CHILE: An Introduction to Dispute Resolution: Arbitration

PRACTICE AREA OVERVIEW  

CHILE: An introduction to arbitration 

The COVID-19 pandemic exerted an unprecedented impact on individuals, entities, businesses and nations. In Chile, it exploded while the country was still trying to navigate and adapt to the new political reality after the October 2019 social outburst and the subsequent process of discussing a new Constitution, which is still ongoing. Yet in this unstable environment, arbitration’s ability to contribute to stability and predictability strongly positioned domestic and international arbitration as an alternative method of dispute resolution.

The outlook for arbitration 

As in most countries, the pandemic brought to light the importance of introducing online platforms for pending disputes. At the outset of COVID-19, some measures for postponed processes were applied to both court and domestic arbitral proceedings. While Chilean courts took a massive leap forward with technology, arbitration cases were, as expected, very flexible to adjust to the conditions imposed by physical distancing policies. After only brief delays, the Arbitration and Mediation Center of the Santiago Chamber of Commerce (CAM Santiago, Chile’s main institution for the administration of domestic and international arbitration) continued to operate via remote platforms. We expect that this technology will be considered an indispensable tool even after the pandemic is far behind us.

COVID-19-related arbitration 

As Chile transitioned past the challenges of 2020, there was an increase in COVID-19-related litigation, with numerous claims for breach of contract being filed. After all, the economic disruption caused by the pandemic left various parties entangled in unprofitable agreements with outstanding obligations to perform.

An area of particular interest to arbitration practitioners has been the real estate market. In the early stages of the pandemic, when its long-term implications were still unclear, many landlords attempted to defer rent payments due to tenant defaults. Therefore, since mid-2020 and throughout 2021, there has been a significant rise in lawsuits filed by commercial owners against occupants for rent payments. Without any express provisions to excuse the non-performance of obligations, the latter resorted to a defence rooted in the doctrines of force majeure, frustration of purpose and disturbance of the contractual equilibrium. The same occurred in lease contracts with special provisions put in place. Litigators and tribunals have had to examine whether the solutions granted by such clauses are satisfactory, or whether – and to what extent – recourse to the general provisions of law is appropriate.

A similar phenomenon occurred in other types of commercial relationships, such as in the construction industry. Over the past few years, rising raw material prices, additional regulations and volatile global markets progressively constrained this sector. At the beginning of the pandemic, uncertainty halted several projects. In 2020, the Chilean Construction Chamber predicted that, because of disruptions, the investment would suffer a fall of 9.9% to 13.9% compared to 2019. In this context, construction-related arbitration grew at an unprecedented rate, which is why this area of law has received tremendous attention over the past few years.

Usually, some of these conflicted parties – the most sophisticated ones – have insurance policies. Over the last two years, arbitral tribunals have seen a substantial increase in claims filed by policyholders against insurance companies seeking business interruption coverage and the recovery of losses caused by government-directed shutdowns. This is why insurance-related arbitration has also received huge attention from the legal market.

International arbitration 

With the upsurge in stressed business relationships, international arbitration also grew. It has long been a preferred method for sophisticated parties to resolve cross-border disputes because, among other reasons, it is inherently flexible and arbitration awards are much easier to enforce. Perhaps more than ever, the advantages of international arbitration are evident.

In Chile, much has been written about the impact of COVID-19 on this dispute resolution method, frequently emphasising the flexibility of the proceedings, which is accurate. Parties, mostly subject to infrastructure and concession contracts, have shown a clear tendency to resort to international courts for dispute resolution, especially in cases between states and corporations. By far, the most in-demand institution for these disputes in Chile is the International Court for Arbitration of the International Chamber of Commerce (ICC). Lately, however, parties have also turned to other institutions such as the International Centre for Settlement of Investment Disputes (ICSID) and the CAM Santiago. We anticipate intense international arbitration activity in several industries over the coming years.

Upcoming challenges 

The approval and rollout of mass COVID-19 vaccinations across the world prompted many to look ahead to a “post-COVID” reality, although adapting to the effects of the pandemic and the new political context has not been easy.

These factors have changed the way contracts are executed, business conducted and law practised. Additionally, with constant regulatory modifications threatening to hamper growth and innovation, alongside the massive uncertainty provided by the process of discussing a new Constitution, many industries and businesses are reluctant to pursue new activities.

In this context, the main challenge that arbitration is facing is proving itself as a flexible and effective alternative dispute resolution method available to parties seeking prompt, professional and fair ways to resolve their differences with their counterparties. The experience gathered during the last two years may be helpful for achieving such a goal.

We expect that arbitration – with its inherent flexibility and its already proven ability to overcome unforeseen challenges – will play an important role as an alternative method of dispute resolution in dealing with the fallout from the economic and social crisis in the coming years.