Panama
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
A judicial freezing order is available under Panamanian law, which is equivalent to an attachment of assets, intended to guarantee the execution of a sentence. The respondent is prohibited from dealing with the assets referred to in the freezing order (within the jurisdiction) until a specified time (for example, a further hearing, judgment or payment) or further order of the Court.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
Yes, general interim measures are also commonly made in conjunction with a freezing order, and constitute a typical common law injunction, which orders the defendant to stay or suspend any transaction, negotiation, innovation, transformation, operation or project in connection with an asset. Other interim measures, do exist, however, the aforementioned are the most commonly used.
3. Briefly what is the relevant legal test?
The legal presuppositions established for the interim measures mentioned in questions 1 and 2 above are as follows:
(a) Judicial freezing order:
(i) requested by written petition of the applicant or the claimant. In this petition, the claimant must identify the person against whom the judicial freezing order is requested. In the same way, the petition must indicate which assets or rights of the defendant should be made the subject of the interim measure;
(ii) there is no requirement for the petition to be supported by evidence of the risk of immiment and irreparable damage. It operates as a procedural right of the claimant at trial;
(iii) the petition must establish the amount of money for which the judicial freezing order is requested;
(iv) the applicant/plaintiff is obliged to deliver to the Court a collateral bond for the amount that the judge discretionally sets. In judicial practice, the judges set the sureties from 10% of the value for which the freezing order is requested. There is no limit on the maximum amount, and judicial practice has shown levels of surety of up to 50%.
(b) Innominate interim measures:
(i) requested by written petition by the applicant or the claimant. In this petition, the applicant must identify itself and identify the person against whom the interim measure is requested. In the same way, the petition must indicate the nature of the order requested, that is, the specific action that the judge is being asked to order of the defendant;
(ii) the burden of proof is on the applicant to demonstrate that there is risk of imminent and irreparable damage, or that it has a prima facie substantiated claim requiring recognition by an interim measure being in force until conclusion of the proceedings;
(iii) the applicant is obliged to deliver a collateral bond in favor of the Court in which the interim measure is processed. In judicial practice, the judges set those sureties from 10% of the amount of the value for which the order is requested. There is no limit on the maximum amount, and have been set at up to 50%.
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The process for obtaining a freezing order and other interim measures is as follows:
(i) the applicant must file the petition with the documents that prove its existence and legal representation;
(ii) the process is completed without notice to the opposing party;
(iii) after receiving the petition and the documents that serve as evidence, the judge will set the amount of the collateral bond that the applicant must deposit into Court;
(iv) the interim measure is subject to the proportionality principle.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
As previously mentioned, the applicant is required to submit the collateral bond to the Court. This may be done in the form of:
(i) cash: in these cases, the amount of the collateral bond is deposited in the National Bank of Panama (BNP), and this bank issues a receipt of said deposit, referred to as a “Constancy”;
(ii) Panamanian public debt securities: the securities must be deposited in the BNP, which will issue proof of the consignment in a similar way to the cash deposit. This deposit does not prevent the owner of the securities from continuing to collect the income from those securities;
(iii) an insurance company bond or a bank guarantee: an insurance company established in Panama and duly authorized by the Superintendence of Insurance and Reinsurance of Panama will issue the collateral bond for the amount set by the corresponding Court. In the case of banks, these must also have the authorization to engage in the banking business in the Republic of Panama.
6. Can it be sought against third parties?
Third parties cannot be subjected to the interim measures described above. This is because whilst the interim measures are designed to provide the plaintiff with some guarantee of enforcement of an eventual sentence issued in its favor, such interim measures are only intended to affect the defendant and its assets. A third party can be served with a complete Court order of an interim measure that affects the defendant, for example, where the defendant has money deposited in a bank, and the judge orders the bank to freeze that money until further notice.
7. What assets are covered by a freezing (or equivalent) order?
All domestic rights and assets belonging to the defendant within the jurisdiction, whether tangible or intangible, may be subject to interim measures, provided they are not perishable.
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
No. Judges in Panama cannot issue interim measures in respect of substantive proceedings occurring in other jurisdictions. Their powers regarding interim measures are only effective in the jurisdiction of the Republic of Panama. Judges in Panama do not execute interim measures rendered by foreign judges, they can only execute final judgments, except in the case of international arbitrations sited in Panama.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes. Interim measures may be imposed in arbitral processes, and can be sought before the start of the arbitral proceedings. The judge’s role in processing the interim application is complete upon issuance. Once the order is given and adopted, the judge ceases their jurisdiction and refers the parties to the arbitration. Unlike judges, arbitrators within an international commercial arbitration can issue interim measures which have effect in other jurisdictions.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
Interim measures can be obtained at any stage of the proceedings which have been commenced and before or after trial. They can also be obtained prior to the commencement of proceedings, however, in that instance, the plaintiff has a six business days to present the complaint that initiates the corresponding judicial process. This similarly applies to arbitration.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
A respondent who is subject to a freezing order would still be entitled to receive minimum wage as earnings and up to 85% of their additional salary in certain cases. Additionally, the indispensable goods for living in a household, as well as the machines, materials and instruments necessary for subsistence, including acquired labor rights and social benefits (pension, retirement, etc), among others, are not susceptible to interim measures. When considering the assets which will be the subject of interim measures, the judge must decide the viability of what the creditor requests against the representations that the debtor and owner of the assets may make for their retention.
There are other exceptions that may apply, such as the issuance of interim measures against the State, which includes any public or government organization, and a prohibition on ordering interim orders against businesses whose main activity is the provision of public services, such as electricity and telephone services.
12. What happens after a freezing (or equivalent) order is granted?
After the interim measure is adopted, notification of the same must be provided to the defendant or to the third party holding the assets or rights of the defendant. As a general rule, the defendant against whom the injunction is issued has the right to appeal. In some cases, it can go as far as an extraordinary appeal that is processed before the Civil Chamber of the Supreme Court of Justice.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The costs of obtaining an interim measure are determined in the sentence issued by the Court. Either the applicant or the respondent may be ordered to pay for the costs of obtaining the freezing order, which is usually decided in the sentence issued by the Court.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
The third parties have no way of knowing that an interim measure has been issued until it has been adopted. This is because interim measures are processed without notice. When the affected party is a third party, they may submit evidence to prove that the asset or right subject to the interim measure is their property. They can also confirm that the asset or right subject to the interim measure is their property because of a pledge or mortgage.
Where third parties, such as banks, receive notice of an interim measure against a defendant for which they hold funds, they must comply with the terms of that order. When the orders are for deposits of money, the bank becomes the depositary and is responsible for the custody of the money. The Court or judge is the only one authorized to give instructions on the frozen money. There are no exceptions on the use of the money.
15. What are the consequences of breach of a freezing (or equivalent) order?
A respondent who disobeys a freezing order may be held in contempt of Court. This is declared by the judge who issued the interim measure at the claimant’s request. The sanction for contempt of Court is the imposition of a fine or a term of imprisonment of a maximum of six (6) months. A third party may be in contempt of Court only where they knowingly help or permit the respondent to breach the terms of the order.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
Yes. If a third party owns the seized asset or right, he must inform the applicant of the compliance status of the interim measure. Rules establish that having been notified of adopting the interim measure in question, the person becomes the custodian of the seized asset or right, and can be declared responsible for the damages caused to the plaintiff by his lack of care in fulfilling that duty.
17. Can a freezing (or equivalent) order be enforced abroad?
No. Judges cannot issue interim measures that can be enforced outside the jurisdiction of the Republic of Panama.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
In the same way that a Panamanian judge cannot issue interim measures to be effective outside the jurisdiction of the Republic of Panama, neither can interim measures be imposed or enforced by jurisdictions outside the Republic of Panama on defendants residing in or holding assets in the Republic of Panama. For a foreign order to have effect in Panama, an equivalent order must be sought in accordance with the laws of Panama and by order of a Panamanian judge.
Contacts
Jorge Molina Senior Partner Fabrega Molino Panama City, Panama jmolina@fmm.com.pa fmm.com.pa/jorge-a-molina-m Miguel Urriola Partner Fabrega Molino Panama City, Panama murriola@fmm.com.pa fmm.com.pa/miguel-e-urriola-m Juan Raúl Sosa Associate Fabrega Molino Panama City, Panama jsosa@fmm.com.pa fmm.com.pa/juan-raul-sosa-v-2
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