Supreme Court interpretation may restrict availability of arbitration

On July 18 2008 the Supreme Court of Venezuela admitted a question for a preliminary ruling filed by the Office of the Attorney General on the applicability of Article 258 of the Constitution, which establishes that the law must promote alternative means of dispute resolution.
According to the Office of the Attorney General, Article 258 must be interpreted in line with Article 22 of the Law on Promotion and Protection of Investments, which states that arbitration or other means of dispute resolution will not be used if they are not “expressly” encouraged by an international treaty to which Venezuela is a party. Furthermore, the attorney general suggested that even where an international treaty encourages alternative dispute resolution, the parties to a contract must have “expressly and unequivocally” agreed to submit to arbitration. 
The parties to international contracts tend to draft very specialized and precise dispute resolution clauses, especially in the field of intellectual property, due to the time and costs involved in the traditional court process. Moreover, arbitrators are experts in their fields, while judges may not have the relevant expertise. In addition, by choosing arbitration, the parties may select:
  • the forum and language in which the proceedings will be held;
  • the institutional rules to be applied; and
  • whether the proceedings will be confidential.
It is likely that the Supreme Court will issue a preliminary ruling that restricts the interpretation of Article 258 of the Constitution. As a consequence, parties would be precluded from submitting to arbitration any conflict that may arise within the context of an international contract. Such result would have dramatic consequences, as the national courts often fail to provide a final decision in business disputes within a reasonable time.
Therefore, if the Supreme Court follows the suggestion of the attorney general, it is likely that:
  • the number of international contracts involving Venezuelan parties will decrease; and
  • Venezuela’s reputation as an investor-friendly country will be damaged. 
Furthermore, if the Venezuelan courts refuse to recognize the validity of arbitral awards issued in other countries, arbitral awards issued in Venezuela are likely not to be recognized in other jurisdictions.
Should the interpretation of the Supreme Court restrict the availability of alternative dispute resolution in Venezuela, this will have an adverse impact on contracts involving trademark and other IP rights. In Venezuela, it is common to include arbitration clauses in trademark licensing agreements and assignments, among other types of contracts. Such an outcome would be detrimental to the economy as a whole.
Daniela Rojas, Estudio Antequera Parilli & Rodríguez, Caracas

Unlock unlimited access to all WTR content