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Irma Isabel Rivera
Brigard Urrutia, Bogotá

Paula Varón Londoño
Brigard Urrutia, Bogotá

elai@bu.com.co

The Colombian Council of State, as the competent Court to decide applications for setting aside and recognition of awards involving Colombian public entities, recently issued two decisions in this regard.

In the first decision (Gecelca), the Council of State vacated an award as it considered that the arbitral tribunal disregarded the procedure agreed by the parties. In the second decision (Bioenergy), the Council of State recognised an international award.

The Council of State decision in the Consortium CUC v Gecelca 3 case[1]

Background 

Gecelca 3, as representative of Gecelca (a Colombian State-owned corporation) entered into an agreement with China United Engineering Corporation and Dongan Turbine Co. (hereinafter referred as the ‘Consortium’) for the construction, installation, and operation of a thermal power plant. Based on an alleged breach of the said agreement, Gecelca imposed a penalty of US$10,425,000 on the Consortium, which then filed for international arbitration against Gecelca and Gecelca 3.

In its Procedural Order No. 1 (‘PO1’), the Tribunal established that, preferably, the procedure agreed by the parties would be applicable to the dispute, and to the extent not therein provided, proceedings will be conducted under the Rules of International Arbitration (‘RAI’) of the Arbitration Center of the Chamber of Commerce of Bogotá and the Colombian Arbitration Statute.

During the proceedings, the Consortium was allowed to submit a correction to an opinion of one of its experts. Gecelca 3 argued that the said correction was a new expert report, and so it requested an opportunity to file a rebuttal expert report. The tribunal denied Gecelca´s request, as it held that paragraph 62 of PO1 applies on an exceptional basis and only entitled the parties to submit a rebuttal expert report if the expert opinion filed by the other party contains new points and/or technical arguments presented for the first time, which was not the case.

On 4 December 2017, the arbitral tribunal issued the final award in which it revoked the fine imposed to the Consortium, and, ordered Gecelca 3 to pay damages to Claimant. 

Gecelca 3 filed a request for setting aside the final award, arguing, among others, that the arbitral tribunal disregarded the procedure agreed by the parties, as it did not authorized Gecelca 3 to submit a rebuttal expert report to the Consortium’s latest expert report.

The decision by the Council of State

The Council of State first held that the analysis of the annulment ground relating to the tribunal disregarding the procedure agreed by the parties has been dissimilar. Particularly, the ruling noted that in some jurisdictions, the arbitration laws provide that the petitioner must only prove that the procedure agreed by the parties was disregarded[2], while under other arbitration statutes the judge of the annulment must analyze the effects of the procedural deviation incurred by the tribunal, and if said deviation does not have a significant impact in the proceeding and/or the decision, then the ground will not prevail[3].

The Council of State then concluded that Article 108 d) of the Colombian Arbitration Statute did not subject this ground for annulment to the petitioner’s ability to demonstrate the effects and/or materiality of the procedural irregularity. Instead, the Court held that the procedure agreed by the parties should be followed objectively, so its application was not subject to any analysis or interpretation by the arbitrators. 

In view of the above, the Council of State determined that an award should be annulled if it was proved that the arbitral tribunal disregarded the procedure agreed by the parties, without any consideration as to the materiality and/or effects of the procedural flaw incurred by the arbitrators. In other words, the Court was of the opinion that this ground for annulment will prevail even if it was demonstrated that the tribunal’s decision will be the same one, even if it followed the procedure.

For this particular case, the Council of State considered that paragraph 62 of PO1 did not subject the possibility to file a rebuttal expert report to the existence of new points and/or technical arguments in the expert report to be rebutted. Accordingly, the ruling concluded that, by not granting Gecelca 3 the opportunity to provide a rebuttal expert report to the latest one filed by the Consortium, the arbitral tribunal disregarded the procedure agreed by the parties and deprived Gecelca 3 of a defense opportunity. Consequently, the Council of State ruled for Gecelca 3, thus vacating the award.

There are three main issues that must be highlighted from this ruling.

First, in 2018 the Colombian Supreme Court of Justice held that, in addition to proving that the arbitral tribunal disregarded the procedure agreed by the parties, this ground for annulment required proof that there was a material impact on the entire arbitration proceeding, and not only on a specific stage. However, in this decision, the Council of State was of a different opinion.

Second, in this ruling the Council of State did not refer to the interpretation of article 6.3 of Law 1285[4]vis-à-vis the possibility for public entities to execute agreements providing for international arbitration. This interpretation is somehow expected, particularly considering the decisions taken by the Council of State in the ‘Termorío’[5]and ‘La Miel’[6]cases.  

Third, one of the Justices submitted a dissenting opinion, as he considered that an award cannot be vacated just by evidencing a deviation of the procedure agreed by the parties, since the judge must analyze the importance and effect of said deviation on a case-by-case basis. 

The Council of State decision in the Bioenergy v Isolux case[7]

Background

Bioenergy, a Colombian State-owned corporation, entered into a contract with Isolux, a foreign company based in Spain, for the construction of a fuel alcohol production plant. As a result of several discrepancies in the performance and termination of the contract, Bioenergy filed for international arbitration against Isolux. The seat of arbitration was Houston, Texas.

The Tribunal partially upheld the claims of both parties. Isolux then filed a request for recognition of the award before the Council of State[8]. Bioenergy opposed the request for recognition, arguing that either it was capable of executing the arbitration agreement, or that the said agreement was not valid under the law applicable to the contract. 

The Council of State decision

The Council of State recognized the award, as it concluded, on the one hand, that Isolux complied with all the formal requirements established in the Colombian Arbitration Statute[9]; and, on the other hand, that there was no ground for refusing said recognition, either at Bioenergy’s request or ex officio.

To that end, the Court considered that, contrary to Bioenergy’s arguments, the latter was indeed a public entity, and according to the principle of separability and autonomy of the arbitration agreement, any nullity, invalidity, or ineffectiveness of the contract would not affect the arbitration clause.

Particularly, the Court held that, pursuant to Article 62 of the Colombian Arbitration Statute, public entities cannot invoke domestic law for challenging their capacity to enter into an international arbitration agreement, especially if they have already executed an arbitration agreement.

Since the parties remained silent on the applicable law to the arbitration agreement, the Council of State determined that Colombian law should be applicable to said agreement, as it was the law applicable to the contract. The ruling then analyzed the arbitration agreement under Colombian law, concluding that it met all requirements therein established, thus it was valid and enforceable.

Further, the Council of State concluded that there were no grounds for annulment that could be upheld ex officio, particularly considering that the decision only affected the interests of the parties and there were no matters or issues that could compromise Colombia's essential or fundamental values and principles.

Finally, one of the Justices submitted a separate opinion, expressing that the Council of State should not have referred to grounds for refuse the recognition ex officio, and that from the decision cannot be inferred that any disregard for procedural rules, which do not have a material impact on the award, may imply a transgression of Colombia's international public order.

Conclusion

Thus far, the Colombian Council of State decisions on setting aside and recognition of international arbitration awards involving Colombian public entities are scarce, and their study is at an early stage. Therefore, the decisions in the Gecelca and Bioenergy cases will be relevant for future decisions on annulment, recognition, and enforcement of international awards that the Colombian Council of State will render.

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