What Costa Rica’s legal reforms mean

Latin America has emerged as one of the globe’s most economically vivacious areas. And arbitration reform is a welcome pill to the business community


Opting for arbitration over costly litigation as a foreign company in Costa Rica has not always been easy. But a new arbitration law in Costa Rica has triggered a huge sigh of relief among the country’s legal community. Oller Abogados is certainly hopeful: the law firm believes that this extraordinary legal development has done wonders for the Costa Rican jurisdiction. It has turned the country into an attractive place for international commercial arbitrations.

Established in 2000, Oller Abogados has borne witness to the region’s transformation over the past decade. Latin America has emerged as one of the globe’s most economically vivacious areas. In this internationally unpredictable financial climate, South America’s emerging nations have managed to avert collapse. Pedro Oller, a founding partner at Oller Abogados, feels that Costa Rica is one of those countries. It has continued to grow at a record pace and is now at the forefront of Latin America’s economic revolution. Costa Rica’s integration into the global economy resulted in a heightened interest in international arbitration and led to an increase in local arbitration institutions and organisations – all of which are clear indicators of the growing importance of arbitration in the jurisdiction.

In recent years this reorganisation of domestic arbitral law and practice has taken on a surprisingly quickened tempo in Costa Rica, according to Oller Abogados. A reformation of laws was needed to render them more internationally competitive, and make them attractive to foreign investors. The near-complete reform that Costa Rica enacted on its outdated and criticised law of arbitration has been among the most noteworthy developments. The legal change is strongly supported by Costa Rican practitioners who recognise the increasing prominence of arbitration in Central America, says Oller.

Costa Rica’s new arbitration law
Oller Abogados has played a key part in the implementation of the new law, which involved timely deliberations before it could be passed. Oller himself discussed the law with the Minister of Justice and Peace, Hernando Paris, years before it was applied.

“Minister Paris was pushing in Congress during the latter stages of the Arias Administration for the act’s enactment,” Oller says. “At the time I took part in two interesting conferences on International Arbitration in Spain and Mexico, where I served as a panellist. When Minister Paris learned of this he invited me to discuss International Arbitration and to help him in his efforts to get the UNCITRAL [United Nations Commission on International Trade Law] model law enacted. I was extremely proud to be of assistance.”

Costa Rica’s new arbitration law is chiefly based on the UNCITRAL model law on International Commercial Arbitration as amended in 2006. Oller says this is a highly advantageous development for the region, as it now places Costa Rica on a level with Mexico, Honduras, Nicaragua, Venezuela, Guatemala, Peru, Paraguay, Chile and the Dominican Republic – all nations that have implemented the arbitration law based wholly or in part on the model law.

The adoption of this model, viewed in the context of the existing arbitration boom that is engulfing Central America, can be interpreted as representing significant progress. The legal society and foreign investors alike see it as an extremely welcome adjustment. Practitioners at Oller Abogados enthusiastically highlight that the new arbitration law will assist Costa Rica in becoming a regional arbitral centre. According to Oller Abogados, it also helps that the country has established a reputation for comparatively steady governance and a well developed transport infrastructure.

In the absence of a Latin American international arbitration centre, and considering Costa Rica’s strategic geographical location and legal culture, the country can position itself as a very good alternative for the region, Oller believes. “The new arbitration law will bring the possibility of international arbitration to Costa Rica. The enactment of the law will slowly begin to evidence its benefits once the country has instituted a credible global reputation and infrastructure; and once the world’s economy peaks again,” he says.

Advantages over previous laws
The country’s previous arbitration law was perceived burdensome even by regional standards. Under the old law it was obligatory that proceedings be held in Spanish and exclusively conducted by Costa Rican lawyers. These burdensome requirements were highly controversial, considering that the nation wanted to be recognised as an international player. But the effect of the 2011 arbitration law reform is certainly unmistakable. “The prohibitions of the old arbitration law were not based on the UNCITRAL model. Through its implementation all of that has now been rectified. We look forward to a striving arbitration culture in Costa Rica,” says Oller.

Oller Abogados points out that Costa Rica’s amended arbitral law departs from the UNCITRAL model law only minimally. The one key variation will serve to protect the various parties involved by requiring that arbitration proceedings be confidential. This is achieved by obliging that in judicial proceedings information regarding the arbitration may be revealed only to the parties and their representatives concerned. Although the new law has been received with open arms within the international arbitration community, its application by domestic courts will have to be closely monitored in the coming years, says Oller.

FDI legislation changes Costa Rica aid standing
Keeping in line with foreign influences has also played a crucial role in the implementation of other legislation in the country. Oller believes that foreign direct investment (FDI) has over the last 10 years significantly altered Costa Rica’s socio-economic and legal environment. “FDI has transformed a traditionally agricultural economy into one focusing on services and knowledge,” says Oller. “The country is currently in third place globally in terms of outsourcing. We primarily provide the outsourcing to G-12 countries.”

But it was not always possible, and at first required legislation that was sympathetic to FDI, says Oller. It was not until the end of 2009 when change occurred in aid of FDI. That was when the Free Trade Zone Regime (FTZR) was reformed to comply with the commitments Costa Rica entered into with the World Trade Organisation.

This legal overhaul brought major innovations in support of FDI to the country, says Oller Abogados, which offers expertise second-to-none in this knowledge area. According to the firm, income tax is now set at a rate of five percent for those enterprises that are part of the strategic sector, or that are in less developed areas. “Companies within the strategic sectors which maintain an investment of $10m, through a programme of investing for eight years and contracting over 100 workers, are able to keep their existing conditions,” says Oller. “Additionally, there is a tax credit of 10 percent for the reinvestment of profits, costs and training. This is done in order to promote the reinvestment of profits in Costa Rica, the training and education of local workers, as well as small companies that supply FTZR entities.”

Impact of international trade agreements in Costa Rica
Other investment barriers in Costa Rica have widely been banished with the signing of vital international trade agreements. “Costa Rica has positioned itself as a key global player with a range of free trade agreements. The CAFTA-DR [the Central America – Dominican Republic Free Trade Agreement] is one of the important ones, but there are others: such as an association agreement with the European Union that includes the various Central American countries,” says Oller. The firm also considers the bilateral FTA with China, Chile, Canada, Mexico and the upcoming agreements with Singapore and Peru are of significant importance. “All these agreements prove the country’s growing commercial strategy and push law firms and lawyers to keep up and be proactive in an international context,” Oller says.

The CAFTA-DR has established a secure and predictable environment for international investors operating in Costa Rica. The country has made important changes in its legal and regulatory framework in order to prepare for future changes and an increased international client base.

To Oller Abogados the impact of CAFTA-DR has been most visible in telecommunications and insurance, two areas the country had previously reserved to be represented exclusively by the government. Under the agreement, Costa Rica made a commitment to open sections of its insurance and telecommunications market, including internet, private network, and wireless services. CAFTA-DR also authorised six insurance companies, including a US-owned company, to compete with the former monopoly state insurance.

Oller Abogados has since observed a swelling interest in both insurance and telecoms, and has made it its business to become closely acquainted with the particularities of those sectors. “We are seeing the difficulty of adjusting to the new realities of a competitive market scene, where supervising entities are still getting their feet wet. The turnaround and specific implementation have proven cumbersome and the rules not exactly clear.”

International developments
In spite of the country’s legal evolution creating onerous new questions, Oller Abogados has stayed on top of new international laws and its clients’ needs. It predominantly serves corporate clients in a variety of sectors, including energy, agribusiness, aviation, banking and finance, IT and the environment. It excels at advising customers in the most important junctures including M&A, corporate reorganisations, litigation and project finance.

The expert team at the firm is not limited by the inflexibility of the law or a customary point of view. It goes the extra mile to apply its experience to the new arbitration law, or any other legal issue thrown at it, in a timely and reliable manner. Its expertise in government agencies and the business world has allowed it to bring a unique perspective to the corporate environment. Both domestic and international clients can rely on Oller Abogados, which has access to any jurisdiction via well-established relationships and resources.

Business, corporate and commercial representations are also at the forefront of services offered at the firm. “At Oller Abogados, we come from a long-standing family tradition within the business world. A commitment to excellence, ethical, and knowledgeable service, are the bedrock values upon which we base all of our work,” says Oller.