Keeping all arbitration options open

In the current financial climate counterparties may be reluctant to fund or even follow
through with arbitration proceedings but remedies exist to progress disputes

Aparty in dispute wishing to enforce an
arbitration clause should be prepared for
the fact that in the current financial climate
counterparties may be reluctant to fund or
even follow through with proceedings,
says Félix JMontero, co-Head of
Arbitration at Pérez-Llorca in Madrid.

'Despite its benefits, arbitration is paid
justice and for which the parties have to
share in advance the cost of the institution
and the arbitrators. Apossibility exists that
either a claimant or defendant may be
unable to afford the necessary upfront
costs, or a defendant, because of their own
precarious financial position, may not
readily cooperate in the process.'

Many clauses though expressly
preclude parties from resorting to the
national courts, albeit public legal
assistance may be available to parties in
financial difficulties, and though arbitral
institutions and arbitrators are under an
obligation not to progress proceedings if
the relevant costs cannot be met.

'A claimant can of course decide to
cover all the costs up front – which would
be adjudicated at the time of the award –
but they may also not be in a position to
do so. The issue then is what recourse is
available to resolve their claim?'

Nevertheless precedents exist, before
the ICC International Court of Arbitration
and German Federal Courts, in which
parties to an arbitration have, in
exceptional circumstances and because of
manifest lack of financial capability, been
able to circumvent arbitration clauses and
resort to jurisdiction in the courts, explains
Montero.

'No such precedent has yet been set in
Spain, but it nonetheless offers companies
the comfort of knowing that the possibility
remains of progressing disputes, even in
the face of extreme difficulties, albeit there
may be hurdles to overcome.'

The issue is particularly critical as an
arbitration clause cannot be relied on once
a company has been declared bankrupt, he
says.

'Arbitration proceedings may be
continued against a company in
bankruptcy, but not commenced against
them, which brings an additional
complication – to commence proceedings
ahead of a declaration or to take your
chances in the commercial courts.

In terms of timing and when relatively
specialised decisions are required, we
would advise a party to avoid from
litigating against a company in front of
a Bankruptcy Judge.'