On July 11th, 2024, the Diario de Centro América published a ruling by the Constitutional Court (CC) dated May 29th, 2024 for case number 5985-2023. This sentence refers to the action for unconstitutionality filed against the first three paragraphs of Article 291 of the Commercial Code, Decree 2-70 of the Guatemalan Congress.
In short, this sentence leaves without effect the presumption of compulsory arbitration when the parties have not expressly agreed to arbitration, and therefore there must be a voluntary and express manifestation to submit to this method of resolving disputes.
The first three paragraphs of Article 291 of the Commercial Code regulate this:
“Article 291. *Disputes. If, after the termination or dissolution of the contract or relationship in question, the parties do not agree on the amount of compensation to be paid for the damage caused in the cases provided in paragraphs 4 and 5 of the preceding article, the amount thereof shall be determined by arbitration or by summary judicial proceedings. For this purpose, unless otherwise agreed, the parties shall be deemed to have opted for arbitration if they do not expressly state that the dispute is to be settled by summary proceedings. If the dispute is settled by summary judicial proceedings, the plaintiff must submit an expert's report, in accordance with the provisions of the Code of Civil and Commercial Procedure, for the existence and amount of the damages claimed to be determined in the proceedings.
In the relevant contract, the parties may also choose arbitration or summary court proceedings to settle any type of dispute arising from the contract. Unless otherwise agreed, the parties shall be deemed to have opted for arbitration unless they expressly state that the dispute is to be settled by summary proceedings..
In any case, judicial proceedings shall be initiated, conducted and resolved in the Republic of Guatemala, in accordance with the national laws applicable to judicial proceedings.
In accordance with the legal arguments presented by the petitioner, the Constitutional Court issued a decision declaring the action of unconstitutionality partially admissible, considering that:
- The challenged rule creates a problem at the time of its application, since it operates a "presumption of pro-arbitration will". It presumes that the parties to the contract have tacitly waived their right to bring the matter before the national courts and have undertaken to accept that the dispute will be resolved by an arbitral tribunal.
- It then becomes binding arbitration, without it being possible to prove that there was no agreement to this effect.
- The imposition of this arbitration agreement restricts the right to effective judicial protection, since it implies a tacit waiver of jurisdiction without any express manifestation to that effect. This legislative imposition prevents the true will of the parties from being known, thus violating the principle of free access to justice guaranteed by the Constitution.
- Moreover, by pre-determining arbitration as the default means of resolving disputes, Article 291 undermines the autonomy of the will by restricting the parties' ability to freely choose between arbitration and the judicial system by means of an express agreement of will, to the detriment of the contractual freedom inherent in the freedom of trade.
In accordance with the Resolution, the following table shows how the relevant Article is amended:
Original text
New text after the ruling
“Article 291. *Disputes. If, after the termination or dissolution of the contract or relationship in question, the parties do not agree on the amount of compensation to be paid for the damage caused in the cases provided in paragraphs 4 and 5 of the preceding article, the amount thereof shall be determined by arbitration or by summary judicial proceedings. For this purpose, unless otherwise agreed, the parties shall be deemed to have opted for arbitration if they do not expressly state that the dispute is to be settled by summary proceedings. If the dispute is settled by summary judicial proceedings, the plaintiff must submit an expert's report, in accordance with the provisions of the Code of Civil and Commercial Procedure, for the existence and amount of the damages claimed to be determined in the proceedings.
“Article 291. *Disputes. If, after the termination or dissolution of the contract or relationship in question, the parties do not agree on the amount of compensation to be paid for the damage caused in the cases provided in paragraphs 4 and 5 of the preceding article, the amount thereof shall be determined by arbitration or by summary judicial proceedings. If the dispute is settled by summary judicial proceedings, the plaintiff must submit an expert's report, in accordance with the provisions of the Code of Civil and Commercial Procedure, for the existence and amount of the damages claimed to be determined in the proceedings.
In the relevant contract, the parties may also choose arbitration or summary court proceedings to settle any type of dispute arising from the contract. Unless otherwise agreed, the parties shall be deemed to have opted for arbitration unless they expressly state that the dispute is to be settled by summary proceedings..
In the relevant contract, the parties may also choose arbitration or summary court proceedings to settle any type of dispute arising from the contract.
In any case, judicial proceedings shall be initiated, conducted and resolved in the Republic of Guatemala, in accordance with the national laws applicable to judicial proceedings.
In any case, judicial proceedings shall be initiated, conducted and resolved in the Republic of Guatemala, in accordance with the national laws applicable to judicial proceedings.
This decision is effective as of July 12th, 2024. The parties to a commercial agency, distribution or representation agreement are free to expressly agree whether they wish to settle the disputes referred to in Article 291 of the Commercial Code by arbitration or by litigation. If they fail to do so, it can no longer be presumed that they must resort to arbitration.
This decision highlights the importance of the consultation and negotiation phase in commercial contracts, as well as the knowledge of the advantages and disadvantages of alternative dispute resolution methods, such as arbitration, compared to the judicial process in Guatemala.
The full text of the judgment is attached for your reference and study. Should you have any questions or require further information, please do not hesitate to contact us.
