An Introduction to Dispute Resolution in Latin America

14 May 2015 Hong Kong International Arbitration Centre Panel

"I am very pleased that CGA has attracted so many Chinese investors and other readers interested in dispute resolution abroad, as shown by the high number of people who have clicked onto and read the articles I prepared on Arbitration and Mediation of business disputes with Latin American parties. Keep up the good work !"

As a new member of the HKIAC Panel of Arbitrators, this will provide a very good opportunity to meet with you and members of the HKIAC to talk about the Latin American region. I may refer more to Brazil as I have lived and worked there for many years.

Past Life – In-house Legal Director for Latin America region for large IT multinationals Digital Equipment, Oracle, 3Com, and U.S. Legal Director for Brazilian IT network company. With this I also have a user’s perspective on arbitration & mediation vs. litigation in the region.

For Business/Legal/Arbitration: Advisable not To fall into Convenient Trap Of Treating Most Latin Countries the Same Way – Even with Similar Languages & Legal System, They Are Quite Different From Each Other. It Is Important to Take The Time to Learn the Differences

Brazil – Why Interesting for China, and Why Is China Interesting for Brazil? – Aside from Common “Brics” Name

  • A. Natural resources (Brazil oil: Chinese participation in offshore and onshore blocs; China Development Bank financing Petrobras ($3.5 billion); Brazil’s iron ore - almost 100% of exports go to China; Brazilian mining activities in China (Vale)
  • B. Agricultural products (dairy from Minas Gerais state; soy-Brazil is world’s 2d largest soy producer)
  • C. Electronics (Huawei, digital cinema technology) and other import-exports
  • D. Manufacturing/assembly: Jospe truck plant complex
  • E. From Brazilian-Chinese attorney Jun Zhang, Demarest Advogados:
    • Energy sector: Sinopec, CNPC, CNOOP and State Grid, etc.
    • Banking: China Development Bank, China Construction Bank, Bank of China, ICBC.
    • Car: Chery, JAC, Lifan, BYD.
    • Motorbike: TRAXX and Zongshen.
    • Heavy Machinery: Sany, Zoomlion, XGMA and Liugong, etc.
    • Airline: Air China.
    • Shipping: COSCO and China Shipping.
    • Technology: Fiberhome, Huawei and ZTE, etc.
    • Infrastructure: CREC and CSR, etc.

III. Chinese Business in Brazil – Activities and Perceptions

A. (TransAsia Lawyers/BJG et al)

B. Bullet train bid Brazil public administration

C. A few Chinese lawyers in major Brazilian law firms

D. Chinese companies can buy into an arbitration: I had this case as Arbitrator in U.S.: M&A in Financial sector.

Pre dispute (e.g., contract drafting stage/popular & reliable institutions in Latin America/negotiating the dispute resolution agreement/mediation-arbitration clauses/Litigation v Arbitration)

  • GLOBAL INSTITUTIONS – ICC FOR international contracts –often large deals. In Brazil ICC is also used for many domestic arbitrations, especially corporate Shareholder disputes. This could be important for Chinese parties buying into Brazilian companies.
  • LCIA less active in LATIN AMERICA, MORE IN Russia, Asia, Africa
  • LOCAL INSTITUTIONS – Brazil (Brazil-Canada Chamber of Commerce/São Paulo, FGV/Rio de Janeiro-São Paulo, FIESP/São Paulo). COLOMBIA: BOGOTA Chamber of Commerce.

Negotiating the Dispute Resolution Clause

  • It really is the “midnight clause”, in my transactional experience as in-house lawyer
  • Unless deal is very complex, Dispute Resolution clause is usually a standard institutional one and not detailed. But this can bring trouble if, eg, law govning the dispute resolution clause itself is not defined in the contract – for example in the infamous UK-BR Jirau Dam case [Sulamerica CIA Nacional de Seguros SA v. Enesa Engenharia SA., 2011] which resulted in conflicting decisions between English & Brazilian courts over whether dispute should be arbitrated in London or decided in Brazilian courts.
  • It is fine to seat arbitrations in Brazil, BUT choose city w care: Rio & São Paulo are best due to local court experience Rio has much less backlog.
  • Some countries use traditional commercial arbitration less, like Argentina - except for grain market (due to bad ICSID case experience, misperceived competition of arbitration with mediation which is well-established there – the opposite of the Brazilian scenario)
  • Venezuela – “Double jurisdiction clause” -> U.S. Cts for IT issues, international commercial arbitration for commercial issues

MED - ARB “STEP” Clauses

  • Used them frequently when drafting/reviewing contracs in-house, and have dealt with several as mediator, others as arbitrator
  • Be sure mediation stage is explicitly obligatory
  • In Latin American region, Arb-Med is NOT accepted well, as in China. Arb – Med is when the Arbitrator also acts as Mediator in the same case. The resistance is primarily due to issues of confidentiality and confusion of roles.

Litigation vs Arbitration

  • The Brazilian Judicial system has over 100 million cases now. The Federal Supreme (Constitutional) Court (STF) has over 125,000 cases as opposed to the US Supreme Court which accepts only about 125 cases a year.
  • Some reasons: Brazil’s Constitution is a thick book with social legislation making almost anything a constitutional issue; Large number of public entities in economy, many of which litigate vs. each other; Litigious nature in Brazil – once a client gives case to his lawyer the client loses control of it. Cases can take 10-20 years with multiple appeals. These are reasons why arbitration is growing in Brazil.

Dispute (e.g., appointing the arbitral tribunal/use of discovery, witnesses, experts/documents only v hearings)

  • Tribunal appointment: In Brazil at least, the arbitrators tend to be a small group of Brazilian lawyers. But with new ratification by Brazil of the CISG , this may change since applicable law in these cases will not necessarily be Brazilian law.
  • Ex parte contact w arbitral tribunals is strictly prohibited in BR arbitration practice, but accepted in court cases there
  • Discovery disliked almost everywhere outside the U.S. IBA Guidelines on Taking of Documentary Evidence in International Commercial Arbitration are often acceptable in Latin American arbitrations. As Arbitrator I normally use these, even in domestic cases.
  • Heavy reliance on documents when using Latin American civil law as governing the arbitration – similar to courts. As an arbitrator, however, I find live witnesses very helpful and important.

Post dispute (e.g. settlement/enforceability of awards in the region)

  • Brazil – Enforcement of foreign awards is controlled by the Superior Court of Justice (STJ) under Constitutional Amendment of 2005. Watch new STJ internal regulation allowing refusal to enforce [foreign] arbitral awards which are “contrary to human dignity”.
  • Watch NY Convention public policy exception to enforcement of foreign arbitral award – Argentina: National Grid case

Any other issues specific to the region (e.g., approach to investment treaty arbitration / political stability relevant to the dispute resolution landscape)

  • Arbitration with the public administration – especially in Brazil where many economic activities are conducted or financed by the public administration:
  • Public-Private Partnership (PPP) – at federal & state levels) & Concessions Laws -> could affect Rio-São Paulo Bullet train bid with Chinese parties. Arbitration requirements under these laws: held IN BRAZIL, IN PORTUGUESE LANGUAGE
  • Current Brazil Arbitration Law(BAL) does not explicitly authorize Public Administration (huge sector of economy) to engage in arbitrations. The new 2015 Amendment to the BAL does, with the Senate rejecting a vague and dangerous amendment proposed by the lower Chamber of Deputies, calling for Arbitration with Public Administration to be subject to “posterior regulation”.

Investment Treaties

  • BRAZIL - No investor-state arbitrations, only commercial arbitrations. Unlike its neighbors ARGENTINA, BOLIVIA, ECUADOR, VENEZUELA etc., BRAZIL has never ratified any BITS or multilateral investment treaties.
  • BRAZIL recently entered into BIT w Mozambique, but more oriented to investment promotion and dispute prevention, than dispute resolution. Resolution of investment disputes is left to intra-governmental Consultative Committee without right of private investor to do anything. Brazil is also promoting this model for BITS with Angola, Colombia, Chile etc.
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