•    The Supreme Court of Justice of Panama (en banc), by means of a decision published on February 12, 2020 in the Panamanian Official Gazette No. 28960-A, confirmed that Article 17 of the Panamanian Arbitration Law – Law No. 131 of 2013, which contains the principle of Competence-Competence– is not unconstitutional.
•    Competence-Competence is the arbitration principle pursuant to which an arbitral tribunal has the power to rule on its own jurisdiction.
•    The “negative effect” (or “procedural effect”, as it is referred to by the Panamanian Arbitration Law) of the principle of Competence-Competence is that domestic courts should not, in parallel and with the same degree of scrutiny, rule on the same issue of jurisdiction of the arbitral tribunal, at least at the outset of the arbitral process. The rationale behind this the rule of priority in favor of the arbitrators is essentially the prevention of delaying tactics by the parties who have agreed to refer their disputes to arbitration.
•    Pursuant to Article 17 of the Panamanian Arbitration Law, the court before which an action is brought in a matter which is the subject of an arbitration agreement shall refer the parties to arbitration.
•    The unconstitutional action was originally brought by an individual against Article 11 of Law Decree No. 5 of 1999 (the previous Panamanian Arbitration Law). However, because in the meantime, a new Arbitration Law was adopted in Panama, the Supreme Court decided to analyze whether the provision of the new Arbitration Law that contained the positive and negative effect of the principle of Competence-Competence, was constitutional or not.
•    Even though the unconstitutional action was only brought against the specific paragraph containing the “negative effect” or “procedural effect” of the principle of Competence-Competence, the Supreme Court decided to analyze the entire legal provision.
•    ARIFA, acting on behalf of a client, appeared in the proceedings to oppose the challenge against this provision and to ask the court to confirm that the provision was indeed constitutional.
•    The Supreme Court found that Article 17 of the Panamanian Arbitration Law was not unconstitutional. In summary, the grounds that the Supreme Court used for its ruling were the following:

  1. Article 202 of the Constitution of Panama expressly establishes that arbitral tribunals can rule on their own jurisdiction.
  2. The “negative effect” or “procedural effect” of the principle of Competence-Competence is a common provision in all modern arbitration laws and without this rule, arbitration would lose one of its advantages (that the parties who agree to arbitration have the certainty that their dispute would indeed be subject to such dispute resolution mechanism).
  3. Any party that has a real claim against the validity of the arbitration clause, has the opportunity of presenting such claim, at a first stage, before the arbitral tribunal and, at a second stage, before domestic courts within any action to enforce or to set aside the arbitral award rendered on the basis of the arbitration agreement.