Constitutions Meet Arbitration in Latin America

Introduction

Over the past 30 years, the arbitration laws of Latin American countries have undergone spectacular transformations. An increasing number of countries have reformed their international arbitration laws following the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.^[2] Several countries in the region can now be considered jurisdictions favourable to arbitration. The efforts of the legal community have contributed to the recent popularity of regional seats of arbitration,^[3] as well as to the creation and development of increasingly sophisticated and busy arbitral institutions.

Despite these positive developments, the constitutional reforms that have taken place in tandem since the 1990s have prompted scepticism about whether international arbitration is, indeed, welcome in the region.^[4] Leaving aside the historical concerns about Latin American states adhering to the (often misunderstood) Calvo doctrine^[5] (and its implications), the reforms introduced ‘strong forms of constitutionalism’.^[6]

To be ‘regulatory mandates with practical efficiency’,^[7] the new generation of constitutions sought to strengthen the judiciary, and introduce new forms of constitutional remedies, thereby giving the judiciary power to prevent or repair violations of fundamental rights.^[8] The power of constitutional judges increased further as reformed Latin American constitutions included a plethora of rights of varied nature, including (1) fundamental freedoms, (2) the right to judicial protection,^[9] (3) economic and social rights, (4) the rights of special legal entities (such as nature and environment^[10] in Ecuador^[11] and Bolivia^[12]), and (5) the human rights recognised in international treaties.^[13]

Moreover, Latin American constitutions embraced a constitutional rule of law model^[14] where constitutions ‘are not only more extensive than those they abolished but also, in general, are much more extensive than the constitution[s] of other regions of the world, particularly those of developed capitalist regimes’.^[15] In this model, multiple subject matters usually reserved for the legislator are now regulated directly by the Constitution. Arbitration, as we discuss below, is no exception.

Against this background, we can understand why, and how, arbitration law intersects with the constitutional reforms in Latin America. In fact, many jurisdictions throughout the region have constitutional clauses that regulate (and often interfere with) arbitration.

To claim that all intersections between the Constitution and arbitration have a negative impact would nevertheless be a hasty conclusion. Constitutions in the region also protect and validate arbitration by defining objective arbitrability or recognising its validity as a dispute settlement mechanism. In light of the supremacy of the Constitution, these constitutional clauses can keep the judiciary and the legislator from unduly intervening, and may even encourage the development of pro-arbitration constitutional case law.

However, interferences may be negative as constitutional actions (which the parties cannot waive or exclude by mutual agreement) and challenge the arbitral tribunal’s decisions (particularly the award). This interference is more common in those jurisdictions where arbitrators are deemed to carry out quasi-judicial functions, or even to form a special jurisdiction that runs parallel to the judiciary. To the extent that certain jurisdictions consider arbitrators as ‘authorities’ or ‘judicial organs’ capable of violating constitutional rights, the effectiveness of arbitral proceedings and the award may be hindered by constitutional remedies. The development of constitutional case law in the region tends to limit the scope and admissibility of these actions without altogether removing the risk of additional court litigation and potential delays in the recognition or enforcement of an award.

In this chapter, we explore the intersections between constitutions and arbitration law. We have observed that they occur chiefly in two manners. Firstly, they recognise (or deny) the validity of arbitration and the type of disputes that the parties (or the state) may validly submit to this mechanism. Secondly, the availability of constitutional remedies against awards and arbitral proceedings may also undermine the ability of arbitration to efficiently and definitely settle a dispute. Last, we present a short conclusion to our analysis.

Regulating arbitration through constitutional provisions

It is not uncommon for Latin American constitutions to recognise – or impose limitations on – the validity of international arbitration as a dispute settlement mechanism. In some instances, constitutional clauses limit the availability of arbitration in certain contexts. This regulation operates in three main ways.

First, several constitutions in the region expressly recognise the right to resort to arbitration (a tradition that can be traced back to the Spanish Constitution of 1812^[16]). The most remarkable case is the Constitution of Costa Rica, which provides that any person has the right to settle disputes by submitting them to arbitrators.^[17] On this basis, the Constitutional Chamber of the Supreme Court of Costa Rica has found that resorting to arbitration is a fundamental right.^[18] The constitutions of El Salvador^[19] and Ecuador^[20] also recognise the ability to resort to arbitration as a constitutional right, although it is not considered a fundamental one.

Declaring the right to resort to arbitration in the Constitution protects the arbitral proceedings and the award from undue interferences. For example, said provisions may protect arbitration from interferences by the judiciary (e.g., through anti-arbitration injunctions). They may also protect arbitration from legislative attempts to reduce its effectiveness (for instance, by unreasonably limiting the matters that can be validly settled by an arbitral tribunal).

Second, constitutions throughout the region regulate arbitration directly by determining which matters can be settled by arbitral tribunals (objective arbitrability). The Constitution of Costa Rica provides that disputes of an economic nature may be settled through arbitration.^[21] Similarly, in Ecuador, the Constitution provides that parties may arbitrate any dispute that can be settled by private agreement.^[22]

The Constitution of Peru provides that disputes deriving from a contractual relationship can be settled by recourse to the judiciary or arbitration.^[23] The wording of the Peruvian Constitution is more restrictive than the one found in the Costa Rican and Ecuadorian constitutions, as it restricts objective arbitrability to contractual disputes. The Constitutional Tribunal of Peru has nonetheless construed these constitutional provisions as authorising international arbitration for any dispute capable of being settled by private means and, especially, those arising out of international contracts.^[24]

Another group of constitutions include provisions regulating the conditions under which a state or state entity may validly enter into an arbitration agreement. Generally, these provisions authorise the state to conclude arbitration agreements, thus explicitly recognising their validity. For example, Article 220 of the Constitution of the Dominican Republic specifically authorises the state and its organs to submit contractual disputes to international arbitration.^[25] Similar provisions are found in the constitutions of El Salvador^[26] and Peru.^[27] We agree that these provisions may be read as authorisations (or limitations) ‘on capacity, subject to Article V(1)(a) of the New York Convention^[28] (and analogous rules of substantive validity under Article II of the Convention)’.^[29] A clear example of how a provision of this kind may amount to a limitation of capacity is found in the Constitution of Ecuador, pursuant to which the state and its organs can enter into arbitration agreements only if they are approved by the Office of the Attorney General of the State.^[30]

A final comment must be made regarding the prohibitions to resort to arbitration that are found in the Bolivian and Ecuadorian constitutions, which generally target arbitrations between the state and foreign investors under international investment agreements.

The Bolivian Constitution prohibits international arbitration as a valid dispute settlement mechanism for any dispute related to the hydrocarbon sector.^[31] It also provides that all foreign investments shall be subject to both Bolivian law and to the Bolivian authorities, thus implying that arbitration is not available in these instances.^[32] In any event, these provisions – however surprising they may seem at first – do not have the expansive consequence of prohibiting investor-state arbitration altogether. According to the Bolivian Constitutional Court, its power to review the constitutionality of treaties is limited to those enacted after the entry into force of the 2009 Constitution, and the judicial review of treaties following that date can only be performed at the request of the President of the Congress.^[33] This interpretation, the Court reasoned, would not prevent the government^[34] from withdrawing from those international agreements, which, in fact, the government subsequently did.

The Bolivian constitutional prohibitions prompted a more general policy in the country against the arbitrability of disputes arising out of relationships between private and state parties. Article 4 of the 2015 Bolivian Arbitration Law includes a prohibition against international arbitration in, inter alia, matters regarding the authorisation to exploit strategic sectors or natural resources, and contracts concluded by the state or its organs.^[35]

Article 422 of the Ecuadorian Constitution adopts a different (and seemingly straightforward) prohibition of arbitration under international agreements. It provides that the state shall not, by way of concluding an international agreement, waive its ‘sovereign jurisdiction’ (jurisdicción soberana) in favour of international arbitrators or institutions in disputes between the state and private individuals of either ‘contractual’ or of ‘commercial nature’ (índole comercial).^[36] The constitutional clause nonetheless authorises the settlement of disputes, under international agreements, between the state and other Latin American states or ‘citizens’ if these are submitted to ‘regional arbitration bodies’. ^[37]

It seems clear that the prohibition does not cover international arbitrations between state parties and private individuals, regardless of their origin, arising out of contracts entered into with the state or its organs. As discussed above, in these instances, the arbitration agreement is subject to a prior authorisation by the Attorney General. It would also appear that this constitutional provision has played a role in Ecuador’s decision to arbitrate international commercial disputes before tribunals seated in Latin America (for instance, in Santiago de Chile).^[38]

Therefore, it seems that the Constitutional Assembly’s intention behind Article 422 was to prohibit international agreements, such as bilateral investment treaties or commercial treaties with investment provisions, from providing for international arbitration with the state or its organs. The exception would be those treaties concluded with one or more Latin American states. Some authors, however, contend that this constitutional provision does not cover investment arbitration, given the ambiguity of some of the terms the Constitution employs.^[39]

More than a decade ago, the Ecuadorian Constitutional Court issued interpretative opinions holding that several bilateral investment treaties concluded by the state were unconstitutional. These opinions served subsequently as the legal basis on which the government of Ecuador denounced those treaties (and indirectly justified its withdrawal from the ICSID Convention).^[40] On 21 June 2021, the government gave notice of Ecuador’s re-accession to the ICSID Convention. Shortly thereafter, the Constitutional Court opined that this re-accession was valid (and did not require legislative approval). It was the first time that the court issued an opinion on Ecuador’s ICSID membership. The court noted that the ICSID Convention is a framework agreement and that disputes can only be submitted to ICSID arbitration based on separate, additional, arbitration agreements.^[41] Whether those agreements are compatible with Ecuador’s Constitution is a matter that the court has yet to assess on a case-by-case basis.

Third, several constitutions attempted to resolve the issue of whether arbitration is a means of adjudication alternative or equivalent to the state’s judicial power. This direct constitutional regulation may protect arbitration from undue legislative or judicial intervention aimed at restricting the enforceability of arbitration agreements in relation to certain matters.

In Mexico, Article 17 of the Constitution authorises the legislator to establish alternative means of dispute settlement. The Mexican Supreme Court has interpreted this clause to mean that arbitration – and alternative dispute settlement mechanisms – are to be regulated by the law, while recognising that this is a matter of constitutional relevance.^[42] The Mexican Supreme Court has thus held that resorting to arbitration implies the exercise of protected constitutional freedoms rather than a waiver of the constitutional right to judicial protection. In light of this interpretation, the court has held that arbitrators, as adjudicators, cannot be deemed to be state authorities.^[43]

In other jurisdictions, there is a less clear distinction between the nature of arbitrators’ power, as constitutions assimilate arbitration, in varying degrees, as a kind of quasi-judicial function. In Panama^[44] and Peru,^[45] the Constitution refers to the existence of an arbitral jurisdiction (in parallel to the courts’ jurisdiction). The Colombian Constitution, in turn, deems that arbitrators carry out transitory judicial functions.^[46] On this basis, the Colombian Constitutional Court held that the arbitral tribunal’s mission is not defined by the parties’ agreement, but by the power (albeit transitory) to adjudicate the dispute, which is rooted in the Constitution.^[47]

The above conceptions of arbitration by some Latin American constitutions are relevant to the long-running debate of whether the arbitrators’ role should be regarded as contractual or judicial in nature. At least in the jurisdictions that equate arbitration to a judicial function in several respects, the answer should be both. In the words of prominent commentators:

[t]he idea that arbitrators have a ‘status’ is obviously not incorrect. Their role as private judges is too particular to result solely from the intentions of private parties. In order for them to assume the judicial power which national laws and the courts recognise them as possessing, the arbitrators (and with them the entire arbitration) move within a legal and procedural framework which goes beyond the parties and their judges chosen on a case-by-case basis.^[48]

However, the peculiar nature of the arbitrators’ mission does not necessarily translate into a complete correspondence with the judges’ functions, duties and powers. These provisions can also be read as a way that certain constitutions choose to protect arbitration as a valid – yet distinct – form of (quasi-)judicial function. This is, as a matter of fact, the position of recent case law in Colombia, which recognises the validity of international arbitration and (as discussed below in further detail) limits the cases in which constitutional law may validly interfere with the arbitration proceeding’s efficiency or the validity and enforcement of the award.^[49]

The conceptualisation of arbitration as a jurisdiction that runs in parallel to the judiciary had problematic ramifications in Peru. The Peruvian Constitutional Tribunal found in the past that the arbitral tribunal equates to a court of law provided for by the Constitution,^[50] a circumstance that warranted interpreting and applying arbitration law from a public law perspective.^[51] On this basis, some decisions by the Constitutional Tribunal have considered that arbitrators are subject to the constitutional public order.^[52] This characterisation may entail arbitrators being subject to constitutional control as any other judicial authority. Therefore, awards issued by tribunals in Peru may be exposed to more stringent control by the constitutional judge on account of potential violations of the right to a fair trial or the misapplication of constitutional case law (in particular, the Constitutional Tribunal’s decisions constituting mandatory precedent). As discussed below, these open-ended grounds for revision may undermine arbitration’s ability to render a final solution to a dispute.

Arguably, it is unclear whether, in these jurisdictions, one may consider arbitrators as entities exercising elements of government authority under customary international law (in particular, as codified in Article 5 of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts).^[53] As discussed above, the arbitrators’ role bears some similarities with the role of the judiciary. However, they are not integrated into state agencies, nor are they under the government’s control. In addition, these constitutions recognise that arbitrators’ power to adjudicate a dispute relies on and is subject to the parties’ agreement and does not emanate solely from the constitutional provisions. This is the way in which the European Court of Justice has conceived the arbitrator’s role.^[54] It is, in any event, ‘unsatisfactory in defining governmental authority to rely simply on the functions governments have historically performed: such an “intuitive” appreciation may become increasingly difficult to justify as more and more functions are privatized or outsourced’.^[55]

Intersections with constitutional remedies

As noted by a prominent commentator, ‘most of the [constitutional] reforms [in Latin America] attempted to ensure that fundamental rights have practical effects instead of being merely rhetorical’.^[56] With the aim of materialising these constitutional rights, Latin American constitutions ‘created forms of direct judicial protection of rights’ and an encompassing ‘reinforced constitutional justice’.^[57] These actions simplify the required standing to appear before courts and request remedies and are heard by the judiciary in proceedings that are often simplified and expeditious. The constitutional remedies receive different names in different countries, such as acción de tutela in Colombia,^[58] recurso de protección in Chile^[59] (which soon may be replaced by acción de tutela in the new Constitution^[60]), or amparo in Mexico.^[61]

The establishment of constitutional remedies was often paired with special attributions by higher courts to control and review the decisions rendered in these constitutional proceedings. That is the case of Colombia, where the Constitutional Court (a new high court created by the 1991 Constitution) has the power to select and review any judgment handed down in a tutela proceeding.^[62]

The goal of materialising constitutional rights by means of simple, constitutional remedies is laudable. It is also understandable as a trend in a region where the legal avenues for the enforcement of constitutional rights had been historically scarce.^[63] These remedies can, however, interfere with and undermine the effectiveness of arbitration to render a final solution to a dispute.

The rationale for the courts’ intervention by way of these constitutional proceedings is mostly found in the fact that, as discussed above, arbitrators carry out a certain type of judicial function and are thus capable of violating constitutional rights in discharging their duties. By way of assimilating arbitrators to the judiciary, countries that allow constitutional remedies against the courts’ decisions have developed similar criteria to make these remedies available against awards and arbitration proceedings. Also by way of that assimilation between judges and arbitrators, the debate of whether constitutional remedies are available against the arbitrators’ decisions refers to the wider debate on whether these actions are, in fact, available against acts of the judiciary.^[64] For this reason, it is not uncommon that the courts in the region have subjected the availability of constitutional remedies to the fulfilment of a series of requirements, where the exhaustion of available remedies is the most common among them.^[65]

The interference with the arbitral proceedings (or the challenge to the award itself) runs contrary to the principle that ‘[r]ecourse to a court against an arbitral award may be made only by an application for setting aside.’^[66] In the words of the European Court of Justice, ‘it is in the interest of efficient arbitration proceedings that review of arbitration awards should be limited in scope and that annulment of or refusal to recognize an award should be possible only in exceptional circumstances.’^[67] Constitutional remedies may undermine this generally accepted principle.

First, it bears noting that, in some jurisdictions, either the law or the constitutional courts have expressly ruled out the possibility of constitutional actions being used to challenge arbitral proceedings or awards. That is, for instance, the case of Mexico (where, as we already mentioned, the Supreme Court does not consider arbitrators to be authorities^[68]), Costa Rica^[69] and Brazil.^[70] In Panama, the Supreme Court has confirmed that the amparo and unconstitutionality actions foreseen by the Constitution cannot be used to challenge the arbitrators’ award. As a result, the application to set aside an award is the only means to redress any violation of fundamental rights in the arbitration proceedings or the award.^[71] In Uruguay, the law regulating the constitutional remedy of amparo expressly excludes all ‘judicial’ acts from its scope (a provision that, by extension, applies to arbitrators).^[72]

Second, and in stark contrast, the Constitutional Court of Guatemala has interpreted that the constitutional remedy of amparo may be brought against any ‘act of power’ based on a list of grounds that are numerus apertus. In a recent study by the Ibero-American Chapter of the ICC Institute of World Business Law, the Institute found that, in this jurisdiction, it is common for parties to attempt constitutional remedies as anti-arbitration injunctions or, even, appeals on the merits of the arbitrators’ decision.^[73] In fact, the Constitutional Court of Guatemala has held that the constitutional judges have the power to modify or overturn arbitral awards to redress constitutional rights violations.^[74]

Third, in some jurisdictions, the possibility of challenging arbitrators’ decisions is merely theoretical. This is the case of those countries where the arbitrators may be considered as authorities capable of violating constitutional rights under the Constitution but the courts have not validated this interpretation (or ever entertained such a challenge). This is, for instance, the case of Brazil,^[75] Argentina and the current recurso de protección in Chile.^[76] The acción de tutela in the new Chilean Constitution, if enacted, may, however, reverse this trend, as it may proceed in any situation where the affected person (1) suffers a ‘threat, impairment, or deprivation’ of a fundamental right and (2) does not have any other legal recourse to protect their rights. This provision can, in any event, be construed as being in line with the idea that violations of due process serious enough to constitute a breach of a party’s fundamental rights may be alleged (and decided) through an application to set aside. This is, as discussed above, the reasoning that the Supreme Court of Panama applied to exclude the applicability of constitutional remedies against arbitrators’ decisions.

Fourth, in relation to the above, constitutional case law in some jurisdictions has limited the potential disruption of constitutional remedies, particularly concerning international arbitration. The most salient case is Colombia. There, the Constitutional Court recently held that, though admissible, the tutela only occurs in highly exceptional circumstances^[77] and only after the application to set aside the award has been decided. This should, at least in theory, deter frivolous litigants from attempting parallel proceedings before the courts of the seat deciding the application to set aside as well as before a constitutional judge. Nonetheless, the court left open the possibility of nullifying the effects of an international award that applies Colombian law for what is called a ‘substantive defect’ (defecto sustantivo) (i.e., a non-application or misapplication of the substantive law).^[78]

The Ecuadorian Constitutional Court has followed a similar interpretation, noting that the constitutional acción extraordinaria de protección (which proceeds against judicial acts that disregard or violate constitutional rights) may proceed against awards, but only when all available remedies have been exhausted (including the application to set aside the award).^[79] However, the court dangerously left open the possibility to admit this constitutional remedy in cases where the application to set aside is unavailable.^[80] It is, in addition, unclear whether these remedies are available against decisions taken prior to issuing the award.^[81]

In Peru, the Constitutional Tribunal has, in recent times, stressed that amparo cannot be used to review or appeal the merits of the case, and reduced the scope of application of amparo to control or impair arbitral proceedings According to the Tribunal, amparo is available only against the award^[82] and in cases where a party can prove that (1) there has been a direct infringement of the Tribunal’s precedent, (2) there is a manifest violation of fundamental rights, or (3) the arbitral tribunal undertook a constitutional review of a legal norm, which would warrant, in the court’s opinion, the constitutional judge’s intervention.^[83]

Conclusion

It has been suggested^[84] that intersections between arbitration and Latin American constitutions hinder the development of arbitration law in the region. These misgivings are concerned with the potential availability of constitutional remedies as ways to undermine an award’s enforcement or the development of arbitral proceedings. It is, indeed, against the parties’ expectations that an award may not settle their dispute in a final and prompt manner.

That said, as we have discussed above, several provisions found in constitutions throughout the region have a decisive impact on the protection of arbitration from undue judicial or legislative interference. Arbitration is sometimes considered a constitutional right (even a fundamental one), and objective arbitrability is, in several countries, protected by the Constitution. Arguably, the intersections between constitutional provisions and arbitration law can have a positive impact and help to further the development and consolidation of pro-arbitration constitutional case law.

In any event, and despite the efforts to reduce uncertainty by constitutional courts (which are observable in Peru, Ecuador or Colombia, for instance), the availability of an action other than an application to set aside is still a reason of concern for the development of international arbitration in the region. Even if excluding the availability of these remedies altogether seems unlikely, constitutional remedies can, in no way, become an avenue to relitigate the merits of the dispute or to encourage frivolous dilatory tactics. For that reason, these remedies must be highly exceptional and only available once all other recourses before the tribunal (interpretation, correction, or, if applicable, appeal) or the courts (application to set aside) have been exhausted.

Footnotes