Legal framework 1. What is the law applicable to arbitration in Paraguay?

The law that regulates arbitration, both domestic and international, is Law 1879/2002, which incorporates with minor amendments the UNCITRAL Model Law on International Commercial Arbitration. Thus, Paraguayan arbitration law follows international arbitration standards, making Paraguay an attractive seat for international arbitration disputes.

2. In which cases a dispute is considered international under Paraguayan law?

According to Art. 3.c of Law 1879/02, a dispute is international when: a) The parties´ domiciles are in different countries at the time they enter into the arbitration agreement; b) The place where the obligation should be performed or where the subject matter of the dispute has a closer relationship is not a country where any of the parties is domiciled.

3. Are there any mandatory provisions that should be applied to all arbitral proceedings irrespective of the will of the parties?

Paraguayan arbitration law gives the parties flexibility to tailor the proceedings according to their needs. The only limit to this power is that both parties should receive equal treatment and be able to fully present their case.

4. Has Paraguay ratified the New York Convention? And if that is the case, has it made any reservation to the convention?

Yes, it has ratified the New York Convention. It has not made any reservation to the convention.

5. To what other conventions or treaties related to arbitration is Paraguay a party?

Paraguay is also a party to the Inter-American Convention on International Commercial Arbitration and the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards. As member of the Southern Common Market (MERCOSUR) Paraguay has ratified the MERCOSUR International Commercial Arbitration Agreement (Common Market Council Decision Nº 3/98).

Arbitration agreement 6. What are the requirements for an arbitration agreement to be valid?

The arbitration agreement must be in writing. Such requirement is fulfilled in many ways. The arbitration agreement could be: a) in a single document signed by both parties; b) in an exchange of letters or telegrams; c) contained in an exchange of statement of claim and defense in which one party asserts the existence of the arbitration agreement and the other does not deny it. Furthermore, a reference made in a contract to a document that contains an arbitration agreement is valid as long as such contract is in writing and the reference means that the arbitration agreement is part of the contract.

7. How are arbitration agreements enforced?

If a dispute that is subject to an arbitration agreement has been submitted before a court, such court has the obligation to refer the parties to arbitration if any of them invokes the arbitration agreement, unless the court determines that the agreement is null and void, inoperative or incapable of being performed.

8. Is there any provision regarding the separability of the arbitration agreement?

Yes, there is. Art. 19 of Law 1879/02 states that, for the purpose of the competence of the arbitral tribunal to rule on its own jurisdiction, the arbitration agreement is considered an independent agreement from the main contract. Furthermore, such article states that the arbitral tribunal´s decision that the main contract is null and void does not imply ipso iure, that is, by operation of law; that the arbitration agreement is also null and void.

Arbitral tribunal 9. Does the law impose any restriction for the appointment of arbitrators?

No, it does not. The parties can freely choose the arbitrators, provided that they are impartial and independent, as partiality and lack of independence are grounds to challenge an arbitrator.

10. Are there default rules regarding the appointment of arbitrators?

Yes, there are. For instance, absent an agreement of the parties regarding the number of arbitrators, there should be three arbitrators.

Regarding the appointment of arbitrators itself, the law states that if the arbitral tribunal is composed of three arbitrators, each party shall appoint one arbitrator and the two arbitrators shall appoint the third arbitrator. In case one party does not appoint an arbitrator within thirty days from the day in which such party received a request from the other party to make such appointment or the two arbitrators do not reach an agreement to appoint the third arbitrator within thirty days from the date in which they were appointed; at the request of any the of the parties the court will make the appointment within seven days.

In an arbitration with a single arbitrator, if the parties do not reach an agreement to appoint the arbitrator, the court shall make such appointment at the request of any of the parties within seven days.

11. What are the grounds to challenge an arbitrator?

They are partiality, lack of independence and lack of the qualifications agreed by the parties.

12. What is the proceeding to challenge an arbitrator?

The parties are free to agree on the proceeding to challenge an arbitrator. Absent such agreement, the party who wish to challenge an arbitrator shall submit a brief to the arbitral tribunal explaining the grounds for such challenge within the following fifteen days from the date of the constitution of the arbitral tribunal or from the date the party became aware of the ground to challenge the arbitrator. The arbitral tribunal shall decide on the challenge to the arbitrator.

If the challenge is rejected, the party may request the court to render a decision on the challenge within the next fifteen days from the date of the notification of the decision that rejected the challenge. The court must render a decision within seven days.

Arbitral proceedings. 13. How an objection to the jurisdiction of the arbitral tribunal is raised?

Law 1879/02 establishes that the arbitral tribunal is competent to rule on his competence, and on the exceptions regarding the validity and existence of the arbitration agreement. That is to say, the law contemplates the so-called Principle of Kompetenz-Kompetenz.

The defense of lack of jurisdiction shall be raised at the time of submitting the statement of reply at the latest. The fact that any of the parties has appointed an arbitrator or has participated in an appointment does not prevent such party from raising the defense of lack of jurisdiction.

The arbitral tribunal may rule on the defense of lack of jurisdiction either as a preliminary issue or once it renders a decision on the merits. If the arbitral tribunal decides the defense of lack of jurisdiction as a preliminary issue, any of the parties may request the court to rule on that issue within the next thirty days from the notification of the decision. The court must render a decision within seven days, and its decision would not be subject to appeal. While the court´s decision on the issue of jurisdiction is pending, the arbitral tribunal might continue with the proceedings, but it cannot render an award.

14. What powers arbitrators have to conduct the arbitral proceedings?

Subject to the provisions of Law 1879/02 and the agreement of the parties regarding how the proceedings are to be conducted, the arbitral tribunal can conduct the arbitral proceedings in the way it deems appropriate. It has the power to grant interim measures, to rule on the admissibility, relevance and weight of evidence, to appoint expert witnesses, among other powers.

15. What is the default language of the arbitration?

There is no a default language. Absent agreement of the parties on this issue, it will be determined by the arbitral tribunal.

16. What are the rules for the production of evidence?

The parties are free to determine the rules for the production of evidence. If they have not done so, the arbitral tribunal has the power to make such determination.

17. Is the confidentiality of the arbitral proceedings established by law?

No, confidentiality is not established by law. If the parties do not agree on the confidentiality of the arbitral proceedings, there is no obligation to keep the arbitral proceedings confidential.

18. Who set the cost of the arbitral proceedings?

The arbitral tribunal sets the cost of the arbitral proceedings (e.g., arbitrator fees, legal fees, expert fees, administrative fees – in cases of an institution – and travel expenses) either following the rules chosen by the parties in that regard or based on the default provisions of Law 1879/02.

According to Law 1879/02, the arbitral tribunal shall set the arbitrators fees based on the amount at stake, the complexity of the issues, the time spent by the arbitrators and any relevant circumstance to the case.

19. Are local courts allowed to intervene in the proceedings?

Yes, but only on the specific situations established by Law 1879/02. Such situations include: a) the appointment of arbitrators; b) to render a decision on challenges to arbitrators; c) removal of arbitrators; d) to render interim measures before the constitution of the arbitral tribunal and to enforce the ones rendered by the arbitral tribunal; e) to assist the parties on the production of evidence; f) to determine whether an arbitral award should be set aside or not; g) to enforce the arbitral award.

Choice of law 20. How is the substantive law applicable to the case determined?

It is determined by the parties. If they have not made such determination, then the arbitral tribunal shall determine the substantive law according to the conflict of law rules it deems appropriate. In all cases the arbitral tribunal shall take into account the terms of the contract and trade usages.

21. Is in any situation the arbitral tribunal authorized to decide a case on the basis of equity and fairness?

Yes, but only if the parties have expressly authorize it to do so.

Arbitral awards 22. What are the requirements of an arbitral award?

The arbitral award must be in writing and be signed by the members of the arbitral tribunal. If the arbitral tribunal is composed of more than one arbitrator, only the signature of the majority of them is required, as long as it is explained in the arbitral award the reason why one or more of the arbitrators did not sign the award.

The arbitral award must also state the date and the place of the arbitration, as it will be deemed to have been made at that place.

The award must state the rationale, unless the parties agreed that this is unnecessary or the tribunal renders an award that records the settlement terms.

23. Is there a time limit for the arbitral tribunal to render the award?

The law does not set a limit for the arbitral tribunal to render an award. However, the parties may set such limit. Furthermore, the rules of some arbitral institutions incorporate a time limit for the arbitral tribunal to render an award.

24. Is the award final and binding?

Yes, the award is final and binding, and is not subject to appeal. The only recourse against the arbitral award is the application to set aside.

25. What are the grounds to set aside the award?

A court will set aside the award if the challenging party proves any of the following grounds:

  • a party to the arbitration agreement lacked the legal capacity to enter into such agreement validly, pursuant to the law applicable to such agreement, or if the parties have not chosen such law, pursuant to Paraguayan law.
  • a party was not duly notified of an arbitrator’s appointment or the arbitral proceedings; or was otherwise unable, for any other reason, to present its case;
  • the award deals with a dispute that was not contemplated by or falls outside the arbitration agreement’s terms. Nonetheless, if the decisions on matters submitted to arbitration can be separated from those that were not submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside
  • the tribunal’s composition or the arbitral proceedings breached the parties´ agreement, except if such agreement is in conflict with a provision of Law 1879/02 that the parties cannot waive or if there is no such agreement, it breached the provisions of Law 1879/02.

Furthermore, the court may set aside the award ex officio if:

  • the subject matter of the dispute is not arbitrable; and

the arbitral award conflicts with either international public policy or Paraguayan public policy.

26. What is the procedure to set aside the award?

The party who files an application to set aside an award must clearly state the reasons for doing so and should offer all the evidence he/she intends to produce. The competent court is the Civil and Commercial Court of Appeals of the place where the arbitral award was rendered.

The tribunal shall send the other party the application so that such party can reply it within five days. In the statement of reply, such party shall offer all the evidence he/she intends to produce.

After said term expires and regardless of whether a statement of reply has been filed or not, the evidentiary period shall start and it will last not more than ten days. If there is no evidence to produce, the court shall issue a decision within ten days.

The expert witness report, if applicable, will be produced by an expert appointed by the court. More than three witnesses for each party will not be admitted. The witnesses´ declaration could take place outside of the court.

After the parties have produced all the evidence, the court shall issue a decision within ten days. Such decision is not subject to any recourse.

27. What is the law applicable to the recognition and enforcement of a foreign arbitral award?

Foreign arbitral awards rendered in countries that are signatories of the New York Convention are recognized and enforced according to the provisions of such treaty, as Law 1879/02 states that foreign arbitral awards shall be recognized in accordance with the treaties that the country has ratified.

If no treaty is applicable, foreign arbitral awards will be recognized and enforced according to the provisions of Law 1879/02.

28. What is the procedure for the recognition and enforcement of foreign arbitral awards?

A foreign arbitral award, regardless of the country where it was rendered, will be binding and will be enforced upon its submission to the competent court. The competent court is the Civil and Commercial First Instance Court of the domicile of the person against whom the recognition and enforcement of the award is sought, or, alternatively, of the place where the assets are located.

The party who seeks the enforcement of the award shall submit the original award duly authenticated, or a certified copy of it, and the arbitration agreement or a duly certified copy of it. If either the award or the arbitration agreement is not in Spanish, the party shall submit an official translation of those documents made by an official translator.

29. What are the grounds to refuse the recognition and enforcement of a foreign arbitral award?

Under the provisions of Law 1879/02, which should be applied in case no international treaty is applicable, the grounds to refuse the recognition an enforcement of a foreign arbitral award are the following:

(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:

(i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or

(b) if the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of Paraguay; or

(ii) the recognition or enforcement of the award would be contrary to either the public policy of Paraguay or international public policy.