Chile: Drafting arbitration clauses in international contracts – practical aspects. By Macarena Iturra

26 October, 2020

Americas Arbitration Roundup 26 October 2020 / By: Macarena Iturra Given the dynamism of international trade, international arbitration is an important option for parties to international contracts in search of a neutral forum. As a consequence, arbitration has expanded considerably in recent years in Chile and throughout the region. Consistent with this trend, various laws have been enacted in Chile with a view to strengthening international arbitration. In this article, we will analyze various practical aspects to consider when drafting arbitration clauses in international contracts, from the perspective of Chilean law and in light of recent developments in the country. Key considerations when drafting an arbitration clause Numerous factors should be considered when drafting an arbitration agreement. As a general matter, a simpler agreement may help avoid misunderstandings that could impede an arbitration. Here, we consider the elements of a clause that must be included to be enforceable under Chilean law. First, the clause must be clear that arbitration is exclusive and mandatory. If it fails to clearly require both elements, it may leave open the possibility of seeking recourse to the courts. Second, the clause must be clear regarding its scope. Certain additional elements are not essential, but may be desirable under some circumstances to ensure a more efficient proceeding. These include the number of arbitrators who will resolve the conflict, the language of arbitration, and the law applicable to the merits. Though these are not essential under Chilean law to ensure that the arbitration clause is enforceable, they merit consideration and have also been addressed by Chilean law. Composition of the Tribunal The parties should indicate the number of arbitrators that will resolve the conflict and normally the arbitral tribunal will consist of one or three arbitrators. Factors that may be considered when making this decision may include the amount in dispute, costs of the proceeding, etc. Law No. 19,971 establishes that if the parties do not indicate the number of arbitrators, there will be three. By comparison, the ICC rules provide that if the parties do not indicate the number of arbitrators, the court will appoint a single arbitrator unless it considers that the dispute justifies the appointment of three arbitrators. Regarding the appointment of arbitrators, if there is no agreement between the parties, then Law 19.971 establishes that in arbitrations with three arbitrators, each party will appoint one arbitrator and the two party-appointed arbitrators will appoint the third arbitrator. It is also established that in the event that a party does not appoint the arbitrator within a certain period or if the arbitrators do not agree on the appointment of the third arbitrator, the appointment will be made by the president of the respective court of appeals. In the case of arbitrations with a single arbitrator, the arbitrator may also be designated by the president of the respective court of appeals. Importantly, Chilean law establishes that nationality is not an obstacle to serve as an arbitrator. Seat of arbitration From a legal standpoint, the seat is the place where the arbitration is carried out, though this does not mean that the proceeding must physically take place […]

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The energy transition and renewable energy in Chile: Top points for foreign investors. By Felipe Bahamondez

8 October, 2020

Latin America Renewables Update 8 October 2020 | By: Felipe Bahamondez Chile has been an oil import-dependent country for more than 50 years, but now is in the midst of an energy transition away from fossil fuels to a new order.  Green energy is gaining momentum and a new picture of the energy matrix is emerging. Today in Chile, renewable electricity from solar and wind power represents nearly 20 percent of the country’s energy supply, and the volume of renewables is expected to increase every year. This shift has involved some risks. But more than 10 years ago, Chile took some legal steps to foster renewable energy, building the foundation for optimism about the country’s energy future. Most notably, in the past electricity prices were driven by a few big actors with very little competition. In contrast, Chile’s energy future will be determined by many competitors and gradual efficiency gains. Non-conventional renewable energy capacity The National Electric System in Chile has an installed generation capacity of 25,000MW, which corresponds to more than 99 percent of the national installed capacity (mediums systems such as Aysén and Magallanes and isolated systems are less than 1 percent). Of the total installed capacity, nearly 50 percent corresponds to generation technology based on renewable resources, particularly large scale hydroelectric (28 percent), solar PV (11 percent), wind (9 percent), biomass (1.8 percent) and geothermal (0,2 percent), and 50 percent corresponds to natural gas (19 percent), coal (20 percent) or petroleum derivatives (11 percent) power plants. The size of non-conventional renewable energy projects varies, from small projects of nearly 1MW now being constructed or already operating, up to large-scale plants over 100MW (mainly wind and solar PV). Chilean legislation on electricity describes “renewable energy” or “clean energy” by using the term “non-conventional renewable energy” (NCRE). The Chilean legal framework defines this concept as the electrical energy generated by non-conventional renewable means of generation, which are those whose primary source is biomass energy, hydraulic energy below 20MW, geothermal energy, solar energy, wind energy, ocean energy and other means of generation determined by the National Commission of Energy that use renewable energies for the generation of electricity, contribute to diversify the sources of energy supply in the electrical system and cause low environmental impact. In Chile, a quota system established by law requires electrical companies that have an installed capacity of more than 200MW and that withdraw energy from the electrical systems for trading with distribution companies and final consumers to certify that a certain percentage of their energy withdrawal comes from NCRE sources.  The law mandates that this percentage should increase every year, to reach 20 percent in 2025. However, this goal was already attained in 2020. almost five years ahead of the legal deadline. Further, the government recently launched its decarbonization program. which aims to completely replace coal with other sources of energy by 2040, when 100 percent of the country’s energy will come from NCRE. This process may imply a greater development of hydroelectric plants and energy storage solutions. Incentives and support for NCRE projects Among other relevant incentives, the current regulation provides several advantages for […]

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Distributed generation: A rising energy market in Chile. By Felipe Bahamondez

16 September, 2020

16 September 2020 | By: Felipe Bahamondez In the last 10 years, Chile has gone through a renewable revolution led mainly by solar, wind and mini-hydro projects. Ten years ago, renewables were almost nonexistent in Chile; today, they make up nearly 20 percent of the country’s energy matrix and the amount is increasing every day.  And if big hydro projects are taken into account, we can say that more than 50 percent of the energy matrix comes from renewable sources. Gone are the times of volatile high spot energy prices that were an obstacle to development.  Around 2013, renewable generators started to look for stable power purchase agreements (PPAs) both in public tenders to service residential customers and with companies with relevant consumption. The public tenders went from prices of US$129/MWh in 2013 to US$32.50 /MWh in 2017, with the energy coming completely from renewable sources. In the last five years, a new market has appeared in Chile, offering a new business opportunity: distributed energy, which is a type of decentralized electrical generation performed by different small grid-connected or distribution system connected generators. In Chile, distributed generation is better known as small generation means, or PMG (from its acronym in Spanish) and small means of distributed generation. or PMGD. In this alert, we will look at this growing market, which has features that make it attractive for investors in uncertain times. Markets to commercialize electricity in Chile and recent trends Energy generating activity in Chile has established two markets, a primary market and a secondary market. The primary market is highly competitive and is based on the existence of bilateral contracts between generators and large customers, including distributors representing small residential clients. This market is the ultimate goal of the energy companies’ economic model, which is the supply of electricity. In contrast, the secondary market derives from dispatching generating units following the principles of economic operation of all generators, regardless of their ownership. This is the so-called spot market. In the primary market, there are competitive and stabilized prices produced by unregulated competition and the unregulated effects of supply and demand principles. In the secondary market prices are highly variable, since they are determined by the economic dispatch and by restrictions due to common contingencies of the electric system. Distributed generation market: PMGs and PMGDs PMGs are projects with installed capacities up to 9,000 kW and are connected to the main transmission, sub-transmission or additional transmission grid. PMGDs are means of generation whose capacity surplus is lower than or equal to 9,000 kW and which are connected to the facilities of a distribution company or to the facilities of a company that owns electrical energy distribution lines that are used public domestic goods. Both are regulated by Decree No. 244 of January 17, 2006, issued by the Ministry of Economy, which approved the Regulation of Non-Conventional and Small Generation Means established in the Energy Law (hereinafter, the Regulation), and also have the same characteristics: they can be “self-dispatched,” receive transmission toll reductions, and access the stabilized price regime. In the case of a PMGD, article 39 of the Regulation states […]

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Transactional Impact Monitor – Special Report (TTR)

9 June, 2020

Deal volume is down 39% in Chile, YTD, while the aggregate value of announced and closed deals has fallen 67%, according to TTR data. Notwithstanding the overall decline in transaction volume, led by a 58% drop in real estate deals, technology M&A is up 120%, Internet and e-commerce deals have increased by 100% and consultancy transactions are up 350%, TTR data show. Inbound acquisitions out of the US are on par with the first five months of 2019. Our partner Paulo Larrain responded some questions about the situation in Chile. Transactional Impact Monitor – Special Report

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Merger control: distressed M&A in the time of Covid-19

20 May, 2020

19 May 2020 By: Nicolas Teijeiro / Marcus Vinicius Bitencourt / Bruna B. Rocha / Renata Dalcol de Amorim Ferreira / Carolina Bawlitza / Maria Claudia Martinez Beltran / Isabel Gallástegui / Jorge Benejam / Daniel Flores / Luis Vargas / Rafael Urday Several antitrust issues have taken center stage during the coronavirus disease 2019 (COVID-19) pandemic.  Issues such as price gouging, state aid, and competitor collaborations are top of mind.  But another antitrust issue is likely to share center stage as countries slowly begin to re-open – the failing firm defense.  Most jurisdictions have provisions establishing a failing firm defense in merger control, but the defense often involves a high standard and is rarely triggered.  In the current environment, we are likely to see an increase in the application of the defense. This article provides a brief overview of the main elements of a failing firm defense or exemption focusing on the standards applicable in the United States, Europe, Argentina, Brazil, Chile, Colombia, Mexico and Peru. Failing firms One of the main goals of competition law is to ensure the efficient allocation of resources. In general, struggling companies that cannot keep up with evolving market conditions and consumer trends tend to be replaced by new or better firms. Consumer welfare benefits greatly from companies’ need to be efficient to stay in business and compete, which lowers prices and increases product quality and innovation. However, in certain exceptional cases consumers may benefit more from companies keeping the assets of a failing firm alive than from shutting it down, despite any competition concerns, such as the likelihood of increased consolidation or higher prices. In such cases, the typical antitrust cure (enjoining an anticompetitive merger) may become worse than the disease (allowing a presumably anticompetitive merger go forward), because the assets may exit the market for good. The “failing firm defense” potentially offers some flexibility to companies that wish to merge in the extreme circumstances related to the COVID-19 pandemic.  If the relevant elements are present, financially strained companies (and their buyers) may be able to put forward failing firm arguments to obtain clearance from antitrust agencies around the world. Applicable standards In the United States, the bar set by the failing firm defense is high.  Courts have confirmed that parties face a difficult burden when trying to insulate an otherwise potentially anticompetitive merger based on the failing firm defense.  The failing firm defense not only requires proof that the company is in danger of imminent business failure, but also that it cannot successfully reorganize or be sold to a different buyer.  In practice, each of these factors can be difficult to prove, and establishing all three of them can be close to impossible. Specifically, as stated in Section 11 of the US Horizontal Merger Guidelines of the US Department of Justice and the Federal Trade Comission: “the Agencies do not normally credit claims that the assets of the failing firm would exit the relevant market unless all of the following circumstances are met: the allegedly failing firm would be unable to meet its financial obligations in the near future; it would not […]

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