By Juan Pablo Véliz Escobar and Paula Ibargüen Ponce, associates of the Aguilar Castillo Love Guatemala arbitration team. AGUILAR CASTILLO LOVE
This paper is available in ENGLISH, PORTUGUESE and SPANISH
Arbitration in Guatemala [1] • English Language Version
I. Preamble
In countries such as Guatemala, where access to justice is undermined due to the growing judicial delay and the lack of legal certainty triggered by the changing criteria of the state jurisdictional bodies; arbitration has been presented as a suitable solution for the resolution of disputes. This alternative method of dispute resolution is not a new one for the Guatemalan jurisdiction. For several centuries, the Guatemalan legal system has recognized and regulated arbitration from a constitutional level, and increasingly through various lower-ranking regulations pertaining to specific sectors and industries.
The purpose of this paper, beyond being an exhaustive dissertation on arbitration in Guatemala, is to provide the reader with an overview of the regulation of arbitration at the level of general legislation (i); specific regulation according to the matter in question (ii); and, finally, the areas that have undergone regulatory reforms that contemplate the possibility of submitting disputes to arbitration (iii).
II. Arbitration and its regulation in Guatemala
Constitutional Regulation
Like other countries in the Latin American region, the power to impart justice has typically been associated as an exclusive power of the state jurisdiction. However, and as a starting point, it is necessary to remember that the Political Constitution of the Republic of Guatemala of 1985 -CPRG by its acronym in Spanish- as well as its previous versions, contemplates various manifestations in favor of arbitration[2]. The Guatemalan Constitution recognizes that jurisdictional work is exercised with absolute exclusivity by the Supreme Court of Justice and by the other courts established by law[3]. In this sense, the Republic of Guatemala has granted constitutional recognition so that other entities outside the Judiciary [arbitration tribunals] may impart justice. This has allowed the recognition of arbitration by virtue of the creation of a law enacted by the Congress of the Republic confirming this.
The Guatemala Arbitration Act
The Guatemala Arbitration Act -LAG by its acronym in Spanish-, recognizes from its preamble, the imperative need for people to be able to resort to arbitration as an answer to the overload that the courts of justice had -and still have-. Being a fast and efficient option to achieve the desired justice:
"That a large number of States of the international legal community, the development of arbitration has gained significant importance as an alternative means for the resolution of conflicts, since such procedure not only contributes with the decongestion of the heavy burden of the jurisdictional courts, but also helps that the conflicts that are susceptible to be resolved by this means, are really resolved with speed and efficiency."
"That the replacement of the legal regime applicable in Guatemala to arbitration, not only stems from the need to modernize the relevant rules to achieve the aforementioned benefits, but also becomes a necessity in light of international treaties and conventions on arbitration that the Republic of Guatemala has signed and ratified [...] thus making it imperative to achieve the adequacy of domestic rules with those of international origin, to obtain a harmonious and progressive system of arbitration.”
The Guatemala Arbitration Act is inspired by the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law [UNCITRAL]. As stated at the beginning, it is beyond the scope of this paper to describe in detail all the facets behind the regulation of arbitration in Guatemala. However, it is of utmost importance to make the following remarks:
1. According to the LAG the following matters cannot be subject to arbitration:[4]
i.Matters on which a final judicial decision has been handed down, except for those aspects derived from its enforcement.
ii.Matters inseparably linked to other matters on which the parties do not have free disposal.
iii.When expressly prohibited by law or when the law establishes a special procedure for certain cases.
2. National and international awards are binding. However, the only remedy available against an arbitral award that is intended to be enforced in Guatemalan is the appeal for review[5]. The review of an award cannot and should not modify the merits of the Arbitral Tribunal's decision. In essence, the review is limited to confirming compliance or non-compliance with due process and/or Guatemalan public policy provisions.
3. Awards rendered abroad shall be recognized and enforced in Guatemala in accordance with the New York Convention, the Inter-American Convention on International Commercial Arbitration [Panama] or any other treaty regulating this matter to which Guatemala is a party and which is applicable to the case in question[6].
III. Regulation of Arbitration in Specific Matters
The applicable procedure and principles to arbitration are regulated in the LAG. In addition, many other laws contemplate arbitration as an alternative mechanism for the resolution of certain disputes. This has resulted in the scope of arbitrability being extended to other more specific matters, in accordance with the needs that some industries require and for the fulfillment of certain objectives that others require for the attraction of foreign or domestic investment.
For this reason, the 2006 modification of the Guatemalan Commercial Code [framework rule for commercial regulations in Guatemalan territory] came as no surprise, as a consequence of the implementation of the DR-CAFTA. The State of Guatemala acquired commitments to make reforms to its legal system in certain sectors through the establishment of clear and transparent rules that provide legal certainty to the commercial relationship granted in such framework. This implied compliance regarding a guarantee of neutrality, efficiency, and certainty to effectively attract foreign investments in Guatemala. In this sense, Article 291 of the Guatemalan Commercial Code, which regulates disputes arising in the context of distribution and agency contracts, was reformed in the framework of DR-CAFTA, and now reads as follows: “[...] unless otherwise agreed, the parties have opted for arbitration if they do not expressly establish that the dispute must be settled in court [...].”
Subsequently, in 2018, a new amendment to Article 1039 of the Commercial Code[7] [procedural way of commercial matters] entered into force, which established arbitration as a method susceptible of agreement for the parties in any action that is ventilated as a consequence of the same Code. The former allowed the neutralization of the LAG provision that prevented the resolution by arbitration of those matters in which the Law indicates a special procedure for certain cases. In other words, it extended the objective arbitrability to all commercial matters.
The Commercial Code was not the only legal instrument that has expanded those matters susceptible to arbitration. One of the areas that has developed the most in this regard it that of insurance. The Guatemala Insurance Act[8] states that any controversy involving insurers, insureds, reinsurers, among themselves and with third parties may be resolved by arbitration. It is a usual practice in Guatemala for insurance policies to include an arbitration clause, which has made the subject matter one that recurrently uses arbitration.
In addition, arbitration is also an option expressly enabled by law for disputes arising from alliance contracts for the development of public-private economic infrastructure alliances that have been encouraged in recent years. Like the latter, the telecommunications sector, by mandate of its framework act, contemplates arbitration as a method of dispute resolution between some of the sector's agents.
Even though today many other laws contemplate arbitration as a dispute resolution mechanism, the legislative activity continues to expand the objective arbitrability expressly in new laws. The initiative of the Road Infrastructure Act stands out, which not only provides for arbitration, but goes further and institutionalizes Dispute Boards for such matters at the level of ordinary law. This law is expected to generate an evolution in alternative dispute resolution methods in Guatemala.
Although many more letters could be dedicated to recall all those matters in which the objective arbitrability in Guatemala has been expanded to, thus far it has been demonstrated how at a legislative level Guatemala has believed in arbitration as an authentic method of dispute resolution.
IV. Arbitration possibilities in Guatemala
Arbitration derived from contracts with the State
One of the fields that has shown an inclination towards arbitration as a method of dispute resolution is the field of government contracts. This is the result of a series of reforms and additions to the rules that regulate contracting between private parties and State entities. The rules that enable arbitration in public procurement are based -mainly- on three bodies of law: State Procurement Act; Contentious Administrative Act; and the Guatemalan Arbitration Act.
State Procurement Act
Congress Decree Number 57-92 regulates the State Procurement Act, whose objective is to regulate purchases, sales and contracting for public procurement carried out by State agencies, decentralized and autonomous entities, entities with majority public capital and all those institutions that make up the public sector.
In this regard, Article 103 of the State Procurement Act establishes the following with respect to arbitration: "If so agreed by the parties, disputes relating to the performance, interpretation, application and effects of contracts entered into pursuant to the application of the present law may be submitted to arbitration by means of an arbitration clause or arbitration agreement. Any controversy relating to the performance, interpretation, application, and effects of contracts entered into by reason of the application of the present law shall be submitted to the jurisdiction of the Court of Administrative Disputes or to arbitration by means of an arbitration clause or arbitration agreement. Criminal action may not be initiated without the prior conclusion of the administrative or arbitration proceedings." [Emphasis added]
Contentious Administrative Act
Article 21 of the Contentious Administrative Act, Congress Decree Number 119-96, which regulates the applicable judicial procedure for the resolution of disputes with the State, establishes that such procedure is not applicable: "[...] 3. In matters that fall under the jurisdiction of other courts; [...] 5. In matters in which a law excludes the possibility of being raised in contentious-administrative proceedings."
Guatemalan Arbitration Act
In turn, the Guatemalan Arbitration Act establishes in Article 3 the matters that are subject to arbitration. In this sense, the article in its pertinent section establishes that: "[...] 2) This law shall also apply to all other cases in which, by provision of other laws, arbitration proceedings are permitted, provided that the arbitration agreement is valid under this law."
Article 51 of the Guatemalan Arbitration Act states that: "Once the State, decentralized, autonomous and semi-autonomous state entities, executory units, municipalities and state or municipal public enterprises have entered into a valid arbitration agreement, the arbitrability of the dispute, or the capacity of the State and the other entities mentioned to be party to the arbitration agreement, may not be challenged under norms or rules adopted after the conclusion of said agreement."
It is worth mentioning that Article 53 of the LAG contains a modification of related provisions, establishing that: "1) Article 17 of the Contentious Administrative Act is modified by addition, adding a new numeral at the end, as follows: 6º. - Those controversies that must be resolved by means of arbitration proceedings, when the latter has been agreed upon in accordance with Article 103 of the State Procurement Act, shall not be subject to the contentious-administrative appeal either."
The aforementioned regulations have contributed to the fact that the parties involved in public contracting may opt for arbitration as a method to resolve disputes that may arise therefrom since:
1. The law governing State contracts expressly empowers the Parties to agree to arbitration as a method of dispute resolution.
2. The typical process for resolving disputes with the State [administrative litigation] is excluded as a means for the resolution of these disputes in the event the Parties opt for arbitration.
3. The LAG recognizes as arbitrable matters, those in which arbitration is allowed by law; and supports this recognition by including a related provision that prevents the parties from resorting to a Contentious Administrative process before the State courts when the parties have opted for arbitration.
Arbitration in the electricity subsector
One of the sectors in which probably the most important and substantial commercial arbitrations have taken place in Guatemala is the energy sector, particularly the electricity sub-sector. The increase of arbitrations in this area derived from the tenders for the contracting of energy and power with the objective of increasing the generation park in Guatemala.
These bids are the result of the Indicative Expansion Plan of the Generation System [PEG for its acronym in Spanish], which sought, as mentioned above, to expand the Guatemalan generation park with a special emphasis on renewable energies. To achieve this objective, the contracting of power and electric energy was opened to public bidding to obtain the most efficient and economical contracts for the benefit of end users [consumers].
The awarded contracts regulate the relationship between the power and energy generators and the distributors, from the construction stage of the power plants [in cases where it was offered to supply with a new generation plant] to the supply period [long-term contracts of up to 15 years]. Controversies are inevitable, both for the construction of the power plants, as well as within their commercial operation.
Faced with this inevitability of conflicts, the subsector authority defined in all contracting models that the most appropriate way to resolve these conflicts was through arbitration, specifically before the Court of Arbitration of the International Chamber of Commerce. It was deemed as the most appropriate way due to multiple factors, such as the attraction of foreign investment, the speed of the method and the high specialization of the matter, which requires arbitrators with significant experience to understand such a complex system.
This year the PEG-4-2022 tender is expected to launch, which, we assume, will attempt to maintain arbitration as the dispute resolution mechanism.
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[1] This article was written by Juan Pablo Véliz Escobar and Paula Ibargüen Ponce, associates of the Aguilar Castillo Love Guatemala arbitration team. [2] The historical origin of arbitration in Guatemala dates to 1812 with the Cadiz Constitution, which established that arbitration was a mechanism for the administration of justice in the civil sphere, recognizing as enforceable what was resolved by the arbitrators [Articles 280 and 281 of the Cadiz Constitution of 1812]. [3] Article 203 of the Constitution of the Republic of Guatemala. [4] Article 3 of the Guatemalan Arbitration Act. [5] Article 43 of the Guatemalan Arbitration Act. [6] Article 45 of the Guatemalan Arbitration Act. [7] Unless otherwise stipulated in this Code, all actions arising from its application shall be heard in a summary trial, unless the parties have agreed to submit their differences to arbitration, in which case the arbitration agreement shall prevail over any process or judicial proceeding specifically indicated in this Code or in other laws of a commercial nature. [Emphasis added] [8] Article 35 of the Guatemalan Insurance Act.
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