Enforcement of Judgments 2020

Last Updated August 04, 2020

Panama

Law and Practice

Authors



LOVILL is a law firm based in Panama recognised internationally for its expertise in dispute resolution and arbitration. LOVILL has an outstanding arbitration and dispute resolution team that specialises in cross-border dispute resolution and international litigation and arbitration involving multiple jurisdictions, spanning different industries, with a particular expertise and knowledge in public and private international law. LOVILL's dispute resolution and arbitration team members have extensive experience as advisers and party representatives in national and international arbitration proceedings, as well as in proceedings for the enforcement of foreign judgments and arbitration awards. They are fully bilingual; hold degrees and certificates from world-class universities in the USA, Europe and Asia; and have experience representing clients in actions before international bodies, Panamanian courts and arbitral tribunals. The firm is also recognised for its corporate expertise and transactional work with multinational corporations and companies investing in Panama.

Panama has multiple public registries in which interested parties can search for assets prior to instituting enforcement proceedings.

Real Estate and Ship Registries:

Real estate and vehicles registered as company property, can be found in the Public Registry of Panama (Registro Público de Panamá). In addition, all ships and maritime vessels – such as cargo ships, cruise ships, tankers or pleasure vessels – are registered with the Panama Maritime Authority.

Intellectual Property

All trademarks, patents, utility models, industrial designs and trade names can be found in the registries of the General Directorate for the Registry of Industrial Property (DIGERPI).

Non-asset Public Registries

Although they do not directly identify the existence of assets, the following public registries help to determine if companies are active and engage in commercial activity.

Company registry

Another means of seeing if a company is active and operating a business is to search for its operation notice (aviso de operación), which can be found at panamaemprende.gob.pa. In the aviso de operación, one can find information such as the company’s domicile, commercial name and the type of commercial activity it performs in Panama.

Contracts with the state

Through the panamacompra.gob.pa portal, one can research if a particular company has ongoing business with the State or state-owned enterprises, serving as evidence that the company is solvent or has sources of income.

Lawsuits

it is possible to determine if a creditor has been sued before by searching in the judicial registry (registro único de entrada), this might be useful information if a debtor has a number of other debt or judicial proceedings.

Freezing orders are available in the form of a secuestro, which can be filed in local courts. The secuestro is an ex parte proceeding and it requires a bond from the creditor in an amount fixed by the judge (usually 25-40% of the amount to be seized). The existence of freezing orders is not publicly available information.

The asset disclosure order, or its direct equivalent, does not exist under Panamanian law. However, if the creditor holds an enforceable title and the debt is due, the creditor may initiate an enforcement proceeding (proceso ejecutivo) in local courts. The judge, once the enforceable title is reviewed, can order the embargo of movable and immovable assets in accordance with Articles 1648 and 1649 of the Judicial Code.

Under Panamanian law, a judgment resolves claims and/or their exceptions in ordinary and expedited (sumarios) proceedings, and the exceptions filed in enforcement proceedings, regardless of the instance in which they are dictated and those that decide on appeals such as cassation (recurso de casación) and review (recurso de revisión).

Final Judgments

The final judgment deciding the claims raised in contentious proceedings has the effect of res judicata. Those that decide on issues susceptible to modification in a subsequent proceeding (eg, interim or provisional judgments) do not have the effect of res judicata.

Declaratory Judgments

Declaratory Judgments (de mera declaración)are judgments issued with the sole purpose of declaring the existence of a right.

Default Judgments

If the defendant cannot be properly notified at the domicile provided by the plaintiff, the plaintiff has no knowledge as to the domicile of the defendant, or the defendant decides not to participate in the proceeding after proper service, the judge can continue the proceeding until the issuance of a judgment in default of representation. Nonetheless, the defendant retains the right to annul the proceeding on due process grounds, if it is still ongoing, or to annul the judgment in a separate proceeding.

Interim Orders

Interim orders are not considered judgments given that they are susceptible to modification, this is the reason why the decision is issued in the form of an auto. The types of interim measures available are:

  • freezing orders;
  • injunctive relief (medida conservatoria); and
  • suspension orders.

In accordance with the Judicial Code, all final judgments must be complied with, and their enforcement can be demanded by the prevailing party. The fact that the opposing party has initiated annulment proceedings will not prevent a judge from enforcing a domestic judgment.

If the final judgment orders a party to pay sums of money, perform an act or give up something, and the judge doesn’t specifically establish a time limit, the losing party must comply with the order in the following six days after the judgment produces res judicata effects.

If the six-day time limit is not complied with by the losing party, the prevailing party may in the same proceeding denounce assets to be attached by the judge in an embargo and later sold at an auction under the judge’s direction. The embargo of assets will be ordered ex parte and the debtor will not be notified until the assets have been attached.

If the enforcement is not requested in the year following the date on which the judgment produced res judicata effects, the creditor will have to file a separate enforcement proceeding in local courts.

Insolvency

In cases of insolvency, Law No 12 of 2016 (the Insolvency Law) applies. The Insolvency Law considers cases of reorganisation or liquidation of the debtor company.

In cases of reorganisation, once the request is filed and the judge issues a resolution opening the proceeding, a period of bankruptcy financial protection is instituted (protección financiera concursal). This period, protects the debtor from enforcement proceedings, restitution of assets or eviction, it prohibits creditors from unilaterally terminating their contracts and collection guarantees, and the debtor cannot be prohibited from contracting with state entities.

Cases of liquidation of a debtor’s company occur when payment of an enforceable title is due, the company has three or more enforcement proceedings filed against it and there are not enough assets for full payment of the debt, or the debtor closes its business without naming a principal with the means to fulfil its obligations of payment. A liquidator is named in representation of the creditors and is duly empowered to dispose of the debtor's assets and use the proceeds to pay the credits recognised in the insolvency proceeding. The creditors with real guarantees (garantías reales) will be able to continue their actions relating to goods encumbered with a mortgage, antichresis or pledge.

To date, Panama has not passed a law that particularly addresses cases of insolvency or enforcement proceedings that result from the COVID-19 pandemic.

The costs and time involved in enforcing a judgment will depend on factors such as:

  • the ability of the creditor to identify the debtor's assets;
  • where those assets are located;
  • the complexity of the debtor's operations; and
  • its ability to dispose assets to fulfil payment.

In addition to legal fees, the creditors must consider the costs that it may be necessary to incur, such as expert accountants' fees or the fees of the liquidator in insolvency cases. In civil cases, as a general principle, the losing party must pay the costs of the prevailing party.

Once a judgment for enforcement is obtained, the plaintiff may proceed to list the defendant’s assets as summarised in 1.1 Identifying Assets in the Jurisdiction.

Enforcement proceedings in civil litigation are adversarial in nature. Once the lawsuit is filed by the plaintiff/creditor, the court notifies the defendant/debtor, who will be able to challenge claims and appeal judicial decisions. Accordingly, at the enforcement proceeding of a domestic judgment the defendant/debtor can raise defences on appeal such as improper service, due process violations or an error in deciding on the merits.

Pursuant to Article 1640 of the Judicial Code, the order of enforcement can be appealed, but the debtor cannot seek a stay of enforcement. However, the court of first instance cannot issue a resolution of judicial auction until the appeal is resolved.

Domestic judgments deemed unenforceable are those that do not comply with the characteristics set forth in 2.1 Types of Domestic Judgment and do not yet produce res judicata effects. If ordinary avenues of appeal have not yet been time-barred and can be actioned by the debtor, then a domestic judgment cannot be enforced.

Panama does not possess a register of domestic judgments. The judicial branch has a database at http://bd.organojudicial.gob.pa/registro.html, in which judicial decisions from the Supreme Court of Justice are available, however, this is not an exhaustive registry of all judgments.

Furthermore, the Supreme Court releases a monthly registry with the decisions issued in that month.

Panama recognises and enforces foreign judgments in accordance with domestic law, bilateral and multilateral conventions and investment treaties, and the principle of reciprocity between states.

If there is no treaty between Panama and the state in which the judgment has been issued, it may be enforced in Panama, except in cases where that state does not recognise and enforce judgments issued by the Panamanian courts (principle of reciprocity). 

The following pieces of legislation, treaties and decisions seek to regulate, inter alia, (i) jurisdictional issues, (ii) choice of law questions and (iii) recognition and enforcement of foreign judgments:

  • domestic law, such as:
    1. the Judicial Code;
    2. the Code of International Private Law; and
    3. judicial decisions (as a source of interpretation); and
  • treaties and conventions to which Panama is a party, including:
    1. the Code of International Private Law or Bustamante Code, 1928;
    2. the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958;
    3. the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, 1961;
    4. the Inter-American Convention on International Commercial Arbitration, 1975; and
    5. the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA), 1985.

Panama is a party to multiple treaties many of which can be found on the web-page of the Ministry of Foreign Relations of Panama.

There is a variation in the approach to enforcement for hereditary proceedings conducted in a foreign court.

Ordinarily, judgments issued by foreign courts that have produced res judicata effects may be enforced in Panama in accordance with the applicable treaty or convention. The proceeding to be followed is outlined in 3.4 Process of Enforcing Foreign Judgments.

For hereditary proceedings, the Fourth Chamber of the Supreme Court has established that this type of decision is not required to go through the exequatur proceeding. The declaration of heirs (auto de declaratoria de herederos) is understood as a legal title that must be weighed by a Panamanian judge in accordance with the provisions of Article 1523 of the Judicial Code. Indeed, the final resolution issued in a foreign hereditary proceeding is not considered under Panamanian law as a judgment; accordingly, the heirs cannot directly request the assets without undergoing a hereditary proceeding before local courts in Panama, where any national or foreigner can be considered heir to the mass of assets subject to the universal succession proceeding established in the Judicial Code.

Panama's Code of International Private Law of 2015 further supports the Supreme Court’s case law and concludes, in its Article 52, that even when a succession proceeding has been conducted in a foreign court, it is still necessary to initiate a succession proceeding in Panama so a judge can award assets located within the boundaries of the state.

Subject to special treaties, no judgment issued in a foreign country may be enforced in Panama, if it does not meet the following requirements:

  • the judgment must have been issued by a tribunal with competence to decide on the matter, and must not violate the exclusive jurisdiction of Panamanian courts, which have exclusive jurisdiction over assets located in Panama;
  • the judgment cannot have been obtained in default of defence or representation;
  • the judgment issued in the foreign court must have resulted from an adversarial proceeding (principio del contradictorio);
  • the judgment issued by a foreign court must not violate fundamental principles or rights of Panamanian public policy;
  • the copy of the Judgment must be authentic, and duly translated into Spanish (if applicable);
  • foreign judgments must be final and produce res judicata effects; and
  • the principle of reciprocity among states must be respected by the state in which the foreign judgment was issued. 

Subject to special treaties, the enforcement proceeding of a foreign judgment must be conducted pursuant to exequatur provisions of the Judicial Code, the Code of International Private Law and judicial decisions. The creditor's application must be filed directly with the Fourth Chamber of the Supreme Court of Justice (Fourth Chamber), which has exclusive jurisdiction to decide on the recognition and enforcement of foreign judgments.

The applicant may request the enforcement of a foreign judgment where:

  • the applicant has a personal and direct interest (in personam);
  • the judgment was rendered as part of a proceeding in which proper service was issued to the defendant;
  • the obligation that is sought to be enforced is legal in Panamanian territory; and
  • a duly authenticated copy is attached to the application.

The following documents are required:

  • a power of attorney;
  • a certified copy of the foreign judgment; and
  • a certified translation of the foreign judgment.

The Fourth Chamber will give notice to the debtor party and the Office of the Attorney General of Panama (or Public Prosecutor's Office) of the application and allow a time limit of five days so any opposition to the exequatur may be filed. If an opposition is filed and the Fourth Chamber must act in fact-finding capacity, it will allow an evidence phase and a phase of final written submissions, before issuing a decision on the enforcement of the foreign judgment.

The foreign judgment must comply with the requirements outlined in 3.3 Categories of Foreign Judgments Not Enforced.

If the Fourth Chamber declares that the foreign judgment must be recognised and enforced, it will request the court with proper jurisdiction to proceed with the enforcement.

The costs and time taken to enforce a foreign judgment will depend on whether the proceeding is opposed by either the debtor or the Office of the Attorney General, due to either factual or public policy arguments. The fact that the exequatur proceeding of a foreign judgment is solely reviewed by the Fourth Chamber of the Supreme Court allows a quicker and less expensive proceeding than a domestic enforcement proceeding that may involve multiple appeal mechanisms.

Another factor to consider is how easy it will be to locate the debtor’s assets and attach them for enforcement of the debt. Finally, it is important to note that, after the exequatur proceeding is finalised in the Fourth Chamber of the Supreme Court, the actual enforcement will be handled by a separate competent local court. 

The Judicial Code and the Code of International Private Law set forth the options available to challenge enforcement of a foreign judgment. As outlined in 3.3 Categories of Foreign Judgments Not Enforced and 3.4 Process of Enforcing Foreign Judgments, the possibility of appeal in the original jurisdiction, due process violations such as invalid service, a lack of reciprocity from the state in which the judgment was made, exclusive jurisdiction for Panamanian courts, and violations to Panamanian public policy may all be grounds for successfully challenging the enforcement of a foreign judgment.

A challenge under public policy grounds, is indeed an "unruly horse" that has caused wide debate as to its scope and application. A violation to Panamanian public policy (orden publico panameño), established under Article 156 of the Code of International Private Law and Article 1421 of the Judicial Code, as grounds for challenging a foreign judgment, has been interpreted in judicial decisions as a breach to a set of imperative rules that cannot be discarded or superseded by party autonomy.

Until 31 December 2013, domestic and international arbitration in Panama was regulated by Decree Law No 5 of 8 July 1999 (Decree Law 5), which established the legal regime for arbitration (both domestic and international), conciliation and mediation. Decree Law 5 was inspired by the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). In some of its articles, Decree Law 5 textually incorporated parts of the Model Law and the New York Convention, such as those provisions that regulate the scope of arbitration, the rules applicable to the validity of the arbitration agreement, the determination of the laws applicable to the merits of the dispute, as well as the recognition and enforcement of foreign arbitration awards.

On 31 December 2013, Law No 131 (Panama's Arbitration Law), which governs domestic and international arbitration in Panama, came into force, effectively replacing Decree Law 5. Panama’s Arbitration Law took effect the day after its promulgation; however, as provided in Article 75, unless otherwise agreed, proceedings that were already underway before constituted arbitral tribunals shall be governed by Decree Law 5.

Furthermore, the Code of International Private Law includes a chapter for recognition and enforcement of foreign judgments and awards.

Arbitration also enjoys constitutional protection under Panamanian Law. Since the 2004 reform of the Political Constitution of Panama, the state has recognised the jurisdiction of arbitral tribunals, provided that the administration of justice carried out by the arbitral forum is in accordance with the law, and establishes that arbitral tribunals may hear and decide for themselves over their own competence.

In 1983, the Republic of Panama ratified the New York Convention. Panama is also a party to the Convention on Settlement of Investment Disputes between States and Nationals of Other States since 1996 and the Inter-American Convention on International Commercial Arbitration of 1975, commonly known as the "Panama Convention".

Finally, in the wake of the COVID-19 pandemic, Panama's two main arbitral institutions, the Centro de Arbitraje y Conciliación de Panamá (CeCAP)” and the Centro de Solución de Conflictos (CESCON), have increased efforts to promote virtual hearings and seek digital solutions to ensure continuity of ongoing arbitration proceedings. However, for the enforcement of arbitral awards in local courts, although the Supreme Court of Justice is promoting the use of virtual hearings, it is yet to be determined if Panama’s judicial system has the ability to quickly modernise and adapt to the remote-working climate.

Variation in approaches to enforcing arbitral awards will depend on whether it is a foreign or local arbitral award.

Prior to the enforcement of a foreign arbitral award, the award must be subjected to the exequatur proceeding in the Fourth Chamber of the Supreme Court of Justice. Once the foreign award is recognised and declared enforceable in Panama by the Fourth Chamber, the party seeking enforcement may request that lower courts enforce the award. This varies from the approach followed for domestic awards were the exequatur proceeding is not required.

In spite of the procedural variations, as a New York Convention and UNCITRAL Model Law jurisdiction, Panama is considered to be a pro-arbitration jurisdiction regardless of whether the award is domestic or foreign.

Domestic or foreign awards will ordinarily not be enforced if their subject matter is not arbitrable. Non-arbitrable subject matter includes issues of:

  • criminal law;
  • labour law;
  • family law;
  • consumer law; and
  • any other matter that cannot be subject to negotiation, or cannot be waived by the parties.

Non-enforcement will also apply to awards whose enforcement would be contrary to Panamanian law.

Although there is a strong pro arbitration policy, the arbitration system in Panama is fundamentally contractual, which means that legal theories which extend the effects of arbitral awards to parties who are non-signatories of the arbitration agreement (eg, group of companies, alter egos or agencies) may not be enforced.

Domestic Awards

Pursuant to Article 69 of Panama’s Arbitration Law, any domestic arbitral award will be subject to enforcement by a competent civil circuit judge, using the procedure established for final judicial decisions in the Judicial Code. The original award or an authentic copy must be attached to the application requesting enforcement. The enforcement judge will serve to the other party the application with its attached documents, for a period of fifteen days. The other party may oppose the requested enforcement, alleging only the pendency of the annulment of the award, and providing the writ of the appeal or authentic copy of the annulment judgment.

There is no requirement for recognition prior to enforcement.

Foreign Awards

“International arbitral awards”, as referred in Panama’s Arbitration Law, will be recognised and enforced in Panama in accordance with the following instruments:

  • the Convention on the Recognition and Enforcement of Foreign Arbitral Awards passed in New York on June 10, 1958;
  • the Inter-American Convention on International Commercial Arbitration, approved in Panama on January 30, 1975; and
  • any other treaty on recognition and enforcement of arbitration awards that the Panamanian State has ratified.

Unless the parties’ have agreed otherwise, the applicable treaty shall be the most favourable to the party requesting recognition and enforcement of an international award. If there is no applicable treaty or instrument, the award can be enforced provided that the country in which the award was rendered provides reciprocity with the enforcement of awards made in Panama.

The awards rendered in international arbitrations whose seat of arbitration is the Republic of Panama will not be subject to the recognition procedure and may be enforced directly if necessary.

An international arbitral award, regardless of the country in which it was issued, will be recognised as binding, upon presentation of a written application to the Fourth Chamber of the Supreme Court of Justice, together with the original award or authenticated copy (exequatur proceeding). If the award is not written in the Spanish language, it must be presented with a proper translation by an authorised public translator.

As per the requirements established in the Judicial Code, the applicant in the exequatur proceeding may request the enforcement of a foreign award where:

  • the applicant has a personal and direct interest (in personam);
  • the award was rendered as part of a proceeding in which proper service was issued to the defendant;
  • the obligation that is sought to be enforced is legal in Panamanian territory; and
  • a duly authenticated copy is attached to the application.

The following documents must be enclosed with the application:

  • a power of attorney;
  • an authentic or certified copy of the foreign award;
  • an authentic copy certified copy of the arbitration agreement; and
  • a certified translation of the above documents if they are not held in Spanish.

Once the application is received, the Fourth Chamber will give notice to the debtor party and the Office of the Attorney General of Panama (or Public Prosecutor's Office) of the application and allow a time limit of five days so any opposition to the exequatur may be filed. If an opposition is filed and the Fourth Chamber must act in a fact-finding capacity, it will allow an evidence phase and a phase of final written submissions, before issuing a decision on the enforcement of the foreign award. Under no circumstance however can the Fourth Chamber review the merits of the foreign award, it may only review the limited grounds set forth in 4.6 Challenging Enforcement of Arbitral Awards.

Panama’s Arbitration Law does not provide for a time limit applicable to the commencement of an exequatur proceeding of a foreign award. Nonetheless, judicial decisions have established a seven-year statute of limitation for civil obligations and five years for commercial obligations.

The costs and time taken to enforce a foreign award will depend on whether the proceeding is opposed by either the debtor or the Office of the Attorney General for either factual or public policy reasons, the Attorney General will generally oppose it if the award violates Panamanian law. The fact that the exequatur proceeding of a foreign award is solely reviewed by the Fourth Chamber of the Supreme Court allows a quicker and less expensive proceeding.

Another factor to consider is how easy it will be to locate the debtor’s assets and attach them for enforcement of the debt. Finally, it is important to consider that after the exequatur proceeding is finalised in the Fourth Chamber of the Supreme Court, the actual enforcement will be handled by a competent local court, which means that the party might have to invest in an additional proceeding to obtain enforcement.

Reasons for refusal of recognition or enforcement are established in Article 72 of Panama’s Arbitration Law, which establishes that the recognition or enforcement of a foreign arbitral award may only be denied, regardless of the country in which it was issued, in the cases and for the causes that are exhaustively indicated below:

  • At the request of the party against whom it is invoked, when this party proves, before the competent court of the country in which recognition or enforcement is requested, that:
    1. one of the parties to the arbitration agreement was affected by some defect, or that said agreement is not valid under the law to which the parties have submitted it, or if nothing had been indicated in this regard, by virtue of the law of the country in which the award was made;
    2. the party against whom the award is invoked has not been duly notified of the appointment of an arbitrator or of the arbitration proceedings or has not been able, for any other reason, to assert its rights;
    3. the award refers to a controversy not foreseen in the arbitration agreement or contains decisions that exceed the terms of the arbitration agreement (however, if the provisions of the award that refer to the issues submitted to arbitration can be separated from those that do not, the former can be recognised and enforced);
    4. the composition of the arbitral tribunal or the arbitration procedure is not in accordance with the agreement between the parties or, in the absence of such an agreement, that it is not in accordance with the law of the country where the arbitration took place; or
    5. the award is not yet binding on the parties or has been annulled or suspended by a court of the country in which, or according to the law, that award has been issued.
  • If the Fourth Chamber of the Supreme Court of Justice verifies that:
    1. according to Panamanian law, the subject matter of the dispute is not arbitrable; and
    2. the recognition or enforcement of the award would be contrary to Panama's international public policy.

There is no appeal mechanism in Panama for arbitral awards. The only recourse available against awards issues in arbitration proceedings seated in Panama is through a set-aside proceeding which is also reviewed exclusively by the Fourth Chamber of the Supreme Court.

Finally, as outlined in 4.4 Process of Enforcing Arbitral Awards, there are time limitations that the parties must be aware of, and which may be the source of a challenge in an exequatur proceeding.

LOVILL

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San Francisco, 74E Street
Panama City
Republic of Panama

+507 215-3215

215-3215

info@lovill.com www.lovill.com
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Trends and Developments


Authors



LOVILL is a law firm based in Panama recognised internationally for its expertise in dispute resolution and arbitration. LOVILL has an outstanding arbitration and dispute resolution team that specialises in cross-border dispute resolution and international litigation and arbitration involving multiple jurisdictions, spanning different industries, with a particular expertise and knowledge in public and private international law. LOVILL's dispute resolution and arbitration team members have extensive experience as advisers and party representatives in national and international arbitration proceedings, as well as in proceedings for the enforcement of foreign judgments and arbitration awards. They are fully bilingual; hold degrees and certificates from world-class universities in the USA, Europe and Asia; and have experience representing clients in actions before international bodies, Panamanian courts and arbitral tribunals. The firm is also recognised for its corporate expertise and transactional work with multinational corporations and companies investing in Panama.

Current Challenges for Enforcement of Foreign Judgments and Awards in Panama as a Result of the COVID-19 Pandemic

Panama is a country that has served the world throughout its history as a logistical gateway for international trade and commercial relations. Because of its strategic and geographic position, and its service-driven economy, international disputes have been a common ground in national courts, not only in international arbitration cases, but also in day-to-day activities that impact our courts, seeking execution in Panama of foreign judgments and international arbitral awards.

Part of our history can be well reflected in the Panama Convention of 1975 for International Commercial Arbitration, where we served as the host state, gathering different countries from North America, Central America and South America to enter into an international agreement that would secure and promote a common criteria for the enforcement of international arbitral awards in commercial disputes. This DNA is reflected in our courts, and specifically in the reciprocity and compliance shown towards foreign judgments and arbitral awards. Panama has a track record of complying with foreign judgments in approximately 80% of cases, the remaining 20% involve possible annulments for specific purposes regarding violations of public policy and other limited procedural grounds.

In a single swift blow, however, the COVID-19 pandemic has upended the legal industry and the way in which legal services are provided in multiple jurisdictions around the globe. The judicial branches of governments have faced a sudden need to fast-track projects for digital transformation in order to continue to guarantee access to justice, and law practitioners have had to invest heavily in legal tech services to ensure that their practices can comply with social distancing guidelines. In this new reality – where globalisation, international litigation and international arbitration require effective enforcement mechanisms to guarantee legal rights – COVID-19 presents a series of challenges and opportunities that may positively impact those who are in need of transnational legal work.

For this article, acknowledging the unique times the world is currently facing, we will focus on how the COVID-19 pandemic may have an impact on the enforcement of foreign judgments and awards in Panama, with particular attention paid to substantial matters and opportunities that lie ahead for continued reform of the Panamanian court system. Specifically, we will address the following trends and developments:

  • the enforceability of foreign judgments and awards using force majeure;
  • the digital transformation of judicial proceedings in Panama;
  • the impact of COVID-19 on enforcement of foreign judgments;
  • the impact on the enforcement of arbitral awards;
  • opportunities for reform.

Enforceability of foreign judgments and awards using force majeure in COVID-19 as an exception

As disputes mount each day amid the many disruptions to international contracts and supply chains caused by COVID-19, parties around the globe will undoubtedly claim force majeure as an exception for compliance with contractual obligations.

Although courts and arbitrators will reach a conclusion regarding each particular case and the applicability of force majeure as an exception to contractual obligations, the question of whether the judgments and awards will pass the test of local public policy, when attempting to enforce the decision in other countries, will remain.

The Supreme Court of India recently refused enforcement of a foreign award on the basis that the force majeure defence raised by respondent was contrary to the fundamental public policy of India. Similarly, Panama’s exequatur procedure requires the foreign judgment or arbitral award to be in compliance with public policy. A challenge under public policy grounds, is indeed the "unruly horse" that has caused wide debate as to its scope and application. A violation of Panamanian public policy (orden público panameño), established under Article 156 of the Code of International Private Law and Article 1421 of the Judicial Code of Panama, as a ground for challenging a foreign judgment, has been interpreted in judicial decisions as a breach to a set of imperative rules that cannot be discarded or superseded by party autonomy. 

Although force majeure is codified in the Panamanian Civil Code, the plausibility of its application as an exception for fulfilling an obligation due to COVID-19, is yet to be determined by local courts. Prior Supreme Court decisions have shed light on the elements that the lower courts would explore, mainly (i) the contractual obligations and existence of a clause with force majeure conditions, and (ii) the direct link between the breach of the contractual obligation and the cause of said breach (within the acts of force majeure or acts of God either contractual or based on Panamanian law).

Interestingly, after the military invasion of Panama by the USA in 1989, which caused a complete lockdown of the economy, some entities claimed force majeure as an exemption from fulfilling financial obligations owed to the National Bank of Panama. This argument was tested in court; the Third Chamber of the Supreme Court decided then that force majeure could not be used as an exception for non-compliance with contractual obligations during the invasion for payment obligations, due to the fact that monetary obligations, generally speaking, could be complied with through other mechanisms.

When enforcing a foreign judgment or award concerning the acceptance of force majeure as a defence, the court will have to assess the consequences of two scenarios:

  • deciding to enforce a foreign judgment or award that accepts force majeure as an exception from complying with contractual obligations, where Panama's legal framework regulates such circumstances; or
  • opting not to enforce a foreign judgment or award with such an exception, which would be a matter of extensive review since the enforcement of foreign judgments are not to be taken to challenge the merits on which the foreign judgment was decided, but rather to be recognition procedures, which are very restricted as to the reasons why such recognition could be challenged, leaving it primarily to public order violations.

Note that although Panama is a civil law jurisdiction, judicial decisions (jurisprudence) are commonly invoked by courts and lawyers to cement arguments. Three judgments of the Supreme Court on the same matter, and solved under the same criteria, could be taken as sustainable jurisprudence.

It is yet to be determined whether a judgment of this nature would create a ripple effect across over other disputes in lower courts.

Digital transformation of judicial proceedings in Panama

Since 2008, there have been considerable legislative efforts to use technology as a means to promote access to justice, modernise the legal process and cut expenses on administrative equipment. Starting with Law No 15 of 7 February 2008, Panama started adopting measures for digitalisation of judicial proceedings such as updating the judiciary servers in the judicial management system (Sistema de Gestión Judicial) and the creation of the judicial electronic file (Expediente Electrónico Judicial), among others.

Following that first step, and in order to harmonise the goal for digitalisation with Panama’s Judicial Code, the Law No 75 of 18 December 2015 “which subrogates Law No 15 of 2008” was issued (Law No 75). Law No 75 further regulates the judicial management system and the judicial electronic file so that the judiciary is better able to use electronic platforms for legal processes. It also incorporates reforms to the Judicial Code or Code of Civil Procedure, allowing electronic filings in specific circumstances and detailing the use of the judicial electronic file in individual cases.

Thanks to these reforms, today, hearings and proceedings may be carried out by videoconference or through other forms of technology-aided communication when personal appearance is not possible. Indeed, as a result of the COVID-19 pandemic, the judiciary has started to promote the use of videoconferencing as a suitable remedy to existing social distancing guidelines, mainly for criminal proceedings.

However, even when recognising the much-needed legislative reforms in terms of digitalisation of judicial proceedings, there are still challenges that will become evident when trying to enforce foreign judgments during and after the COVID-19 pandemic is over.

Impact of COVID-19 on enforcement of foreign judgments

To date, in Panama, there has not been a piece of legislation proposed that specifically address changes in enforcement proceedings as a result of the COVID-19 pandemic, accordingly, standard proceeding for enforcement of foreign judgments must be followed (See the Panama Law and Practice article in this Guide).

The application for recognition and enforcement (exequatur proceeding) is filed by the creditor in the Fourth Chamber of the Supreme Court (Fourth Chamber). This procedure is within the scope of a summary proceeding according to Article 1419 of the Judicial Code. This expedited mechanism requires that the applicant file the exequatur request, attaching the foreign judgment or arbitral award, as well as evidence of the notification of said judgment. The debtor and the Office of the Attorney General will be given an opportunity to oppose the exequatur application, on grounds which are very restricted and limited to procedural violations, and to provide evidence to support their claims. If an evidence phase (práctica de pruebas) needs to be scheduled, and it is necessary to hold hearings for review of documentary evidence, and to take testimony from witnesses and experts, these may theoretically be done through the use of videoconferencing at the request of one of the parties. Although there is no public record of a virtual hearing being conducted in an exequatur proceeding, pursuant to Law No 75 detailed above, it is possible for the parties to request the use of videoconferencing if the COVID-19 pandemic, and the government measures arising therefrom, impede an in-person hearing.

That said, we must recognise that the Panamanian judicial system is trying to adapt to this new reality and is adopting the proper measures of social distancing. To prevent the spread of COVID-19, the judicial branch decreed a suspension of all judicial terms from 16 March 2020 to 21 June 2020 and closed almost all court operations, with the exception of criminal cases and actions concerning constitutional guarantees. And while the judicial terms were reinstated on 22 June 2020, the three month suspension has been a considerable delay in obtaining a final decision on the recognition and enforcement of foreign judgments. Furthermore, it is foreseeable that, while partial or full quarantine measures are in force, or social distancing guidelines persist, there will be additional lags in the process.

Lastly, if the Fourth Chamber declares that a foreign judgment must be recognised and enforced, it will request a court with proper jurisdiction to proceed with that enforcement. This means that even when the exequatur proceeding has concluded, a separate enforcement proceeding is subsequently instituted to collect the debt owed to the creditor. How efficiently the enforcement court acts in the subsequent proceeding will depend on its own ability to adapt to the circumstances surrounding the COVID-19 pandemic and how easy it is to identify and attach assets from the debtor.

Impact on enforcement of arbitral awards

One of the hallmarks of international arbitration is the ability of the prevailing party in a particular arbitration dispute to enforce a portable and binding decision across multiple jurisdictions until the damages awarded are paid in full. As a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), Panama provides a legal framework where foreign awards can be readily enforced subject to limited grounds for challenge. These grounds encompass procedural irregularities that are exhaustively listed and ought to prevent local courts from de novo reviewing the merits of the dispute.

In addition to the New York Convention’s limited grounds for refusal of enforcement (Article V), other benefits, such as, inter alia:

  • the elimination of the double exequatur requirement;
  • a requirement that no more onerous conditions may be imposed than for the enforcement of a domestic award (Article III); and
  • a prescribed list of documents to be submitted to the court (Article IV),

has made arbitration the preferred method for resolving international disputes.

Panama is also a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention), meaning that it recognises awards rendered pursuant to the Washington Convention as binding and enforces them as final judgments issued by local courts. Although to date, based on publicly available information, there has not been an attempt to enforce an (International Centre for Settlement of Investment Disputes) ICSID award in local courts, Panama enjoys a favourable legal structure for these types of investment treaty awards.

On a more substantive note, thought-provoking scenarios have been shared among practitioners where we consider if virtual hearings in arbitration due to COVID-19 may, in some respects, be grounds for challenging the enforcement of a foreign award under the New York Convention. First, the party challenging enforcement may claim that it was not able to present its case as a result of technical malfunctioning during hearings, which could amount to a violation of equality of the parties and access to justice (Article V(1)(b)). Second, it may also contend that the arbitral procedure was not in accordance with the agreement of the parties or the law of the country where the arbitration took place (Article V(1)(d)).

Under the first scenario, the Fourth Chamber, as the enforcement court of foreign arbitral awards in Panama, would have to consider, inter alia:

  • if the hearings where conducted in accordance with the procedural rules agreed for videoconferencing;
  • if the challenging party is estopped from seeking a remedy because it did not timely object to the technical malfunctioning; and
  • the attitude of the arbitral tribunal towards the interruptions in the proceedings due to the technical malfunctioning.

As per the second scenario, the Fourth Chamber may consider if the arbitration agreement, the applicable law, the procedural rules and Panama’s international public policy (Article V(2)(b)), in some way imposed a prohibition against conducting an arbitration proceeding through videoconferencing. Considering the attitude of arbitral institutions and local courts promoting the use of videoconferencing, in and outside of Panama, the challenging party will have to meet a high standard of proof to be successful. To date, there is no case publicly available where a challenge has been made against the enforcement of a foreign arbitral award on the basis of the use of videoconferencing. However, if in the future such a case arises, the Fourth Chamber will have to consider if a serious irregularity or a violation to minimal fairness standards occurred. 

In terms of practical challenges for enforcement, these will be the same as those outlined for foreign judgments. In these unprecedented conditions, where courts have limited functioning, enforcement proceedings may be primarily affected in terms of the time that will be taken for the exequatur application to be resolved by the Fourth Chamber.

Opportunities for reform

The COVID-19 pandemic promises to be an inflection point in court litigation. Judicial systems around the globe are in the process of reinventing their structures and protocols with the use of technology. Beyond videoconferencing, the gap between technological advances and the decades-old way of resolving disputes will shorten across the board, and Panama is no exception to that systemic change.

While acknowledging the advances made by the judiciary to implement a legal regime that favours the use of technology, as we have seen in this article, there are practical and substantive challenges for the enforcement of foreign judgments and awards during and post COVID-19. For this reason, we can foresee a new wave of trends and developments in the practice of law in this new decade.

Some areas for reform to consider are:

  • The implementation of an e-filing system throughout the legal system.
  • The implementation of platforms such as blockchain, to maintain an orderly and encrypted record of the files, allowing remote consultation, while ensuring transparency and efficiency.
  • The implementation of guidelines and protocols for limiting physical presence of attorneys in courts.
  • The implementation of a legal regime which promotes the use of oral advocacy in some procedural motions in civil litigation.
  • The implementation of processes to promptly make all final judicial decisions publicly available.
  • The provision of additional access to users of existing digital platforms used by court staff like the judicial documentation centre (Centro de Documentación Judicial or CENDOJ).

These changes will reduce the pendency of cases while at the same time further Panama’s policy of serving as a regional hub for business in the Americas.

In conclusion, the current challenges for enforcement of foreign judgments and awards will be temporary in nature, however, the opportunities created in times of COVID-19 will in the end transform how law is practised in Panama and around the globe. In these times of crisis, technology is our ally and we must use it in furtherance of our client’s objectives and access to justice.

LOVILL

Midtown SF74 Building, 17th Floor, Suite 1705
San Francisco, 74E Street
Panama City
Republic of Panama

+507 215-3215

215-3215

info@lovill.com www.lovill.com
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Law and Practice

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LOVILL is a law firm based in Panama recognised internationally for its expertise in dispute resolution and arbitration. LOVILL has an outstanding arbitration and dispute resolution team that specialises in cross-border dispute resolution and international litigation and arbitration involving multiple jurisdictions, spanning different industries, with a particular expertise and knowledge in public and private international law. LOVILL's dispute resolution and arbitration team members have extensive experience as advisers and party representatives in national and international arbitration proceedings, as well as in proceedings for the enforcement of foreign judgments and arbitration awards. They are fully bilingual; hold degrees and certificates from world-class universities in the USA, Europe and Asia; and have experience representing clients in actions before international bodies, Panamanian courts and arbitral tribunals. The firm is also recognised for its corporate expertise and transactional work with multinational corporations and companies investing in Panama.

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Authors



LOVILL is a law firm based in Panama recognised internationally for its expertise in dispute resolution and arbitration. LOVILL has an outstanding arbitration and dispute resolution team that specialises in cross-border dispute resolution and international litigation and arbitration involving multiple jurisdictions, spanning different industries, with a particular expertise and knowledge in public and private international law. LOVILL's dispute resolution and arbitration team members have extensive experience as advisers and party representatives in national and international arbitration proceedings, as well as in proceedings for the enforcement of foreign judgments and arbitration awards. They are fully bilingual; hold degrees and certificates from world-class universities in the USA, Europe and Asia; and have experience representing clients in actions before international bodies, Panamanian courts and arbitral tribunals. The firm is also recognised for its corporate expertise and transactional work with multinational corporations and companies investing in Panama.

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