Latin America is quickly becoming the most fertile area in the world for commerce. Part of the reason for its popularity is the stable and predictable procedures adopted by most countries to deal with international business disputes. Chief among these is the adoption of treaties and rules governing the use of arbitration to resolve investment and contract disputes.
Judge Downey recently returned from a summer in Santiago, Chile where he taught a class in Alternative Dispute Resolution in Latin America to law students. The class focused on a case study designed by Downey that involved a dispute concerning the drilling of an off shore oil well between multiple parties from varying counties in Latin America.
Case Study
An American corporation enters into an agreement with a Mexican general contractor to drill an oil well in Mexico, and both parties agree to a mandatory arbitration clause for all disputes. As is often the case with natural monopolies in Latin America, the Mexican government owns all of the stock in the general contractor’s company.
The general contractor employees one of its Mexican subsidiaries to provide drilling equipment. Once that equipment has been supplied however, the American corporation refuses payment to the subsidiary, who then sues the American corporation in U.S. federal court seeking actual and punitive damages.
The corporation responds with a motion to dismiss the case, claiming that the subsidiary is required to arbitrate the dispute pursuant to the arbitration clause in the underlying contract between the corporation and the general contractor.
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- The class examined the various conventions and rules that would govern such a dispute, or any other commercial dispute.
- Can the subsidiary, as a Mexican corporation, avail itself of the U.S. federal court system?
- Is the subsidiary governed by the arbitration clause in the agreement between the American corporation and the general contractor?
- Does the general contractor, as a state-owned entity, enjoy sovereign immunity such that it cannot be compelled to arbitrate the dispute?
- If so, does that immunity also extend to the subsidiary?
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Having served as an arbitrator of international commercial disputes, Downey brought his insight and experience to the classroom giving the students a practical understanding of the importance of certainty and predictability to companies contemplating investment or business ventures in Latin America.
To review some of the case materials from the course or simply discuss the issue with Judge Downey, please send him an email at dan@dandowney.com