On December 23, 2025, the Executive Branch enacted Arbitration Law No. 7561, which entered into force that same day. This statute comprehensively modernizes the arbitration regime in Paraguay and aligns it with advanced international standards. Law 7561 fully repeals the arbitration regime of Law 1879/2002, which from now on remains in force solely to govern mediation (Articles 53 to 67) and is renamed the “Mediation Law.”
From its entry into force, the new law applies to all arbitrations commenced thereafter, as well as to awards rendered under this new framework, ensuring a clear transition toward an updated, efficient arbitration system consistent with global best practices.
The new framework is built on three fundamental pillars: modernizing the legal framework by incorporating international practices; strengthening arbitral activity by guaranteeing certainty and coherence in proceedings and in the enforcement of awards; and optimizing the relationship with the Judiciary, preserving the independence of the tribunal and limiting its intervention to strictly necessary cases.
The most significant reforms of Law 7561 can be summarized in the following points:
- Arbitrability of certain cases
One of the most far-reaching reforms of Law 7561 is the expansion of the matters that may be submitted to arbitration, incorporating areas that were previously excluded. Under the new framework, the following are considered arbitrable:
- Disputes of a patrimonial nature, eliminating the previous prohibition on arbitrating matters that required the involvement of the Public Prosecutor’s Office. The only exclusion that remains is that relating to individual labor disputes.
- Succession disputes, including matters relating to inventories, appraisals, administration, and partition of the estate, as well as disputes among heirs, executors, or legatees.
- Disputes in the professional sports arena, in accordance with the regime under Law 2874/2006 “On Sports.”
- Disputes involving public entities, municipalities, and binational bodies, provided that the matter is not governed exclusively by public-law rules.
- “Pro-arbitration” principle and minimal judicial intervention
Law 7561 consolidates a marked pro-arbitration principle, establishing that, in case of doubt, any interpretation must favor the appropriateness of arbitration and the full effectiveness of the arbitration clause. This statutory criterion requires prioritizing the validity and operability of the arbitration agreement over restrictive or formalistic interpretations.
In line with this, the new law introduces a decisive rule: faced with an objection based on an arbitration agreement, the judge may refuse to refer the matter to arbitration only when the nullity, invalidity, or inoperability of the agreement is manifest and evident. This standard—based on the prima facie— significantly limits the ability of state courts to examine in depth the validity of the arbitration agreement, reinforcing the presumption of the agreement’s validity and protecting the autonomy of the arbitral tribunal, in keeping with modern trends in international commercial arbitration.
Law 7561 also decisively strengthens the principle of minimal judicial intervention, enshrining the functional independence of the arbitral tribunal and highlighting these main innovations:
- An absolute prohibition on ordinary courts suspending an arbitration by any means or mechanism.
- Classification as misconduct of any improper intervention aimed at controlling or interfering with the exercise of arbitral functions before the award.
- Strengthening of the kompetenz-kompetenzprinciple: the arbitral tribunal is the only authority competent to decide on its own jurisdiction, and the civil judge may intervene only when the invalidity of the agreement is manifest.
These provisions consolidate a framework that affords greater certainty and stability to arbitration, avoiding delays, reducing the possibility of obstructionist maneuvers, and guaranteeing the autonomy of the proceeding.
- Extension of the arbitration agreement to non-signatories
Law 7561 expressly incorporates the possibility of extending the arbitration agreement to non-signatory parties in exceptional situations. This extension is based on the principle of good faith and applies when, from the third party’s conduct, its tacit consent to submit to arbitration can be reasonably inferred.
In particular, the arbitral tribunal may include persons or companies that, without having signed the arbitration clause:
- have actively and decisively participated in the negotiation, conclusion, performance, or termination of the contract; or
- have obtained direct benefits or seek to derive rights from the contract containing the arbitration clause.
This flexible approach makes it possible to prevent opportunistic conduct, ensures contractual coherence within economic groups or commercial chains, and aligns Paraguayan legislation with modern international arbitration practices.
- New regime for interim measures: precise and effective
Under Law 7561, the new Article 25 establishes a comprehensive and modern regime, inspired by the UNCITRAL Model Law:
- It incorporates a detailed definition of interim measures and allows them to be ordered inaudita parte (ex parte),
- grants the arbitral tribunal the power to directly enforce its decisions,
- requires adequate counter-security,
- imposes liability for damages in the event of unjustified measures, and sets out a swift judicial enforcement procedure, without objection or review of the merits.
This regime operates consistently with the principle of minimal judicial intervention provided for in Law 7561, guaranteeing urgent protection without the need to resort to a judge except in strictly necessary cases.
- Strictly limited setting-aside system
The annulment action replaces the former “remedy,” confirming that:
- It is available only on exhaustive and restrictive grounds.
- The Judiciary may not review the merits of the award, maintaining the criterion of restricted judicial intervention; Law 7561 establishes that the annulment action is the sole means of reviewing the arbitral award, limited to strict grounds that are to be interpreted restrictively.
- In international arbitration, the parties may contractually waive annulment.
This would mean that awards are more stable, predictable, and respected, which reduces subsequent time and costs.
- Simpler recognition and enforcement of awards
Law 7561 introduces key improvements:
- Awards rendered in Paraguay do not require prior recognition and may be enforced directly as domestic judgments.
- The grounds of non-arbitrability or public policy are no longer examined ex officio and must be raised by the interested party.
- Arbitration and public-policy rules
One of the most relevant innovations of the new framework is that the public-policy nature of a rule no longer constitutes an impediment to submitting the dispute to arbitration.
Nevertheless, where the dispute involves matters of public policy:
- equity arbitration (ex aequo et bono) may not be agreed upon, and
- the arbitrators may not decide ex aequo et bono,
because they must strictly apply the law in force.
- the arbitrators may not decide ex aequo et bono,
This opening considerably broadens the scope of arbitration without sacrificing respect for the legal system’s fundamental rules.
8. Limitation periods
Consistent with international standards and modern commercial arbitration practice, Law 7561 establishes that the commencement of the arbitral proceeding interrupts the limitation period.
The interruption occurs both when:
- the arbitration request is notified to the other party, and when
- the request is filed with an arbitral institution.
This change provides legal certainty to the parties, especially in long-term contracts or disputes with extended periods of prior negotiation.
9. Impugnación y ejecución del laudo
Law 7561 clearly defines the regime of judicial review of the arbitral award:
- The annulment action is the only means of challenging an award.
- Its grounds are exhaustive and to be interpreted strictly, avoiding broad or merits-based reviews by the courts.
- The exequatur is eliminated for domestic awards, which may now be enforced directly before the competent judge, just like a court judgment.
This scheme strengthens the effectiveness of arbitration, reduces time, and ensures that arbitral decisions are final and enforceable with minimal judicial intervention.
In conclusion, Law 7561 marks a true turning point in dispute resolution in Paraguay. For business owners and executives, it introduces a more reliable, modern, and efficient framework for managing contractual and commercial risks. With this reform, arbitration is consolidated as a strategic tool: it protects investments, strengthens commercial relationships, and guarantees agile, specialized dispute resolution mechanisms, aligned with international standards.
For further information and assistance with arbitration proceedings, you may contact our dispute resolution team: Mirtha Dos Santos (mdsantos@vouga.com.py ); Silvia Benitez (sbenitez@vouga.com.py ); Sebastian Silva (ssilva@vouga.com.py ).
