Localising Cross-Border Disputes: The Growing Appeal of Regional Arbitral Centres in Latin America and the Caribbean

Thomas Friedman described the world as being a ‘flat’ level playing field in terms of commerce,^[2] where all competitors globally have been given an equal opportunity to compete. The Latin American arbitration scene (which for these purposes includes the Caribbean) is no exception.

Though international institutions such as the International Chamber of Commerce (ICC) and the International Centre for Dispute Resolution (ICDR) have continued to register the majority of the international arbitration disputes in Latin America, local institutions have seen their numbers increase, as they have developed their capabilities to host international disputes and have become credible alternatives to the traditional international arbitration institutions. Just in the past five years, the Caribbean has opened the door to five different regional institutions.

Today, centres in the region are administering significant international cases and have rosters that include leading international arbitrators from outside the region. This article will analyse some of the historical developments of arbitration in the region, as well as identify the circumstances that parties and their counsel should consider when selecting the arbitral centre that will oversee the resolution of their dispute.

Historical background

Historically, international arbitration had been disfavoured in Latin America, largely driven by the Calvo doctrine, which emerged at the end of the 19th century as Latin American diplomats sought to refuse diplomatic protection to foreign investors under international law.^[3] At its core, the doctrine provided that disputes brought by foreign investors should be resolved exclusively in the national courts where the investment was located as opposed to any other forum, including arbitration. Arbitration was seen as being in conflict with the concept of exclusive reliance on local courts and local law.^[4]

That, however, slowly started to change. Following the adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention),^[5] in 1975 a number of Latin American states and the United States adopted the Inter-American Convention on International Commercial Arbitration (the Panama Convention). The United Nations Commission on International Trade Law (UNCITRAL) subsequently promulgated its Model Arbitration Law in 1985, with Mexico being the first country in the region to adopt it in 1993. Other countries followed suit as they sought to modernise their arbitration laws.

During this same period of the late 1980s and 1990s, governments in the region privatised and liberalised their economies, as they embraced free trade and globalisation in an effort to attract foreign investment. Countries in the region ratified investment protection treaties that allowed foreign investors to seek recourse to arbitration, thus effectively putting an end to the Calvo doctrine.

As disputes began to emerge, flowing from the privatisation of enterprises that had taken place, few regional centres had the international experience to handle those disputes. As a result, most parties opted to arbitrate their disputes in forums such as the ICC or the ICDR. Over the course of the next decade, as the region continued to embrace free trade and globalisation, regional centres matured and many countries in Latin America developed vibrant arbitration communities.

In 2011, the Institute for Transnational Arbitration (ITA) surveyed the use of regional centres.^[6] This same guide was recently updated in 2023 by our colleague Daniel Ávila and Reed Smith’s Latin America Business Team as part of the ITA Americas Initiative. The initial survey concluded that the region’s embracing of free trade and globalisation in the 1990s correlated with the increased use of regional institutions to resolve disputes.^[7] The inaugural ITA Guide reported that a little more than half of Latin America’s arbitral institutions were established between 1997 and 2002.^[8] The latest ITA Guide updated in 2023 reported that at least seven new institutions have opened their doors since 2002.^[9] While these arbitral institutions primarily resolve domestic disputes, there has been a marked increase in their international caseload, including in countries such as Mexico, Panama, Peru, Brazil, Chile and Colombia.

In short, the 2023 ITA Guide concluded that:^[10]

• Several regional institutions opened their doors since the last survey, particularly in the Caribbean, where five different institutions were created since 2018.
• There has been an increase in the appointment of female arbitrators both on rosters and on panels since the last survey.
• A majority of jurisdictions in Latin America show signs of a reliable legal framework for commercial and investment arbitration.
• Most jurisdictions are favouring party autonomy in the selection of arbitrators, particularly in international disputes, with fewer requirements for choosing an arbitrator. For example, fewer institutions require an arbitrator to be: (1) a national of the country where the institution is located, (2) a licensed attorney in that jurisdiction, or (3) chosen from a roster, among others.

As one example of the growth and internationalisation of regional centres consider the Centro de Arbitragem e Mediação Brasil-Canadá (CAM-CCBC) in Brazil. In 2011, this centre registered 63 new arbitration proceedings, while in 2021 it registered 128 new arbitrations with 22 arbitrations stemming from international contracts.^[11] The Centro Nacional e Internacional de Arbitraje de la Cámara de Comercio de Lima (LCC) registered 251 arbitrations (two of which were international) in 2011, while in 2021 it registered 798 arbitrations of which nine were international.^[12] The Centro de Arbitraje y Concilación de la Cámara de Comercio de Bogotá (BCC) registered 202 arbitrations with zero foreign parties in 2011, while in 2021, 22.45 per cent of its arbitrations were international.^[13]

Several factors have contributed to this growing trend.

For one, while the reported caseload remains primarily domestic, the statistics confirm that regional institutions have mobilised to administer international cases, including by amending and modernising their rules (more on that below). Regional institutions have done a good job of reforming their rules and promoting their centres, emerging at the forefront of the continued growth of international arbitration in the region.

Moreover, while most of the cases reported include private parties, state representation in arbitration has increased. In its 2011 Guide, the ITA concluded that while many of the cases reported were between private parties, an ‘increasing number of cases involve public entities.’ This finding is consistent with the evolution of the practice of arbitration in the region. For example, the ITA reported that 40 per cent of cases administered by the Câmara de Arbitragem do Mercado (CAM Brasil), Brazil, involved public entities. In addition, 19 per cent of cases administered by both the Arbitration and Mediation Center of the Ecuadorian American Chamber of Commerce and the BCC in Colombia involved public entities.

That trend has continued as states have exercised their say in the choice of institution. More recently, for example, the CAM-CCBC reported that in 2021 it had 42 ongoing proceedings with state-owned enterprises or the Brazilian state (an increase from zero proceedings in 2011, according to the ITA Guide), as well as nine new proceedings involving public entities.^[14] The LCC in Peru reported that as of 2021, 58 per cent of the cases they administered involved public contracts. Some commentators have noted that this is a result of the government losing trust in the court systems and insisting on arbitration in government contracts.^[15]

In addition, in recent years, an increasing number of Latin American trained counsel have represented their clients’ interests in international arbitration, which has inevitably changed some of the cultural dynamics of arbitration.

In 2010, our colleague José Astigarraga was asked to look into the practice of international arbitration 10 years into the future. In doing so, he explained that while ‘international arbitration in the past often involved a North American or European party on one side and a Latin American party on the other (reflecting the inflows of capital investment into emerging Latin American economies), in recent years, more and more intra-Latin America trade and commerce is occurring’.^[16] He accurately predicted that as international commerce ‘comes to include more deals between purely Latin American parties, the European or North American flavor, and indeed involvement, is likely to diminish, or at least be diluted, and the Latin influence is likely to increase. That provides an opportunity for local arbitral institutions to compete’.^[17]

And the empirical data, coupled with our experience in practice, confirms that they have in fact competed effectively and will continue to do so.

Trends in Latin American arbitrations

Many aspects of arbitration in general have changed in the past decade. For one, there is an increasing focus on ensuring there are more arbitrations where a female arbitrator is not only on the panel but is appointed as the sole or presiding arbitrator.^[18] There is a strong trend of increasing use of arbitration by local parties and, in fact, the majority of cases at regional centres still involved local parties on each side.^[19] The seat of the arbitration in all of the regional centres surveyed was reported as the country where the institution was located.^[20] Finally, with respect to arbitrators, only 29 per cent of the institutions surveyed required arbitrators to be licensed in the jurisdiction where the arbitral institution was located.^[21] This number decreased significantly – to 10 per cent – in the context of international arbitrations.^[22]

Regional centre procedures

With the rise of regional arbitration centres, there has been a proliferation of regional rules. By and large, the UNCITRAL rules have been taken as the basic model and the structures of regional centre rules are roughly similar across centres. We will focus our discussion here on some innovations and significant departures from practices that may be more familiar to international arbitration users, keeping in mind that parties can – and often should – mold default procedures to fit their particular dispute.

Form of request for arbitration

The rules of the most popular international institutions administering disputes in Latin America – the ICC and ICDR – impose minimal requirements on the form of requests for arbitration and, in particular, do not require that parties marshal supporting evidence for the initial filing.^[23] For example, the ICC Rules require only that the parties attach ‘any relevant agreements and, in particular, the arbitration agreements’ and provide ‘a description of the nature and circumstances of the dispute giving rise to the claims and of the basis upon which the claims are made’.^[24] The ICDR Rules impose similar requirements.^[25]

The justification for this ‘lean’ approach is the idea that the purpose of a request for arbitration is primarily to provide notice and commence the proceedings, it being understood that (sometimes voluminous) supporting evidence will be produced in subsequent procedural phases. Many of the leading regional institutions, including CANACO in Mexico, the LCC in Peru, CAM in Chile and the BCC in Colombia follow this approach. CeCAP^[26] in Panama takes a different approach as its rules require that the evidence on which a party intends to rely be attached to the request for arbitration.^[27] International practitioners will recognise this rule from civil procedure, which discourages the filing of claims in the hope that a vague complaint will, like good wine, mature into a robust claim.

Whether CeCAP’s approach is seen as a welcome innovation or a throwback to civil litigation procedures that have no place in arbitration depends on one’s views of the nature of dispute resolution. Should it be a forum for the speedy resolution of fully fleshed out and crystallised positions or a stage for parties and advocates to develop and test their respective positions? There is no right answer for all cases.

Deadline for response to request for arbitration

The CeCAP Rules and the LCC Rules provide that the respondent must submit its answer to the request for arbitration within 10 days.^[28] Other regional centres, including the CAM in Chile and the BCC in Colombia, provide 30 days for the respondent to answer the request for arbitration (similar to the ICC and ICDR).^[29] CANACO in Mexico on the other hand, provides that the tribunal will set the time for the respondent to submit its answer.^[30] Thus, a party responding to a request for arbitration under the CeCAP Rules in Panama and the LCC Rules in Peru must work quickly (or request an extension of time at the discretion of the tribunal).

Constitution of the arbitral tribunal

The constitution of the arbitral tribunal is a vital part of any arbitration process. The parties’ ability to influence the selection of the arbitrator or tribunal that will decide their dispute is often cited as a key differentiator and reason for choosing arbitration as a dispute resolution mechanism. Some commentators, such as Professor Charles N Brower, have gone so far as to argue that selecting an arbitrator is a ‘basic and important’ right of the parties in an arbitration.^[31] Although some favour institutional appointments to avoid perceived issues of gamesmanship and partiality, many clients and arbitration practitioners share Professor Brower’s opinion. Regardless of one’s inclination, the manner in which the parties can influence the appointment of arbitrators (when allowed) is undeniably important in practice.

Many regional centres in Latin America maintain lists, sometimes separated into domestic and international lists, of recommended or approved arbitrators.^[32] The 2023 ITA Guide reported that the majority of institutions allow for more party autonomy in the selection of arbitrators – namely avoiding requirements that arbitrators be on the institution’s list or nationals of the country where the institution is located, among others.^[33] This autonomy is even greater in international arbitrations, recognising the need for more flexibility in the selection of arbitrators in cross-border disputes.

As regional arbitration has grown, lists have expanded and now include many well-known and respected arbitrators from around the world.^[34] The BCC in Colombia is a good example because it recently released statistics on its arbitrator list. According to the BCC, prior to its creation of an international arbitrator list, 91 per cent of the arbitrators on its list were Colombian, 3 per cent were French, 3 per cent were Mexican and 3 per cent were German. Today, the nationalities of arbitrators are much more diverse: only 60 per cent of the arbitrators on the BCC’s list are Colombian, whereas 40 per cent are international, including arbitrators from Argentina, Spain and the United States, to name a few.^[35]

The key takeaway is that as regional centres have expanded and matured to administer larger, more complex disputes as well as international disputes, their arbitrator rosters have likewise expanded and increased in quality. Today, even when selection from a list is mandatory, parties have far better prospects of finding a suitable international arbitrator among the candidates.

Emergency and provisional measures

Applications for emergency and provisional measures have become a regular feature of complex disputes.^[36] The ICC and the ICDR, for example, have responded to the demand with rules that permit the appointment of emergency arbitrators and applications for provisional measures. A review of the rules of regional centres in Latin America shows that many, if not all, have procedures for provisional measures.^[37] However, only some of the rules of regional centres in Latin America provide for the appointment an emergency arbitrator.^[38] For example, the rules of the CANACO in Mexico and the LCC in Peru both provide for the appointment of an emergency arbitrator.^[39] No emergency arbitrator provisions have been identified in the rules of CeCAP in Panama or the BCC in Colombia. The 2023 ITA Guide reported that 100 per cent of institutions had rules authorising interim measures while 67 per cent of institutions surveyed reported having emergency arbitrator procedures.^[40]

Dispositive motions

Historically, tribunals have been reluctant to hear dispositive motions because they were not expressly included in the relevant institution’s rules. This has changed. Over the past five years, in response to the arbitral community’s call for more efficient arbitrations, tribunals have found authority for these motions within the inherent power to administer efficiency. The 2023 ITA Guide reported that 56 per cent of the institutions surveyed had rules allowing the filing of a dispositive motion or preliminary objection.^[41] 37 per cent allowed parties to request a dispositive motion at any time.^[42]

Consolidation and joinder

Like emergency and provisional measures, consolidation of arbitrations and the joinder of additional parties are common issues in complex arbitrations now addressed by many rules.

In Latin America, the CeCAP and the LCC Rules provide for consolidation and joinder.^[43] The BCC, by contrast, explicitly provides for consolidation and joinder in its national rules but does not make a clear provision for consolidation and joinder in its international rules aside from the general statement that the tribunal may determine issues including relating to the participation of additional parties.^[44]

There are no provisions on joinder or consolidation in the rules of CANACO (Mexico) or CAM (Chile).

Information exchange

Of the Latin America regional arbitration centres analysed by the authors, the majority of these rules do not specifically address information exchange aside from providing generally that the tribunal may order the disclosure of documents to the other party within a given deadline.^[45]

In practice, however, the authors can confirm that parties routinely use Redfern-style information exchange schedules when arbitrating international disputes under the rules of regional centres. This is facilitated by the fact that practitioners and experienced arbitrators are familiar with information exchange and can tailor the specific procedures applicable to an arbitration to suit the needs of the parties.

Time for issuance of award

As the desire to make arbitration more efficient continues to exert an influence on policy, some regional centres have set rather strict deadlines for the tribunals to issue their awards.

For example, in Panama, the CeCAP’s Rules provide that the award must be rendered within two months after closing of arguments are submitted.^[46] The LCC Rules in Peru provide that the award must be issued within 50 days of the closing of the proceedings.^[47] On the other hand, the BCC (Colombia) and CAM (Chile) Rules provide that the award must be rendered within six months of the answer.^[48]

Future outlook

Niels Bohr, the father of the atomic model, is quoted (perhaps apocryphally) as saying that ‘prediction is very difficult, especially about the future’. More so when we are dealing with institutions, navigating like vessels through sometimes turbulent political, economic and social currents.

As we have seen, the story of the rise of regional centres in Latin America is, to a large extent, a part of the larger story of the opening of Latin America to the world. The decline of the Calvo doctrine, the flow of foreign investment capital and the modernisation of Latin American economies contributed to the acceptance of arbitration in the international sphere.

So much for the past, what about the future? The statistics tell an important part of the story. Regional centres are administering more disputes, larger disputes and increasingly international disputes. These trends are likely to continue in the short term because the market of arbitration users demands it. Actual choices made by those with economic and professional skin in the game (businesspeople and their counsel) tend to be a far better indicators than armchair philosophy – and their choices are clear. A reversal of preferences to local litigation – the alternative in the case of arbitrations administered by regional centres – is unlikely. This is not because traditional courts cannot innovate or laws cannot change, but rather because arbitration institutions have a decisive advantage: they are closer to their customers and can adapt to meet their customers’ specific needs outside a political process.

An important question, which we cannot yet answer definitively, is whether regional arbitration will (eventually) experience consolidation as the industry matures. Deans, Kroeger and Zeisel’s landmark study^[49] predicts that industries pass through four stages (opening, scale, focus, and balance and alliance) on the road to consolidation. Commercial arbitration in Latin America has largely been opened through the adoption of arbitration-friendly laws and we have seen a remarkable proliferation of regional centres. We can predict that, going forward, competition will not be focused between regional centres and the old alternative of local litigation, but rather between regional centres themselves. The most innovative and responsive centres should emerge as major players, building scale and protecting their advantage with proprietary technologies and differentiated procedures that are attractive to arbitration users. That is our ‘very difficult’ prediction (following Bohr); only time will tell whether it hits the mark.

We close with a brief note regarding potential storm clouds on the horizon. Much ink has been spilled on the backlash against investment arbitration fueled by the large number of claims against Latin American states and the EU’s proposed international investment court.^[50] More broadly, after a period of strong liberalisation and foreign investment, the pendulum has begun to swing in the opposite direction (trade integration is economically efficient but induces inequalities). The backlash against liberal trade policies has affected public perception of investment arbitration and, in turn, commercial arbitration. While practitioners recognise the differences between investment arbitration and commercial arbitration, in the public forum, arbitration is easily portrayed as a monolith and painted with a broad brush.

Regional centres have a potentially important role to play. As local or regional institutions, they may be better placed than foreign or international institutions to promote arbitration in the face of resurgent Calvoism. They may also be more effective in conveying a message tailored to their local business communities, legal professionals, and the judiciary. Arbitration is, today, no longer an alien idea imposed by foreign investors. It has taken root and is flourishing as a native plant.

Footnotes