The Argentine Supreme Court of Justice sets aside an award due to lack of arbitration clause between the parties

Techint Compañía Técnica Internacional S.A.C.E. e I (“Techint”) had commenced arbitration proceedings before the Arbitral Tribunal of Public Works (“ATPW”) against Empresa Nuclear Argentina de Centrales Eléctricas en liquidación (“ENACE”) S.A. e I. and Nucleoeléctrica Argentina S.A. (“NASA”) requesting the payment of damages, some of which it qualified as “greater costs” suffered throughout the execution of a public works contract for the assembly and installation of nuclear and conventional pipes in Atucha II.

ATPW ordered the defendants to pay the sum of AR$ 8,251,823, as compensation for what it considered as “costs and damages” suffered by the plaintiff. NASA lodged an extraordinary appeal against this decision, the denial of which motivated the appeal under analysis.

NASA sustained that ATPW was incompetent to intervene in the conflict, given that Techint’s claim was for compensation in the form of costs and damages supposedly suffered during the execution of the works, and not for “greater costs” in relation to the readjustment of the contract of public works between the private corporation and the Argentine State, the only area in which ATPW had the competence to intervene.

While analyzing the case, the Argentine Supreme Court of Justice (the “Court” or “Supreme Court”) confirmed the restrictive character of arbitral jurisdiction in claims against the State. This position was expressed through the principles stated in the judgment under analysis, according to which:

(i)     a specific norm, a law, is necessary to authorize arbitral jurisdiction; and

(ii)    arbitral jurisdiction can not be broadened to cover matters not expressly included in the specific norm that authorizes jurisdiction.

In fact, the judicial conclusions drawn by the judgment were that:

“… as it has been said by this Court, there is no constitutional obstacle to the Argentine State submitting its controversies with individuals to arbitral jurisdiction, as long as there is a law that so establishes (“Fallos” 152:347; 160:133; 194:105 y 235:940).

“… Given this extraordinary character it is not possible to extend arbitral jurisdiction to matters not contemplated in the norms that allow its intervention (“Fallos” 133:61)” (Judicial Conclusions Clause 4).

Both Techint and the lower court based ATPW’s competence on Decree Nº 1496/1991, annex III of which provided that the ATPW would exercise the jurisdictional function it is given, inter alia, by the Law of Public Works No 13,064 (the “Law of Public Works”). However, even though under the Law of Public Works a claim for costs and damages for breach of contract (as in the case under analysis, according to the Court) can be filed, article 55 of this law establishes the principle that all matters arising from the application and interpretation of contracts of public works should be tried under the administrative court system, unless the individual and the Administration mutually agree to submit the matter to an arbitral tribunal to have the final decision on matters arising from the application and interpretation of the contract of public works between them.

Given this, and according to the finding of the Court, in order for the ATPW to have competence over all the conflicts related to the interpretation and execution of Law No 13,064, an arbitration clause or agreement between the parties must exist, which was lacking in the case in question(there was no arbitration clause included, either in the general and special conditions or in the contract).

Consequently, the Court concluded that the ATPW had no competence to decide the dispute and therefore admitted the appeal against the denial of the extraordinary appeal, admitting the extraordinary appeal and revoking the award.

We would add two brief comments:

In the first place, as background to what was confirmed by the Court, it has traditionally been argued that the Argentine State can validly submit to arbitration as long as a law specifically authorizes it.[i] Previous decisions of the Argentine Supreme Court have so indicated.[ii] Consequently, Argentine law contains some norms authorizing arbitration in contracts with counterparties of public law.[iii] However, the vast majority are clearly limited to a certain type of contracts, as is the case for the cited Law of Public Works and the Law of Consulting Services No 22,460, amongst others. We should however mention that the ATPW was dissolved on October 26, 2001 by Decree No 1349/2001, which provided the right for an individual to continue proceedings by administrative or judicial procedures. As an example of a norm of general application, there is article 16 of the Permanent Budget Law No 11,672, that empowers the Argentine Executive Power to submit future controversies with foreign persons to:

(i)       judges of other jurisdictions;

(ii)       arbitral tribunals; or

(iii)       the International Court of Justice in The Hague.

In the second place, it is worth mentioning that NASA introduced the argument as to lack of competence of the ATPW only after the award that ordered it to pay a substantive amount was made. Even though the Court admitted the appeal because public order was involved (see the Judicial Conclusions clause N° 5), this position contradicts the established doctrine that sustains that “venire contra factum propium non valet” (“estoppel” principle or the doctrine of one’s own acts, as it is known in Argentine Law).

This solution is reflected and contained in several international modern legislations that regulate the setting aside of arbitration awards, providing that one cannot invoke a particular argument in the setting aside application if it had not been raised previously during the arbitral proceedings.[iv] This principle has also been included in the Model Law of UNCITRAL on International Commercial Arbitration, and in the Arbitration Rules of several arbitration institutions, such as article 33 of the Arbitration Rules of the International Chamber of Commerce.

The aim of this principle is to strengthen the rule of good faith that should be present in arbitration procedures, limiting the introduction of fresh arguments, which might suggest the bad of a party. This is precisely what happens when one party introduces an objection (that could have been presented during the arbitration procedure) for the first time in the subsequent judicial proceedings in an attempt to set aside the award against the party presenting the objection.[v]