International arbitration is increasingly prevalent in Panama as a method of resolving disputes. Domestic parties favour the use of arbitration, mainly in high-value disputes in which confidentiality is important. It is mostly chosen by domestic parties in contracts as the method of dispute resolution and as the seat of arbitration.

The COVID-19 pandemic has impacted the conduct of arbitral proceedings in Panama, specifically by forcing arbitration centres to use virtual platforms for the conduct of hearings. Virtual hearings are now practically the norm.

The Panama construction industry is experiencing significant international arbitration activity, primarily because of the high investments and risks usually associated with this industry. As far as is known, no industries have experienced a decrease in arbitration activity.

There are two arbitral institutions in Panama that are most commonly used for international arbitration:

• the Panama Conciliation and Arbitration Centre, which is affiliated with the Panama Chamber of Commerce, Industries and Agriculture; and
• the Centre for the Solution of Conflicts, which is affiliated with the Panama Chamber of Construction.

No new arbitral institutions have been established in the past year.

The Fourth Chamber of the Panama Supreme Court has the power to annul an arbitration award granted in an arbitration with its seat in Panama, excluding those regulated by treaties or by laws with special regulations.

Arbitration in Panama is governed by Law 131 of 2013, which is almost completely based on the UNCITRAL Model Law. A main diversion from the Model Law is that Law 131 prohibits the parties from renouncing their right to file an annulment against the arbitration award before the Panama Supreme Court.

No changes have been made to the national arbitration law in the past year, nor is there any pending legislation in Panama that may change the arbitration landscape.

An arbitration award must be granted in writing in order to be enforceable in Panama, and the unequivocal decision of the parties to resort to arbitration must be included in the text of the award.

Law 131 allows any subject matter in which the parties have freedom of disposition to be referred to arbitration. This provision tacitly excludes the following subject matters (at least) from arbitration:

• conflicts arising from the faculties or duties of the State, such as the direction of economic policy or diplomatic relations;
• conflicts arising from the application of norms aimed at protecting disadvantaged people, such as the protection of minors and consumers, and labour or criminal cases;
• conflicts arising from the regulation of the essential institutions of society, such as the civil status of persons and their birth or death; and
• conflicts over which there is a previous decision with the authority of res judicata.

To determine whether or not a dispute is “arbitrable”, the law of the subject matter must be reviewed to determine if it grants the parties freedom of disposition.

The national courts determine the law governing the arbitration agreement based on what was agreed upon by the parties. They tend to respect the enforcement of an arbitration agreement, and decline to hear a case when an arbitration agreement exists. These agreements are usually enforced by the courts.

An arbitral clause may be considered valid even if the rest of the contract in which it is contained is invalid. Panama applies the rule of separability.

The parties may select any person to act as arbitrator in Panama. However, it is uncommon for persons who are not attorneys to be selected as arbitrators, unless the parties have agreed the arbitral award is ex aequo et bono. However, Law 131 excludes persons who have violated the code of ethics of an arbitral institution and those who have been convicted of certain crimes from acting as arbitrators.

If the parties’ chosen method for selecting arbitrators fails, any of the parties may request that an arbitral institution adopts the necessary measure. This default procedure is applicable to multi-party arbitrations.

A court in Panama cannot intervene in the selection of arbitrators.

Law 131 contains provisions regarding the challenge and removal of arbitrators, on the following grounds:

• if there are justified doubts regarding his or her impartiality or independence; or 
• if the person does not have the qualifications agreed upon by the parties.

A person already appointed as arbitrator can be removed from their role if they cannot continue with their role as arbitrator, or if they do not perform their functions within a reasonable time.

A potential arbitrator must disclose any information that may affect his or her impartiality and independence, for the consideration of the parties.

See 3.2 Arbitrability.

The principle of competence-competence is applicable in Panama. As a matter of fact, it has been included in the text of the Panamanian Political Constitution since 2004. 

The Panama Supreme Court of Justice can address the jurisdiction of an arbitral tribunal if said arbitral tribunal declares itself competent and a party believes any of the causes for filing a request for annulment has occurred. The Supreme Court generally shows willingness to intervene. As an exception, the Supreme Court of Justice, in compliance with Law 131, is the judicial entity empowered to resolve appeals for annulment against the issue of the award in the matter of jurisdiction.

The parties have the right to go to court to challenge the jurisdiction of the arbitral tribunal once the arbitral tribunal has decided in favour of its own competence and after an award has been rendered.

The standard of judicial review for questions of admissibility and jurisdiction is deferential, since Law 131 specifically states the reasons why an award can be annulled.

National courts which review a case that involves an arbitration agreement decline to review the case and refer the parties to arbitration. The national courts are reluctant to allow such proceedings.

Law 131 does not establish the possibility of involving third parties in arbitrations, be they international or domestic. However, it is very common for requests to be raised for the arbitration tribunal to include a third party in the proceeding. In such cases, the arbitral tribunals have mostly accepted those petitions or demands, based on the fact that the participation of the third party is necessary to decide the question raised as the object of the conflict.

An arbitral tribunal in Panama is permitted to award preliminary or interim relief; such relief is binding. There are no specific types of relief that can be requested; the general rule is that it can be of any type, provided that it serves to guarantee the effects of the arbitration award that will be issued, including the preservation of evidence. 

The courts only play a role in preliminary or interim relief in arbitral proceedings if the arbitral tribunal requests their assistance in enforcing the relief, or if the arbitral tribunal has not been constituted. Only the Supreme Court of Justice can grant interim relief in aid of foreign-seated arbitrations. There are no specific types of relief that can be granted in this case.

National legislation does not regulate the use of emergency arbitrators. This matter is complete soft law in the Panamanian jurisdiction.

The national law of Panama allows for the courts and the arbitral tribunal to order security for costs.

The procedure of arbitration in Panama is governed by Law 131 of 2013. It is important to note that Panama has adopted the New York Convention, through Law 5 of 1983. 

There are no particular procedural steps that are required by law in arbitral proceedings conducted in Panama.

The national law of Panama imposes the following powers and duties on arbitrators:

• to grant interim relief;
• to direct the arbitration proceeding – if there are no rules established by the parties or if there are events not foreseen in the rules, they can resolve the gaps with their decisions;
• to dictate the award and its clarification, or the complementary awards;
• to summon third parties to the arbitration in progress;
• to attend the arbitration;
• to be impartial and independent;
• to issue the award within the established deadline or within the terms established in the respective regulations; and
• to behave in an ethical and transparent manner.

There are no particular qualifications or other requirements for legal representatives appearing in Panama.

The general approach to the collection and submission of evidence at the pleading stage and at the hearing in Panama is freedom of evidence. There are no specific rules that apply to discovery, disclosure, privilege, the use of witness statements or cross-examination.

There are no rules of evidence which apply to arbitral proceedings in Panama, since freedom of evidence is applied. This same principle applies to domestic matters.

Arbitrators in Panama can order the production of documents and require the attendance of witnesses. There is no difference between parties and non-parties; both can request the assistance of the national courts.

Arbitral proceedings or their constituent parts are not considered confidential by Law 131 of 2013. Information in arbitral proceedings can be disclosed in subsequent proceedings. However, both Panama arbitration centres impose a duty of confidentiality on the arbitrators.

The following are the legal requirements for an arbitral award in Panama:

• it must be in writing and signed by the members of the arbitral tribunal. If there is a discrepancy between the arbitrators, the president or the arbitrator may adopt the award on his or her own, and it will be enforceable with his or her signature alone;
• the arbitrators must state the grounds on which they adopted the decision contained in the award – ie, the reasons upon which it is based. This rule applies even in cases where the parties have agreed an award under ex aequo et bono; and
• the award must include the date and place where it was rendered.

For international arbitrations, there are no time limits on delivery of the award.

There are no limits on the types of remedies that an arbitral tribunal may award, depending on the law under which the subject matter is being reviewed. 

Law 131 of 2013 does not regulate the recovery of interest and legal costs. However, the arbitral tribunal awards interest if the applicable law allows it. The rules of procedure of both arbitration centres contemplate costs as part of the final award. 

There is no general practice regarding the awarding of interest and costs.

The parties are not entitled to appeal an arbitral award in Panama. However, the recourse of annulment exists, which is argued before the Panama Supreme Court of Justice under specific situations.

The parties cannot agree to exclude or expand the scope of appeal or challenge under Panama law.

The standard of judicial review of the merits of a case for the annulment of the arbitral award is de novo.

Panama has signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, with no reservations, through Law 5 of 1983. Panama has also signed and ratified the Inter-American Convention on International Commercial Arbitration.

The enforcement procedure of an award issued abroad is held before the Panama Supreme Court of Justice. The interested party must request the enforcement with the original copy of the award or an authentic copy, with a translation thereof if the award was not granted in Spanish. Once the request has been received, the court will give notice to the other party for it to argue in favour or against the enforcement of the award, within 15 days. Once this term expires, the court decides whether or not to declare the award enforceable in Panama.

If the court decides to recognise the enforcement of the award, the interested party can request its enforcement before a civil circuit judge.

An award cannot be enforced in Panama if it has been set aside by the courts in the seat of arbitration or if it is subject to ongoing set-aside proceedings at the seat.

A state or state entity may not raise a defence of sovereign immunity at the enforcement stage.

The general approach of the Panama Supreme Court of Justice is to review the recognition and enforcement of an arbitration award issued abroad under the New York Convention.

A domestic court could refuse to enforce a foreign arbitral award based on Panama public policy grounds.

Law 131 of 2013 neither provides for nor prohibits class-action arbitration or group arbitration. 

There is no sole ethical code or professional standard that applies to counsel and arbitrators in Panama. However, both local arbitration centres have their own ethical codes, and there is an ethical code that must be observed by all attorneys licensed to practise in Panama.

There are no rules or restrictions on third-party funders in Panama.

Law 131 of 2013 does not regulate the consolidation of separate arbitral proceedings, but such is regulated by the rules of procedure of both local arbitration centres. It can be requested by one of the parties or by all the parties. The rules of procedure of one of the arbitration centres allows for consolidation depending on the status of the proceedings, the arbitration agreement signed by the parties and the general agreement that binds the parties.

Law 131 of 2013 does not regulate the binding of third parties to an arbitration agreement or award. However, the rules of procedure of both local arbitration centres allow the arbitral tribunal to do this if it considers it necessary. The national courts have no ability to bind foreign third parties.