By

Alejandro Javier Colon-Cedeno

The Doctrine of Separability is central to international arbitration.¹ Unsurprisingly, it has made its way into private arbitration. Consumer contracts are an excellent example of this.² However, fundamentally, certain government agencies have yet to cement their approach to arbitration clauses within consumer contracts, leading to disparate results within the same sphere of the law. Establishing a consistent, procedurally sound course of action in light of arbitration clauses becomes exceedingly complex when faced with administrative agencies empowered to superimpose their jurisdiction over arbitration and given deference by the courts. Puerto Rico’s DACo (Department of Consumer Affairs) and its treatment of arbitration clauses contained within consumer contracts in the advent of solar panel leasing is a modern example.

Doctrinally, separability mandates that invalidities in a primary agreement do not invalidate an accompanying arbitration clause or agreement.³ For reference, Section 7 of the English Arbitration Act 1996 expressly codifies the doctrine while, in the US, state and federal law ratifies its existence and domestic applicability.⁴ Separability is also expressly addressed in several institutional rules (such as the ICC Rules, LCIA Rules, AAA Rules, and the UNCITRAL Arbitration Rules). Moreover, an arbitration agreement, contained within the main contract, confers jurisdiction to the arbitral tribunal.⁵ EWHC 1887 (Comm) (Nov. 2014).] Therefore, the issue of whether an administrative agency’s presumptive jurisdiction over consumer contracts may offset an arbitral tribunal’s jurisdiction arises.

In Peña Ortiz v. Máximo Solar Group, Corp., for instance, Puerto Rico’s appellate court found that a consumer’s challenge to the validity of a consumer contract by virtue of fraud and misrepresentation did not apply to the arbitration clause contained within it and that, therefore, the dispute required resolution via arbitration.⁶ This case was an appellate review of an agency decision reached by DACo, the Puerto Rico administrative agency that tends to consumer affairs, where the appellants, in turn, challenged DACo’s jurisdiction over the matter due to the existence of a valid arbitration clause pursuant to the American Arbitration Association (AAA).⁷ In this matter, DACo sought to establish its jurisdiction pursuant to an agency resolution that would broadly grant the agency jurisdiction over all contractual consumer matters. The appellate court, nonetheless, held that DACo erred in attempting to establish jurisdiction considering what the court referred to as a “forum selection clause.”⁸ Moreover, there exists in Puerto Rico a consensus that appellate tribunals abstain from intervening with administrative agency decisions due to their presumptive legality.⁹ Consequently, judicial review of such administrative agency decisions hinges on whether the interpretation of law and regulations are reasonable pursuant to Puerto Rican administrative law.¹⁰ In effect, the Court reiterated that Puerto Rican jurisprudence mandates that fraud or misrepresentation related to a contract in general do not invalidate “forum selection clause” contained within.¹¹

Peña Ortiz presented the Puerto Rico appellate court with its latest challenge to the legitimacy and procedural soundness of private consumer arbitration. In response, the court reiterated the long-standing posture of the U.S., Puerto Rico, and the international community: arbitration clauses are prima facie valid. Relying on baseline contract law, the internationally recognized and widely applied Doctrine of Separability was — and should be — established as a cornerstone of arbitration in Puerto Rico, regardless of whether administrative agencies are caught up with half a century of arbitration development. Nevertheless, Puerto Rico’s Supreme Court has yet to rule on this matter, but judicial review of administrative decisions concerning DACo’s reluctance to recognize the presumptive validity of arbitration clauses within a container contract appears to be heading in the right direction.