CHILE Trends and Developments Contributed by: Ricardo Vásquez, Juan Araya Allende and Álvaro Jara Burotto, Vásquez Urra Abogados
Why the Court set the award aside The sellers sought annulment on three statutory grounds: inability to present their case; decisions beyond the terms of the submission to arbitration; and breach of Chilean public policy. The Appellate Court, by majority, upheld only the second ground and set aside the award in its entirety. The majority’s core finding was that the parties had litigated a contractual damages case, not a price- reduction or partial-restitution case. In Chilean private law, those remedies are not interchangeable. A dam - ages claim responds to a breach and turns on fault or wilful misconduct, causation and the contractual liability architecture. A price-reduction claim of the quanti minoris type is a different action, classically linked to latent defects and directed at unwinding part of the price. On that view, the arbitral tribunal crossed a decisive line. Having rejected the wilful-misconduct theory that underpinned the buyers’ attempt to disapply contrac - tual limitations, it nonetheless granted relief by treat - ing the subsidiary claim as if it were a claim for par - tial repayment of the price. The Appellate Court held that this was not a harmless relabelling of the same request; rather, it changed the legal nature of the claim and, with it, the route around the SPA’s negotiated limitations. The majority accepted that arbitrators may rely on legal reasoning different from that advanced by coun - sel. What they may not do, the Court said, is disre - gard the meaning, scope and boundaries of the claims actually submitted. Because the parties were sophis - ticated counterparties that had carefully regulated warranties, indemnities and liability caps, the Court attached particular weight to the fact that the award effectively set that bargained framework aside through a remedy the buyers had not pursued as such. Two further points are likely to influence future set- aside strategy in Chile: • Speciality of annulment grounds : Once the excess- of-mandate ground was made out, the Court declined to uphold the broader due-process and public-policy grounds. The message is that coun -
sel should match the defect to the narrowest avail - able statutory box rather than plead every ground in the alternative as if they were cumulative. • Full rather than partial annulment : Although Law No. 19,971 allows severance where the offending parts of an award can be separated, the Court held that the defect went to basic validity conditions of the award. Partial annulment was therefore refused. The dissenting judge would have dismissed the set- aside application outright. He stressed the exceptional and formal character of annulment review under Law No 19,971 and the principle of minimum court inter - vention. On that approach, the Appellate Court is not a second instance on contract interpretation, quantum methodology or the commercial fairness of the result. Practical implications for arbitration users The decision is already being read as a cautionary signal for high-value SPA and warranty arbitrations seated in or challenged in Chile. Several practical les - sons stand out for boards, deal counsel and arbitra - tion teams: • First, remedy design at the pleading stage is no longer a drafting afterthought. If a party wants termination, expectation damages, indemnity under a contractual regime, restitution or a price adjustment, those routes should be articulated with enough legal clarity that the arbitral tribunal can grant relief without later being accused of inventing a different action. Ambiguous words such as “com - pensation” may be commercially convenient, but they can become contested ground in set-aside proceedings. • Second, contractual liability architecture remains central. Caps, baskets, time bars, exclusive rem - edy clauses and indemnity procedures are only as strong as the arbitral tribunal’s willingness to keep the dispute inside that framework. The majority judgment suggests that Chilean annulment courts will look closely where an award appears to escape negotiated limitations by changing the nature of the claim rather than by applying the contract as written. • Third, parties should not assume that extensive quantum evidence on overprice or fair value immu - nises an award against congruence challenges.
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