Dispute resolution mechanism in upcoming PPP agreements in Argentina

Monday, April 16, 2018

By Juan I. Ruiz

Head of International Commercial Arbitration and Enforcement of Arbitral Awards

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The current administration is looking to boost infrastructure development through public private partnerships (PPP). This scheme, incorporated under Law. No. 27,328, came as an alternative to traditional public works contracts or concessions, precluding or limiting the application of some of the State prerogatives under Argentine Administrative Law. In these PPP projects the government expects to obtain private financing that can be repaid afterwards, with the flow of funds of the project itself.

In one of the first attempts to test this PPP scheme, a bidding process has been launched for the construction of over 7,500 km of highways and routes. The first offers would be opened on April 20, 2018. Among the terms and conditions available within the website of this call for bids, there is a draft contract with the respective dispute resolution clauses. This analysis will follow such draft, despite the fact that the authorities have acknowledged that future amendments may be introduced in this regard.

These PPP agreements would have different provisions depending if the dispute is considered a "Technical Dispute" or not. Technical Dispute is defined as any controversy or dispute in respect of technical issues, interpretation or property during the execution or termination of the PPP contract, and with respect to any other provision or measure adopted by the contracting entity, except for controversies or disputes related to the termination of the PPP contract for public interest reasons.

Technical Disputes have to be submitted to a "Technical Board" of three members to be appointed from a list of candidates. One of the members shall be appointed by the contractor, one by the contracting entity and the third shall be appointed by parties' agreement. If no agreement can be reached, the third member would be drawn by the PPP Sub-Secretariat. The contractor does not have to initiate any prior administrative claim, and in case it had done so, the submission of the dispute to the Technical Board would imply the resignation of such claim.

The Technical Board will have ninety days as from the last hearing or the last stage for document production (whatever occurs later) to issue a recommendation. In case the Technical Board fails to issue its recommendation before the deadline, or if any of the parties notifies its disagreement within fifteen days, the dispute may be submitted to arbitration. If none of the parties objects the recommendation it will become binding for the parties. Apparently, according to the draft, if the Technical Board does not issue any recommendation at all, any of the parties would be entitled to file the claim in court, although this would be against the arbitration clause explained below.

The PPP agreements would contain an arbitration clause that would cover any litigation, controversy or claim arising from the PPP contract and related documentation, non-compliance, termination or nullity. It will provide an ad hoc arbitration under UNCITRAL rules and the number of arbitrators would be three or one depending of the amount of the dispute (thresholds are not established yet).

The President or the single arbitrator shall not be national from any of the countries of the parties. The seat of the arbitration would be the City of Buenos Aires, Argentina, unless the contractor is subject to foreign control or if the proceeding involves non-resident beneficiaries of securities related to the project. In these cases, the tribunal will have to determine the seat (between three options that are not established yet), taking into account the nationality of the parties. The acceptance of this arbitral clause will require a resignation to pursue any claim under the provisions of any bilateral investment treaties (ICSID). Any issues related to the appointment of arbitrators will be solved by the appointing authority contemplated in the UNCITRAL rules.

The award will be final and the only actions that will remain will be the clarification and nullity actions, in accordance with article 760 of the Argentine Civil and Commercial Procedural Code. Courts would only analyze if there was an essential failure in the proceedings, if the arbitrators decided out of time, or over issues outside the scope of the arbitration, without reviewing the arbitrators' decision. This provision of the draft, fixing of the law applicable to set aside the award, would not be appropriate in the cases where the seat of the arbitration is located outside Argentina. It should be noted that according to the PPP Law (No. 27,328), arbitration clauses that imply an extension of the jurisdiction must be approved by the Executive Branch, and submitted to Congress.

Juan Ignacio Ruiz (jruiz@alfarolaw.com) is a corporate, commercial lawyer, with a practice in international arbitration and alternative dispute resolution under international institutions as the ICC or AAA, or in domestic institutions as the Tribunal of the Stock Exchange of the City of Buenos Aires or the Mediation and Arbitration Centre of the Argentine Chamber of Commerce.Additionally, he teaches international commercial arbitration at the University of Buenos Aires.