PANAMA: An Introduction to Dispute Resolution

The Panamanian Justice Administration System is structured, primarily, on the constitutional and legal provisions contained in the Judicial Code, as well as other procedural regulations that have been developed over time.

In this sense, from the exclusively judicial point of view, the Administration of Justice in Panama is in the hands of the Supreme Court of Justice, the Superior Courts of Justice, Circuit Courts, Municipal Courts, and Sectional Courts, in all of which must prevail the principle of judicial independence.

The highest Panamanian court is the Supreme Court of Justice, made up of four specialized Chambers, namely: First Civil Chamber, Second Criminal Chamber, Third Administrative and Labor Chamber and Fourth General Business Chamber. The first three are made up of three magistrates each, and the Fourth Chamber by the presiding magistrates of the first three.

The Supreme Court of Justice is renewed periodically in accordance with previously established constitutional rules. In this sense María Cristina Chen Stanziola and Miriam Yadira Cheng de Aguilar recently joined as magistrates for the Supreme Court of Justice in Panama in the Third and First Chambers, respectively. With this, the Supreme Court of Justice was integrated, for the first time in history, mainly by women, five in total, being that, for the 2022-2023 biennium, Judge María Eugenia López Arias, member of the Second Criminal Chamber of the Court, was elected President of the Court. In addition, the magistrates Olmedo Arrocha and Carlos Vásquez were chosen as Presidents of the First and Third Chamber, respectively.

This new integration of the Supreme Court of Justice and its Board of Directors is one of the most significant things that has happened during the first quarter of the year, generating many expectations about the changes that could occur under the presidency of Judge López Arias.

Another relevant aspect to highlight is that the Plenum of the Supreme Court of Justice, in recent months, has been promoting the discussion of the preliminary draft of the Civil Procedure Code, which is intended to modernize the civil jurisdiction. Judicial delays and serious questions about the impartiality of certain decisions that are adopted have hindered the development of the justice system in the country.

However, due to the COVID-19 pandemic, the Judicial Branch, which had lagged behind in the implementation of virtual media and the digitization in the management and action of the courts, was committed to developing a digital platform that allows users to access files without having to go to the courts of justice. Although this project is still incipient, there is no doubt about the relevance that a complete implementation of the virtualization of the administration of justice will have for the judges, litigants and, in general, for the citizenry.

On the other hand, also because of the COVID-19 pandemic, the country's economy was strongly affected by the harsh quarantines and isolation periods ordered by the Executive Branch to contain the spread of the disease. This situation caused the closure of many companies that could not resist the impact of the sanitary measures on the country's economy. Although today there is an improvement in the economic situation, where it seems that the country is on the way to overcoming this health crisis, the truth is that Law 12 of May 19, 2016, which establishes the Insolvency Proceedings Regime, has become particularly relevant.

The regulation itself contemplates two types of insolvency process: the Bankruptcy Reorganization Process and the Bankruptcy Liquidation Process. These processes act with the purpose of protecting credit and creditors, to guarantee the recovery and conservation of the efficient company, or to liquidate the efficient company in a prompt and orderly judicial fashion.

Notwithstanding the good intentions of this law, the lack of budget allocation for the creation of specialized courts has become its main limitation and although ordinary civil courts currently process some insolvency proceedings under the rule of this law, more recently, through Law 212 of April 29, 2021, Panama has adopted the Law that establishes a special regime for reconciled reorganization processes carried out due to the national emergency because of the COVID-19 pandemic.

The purpose of this Law is to protect credit and creditors in situations of insolvency originating during the national state of emergency decreed as a result of COVID-19, or on occasion, through a conciliatory process for the reorganization of companies, called the Conciliated Reorganization Process. This is used to promote the recovery and conservation of companies as sources of employment and obtaining resources to meet their obligations.

In accordance with the Law, the Conciliated Reorganization Process will include an extrajudicial mechanism called conciliation, through which the debtor and his creditors may negotiate and reach an agreement on the company's Continuity Plan for its reorganization, within a period of bankruptcy financial protection, with the assistance of a certified conciliator. In the conciliation, the will of the parties shall prevail.

This conciliation may be institutional when it is carried out in one of the private arbitration, conciliation and mediation centres that are authorized to operate in the Republic of Panama, or in an ad hoc or independent basis when the parties appoint an independent professional as a conciliator.

Currently in Panama there are private arbitration, conciliation and mediation centres that have developed their regulations for conciliation to be verified within the conciliated reorganization processes, and we know that there are processes of this nature in the conciliation phase, administered by said centres.

It cannot go without saying that in Panama, the arbitral jurisdiction has been elevated to constitutional status. Since 2013 we have Law 131 that regulates national and international commercial arbitration, with a growing interest in the arbitral solution of conflicts, since there is a presumption that in the arbitration processes the problems that overshadow the ordinary civil jurisdiction will not arise.

However, given that according to said Law, an appeal for annulment proceeds against arbitral decisions, under the jurisdiction of the Fourth Chamber of the Supreme Court of Justice, must face all the ailments of the judicial system. It is hoped that in the future, said resource can be handled at least as quickly as arbitration processes, so that the figure of arbitration is not distorted. 

In summary, the Panamanian justice system is seeking to become more dynamic, in line with technological advances and the needs that these times demand.