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Legal institutions of the market economy: private commercial arbitration as transaction costs reducer in Colombia

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Legal institutions of the market economy: private commercial arbitration as transaction costs reducer in Colombia

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Content LEGAL INSTITUTIONS OF THE MARKET ECONOMY: PRIVATE
COMMERCIAL ARBITRATION AS TRANSACTION COSTS REDUCER IN
COLOMBIA
by
J. Mauricio Sanabria
______________________________________________________________
A Thesis Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTERS OF ARTS
(ECONOMICS) August 2009
Copyright 2009 J. Mauricio Sanabria
ii
Table of Contents
List of Tables iii
List of Figures v
Abstract vi
Introduction 1
Chapter 1: Changes in Laws for Economics: The Appeal of Alternative 7
Dispute Resolution Mechanisms in Colombia
Chapter 2: Inside Private Commercial Arbitration in Colombia 32
Bibliography 117
Appendix A: List of Codes 130
Appendix B: Code Book 136
Appendix C: Arbitration Cases 147
Appendix D: International Investors Directly or Indirectly Involved in 153
Private Commercial Arbitration
Appendix E: NAFTA Investor-State Arbitration Duration in Months 156
iii
List of Tables
Table 1. Percent of GDP by Economic Sector, Colombia 44
Table 2. Arbitration Users according to the North American Industry 45
Classification System
Table 3. Foreign Participation in Arbitration Cases 47
Table 4. Size of Companies Using Arbitration 48
Table 5. Types of Legal Contracts 52
Table 6. Content of Contractual Obligation Controversy by Economic Sector 53
Table 7. Length of Business Relationship 54
Table 8. Time of the Conflict within the Economic Interaction 62
Table 9. Effect of Arbitration on the State of the Business Relationship 63
Table 10. Sample Topics of Contract Interpretation 69
Table 11. Sample Topics of Contract Implementation and Liability 71
Table 12. Number of Declarative Claims by Type 72
Table 13. Defendants’ Exceptions of Merit 73
Table 14. Number of Defenses by Type and Percent of Total Cases 74
Table 15. Duration of the Pre-Arbitral Phase 78
Table 16. Duration of the Arbitral Phase 80
Table 17. Overall Duration of Arbitration Cases 82
Table 18. Process Suspensions Agreed Upon by Both Parties 85
Table 19. Evidence Introduced in Arbitration 89
Table 20. Monetary Value of the Disputes 96
Table 21. Cost of Arbitration 98
iv
Table 22. Monetary Amount of Arbitral Awards 100
Table 23. Allocation of Arbitration Cost between Parties 104
Table 24. Demand for Arbitration, 1987-2007 108
Table 25. Demand for Arbitration in CAC, 1999-2006 110
Table 26. American Arbitration Association Commercial Cases Filed 1997-2002 112
v
List of Figures
Figure 1. Parties by Economic Sector 43
Figure 2. Foreign Participation in Arbitration Cases 47
Figure 3. Size of Companies Using Arbitration 49
Figure 4. Length of Business Relationship 55
Figure 5. Contractual Obligations Performance Categorization 59
Figure 6. Effect of Arbitration on the Continuation of the Business Relationship 63
Figure 7. Defendants’ Exceptions of Merit 74
Figure 8. Dilatory Defenses, Merit Defenses and Counterclaims 75
Figure 9. Duration of the Pre-Arbitral Phase 78
Figure 10. Duration of the Arbitral Phase 81
Figure 11. Overall Duration of Arbitration Process by Percent of Cases 84
Figure 12. Process Suspensions Agreed Upon by Both Parties in Months 86
Figure 13. Number of Cases Utilizing each Means of Proof 90
Figure 14. Use of Expert Witnesses by Field 91
Figure 15. Percent of Cases for each Monetary Value of the Dispute 97
Figure 16. Cost of Arbitration 99
Figure 17. Monetary Distribution of Arbitral Awards 101
Figure 18. Distribution of Arbitration Cost to the Complainant Party 105
Figure 19. Arbitration Demand by Lustrum 109
Figure 20. Demand for Arbitration in CAC, 1999-2006 111
Figure 21. Number of Commercial Cases Filed with American Arbitration 112
Association, 1997-2002.
vi
Abstract
This thesis analyzes legal and institutional responses to economic liberalization
in Colombia. The main hypothesis is that the increasing use of alternative dispute
resolution mechanisms (ADRMs) by economic agents is the consequence of global
economic pressures, as well as an attempt to address the crisis of the national judicial
system. ADRM’s reduce economic transaction costs, and offer more efficient,
predictable, and independent venues for resolving litigation. Consequently, they create a
more stable environment for investors. This, in turn, suggests that the relationship
between law and economics is rapidly changing at the structural level in Colombia.; this
latter point constitutes a secondary hypothesis, wherein market-friendly governance
structures guided by private interests are displacing those dominated by the state.
The analysis goes beyond the macro cross-national indices mainstream
approach to understanding the relationship between legal institutions and economic
interests. The analysis favors a micro case studies approach to better comprehend that
interconnection. It analyzes 112 actual arbitration cases heard before the Center for
Arbitration and Conciliation, CAC, of Bogotá Chamber of Commerce, between 1985
and 2007.
1
Introduction
My thesis analyzes legal and institutional responses to economic liberalization in
Colombia. My main hypothesis is that the increasing use of alternative dispute
resolution mechanisms (ADRMs) by economic agents is the consequence of global
economic pressures, as well as an attempt to address the crisis of the national judicial
system. ADRM’s reduce economic transaction costs, and offer more efficient,
predictable, and independent venues for resolving litigation. Consequently, they create a
more stable environment for investors. This, in turn, suggests that the relationship
between law and economics is rapidly changing at the structural level in Colombia; this
latter point constitutes a secondary hypothesis, wherein market-friendly governance
structures guided by private interests are displacing those dominated by the state. In
other words, settling business controversies through private arbitration is the preferred
means for cases once channeled through the state’s judicial system.
In the last 25 years, Latin America has faced three major changes: the economic
model, the role of the state in that model, and the heightened pressure that these first
two changes have placed for reform of the legal structure. This thesis concentrates on
the latter phenomenon. I relate changes in the legal system and public policy to the role
of institutions reducers of transaction costs, wherein new legal norms are seen as
supporting private economic initiative. Specifically, I argue that the use of ADRMs
(particularly arbitration) in commercial matters is emblematic of the new relationship
between law and economics, in which private initiative guides the search for more
efficient governance structures and lower transaction costs.
2
I assume that the main objective of legal reform is to build an environment
where low transaction costs attract capital, improve economic efficiency, and bolster
economic development. Consequently, the risks of backsliding on legal reform would
reduce the chances for economic growth and development, as economic inefficiency
economy and high transaction costs would deter any possible gains.
Why are ADRMs important?
This study is important because it transcends macro-regional analyses of the
economic model and indices of institutional reform as the main indicators of economic
“success.” Rather, my purpose is to identify linkages and/or gaps between micro-
national institutional behaviors and macro-regional initiatives. In other words, my
dissertation goes beyond the international rankings approach to national legal
institutions and their interplay with economic development. A study of this nature
provides a better understanding of the importance of the domestic context: the role of
economic institutions, an identification of costly institutional gaps and incongruencies
among institutions, and the need for more cohesive linkages between legal economic
institutions operating at different levels (sectorial/local, national and international).
Most importantly, I seek to understand how Colombia’s changing legal/economic
institutions have shaped commercial practices at the domestic level.
This focus on ADRMs offers insight into the legal institutional framework that
has evolved around private commercial arbitration, as well as the types of cases brought
before this mechanism. How have private actors utilized ADRMs? Have investors’
interests and institutional legal preferences changed as a result of ADRMs? What role
3
have ADRMs played in overcoming Colombia’s sever judicial crisis and in
modernizing the judiciary?
Answers to these questions are crucial for identifying sound public policies in
relation to commercial law and the judicial system in general. In sum, this study offers a
more informed understanding of the relationship between law and economics at the
practical level from a specific Latin American domestic standpoint. At the same time, it
will create a framework for analysis applicable to other Latin American countries, and
developing and transition economies in general.
Since the 1980s, statist economic models in the developing world and the
“inefficiencies” these have created have been heavily criticized. The privatization
process argues against the monopoly of the state in certain economic sectors, including
the creation of law and the administration of justice in economic relations. Such
criticism has targeted the state’s role in the definition and creation of contractual
relations, their implementation and execution, and the resolution of eventual disputes.
This legal scenario based on strong state involvement, it is argued, increases the
transaction costs of economic relations. These inefficiencies need to be overcome in
order to maximize the interests of the parties to an agreement and to create,
consequently, more beneficial social outcomes by reducing transaction costs. Although
this is not the only justification for legal reforms, it is a vitally important one.
As mentioned at the outset of this chapter, in the past two decades, many
countries in Latin America have faced complex changes in three major arenas: the
economic model, the role of the state, and the legal structure. The first could basically
be understood as taking place within the internationalization of the economy, and an
4
increasing role for the market. Specific policies include the privatization of state-held
companies, the liberalization of trade and investment, and the opening of financial
markets. The second type of change hinges on the need to reduce state intervention in
the allocation of resources, in favor of a subsidiary role to that bolsters more efficient
market forces in the development process.
Finally, changes in regulatory bodies have been introduced as part of the
simultaneous liberalization of politics and economics in Latin America.
1
Constitutional
and judicial reforms, and revision of civil, commercial, customs, administrative and
criminal codes are some of the specific forms these changes have taken. It is this third
level of transformation I will elaborate on in this dissertation. However, instead of
approaching these legal reforms from the point of view of political democratization, I
intend to relate the changes in law and the judicial system to the increased privatization
and use of alternative dispute resolution mechanisms. More specifically, I will focus on
the role of institutions as reducers of transaction costs and on the broader context of
greater legal flexibility and international harmonization of justice systems.
2
These
private legal mechanisms now being used to settle business differences appear to be
more efficient, predictable and amenable to conflict resolution.
1
For a comprehensive discussion on democratic transition and democratic consolidation see: Anderson,
Lisa, ed. Transitions to Democracy (New York: Columbia University Press, 1999), Diamond, Larry.
Developing Democracy (Baltimore, MD: The Johns Hopkins University Press, 1999); Gunter, Richard, P.
Nikiforos Diamandouros, P. Nikiforos Diamandouros, and Hans-Jurgen Puhle, eds. The Politics of
Democratic Consolidation (Baltimore, MD: The Johns Hopkins University Press, 1995), O’Donnnell,
Guillermo, Philippe Schmitter and Laurence Whitehead. Transitions from Authoritarian Rule: Prospects
for Democracy (Baltimore, MD: The Johns Hopkins University Press, 1986).
2
The reduction of transaction costs is precisely one of the main objectives of institutional reform. It is in
this sphere that Oliver Williamson (1983, 1985) and Douglas North (1990) argue that the task of an
institution is to bring the transaction costs of a given investment as close as possible to the maximizing
point. The concerns of Robert Ellickson (1991) regarding the effects state law has on social relations and
application in relation to economic interests should also be mentioned here.
5
My interpretation is that this new pattern of law and economic justice based on
private arbitration and conciliation holds promise for the deeper institutionalization of
changes in the market and state spheres.
The deconstruction of legal and judicial institutions can be approached from different
theoretical angles, such as dependency theory, the regulation school, the theory of legal
pluralism, sociological discussions about new subjectivities, or scholarship on
democratic consolidation. I plan, however, to introduce the “new law,” exemplified by
the expanding demand for ADRMs, as the kind of legal framework demanded by
[international] economic agents when deciding where to engage in contractual relations;
and at the same time, these are regulatory structures that are useful for attracting and
retaining [foreign] investment.
It is important to note that this is an evolutionary economic paradigm, one which
draws attention to the context where decision-making takes place and to interrelations
between various institutions. Economic globalization and institutional legal
transformations are mutually effecting each other, yet individual states are exhibiting an
array of legal approaches to economic conflict (Alchian 1950). In Colombia, the
changes are moving in the direction of alternative forms of governance meant to lower
transaction costs and reduce economic inefficiency. Stated differently, in Colombia,
institutional reform in the realm of the conciliation and arbitration of commercial issues
is symptomatic of the adaptive process of a business community now closely engaged
with the world economy.
There is one difficulty that needs to be mentioned. In many cases the
multifaceted objectives of legal reform make it difficult to pinpoint which problem is
6
being tackled and how far the changes have gone.
3
However, we can proceed by
looking at common and dominant trends, leaving the necessary identification and
evaluation of particular norms in specific economic relations for future field research.
For now, let us focus more generally on how a more efficient legal framework can help
to foster a more efficient economy.
The first chapter is divided into four parts. The first introduces the school of
“modern political economy” as defined by the New Institutional Economics.
4
The
second part highlights the relationship between legal and judicial institutions and
transaction costs. The third reviews Colombia’s legal institutions and the crises that
have beset them; the fourth part assesses how far along, legally speaking, Colombia has
come with regard to institutional reform.
Chapter 2 contains the case studies, 112 private commercial arbitration tribunals
organized by parties to arbitration, commercial transaction or object of the dispute,
parties legal pretensions and defense mechanisms, length of arbitration process, means
of proof or evidence requested in the process, cost of arbitration, and arbitration’s
demand trend.
3
For instance, changes such as the creation of alternative conflict resolution mechanisms are introduced
as tools for empowering civil society and guaranteeing access to justice for the poor. There are also
different interpretations of the effects of reform under the “Access to Justice” program.
4
According to Frieden, modern political economy synthesizes early perspectives, introduces sectorial
analysis and relegates state’s intervention to the role of minimizing rent-seeking. Additionally, it uses
“advanced [methodological] tools, meticulous logic: mathematical models, econometric techniques and
qualitative case studies.” (2000, xvi). The “old” institutional economics of Thorstein Veble, John
Commons, and Wesley Mitchell has been characterized and “abandoned” as essentially descriptive and
anti-theoretical according to the positivist standards of the “new institutionalism.” Old institutional
economics fails to offer a systematic and viable approach to economic theory (Hodgson, 1998).
7
Chapter 1
Changes in Laws for Economics: The Appeal of Alternative Dispute Resolution
Mechanisms in Colombia
The chapter is divided into four parts. The first introduces the school of “modern
political economy” as defined by the New Institutional Economics.
5
The second part
highlights the relationship between legal and judicial institutions and transaction costs.
The third reviews Colombia’s legal institutions and the crises that have beset them; the
fourth part assesses how far along, legally speaking, Colombia has come with regard to
institutional reform.
The second Phase of Reforms or Institutional Modernization
Larry Diamond states that in order to stabilize and consolidate a new democracy
the regime must perform. The successful legitimization of the regime greatly depends
on the success of its economic policies. “The better the economic performance of a
democratic regime the more likely it is to endure.” (1999,78). He is partial to the
centrality of market-oriented reforms as a way to consolidate democracy. “Good growth
and low-to-moderate inflation are generally produced by macroeconomic policies and
institutions that protect property rights liberalize trade and financial markets” (ibid., 79).
He is not particularly concerned about the economic inequality associated with market
reforms. In this framework, Adam Smith’s invisible hand of the market is ostensibly at
5
According to Frieden, modern political economy synthesizes early perspectives, introduces sectorial
analysis and relegates state’s intervention to the role of minimizing rent-seeking. Additionally, it uses
“advanced [methodological] tools, meticulous logic: mathematical models, econometric techniques and
qualitative case studies.” (2000, xvi). The “old” institutional economics of Thorstein Veble, John
Commons, and Wesley Mitchell has been characterized and “abandoned” as essentially descriptive and
anti-theoretical according to the positivist standards of the “new institutionalism.” Old institutional
economics fails to offer a systematic and viable approach to economic theory (Hodgson, 1998).
8
work: a belief that trickle down will benefit the poor. “To the extent that a rising tide
lifts all boats, economic gains for the rich should not be resented”(ibid., 80).
In discussing the interplay between democratic consolidation and economic
performance, Diamond echoes the modern political economy paradigm as it applies to
trade, capital mobility and macro economic policy. This perspective on economics
holds that economic development thrives on comparative economic advantage
(abundant/scarce endowments) and the international division of labor; the rational
individual actor would support market liberalization as the most beneficial means to
increase income gains. Even the short-term losers (the economic sector that invariably
supports protectionism) will enjoy allocative market efficiencies in the long run
(Frieden and Rogowski 1996; Milner and Keohane 1996; Garret and Lange 1996). In an
institutions-free scenario, the mechanisms of the market suffice. Thus, institutions
rationally emerge as a function of the market. However, in the real world, this economic
model faces the periodic need for institutional direction, as we are seeing as the 2008
global financial crisis continues to wreak havoc on the world economy.
For developing countries, one crucial cycle of institutional reforms lies in the
implementation of policies known as structural adjustment. These focus mainly on
macroeconomic concerns, and the standard Bretton Woods package that favors market
remedies that are best kept out of the reach of politicians.
A clear summary of this package or tools is found in John Williamson’s classic
monograph entitled “What Washington Means by Policy Reform” (1990). Williamson
lays out ten policy instruments that are essential to a sound economic reform program in
Latin America. These policy instruments are: 1) Fiscal overhaul: the need to find an
9
equilibrium between revenues and expenditures; 2) Public expenditure rationalization:
from subsidies to investments in human capital (health and education) and
infrastructure; 3) Tax reform: a larger tax base and moderation on regressive taxes; 4) Interest rates: positive and market determined; 5) Exchange rates: market determined.
“A competitive real exchange rate is the first essential element of an ‘outward-oriented’
economic policy.” (1990, 20). This would increase the competitiveness of domestic
goods in the international market; 6) Trade policy: import liberalization and barrier-free
trade; 7) Foreign direct investment: national treatment for foreign investors; 8) Privatization of state enterprises to balance the public budget, and more importantly, to
achieve greater efficiency; 9) Deregulation of economic activities to create certainty (of
costs and opportunities), transparency and to reduce corruption; and 10) Property rights
enforcement, as this is a core institution of capitalism (Williamson 1990). In short,
prudent macroeconomic policies, outward orientation, and free-market capitalism are
the recipe for adjustment.
The second stage of reforms, the post-structural adjustment or institutional
modernization phase, emphasizes and develops the last four instruments of this so-
called “Washington Consensus.” Foreign investment, privatization, deregulation, and
property rights are at the heart of the next reform phase. Institutional, legal and
administrative reforms are also part of this second phase package. Although there is not
a “consensus” on the specific definition, dimension, and content of this next round of
changes, they are still referred to as the “second phase” of reforms (Frieden 2000).
Erratic progress and results related to this model over the past two decades
drives home the urgent need for new institutions to guide and consolidate this market-
10
oriented economic model. Under this framework, the irrationalities of the “political
market” where the winners and losers battle it out over the distribution of the
adjustment burden, obstruct the success of the market from the standpoint of both
neoclassical economics and the rational choice paradigm. Stated differently, rather than
blame the market-dominant economic model, its proponents instead question the poor
mediation of local institutions that interfere with clear price signals and destabilize
politics along with it (Milner and Keohane 1996, Frieden and Rogowski 1996, Garret
1996, Frieden 1996 and 2000). But surely economic development entails more than the
maximization of private interests or the optimization of firms’ profits with the support
of a “rational” institutional context.
My main point is that institutional reforms are needed because the market is not
totally perfect. It is wrought with failures, a main cause being the asymmetric
information that is inherent in the economic system. Most of the time, all parties to a
contract or investment are not equally informed about all aspects of the transaction; thus
an efficient outcome rarely occurs, as the missing information does not allow a truly
rational assessment of individual preferences and investment opportunities. Therefore,
a less-than-optimal transaction has transpired.
6
The actor with full information is in a
position to engage in opportunistic behavior, “which introduce the possibility of self-
interest seeking of a more strategic kind (to include self-interest seeking with guile)”
(Williamson 1996, p.49). This self-interested guile clouds the legitimacy of the
6
A simple example might help to clarify the informational issue. The seller of a car in the used-car market
has more knowledge about the real condition of the automobile. The insecurity leads the buyer not to take
the given price for the car and to offer a price below the range of the transaction, so the sale does not take
place and one more opportunity to create value is wasted (Akerlof 1970).
11
subsequent results. It is no longer believed that the market price offers the necessary
data for buyers to buy and for sellers to sell.
7
How, then, should this asymmetry be dealt with? Some theorists contend that the
efficiency promoter should be none other than the government. Yet, according to
theories of modern political economy, this institution is guilty of its own failures: state
policies that have consistently undermined social welfare. The discourse about
excessive state intervention is again revived, and this was a main mantra during the lost
decade of the 1980s (Krueger 2000). In short, the failures of the government outweigh
those of the market, meaning asymmetrical information must be dealt with in other
ways. For now, government efforts ought to be limited to the provision of infrastructure
and other public goods. Law, security and defense, basic services, and public
information are the main duties of the state.
However, it would also be a big mistake to assign to the state an ancillary role of
complementing the market without any control. The subsidiary or supportive role of the
state must be undergirded by a clear, efficient, secure, and “apolitical” legal framework
replete with the active participation of economic agents. The means to settle private
business controversies, isolated from the state’s usual modes of intervention is one
promising legal institution that could penetrate asymmetrical information. As
7
In neoclassical economics, relative price intrinsically transmits all the required information. The
hypothetical case of general market equilibrium represents an economy where quantity demanded equals
quantities supplied in all markets (goods and services, labor, and financial). Where/when the demand
exceeds supply the price mechanism “moves simultaneously” into all markets, adjusting quantities
demanded and supplied and bringing the system back to equilibrium. Needless to say this only happens in
economic textbooks. In reality, prices for a large number of goods are rigid and the rigidity varies
substantially across industries and markets. In many cases market transactions are not based on “price
signals” alone. As Furubot and Richter argue, “The simple model of price clearing [general market
equilibrium] is inapplicable to a number of markets” (2000, 287).
12
Williamson reminds us, “Transactions that are subject to ex post opportunism will
benefit if appropriate safeguards can be devised ex ante.” (1985, 48). As I will establish
in chapters three and four, parties to a contract can decide a priori not only to submit
their contractual differences to an arbitration tribunal, but also to the procedure of the
arbitration. To some extent, opportunism is reduced and so is uncertainty in economic
dealings, along with the usual transaction costs.
It is in this context that reflections about the “New Institutions of Capitalism”
take on meaning. The unrealistic assumptions of standard economic analysis, such as
the predictability of individual behavior, accurate anticipation, complete information
and the profit maximization motive (that have come to be known as neo-liberalism),
have proved insufficient and (using its own vocabulary) inefficient for both
understanding how an economy works and for satisfying social necessities and wants.
To obtain efficient outcomes, the market demands the hand of the law
8
.
Many theorists agree that most of the Latin American countries are still
operating in the second wave of reform regardless of the relative position of each in the
process of economic reform and restructuring, the particular effects of the adjustment
measures, and/or the specific content of democracy. Now is the time for the
consolidation of these reforms, although the how to do so is still in dispute. Some think
that governments in Latin America should create institutions and regulations to
8
The common tendency is to think of legal institutions and private economic interest as recent subject of
study. Yet in the 19th century Max Weber refered to the interconnection between law and capitalist
economy in the following terms: “[T]he rationalization and sistematization of the law in general and the
increasing calculability of the functioning of the legal process in particular, constituted one of the most
importan conditions for the existence of capitalist enterprises, which cannot do without legal security.”
Cited by Peter Hamilton 1991, p. 140. For a comprehensive analysis of Weber’s reflexions on law and
capitalism, see Trubek 1972.
13
overcome market failures in the new liberalized economies (Levy 2000). Others believe
that the region must now remedy the inequalities that the first wave of reform neglected,
perhaps by improving education and investing in the poor (see IDB 2003a, Summers
1998, and UNTACD 1995). Still others insist that the second phase should focus on
good governance: more transparent politics and lower levels of corruption (Reed 2003,
Pradhan 2000). To achieve these ends, countries must also strengthen their legal
systems (Frieden 2000, Shihata 1990, 1996).
My focus is not on the motives for the demanding legal changes, nor their
fulfillment in practice. Rather my sights are set on underlining and elaborating on what
legal reforms actually imply: the birth, re-definition or reformulation of the laws that
govern economic relations. That is, “the new institutions of capitalism,” where dispute
settlement through increased private and alternative mechanisms emerges as a
compelling legal option.
Reducing Transaction Costs through New Legal Institutions
A large number or researchers agree on the importance of institutions for
economic development, including the role of domestic/national legal and judicial
institutions. “Current research suggests that the capacity of national institutions to
protect property rights, reduce transaction costs, and prevent coercion may be decisive
in determining whether economic development takes place.”
9
In this discussion, legal
regimes and economic development are linked by growth in the private sector (World
9
Stephenson, Matthew. n.d. Economic Development and the Quality of Legal Institutions. World Bank.
http://siteresources.worldbank.org/INTLAWJUSTINST/Resources/LegalInstitutionsTopicBrief.pdf
14
Bank 2008a, 2008b, 2009). The absence of this capacity of the domestic institutions
slows the growth of private businesses and limits economic development (Holden and
Rajapatirana 1995, IDB 2004).
However, as I argue in chapter two, the dominant approach to the study of legal
institutions and economic relations has favored reasoning informed by little more than
performance indices based on macro-variables. This has encouraged inductive
generalizations concerning the quality of domestic institutions (legal included) and their
contribution to economic development. This approach overshadows studies which rely
on observations and experiences, and are constantly reviewed under new realities. The
latter approach allows not only for a more precise and refined understanding of the
interaction between law and economics, but also the design and formulation of more
realistic policies. This underlines the need for the in depth study of and immersion in
the legal field, something that I do in chapters four and five. For now some introductory
background is presented.
The formal structure of law and economic relations is defined by different legal
hierarchies, including statute and common law, and laws with diverse content such as
substantive, procedural or evidentiary laws. In his example of the exchange of a
residential property in the United States, North (1990) analyzes these diverse laws and
makes explicit the relation between institutions and transaction costs in economic
relations. We can apply these ideas to the larger scenario of a nation-state and elaborate
on the relevance of legal and judicial institutions in the development of a country or its
economic growth.
15
A main departure point concerns the legal definition of property rights (as well
as of the obligations and constraints that the exercise of rights entitles), as well as the
mechanisms and bodies charged with protecting, administering and resolving disputes
regarding these rights. The latter comprises the judicial system, and ADRMs, such as
arbitration, are increasingly seen as a crucial to the security of contractual obligations.
Even assuming clear, certain, and efficient laws and judicial systems, investors still
need to spend some time (and capital) studying and understanding these institutions.
That is, they must gather and research legal information.
Thus we can think of laws, the judicial system, ADRMs, and the data on their
content and implementation as some of the parameters that define transaction costs. In
other words, transaction costs are the time, effort and resources used in the transfer of
rights, including the prior costs of establishing and maintaining those rights (Commons
1994). Paraphrasing Arrow’s definition of transaction costs, legal and judicial
expenditures are part of the costs of running the economic system (1970).
10
According to standard economic theory, transaction costs are irrelevant since
economic endeavors take place within perfect-information-markets and among rational
subjects. According to this neat picture, everything is arranged for economic agents as a
result of market competition. Thus, there are no transaction costs, which implies that
there is no prospect of legal uncertainty or insecurity of property rights (North 1990).
However, in the real world, market imperfections impinge on this neoclassical
ideal. At a more abstract level, according to institutionalist economics, economic actors
10
Arrow, K. “The Organization of Economic Activity: issues pertinent to the choice of market versus
non- market allocation,” in Public Expenditure and Public Analysis, edited by R.H. Haverman and J.
Margolis. Chicago: Markham, 1970, cited by Pitelis,1993.
16
are unable to gather and digest all of the required information in order to prioritize
preferences and predict outcomes. The conditions of rationality are simply not present.
Instead the agents act within the contours of bounded rationality (Commons 1994).
Furthermore, those economic actors with privileged information tend towards
opportunism, and take advantage of those with less economic insight (Williamson
1985). The implication of rationally bounded and opportunistic economic actors is that
the market model is not a function of supply and demand alone, which in turn points to
the presence of transaction costs as part of the equation.
There are other irregularities that distance economic relations even farther from
the theory of the perfect market. First, is the fragile and contradictory definition of
property rights (Haggard, MacIntyre and Tiede 2008), the sin equa non condition of
market relations. Second, a state like Colombia is still a work in progress, with highly
chaotic and disperse social groups and state’s legal systems (and institutions in general) full of contradictions and unpredictable outcomes. With particularities and different
intensities, these are features of many developing and transitional societies.
Still, even when a developing country has crafted appropriate legal institutions
these are susceptible to change due to structural limits and contradictions within the
prevailing economic model (Poulantzas 1974; Holloway and Picciotto 1977; Picciotto
1990; Campbell and Picciotto 1998). For instance, the globalization of the productive
process and stronger presence of transnational corporations has prompted the higher use
of commercial arbitration to resolve controversies over trade and investment (Dezalay
and Garth 1996; Craig, Park and Paulsson 1990). But the revitalization of private legal
17
mechanisms to settle disputes is a trend that cannot be taken for granted; these
institutions must be nurtured and fortified.
Finally, the potential effects of these realities on rational behavior and the
respective transaction costs levels of economic relations cannot go without mention.
My main point is that in developing countries the ideal of an economic environment
free of transaction costs is unrealistic given the inherent human characteristics of
bounded rationality and opportunism. Moreover, these countries have to deal with
systemic or structural factors that further widen the distance between the real economy
and the neoclassical market paradigm. Clearly, within these contexts the transaction
costs are higher and the institutions in charge of managing and hypothetically lowering
these costs need, in many cases, not only to be reformed, but also reconstructed entirely.
With this in mind, we can now move to the characterization of those institutions
that are responsible for supporting the market and economic development (growth) in
Latin America, particularly in Colombia. The reflections that follow are limited to the
role of law and the judicial system as institutions with the important role of carrying out
the changes between state and market in the region.
One central concern is the expectations or demands that investors (including
foreign) have regarding ex-ante contractual relations. Before establishing any economic
relation, interested parties want to know all aspects of the contract: the objects and
subjects involved, the content of rights and obligations, instruments and the authorities
that assess compliance, penalties and sanctions, dispute resolution processes, and
enforcement bodies and procedures. Answers to these questions must come from the
specific legal code and judicial structures governing the contractual obligation.
18
Economic agents also demand information on the exogenous aspects that will
impact the development of the contract. These would include laws related to taxes,
commercial relations, real estate, labor relations, environment, intellectual property,
capital markets, trade and investment, and even criminal norms, to mention only a few.
These regulations address the minimal institutional context in which an economic
venture would take place.
It is after an assessment of the clarity, certainty and predictability of these legal
institutions that investors decide on the type of business (if any) that they are willing to
undertake in a given economy. The institutional framework, again, is a variable in
defining the value of the investment, the transaction costs, and the amount and type of
capital to risk, as well as the duration of an agreement. As North puts it: the higher the
uncertainty, the higher the transaction costs and the lower the value of the property.
Thus the investor will not have the incentive to commit fixed capital and enter into
long-term agreements (North 1990).
Today the importance of legal and judicial reforms to the development process
is clear. Governments are expected to provide (sometimes by stepping aside) the legal
institutions that complement a competitive market, in recognition of the crucial linkages
between economic development and the legal system. One of these legal institutions, I
argue, is the alternative dispute resolution mechanism. For governments in emerging
markets, offering better and more reliable legal tools plays a role in attracting inflows of
capital and new technologies (Webb 1999).
How has Colombia responded to the challenges of modernizing its laws and
legal institutions so as to succeed in international markets? I answer this question in two
19
stages, but prior to doing so I will first provide a general overview of legal and judicial
institutions in Latin America. Second, I will review the most relevant aspects of
Colombia’s legal and judiciary system; and third, I will focus on the reform progress
that has been made.
11
The Crisis of Legal and Judicial Institutions in Latin America
Since the 1970s the crisis of the judiciary and legal systems in Latin America
has been acute. An early approach to reform was launched under the banner of “Law
and Development.” With the financial support of the United States, this strategy
promoted the creation of legal and judicial institutions as part of the overall economic
development effort in the region (Trubek 1996).
12
During the 1980’s, the widespread transition to democracy stoked a stronger
interest in the role the law and the judicial system in the region. Despite earlier reform
drives, legal institutions were still characterized by obsolete norms and regulations, long
backlogs, weak or nonexistent enforcement institutions, high inefficiency, and
precarious judiciary independence. There were also criticisms about unequal access to
the justice system, unclear organizational structure of the institutions and their
11
We should be aware that in many instances the building of new and effective legal institutions takes
place in times of deep crisis that opaque the ongoing institutional modernization. For example, the
urgency of a peace process in Colombia with its leftist guerrillas is an important exogenous factor that
impacts the outcomes of the changes.
12
For a detailed presentation of diagnostics of the justice crisis in most of the Latin American countries
within the Law and Development approach see: La Administracion de Justicia en America Latina,
published by the Consejo Latinoamericano de Desarrollo (Lima, 1984). Articles presented at the V
Conference of Law and Development, San Jose de Costa Rica.
20
jurisdictions, and excessive and costly use of the justice system for irrational or
unnecessary cases.
Since the late 1990’s, this topic has again become a point of debate because of
the failure of these structural adjustment reforms that I reviewed previously in this
chapter. For some analysts, the small positive impact of neoliberal reforms and policies
in the region is the result of the domestic institutional framework.
It was partly the legacy of institutional unreadiness that prompted a second set
of follow-up reforms. These second phase reforms targeted political and legal
institutions mostly within the state (eg. Central Banks, other financial entities, taxing
agencies, trade and commerce regulations, congress, and the justice administration).
These more recent discussions on legal and judicial reforms are different in that
there is now a strong belief that legal institutions either facilitate or obstruct economic
development. The central questions regarding legal institutions are expressed within the
framework of economic integration, competition in the international marketplace, and
the ability to attract foreign investment (Hallward-Driemeier, 2003, Rodrik,
Subramanian and Trebbi 2002, Neumayer and Spess 2005, Perry 2000).
In the mid-1990s, the United Nations Conference on Trade and Development
(UNCTAD) reported that international investment had superseded trade to become the
most important mechanism for global economic integration.
13
In a context of increasing
contractual relations taking place beyond national boundaries, attention to the regulation
of the economy rose as well. Agents tried to not only avoid legal institutions featuring
13
According to UNCTAD, world FDI inflows had increased 19 percent in 1997, to $400 billion (almost
double the total of 1990). For the same year, the FDI outflows were $424 billion, a 27 percent gain.
(World Investment Report 1995, 1998).
21
inefficiencies, slowness, and uncertainty, but also to encourage the standardization of
the legal framework (Pistor et al. 2002; Santos 2002), toward one more that closely
related to business matters like dispute resolution mechanisms (Dezalay and Garth
1996).
Another change related to this current wave of legal and judicial institutional
reform is that public actors are encouraging the change. Multilateral development banks
(MDB) have displaced the United States Agency for International Development
(USAID) in this mission. As of July 1999, the World Bank (WB) and the Inter-
American Development Bank (IDB) between them had approved judicial and legal
reform projects in 17 countries in Latin America and the Caribbean.
14
With this shift,
the focus has changed as well. USAID’s focus on criminal law has been replaced by the
MDB’s legal and judicial reforms that have as a core objective the enhancement of
property and contract rights to favor market relations (Posner 1998).
15
Some have
cautioned that the bank’s interest in institutional modernization is limited to concerns
about economic efficiency and stability (Faundez 1997).
Thus, the equation between legal and judicial institutions and economic
development is explained in the following terms for the region. The poor functioning of
the systems of justice constrains the development of the private sector. This situation
14
World Bank and IDB sources. The establishment of legal institutions closer to the security interests of
economic agents is not exclusive to this region. The WB is conducting these initiatives in the following
regions: Africa, East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean,
Middle East and North Africa, and South Asia. Initiatives in Legal and Judicial Reform(World Bank
Group 2002).
15
In reality the projects supported by multilateral development banks cover issues including legal
education and curriculum reforms, training of judges, judicial independence, alternative resolution of
conflicts, and access to justice and these demonstrate a more comprehensive view of legal and judicial
institutions. Yet we should keep in mind the relevance of these spheres to the building and permanence of
private property and contract rights.
22
creates high transactions costs and risks for economic relations, which in turn hampers
the market and the competitiveness of economies (Dakolias 1996, Holden 2003).
Following this argument, a World Bank study affirms that the quality of legal and
judicial institutions could explain 23 percent of the variability of per capita growth in a
given country (Brunetti and Weder 1997, Brunetti, Kisunko and Weder 1998).
Furthermore, the relative failures of structural adjustment in the 1990s are
explained, to some degree, by the inefficiencies of legal institutions. We can see that the
meaning and content of judicial and legal reform goes beyond the need to escape the
shadow of the past. Economic forces now require impartial entities that function well
and are able to interpret, apply and enforce laws and regulations in a predictable and
efficient fashion (Alvarez 1996). Carlos Peña (1997) argues that the state is ill-equipped
to deal with the globalization of legal demands/needs. For him, the inefficiency of the
courts in administrating justice requires investing in alternative mechanisms (ibid.).
Private commercial arbitration might be seen as meeting the legal needs of the
productive process without relying on the state as protagonist. This topic is discussed
further in chapters four and five.
To comply with their obligation to support economic growth in Latin American
countries, law and justice systems shall offer clear definitions of property and contract
rights, permit free entry and exit of private economic agents, enhance competition,
enforce obligations, and reduce the margin of negative effects from opportunism and
bounded rationality. Clearly, the creation or expansion of alternative dispute resolution
mechanisms such as arbitration and conciliation fall within realm of institutional
modernization. ADR mechanisms give the parties the required flexibility to amend their
23
contracts/obligations and settle any other disputes according to changing circumstances.
Businesspeople using ADRMs would no longer be at the mercy of lengthy and
uncertain processes, which are highly formalized and centered on lawyers and take
place in a judicial system congested with a large number of unresolved cases.
Yet, the core feature of the relationship among legal-judicial institutions, private
investors, and economic prosperity is the limitations of states’ real or potential abuse in
the market. International transactors still have in mind the policies of expropriation and
nationalization that defined the economic role of the state during the 1970s and part of
the 1980s in many countries of the region. In this terrain, legal institutions should be
seen as the guardian and guarantor of market oriented economic policies, and the safety
mechanism against arbitrary changes in privatization and liberalization obligations, for
instance, coming from short-term interests of the executive or the legislative state
powers.
How formalized, legally speaking, are these new institutions? Or, how far have
states gone in demonstrating their commitment to the current legal trends? Answering
this question for the entire region and in relation to every point requires a more
elaborate analytical framework which lies beyond the scope of this project so I will
focus on the legal details with regard to two trends in the Colombian case: 1) flexibility
in legal institutions and 2) technocratic modernization and internationalization of
justice.
24
The Legal Expression of the Changing Law
Flexibility in Legal Institutions
Flexibility is clearly one of the most dominant characteristics of free-market
oriented economies. The rigidity imposed by the welfare state in the economic process
up through the 1970’s led to an inefficient allocation of resources. Flexibility in the
production and distribution stages of economic relations is seen as a precondition for
market forces to function properly.
The ultimate aim is the reduction to the lowest possible point of the frictions that
the law (and state) can create in contractual relations of economic agents, and, as a final
outcome, in the level of growth or economic development of a country. In short, a
flexible legal environment enhances contractual subject autonomy or, said in another
way, it reduces third party intervention and reduces the difficulty they may have with ex
post inferences when they are asked to intervene in a conflict (Williamson 1985). This
point is well illustrated by the existence and current expansion of alternative dispute
resolution mechanisms, ADRM, to settle private commercial controversies. It is
precisely here where the role of institutions as a minimizer of transaction costs is better
understood.
Economic actors spend less time and money and face fewer risks under legal
institutions that provide contracts with internal mechanisms for adapting them to
changing conditions without the need to inform exogenous parties. Yet when this need
is dominant due to serious disagreements or unfulfilled responsibilities, contractors
want the chance to appeal to alternative dispute resolution mechanisms and efficient
25
enforcement institutions, respectively.
16
Within this framework extended contractual
commitments are more plausible.
In Colombia, the most recent normative incorporation of the concept of
flexibility for legal institutions finds its highest level in the 1991 new Constitution.
17
First, the regulation and adaptiveness of the judiciary gave way to an ordinary and
flexible legal framework that replaces the historically lengthy, inefficient, and most of
the time aborted constitutional amendment procedure. Second, the constitution created
the Consejo Superior de la Judicatura(CSJ), an independent institution in charge of
governing the sector with responsibilities similar to those of a CEO. It was established
that one of the CSJ’s goals was to rationalize the judiciary spatially and functionally
(Colombian Constitution, Art. 257). What these two changes mean is that legal
institutions that are highly sensitive and adjustable to changing contexts hold sway over
constitutional rigidity.
Third, the constitution also becomes more flexible at the enforcement law level
by establishing the supremacy of substantive over procedural law and the agility of the
former (ibid. Art. 228). The target here is to minimize form over the substance when
interpreting and enforcing contractual relations, and conflicts in general. The
constitution seeks to avoid troublesome and tricky instrumental norms for economic
16
For a discussion on alternative -to those of the state- dispute resolution forms such as arbitration,
conciliation and mediation to resolve commercial disputes see: Santos 1995 and Trubek et. al. 1984.
17
Previous attempts, with clear governmental support, to formalize the commitment to flexible legal
institutions started in the first half of the 1970s, coinciding with the global economic crisis, during the
presidency of Alfonso Lopez (1974-1978); it continued with Belisario Betancur (1982-1986) and
Virgilio Virgilio Barco (1986-1990). These initiatives, however, only reached ordinary law level and
never succeeded in the judicial system. See: Castro and Reyes Echandía 1978; Ministerio de Gobierno
1984, Presidencia de la Republica 1988.
26
agents in routine procedures such as requesting licenses or filing complains or opening
a bank account. This reduces red tape, transaction costs, and opportunities for bribery.
The fourth sphere is that of private venues to resolve disagreements. The
Constitution promotes the de-judicialization of many disputes by authorizing strong
administrative and private mechanisms (ADRMs), outside the judiciary to decide
conflicts (ibid. Art. 116). This encourages more attention to the will of the parties to a
contract than to a third person’s (e.g. judge’s) help, signaling a tendency toward private
criteria in the governing of obligations.
Technocratic Modernization and the Internationalization of Justice
Just as crucial as flexibility is the quest for efficacy and efficiency for legal and
judicial institutions. When talking about the Consejo Superior de la Judicatura the
Colombian authorities have affirmed through the years: “Efficacy is going to be the
dominant signal of its actions” (Castro and Reyes Echandía 1978, 74). They add,
“Important and urgent public security issues [common crimes, guerrillas and
paramilitaries] demand a more rational and efficient organization of the judicial
institutions” (Ministerio de Gobierno 1984, 38). In relation to criminal justice “the
second most important line of justice reform is the modernization of criminal justice
making it more prone to efficacy” (Giraldo 1992, 38). These public official speeches in
the last fifteen years reflect the aim of building new legal and judicial institutions based
on efficiency and efficacy concepts.
Some critics argued that these reservations rendered the judiciary more like a
corporation concerned with productive outcomes (Moncayo and Rojas 1989). However,
27
the governmental and mainstream take on this private firm-like reorganization of the
judicial institutions is that it offers the advantage of controlling (keeping a better
account of) the assignments of judicial and legal actors. This, in turn, affords a space to
implement opportune changes in response to both endogenous and exogenous factors.
In other words, the efficacy and efficiency that define the new institutions support the
nation’s interest in becoming more market-friendly for [foreign] capital in the sense that
economic agents benefit from dynamic entities doing their job in the different legal
jurisdictions – criminal law included.
Another crucial modernizing element in the judicial institutions is the
budgetary/financial autonomy given to these bodies. This helps limit the ever-present
possibility of executive or legislative intervention in judicial power.
18
This, it is hoped,
will end the eternal waiting of a given sector for the government or/and the legislature
to approve any expenditure. Finally, these reforms also incorporate technical features
such as the automatization of files, data, and procedures, and the generalized use of
video technologies (Santos 1991).
As mentioned earlier, these changes are not exclusive to Latin American
countries or to developing or transition countries
19
. The deconstruction of legal and
judicial institutions is not only international (with the recognition of national specific
18
For details see Justice Statutory Law, especially Ministerio de Justicia Ley 30 of 1987 and Ley 270 de
1996.
19
In the case of the United States, Joseph Biden, current vice president, led as senator in 1990 the
approval of the Civil Justice Reform Act (CJRA), which “is rooted in more than a decade of concern that
cases in federal courts take too long and cost litigants too much. As a consequence, proponents of reform
argue, some litigants are denied access to justice and many litigants incur inappropriate burdens when
they turn to the courts for assistance in resolving disputes” (Kakalik at all. 1996: p. 1). In Europe, on
September 18, 2002, the Committee of Ministers established the European commission for the efficiency
of justice (CEPEJ), after “Recognizing that the rule of law on which European democracies rest cannot
be ensured without fair, efficient and accessible judicial systems” (Council of Europe 2003: p. 2)
28
needs), but also the internationalization itself of law and justice expressions is a trend.
The most relevant examples come from commercial and capital interdependencies
through the establishment of bilateral and multilateral free trade agreements, common
markets, and supra-national economic units, as well as investment agreements.
20
Despite(or as a result of) the different legal traditions that the parties to these
agreements come from, they have adopted alternative dispute mechanisms such as
arbitration and mediation (Buhring-Uhle, Kichhof and Scherer 2006, Santos 1995,
2002).
Final Remarks
For years Colombia, and Latin American countries in general, have analyzed the
need for and tried to initiate (without too much success) legal and judicial changes.
However, the latest wave of institution-building seems to be taking hold. The
momentum gained by market oriented economies, the absence of alternative projects,
and increasing international interdependence have instilled a sense of urgency to think
about the kinds of legal and judicial institutions that will enable economic agents within
the global race to attract and retain capital. And, in the case of developing countries to
advance with development goals.
It is precisely this sort of economic conditionality that has pushed Latin
American governments to pursue compliance with non-explicit international legal and
judicial institutional standards. However, the dominant reference point for measuring
20
The number of bilateral FDI agreements is significantly expanding. By mid-1995, over 900 such
treaties existed (a 60 percent increase since 1990), By the end of 1997 there were 1,974 double taxation
agreements covering 178 countries (UNCTAD 1995, 1998).
29
the success of domestic economic institutions in a given country has been a series of
international rankings such as Economic Freedom of the World Index, The Index of
Economic Freedom, The Global Competitiveness Index, Doing Business Index or the
Corruption Perception Index, among others. In the next chapter, rather than using the
indices’ cross-country macro quantitative approach to legal institutions and
development, I will turn towards a more micro-level work, a promising alternative to
better understand and explain the interplay between legal institutions and economic
relations. I will show how private commercial arbitration in Colombia is at the heart of
the new legal institutions of the market economy.
Today most countries understand that institutions such as the protection of
property and contractual rights and the level of transaction costs are important variables
for deciding the place, time, and mode for contractual relations. Colombia has taken
steps towards constructing a more competitive economic legal framework, although the
international rankings might draw the opposite conclusions. Why might legal support
for ADRMs and their increasing use to resolve private commercial differences be
emblematic of the kinds of legal institutions demanded by the new economic order?
Because, in many Latin American countries there are more than economic
reasons to demand legal and justice reforms. These include access to justice, protection
of human rights, executive accountability, and violence reduction, among of many
others, which people want the legal and judicial system to handle. The motivational
impetus for these reforms makes the mapping of any changes and the evaluation of their
actual implementation and impact very difficult. Yet is it a very interesting challenge.
30
In Colombia there are reasons and objectives beyond the economic sphere for
strengthening arbitration, and other forms of alternative dispute resolution mechanisms.
I limit my analysis not only to private commercial arbitration, but also to cases heard
before the Center of Arbitration and Conciliation of the Bogotá Chamber of Commerce,
whose experience and fitness has been recognized for the Inter American Development
Bank by using it as model in other Latin American countries.
There is much left to be done in studying and analyzing the connections between
transaction costs economics and legal and judicial institutions in Colombia. The place to
start is by describing the actual incorporation of constitutional mandates in different
legal fields such as commercial, investment, tax, and trade law. Also, a legal economic
sector analysis would be pertinent. That is, how legal trends are manifested in particular
investment agreements. Another important step is the comparison between pre-reforms
and post-reforms and the reaction/behavior of economic agents.
For now I will conclude by saying that in Colombia the current transformation
of legal and judicial institutions has incorporated many of the concerns of transaction
costs economics. Colombia is working on building institutions that could make it more
competitive in the international capital market. Like many countries, Colombia is on a
quest to craft more efficient law for an “efficient” economy where global and domestic
forces challenge the state’s monopoly over the production of law.
Chapter 2 contains the case studies, 112 private commercial arbitration tribunals
organized by parties to arbitration, commercial transaction or object of the dispute,
parties legal pretensions and defense mechanisms, length of arbitration process, means
31
of proof or evidence requested in the process, cost of arbitration, and arbitration’s
demand trend.
My hypothesis will be developed and tested: The increasing use of alternative
dispute resolution mechanisms (ADRMs) by economic agents is the consequence of
global economic pressures and ties. This, in turn, suggests that the relationship between
law and economics is rapidly changing at a the structural level; this latter point
constitutes a secondary hypothesis, wherein market-friendly governance structures
guided by private interests are displacing those dominated by the state.
32
Chapter 2
Inside Private Commercial Arbitration in Colombia
As for all my despicable, unethical, immoral, treacherous, sleazy conduct. They
called me everything but a terrorist, didn’t they? This business is not an ethical
arena! Our legal system is adversarial by nature. Where it is often the very
function of a lawyer’s job to prevent the truth from ever coming out. We get
paid to suppress, and squash and conceal evidence [...] Every first year law
student is taught don’t ever, ever equate legal ethic with morality. They’re
almost always mutually exclusive! It’s an ugly world where underhandedness is
often celebrated [...] I’m just an unscrupulous guy, trying to get by in an
unscrupulous profession.
Alan Shore
(Fictional character in the TV Show The Practice) 21
One of the main shortcomings of the case-study method is the limits of
generalizability to other contexts. In this study, this shortcoming is mitigated in two
ways. First, as noted in Chapter 4, Colombian leadership and experience with
arbitration provided a model which was widely replicated in other Latin American
countries.
22
Second, use of a single case study can be strengthened by examining
numerous within case units that can also be found in other contexts. The within case
study unit of analysis utilized here are arbitration cases.
This chapter analyzes 112 actual arbitration cases heard before the Center for
Arbitration and Conciliation, CAC, of Bogotá Chamber of Commerce, between 1985
and 2007. Although in the process of gathering data I came across arbitration cases that
date back to 1958, these were excluded from the study for two main reasons: 1) most of
21
Season 8, Episode 18. The Case Against Alan Shore. First aired March 28, 2004.
22
Paul Constance, writer of IDB América, the magazine of the Inter-American Bank, notes “[The] case
was just one of thousands that are resolved through alternative dispute resolution (ADR) methods each
year in Colombia. With more than 120 arbitration centers across the country, and hundreds of trained
conciliators and arbitrators, Colombia is a leader in this area, offering companies and consumers a speedy
and efficient way to resolve disputes without going to court” (1998, n.p).
33
the cases had the Colombian State as one of the parties to the dispute, and 2) they were
not heard before the CAC.
23
Moreover, there were many more arbitration tribunals
conducted by the CAC between 1983 and 2007 than those included in this study. After
initial review, only those cases that complied with specific selection criteria (see below) were included in this research.
Analysis of the mainstream approach to understanding the relationship between
legal institutions and economic interests (see chapter 2) revealed that ranking of
institutions via international indices is not sufficient to comprehend that
interconnection. Only recently studies based on those indicators are starting to be
questioned from within, while still using a quantitative approach:
These different rule-of-law and legal institutions indicators measure different
faces of a country’s legal system and are less tightly correlated that might be
thought. Moreover, these measures are not closely correlated with some of the
institutions deemed central to the rule of law [... These] problems are not trivial;
prominent empirical findings might not be robust to alternative specifications
using different rule-of-law measures (Haggard, MacIntyre, and Tiede 2008,
206).
The vague and general definition of legal institutions utilized in the index
approach may serve its purposes. However, it may also create obstacles to
understanding how to develop legal institutions that support economic development and
growth, and to the identification of policies conducive to institutional settings more
appropriate for a specific context.
In other words, the lax (or lack of) definition of legal institutions and the rather
generic institutional labels used by international indices simplify law and economics to
a degree that: 1) constitutional, statutory, criminal, commercial, administrative,
23
The Bogotá Chamber of Commerce launched its arbitration and conciliation center in 1983.
34
substantive, procedural law, etc. are one; 2) all the fields of the complex world of law
have the same effect on economic interactions; 3) there are economies either with or
without appropriate legal institutions as a whole; 4) there are no expectations for private
investments when the legal framework (as a whole) is considered deficient; 5) the only
institutional policy options are those from the “institutional reform manual”
recommended by this same dominant approach, regardless of the host environment; 6) legal institutions are reduced to the regulatory powers of the state.
This simplification may overlook successful institutional arrangements and
discourage more precise studies of the relationship between economic interests and
legal institutions. Studies that address a particular legal field may contribute to a better
understanding of the complexity of the legal sphere and its dynamic with the economic
sphere.
Consequently, the main objective of this chapter is to contribute to a better
understanding of the relationship between legal institutions and private economic
interests by focusing on one aspect of the law: the resolution of controversies; in a very
specific legal field: commercial law; in the context of a precise institution: private
arbitration.
Long ago, Ronald Coase underlined the importance of contracts. Along with
firms, he recognized that contracts were a major method of organizing business
interactions (Coase 1937).
24
This study focuses on a specific subset of market contracts:
commercial contracts; and particularly on their dispute governing structure: arbitration.
24
The choice between a firm and a contract to organize economic exchanges depends upon their
comparative costs. That is, transaction costs determine which economic activities are carried out by
business associations internally and which economic activities are let on the market, where contracting
necessary occurs.
35
In most cases, an arbitration clause is integral part of the contract. Thus, arbitration is a
contract right in itself. In this sense, the arbitration clauses may be seen as clear
evidence of the contracting parties mutual interest in reducing the costs of resolving
contract disputes. The costs of resolving contract disputes are part of transaction costs
(Dahlman 1979).
25
Furthermore, cost reduction is one of the functions of contracts
(Poster 1998).
26
The analysis will produce the profile of the users of alternative dispute
resolution mechanisms, the business interactions they are part of, the type of the
controversies, the legal solutions they pursue, the costs of arbitration, and ultimately,
the recent demand trend for use of this mechanism to settle differences. Each of these
elements may offer an improved understanding of the interaction between law and
economics and may help to explain the presence of international economic actors
(investors) in the Colombian economy despite the low scores it about its legal
institutions found in international indices. Indeed the presence of foreign parties
actively participating in private commercial arbitration would further undermine the
cross-national findings that rely predominantly on the perceived lack of or a
25
Dahlman organizes transaction costs into three sets: research and information costs, bargaining and
decision costs, policing and enforcement costs (1979). The third set refers to the costs the contracting
parties undertake to make sure obligations are performed, and that controversies are resolved, when
obligations are not met. Contract writing and commercial arbitration are examples of each respective
situation.
26
Poster states, “[C]ontract law has five distinctive economic functions: 1) to prevent opportunism, 2) to
interpolate efficient terms, 3) to prevent avoidable mistakes in the contracting process, 4) to allocate risk
to the superior risk bearer, and 5) to reduce to costs of resolving contract disputes” (1998, 108).
36
malfunctioning of market friendly legal institutions in Colombia.
27
According to the indices, in countries with low scores legal institutions we
should not expect major business interactions; let alone contracts involving foreign
capital. This hypothesis will be tested using the arbitration data. The presence of
international businesses in commercial arbitration, if found, should be considered
indicative of the robustness of Colombian legal commercial private institutions.
Moreover, the inappropriateness of the definition and understanding of legal institutions
in the international indices would be confirmed. In turn, a secondary hypothesis
emerges: the functioning of private commercial arbitration, if found, would show the
successful coexistence of private mechanisms along side public mechanisms. Should
these two institutions coexist, it would indicate that a new relationship between law and
economics has been formed at the structural level in Colombia. In this new relationship,
private initiative plays a more central role in resolving contract disputes.
To examine these hypotheses I focus on the legal institutional structure
surrounding contractual relations, which means that the analysis belongs to the field
often referred to as “institutional economics” as well as to the field of law and
27
One has to ponder the reasons behind investors’ negative perceptions of legal institutions for most
emerging economies. How much of these perceptions can be explained by the framing of the questions?
How many respondents have had personal negative experiences with some aspect of the legal system?
Do respondents purposely foster a negative perception in order to sustain their ability to keep pressuring
for domestic changes in their favor? Are responses driven by fad-driven “truths” within the business
community? How many respondents have actual knowledge and understanding of the relevance of law
for their investments? As Messick argues: “ [P]erceptions can deceive. We remember the unusual, not
the ordinary. The one in 100 cases that was sensational. Not the 99 other that were run of the mill” (2002:
8).
37
economics.
28
The field research for this chapter was intensive. After several months of
gathering, selecting, and cleaning the data, I compiled 112 arbitration tribunals that
complied with the following six criteria:
1) The case was held before the Center for Arbitration and Conciliation, CAC,
of the Bogotá Chamber of Commerce. The case follows the Center’s
arbitration procedures, that is, the arbitration is institutional.
29
The CAC
30
is recognized as professional, modern and an exemplary arbitration center
for the region. Its internal organization and its arbitration process have been replicated
in many Latin American countries (IDB 2002).
2) Arbitration proceedings are en derecho (arbitration in law) as opposed to
arbitration en equidad(equity or fairness) or technical arbitration
(arbitramento técnico).
31
Arbitration in law means that the arbitrators are
lawyers, attorneys represent the parties, and the tribunal follows current
positive law.
32
3) Arbitration is private as opposed to public. This means that the parties to the
dispute are private entities. In other words, arbitration cases with the state (or
its officials in their condition of public agents) are not part of this study.
28
My analysis is not restricted by the formal assumptions of rationality and incentives that defines
new institutionalism and (new) law and economics. That is to say, it is not centrally concerned with
rational actors and efficient outcomes. My main purpose is to understand the interplay between law and
economics in the context of private commercial arbitration. In other words, I do not view recurring to
commercial arbitration as an expression of maximizing behavior by the litigants. The prevalence or
increased acceptance of ADRMs takes place in a globalized socio-economic context mediated by policy
reforms. This is the institutional context I examine, together with decisions and commitments. In this
sense, this study fits more closely to older schools of thought on institutionalism, or to what is called
“institutional political economy.” Since “law and economics” refers to a different scholarly debate, a new
name is needed, such as the “political economy of law” or a “political-economic analysis of law.”
29
Institutional arbitration follows the rules of a given institution and uses its arbitrators and facilities. See
Chapter 4 (pp. 16-18) for explanation of how institutional arbitration contrasts with independent and legal
arbitration.
30
The Center for Arbitration and Conciliation, founded in 1983, was the first center in Colombia
promoting the contemporary use of alternative dispute resolution mechanisms
(http://www.cacccb.org.co/).
31
Cases of equity and technical arbitration were not present in the original data set.
32
Article 115 of Decree 1818 of 1998. Diario Oficial No. 43.380. September 7, 1998.
38
4) The conflict to be resolved is commercial in nature, as opposed to civil,
family, administrative, etc. In these cases, the parties to the controversy are
merchants or the relationship that generated the conflict was a commercial
(business) transaction, or both. Consequently, the body of law applicable to
the relationship is commercial law, which is found in the Codigo de
Comercio.
33
5) The parties to the economic interaction relied on relatively well defined
contracts to guide the transfer of private property rights (Werin 2003).
34
6) The parties’ obligations under the contract have a sequential character of
performance. That is, the fulfillment of obligations does not occur
simultaneously.
In his book Economic Analysis of Law, Richard Poster distinguishes between
economic interactions in which performance takes place without legal intervention, and
economic exchanges that require legal intervention to oversee performance. The former
happen simultaneously, with no contract. The latter are implemented sequentially and
require a contract to deal with opportunistic behaviors and unforeseen contingencies
during the process of exchange (1998).Together, these six elements permit me to
categorize a controversy as a private commercial legal arbitration tribunal held before
the CAC of the Bogotá Chamber of Commerce.
Once the 112 cases were selected, I summarized each one into a manageable
document for coding, including all the elements needed for analysis. Original case files
ranged from 300 to over 1,000 pages. The summarized documents ranged from 15 to 25
pages. Next, the summarized documents were prepared to be analyzed using Atlas.ti, a
33
In the United Sates of America, this unified body of Colombian commercial law has its counterpart in
the Uniform Commercial Code of the American Law Institute and the National Conference of
Commissioners on Uniform State Laws.
34
Property rights establish the legal owner of a resource and specify the way in which the resource may
be used. Private property, specifically, is owned by individuals who decide on its use according to legal
parameters. One of its uses is transfer or exchange.
39
computer software application designed to aide the systematic, qualitative analysis of
large volumes of text or multimedia data.
Use of computer software like Atlas.ti requires the creation of a codebook
composed of a list of codes
35
and their definitions. The codes encapsule the information
I expected to find in each of the arbitration cases that would permit cross-case analysis,
comparison and contrast. That is, my codebook was determined by my research
questions and the theoretical analyses advanced in Chapters 1-4. Once I created the
codebook
36
I coded the data by re-reading the cases, marking segments of the text, and
assigning the pre-defined numerical codes to them.
The Codebook
The codebook for this study consisted of the following seven categorizations: 1) parties to the arbitration, 2) commercial transaction, 3) legal pretensions and defense
mechanisms, 4) length of the arbitration process, 5) means of proof/evidence, 6) arbitration cost in dollars, and 7) chronology of arbitration cases by year. There are
several codes in each category.
1) Parties to the arbitration. This set of codes gives information about the
plaintiff and the defendant. It includes the economic sector of the companies,
based on stage in production chain and on type of product. It also distinguishes
between domestic and foreign businesses as well as their size, based on their
35
For a comprehensive code list see Appendix I.
36
See the complete codebook in Appendix II.
40
assets.
37
In short, these codes help to define the profile of the investors using
arbitration.
2) Commercial transaction. The codes in this group relate to the business
endeavor between plaintiff and defendant that gave origin to the controversy.
They identify the type of legal contract the contracting parties are part of and the
length of the relationship; they differentiate between sporadic and recurrent
transactions, pinpoint the occurrence of the conflict within the performance of
contractual obligations, and determine the effect of the controversy on the
continuity of the business relation. In brief, these codes provide the profile of the
controversies submitted to arbitration.
3) Legal pretensions and defense mechanisms. This group of codes captures the
parties’ legal objectives within the arbitration tribunal; that is, what the subjects
to the controversy ask the arbitrators to decide in their favor. Pretensions and
defense resources are based on each party’s particular account of contracted
performance of obligations. In general, pretensions and defenses fall in one or
more of three clusters: contract interpretation, contract implementation, and
contract termination. Thus, this category is a snapshot of the legal strategy of the
parties to the dispute.
4) Length of the arbitration process. These codes establish the duration in
months for each arbitration process from the day the plaintiff requests the
arbitration tribunal be set up until the decision hearing. Data on the length of the
process is divided in the pre-arbitral and the arbitral phase. The former begins
with the initial request and ends at the date of the first arbitral hearing. It does
not have a legally mandated timeframe. The arbitral phase covers the time from
the ending date of the first arbitration hearing to the date of the last hearing, the
decision hearing. Colombian law establishes a maximum period of 6 months for
this phase, outside of interruptions, suspensions, and extensions mutually agreed
upon by the parties (Presidencia de Colombia 1989, Art. 19, Decree 2279 of
1989 and Colombian Congress 1991, Art. 103, Law 23 of 1991). The codes also
account for the time the arbitration process is extended when the parties exercise
their procedural rights. In conclusion, this set of codes shows the actual duration
of private commercial arbitration, and very importantly, the degree of parties
protagonistic role in the process as illustrated by mutually agreeing on extending
the time limits of the proceedings. To some extent parties run the proceedings.
37
Law 905 of 2004 defines size of companies based on assets and number of employees. The monthly
current minimum salary (SMMV, acronym in Spanish) is the uniform reference used to determine the
asset value. For instance, medium size companies have assets valued between 5,001 SMMV and 30,000
SMMV. In 2007, according to Bogotá Chamber of Commerce, large companies were those with assets
over CP$ 14,421 million, and medium size companies had assets over CP$ 2,040 million (Cámara de
Comercio de Bogotá 2006, 2008).
41
5) Means of proof or evidence requested. As the title indicates, this cluster of
codes identifies the type of evidence the parties and/or the arbitrators request
and is practiced in the process. Particular attention is given to the use of expert
witnesses (peritos). The absence of a discovery phase and the very precise time
within which to petition evidence makes these proceedings move quickly.
6) Arbitration in dollars. A dollar-value is assigned to three elements in the
arbitration process: 1) the dispute, 2) the cost of the arbitration tribunal, and 3) the arbitral award. Most of these values are originally expressed in Colombian
pesos. I converted the sums into U.S. dollars using Colombia Central Bank
(Banco de la República) exchange rate data. These codes also identify the
distribution of the arbitration cost between the parties in the process, which
assists in determining not only winners and losers, but also their legal behavior
during the process. In short, these codes provide the monetary value and costs of
the cases.
7) Chronology of arbitration cases by years. The arbitration cases are presented
by year and also grouped in periods of five years, to allows for tracking the
demand for arbitration historically.
Examining the Use of Commercial Arbitration in Colombia
One of the functions of the judicial system is to resolve dispute in a peaceful
fashion. In Colombia there are two main coexisting venues for people to seek resolution
of their commercial controversies: a court of justice under the domain of the state or
alternative resolution mechanisms under the umbrella of private or public institutions.
Arbitration tribunals are part of the latter.
38
What can be learn from arbitration proceedings about the consumers of private
commercial arbitration in Colombia? Are there any commonalities among them? Can
inferences be drawn about investors’ preferences for arbitration based on their profile?
How welcoming is Colombian arbitration to international investors? How accepted is
38
To review the the characteristics of alternative dispute resolution mechanisms, in general, and
arbitration in particular, see Chapter 3. See Chapter 4 for the political and legal support for alternative
methods in Colombia, with special emphasis on arbitration.
42
Colombian arbitration among foreign investors? The answers to these and other
questions are examined following the order of the coding categorizes presented above.
A. The Profile of Arbitration Users
Classification of Users by Economic Sector
The economic sector provides the initial characteristic of the parties preferring
alternative methods to resolve commercial disputes. Based on the main economic
activity of each business firm, they are first grouped into the three, very broad,
economic sector classifications: primary, secondary, and tertiary.
Economic enterprises directly related to the exploitation of natural resources are
part of the primary sector. Mining, forestry, agriculture are included here. The
secondary sector refers to economic activities involved in the production of goods. They
essentially transform what is produced in the primary sector. Construction and the
production of energy are sample activities. This sector is commonly called the
manufacturing sector. Activities related to the tertiary or service sector include banking,
retail, insurance, transportation, professional assistance, and information.
Of the 224 principal
39
parties involved in the arbitration cases, 124 conduct
economic activities dominantly in the tertiary or service sector. Obviously, the array of
the productive enterprises is significant. There are companies in diverse means of
transportation, warehousing, retail and whole sale, different professional services,
finance, insurance, entertainment, etc. From the secondary or manufacturing sector
39
I say principal parties because in some cases more than one investor was either the plaintiff or the
defendant. The complete list arbitration cases is included in Appendix III.
43
there were 84 litigants. Construction and light and heavy industry dominate here.
Finally, just 16 arbitration parties are part of the primary sector of the economy. All but
one of these belong to the petroleum industry. The latter mines mineral coal.
Figure 1. Parties by Economic Sector
7%
38%
55%
Primary
Secondary
Tertiary
This labeling in three big sectors reproduces the “modernizing” approach to
economic development. That is, the understanding that a country progressively develops
economically by moving its production (and labor) from sector to sector. Put
differently, these broad classifications hint at the production structure of an economy.
Further below, these labels are also used to classify the economic transaction at the core
of the legal dispute. Note that the percentages of firms involved in commercial
arbitration by sector match very closely the actual sectoral composition of the gross
domestic product. Colombia’s 2006 GDP, according to the World Bank, consists of
agricultural activities (12.1%), industrial production (33.6%), and services (54.3%).
44
Table 1. Percent of GDP by Economic Sector, Colombia
Economic Activity 1980 1990 2000 2006
Agriculture 19.9 16.7 14.0 12.1
Industry 32.5 37.9 30.3 33.6
Services 47.6 45.4 55.6 54.3
GDP (US$ Millions) 33,400 40,274 83,779 135,836
Source: World Bank. Data and Statistics: n.d. (http://www.worldbank.org/) Evidently, the numbers of users of commercial arbitration in the study by sector
reassemble the composition of Colombia’s historical GDP trend, with decreasing
numbers in the primary sector and increases in the tertiary sector. Thus, the demand for
and use of arbitration represents of the productive make up of Colombia’s economy.
This may be evidence of generalized acceptance of and support for arbitration in
particular and ADRMs in general by the private sector in Colombia. This support
complements state support for arbitration (see Chapter 4) as a revitalized and actualized
means to settle business disputes in a very interdependent global economy (Buhring-
Uhle 2006, Lynch 2003, Robe 1997, Teubner 1997).
A second classification by economic sectors was conducted by filtering the users
of arbitration according to the North American Industry Classification System
(NAICS).
40
This grouping is not only more detailed, it also follows globalized current
economic relations.
Among the cases analyzed, parties to arbitration come from 14 of the 20 NAICS
economic sectors: Agriculture, forestry, fishing, and hunting; Mining; Utilities;
40
Adopted in 1997, NAICS was devised by the U.S. Economic Classification Policy Committee in
conjunction with Statistics Canada and the Instituto Nacional de Estadística, Geografia e Informática of
Mexico, and is the standard classification system for businesses throughout the continent of North
America. This system replaced the Standard Industrial Classification (SIC) System (US Census Bureau
2007).
45
Construction; Manufacturing; Wholesale trade; Retail trade; Transportation and
warehousing; Finance and insurance; Real estate and rental and leasing; Professional,
scientific, and technical services; Administrative and support and waste management nd
remediation services; Arts, entertainment, and recreation; and Other services (except
Public Administration).
Table 2. Arbitration Users according to the North American Industry
Classification System
Economic Sector
Number of Parties (%) Agriculture, Forestry, Fishing, and Hunting 1
Mining , Quarrying, and Oil and Gas Extraction
16
Utilities
7
Construction
29
Manufacturing
38
Wholesale Trade
15
Retail Trade
26
Transportation and Warehousing
21
Information
21
Finance and Insurance 17
Real Estate and Rental and Leasing 8
Professional, Scientific, and Technical Services 15
Administrative and Support and Waste Management 4
Health Care and Social Assistance 1
Arts, Entertainment, and Recreation 4
Other Services (except Public Administration) 1
Total
224 (100%) Are All Users of Arbitration Colombian Nationals?
This classification identifies litigants as domestic or foreigners. The distinctive
element is whether the company does or does not have legal and economic ties with
46
international investors. The concern is not about the extent and specificity of the legal
and economic relationship, nor it is about the concrete legal shape of the international
company’s investment in the Colombian market.
41
Neither is the volume of the
economic enterprise important here. The decisive feature is any indication that part of
the litigants’ profits from their economic activity does not enter the measurement of
Colombia’s gross national product. In other words, part of their profits is included in the
gross national product
42
of another economy.
In the 112 arbitral tribunals studied, 68
43
of the conflicting parties were
companies with clear legal and economic ties with foreign investors. They represent a
very significant 30% of arbitration users.
44
The economic interests of the foreign parties
in arbitration tribunals are rooted in different modes of entry into the Colombian
economy: by direct trade,
45
foreign direct investment,
46
franchising,
47
and joint
41
The main options a firm has to enter a foreign market include exports, foreign direct investment, and
contracting (Root 1998).
42
Gross national product (GNP) is the total monetary value of goods and services produced in a year by
the nationals, or residents, of a country. It includes income that nationals earn abroad, but does not
include income earned within a country by foreigners. It differs from gross domestic product (GDP),
which is the total monetary value of all goods and services produced domestically by a country. GDP
includes income earned domestically by foreigners, but does not include income earned by domestic
residents on foreign ground. In other words, the GNP is made up of the GDP, plus any income earned by
residents from overseas investments, minus income earned within the domestic economy by overseas
residents.
43
This number only refers to legal parties or litigants taken as one party. Consequently, the actual number
of foreign companies directly or indirectly involved in arbitration proceedings is higher. For a complete
list of international investors appealing to private commercial arbitration in Colombia see Appendix IV.
44
This high participation of foreign firms in arbitration proceedings in Colombia should not be surprising.
In a 2005 study of domestic and foreign firms in Colombia, Rowland established that 602 firms, out of
3,452 total firms, have some form of foreign ownership. Furthermore, firms with foreign ownership
accounted for almost half of the total assets of all the firms, 48.6% (Rowland 2005, XX).
45
Some examples are: Tracey & Co. S.A, Curacao Harbour Towing & Service Co., System Software
Associates Inc., Transportation Maritima Mexicana (Cases in my files).
47
venture.
48
The foreign parties to arbitration are from the United States, Japan, Italy,
France, Spain, México, Panamá, Korea, and Brazil, among other countries. As will be
shown later, in some disputes both parties were foreigners.
Figure 2. Foreign Participation in Arbitration Cases
70%
30%
Domestic
Foreign
Table 3. Foreign Participation in Arbitration Cases
Origin
n
(%) Domestic
156
(70) Foreign
68
(30) Total
224
(100) 46
Examples include: Dupont de Colombia S.A,The Chase Manhattan Bank, Mitsui de Colombia S.A.,
Inversiones Petroleras S.A., Repsol Exploración S.A., B.M.G. Ariola de Colombia S.A, Hyundai
Colombia Automotriz S.A., Exxonmobil de Colombia S.A. (Cases in my files).
47
For instance, Videcol (Blockbuster Inc.) (Case in my files).
48
For example, General Motors Colmotores S.A., Nortel Networks de Colombia, Francocolombiana de
Construcción Ltda. (Cases in my files).
48
Size of Arbitration Users Based on Their Assets
The Bogotá Chamber of Commerce divides companies into three groups
according to their assets: large size companies are those with assets over Colombian
pesos (COP) 14,421 million, medium size companies hold assets over COP 2,040
million, and small size companies have assets below COP 2,040 million.
49
The third
characterization of commercial arbitration users in Colombia is based on this
classification, but complemented with a fourth category: individual investors. Individual
investors are not litigating on behalf of a company, they are individuals who are
contracting and using arbitration to reach a settlement.
Table 4. Size of Companies Using Arbitration
Size
n
(%) Small
24
(11) Medium
41
(18) Large
144
(64) Individual Investors
15
(7) Total
224
(100) As seen in Table 4, large companies are the litigants in 144 of the 224 total
examined, comprising a majority (64% ) of the consumers of arbitration. Forty-one
49
This division follows Law 590 of 2000 and Law 905 of 2004, which define firms according to assets in
the following manner: Small firms: total assets between 501 and less than 5,001 monthly minimum
salaries. Medium firms: total assets between 5,001 and 30,000 monthly minimum salaries (Colombian
Congress 2000, 2004). It is inferred that large firms have assets over 30,000 monthly minimum salaries.
The sums cited are based on the monthly minimum salary in 2006, COP 408,700.
49
parties are medium size firms, and small companies and individual investors account for
24 (11%) and 15 (7%) of the counterparts respectively.
Figure 3. Size of Companies Using Arbitration
11%
18%
64%
7%
Small
Medium
Large
Individual
As seen in the above data, the classification of arbitration users into their
respective economic sectors closely mimics the actual sectoral composition of
Colombia’s GDP. For example, the high percentage of litigants with economic activities
in the service sector matches the high percentage of the service sector in the production
structure of the economy. In this respect, users of arbitration are representative of the
Colombian economy at large. Although the firms appealing to arbitration to settle their
market economic disputes are mostly Colombians (70%), high participation of foreign
businesses is also evident. Thirty percent of litigants were non-Colombian investors or
the firms represented have some form of foreign ownership. These percentages
correspond to number of firms. However, should a study based on the composition
(domestic-foreign) of the value of the dispute be conducted, it is likely that the
50
proportions/percentages will reassemble those of Rowland’s analysis on domestic and
foreign firms in Colombia. He found out that although foreign firms were 18% of total
firms, they accounted for almost half (49%) of the total assets of all firms (Rowland
2005). In other other words, I expect that arbitration cases with participation of
foreigners would compromise at least 50% of the monetary value of all disputes brought
to arbitration. Finally, the majority of the firms participating in arbitration are large
firms (64%) with assets of more than 14, 421 million COP. Thus, the distinctive
characteristics of the arbitration users in Colombia are: 1) they are representative of the
production structure, 2) the majority are Colombian but many of them are foreigners,
and 3) they are predominantly large firms.
B. Profile of the Commercial Transaction
This section details the commercial relationships among the entrepreneurs. First,
it presents the legal typification of the economic exchange: the contract. Contracts are
also grouped according to which economic sector the contractual obligations fall under.
Second, it classifies the relationship according to its length (short, medium and long
term), and according to whether the contractual obligations between the parties are
performed in a single action or in recurrent actions. For instance, the purchase of a car is
a single action transaction. On the other hand, obligations in commercial agency
contracts are performed multiple times -- a recurrent transaction.
50
Third, it identifies
the beginning of the conflict within the timeline of the business interaction (at the
50
For a discussion on contract rights and remedies in relation to the condition of simultaneity in
obligations fulfillment see Poster 1998.
51
beginning, in the middle, at the end). Fourth, it tells what happens to the commercial
relationship once the controversy is decided: whether it ends, continues, or had already
ended.
Type of Legal Contract
In accordance with the case selection criteria for this study, all 112 arbitration
tribunals were requested to decide commercial disputes about contract rights and
property rights originating from a legal contract signed between the disputants. As seen
in Table 5, the types of legal contractual relation are diverse, as is their distribution.
52
Table 5. Types of Legal Contracts
Type of Contract, English Type of Contract, Spanish
n
Affreightment Fletamento
1
Cession of Rights Cesión de Derechos
1
Commercial Agency Agencia Comercial
15
Concession Contract Conseción
4
Construction Obra 20
Distributorship Distribución
2
Idiosyncratic Innominado, Atípico
11
Insurance Seguro
2
International Financial Leasing Arrendamiento Financiero
1
Partnership Agreement Asociación
2
Power of Purchase Agreement
1
Promissory Sales Agreement Promesa de Compraventa
6
Purchase/Sale of goods Compraventa de Bienes
7
Purchase/Sale of services Compraventa de Servicios
14
Purchase/Sale Real State Compraventa de Finca Raiz
1
Real State Lease Agreement Arrendamiento inmobiliar
4
Supply Contract Suministro
9
Transportation/Shipping Transport
8
Transaction Contract Transacción
1
Turnkey Llave en mano
2
Total
112
Contract Obligations by Economic Sector
The contractual obligations in dispute are organized following the North
American Industry Classification System (NAICS). Earlier, I used NAICS to group the
firms or the subjects to the contracts and to the disputes. Now I am using this
classification scheme for the object of the dispute. This distinction is needed because
companies conduct contractual relations in economic sectors outside the sector they
53
comprise. For instance a bank, which belongs to the financial sector, contracts for the
construction of a new building. This contractual obligation falls under the construction
sector. Or a transportation firm, which belongs to the transportation sector, buys
insurance. This contract falls in the finance and insurance sector.
Table 6. Content of Contractual Obligation Controversy by Economic Sector
Sector for Contract Obligation
n
Agriculture, Forestry, Fishing, and Hunting
1
Mining
3
Utilities
3
Construction
22
Manufacturing
5
Wholesale Trade
26
Retail Trade
2
Transportation and Warehousing
13
Finance and Insurance
8
Real Estate and Rental and Leasing
10
Professional, Scientific, and Technical Services
10
Administrative and Support and Waste Management and Remediation Services
6
Arts, Entertainment, and Recreation
2
Other Services (except Public Administration) 1
Total
112
The highest numbers of contractual economic exchanges are in wholesale trade
(n= 26, 23%), construction (n= 22, 20%), transportation and warehousing (n= 13, 12%) real estate (n= 10, 9%), and professional services (n= 10, 9%). They together account
for 73% of the disputes.
54
Length of Contractual Relations
My central interest here is what the duration of business relations can tell us
about the demand for arbitration to decide disputes. Some argue that the longer the
contractual relation, the more likely it is for entrepreneurs to favor ADR over formal
tribunals in order to preserve the business interactions, and possibly attract new ones, or
at least not discourage new ones (Matti 2001, Broches 1995, Hunter et. al. 1993,
Graving 1989, Scott 1987, Perlman and Nelson 1983). The duration of the business
relation will be complemented with information about the future of the relationship
once the arbitral award is produced (below) to gain a better overall understanding of the
business relationship.
For this study, short-term contractual interactions refer to those which existed
for less than 1 year. Medium-term economic relations existed between 1 and 5 years. In
long-term transactions, the parties have contracted with each other for more than 5
years. Table 7 lists the number of claims in each category and Figure 4 shows the
percentage of cases by length of business relationship.
Table 7. Length of Business Relationship
Time
Number of Claims
Percent
Less than 1 year
31
27%
1 to 5 years
52
47%
More than 5 years
29
26%
Total
112
100%
55
Figure 4. Length of Business Relationship
27%
47%
26%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Less than 1 year 1 to 5 years More than 5 years
Percentage of Cases
As can be seen in Figure 4, there is a relatively even distribution of arbitration
cases between short term and long term contracts. At the time of they initiated
arbitration proceedings, litigants had maintained economic interactions for less than 1
year in 31 claims and for over 5 years in 29 cases. In almost half of the disputes (47%),
the litigants had economic exchanges between 1 and 5 years, or medium term contracts.
Thus, evidence on short and long term contracts suggests that the length of the
economic relation is not a strong determinant in a party’s decision to recur to arbitration
to settle controversies. Put differently, parties in both short term and long term
economic relationships equally include an arbitration clause in the contract regulating
their obligations and rights. This may indicate that regardless of the expected duration
of the contract; short, medium or long; economic agents are comfortable resolving
disputes outside the traditional court system.
56
Why might parties in all lengths of business relationship recur to arbitration?
First, the benefits of arbitration (and/or the disadvantages of formal courts) apply to all
commercial transactions independent of their duration, and this is perceived by the
parties. This is in tune with Hammergren’s claim on her study of the judicial reforms,
On a worldwide basis, large companies prefer not to take their conflicts to court,
but rather to resolve them through arbitration [...T]his increases predictability
for them because it means a stable set of rules. Domestic firms may use these
same mechanisms [...]Even for them, courts are intrinsically too formal, too
unspecialized, and too slow under the best of circumstances (n.d, 7).
Second, by using arbitration regardless of the length of the contract, investors
may be sending a positive message about their commitment to alternative institutions
for governing economic rights and obligations. Thus, without considering the outcome
of the dispute, parties keep their names in the pool of potential contractors. I assume
that contract disputes are to be expected to increasing within the highly
internationalized production and globalized economy. For this reason, being involved in
a contract dispute may not be a blemish on an investor’s history, but his or her
preferences as to the means to settle a dispute well may be. Appealing to arbitration (or
avoiding litigation before the traditional courts) may be seen as an incentive to “stay in
business.”
Performance of Contract Obligations
The source and performance of contractual obligations have two categorizations
in this study. First, they can be the result of a sporadic and/or one time business relation.
The fulfillment of obligations takes places within a specific time, although in some
57
cases the time is unknown. One example from the data set is a contract to buy legal
(lawyer) services
51
for a specific matter: legal case # 386137. It was sporadic because
there is no permanent labor relationship nor is the lawyer in charge of other cases for
this client. Furthermore, there is certainty about the end of the business transaction. It
will end once the case is decided,
52
but the exact day of that event is unknown. Similar
reasoning applies to the purchase of other goods and services contracts and to some
transportation and construction contracts submitted to arbitration.
53
They all have a one-
time economic exchange, but with different timelines depending on the object of the
contract. For instance a turnkey contract in the study stipulates as the object of the
contract “[T]he design, supply, transportation, installation, and other necessary works”
of a large telecommunication structure (case number 8 in my files
54
). This is a one-time
business deal regardless of the complexity of the job and the time it takes to finish it.
51
Arbitration case number 44 in my files.
52
Obviously, the business transaction could end by the firing, resignation or even death of the lawyer.
These circumstances do not challenge the “one shot” characteristic of the contract.
53
Further clarification is required (and caution should be exercised) for the distinction between sporadic
and recurrent contracts that do not relate to the type of contract. For instance, as in the case of the legal
services mentioned above, contracting oil drilling services is a sporadic business relationship (case 67 in
my files). Although the parties stipulated periodical payments, payments are for the same service.
However, the contracting of professional services for “education, consultancy, installation, optimization,
and control of projects related to all licensed software” (case 38 in the study) is of a recurrent nature. The
same with construction contracts. Contracts for constructing a road (case 70 in the study), a building, or a
bridge is a sporadic business relation. Yet, a construction contract whose objective is the “obligation to
build ‘something’ based on the supply of iron by the periodic supply of iron” by the contracting party
(case 62 in the study) is a recurrent economic exchange.
54
For a similar contract and situation see case number 36 in my files: “The constructor obligates himself
to the company to execute with his own elements, means, materials, supplies, equipment, and personnel,
in an independent manner, with full technical and administrative autonomy, until all the works are
finished, the activities related to the construction, supply, fabrication, assembly, and setting up of a
filtering plant.”
58
In the second category, obligations are carried out recurrently and/or there are
multiple contracts between the same two parties. Here, the duration of the relationship
is less certain, although the contract may have references to the duration of the
economic transaction. Let’s look at the example of a commercial agency contract where
the agent obligates himself to commercialize the principal’s products or services. The
contract states that it is for 6 months “renewable for equal periods of time.” This
contract might be extended for an uncertain numbers of years, which was the situation
in most commercial agency contracts in the sample data.
55
In another scenario, the
business relationship could develop through multiple contracts between the two same
parties. This is the case, for instance, of a manufacturing company contracting the same
transportation firm on a regular basis. Clearly, each delivery is independent, but the
recurrence of the economic transaction is easily noted and its permanence uncertain.
The question for this study is which of these two types of economic exchanges,
sporadic or recurrent, are more present in private arbitration? In a proportion of
approximately 2.5 to 1 more recurrent-multiple contractual relations than sporadic-one
time exchanges are found in the data for this study. There are 79 (71% of 112 total
cases) cases of recurrent-multiple contracts and 33 (29%) cases sporadic-one time
contracts.
55
See for instance case numbers 9, 19, 48 48, 80, and 107, among others.
59
Figure 5. Contractual Obligations Performance Categorization
Recurrent -
Multiple
71%
Sporadic -
One-time
Deal
29%
The data indicates that business relations with performance obligations spread
out over multiple installments, or multiple actions between the parties are more likely to
use arbitration to settle disputes than business relationships with more
define/precise/limited fulfillment of obligations.
The question for this study is which of these two types of economic exchanges,
sporadic or recurrent, are more present in private arbitration? In a proportion of
approximately 2.5 to 1 more recurrent-multiple contractual relations than sporadic-one
time exchanges are found in the data for this study. There are 79 (71% of 112 total
cases) cases of recurrent-multiple contracts and 33 (29%) cases sporadic-one time
contracts. The data indicates that business relations with performance obligations spread
out over multiple installments, or multiple actions between the parties are more likely to
use arbitration to settle disputes than business relationships with more
define/precise/limited fulfillment of obligations.
60
I could argue that recurrent/multiple actions are characteristic of more complex
business transactions whose eventual conflictual scenarios are more difficult to capture
in a contract. Thus many situations are left implicit and performance is highly likely to
be contested. Alternatively, given the one-time-deal character of sporadic contractual
relations, parties may not “bother” to include an arbitration clause in their contracts and
ultimately to then settle more disputes before traditional courts. The terms of the
contracts governing these interactions are more explicit and their enforcement is likely
to be easier. This seems to ratify Drahozal and Hylon’s empirical findings about the
determinants of arbitration in franchise contracts. They find that “[T]he probability of
arbitration is significantly higher when the parties are likely to rely on implicit terms for
governance and compliance with those terms is difficult to ensure [...] On the other
hand, where contracts are clear and enforcement easy to obtain through the courts, the
parties are unlikely to find a greater deterrence benefit under arbitration” (1995, 58).
The possibility of drafting complete, dispute-proof contracts does not exist.
Contrary to the neoclassical view of economics, human being are imperfectly rational as
it is impossible for us to anticipate every possible event. Once transaction costs enter
the picture (the drafting of contracts and the settlement of dispute being part of these),
our bounded rationality makes it impossible to completely regulate through contracts
the complexity of the context in which economic exchange take place (Simon 1957,
1987; Williamson 1985). That is, bounded rationality prevents the drafting of all-
61
encompassing contracts.
56
Another element that impedes conflict-free business relations
is the human tendency to take advantage of given situations by hiding or distorting
information, acting on preferences, and confusing the situations; in short, opportunistic
behavior (Williamson 1975).
Consequently, the rational expectation about contracts is that they are
incomplete. However, this is not an argument to deter economic exchanges. It is still
plausible for parties to recognize the intricacy of the economic transaction, the
complexity of the context wherein obligations are performed and rights exercised, the
limitations of writing contracts, and their own human nature, and at the same time to
anticipate the presence of conflicts and the need to include a governing mechanism to
address them. That is, investors are capable and now have the right to decide on the
inclusion of arbitration clauses in contracts regulating their business dealings. The
cases in this study show that the parties did indeed exercise this ability, especially in
recurrent business transactions.
Occurrence of the Conflict within the Timeline of the Business Interaction
I estimated the moment that the controversy took place using three categories: 1) at the beginning: the conflict arose within the initial 1/3 of the contractual relation; 2) in
the middle: differences are evident during the second third of the business interaction;
and 3) at the end: the dispute happened within the last third of the economic exchange.
56
As will be discussed later, entrepreneurs not only face the impossibility of writing complete contracts
for their investments. There are also instances where contracts fail to match the expected actions with the
actual performance. This discrepancy is captured by the saying, “law on the books vs. law in practice,” or
the terms “de jure” (based on the law or contract) and “de facto” (based on reality or actual practice).
There are discrepancies between what the contract says an obligation or right is and how the
materialization of those obligations or rights actually happens.
62
In the 112 commercial arbitration controversies examined, only one started at
the beginning of the economic transaction. This was a 2003 contract to purchase/sell
timber valued in COP 1,150,000,000.
57
The seller did not deliver the goods and the
buyer requested the arbitration tribunal.
58
As see in Table 8, the conflict erupted in the
middle of the economic relationship in 17 situations, and at the end in 94 of the
transactions.
Table 8. Time of the Conflict within the Economic Interaction
Time n
Percent
Beginning
1
1%
Middle
17
15%
End
94
84%
Total
112
100%
Business Relations after Arbitration
It has been argued that one of the reasons investors appeal to arbitration is to
maintain the business relation by avoiding the more adversarial nature of a trial before a
state tribunal (Bonn 1972, Mattli 2001). This study did not find any evidence to support
that claim. The data reveals that only three business relations “survived” the dispute and
arbitration. The base contract in two of the surviving cases was a power purchase
agreement.
59
The need and the obligation to supply electricity to households may
explain the continuity of the economic relation in these two cases. The third surviving
57
This sum corresponds roughly to US $650,000.00 (2009).
58
See arbitration case number 82 in my files.
59
See cases 72 and 104 in my files.
63
case had a transaction contract (contrato de transacción ).
60
However, the parties to this
contract signed it as a means to end controversies between them regarding the control
and ownership of various shared investments. Thus, the continuity of the relationship
meant, in this case, an “agreement to end” their relationship.
61
In the remaining 109 arbitration cases, 21 business relations ended with the
arbitral award, and 88 relationships had already ended before the arbitration tribunal
was requested.
Table 9. Effect of Arbitration on the State of the Business Relationship
State of the business relationship
n
Percent
Relation continues
3
3%
Relation ends
21
19%
Relation had ended
88
78%
Total
112
100%
Figure 6. Effect of Arbitration on the Continuation of the Business Relation
3%
19%
78%
Relation continues
Relation ends
Relation had ended
60
See case number 63 in my files.
61
In fact, the Colombian Civil Code states that a transaction contract is a contract in which the parties
agree to end a conflict extra-judicially (Art. 2469).
64
The results of the estimated time of when the conflict happened during the
contractual relation and of arbitration’s effect on the “future” of the business interaction
indicate that continuity was not likely to have been a variable determining the choice of
venue to settle controversies. The numbers indicate that a very high percentage of
business relations, 84% (see Table 8), faced conflict only within the last third of the
relationship; suggesting that through most of the duration of the relationship,
contractual performance was harmonious or at least conflicts were not disclosed to third
parties. However, that harmony was not sufficient for the parties to settle the dispute by
themselves.
It may be that activation of the contract’s arbitration clause and the consequent
arbitration settlement demonstrates investors’ preferences for a rapid and final closure
over salvaging and/or continuing the business interaction. Profit conscious business
people regard commercial controversies as a matter that need to be dealt with as quickly
as possible (Bonn 1972). Longer dispute resolution could represent higher arbitral
awards as the monetary amount includes depreciation and/or moratory instances, as was
the case in most of the arbitration cases studied. Furthermore, the longer the conflict
drags on over time, the longer investors are exposed to possible negative market
conditions and/or the greater the chance of missing new investment opportunities.
By the time of the arbitration proceeding, a resounding 78% of the economic
interactions had already ended, and 19% finished with the arbitral award. This finding is
in tune with Mattli’s arguments in favor of institutional arbitration (as oppose to ad hoc
arbitration) to handle disputes that arise shortly before or after a commercial
65
relationship has ended. This is the case for most disputes submitted to the International
Chamber of Commerce for arbitration (Mattli 2001).
It is possible that the complex nature of contractual differences confronted by
the parties made necessary third person intervention as a better alternative over carrying
out ineffective and destructive direct bargaining. In this scenario, the appeal to
arbitration proceedings is rational. Additionally, the ending of the specific business
relation that is in dispute does not necessary signify the absence of other economic
exchanges between the same two parties.
62
By the same token, the non continuity of
some of the business relationships may be due to the nature of the contract and the
“indifferent” characteristic of the party (eg. think of buyers and sellers). For instance, it
is expected that a purchase contract finish with the exchange of goods and money.
However, the profile of users of arbitration (see section above) suggests that the demand
for arbitration comes principally from medium and large size companies in most
economic sectors, dealing with more complex business exchanges. They are far from
the anonymous buyers and sellers situation.
In synthesis, this data does not confirm the perception that firms intend to
continue business relations with their conflicting counterparts as one of the reason for
favoring arbitration over state courts. However, there is no information about whether
or not the parties to the disputes maintain other economic exchanges between them.
What may be driving the demand for arbitration then is the need to close commercial
disputes as quickly as possible and at the same time build one’s reputation as a good
62
Unfortunately, proving or disproving this hypothesis would demand further field data -- e.g. direct
interviews with the parties to the disputes under analysis -- that is not currently available This could be
explored in future research.
66
potential business partner within the market. This positive reputation stems not from
being dispute-free, but because the firms settle their disputes through arbitration. This
alternative agrees with Bruce Benson’s conclusion about the popularity of commercial
arbitration in the United States (1995).
In Benson’s study about the development of commercial arbitration in the
United States, he concludes that the establishment and rapid growth of arbitration took
place “as nonlegal sanctions induced many members of the business community to live
up to their commitments to arbitrate and to accept arbitration rulings” (1995, 497).
Reputation and acceptance factors in investors’ business circles - its community - and a
rapid definition of disputes are important variables in opting for private arbitration.
Among private sector benefits of ADR over litigation in state courts the World Bank
mentions “[The] release of funds or assets that are in dispute...Even for the party that is
releasing the assets, the process could produce positive outcomes, like for instance, the
improvement of business relations with the other party, and not putting at risk its
commercial reputation” (World Bank n.d., 41).
C. Legal Pretensions and Defense Mechanisms
This segment focuses on the legal strategies used in the arbitration proceedings.
Litigants’ versions of the contractual obligations and performance are recreated or
inferred from each plaintiff’s pretensions and defendant’s defense resources. Attention
is on what the firms in the dispute ask the arbitrators to decide in their favor. Generally
in Colombian private commercial arbitration defenses are limited to exceptions of merit
67
(excepciones de merito) to argue against pretensions or “the merits.”
63
In some
instances a second means of defense is used to question either the procedure or the
existence of the arbitration tribunal itself. This type of defense is called a preliminary
exceptions
64
(excepciones previas).
65
Finally the responding party may even decide to
go on the offensive and file a counterclaim.
Incidentally, pretensions and exceptions are indications of the parties “good
faith” and “collaborative effort” in the process. Their existence is one of the elements
used by arbitrators to decide upon the burden of arbitration costs. (More information on
the monetary costs of arbitration is presented in later sections).
Legal Pretensions or Claims
Pretensions and defense mechanisms fall into one or more of the following
clusters: contract interpretation, contract implementation, and/or contract termination.
In all of the 112 cases in this study, either the complainant or the respondent requested
63
In legal proceedings, there are two types of exceptions, merits and preliminary (de merito and
previas). “Merit” exceptions are introduced to try to avoid a judge’s decisions in favor of the plaintiff’s
pretensions. Preliminary exceptions are introduced to signal the existence of irregularities in the process
to avoid its eventual nullification. In arbitration cases, in general, each pretension is matched with an
exception of merit. For instance, the plaintiff claims payment of a certain obligation and the defendant
argues the exception of payment – that he has already paid. One exception may address multiple
pretensions.
64
Preliminary exceptions are similar to the concept of dilatory defense: “A dilatory defence is one, the
object of which is to dismiss, suspend, or obstruct the suit, without touching the merits, until the
impediment or obstacle insisted on shall be removed. These defences are of four kinds: 1. To the
jurisdiction of the court; 2. To the person of the plaintiff or defendant; 3. To the form of proceedings, as
that the suit is irregularly brought, or it is defective in its appropriate allegation of the parties; and, 4. To
the propriety of maintaining the suit itself, because of the pendancy of another suit for the same
controversy” (Bouvier 1856, n.p.).
65
An example of a merit exception is the legal resource of reposition (recurso de reposición) against the
decision to accept the request to initiate the arbitration tribunal (see case number 48 in my files). An
example of a preliminary exception is the request of annulment of the arbitration proceedings for the
alleged lack of the tribunal’s competence (see case number 30 in my files).
68
some kind of interpretation about a single or multiple elements of the contract, its
fulfillment, or its termination. Consequently, the occurrence of interpretation requests
easily exceeds the number of arbitration cases. I came across 223 examples of
interpretation, and my count was not exhaustive (See Table 10).
Among other things the parties asked about the object of the contract, the time to
perform obligations, the duration of the contract, specific contractual clauses, the legal
nature of the contract, the applicable law, legal termination, and abuse of rights. They
even asked to clarify and interpret the very existence of the contract, the type of
contract, and the parties to the contract. Even when there is no disagreement about the
fundamentals, all parties have the same information and there is no evidence of
opportunistic behavior, there is still room for conflict. As one the arbitrator affirms, “It
could be said the parties agree on the basic facts [of the contractual relation] and they
only disagree on their interpretation” (case number 4, n.p.).
69
Table 10. Sample Topics of Contract Interpretation
Cases
The object of the contract
18, 25,34, 35, 38, 41, 47, 49, 60, 84, 74,
97, 107, 110
The time to perform
obligations or duration of the
contract
8,9, 16, 17,19, 32, 36, 46, 49, 64,68, 73,
76, 101, 107
Contractual clauses
2, 8, 9,11,15, 21,22,31, 32, 33,34, 35, 44,
46,48,66, 83, 107
Applicable law
1, 8, 13, 15, 17,18,55,67, 83, 91, 104, 107
The legal nature of the
contract
13,15,1, 22,34,35, 39, 46, 47,
48,52,53,55,59,60,61,66, 74, 75, 78, 91,
94, 104, 106, 107
Civil or commercial
1,53,55
Private or Public
8, 104, 106
The type of contract
5,6, 7,19, 25, 28, 31,34, 39,
41,48,50,53,54,57,66,67,68, 73,74 ,75, 80,
83, 107, 110
Existence of the contract
6, 22, 29,40,61, 84,101, 102, 103, 110,
111
Existence of obligations
22, 23, 28, 30,33,34, 35, 36, 38,
43,47,48,49,60,64,67,70, 75, 77, 78,
83,86, 87, 89, 95, 96, 99, 101, 102, 109,
111
Party to the contract
7, 8, 67, 75, 76, 78, 91, 95,96 110,111
Justify termination
8, 10, 14, 15,19, 22, 24, 27, 28, 29,32, 33,
34
Abuse of rights or of
dominant position
(8) 20, 22,23, 29, 31
Breach of contract
22, 24, 25, 26, 27, 29,31, 32, 36, 40, 41,
44, 47, 48, 50, 53, 56, 57,61,64,69, 73, 76,
77, 78, 79, 80, 83, 84, 85, 94, 95,
97, 100, 101, 106, 107, 108
Termination of contract
22,32, 38,43, 74, 78
Economic disequilibrium
22,31, 35, 58,69, 81
Precision of obligations
28,34, 41,46,60, 73,74, 75,81 83, 85, 86,
89, 92, 96, 97,99, 102, 105, 110
Existence of legal rights
28, 29,34,48,57,58,66, 70,73,
77, 80, 81, 86, 105, 109, 111
Similar qualifications should be made for contract implementation and
determination of liability. Again, petitions for these were identified in all 112
arbitration tribunals indistinctly of the party. Their number is not limited by the number
70
of controversies as it is unusual for a business transaction to create a single contract
right. Contracts contain multiple obligations/ rights. Again, without being all-inclusive,
265 instances of implementation and liability claims were established (See Table 12).
Illustrative of the variety of petitions are the following: the quality of the job,
appropriateness of the performance time, place of the obligation, breach of contract,
type and estimation of damages, adjustment of monetary interests, and payment of
monetary obligations, among others.
71
Table 11. Sample Topics of Contract Implementation and Liability
Cases
Type of damages and
estimation
20,22,24,25 26,29,33,35,38 40,41,44,45,
46,48,50,51,52, 54,55,56,57,58,60,61,62,64,
66,68,69,74,75,77,79,82,83,
85,86,92,93,94,97,98,100, 103,106,111
daño emergente
20, 22, 26, 29, 45, 46, 48, 49 51, 52, 57, 58, 62, 64,
66, 68 69, 74, 75, 77, 79, 82, 85,86,
92,93,94,97,98,100,103,106,111
lucro cesante
20, 22, 23, 25, 29, 40, 45, 46, 51, 52, 58,62,64,66,68,
69, 74, 75, 77, 79, 82, 83, 85, 86, 92, 94, 97, 98,
100,111
Correction
20, 26, 28, 29, 40, 44, 48, 50, 53, 57, 60,67, 71, 72, 74
95, 96, 98
Penalty Clause
36, 37, 48, 49, 51, 52, 58, 61,
62,69,77,83,84,88,91,94,95, 104
Payment of monetary
obligations
21, 23, 25, 27, 28, 30, 32, 34, 41, 44, 46, 48, 49, 53,
57, 59, 61,67, 76, 81, 85, 87, 89, 90, 91, 93, 94, 96,
99, 100, 101, 105,107,108,110,112
Adjustment of
monetary interests
21, 27, 32, 40, 44, 45, 48, 50
51, 52, 54, 56, 57, 60, 61,67, 72, 74, 82, 87, 91, 94,
95, 96 102,104,106,107,108,110, 111,112
Reimbursement
23, 27, 41,72,73, 89, 94, 97, 102,108,110
Additional Costs
41, 56, 60, 69, 70, 81,108
Quality of the
performance
26, 27, 29, 32, 35, 36, 37, 38
39, 41, 42, 52, 61,68, 69, 70, 71, 75, 84, 85, 94
Appropriateness of
performance time
25, 26, 27, 35, 36. 38, 39, 41, 42, 45, 47, 49, 50, 51,
52, 56, 61, 64, 70, 94
Place of the obligation
51, 52, 53
Breach of contract
24, 25, 26, 27, 29, 30, 31, 32 33, 36, 37, 38, 39, 40,
41, 42, 44, 45, 46, 47, 48, 49, 50, 51
54, 55, 56, 57, 58, 59,60, 61, 62, 63, 64,66,68, 69, 70,
71, 72, 73, 74, 76, 77, 78, 79, 82
84, 85, 86, 87, 88, 90, 91, 92
93, 94, 95,100,101, 102, 103
104,106,107,108, 110,112
Legal rights/liability/
indemnizations
28,53,56,57,61,62,63,66, 68,
71,76,77,78,95,97,107,110
Retention of property
30, 40, 71, 77
Legal termination
33, 34, 74
Moral Hazard,
Opportunism,
Incomplete information
41,61, 83, 97
72
Incidents of arbitration tribunals responding to requests of contract termination
were easier to quantify. The parties do or do not ask for the termination of the business
interaction and the contract that controls it. References to termination of the contractual
relationship are found in 37 of the 112 arbitration cases.
Table 12. Number of Declarative Claims by Type
Types Frequency
Contract interpretation
223*
Contract implementation
265*
Contract termination
37
*These numbers are merely illustrative of the declarative claims of the parties. They do not exhaust all
the actual times they were requested.
Exceptions and Other Defense Mechanism
In most arbitration cases, the number of exceptions of merit match that of
pretensions or claims. However, there are instances with no exceptions of merit and
others where the exceptions outnumber pretensions. Reasons for the latter include the
defendant trying to complicate and/or delay the proceedings as a legal strategy. As
mentioned above, this sort of behavior may play against the defendant in the form of
arbitration expenses. Obviously, the more the respondent party keeps the defense
mechanisms true to the process,
66
the shorter the duration of the arbitration. In the
arbitration cases analyzed, the number of exceptions of merit range from 0 to 14.
66
The same must be said about the complainant’s pretensions.
73
Table 13. Defendants' Exceptions of Merit
The respondents kept their defenses on merits
under 6 exceptions in 84 (75%) of the arbitration cases.
Furthermore, exceptions were limited to 3 in more than
50% of the cases (n= 57). Only in less than 10% of the
cases contestants argued more than 10 exceptions of
merit.
Another type of defense are the preliminary
exceptions(excepciones previas), similar to dilatory
defense in American law. Examples of these exceptions
include: falta de competencia,
67
which questions the
competence or jurisdiction of the arbitation tribunal;
inappropriate demand (ineptitud de la demanda);
68
illegal accumulation of claims
(indebida acumulación de pretenciones);
69
inadequate proceeding (tramite
inadecuado) 70
which questions the form of proceeding, a suit that is irregularly initiated,
or that is defective in its appropriate allegation of the parties; and negative prescription
(prescripcion de la action) 71
which questions the propriety of maintaining the suit itself,
67
See cases 19, 30, 34, 35, 75, 83,89, and 101 in my files.
68
See cases 11, 19, 24, 38, 39, 48, 49, 58, 75,96, 109 and 111 in my files.
69
See case 19 in my files.
70
See case 21 in my files.
71
See case 19 in my files.
Number of
exceptions
n
0 12
1 12
2 18
3 15
4 9
5
12
6 6
7 7
8 5
9 5
10 3
11 2
12 3
13 1
14 2
Total 112
74
because the loss of rights to legal remedy due to the limitation of time within which an
action can be taken.
Figure 7. Defendants’ Exceptions of Merit
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0
5
10
15
20
Number of cases
Number of exceptions
Previous exceptions were introduced in 19% of the arbitration cases; that is, in
20 of the 112 tribunals. For the most part, parties to arbitration limited their defense
mechanisms to the merits of the case. Finally, in 31(28%) of the proceedings, the
contestant party “went on the attack” and filed a counter demand.
Table 14. Number of Defenses by Type and Percent of Total Cases
Defense
n
(%) Merits 100
(89.3) Dilatory 20
(17.9) Counterclaim 31
(27.7)
75
Figure 8. Merit Defenses, Dilatory Defenses and Counterclaims
89%
18%
28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Merits
Dilatory
Counterclaim
Judging by the type of defenses and their frequency, this evidence suggests
highly collaborative behavior by the parties during the arbitration process. Dilatory
defense (exceptiones previas) were brought for only 17.9% of the cases. In general, the
contestant party questions the legal competence of the arbitration tribunal and demands
the nullification of any procedural action. This may signal that they do not want the
dispute settle in arbitration although their signed a contract with an arbitration clause --
They signed an arbitration contract. A more plausible reason may be the defendant’s
need to “buy some time” to prepare his initial legal strategy. In all of the 20 instances
which used this defense, the decision was found against the petitioner, and the process
continued and finished with the arbitral award. In this sense, 100% of the arbitration
contracts were enforced. Most defendants, 100 of the 112 tribunals (89.3%),
circumscribed their defense tactics to the merits of the claims, and among these parties,
more than 50% limited the number of exceptions to three or less.
76
Consequently, the procedural behavior of the parties during arbitration may be
considered a confirmation of how much they care about not damaging their reputation
by delaying the arbitration process with numerous baseless defenses. Thus, not only
investor preference for private arbitration over litigation within the courts, but also their
preference of type an number of defenses could signal an investor’s reputation as a
quality business partner, more so than that party’s involvement in commercial disputes
per se. Obviously, free-conflict economic interactions are desirably and would be ideal,
but this doesn’t seem to be the expectation for economic exchanges that are regulated
by a private contract which, furthermore, includes a clause on how to settle disputes.
Rather than disputes themselves, which may be perceived an an ever-present possibility,
investors may be more concerned about avoiding overly litigious venues to resolve
conflicts and overly contentious behaviors during the dispute settlement process. More
evidence of party behaviors during the dispute settlement procedure is presented in the
next section.
D. Length of Arbitration Processes
This section examines the duration about the arbitration process, measured in
months. Increments are organized according to pre-arbitration and arbitration phases.
It also reveals the time the arbitration process is extended due to requests by the parties.
Pre-Arbitration Phase
The pre-arbitration phase takes place from the day the complaint party files the
request for the arbitration tribunal until the day of the first arbitration hearing. In this
77
study, the requests for arbitration were filed with the Center for Arbitration and
Conciliation of the Bogotá Chamber of Commerce. There is no determined amount of
time for this phase as a whole. The length of the pre-arbitral phase depends on the
parties legal actions and their promptness in acting within the time a given action can
take place. Thus, behavior of the parties themselves plays a significant role in the speed/
duration of the pre-arbitration period.
Legal action by the parties and the Chamber of Commerce during the pre-
arbitral phase can include all or some of the following: 1) reception and acceptance of
the request to set up the arbitration tribunal, 2) reception and acceptance of the claim, 3) defendant response, 4) selection of arbitrators by the parties or their selection by the
institution, 5) request of evidence, 6) filing of preliminary exceptions, 7) filing of
counterclaims, 8) reform of the demand, 9) pre-arbitration conciliation hearing, and 10) determination of arbitration monetary cost, among others. Moreover, the parties need to
be notified of every action and given the time to respond or act.
Basically this pre-arbitration period
72
exists to conduct the necessary steps to
“shape” the dispute for its final form. It provides the “instruction of the process”
(instrucción del proceso). Many of the procedures during this phase are conducted by
the institution providing the service of dispute settlement, in these cases, the Center for
Arbitration and Conciliation of the Bogotá Chamber of Commerce. Table 15 lists the
lengths of the pre-arbitral phase, in the 112 cases under study, from shortest (two
months) to longest (28 months).
72
This phase corresponds to pre-trial proceedings in common law.
78
Table 15. Duration of the Pre-Arbitral Phase
Months 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 20 28
n 3 4 13 15 20 17 12 4 7 6 0 3 1 1 3 1 1 1 112
Figure 9. Duration of the Pre-Arbitral Phase
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
0
5
10
15
20
25
30
Number of cases
Months
As can been seen in Figure 9, the cluster 4 to 8 months contains the majority of
the arbitration processes, (n= 77, 69%). In seven cases (less than 7% of the total) less
than three months were spent instructing the controversy. Twenty of the cases (18%) fall into the 9 to 13 month cluster. The remaining 7% had pre-arbitration phases of more
than 13 months. Put differently, 10% of the cases took 13 months or more to set up the
arbitration process, while 90% of disputes were instructed in 11 months or less. Still,
49% of the controversies were ready for arbitration in less than 6 months. Although the
main causes for longer instruction periods are individual legal actions by the litigants,
some of the delays may be consented to by both parties. Parties are allowed to request
extensions or suspension of terms upon mutual agreement. Overall, the data suggest
high level of parties’ procedural efficiency in the pre-arbitral phase of the proceedings.
79
Arbitration Phase
The arbitration phase is the actual arbitration. This phase is measured from the
day of the first arbitration hearing to the decision hearing. According to Colombian law,
this phase has a period of 6 months, independent of the interruptions, suspensions, and
extensions agreed upon by the parties
73
(Presidencia de Colombia 1989, Decree 2279 of
1989, Art. 19 and Colombian Congress 1991, Law 23 of 1991, Art. 103).
As is for the duration of the pre-arbitration phase, the behavior of the parties
themselves is also crucial for the length of this phase. However, in the arbitral phase the
behavior has a collective (not individual) character since request of extensions need
both parties’ agreement. Total extensions cannot exceeded the term of 6 months. All
the actions are conducted by and before the arbitrators. Table 16 lists the length of the
cases for the arbitral phase.
73
My emphasis, to point out the crucial role of the disputants on the efficiency of the arbitration, as
measure by the time to disposition of a case; and subsequently on the quality of justice. This is one of the
enforcing of contracts’ elements “evaluated” by World Bank’s Doing Business index (See chapter 2 in
this dissertation).
80
Table 16. Duration of the Arbitral Phase
Forty arbitration cases (36%) were decided within less
than 6 months, as established by law. Within the further
extension of 6 months allowed by law when agreed upon by both
parties, 100 cases (89%) were resolved in less than 12 moths.
The precise reasons for that the remaining 12 cases exceeding the
legal time limits for a decision would have to be detailed case by
case, and is beyond the purview of this study. However, it is
expected that the extra time used to reach a solution was the
result of the both parties agreement on suspensions, interruptions,
and extensions, for should a disagreement on extensions exist, it
would affect the legality and continuity of the proceedings. As all
112 arbitration cases finished with an arbitration award, I can
conclude that no disagreements took place.
Consequently, it seems that private motives or initiative
of the investors who are the parties to arbitration may lengthen the duration of the
process in certain situations. Should both parties concur on extending the time needed to
reach the arbitration award beyond the limits of the law, they may choose to do so. As it
will be argued later, the size of the companies, the complexity of the economic
interaction and the contract, and the monetary value of the economic exchange in
dispute may have each some effect on the length of the process.
Months
n
1
1
2
5
3
3
4
7
5
11
6
13
7
14
8
16
9
12
10
4
11
3
12
11
13
2
14
3
15
2
16
0
17
1
18
1
19
2
20
1
Total
112
81
Figure 10. Duration of Arbitral Phase
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
0
2
4
6
8
10
12
14
16
18
20
Number of cases
Months
Total Duration of Arbitration in Months
Next the overall time of the arbitration proceedings is calculated from the day of
the petition of the tribunal to the final arbitral award hearing. Cases are organized by
months from the shortest of 6 to the longest of 47 in Table 17.
82
Table 17. Overall Duration of Arbitration Cases
Months
n
6 1
7 2
8 2
9 10
10 2
11 9
12 9
13 8
14 6
15 13
16 8
17 5
18 10
19 8
20 1
21 3
23 1
24 2
26 3
27 1
28 3
29 1
33 1
37 1
39 1
47 1
Total 112
Thirty-five (31%) of the arbitration cases arrived at an award in less than 12
months. Eighty-five (76%) cases, were decided in less than 18 months. Eighty-nine
percent of the cases (n= 100) reached a decision in less than 2 years, and 97% (n= 108),
83
were resolved in less than 29 months. Incidentally, of the cases that exceeded 12
months in the pre-arbitration phase
74
and of those exceeding 12 months for the
arbitration phase
75
only two of them exceeded 12 months in both periods, cases 1 and
41. Obviously, the 12 cases exceeding 24 months overall
76
for their settlement come
from the two previous categorizations: four belong to the pre-arbitration set and seven
to the arbitration set.
77
This distribution suggests that mutually agreed upon procedural
extensions in the arbitration phase have a more significant effect on the actual duration
of the arbitration process that individual interruptions in the pre-arbitration stage.
Furthermore, this distribution can also seen as additional evidence of the party-
driven nature of the length of the arbitration process. I did not find any evidence that the
profile of investors, of the investment/ contracts, or the controversies themselves were
determinants in the length of the arbitration proceedings. The types of firms involved in
the arbitration cases, the types of business interactions and contracts, and the types of
disputes all varied without any apparent pattern for their differences.
74
Case numbers 42, 58, 99, 47, 36, 39, 41, 48, 1, 38, 29, and 11 in my files.
75
Case numbers 41, 87, 85, 103, 111, 49, 72, 96, 97, 1, 56, and 107 in my files.
76
Case numbers, 37, 38, 107, 36, 48, 49, 96, 41, 56, 1, 29, and 97 in my files.
77
The remaining case, number 37, was particular in its overall duration. Its pre-arbitration phase lasted
only 4 months and its arbitration phase 8 months; yet its overall length was over 24 months because the
parties agree to suspend the hearing that divides the two phases (the first arbitration hearing) for more
than 1 year for some unknown reason.
84
Figure 11. Overall Duration of Arbitration Process, by Percent of Cases
31%
76%
89%
97%
0% 50% 100%
less than 29 months
less than 24 months
less than 18 months
less than 12 months
Mutually Agreed Upon Suspensions and Other Extensions of the Proceedings
As noted above, the parties to the dispute may request suspension of the process
within the arbitration phase. These requests exemplify the critical role investors play in
resolving economic conflicts through arbitration; that is, their critical role in protecting
their property and contract rights. Table 18 presents the length in months of mutually
agreed upon suspensions and the number of cases in each timeframe.
85
Table 18. Process Suspensions Agreed Upon by Both Parties
Months of suspension n %
0 29 25.9%
1 11 9.8%
2 21 18.8%
3 15 13.4%
4 8 7.1%
5 4 3.6%
6 13 11.6%
8 3 2.7%
9 2 1.8%
10 2 1.8%
11 1 0.9%
12 2 1.8%
15 1 0.9%
Total 112 100%
In 26% (n= 29) of the arbitration tribunals, the parties to the dispute did not
request any suspensions. The process was suspended by the parties for less than 3
months in 76 cases (68%), and litigants agreed to suspend the arbitration for less than 6
months in 101 cases (90%). In the other 9.8% of the cases (n= 11),
78
the counterparts
decided to stop the process longer than the 6-month period of stipulated by law.
There are some commonalities among these 11 arbitration tribunals. Based on
their assets, the 22 parties involved in these cases are large size firms. Twelve of the
litigants are domestic firms, and the other 10 are foreign. Their investments fall into one
of the following economic sectors: telecommunications, construction, banking, or
energy and petroleum. The contract regulating the investment is either commercial
78
Case numbers 83, 85, 111, 49, 56, 48, 103, 72, 96, 97, 107 in my files.
86
agency, construction, purchase/ sale of shares, or idiosyncratic.
79
The monetary
valuation of the dispute, the monetary costs of the arbitration, and the monetary size of
the arbitral award, are part of the highest values. All these factors may indicate a deeper
complexity of the business interaction and of the controversy, and in turn the need for
longer resolution time.
Figure 12. Process Suspensions Agreed Upon by Both Parties in Months
1
2
3
4
5
6
7
8
9
10
11
12
13
0
5
10
15
20
25
30
Cases
Number of cases
Months
Along with suspensions agreed upon by the parties, the length of the arbitration
might be extended by interruptions declared by the arbitrators due to exceptional issues
such impeachment of an arbitrator,
80
resignation of an arbitrator,
81
or notification to a
79
A contract is idiosyncratic when, given the private initiative and free will of the parties, they agree on
regulating the investment by a contract that does not exactly fit the typology in the laws. Under
Colombian laws, these contracts are called atypical (atípicos) o innominate (innominados). Idiosyncratic
contracts result from investors exercising their freedom of contract in new contexts. For a discussion on
the understanding and complexity of idiosyncratic contracts see Williamson 1981, Schanze 1991, and
Frick 2001.
80
See case number 57 in my files.
81
See case number 35 in my files. The reason for the resignation is not disclosed.
87
co-party defendant.
82
This type of interruption only occurred in 5 (4%) of the 112 cases.
Finally, by party consensus the time to reach a decision can be augmented beyond the
mandated 6 months when they request an extension (prorroga). This occurred in 10
(9%) of the 112 arbitration cases. Let me reiterate that by law, the cumulative time of
suspensions, interruptions and extensions is limited to 6 months (Presidencia de
Colombia 1989, Decree 2279 of 1989, Art. 19 and Colombian Congress 1991, Law 23
of 1991, Art. 103).
In general, the data on the length of the arbitration process denote high
compliance of the parties with the rules of the process, suggesting collaborative
behavior in their common interest of settling the business dispute. As explained and
exemplified above, parties can “delay” the proceeding by individual actions during the
pre-arbitral phase, and by consensus during the arbitration phase. According to the
evidence, the latter source of delays seems to have a larger effect of increasing the
overall duration of arbitration. Therefore, concurrence among the parties explains the
speed and time necessary to attain the arbitral award, whether within or beyond the
terms established in the rules for arbitration.
When analyzing the 11 disputes that endured the longest, it was possible to
identify common traits and from those to tentatively conclude that the investment
disputes of domestic and foreign large size companies are likely to require longer
arbitration periods. Yet, in 100 (89%) of the 112 cases in the study, the arbitration
concluded in less than 24 months.
82
See case numbers 45, 51, and 83 in my files.
88
To give some perspective to the duration of private commercial arbitration in
Colombia, by comparison the settlement of disputes under NAFTA arbitration has a
range between 29 and 86 months. More particularly, in disputes involving the
government of the United States, the fastest decision took 30 months and the longest
case, still in progress, has 91 months as of May 2009. When the Canadian government
is involved, the shortest case took 29 months, and the longest, still in progress, has 79
months as of May 2009. In disputes involving the government of Mexico, the fastest
dispute was decided in 29 months and the longest in 57 months.
83
Thus 108 (96%) of
the 112 arbitration before the CAC of Bogota Chamber of Commerce, came to a final
decision in less time than the fastest case under NAFTA arbitration.
E. Means of Proof of Evidence Requested
In arbitration proceedings both the active and the passive party may petition
means of proof. Arbitrators not only decide on the admission of evidence but also may
ask for additional means (pruebas de oficio).
Although the number of “pieces” in each means of proof varies greatly among
cases, the types of means of proof are essentially the same across all the arbitration
cases studied. They are: testimony, party interrogation, documentary evidence, judicial
inspection, and expert or professional witness (peritos). There are two kinds of
83
For a list of disputes see Appendix. In contrast to the arbitration cases analyzed in this study, which are
private party-private party disputes, the claims under NAFTA are private investors-state actor disputes.
For complete description of the arbitration process see North American Free Trade Agreement (1992),
Chapter 11. In relation to the arbitration rules governing NAFTA arbitration, the US State Department
affirms: “Investors may initiate an arbitration against the NAFTA Party under the Arbitration Rules of the
United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration
(Additional Facility) Rules of the International Centre for Settlement of Investment Disputes ("ICSID
Additional Facility Rules").” (US Department of State n.d., 1).
89
documentary evidence: 1) documents directly introduced by the parties, and 2) documents provided by third parties through “arbitration summons” (oficios
84
). The use
of experts witnesses in the arbitration is divided by field of expertise.
Table 19. Evidence Introduced in Arbitration
Means of Proof Number of Cases
Judicial Inspection 42
Party Interrogation 85
Testimony 89
Documentary Evidence 154
From parties 107
From subpoenas
(summons) 47
Expert Witnesses 91
Accounting 48
Engineering 25
Finance 23
Economics 10
Translation 4
Architecture 2
Business Administration 1
Naval 1
Taxes 1
Technical 10
84
The arbitration tribunal sends written communications to people or institutions requiring them to
produce books, papers, records and other data to be introduced as evidence. There is no requirement to
appear personally before the tribunal.
90
Figure 13. Number of Cases Utilizing each Means of Proof
42
85
89
154
125
0
20
40
60
80
100
120
140
160
180
Judicial
Inspection
Party
Interrogation
Testimony Documentary
Evidence
Expert
Witnesses
As can be seen in Table 19, the means of proof used most frequently is
documents provided directly by the litigants. It was utilized in 107 cases. 96%. This is
not surprising since the conflicts arose from economic exchanges contained in written
contracts. Except for judicial inspections, in most of the cases, the evidence is
presented, examined, and evaluated in the place where the arbitration tribunal is
functioning. Judicial inspections are like field trips for arbitrators, or site observations.
For instance, arbitrators may go to physically see the object in dispute;
85
or they may
visit the offices of the parties to see their legal books and other documents.
86
This took
place in 42 cases, 38%. In 47 (42%) cases, the arbitration tribunal requested the
production of documents from third parties. Testimonies and party interrogations were
conducted in 89 (79%) and 85 (75%) cases.
85
See case numbers, 3, 41, and 75 in my files.
86
See case numbers 19, 26, 39, 46, 70, 87, and 110 in my files.
91
The use of professional experts was extensive: 125 people were intervened in 91
(82%) cases. Again, this is to be expected, since the disputants are private investors,
protecting their contract and property rights, and involved in private commercial
arbitration. Investors, have the motive, the ability (through the flexibility of the
process), and the material means to bring in quality experts regarding their allegations.
The field of knowledge of the experts hints at the dominance of economic concerns
within the arbitration processes; most of them have an economic background. Eighty-
three of the 125 experts used (66%) came from the fields of accounting, finance,
economics, business administration or taxes, represented by the side bar graph in Figure
14.
Figure 14. Use of Expert Witnesses by Field
20%
3%
2%
1%
8%
18%
8%
1%
1%
66%
38%
Engineering
Translation
Architecture
Naval
Technical
Accounting
Finance
Economics
Business Administration
Taxes
The composition of the evidence requested in private commercial arbitration
suggest the centrality of expert knowledge about the elements of the economic
exchange in settling disputes. However, this expertise does not reside on the arbitrators,
92
who in the process are responsible for interpreting that information and using it to
decide the award. The qualified knowledge and expertise on parts of the economic
transaction comes from expert witnesses, who understand the technical complexity of
some elements of the business interaction. The emphasis on ‘parts’ and ‘some’ is to
indicate that the intricacy of investments is not limited to facts that can be correctly
analyzed from a single field of knowledge. It is the balance of all specialized expertise
plus the arbitrators’ own specialized knowledge that makes private commercial
arbitration a lower transaction costs venue to settle private economic disputes.
The combination of arbitrator expertise,
87
which lies not on the trade/investment
per se but on the contract and laws regulating the investments, and the contributions of
expert witnesses may be one of the features that makes private commercial arbitration
more desirable than state courts for settling disputes. Using the same logic expounded
by Richard Poser in discussing jurors and arbitrators, the area of life arbitrators know
about is commercial contracts, performance of obligations, property rights, and contract
rights (1998, 642). Thus, in private commercial arbitration in Colombia, arbitrators have
access to technical expertise (via expert witnesses) and, given their own high level legal
expertise, they do not have to cover the entire range of civil law to understand the
complexity of the transaction and of the contract governing it (Dixit 2004).
The possibility to use experts as dispute resolvers is often mentioned as one of
the advantages of arbitration over formal judicial tribunals. This is not the situation of
87
The Center for Arbitration and Conciliation, CAC, of Bogotá Chamber of Commerce, has highly
qualified arbitration professionals with expertise in different legal fields. The qualifications to be an
arbitrator are the same as those required to be a justice of the highest courts: Constitutional Court,
Supreme Court, Superior Council of the Judicature, and Council of State (Cámara de Comercio de Bogotá
n.d.)
93
the arbitration processes analyzed here. This study focusing on arbitration in law (en
derecho), which means that the claims are heard before attorneys at law and the parties
are represented by a lawyer. This does not mean, however, that expertise in the
economic sector in which the conflict arose is missing. On the contrary, industry
experience and knowledge enters the process by the parties’ initiative via witness
experts or professional experts. In this manner, both the legal and economic interest of
the litigants are taken into consideration.
The idea of conflicts being decided not by lawyers but by people with
experience in and knowledge of the economic sector or industry in which the difference
arose is perceived, almost immediately, as a positive. However, this perspective might
be ignoring the existence of contracts which create contractual and property rights,
cornerstone legal concepts in a market economy. In this light it is difficult to imagine
how the materialization of property and contract rights (and the strengthening of market
relations) is better served without lawyers deciding contractual economic
controversies.
88
A more accurate and contemporary place of expertise in
commercial arbitration in the United States, is given by CPR Commission member
Harold Hestnes:
Commercial arbitration has evolved along many lines. It has expanded beyond
conventional settings—construction, maritime, insurance, commodities, apparel
industry, and the like—where particular expertise was expected of an arbitrator
and relatively well cabined disputes were anticipated. It now covers commercial
88
There are certainly many experiences of dispute resolution conducted without lawyers and even without
the intervention of a third party. See Ellickson 1991 and Santos 2002. See also the vast literature on legal
pluralism and alternative uses of law published by the Latin American Institute for Alternative Legal
Services or the Law and Society Association. However, many of the experiences in these studies are not
mediated by a contract, are not economic in nature, do not take place in the market, or are searching for
alternative (non capitalist) economic and social relations. The lack of evidence about actual non-lawyers
(laymen) as arbitrators settling market transactions advert that such claim may be an “urban legend.”
94
matters of all possible configurations, including vast, complex matters with high
stakes. It has become virtually indispensable in the international field, where the
home court advantage and forum selection are unattractive disincentives to
litigation as a method for resolving commercial conflicts. These developments
have led to a proliferation of providers, rules and regimes, more involvement by
attorneys, and much more complexity. Arbitration has become a legalistic
method of adjudication. (Stipanowich and Kaskell 2001, 8).
89
Furthermore, it must be recalled that the investors themselves agree (in most
instances by creating the contract governing the economic transaction itself) to submit
any dispute to legal arbitration, whether national or international. There are other, more
specific advantages of using expert witnesses in arbitration over their use in formal
tribunals. First, the parties to arbitration participate actively in the selection of experts.
Second, since the parties pay for the expertise, the budgetary considerations are under
the litigants’ control. Thus, litigants can have access to higher levels of knowledge and
experience. Third, it is expected that the service is rendered more quickly. There are no
delays in the process for awaiting the appointment, acceptance and reports of expert
witnesses, for example. Considering the time needed to request, approve, conduct, and
judge expert knowledge when adjudicating commercial disputes, it could be argued that
arbitration also features reduced transaction costs in this sense.
F. The Monetary Value of Arbitration
How much money is involved in private commercial arbitration? Based on the
data, this question can be answered in three ways: 1) the valuation of the dispute, 2) the
cost of the arbitration tribunal, and 3) the amount of the arbitral award. The first
89
Quoting CPR Commission member Harold Hestnes. Center for Public Resources, CPR International
Institute for Conflict Prevention and Resolution.
95
element complements the information about the economic exchange between the parties
involved the arbitration (see section B. “Profile of Commercial Transaction” above).
Likewise, the valuation of the dispute, along with the second and third elements, also
rounds out the facts about consumers of private commercial arbitration in Colombia
(see section A. “Profile of Arbitration Users” above). The amount of the arbitral award,
besides identifying the winner and loser, also sheds light on the distribution of the
monetary costs between the parties and in some cases reflects the behavior of the
litigants during the course of the proceedings.
The Valuation of the Dispute or the Amount in Dispute
In the arbitration process the complainant party, after expressing its declarative
claims or pretensions due to the alleged violation of its contract and property rights,
generally requests compensation in monetary terms. For this study, the valuation of the
dispute comes from these damages, which were used to create Table 20.
96
Table 20. Monetary Value of the Disputes
For 13 cases there was no data on monetary
claims: the documents available did not contain any
information that could be used to draw conclusions
about the value of the dispute.
90
These 13 cases are
excluded from the statistics on the value of the claims.
Consequently instead of 112 arbitration cases, this
section has sample data of 99 arbitration tribunals.
The two highest valued disputes, one for
US$40 million and another for US$250 million, have
the same two litigants, but in reversed roles as
complainant and contestant. The purchase/sale of a
financial institution was the economic exchange that
gave raise to the controversy for both processes.
91
Of the 99 tribunal proceeding, 27%
were valued at over US$1 million, 40% valued US$500,000 or more, valuation of
claims higher than US$100,0000 made up 69% of the cases and claims higher than
US$20,000 comprised 92% of the disputes. As shown in Figure 15, only 8% of the
controversies were valued below US$20,000 and just 4% had businesses differences
valued at less than US$10,000. To provide some perspective for these figures in relation
to the Colombian economy, consider that the monthly legal minimum salary in 2007
90
For instance, there was no indication of arbitrators’ salaries or the Center’s administrative costs, which
can be used to determine a controversy’s monetary value since both are a percentage of the money in
dispute. For 10 cases in the study, it was necessary to utilize to this method to determine the material
value of the controversy.
91
See case numbers 96 and 97 in my files.
Value of the
Dispute,
in thousands of
US$
Number
of Cases
Undetermined 13
Below 11 4
11 to 20 4
21 to 50 13
51 to 100 10
101 to 250 18
251 to 500 10
501 to 1,000 13
1,000 to 2,000 9
2,000 to 5,000 10
5,000, to 10,000 4
15000 2
40000 1
250000 1
Total 112
97
(the last year of data for the study) was 433,700 Colombian pesos. This corresponds to
US$192
92
monthly, for an annual income of US$2,304. In other words, even the lowest
award amounts are very high.
Figure 15. Percent of Cases for each Monetary Value of the Dispute
0% 5% 10% 15% 20%
Less than $11,000
$11,000 to $20,000
$21,00 to $50,000
$51,000 to $100,000
$101,000 to $250,000
$251,000 to $500,000
$501,000 to $1 million
$1 to $2 million
$2 to $5 million
$5 to $10 million
$15 million
$40 million
$250 million
The Cost of the Arbitration Tribunal
The cost of the arbitration tribunal refers to the money investors must pay to
settle the dispute utilizing this venue. Costs include compensation for the arbitrators and
secretary, administrative expenses
93
paid to the CAC, payments to expert witnesses and
other obligations associated with the collection of evidence, and lawyering costs.
92
Utilizing Banco de la República US dollar-Colombian peso exchange rate 2,259.72 from January 2007
(www.banrep.gov.co).
93
These two costs are regulated by law, Decree 4089 of 2007 (Ministry of Justice 2007) and by the
CAC’s own regulations, Reglamento del CAC(Cámara de Comercio de Bogotá 2007). The amounts are
based on the economic allegations of the controversy.
98
Table 21. Cost of Arbitration
For 23 of the private commercial
controversies it was not possible to identify the
total costs of the proceedings. These cases are
dropped from the sample for this section, leaving
89 cases. Of those 89 cases, 76% (n= 68) of the
litigants paid more than US$10,000 for
arbitration. Doubling that, 64% (n= 57 ) spent
over US$20,000 in arbitration expenses. In fact,
almost half of the arbitration cases, 46 (n= 41) exceeded US$50,0000, and more than a quarter of the proceedings (28%, n= 25), cost
over US$100,0000. The “price” of arbitration was higher than US$250,000 dollars for
over 13% of the cases, while only 3% had a cost lower than US$2,000.
Cost of Tribunal,
in thousands of US$
Number
of Cases
Undetermined 23
1 to 2
3
2 to 10 18
11 to 20 11
21 to 50 16
51 to 100 16
101 to 250 13
251 to 500 8
501 to 1000 2
1000 to 2000 1
More than 2000 1
Total 112
99
Figure 16. Cost of Arbitration
0
2
4
6
8
10
12
14
16
18
Number of Cases $1000 to $2000
$2,000 to $10,000
$11,000 to $20,000
$21,000 to $50,000
$51,000 to $100,000
$101,000 to $250,000
$251,000 to $500,000
$501,000 to $1 million
$1 million to $2 million
More than $2 million
Size of the Award
The arbitration award contains the ruling of the arbitrators on, usually, all the
courses of action and exceptions argued by the parties. As in the initial claim, the award
contains a declarative part and its corresponding monetary complement. In the former,
arbitrators declare; in the latter, arbitrators sentence to pay. Using the monetary section
of the data on awards, the Table 22 organizes the arbitration cases by award amount.
100
Table 22. Monetary Amount of Arbitral Awards
There is no monetary component in 19% of the
awards (21 cases) for one of two reasons: 1) all of the
plaintiff’s causes for actions were unsuccessful and the
tribunal ruled in favor of the defendant or 2) there were
no monetary pretensions in the initial claim and the
petitioner requested only declarative outcomes. These
21 contractual relations are set excluded from the
comparative data on the monetary amounts of
arbitration awards.
Figure 17 illustrates the range and percentages
of arbitral awards by award level. The defeated party was ordered to pay more than
US$1 million in 16% of the settlements (15 cases). The 3 highest awards (3% of the
cases), each of more than US$15 million, are related contracts about investments in
telecommunications and financial assets.
94
There are awards higher than US$250,000 in
38 resolutions, 42% of cases. More than half of the awards (51%, n= 46) surpassed
US$101,000; 65% (n= 59) have awards of more than US$51,000; 80% (n= 73) were
over US$21,000; and 85% (n= 77) were higher than US$11,000. In the remaining
15% of settlements, the loser paid less than US$10,000.
94
See case numbers 49, 96, and 97 in my files.
Amount of the
Award, in
thousands of US$
n
Not Applicable 21
Below 10 14
11 to 20 4
21 to 50 14
51 to 100 13
101 to 250 8
250 to 500 17
500 to 1000 6
1000 to 2000 4
2000 to 5000 7
5000 to 10,000 1
15,000 to 25,000 2
More than 25,000 1
Total 112
101
Figure 17. Monetary Distribution of Arbitral Awards
0.0% 5.0% 10.0% 15.0% 20.0%
More than $25 million
$15 million to $25 million
$5 million to $10 million
$2 million to $5 million
$1 million to $2 million
$501,000 to $1 million
$251,000 to $500,000
$101,000 to $250,000
$51,000 to $100,000
$21,000 to $50,000
$11,000 to $20,000
Less than $10,000
Distribution of Costs between Litigants
How were the costs of arbitration distributed by the arbitrators between
plaintiffs and defendants? In deciding the distribution of the costs of the arbitration
tribunal, the central concerns that the arbitrators take into account are which party the
decision favored, and the balance between litigants’ claims (plaintiff’s course of action
versus contestant’s defenses). The bill goes to the defeated party. “The losing party
would be sentenced to pay the cost of the process” (Colombian Civil Procedural Code,
Art. 392). However, the decision is not always a ‘looser-pays-all’ outcome.
Determining the balance of claims decided in favor of each party is not just a
numerical matter. It has analytical elements as can be noted in this arbitrator’s
statement: “Although most of the plaintiff’s claims were unsuccessful, those that were
successful are qualitatively more important” (Case number 57, n.p.). In this case, the
defendant was sentenced to pay 75% of the expenses. In addition to whose pretension
102
are successful, other variables are considered in the final distribution of expenses,
mainly the antagonists’ “fair play” during the process. As there is no set definition of
“fair play,” I provide examples from the arbitration cases to help to clarify this concept.
The following examples are some actions considered contrary to the concept of “fair
play:”
1) The number of causes of action versus the number of those deciding in favor.
Arbitrators may assess the balance between the total number of the claimant’s
allegations and those decided in the claimant’s favor. An imbalance on the side of the
number of claims is punished with a share of the arbitration bill. For instance, in case
number 9, all the decisions were against the defendant, yet of the 24 pretensions alleged
by the plaintiff, only 5 were decided in his favor “For this reason, plaintiff is sentenced
to pay 20% of tribunal’s costs” (n.p.).
2) The amount of the award is well below the monetary claims. Although all the
pretensions were decided in favor of the petitioner in case number 91, the petitioner was
sentenced to cover 25% of the costs because the amount of the award was well below
that of the initial claim. Recall that part of the arbitration costs (arbitrators, secretary,
and administration) is a percentage of the monetary claims. Excessive monetary claims
raise the price of arbitration and unjustifiably punish the defeated party.
3) Negative procedural conduct. In these cases, even though some plaintiff’s
pretensions may be successful, arbitrators do not divide the costs accordingly.
Arbitrators can and do order the defendant to pay all the expenses due to his/ her
procedural behavior.
The procedural conduct of the defendant deserves some comment. While in the
pre-arbitration phase the defendants participated actively with preliminary
exceptions [dilatory defense] and requests of suspensions, in the arbitration
phase they abandoned procedural action...The conduct of the defendants’
attorney is also reproachable. She/ he was not prepared for his/ her duty of
answering the tribunal’s questions during the party interrogation, She/ he eluded
without foundation the suggested questions. For this tribunal that behavior is
evidence against that society. (Case number 38, n.p.).
The tribunal must reproach the tactics of the defendant’s attorneys of avoiding
personal notifications and waiting for public means of notification, with the
objective of delaying and prolonging the process without reason... The careless
103
preparation of the contestant’s attorney in the party interrogation...and his/ her
absence in the conciliation hearing must also be reproached. ... These elements
are to be reflected in the tribunal’s decision about the costs of the arbitration
against the defendant. (Case number 41, n.p.).
It may be inferred that the tribunal’s margin of discernment for the distribution
of arbitration expenses are constrains and/or incentives that condition parties’
preferences on both the substantive claims and their procedural conduct towards a more
“collaborative” effort or at less one free of behavior against fair play. In other words,
distorted information (e.g. excessive numbers of claims or defenses, unrealistic
monetary valuation of the dispute) and opportunistic procedural behaviors (e.g. acting
diligently only in certain procedures, refusing to cooperate, being unprepared) obscure
the proceedings and the content of property and contract rights, delay the process, and
ultimately increase transaction costs. Monetary punishment is aimed at eliminating or
reducing those conducts.
By altering the trade-offs of unfair practices, the partition of arbitration costs
promotes a more genuine representation of the economic disputes and more
collaborative conduct during the settlement. This in turn reduces transaction cots and
favors improved enforcement of contract and property rights, the ultimate goal.
In Table 23, the arbitration cases were clustered according to the distribution of
arbitration costs in the following sets: Complainant pays nothing (CPN), complainant
pays less (CPL) complainant pays the same (CPS), complainant pays more (CPM), and
complainant pays all (CPA).
104
Table 23. Allocation of Arbitration Cost between Parties
Proporttion Paid by Complainant n
CPN 25
CPL 26
CPS 33
CPM 11
CPA 17
Total 112
Complainant pays nothing (CPN) means that in 25 cases (22% of the disputes) the plaintiff was successful in all his or her causes of action, and that arbitrators did not
find any reason to make the winner responsible for part of the arbitration costs.
Complainant pays all (CPA) means than in 17 cases (15% of the controversies), the
arbitrators’ decision favored the defendant completely, and that there were no actions
during the process to punish the winner with some percentage of the bill. Complainant
pays less (CPL, 23%, n= 26)) and complainant pays more (CPM, 10%, n= 11) signify
that the plaintiff’s claims were more or less successful, respectively, than those of the
contestant (or than the defense mechanisms of the contestant).
For the 33 arbitration cases (29%) for which the tribunal ruled that the parties
pay the costs of the process equally,
95
both pretensions and defense mechanisms were
partially successful
96
and that the arbitrators applied the Civil Procedural Code article
392, No. 5, “...in the event that pretensions succeed partially, the judge may abstain
95
Actually, arbitrators do not decide on equal payment of arbitration expenses in these terms. Generally,
arbitrators make statements like “the tribunal abstains from sentence on costs” or “Each party pays its
own costs” or “Without costs.” When any of these phrases is used each party pays 50% of the process
costs (which the parties already deposited at the beginning of the process) and that each litigant pays its
own lawyer. That is, the tribunal does not order reimbursements nor payment of legal expenses.
96
For examples see, among others, case numbers 2, 11, 28, 46, and 63 in my files.
105
from ruling on costs....” It is not the intent of this analysis to specify the decision on
each claim and exception nor the percentage of arbitration cost assigned to each party.
Figure 18. Distribution of Arbitration Costs to the Complainant Party
0
5
10
15
20
25
30
35
Number of cases
CPN CPL CPS CPM CPA
These results also suggest the neutral character of arbitration. Examination of
the process costs assessment between the litigants indicates strong neutrality of
arbitration in settling disputes arising from private economic exchanges. Not only did
causes of action and defense mechanism tie (prosper partially) in 29% of the
commercial disputes (CPS), but also the defendant’s exceptions and other defenses were
relatively more successful than the plaintiff’s claims in 10% of the proceedings (CPM) and succeeded absolutely in 15% of the controversies (CPA).
On a more abstract level, it is safe to say that both contract rights and property
rights were upheld. Enforcement of these rights has nothing to do with arbitration
tribunals, nor any court or other dispute settlement body, ruling in one’s favor. The
arbitration award is the final decision of the tribunal. It resolves issues present in
106
business and/or contractual relationships, and [re]determines the rights and obligations
of each party. The arbitrators in the case no. 49 argue about their role:
In order to start the factual and legal analysis of the economic transaction and its
contract, it is necessary to eliminate some elements which do not contribute to
this task; on the contrary, they have served as distractors of the central issue. As
it happens frequently in business disputes, the parties insist in obscuring the
reality of their legal relationship by ultra-defending positions that do not resist
any logical analysis. (Case number 49, n.p. lines 405-411) Ideally, parties would adopt a positive course of action and avoid obscuring
tactics. As illustrated above, however, this is not always the case. Even knowing the
trade-offs, investors might still prefer distracting lawyering. In the end, the arbitral
award settles the dispute and it cannot be appealed. Should the losing party choose to
ignore the settlement, the other party has the recourse to initiate an “executive
process
97
” (proceso ejecutivo) to enforce compliance.
However, this eventuality has nothing to do with the private commercial
arbitration process, or its settlements. An executive process might also become
necessary for international commercial arbitration awards. Colombia committed to
enforce international commercial arbitration awards when it ratified the New York
Convention
98
in September 1979.
99
Katherine Lynch refers to the dependency of
international commercial arbitration on domestic courts:
[T]he regime of international commercial arbitration remains heavily embedded
within national legal systems and national courts and their legislation plays an
97
This legal process can also be called execution process or summary debt collection proceedings.
98
UNCITRAL’s 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
99
Colombia will apply the Convention only to the recognition and enforcement of awards made in the
territory of another contracting State. More recently, in November 1990, the Colombian Congress
approved the New York Convention (Colombian Congress 1990).
107
important role within the international arbitral process. International arbitration
depends upon the substantial and reliable state support: national courts are the
critical line of defense against attempts to frustrate an arbitration. (2003, 167).
Attempts to sabotage decision settlements are not exclusive to arbitral awards.
Any court sentence may face recalcitrant defeated litigants. The solution for all of them
is one and the same: an executive process. In Colombia, arbitral awards, both domestic
and international, have the same legal standing as any final court decision: they have
executive merit (merito ejecutivo), meaning that courts will enforce the unfulfilled
obligations it contains.
100
G. Demand for Arbitration in Recent Years
To identify the historical trend of the demand for private commercial arbitration,
the number of arbitration settlements is presented by year. Additionally, the data is
clustered into periods of 5 years, except for the first and last groupings. The first group
corresponds to cases “before 1990” and starts with a proceeding from 1987
(chronologically, the first case that met the selection criteria for this study). The last
cluster covers only the years 2006 and 2007, the last year for which data was available.
Also, a more comprehensive CAC data set is used to further substantiate the trend.
100
By comparison, court-annexed arbitration awards under US law have a more uncertain standing and
they are not necessarily the final decision. For instance, the Alternative Dispute Resolution Act of 1998
Section 657 states: “Arbitration award and judgment (a) FILING AND EFFECT OF ARBITRATION
AWARD. An arbitration award made by an arbitrator under this chapter, along with proof of service of
such award on the other party by the prevailing party or by the plaintiff, shall be filled promptly after
arbitration hearing is concluded with the clerk of the district court that referred the case to arbitration.
Such award shall be entered as the judgement of the court after the time has expired for requesting a
trial de novo. The judgement so entered shall be subject to the same provisions of law and shall have the
same force and effect as a judgement of the court in a civil action, except that the judgment shall not be
subject to review in any other court by appeal or otherwise.” (United States Congress 1998). (Emphasis
added).
108
Finally, for comparative purposes, data on commercial cases filed with the American
Arbitration Association is included.
Table 24. Demand for Arbitration, 1987-2007
Year n
1985 1
1989 1
1991 2
1992 0
1993 5
1994 2
1995 3
1996 4
1997 5
1998 5
1999 4
2000 5
2001 10
2002 12
2003 11
2004 11
2005 13
2006 9
2007 9
Total 112
109
Figure 19. Arbitration Demand by Lustrum
0
10
20
30
40
50
60
Before 1990 1990 -1995 1996 - 2000 2001 - 2005 2006 - 2007
Number of cases
Although in Colombia the possibility of settling private commercial disputes
through arbitration existed long before the creation of the Center for Arbitration and
Conciliation of the Bogotá Chamber of Commerce in 1984,
101
only 4 cases heard before
the CAC between 1984 and 1992 passed the selection criteria for this study. This
suggests that dominant gains in acceptance of arbitration as a mean to settle private
commercial disputes occurred in 1993 and after. This finding coincides with new
legislation tending towards institutional modernization of the state in general, and
administration of justice in particular, including arbitration.
102
At the core of the
modern legal frame work is the Political Constitution of 1991.
103
101
In 1969, the Colombian Supreme Court stated: “Should arbitration be of private character, it cannot be
considered unconstitutional, as this mechanism to settle dispute of mere private law, over abdicable
rights, is neither expressly nor tacitly prohibited by the Constitution (Sentence of May 29, 1969).
102
The move towards actual use of arbitration is not circumscribed to Colombia. In 1998, Paul Constance
wrote, “Although laws codifying the validity of some kind of ADR have existed in nearly all the region's
countries for most of this century, in practice very few companies or individuals have chosen this option.
During the last six years, however, a wave of interest in ADR has led two-thirds of the region's countries
to either overhaul old laws concerning ADR or draft new ones, and dozens of new arbitration and
conciliation centers have opened their doors.” (1998, n.p.).
110
From 2003 forward there is an ascending demand for commercial arbitration
before the CAC of the Bogotá Chamber of Commerce. If data for 2006-2007 were
averaged conservatively over a 5 year period, a slight decline in demand would still be
noted (45 cases, as compared to 57 in the 2001-2005 period). However, the steady
growth or stability in demand for arbitration finding is affirmed by complementary data
provided by the Center for Arbitration and Conciliation. According to more inclusive
CAC data, the total number of arbitration cases in all legal fields (administrative, civil,
commercial, and labor law), and in commercial law in particular, has the following
yearly distribution between 1999 and 2006.
104
Table 25. Demand for Arbitration in CAC, 1999-2006
Year Arbitration in All
Legal Fields
Commercial
Arbitration
Percentage of
Total
1999 172 101 59%
2000 263 68 33%
2001 217 66
30%
2002 201 72 36%
2003 191 96 50%
2004 196 108 55%
2005 225 116 52%
2006 205 119 58%
103
For the Colombian legislation related to arbitration and other alternative dispute resolution
mechanisms, see Chapter 4 in this dissertation.
104
Data provided by Rafael Bernal Gutierrez, director of the Center for Arbitration and Conciliation,
during a personal interview. Data and complete interview in my files. At the time of the interview, the
CAC did not have consolidated information for earlier years.
111
Figure 20. Demand for Arbitration in CAC, 1999-2006
0
50
100
150
200
250
300
1999
2000
2001
2002
2003
2004
2005
2006
Year
Number of cases
Arbitration in All Legal
Fields
Commercial
Arbitration
Commercial
Arbitration as a
Percent of Total
Table 25 and Figure 20 show not only a increasing trend in the number of
commercial arbitration cases, but also an increasing percentage in comparison to
arbitration in other legal fields. Similar trends can be identified for international
commercial arbitration. Although reliable statistics on the volume of international
commercial arbitration are often difficult to obtain (given the private nature of the
process) the volume of arbitration conducted by the International Chamber of
Commerce Court of Arbitration is indicative of the growth of arbitration. The numbers
of new requests for arbitration filed at the ICC Court of Arbitration has increased ten-
fold since the 1960’s. In 2008 the ICC Court of Arbitration received 663 requests for
arbitration involving 1,758 parties from more than 120 states compare with 250 requests
in 1980 (ICC 2008, n.p.).
105
105
Incidentally, the amount in dispute exceeded US$1 million dollars in 72.5% of the new cases,
compared with 49% of the cases in 1999. (ICC 2008).
112
In the context of the United States, for the most part, the American Arbitration
Association caseload data presents slow and steady growth or stability in demand for
commercial arbitration (See Table 26). In fact, “[Commercial arbitration] case filings
gradually increased from about 1,000 cases in 1960 to more than 17,000 in 2002”
(Stipanowich 2004, 873).
Table 26. American Arbitration Association Commercial Cases Filed 1997–2002
Year n
1997 13,813
1998 15,232
1999 16,822
2000 17,791
2001 17,297
2002 17,105
Source: American Arbitration Association, Department of Case Administration (Stipanowich 2004).
Figure 21. Number of Commercial Cases Filed with American Arbitration
Association, 1997-2002
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1997 1998 1999 2000 2001 2002
Year
Number of cases filed
113
Increasing numbers of commercial arbitration proceedings, both domestic and
international, is one factor that points to the centrality of arbitration as one of the
preferred means to settle economic disputes in the context of globalized capitalism.
Some of the features of the globalized economy are: dominance of market economies,
increased lead and leverage of multinational corporations, market-supportive role of the
state in the economy, technological advances in information transfer and computing
networking, proliferation of bilateral and multilateral investment and free trade
agreements, and increasing exposure to foreign counterparts, even by small domestic
businesses and individual entrepreneurs. This process brings with it new and more
intricate investments or economic transactions, and their ensuing contracts, disputes,
and demand for dispute settlements, are equally complex.
106
In her study about the challenges that globalization presents to international
commercial arbitration, Katherine Lynch states:
Since the 1970’s there has been an increase in both the size and complexity of
international business transactions which tend to be multiparty, of long term
duration, and deal with complex technologies and sophisticated financing
arrangements (e.g. agency and distributorship, licensing and transfer of
technology agreements involving high tech and patents, joint ventures and
construction of engineering projects. (2003, 1).
The examples of economic transactions cited by Lynch, are matched in the
investments and contracts of the 112 private commercial arbitration cases analyzed in
this study (see section B. Profile of the Commercial Transaction, above). The
congruence of both business exchanges and the venue for the settlement of commercial
106
For a discussion of the increasing complexity of business transactions in the context of the
globalization of the economy see Christian Buhring-Uhle et al. 2006.
114
disputes at Colombia’s domestic level and at the international level should not be
doubted. It is symptomatic of the contemporary relationship between economics and
law at the structural level in Colombia -- and in the rest of the world.
107
In a critical discussion about contemporary interests in the “Rule of Law” and
economic development, Trubek affirms that they take place in the context of neoliberal
market policies, increased international trade and world economic integration, and the
realization and spread of the idea that certain regulatory changes are required to secure
institutional conditions for markets (2006).
It is in this context where real demand for “new” venues to settle private
economic controversies outside the formal courts increases and gains acceptance. It
seems more than appropriate not only to mention but also to assign central stage to
arbitration (and other ADRMs) when studying legal institutions and private economic
interests. There is an extensive variety of legal institutions and it might be argued that
all of them have an effect on the economy and economic development. This argument
would make any distinctions among legal institutions irrelevant and unnecessary. It
makes more sense, such an argument might continue, to attain data that prompts cross
national comparative studies.
However, despite the dominance of that approach to studying the relationship
between legal institutions and economic interests, it has not contributed much to a better
understanding of the interplay between law and economics. One of the reasons for this
may be that studies born from this perspective have not realized that the approach is
107
For a discussion, at a more abstract level, about the historical interplay between law and economics
see Teubner (1997), Campbell and Piciotto (1998) and Jessop (2003).
115
missing a crucial element: an understanding of law, in general, and legal institutions in
particular. This has created confusion about even the most basic legal terms. It is not
surprising that the most recent studies attempt to get some legal concepts straight (Tiede
2006; Haggard, MacIntyre, and Tiede 2008), and that others even question the
contribution of studies based on the dominant cross-national comparative approach
(Rodrik 2006, Dixit 2006, Haggard, MacIntyre, and Tiede 2008). There seem to be a
growing consensus that the time is overdue to introduce some stratification of legal
institutions that matter most to private economic interests, and to study the actual
functioning of key legal institutions in the discussion of their role in economic
development.
This study was conceived in this path. It set the discussion about legal
institutions and private economic interests in the context of a specific institution: private
commercial arbitration; in the context of a precise function for that institution: the
settlement of private business disputes; in the context of a country: Colombia; utilizing
primary data: 112 private commercial arbitration cases. Finally, the whole analysis was
guided by a particular role assigned to institutions: that of reducers of transactions costs.
However, that delimited setting of this research did not limit the conclusions and
implications of the study to only those cases. Throughout the thesis I drew different
conclusions and implications, not only circumscribed to the elements at hand, but also
expanded to higher levels of the interaction linking legal institutions and economic
transactions. Each section has contains its corresponding conclusions.
I want to close this chapter by referring to the opening quote. Throughout this
thesis arguments and evidence have been presented to illustrate the advantages of
116
private arbitration over public courts in settling private commercial controversies.
Those advantages serve the interests of investors since their more direct involvement in
the proceedings, among other features, increases efficiency and reduces transactions
costs in relation to the enforcement of property and contractual rights. Yet commercial
arbitration governing market disputes is far from a congenial place. Contemporary
commercial arbitration covers all sorts of complex investments with high stakes.
Evolution towards greater attorney involvement and much more complexity is expected
(Stipanowich and Kaskell 2001). The arbitrators in one of the cases sound the alert
about the tendency of investors to recall reality in their own terms, “As it happens
frequently in business disputes, the parties insist in obscuring the reality of their legal
relationship by ultra-defending positions that do not resist any logical analysis” (Case
number 49, n.p. lines 410-411). Thus both the complexity of the investments and
lawyers ‘doing their job’ in private commercial arbitration proceedings may
increasingly resemble the public legal system which Alan Shore describes in the
opening quote of this chapter. However there is one substantial difference: the
arbitration process is driven by private investors. Thus, research about the presence of
certain legal institutions in an economy may be complemented by researching the use
and behavior of business people within those institutions. In other words, the efficiency,
predictability, and stability of institutions may be affected by investors themselves.
They are an integral part of the institutional framework of the country within which they
do business.
117
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Appendix A
List of Codes
______________________________________________________________________
HU: Sanabria’s Masters Thesis
File: [C:\Atlas\Sanabria’s Dissertation.hpr5]
Edited by: Super
Date/Time: 06/23/09 10:28:12 AM
______________________________________________________________________
001- Primary sector
001- Secondary sector
001- Tertiary sector
01- Administrative Services
01- Agriculture, Forestry, Fishing and Hunting
01- Arts, Entertainment and Recreation
01- Construction
01- Finance and Insurance
01- Health Care and Social Assistance
01- Information
01- Manufacturing
01- Mining, Quarrying, and Oil and Gas Extraction
01- Other Services
01- Professional, Scientific and Technical Services
01- Real Estate and Rental and Leasing
01- Retail Trade
01- Transportation and Warehousing
01- Utilities
01- Whole Sale Trade
02- Domestic
02- Domestic/Foreign
02- Foreign
02- Two Colombians
02- Two Foreigners
02.1- Large
02.1- Medium
02.1- Small
02.2- Individual investors
03-Affreightment (Fletamento) 03-Partnership Agreement (Asociación) 03-International Financial Leasing (Arrendamiento Financiaero) 03-Cession of Rights (Cesión de Derechos) 03-Commercial Agency (Agencia Comercial) 03-Concession Contract (Conseción) 03-Distributorship (Distribución) 03-Idiosyncratic (Innominado, Atípico)
131
03-Insurance (Seguro) 03-Real Estate Lease Agreement (Arrendamiento Inmobiliaria) 03-Turnkey (Llave en Mano) 03-Construction (Obra) 03-Power Purchase Agreement
03-Promissory Sales Agreement (Promesa de Compraventa) 03-Purchase/Sale of goods (Compraventa) 03-Purchase/Sale of services (Compraventa) 03-Purchase/Sale Real State (Compraventa de Finca Raiz) 03-Supply Contract (Suministro) 03-Transportation/Shipping (Transporte) 03-Transaction Contract (Transacción) 03.1- Administrative Services
03.1- Agriculture, Forestry, Finishing and Hunting
03.1- Arts, Entertainment and Recreation
03.1- Construction
03.1- Finance and Insurance
03.1- Health Care and Social Assistance
03.1- Information
03.1- Manufacturing
03.1- Mining, Quarrying, and Oil and Gas Extraction
03.1- Other Services
03.1- Professional, Scientific and Technical Services
03.1- Real Estate and Rental and Leasing
03.1- Retail Trade
03.1- Transportation and Warehousing
03.1- Utilities
03.1- Whole Sale Trade
04- Long term +5y
04- Medium term 1 to 5y
04 - Short term -1y
04.1- Recurrent-Multiple
04.1- Sporadic/1 time
05- Towards the beginning
05- Towards the end
05- Towards the middle
05.1- Relation had ended
05.2- Relation ends
05.3- Relation continues
06- Contract Execution
06- Contract Implementation and Liability
06- Contract Interpretation
06- Contract Settlement (Liquidación) 06- Contract Termination
06- Economic Disequilibrium
132
06- Indemnify (Loss and Damages) 06- Payment of Obligations
07- Moral Hazard
07- Opportunism
07- Abuse of Economic Power or Dominant Position
07 - Third Party Issues
07 - Unforeseen Contingencies
08- Exceptions 0
08- Exceptions 01
08- Exceptions 02
08- Exceptions 03
08- Exceptions 03
08- Exceptions 04
08- Exceptions 05
08- Exceptions 06
08- Exceptions 07
08- Exceptions 08
08- Exceptions 09
08- Exceptions 10
08- Exceptions 11
08- Exceptions 12
08- Exceptions 13
08- Exceptions 14
08- Preliminary Exceptions
08- Counterclaim
09- Arbitration Clause
09- Compromise (Compromiso) 09- Both
09- Reform to Arbitration Clause
09- 1Arbitrator
09- 3Arbitrators
10.1- Day of the Filing of the Demand-
10.2- Day of the First Arbitration Hearing-
10.3- Day of the Decision Hearing-
11- Overall 06m
11- Overall 07m
11- Overall 08m
11- Overall 09m
11- Overall 10m
11- Overall 11m
11- Overall 12m
11- Overall 13m
11- Overall 14m
11- Overall 15m
11- Overall 16m
133
11- Overall 17m
11- Overall 18m
11- Overall 19m
11- Overall 20m
11- Overall 21m
11- Overall 23m
11- Overall 24m
11- Overall 26m
11- Overall 27m
11- Overall 28m
11- Overall 29m
11- Overall 33m
11- Overall 37m
11- Overall 39m
11- Overall 47m
12- D2FH 02m
12- D2FH 03m
12- D2FH 04m
12- D2FH 05m
12- D2FH 06m
12- D2FH 07m
12- D2FH 08m
12- D2FH 09m
12- D2FH 10m
12- D2FH 11m
12- D2FH 13m
12- D2FH 14m
12- D2FH 15m
12- D2FH 16m
12- D2FH 18m
12- D2FH 20m
12- D2FH 28m
13- FH2DH 01m
13- FH2DH 02m
13- FH2DH 03m
13- FH2DH 04m
13- FH2DH 05m
13- FH2DH 06m
13- FH2DH 07m
13- FH2DH 08m
13- FH2DH 09m
13- FH2DH 10m
13- FH2DH 11m
13- FH2DH 12m
13- FH2DH 13m
134
13- FH2DH 14m
13- FH2DH 15m
13- FH2DH 17m
13- FH2DH 18m
13- FH2DH 19m
13- FH2DH 20m
14- Suspensions 0
14- Suspensions 01m
14- Suspensions 02m
14- Suspensions 03m
14- Suspensions 04m
14- Suspensions 05m
14- Suspensions 06m
14- Suspensions 08m
14- Suspensions 09m
14- Suspensions 10m
14- Suspensions 11m
14- Suspensions 12m
14- Suspensions 15m
14- Interruptions
14- Extensions
15- Documentary
15- Documentary Subpoenas
15- Judicial Inspection
15- Party Interrogation
15- Witnesses interrogation
15- Professional or Expert Witnesses (Peritos) 15.1- Expert Business Administration
15.1- Expert Architecture
15.1- Expert Accounting
15.1- Expert Economics
15.1- Expert Finance
15.1- Expert Engineering
15.1- Expert Naval
15.1- Expert Technical
15.1- Expert Translation
16- Dispute to be determined
16- Dispute1 -10K
16- Dispute2 11K to 20K
16- Dispute3 21K to 50K
16- Dispute4 51K to 100K
16- Dispute5 101K to 250K
16- Dispute6 251K to 500K
16- Dispute7 500K to 1M
16- Dispute8 1M to 2M
135
16- Dispute8 2M to 5M
16- Dispute9 +5M
16- Dispute91 +15M
16- Dispute91 +40M
16- Dispute91 250M
17- Arbitration Undetermined
17- Arbitration1.
17- Arbitration2
17- Arbitration3
17- Arbitration4
17- Arbitration5
17- Arbitration6
17- Arbitration7
17- Arbitration8 +500K
17- Arbitration9 1M
17- Arbitration9 2M
18- Plaintiff pays nothing
18- Plaintiff pays all
18- Plaintiff pays less than defendant
18- Plaintiff pays more than defendant
18- Plaintiff pays same as defendant
19- Award N/A
19- Award1 -10
19- Award2 11 to 20
19- Award3 21 to 50
19- Award4 51 to 100
19- Award5 101 to 250
19- Award5 251 to 500
19- Award6 501 to 1M
19- Award7 1M to 2M
19- Award8 2M to 5M
19- Award8 5M to 10M
19- Award9 +15M
19- Award9 +25M
20- Cases between 1991 to 1995
20- Cases between 1996 to 2000
20- Cases between 2001 to 2005
20- Cases between 2006 to 2007
20- Cases Before 1990s
END.
136
Appendix B
Code Book
Parties to the arbitration. This set of codes gives information about the plaintiff and
the defendant. It includes the economic sector of the companies, based on stage in
production chain and according to the North American Industry Classification System
(NAICS). It also distinguishes between domestic and foreign businesses as well as their
size, based on their assets. In short, these codes help to define the profile of the
investors using arbitration.
Economic Sector Code each firm individually.
001-Primary-Firm extracts or harvest products. Examples: Agriculture, mining,
forestry, farming, grazing, hunting and gathering, fishing, and quarrying.
001-Secondary-Firm manufactures finished goods. Also known as the industrial sector.
001-Tertiary-Firm provides services to the general population and business. Also know
as service sector.
Code each party to the arbitration individually according to the North American
Industry Classification System (NAICS). This grouping is not only more detailed, but
also it is more in tune with current globalized and internationalized economic relations.
01-Administrative Services-Firms primarily engaged in providing a range of day-to-
day office administrative services, such as financial planning, billing and record
keeping, personnel, and physical distribution and logistics.
01-Agriculture, Forestry, Finishing and Hunting- Establishments primarily engaged
in growing crops, raising animals, harvesting timber, and harvesting fish and other
animals from a farm, ranch, or their natural habitats.
01-Arts, Entertainment and Recreation- Firms that operate facilities or provide
services to meet varied cultural, entertainment, and recreational interests of their patrons
01-Construction- Establishments primarily engaged in the construction of buildings or
engineering projects (e.g., highways and utility systems), in the preparation of sites for
new construction, and in subdividing land for sale as building sites. Construction work
includes new work, additions, alterations, or maintenance and repairs.
01-Finance and Insurance- Companies primarily engaged in financial transactions
(transactions involving the creation, liquidation, or change in ownership of financial
assets) and/or in facilitating financial transactions.
01-Health Care and Social Assistance. Self-explanatory.
137
01-Information- The main components of this sector are the publishing industries,
motion picture and sound recording industries, broadcasting industries,
telecommunications industries, Web search portals, data processing industries, and
information services industries.
01-Manufacturing-The manufacturing sector comprises establishments engaged in the
mechanical, physical, or chemical transformation of materials, substances, or
components into new products.
01-Mining, Quarrying, and Oil and Gas Extraction- Establishments primarily
engaged in growing crops, raising animals, harvesting timber, and harvesting fish and
other animals from a farm, ranch, or their natural habitats.
01-Other Services- Comprises establishments engaged in providing services not
specifically provided for elsewhere. It includes activities such as repairing equipment
and machinery, providing dry cleaning and laundry, personal care, death, pet care,
photo-finishing, temporary parking, security, and dating services.
01-Professional, Scientific and Technical Services- These activities require a high
degree of expertise and training. Activities performed include: legal advice and
representation; accounting, bookkeeping, and payroll services; architectural,
engineering, and specialized design services; computer services; consulting services;
research services; advertising services; photographic services; translation and
interpretation services; veterinary services; and other professional, scientific, and
technical services.
01-Real Estate and Rental and Leasing- Companies primarily engaged in renting,
leasing, or otherwise allowing the use of tangible or intangible assets, and
establishments providing related services.
01-Retail Trade-The retailing process is the final step in the distribution of
merchandise. Retailers are organized to sell merchandise in small quantities to the
general public. Includes store and non-store retailers.
01-Transportation and Warehousing-The Transportation and Warehousing sector
includes industries providing transportation of passengers and cargo, warehousing and
storage for goods, scenic and sightseeing transportation, and support activities related to
modes of transportation.
01-Utilities- Firms are engaged in the provision of the following utility services:
electric power, natural gas, steam supply, water supply, and sewage removal.
01-Whole Sale Trade- Companies wholesaling merchandise and rendering services
incidental to the sale of merchandise. The wholesaling process is an intermediate step in
the distribution of merchandise.
138
Domestic/Foreign
02-Domestic- Colombian national company without any foreign capital.
02-Domestic/Foreign- The economic transaction is between a Colombian and a non-
Colombian firm.
02-Foreign- The firm is not Colombian or has legal and/or financial ties with a non-
Colombian firm. Part of its profits goes to a foreign establishment.
02-Two Colombians- The economic transaction is between two Colombian firms.
02-Two Foreigners- The economic transaction is between two foreign firms or two
firms with legal and/or financial ties with a non-Colombian company. Part of their
profits goes to a foreign establishment.
Size of Firms. Law 905 of 2004 defines size of companies based on assets and number
of employees. The monthly current minimum salary (SMMV, acronym in Spanish) is
the uniform reference used to determine the asset value. Thus, values are adjusted
annually. For instance, medium size companies have assets valued between 5,001
SMMV and 30,000 SMMV. In 2007, according to Bogotá Chamber of Commerce, large
companies were those with assets over CP$ 14,421 million, and medium size companies
had assets over CP$ 2,040 million.
02.1-Large- Companies with assets over 14,421 millions of Colombian pesos.
02.1-Medium-Firms with assets between 2, 040 and 14, 421 millions of Colombian
pesos.
02.1-Small-Companies with assets of less than 2,040 millions of Colombian pesos.
02.2-Individual investors- These are not companies but people transacting with firms.
Commercial transaction. The codes refer to the commercial relationships among the
entrepreneurs. First, they present the legal typification of the economic exchange: the
contract. Contracts are also grouped according to which economic sector the contractual
obligations fall under. Second, it classifies the relationship according to its length
(short, medium and long term).
Type of Contract. This refers to the legal denomination of the economic interaction
between the parties: the contract.
03-Affreightment (Fletamento) 03-Partnership Agreement (Asociación) 03-International Financial Leasing (Arrendamiento Financiaero) 03-Cession of Rights (Cesión de Derechos) 03-Commercial Agency (Agencia Comercial) 03-Concession Contract (Conseción) 03-Distributorship (Distribución) 03-Idiosyncratic (Innominado, Atípico) 03-Insurance (Seguro)
139
03-Real Estate Lease Agreement (Arrendamiento Inmobiliaria) 03-Turnkey (Llave en Mano) 03-Construction (Obra) 03-Power Purchase Agreement
03-Promissory Sales Agreement (Promesa de Compraventa) 03-Purchase/Sale of goods (Compraventa) 03-Purchase/Sale of services (Compraventa) 03-Purchase/Sale Real Estate (Compraventa de Finca Raiz) 03-Supply Contract (Suministro) 03-Transportation/Shipping (Transporte) 03-Transaction Contract (Transacción) Contract Obligations by Economic Sector. Codes group contracts according to which
economic sector the contractual obligations fall under. The contractual obligations in
dispute are organized following the North American Industry Classification System
(NAICS). Earlier, the NAICS was used to group the firms or the subjects to the
contracts and to the disputes. Now this classification scheme is used for the object of
the dispute. This distinction is needed because companies conduct contractual relations
in economic sectors outside the sector they comprise. For instance a bank, which
belongs to the financial sector, contracts for the construction of a new building. This
contractual obligation falls under the construction sector. Or a transportation firm,
which belongs to the transportation sector, buys insurance. This contract falls in the
finance and insurance sector.
03.1- Administrative Services
03.1- Agriculture, Forestry, Fishing and Hunting
03.1- Arts, Entertainment and Recreation
03.1- Construction
03.1- Finance and Insurance
03.1- Health Care and Social Assistance
03.1- Information
03.1- Manufacturing
03.1- Mining, Quarrying, and Oil and Gas Extraction
03.1- Other Services
03.1- Professional, Scientific and Technical Services
03.1- Real Estate and Rental and Leasing
03.1- Retail Trade
03.1- Transportation and Warehousing
03.1- Utilities
03.1- Whole Sale Trade
Length of Contractual Relations
04- Long term +5y- The economic relationship lasts more than 5 years.
04- Medium term 1to5y- The economic exchange is between 1 and 5 years
140
04 - Short term -1y- The economic exchange last less than 1 year.
Performance of Contract Obligations: Recurrent or Sporadic
04.1- Recurrent-Multiple- The contractual duties are performed multiple times, in
recurrent fashion.
04.1- Sporadic/1time- The contractual obligations between the parties are performed
one time, and the contract is fulfilled. There are no more economic duties between the
parties beyond that “one action.”
Occurrence of the Conflict within the Timeline of the Business Interaction. Estimation
of the moment that the controversy takes place during the economic relationship.
05- Towards the beginning- The conflict arose within the initial 1/3 of the contractual
relation.
05- Towards the end- The dispute happened within the last third of the economic
exchange.
05- Towards the middle- The differences are evident during the second third of the
business interaction.
Business Relations after Arbitration. This refers to the effect of the conflict (and
arbitration) on the business interaction.
05.1- Relation had ended- Economic exchanged had ended at the time of arbitration.
05.2- Relation ends- Business interaction ends with the arbitral award.
05.3- Relation continues- Commercial relation is maintained after the arbitration
decision.
Legal pretensions and defense mechanisms. This group of codes captures the parties’
legal objectives within the arbitration tribunal; that is, what the subjects to the
controversy ask the arbitrators to decide in their favor. Pretensions and defense
resources are based on each party’s particular account of contracted performance of
obligations. Thus, this category is a snapshot of the legal strategy of the parties to the
dispute.
Legal Pretensions. In general, pretensions and defenses fall in one or more of three
clusters: contract interpretation, contract implementation, and contract termination.
Code all that apply.
06- Contract Execution- Plaintiff asks for the enforcement of the contract or part of it.
06- Contract Implementation and Liability- Party asks to establish faulty
implementation of
the obligations and to declare the other party liable.
06- Contract Interpretation- Party is concerned with the interpretation of part (or the
whole) of
the contract, the obligations, the implementation.
141
06- Contract Settlement (Liquidación)- Once the termination of the contract is
established or
declared, the party wants the arbitrators to assign rights and responsibilities.
06- Contract Termination- Party asks for the end of the contractual obligation.
06- Economic Disequilibrium- Party argues external conditions that make its end of
the agreement “unjust.”
06- Indemnify (Loss and Damages)- Party asks for the establishment of losses and
damages
and their payment.
06- Payment of Obligations- Party demands the monetary payment for services
already
rendered.
07- Moral Hazard- The character or circumstances of the other party changes the costs
of
fulfilling the contractual obligations (e.g. withheld information).
07- Opportunism- Party argues that the other took advantages of situations making the
deal “unfair” or the fulfillment of obligations difficult, impossible, or too onerous.
07- Abuse of Economic Power or Dominant Position- Party argues power (dis) advantage affecting the terms of the contract and its implementation.
07- Third Party Issues- Party says that compliance with contract is affected by a third
party.
07- Unforeseen Contingencies- External factors affected the fulfillment of obligations.
Defense Mechanisms. Generally in Colombian private commercial arbitration, defenses
are limited to exceptions of merit (excepciones de merito) to argue against pretensions
or “the merits.” In some instances a second means of defense is used to question either
the procedure or the existence of the arbitration tribunal itself. This type of defense is
called use of preliminary exceptions (excepciones previas). Finally, the responding
party may even decide to go on the offensive and file a counterclaim. Code according
to the number of exceptions the defendant argues. Code preliminary exceptions and
counterclaims when presented.
08- Exceptions 0- No merit exceptions were argued.
08- Exceptions 01- One merit exception was argued.
08- Exceptions 02- Two merit exceptions were argued.
08- Exceptions 03- Three merit exceptions were argued.
08- Exceptions 04- Four merit exceptions were argued.
08- Exceptions 05- Five merit exceptions were argued.
08- Exceptions 06- Six merit exceptions were argued.
08- Exceptions 07- Seven merit exceptions were argued.
08- Exceptions 08- Eight merit exceptions were argued.
08- Exceptions 09- Nine merit exceptions were argued.
08- Exceptions 10- Ten merit exceptions were argued.
08- Exceptions 11- Eleven merit exceptions were argued.
08- Exceptions 12- Twelve merit exceptions were argued.
142
08- Exceptions 13- Thirteen merit exceptions were argued.
08- Exceptions 14- Fourteen merit exceptions were argued.
08- Preliminary Exceptions- In general, the contestant party questions the legal
competence of the arbitration tribunal and demands the nullification of any procedural
action. They attack form, not substance.
08- Counterclaim- Defendant files a counter-suit against the original plaintiff.
Source of the Arbitration Tribunal. Ultimately, the only sources of an arbitration
tribunal are the parties themselves. Formally, the decision to recur to arbitration can
occur before or after the dispute arises.
09- Arbitration Clause- The contract itself has an arbitration clause.
09- Compromise (Compromiso)- Parties express their agreement to arbitration in a
separate document.
09- Both- There is arbitration clause and compromise.
09- Reform to Arbitration Clause- Parties modify the terms of the arbitration clause.
09- 1Arbitrator- The arbitration tribunal has one arbitrator.
09- 3Arbitrators- The arbitration tribunal has 3 arbitrators.
Length of the arbitration process. These codes establish the duration in months for
each arbitration process from the day the plaintiff requests the arbitration tribunal be set
up until the decision hearing.
10.1- Day of the Filling of the Demand- Code the date.
10.2- Day of the First Arbitration Hearing- Code the date.
10.3- Day of the Decision Hearing- Code the date.
Overall Duration of Arbitration. From the day of the demand unitl the decision is
reached. Calculate the months between these 2 dates and code accordingly.
11- Overall 06m-
11- Overall 07m-
11- Overall 08m-
11- Overall 09m-
11- Overall 10m-
11- Overall 11m-
11- Overall 12m-
11- Overall 13m-
11- Overall 14m-
11- Overall 15m-
11- Overall 16m-
11- Overall 17m-
11- Overall 18m-
11- Overall 19m-
11- Overall 20m-
143
11- Overall 21m-
11- Overall 23m-
11- Overall 24m-
11- Overall 26m-
11- Overall 27m-
11- Overall 28m-
11- Overall 29m-
11- Overall 33m-
11- Overall 37m-
11- Overall 39m-
11- Overall 47m-
Pre-arbitral Phase. This begins with the initial arbitration request and ends at the date of
the first arbitral hearing. D2FH: Demand date to first hearing date. Calcuate months
between these 2 dates and code accordingly.
12- D2FH 02m-
12- D2FH 03m-
12- D2FH 04m-
12- D2FH 05m-
12- D2FH 06m-
12- D2FH 07m-
12- D2FH 08m-
12- D2FH 09m-
12- D2FH 10m-
12- D2FH 11m-
12- D2FH 13m-
12- D2FH 14m-
12- D2FH 15m-
12- D2FH 16m-
12- D2FH 18m-
12- D2FH 20m-
12- D2FH 28m-
Arbitral Phase. This covers the time from the ending date of the first arbitration hearing
to the date of the last hearing, the decision hearing. FH2DH: First hearing to decision
hearing. Calculate moths between these 2 dates and code accordingly.
13- FH2DH 01m-
13- FH2DH 02m-
13- FH2DH 03m-
13- FH2DH 04m-
13- FH2DH 05m-
13- FH2DH 06m-
13- FH2DH 07m-
13- FH2DH 08m-
13- FH2DH 09m-
144
13- FH2DH 10m-
13- FH2DH 11m-
13- FH2DH 12m-
13- FH2DH 13m-
13- FH2DH 14m-
13- FH2DH 15m-
13- FH2DH 17m-
13- FH2DH 18m-
13- FH2DH 19m-
13- FH2DH 20m-
Suspensions Requested.These codes account for the time the arbitration process is
extended when the parties exercise their procedural right of asking for suspensions.
Code the number of months arbitration was on stand-by. Also code other interruptions
and extensions when appropriate.
14- Suspensions 0-
14- Suspensions 01m-
14- Suspensions 02m-
14- Suspensions 03m-
14- Suspensions 04m-
14- Suspensions 05m-
14- Suspensions 06m-
14- Suspensions 08m-
14- Suspensions 09m-
14- Suspensions 10m-
14- Suspensions 11m-
14- Suspensions 12m-
14- Suspensions 15m-
14- Interruptions-
14- Extensions -
Means of Proof or Evidence Requested. This cluster of codes identifies the type of
evidence the parties and/or the arbitrators request and is practiced in the process.
Particular attention is given to the use of expert witnesses (peritos).
15- Documentary- Documents directly introduced by the parties.
15- Documentary Subpoenas- Documents provided by third parties through
“arbitration summons” (oficios).
15- Judicial Inspection-
15- Party Interrogation-
15- Witness Interrogation-
15- Professional or Expert Witnesses (Peritos)- Double code with specific expertise.
15.1- Expert Business Administration-
15.1- Expert Architecture-
145
15.1- Expert Accounting-
15.1- Expert Economics-
15.1- Expert Finance-
15.1- Expert Engineering-
15.1- Expert Naval-
15.1- Expert Technical-
15.1- Expert Translation-
The Monetary Value of Arbitration. How much money is involved in private
commercial arbitration?
The Valuation of the Dispute. Generally, the complainant party estimates the monetary
value of the claim. This is included under legal pretensions. Convert the sums into U.S.
dollars using Colombia Central Bank (Banco de la República) exchange rate data, and
code accordingly.
16- Dispute to be determined- There is not indication of the monetary claim.
16- Dispute1 -10K- Claim is between 1,000 and 10,000 dollars.
16- Dispute2 11K to 20K-
16- Dispute3 21K to 50K-
16- Dispute4 51K to 100K-
16- Dispute5 101K to 250K-
16- Dispute6 251K to 500K-
16- Dispute7 500K to 1M- Claim is between 500,000 and 1 million dollars.
16- Dispute8 1M to 2M-
16- Dispute8 2M to 5M-
16- Dispute9 +5M- Claim is between 5 and 15 millions of dollars.
16- Dispute91 +15M- Claim is between 15 and 40 millions of dollars.
16- Dispute91 +40M- Claim is between 30 and 250 millions of dollars.
16- Dispute91 250M- Claim is 250 millions of dollars.
The Cost of the Arbitration Tribunal. Generally, this value is established at the
beginning of the proceedings and is based on the value of the claim. Convert the sums
into U.S. dollars using Colombia Central Bank (Banco de la República) exchange rate
data, and code accordingly.
17- Arbitration Undetermine- There is not indication of the arbitration cost.
17- Arbitration1 -2K- Cost is less than 2,000 dollars.
17- Arbitration2 2K to 10K- Cost is between 2,000 and 10,000 dollars.
17- Arbitration3 11K to 20K-
17- Arbitration4 21K to 50K-
17- Arbitration5 51K to 100K-
17- Arbitration6 101K to 250K-
17- Arbitration7 251K to 500K-
17- Arbitration8 +500K- Cost is between 500, 000 and 1 million dollars.
146
17- Arbitration9 1M- Cost is between 1 and 2 millios of dollars.
17- Arbitration9 2M- Cost is of 2 millions of dollars.
Cost Distribution. (Winners and Losers). These codes identify the distribution of the
arbitration cost between the litigants.
18- Plaintiff pays nothing-
18- Plaintiff pays all-
18- Plaintiff pays less than defendant-
18- Plaintiff pays more than defendant-
18- Plaintiff pays same as defendant-
The Amount of the Arbitral Award. This is the tribunal’s decision on the monetary
claims. Convert the sums into U.S. dollars using Colombia Central Bank (Banco de la
República) exchange rate data, and code accordingly.
19- Award N/A- Decision against the plaintiff. Therefore, there is no award.
19- Award1 -10- Award is less than 10,000 dollars.
19- Award2 11 to 20- Award between 10,000 and 20,000 dollars.
19- Award3 21 to 50-
19- Award4 51 to 100-
19- Award5 101 to 250-
19- Award5 251 to 500-
19- Award6 501 to 1M- Award between 501,000 and 1 million dollars.
19- Award7 1M to 2M-
19- Award8 2M to 5M-
19- Award8 5M to 10M-
19- Award9 +15M- Award between 15 and 25 millions of dollars.
19- Award9 +25M- Award over 25 millions of dollars.
Demand for Arbitration in Recent Years. The arbitration cases are grouped in
periods of 5 years.
20- Cases between 1991 to 1995-
20- Cases between 1996 to 2000-
20- Cases between 2001 to 2005-
20- Cases between 2006 and 2007-
20- Cases Before 1990s-
147
Appendix C
Arbitration Cases
1. Caja de Previsión Social del Banco Central Hipotecario v.Asdrúbal Valencia Sierra
2. Curaçao Harbour Towing & Service Co. N.V. v. Transportadora Colombiana de
Graneles S.A.
3. Libia de J. Velásquez de Amórtegui v. Flota Mercante Grancolombiana S.A.
4. Proyectos y Suministros P. y S. Limitada v. Inmobiliaria el Cedrito Limitada
5. Carlos Rincón Duque e Hijos Ltda. v. La Empresa Colombiana de Productos
Veterinarios S.A., "Vecol" S.A.
6. Instituto de Mercadeo Agropecuario, Idema v. Colmares Ltda. y TMM S.A. de C.V.
(COFL 1) Transportación Marítima Mexicana, Sociedad Anónima de Capital
Variable.
7. Instituto de Mercadeo Agropecuario, Idema v. Colmares Ltda. y TMM S.A. de C.V.
(COFL-2/91 y COFL-3/91).
8. Mitsui de Colombia S.A. v. Metalec, Manufacturas Metal Eléctricas Ltda.
9. Representaciones Cajiao y Cortés Ltda. Gregorio Cajiao Roa v. Servicio Aéreo a
Territorios Nacionales Satena.
10. Distribuidora Montejo Ltda. v. Bavaria S.A.
11. Inversiones Petroleras S.A., Inverpetrol v. Repsol Exploración S.A.
12. Distral S.A. (EMA) General Electric Canada Inc. v. La Nacional Compañía de
Seguros Generales de Colombia S.A.
13. Radio Televisión Interamericana S.A. v. Guy Frederick Ecker.
14. Betancur Aranzazu Chávez Arquitectos Compañía Ltda. v. Bonilla y Arboleda Ltda.
15. Ricardo Bustos Reyes v. B.M.G. Ariola de Colombia S.A.
16. Gerza Ltda. v. Bavaria S.A.
17. Instituto de Mercadeo Agropecuario, Idema v. Americana de Gestiones
Comerciales, Amerco Limitada (International Grain Trade Inc.).
148
18. Rojas Torres y Cía. Ltda. v. Bavaria S.A.
19. Daniel J. Fernández & Cía. Ltda. v. Fiberglass Colombia S.A.
20. Acarreos Beyjor Ltda. v. Bavaria S.A.
21. Fumigaciones Young Ltda. v. Cuéllar Serrano Gómez S.A.
22. Preparaciones de Belleza S.A., "Prebel S.A." v. L'Oreal (Co. Francesa).
23. Comercial Bira Ltda. v. Bavaria S.A.
24. Interpack de Colombia Ltda. v. Grace de Colombia Ltda.
25. Supercar Ltda. v. Sociedad de Fabricación de Automotores S.A. (Sofasa).
26. Geofundaciones S.A. v. Consorcio Constructores Asociados de Colombia (Conascol
S.A.). Impregilo S.P.A. Sucursal Colombia
27. Carlos Alfonso Ayala Jiménez v. Forever Living Products Colombia S.A.
28. Aerolíneas Internacionales y Turismo Representaciones Limitada,Alitur Ltda. v. Air
Aruba Sucursal en Colombia.
29. Icollantas S.A. v. Auto Mundial Ltda. y otras
30. Texas Petroleum Company v. Eduardo A. Escobar Tamayo y María del Rosario
Porras Do Santos.
31. Risaralda Motor S.A. v. General Motors Colmotores S.A.
32. Geoadinpro Ltda. v. Ingenieros Civiles Asociados S.A.
33. Parque Central Bavaria S.A. v. Clínica La Sabana S.A.
34. Maquinaria Pesada del Tolima Ltda., MPT v. Tracey & Cía. S.A.
35. H. Rojas y Asociados Ltda., y Gonzalo Sarmiento P. y Asociados Ltda. v. Peñalisa
de Entre Ríos S.A.
36. Impsa Andina S.A. v. Argosy Energy International
37. Bavaria S.A. v. Cooperativa de Transportadores del Oriente Antioqueño Ltda.
Cootransorán Ltda.
149
38. Laboratorios California S.A. v. System Software Associates Inc. y S.S.A. Colombia
S.A.
39. Total Inversión Inmobiliaria Ltda. v. The Chase Manhattan Bank
40. Alfredo Gaitán Borrero y María Carmenza Vásquez de Gaitán v. Texas Petroleum
Company
41. Constructora Mazal Ltda. v. Inversiones GBS Ltda.
42. Álvaro Orozco Asociados Ltda. v. Bavaria S.A.
43. Industria Colombiana de Productos Farmacéuticos de Consumo, Konsuma de
Colombia S.A. v. Tecnoquímicas S.A.
44. Luis Alfonso López Ruiz v. Juan Moreno Rodríguez
45. Bavaria S.A. v. Compañía Especializada en Transporte Terrestre Ltda., Transportes
Cetta Ltda.
46. Angelcom S.A. v. Nortel Networks de Colombia
47. Juan Carlos Guzmán Pulido v. Promotora El Faro de Cartagena S.A.
48. Cellular Trading de Colombia Ltda., Cell Point, v. Comunicación Celular S.A.,
Comcel
49. Teleconsorcio S.A. v. Radiotrónica S.A. y Sistemas Asesorías y Redes S.A. (SAR
S.A.) Radiotrónica S.A.v. Teleconsorcio S.A., NEC Corporation, Nissho Iwai
Corporation, Mitsui & Co Ltd. y Sumitomo Corporation
50. Colombiana de Incubación S.A., Incubacol, v. Dupont de Colombia S.A.
51. Bavaria S.A. v. Transportes Transvizar Ltda. Llamamiento en garantía a Cóndor
S.A.
52. Bavaria S.A. v. Transportes Transvizar Ltda.
53. Oscar Mario Mora Trujillo y Cía. S. en C. Insucampo e Insucampo v. Agrevo S.A.
(Aventis Cropscience Colombia S.A. - Bayer) 54. Ladrillera Santafé S.A. v. STK de Colombia S.A. (Softtek) 55. Avisos Lucaso Ltda. v. Carlos J. Mattos, Hyundai Colombia Automotriz S.A. e
Inversiones y Proyectos GTS Ltda.
150
56. Augusto Ruiz Corredor y Cía. Ltda., v. Constructora Andrade Gutiérrez S.A.
57. Valores y Descuentos Limitada v. Bellsouth Colombia S.A.
58. Dragados Hidráulicos Ltda. v. Concesionaria Tibitoc S.A. ESP.
59. Corporación de Ahorro y Vivienda AV Villas v. Luis Fernando Uribe Aristizábal
.
60. Tecnaire Ltda. v. Conconcreto S.A.
61. Clínica Vascular Navarra Ltda. v. Medical Systems Finance S.A.
62. Ingeniería Perfiles y Figurados Ltda. Inperfig Ltda. v. Distribuidora Acerías Paz del
Río Ltda.
63. Wilson Sarmiento Ayala v. Víctor Salazar Tejada.
64. Bavaria S.A. v. Compañía Especializada en Transportes Terrestres Ltda.
65. Construcciones Bonaire Limitada v. Impregilo SPA sucursal de Colombia.
66. Francisco de Paula Higuera Forero, Pablo Antonio Lozano Buriticá y Epifanio
Aldana González v. Casa Luker S.A.
67. DART International Inc. sucursal Colombia v. Mohave Colombia Corporation.
68. Avalnet Comunicaciones Ltda. v. Avantel S.A.
69. Rafael Tono Lemaitre & Cía. Ltda. v. Banco de la República.
70. IEC Ingenieros S.A. v. Hocol S.A.
71. Consorcio Business Ltda.v. Bellsouth Colombia S.A.
72. Tebsa S.A. ESP v. Corporación Eléctrica de la Costa Atlántica S.A. ESP (Corelca).
73. Lina María Zuluaga Mantilla v. Héctor Falla Urbina.
74. Prodesic S.A. v. Promociones San Alejo Limitada.
75. Conavi Banco Comercial y de Ahorros S.A. v. Conconcreto S.A.
76. Multiphone S.A. v. Bellsouth Colombia S.A.
151
77. Exxonmobil de Colombia S.A. v. Muñoz Real y Cía. Ltda.
78. Comercial de Oriente Ltda. v. Alimentos Kraft de Colombia S.A.
79. Comercial Okasa Ltda. v. Banco Colpatria Red Multibanca Colpatria S.A.
80. Invertexty, E.U. v. L.G. Electronics Colombia Limitada.
81. Ingeniería, Servicios, Montajes y Construcción de Oleoductos de Colombia S.A.
(Ismocol S.A.) v. Petrobras Colombia Limited.
82. Procesadora de Maderas Cimitarra Ltda. v. Acerías Paz del Río S.A.
83. Corpoaseo Total S.A. ESP v. AMA SpA Azienda Municipale Ambiente Societa per
Azioni.
84. Banco Agrario de Colombia S.A. v. Life Gard Security Ltda.
85. Sociedad Colombiana de Construcciones, Sococo S.A. v. Carbones del Cerrejón
LLC (antes International Colombia Resources Corporation) 86. Herpaty Limitada v. Sociedad de Concesionarios S.A. (Concesa S.A.) 87. Lloreda S.A. y "Patrimonio Autónomo Fiduciaria Colpatria Lloreda III" v.
Segurexpo de Colombia S.A., aseguradora de crédito y del comercio exterior.
88. Philips Colombiana de Comercialización S.A. v. Cosmitet Limitada Corporación de
Servicios Médicos Internacionales Them y Cía. Ltda.
89. Digimaster Ltda. v. Ana Lucía Pachón de González y Cía. Ltda.
90. Video Colombia S.A. (Blockbuster Inc.) v. Comcel S.A.
91. Astecnia S.A. v. Francocolombiana de Construcción Ltda.
92. Exconvial Ltda. v. Dragados Internacional de Pipelines - DAIP S.A.
(Mantenimiento y Montajes Industriales Masa S.A. sucursal Colombia) 93. Unibase Ltda. v. Panamco Colombia S.A. (Panamerican Beverages) 94. Terpel de la Sabana S.A. v. Tethys Petroleum Company Ltd. y Meta Petroleum Ltd.
95. Drug Pharmaceutical S.A. - Drug S.A. v. Alianza Fiduciaria S.A.
96. Bancolombia S.A. v. Jaime Gilinski Bacal
152
97. Jaime Gilinski Bacal, Isaac Gilinski Sragowicz, Swain Finance Co, Jacklyn Finance
Co, Garbay Isle Investments, Foye Investments, Feldome Worldwide Corp., Early
Haven Investments, Colonel County, Caprice Maritime LTD, Bloice Enterprice,
Aileen International, Quantum Partners LDC, Quantum Emerging Growth Partners
C.V. Y Quantum Endowment Fund N.V. (antes Quantum Fund N.V.) v.
Bancolombia S.A., Nicanor Restrepo Santamaría, Fabio Rico Calle, José Alberto
Vélez Cadavid, Jorge Londoño Saldarriaga, Ricardo Sierra Moreno, Jorge Vega
Uribe y Jaime Alberto Velásquez Botero.
98. Lispy S.A. (Homecenter) v. El Retiro Centro Comercial S.A.
99. Comercializadora y Constructora Integral Limitada v. Makro de Colombia S.A.
(Comercial Inmobiliaria Internacional S.A.) 100. Sociedad AS Colombia Ltda. v. Informática & Gestión S.A.
101. Inversiones Interglobal Ltda. v. Samsung Electronics Colombia S.A. y Soon Ho
Park.
102. Arcec Internacional Ltda. (Arcec S.A.) v. Banco Comercial AV Villas S.A.
103. Jaime de la Cruz Franco Pérez y otros v. Héctor Villa Osorio y otros.
104. Electrificadora de Santander S.A. ESP v. Energía y Finanzas S.A. ESP.
105. Almacenes Pensilvania Ltda. v. Mary Tarquino de Portela
106. Alcanos de Colombia S.A. ESP v. Ecopetrol S.A.
107. Punto Celular Ltda. v. Comunicación Celular S.A. (Comcel S.A.) 108. Construcciones C.F. Ltda. v. Banco de la República.
109. Comerciamóvil S.A.v. Colombia Móvil S.A. ESP.
110. Telemóvil Colombia S.A. v. Colombia Móvil S.A. ESP.
111. Almagran S.A. v. Clover Systems Inc.(Agent of Allied Van Lines).
112. Human Life C.T.A. v. Arcec S.A.
153
Appendix D
International Investors Directly or Indirectly Involved in
Private Commercial Arbitration
1. Curaçao Harbour Towing & Service Co. N.V.
2. TMM S.A. de C.V. Transportación Marítima Mexicana, Sociedad Anónima de
Capital
Variable
3. Mitsui S.A.
4. Inversiones Petroleras S.A. Inverpetrol
5. Repsol Exploración S.A. (Hispánica de Petróleos S.A., Hispanoil) 6. Carupana Oil Latin America Company
7. Petrocanadá Oil & Gas Inc.
8. General Electric Canada Inc.
9. Guy Frederick Ecker
10. B.M.G. Ariola
11. International Grain Trade Inc.
12. Fiberglass Colombia S.A.
13. L'Oreal
14. Interpack de Colombia Ltda.
15. Grace de Colombia Ltda.
16. Sofasa Renault
17. Impregilo S.P.A.
18. Forever Living Products S.A.
19. Air Aruba
20. Icollantas S.A.
21. Texas Petroleum Company
22. General Motors
23. Tracey & Cía. S.A.
24. Argosy Energy International
25. System Software Associates Inc.
26. The Chase Manhattan Bank
27. Nortel Networks
28. Northern Telecom Cala Corporation
29. Cellular Trading de Colombia Ltda. (Cell Point) 30. Comunicación Celular S.A. (Comcel) 31. NEC Corporation
32. Nissho Iwai Corporation
33. Mitsui & Co Ltd.
34. Sumitomo Corporation
35. Sistemas Asesorías y Redes S.A. (SAR S.A.) 36. Angelcom S.A.
37. Radiotrónica S.A.
38. Teleconsorcio S.A.
39. Colombiana de Incubación S.A. (Incubacol)
154
40. Dupont
41. Agrevo S.A. - Aventis Cropscience Colombia S.A. (Bayer) 42. Softek
43. Hyundai
44. Bellsouth
45. Medical Systems Finance S.A.
46. DART International Inc.
47. Mohave Colombia Corporation
48. Avalnet Comunicaciones Ltda.
49. Avantel S.A.
50. Hocol S.A.
51. Multiphone S.A.
52. Exxonmobil
53. Kraft Foods
54. Philip Morris Corporation
55. L.G. Electronics
56. Petrobras Limited
57. AMA SpA Azienda Municipale Ambiente Societa per Azioni
58. Carbones del Cerrejón LLC (International Colombia Resources Corporation) 59. Philips
60. Cosmitet Ltda. (Corporación de Servicios Médicos Internacionales) 61. Blockbuster Inc.
62. Francocolombiana de Construcción Ltda.
63. Dragados Internacional de Pipelines (DAIP S.A.) 64. Panamerican Beverages (Coca Cola) 65. Terpel S.A.
66. Tethys Petroleum Company Ltd.
67. Meta Petroleum Ltd.
68. Jaime Gilinski Bacal
69. Mantenimiento y Montajes Industriales Masa S.A.
70. Cossack Limited
71. Oakland Limited
72. Clova Services Limited
73. Beaumont Consultants Limited
74. Fillians Enterprises Limited
75. David W. Sloan
76. Comercial Inmobiliaria Internacional S.A.(Makro) 77. Swain Finance Co.
78. Jacklyn Finance Co.
79. Garbay Isle Investments
80. Foye Investments
81. Feldome Worldwide Corp.
82. Early Haven Investments
83. Colonel County
84. Caprice Maritime Ltd.
155
85. Bloice Enterprises Corp.
86. Aileen International
87. Quantum Partners L.D.C.
88. Quantum Emerging Growth Partners C.V.
89. Quantum Endowment Fund N.V. (Quantum Fund N.V.) 90. Samsung Electronics Colombia S.A.
91. Millicom International Celullar (MIC: Tigo) 92. Clover Systems Inc.
93. Allied Van Lines.
156
Appendix E
NAFTA Investor-State Arbitration Duration in Months
*
Disputes Involving the Government of Canada
Cases Notice of
Arbitration
Final Award
Date
Months to
Date of Last
Notice
Chemtura Corporation
(formerly Crompton Corp.) 17 Oct. 2002 20 Oct 2008
Case unfinished
79
**
V. G. Gallo 30 March 2007 April 9 2009
Case unfinished
26
**
Merrill & Ring Forestry L.P. 27 Dec. 2006 29 Dec. 2008
Case unfinished
29
**
Pope & Talbot, Inc. 25 March 1999 6 Nov. 2002 43
S.D. Myers, Inc. 30 Oct. 1998 30 Dec. 2002 50
United Parcel Service 19 April 2000 11 June 2007 86
**Cases in progress as of May 2009.
Disputes Involving the US Government
Cases Notice of
Arbitration
Final Award
Date
Months to
Date of Last
Notice
ADF Group Inc. 19 July 2000 9 Jan. 2003 30
CCFT 16 March 2005 28 Jan. 2008 35
Canfor Corporation 5 Nov. 2001 7 March 2005
Case unfinished
91**
Glamis Gold Ltda. 10 De. 2003 19 Sept. 2007
Case unfinished
70
**
Grand River Enterprises Six
Nations Ltda. et al.
12 March 2004 3 March 2009
Case unfinished
63
**
R. Loewen and Loewen Corp. 30 Oct. 1998 26 June 2003 56
Methanex Corporation 2 July 1999 9 August 2005 73
Mondev International Limited 1 Sept. 1999 11 Oct. 2002 37
Tembec Corp. 3 Dec. 2004 14 march 2008
Case unfinished
42
**
**Cases in progress as of May 2009.
*
Only some sample cases are presented. For an actualized list see http://www.state.gov/s/l/c3439.htm
(Last visited May 2009) or http://www.naftaclaims.com/disputes.htm (Last visited May 2009).
157
Disputes Involving the Government of Mexico
Cases Notice of
Arbitration
Final Award
Date
Months to
Date of Last
Notice
Archer Daniels Midland Co. &
Tate & Lyle Ingredients Americas
Inc.
10 August
2004
26 Sept. 2007 38
Robert Azinian and Others 10 March 1997 1 Nov. 1999 31
Corn Products International 21 Oct. 2003 15 Jan. 2008 52
Marvin Feldman 10 April 1999 13 June 2003 50
Fireman’s Fund 20 Oct. 2001 17 July 2006 57
GAMI Investments, Inc. 9 April 2002 15 Nov 2004 31
Metalclad Corporation 2 Jan. 1997 2 Sept. 2000 44
Texas Water Claims (aka.
"Bayview") 19 Jan. 2005 21 June 2007 29
International Thunderbird Gaming
Corp.
1 August 2002 26 Jan. 2006 42
Waste Management, Inc 29 Sept. 1998 30 April 2004 67

Abstract (if available)

Abstract This thesis analyzes legal and institutional responses to economic liberalization in Colombia. The main hypothesis is that the increasing use of alternative dispute resolution mechanisms (ADRMs) by economic agents is the consequence of global economic pressures, as well as an attempt to address the crisis of the national judicial system. ADRM’s reduce economic transaction costs, and offer more efficient, predictable, and independent venues for resolving litigation. Consequently, they create a more stable environment for investors. This, in turn, suggests that the relationship between law and economics is rapidly changing at the structural level in Colombia.

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Asset Metadata

Creator Sanabria, Javier Mauricio (author)

Core Title Legal institutions of the market economy: private commercial arbitration as transaction costs reducer in Colombia

School College of Letters, Arts and Sciences

Degree Master of Arts

Degree Program Economics

Publication Date 07/27/2009

Defense Date 05/13/2009

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag alternative dispute resolution mechanisms,business disputes,Colombia,law and economics,legal instituions,OAI-PMH Harvest,private commercial arbitration,transaction costs

Place Name Colombia (countries)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Cheng, Harrison (committee chair), Dekle, Robert (committee member), Wise, Carol (committee member)

Creator Email sanabria.jm@gmail.com,sanabria@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-m2391

Unique identifier UC1329266

Identifier etd-Sanabria-3050 (filename),usctheses-m40 (legacy collection record id),usctheses-c127-563305 (legacy record id),usctheses-m2391 (legacy record id)

Legacy Identifier etd-Sanabria-3050.pdf

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Document Type Thesis

Rights Sanabria, Javier Mauricio

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Repository Name Libraries, University of Southern California

Repository Location Los Angeles, California

Repository Email cisadmin@lib.usc.edu