Australis, Second Act: The Setting Aside of the Most Important Award in Chile's Private History

On June 24, the Santiago Court of Appeals rendered judgment in one of the most significant business disputes in Chile in recent years. The court granted the application filed by businessman Isidoro Quiroga and the former owners of the salmon farming company Australis Seafoods and set aside the arbitral award that had favored the Chinese group Joyvio.

The decision of the Court of Appeals was adopted by majority: Justice Guillermo E. De La Barra Dunner and attorney member (abogada integrante) Catalina Infante Correa voted together, while Justice Fernando Valderrama dissented.

As we explained in our previous article on the matter, the arbitral award had addressed classic questions of contemporary contract law and the tension between contractual warranties and information asymmetries in the negotiation and due diligence process. The arbitral tribunal had decided to adjust the price to reflect the real value of the company at the time of the sale, instead of awarding damages to the Joyvio group.

The Application to Set Aside Filed by the Sellers of Australis

The setting aside of an arbitral award is governed in Chile by Article 34 of the Law on International Commercial Arbitration (the "LACI"). As in Argentina, that law adopts the UNCITRAL Model Law.

The sellers invoked three grounds in seeking the setting aside of the award. First, they invoked the ground provided in Article 34(2)(a)(ii) of the LACI, on the basis that they had been unable to assert their rights. Second, they relied on Article 34(2)(a)(iii) of the LACI, reasoning that the award dealt with a dispute not contemplated by the arbitration agreement or contained decisions exceeding the terms of the arbitration agreement. Third, the sellers based their application on Article 34(2)(b)(ii) of the LACI, maintaining that the arbitral award was contrary to Chilean public policy.

As to the second ground (the one that would be upheld by the Court in its judgment), the sellers of the salmon farming company challenged the award for violation of the principle of congruence. According to their allegations, the arbitral tribunal exceeded the terms of the arbitration agreement by upholding an action that was neither brought by the claimants nor debated by the parties during the proceedings: specifically, it ordered an economic remedy, the partial restitution of the price, that neither party had requested. The applicants linked this excess to the impairment of their right of defense, since the adoption of a remedy that had not been debated constituted, in their words, a "surprise decision" that they had no opportunity to contest; that aspect, however, was channeled primarily through the first ground, concerning the inability to assert their rights.

The Decision of the Santiago Court of Appeals

The majority of the Santiago Court of Appeals, composed of Justice Guillermo E. De La Barra Dunner and attorney member Catalina Infante Correa, focused its analysis on one of the grounds for setting aside invoked, and granted the setting-aside application. The other two grounds were dismissed without detailed analysis.

In its reasoning, the Court of Appeals sought to determine whether there was correspondence between what the parties to the arbitration had requested and what the arbitral tribunal had decided in the award. To that end, it began by identifying the claimants' requests in the arbitration. It thus concluded that the claimants' claims in the arbitration consisted of: (i) a principal claim, comprising the termination of the stock purchase agreement together with damages; and (ii) a subsidiary claim, for standalone damages.

The Court of Appeals takes issue with the arbitral tribunal's decision to recharacterize the subsidiary claim as one for price reduction, despite having acknowledged the compensatory nature of the action in the arbitral award itself. The Court of Appeals notes that the distinction is not irrelevant, given that the price reduction action (quanti minoris or actio aestimatoria) is provided for in the Civil Code for the purpose of returning the difference between what was paid and what the defective thing is actually worth due to the existence of hidden defects, whereas the action for damages seeks to redress the harm caused by the failure to perform fully and timely an obligation agreed between the parties. The Court of Appeals emphasizes that for the former it is irrelevant whether the seller acted in good or bad faith, while for the latter there must be willful misconduct or fault on the part of the debtor. The majority then underscores that the availability of a specific partial restitutionary action such as the price reduction action was never the subject of debate in the arbitration.

The Court of Appeals continues its reasoning by stating that "it is not apparent what reason the arbitral tribunal had to assume, on its own initiative, that by using the word 'compensation' in subsection q), the claimants were requesting a restitution or refund in generic terms."

The majority of the Court stresses that this is not a mere divergence of nomenclature; rather, the arbitral award departed from the legal elements of the dispute and from the legal grounds of the claims, with the consequence that the tribunal did not apply the liability-limitation clauses contained in the contract between the parties. In other words, by adopting a remedy different from the one requested by the buyers, the arbitral tribunal deprived the sellers of the benefit of the agreed liability-limitation clauses.

The Court of Appeals adds that "there is no legal identity between what the tribunal decided and the matter submitted to it" and that the award strayed from the immediate basis of the claim.

In its conclusion, the majority finds that the ground for setting aside provided in Article 34(2)(a)(iii) of the LACI is established, since "the award upheld an action different from the one brought and debated in the arbitral proceedings, substituting a restitutionary price-reduction action for a nominate action for damages grounded on the respondent's willful conduct."

The Court of Appeals clarified that the setting aside extended to the award in its entirety, since the defect affected basic prerequisites for the validity of the arbitration.

In his dissenting opinion, Justice Valderrama departed from the majority's reasoning and conclusions. The judge maintained that in one of the prayers for relief the buyers had mentioned "restitution" as one of the remedies, and that the restitution of the overpayment had been extensively debated during the arbitration, regardless of the characterization the parties may have given it. The Justice concluded that although the principle of congruence limits the content of the adjudicative decision, it does not prevent the tribunal from characterizing the facts submitted to it in a different manner, by virtue of the principle iura novit curia.

The Road Ahead

In response to the decision of the Santiago Court of Appeals, the lawyers for the Joyvio group declared that their client has instructed them to continue pursuing the actions necessary to obtain adequate compensation. This means that several possible paths lie ahead: from challenges against the decision of the Court of Appeals to a new arbitration.

Along those lines, they added that "based on the compelling existing evidence, we remain equally confident of obtaining justice for our client, who has instructed us to continue exercising the actions to which it is entitled and to enforce Quiroga's liability."

A Warning for Foreign Investors?

The total setting aside of the largest award in Chile's private history admits two opposing readings. In our previous article we had warned that an eventual setting aside, whether total or partial, would open "a scenario of high legal and reputational complexity, both for the parties and for the Chilean arbitral system." That scenario is now a reality. For some, the judgment confirms that expansive judicial review of congruence can erode the predictability of Santiago as an arbitral seat, precisely the attribute that had consolidated it as a regional hub of reference.

From this perspective, the message for foreign investors (and, in particular, for Asian capital with a growing presence in the South American aquaculture sector) is unsettling: even after years of arbitral proceedings and a favorable award, the outcome can vanish at the judicial review stage. For others, by contrast, the judgment demonstrates exactly the opposite: that Chilean courts take procedural guarantees and the limits of the arbitral mandate seriously, and that arbitration seated in Chile is not a territory exempt from legality. Under this second reading, the setting aside does not weaken the seat; it legitimizes it.

What is certain is that the judgment leaves an immediate lesson for contractual and procedural practice. The fate of the award turned, ultimately, on the formulation of the claims: the majority of the Court of Appeals understood that the claimants requested damages and received a price reduction. For those litigating M&A transactions under arbitration, the lesson is clear: remedies should be pleaded broadly and in the alternative, and the treatment of each remedy vis-a-vis the liability-limitation clauses should be anticipated in the contract. The tension between the principle of congruence and iura novit curia, which divided the Court itself, will remain a zone of risk so long as the parties fail to neutralize it through careful drafting of their prayers for relief.

For Argentina, which shares with Chile the UNCITRAL Model Law regime through Law 27,449, the case functions as a laboratory in real time. The ground applied by the Santiago Court exists in practically identical terms in the Argentine legal system, and nothing prevents a similar controversy from arising before local courts once high-value disputes in regulated industries take hold. The Chilean experience shows that the adoption of the Model Law is a necessary but not sufficient condition: confidence in an arbitral seat is built through concrete judicial decisions such as the one discussed here. Joyvio's next steps will merit close attention, as the final outcome of this dispute will complete the delineation of the standard of judicial deference toward arbitration in Chile, with inevitable echoes throughout the region.