Source: https://library.iccwbo.org/content/dr/ARTICLES/ART_0636.htm?l1=Other+Publications&l2=International+Arbitration+Under+Review
Timestamp: 2019-09-22 17:16:43
Document Index: 57607358

Matched Legal Cases: ['ART_0636', 'Art. 1328', '§ 694', '§ 605', '§ 694', '§ 605', '§ 694', '§ 694', '§ 605', '§ 694', '§ 605', '§ 694', '§ 605', '§ 9', '§ 12', '§ 11', '§ 13', '§ 8', '§ 694', '§ 605', '§ 605', '§ 15']

﻿ Article: Merck Revisited: A Decision Ten Years Late Author: Eduardo Zuleta1 Published in: International Arbitration Under Review: Essays in Honour of John Beechey Link: http://library.iccwbo.org/content/dr/ARTICLES/ART_0636.htm?l1=Other+Publications&l2=International+Arbitration+Under+Review%3a+Essays+in+Honour+of+John+Beechey
Partner with the Colombian law firm Gomez-Pinzon Zuleta and director of the firm's international arbitration and litigation department; ezuleta@gpzlegal.com.
The author would like to thank Rafael Rincon and Nicolás Esguerra for their assistance in the preparation of this article.
Merck Revisited: A Decision Ten Years Late
2.1. The Colombian Constitutional Court and the prima facie review of arbitration agreements
2.2. The Supreme Court's ambivalence in applying the New York Convention
This article will revisit a landmark ICC case that led to a clash of cultures in the Colombian arbitration landscape. The Merck case2 revealed shortcomings in the law and practice of arbitration in Colombia. Since then ( and partly thanks to the outcome of this case ( international arbitration in Colombia has evolved, as evidenced by the enactment of the National and International Arbitration Statute in 2012 (the 'Statute') and by decisions of the courts, particularly the Supreme Court of Justice, related to the recognition of arbitral awards. However, such decisions could be said to have come with ten years' delay. The approach that the Supreme Court was asked to take, and disregarded at the time, is the approach that is now being applauded as a major step forward in the interpretation of the law and the New York Convention.
It is true that during the 1980s and 1990s, Colombia's arbitration laws were substantially different from those now in force. Today, the Statute offers straightforward answers that would have easily settled the debate in the Merck case. However, Colombia's problem was not just the incompleteness of its arbitration laws, but rather (and this persists even today) the immaturity of the local arbitration culture when compared to the international practice of arbitration.
A dispute arose out of five contracts between Tecnoquímicas S.A. ('Tecnoquímicas'), a Colombian company, on the one hand, and Merck y Co Inc., Merck Frosst Canada Inc., and Frosst Laboratories Inc. (together, 'Merck Companies') on the other, for the licensing, manufacturing and distribution of certain products by Tecnoquímicas (the 'Contracts'). The Contracts were entered into for a ten-year term, [Page444:] with the possibility of automatic renewal unless either party notified the other, with advance notice as provided in the given contract, of its intent not to renew. Prior to the expiration of the contractual term, and within the term provided for in the Contracts, the Merck Companies notified Tecnoquímicas of their intention not to renew the Contracts.
After receiving the notice of non-renewal, Tecnoquímicas claimed that the Contracts should be considered as constituting a single relationship, which it qualified as commercial agency,3 and not separate agreements. Based on its allegation that the relationship was one of commercial agency, Tecnoquímicas concluded (i) that the relationship was governed exclusively by Colombian law4 and (ii) that it had the right to withhold the funds owed to the Merck Companies.5 Upon termination of the Contracts, Tecnoquímicas proceeded to withhold and refuse payment of all amounts owed to the Merck Companies.
Save for a slight variation in the contract with Frosst Laboratories, each of the Contracts contained the following arbitration clause:
All disputes arising in connection with this Agreement or its termination or with any contract of sales hereunder shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules. Any such arbitration proceeding shall be held in Newark, New Jersey, United States of America, and shall be conducted in English. Any award rendered through arbitration shall be final and binding on both parties. Either party may enter the award in a court of competent jurisdiction for judgment by the court upon the award and enforcement thereof. The parties specifically consent to such arbitration and award, and to appearance before any court of competent jurisdiction, and to judgment and enforcement by such court.
To obtain payment of the amounts withheld by Tecnoquímicas, the Merck Companies filed a request for arbitration with the ICC International Court of Arbitration in February 1997. Tecnoquímicas disputed the jurisdiction of any tribunal appointed by the ICC, arguing that the reference in Article 1328 of the Commercial Code of Colombia to 'Colombian law' being applicable to commercial agency relationships covered both substantive and procedural law,6 and that therefore not only was the relationship between Tecnoquímicas and the Merck Companies subject to Colombian substantive law, but disputes arising [Page445:] from that relationship were subject to the exclusive jurisdiction of Colombian courts and tribunals. According to Tecnoquímicas, Article 1328 was a public policy provision, so the agreements on applicable law and ICC arbitration recorded in the arbitration clause were not valid.
Following this rationale, Tecnoquímicas submitted a request for arbitration to the Arbitration and Conciliation Centre of the Bogotá Chamber of Commerce ('BCOC') in March 1997. It sought a declaration that the Contracts constituted a commercial agency, that they were unilaterally terminated without just cause and that the Merck Companies had to pay the severance payments and indemnities provided for under Colombian law for unilateral termination of commercial agencies.
The BCOC admitted the request for arbitration on the grounds that the request met the formal requirements for judicial claims under Colombian law. The Merck Companies requested the BCOC to reconsider its position, given the clear language of the arbitration clauses, but the BCOC declared that it lacked jurisdiction to reconsider its decision, as this would entail exercising judicial functions and it was for the arbitrators to be appointed by BCOC to decide on procedural and substantive matters even at the so-called pre-arbitral stage.7
The BCOC's main line of reasoning was that under the law in force at the time only the arbitral tribunal was vested with the judicial function of determining the existence and extent of its own jurisdiction.8 Based on the principle of Kompetenz-Kompetenz, the BCOC could only verify that the claim complied with the legal formalities to be met by judicial claims, but could not rule on the validity of the arbitration clause or the request for arbitration as this would mean exercising authority it did not have.
The position of the BCOC resulted in a paradox: it had the authority to admit or not admit the request for arbitration in the exercise of its purely administrative duties, but it could not review its own decision to admit the request without impinging upon the judicial functions reserved for the arbitral tribunal.
The BCOC then asked the ICC to appoint the arbitrators, reasoning that the ICC was merely an appointing authority. The request to the ICC indicated that if the ICC failed to appoint the arbitrators within the term provided for under Colombian law, the BCOC would proceed with the appointment. The ICC replied that it was not the 'appointing institution' but rather the authority the parties had agreed to vest with the power to administer the arbitration and that any appointment made by the [Page446:] BCOC would be illegal.9 After the expiry of the time limit set by the BCOC for the ICC to appoint the arbitrators, the BCOC appointed three arbitrators itself, all Colombian, chosen by a random draw.
In view of the fact that the BCOC refused to review its own decision to admit the request for arbitration, and insisted that only the arbitral tribunal appointed by the BCOC could review that decision, the Merck Companies filed a constitutional action (acción de tutela10) against the BCOC's decision not to review its own decision. The constitutional action was founded on a violation of the Merck Companies' rights of due process, defence and equal treatment.
The Bogotá Court of Appeal ruled in favor of the Merck Companies in the constitutional action, ordering the BCOC to decide on the Merck Companies' request for the BCOC to reconsider its decision to admit the request for arbitration. The BCOC reviewed its decision and on 28 August 1998 decided to dismiss the request for arbitration on the grounds that the arbitral institution mentioned in the arbitral clauses was the ICC, not the BCOC.
Nevertheless, both Tecnoquímicas and the BCOC challenged the decision of the Court of Appeal. On 25 September 1998, the Colombian Supreme Court of Justice reversed the decision of the Court of Appeal, considering that 'there was no violation of constitutional rights, rather a mere difference in the interpretation of the duties of the BCOC, which could not be the subject matter of a constitutional tutela action'.11 Following neither the BCOC nor the Merck Companies, the Supreme Court considered that the constitutional action was not the proper recourse for solving a dispute on the interpretation of the law.
On 19 March 1999, the arbitrators appointed by the BCOC held by a majority12 that they had jurisdiction to rule on the claim filed by Tecnoquimicas. They considered that the jurisdiction of an arbitral tribunal, like that of the courts, arises from the pleadings of the parties. Since the claimant, Tecnoquimicas, was requesting a declaration on a commercial agency, the tribunal should review the provisions [Page447:] on commercial agency in order to determine its jurisdiction. They considered that 'Art. 1328 Commercial Code is a rule of international public policy and that only Colombian courts may apply Colombian law and decide on disputes relating to commercial agency agreements; as the parties had agreed to arbitration, they should then submit to Colombian arbitration.'13
The arbitrators concluded that 'the clauses providing for ICC arbitration were null and void, except as regards the will of the parties to arbitrate',14 so the parties should submit the dispute to Colombian arbitration.
In the meantime, the ICC arbitration continued. The ICC appointed a sole arbitrator15 who issued an 'Interim Award on Jurisdiction' affirming that the arbitral clauses of the Contracts were valid and binding, that only the tribunal appointed by the ICC had jurisdiction, and ordering Tecnoquímicas to cease any proceedings in Colombia in violation of the arbitration clauses. In December 1998, the Secretariat of the ICC Court certified that the award on jurisdiction was a final award.16
The ICC arbitration concluded with a final award in favor of the Merck Companies, confirming that the Contracts were governed by New Jersey law as agreed upon by the parties in the arbitration clauses, that the concept of agency did not exist in New Jersey law, and that even if Colombian law was applicable - which it was not - the Contracts would not qualify as commercial agency. The award ordered Tecnoquímicas to pay the Merck Companies the monies owed to them and withheld by Tecnoquímicas, plus interest, as well as attorneys' fees arising from the ICC and BCOC actions.
In the meantime, in Colombia, the Constitutional Court decided to review the constitutional action filed by the Merck Companies. In its Decision SU-600 of 18 August 1999 it revoked the Supreme Court's decision and confirmed the decision of the Court of Appeal. The Constitutional Court held that the BCOC had an obligation to review and decide on the Merck Companies' request for it to reconsider its decision to admit the request for arbitration filed by Tecnoquímicas. According to the Constitutional Court, if the BCOC had the power to admit the request for arbitration, it also had the power to decide on the request to review its own decision.
[Page448:]
The Constitutional Court distinguished between the judicial nature of the jurisdiction of the arbitral tribunal to rule on its own jurisdiction, and the power of the BCOC to accept or refuse the request for arbitration. These were two different stages of the proceedings: (i) acceptance of the request for arbitration, which lies with the arbitration centre and should be based on the arbitration clause, and (ii) the decision on jurisdiction, which lies with the arbitral tribunal.
The debate surrounding the Merck case exposed the shortcomings of arbitration law and practice in Colombia and particularly the confusion between the duties of arbitration centres and those of the arbitral tribunal. There was discussion on whether the duties of arbitration centres were of a judicial nature (which would imply that they had to review the request for arbitration in the same manner as a court would review whether the requirements for a judicial claim were met), or whether arbitration centres should merely perform a prima facie review of the arbitration clause, leaving it to the arbitral tribunal to decide on jurisdictional matters.17
In its decision on the constitutional action filed by the Merck Companies, the Constitutional Court ruled as follows:
Although competence or jurisdiction belongs to the arbitral tribunal, it may be noted that these concepts are used extensively in relation to arbitral institutions or centres, which transmit the request for arbitration, carry out the preparatory acts and support the arbitral function after the arbitral tribunal is constituted. The definition and review of jurisdiction, in this second meaning, do not fall outside the natural ambit of the decisions made by arbitral institutions.
Furthermore, it would be absurd to subordinate the final settlement of this issue to the constitution of the arbitral tribunal. The tribunal would then ascertain in its first hearing, in which it decides on its own jurisdiction, whether the arbitral institution which has transmitted the acts of the pre-arbitral phase to the arbitrators is the same institution agreed upon in the arbitral clause. Although the arbitral tribunal, when deciding on its own jurisdiction and ascertaining whether it may hear the arbitral dispute, can correct the mistakes which the arbitral institution may have made in accepting a request for arbitration addressed to another institution ( especially when these mistakes concern the choice of a seat and the domestic or international nature of the arbitration ( this does not justify the lack of an initial decision by the arbitral institution.
The legal examination which must necessarily be carried out by the institution in order to determine its own jurisdiction must be sufficiently rigorous and diligent to allow the institution to state, based on well-founded grounds, that it is the arbitration institution agreed upon [by the parties] and that the essential formal requirements to start the pre-arbitral stage are [Page449:] met. It may not be said that the institution is prevented from affecting this scrutiny of its own jurisdiction. Such scrutiny obeys a legal and prudential imperative, which in no way implies settling the dispute or deciding on the validity of the [parties'] agreements.
Considering this scrutiny's aim and limited scope ( [only concerning] the capacity of the arbitral institution to manage and start the procedure for the constitution of an arbitral tribunal ( the [legal] basis for [its] validity is the same as the provisions that assign various functions to [the institution] in the pre-arbitral phase, such as accepting or dismissing the request for arbitration, which has to be carried out with care and according to legal provisions.18
The Constitutional Court drew a clear distinction between the duties of the arbitral tribunal and those of the arbitration centre. According to the Court, arbitration centres have an obligation to determine whether, on a prima facie basis, the request is admissible. The Court clearly confirms that it is for the arbitral tribunal to rule on its own jurisdiction. However, it would be absurd to consider that, before the constitution of the tribunal, an arbitration centre cannot decide that the arbitration agreement makes no reference at all to that centre.19 Arbitration centres are obliged to perform a test to determine whether they are the centre that has been agreed upon and are therefore 'competent' to conduct the pre-arbitral stage.20
This Constitutional Court's distinction between the two types of competence was an extraordinary step forward for arbitration in Colombia. It clarified the role of arbitral institutions. It also drew a middle ground in the discussion on the nature of the duties of arbitration centres. Although the Constitutional Court affirms that these are administrative, its reasoning goes beyond the nature of such actions:
Even if we assume, for the sake of discussion, that the director of an arbitral institution has no jurisdictional powers, his public function, together with the fact that according to the law he may decide on recourses against his decisions, means that such recourses must be decided upon, obviously (1) if the requirements set by the law are met and (2) if, in order to decide, the director does not need to exceed the limits of his competence.21
With this ruling, the Constitutional Court introduced into arbitration in Colombia the principle of the prima facie review of the request for arbitration by the arbitration centre. The arbitration centre's duty to conduct a prima facie review of the arbitration clause and the request for arbitration, in order to determine at least whether it is mentioned in the clause (as opposed to reviewing whether the request complies with the requirements laid down for judicial claims regardless of the wording of the arbitration clause), would in the future prevent decisions of the kind taken by the BCOC in Merck.
[Page450:]
In addition, unlike the Supreme Court, the Constitutional Court considered that this was not just a question of different theories, but stressed the practical importance of the pre-arbitral stage, during which the protection of fundamental rights was at stake:
The guarantee of due process and of the right of defence may be compromised if the legal precepts that govern it are violated, independently of whether or not jurisdictional powers are exercised by arbitral institutions during that stage. The very declaration by the BCOC that the competence to decide on the recourse petition rested with the arbitral tribunal, rather than the BCOC, even though the BCOC was in fact legally invested with that authority, clearly evidences how due process may be compromised in these cases. In this respect, the court found that, although the BCOC was not required to resolve all matters raised in a recourse petition, it was at least required to determine whether, according to the arbitration agreement in question, it was the arbitral institution actually designated by the parties. By abstaining from a proper examination of the arbitration agreement for the reasons it invoked, the BCOC ran the risk of building its jurisdiction on fragile foundations.22
As previously mentioned, a sole arbitrator was appointed in the ICC arbitration. On 29 July 1998, the sole arbitrator rendered an 'Interim Award on Jurisdiction' in which the following decisions were made:
1) The arbitral clauses in the agreements are valid;
2) This arbitral tribunal can examine and resolve the dispute submitted to arbitration by [the Merck companies];
3) The arbitral tribunal shall proceed to examine the further aspects referred to in (...) the Terms of Reference;
4) Tecnoquímicas shall abstain from pursuing any action against the arbitral clauses, including the arbitration commenced by Tecnoquímicas before the [BCOC];
5) The arbitral tribunal abstains at this moment from deciding on the claim for damages filed by [the Merck companies] in their supplement to the request for arbitration, which will be settled in the final award.
The Secretariat of the ICC certified that this award was final on 9 December 1998, and on 10 December 1998 the sole arbitrator issued a final award on the merits, directing Tecnoquímicas to pay the sums it owed to the Merck companies.
On 18 December 1998, in an attempt to stop the arbitration proceedings taking place in Colombia, the Merck Companies filed a request for recognition of the Interim Award on Jurisdiction before the Colombian Supreme Court. Instead of applying the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards alone, the Supreme Court decided that the rules set forth in the Colombian [Page451:] Code of Civil Procedure ('CCP') should apply alongside the grounds for denying recognition and enforcement set forth in the New York Convention.
The Supreme Court's ambivalence set an unintended precedent that lived on for almost two decades, namely that a foreign award would be recognized in Colombia only if it satisfied the conditions of both the CCP and the New York Convention. This position, which disregarded Articles III and VII of the New York Convention and had no basis in any other treaties or laws, created more onerous conditions for the recognition of foreign arbitral awards than are laid down in the New York Convention.
2.2.1. The regime applicable to recognition and enforcement of foreign awards during the Merck years
During the 1990s the legal regime governing recognition and enforcement of foreign arbitral awards was not open to controversy. As a general rule, the recognition and enforcement of foreign judgments and arbitral awards in Colombia required an action to be brought before the Colombian Supreme Court and led to exequatur proceedings governed by Articles 693 to 695 of the CCP (Decrees 1400 and 2019 of 1970, as amended).23
Under the CCP, the basic principle governing the recognition of foreign judgments and arbitral awards is reciprocity,24 which may be either diplomatic (i.e. a treaty with the state in which the decision was issued) or legislative (i.e. in the absence of a treaty, effective recognition of Colombian decisions under the domestic legislation of the state where the foreign decision was rendered).25
Pursuant to Article 695 of the CCP, an action for exequatur must be filed with the Civil Chamber of the Colombian Supreme Court. The foreign judgment or arbitral award must meet the following requirements, set forth in Article 694 of the CCP, in order for the exequatur to be granted:
a. The foreign judgment must not relate to in rem rights relating to assets located in Colombia at the time of commencement of the foreign proceedings (CCP, § 694.1; GCP, § 605.1).
[Page452:]
b. The foreign judgment must not contravene or conflict with Colombian public policy (CCP, § 694.2; GCP, § 605.2). The Colombian Supreme Court has determined that public policy within the meaning of Article 694.2 encompasses certain essential principles of the Colombian legal system, such as prohibition of abuse of rights, good faith, impartiality, and respect for due process.
c. The foreign judgment must be final under the laws of the country where it was issued, and a duly authenticated and legalized copy of the foreign judgment must be submitted in the Colombian exequatur proceedings (CCP, § 694.3).
d. The foreign judgment must not rule on any matter over which Colombian courts have exclusive jurisdiction (CCP, § 694.4; GCP, § 605.4).26
e. There must be no final judgment or pending proceedings in Colombia in relation to the subject matter of the foreign judgment (CCP, § 694.5; GCP, § 605.5).
f. Rules regarding service of process and the right to present one's defence (contradicción) at the place where the judgment was issued must have been respected (CCP, § 694.6; GCP, § 605.6).
g. If there is no treaty between Colombia and the home jurisdiction of the judgment, it is necessary to prove that there is reciprocal recognition and enforcement of judgments by the courts of the home jurisdiction and Colombian courts.
Failure to satisfy any of the requirements set forth above would result in the exequatur application being dismissed. Conversely, if these requirements are met, the Colombian Supreme Court would issue a decision granting recognition of the foreign judgment, whereupon the claimant could request a first instance judge to enforce the foreign judgment through an executive action (acción ejecutiva). It should be noted that an exequatur was a necessary prerequisite to enforcement of an award.
However, Article 693 of the CCP did not prevent the application of relevant international treaties or conventions. The New York Convention was the applicable treaty governing the recognition of foreign arbitral awards in Colombia as the Convention entered into force with [Page453:] respect to Colombia on 24 December 1979 and was approved by the Colombian Congress through Law 37 of 1979 and subsequently through Law 39/90.27
The New York Convention introduced at least three innovations into Colombian law:
• In contrast to the 1889 Montevideo Treaty and the 1979 Montevideo Convention, the party opposed to recognition has the burden of proving the grounds on which its opposition is based (unless the award is contrary to Colombian international public policy or concerns a non-arbitrable matter).
• The New York Convention provides for the recognition of foreign awards that are merely binding, whereas the 1889 Montevideo Treaty and the 1979 Montevideo Convention require foreign awards to be res judicata.
• Recognition may be refused if the award falls into any of the situations set forth in Article V of the New York Convention. Accordingly, the grounds for denying recognition of judgments set forth in the CCP would not apply since there was a relevant treaty or convention to which Colombia was a party.
Controversy nonetheless arose on account of the fact that the Supreme Court failed to apply the New York Convention alone but instead saw it as a treaty granting diplomatic reciprocity for the recognition and enforcement of foreign arbitral awards as set forth in Article 693 of the CCP. Following its decision in Semar v. Sunward Overseas on 20 November 1992, the Supreme Court stuck to this interpretation for almost two decades, consistently finding that the New York Convention did not prevent it from applying the CCP. So recognition and enforcement was subject to the conditions of both the New York Convention and Articles 693 to 694 of the CCP.
This line of thinking led to the Supreme Court's refusal to recognize the 'Interim Award on Jurisdiction' in Merck as discussed below.
2.2.2. The Supreme Court's failure to recognize an interim award
As previously mentioned, in an attempt to stop the arbitration proceedings in Colombia, Merck filed a request for enforcement of the Interim Award on Jurisdiction with the Colombian Supreme Court. In its decision of 26 January 1999, the Supreme Court held that the issues of (i) jurisdiction over the enforcement proceedings and (ii) the nature of the foreign decision to be enforced were primarily governed by the provisions of treaties (here, the New York Convention) and secondarily by national law.
[Page454:]
The Supreme Court found that, since the Convention does not define 'arbitral award', that term should be given the meaning that best matches the spirit of the Convention, failing which it should be given the meaning ascribed to it in Colombian law.
When reviewing the spirit of the Convention, the Supreme Court stated as follows:
the Convention excludes from what it means by arbitral award 'domestic awards' which are so considered in the State where recognition and enforcement are sought. By so doing, it undoubtedly disregards, with respect to the meaning [which it gives to 'arbitral awards'], the legal definition which the award can be given in the country of enforcement. In other words, it is not the 'legal definition' which qualifies an award as such; rather, [such definition] is irrelevant in order to ascertain whether an act issued by the arbitrators is an 'arbitral award'. When the Convention provides that 'arbitral awards' must arise 'out of differences between persons, whether physical or legal' (Art. I(1), it undoubtedly adopts a material criterion: 'arbitral awards' are only those acts which are decisions, that is, which decide on or settle 'differences between persons, whether physical or legal' and that, as such, may be submitted for 'recognition and enforcement' …28
Without explaining why a decision on jurisdiction does not settle 'differences between persons whether physical or legal', the Court concluded that only decisions settling the dispute on the merits qualify as an arbitral award. In the opinion of the Court:
a decision on jurisdiction, rendered by an arbitral tribunal in a state party to the New York Convention, is not an 'arbitral award' in the sense mentioned above when it merely decides on the jurisdiction over certain claims, establishing it or excluding it vis-à-vis the courts of that state or of another state. Even if it is formally defined an 'arbitral award', because it calls itself so or because it is so called by arbitration rules, still, according to Art. I(1) of the Convention, such a decision is not a foreign arbitral award enforceable in Colombia, since, independent of how it is called in the country of origin, it is simply a preliminary and preparatory interim decision, that is, it does not settle the dispute on the merits submitted to arbitration, which is the subject matter of a further decision …29
The Supreme Court then undertook a detailed analysis of Colombian law and found that under the country's rules of procedure, a decision on jurisdiction is merely a preliminary and preparatory decision 'which does not fully or partially settle the merits of the dispute ...'30 and therefore may not be enforced in Colombia.31
[Page455:]
The Merck Companies filed a request for the Supreme Court's decision to be reconsidered. On 1 March 1999 the Supreme Court upheld its original decision and included two additional considerations. Firstly, it held that the agreement of the parties and the applicable rules (ICC Rules, where an interim or partial award on jurisdiction was possible) cannot be interpreted in isolation but only in conjunction with Article V of the New York Convention, and specifically subparagraphs (d) and (e). According to the Court, these subparagraphs (which the Merck Companies read as indications, among others in the Convention, that the 'award' should be defined with reference to the lex arbitri and the law of the seat) do not list the decisions that can be recognized as awards nor are they meant to indicate which decisions may be submitted for recognition and enforcement. Secondly, the Supreme Court distinguished between decisions that resolve differences, (to be understood as conflicts arising out of the claim and the response that form the subject matter of the case) from decisions that settle or end disputes:
If we accepted this interpretation, we would read something in the Convention which is not there, that is, that an 'arbitral award' is not only a decision which settles 'differences between persons, whether physical or legal', but also a decision which settles the 'differences arising' out of 'the arbitration', such as jurisdiction and other issues. This may not be deduced from the system of the Convention.32
Consequently, the Court adopted a narrow definition of the term 'arbitral award' rooted in local law and conceptions, and refused to recognize an interim award on jurisdiction.
The progress in the Constitutional Court's position on the functions of arbitration centres was short-lived. Two years afterwards, in a decision on the constitutionality of the arbitration provisions then in force, it defined the preliminary steps of arbitration - including the admission of the arbitration request - as judicial in nature and thus as matters on which only an arbitral tribunal may rule.33
Nevertheless, the decision the Constitutional Court had reached in Merck laid the way for a well-founded review of arbitration agreements by arbitration centres. Such review was essential in order to determine whether arbitration centres could validly perform their duties at the pre-arbitral stage. It clearly planted the seed that led to the following rule in the Statute:
Article 12: Commencement of the arbitration proceedings. Arbitration proceedings shall commence with the submission of the statement of claim, which shall meet all the requirements set forth by the Code of Civil Procedure. The statement of claim shall be filed along with the arbitration [Page456:] agreement and be addressed to the arbitration centre agreed by the parties. If the parties have not reached an agreement on an arbitration centre, the statement of claim shall be submitted to an arbitration centre located in the place where the respondent is domiciled and, in the case of a multiple respondent party, to an arbitration centre located at the domicile of any of the respondents. If the arbitration centre is not competent, it will refer the statement of claim to the competent centre. If conflicts of jurisdiction arise between arbitration centres, the Ministry of Justice shall decide. [Emphasis added.]
Accordingly, arbitration centres were simply to verify whether their territorial scope covers the seat chosen in the arbitration agreement.
The change of view on the functions of arbitration centres and the Kompetenz-Kompetenz principle began with the Merck case. Interestingly, while the shortcomings came to light through what could be considered to be traditional players in arbitration (e.g. BCOC, arbitral tribunal, legal practitioners and academics), the answer came in a context not normally associated with arbitration. It was namely a debate over fundamental rights that led Colombia to take one of the most important steps in the development of its arbitration culture. The 1999 decision of the Colombian Constitutional Court has played a key role in the structuring of the functions of arbitration centres and the understanding of the Kompetenz-Kompetenz principle as they exist today.
As to the recognition of foreign arbitral awards, the arguments put forward by the Merck Companies were not in vain. On 27 July 2011, almost a decade later, the Supreme Court - curiously quoting publications of lawyers involved in the Merck case - acknowledged Article V of the New York Convention (when applicable) as the only provision to be taken into account for refusing exequatur of a foreign arbitral, although it still analysed the grounds for refusal under the CCP by way of an obiter dictum.34 And this position was confirmed just a few months later, on 19 December 2011.35 Additionally, the Court also held that, given its nature and effects, a partial award on jurisdiction could be considered an award and be recognized as such.
Today, the Statute has put an end to the aforementioned discussions. Under the Statute, Colombian law now provides different regimes for recognition/exequatur36 of arbitral awards (laudos) and foreign judgments (sentencias). Recognition proceedings relating to awards are entirely regulated by the Statute (Articles 111 to 116), while exequatur proceedings relating to judgments are regulated by the CCP [Page457:] (Articles 693, 694). Accordingly, the recognition of arbitral awards may be refused only on the grounds exhaustively listed in the New York Convention (reproduced in Article 112 of the Statute).
Additionally, the Statute indicates that 'award' shall be given a broad meaning, which covers not only the final decision putting an end to the tribunal's mandate but also other binding decisions settling a matter disputed by the parties, such as awards on jurisdiction, awards granting interim measures, and awards providing a record of a settlement agreement reached by the parties.
Now, therefore, foreign awards on jurisdiction may be recognized by Colombian courts and there is no need to review such awards in the light of local law.
The Merck case stands out for having pinpointed shortcomings in Colombia's arbitration culture and for having laid a cornerstone for its development.
The BCOC's reasoning in this case and the position taken by the Supreme Court on the recognition of foreign awards are illustrative of the tensions between local and international law, substantive and procedural law, and public and private law. They also demonstrate that laws alone are not sufficient to develop efficient practices in international dispute resolution.
Yogi Berra famously said: 'In theory, there is no difference between theory and practice. But in practice, there is.' The Merck case, with its complex judicial argumentation and setbacks, provided lessons that have allowed a new generation of lawyers to start developing a true international arbitration practice in Colombia.
I do not know, nor dare to predict, whether such practice will be further enhanced in the future. After all, and Yogi Berra comes to my mind again, 'the future ain't what it used to be'.
Partner with the Colombian law firm Gomez-Pinzon Zuleta and director of the firm's international arbitration and litigation department; ezuleta@gpzlegal.com.The author would like to thank Rafael Rincon and Nicolás Esguerra for their assistance in the preparation of this article.
ICC Case No. 9400.
According to Article 1317 of Colombia's Commercial Code, commercial agency is an agreement whereby a merchant undertakes, in an independent and stable manner, the duty of promoting or exploiting business in a given field and within a prefixed zone of the national territory, as representative or agent of a national or foreign principal, or as manufacturer or distributor of one or several products thereof.
Article 1328 of the Commercial Code.
Article 1326 of the Commercial Code provides that the agent has a right of retention over the principal's goods and moneys up to the amount of the compensation.
Article 1328 of the Commercial Code of Colombia provides that: 'For all purposes, agency agreements performed within the national territory shall be subject to Colombian law. Any stipulation to the contrary shall be deemed as non-written.' (Unless otherwise indicated, quotations in this article from instruments and decisions originally in Spanish have been translated by the author.)
'Colombia No. 3, Merck & Co. Inc. v. Merck Frosst Canada Inc., Frosst Laboratories Inc. v. Tecnoquímicas SA, Corte Suprema de Justicia [Supreme Court], 26 January 1999; 24 March 1999' (2001) XXVI Yearbook Commercial Arbitration 755 at 756.
Colombian Constitutional Court Decision SU-600/1999, § 9.
E. Zuleta Jaramillo & A. Zuleta Londoño, 'Diez Años de Merck: Una Década de Evolución del Arbitraje Comercial Internacional en Colombia' [2009] Revista Ecuatoriana de Arbitraje 247.
Acción de tutela is a proceeding to protect fundamental rights. Article 86 of the Colombian Constitution describes this proceeding, whose purpose is to provide immediate relief in cases where the acts or omissions of authorities or private persons threaten or violate fundamental rights. It may be used only where no other judicial remedy is available or, where another action is available, as a temporary means of avoiding irreparable harm. Tutela proceedings may be conducted in any court in the country. Decisions may be challenged and in some cases are reviewed by the Constitutional Court.
'Frosst Laboratories Inc. v. Merck & Co. Inc., Merck Frosst Canada Inc. v. Arbitration and Conciliation Center of the Bogotá Chamber of Commerce, Corte Constitucional [Constitutional Court], 18 August 1999' (2001) XXVI Yearbook Commercial Arbitration 260 at 262.
The dissenting arbitrator considered that if the reasoning of the tribunal were to be followed, jurisdiction would lie with the Colombian courts and not with the arbitral tribunal appointed by the BCOC.
'Colombia No. 3, Merck & Co. Inc. v. Merck Frosst Canada Inc., Frosst Laboratories Inc. v. Tecnoquímicas SA, Corte Suprema de Justicia [Supreme Court], 26 January 1999; 24 March 1999' (2001) Yearbook Commercial Arbitration 755 at 756.
'Frosst Laboratories Inc. v. Merck & Co. Inc., Merck Frosst Canada Inc. v. Arbitration and Conciliation Center of the Bogotá Chamber of Commerce, Corte Constitucional [Constitutional Court], 18 August 1999' (2001) XXVI Yearbook Commercial Arbitration 260 at 262
The parties did not agree on the appointment of the arbitral tribunal given the objection of Tecnoquimicas to the jurisdiction of any tribunal other than a Colombian tribunal under Colombian rules.
'Colombia No. 3, Merck & Co. Inc. v. Merck Frosst Canada Inc., Frosst Laboratories Inc. v. Tecnoquímicas SA, Corte Suprema de Justicia [Supreme Court], 26 January 1999; 24 March 1999' (2001) Yearbook Commercial Arbitration 755 at 757.
Article 121 of Law 446 of 1998 regulated the functions of centres during the pre-arbitral stage, which were to (i) admit the request for arbitration, (ii) notify the respondent party, (iii) organize a conciliation between the parties, (iv) administer the constitution of the tribunal, and (v) deliver the file to the arbitrators. The debate was therefore over whether these were judicial or administrative functions.
Colombian Constitutional Court Decision SU-600/1999, §§ 12-14.
Ibid., §§ 11-12.
Ibid., § 13.
Ibid., § 8.
These provisions were to be superseded by Articles 605 to 607 of the General Code of Procedure ('GCP') (Law 1564 of 2012), upon the entry into force of the GCP pursuant to Article 627, paragraph 6 thereof, and as determined by the Judiciary Council (Consejo Superior de la Judicatura). However, the GCP contains substantially the same requirements and even uses similar wording when listing the prerequisites a foreign judgment must meet in order to be recognized in Colombia. On 28 May 2014, the Judiciary Council issued an ordinance suspending implementation of the GCP. Consequently, the provisions of the CCP governing exequatur proceedings remain in force.
Article 693 of the CGP.
See e.g. Colombian Supreme Court of Justice, decision of 19 Dec. 2011; Colombian Constitutional Court, decision C-893/09.
Article 23 of the CCP and Article 28 of the GCP provide that Colombian courts have exclusive jurisdiction over the following: (i) proceedings seeking division, expropriation, restitution or adjudication of assets located in Colombia; (ii) bankruptcy and insolvency proceedings (CCP, § 694, paragraphs 10 and 12; GCP, § 605, paragraphs 7 and 8). Additionally, on matters related to paternity or patria potestas, Article 28 of the GCP provides for exclusive jurisdiction of the court at the place where the children live (GCP, § 605.2).
On 6 October 1988, the 1979 law was declared unconstitutional by the Supreme Court of Justice for technical reasons. Rather than denounce the Convention, Colombia ensured its future effectiveness through new implementing legislation in 1990. That effectiveness was acknowledged by the Supreme Court in a decision dated 20 November 1993.
Colombian Supreme Court of Justice, Merck & Co. et. al. v. Tecnoquímicas, 26 Jan 1999.
The Court also dealt with the problem of the effects of its decision, i.e. the continuing existence of parallel arbitration proceedings. Its conclusion is surprising: if the parties disagree over the validity of the arbitration clause, and each commences arbitral proceedings (one in Colombia and the other in New Jersey), each has the right to object to jurisdiction before the respective arbitral tribunal, but the decision of the Colombian arbitrators shall prevail.
Colombian Supreme Court of Justice, Merck & Co. et al. v. Tecnoquímicas, 1 Mar. 1999.
Colombian Constitutional Court Decision C-1038/2002. §§ 15-19.
Colombian Supreme Court of Justice, decision of 17 July 2011.
Colombian Supreme Court of Justice, decision of 19 Nov. 2011.
It should be noted that Colombian legislation has not differentiated between 'recognition' and 'exequatur' proceedings. Both terms are used interchangeably. However, the Statute (Arts. 111-116), following the approach of the New York Convention, refers only to the recognition of awards. To avoid confusion in applying the grounds for refusal, it would seem reasonable to consider term exequatur as being limited to judgments, and not applicable to awards.