Author: Carlos Alfonso Fortín Lardizábal
One of the biggest problems seen in legal arbitration lies precisely in the lack of
clarity over the criteria that a adjudicator called arbitrator in this case, should
apply to find the right legal solution to the case in study.- In other words, there is a
need to discern which of all legal norms is the most appropriate to address an
intersubjective conflict of interest.- Clearly there is a possibility that the legal
solution will pass through the application, within a certain order, of a set of legal
To begin the analysis, let’s recall that arbitration can be solved in three different
ways in accordance with Article 34 paragraph 3 of the Conciliation and Arbitration
Act of Honduras:
a) In law: Where the arbitrator bases his/her decision in current positive law;
b) In equity: Where the arbitrator decides according to common sense and
fairness; and,
c) Technical: Where the arbitrator pronounces their judgment based on their
specific expertise in a particular science, art, or craft.
In regard to arbitration in equity, the legal definition leaves much to be desired
from the moment that the term is allegedly defined in its own acceptance.- from
our perspective we can say that arbitration is decided in equity when the
arbitrator fails under his own sense of justice.- The result is clear that in
arbitration in equity, the arbitrator will decide what according to his knowledge
and understanding seems fair.- In arbitrations in equity arbitrators are not subject
to legal rules nor the positive law, they decide what they consider fair for the case.
In other words, according to his own sense of justice.
Technical arbitration itself is subject to rules. However, to the prevailing norms in
a particular science, art or craft. In this case, the arbitrator should be an expert in
the area in question, and definitely has to rule in accordance with the applicable
objective criteria to the conflict subject to his decision.
Alternatively, arbitration in law requires the arbitrator to rule basing his decision
on current positive law. To do this he must find within the universe of rules, the
legal rule that best applies to the conflict to be resolved.
About the selection of the legal standard applicable to the case:
The first problem that arises in a particular case lies precisely in the possibility of
applying more than one legal standard to the same issue. – Why does this
phenomenon occur? First, legal rules tend to raise abstract solutions to concrete
situations that ordinarily dispense other elements that in the real world could be
taken into account and which would then lead to the application of other legal
Let´s see an example to better explain: Article 17 of the Code of Commerce of
Honduras regulates the so-called irregular society, meaning those not registered in
the Public Registry of Commerce. The article in reference establishes the following
specific provisions:
A) Public companies not enrolled in the Public Register of Commerce that have
been exteriorized as such to third parties, contained or not in a public deed,
however will have legal personality.
B) The internal relations of these societies will be governed by its own social
contract and by the provisions of this Code.
C) Those who perform legal acts as representatives or presidents of an
irregular company will be jointly liable for compliance against third parties.
D) Any interested party, including members not guilty of irregularity, may
require damages to the perpetrators and those acting as representatives or
presidents of the society.
As we can see, the first provision gives legal personality to irregular society as a
measure of protection to third parties that negotiate with it.- The second provision
regulates the internal relations of the irregular society .- The third provision states
that representatives will respond in solidarity to third parties for corporate
obligations, and finally the fourth provision states the regime derived from
irregularity and states that any interested party, including shareholders not guilty
of the irregularity may demand damages arising from such irregularity.
However, we also have in Article 737 of the Commercial Code, which regulates the
figure of the false representative and provides the following:
a) He/she, who concludes a legal transaction as a representative of another
without being a true representative, or overstepping its powers, will incur
in personal liability.
b) The creditor, once in knowledge of the fraud may choose for compliance or
demand for damages.
c) Compliance creates in the false representative who pays, the same rights
and obligations that correspond to the apparent agent.
d) The dispositions on representation of factors and corporate bodies remain.
Finally, Article 736 of the same Code of Commerce states that:
He/she who has led with positive acts or serious omissions to create, according to the
uses of trade, that any person is entitled to act as his representative, may not invoke
the lack of representation against third parties in good faith. This is presumed, unless
proven otherwise.
While Article 17 of the Code of Commerce states that solidarity is the
responsibility of the representative, Article 737 of the Code states that the false
representative is the only obliged.- However, Article 736 of the Code holds the
society responsible if acts or serious omissions led someone to believe that
someone was his representative, that is to say it regulates the figure of the
apparent representative.
Of the simple reading of the legal provisions indicated, we can see differences in
the factual budget that each rule intended to regulate:
1. Article 17 emphasizes on the irregular nature of society; that is, the fact
that is not registered in the Public Registry of Commerce and notes the joint
liability of the representative.
2. Article 737 emphasizes on the false nature of the alleged representative
and makes him/her solely responsible.
3. Article 736 emphasizes on the actions or omissions of the society that could
make third parties believe that someone is its representative and becomes
responsible to the society supposedly represented. We are in the figure of
the apparent representative.
Then imagine the following situation:
• An irregular society (IS), which has legal personality in accordance with
Article 17 of the Code of Commerce, is sued for the actions of an alleged
representative (AR).
• The plaintiff company (PC) assums that AR is a true representative.
• However, the IS argues that AR is actually a “false representative”
therefore can not claim that lack of representation to avoid the obligation.
Generally, in such cases there are various aspects to be taken into account and too
often the arbitrator does not have a method to decide which rules should be
applied, and pretends based on the supposed proven facts to find the “appropriate
standard ” to the case, but without proper methodology.
I propose a tool that can be used to decide which of these rules should be applied
to an specific conflict and in what order.
PROPOSED SOLUTION TOOL:
With the following, we do not claim to have found a foolproof solution to this type
of problems. Nor do we intend to point out that we have found the only solution to
this type of quandary. Actually we only try to provide a tool for its solution that
can be applied in conjunction with other tools. The proposed tool has two
elements: (i) Use of Criteria of Applicability of Legal norms and (ii) Creating an
Algorithm of Applicability of rules considered previously as applicable.
About the “Criteria of Applicability” of legal rules:
After the examination of the evidence at a trial, and the arguments of the parties,
the judge; in this case, called arbitrator, finds a set of legal rules supposedly legally
related that might apply to the concrete affair. In this case, the arbitrator finds that
they have been alleged and that they have some relation to the facts stated in
provisions of Articles 17, 736, and 737 of the related Commercial Code.
The arbitrator also found that the key concepts of the arguments brandished by
the parties are: false representative, apparent representative, and irregular
We call the key concepts to legal figures or relations that in the abstract have been
put forward or argued by the parties, or that the arbitrator considers relevant in
accordance with the facts as they were proposed. Based on these key concepts the
arbitrator, must create an algorithm of abstract applicability of the rules analyzed.
Now, lets take a look at the construction of this algorithm in a concrete example:
To place ourselves in the context of the present case, the first thing to do is identify
the highlights of the arguments made by the parties. In the analyzed case, the legal
controversy is not focused on the responsibility of the representative, false, real, or
apparent. The controversy focuses on the responsibility of the irregular society,
where the existence of a representative and how this responsibility varies
depending on the nature of real, false, or apparent that we give to it. Let’s see:
- Article 17 states that the irregular society (which by law has legal capacity)
is liable to third parties, as well as those who perform acts as its
- Article 737 establishes that if the alleged representative were proved to be
false, the supposed represented company would not be responsible, since it
indicates that the false representative will be personally liable.
- Article 736 establishes that when a society has given rise to third persons to
believe that the supposed representative really was a true representative, it
creates liability in consequence of the acts or omissions that created the
apparent representation.
We can, based on the above information, establish the following applicability of
criteria to the set of legal rules analyzed:
1. Article 17 would apply when there is an irregular society and a true
representative. In that case, both the society and the representative are
2. Article 736 applies regardless of the regularity or not of the society,
when the alleged representative, actually is not a representative; that is
to say, he is a false representative. In this case the false representative is
solely liable.
3. Article 737 applies when the society (irregular or not) has given place to
acts or serious omissions that have taken third parties with good faith to
believe that the supposed representative was in fact a true
representative. In this case the apparent representative and society are
both jointly liable.
As we can see, the regularity or irregularity of a society becomes the background
for the applicability of any of the rules, since both parties recognize that
irregularity and indeed the debate focuses on the falsehood or not of the
representative and in the acts or omissions of the society that could lead to the
belief that the representative was indeed such.
About the Algorithm of Applicability of Legal Norms:
The arbitrator, based on these criteria of applicability can create the following
algorithm of applicability of the rules analyzed:
1) If we are dealing with a true representative Article 17 applies and therefore
the company itself would be responsible for the acts of representative. The
notion of a true representative excludes both the notion of apparent or false
2) If we are dealing with a false representative Article 737 applies and the
sole responsible would be for the supposed representative, who would be
personally liable.- The company would be free from responsibility.
3) If the society by their acts or omissions gave rise to the belief that the
alleged representative was in fact a true representative, then the applicable
standard is Article 736 and therefore the society would be jointly liable
with the apparent representative.
Therefore, the arbitrator should exclude possibilities as you can see below:
First filter:
The first filter would be to determine whether the alleged representative is
actually a representative or not.
Article 17 Article 736 Article 737
Representative A1 N/A2 N/A
No Representative N/A A A
If with the evidence provided, the arbitrator concludes that representation exists,
Article 17 must be applied.
If with the evidence submitted, the arbitrator concludes that there was no real
representation, he must exclude Article 17 and decide in a second filter if article
736 or 737 should be applied.
Second Filter
The second filter consists in determining if whether the society with its acts or
omissions led third parties in good faith to believe that the alleged representative
was actually such.
Article 736 Article 737
There are acts or
ommisions of the society
A N/A
There are no acts or
ommisions of the society
N/A A
If with the evidence provided to the process, the arbitrator believes that there
actually were acts or omissions of the society that led to believe that the alleged
representative actually was such, Article 736 must be applied. Otherwise, Article
737should be applied.
As can be seen, this tool involves a method in determining the applicable rules to a
concrete case and to avoid arbitration awards with no concrete order, with a
deficient motivation or without touching the real bottom of the issue. By providing
order and objectivity to the legal reasoning of the judge, the algorithm of
applicability of legal rules helps the arbitrator to better motivate its decision and
thus avoid to be invoked as a ground for nullifying on the basis of ruling in equity.
1 Applicable.
2 Not Applicable.
SUMMARY OF METHOD:
The proposed tool involves applying several concepts:
- Identify the highlights of the arguments made by the parties.
- Determine the key concept of each legal norm considered in the
analysis of the case.
- Establish the criteria of applicability of each legal norm with regard
to the relevant part of the case.
- Develop an algorithm of applicability of the rules under
consideration, which decide the application or not of legal rules
according to the criteria of applicability indicated above, taking into
account the key concept previously determined.
Based on the previous concepts, the arbitrator will now have to do the objective
analysis of the test to apply the appropriate legal standard.
Bibliography:
The reader can extend these related topics in the following works:
*Copi, Irving, Introducción a la Lógica, México, Editorial Limusa S.A. de C.V., 2010.
*Moreso, Josep Joan, Lógica, argumentación e interpretación en el derecho,
Barcelona, Editorial UOC, 2006
*Vieweg, Theodor, Tópica y Jurisprudencia, España, Editorial Arazandi S.A., 2007
*González Lagier, Daniel, Las Paradojas de la Acción, España, Publicaciones de la
Universidad de Alicante, 2000