The Third Administrative Litigation Chamber of the Supreme Court of Justice declared, by judgment of June 21, 2019, that Permanent Concession Contract for the Use of Water No. 004-12 of February 15, 2012, signed between the National Environment Authority — now the Ministry of Environment (MiAmbiente) — and a company engaged in hydroelectric generation on the Macho de Monte river basin, in the corregimiento of Paraíso, district of Boquerón, province of Chiriquí, is not illegal. The judgment, authored by Justice Luis Ramón Fábrega Sánchez and also signed by Justices Abel Augusto Zamorano and Cecilio A. Cedalise Riquelme, resolved an administrative litigation nullity claim.

The challenged contract grants the right of use, through permanent concession, of an annual volume of 186,088,320 cubic meters of the said river for hydroelectric purposes, with the obligation to guarantee an ecological flow equivalent to ten percent of the average inter-annual flow. The instrument was countersigned by the Comptroller General of the Republic on the same date it was signed and was preceded by the approval of a Category III Environmental Impact Study for the construction and commissioning of the project known as the La Cuchilla Hydroelectric Plant.

The nullity action rested on three main grounds. The first invoked a clause of the contract itself — requiring the concessionaire to comply with the terms of the Environmental Impact Study — as the violated legal provision. The Chamber rejected this ground on logical reasoning: it is not possible to seek the nullity of an administrative act by invoking a clause of that same act as the violated provision; the avenue for sanctioning contractual non-compliance is administrative resolution, a power belonging to the Ministry of Environment, not the Court. The second ground alleged the lapse of the concession pursuant to Article 43 of Decree Law 35 of 1966, which establishes that a concession lapses when water is not put to beneficial use for two consecutive years. The Chamber clarified that lapse does not operate automatically: it requires the environmental authority to issue a formal resolution, and the record did not show that MiAmbiente had declared one. On the contrary, the Ministry expressly requested that the Chamber deny the claim. The third ground was based on a ministerial resolution of June 2015 ordering the provisional suspension — for a maximum of six months — of water concessions for hydroelectric projects in three Chiriquí river basins; the Chamber noted that this period had expired without the suspension of the concession in question being declared, and that the plant had already begun operational testing in the National Integrated System.

The judgment establishes a broadly applicable standard distinguishing between the illegality of the act constituting a concession and subsequent non-compliance with its clauses. According to the Chamber, a concessionaire's violation of contractual obligations does not retroactively affect the legality of the contract at its formation; rather, it opens the avenue of administrative resolution or rescission, an exclusive power of the granting entity. In the area of water resources, this means that MiAmbiente — as the governing authority over water concessions — retains the power to declare the lapse or termination of a contract upon non-compliance, always through a formal act and prior due process, but that authority cannot be substituted by the judicial avenue of nullity. The Attorney General's Office had concurred with this interpretation, recommending that the legality of the act be declared.

The ruling also underscores that the Chamber's scrutiny in a nullity claim is limited to comparing the challenged act with the regulations in force at the time of its formation, without being able to encompass other acts — such as the resolution approving the Environmental Impact Study — which would be subject to separate claims. This delineation of jurisdiction reinforces the principle of specialization in Panamanian administrative litigation: each administrative act may be challenged individually, and grounds of violation must identify precisely which provision was transgressed in the genesis of the act, not in its subsequent execution.