During the past few years, the Panamanian Supreme Court has issued interesting rulings defining controversial issues ultimately in favor of Panama as a pro-arbitration jurisdiction. Recently, Panama’s highest court faced the challenge of defining whether foreign licensed attorneys are able to represent parties in Panama-seated international arbitration proceedings, especially in light of Panama’s reservation of the practice of law to Panamanian nationals with a legal license granted by the Panamanian Supreme Court.

The arbitral award resulting from arbitration proceedings initiated by CNO, S.A. (former Constructora Norberto Odebrecht, S.A.) (Claimant) against INTEG PANAMÁ, CORP. and NACIONAL DE SEGUROS DE PANAMÁ Y CENTROAMÉRICA, S.A. (NASE) in Panama was recently challenged before the Fourth Chamber of the Panamanian Supreme Court. These arbitration proceedings stemmed from an arbitration clause included in a public works subcontract which provided for arbitration seated in Panama, in accordance with the Arbitration Rules of the Panamanian Chamber of Commerce Arbitration and Conciliation Centre (the Arbitration Rules).

Panamanian law provides for specific grounds to advance annulment motions against arbitral awards, as expressly determined in Article 67 of Law 131 of 31 December 2013, the Panamanian Arbitration Law (Law 131). NASE challenged the 7 September 2021 arbitral award based on the following grounds: “Article 67. Grounds for annulment of the arbitral award […] 4. That the appointment of the arbitral tribunal or the arbitral proceedings have not been in accordance with the agreement between the parties, unless such agreement would conflict with a provision of this Law from which the parties could not depart or, in the absence of such agreement, which they have not complied with this Law […] 6. That the international award is contrary to international public policy. In the case of a national award, the public policy to be considered will be Panamanian public policy.”

On one hand, NASE stated that the arbitral proceedings were not handled in accordance with the agreement between the parties given that two U.S. licensed attorneys carried the legal representation of Claimant without being licensed to practice law in Panama. Specifically, Claimant stated that this legal representation is contrary to the arbitration clause which provides for the resolution of any arbitral proceedings following Panamanian law. Among others, Claimant articulated that the arbitral award violated Law 9 of 18 April 1984 (Law 9) which provides for the conditions to exercise the legal profession in Panama and which, in its view, restricts the ability to practice law in Panama to Panamanian nationals with a legal license granted by the Panamanian Supreme Court.

On the other hand, NASE stated, following the same reasoning, that the arbitral award violated international public policy.

Claimant opposed itself to the arguments advanced by NASE by stating, inter alia, the following arguments: First, that the legal representation carried by the U.S. licensed attorneys did not imply an illegal exercise of the Panamanian legal profession. In this sense, Claimant stated that indeed Article 9 of Law 131 does not provide for a Panamanian law license as a requirement to represent parties in Panama-seated arbitration proceedings. Second, Claimant further stated that although Law 9 restricts the exercise of the legal profession to those who are not licensed in Panama, this limitation does not apply to arbitration proceedings. Third, given that the arbitration proceedings resulting in the challenged arbitral award were international in nature, the presence of international attorneys is logical and the rights of defense of both parties were not affected.

After stressing the relevancy and importance of principles surrounding arbitration proceedings such as party autonomy, minimal intervention, and the precise nature of annulment motion grounds, the Fourth Chamber delivered its reasoning. In relation to the first challenging ground advanced by Claimant, the Fourth Chamber recognized that the Parties to the arbitration proceedings did not agree on specific terms surrounding party representation and later analyzed Law 131 and the applicable Arbitration Rules to hold that neither restrict legal representation based on nationality or the jurisdiction where the legal representatives are licensed. The Fourth Chamber further expressly stated that Law 9 does not provide any limitations on party representation and does not regulate the arbitral jurisdiction, reason for which its provisions are not applicable in this case. The same applies, recognizes the Fourth Chamber, to Judicial Code provisions.

Regarding the second challenging ground developed by Claimant, the Fourth Chamber restated that Panamanian public policy is violated when fundamental principles of a collective nature, guaranteeing the wellbeing of society in general, are violated. The Fourth Chamber specifically cited a previous decision dated 11 September 2008 to illustrate this point: “��� public order includes the norms and principles that defend the interests of individuals and that guarantee coexistence in society, seeks social and collective security, where the principles of justice and morality that must govern every State are highlighted; in addition to being conceived as the fundamental principles stipulated in our Constitution.” Considering the foregoing, the Fourth Chamber held that the arbitral award cannot be successfully challenged in this sense considering that parties to arbitration proceedings are free to designate their legal representation as part of their right of defense, a procedural guarantee that, if not observed, would constitute a due process violation. The Fourth Chamber identified that this right is enshrined in Article 32 of the Panamanian Political Constitution and the applicable Arbitration Rules.

All in all, this landmark decision confirms Panama as an arbitration friendly jurisdiction where parties are guaranteed their right to be represented in international arbitration proceedings by foreign or Panama licensed attorneys, or even represent themselves, based on Article 9 of Law 131.

This article was originally published on Global Arbitration Review, June 17th, 2024.

Authors: Mayte Sanchez, Partner and Alejandro Chevalier, Associate