PUERTO RICO Trends and Developments Contributed by: Ricardo F. Casellas Sánchez and Carla S. Loubriel Carrión, Casellas Alcover & Burgos
Highlights of the Arbitration Act of Puerto Rico of 2024 On 9 August 2024, the Legislature of Puerto Rico enacted Law No. 147, the Arbitration Act of Puerto Rico (AAPR). The AAPR supersedes Puerto Rico’s International Commercial Arbitration Act of 2012 and the prior Commercial Arbitration Act of 1951. The AAPR adopts the Uniform Revised Arbitration Act (or LUAR, by its Spanish acronym) and respects as a guiding principle the contractual autonomy of the parties. It also expedites the arbitration process and makes it more efficient, supplements the rules of any arbitration administration agency that may be cho - sen by the parties, and – most importantly – limits the grounds for judicial review of arbitration awards. The Statement of Motives explains the rationale: “The LUAR honours the contractual autonomy of the parties that adopt arbitration as a mechanism for the resolution of their disputes. Consequently, the LUAR comes into operation only when the parties have not agreed on a particular platform to channel the arbitra - tion of their disputes. Also, in deference to the con - tractual autonomy of the parties and with the federal interpretative law of the Federal Arbitration Act [the FAA], the LUAR limits the review function of awards when appeals arise before the courts. On the other hand, the LUAR seeks to make arbitral processes more efficient and, therefore, make them more attrac - tive to the parties.” (Translation ours) Context is important for understanding the purpose of the AAPR. A dichotomy in the standards of judicial review of arbitration awards existed in Puerto Rico. Under the FAA, for transactions involving interstate or foreign commerce, the Supreme Court of the United States held in Hall Street Associates , LLC v Mattel , Inc ., 552 U.S. 576 (2008), that the narrow grounds specified in the FAA to vacate, modify or correct an arbitration award apply exclusively. The FAA does not state that an arbitrator’s error of law or manifest dis - regard of the law are grounds to disturb an award; hence, such grounds cannot be invoked under the FAA. Under then-governing Puerto Rico law and the Puerto Rico Supreme Court’s holding in Constructora Estelar v Autoridad , 183 P.R. Dec. 1, 33 (2011), an error of law could provide a basis for vacatur of an award. That is, where the parties specified in the arbitration
agreement that the award must conform to law, a court had authority to review the merits of the award. This dichotomy between federal and Puerto Rico law in the standards of review governing the enforcement of arbitration awards provided fertile grounds for col - lateral litigation. The AAPR settles that disparity once and for all. Pre-AAPR litigation featuring this dichotomy includes Bacardí v V . Suarez , 719 F. 3d 1 (1st Cir. 2013). V. Suarez was Bacardí’s sub-distributor in Puerto Rico. The sub-distribution agreement included an arbitra - tion clause which provided for the arbitration locale in Puerto Rico under the rules of the American Arbitra - tion Association (AAA) and a Puerto Rico choice of law. Importantly, the sub-distribution agreement also contained a provision similar in effect to liquidated damages. The provision contemplated that if V. Suarez could not prove at termination that its money dam - ages exceeded the value the parties had assigned to the line when they executed the contract, then V. Suarez would be deemed to have suffered no actual damages. It was a novel provision, legally untested until then. Bacardí terminated the contract and arbi - tration ensued. After bifurcating the proceedings and holding evidentiary hearings, the majority of the Panel concluded, in a two-to-one reasoned award, that the liquidated damages provision was valid and enforce - able. The Panel rejected V. Suarez’s argument that the contractual formula waived the right of compensa - tion guaranteed by Puerto Rico’s Dealer’s Contract Act, known as Law 75. It was not a waiver, the Panel ruled, because Law 75 allows for recovery of actual damages, if proven, and V. Suarez could not prove that its termination damages under Law 75 exceeded the value of the line calculated in the contract at the moment of its execution. In other words, the net profit of the distributor at the time of termination was less than the value of the line when it assumed its obliga - tions as a dealer. It was important for the majority of the Panel that Bacardí had developed the goodwill and clientele for its products in Puerto Rico for many years before V. Suarez took over the sale and distri - bution without paying a franchise fee to become the sub-distributor. Reasonable persons might differ on the validity of the formula under Law 75, as shown by one panellist who dissented, but applying the FAA, the Panel did not exceed its powers to rule as it did. Had
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