Local Law Versus International Practice: The Detainment Case of Peruvian Arbitrator Fernando Cantuarias

In 2019  a judge in Peru ordered 18 months of preventive detention for 14 Peruvian arbitrators accused of impropriety in issuing arbitral awards in favor of the Brazilian company Odebrecht in the context of arbitration proceedings with the Peruvian State^[1].  Among the arbitrators were renowned international practitioners, such as Fernando Cantuarias, Mario Castillo, and Franz Kundmüller. This post focuses on the case of Mr. Fernando Cantuarias Salaverry, which represents the sometimes-problematic relationship of international arbitration practice with the application of local laws.^[2] Nevertheless, the diligent response of the international arbitration community has largely ensured that there are two steps forward for every one-step back.

The case: Prosecutor’s allegations, Judge’s order, and Mr. Cantuarias defense

On November 4, 2019, a judge ordered 18 months of preventive detention^[3] for Mr. Cantuarias.^[4] After learning that the Judge ordered the preventive detention, Mr. Cantuarias expressed his dismay at the measures stating that the order “destroys his honor and a professional work built by 30 years of effort, professionalism, and ethics“.^[5] The court’s decision was appealed.

The allegations against Mr. Cantuarias were related to his participation as co-arbitrator in the Ad Hoc arbitration process initiated by the construction company Odebrecht against the Ministry of Transport and Communications, in which the arbitration process concluded with an award favorable to the Brazilian company.

The prosecutor alleged Mr. Cantuarias had received a “bribe” that was concealed as a high arbitration fee. More precisely, the prosecutor allege that he received a fee higher than amounts charged by the Lima Chamber of Commerce. In addition, the prosecutor alleged that Mr. Cantuarias had met with the parties before the arbitration started, where they supposedly agreed, among other things, the arbitration would be Ad Hoc, each party would appoint its arbitrator, the co-arbitrators would choose a Chairperson, and the arbitral fee the prosecution considered high.^[6]

According to Mr. Cantuarias’ defense, the evidence provided by the prosecutor was groundless and wrong. The defense argued, among other things that:

(i) The arbitration in Mr. Cantuarias case was an arbitration Ad Hoc where institutional rules are not applicable to the determination of the fees. The prosecutor appealed to the Lima Chamber of Commerce fee table that it is not binding to Ad Hoc arbitrations because Peruvian Arbitration Law does not oblige using it^[7].  Rather, Peruvian Arbitration Law requires that “the fees be reasonable taking into consideration the amount in dispute, the size, complexity of the case, and the time spent by the arbitrators to resolve the dispute”.^[8]

(ii) Even if the fee table was applicable, the prosecutor wrongly calculated the fees over the amount awarded, and not on the amount claimed in the arbitration.  Accordingly, the Prosecutor assumed, without grounds, that the alleged fee was excessive and hence a “bribe”.^[9]

(iii) Meetings to determine the rules and the procedure for appointing the Chairperson are common practice in arbitration.^[10]

Finally, on November 27, 2019, the Peruvian Court of Appeals revoked the preventive detention of eight arbitrators, including Mr. Cantuarias.^[11] The court reversed the judge’s decision on the basis that “the elements of conviction do not reach the magnitude of serious and well-founded to support preventive detention. (…) the fees were set according to the amounts of the dispute and the complexity of the case (…) and meetings between lawyers and parties are licit”.^[12]

Strong support from the local and international arbitration community

The detentions were of great concern to the local and international arbitration community, in part, because the Peruvian prosecutor and the judge did not properly interpret the local Arbitration laws regarding the arbitrators’ fees calculation nor certain common practices of arbitral proceedings, with serious consequences for individual rights and liberties. In this regard, as was reported by CIAR Global review in November 2019, the Lima Chamber of Commerce expressed its concern and stated that the judicial resolutions were issued “without properly interpreting the rules and institutions of Arbitration Law, affecting the fundamental rights of arbitrators who integrate the Center’s List of Arbitrators”.^[13]

In light of this declaration, the Peruvian Arbitration Institute also expressed its concerns regarding the events and requested the judicial authorities to take care of “the rights of those who are under investigation, distinguishing the different cases and circumstances, by taking into consideration the evidence provided and the conduct demonstrated, as well as the national and international regulations on arbitration”.^[14]

Additionally, Alexis Mourre, who was then president of the Court of Arbitration of the International Chamber of Commerce (ICC), sent a letter to the Peruvian Ministry of Justice expressing his concerns regarding the detention of Mr. Cantuarias. Mourre referred to Cantuarias as “a person without a criminal record and an international arbitrator of recognized integrity”. Mourre also stated that “the order of preventive detention may not have taken into account the principles and common practices of arbitration”.^[15]

Impacts on the arbitral community

The detention of various arbitrators has become a major concern within the local and international arbitration community. Although the Court of Appeals reversed the judge’s decision for some arbitrators, this situation may highlight practitioners reluctance to accept appointments in Peru, which otherwise is increasingly positioned as a preferred choice as a seat of arbitration in Latin America. Similar concerns have arisen previously and in otherwise very popular arbitration seats.

For example, in 2016 in the UAE a new federal law imposed criminal liabilities on arbitrators. The Federal Decree-Law No. 7 introduced modifications to the Federal Penal Code No. 3 of 1987 by amending Article 257 of the Penal Code to impose criminal liabilities on arbitrators and experts. According to this provision, arbitrators and experts who have issued decisions or opinions in a manner inconsistent with their duties of impartiality and neutrality would be subject to criminal liabilities.

The amendment was criticized by the UAE arbitration community because, among other things, “arbitrators may be exposed to vexatious criminal proceedings.”^[16] The situation caused uncertainty, alarm, and concern among UAE practitioners and fear that a criminal investigation could cause lasting damage to arbitrator’s reputation.^[17] Accordingly, some expressed the view at the time that “the UAE can no longer be considered a desirable place to conduct arbitration and fewer and fewer arbitrators will agree to take up appointments here.”^[18]

On September 23, 2018, the Federal Government of the UAE amended the controversial Article 257 of the UAE Penal Code. This amendment was welcomed in the arbitration community as “Article 257 no longer exposes arbitrators to criminal sanctions for failing to maintain integrity and impartiality in the discharge of their duties.”^[19] In the intervening, period, the UAE has considerable focus on arbitration, including adoption of the first standalone arbitration in the UAE,  Federal Law No. 6 of 2018, which supersedes Articles 203 to 218 of the Civil Procedures Code (Law No. 11 of 1992, as amended) is based on the widely adopted UNCITRAL Model Law on International Commercial Arbitration (1985).

_______________

[1] Andina website available at https://andina.pe/ingles/noticia-peru-prosecutors-office-arbitrators-allegedly-paid-by-odebrecht-741623.aspx

[2] Thanks to Cecilia Cahuayme-Zuniga for her contributions and guidance on Peruvian law.

[3] According to criminal Peruvian laws, preventive detention is an exceptional measure that only corresponds when there are serious elements of conviction that a crime has occurred and there is a danger of obstruction or risk of scape of the person under investigation.

[4] https://lpderecho.pe/dictan-prision-preventiva-humberto-abanto-castillo-freyre-otros-caso-arbitraje/

[5] https://laley.pe/art/8730/fernando-cantuarias-es-lamentable-como-destrozan-honras-y-un-trabajo-profesional-de-30-anos

[6] RCR Peru web site available at https://www.rcrperu.com/fiscalia-sustenta-hoy-requerimiento-de-prision-preventiva-para-arbitros/

[7] La Pasion por el Derecho website available at https://lpderecho.pe/defensa-enrique-ghersi-arbitro-fernando-cantuarias-arbitrajes-odebrecht/

[8] Provision 71 of the “Peruvian Arbitration Law” approved by Legislative Decree No. 1071, “the fees of the arbitral tribunal and the secretary, if applicable, will be established in a reasonable manner taking into consideration the amount in dispute, the size and complexity of the case, the time spent by the arbitrators to resolve the dispute, the duration of the arbitration proceedings as well as the arbitration customs and practices and any other circumstance that is pertinent.”

[9] Alfredo Bullard, available at https://valor.pe/resumen-caso-fernando-cantuarias-salaverry/

[10] Id.

[11] Enfoque de Derecho website available at https://www.enfoquederecho.com/2019/11/27/revocan-prision-preventiva-de-fernando-cantuarias-mario-castillo-y-otros-arbitros/

[12] El Comercio website, available at https://elcomercio.pe/politica/justicia/caso-arbitrajes-las-claves-de-la-decision-de-liberar-a-nueve-arbitros-investigados-por-presuntos-sobornos-de-odebrecht-noticia/?ref=ecr

[13] CIAR Global website available at https://ciarglobal.com/instituto-peruano-de-arbitraje-y-camara-de-comercio-de-lima-denuncian-situacion-de-arbitros-en-caso-lava-jato/

[14] Id.

[15] CIAR Global website available at https://ciarglobal.com/ante-proceso-contra-arbitros-en-peru-alexis-mourre-y-carlos-matheus-alegan-desconocimiento-del-arbitraje/

[16] Global arbitration review available at https://globalarbitrationreview.com/dont-scare-business-away-al-tamimi-warns-uae

[17] Id.

[18] Id.

[19] Lexology available at https://www.lexology.com/library/detail.aspx?g=ac77cd70-f261-4e48-be90-6cc1c437422e