Reaffirming Arbitral Autonomy: Lessons From the Paraguayan Court of Appeal’s Ruling in Rieder v. Renault

On February 13, 2026, the Paraguayan Court of Appeals, Second Chamber, issued a ruling in Rieder v. Renault (Decision No. 48/2026) that has been praised by the Paraguayan arbitral community for reaffirming the autonomy of international arbitration in the face of an allegedly invalid arbitration clause. In its decision, the court applied key international arbitration principles, such as minimum court intervention and Kompetenz-Kompetenz, to hold that: (i) judicial review of the validity and enforceability of arbitration agreements is limited to a prima facie assessment; and (ii) arbitration clauses in distribution agreements do not violate Paraguay’s public policy merely because they select the rules of a foreign arbitral institution.

Case Background

The Paraguayan company, Rieder & Cía. S.A.C.I. (“Rieder”), was the local distributor of Renault SAS (“Renault”). After a long-standing commercial relationship, the parties signed a Termination Agreement containing the following arbitration clause:

"Each and every claim, dispute and/or difference arising between the Parties in relation to or in connection with this Agreement, or any breach thereof that cannot be satisfactorily resolved between the Parties, shall be finally settled by arbitration in Asunción, Paraguay, in accordance with the Rules of Arbitration of the International Chamber of Commerce, by one or more arbitrators appointed in accordance with said Rules […]"

The Termination Agreement was governed by Law 194/1993 (“Distribution Law”), which Paraguay’s jurisprudence considers as part of its public policy. In a previous ruling (Gunder SCSA v. Kia Motors Corp., Decision No. 285/2006), the Supreme Court of Justice (“SCJ”) held that contracts governed by the Distribution Law may have arbitration clauses, provided that the arbitration is seated in Paraguay.

In November 2024, Rieder filed a judicial claim in Paraguayan courts seeking indemnification under the Distribution Law. Rieder argued that both the Termination Agreement and its Arbitration Clause were void and unenforceable because the parties’ choice of the ICC Arbitration Rules meant that the arbitration would necessarily be seated in Paris and governed by French law, thereby violating the SCJ’s decision in Gunder v. Kia and Paraguayan public policy.

The first instance judge agreed with Rieder. The judge decided that: (i) it had jurisdiction to hear Rieder’s claim because the arbitration clause did not include disputes regarding its own validity; and (ii) the arbitration clause was purportedly incapable of being performed because the parties’ choice to arbitrate under the ICC Arbitration Rules violated the SCJ’s decision in Gunder v. Kia and conflicted with the parties’ agreement to seat the arbitration in Asunción, Paraguay.

The Appeal Court's Decision

On appeal, the court reversed the judge’s decision. According to the court: (i) based on the Kompetenz-Kompetenz principle, the judicial review of the validity of arbitration clauses is limited to a prima facie assessment; and (ii) on a prima facie basis, the arbitration clause was neither incapable of being performed, nor null and void, nor ineffective.

(a)   The Correct Standard of Review for Arbitration Clauses Under the PAA

According to the court, the prior Paraguayan Arbitration Act (“PAA”), applicable to this dispute, recognizes the Kompetenz–Kompetenz principle in its Article 19 (which is based on Article 16 of the UNCITRAL Model Law), meaning that arbitrators have jurisdiction to decide their own jurisdiction, including matters related to the validity of an arbitration agreement.

Further, the court emphasized that, based on Article 11 of the PAA (which has its source in Article 8 of the UNCITRAL Model Law), courts only have jurisdiction to conduct a prima facie analysis of whether an arbitration agreement is invalid or incapable of being performed. In the court’s words:

"[W]hen such an issue is raised before a judge, the judge must limit himself to conducting a prima facie review of the arbitration agreement to verify that it is not manifestly null and void, ineffective, or incapable of being performed. If the judge goes beyond such a review, he will undermine the principle of Kompetenz–Kompetenz."

The court relied on the legislative history of Article 8 of the UNCITRAL Model Law, which is based on Article III of the New York Convention, indicating that:

“[d]uring the drafting of the Model Law, it was suggested that the word ‘manifestly’ be inserted before the word ‘null’ in order to establish a low standard of review for the court hearing the matter. The proposal did not succeed. It was considered unnecessary, as there was consensus that the provision, as drafted, already reflected that intention.” (Third Working Group Report, A/CN.9/233, para. 77, p. 315).

The court explained that this interpretation aligns with the Kompetenz-Kompetenz principle’s main objective of preserving the integrity and efficacy of arbitration agreements and preventing premature judicial intervention. In addition, the court noted that, to avoid differing interpretations of this matter, Article 14 of the new Paraguayan Arbitration Act (Law No. 7561/2025) expressly provides that judges must refer the dispute to arbitration unless the arbitration agreement is “clearly and manifestly” invalid, ineffective, or inoperable.

(b)   The Court’s Review of the Arbitration Clause

After concluding that the correct standard of review for an arbitration clause under the PAA is a limited one, the court analyzed, on a prima facie basis, whether the arbitration clause was incapable of being performed, null and void, or ineffective.

i. Incapable of Being Performed

The court disagreed with the Judge’s reasoning that the arbitration clause was incapable of being performed merely because the parties chose the ICC Arbitration Rules.

First, the court held that the parties’ selection of the ICC Arbitration Rules did not affect the parties’ choice to seat the arbitration in Asunción and did not displace the Distribution Law governing the merits of the dispute. The court recognized that these are separate elements of an arbitration agreement, which have distinct legal implications. The court emphasized that the ICC Arbitration Rules do not require arbitrations to be seated in Paris, as confirmed by ICC Arbitration Rules, Articles 18(1), 32(3), and Article 7 of Appendix II.

Accordingly, the court held that the arbitration clause did not violate the SCJ’s decision in Gunder v. Kia since the parties chose to seat the arbitration in Asunción, the PAA served as the lex arbitri, and the Distribution Law governed the merits. That remained unaffected by the election of the ICC Arbitration Rules.

Second, the court acknowledged that the arbitration clause included wording that could be considered incorrect (“judgment upon the award may be entered in any court having jurisdiction thereof.”) but concluded that such language did not render the arbitration clause pathological. According to the court, the arbitration clause reflected the parties’ intention to submit their disputes to arbitration, the scope of such disputes, the arbitral seat, and indicated a valid administering institution to manage the proceedings.

ii. Null and Void

The court held that the judicial review is limited to an analysis of whether the arbitration clause was null and void ab initio (de pleno derecho).

The court concluded that, from a prima facie review, the arbitration clause appeared to be valid because it complied with the written form requirement of the PAA and was signed by both parties.

iii. Ineffective

The court explained that the term “ineffective,” as provided in Article 11 of the PAA, refers to arbitration agreements that once produced effects but later ceased to do so, that is, they lost their effectiveness.

The court held that Rieder failed to support the argument that the arbitration clause ceased to produce effect between the parties.

Conclusion

The court’s decision reaffirms the arbitration-friendly stance of Paraguayan courts. The question of who decides the validity of an arbitration clause received a clear and compelling response: first, the arbitrators, and only afterwards, in an annulment or enforcement proceeding, the courts. The court was emphatic: when a judicial action concerns a matter covered by an arbitration agreement, the judge may conduct only a prima facie review to determine whether the arbitration agreement is clearly and manifestly null and void, ineffective, or incapable of being performed. Anything beyond that would undermine the Kompetenz-Kompetenz principle.

Furthermore, the court confirmed that parties may choose foreign arbitral institutions to administer arbitrations seated in Asunción and governed by Paraguayan law, which is in accordance with international arbitration standards worldwide.