On June 30, 2023, the Supreme Court rendered judgment in case No. 32,356-2022, regarding an appeal filed against an award rendered by an Arbitral Tribunal of second instance. The latter, in turn, had partially revoked the first instance award.
The judgment has been widely commented on as it raises a number of questions, both procedural and substantive.
Background of the judgment in the complaint
Following an international public bidding process carried out by Eletrans S.A. ("Eletrans") - awardee of the execution and exploitation rights of a project included in the Expansion Plan of the Central Interconnected System of the Ministry of Energy (the "Project") - Eldu SpA ("Eldu") was, in turn, awarded the contract as contractor of the work.
In November 2016, the parties entered into an instrument pursuant to which Eldu was to implement, develop and execute all aspects related to the engineering, studies, construction, erection and commissioning of the Project (the "EPC Contract").
After a series of disagreements between the parties, in February 2018, Eletrans communicated its decision to terminate the EPC Contract early, at a time when Eldu had executed 70.19% of the entrusted works. Notwithstanding the foregoing, and, covered by certain provisions of the EPC Contract, Eletrans paid a percentage equivalent to 20% of the contract value.
In May 2019, Eldu filed a claim for damages against Eletrans, alleging breach of the EPC Contract.
The Arbitration Court of first instance partially accepted the claim, declaring that Eletrans had incurred in several breaches of the EPC Contract, and therefore ordered it to pay approximately USD $1,300,000.
The Arbitral Tribunal of second instance revoked the award, declaring instead that Eletrans had not incurred in the breaches established in that decision and, in short, declared that Eletrans should pay Eldu only the amount of USD $334,540.53.
Against this decision, Eldu filed a complaint before the Supreme Court, denouncing a series of serious faults or abuses allegedly committed by the second instance Arbitration Court.
The complaint judgment
The Supreme Court rejected the appeal. However, it invalidated ex officio the award rendered by the Arbitral Tribunal of second instance.
The reason?
According to the Supreme Court, the facts of the case should be analyzed in the light of contractual good faith and in accordance with the provisions of article 1546 of the Civil Code.
Thus, it is concluded that the second instance award "violated the principle of good faith and the application of Article 1546 of the Civil Code, since it established as facts of the case that ElduSpA executed more than 70% of the Project and Eletrans S.A., on its part, paid only a percentage of 20% of the value of the contract [...].the judges should have considered that this constitutes an injury to the former of its legitimate interest in obtaining - for the sake of the contract - a consideration for its services, and an obstruction in the normal execution of the project, since it meant a manifest obstacle, difficulty or impediment for the personnel of ElduSpA to attend to develop the tasks that corresponded to it by virtue of an agreement that, at that date - January 30, 2020 - was still in force".
From a procedural point of view, this judgment invites us to reflect on the limits of arbitral justice and the exercise by the Supreme Court of its disciplinary powers to act ex officio, derived from Article 82 of the Political Constitution of the Republic.
On the other hand, in substantive matters, the pronouncement of the Supreme Court follows the guidelines of the judgment of May 22, 2019 rol 38.506-2017, on a matter that has become relevant in recent years and to which attention should be paid: the extension of the duties underlying good faith and collaboration between the parties so that each one achieves the purposes that led them to enter into a contract.
