By Carlos A. Fonseca Sarmiento

Arbitration in the Latin American gambling industry

Carlos Fonseca Sarmiento is a partner of Varela & Fonseca Abogados SAC. He has a Master Degree in Constitutional Law and Public Administration and he is a leading member of the International Masters of Gaming Law.

Contacto: [email protected]

Peru 
| 20/01/2014

Three typical characteristics of the gambling industry are its dynamism, technology and its international nature. Constant and permanent changes in software and hardware, many of them coming from United States and Europe, are the driving force of multiple businesses in countries such as Argentina, Chile, Peru and Colombia, to name a few.

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Consequently, it is normal for foreign companies – directly or through subsidiaries or societies  created specifically for that purpose in Latin America – to sign contracts with local companies such as: purchase EX WORKS of slots, distribution of slots or other products for one or more countries, acquisition of casinos and business assets, provision of online control systems and other security systems, a license to use the software and payment of royalties for games patents, etc.


In view of this, the first question on the foreign investor’s mind is how reliable is the local jurisdiction should any legal conflict arise in relation to the contract. On the one hand, it is not attractive for the local businessperson to accept the address of the foreign investor as a jurisdiction, because the charges of an international litigation would tend to be very high. On the other hand, a regrettable reputation for slowness or for having other shortcomings will make the foreign investor averse to accepting the local jurisdiction.


There is a third way that could fulfill the needs and calm fears of both parties: arbitration. The characteristic feature of this is that two or more parties have a legal relationship - for example, the sale of 500 slots, the provision of an online control system, etc – and decide to accept that any conflict linked to such a relationship is solved by one or more people that are not judges (state officers) and who are called arbitrators (of any nationality and any profession).


Arbitration can be classified in different ways. If arbitration is organized and administrated by an arbitral institution, it will be an “Institutional Arbitration”. If, on the contrary, the arbitrator is the one that sets the procedural rule, it is an “Ad hoc Arbitration”. In Latin American countries, many entities perform institutional arbitrations, for instance the Chambers of Commerce and the various  Professional Associations. Besides, the International Chamber of Commerce (ICC) is linked to the International Court of Arbitration (ICA) which conducts , among other things, considerable arbitration in international commerce. In Peru, additionally, the Center of Analysis and Resolution of Conflicts of PUCP and the American Chamber of Commerce of Peru (AMCHAM PERU) do institutional arbitration.


According to the nature of the award, there will be an “Arbitration at law” if the issuer must do it according to the legal norms and “Arbitration in Equity” when it is not necessary that the arbitrator is a lawyer and issues his decision according to his sound judgment.


Due to the number of states involved or connected with the conflict or the parties, an “International Arbitration” is when the place of the arbitration, the address of the parties, the place of compliance of a substancial part of the obligations or the place with which the subject-matter of the dispute has a closer relationship are located in two different countries; whilst a “National Arbitration” is when all those places are located in the same country. For example, if an American manufacturer sells EX WORKS (from his venue abroad) slots to a local casino, then the contract could include an arbitration agreement and any case dealt with under an international arbitration, which could take place in the country in which the local casino is located, and moreoever  with local arbitrators, but under the rules of an international arbitration, for example, setting the standards of the process of the Regulation of the United Nations Commission for the International Trade Law (CNUDMI).


Finally, a “Sole Arbitration” is when the person in charge is a sole arbitrator or the “arbitration on Arbitral court”, when the conflict is solved by a collegiate, normally comprising three members. It can also be set freely by the parties through an Arbitration Agreement that can be inserted or not as a clause in the contract.


Arbitration not only allows for a reduction in the procedural burden of the Judiciary, but also means conflicts can be resolved more quickly. Most of the Latin American arbitration laws in force incorporate the core principles of the Model Law of the United Nations Commission for the International Trade Law (CNUDMI) of 1985, with the amendments of 2006. All of them enable the recognition and execution of foreign awards and minimize the intervention and interference of the Judiciary. conflictLocal laws, as with the Model Law of the CNUDMI, establis very specific procedures enabling the defeated party to go before the Judiciary to demand the cancellation of the arbitration award. In practice, it has been proven that generally the parties accept the award and the conflict is resolved quicker through arbitration. The better the arbitration, the lower the costs. The gambling industry has fluid contact with international commerce, so arbitration is an efficient tool for its development. Belated justice is not justice. There are times for arbitration for the gambling industry in Latin America.

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