Is Arbitration Always Appropriate for Resolving Disputes? A Latin American Point of View

1. IS ARBITRATION ALWAYS APPROPRIATE FOR RESOLVING DISPUTES? A LATIN AMERICAN POINT OF VIEW Presentation by Osvaldo J. Marzorati • Allende & Brea

2. Arbitration in Latin America A)Countries that follow the Model Law: Chile, Peru, Paraguay, Panamá B)Countries that have arbitration laws adjusted to recent times: Brazil, Colombia, Mexico, Ecuador C)Countries that keep Arbitration as part of their Procedural Codes or Subject to Judicial Scrutinity: Argentina, Uruguay, Venezuela

3. Existence of Arbitration Centres • Almost all countries have arbitration centres based on specific “Chambers” or “Cámaras” or, • The Chamber/s of Commerce in every jurisdiction have an Arbitration Centre or • There is legislation on mandatory conciliation, mediation and arbitration procedures

4. Agency is subject to specific laws in Colombia and some other countries like Paraguay or Panamá and most of Central America • Recourse to arbitration is not popular for agency agreements-commercial concessions. Only Brazil enacted car automotive concessions. • Court jurisdictions have pre-empted the market in such areas • An average 90% of disputes laid into Courts, 10% go for to arbitration

5. Arbitration is very frequently used in Distribution disputes as well as in Master Franchise Agreement. On average: Court system 60%, Arbitration 40% • However Developing Agreements and Single Unit Franchise Agreements are increasingly referred to Arbitration for the latter petty cases • 50% Mediation Arbitration, 50% Court cases

6. Traditional merchants prefer to litigate against arbitrators, main reason they believe that big and and solid importers like factories can press or carry some stronger weight if the case is litigated. In case of unit franchising, the fast track arbitration procedures in Argentina reduces time and cost. In case of distribution between middle size distributors the recourse to arbitration ensures some savings as to judicial costs, plus a faster process. Developers or their part prefer local arbitration procedures, they feel they have more bargaining power than foreign main Franchisors.

7. Contradictory patterns • In favor of litigation: • Distrust of arbitration, there is little culture and length of challenges to arbitrators. • Need to recourse to Court before or during arbitration procedures (kompetenz-kompetenz). • In significant cases institutional procedures are not that fast (Stock Exchange Arbitration Court). • Dislike that a foreign arbitrator be selected by the Authority of appointment in local cases (ICC). • Enforcement of arbitration is always subject to Court procedures.

8. Why arbitration is favoured in Development Agreements • Developer is a real partner, he cannot sub-franchise. He has a big territory and he controls all of the stores. He has more bargaining power than a master franchise. • Normally, he accepts arbitration based on country of performance under law of performance. • Real developers like to play local.

9. Why unit franchisees and some franchisors prefer arbitration Administrative costs of Tribunal are cut to 50% of similar arbitration institutional tribunals. Minor cases not to exceed U$S30.000 can be subject to arbitration abbreviated proceedings. The arbitration is institutional and the arbitrator is always selected by the Appointing Institution. Claim, answer to the claim, counterclaim and answer and exceptions: 60 days. Trial period and final briefs: 60 days. Time involved is six months including award 60 days.

10. Conclusion: DIVERSITY • Argentina and Uruguay do not have the same attitude to arbitration like other South American countries, which clearly favor arbitration (Peru, Panama and Chile). • Distrust in arbitration has to do with archaic laws which does not accept kompetenz vs. Kompetenz (Nidera). • Tribunals have suspended arbitration procedures before and during arbitration in public cases (Yaciretá). • Tribunals have reserved rights to revise arbitration awards extensively (Cartellone).

11. Case Law Arbitration – Distribution; Development 1- Distribution agreement related to restaurants based on an unit agreement for five years with three automatic renewals, based on binding letters of intent granted to owners of distributors 2 – Contract rescinded after six months by principal on grounds of bad performance and unpaid amounts 3 – Distributors went to Argentin Courts, but before getting any decisions, principal called for ICC arbitration “provided under the agreement an appointed party arbitrator” 4 – Distributor appointed and changed two party arbitrator on his own and distribution company which only got one unit restaurant under the contract went bankrupt

12. Case Law Arbitration – Distribution; Development 5 – Party arbitrators did not meet and consequently did not appoint the third arbitrator. Principal started litigation in the US claiming jurisdiction of US Courts based on binding letter of intent signed by owners of distribution company. 6 – Before going to bankrupcy, distributor named his third party arbitrator who met with principal party arbitrator who claimed that he did not recalled the case because three years have elapsed since he received the original instructions. He did not informed to who ever have instructed him 7 – Party arbitrator appointed by distributor assumed the role of sole arbitrator under a contractual provision allowing a party to do so in case of failure of the othe party of appointing his arbitrator 8 – The new self proclaimed arbitrator received a claimed from distributor for US $ 197 M and asked principal his views. Principal objected resignation and asked to remit papers and designation to ICC since it was an ICC arbitration

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