Argentina: Applying Foreign Law And Jurisdiction To A Contract: Principles And Issues To Be Considered By A Foreign Party When Entering Into A Commercial Transaction With An Argentine Party

Last Updated: 11 November 2008
Article by Carlos E. Alfaro

As a matter of legal principle, Argentine law should be applied to all contracts entered into in Argentina with a local party. This principle, though, is subject to an exception in commercial transactions where foreign law and jurisdiction can be chosen by the parties to resolve any conflict in any given contractual relation. This exception also applies when both parties are nationals of Argentina, but as a matter of practicality rarely occurs.

The chosen law must be established clearly and specifically in the terms of the contract and in unambiguous wording. For example, a provision that subject a contract "to the laws of the United States" could be subject of controversy as it will not indicate the State law applicable.

The parties can also subject the controversies arising out of a contract to foreign jurisdiction. Article 1 of the Federal Civil and Commercial Procedural Code establishes that the competence assigned to local courts can be exempted in matters of exclusive patrimonial and international nature by agreement of the parties to a transaction, even in favor of foreign courts or arbitration panels, except in cases of exclusive Argentine jurisdiction (like bankruptcy) or when it is expressly prohibited by the law.

The possibility of establishing foreign law to a transaction is subject to limitations that we describe herein but in broad terms any matter considered of public order could not be subject to foreign law and any provision in a contract to the contrary will be considered null and void. For example, labor laws, prevail over any contractual provision. In this sense, the appointment of an agent or sales representative that works exclusively for the foreign company under strict orders and subject to periodical reports may be considered as an employee and claim labor indemnities and social security contributions in case of termination.

Likewise, the courts may also apply Argentine law to a contract in certain circumstances. For example, Argentina does not have statutory protection for agency or distribution contracts like other countries but the courts may apply indemnities under established court precedents when the termination has been extemporaneous. Another exception is that when establishing guaranties for a payment, a foreign company should be aware that pledges and mortgages must follow local law and any provision to the contrary will be ineffective: for example a provision applying foreign law to the assignment of a registered pledge of goods in Argentina. The provision will be considered null as the transfer of such rights is subject to specific rules established by articles 10 and 11 of the Civil Code which incorporate in our laws the principle of international law "lex rei sitae" – that is the law of the domicile of the owner of the goods shall apply.

Foreign law will be considered as a fact that has to be proved in case of litigation in an Argentine jurisdiction. It is then to the parties to provide the evidence. Generally, it will require either affidavits from a foreign lawyer as to the foreign law, expert witness testimony and other ways to prove the law. Parties can contest the validity of the evidence presented. The court can appoint an independent expert to attest to its existence and validity as well as interpret foreign law.

Under Argentine laws judges are free to evaluate evidence in accordance with their convictions (Article 386 of the National Code of Civil and Commercial Procedure of Argentina); therefore any provision to the effect that any instrument or document, shall be conclusive or prima facie evidence of the contents of such instrument or document may not be taken as conclusive prima facie evidence thereof. The court can appoint in certain circumstances an independent expert to attest to its existence and validity as well as interpret foreign law.

The nature of the judicial process requires that the parties allege their rights in their pleadings. If a party does not invoke in his demand the application of such foreign law and does not offer evidence to attest to it or the respondent does not either, the court may understand that they have renounced the application of foreign law to the case.

If the parties also submit their controversies to foreign jurisdiction, the foreign judgment (or arbitration award) rendered by the foreign court or arbitration panel could be enforced in Argentina as the country is a signatory of the main international conventions for the enforcement of foreign judgments and/or arbitral awards.

In the event that a judgment of any competent court located outside Argentina were rendered against the local Argentinean company such judgment would be enforced by the courts of Argentina against it without a further review on the merits; provided, however, that enforcement of the foreign judgment has met the requisites established by articles 517 to 519 of Argentine Law 17,454, as amended (National Code of Civil and Commercial Procedures), namely, that:

  1. the judgment, which must be final in the jurisdiction where rendered, was issued by a court competent in accordance with the Argentine laws regarding conflicts of laws and jurisdiction and resulted from a personal action, or an in rem action with respect to personal property which was transferred to Argentine territory during or after the prosecution of the foreign action;

  2. the defendant against whom enforcement of the judgment is sought was personally served with the summons and, in accordance with due process of law, was given an opportunity to defend against the foreign action;

  3. the judgment must be valid in the jurisdiction where rendered and its authenticity must be established in accordance with the requirements of Argentine law;

  4. the judgment does not violate the principles of public policy of Argentine law; and

  5. the judgment is not contrary to a prior or simultaneous judgment of an Argentine court.

Unless there is a business decision that may force the foreign company to accept local law, the parties can choose foreign law and jurisdiction to govern their transaction or part of it (depeçage). By establishing foreign law and jurisdiction a foreign company will avoid potential discretionary decisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Carlos E. Alfaro
 
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