The Milantic case: an opportunity to take up the correct path

The mentioned award —rendered in London on November 15, 2004— is the result of arbitration proceedings started in January, 1999 for a breach of the contract for the construction of a vessel, entered into by Milantic Trans S.A. with Shipyard Río Santiago (owned by the Province of Buenos Aires, Argentine Republic) in October 1996.[2]

Defendants’ behavior —hindering award enforcement— and the unheard-of grounds put forward by the Court of Appeals —which dragged the case up to the Provincial Supreme Court— seem to not to recognize that the arbitration agreement is first of all a gentleman’s one and that full and efficient arbitration development inevitably assumes parties respectful of private agreements and international treaties.

The final, binding and unchallenged award was not timely performed by Shipyard Río Santiago.  So, Milantic Trans S.A. sought to enforce the award in Argentina.[3] 

At that time, the Province of Buenos Aires raised a defense for lack of legal standing alleging not being a party to the contract, even though Shipyard Río Santiago, on its property, had been one of the parties to the arbitral proceedings. Moreover, defendants stated that the New York Convention was not applicable as the contract for the construction of the vessel was not a commercial one[4] nor had it been approved by a provincial Law; hence they argued, Shipyard Río Santiago had no capacity to contract or to agree on a jurisdictional clause. Moreover, defendants added that provincial law did not provide proceedings for foreign awards enforcements and that the award was contrary to public order since it established compounding interest. 

In November 2006, the Contentious - Administrative Court of First Instance No 2 of the City of La Plata rejected the unsubstantial defenses raised by defendants, recognized the award and declared it enforceable; in this ruling, the Judge stated the contract was approved by the provincial law that authorized the shipyard to obtain the necessary guaranty contract with the Bank of the Province, and that regulations related to the enforcement of foreign judgments and the New York Convention were applicable because the contract was a commercial one.[5] Moreover, the Judge pointed out that the award was not contrary to public order since Section 623 of the Civil Code authorizes compounding interest.[6]

The judicial judgment by the defendant was only challenged on costs, so the Court of Appeals of the City of La Plata, based on an unwise interpretation of the regrettable decision of the Argentine Supreme Court in re Cartellone,[7] reversed the decision rendered on August 30, 2007 by the court of first instance, namely, although not pleaded, the Court of Appeals decided extra-petita, ruling on the merits of the previous decision of first instance. 

In doing so, the Court of Appeals of La Plata stated the jurisdictional clause in favor of an arbitral tribunal was decided without a legal and expressed authorization and that the New York Convention was not applicable in the Province of Buenos Aires —disregarding therefore the fact that the ratification for Argentine Republic of that Convention implied its incorporation into National Law and the automatic application of its regulations in both national and local jurisdictions. 

In short, the decision of the Court of Appeals of La Plata, in its attempts to get an alternative to prevent the Province of Buenos Aires from facing up to assumed commitments –both contractual and arbitral ones- causes great damage to confidence of arbitral solution in international contracts having a public legal entity as a party. This fact brings undesirable consequences to future contracts, turned into demands of greater guarantee and financing costs because of implicit risk, since confidence is also an apparent value in contractual and economic equations.  

The Supreme Court of the Province of Buenos Aires now has the opportunity to reaffirm the correct path marked by the first judicial instance, and to restore the principle of legal rights, at the same time rejecting arguments that objectively undermine confidence in Argentine Justice.