25 Jan The importance of the clauses of resolution of conflicts, jurisdiction or arbitration?

The rise of new technologies has allowed us to evolve towards a globalized and interconnected world, where it is easier to do business abroad.

When two or more companies sign a commercial contract or agreement, they do so with the intention of complying with the stipulations contained therein. However, this is not always the case since, over time, discrepancies often appear. This risk is clearly enhanced in contracts with international components, in which we find a series of added risks such as different cultures, languages, coexistence of different jurisdictions or the participation of different operators whose actions cannot be controlled directly by the parties as they are: commercial agents, transporters etc.

In any contractual relationship, it is essential to include in the contracts a clause on where and how we want the discrepancies to be resolved. In this post we will discuss the two most common methods:

• submit the dispute to the ordinary courts or tribunals of a State and within it to those of a specific city. The fact that the parties often reject it will be seen below.
• submit it for study and decision by an arbitrator or arbitral court. In the arbitration, the solution of the conflict is left in the hands of one or several persons (arbitrators) that can be chosen directly by the parties, or by the institution that administers the international arbitration to which the parties have submitted themselves. Ex: the Arbitration Court of Madrid, or other more common in international traffic: Paris, London, Singapore …

Once the different ways of resolving conflicts have been seen, the question arises. What is the most appropriate method? This is a difficult question to answer since there is NO perfect and universal method that offers us the ideal solution for all cases in a generalized manner. Each case will have to be analyzed individually and will depend on multiple factors and circumstances. What aspects should be taken into account when deciding on one option or another?

Among them we can quote,

(i) Reliability of the courts of each country. In Europe we are accustomed to impartial courts that share a series of legal principles, but this is not always the case in the rest of the countries. Lack of knowledge is a handicap.

(ii) Time of the process. While it is true that, in the case of the courts, the exact time will depend on each country, in general the duration is greater than the time spent in an arbitration process. Taking the Spanish arbitration law as an example, the arbitration award must be issued within a maximum period of six months, unless the parties agree on a longer period.(

iii) Confidentiality. The starting point is the public nature of the sentences. The awards on their part are private. Sometimes, the dissemination of the result of a certain process can damage the image and honor of a company, which could lead to situations of breakages of pre-agreements, loss of goodwill, failure to restore commercial ties, etc.

(iv) Specialty of the subject. In the arbitration, the parties have the possibility of choosing their arbitrators, which is especially useful in those processes of a technical nature in which it is more than convenient that the people who “judge” the matter are aware of it. Judges are indeed experts in law, but sometimes they can not understand the true functioning of the business itself.

(v) Costs. This is an aspect that must be taken into account, but whose response is complex, because not all courts in the world have the same rates as the different arbitration venues. On the other hand, in the case of arbitration, we must pay the arbitrator’s fees together with the cost of the procedure itself (a fact that does not occur in the courts), but we must not forget that the decisions of the courts are subject to appeal and can be give rise to various instances, with which the price of the process will increase gradually.

(vi) Language. Arbitration allows the parties to choose the language to be used. National courts logically accept only their own language to resolve issues. This inevitably leads us to the fact that if two parties of different nationality decide to submit to the jurisdiction of one of them, they will be placed in different positions.

(vii) Possible appeal. The arbitration process is of a single instance, there are no appeals before it, unless it violates public order. Contrary to what happens in the courts, where if we have several instances, in the arbitration process we will only have one.

(viii) Execution. With respect to the enforcement of court rulings and arbitral awards, both are currently possible. In the case of courts, we must differentiate if the judgments have been handed down by European or non-European courts. In the case of judgments handed down by European courts, the execution takes place directly in the court of the domicile of the person executed (Brussels I bis Regulation). In case of non-European courts, the procedure to be applied is the so-called exequatur, processed before the Supreme Court (in this case the duration is longer) With respect to arbitration awards, they are also enforceable thanks to the New York Convention of 1958. Logically, the mechanism is applicable only among the countries adhering to it, although currently the vast majority of countries are part of it.

At Navarro Llima Abogados we have highly qualified lawyers specialized in international business law. Anticipating the problems and being able to “program” the resolution form is an advantage that we cannot waste. If you have any questions about this, do not hesitate to contact us.

Javier Navarro and Héctor González

Lawyers