Arias, Fábrega & Fábrega interpuso un recurso ante la Corte Suprema de Justicia cuestionando la constitucionalidad del artículo 129 de la ley que rige los contratos con el Estado.

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Arias, Fábrega & Fábrega filed an action before the Supreme Court of Justice questioning the constitutionality of Article 129 of the law governing contracts with the State. ARIFA's filing requested that Article 129 be reviewed and declared unconstitutional. Article 129 of the Public Contracting Law releases the State from its obligation to pay loss of profits and consequential damages resulting from breach of contract, barring any affected claimant from exercising its right to seek  just compensation.

The District Attorney acknowledged that Article 129 indeed represented an advantage to the State that altered contractual balance and justice.

The Supreme Court of Justice concluded that the existence of an article of law that would release the State from its obligation to pay consequential damages and loss of profits constitutes a breach of Panama Constitutional norms since it denies those who are party to a contract with the State, their right to protect their assets from any omissions or actions incurred by the State in the performance of its contractual obligations.

The Supreme Court of Justice in rendering its decision also confirmed the principle that all contractual breachs of bilateral obligations allow the non breaching party to request of  the other party either the fulfillment of its obligations, or the termination of the contract, which necessarily implies the right to seek indemnity for material damages and loss of profits.

Associate Vivian Holness lead the ARIFA Litigation and Arbitration Practice Group team in this action.