International Commercial Arbitration in Peru

This chapter seeks to provide arbitration practitioners with an insight into Peruvian local arbitration practices, customs and norms, including an overview of the latest (and most relevant) developments.

With this purpose, this chapter covers the main characteristics of Peruvian arbitration law; how Peruvian judiciary courts approach arbitration and the treatment of constitutional actions against arbitration awards; and the latest developments in Peruvian arbitration practice and what they represent.

Main characteristics of Peruvian arbitration law

Before diving into arbitration’s main characteristics under the Peruvian legal framework, we must first note the foundation upon which Peruvian arbitration is not only regulated, but is able to function effectively. Article 139 of the Peruvian Constitution provides that no independent jurisdiction, other than military and arbitral, exists or can be established,^[2] expressly granting arbitration a constitutional recognition. Although there is some debate on whether this implies arbitration has a jurisdictional nature, this constitutional recognition grants arbitration a special protection from any undue intervention attempts, effectively allowing it to function properly.

Peruvian law provides a detailed arbitral regulation through Legislative Decree No. 1071 (Peruvian Arbitration Law (PAL)), issued on 27 June 2008, which entered into force on 1 September 2008. PAL’s regulation is particular in the sense that it encompasses both domestic and international arbitration proceedings based in Peru. PAL is the product of a Ministry of Justice’s policy that sought to modernise the outdated general arbitration law, which had been in effect since 1996, looking to favour and facilitate an efficient proceeding. It should be noted that, at the time, the 1996 arbitration law was still a modern law, but it was determined that it required several adjustments that better aligned with the economic opening that came with Peru’s fast-growing economy at the time. The main provisions that PAL’s issuance brought were a more pro-arbitration stance and the consolidation of arbitral institutions.

PAL is primarily based on the 2006 UNICTRAL Model Law, and therefore presents many of its main characteristics. According to its statement of reasons (a document that accompanies all Peruvian norms and seeks to give deeper insight on the norms), the main elements or principles that inspired the reform were:

• the reinforcement of the autonomous nature of arbitration;
• the restriction of intervention of the Peruvian judiciary for certain matters in order to facilitate the development of arbitration proceedings;
• the improvement of the annulment recourse and proceeding against arbitral awards;
• the improvement of the regulations of arbitral precautionary measures; and
• the improvement of the enforcement of the arbitral award proceeding.

PAL’s regulation – as well as other norms that contain minor or lesser arbitration regulations – has led to the legal framework of Peruvian arbitration having the following main characteristics.

Monist regulation

Although there are some particular rules applicable to international arbitration proceedings based in Peru, as mentioned before, PAL (and therefore Peru) presents in general a single set of rules for both domestic and international arbitration proceedings based in Peru, providing a monist regulation.

Arbitrability

Only disputes related to freely-surrendered rights can be submitted to arbitration.^[3] These notably include disputes on contractual and commercial matters, and exclude all criminal, legal capacity and family law matters. It should also be noted that the Peruvian state may submit its disputes to arbitration and is legally required to do so in all cases regarding procurement contracts. This, evidently, translates to the Peruvian state being the most common arbitral party in Peruvian arbitral proceedings.

Fewer formal requirements for the arbitration agreement

PAL’s Article 13 closely follows the definition set forth in Article 7(1) of the 2006 UNCITRAL Model Law. This Article allows parties to submit to arbitration all or certain disputes that may arise between them with respect to a defined legal relationship, whether contractual or not. Article 13 permits parties to forego all but one formality in agreeing upon an arbitral agreement. For an arbitral agreement to be valid under PAL, it must be in writing.^[4] There are no specifications for additional requirements, which allows parties to agree upon an arbitration agreement through any form of writing.^[5] As has been interpreted by Peruvian courts, this includes everything from duly notarised formal contracts to text messages and emails without any further formality. Moreover, PAL allows for arbitration agreements to be constituted with reference to any document containing an arbitration agreement, if the reference can be interpreted to imply that said clause is part of the contract.^[6]

Non-signatories of the arbitration agreement

PAL regulates the possibility that the arbitral agreement, under specific circumstances (most of them being recognised international case law), may bind non-signatory parties. This regulation is inspired by the implied consent doctrine, applied by many judicial courts of leading arbitral jurisdictions. If the circumstances arise, it may bind parties other than those who executed the arbitral agreement to be incorporated to an arbitration proceeding. According to PAL’s Article 14, the arbitration agreement may bind those whose consent to submit to arbitration may be determined in good faith by their active and relevant participation as a party in the negotiation, execution, performance or termination of the document that contains the arbitral agreement or to which this agreement is related.^[7] It also binds any third party seeking to invoke rights or benefits from the contract, pursuant to its terms. This provision is a prime example of PAL’s modernity and adaptability to the international arbitral landscape.

Independence and impartiality of the arbitration tribunal

According to PAL’s Article 3, arbitration tribunals have a special protection that allows them to be independent and not subject to any order or decision that may affect their vested powers. The judiciary only intervenes in aspects permitted under the PAL, such as in the award set-aside proceeding, precautionary measures prior to arbitration, court enforcement assistance, etc.

The arbitration tribunal’s independence and impartiality has also been confirmed by the Peruvian Constitutional Tribunal, in its precedent-setting ruling colloquially known as the ‘Cantuarias Precedent’. Through this decision, the Constitutional Tribunal expressly stated that arbitral tribunals are autonomous, have their own jurisdiction, and are not subject to judicial controls. PAL’s Article 28 reinforces the need for arbitrators (and arbitral tribunals in general) to remain independent and impartial. This Article states that if circumstances arise that lead to justified doubts about an arbitrator’s independence or impartiality, or lacks the qualifications agreed to by the parties or required by law, he or she may be lawfully challenged.^[8] If the parties do not agree on the proceeding for challenging an arbitrator, PAL regulates the applicable rules. The judiciary does not intervene in any manner in the proceeding. Also, in Peruvian arbitration practice, it is common for arbitral tribunals and institutions to have recourse to IBA Guidelines on Conflicts of Interest in International Arbitration for setting the criteria in assessing and resolving challenges to arbitrators.^[9]

Court assistance

PAL stipulates the possibility of court assistance, if the arbitration tribunal or the parties (with the approval of the arbitration tribunal) request it.^[10] This provision is extended to arbitration proceedings seated abroad. This, for example, allows for pieces of evidence located in Peru to be requested by foreign arbitration tribunals and to be sent with the assistance of Peruvian courts in order to secure the taking of evidence. Assistance can only be denied by Peruvian courts if they deem (duly sustaining it) that the request is contrary to public policy or if the request is contrary to express prohibitive laws.

Kompetenz-kompetenz and separability

In accordance with most modern arbitral rules and regulations, PAL stipulates the arbitral tribunal’s authority and full competence to rule on its own jurisdiction, including any objections to the arbitral agreement related to its existence, nullity or validity.^[11] PAL also expressly regulates the separability of the arbitral agreement, stating that it must be treated as an independent agreement and thus stipulates that disputes subject to arbitration may be referred to the annulment of the contract containing the arbitral agreement without affecting its validity in itself. Through the above-mentioned Cantuarias Precedent, the Peruvian Constitutional Tribunal has also reaffirmed this principle.

Setting aside the award (annulment recourse)

As described in detail below, PAL provides the possibility for parties to file an application for setting aside arbitration awards based on certain specific and limited grounds.^[12] Under Peruvian law, the set-aside proceeding is deemed the only way to challenge an award, which (except for specially regulated exceptions) prevents interested parties from applying to other recourses such as constitutional actions (amparo).

Enforceability

As also described below, PAL permits interested parties to initiate enforcement proceedings to implement the award’s ruling, compelling the defeated party to fulfil its obligations in accordance with what the arbitral award resolved.

Separate special provisions for arbitrations with the state as a party

Arbitration proceedings that have the state as a party have several singularities that distinguish it from the regular arbitration regime. A few examples follow:

• First, according to the pertinent norms, all disputes that arise from procurement and public works^[13] must be resolved via conciliation or arbitration. As the Public–Private Partnerships Agreements Law provides,^[14] this type of contract often includes arbitration agreements seated in Peru or abroad (including ICSID), depending on the drafting of the specific provision.
• Second, Peruvian law requires that all awards rendered in arbitral proceedings to which the state is a party be publicly available. As explained below, this has led some of the most important arbitration centres to establish special platforms for the purpose of publishing awards rendered in arbitral proceedings that have the state as a party. Peruvian law considers and treats the ‘state’ as one entity and, as such, this law applies to all government entities, including but not limited to departments, non-national governmental units (such as provincial or municipal government entities) and even state-owned companies.^[15]
• Last, in arbitration proceedings subject to the State Procurement Law, presiding arbitrators in cases that have the state as a party are necessarily required to have experience in Peruvian administrative law, arbitration and in contracts with the state matters.^[16] It should be noted that this does not impede arbitrators who are not Peruvian lawyers from serving in arbitrations to which the state is a party, but it does require them to have proven experience on the matters mentioned above. This provision has evoked heavy criticism, as it can be misconstrued (and usually is) and wrongly applied in order to unjustly veto a presiding arbitrator (in particular, foreign presiding arbitrators).

Peruvian judiciary courts approach vis-à-vis arbitration

As mentioned above, under Peru’s legal framework, arbitration is considered a form of jurisdiction and, as such, is independent of the judiciary courts. This allows for arbitration to take place without judicial intervention (for the most part) and translates into a ‘non-intervention culture’ among (at least most) Peruvian judiciary courts. This is greatly encouraged by PAL, which sets forth specific scenarios in which judiciary courts are allowed to intervene in relation to arbitration proceedings.^[17]

Two main scenarios stand out as the most common instances in which judiciary courts are allowed to intervene vis-à-vis arbitration.

Set-aside proceedings

First, PAL’s Article 62 establishes the intervention of judiciary courts for applications to set aside arbitration awards. As its name suggests, this recourse can only annul the arbitral award (in whole or in part), and does not consist of a new analysis nor decision on the merits.

The application can be filed on seven specific and limited grounds:^[18]

• the arbitration agreement does not exist or is not valid;
• a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present their case;
• the composition of the tribunal or the arbitral procedure was not in accordance with the agreement of the parties or the applicable arbitration rules, unless such agreement of rule is contrary to the mandatory provision of the PAL;
• the award deals with a matter that was not submitted to the tribunal’s decision;
• in a domestic arbitration, the subject matter of arbitration is manifestly not subject to adjudication by arbitration according to law;
• in an international arbitration, the subject matter of arbitration is not subject to settlement by arbitration under the laws of Peru or the award is in conflict with international public policy; and
• the award was issued after the deadline the parties agreed to or stipulated in the applicable institutional rules.

The filing of an application for setting aside the award, in accordance with PAL’s provisions, does not suspend the obligation of the losing party to comply with the award or the right of the prevailing party to ask the judiciary to enforce the award. Enforcement will only be suspended if the party filing the setting aside application expressly requests so and submits a guarantee agreed upon by the parties or established in the applicable arbitration rules. If there is no agreement or applicable rules, PAL’s Article 66 provides that this guarantee must be a letter of credit issued by a financial institution equivalent to the arbitration award amount.

Owing to the importance and possible complexity of this recourse, it is filed directly before the Commercial Superior Court, a judicial body that is normally an appellate-second instance court. This court must first determine the recourse’s admissibility before the merits can be considered. If admitted, the other party will be given the opportunity to counter the arguments that supposedly merit the annulment.^[19] Afterwards a hearing will be held, after which the Superior Court must issue a decision. Only if the Superior Court decides to annul the award totally or partially, such decision is subject to a cassation recourse before the Supreme Court.^[20]

Even though the regulation strictly provides only the seven specific and limited grounds listed above, the Commercial Superior Court is somewhat prone to incorrectly set aside awards on the basis of motivation issues. It should be noted that this is a questionable cause for setting aside awards.

Up until 2011, interested parties were filing constitutional actions (amparo) as a means to annul arbitration awards. The amparo is a constitutional action that seeks to protect and safeguard constitutional rights, aiming to prevent any violation or possible violation of these rights. This recourse intrinsically has a residual nature pursuant to Peruvian law, which means that it can only be used when there is no other ‘satisfactory channel’ of relief. The amparo was used by interested parties as an alternative way to seek the annulment of arbitral awards on the basis of supposed constitutional (due process) rights violations and, in some cases, as a way of obtaining a new review of the merits of the case, which could even lead to a decision on the merits that contradicted that of the award.

With the objective of remedying this situation, the Constitutional Tribunal, Peru’s highest judicial authority in constitutional matters and interpreter of the Constitution, issued decision No. 142-2011-PA/TC (known as the Maria Julia precedent) in 2011. The Constitutional Tribunal established that the set-aside proceeding was the ‘satisfactory channel’ to question an award, a condition that prevented the amparo – because of its residual nature – from being used for that purpose. The highest constitutional tribunal then listed very specific and extraordinary cases in which the amparo could be used against an award. According to the Maria Julia precedent, an amparo can only be filed against an arbitral award if: it disregards a previous mandatory precedent of the Constitutional Tribunal; it wrongfully decides that a law is unconstitutional (through a procedure known as ‘diffuse control’) even though the Constitutional Tribunal had previously declared it as constitutional; or if the party initiating the amparo was not party to the arbitration agreement (a third party), and its constitutional rights are affected by the award.

Enforcement of awards

On the other hand, judicial courts help with the enforcement of arbitration awards.

Arbitration awards are considered enforceable titles under Article 688 of the Peruvian Code of Civil Procedure and, therefore, forced execution can be requested through the initiation of an enforcement procedure. PAL stipulates that the civil judiciary with commercial sub-speciality is competent to hear and decide on the enforcement.^[21] According to Peruvian law, the mere presentation of the enforceable title (i.e., the award) should prompt the judge to issue an enforcement order requiring the fulfilment of the obligation contained in the award, under penalty of initiating forced execution.

The respondent can only oppose the enforcement in three specific cases: if the obligation contained in the award is unenforceable or its monetary amount is not specified in the award, or is not determinable by a simple arithmetic operation contained in the award itself; if the award is null or forged; or if the statute of limitations has elapsed.

The respondent can proceed only if it proves with documentary evidence that it has fulfilled the required obligation or that a judicial authority has ordered the suspension of the enforcement of the award. That suspension is only applicable if the respondent has filed an annulment recourse and presented a bond guarantee letter in favour of its counterparty for the full amount of the award or for what has been agreed in the arbitration agreement or applicable arbitration rules.

If the court concludes that the opposition is well founded, the petitioner or award-creditor may appeal the decision but cannot execute the award in the meantime. If, on the contrary, the court concludes that the opposition is unfounded, the respondent may appeal it without suspensive effects, which, in simple terms, means that the enforcement should continue while the appeal is pending.

A second instance decision that resolves an appeal can only be challenged before Peru’s Supreme Court of Justice if the ruling that granted the contradiction is upheld.

PAL also states that foreign arbitration awards shall be recognised and enforced according to the New York Convention, the Panama Convention and any other relevant treaty.^[22] PAL closely follows the grounds for refusal of the recognition of an arbitration award set in the New York Convention (Article V).

The Peruvian legal framework allows for the request of precautionary measures during the enforcement proceedings to ensure the effectiveness of the future collection. In the case of enforcement processes initiated against the state, it will not be possible to order precautionary measures against its public assets, which are considered unattachable.

Finally, the judiciary also intervenes in arbitration for the issuance of precautionary measures before the arbitration tribunal is constituted. Once the arbitration tribunal is constituted, it is the only body competent to resolve any incident or recourse that was pending before the judiciary with respect to the precautionary measure application.

Latest developments in Peruvian arbitration practice

Peruvian arbitration practice has continued to evolve and adapt to the modern trends and, at the same time, has established an array of dispositions in order to eradicate any possibility of corruption in arbitration, in the context of the revelation of the Lava Jato corruption cases.

A prime example of this is the issuance of Urgency Decree No. 20-2020 (DU 20-2020), which modified PAL’s regulation of arbitration proceedings that have the state as a party. As mentioned above, arbitration proceedings that have the state as a party have special specific regulations, and DU 20-2020 was issued to reinforce them. Some of the main changes enacted by this decree are the following.

Limitations to ad hoc arbitrations

DU 20-2020 limited the possibility that arbitration with the state can be carried out on an ‘ad hoc’ basis. This modification set forth a 10 tax units (approximately US$12,200) ‘cap’ for the value that can be resolved by ad hoc arbitrations, providing that all controversies that exceed such amount be administered by an arbitration centre.^[23]

Bond letters as only possible guarantee for precautionary measures

DU 20-2020 modified PAL’s Article 8, requiring parties to provide an unconditional and automatically executed bond letter as a counter-guarantee for the granting of precautionary measures in cases in which the state is the affected party.^[24]

Limitations to arbitrators based on past involvement in the dispute

DU 20-2020 stipulates that any and all persons who have had a past involvement in the dispute – as a counsel or expert for example – or have ‘personal, work, economic or financial interest’ in the proceedings cannot act as arbitrators.^[25] This provision has been heavily criticised, as its broad language can easily be misconstrued to unjustly remove arbitrators based on even the most minuscule past interventions on the dispute.

Challenges against arbitrators can only be resolved by arbitral centre

DU 20-2020 modified PAL’s Article 29. It now provides that any accord that allows an arbitral tribunal to resolve recusal petitions lodged against its members is to be considered null. This provision expressly states that recusals lodged against an arbitrator (or against the entirety of the tribunal) must be resolved by the corresponding arbitral centre or, failing that, by the Chamber of Commerce seated where the arbitration takes place.

Publicity of the totality of the proceeding

DU 20-2020 expanded the publicity of arbitral proceedings that have the state as a party, providing that all procedural activity – not just the arbitration award – must be made public after the conclusion of the arbitral proceeding. This provision seeks to ensure that these proceedings have been adequately carried out and to deter any potential wrongdoing. In practice, even though two years have passed since the issuance of DU 20-2020, this provision has not been effectively put into practice, as no comprehensive register of arbitration proceedings in cases involving the state as a party exists.

Peruvian jurisprudence has also produced relevant developments in the arbitral landscape. The Constitutional Tribunal issued sentence No. 30-2021-PA/TC on 21 September 2021, that has, to a certain extent, reopened the door to the amparo recourse in arbitration. This decision is product of a particular and peculiar case. The sole arbitrator in this case issued a preventive attachment and freezing of the bank account of one of the parties to the arbitration, to be complied with by the bank in which the account was opened. The bank refused to comply with the order, contending that the arbitration tribunal’s decisions were not binding on the bank as it was not a party to the arbitration. The sole arbitrator then decided to incorporate the bank as a party to the arbitration, in order to enforce the precautionary measure. Faced with this, the third party (bank) initiated an amparo recourse, stating that its right to due process (juez natural) was being violated.

The Constitutional Tribunal sided with the third party, finding that the invoked right was being violated and, thus, ordered the nullity of the procedural orders that granted the precautionary measure and incorporated the bank as a party. As a part of its analysis, the Constitutional Tribunal stated that the Maria Julia precedent was not applicable in this case, as it limited the use of the amparo recourse against arbitral awards, and not against other decisions.^[26]

Although is not a precedent, this decision may represent a shift in the Constitutional Tribunal’s view of the use of the amparo recourse in arbitration. Up until this point, it was understood that this recourse was unavailable against arbitral awards, but also not available against decisions a tribunal could render. It has been commented that this decision rests upon a literal interpretation of the Maria Julia precedent, which does not specifically state that its protection encompasses all decisions made by an arbitration tribunal and, in general, only refers to the award rendered in that specific case. Also, the decision brings to the table a debate on whether arbitration tribunals are entitled to order precautionary measures to be complied with by third parties to the case.

Last, Peruvian arbitration centres have also produced relevant developments, particularly regarding transparency. Most notably, the Arbitration Centre of the Lima Chamber of Commerce has created the platform ‘Transparency Lighthouse’, which provides easy access to general information on cases in which the state is a party, as well as all awards and complementary awards in these cases. This platform, according to the Chamber itself, allows users to browse all awards that have the state as a party, presenting relevant information that is periodically updated and maintained. This platform is also very useful in providing general information on annulled awards and short summaries of relevant commercial awards (redacting all sensitive information, of course).

Other arbitration centres, such as the Pontificia Universidad Catolica del Peru’s Centre for Conflict Analysis and Resolution, provide similar platforms (albeit none as accessible and friendly as that of the Lima Chamber of Commerce). This facilitates access to arbitral awards from cases that have the state as a party, which – contrary to what should be the case according to current legislation – is not properly available in state-run platforms.

Conclusion

We can conclude that Peru provides a framework that supports and favours arbitration. Even though some recent developments have increased regulations, none can be considered major, much less a threat to arbitral proceedings. As the world rapidly changes, so does arbitration, and regulations and rules must respond accordingly. So far, it can be said that the Peruvian framework provides a modern regulation. Arbitration centres and other institutions have played a key role in keeping up with modern standards and regulations, and must continue to do so to ensure not only adequate but optimal conditions in which to arbitrate.

Notes