What is arbitration and how does it work?

Arbitration is an alternative dispute resolution method in which the parties, based on an agreement, agree to submit their possible disputes to the decision of an impartial and independent third party called an ‘arbitrator’. Such an agreement, called an ‘arbitration agreement’, may be contemplated within the contract in the form of a clause or be signed by the parties independently and even after the dispute arose.

Sample arbitration clause as part of the contract

“All disputes, arising out of or relating to this contract or agreement, shall be resolved in a timely manner. Definitive Median Formarbitration in accordance with the Arbitration Rules of the National and International Arbitration Centre of the Lima Chamber of Commerce, to whose rules, administration and decision the parties submit unconditionally, declaring that they are aware of them and accept them in their entirety.”
Source: Link

Arbitration is initiated to resolve disputes arising from freely available rights, such as commercial matters, civil works or contracts between private parties and the State. Matters of a family, labor or criminal nature, which are related to unavailable or inalienable rights, are not part of the scope of arbitration.

Difference between arbitration and other mechanisms

• Difference with a judicial process: Arbitrageis more effective, since it resolves disputes, in a single instance, definitively through an arbitration award, in an expeditious process led by one or more arbitrators who are experts in the field, reducing transaction costs for the parties involved.

• Difference from a conciliation: In arbitration, an impa rcial third party – the arbitrator – is who resolves the dispute through an arbitration award, which is a final and unappealable decision. On the other hand, in conciliation, the third party – the conciliator – does not have the power to resolve the conflict, since his role is to do his best to get the parties to reach an agreement.

Can an arbitration award be unheard of by one of the parties? Arbitral awards are final, unappealable and binding, and they also have the effect of res judicata. The arbitration law specifies specific grounds on which an award may be declared null and void, however, this does not exempt the parties from complying with it. In the event that one of the parties does not comply with the provisions of the award, the injured party may request the competent judicial body to enforce compliance with it through an enforcement process. (Article 59 of Legislative Decree No. 1071 – “Arbitration Law”)

Legal framework and regulation

In Peru, the development of arbitration began in 1996 with the enactment of the General Arbitration Law, Law No. 26572. Currently, Legislative Decree No. 1071 is the normative body that regulates and regulates arbitration.

Legislative Decree: Link

How is an arbitration process conducted?

Refereeing has eight important moments:

1. Filing a Request for Arbitration: This is the first step in which one of the parties involved in the dispute formally submits their request to submit the case to arbitration. In our Arbitration Center, the request for arbitration must contain the information listed in Article 5 of our Rules. That is, it must include contact information of the parties, description of the nature and circumstances of the dispute, the data of the parties involved, appointment of the arbitrator and number of arbitrators, among others, which are detailed in the Article in reference.
2. Response to Request for Arbitration: The other party responds to the request for arbitration by accepting or rejecting the proposed terms and presenting its preliminary arguments. In addition, you can formulate a response with complaints.
3. Appointment of Arbitrator or Arbitrators: The parties choose one or more arbitrators to resolve the dispute, according to the agreement and the rules of the arbitration.
4. Statement of claim: The party who requested arbitration files a formal brief with its arguments, evidence, and claims relating to the dispute. This document is the basis of the arbitration process.
5. Response to the claim: The other party submits its formal response to the complaint, in which it sets out its arguments and offers the evidence that supports its position. It may also counterclaim by filing its own claims against the applicant.
6. Audience: In most cases, a hearing is held in which the parties present their arguments and evidence to the arbitrators. This hearing may include testimony from witnesses and experts, similar to a trial.
7. Closure of proceedings: After the hearing and the presentation of all evidence and arguments, the arbitrators proceed to deliberate.
8. Final Award: The arbitrators issue their final and binding decision, known as an ‘award’. The award is legally binding and terminates the arbitration.

Why choose arbitration as a dispute resolution mechanism?

1. Speed: Arbitration is faster than ordinary court proceedings.
2. Specialty: arbitral tribunals are made up of expert professionals with extensive experience in the specific subject matter of the dispute, promoting informed and specialized decision-making.
3. Legal certainty: the arbitral award resolves the dispute definitively and this decision has the quality of res judicata, which provides legal certainty to the parties involved.

If you want to include the arbitration clause in your contract, click here.