Arbitration clause

By: Yorly Soza.

The arbitration clause has its basis and validity in the principle in individual autonomy. The contracting parties have the power to choose and establish an arbitration process as a mean to resolve all or some disputes arising from a commercial relationship. They can also enter into a separate arbitration agreement that applies broadly or narrowly to certain disputes and to one or more contracts.

An arbitration clause is a mechanism by which the parties decide to submit all or certain disputes that may arise between them regarding a legal relationship. This clause may be included in a contract or in a separate agreement, but it must be in writing. The objective is for an impartial arbitral tribunal, composed of one or more arbitrators, to hear the dispute, listen to each party’s argument, assess the evidence, and resolve the dispute according to law or equity and within a reasonably agreed-upon timeframe by the parties.

With a clear, complete, and adequate arbitration clause, like any other contractual obligation, the parties are inevitably bound to seek the resolution of their disputes through arbitration. This requires considering that not all legal matters are arbitrable, but only those where the parties have legal freedom of disposition, or where the law specifically allows arbitration, unless there are express prohibitions or where the law requires a specific procedure.

It is important for the arbitration clause or agreement to meet the fundamental conditions that allow its effective applicability under the law, without omissions that cannot be supplemented by the law or excesses that limit it or lead it to become a nullity, ineffective, or impossible-to-enforce clause.

Let’s look at some important advantages for which the arbitration process may be convenient:

  1. An arbitration process often provides a quicker resolution compared to judicial courts and generally involves fewer formalities and simplified procedures, making it less economically costly.
  2. Due to the principle of confidentiality, parties can keep sensitive information out of public view.
  3. Parties may select arbitrators based on experience in the subject matter of the dispute, as well as on the ability of arbitrators to play their role in the arbitral process, which may lead to more informed decisions.
  4. Arbitral awards are final and binding to the parties; arbitral awards are not appealable, although they can be annulled for procedural defects.

Disadvantages of arbitral process include, but are not limited to:

  1. Arbitral process may not be suitable for all disputes even if there is no legal restriction on their applicability; so, the scope of the arbitration clause should be correlated with the scope and magnitude of the contract or business.
  2. The arbitral tribunal lacks coercive power, so in the event of non-compliance with the award, the enforcement process must be pursued through the judicial system, in the ordinary courts.

In Nicaragua, arbitration matters are regulated by Law 540, the Law Mediation and Arbitration, and other complementary or specially regulating norms.