Uruguay is the seat: enactment of international commercial arbitration law inspired by the UNCITRAL Model Law

October 2018 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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On 3 July 2018, the Uruguayan House of Senators passed a bill on international commercial arbitration, which had been previously approved by the House of Representatives on 16 May 2018. The law, the International Commercial Arbitration Law, was duly promulgated and published.

The enactment of the Arbitration Law implies the legal consolidation of Uruguayan historical pro-arbitration tradition and arbitration-friendly approach among its scholars and jurisprudence. The Arbitration Law comes to fill the only vacuum Uruguay has faced in order to become one of the most attractive seats for international arbitrations in Latin America. In parallel, only one day after the approval of the Arbitration Law in Uruguay, Argentina also passed an international commercial arbitration law.

The purpose of this article will be to analyse the main provisions of the Arbitration Law enacted in Uruguay, its departures from the Model Law together with some differences with the Argentinean arbitration law, and the potential consequences of the approval of the Arbitration Law in Uruguay and in the arbitration scene in Latin America.

The Arbitration Law – regulation of arbitration in Uruguay

The bill passed in Uruguay is largely based in the UNCITRAL Model Law of International Commercial Arbitration of 1985 (Model Law), though it does not incorporate all of the amendments introduced to the Model Law in 2006. This aligns Uruguay with approximately 80 countries and 111 jurisdictions worldwide, which have regulations in international arbitration inspired by the Model Law.

The Arbitration Law has, however, some minor departures from the Model Law text, which are relevant to mention and will be explained below. Until now, Uruguay lacked comprehensive regulation in international commercial arbitration. Arbitration regulations contained in the Uruguayan General Code of Procedure, according to Uruguayan scholars and courts, were only applicable to domestic arbitration. As for international arbitration, Uruguay only had provisions

regulating the issue in international treaties such as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1975 Panama Inter-American Convention On International Commercial Arbitration, the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards and the 1998 Acuerdo Sobre Arbitraje Comercial Internacional del Mercosur.

In absence of the application of such treaties or for matters not regulated in such treaties, Uruguayan case law had proposed to resort to international analogous dispositions and to the most accepted doctrine, which, according to some decisions, is contained in the Model Law.

The approval of the Arbitration Law settles the lack of regulation and grants legal certainty on the matter. Said approval also tackles the only deficiency Uruguay had in order to become a more popular arbitration venue in Latin America.

Main provisions of the Arbitration Law

The Arbitration Law provides that the law will apply to international commercial arbitration, in absence of multilateral or bilateral international treaties. Except for the provisions contained in Section 8 (Arbitration agreement and substantive claim before court), Section 9 (Arbitration agreement and interim measures by court), Section 40 (Recognition and enforcement) and Section 41 (Grounds for refusing recognition or enforcement), the law is applicable only if the concerned arbitration is seated in Uruguay.

The Arbitration Law has certain departures from the Model Law in its requirements to determine the internationality of the arbitration. As well as the Model Law, Section 1 provides that the arbitration will be considered international if: (i) the parties to the arbitration agreement have their places of business in different states; or (ii) the place where a substantial part of the obligations of the commercial relationship or the place with which the subject matter of the dispute is most closely connected are located outside the state in which the parties have their places of business.

However, the Arbitration Law departs from the Model Law by not including sections 3(b)(i) and 3(c) of the Model Law as grounds for assessing the internationality of the arbitration.

Henceforth, pursuant to the Arbitration Law, arbitration will not be international, neither solely due to the fact that the parties have chosen a seat outside their place of business, nor due to the fact that parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country. In fact, Section 1.4 of the Arbitration Law expressly states that the sole will of the parties shall not determine the internationality of the arbitration.

Definition and form of the arbitration agreement. The Arbitration Law does not adopt the 2006 amendments to Section 7 of the Model Law. Section 7 of the Arbitration Law is a verbatim adoption of Section 7 of the Model Law without said amendments. Hence, the more flexible formalities provided in Option 1, Article 7 of the 2006 amendments were not adopted by the Uruguayan legislator.

Separability and kompetenz-kompetenz. For several years, Uruguayan case law and scholars had endorsed the separability and kompetenz-kompetenz principles in arbitration, even in absence of express regulations thereof. In 2014, Law 19,090 was enacted, which amended the General Code of Procedure (GCP). Consequently, said law amended Section 475 of the GCP and expressly provided that the arbitral tribunal has the authority to decide on the matters related to the validity and enforceability of the arbitration agreement.

The Arbitration Law is no exception to this trend. Section 8 and 16 largely adopt the same sections from the Model Law, confirming the already established separability and kompetenz-kompetenz principles under Uruguayan law.

Section 16 is innovative with regard to the Model Law in the sense that it grants the possibility to the arbitral tribunal, apart from deciding the lack of jurisdiction motion as a preliminary question or in an award on the merits. It adopts the same solution for the lack of legal standing from the plaintiff motion. In addition, it also sets out a procedural term of 30 days from notice of the decision of the arbitral tribunal declaring it has jurisdiction to request the Civil Court of Appeals to decide on this question. An additional innovation is that it states that the Court of Appeals shall decide this matter within 60 days.

Interim measures. The Arbitration Law considerably summarises and simplifies the regulation of interim measures provided for in the Model Law.

First, it does not set forth a difference between interim measures and preliminary orders, as provided in the Model Law. The Arbitration Law refers to “interim provisional measures” as one single category of measures available. We understand that this should not exclude the possibility of requesting preliminary orders. As explained by Professor Cecilia Fresnedo in the parliamentary discussions of the bill, modifications in section 17 were intended to synthetise, not substantially modify, the regime.

The Arbitration Law does provide the usual grounds under Uruguayan law for granting interim measures: (i) fumus bonis iuris; (ii) periculum in mora; and (iii) counter guarantee (at the tribunal´s discretion). However, it does not replicate the exact wording set forth in Section 17 A of the Model Law for the granting of interim measures. Hence, it does not refer to “Harm not adequately reparable by an award of damages”, nor to the harm outweigh requirement. This could be understood as a lower standard for the granting of interim measures compared to the Model Law, which will ultimately be decided by the arbitrators.

Applicable law. The Arbitration Law does bring good news on the issue of the applicable law on the merits. It has been discussed whether under Uruguayan law parties are allowed to choose the applicable law, whenever arbitration is the dispute resolution mechanism agreed upon, in light of the party autonomy restriction provided in Section 2403 of the Uruguayan Civil Code.

Uruguayan case law has increasingly accepted the possibility of choosing the applicable law on the merits, when arbitration is agreed upon, given Uruguay’s ratification of several international arbitration treaties.

Section 28 of the Arbitration Law settles the matter and any residual dispute that may still take place among Uruguayan scholars. Section 28.1 provides that the arbitrators shall decide the matter according to the rules of law chosen by the parties as applicable to the merits.

Given this, there is now an express statutory solution in favour of the validity of choice of law clauses for international arbitration in Uruguay.

Uruguay is the seat

Uruguay is a natural seat for international arbitrations in Latin America.

It is geographically located between two Latin America giants: Brazil and Argentina. This makes Uruguay a third neutral country for disputes between nationals from both countries. In fact, even before the enactment of the Arbitration Law, Uruguay was frequently chosen as the seat for disputes between Brazilian and Argentinean companies.

Uruguay also has very solid pro-arbitration and arbitration-friendly case law, mainly in annulment proceedings, recognition and enforcement of foreign awards, as well as recognition and enforcement of arbitration agreements. This jurisprudence is not only pro-arbitration but also well versed in arbitration matters, solidly grounded and shows regard for international principles of arbitration.

Importantly, Uruguay has excellent transparency indexes within its judicial branch, compared to other countries. Henceforth, foreign parties can rest peacefully when choosing Uruguay as a seat, and its courts as the courts with annulment jurisdiction.

In summary, Uruguay has only advantages as a potential arbitration seat. Up to now, the absence of an international arbitration law may have held back the development of Uruguay as one of the preferred choices of seat in arbitration in Latin America, since this could have resulted in fear of legal uncertainty for foreign parties (which nevertheless was not the case due to the solid Uruguayan jurisprudence on the matter).

The recent approval of the Arbitration Law has solved the only disadvantage parties may have seen in Uruguay as a seat. Therefore, Uruguay is now a perfect choice for arbitration under international contracts in Latin America.

Mateo Noseda is a lawyer and Carlos Brandes is a partner at Guyer & Regules. Mr Brandes can be contacted on +598 2902 1515 or by email: cbrandes@guyer.com.uy.

Mateo Noseda and Carlos Brandes

Guyer & Regules