I INTRODUCTION

Ecuador enacted the Mediation and Arbitration Act (Arbitration Act) in 1997. Since then, the main amendments were introduced by the new Procedural Code promulgated on 22 May 2015 that came into force on 22 May 2016 (Procedural Code). Ecuador was one of the signatories of the New York Convention on the Recognition and Enforcement of Foreign Arbitration awards of 1958, which has been in force in Ecuador since 29 December 1961, following approval by the Senate and the ratification of the President of the Republic that confirmed the reservation made by Ecuador when signing the Convention, in the sense that only arbitrations related to commercial matters, as considered by Ecuadorian legislation, will be recognised and enforced in Ecuador. Ecuador is also member of the Inter-American Convention on International Commercial Arbitration of Panama of 1975, as well as of the Inter-American Convention on Extraterritorial Validity of Foreign Sentences and Arbitration Awards of Montevideo of 1979.

The Arbitration Act regulates both domestic and international arbitrations, as well as mediation. It provides for ad hoc arbitration and administered arbitration through arbitration institutions that may be established by not-for-profit organisations that originally were registered by the Ecuadorian Federation of Commercial Chambers, but that according to the Procedural Code are now registered with the Council of the Judiciary. The latter is the entity that regulates judges, and it has issued regulations to extend its control to cover arbitration institutions according to the theory that arbitration is not an alternative method for dispute resolution, as provided by the Constitution, but a jurisdictional lawsuit.

The main arbitration institutions were established by different chambers of commerce, including binational chambers of commerce (those established to promote commerce between Ecuador and specific other countries), in different cities in Ecuador. The main arbitration centres were created by the Chamber of Commerce of Quito, the Chamber of Commerce of Guayaquil, the Chambers of Production of the province of Azuay, the National Chamber of Construction and the Ecuadorian–American Chamber of Commerce. Each one has proper regulations for the conducting of arbitration. The Ecuadorian–American Chamber of Commerce Arbitration Centre is empowered to hold arbitrations under the Inter-American Convention on International Commercial Arbitration, and during 2017, the International Chamber of Commerce of Paris appointed the Centre of Arbitration of the Chamber of Commerce of Quito as its representative.

Arbitration awards may be annulled by the president of the provincial court of the seat of the arbitration. No appeal or cassation is available from such decision. The Constitutional Court originally upheld that constitutional control is not applicable to arbitrations, but has changed its position, accepting that actions for extraordinary protection may be brought either against a decision of the president of a provincial court or directly against an award, in the case of a violation of constitutional rights or human rights protected under international instruments on a matter.

Owing to a lack of confidence in the judicial system, originally as a result of the interference by the legislative and the executive powers with the judiciary in December 2004, and later as a consequence of the totalitarian appointment of judges by the Council of the Judiciary, which was conducted under the theory that the state should control all private activities, arbitration is slowly increasing in popularity as an alternative method for resolving private disputes, especially in the city of Quito. However, governmental institutions have continually refused to submit disputes to arbitration, accepting the presidential objection that considers it an invalid method for dispute resolution, owing to the view that only the state has the power to decide on public matters. The denunciation on 7 July 2009, with effect from 7 January 2010, of the ICSID Convention, ratified by Ecuador in 1985, and of all international bilateral treaties on international investments entered by Ecuador since 1965, was based on this presidential approach.

Legislation enacted on 21 August 2018 with the aim, among other objectives, to attract foreign investment,2 established that an obligation to submit to either domestic or international arbitration may be included in investment contracts between Ecuador and foreign investors. However, due to the controversies arising from such contracts, it is not compulsory to enter into one.

II THE YEAR IN REVIEW

i Arbitration developments both domestically and internationally

The procedural code enacted on 22 May 2015 (Procedural Code) established the steps and formal requirements for the recognition or homologation of foreign awards by the competent chamber of the provincial court where the award is to be enforced. This homologation process was eliminated by the above-mentioned Law of 21 August 2018, which reestablishes the original provision of the Arbitration Act ordering that the enforcement of awards issued in international arbitration proceedings are enforceable in Ecuador in the same way as domestic awards. Enforcement starts with an order of enforcement issued by a trial judge against which, under the Arbitration Act, all defences generated after the issuance of an award may be opposed, while under the Procedural Code, only defences connected with the extinction of obligations, except prescriptions or statutes of limitations, may be argued. Since no precedents have been entered on the prevalence of the provisions of the Arbitration Act over those of the Procedural Code, an action in ordinary proceedings to obtain a declaratory judgment of the unenforceability of a foreign award alleged to be contrary to the public law of Ecuador has been brought.3 While the homologation provision was still in force, the homologation of the same awards was rejected because it was not translated from English into Spanish by an interpreter registered with the Council of the Judiciary.4 In another case brought to the Provincial Court of Quito, homologation was rejected without granting the right of defence to the plaintiff arguing that a foreign award was in contradiction of local decisions rendered after the award was entered and became final.5 The plaintiff has brought an action for extraordinary protection before the Constitutional Court.

The provisional measures on international investment arbitration, which under the Procedural Code should be enforced by trial judges, and which were confirmed in a partial final award, were set aside by some judges of the Constitutional Court. The Constitutional Court:

  1. ordered the trial judge in the case not to enforce provisional measures ordering a stay on the enforcement of a domestic sentence; and
  2. stated that the decision issued by associate judges of the National Court of Justice, acting under instructions contained in a second decision of the Constitutional Court issued in a second action for extraordinary protection, in a case derived from the decision of the plaintiff to not buy an industrial plant worth US$1.5 million, should instead be fulfilled, contradicting an international arbitration award that declared that the investor had been denied justice as a result of a decision establishing damages of US$42 million.6

All the judges of the Constitutional Court that ordered the enforcement of the judicial decision despite the provisional measure were dismissed by the Council of Citizenship Participation and Social Control on the basis of bias and corruption. This case was mentioned as one of the bases for such dismissal.7

ii Investor–state disputes

According to information provided by the Attorney General of Ecuador, 16 investment arbitrations brought against Ecuador are pending. To date, Ecuador has generally fulfilled previous arbitration awards on foreign investment disputes without the need for enforcement procedures.

During the 10-year tenure of former President Rafael Correa (15 January 2007 to 24 May 2017) the ICSID Convention, in force in Ecuador since 1985, was denounced, as were all the bilateral investment treaties that Ecuador had entered since 1965. Some of these treaties will survive their denunciation for about 10 years for foreign investments with respect to existing investments. The new government, inaugurated on 24 May 2017 under President Lenín Moreno, has announced new negotiations to enter into new bilateral investment treaties, with negotiations having been started with several countries, including the United Kingdom, the United States of America, Mexico, Japan and South Korea, as well as with the European Union. An investment treaty with the European Trade Association has also been signed.

III OUTLOOK AND CONCLUSIONS

The scrutiny and control of the Council of the Judiciary is affecting institutional arbitration.

Although the number of international arbitration cases is slowly increasing, there is no clear indication what enforcement trend will be followed in the different jurisdictions of Ecuador by trial judges. As previously explained, under the Arbitration Act, the enforcement of foreign arbitration awards should be requested directly of trial judges, who have the power to decide on any defences, such as for violations of the reservation to the New York Convention and of the provisions of Article V of the Convention, including an eventual violation of the public policy of Ecuador. No clear definition of the competence of judges on this matter has been determined to date. Since the whole judicial system has been frequently changed by the Council of the Judiciary, judges do not have adequate knowledge of the matter. In addition to this legal ignorance, corruption is also a hindrance.

A movement to prepare, discuss, draft and submit a new bill to enact a new arbitration law following the guidelines of the UNCITRAL Model Law is growing, but the attitude and political orientation of both the members of the Council of the Judiciary and the National Assembly (which replaced Congress on 20 October 2008) must be defeated to obtain such objective. Public institutions, which are under the control of anti-democratic doctrines, have to be reshaped to reestablish the rule of law.


Footnotes

1 Alejandro Ponce Martínez is a senior partner at Quevedo & Ponce.

2 Organic Law for productive development, attraction of investments, generation of employment, stability and fiscal equilibrium.

3 Seitur Cia Ltda v. CWT.

4 CWT v. Seitur Cia Ltda.

5 Laboratorio Biosano SA v. Hospimedikka Cia Ltda.

6 Local case, Prophar SA v. Merck Sharp & Dohme (Inter American) Corp; foreign investment arbitration, Merck Sharp & Dohme (Inter American) Corp v. Republic of Ecuador.

7 Decision of 23 August 2018.