Arbitration as a method of dispute resolution prevails over litigation in ordinary courts in Panama in the context of high-level commercial relationships, such as those involving states and international companies or consortiums for the development of international trade, and those agreed upon between the State and foreign physical or legal entities for public works development or investment.

The construction industry of public works by foreign consortiums or companies has been subject to more international arbitration activity in recent years than most other industries in Panama.

The Panama Center for Conciliation and Arbitration (“Cecap”) administers international arbitrations as permitted by Panama’s arbitration legislation (Law 31 of 2013, “the Arbitration Law”). The Conflict Resolution Center (“Cescon”) and the International Chamber of Commerce have also been established in Panama.

There is no specific court in Panama designated to hear disputes related to international or domestic arbitration. The Fourth Chamber of the Supreme Court may review arbitration awards on due process and public order grounds.

Law No 131 of 2013 regulates national and international arbitration in Panama. This law is 90% based on the Uncitral Model Law.

As indicated above, Panama’s latest legislation in this respect dates from 2013 and has not undergone any changes to date.

For an arbitration agreement to be enforceable in Panama, it must be in writing and it must be agreed upon by individuals capable of binding themselves with a lawful purpose.

According to Panama’s Arbitration Law, only matters that are freely disposable by the parties according to the law and those matters that the law or a treaty specifies may or should be submitted to arbitration are arbitrable.

The parties are free to agree on the law governing the arbitration agreement. Agreements that meet the requirements established by law are enforceable.

An arbitral clause will be considered valid even if the rest of the contract in which it is contained is invalid, as Panama applies the rule of separation or autonomy of arbitration clauses contained in an invalid agreement.

As a general rule, there is no limit on the parties’ autonomy to determine the number of arbitrators, as long as the number is odd. In the absence of an agreement, there will be only one arbitrator. If one of the parties is a State or a state entity, however, there must be three arbitrators.

If the parties to an arbitration are unable to appoint an arbitrator or arbitrators, Panamanian law provides formulas for appointment. Default appointment rules also apply for multi-party arbitrations. In the absence of an appointment, it is understood that there will be only one arbitrator.

According to Panamanian arbitration legislation, an arbitration administering institution can intervene in the selection of arbitrators. This can happen when one of the parties has not appointed an arbitrator within the time established by law or the arbitration agreement, or if the appointed arbitrators cannot agree on the appointment of the third arbitrator. Intervention may also be required when the parties cannot agree on the appointment of a single arbitrator, or in multi-party arbitration, where the respective claimant or defendant parties cannot agree on the appointment of an arbitrator or, having each appointed one, the appointees cannot agree on the appointment of a third arbitrator. Regarding the limitations of these powers, it is worth noting that the arbitration institution must take into account the conditions required by the parties. The appointed arbitrator must be of a different nationality from that of the parties and, if applicable, from the nationality of the already appointed arbitrators.

Law 131 of 2013 establishes that an arbitrator can be challenged if there are circumstances that give rise to justified doubts about their impartiality or independence, or if they do not possess the qualifications agreed upon by the parties.

According to Law 131 of 2013, it is mandatory for the person appointed as an arbitrator to disclose all circumstances that may give rise to justified doubts about their impartiality or independence. Likewise, should such circumstances arise after their appointment or during the proceedings, they must disclose such circumstances to the parties without delay.

Subject matters that cannot be submitted to arbitration in Panama are those that are not freely disposable by the parties according to the law.

In Panama, only the arbitral tribunal or arbitration institution can decide on its own competence. That is, the competence-competence principle applies.

According to Law 131 of 2013, an arbitral tribunal can address issues related to arbitral jurisdiction when one of the parties raises questions about the existence or validity of an arbitration clause. Additionally, in Panama, there is an ordinary court that can review negative decisions on arbitral jurisdiction (competence), and this is the Fourth Chamber of the Supreme Court of Justice.

The exception of incompetence of an arbitral tribunal must be raised no later than at the time of submitting the statement of defence. If an arbitral tribunal declares itself competent as a preliminary matter, any of the parties may file an annulment appeal before the Fourth Chamber of the Supreme Court of Justice within 30 days of receiving notification of the decision.

The standard of review in Panama is deferential.

Ordinary courts in Panama will deal with any party initiating a process in contravention of an arbitration agreement by declaring the nullity of the proceedings and declining competence in favour of the corresponding arbitral tribunal. National courts are strict in enforcing arbitration clauses.

Law 131 of 2013 does not contemplate arbitral jurisdiction over a third party that is not a signatory to the contract from which the arbitration clause derives. However, through jurisprudence of the Fourth Chamber of General Business of the Supreme Court of Justice, the inclusion of non-signatory third parties in the arbitration clause in an arbitration process has been recognised as valid. In such a case, the summoning of a third party or their forced participation in an arbitration without having agreed to the arbitration clause, only occurs when there are reasons, causes or circumstances of such magnitude and relevance between that third party and the parties in conflict that the third party’s involvement is necessary for the fair resolution of the dispute.

According to Law 131 of 2013, arbitral tribunals can decree preliminary or precautionary measures to ensure the effectiveness of the arbitration process results. Similarly, precautionary measures can be taken by ordinary courts of justice before the arbitration begins or at the enforcement stage of the final award. These measures can include the maintenance or restoration of the status quo pending the resolution of the dispute, measures to prevent any current or imminent harm, and measures to preserve movable or immovable property or money.

Preliminary measures as such are within the power of the arbitral tribunal. However, ordinary courts can intervene at the express request of the arbitral tribunal or during the enforcement stage of the award. When preliminary orders come from a foreign-seated arbitral tribunal, they must pass through the control of the Fourth Chamber of General Business of the Supreme Court of Justice. In Panama, there are no provisions for emergency arbitrators.

Arbitration legislation in Panama does contemplate the possibility of requiring a bond from the petitioner of a preliminary or precautionary measure. Similarly, the arbitral tribunal is empowered to order the petitioner to pay costs and damages caused by the measure at any time during the proceedings.

As mentioned previously, Law 131 of 2013 regulates national and international arbitration in Panama and establishes procedural rules. Additionally, each authorised arbitration administration centre has adopted its own regulations.

The arbitration process in Panama has the components of a process framed in compliance with the principle of due process, such as the adversarial principle, the opportunity to present evidence, and to practise it. However, there are some requirements by law, such as: the rule that when one of the parties is a State or a state entity, there must be three arbitrators, or when arbitration is based on the law, the arbitrators must be lawyers.

The law in Panama states that arbitrators can be of any nationality unless otherwise agreed by the parties. In the case of international arbitration, arbitrators may or may not be lawyers, at the parties’ choice, but when it comes to national arbitration based on law, the arbitrators must be practising lawyers.

Panamanian arbitration legislation establishes that each party may be represented by whomever they choose. This leads to the conclusion that no particular qualification is required for representing the parties.

According to Panama’s Arbitration Law, the parties must present their evidence along with the claim and response, respectively. The arbitral tribunal has the exclusive power to determine the admissibility, relevance and assessment of evidence, as well as to order the presentation or practice of necessary evidence at any time. It is also possible for the arbitral tribunal, on its own initiative or at the request of the parties, to seek the assistance of ordinary courts of justice in Panama or any other State for the practice of evidence.

Given the broad power of the arbitral tribunal to admit and assess evidence, it is common for parties to use means of evidence established for ordinary judicial processes, such as public or private documentary evidence, testimonies, expert reports, inspections, etc.

Panamanian arbitration legislation expressly does not establish compulsory measures for ordering the production of documents or the appearance of witnesses. However, it does contain a provision stating that the arbitral tribunal or any of the parties, with its approval, may request the assistance of a judicial court in Panama or any other State for the practice of evidence.

Cecap regulations establish that, unless otherwise agreed, the parties have a duty of confidentiality towards third parties regarding the documents in the arbitration file or any related information. Included in the parties are the arbitrators, the tribunal secretary, administrative staff, and the board of directors of Cecap.

The award must be written and signed by the arbitrator(s). It must be reasoned, dated and indicate the place where it was issued. In international arbitrations, the period to issue and notify the award is as established by the parties or the applicable regulation, or otherwise by the arbitral tribunal. In national arbitrations, unless otherwise agreed by the parties, the award must be issued within a period not exceeding two months from the presentation of the closing arguments. This period can be extended by the arbitral tribunal for an additional term of up to two months when the complexity of the matter requires it.

Limits on the types of remedies are configured by the autonomy of the parties’ will and public order.

The costs of administering the arbitration, unless otherwise agreed, must be covered equally by both parties. If one of the parties does not deposit the corresponding fee, it can be ordered to pay it. Interest is granted in the award if it is part of the claims of the parties in the agreed amount, or based on the legal rate of interest if there is no agreement on the amount of interest. Regarding the costs generated by the process, generally, if not otherwise agreed, each party assumes the costs of the lawyers. Finally, the tribunal can also order the payment of costs and damages by the party that requested a precautionary or preliminary measure that was later determined by the tribunal to be unnecessary.

In Panama, an award cannot be appealed. In such a case, the only recourse against the award is an annulment appeal before the Fourth Chamber of the Supreme Court of Justice, which may resolve to declare the award’s validity or nullity subject to the following grounds:

• the incapacity of the parties to sign the arbitration agreement;
• that said agreement is not valid under the law to which the parties have subjected it, or nothing has been indicated in this regard under Panamanian law;
• that it has not been duly notified of the appointment of an arbitrator or the arbitration proceedings;
• that the award refers to a dispute not provided for in the arbitration agreement or contains decisions that exceed the terms of the arbitration agreement;
• that the appointment of the arbitral tribunal or the arbitration procedure have not been in accordance with the agreement between the parties;
• that the arbitrators have decided on matters not subject to arbitration; or
• that the international award is contrary to international public order, or in the case of a national award, that the award is contrary to Panamanian public order.

It is not possible to exclude/expand the scope of appeal or challenge under national law. Award annulment rules are not subject to party autonomy and free negotiation. 

The standard of judicial review is established by law. In the case of Panama, it is deferential since the powers of the Fourth Chamber of the Supreme Court of Justice are limited to examining the validity or nullity of the award without being able to review the merits of the matter.

Panama has signed the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards without reserves. Additionally, it has ratified the Inter-American Convention on International Commercial Arbitration, which was approved by Panama on 30 January 1975.

The execution of an award corresponds to the ordinary courts of justice under the procedure established for the execution of final judicial sentences. There is an express cause to deny the recognition of an award that has been annulled or suspended by a court of the country in which or according to whose law that award has been rendered. In the case of a pending annulment process, execution of the award must be rejected. A State cannot invoke its immunity prerogative to evade the obligations derived from the arbitration agreement.

A court in Panama would only reject the recognition and execution of an arbitral award if it is proven that the cause was not arbitrable or that the award is contrary to international public order.

Legislation in Panama does not provide for arbitration in class actions.

In Panama, the Arbitration Law indicates that persons who have seriously violated the Code of Ethics of the arbitration institution, or who are criminally liable for crimes of prevarication, falsehood or fraud, cannot be arbitrators.

Law 131 of 2013 does not provide rules on third-party funders, and it does not prohibit third-party funding.

It is not allowed under general rules that arbitration clauses are enforceable just to the signing parties.

Bringing third parties into an arbitration process is not prohibited by law. In fact, the jurisprudence of the Fourth Chamber of General Business of the Supreme Court of Justice has recognised awards against third parties brought into arbitration due to having some relation or link with the cause. The third party can be brought into the process at the beginning of it before the case is fixed.