Litigation In Arbitration Courts In Costa Rica. Part 1

1. What is arbitration

Arbitration is one of the methods to solve disputes between parties, in which a third party, chosen by the parties in conflict, after hearing the case and studying the evidence, decides the matter through a final resolution that has full legal value.

Such resolution is enforceable as any other resolution issued by a normal court. However such enforcement could not be executed by the arbitrators but only by regular courts.

In any instance, any resolution be that from an arbiter or a judge, must be executed later if not complied with by the other party.

2. Arbitration Vs normal courts

Before the existence of the modern State, as we know it, arbitration, together with conciliation and mediation, were the normal ways to solve disputes.

Once the State took over as the main political organization, it took upon itself the monopoly of administering justice through a Judiciary System run by state judges.

However, arbitration was always allowed to co-exist with the state courts, but only if the parties agreed in writing to it.

In some States, as it is in Costa Rica, arbitration is a constitutional right, however, certain areas of law like, family and criminal, cannot be resolved through arbitration.

3. Why arbitration?

Nowadays arbitration exists mainly to solve commercial issues, and it has grown rapidly in the international field, since it allows parties of different nationalities the possibility of a trial outside the rules of any particular State, if they so desire.

Even the United Nations Commission for International Trade Law (UNCITRAL) produced a “model law” to guide the States in the process of formulating their own arbitration laws. Costa Rican arbitration law includes the same principles of the Model Law, though it is not a copy-paste clone of it.

There are three main reasons why parties decide to accept arbitration as a way to solve future disputes, when they sign a contract:

1. Time. Since the arbitration process is conducted before a panel that is called upon specifically to solve that particular case and only that case, the time that such a panel will take to solve the matter is considerably less than it would take a State court to resolve. In some arbitration acts, as is the case in Costa Rica, there is a time limit for the arbitrators to decide. (150 days). Also, as a general rule, there is no appeal in arbitration, thus, the resolution reached by the panel is final, and parties do not have to wait for months, sometimes years, for a Superior Court to review the resolution. Nevertheless, the resolution could be annulled if procedural mistakes throughout the arbitration process violated the due process principles of law. In Costa Rica the First Chamber of the Supreme Court is the court in charge of deciding the annulment petitions, and that could take several months to be finally decided, or in some cases up to a year or more.
2. Specialty of the judge. In regular courts, a judge has the obligation to hear all type of cases: bankruptcy, commercial, civil, foreclosures, etc. In arbitration, since the parties are allowed to choose who the arbitrators are, they can select the best professionals in that particular area of law in which the dispute arose. It is therefore logical to expect a better, more appropriate resolution coming from the arbitrator, than a regular judge.
3. Freedom to select the applicable law. In a case before any State court, the applicable law, both the procedural and the substantial ones, will always be the laws of such State, whereas in arbitration, the parties can decide which law will apply in case of conflict.

4. Arbitration in Costa Rica.

Costa Rica issued its own arbitration law (#7727) on 9th December 1997 and that marked the starting point of a better and more standard use of arbitration in the country.

There can be two types of arbitration: Ad-hoc and administered.

In the Ad-hoc, the parties take upon themselves the duty of administering the whole process, including the appointment of the arbitrators, the delivery of the summons and maintenance of all files and record keeping etc.

In the administered arbitration, an institution duly approved by the Justice Department provides the service of administering the arbitration to those willing to pay their fees.

Nowadays there are two major Arbitration Centers: the CCCA and CICA.

1. CCCA is a service provided by the Costa Rican Chamber of Commerce.
2. CICA is a service provided by the Costa Rican American Chamber of Commerce (AmCham).

Some years ago, when the real estate market really began to flourish in Costa Rica, almost all contracts signed by developers and investors included an arbitration clause. It was though, — in some cases — more because of a legal fashion due to the “new” law, rather than for the correct reasons.

Without real experience on arbitration, some attorneys have recommended arbitration because they believed a case would be solved economically, in an unrealistic period of time and, when these attorneys have lost their cases, normally without the correct knowledge of arbitration, they swear that they will never again use it for their clients.

Arbitration has also been a bitter experience for some people to whom the process and the costs of arbitration were never properly explained when they signed the arbitration clause in their contracts. Then when they were required to officially take their counterparts to arbitration, they discovered that they had to come up with a considerable amount of money for administrative fees, the fees of the three arbitrators, translations, transcriptions costs etc.

However, there are many other professionals who are genuine experts in arbitration, who’s expertize has helped produce a considerable base of knowledge. This has helped the reputation of arbitration in Costa Rica and has given it the important place it deserves amid different methods of resolving disputes.

When handled correctly, and when you ensure that the proper professionals are serving as arbitrators, arbitration has indeed solved the conflicts with more precision and in less time than regular courts.
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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.