Costa Rica reforms its Arbitration Law

On October 1, 2024, Costa Rica enacted Law No. 10535 to Harmonize Costa Rican Arbitration (“Harmonization Law”).  The reform implements significant changes to arbitration practice in the country. It will enter into force on April 2, 2025, and is intended to harmonize the arbitration legal framework which previously adopted a dualist system that distinguished between domestic and international arbitrations.

Background

Costa Rica enacted Law No. 7727 on Alternative Dispute Resolution and Promotion of Social Peace (“RAC Law”) in 1998, focused mainly on domestic arbitration and other ADR mechanisms. In 2011, the country enacted Law No. 8937 on International Commercial Arbitration based on the UNCITRAL Model Law (“ICA Law”), which applied to international arbitrations, and aimed to address the limitations that the RAC Law imposed on international cases.

For over a decade, parties to an arbitration seated in Costa Rica were subject to this dualist model that could lead to different interpretations and outcomes depending on which law applied.  The Harmonization Law aims to prevent these potential inconsistencies.  The current reform does not repeal the RAC Law and the ICA Law in their entirety, rather it only (i) repeals the arbitration chapter already contained in the RAC Law; (ii) maintains and modifies some provisions in the RAC Law related to alternative dispute resolution in general; and (iii) amends the ICA Law so that it also applies to domestic arbitrations.

Although the Harmonization Law still makes distinctions based on the domestic or international character of the arbitration (such as the applicable deadlines or the default rule for the number of arbitrators), it provides a harmonized legal framework to streamline the arbitration process in Costa Rica and modernize the rules.

Main modifications

Some of the most important implications of the Harmonization Law are the following:

• Arbitral Tribunal Composition: The reform establishes a default rule for a three-person arbitral tribunal in international arbitration cases and a sole arbitrator in domestic proceedings, unless the parties agree otherwise (Art. 10).
• Appointment of arbitrators: The reform authorizes arbitral institutions in Costa Rica to appoint arbitrators, at the request of a party, when the parties cannot reach an agreement (Art. 11).
• Qualifications of the Arbitrators: In domestic arbitration cases, the reform maintains the requirement for arbitrators to hold a law degree, have at least five years of experience, and be members of the Costa Rican Bar with authorization from the Ministry of Justice and Peace.  This requirement does not apply to domestic ex aequo et bono cases or international arbitration proceedings (Addition of Art. 71 Bis to the RAC Law).
• Non-Signatories: The reform introduces a new provision expressly allowing the arbitration agreement to include non-signatories, who are individuals or entities whose consent derives from their participation in the negotiation, execution, or termination of the arbitration agreement or the contract in which it is included, as well as persons who seek to obtain benefits from those contracts (Art. 7-A).
• Interim Measures: The reform significantly improves the interim measures regime in support of arbitration.  First, it provides that the parties can agree to constitute an arbitral tribunal specifically to grant interim measures before the commencement of arbitration proceedings (Art. 17.3).  Second, it entitles arbitral tribunals to grant interim measures in domestic arbitration proceedings (Art. 17 J).

Previously, the RAC Law did not contain a provision empowering arbitral tribunals to grant interim relief in domestic cases and such powers were reserved for domestic courts.  Arbitral tribunals could, however, grant interim relief in international cases.

• Proceedings: The reform simplifies domestic arbitration proceedings.  While international arbitrations adopted the streamlined process under the UNCITRAL Model Law, the RAC Law rules were detailed and formalistic in domestic cases.  For instance, the RAC Law provided that (i) domestic arbitration proceedings could only be conducted in Spanish (Art. 41 of the former RAC Law); (ii) expert witnesses could only be appointed by the arbitral tribunal (Art. 53 of the former RAC Law); and (iii) the parties had to be represented by persons holding a law degree (Art. 45 of the former RAC Law).  The reform now allows parties in domestic arbitration to benefit from the flexibility previously afforded to parties to international arbitration.
• Challenges to the arbitral jurisdiction: Previously under the RAC Law, parties to a domestic arbitration could challenge the arbitral tribunal’s jurisdiction decision by filing two different appeals: one filed before the courts (revocatoria) and the other filed before the arbitral tribunal but heard and decided by the Supreme Court (Art. 38 of the former RAC Law).  With the reform, the First Chamber of the Supreme Court has exclusive jurisdiction to hear any judicial intervention related to arbitration proceedings (Art. 6).  This includes appointing the chair or the sole arbitrator if the parties (or the co-arbitrators) are unable to agree on who to appoint, resolving challenges against arbitrators, hearing challenges to interim awards finding jurisdiction, and dealing with applications to set-aside awards.
• Interpretation of the Law: When interpreting the new arbitration law, courts must consider its international origin and the desire to harmonize its application (Art. 2 A).  This interpretation method applies equally to domestic arbitration proceedings, ensuring a consistent application of the arbitration law to both types of arbitration proceedings.

Comment

With this reform, Costa Rica shifts to a modern and harmonized arbitration regime, departing from other countries in Latin America – such as Chile, Colombia, and Argentina – which retain dualist legislation. While its impact will only be felt after the bill enters into effect in April 2025, the enactment of the Harmonization Law should facilitate and streamline arbitration proceedings in Costa Rica in domestic and international cases.