- In this edition, we will focus on the novelties introduced by the proposal drafted by the Constitutional Convention (“CC”) on arbitration and alternative dispute resolution mechanisms.
The proposal
• Promoting collaborative conflict resolution mechanisms
Alternative dispute resolution methods consist of those means other than ordinary justice to resolve disputes. They commonly include negotiation, mediation, conciliation and arbitration.
The constitutional proposal establishes that it will be the duty of the state to promote and implement collaborative conflict resolution mechanisms that guarantee active participation and dialogue. However, it does not specify the requirements and effects of such mechanisms, which can only be determined by law.
• Arbitral justice shall always be voluntary: forced arbitration is outlawed.
The proposal also states that arbitral justice will always be voluntary, and consequently provides for the elimination of compulsory arbitration from our legal system.
The prohibition of compulsory arbitration is a consequence of the principle of free adjudication, which reflects a decision to give priority to this principle over other considerations that could make compulsory arbitration advisable, such as the decongestion of the ordinary courts or the benefits of the specialisation provided by arbitration.
• Prohibition of arbitration in contentious-administrative matters
On the other hand, a prohibition of arbitration in matters within the competence of the Administrative Courts is also proposed. Only the latter will be able to hear and rule on actions brought against the State Administration or promoted by it, as well as on other matters established by law.
This raises the question of whether the State will be able to agree to arbitration mechanisms when entering into international contracts, for example, to access credit.
• Preference for permanent, impartial and independent dispute settlement bodies for foreign investment disputes
Finally, in the area of investor-state dispute settlement (also known as ISDS), the proposal establishes that permanent, impartial and independent dispute settlement bodies should be preferred when negotiating the respective investment treaties.
How does the Proposal differ from the current Constitution?
The proposed new Constitution introduces important changes to arbitration and dispute settlement mechanisms.
- The constitutional recognition of alternative dispute resolution mechanisms is a novelty in our legal system, despite the fact that the legislator had tried to promote their use by legal means.
- Arbitration shall always be voluntary; there shall be no forced arbitration. Current legislation stipulates that certain disputes must necessarily be settled by specialised arbitrators. These refer, for example, to the partition of assets; the liquidation of communities or of a conjugal partnership, differences between partners of a public limited company1; among other hypotheses regulated by law. This will change if the proposal is adopted.
- Exclusivity of the Administrative Courts. Currently, our legislation does not contain a prohibition to arbitrate in contentious-administrative matters. On the contrary, to date there are different systems, such as the public works concession system, where an arbitration instance is contemplated as a dispute resolution mechanism. In this sense, the prohibition envisaged represents a paradigm shift.
The transitional rules currently under discussion should clarify when and how these changes would be implemented: what will happen to arbitration clauses that exist in contracts signed with the administration, or what will happen to ongoing compulsory arbitrations.
A pro-arbitration Constitution?
One of the provisions that has caused most interest has been the one that enshrines as a principle the voluntary nature of arbitration, eliminating compulsory arbitration. While some argue that this rule would disregard a long legal tradition, others argue that the proposal better recognizes the very nature of arbitration, based on the will of the parties and enabling it in all matters where the parties consider it appropriate.
However, this discussion has diverted the focus from other rules that leave more doubts than certainties:
- A clear example of this is the draft’s preference for permanent dispute settlement bodies for the resolution of investment treaty disputes.
Indeed, when referring to permanent dispute settlement bodies, the Constitution does not specify whether it would be sufficient for the institution administering the respective arbitration to be permanent (as is the case, for example, with the Permanent Court of Arbitration or ICSID); or rather, whether it should be a permanent investment court that decides a possible conflict, as was established by the European Union and Canada in their Comprehensive Economic and Trade Agreement (CETA).This is of particular relevance, as there is an important debate in the international arena as to whether permanent investment courts should be preferred over arbitration.
- On the other hand, the proscription of arbitration in contentious-administrative matters could tie the hands of the state if it is understood that it prevents it from contemplating this mechanism in the framework of international contracts. Indeed, this could prevent it from accessing such contracts.
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Footnotes
1 Without prejudice to the provisions of Article 125, second paragraph, of the Companies Act
