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The Commitment Clause

The arbitration clause is one that is contained in a contract and that submits disputes that arise after the conclusion of the agreement to the knowledge of an arbitrator.

In general these clauses are contained in commercial contracts of certain economic relevance, but in a generic way we find it in international contracts, that is to say in those agreements in which the parties are domiciled in different States and, therefore, subject to different legislations.

The fact of being subject to different legislations, plus the complexity inherent to the contract, makes it recommendable that any controversy in this regard be known by an arbitrator judge appointed by the parties or by a special procedure contained in the aforementioned clause.

Unfortunately, in our professional practice we are faced with knowing situations that are not entirely satisfactory for those parties that have not weighed the importance of this clause. For example it is usual to find specimens signed by a single contractor. This does not necessarily imply that there has not been a contract since it was executed, but it will be very difficult for the arbitration jurisdiction provided in the document to resolve the conflict, because it does not count its choice in a document with the express acceptance of all parties interveners.

Likewise, we find arbitration clauses contained in contracts that have been entered into by all the parties involved and include their signatures in the documents, but which, due to ignorance, are generally subject to the arbitration jurisdiction imposed by the foreign contracting party. That acceptance by the local company is not an anodyne conflict come. In fact, on many occasions, the distance from the arbitral jurisdiction implies an increase in the amount of the process that is simply not economically feasible to litigate or is it for such excessive amounts that, in practice, most of the breaches go unpunished. The above can be saved taking into account that most of the time that arbitration jurisdiction, such as the International Chamber of Commerce, has offices on five continents, the asymmetry may have been corrected, submitting to a court of said jurisdiction geographically more near.

Then, it is not surprising that by asking the affected why they submitted to this or that law, which governs the contract. The answer is many times that they did not know the effect of submitting to said legislation and reasonably expected to have no conflicts with the other party. This attitude is reckless and can bring with it enormous damage. The ideal is to negotiate the application of an adequate fund law or in the event of being impossible to at least know, before the conclusion of the contract, what are the consequences of being subject to that legislation.

In short, the arbitration clause is one of the most important agreements of the contract and requires proper negotiation advised by experts in the field.

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Gustavo Cuevas's picture

Founding Partner of Cuevas Abogados (2002 –).
He previously worked as a General Counsel in various foreign banks (1993-2003).