Pros and Cons of Including an Arbitration Clause in a Sale and Purchase Agreement in Costa Rica

When drafting a Sale and Purchase Agreement (SPA), one critical decision is whether to include an arbitration clause. Arbitration is a widely recognized alternative dispute resolution method, and in Costa Rica, it is governed by the Alternative Dispute Resolution and Promotion of Social Peace Act (Law No. 7727) and international treaties such as the New York Convention. Here’s an analysis of the advantages and disadvantages of opting for arbitration in the Costa Rican legal context, including potential costs and timeframes.

Advantages of Including an Arbitration Clause

1. Confidentiality: Arbitration proceedings are private, ensuring that sensitive business matters remain confidential. In contrast, court proceedings are typically public.

2. Expertise of Arbitrators: Parties can select arbitrators with expertise in the specific subject matter of the dispute, leading to more informed and nuanced decisions.

3. Flexibility: Arbitration allows the parties to tailor procedures, such as deadlines and rules of evidence, making the process more efficient.

4. Enforceability of Awards: Costa Rica is a signatory to the New York Convention, facilitating the international recognition and enforcement of arbitration awards.

5. Speed: In general, arbitration can be faster than court litigation, particularly in Costa Rica, where judicial processes may be subject to delays.

Disadvantages of Including an Arbitration Clause

1. Costs: Arbitration can be expensive. Typical costs in Costa Rica include:

• Arbitrator Fees: Depending on the arbitrator’s experience, fees may range from approximately $90 to $150 per hour, based on the minimum professional hourly rate established by the “Arancel de Honorarios por Servicios Profesionales de Abogacía y Notariado”. Additionally, fees may be determined according to schedules issued by arbitration centers, which often charge a percentage of the case estimation. For instance, the Centro Internacional de Conciliación y Arbitraje (CICA) charges 1% of the estimated case value for cases between $90,001 and $4,999,000, up to a maximum of $50,000.
• Administrative Costs: Centers like the Centro Internacional de Conciliación y Arbitraje (CICA) or the Centro de Resolución de Conflictos (CREC) may charge administrative fees based on the dispute’s value. For example, CICA charges $900 for cases with an estimated value up to $90,000, and 1% of the case estimation for disputes exceeding this amount, with a maximum cap of $50,000.
• Legal Representation: Attorney fees vary and are typically aligned with the complexity and duration of the case. These fees are regulated by the “Arancel de Honorarios por Servicios Profesionales de Abogacía y Notariado” issued by the Government and the Colegio de Abogados de Costa Rica, with the minimum hourly rate set at approximately 90,750 colones (around $150).

2. Limited Appeal Options: Arbitration awards are final and binding, with limited grounds for appeal, which could disadvantage a party dissatisfied with the outcome.

3. Potential for Delays: Although arbitration is often faster, delays may arise due to the complexity of multi-party disputes or the arbitrators’ availability or the necessity to work certain stages or motions using the traditional court system.

4. Initial Costs vs. Court Filing Fees: In Costa Rica, court filing fees are generally lower as they are calculated as a percentage of the claim value. In contrast, arbitration costs, including administrative fees and arbitrator fees, are borne upfront, typically making arbitration less accessible for smaller disputes despite its potential efficiency in resolving complex cases.

Typical Duration of Arbitration in Costa Rica

The time required to resolve a dispute through arbitration varies depending on the case’s complexity and the rules applied. However, arbitration in Costa Rica typically takes between 6 months to 18 months. In contrast, court litigation can take several years due to procedural backlogs.

When to Include an Arbitration Clause.

An arbitration clause may be advantageous in high-value or international transactions where confidentiality, enforceability, and expertise are priorities. However, for disputes involving smaller sums or parties with limited resources, the costs and limited appeal rights may outweigh the benefits.

For more information, please contact Victoria Gomez at vga@quatro.legal who will be happy to respond on this subject.

Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to constitute legal advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change. For the most accurate and up-to-date information, please contact our office directly. Some images may be AI generated.