“It is practically impossible to have a general regulation,” said Gerardo Lozano Alarcón,
César Coronel Jones,
Determining who is bound by arbitration is a hot topic for arbitrators and lawyers. A panel moderated by Agustin Sanz of Three Crowns in Washington, DC, disagreed over the extent to which substance trumps form when it comes to evidence of consent to arbitration.
Coronel highlighted the crux of the non-signatory debate. “Only parties are bound to a contract, and this can be either an absolute connection or some relative connection to the contract. Yes, parties are bound, but the question remains: who is considered a party?” he asked.
Coronel said good faith plays an important role in determining who constitutes a party. “There needs to be a prevalence of reality over appearance,” he said. “Substance should prevail, meaning that in certain circumstances, a party who has not signed can and should be considered a real party.”
Some said that good faith is one of various factors. “The cornerstone of arbitration is consent, and the cornerstone of consent is whether a party has undertaken obligations and has signed an instrument,” White & Case LLP’s head of Latin American arbitration,
Even if the tribunal says a non-signatory is obliged, to what extent it must participate in the arbitration raises its own issues, noted Adriana Braghetta, co-chair of the summit and partner and co-head of the arbitration practice at Brazil’s L O Baptista Advogados. For some, the uncertainty is twofold. “We need to consider that this uncertainty can increase arbitration costs, as well as potentially deter investors from investing in projects,” said Ian Meredith,
The nature of certain transactions can further muddy how the role of non-signatories is perceived. In the case of multi-party and multi-contract transactions, José Martínez de Hoz,
The binding of non-signatories is notably ambiguous in disputes involving state-owned companies. Martínez de Hoz noted several factors to consider in such a situation, using oil and gas contracts as an example. “You will need to establish whether, under the laws of the host country, does the state own the reserves?
States can be hesitant to get involved in arbitral proceedings. “We need to consider that governments are reluctant to give room to private persons to rule on issues that are politically sensitive,” Coronel highlighted.
Whether a contract involves private or state-owned companies, lawyers can help clarify the position of non-signatories in their clients’ arbitration clauses. Martínez de Hoz suggests one way to help in the early stages of contract negotiation. “Giving express authority to the tribunal [in the arbitration clause] to allow it to decide which parties are involved can be greatly effective,” he suggested.
Latin Lawyer will continue to cover the arbitration summit in upcoming briefings.