement is regarded as an offer to surrender. Second, is the so-called ‘protagonist problem’, where lawyers think they are the best individuals to lead negotiations, which often backfires since, in many cases, they are trained for adversarial processes but not necessarily a negotiation process. Finally, there are interpretation issues, as parties see arbitration differently: a private party’s focus is on costs, celerity, and its shareholders, whereas States may be concerned with liability, elections, image, policy, etc.
Ms. Veru Torres explained that an essential component of a well-structured enforcement strategy is to designate who will lead an eventual negotiation and how this will be done. These arrangements have to be made a priori to the dispute or shortly after it arises, thus avoiding making such strategic decisions at the later stages when ‘litigation fatigue’ has taken place.
Mr. Gálvez noted that from an institutional perspective, parties are more likely to reach a settlement in two stages: right after the terms of reference have been signed or after the hearing. He also referred to the recent obligation to disclose the participation of a third-party funder under Article 11(7) of the ICC 2021 Arbitration Rules (which has also been the case with Rule 14 of the 2022 ICSID Arbitration Rules, among other institutions) and noted that inconclusive statistics show that in cases that are funded by a third-party funder, the likelihood of a settlement is roughly 10% higher.
Conclusion
The panorama for enforcement of arbitral awards in Latin America has seen positive developments in recent years, with confidence apparently growing in the region as being suitable for seats of arbitration proceedings. However, several challenges are still present, and the political changes in connection with the ‘Pink Tide’ across the region are only likely to make the situation less predictable.
There is nevertheless a lot of potential for investors in Latin American States, and arbitration is thus likely to keep growing. While strengthening routes for enforcement should still be a priority, there are also some underused alternatives like settlement agreements which can be beneficial for both investors and States alike, regardless of who the winning party is in each case. Only the future will tell if awards in the region find smoother pathways to enforcement and how the different States will meet them.
ABOUT THE AUTHOR
Adrian González Vizcarra is a Mexican qualified lawyer with four years of experience in litigation and dispute resolution gained at a boutique law firm in Mexico. He has mainly advised clients on constitutional, civil, and commercial law disputes and local ADR mechanisms. He is currently an LL.M. candidate in Public International Law at the University of Oslo and Legal Advisor at the Embassy of Mexico in the Kingdom of Norway.
* This report has been approved by all the conference speakers.
