Country Report - Colombia. To: IBA Subcommittee on Recognition and Enforcement of Awards - Research Project on Arbitrability

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1 Country Report - Colombia To: IBA Subcommittee on Recognition and Enforcement of Awards - Research Project on Arbitrability From: Rafael Rincón / Alberto Zuleta 1 Ref: Report on the notion of arbitrability (Article V.2 (a) of the New York Convention) under Colombian law. Date: May 27, This report describes the notion of arbitrability in Colombia. 2. The analysis of the notion of arbitrability is based on local legislation and relevant court decisions from the Colombian Supreme Court of Justice and other Colombian courts that have analyzed Article V.2 (a) of the New York Convention in the context of recognition and enforcement of arbitral awards. This report will be divided as follows: (a) (b) (c) The definition of arbitrability under Colombian law; Limitations with respect to arbitrability under Colombian law; and Colombian courts application of article V.2 (a) of the New York Convention and matters related to arbitrability in the context of recognition and enforcement of arbitral awards. 1 Rafael Rincón is a Senior Associate with Gomez-Pinzón Zuleta. Alberto Zuleta is a Partner with Dentons Cardenas & Cardenas in Bogotá. The authors wish to thank Sebastián Rubiano-Groot, Associate in the Dispute Settlement and Investment Protection Practice of Gómez Pinzón Zuleta, for his assistance in this report.

2 I. DEFINITION OF ARBITRABILITY UNDER COLOMBIAN LAW 1. Law 1563 of 2012 (the Arbitration Statute ) sets forth the Colombian general regime on Arbitration. 2. Article 1 of the Arbitration Statute provides that: Arbitration is an alternative dispute settlement mechanism, whereby the parties submit to the arbitrators the settlement of a dispute, relating to claims of which the parties may freely dispose of, or the submission to arbitration of which is authorized by law. 3. This general rule provides that matters which the parties may freely dispose of or those authorized by law encompass the arbitrability ratione materiae under Colombian law. There is no legal definition or characterization of those matters that the parties may freely dispose of (libre disposición). However, Courts 2 and commentators broadly define this term as any matter that the parties may discretionally arrange, set, settle or finally resolve. 3 II. LIMITATIONS WITH RESPECT TO ARBITRABILITY 4. The Arbitration Statute does not expressly define or list the matters that may not be settled through arbitration. However, Article 62 of the Arbitration Statute provides that norms governing international arbitration shall not affect any other law of Colombia by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this law. 5. In this regard, there are certain specific prohibitions expressly provided for in local legislation. In addition Colombian courts have also excluded certain matters from arbitration. Matters that may not be settled through arbitration include the following: The Colombian Civil Code provides that claims related to family law, civil status and criminal matters cannot be settled. Thus, they cannot be settled through arbitration. The Constitutional Court excluded arbitration for disputes involving the rights of incapable persons and workers minimum rights. There is some debate as to whether arbitrators have jurisdiction to decide on the validity of decisions made by a company s partners meeting (junta de socios) or the 2 Colombian Constitutional Court. Decision SU-174/07. See also: Colombian Constitutional Court. Decision T-405/95. Colombian Constitutional Court. Decision T-057/1995; Colombian Constitutional Court. Decision C-294/95. See also: Colombian Constitutional Court. Decision C-098/01. Colombian Constitutional Court. Decision C-012/ Néstor Humberto Martínez Neira, El Pacto Arbitral, in ESTATUTO ARBITRAL COLOMBIANO: ANÁLISIS Y APLICACIÓN DE LA LEY 1563 DE 2012 (2013), p. 42.

3 shareholders assembly (asamblea general). In this regard, the debate is rooted in the fact that the General Procedure Code vested jurisdiction upon the Superintendence of Corporations to decide claims seeking redress for damages caused by a decision of a company s Board of Directors or Shareholder s Assembly or any other corporate organ. It is worth noting that the Arbitration Statute specifically repealed the article of the Code of Commerce that specifically banned the validity of these decisions from arbitration. However, in the case of simplified stock corporations (sociedades por acciones simplificadas), questions on the validity of decisions made by a company s partners meeting or the shareholders meeting may clearly be settled through arbitration. The Constitutional Court determined that the legality of administrative acts issued in exercise of the Government s exceptional powers (poderes exhorbitantes) cannot be subject to arbitration. However, disputes arising out of the economic effects rooted in those administrative acts may be settled by arbitration. The Council of State held that the exceptional powers to which the Constitutional Court referred to are only those listed in Article 14 of the State Procurement Regime (i.e., unilateral interpretation of State Contracts; unilateral amendment of State Contracts; unilateral termination and expiry (caducidad) of State Contracts; or the transfer to the State of private assets used by the contractor to perform his obligations (reversión) in contracts for the exploitation and concession of State property. Nevertheless, one of the chambers of the Council of State has considered that certain administrative acts are issued in exercise of exceptional powers, even though they are not expressly identified as such in article 14 of the State Procurement Statute. Such was the case of a dispute surrounding a unilateral liquidation of a contract, which the chamber said could not to be submitted to an arbitral tribunal. 4 On the other hand, a different chamber has stated that any administrative act that is not issued under the exceptional powers mentioned in article 14 can be resolved through an arbitration 5. Hence, there is an evident contradiction between chambers even after approximately 16 years of this doctrine first having been issued. Antitrust matters are subject to administrative proceedings by the Superintendence of Industry and Commerce and cannot be litigated before civil judges or arbitration tribunals. The civil effects resulting from those behaviors, however, may be submitted to arbitration. 6. There is significant debate with regard to the arbitrability of disputes related to commercial agency agreements performed in Colombia. Article 1328 of the Colombian Commerce Code provides that for all effects, commercial agency agreements performed in Colombia are governed by Colombian law. Any provision to the contrary shall be deemed as non-written. 7. The Superior Tribunal of Bogota 6 and the Superior Tribunal of Medellin 7 have interpreted that this provision is not a jurisdictional clause providing that Colombian courts 4 Council of State. Decision dated January 30 th 2013, Subsection C. 5 Council of State. Decision dated February 27 th Subsection A. 6 The Superior Tribunal stated: the rule whereby commercial agency agreements are subject to Colombian law (Article 1328 of the Code of Commerce) has become inapplicable. Indeed, [Article 2 of Law 315 of 1996]

4 shall have exclusive jurisdiction over commercial agency disputes. Furthermore, the debate amongst scholars regarding Article 1328 has taken place around the issue of whether, by agreeing to resolve disputes through international arbitration, it is possible to apply to commercial agencies performed in Colombia provisions other than those established in the Colombian Commercial Code. This debate, however, does not relate to the possibility of submitting commercial agency related disputes to international arbitration as such, but rather the parties liberty to select the law applicable to the merits of the dispute. III. CONVENTION. COLOMBIAN COURTS APPLICATION OF ARTICLE V.2 (A) OF THE NEW YORK 8. Article V.2.(a) of the New York Convention is reproduced in article 112.b (i) of the Arbitration Statute: Article 112. Grounds for refusing recognition. Recognition of an arbitral award, irrespective of the country in which it was made, may be refused only on the following grounds: ( ) (b) If the court finds that: (i) The subject-matter of the dispute is not capable of settlement by arbitration under Colombian law( ) 9. There are no reported cases whereby Colombian Courts have directly analyzed article 112.b (i) of the Arbitration Statute. 10. However, prior to the entry into force of the Arbitration Statute, the non-arbitrability of the dispute as a ground to deny recognition was raised indirectly in two cases before the Colombian Supreme Court of Justice: (a) Petrotesting Colombia S.A., and Southeast Investment Corporation v.s Holsan Oil S.A; and (b) Drummond Ltda., v.s Ferrovías en is a subsequent and special provision, which is inconsistent with [Article 1328 of the Code of Commerce], by allowing a choice of law where it was formerly prohibited. Thus, since Law 315/96 refers to any contracts, without limitation, there is no legal reason barring the application [of the new rule] to commercial agency agreements, Superior Tribunal of Bogotá, Decision, It is worth noting that this decision was applying Article 2 of Law 315/96, i.e., the International Arbitration Statute in force until October 12th, However, the conclusion would be the same under the new Colombian International Arbitration Statute (Law 1563/12, Section 3), which also authorizes the parties to an international arbitration agreement to freely determine substantive applicable law. Law 1563/12, Article 101. Note that this ruling is not binding to other courts or arbitrators. 7 Superior Tribunal of Medellín, Decision dated

5 Liquidación and Ferrocarriles Nacionales de Colombia S.A. ( Fenoco ). In this regard, it is important to note that these cases were decided upon the application of the Colombian Code of Civil Procedure and not the New York Convention. 11. Please find below a brief summary of the analysis rendered by the Supreme Court in regards to arbitrability matters: A. Petrotesting Case The Supreme Court of Justice ruled on the request to recognize an ICDR award by Petrotesting Colombia S.A., and Southeast Investment Corporation against Holsan Oil S.A. Holsan Oil S.A argued that the recognition of the award should be denied pursuant to the grounds set forth in article 694 of the Colombian Civil Code of Procedure. This article provides that arbitral awards which decide upon in rem rights vested in assets that were located in Colombia at the time of commencement of the arbitration shall not be recognized. 13. According to Holsan Oil S.A, the Joint Operation Agreement for the extraction of oil that Petrostesting Colombia S.A and other companies entered into with ECOPETROL related to Colombia s in rem sovereign rights over its natural resources. Therefore, any dispute related with such contract should have been finally settled by Colombian courts and not by an arbitral tribunal. 14. The Supreme Court rejected Holsan Oil S.A allegations for it considered that the grounds for denial set forth in the Colombian Civil Code of Procedure were not applicable and the Joint Operation Agreement did not verse over in rem rights but rather created personal rights (contractual rights) between the parties. Therefore any dispute arising thereof could be settled through arbitration. B. Drummond The Supreme Court of Justice ruled on the request by Drummond Ltda., to recognize the ICC arbitral awards rendered against Ferrovías en Liquidación and Ferrocarriles Nacionales de Colombia S.A. ( Fenoco ). The Ministry of Transportation, which represented Fenoco in the recognition proceedings, opposed the recognition of the awards pursuant to article 694 of the Colombian Civil Code of Procedure. As previously mentioned, this article provides that arbitral awards which decide upon in rem rights vested in assets that were located in Colombia at the time of commencement of the arbitration shall not be recognized. 8 Supreme Court of Justice. Decision dated Justice Ruth Marina Diaz delivered the opinion of the Court. 9 Supreme Court of Justice. Decision dated Justice Fernando Giraldo Gutiérrez delivered the opinion of the Court.

6 16. The Ministry of Transportation argued that the awards were related to the use 10 that Ferrovias assigned to Fenoco over the railway concession and, therefore, any dispute related to such concession should be resolved by Colombian courts. 17. The Supreme Court of Justice rejected the arguments put forward by the Ministry of Transportation. The Court held that the awards rendered decide disputes related with the parties rights over the agreements entered into between them and not over the parties in rem rights over the concession or any other asset. 10 Under Colombian law the use of an asset is one of the essential attributes of the right to property which as an in rem right.

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