ADR in IP contracts under threat in Venezuela

In July of this year the Supreme Court of Venezuela agreed to entertain a reference for a preliminary ruling filed by the Office of the Attorney General on the applicability of Article 258 of the Constitution. This provision establishes that the law must promote alternative means of dispute resolution. Says the Attorney General, Article 258 must be interpreted in line with Article 22 of the Law on Promotion and Protection of Investments, which states that arbitration or other means of dispute resolution will not be used if they are not “expressly” encouraged by an international treaty to which Venezuela is a party. It was also suggested that, even where an international treaty does encourage alternative dispute resolution, the parties to a contract must have “expressly and unequivocally” agreed to submit to arbitration.

Parties to international contracts tend to draft highly specialized and precise dispute resolution clauses, especially in the field of IP, to avoid problems caused by delay and expense in utilising the traditional court process. Also, arbitrators can be appointed who are experts in their fields, while judges may not have the relevant expertise. Other issues are relevant too, such as the need for confidentiality.

If, as is likely, the Supreme Court issues a preliminary ruling that restricts the interpretation of Article 258, parties to international agreements will be precluded from submitting to arbitration any conflict that may arise within the context of an international contract. Such result would have dramatic consequences, as the national courts often fail to provide a final decision in business disputes within a reasonable time. Consequences of such a ruling can be that the number of international contracts involving Venezuelan parties will decrease and that
Venezuela’s reputation as an investor-friendly country will be damaged. Furthermore, if Venezuelan courts refuse to recognize the validity of arbitral awards issued in other countries, arbitral awards issued in Venezuela are likely not to be recognized in other jurisdictions.

[source: Daniela Rojas, Estudio Antequera Parilli & Rodríguez, Caracas, writing in World Trademark Report].