Arbitral Jurisdiction: Interpretation and Scope of the Arbitration Clause

On October 3, 2012, Room “D” of the Commercial Court of Appeals (the “Court of Appeals”), in re “Captec S.R.L. c/ Constructora San José Argentina S.A. s/ Ordinario” (the “Ruling”), issued a ruling stating that arbitration clauses should be interpreted restrictively, not being applicable to situations related to law matters or the applicable law. In addition, the Court of Appeals considered that the fact that the defendant has attended the mediation hearing, to which it was convened by the opposite party under the terms of Law No. 26,589, without making any objection, implied the consent of the required party to leave aside what was agreed in the arbitration clause.

We disagree with both the decision and the scholars’ opinions established in this judgment. On one hand, we consider that an arbitration clause should not be interpreted in a restrictive way because it limits the arbitration agreement contrary to what the parties agreed. On the other hand, we believe that the mere fact of having participated in a mediation hearing under Law No. 26,589 cannot be considered as a departure from the provisions of an arbitration clause.

Below, we will briefly review the case and criticize what we consider the Court of Appeals’ judgment deserves.

The case comes to the knowledge of the Court of Appeals as a result of the appeal filed by the defendant against the judgment settled by the First Instance Judge that denied the motion to dismiss for lack of jurisdiction, filed by the defendant.

The plaintiff claimed for breach of a construction contract. According to the background, the contract executed between the plaintiff and the defendant had an arbitration clause under which the parties agreed to submit any disputes to an arbitral tribunal and in accordance with the Rules of Procedure and Code of Ethics from the Business Center of Mediation and Arbitration (CEMA, by its acronym in Spanish).

The plaintiff firstly initiated a mediation proceeding under the terms of Law No. 26,589 and then filed the claim before the Commercial Justice.

On October 3, 2012 Room D of the Court of Appeals denied the appeal filed by the defendant, arguing, among others statements, that: “… the arbitration clauses that imply the waiver to the general principle of submitting disputes to ordinary courts should be restrictively interpreted…, restricting its admission to those cases in which the dispute is about the interpretation of clauses of the contract or the verification of certain and determined matters of fact, except for those other hypotheses related to law matters or the applicable law, which knowledge is exclusively reserved to judges…”, and that “…it is worth highlighting that in this case the appellant itself would have consented to set aside what was agreed there, since he was called by its contrary to a mediation proceeding different from the one provided in the referred clauses (Conciliation under the Rules of Procedure and Code of Ethics from de Business Center of Mediation and Arbitration), and attended to such conciliation process (as provided by Law 26,589) without expressing any objection…”.

As we have mentioned, we consider that the statements of the Court of Appeals are mistaken.

Regarding the interpretation and scope to be given to the arbitration clauses, we understand that the criterion arising from the Ruling is overcome by the existing scholars’ opinions and law cases on the matter.

In the first place, we refer to the invoked restrictive interpretation that the Ruling attributes to the arbitration clauses.

Interpreting an arbitration clause with restrictive criterion is in conflict with the qualified scholars’ opinions made on this respect. Prestigious authors such as R. Caivano, J. C. Rivera, and A. Rojas, among others, argue that arbitration clauses should not be restrictively interpreted. Foreign authors as Fouchard, Gaillard and Goldman also pronounced on this respect.

Case law has also broadly interpreted arbitration clauses (in re “Orcajada Broisson M. F. c/ Savi S.O. s/ sumario”, June 3, 2003).

As the parties agreed to submit the disputes arising between them to the arbitral jurisdiction, it is not appropriate to interpret the arbitration clause in a restrictive way, in order to respect the will that the parties had at the moment of executing the contract.

In the second place, we neither believe that the statement of the Court of Appeals that provides that the arbitral jurisdiction must be limited to hypotheses regarding contractual matters or of facts is correct, not being applicable to situations related to right matters or the applicable law.

This interpretation is also incorrect. The Argentine Civil and Commercial Procedural (“CPCCN”), in its articles 736 and 737, establishes that any dispute between the parties can be submitted to arbitral jurisdiction, except from those that cannot be settled.

The scholars’ opinions and law cases have pointed out that it is not proper to distinguish between law or facts matters to give place to arbitration.

The arbitrators have plenty of authority to understand in law matters, so that any limitation on arbitral jurisdiction should only come from the arbitration clause agreed by the parties. In this regard, we highlight that the contract is law for the parties, and what should be prioritized is the will that the parties had at the moment of its execution.
Then, without a legal limitation, either from scholars’ opinions, or from law cases to the arbitral jurisdiction, we consider that the statement of the Court of Appeals in this regard is misguided. We understand that such statement ignores basic principles of arbitration, an institution which we consider essential for an effective resolution of disputes.

Furthermore, we also consider that the judgment from the Court of Appeals is mistaken as it understood that the mere fact that the defendant has attended the mediation convened by its counterpart under terms of Law No. 26,589, should be considered as a “departure” from the defendant to the provisions agreed in the arbitration clause, this means, to the arbitral jurisdiction.

The mere attendance to the mediation hearing cannot imply, per se, a waiver to the arbitration, as the proceeding provided by Law No. 26,589 also constitutes an alternative method for dispute resolution that is not incompatible with the arbitral jurisdiction. Moreover, it is common in contracts for the parties agree to previously submit disputes to mediation and that, if that fails, then the arbitral way is enabled.

We understand that the person attending a mediation as the required party may not have the knowledge of the particular claim that will be raised in that hearing, so the mere circumstance of having attended cannot be construed as a waiver to the agreed arbitral jurisdiction.

The arbitration clauses should not be restrictively interpreted because that implies restricting the will of the parties to submit their disputes to arbitration. Finally, we consider that the process of mediation provided by Law No. 26, 589 does not exclude arbitration in any way. Both are compatible methods of dispute resolution, and the attendance to the first should not be construed as a waiver to the arbitral jurisdiction.