Costa Rica’s First Investment Arbitration Set-Aside Proceeding and the End of the Investor-State Exclusion

In September 2026, the First Chamber of the Supreme Court of Costa Rica (“Sala Primera”) issued the first decision by a Costa Rican court on the annulment of an investment arbitration award. The case, Castillo Bozo v. Panama, put an unusual feature of Costa Rica’s arbitration legislation under direct scrutiny: the now-repealed International Commercial Arbitration Law expressly excluded Costa Rica as a seat for investor-State arbitration.

Background

Leopoldo Castillo Bozo, a national of the Dominican Republic and Venezuela, initiated arbitration proceedings against the Republic of Panama in 2019 under the bilateral investment treaty between Panama and the Dominican Republic. The dispute was administered by the Permanent Court of Arbitration under the UNCITRAL Arbitration Rules.

The claimant alleged that Panama had unlawfully expropriated his investment in Seguros BBA, Corp., a Panamanian insurance company, through the regulatory intervention and eventual liquidation of the company by Panama’s Superintendencia de Seguros y Reaseguros (Superintendency of Insurance and Reinsurance). He invoked violations of the BIT’s protections against unlawful expropriation and the obligation to provide fair and equitable treatment, seeking compensation of approximately USD 100 million in material and moral damages.

Critically for the purposes of this article, it is important to mention that the parties agreed that San José, Costa Rica would serve as the seat of the arbitration.

On November 8, 2022, the tribunal issued its Final Award. On the merits, the tribunal—by majority—dismissed all of the claimant’s claims, finding no violation of either the expropriation or the fair and equitable treatment standards under the BIT. The claimant was ordered to pay Panama USD 659,595.49 in arbitration costs.

The Annulment Proceedings Before the Sala Primera

On December 15, 2022, the claimant filed a petition for annulment before the Sala Primera de la Corte Suprema de Justicia (First Chamber of the Supreme Court of Costa Rica), which, under Costa Rican law, is the competent court for setting aside of international arbitral awards (Exp. 22-000146-0004-AR/Res. 001386-F-S1-2026). The petition was grounded entirely on the Ley de Arbitraje Comercial Internacional (International Commercial Arbitration Law, or “LACI”, Law 8937), invoking the annulment grounds set out in its Article 34, which mirrors Article 34 of the UNCITRAL Model Law.

Panama’s opposition, filed on March 29, 2023, advanced three principal arguments, each of which addressed a distinct dimension of the case:

First, the inapplicability of the LACI. Panama argued that the claimant had filed his petition under the wrong law. Article 1(5) of the LACI contained a clear exclusion: “[The LACI] shall not apply to investor-State disputes regulated in international agreements”. Since the Castillo Bozo arbitration arose under a bilateral investment treaty and was governed by the UNCITRAL Rules as agreed under that treaty, it fell squarely within the exclusion. The LACI simply did not apply.

Second, the applicable law and the time bar. If the LACI did not apply, the residual law governing the annulment was the Ley RAC (Law 7727), Costa Rica’s law on alternative dispute resolution, which served as the default framework for arbitration matters not covered by the LACI. Critically, the Ley RAC provided a much shorter deadline for filing annulment petitions: fifteen business days from notification of the award, as opposed to the three months allowed under the LACI’s Article 34(3). Under this shorter deadline, the filing period had expired, and the claimant’s petition was therefore extemporaneous.

Third, the merits as a disguised appeal. Even if the petition were timely, Panama argued that the claimant was impermissibly attempting to convert an annulment proceeding into an appeal on the merits.

The Sala Primera’s Decision

On September 10, 2026, the Sala Primera issued its decision (Voto No. 1386 -2026), resolving the first investment arbitration annulment petition in Costa Rican judicial history.

The Court sided with Panama on the threshold question. It held that the LACI’s Article 1(5) exclusion applied to the dispute: because the Castillo Bozo arbitration was an investor-State dispute regulated by an international agreement, the LACI was not the applicable lex arbitri. Instead, the Ley RAC governed the annulment proceedings.

Under the Ley RAC’s fifteen-business-day deadline, the claimant’s term to file an annulment petition expired on November 30, 2022. The petition, filed on December 15, 2022, was therefore inadmissible as extemporaneous. The Sala Primera declared the petition inadmissible without addressing the merits.

In a notable passage, the Court expressly acknowledged the 2024 legislative reform that had, in the interim, unified Costa Rica’s arbitration framework, observing that as of April 2025:

“the country’s arbitration framework had changed, transitioning from the characteristic dualist system that had long governed, to a monist one, in which Law 7727 (Ley RAC) and Law 8937 (LACI) were unified into the new ‘Ley de Arbitraje’ pursuant to Law 10535” (Voto No. 1386- 2026).

However, the Court held that the new law could not be applied retroactively to the pending proceedings. Under Costa Rican principles of non-retroactivity of procedural law, the applicable regime was that in force at the time of the filing of the annulment petition in December 2022, when the dualist system and the LACI exclusion were still in effect.

The Sala Primera’s approach was notably restrained. By resolving the case on procedural-admissibility grounds, the Court avoided having to address what standard of review should apply when a Costa Rican court examines an investment arbitration award on the merits.

Costa Rica’s Arbitration Reform: From Dualism to Monism

For over a decade, Costa Rica operated under a dualist arbitration framework. The LACI (Law 8937, enacted in 2011) governed international commercial arbitration, modelled on the UNCITRAL Model Law. The Ley RAC (Law 7727, enacted in 1997) governed domestic arbitration and alternative dispute resolution more broadly. It served as the residual law for arbitration matters not covered by the LACI.

This dualism was, in itself, not unusual—many jurisdictions distinguish between domestic and international arbitration regimes. What was unusual was the LACI’s Article 1(5), which contained an express exclusion of investor-State disputes regulated in international agreements. The relevant text read:

“The present law shall not affect any other law of Costa Rica by virtue of which certain disputes are not susceptible of arbitration or may only be submitted to arbitration in accordance with provisions other than those of the present law. Nor shall it apply to investor-State disputes regulated in international agreements.” (LACI, Art. 1(5), emphasis added.)

The first sentence of this provision mirrors Article 1(5) of the UNCITRAL Model Law. However, the second sentence—the investor-State exclusion—was an addition by the Costa Rican legislature, with no equivalent in the Model Law. The legislative history does not provide extensive reasoning for this addition, but its effect was clear: investment arbitrations seated in Costa Rica could not benefit from the LACI’s modern procedural framework, including its three-month deadline for annulment petitions. Instead, they were relegated to the Ley RAC, with a much shorter annulment deadline and a framework less tailored to the specificities of international proceedings.

The 2024 Reform

On September 18, 2024, Costa Rica enacted Law 10535 (Ley para armonizar la normativa del Arbitraje Costarricense). The reform was comprehensive and transformative. The Ley RAC and the LACI were merged into a single statute, now renamed simply the Ley de Arbitraje (Arbitration Law). The investor-State exclusion was removed, so investment arbitrations seated in Costa Rica now fall within the scope of the Ley de Arbitraje, without exception.

The Castillo Bozo illustrates how the exclusion operated in practice and why its elimination matters. The same petition, filed on the same date, was inadmissible under the old law and would have been admissible under the new law.

Broader Implications and Lessons

The most immediate lesson from Castillo Bozo is a cautionary tale about the choice of seat. When parties select a seat for an investment arbitration, they are selecting the procedural law that will govern the arbitration at the seat, including the grounds and procedures for challenging or annulling the award. Practitioners may assume that a Model Law jurisdiction provides a uniform procedural framework for all types of arbitration, including its three-month deadline for annulment. But, as this case demonstrates, a jurisdiction may have adopted the Model Law with modifications that carve out investor-State disputes, creating a trap for the unwary.

The Costa Rican experience also highlights a risk inherent in dualist arbitration systems. When a jurisdiction maintains separate laws for domestic and international arbitration, the boundary between the two becomes critical. If investment arbitration falls outside the international arbitration statute—as it did under the LACI—parties may find themselves subject to a domestic arbitration regime that was never designed with the complexities of international investment disputes in mind.

Conclusion

Castillo Bozo v. Republic of Panama will be remembered as a landmark in Costa Rican arbitration case law—the first time the Sala Primera confronted an investment arbitration annulment. The claimant’s petition was defeated not by the merits of his annulment arguments, but by the architecture of the lex arbitri: an exclusion provision that channeled his case into a domestic arbitration framework with a fifteen-day deadline that had already lapsed.

The 2024 reform came too late for Castillo Bozo, but it marks a turning point for Costa Rica. By eliminating the exclusion and unifying the country’s arbitration laws into a single, modern statute, the Arbitration Law ensures that future investment arbitrations seated in Costa Rica will be governed by a framework aligned with international best practices.

The author represented the Republic of Panama in the annulment proceedings discussed in this article. The author used AI-assisted tools to support the drafting process of this article. The analysis, reasoning, and conclusions are exclusively the author’s own.