A Guided Tour Through Peru’s Arbitration System

During the 15 years since the enactment of the Peruvian Arbitration Act through Legislative Decree 1071 (PAA),^[2] the practice of arbitration in Peru has been widely developed. The PAA is the umbrella statute for arbitrations seated in Peru and is based on the 2006 UNCITRAL Model Law on International Commercial Arbitration established by the United Nations Commission on International Trade Law (UNCITRAL), although improvements were made to the Model Law regarding the scope and extent of the arbitral agreement, the flexibility of the proceedings, the adoption of provisional measures, the remedy of ‘exclusion’ of the arbitral award, among other things.^[3] Peru is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Inter-American Convention on International Commercial Arbitration.

Arbitration in Peru is characterised by a strong practice of institutional arbitration. Lima is the arbitration hub of Peru, where three leading arbitral institutions are located (the Arbitration Centre of the Lima Chamber of Commerce, the International Centre of Arbitration of the American Chamber of Commerce of Peru and the Arbitration Centre of Dispute Resolution of the Pontificia Universidad Catolica del Peru). Moreover, owing to the default nature of public procurement arbitration, institutional arbitration in other regions in the country has also developed, mainly in the arbitration centres of regional chambers of commerce. Finally, there is also an increasing practice of arbitrations administered by the Arbitration Court of the International Chamber of Commerce and the International Centre for Dispute Resolution.

Against that backdrop, this chapter provides an insight into the most characteristic aspects of the practice of arbitration in Peru through recent developments.

Particularities of the arbitration procedure

Domestic arbitration can be institutional or ad hoc. The type of arbitration depends on the arbitration agreement. If the arbitration agreement provides for institutional arbitration but does not designate the arbitral institution, then arbitration will be ad hoc.^[4] The same rule applies when (1) the designation of the arbitral institution is incompatible or contradictory, (2) the arbitral institution is non-existent and (3) the designated institution does not accept the arbitration. The general rule for both institutional and ad hoc arbitration is that the arbitrator should settle the dispute by applying the law; however, an arbitrator may settle a dispute ex aequo et bono but only if the parties so authorise. Following the enactment of an Urgency Decree, government procurement arbitration must be institutional, and exceptionally ad hoc if the value in dispute is less than 46,000 Peruvian soles.^[5]

Judicial assistance in arbitration is available only for:

• the taking of evidence;
• adoption of provisional measures before the arbitral tribunal is constituted;
• execution of a domestic arbitration award;
• setting aside arbitration awards;
• recognition of foreign arbitral awards; and
• enforcement of foreign arbitral awards.

To obtain judicial assistance, all documents must be presented in Spanish.

Arbitration commences with the request for arbitration, which may be answered by the respondent. The procedure to constitute the arbitral tribunal follows. The number of arbitrators depends on the arbitration agreement, and the default rule is that it is composed of three arbitrators. The designation procedure also depends on the arbitration agreement. If none is specified, the following rules apply:

• when the dispute is to be settled by a sole arbitrator, the parties may agree on a particular arbitrator;
• each party must nominate an arbitrator and the designated arbitrators must agree on the presiding arbitrator; and
• if there are two or more claimants or defendants, they should designate an arbitrator jointly.

Failing agreement on any of these rules, the arbitrators may be designated by an appointing authority (if the arbitration agreement so provides) or, in default, the chamber of commerce of the seat of arbitration or the nearest chamber of commerce to that location; or if the seat of the arbitration is not included in the arbitration agreement, the chamber of commerce where the arbitration agreement has been agreed or the nearest chamber of commerce to that location.^[6]

Arbitrators have 15 business days to accept the designation, which must be in writing. Absent such acceptance, it is understood that the nomination has been rejected. Once the sole arbitrator or the presiding arbitrator accepts the designation, the arbitral tribunal is deemed to be constituted. Some arbitral institutions have a confirmation procedure for arbitrators who are not listed as arbitrators on their nominations list.^[7]

Parties are free to agree on the rules of procedure. Failing such an agreement, the arbitral tribunal decides in the manner it finds appropriate, according to the circumstances of the case. If there is any lacunae in the arbitration rules, the arbitral tribunal may apply the rules of the PAA and other rules, such as arbitration principles^[8] and arbitration uses and customs. The seat of arbitration is determined by agreement between the parties, or absent such agreement, by the arbitral tribunal, depending on the circumstances of the case and the convenience to the parties. The language of the arbitration is also determined by agreement between the parties or, in the absence of such agreement, by the arbitral tribunal, considering the circumstances of the case.

Regarding the powers of the arbitral tribunal, the PAA codifies the widely known Kompetenz-Kompetenz principle and the separability of the arbitration agreement. The PAA also grants the arbitral tribunal wide discretion to conduct the arbitration proceeding, which includes the power to order discovery, conduct the hearings and decide the dispute. The arbitral tribunal has also the power to issue and enforce provisional measures,^[9] unless it requires intervention by public enforcement,^[10] in which case the requesting party could request judicial assistance.

After the determination of the rules, which usually includes the procedural calendar, the claimants will present the statement of claim and the respondents will present the statement of defence. In some arbitrations, parties agree on the filing of reply and rejoinder. The typical procedure is then to hold a hearing on the merits of the case and file the post-hearing briefs, after which the tribunal issues the award. In domestic Peruvian arbitrations, it is uncommon to have a ‘discovery phase’. However, typically, parties should pay an advancement on costs during the procedure, or when the arbitral tribunal deems appropriate. Costs include the arbitrator’s fees and expenses, the fees of the secretariat or the appointing authority, the fees of the arbitration institution, the fees of expert witnesses, reasonable attorneys’ fees and other reasonable expenses.

The arbitral tribunal must rule on the distribution of the costs in the award. The general rule is that costs follow the event; however, in practice, arbitral tribunals usually order each party to bear its own costs.

After having been notified of the award, the parties may request (within the agreed term or, absent an agreed term, 15 business days) the following:

• correction of any minor mistake in the award;
• interpretation of the award, primarily of the decision, and exceptionally of the reasoning of the arbitral tribunal; or
• integration of the award (this is a request similar to an additional award^[11]).

In addition, the PAA provides for a special request, namely the exclusion of the award (exclusion de laudo), whereby parties may request that the arbitral tribunal exclude a certain aspect of its award that was decided but not included in its decision, or an aspect that is not capable of being submitted to arbitration.

Once a party files any of these requests, the other party may comment (within the agreed term or, absent an agreed term, 15 business days) on the request. Then the arbitral tribunal issues a new decision, which constitutes part of the award, within the agreed term or, absent an agreed term, 15 business days (which may be extended by a further 15 business days). If the arbitral tribunal does not issue a new decision, the request is deemed denied. The arbitral tribunal may correct, interpret or integrate the award on its own (within the agreed term or, absent an agreed term, 10 business days).

The award and the tribunal’s decision on any requests are definitive and have res judicata effects. Parties have 15 business days to comply with the arbitral tribunal’s orders. After this term, parties can request a court enforcement of the award. Annulment does not suspend enforcement of the award, unless the annulling party so requests. To suspend the award, the requesting party must present the guarantee agreed by the parties or provided in the arbitration rules or, absent any such agreement, a bank guarantee letter for an amount to be paid equal to that ordered in the award (or, if there is no amount in the award, the court determines a reasonable amount). The letter shall remain valid during the entire annulment proceeding. The arbitral tribunal may enforce its own award only if agreed by the parties in the arbitration agreement or such power is included in the arbitration rules; however, the arbitral tribunal will not enforce the award if it considers it necessary to request judicial assistance.

Within 20 business days of receipt of the award or of the tribunal’s decision on the mentioned requests, or of expiry of the term to issue a decision on any of the above-mentioned requests, each party may request annulment of the award. Annulment is available only on the following grounds:

1. the arbitration agreement is non-existent, null and void, invalid or ineffective;
2. the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present its case;
3. the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement reached by the parties or the applicable arbitration rules, unless the agreement or rules contradict a provision of the PAA from which the parties could not deviate, or, failing such agreement or arbitration rules, was not in accordance with the PAA;
4. the arbitral tribunal has ruled on matters not submitted to its decision;
5. the arbitral tribunal has ruled on matters that, according to the law, are manifestly not arbitrable, such as in the case of domestic arbitration;
6. under the laws of the Republic, the subject matter of the dispute is not capable of being decided by arbitration or, in the case of international arbitration, the award is contrary to international public policy; and
7. the dispute has been decided outside the time frame agreed by the parties, provided for in the applicable arbitration rules or established by the arbitral tribunal.

The first four grounds for challenge can only be invoked if they are expressly contested before the arbitral tribunal. The judicial court may annul the award on the ground that the arbitral tribunal has ruled on a matter that is manifestly not arbitrable (in a domestic arbitration) on its own initiative. Annulment will not proceed if the ground could have been rectified with a request to correct, interpret, integrate or exclude the award.

Once annulment has been requested, the civil or commercial chamber of the court of appeal has 10 business days to determine the admissibility of the request. Once admitted, the defendant has 20 business days to answer the application for setting aside the award. After the expiry of this term, the court has to schedule the hearing (note that, although the PAA indicates that the hearing should take place within 20 business days, this term is usually longer). After the hearing, the court shall issue its ruling within 20 business days.

Only if the award is annulled may the defendant appeal the ruling of the Court of Appeal, by recourse to cassation.

If the award is not annulled, or in other very exceptional circumstances, a person affected by the arbitration award may institute the constitutional procedure known as amparo before the constitutional judge. This exceptional action was created by a precedent of the Constitutional Court, and is only available on the following grounds:

• the direct violation of binding precedents established by the Constitutional Court;
• when the arbitration award has applied constitutional review over a rule declared constitutional by the Constitutional Court or the judiciary; and
• the amparo is filed by a third party that is not a party to the arbitration agreement and is based on the direct and manifest infringement of its constitutional rights as a result of the award rendered in the arbitration, unless the third party is a non-signatory.

Following annulment, depending on the applied ground, the arbitrators will issue a new award, or the parties could appoint other arbitrators and restart the proceeding.

Arbitrability of disputes

The PAA provides: ‘Disputes on matters of free disposal according to law, as well as those authorised by law or international treaties or agreements, may be submitted to arbitration.’^[12] This provision largely resembles common practice in international arbitration. Generally, all matters of free disposal may be subject to arbitration (most commercial disputes and the majority of civil disputes are settled by arbitration). Exceptionally, matters authorised by the law or inter­national treaties may also be subject to arbitration.

The law authorises arbitration in the following matters:

• Government or public procurement contract disputes: In this case, pursuant to Article 45 of the Public Procurement Act (Law 30225), arbitration is mandatory, meaning that government bodies and contractors can only refer a dispute to arbitration. Nonetheless, if the dispute arises out of the approval or denial of supply of ‘additional’ goods, services or works, the dispute cannot be settled by arbitration. (In general, additional goods, services or works are those that were not previously contemplated in the contract.)
• Public–private partnership disputes: Pursuant to Article 56(1) of the Public-Private Partnerships Act (Legislative Decree 1362).
• Expropriation-related disputes: Article 34 of the Framework Act on the Acquisition and Expropriation of Real Estate, Transfer of State-Owned Real Estate, Release of Interferences and other measures for the execution of infrastructure work provides that the owner of the expropriated property may submit to arbitration any dispute concerning the assessment of the property, a request for total expropriation of the property where the government authority authorised only a partial expropriation and the duplication of the property’s registration numbers.
• Labour disputes: There are two types of labour disputes that may be submitted to arbitration:
  • pursuant to the sixth complementary provision of the Labour Procedure Law (Law No. 29497), legal disputes between an employee and an employer (individual disputes); however, two conditions must be met: (1) the employee’s monthly salary exceeds 32,200 Peruvian soles; and (2) the arbitration agreement must be agreed after the employment relationship has ended; and
  • disputes between unions and employers, pursuant to the Bylaw of the Collective Labour Relations Act (Supreme Decree 011-92-TR and amendments).
• Consumer disputes: Pursuant to the Code of Consumer Protection (Law No. 29571), all consumer disputes can be settled by arbitration. In such a case, the consumer cannot pursue the administrative proceeding against the supplier.
• Other disputes that are arbitrable include inheritance, pursuant to the seventh complementary provision of the Arbitration Act, and some health disputes, via a centralised arbitration system administered by the National Superintendence of Health (SUSALUD).

The issue of arbitrability has been discussed by the local courts. In Johnnie Tirado Bowen v. Deloitte & Touche SRL,^[13] the court analysed whether an arbitral tribunal ruled on matters that were not arbitrable. In this case, a partnership agreement in which a shareholder was separated from the company was at issue. The shareholder pointed out that the counterclaims relating to the corporate agreement in which his separation from the company was decided were a non-arbitrable matter because they referred to a ‘disguised dismissal’ from the job he also held in the company and the payment by way of compensation of sums of money which, it was argued, were of an employment nature and not of a corporate nature. The distinction was important because labour disputes are arbitrable only if the arbitral agreement is executed after a dismissal, meaning that if the dispute was of an employment nature, it would be heard in the courts.

In analysing whether the dispute truly involved claims of an employment nature, the court made the following reasoning:

• it confirmed that, according to Article 2.1 of the PAA, only those matters that are freely disposable according to law, among other things, can be submitted to arbitration;
• it verified that, in accordance with Article 48 of the Companies Act, any shareholder dispute can be decided by arbitration, and analysed the arbitration agreement contained in the bylaws of the company involved in the dispute; and
• it analysed the dispute and concluded:

given that in the specific case the arbitration debate revolved - in essence - around the challenge to the corporate resolution that agreed to remove the plaintiff from the company [Shareholders Resolution 1], this Court considers that the Arbitral Tribunal has ruled on a subject that is subject to arbitration.^[14]

As can be seen, the court not only verified the origin of the contract that contained the arbitration agreement and from which the dispute arose, but also analysed the legal act that was the object of the claims of the parties. By virtue of this reasoning, in the aforementioned case it was found that the dispute referred to a legal act contained in a corporate agreement, in which rights and obligations of a corporate nature are naturally decided, so that the dispute was capable of being arbitrated.

Judicial injunctions concerning arbitration

Injunctions or interim measures can be rendered by local courts prior to the constitution of the arbitral tribunal. Following execution of the provisional measure, the claimant must file the request for arbitration within 10 days and the arbitral tribunal must be constituted within 90 days. Failure to comply with this time frame will cause the interim measure to be revoked.

Once constituted, the arbitral tribunal may modify, suspend or terminate the interim measure issued by the court, even if those measures have already been affirmed by a higher court. The arbitral tribunal can also grant interim measures and may order a party to (1) maintain or restore the status quo pending the decision of the case, (2) adopt measures that would prevent or restrain the taking of action that is likely to cause harm to the arbitration itself, (3) provide any means of preserving assets for enforcement of the award, and (4) preserve evidence that may be relevant and material to the dispute.

Although emergency arbitration is not expressly contemplated in the law, many local institutions have included provisions for emergency arbitration in their rules.

Peruvian law also provides for the recognition and enforcement of interim measures issued by foreign-seated tribunals. Peruvian courts have also issued provisional measures in aid of arbitrations seated abroad.

Extension of the arbitration agreement

Peruvian law includes a unique provision for extending the application of the arbitral clause. Article 14 of the PAA states the following:

The arbitration agreement extends to those whose consent to arbitration, in good faith, is determined by their active and relevant participation in the negotiation, conclusion, performance or termination of the contract covered by the arbitration agreement or to which the agreement relates. It also extends to those who seek to derive rights or benefits from the contract, according to its terms.^[15]

Article 14 adopts a contractual conception of the arbitration agreement, and with it the different forms of manifestation of will that the Civil Code regulates in order to be bound by a contract:

Article 14 reflects the contractual nature of the agreement, and seeks to define many ways in which the parties may be understood to have consented to it. . . . Consent does not derive from just any participation. . . . It is participation of such a nature that it has significant relevance to the facts or matters that end up being the subject of arbitration. . . . Not only must the conduct be relevant but [it must be] linked to the contractual content. It is not conduct ancillary to the contract but referred to the contract itself.^[16]

This provision is unique within international arbitral practice, and has been referred to by the Supreme Court of the United States as an express rule regarding the extension of the arbitration agreement to non-signatories.^[17]

Within this legal framework, the Peruvian courts have also developed the criteria for applying Article 14 of the PAA in respect of an extension of the arbitration agreement to other companies and their shareholders when applying of the principles of piercing the corporate veil or the corporate group. Initially, an arbitral tribunal applied the principle of piercing the corporate veil to extend the arbitration agreement to a non-signatory. This decision was later annulled by the courts of appeal on the grounds that arbitral tribunals were not empowered to apply the principle; however, this ruling was finally overturned by the Supreme Court, which argued that arbitral tribunals may apply the principle of piercing the corporate veil to extend an arbitration agreement to non-signatory parties.^[18] This reasoning was confirmed in a subsequent decision, in which the Supreme Court also stated that extension of the arbitration agreement in applying the principle of the piercing of the corporate veil was a matter for substantive analysis by arbitral tribunals.^[19]

Applying the principles of piercing the corporate veil and the corporate group as mechanisms to extend the arbitration agreement has been reconfirmed by the Peruvian courts. In ATN 3 SA v. Coelme SpA,^[20] the following criteria were used to validate the extension of the arbitration agreement made in the arbitration award:

• There should exist ‘[c]orporate links between [the] companies, which are part of the same economic group and are indirectly controlled by [a holding company]’.
• That the company that signed the arbitration agreement and the company to which the arbitration agreement is sought to be extended must be ‘[c]reated with the same purpose’.
• The agreement containing the arbitration agreement should have an economic object relevant for the companies to which the arbitration agreement is sought to be extended.
• The persons designated to perform the agreement containing the arbitration agreement are agents of companies to which the arbitration agreement is sought to be extended or agents of companies of the same economic group acting in their interest.
• The companies to which the arbitration agreement is sought to be extended and other companies of the same economic group, through their agents, participated in the negotiation or execution of the agreement containing the arbitration agreement.

As can be seen, according to the interpretation of the courts, the application of the principles of lifting the corporate veil and the corporate group not only requires a review of a common corporate and economic structure but also an analysis of the conduct of the different actors within the corporate group.

Independence and impartiality of arbitrators

Article 28 of the PAA provides as follows:

1. An arbitrator must be and remain, during the arbitration, independent and impartial. A person proposed to be an arbitrator shall disclose all circumstances likely to give rise to justifiable doubts as to his or her impartiality and independence.
2. After being appointed, the arbitrator shall promptly disclose to the parties any new circumstances. At any time during the arbitration, the parties may request the arbitrators to clarify their relationship with any of the other parties or with their counsel.

As is common in most arbitration jurisdictions, arbitrators, after being appointed, have a continuing duty to remain independent and impartial and a continuing obligation to disclose to the parties any circumstance that may give rise to a justifiable doubt about being independent and impartial. The Peruvian Supreme Court has endorsed the International Bar Association (IBA) Guidelines on Conflict of Interests as an important criterion to interpret the continued obligation of being independent and impartial.^[21]

Parties have the right to challenge an arbitrator, following the agreed rules or the institutional rules, and if neither set of rules exists, the following procedure applies:

• The challenge shall be made as soon the party knows the circumstance on which the challenge is based.
• The other party and the arbitrator have 10 business days to comment on the challenge. If the other party agrees or the arbitrator resigns, the rules for designation of an arbitrator stated above apply.
• If the other party does not agree with the challenge and the sole arbitrator denies the challenge or does not comment on it, the appointing authority decides the challenge or, if applicable, the chamber of commerce, as stated above in the designation rules, decides.
• If the arbitral tribunal has more than one member, the non-challenged arbitrators resolve the challenge by majority. If there is a split decision, the presiding arbitrator decides, and if the presiding arbitrator has been challenged, the appointing authority settles the challenge. Failing that, the chamber of commerce, as stated above in the designation rules, decides.

Note that the last rule does not apply to government procurement arbitrations, on which the appointing authority or the competent chamber of commerce shall decide. A challenge by an arbitrator does not suspend the proceedings.

The approach by the courts on this matter has been varied. The Constitutional Court has expressly determined that any indication that an arbitrator is not independent or impartial is the threshold for disqualification.^[22] Moreover, the Supreme Court has expressly determined that the IBA Guidelines on the Conflict of Interest in International Arbitration are an appropriate parameter to determine the extent of an arbitrator’s duty to disclose.^[23]

In A3 Creativa SAC v. Mall Service SAC, the Court of Appeal annulled an arbitration award based on the lack of independence and impartiality of an arbitrator because of close personal relationships. The Court of Appeal first addressed whether an academic relationship^[24] between an arbitrator and one party’s attorney could justify an annulment of the award on this basis. The Court held that a joint intervention in academic activities ‘would not in itself demonstrate the existence of a closeness beyond academic matters between Arbitrator Jorge Alberto Beltrán Pacheco and the attorney of Mall Service, Dr Gastón Fernández Cruz’.^[25] However, the Court then addressed a declaration by the arbitrator in an academic paper, in which he stated that one party’s attorney was ‘his adviser and friend’.^[26] The Court held that:

the Orange List of the IBA Guidelines establishes - among other circumstances - the following specific situation in which the parties may reasonably have doubts about the impartiality or independence of the arbitrator: 3. Relationship between an arbitrator and another arbitrator or a lawyer and in this regard the following assumption is established: 3.3.6. There is a close personal friendship between the arbitrator and the lawyer of one of the parties. . . . Taking into account the aforementioned IBA guideline, this Court finds that the appointment of Arbitrator Beltrán Pacheco generated a reasonable doubt  . . . about his impartiality and/or independence. . . . In the opinion of this Court, this is relevant evidence that demonstrates the existence of a close personal friendship between the arbitrator Beltrán Pacheco and the lawyer of Mall Service S.A.C., Fernández Cruz, since . . . the creation of a work, an academic article, etc., is an activity that involves the use of the author’s time and resources, and for this reason, it is frequent to observe that a book dedication is not written to any person, friend or professor, but to the person or persons with whom they have a special appreciation, either because of family ties, such as parents, children, siblings, etc., for example, or because of the existence of a close friendship, the effective significance of which is considerable for the author.^[27]

As is evident from the foregoing, the Court of Appeal expressly addressed the issue of disqualification of an arbitrator based on comments on an academic forum and whether such comments can be considered as evidence of a close personal relationship.

Conclusion

Arbitration in Peru is very active. Both arbitrators and law firms are fully accustomed to arbitration proceedings. Aside from some exceptional cases, courts generally support arbitration and we anticipate that this will continue.

Footnotes