Post by Luke Musto, Associate
As Latin America continues to emerge as a key hub for international arbitration, the enforcement of international arbitration awards in Latin America can present unique challenges that parties must navigate to ensure successful execution of arbitral decisions. Across the region, parties seeking to enforce arbitral decisions encounter a landscape shaped by diverse legal systems, cultural nuances, and varying degrees of judicial support for arbitration. From Mexico to Argentina, each jurisdiction presents its own set of challenges and complexities that demand a strategic approach to enforcement.
In a previous post, we gave an overview of how arbitration works in South America. In this post, we look at same of the key challenges that arise in the enforcement of international arbitration awards in Latin America. From the divergence of legal frameworks to the resistance posed by judgment debtors, we’ll explore some of the common hurdles that parties must overcome to ensure the successful execution of arbitral decisions.
Challenge 1: Divergence of Legal Frameworks
Latin America is a region marked by a variety of distinct legal systems, each with its own set of statutes, regulations, and judicial interpretations. While the New York Convention provides a common framework for the recognition and enforcement of arbitration awards across many countries in the region, the application and interpretation of its provisions can vary significantly from one jurisdiction to another.
In some Latin American countries, such as Chile, Brazil, and Mexico, arbitration laws have been modernised and aligned with international standards, fostering a favourable environment for arbitration. However, other jurisdictions may have less developed arbitration laws or inconsistent judicial practice, leading to uncertainty and unpredictability in the enforcement process.
Moreover, cultural and procedural differences among Latin American countries can further complicate enforcement efforts. For instance, while Brazil and Mexico have established specialised arbitration courts to handle enforcement proceedings efficiently, other countries, such as Chile, rely on the general court system, which may result in longer processing times and procedural complexities.
Solution: Engage Local Counsel with Expertise in Enforcement Proceedings
Given the diversity of legal frameworks in Latin America, parties should enlist the assistance of local counsel with specialised knowledge of enforcement proceedings in the relevant jurisdictions. Local lawyers can navigate the intricacies of domestic laws, procedural requirements, and judicial practices, providing invaluable guidance on the most effective strategies for enforcing arbitration awards in each country, including Chile.
By leveraging the expertise of local counsel, parties can tailor their enforcement approach to the specific legal and cultural context of each jurisdiction, maximizing the likelihood of success in enforcing international arbitration awards across Latin America.
Challenge 2: Resistance from Judgment Debtors
In Latin America, judgment debtors may employ various tactics to resist the enforcement of international arbitration awards, posing significant challenges for parties seeking to secure the execution of arbitral decisions. These tactics can range from procedural manoeuvres to outright defiance of arbitral awards, creating obstacles that prolong the enforcement process and undermine the efficacy of arbitration as a dispute resolution mechanism.
Legal Objections and Procedural Manoeuvres
One common form of resistance from judgment debtors involves raising legal objections and procedural challenges to delay or obstruct the enforcement proceedings. This may include challenging the validity of the arbitration agreement, disputing the jurisdiction of the arbitral tribunal, or alleging procedural irregularities in the arbitration process. By raising such objections, judgment debtors seek to create legal uncertainties and prolong the enforcement process, thereby frustrating the efforts of the prevailing party.
Asset Concealment and Dissipation
In some cases, judgment debtors may engage in asset concealment or dissipation to evade enforcement efforts and frustrate the recovery of awarded sums. This can involve transferring assets to third parties, liquidating assets, or concealing financial information to make it difficult for the prevailing party to identify and seize assets for enforcement purposes. Asset concealment and dissipation tactics not only delay the enforcement process but also undermine the effectiveness of arbitral awards as a means of securing relief for aggrieved parties.
Resistance from State Entities
In certain instances, judgment debtors may benefit from the support or intervention of state entities, such as government agencies or state-owned enterprises, which may resist enforcement efforts on political or policy grounds. This can pose significant challenges for parties seeking to enforce arbitral awards against state entities, particularly in jurisdictions where the government exerts significant influence over the judiciary or where there is a perception of judicial bias in favour of state interests.
Solution: Proactive Enforcement Strategies
To address resistance from judgment debtors effectively, parties should adopt proactive enforcement strategies aimed at overcoming legal objections, identifying and preserving assets, and countering attempts to evade enforcement. This may involve conducting thorough due diligence on the financial position and assets of the judgment debtor, securing interim measures to preserve assets pending enforcement, and strategically pursuing enforcement actions in jurisdictions where the judgment debtor has tangible assets or where enforcement is likely to be more expeditious.
Moreover, parties should be prepared to respond swiftly and assertively to legal challenges and procedural manoeuvres by judgment debtors, engaging experienced legal counsel to navigate the complexities of enforcement proceedings and overcome obstacles to the execution of arbitral decisions.
By taking a proactive and strategic approach to enforcement, parties can increase the likelihood of success in overcoming resistance and bad-faith actions from judgment debtors.
Challenge 3: Recognition of Public Policy Defences
Under Article V(2)(b) of the New York Convention, an arbitration award may be denied enforcement if it is contrary to the public policy of the country in which enforcement is sought. Public policy defences are often invoked by judgment debtors to challenge enforcement on grounds of procedural irregularities, substantive illegality, or violation of fundamental principles of justice. In Latin America, the recognition and application of public policy defences can vary, posing challenges to the enforcement of international arbitration awards.
Sub-Challenge 1: Vague Interpretation of Public Policy
One of the challenges in enforcing international arbitration awards in Latin America is the vague interpretation of public policy by domestic courts. While the New York Convention provides limited guidance on what constitutes public policy, domestic courts in some Latin American countries may apply a broad and subjective interpretation of this concept. This ambiguity can lead to uncertainty and inconsistency in the enforcement of arbitration awards, as courts may refuse enforcement based on vague notions of public policy.
Sub-Challenge 2: Overly Broad Application of Public Policy Defences
In certain cases, domestic courts in Latin America may invoke public policy defences to refuse enforcement of arbitration awards even in the absence of clear violations. This overly broad application of public policy can undermine the finality and enforceability of arbitral decisions, as courts may refuse enforcement based on grounds that are not explicitly provided for under the New York Convention. This poses a significant challenge to parties seeking to enforce arbitration awards in the region.
Solution: Document Compliance with Procedural and Substantive Fairness
To mitigate the risk of public policy challenges during enforcement proceedings in Latin America, parties should meticulously document compliance with procedural and substantive fairness throughout the arbitration process. This includes ensuring transparency, impartiality, and adherence to due process standards. By demonstrating the integrity of the arbitration process, parties can minimise the likelihood of courts invoking public policy defences to refuse enforcement of arbitration awards.
Conclusion
Enforcing international arbitration awards in Latin America demands a nuanced understanding of the region’s legal landscape, cultural dynamics, and procedural intricacies. Despite the challenges posed by divergent legal frameworks, resistance from judgment debtors, and the recognition of public policy defences, parties can navigate these obstacles and achieve successful enforcement through strategic planning and diligent execution.
By engaging a legal team with specialised knowledge of enforcement proceedings in Latin American jurisdictions, parties can tailor their enforcement strategies to the specific legal and cultural context of each country. A knowledgeable team can provide invaluable guidance on navigating procedural requirements, anticipating potential challenges, and leveraging available remedies to overcome obstacles to enforcement.
Despite the complexities and uncertainties inherent in enforcing international arbitration awards in Latin America, proactive engagement, meticulous planning, and strategic advocacy can empower parties to secure the recognition and enforcement of their arbitral decisions across the region. By leveraging local expertise, adhering to best practices, and advocating effectively for their rights, parties can navigate the issues of enforcement challenges and achieve the desired outcome in their arbitration proceedings.
Harris Gomez Group METS Lawyers ® opened its doors in 1997 as an Australian legal and commercial firm. In 2001, we expanded our practice to the international market with the establishment of our office in Santiago, Chile. This international expansion meant that as an English speaking law firm we could provide an essential bridge for Australian companies with interests and activities in Latin America, and to provide legal advice in Chile, Peru and the rest of Latin America. In opening this office, HGG became the first Australian law firm with an office in Latin America.
As Legal and Commercial Advisors, we partner with innovative businesses in resources, technology and sustainability by providing strategy, legal and corporate services. Our goal is to see innovative businesses establish and thrive in Latin America and Australia. We are proud members of Austmine and the Australia Latin American Business Council.
