Are you a LatAm based investor or company and are interested in exploring whether you can initiate an international arbitration?

For those involved in a commercial or investment dispute, or who may foresee a dispute on the horizon, international arbitration is a popular avenue that can be more efficient and cost-effective than traditional litigation, especially for LatAm investors and companies. 

There are two major types of international arbitration, access to which depends largely on the underlying relationship between the parties to a dispute: international commercial arbitration and investment-treaty arbitration. 

International Commercial Arbitration

Many commercial contracts contain a dispute resolution clause that may already provide for the arbitration of disputes arising out of the contractual relationship. In such a clause, the parties will have generally selected: 

(1) to opt into arbitration as opposed to litigation,

(2) the language of the proceedings,

(3) the location and seat of the arbitration,

(4) the institutional rules that will apply to the proceedings, and 

(5) whether the proceedings will be adjudicated by a sole arbitrator or three-person arbitral tribunal. 

Elsewhere in the contract, parties usually select the law governing the contract, which would bind an arbitral tribunal to apply that law, even if the arbitration takes place in a different jurisdiction than that of the governing law.  

As an example, an Argentinian company and a Mexican party setting up a joint venture in Colombia may choose that the arbitration be conducted in Spanish, take place in New York, and apply Colombian law.  In this case, the parties will almost certainly appoint an arbitrator or tribunal that speaks Spanish and that has a basis for understanding Colombian law. 

Arbitration centers and institutions around the world can help in the implementation of arbitral rules and facilitating the proceedings. While the most popular of such centers are in New York, Paris, London and Geneva, there are arbitration centers in Miami, San Francisco, Lima, Mexico City, São Paulo, Madrid, and many other cities globally that may better suit the needs of LatAm parties. 

The primary procedural requirement for engaging in international commercial arbitration is that the parties to the arbitration have consented, either prior to or after the dispute arises, to a valid arbitration clause. Even if a contract has been voided or nullified, as long as the parties consented to the arbitration clause upon entering the contract, the arbitration clause is considered a separate contract, surviving the termination of the original contract. 

Investment-Treaty Arbitration

The other system of arbitration for cross-border disputes is investment-treaty arbitration.  This avenue allows an investor to file a claim against a foreign state hosting the investment, for the violation of specific investment protections that states have agreed to protect on behalf of their nationals’ foreign investments. Investors may invoke these treaty-based protections against the host-state in the event of unlawful state intervention, failure of a state to treat an investment equitably, and other specific violations written into an investment treaty. 

Many investment-treaty arbitrations are administered by the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”), but investment treaties may provide for other forums and sets of rules, including those of the International Chamber of Commerce (“ICC”) and the UNCITRAL Rules. 

As you negotiate a new contract, it can be strategic to look at any existing investment treaties between the state in which you contemplate investing and the state or states of which you are a national. If there is no treaty providing for arbitration as an avenue for dispute resolution, and you want to rely on an international arbitration in the event a state unlawfully intervenes in, or fails to adequately protect your investment, you could consider incorporating a company in another jurisdiction to which you have ties prior to contracting with the state in which you will invest, and operating through that company. This could allow you to take advantage of a valid investment treaty with an arbitration clause, and thus have significant recourse in the event of a violation of your rights to state protection. There may still be a risk that an arbitral tribunal may decline to exercise jurisdiction if the legitimacy of your ties to the selected jurisdiction is questioned by such tribunal.  

If you would like to receive guidance in connection with a commercial or investment-treaty arbitration proceeding, or as you structure your contracts and investments to be able to take advantage of international arbitration, please let us know!