THE Arbitration Clause: A Flexible Tool for Dispute Resolution
Yuri Moreno and Génesis Sánchez, experts on litigation from Panama, share this article on how
Arbitration is an alternative dispute resolution mechanism renowned for its speed, confidentiality, and flexibility. The arbitration clause plays a crucial role in defining the procedure, covering elements such as the venue, composition of the tribunal, and language. Moreover, its proper drafting ensures legal certainty and helps prevent complications.
Arbitration holds significant relevance within alternative dispute resolution methods due to the various advantages it offers. One of its main benefits is speed, as disputes are resolved much faster through arbitration compared to the time it typically takes to obtain a court ruling. An arbitral award, which is binding on the parties, is issued by an arbitral tribunal composed of one or more arbitrators, depending on what the parties agree upon.
Thus, arbitration serves as an alternative, private jurisdiction that parties can resort to for an effective, confidential, and faster resolution than that provided by conventional judicial systems. But how can parties submit their disputes to arbitration? This is achieved by drafting an arbitration clause in the contract they have signed. However, this is not a strict requirement. Even if the clause is absent, the parties may still opt for arbitration through a separate written agreement, which could take the form of a document, electronic communication, or data message, as long as it can be subsequently referenced.
The Arbitration Clause: Key Elements
The arbitration clause is a fundamental aspect of this process. What should this clause include? It is crucial for the clause to clearly and expressly indicate that the parties intend to submit their dispute to arbitration and that the subject matter is within their discretionary control. Additionally, the clause should specify certain key elements, such as:
•The seat of arbitration: The location where the arbitration process will take place.
•The composition of the arbitral tribunal: Whether it will include legal professionals or experts in fields related to the dispute.
•The type of arbitration: Whether it will be conducted under the auspices of an arbitral institution or as an ad hoc process (not administered by an institution).
•The language: The language in which the arbitration will be conducted.
•The applicable rules: The regulations governing the arbitration, which could be the rules of an arbitral institution or those agreed upon by the parties.
These elements underscore the parties' complete freedom to decide how the arbitration process will be conducted, leading to the issuance of an arbitral award that provides a final resolution to the dispute.
The Importance of Clear Drafting
Although numerous aspects can be included in the arbitration clause or agreement, it is crucial for this document to be clear, precise, and concise. Overly lengthy or ambiguous drafting is discouraged, as it may result in what is known as a "pathological clause"—a clause that is incomplete, confusing, defective, or contradictory, potentially hindering or even preventing the arbitration process.
The Validity of the Arbitration Agreement
Questions often arise regarding the validity of the arbitration agreement or clause. While the arbitral tribunal has the authority to resolve such matters, it is highly advisable to seek the guidance of a lawyer specialized in arbitration to avoid legal issues and ensure the procedure proceeds smoothly.
Legal Effects of the Arbitration Clause
Understanding the scope of an arbitration clause or agreement is essential, as it carries significant legal effects. Firstly, it binds the parties to comply with the agreed terms, ensuring legal certainty. Another critical effect is that it removes the jurisdiction of ordinary courts, transferring the dispute from a judicial tribunal to an arbitral tribunal.
Conclusion
Including an arbitration clause in contracts offers the opportunity to resolve disputes in a manner more suited to the parties' needs, resulting in an efficient and enforceable resolution that provides peace of mind to those involved. While arbitration involves various aspects that require careful consideration, the key lies in drafting a clear, well-structured clause with the proper guidance of experts in the field.
Do not hesitate to contact us if you require advice on this important subject.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.