Panama Prevails in ICSID Arbitration Against Banesco Over Public Works Bonds
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TL;DR
- Panama won an ICSID arbitration initiated by Banesco regarding public contracts.
- The tribunal rejected all of Banesco's claims for over $13.5 million in damages.
- Banesco was ordered to pay $900,000 in legal fees and costs to Panama.
- The dispute involved performance bonds linked to alleged breach of public works contracts.
Overview
The Republic of Panama received a favorable ruling from the International Centre for Settlement of Investment Disputes (ICSID) in an arbitration initiated by Banesco Holding Latinoamérica S.A. and Banesco (Panamá), S.A. The dispute focused on alleged breaches involving performance bonds connected to public works contracts. The tribunal's award rejected all claims against Panama and ordered Banesco to pay $900,000 in legal fees and expenses.
What Happened
The arbitration was initiated in 2023 by Banesco, which claimed more than $13.5 million in damages related to the execution of performance bonds backing public works contracts that were allegedly not fulfilled.
Banesco argued that Panama had violated the bilateral investment treaty with Spain, alleging breaches of due process and discriminatory treatment.
On May 5, 2026, the ICSID tribunal issued an award rejecting all of Banesco's claims. It concluded that Panama did not violate its treaty obligations, the actions of Panamanian entities were neither arbitrary nor discriminatory, and that Banesco had adequate access to the country's legal remedies.
In addition to rejecting liability, the tribunal ordered Banesco to pay $900,000 to Panama for legal costs and expenses. The tribunal found that the standard of fair and equitable treatment does not guarantee against commercial risks.
Context
The dispute arose after Banesco challenged the execution of bonds on public works contracts it claimed were improperly enforced following project defaults. The arguments centered on whether Panama had provided fair and equitable treatment under the Spain-Panama investment treaty.
Panama was represented by the international law firm LALIVE. The Ministry of Economy and Finance of Panama released a statement welcoming the tribunal's decision as confirmation of Panama's adherence to the rule of law and legal security for investors.
Why It Matters
- The tribunal's decision rejects Banesco's multimillion-dollar claim, avoids potential liability for Panama, and results in a cost award in Panama's favor.
- The outcome reaffirms the government's approach to investment treaty disputes and may encourage investor confidence in legal protections and dispute resolution mechanisms in Panama.