Control of objective arbitrability when enforcing an arbitration award: Intervention of the ordinary jurisdiction in arbitration proceedings in Peru

In summary

This article explores how the coexistence of the ordinary jurisdiction and domestic arbitration is necessary in specific cases. First, when the annulment of an arbitration award issued by a court of arbitration is requested. Second, when the losing party is reluctant to comply with the arbitration award, and the judge is asked to enforce it. However, this coexistence should be limited.

Discussion points

• Validation of the control of the objective arbitrability by the ordinary jurisdiction
• The coexistence of the ordinary jurisdiction and arbitration: events in which judges should not interfere with decisions taken in an arbitration proceeding in Peru

Referenced in this article

• Constitutional Tribunal Judgment No. 432/2023
• Legislative Decree No. 1071
• Superior Court of Justice of Lima Resolution No. 13, No. 10 and No. 5
• State Contracting Act
• Arbitration Act

Validation of the control of the objective arbitrability by the ordinary jurisdiction

The Peruvian Constitutional Tribunal, by way of an action for protection, validated the control of objective arbitrability by the ordinary jurisdiction, in a proceeding for enforcement of an arbitration award.

In September 2023, the Constitutional Tribunal issued Judgment No. 432/2023, in an action for protection (Case File No. 607-2022-PA/TC) lodged by a company organised under the laws of our country (the Contractor) against judges composing the Second Civil Court, with sub-specialty in trade of the Superior Court of Justice of Lima, for having exercised the control of arbitrability in a proceeding for enforcement of an arbitration award and declared the inadmissibility of compliance with what the Court of Arbitration had resolved, because they observed that the latter would have resolved on a matter that, in the judgment of said Court, would be banned from arbitration, owing to the interpretation of a provision of the State Contracting Act.

As is well known, the enforcement of an arbitration award is burdensome. Upon completion of the proceeding, if the losing party is reluctant to comply with what is resolved by the Court of Arbitration, the winning party – according to article 68 of Legislative Decree No. 1071 – is entitled to resort to judicial power to demand the losing party fully comply with what was ordered by the Court of Arbitration.

Thus, the aim of the arbitration proceeding, which is prior to the controversy that is being seen on civil or commercial and constitutional channels, followed by the Contractor against the Lima Metropolitan Municipality (the Municipality), was to solve certain controversies around the performance of a supervision agreement executed by both parties.

This arbitration proceeding ended with the issuance of an arbitration award of law, dated 17 March 2014, in which the Municipality was ordered to comply with paying the Contractor certain amounts of money for various reasons. Because the Municipality was reluctant to comply with the payment of amounts for indemnity, legal interests and others, the Contractor, in September 2014, filed a complaint for enforcement of the arbitration award before the first instance judge specialised in trade of the Lima Court.

The Court issued two relevant resolutions: Resolution No. 10, whereby it approved the liquidation of legal interests drawn for the reasons ordered by the Court of Arbitration in the arbitration award; and Resolution No. 13, whereby it ordered to continue with the enforcement and declared admissible the part of the award referring to payment of the costs and expenses of the arbitration proceeding. Due to the foregoing, the Contractor and the Municipality filed a remedy of appeal on the parts that were unfavourable to each party.

Consequently, the Second Civil Court of the Superior Court of Justice of Lima (which specialises in trade matters) issued Resolution No. 5, whereby it resolved the writs filed and, in contravention of what is set forth in the general provision of national arbitration, it exercised a control of objective arbitrability and determined that the part of the arbitration award referring to the payment by the Municipality to the Contractor, for the sum of 373,906.20 Peruvian sol plus adjustments and interest, for indemnity for unjustified enrichment, was not a matter that could be submitted to arbitration.

Against this last resolution, the Contractor filed an action for protection (on the constitutional channels), in which it requested the declaration of nullity, because the judges of the Superior Court made an in-depth analysis about the resolution of the arbitrators. That is to say, in a proceeding for enforcement of an award, the judges focused on the substantive controversy and determined that what was decided on in arbitration channels did not constitute a matter subject to arbitration; thus, it was inadmissible to order the enforcement thereof.

Finally, the Constitutional Tribunal resolved this complaint and limited itself to indicate that the resolution contested was duly motivated and, therefore, it was valid. Hence, it declared the complaint groundless.

Both pronouncements – the resolution issued by the Superior Court and the one issued by the Constitutional Tribunal – constitute precedents that may entail an undue meddling by ordinary and constitutional judges in arbitration proceedings that are submitted to enforcement. Is it juridically possible that a civil or commercial judge, when enforcing an arbitration award, exercises control of objective arbitrability? Does such meddling constitute a breach of the res judicataconstitutional principle? Which measures can be adopted in the case of such judicial decisions? Does the decision of the Superior Court constitute an ex officio declaration of annulment of the arbitration award concealed in an inadmissibility of the enforcement? In this article, we attempt to find the answers to these questions.

The coexistence of ordinary jurisdiction and arbitration: events in which judges should not interfere with decisions taken in an arbitration proceeding in Peru

The arbitration, as a mechanism to solve conflicts in Peru, under the hetero-composition system, has had exponential development in the past 10 years. For example, the Lima Chamber of Commerce, in its more than 30 years of existence, has handled more than 7,000 arbitrations.^[1] Additionally, to date, there are 244 centres registered in the National Registry of Arbitrators and Arbitration Centres in Peru.^[2] Therefore, the foregoing shows the great reception this mechanism has had in Peru to solve controversies derived from commercial matters and contracting with the state, among other matters.

Domestic arbitration coexists with ordinary jurisdiction; in our case, with commercial jurisdiction. The foregoing, to the extent that the legislator vested the judge with power to determine whether an arbitration award should or should not be annulled, is in accordance with the limited events provided for in the Arbitration Act. Likewise, unlike a court of arbitration, the judge has the power to order the losing party to comply with what was resolved in the arbitration proceeding. Therefore, the participation and meddling of the judiciary in a controversy between private parties settled by arbitration deserves strict analysis (which is not within the scope of this article).

Nevertheless, it is opportune to lay on the table the figures about the coexistence herein referred to in order to note whether the judge, in Peru, avoids participating or intervening in arbitration proceedings and retains the decision of the Court of Arbitration – the latter, with the sole purpose to avoid the ‘judicialization of the arbitration’. Thus, the research work ‘Study of annulment in 2022’, prepared by the Lima Chamber of Commerce, shows extremely relevant data that plots the ratio of the appeals for annulment of arbitration awards that are declared ‘grounded’ during the year. The sample used was 399 judgments issued by both the First and the Second Trade Court of the Superior Court of Justice of Lima.^[3] The result of this research was the following:

Figure 1. Success of the appeal for annulment^[4]

Graph taken from the research ‘Study of annulment in 2022’. Blue: annulments that were declared groundless. Orange: annulments that were declared grounded.

While a definitive conclusion cannot be reached from the above graph, the results reveal that during 2022, the ordinary judge – mostly – dismissed appeals for annulment of arbitration awards, which means that a great number of arbitration awards that were presented before the courts remained valid.

What has been stated in this article up to this point is relevant for the analysis of the judgment issued by the Second Trade Court of Lima, mentioned in the first paragraph: a practical case in which it is evidenced there is coexistence between ordinary jurisdiction and arbitration. In fact, the decision issued by the Court was not within the framework of an appeal for annulment of the award but judicial enforcement. As stated by the Court, the Contractor – pursuant to article 68 of Legislative Decree No. 1071 – resorted to the judiciary to assert its right contained in the arbitration award dated 17 March 2014.

This type of complaint (the enforcement of awards) is processed via unique enforcement proceedings: because the award constitutes an executive title, in accordance with article 688 of the Civil Procedural Code, in which an in-depth analysis of the controversy is prohibited, the judge, for instance, could not ‘fail to enforce’ the arbitration award owing to the analysis of a lack of motivation, or owing to a wrongful assessment of the means of proof offered in the arbitration proceeding, or due to the violation of the right to defence, or the lack of contradiction. The judge only determines whether the obligation contained in the title is true, express and enforceable. And in the case of obligations to give amounts of money, the judge identifies whether they are liquid or payable.

In this case, the Second Trade Court of Lima resolved the remedy of appeal filed by the Contractor and by the Metropolitan Municipality of Lima and determined that the third subordinated claim posed in the arbitration complaint (by the company) and supported by the tribunal, referred to the payment for unjustified enrichment for the amount of a larger provision of the supervision services in the sum of 373,906.20 Peruvian sol, but deemed to be a matter not subject to arbitrationbecause of the express mandate contained in article 41.5 of the State Contracting Act, which states as follows:

Article 41. Additional obligations, reductions and extensions

. . .

41.5. The decision of the Entity or the General Comptroller’s Office of the Republic whether to approve or not the performance of the additional obligations cannot be submitted to arbitration. Neither can be submitted to arbitration the controversies referred to the performance of the additional obligations of work and further supervision services that require the prior approval of the General Comptroller’s Office of the Republic.

Thus, from the above, it can be deduced that the legal provision makes reference to the impossibility to submit unjustified enrichment to arbitration. Nevertheless, the Second Trade Court made an interpretation of the claim and concluded as follows:

TWELFTH.- In this line of thinking, this court concludes that the Third Subordinated Claim posed by the Contractor on arbitration channels, under the euphemism of “indemnity for unjustified enrichment” is nothing but a mechanism to circumvent the express prohibition of article 41° of Legislative Decree 1017 and obtain indirectly what it could not obtain in a direct manner

The Court makes reference to ‘a mechanism to circumvent the express prohibition to... obtain indirectly what it could not obtain in a direct manner’ as in the third main claim of the arbitration complaint, the Contractor requested payment of the amount for greater performance of services and the Court of Arbitration was final when dismissing this claim based on the grounds set out in item 22.8 of the arbitration award: ‘any additional obligation of the Supervision Agreement must necessarily be approved by the Entity’.

This is why the judicial body opted for attributing an interpretation to the third subordinated claim filed by the plaintiff to conclude that, ultimately, the Contractor used a euphemism to obtain the payment under the concept of ‘unjustified enrichment’, and therefore, according to the interpretation made, it would constitute a violation of the provision contained in the General State Contracting Act and would be a matter not subject to arbitration.

Such decision, undoubtedly, is a significant precedent, as it necessarily raises the question: is a judicial body empowered to interpret the claims filed by the plaintiff in the arbitration complaint; and, as a result thereof, determine whether it is a matter subject to arbitration? And an additional question: is that juridically possible in a unique proceeding for the enforcement of an arbitration award?

The declaration of inadmissibility of the enforcement of this extent of the award represents in the end an ex officio annulment of the award, since the judicial body issued a pronouncement about the substance of the controversy, despite, from what has been stated, it is not dealing with an event in which public order rules have been breached, but with an interpretation of the Superior Court of a claim filed through arbitration channels, which in its judgment, constitutes a matter not subject to arbitration.

As a result of the pronouncement of the Superior Court, the Contractor filed an action for protection against the resolution, in which it alleged a violation of the res judicata constitutional principle and the right to the due motivation of the judicial decisions.

In the last instance, the Constitutional Tribunal resolved the complaint and dismissed it based on the following arguments: the resolution challenged by constitutional means is duly motivated; and the decision that was submitted to the action for protection is grounded in law, as it is juridically possible to exercise arbitrability control with the enforcement of the arbitration award.

That is to say, not only did the ordinary jurisdiction issue a pronouncement about the possibility to perform objective control in a unique proceeding to enforce an arbitration award, but the constitutional jurisdiction did as well. While the pronouncement of the Constitutional Tribunal is the result of the questioning of the pronouncement of the Superior Trade Court of Lima, the truth is that it has a direct adverse bearing on the enforcement of the arbitration award. Therefore, this case constitutes an opportunity to determine whether an ordinary judge in Peru is empowered to analyse the substance of a dispute in the enforcement of an arbitration award under the judicial task of ‘control of the legality of the executive title’.

In our opinion, the decision of the Second Trade Court of Lima, apart from contravening several provisions contained in the Arbitration Act, violates the status of res judicata that the arbitration award that was submitted to enforcement had (and should have).

We agree that in the unique enforcement proceeding it should be assessed whether the arbitration award – by itself – breaches public order rules. Nevertheless, the foregoing in no way presumes that the court will make interpretations of claims posed in the arbitration complaint to conclude that both the request and how the claim is resolved by the Court of Arbitration constitutes a matter not subject to arbitration. Such objective arbitrability control must be performed according to certain parameters that will prevent the judge from interfering in the substantive matter of the dispute already resolved through arbitration channels.

However, the arbitrability control implemented by the Trade Court and validated by the Constitutional Tribunal is not the general rule; it is not common – in judicial practice – for the enforcement of an arbitration award to determine whether the controversial matter should have been submitted to and settled by arbitration. The general rule is that control should be within the framework of an annulment of the arbitration award, as is established in article 63 of Legislative Decree 1071.

As discussed in this article, it is convenient – to reduce the contingencies when enforcing an arbitration award in Peru – that the interested party, prior to the issuance of the underlying decision, requests the tribunal to be extremely clear as to the terms of the ruling, which determines accurately the amount of the obligation, in the event of payment orders, and wherever there is the slightest possibility of questioning the matter subject to arbitration; it specifies the grounds on which it is competent to take over the settlement of the dispute.

Conclusions

The coexistence of the ordinary jurisdiction and domestic arbitration is necessary if, in the cases expressly established by law, the annulment of an arbitration award issued by a court of arbitration is requested, and in the cases in which the losing party is reluctant to comply with what was ordered, the judge is requested to order the enforcement of the arbitration award. Nevertheless, this coexistence, although necessary, should be limited.

A recent judgment issued by the Constitutional Tribunal validates a controversial judicial decision that exceeds the object and scope of the unique enforcement proceeding, in which the title subject matter to enforcement is an arbitration award.

The ‘legality control’, especially in the enforcement of arbitration awards, must have certain rules of application. One of these should be limited to the prohibition of an ordinary judge interpreting the claims or grounds raised by the plaintiff in the arbitration seat, to conclude that what was resolved by the court of arbitration is not subject to arbitration.

To avoid contingencies in the judicial enforcement of an arbitration award in Peru, it is relevant that the parties – especially the plaintiff – requests that the court resolve any payment order beyond doubt, so that such debt can be enforced. That is to say, the amount of the obligation should be expressly determined by the court and have the characteristics required by the procedural rule: the obligation must be liquid or payable. Otherwise, anyone who resorts to ordinary jurisdiction to enforce its right is going to face situations like that of the Contractor, in which the inadmissibility of the enforcement is declared for lack of accuracy of the amount intended to be collected.

Endnotes

^[1] Consult https://www.arbitrajeccl.com.pe/quienes-somos-centro-arbitraje-ccl/#:~:text=Actualmente%20es%20la%20instituci%C3%B3n%20m%C3%A1s,470%20%C3%A1rbitros%20nacionales%20e%20internacionales.

^[2] Consult https://renace.minjus.gob.pe/renace/public/consulta/consultaMain.xhtml.

^[3] Montes Gózar, Sandra, Olórtegui Huamán, Julio, Rivas Caso, Gino and Wong Abad, Julio, ‘Study of annulment of arbitration awards in 2022’, prepared with the institutional support of the Lima Chamber of Commerce, p. 15.

^[4] ibid.