Guatemala Alvaro Castellanos Consortium Ciudad Guatemala [email protected] Law firm bio

1. What are the current challenges to enforcement of multi-tiered dispute resolution clauses? First of all, it is important to note that Guatemala has an Arbitration Act, substantially based on the 1985 Uncitral Model Law on International Commercial Arbitration. Therefore, no express reference is made to “multi-tiered dispute resolution clauses”, as it only defines an “arbitration agreement” and the form that such agreement must comply with. (Decree 67-95 of Congress, articles 4 (1) and 10 (1) ). Therefore, challenges to enforce a “multi-tiered dispute resolution clause” (simply “the Clause”, or “Clauses”) are principally related to a good drafting of such Clauses. Poor quality drafting can lead, directly, to confrontations on what was agreed upon by the parties. There is just one case known to this reporter, after due research, related to enforceability of a Clause. It was related to a request of AMPARO by one party. (AMPARO is a type of constitutional procedure in which a party claims a violation of a fundamental right, and requests protection from a Court, known as Court of Amparo, in order to gain protection and termination of such violation of his, her or its rights. Literally, “amparo”, translated to English, means “protection”.) The particulars of such case are described below, through some of the issues covered under this questionnaire. It is the opinion of the reporter, based on practice both as Arbitrator and Member of the Board of Directors of a local arbitration institution, that parties to contractual arrangements where an arbitration agreement has been included, normally do not contemplate multi-tiered dispute resolution mechanisms. The use of mediation is not favored in local practice. The reasons may be related to insufficient levels of confidence on the mechanism, or its final perceived, nonbinding nature. As a matter of fact, the Arbitration Act of Guatemala, though its title, contains two provisions in it, in which “conciliation” is briefly regulated. Article 49 contains a definition of “conciliation”, and article 50 succinctly refers to some characteristics of it, and it states that the result of the conciliation shall be regarded as “hard evidence” in a judicial or arbitral proceeding. Other alternative dispute resolution mechanisms, such as conciliation or mediation, except for some particular type of cases (in subject-matters related to family law and labor law, prior 84

conciliation efforts are required before actually filing a law suit), are not even mandatory or requested before actually filing a lawsuit in a local competent court. Therefore, there might be some culturally-based reasons not to favor the multi-tiered dispute resolution systems available or favored in some other jurisdictions. That is not to say that parties cannot, and actually do in rare occasions, include Multi-Tiered Dispute Resolution Clauses in their contractual arrangements. Some practitioners might see or interpret obligations to “negotiate in good faith” as a prerequisite to initiate arbitration, or even, mediation before arbitration, as a “cool off” period. 2. What drafting might increase the chances of enforcement in your jurisdiction? No other recommendation can be better than simple and very clear drafting of the respective Clause. For example, in a number of jurisdictions the decision to enforce or not has come down to considerations such as the following: A.

Does the clause expressly provide that prior stages are “conditions precedent” to litigation or arbitration?

Calling a prior stage to arbitration or litigation as a “condition precedent” (condición suspensiva), might be a good legal technique. But it should be carefully drafted, in order to avoid unnecessary delays in the future. For example, no ambiguity shall be left in topics such as when the condition precedent starts and for what period of time, in order to have certainty of the moment the condition has been met or any prior state, duly exhausted, either by actual use, or by waiver to actually use it during such period of time. In Guatemala, perhaps the only instance where the use of other means of dispute resolution must be actually exhausted before commencing arbitration, is in investment disputes. In particular, investment disputes arising out of “protected investments” under USA-DR-CAFTA (art. 10.16. 2 and 3). A mandatory “cool off” period of six months is provided. An arbitral tribunal may consider this period as part to the consent to submit the dispute to arbitration, in the sense that if such period has not expired, arbitration proceedings might be rejected through a defense of lack of jurisdiction. Of course, the possibility of an amicable resolution between the parties is clearly favored during such 6-month periods. B.

Does the clause use mandatory language (e.g., “shall” or “must” negotiate or mediate) as opposed to discretionary language (“may” or “should”)?

If parties are really inclined to multi-tiered dispute resolution provisions, they should avoid as much as possible, discretionary language. Mandatory language such as “shall” or “must” is highly recommended. C.

Does the clause specify deadlines and time limits for each of the prior stages?

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Not contemplating a specific deadline or a term to exhaust prior stages to litigation or arbitration, is a call for delay or even worse, malicious or bad-faith litigation. D.

Does the clause specify the number of negotiation sessions?

Stipulating for a number of negotiation sessions is not common practice in Guatemala, although it would be completely legal to do so. Notwithstanding this, it is not recommended, because if one party simply does not appear in one of the sessions, a new dispute may arise over whether the number of negotiation sessions needs to be actually exhausted, or over whether the nonappearance of one or both (or all) parties shall be regarded as an actual “session”. E.

Does the clause specify the identity of negotiation participants? E.G., project engineers, company officers, etc.

This is rarely seen in Guatemala. Dispute resolution provisions in construction agreements or in other sorts of more “technical” contracts, such as power purchase agreements, might include “technical disputes” resolution methods, calling for the direct participation of some company officers, before filing for another dispute resolution method. F.

Does the clause specify mediation pursuant to specific rules?

That would normally be the case. In the Guatemalan legal community, there are two well-known and well-established arbitration and conciliation centers. Reference to the conciliation rules of those institutions are expected if any reference is made to conciliation prior to arbitration proceedings. Notwithstanding the prior statement, practice demonstrates that parties prefer to refer to “negotiation in good faith periods” between them as a prerequisite to initiate arbitration, rather than to conciliation or mediation. G.

Does the clause specify mediation using a particular dispute resolution institution?

Please, see response to item F above. H.

Does the clause specify consequences for failure to undertake the prior stages?

Again, this depends on drafting techniques and negotiation abilities of the respective clause, but in the cases of actual multi-tiered dispute resolution clauses analyzed in preparing this report, normally there are no reference to consequences for failure to undertake prior stages. 3. If your courts have enforced such clauses, how have they done so? A.

Dismissing litigation where the parties have failed to undertake the prior stages.

As stated before, there is just a single case where the subject-matter of the judicial dispute has 86

been the enforceability of a multi-tiered dispute resolution clause. The case is an “Amparo” action. Case No. 251-2009, Court of Constitutionality. Parties to this case provided in the clause that, prior to commencing arbitration under the rules of the Arbitration and Conciliation Center of the Chamber of Commerce of Guatemala, a 30 day period for Conciliation should exhausted. Both arbitration and conciliation should be conducted under the applicable rules of said Center. If after the 30 day period, parties did not reach a resolution of the dispute through conciliation, arbitration was immediately available. Notwithstanding that one party actually initiated the conciliation procedure, the other party never appeared in any hearing, though duly noticed such procedures. Once the 30-day period was completed, the claimant requested a certificate from the Center to declare that the “conciliation period” was exhausted. Once the Center issued such certification, the respondent immediately reacted, filing for a legal recourse that is only available for administrative resolutions issued by governmental authorities. As the Center rejected “in limine” such recourse, for being completely inapplicable, the respondent filed for a constitutional protection (Amparo) against the determination of the Center to issue such documentation. The case ended up at the Court of Constitutionality (CC), as all “amparo” procedures can be subject to second and final instance at such high court. CC rejected all arguments that constitutional rights were violated by the Center, including due process, right to access to justice, and other internationally recognized human rights, and denied the writ of protection requested, meaning that the arbitral proceedings should be continued. B.

Staying litigation or arbitration until the parties have completed the prior stages.

Based on the brief description of the case, and due to the fact that, in essence, the arguments of respondent were considered in bad faith (penalties were imposed on that party for seeking unfounded constitutional protection), all to the contrary of staying arbitration, the claimant was allowed to continue with the arbitration proceedings. C.

Awarding attorney fees and costs to a party that commenced litigation or arbitration without first undertaking the prior stages.

Again, based on the only case reported, the attorney fees and costs were imposed on the party trying to evade arbitration by simply not appearing during the conciliation, a step considered as a prerequisite or “condition precedent” to arbitration. D.

Vacating arbitration awards or reversing court judgments where the parties failed to undertake the prior stages.

No cases are known that could have led to such judicial determination. The Guatemalan Arbitration Act does not contemplate a direct or express cause for annulling or granting a stay of enforcement of an arbitration award due to a failure to undertake prior stages. But, article 43 (2) (a) (iv) provides, following the text of the Model Law of Uncitral, that if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, 87

or, failing such agreement, was not in accordance with such Law, such cause can be claimed in an annulment proceeding. This provision of the Arbitration Act may be used for such request to vacate an arbitration award if a multi-tiered dispute resolution clause was originally provided for and the prior stages were not fully satisfied. 4. Please give an example of a clause that has been found to be, and remains, enforceable in your jurisdiction. The provision subject to judicial review in Case 251-2009, CC, that was found, and remains, enforceable in Guatemala, provides as follows: “In the event of any disputes arising out or in connection with the application, interpretation or fulfillment of this Agreement, either during its term or at its termination, such disputes shall be resolved by conciliation. If within a period of 30 days since the commencement of conciliation, the conflict is not resolved, then it shall be finally resolved by arbitration “in equity”, and all of the above, according to the Rules of Conciliation and Arbitration of the Center of Arbitration and Conciliation (CENAC) of the Chamber of Commerce of Guatemala.”

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