I INTRODUCTION

Ecuador enacted the Mediation and Arbitration Act (the 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 (the 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, after 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 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 of 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 conduct 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 are 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 the decision of the president of the provincial court or directly against the award, in the case of the violation of constitutional rights or human rights protected under international instruments on the matter.

Owing to the 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 that was conducted under the theory that the state should control all private activities, arbitration is slowly increasing 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 to consider it as 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 were based on this presidential approach.

II THE YEAR IN REVIEW

i Arbitration developments both domestically and internationally

A new procedural code enacted on 22 May 2015 (the Procedural Code) established the steps and the 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. The Arbitration Act had maintained since 1997 that international arbitration awards did not require any previous homologation or recognition and their enforcements were subject to the same enforcement rules of domestic awards and judicial decisions, starting with the order of enforcement of the decision in 24 hours, by a competent trial judge. Defences originated after the issuance of the award and, in the case of foreign awards, those derived from the application of the New York Convention were allowed, mainly defences based on violation of the principle that the definition of commercial matters is subject to the concepts of the laws of Ecuador (according to the reservation made by Ecuador) or in violation of public law of Ecuador.

The Procedural Code also determined that all the awards were considered as titles of enforcement before a trial judge, establishing that the only defences against such enforcement are that the obligations contained in the awards have been extinguished by any of the means considered as possible, except the statute of limitations. On 7 December 2017, a ruling of the Civil and Commercial Chamber of the Provincial Court of Pichincha held that it did not have competence to decide on the allegation of violation of the public policy of Ecuador, under Article V(2) of the New York Convention A ruling of a trial judge of 25 March 2018 declined to hear a case where it was requested to declare that the same award was unenforceable in Ecuador because of several violations of the public policy of Ecuador.2 These decisions that were not supported by adequate reasoning may imply that the only way to contest foreign awards is before the judicial system of the seat of arbitration, which may imply that violation of the public policy of Ecuador may not be subject to judicial review.

Provisional measures on international investment arbitration, confirmed in partial final awards, that under the Procedural Code should be enforced by the trial judges, were set aside by the Constitutional Court. The Constitutional Court ordered the trial judge not to enforce the provisional measures and stated that a decision issued by associate judges of the National Court of Justice, acting under the 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 the international arbitration award that declared that the investor had been denied justice as a result of a decision establishing damages of US$42 million.3

ii Investor–state disputes

According to information provided by the Attorney General of Ecuador, 16 investment arbitrations brought against Ecuador are pending. Up to now 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 well as all the bilateral investment treaties that Ecuador had entered since 1965. Some of these treaties will survive the denunciations 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 that new negotiations will be brought in order to enter into new bilateral investment treaties.

III OUTLOOK AND CONCLUSIONS

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

Although international arbitration cases are slowly increasing, there is no clear indication what enforcement trend judges will follow in the different provincial courts of Ecuador on the orientation of the jurisprudence in this matter. As explained, under the Arbitration Act, enforcement of foreign arbitration awards should be requested directly to the trial judges who have the power to decide on the defences, including the violation of the reservation to the New York Convention and of provisions of Article V of the Convention, including eventual violation of the public policy of Ecuador. No clear definition of the competence of judges on this matter has been determined up to now. 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 lack of knowledge of the law or, in other words, legal ignorance, corruption is also a hindrance.

A movement to prepare, discuss, draft and submit a new bill to enact a new arbitration law under 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 (that replaced the Congress since 20 October 2008) has to be defeated in order to obtain such objective. The public institutions, under the control of anti-democratic doctrines, have to be reshaped in order to re-establish the rule of law.

Officers of the government are trying to include in such bilateral investment treaties certain provision to assure a special way of appointing arbitrators under new regulations of arbitral institutions established or to be created in South America.


Footnotes

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

2 Seitur Cia. Ltda v. CWT.

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