Full Contents List

• International Overviews
  1. Current Trends in US and International Arbitration
  2. ICSID Arbitration in the Americas
• Country Overviews
  1. Argentina
  2. Bolivia
  3. Brazil
  4. Canada
  5. Mexico
  6. Panama
  7. Uruguay
  8. Venezuela

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Arbitration in Uruguay

In Uruguay, arbitration is recognised and accepted as a means of domestic and international dispute resolution. Uruguayan law, international treaties ratified by the country and case law all recognise that the parties have the right to resolve their conflicts exclusively and definitively by one or several arbitrators.

Traditionally, arbitration was not a frequently used method of dispute resolution in Uruguay. This trend, however, has changed. Parties to domestic and international contracts today generally prefer to resort to arbitration. The reasons are varied: arbitration can be much quicker than court proceedings; and the parties can select arbitrators specialised in commercial and financial matters. This is particularly relevant in Uruguay, since there are no courts specialising in commercial matters.

Finally, in the area of government contracts, it is usual to agree to arbitration in order to preserve neutrality in resolving a dispute. Most of the major contracts with the government involving public works and services in the past few years have arbitration clauses.

The rulings of the Uruguayan courts have gone along with these tendencies, guaranteeing the free selection of arbitration by the parties as a method of dispute resolution.

Domestic arbitration

Uruguayan law fully admits arbitration as a method of conflict resolution. Articles 472 to 507 of the General Code of Procedure embody specific rules governing domestic arbitration. The code provides for the possibility that the parties - through a written arbitration clause included in a contract or a subsequent independent agreement - can submit any matter to arbitration, except those for which negotiation is prohibited.¹

As formal requirements, the code calls for the parties to establish an arbitration clause and a commitment to arbitration. Absence of either of them renders any subsequent arbitration proceeding null.² Uruguayan law even expressly provides that at any stage of an alreadyinitiated court proceeding, the parties may submit their dispute to arbitration.

According to Uruguayan law, a valid arbitration clause is a written agreement whereby the parties stipulate that any disputes or disagreements arising between them shall be resolved by arbitration.³ The commitment to arbitrate is an agreement - which must be documented in a notarised instrument or judicial minute or document - that will indicate (among other elements), the names of the designated arbitrators, the procedure to be followed and the points on which the arbitration award will be decided.⁴ When the conflict or dispute arises, the parties will voluntarily have to make this commitment. If they fail to do so, one of the parties may demand that a competent court make the pertinent designation on behalf of the non-complying party.⁵

The parties in a domestic arbitration can choose the applicable procedure. The parties are free to choose the arbitration procedure in their arbitration commitment (ad hoc or institutional). If they say nothing, then the procedure of an ordinary judicial proceeding will be followed. As regards the rules governing the submission and presentation of evidence, the parties are also free to choose them and without such choice, common Uruguayan law shall be applied. Likewise, the arbitration commitment must also state whether arbitration is ex lege or equity, and without such stipulation, the law establishes that the arbitration will be in equity.

With respect to institutional domestic arbitration, Uruguay has the Centro de Conciliaci￳n y Arbitraje, Corte de Arbitraje Internacional para el Mercorsur de la Bolsa de Comercio de Uruguay [Trade Exchange of Uruguay, International Arbitration Court for Mercorsur, Conciliation and Arbitration Centre], which supervises both domestic and international arbitration proceedings.

Judicial control in domestic arbitration is expressly limited. The participation by courts in domestic arbitration is specifically limited by Uruguayan law to:

• in proceedings prior to arbitration: preliminary submission of evidence; preventive measures and procedures for formalising the arbitration commitment;
• during the arbitration proceeding: obtainment of evidence that requires public cooperation;
• after the arbitration proceeding has been terminated: decision on an appeal, if such an appeal is filed.

Challenging a domestic arbitration award is also limited. The only recourse that exists for challenging a decision made in a domestic arbitration proceeding in Uruguay is an appeal for nullity. This appeal is pertinent only if the arbitral tribunal:

• issued its award ex term;
• decided on points not covered by the arbitration;
• did not decide on points covered by the arbitration;
• refused to accept any essential and overriding evidence.

In line with the intent of the law to promote compliance with arbitration awards, Uruguayan law establishes that only in the first and last case will nullity affect the entire arbitration ruling. In the event that the arbitral tribunal should issue its ruling on points not covered by the arbitration, nullity shall affect only those points. If, on the contrary, the arbitral tribunal has not issued on points covered by the arbitration agreement, nullification shall not affect matters or questions that are independent of those points.

The appeal for nullity must be filed within five days from receipt of notice of the arbitration award and will be followed by a brief proceeding. The effects of the arbitration award will be suspended during the appeals process. Once a decision is made on the appeal, only clarifications and expansion thereon may be requested. The possibility of subsequent appeals does not exist.

International arbitration

Uruguay ipso jure recognises international arbitration awards. The law stipulates that such awards may be enforced in Uruguay in accordance with treaties to which Uruguay is a signatory, or in accordance with Uruguayan law governing the enforcement of foreign judicial decisions when appropriate.

Uruguay ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, the 1975 Inter-American Convention on International Commercial Arbitration, and the 1979 Inter-American Convention on the Extra- Territorial Efficacy of Judicial Decisions and Arbitration Awards (the Montevideo Convention). Within the scope of the Mercosur, Uruguay ratified the 1992 Protocol of Jurisdictional Cooperation and Assistance Governing Civil, Commercial, Labour and Administrative Matters (Las Le￱as Protocol).

Currently, Uruguayan jurisprudence fully recognises the validity of arbitration agreements that fall within the scope of application of the New York or Panama Conventions. These conventions allow the parties bound by an international commercial relationship to agree to have any disputes arising between them submitted for resolution by arbitration. Similarly, Uruguayan case law recognises the freedom of the parties to elect the law that is applicable to the matter in international arbitration.

Uruguayan courts fully respect the differences in the regulation of domestic and international arbitration. Uruguayan jurisprudence has established respect for the differences in the regulation of domestic and international arbitration. Court rulings have made it clear that Uruguayan law governing domestic arbitration is not applicable for determining the validity and enforcement of an international arbitration award. Here one must resort strictly to the applicable conventions.

A decision of the Court of Appeals in 2003 established an important precedent in the matter of an arbitration proceeding between foreign parties that takes place in Uruguay.6 The court rejected the appeal for nullity and indicated that the formal requirements of Uruguayan law must be analysed flexibly in international arbitration proceedings. The party who challenged the award argued that it was not valid because the arbitration agreement had not been embodied in a notary public instrument, as required by Uruguayan law. The court concluded that "the subordination of the arbitration procedure to the law of the place where the ruling is made is a criterion that is clearly subsidiary in nature and in any light not applicable to the case." It also stated that to establish nullity on the basis of this argument of Uruguayan procedural law would ignore "the consequences of the ratification of the New York and Panama conventions".

The principle of respecting the different rules applicable to domestic and international arbitration proceedings initiated by this decision has been consolidated. In a ruling of May 2007, a Court of Appeals rejected an appeal filed against an award resulting from an arbitration proceeding held in Uruguay between foreign parties.

The court upheld the criterion that when the purpose of the proceeding is the challenging of an international arbitration award, "the statute law of the ratified conventions is applicable".7 The party claiming nullity of the arbitration award argued that there were violations of due process. The ruling indicated that the principle of respect for due process is embodied in the New York convention and for determining whether there has been observance of this convetion one does not have to resort to domestic legislation. The court expressly stated that "the domestic laws governing the matter are not applicable". In particular, the court specifically indicated that the causes for nullity stipulated for domestic arbitration awards by Uruguayan law were not applicable.

Uruguayan courts apply a narrow analysis over international arbitration awards. In this same ruling, the Court of Appeals said when Uruguay is designated as the seat of an international arbitration, the courts of the country "are exclusively competent for examining the forms and methods observed consonant with current and applicable international rules and legal provisions".

The court expressly established that international arbitration awards can be annulled only when there is a manifest, serious, concrete and specific violation of the international public order. Along this same line of thinking, a prior ruling had established that the international public order exception must be interpreted in an especially restrictive manner.⁸ The decision concluded that Uruguayan courts cannot analyse the merits or grounds of the matter submitted for arbitration. The court recognised that this aspect is subject to the law elected by the parties under the New York convention.

After many decades of legislative policy and doctrine running contrary to free will, Uruguayan jurisprudence was initially upset by the effects of ratification of the New York convention. With an antiarbitration tradition and strict regulation of legal conflicts, Uruguayan judges initially resisted the validity of arbitration clauses providing for arbitration abroad. Case law, however, began changing during the second half of the 1980s and started to recognise the validity of arbitration clauses under the New York convention with growing consistency.

With a better understanding of the New York convention, jurisprudence stopped demanding the application of Uruguayan law. A decision by a Court of Appeals in 1992 conclusively held that "upon agreeing to application of a foreign law, it is not the parties which seek to set aside the rules of the appendix to the civil code, but instead it was our country upon ratifying the New York Convention and adopting it as domestic law which changed them".¹⁰ Subsequent decisions followed this criterion. More recently, a court also confirmed that the parties have the right to choose applicable law and that arbitration clauses are governed by the autonomy of will.

These decisions are very important because, together with other recent jurisprudence favourable to arbitration, it places Uruguay in a very good position as an attractive host country for international arbitration proceedings between non-Uruguayan parties. One of the most critical issues in the selection of a host country for arbitration is that the laws of that nation - which by definition is that which permits challenges in nullity to arbitration awards - show reasonable deference and do not look to ignore or cast aside on the basis of formalisms or by resorting to restudy the basis or grounds for the decision.

Uruguayan courts abide by the parties' decision regarding applicable law and rules of procedure for the arbitration. In the ruling commented upon just shortly before, the Court of Appeals ruled that in accordance with the terms of reference of the arbitration, the parties had agreed that the rules which would be applied would be those of the rules of arbitration of the International Court of Arbitration of the International Chamber of Commerce, that the award would be made in accordance with Argentine law and that the arbitrators would reserve the right to reject evidence in certain cases. It was on this basis that the court rejected the claim of the party challenging the award that other rules should apply to the admission of evidence. The ruling stated that this did not stem from the terms of reference.

The court concluded that the action of the arbitral tribunal fell strictly within what was stipulated in the terms of reference. It also concluded that the party claiming nullification of the arbitration award had signed those terms and rendered its agreement to the powers vested in the arbitrators, so could not challenge the award by arguing against those very same powers.

Finally, the decision of the Court of Appeals gave maximum respect to the international arbitration award by not allowing the parties to argue as ground for nullity elements not questioned - and therefore implicitly accepted - by them during the arbitration proceedings. In effect, the court held that a party cannot allege as grounds for nullity a circumstance which it had voluntarily waived in the arbitration process.

Uruguayan courts decline jurisdiction and refer parties to international arbitration. Even after the New York convention came into force, case law recognised in theory the possibility of referring the parties to arbitration abroad, but in practice avoided that result. One of the resources used was a criterion contrary to all comparative judicial decisions and legislation, called the 'strict interpretation' of arbitration clauses.

However, decisions increasingly favourable to arbitration have strengthened in recent years. Today, jurisprudence fully recognises the New York Convention. It no longer has any doubts as to its application to commercial contracts in general and has totally eliminated the strict interpretation criterion.

In 2004, a decision in the context of a distribution dispute admitted the validity of an arbitration clause and referred the parties to arbitration in Osaka, Japan, under the rules of arbitration of the Osaka Stock Exchange.¹¹ This case, involving an American affiliate of a Japanese multinational, opened the way to successive decisions in the same vein. A significant aspect of the decision in this case was that the dispute involved Uruguayan parties and an American affiliate independent from the Japanese parent, which years back had agreed to an arbitration clause. Despite the fact that the respondent American company was not a party to the distribution agreement that embodied the arbitration clause, the court found that the parties' allegations referred to the original agreement, so that there was a sufficient link to apply the clause.

Almost simultaneously, a labour court also referred parties to arbitration¹² in a case brought by a local manager against the affiliate of a Spanish multinational. This precedent was important in that it came from labour courts which had traditionally been reluctant to accept alternative dispute resolution mechanisms. But it was also important because it implied another major deviation from the earlier criterion of strict interpretation. Moreover, in this case the employment contract giving rise to the dispute did not include an arbitration clause. Such a clause had been included in a stock purchase agreement between the plaintiff and a company related to the employer, in the context of which the seller had accepted the management post in question as part of a package agreement. The labour court found that, notwithstanding the absence of an arbitration clause between the specific disputing parties, there was a sufficient connection because a standard employment contract had been attached to the stock purchase agreement. The court ordered the parties to resolve the labour claim by arbitration under the arbitration rules of the International Chamber of Commerce.

These decisions are in addition in step with the most current jurisprudence which submits to arbitration proceedings disputes deriving from agreements that do not contain an arbitration clause, but which are related to a principal contract which embodies an arbitration clause.

A year later, in 2005, in another case on distribution, a Uruguayan court also refused to assume jurisdiction ¹³ and referred an American company and its Uruguayan distributor to arbitration in Argentina under the rules of the Argentine-US Chamber of Commerce. This decision confirms the principle set out in the prior year's case and expressly rejects the arguments against lack of jurisdiction based on national laws governing international private relationships. The court ruled that "maintaining that the parties cannot agree to submit their disputes to an arbitration court because that would violate the rule set forth in article 2401 of the civil code is to deny arbitrational jurisdiction in the international sphere, which would appear to be inadmissible, inasmuch as the 1958 New York Convention, signed by our country, is fully in effect as of this date."

In abandoning so conclusively the strict interpretation principle, these rulings were an important step forward. Uruguay fell into line with the most current international jurisprudence: arbitration clauses should be interpreted with a 'broad criterion' that respects the will to arbitrate and which closes the gate to machinations that avoid such clauses.

Notes

1. Articles 473 and 476, General Procedure Code.
2. Article 473, Idem.
3. Article 473, Idem.
4. Article 477, Idem.
5. Article 478, Idem.
6. Decision 161/2003 of the Civil Appeals Court, Part 2, published in LJU, Volume 128, case 14744.
7. Decision No. 160/07 of the Civil Appeals Court, Part 7.
8. Decision No. 161/07 of the Civil Appeals Court, Part 2.
9. Article 2403 of the Civil Code Appendix.
10. Decision 67/1992 of Civil Appeals Court, Part 2, published in LJU, Volume 106, case 12,202.
11. Decision No. 3652/2004 of the Civil Court of First Instance Term 17.
12. Decision 3619/2003 of the Labor Court of First Instance Term 10.
13. Decision 275/2005 of the Civil Court of First Instance Term 8.

Ferrere Abogados

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