Data

Date:: 17-05-2023
Country:: Panama
Number:
Court:: Supreme Court of Justice of Panama
Parties:: --

Keywords

LONG-TERM CONTRACTS - COMMERCIAL INTERMEDIATION AGREEMENT - BETWEEN PANAMANIAM PHARMACEUTICAL COMPANIES- SILENT AS TO APPLICABLE LAW – REFERENCE BY THE ARBITRAL TRIBUNAL, AMONG OTHERS, TO THE UNIDROIT PRINCIPLES - AWARD CONFIRMED SINCE THE RECOURSE TO THE UNIDROIT PRINCIPLES IS CONSISTENT WITH THE PANAMANIAN LEGAL FRAMEWORK FOR INTERNATIONAL ARBITRATION.

VALIDITY OF A NON-COMPETITION CLAUSE CONTAINED IN THE CONTRACT - DEFINITION OF FUNDAMENTAL NON-PERFORMANCE AND REASONABLE INTERPRETATION OF CONTRACTUAL EXPECTATIONS OF THE PARTIES - REFERENCE TO ARTICLE 7.3.1 UNIDROIT PRINCIPLES

Abstract

The dispute arose from a commercial intermediation agreement between the companies COBUYS S.A., IMPORTS DOS REIS S.A., and INVERSIONES TAGORE PANAMÁ S.A., against JULIÁN ANDRÉS OCAMPO LÓPEZ and the companies LANCO MEDICAL GROUP S.A. and ALCALA PHARMA S.A. The plaintiffs alleged that Mr. Ocampo breached his contractual non-competition obligation by simultaneously operating other pharmaceutical companies directly competitive with the plaintiffs. Based on this alleged breach, they requested termination of the contract, multi-million-dollar compensation, and the immediate cessation of the defendant's activities.

The arbitration tribunal found evidence of the existence of the arbitration agreement and analyzed the obligations agreed upon in the contract, including the non-competition clause, the validity of which was extensively debated by the parties. The defendants alleged that the clause violated Panamanian public order rules by contravening the free competition provisions contained in Law 45 of 2007.

In its decision, the arbitral tribunal conducted a substantial analysis of the content of the non-competition clause, affirming its validity within the framework of a commercial contract between parties with bargaining power. To this purpose, the tribunal relied on the doctrine of the UNIDROIT Principles on International Commercial Contracts, particularly the notion of funadamental non-performance and the reasonable interpretation of contractual expectations (Article 7.3.1). Although the award did not focus exclusively on the UNIDROIT Principles, these principles were used as an interpretive parameter to assess whether the breach of contract had frustrated the purpose of the contract and, therefore, justified measures such as the cessation of activities.

The court concluded that Mr. Ocampo had materially breached the non-competition clause, which authorized the plaintiffs to demand his disassociation from the competing companies. However, he did not sufficiently prove the damages claimed, and therefore the claim for compensation was rejected.

Regarding this award, both the defendants and the plaintiffs filed motions for annulment. The defendants argued, among other things, that the court had ruled on non-arbitrable matters and that the award violated Panamanian public policy, precisely because of its application and validation of the non-competition clause. The plaintiffs, for their part, questioned the scope of the court's interpretation of the evidence and some of its procedural decisions.

The Fourth Chamber of General Affairs of the Supreme Court of Panama rejected both appeals. It held that the award remained within the limits of the arbitral jurisdiction, that there was no violation of national or international public order, and that the substantive analysis, including recourse to the UNIDROIT Principles, was consistent with the Panamanian legal framework for international arbitration.

In conclusion, the Court upheld the validity of the arbitral award, recognizing the parties' independent will and the legitimate use of uniform law principles in the interpretation of the contract.

Excerpts of interest:

“…since this is an international arbitration, the application of international conventions and the principles of the International Institute for the Unification of Private Law (UNIDROIT) is necessarily required.”

“The arbitration procedure… necessarily requires the application of international conventions and the Principles of UNIDROIT in order to respect this international public order.”

English translation of the Spanish abstract written by Marta Ríos Barbero for CISG Spain.

Fulltext

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Source

Abstract and fulltext in Spanish:
- available at the University of Carlos III website, http://www.cisgspanish.com}}