Obligation to refer to arbitration

In re: “Porcelli, Daniel y otro c/ ABN AMRO Asset Management Arg. SG y otro s/ordinario”.[1] the claimants requested before a State court that ABN AMRO Asset Management Sociedad Gerente de Fondos Comunes de Inversión S.A. and ABN AMRO BANK N.V. indemnify them for the damages allegedly suffered as a consequence of a breach of the investment fund’s management rules, to which they were parties.

The defendants filed a defense of incompetence, based on the arbitration clause they had entered into with the claimants.[2] The court refused such defense on the grounds that (i) in the arbitration clause the parties had agreed to submit to arbitration “... the disputes among the co-owners or among the active ruling bodies of the FUND...”, and therefore it interpreted that only those disputes would fall under the arbitral competence, but not the conflicts between one or more co-owners and one or more fund’s ruling bodies; and (ii) the arbitral competence must be interpreted restrictively.

The Commercial Court of Appeal revoked the above mentioned resolution on the grounds that it had been based on a partial analysis of the arbitration clause. In addition, it established that under the heading “disputes” said clause referred to “... all controversies on interpretation that might arise...”. Therefore, the rest of the clause should be construed within this general context, and any discrepancy regarding the interpretation of the investment fund’s management rules should be submitted to the arbitral tribunal appointed by the parties.

As regards the principle of restrictive interpretation of the arbitral competence, the Court of Appeal established that in this precedent the parties had clearly intended to grant jurisdiction to an arbitral tribunal to solve their disputes, and the claimant’s request for indemnification for damages arising from the breach of the investment fund’s management rules fell under the scope of the arbitration agreement. Finally, the Court of Appeal resolved that each party should bear their own legal expenses.

In our opinion, the Court of Appeal has adequately interpreted the effects of the arbitration agreement (in the understanding that such term refers both to the arbitration clause included in an agreement and to the arbitration contract entered into once the controversy has arisen).

Said agreement has a double effect: positive and negative. The positive effect refers to the obligation to respect what has been agreed. Hence, the controversy has to be submitted to the appointed arbitral tribunal. The negative effect indicates the State court’s restraint from acting in such cases where the parties have agreed to submit their disputes to arbitration. In this sense, it has been stated: “Upon the verification of the arbitration clause, the judge needs to act cautiously enough to avoid any interference with the competence granted by the parties to the arbitrators; more so when the scope of such competence has been agreed to extend to all effects arising from the agreement, as in this case. Otherwise, if the modification of the arbitral competence were allowed on any grounds, the diversion from what ultimately constitutes the common will of the parties would be favored in a very loose manner”.[3]

On the other hand, this negative or exclusive effect has also been included in Argentine private international law regulations arising from international conventions. In this sense, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards held in New York on June 10, 1958 (the “New York Convention” or the “Convention”),[4] not only regulates the execution of foreign awards, but also refers to arbitration agreements entered into in the context of international arbitration. In this sense, the Convention includes an essential supranational rule in its article II (3), which provides: “The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed”.

The article transcribed above sets forth the “obligation to refer to arbitration”, which – as we have explained – determines the incompetence of State courts to resolve the dispute if the arbitration agreement is invoked. Although this does not imply a total incompetence of State courts, it clearly indicates that their intervention is exceptional and limited to assistance and support to the arbitration,[5] especially considering that: “…the main purpose of the Convention’s rules regarding arbitration agreements is …to ensure that the international commercial arbitration will not be frustrated by court litigation over the same issues that fall under the arbitration agreement”.[6]