THE AUTHORS:
Ignacio Arriagada, Senior Associate at Clyde & Co
Sofia Nievas, Associate at Clyde & Co
Clyde & Co’s Young Arbitration Group provides a unique insight into international arbitration issues through the lens of young international arbitration practitioners working across different jurisdictions. In this series with Daily Jus, Clyde & Co explores the evolving landscape of damages in arbitration, analyzing recent developments, legislative changes, and their impact on dispute resolution worldwide.
This article outlines recent case law regarding the award of non-pecuniary damages in contractual disputes by arbitrators in Chile.
Locally, arbitration has become a widely used mechanism for resolving commercial disputes, yet it remains largely confidential in nature. Only a limited number of arbitral awards are made public, either when selectively published by arbitral institutions such as the Centro de Arbitraje y Mediación of the Santiago Chamber of Commerce (“CAM Santiago”), or when challenged in court, where judicial review is generally restricted to a narrow set of procedural grounds.
Against this backdrop, the development of arbitral doctrine, particularly in less traditional areas such as moral or non-pecuniary damages, can be difficult to trace. Traditionally reserved for tort claims involving individuals, non-pecuniary damages have historically been excluded from contractual disputes and rarely considered in arbitration. However, evolving judicial doctrine and academic scholarship in Chile have begun to challenge this approach. This article will explore recent developments in this area.
Basic Rules on Damages
Substantively, there are no special provisions in local arbitration law that alter the principles of civil liability: arbitrators decide according to the law applicable to the substance of the dispute (e.g., Chilean law in domestic arbitration, or the law chosen by the parties in international arbitration), as arbitrators ‘de jure’ (‘árbitro de derecho’), or according to equity, as ex aequo et bono arbitrators (‘arbitro arbitrador’) (Article 223 of the Judicial Organization Code and Article 28 No. 3 of Law 19.971.). If the dispute is to be subject to Chilean Law, the Chilean Civil Code’s (the “Code”) rules on damages (and other relevant special laws, such as the Commercial Code, Consumer Law, etc.) will guide the arbitrator’s decision on whether to award damages generally (and non-pecuniary damages, specifically).
In cases of contractual liability, the Code establishes that the wronged party may claim damages along with either the specific performance or the termination of the contract (Article 1489 of the Chilean Civil Code). Recent case law allows damages to be claimed on their own (see, Supreme Court ruling, 23 July 2024, 17.740-2023). Regarding the type of damages to be granted for contractual claims, the Code established two kinds in Article 1556: actual loss (“daño emergente”) and loss of profit (“lucro cesante”) (Article 1556 of the Chilean Civil Code). ‘Actual loss’ would be the real loss that was suffered as a consequence of the breach and ‘loss of profit’, the net gain that would have been obtained had the breach not occurred.
In contrast, in the case of civil wrongs or torts (liability for non-contractual matters) (Article 2314 of the Chilean Civil Code), the Code allows relief for ‘all losses’ without an explicit distinction. Consequently, in torts all kinds of losses caused by the wrongful act should be indemnified, including both material losses (actual loss and loss of profit) and non-pecuniary losses (that is, non-patrimonial harm such as pain, grief or loss of reputation) referred to locally as ‘moral losses’.
On the other hand, though arbitrators deciding on the basis of equity have more flexibility and do not need to strictly apply these rules, they must respect public order and the basic principles of the applicable law. Thus, they cannot award types of damages prohibited under Chilean law, such as punitive damages.
Non-pecuniary Damages in Contractual Disputes – An Evolving Landscape
Although non-pecuniary losses or ‘moral losses’ have not been explicitly defined in Chilean legislation, courts have granted relief for them for decades in matters involving non-contractual liability. Local scholarship has long discussed whether non-pecuniary damages can be awarded in contractual disputes. Because the Code does not explicitly mention them in Article 1556 when discussing contractual liability, it has been traditionally held that relief for non-pecuniary losses is not available for contractual disputes.
Furthermore, compensation for ‘moral losses’ was initially also reserved for claims in tort put forth by individuals. Non-pecuniary damages were seen as remedying the harm to a core ‘attribute of a person’, like one’s honor, reputation, physical or psychological integrity, or one’s full capacity for personal development. In some cases, they have been referred to as the “price of pain”. Accordingly, they have historically not been granted in contractual claims, and even less so when claimed by legal entities. These limitations meant that claims for moral damage were rendered relatively uncommon in Chilean arbitration.
A more recent view argues that the law does not expressly prohibit awarding damages for ‘moral losses’ in contractual disputes. This approach suggests that legal gaps should be filled using general legal principles, such as good faith (Article 1546 of the Code) or the constitutional protection of physical and psychological integrity. From this perspective, even though Article 1556 addresses only material damages, that shouldn’t prevent courts (or arbitrators) from awarding relief for moral losses when the nature of the obligation or the circumstances justify it, criteria that has been followed by the Supreme Court.
In Kreuzer Pacheco Hermanos v. Ronald Chaytor y Cía. Ltda. the Supreme Court granted non-pecuniary damages to the claimant who had entered into a transport contract with the defendant (see, Supreme Court ruling, 23 June 2011, Case N° 7234-2009). It stated that, in line with current trends, “the concept of actual losses (daño emergente) used in Article 1556 of the Civil Code includes not only pecuniary (financial) harm but also non-pecuniary or moral harm” (Sec. 12).
As we will see below, this evolution has slowly started to influence arbitral decisions.
Non-pecuniary Damages in Arbitration
In this section, we examine recent decisions that have been made public concerning the granting of non-pecuniary damages in arbitration. As previously noted, modern doctrines and evolving criteria from the Supreme Court have begun to influence arbitral practice, particularly with respect to awarding such damages in contractual disputes brought by legal entities.
For instance, in case N° 1841-2013, Award, 28 July 2014, before the CAM Santiago, arbitrators examined a real estate company’s claim for reputational harm against the construction company involved in one of its projects. Structural defects in the apartment building were identified after units were sold to end customers, which in turn gave rise to complaints and legal actions from them against the claimant. Although the tribunal ultimately dismissed the claim for non-pecuniary damages because the reputational harm was not adequately proven, it acknowledged that, in principle, legal entities could be awarded non-pecuniary damages.
In Mecalux Chile Limitada v. Comercial Kaufmann S.A., 12 July 2024, Case N° 3494-2018. another CAM Santiago case, in an award later confirmed by the Court of Appeals of Santiago, the arbitrator rejected the claim for non-pecuniary losses noting that, when it comes to legal entities, such harm should be linked to a loss of prestige or social value and should not be conflated with the distress or discomfort experienced by company executives or employees (Sec. 31). In this particular case, the parties had entered into a manufacturing, installation, and assembly contract for industrial furniture, in which the defendant unilaterally terminated the same without reason, though the claimant had completed more than 90% of the work.
Moreover, in CAM Santiago, Award, 5 July 2023, Case No. 4496-2020, the arbitrator awarded non-pecuniary damages to a fish farming company that had been supplied with defective nutritional supplements. In addition to significant production losses, the arbitrator found that the claimant had suffered reputational harm among its clients. The decision noted that, for reputational damage to be compensable in the case of a legal entity, it must result in a measurable economic impact (Sec. 46).
In relation to the proof of non-pecuniary losses, the arbitrator in the CAM Santiago case N° 1841-2013 established that, in contrast to the criteria held by the courts, non-pecuniary losses must be effectively proven and quantified. This is a jump from the opinion of local courts, by which ‘moral loss’ could be presumed in certain cases without the need of much evidence (i.e., death of a close relative or severe injury) (See, Court of Appeals of Valparaiso ruling, 11 November 2020, Case N° 1207-2020).
Finally, in relation to the wording of arbitration clauses, the Supreme Court has ruled that when parties agree to an arbitration clause limited to contractual disputes, it does not automatically extend to non-contractual claims or tort claims arising from the same facts. In Ruta K SpA v. Hormazábal (Supreme Court ruling, 6 December 2021, Case N° 6818-2021), the Court held that a non-contractual based damages claim could not fall within the scope of the arbitration clause in the company’s bylaws, since such a claim is governed by a different legal framework (Article 2314 of the Civil Code), and that “this area can in no case fall under arbitral jurisdiction.”
This does not prevent the parties from voluntarily submitting a tort dispute, or a claim for non-pecuniary damages, to arbitration, but it does mean that a generic arbitration clause in a contract will typically not cover them unless expressly agreed. In sum, from a jurisdictional and legal perspective, arbitrators in Chile may hear non-pecuniary damages claims, provided there is a valid arbitration agreement. In doing so, they will apply the relevant substantive rules of Chilean law, just as an ordinary court would.
Conclusion
Recent decisions from Chilean courts and arbitral tribunals of arbitrations subject to Chilean law, reveal a growing willingness to award non-pecuniary damages. This is notable in cases where reputational harm or other intangible losses have a measurable impact on commercial entities, provided such damage can be convincingly demonstrated. This development highlights the importance of precision in arbitration clauses, encouraging parties to clearly define the scope of arbitrable matters, including whether claims for non-pecuniary damages fall within that scope.
As Chilean arbitration continues to adapt to evolving legal doctrine and judicial influence, the recognition and effective resolution of non-pecuniary claims will hinge on sustained judicial interpretation, careful contractual drafting, and rigorous standards of proof. This emerging trend not only aligns Chilean practice with international arbitration norms but also reinforces its position as a credible venue for resolving sophisticated commercial disputes.
ABOUT THE AUTHORS
Ignacio Arriagada is a senior associate based in Clyde & Co’s Santiago office. He is a qualified solicitor in Chile specializing on litigation before Chilean Courts and arbitration. He has experience representing clients from a variety of industries, including insurance, aviation, healthcare and construction, in complex dispute matters.
Sofia Nievas is an associate based in Clyde & Co’s London office. She specializes in handling complex international disputes in the energy, engineering and construction sectors, including for insurers and reinsurers in respect of policy coverage and subrogated recoveries. Before joining the London team, she was a senior associate at Clyde & Co.’s Santiago office.
*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.
