While Panama’s court system can be challenging in the least, the arbitration system is a working mechanism for settlement and establishing a reasoned award.  Here is an excellent article from my friends at Mossack Fonseca.

by: Ms. Li An Chong
Associate | lchong@mossfon.com

Arbitration is a procedure by which parties to a dispute agree to submit same to an arbitrator or arbitral tribunal who renders a decision on the controversy, decision which is binding for the parties.  By choosing arbitration, the parties select a private procedure of conflict resolution instead of going to court.  Arbitration can be used to resolve private or public disputes, i.e., between States, between private parties or between a State a private party.

Everyone knows the procedural delays and mass treatment existing in our courts and tribunals and their negative effects to individuals and law professionals, whether due to lateness and uncertainness of the resolution, together with the high costs of just filing suit in a court.

Delays in the processing and resolution, as well as high costs of going to court, may cause unsustainable and highly detrimental business situations for the parties, therefore making the recourse to the judicial authority not a solution but an additional problem.  Arbitration tries to correct these mistakes as an extrajudicial alternative procedure to courts and where controversies are resolved in a speedy, effective, professional and economic manner.

Over the last five years, the Panamanian economy has been one of the 20 economies in the world that has grown the most, according to the World Bank data on the expansion rhythm of the Gross Domestic Product (GDP) of about 200 countries.     This growth is due mainly to the increasing influx of foreign investment in the country and as a result there is a rise in commercial disputes, not only between private entities but also among them and the State.

In Panama, Arbitration is currently regulated by Law Decree 2 of 8th July 1999 and likewise our National Constitution in Article 202 recognizes arbitration as an alternative dispute resolution.  Nevertheless, practice has proven that the aforementioned body of law has several legal loopholes concerning international commercial arbitration.  That is why a Bill has been prepared and if same is passed, it will substitute current legislation concerning this matter.

This Bill states changes concerning periods of time for formalities, such as: an extension from 20 to 30 days of the term both parties have to designate arbitrators and in addition a specific 15 day term is fixed to reject them, term which is not stipulated in today’s legislation.  As to the time period arbitrators have to render a national arbitral award, the current Law Decree states a 6 month period starting from the date the last arbitrator accepted his/her position. This Bill modifies the time period as well as the method of counting same, stating a two month period starting from the submission of the closing arguments and allows an extension of 2 additional months.  With regard to international arbitration, the term of rendering the award belongs to the parties or depends on what is established in the arbitration regulations (if any) or rely on the arbitral tribunal.   Likewise the period of time the parties have to request a correction or interpretation of the arbitral award is extended to 30 days and the same time period is given to the arbitral tribunal to make a decision on this matter.

Other main modifications envisaged in the Bill are: the restriction on the number of arbitrators is eliminated but only when none of the parties is a State or a state entity, otherwise the number is fixed to 3; repetition of past performances is allowed in the event that there is an appointment of substitute arbitrators; arbitration in equity is restricted as it can only be carried out if the parties expressly authorized it; there is a entire chapter devoted to precautionary measures and preliminary orders and the execution of international awards rendered by a arbitral tribunal based in Panama becomes more flexible.

Having this new legislation, Panama will seek to be a potential venue for local and international arbitration; the country will strengthen its foreign investment and have a modern set of rules allowing the resolution of conflicts using an up to date legislation equivalent to that of countries recognized as important centers of arbitration.