Contributed By Ferrere
The Arbitration and Mediation Law (‘AML’) was enacted more than 20 years ago, and recognises national and international arbitration. Arbitration has had relative success in Ecuador and has proven to be a faster and more efficient alternative to the judicial process, due to the inherent flaws of the judicial branch. However, the success of arbitration is only ‘relative’, because the percentage of legal conflicts resolved through arbitration remains low, and even lower in international arbitration cases.
Regarding international arbitration, Ecuador is a signatory to the main instruments regarding arbitration, as follows:
Arbitration is a real alternative to court proceedings in Ecuador for certain legal matters. Most commercial contracts include an arbitration clause, due to the backlog of court cases and delays in the proceedings. In administrative contracts, the inclusion of an arbitration clause has become one of the most important considerations in entering into a contract with the State, since investors are not willing to submit disputes to a local court due to the general perception that there is no guarantee of independence.
There are two main issues affecting international arbitration: the denunciation of bilateral investment treaties (BITs) and the recognition of awards issued in foreign countries.
In 2008, Ecuador initiated a process of withdrawal of BITs and terminated the agreements entered into with Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Romania and Uruguay. In 2010 Ecuador terminated the BIT with Finland.
Between 2010 and 2017, the National Assembly approved the denunciation of the remaining 16 BITs. On September 2010, the approval of the first batch of treaties included those signed with Great Britain and Northern Ireland, and Germany. On March 2011, the approval to withdraw from the treaties entered into with Sweden and France was issued. On May 2017, the National Assembly approved the withdrawal of the following treaties: Argentina, Bolivia, Canada, Chile, China, Italy, Netherlands, Peru, Spain, Switzerland, United States, Venezuela. The process of termination of these treaties was only completed when the President of the Republic ratified the termination and proceeded to notify each State with the official notification of termination. To the best of our knowledge, these notifications were delivered to the corresponding authorities of each signatory State between May and July 2017.
Generally, termination of these BITs would operate following a period of time after the notification of termination (six-12 months, depending on the BIT). This period has elapsed for most (if not all) the treaties. In addition, some of these treaties would “survive” termination a period ranging from five to 15 years in respect to investments that were made when the treaty was in force. For example, treaties having a survival clause of ten years are the following: Bolivia, Chile, China, Peru, Spain, Switzerland, United States, Venezuela. In addition, treaties with Sweden, Netherlands, Germany, France, Canada and Argentina would survive for a period of 15 years after termination. The treaty signed with Italy is the only one that would survive for five years after withdrawal.
It is worth noting that there are conflicting opinions regarding the termination of the BITs between Ecuador and Spain, Netherlands and Italy. While some sectors argue that these BITs have terminated, others argue that these BITs were automatically renewed, as notification of termination was notified after the automatic renewal operated. According to UNCTAD, these three treaties remain in force.
The second issue regarding international arbitration is the enforcement of arbitral awards issued in foreign countries. The enactment of the General Organic Code of Procedures (‘COGEP’) on 22 May 2015 amended the provisions regarding the enforcement of arbitral awards. As provided by the COGEP, an award rendered abroad will have to follow a recognition process in order to become enforceable in Ecuador. The requirements for recognition and enforcement are described in 12.2 Enforcement Procedure.
The enactment of the COGEP has raised a debate among the legal community in Ecuador, as the majority of practitioners consider that the provisions of the COGEP depart from the New York Convention of 1958, of which the Republic of Ecuador is a signatory state. However, the recognition of foreign awards has yet to be debated in the legal community, as case law on this matter is not abundant.
Regarding national arbitration, the main issue is the new process enacted regarding annulments. It is interesting to note that, even though the grounds for the annulment of an award are explicitly provided by the law, the law remained silent regarding the procedure that was to be followed. In March 2017, the National Court of Justice issued a resolution regulating the procedure for the annulment of an award as an expedited, one-instance process.
International arbitration among private parties is generally of a commercial and contractual nature, so is not related to a particular industry or activity. There is significant activity in state-private arbitration and investment disputes, mainly related to hydrocarbons, taxation and the denial of justice.
According to article 39 of the AML, only trade unions, chambers of commerce and non-profit organisations can organise arbitration and mediation centres, with prior authorisation from the competent authority. Several chambers of commerce currently provide international arbitration services, with the most relevant Ecuador-based bodies for international arbitration being the following:
The AML was enacted in September 1997 and codified in 2006, and is the main governing body of rules regulating arbitration in Ecuador, including national and international arbitration. Ecuador is also a signatory to the main international instruments regarding arbitration (please see 1.1Prevalence of Arbitration). Other laws and regulations have certain provisions regarding arbitration – for example, the homologation and enforcement of foreign awards in Ecuador is subject to the provision set forth in the COGEP and the applicable international treaties ratified by Ecuador.
The AML contemplates some legal provisions of the UNCITRAL Model law but has several variations, such as the conduct of the arbitral proceedings, interim measures and annulment grounds.
There have been no significant changes in the national arbitration law over the past year. As noted above under 1.2 Trends, the only significant regulation on arbitration matters issued over recent months was the Resolution of the National Court of Justice regulating the procedure for the annulment of an award as an expedited, one-instance process.
As established in 1.2 Trends, between May and July 2018, the Executive notified the termination of all remaining BITs, so foreign clients would be advised to include arbitration clauses in all contracts to be executed with the State, and to be aware that local laws that regulate the main economic sectors are constantly changing.
Under the provisions of the AML, the parties may agree to submit existing or future disputes on contractual or extra-contractual matters to arbitration. Therefore, parties may include an arbitration clause in a contract, or they can conclude a separate agreement.
It has been determined that the requirements for the validity of an arbitration agreement include that the agreement must be in writing. A written document is not only one duly signed, but also those documents "resulting from an exchange of letters or other written communications evidencing the parties’ will to submit to arbitration." The lawmaker’s intention must have been to record the parties’ unequivocal desire to resort to arbitration, regardless of whether their consent is expressed in one act or in several simultaneous or consecutive acts.
Furthermore, article 6 of the AML requires that a compromis or arbitration agreement must be made "in a document stating the name of the parties and an unequivocal definition of the legal transaction to which it refers."
Finally, if the dispute involves civil indemnities for felonies or unintentional torts – ie, for non-contractual liability – the arbitration agreement shall specifically address such issue (Articles 5 and 6 of the AML). However, non-contractual liability rules for arbitration can only be applied between private parties.
In addition to the above set requirements, if the arbitration agreement relates to public procurement issues or involves the State (Article 25 of the Constitution of Ecuador), the following additional requirements for local and international arbitration are set forth in the Constitution, the AML, the Organic Law for the National Public Procurement System (‘Law on Public Procurement’) and the Organic Law for the Office of the Attorney General of the State (‘AG Law’), in addition to the process for the designation of the arbitrators:
Failure to fulfil any of these requirements may result in the arbitration agreement or arbitration clause being deemed void or pathological. The above-mentioned requirements are not applicable when there is an international treaty, where the treaty requirements must prevail.
According to Ecuadorian law, it is only possible to submit to arbitration matters on which it is possible to reach a compromise. The Constitution and the AML set a parameter to define the arbitrability of disputes in Ecuador. Alternative dispute resolution methods “shall be applied pursuant to the law in such matters where, due to their nature, it is possible to settle” (Article 190 of the Constitution of Ecuador).
In order to define the matters that are subject to settlement agreements, resort must be made to the Civil Code of Ecuador (Articles 2351 to 2361). Such law provides the matters that cannot be subject to settlement, including the following:
Considering this, national case law has ruled that arbitration agreements are not enforceable if their scope is not subject to a settlement agreement, or if the agreement is null due to non-compliance with the legal requirements relating to the form and content. However, given the principle of competence-competence, the tribunal shall decide if the dispute may or may not be arbitrated, being a matter of jurisdiction.
Article 7 of the AML provides that the arbitration agreement prevents the parties from submitting the dispute to the courts, and that judges shall refuse to acknowledge any claim related to a legal dispute that the parties have agreed to submit to arbitration. Furthermore, according to Article 7, if there is any doubt regarding the intention of the parties, the courts will order disputes to be resolved in arbitration based on the principle of favor arbitri. However, the arbitral tribunal may use the court to enforce some decisions, since arbitrators have no access to public enforcement powers.
Court Examination of the Arbitration Agreement
Article 8 of the AML provides that, if a party files a claim in disregard of an arbitral agreement, the defendant may challenge the court’s jurisdiction on the grounds of an existing arbitral agreement. Such a dispute shall be resolved by the judge/court as a threshold matter, which will require both parties to submit evidence about the existence and/or application of the arbitral agreement without dealing with the merits of the case. If the court concludes that the arbitral agreement is valid, the claim must be dismissed. If the defendant fails to challenge the court’s jurisdiction, then the judge/court may presume that the defendant has waived its right to arbitrate the dispute.
Ecuadorian law recognises the principle of separability of the arbitration agreement/clause, which is incorporated in article 5 of the AML, and according to which an arbitral clause will remain valid even if the contract in which it is contained is null. The principle has been widely accepted by Ecuadorian doctrine and case law.
The parties are free to select the arbitrators according to the rules they have agreed upon within the arbitration agreement. Thereby, the parties can choose the number of arbitrators (one or three) and the selection process; they can also agree to have a single arbitrator to settle the dispute.
The law has set a limit to the parties’ autonomy to select arbitrators, depending on the type of arbitration they choose. If the arbitration is to be ruled in law, then the arbitrators must be lawyers, according to Article 3 of the AML. Furthermore, in order to be designated as an arbitrator, the person must have the capacity to legally appear before courts, according to Article 19 of the AML. It is important to bear in mind that, if one of the parties is the State, the selection process of arbitrators must be previously stipulated and incorporated in the arbitration agreement.
As previously mentioned, the AML permits the parties to agree on the process of the designation of the arbitrators and the number of members in the tribunal. If the parties have failed to agree or if the chosen method fails, the AML provides a mandatory proceeding. First, the parties can mediate to appoint the tribunal. If the mediation does not work, the director of the arbitration centre shall send the parties a list of arbitrators from which they should select the arbitrators by mutual agreement. If they fail to do so within a three-day term, the director of the centre shall designate the tribunal through a ballot system. Furthermore, according to Article 16 of the AML, upon mutual consent the parties can nominate arbitrators outside from that list.
In the case of an ad hoc arbitration, the parties should designate the arbitrators by applying the rules incorporated in the arbitration agreement.
The courts do not play any role in the selection of the arbitral tribunal.
Article 76(7)(k) of the Constitution provides that all persons are entitled “to be judged by an independent, impartial and competent judge […]”. This provision is one of the main guarantees of due process and is applicable to all judicial proceedings, including arbitration.
Article 21 of the AML states that the grounds on which judges may be challenged are also applied to arbitrators. Consequently, Article 22 of the COGEP provides the following grounds to challenge a judge or arbitrator:
The AML foresees a specific procedure for challenging arbitrators. In an administered arbitration, the challenge must be resolved by the other members of the tribunal; if they do not reach a consensus, it must be resolved by the director of the arbitration centre. If there is a sole arbitrator, or if all arbitrators are challenged, the director of the centre must resolve the issue. Similarly, in ad hoc arbitration, the request must be resolved by the other members of the tribunal, or by the director of the closest arbitration centre to the domicile of the claimant.
There is no appeal of the decision made by the director of the arbitration centre regarding the challenge of an arbitrator.
There are no specific rules or codes of conduct for arbitrators in the legislation. However, arbitration centres do follow the IBA Guidelines on Conflicts of Interest in their internal rules of procedure.
Article 19 of the AML compels the arbitrator to reveal any reasons that might disqualify him or her from performing his or her functions due to the presence of a conflict of interest. This is an ongoing duty for the arbitrators during the arbitral procedure, as well as being an ethical and mandatory legal obligation.
There are no specific rules or codes of conduct in Ecuadorian legislation governing potential conflicts of interest. However, the arbitration institutions in Ecuador do follow the “IBA Guidelines on Conflicts of Interest” in their internal rules of procedure, as previously mentioned.
As mentioned above, according to Ecuadorian law, it is only possible to submit to arbitration those matters on which it is possible to reach a compromise (please see 3.2 Arbitrability).
Constitutional matters or those related to taxation, human rights or the legality of acts of the State, among others, are not considered to be subject to adjudication in arbitration, although the effects and damages in such cases are subject to arbitration.
The principle of competence-competence is fully applicable in Ecuador, and is consistently followed by arbitral tribunals and courts.
Article 22 of the AML determines that the arbitral tribunal must decide on its jurisdiction in the first procedural hearing (audiencia de sustanciación), and that any local courts must comply with the decision regarding its jurisdiction. Ecuadorian law does not include the possibility for local courts to review the decision on jurisdiction of an arbitral tribunal (Article 30 of the AML).
As noted earlier (please see 3.3 National Courts' Approach), a court may address issues of the jurisdiction of an arbitral tribunal only where a party files a claim before local courts in disregard of an arbitral agreement. In such case, the respondent shall challenge the court’s jurisdiction, arguing that the binding arbitral agreement must be enforced (General Organic Code of Procedures, Article 153 (10); Codification of the Arbitration and Mediation Law, Article 8). Such ground must be resolved by the judge or court as a threshold matter in the hearing (preliminary hearing or sole hearing, depending on the type of case), which will require both parties to submit evidence about the existence and/or application of the arbitral agreement without entering into the merits of the case (General Organic Code of Procedures, Article 294). If the court concludes that the arbitral agreement is valid, the claim must be dismissed (Codification of the Arbitration and Mediation Law, Article 7). However, if the respondent fails to challenge the court/judge’s jurisdiction then the court may understand that the defendant has waived its right to arbitrate the dispute.
The parties do not have the right to go to court to challenge the jurisdiction of the arbitral tribunal: objections to jurisdiction have to be brought before the tribunal. However, as explained above (please see 3.3 National Courts' Approach), a court may address issues of the jurisdiction of an arbitral tribunal only where a party files a claim before local courts in disregard of an arbitral agreement. This is done as soon as the case has been filed.
There is no standard of judicial review pertaining to questions of admissibility and jurisdiction under Ecuadorian law. However, as mentioned earlier, the Ecuadorian legal system has incorporated the pro arbitri principle, which has been understood not as an absence of the intervention of justice, but rather as a minimum intervention of the judiciary to secure the rights of the citizens to settle a dispute through arbitration.
According to Article 7 of the AML, whenever two parties have agreed to settle their disputes through arbitration, the courts must respect said agreement and decline jurisdiction over that dispute. Furthermore, this principle incorporates that, when in doubt, arbitration must prevail over national courts.
With that in mind, Article 153 of the COGEP provides that the Respondent may submit the existence of a valid arbitral agreement as a preliminary ground for dismissal of the claim. The ground of existence of an arbitral agreement shall be addressed by the judge/courts in the preliminary hearing as a deferential matter and before entering into the merits. If such ground is accepted, the judge/tribunal shall order the dismissal of the claim.
As stated earlier (please see 5.3 Circumstances for Court Intervention), according to Article 8 of the AML, when a party files a claim before local courts with disregard to the arbitral agreement, the respondent must file a defence alleging the existence of a binding arbitral agreement. Also, as provided earlier, such argument will have to be resolved by the court/judge as a preliminary ground for dismissal during the preliminary hearing or the sole hearing.
There are no provisions in the AML regarding the incorporation of non-signatory parties to arbitration. Also, the AML requires the execution of an agreement or letters in which unequivocal consent is provided.
Part of the doctrine has accepted the theory of non-signatories. Also, arbitral tribunals have had some favourable opinions to include third parties in an arbitration procedure when they have had relevant participation in the performance of the contract where the dispute took place. Even the State has alleged the possibility of including non-signatory parties during arbitral proceedings in certain cases.
Article 9 of the AML empowers arbitral tribunals to grant interim relief. For such effect, the parties may include in their arbitration a provision by which the arbitral tribunal can request the assistance of public officials (judicial, administrative, police, etc) to enforce the interim relief granted without the assistance of a court (Article 11 of the AML). If the possibility of granting interim relief is not agreed by the parties in the arbitration clause, the party that is seeking interim relief shall file a request before a court in order to enforce the relief granted. Local courts will lend their enforcement authority to an arbitral tribunal in such situations.
According to the COGEP, interim relief may only be granted if the creditor is able to prove the existence of a debt, and that the debtor’s assets are in such disrepair that they are not enough to cover the debt or that such assets may be hidden or sold in order to avoid the fulfilment of the obligation (General Organic Code of Procedures, Article 125). According to the provisions of the COGEP, interim measures may consist of the seizure and detention of property, a temporary prohibition on transferring property, and a temporary prohibition on leaving the country if the debtor is not Ecuadorian.
Local courts may play a role in granting interim relief in two circumstances:
As explained earlier, interim relief may only be granted if the creditor is able to prove the existence of a debt, andthat the debtor’s assets are in such disrepair that they are not enough to cover the debt or that such assets may be hidden or sold in order to avoid the fulfilment of the obligation (Article 125 of AML).
Security for costs is not regulated under local law.
Both the AML and the COGEP establish the rules governing the procedure for arbitration in Ecuador.
Article 38 of the AML establishes that arbitration is to be governed by the procedural rules established therein, by the procedural rules contained in the rules of arbitration centres, by those rules established in the arbitration agreement or by any other rules that the parties may agree upon. According to Article 37, the COGEP is to be applied as a supplementary law to the AML.
According to AML, the parties can agree on their own procedure in the arbitration agreement. If there is no agreement concerning procedural rules, the AML and the COGEP govern arbitration proceedings.
One round of written submissions is to be produced by the parties (Statement of Claim and Statement of Defence).
After the Statement of Claim is filed and has been notified, the Respondent has ten days to prepare and file the Statement of Defence (Article 11 of the AML). The respondent may file a counter-claim in its Statement of Defence (Article 12 of the AML), which will be followed by a reply to the counter-claim.
The AML also establishes the process for the appointment of arbitrators (Article 16). In general terms, arbitrators are to be appointed by the common agreement of the parties. If an agreement is not reached, they are to be appointed from a pool of candidates, through a lottery system (administered arbitration). For independent arbitration, the party-appointed arbitrators shall appoint the third member of the tribunal.
Once the written submissions from both parties have been filed and the tribunal has been constituted, the AML provides for a preliminary hearing to be held, in which all jurisdictional matters have to be dealt with (including objections to jurisdiction) and the tribunal has to decide on its jurisdiction (Article 22). In addition, the tribunal shall order the production of evidence within a period of time therein established. Note that neither the AML nor the COGEP incorporate the existence of a document production phase. The production of evidence may be done in hearings where witness and expert testimony is presented before the tribunal. Examination and cross-examination may be performed at these hearings.
The production of evidence is followed by a final hearing before the award is issued (Article 24 of the AML). The purpose of this hearing is for each party to present closing statements.
Finally, an award is to be rendered within 150 days of the procedural hearing being held. This term may be extended for an additional 150 days (Article 25 of the AML).
In general terms, arbitrators have the same duties as judges under local law (Articles 19 and 21 of AML). There is a general duty to maintain impartiality and independence during the entire proceedings.
Under the COGEP and AML, arbitrators are required to disclose any circumstances that may affect their impartiality and independence (Article 22), including the following:
In the event that any arbitrator does not disclose any conflict and excuse themselves from acting as arbitrator, then any of the parties may challenge his or her appointment.
Similarly, arbitrators have the power to decide on their own jurisdiction (Article 22 of the AML), conduct arbitration proceedings and render a final award on the merits of the case (Article 26 of the AML), and issue provisional measures without recurring to local courts (Article 9 of the AML). If the arbitration is to be conducted on the basis of law (as opposed to et aequo et bono), then arbitrators shall conduct arbitration proceedings in accordance with “the law, universal principles of law, case law, and scholarly writings” (Article 3 of the AML).
If arbitration is to be resolved at law (as opposed to et aequo et bono), both arbitrators and counsel must be lawyers (Article 3 of AML).
The COGEP supplements the AML and establishes all the requirements for the production and filing of pleadings. Article 142(7) of the COGEP establishes that the claim shall identify all evidence that is to be produced during proceedings. This includes any witness statement, along with the clarification of the facts that are to be discussed in the statement; any expert reports that are to be produced; and any additional evidence.
Under the Ecuadorian system, a party may request the tribunal to order the other party to produce documentary evidence, even before the arbitration proceedings formally start before a local court (Article 112 of COGEP), as a preliminary measure. However, the powers of the tribunal are limited if the party is reluctant to produce evidence, as there are no rules incorporating adverse inference in Ecuadorian law.
In addition, neither the AML nor the COGEP establishes a formal document production phase, and relevant practice is unfamiliar with the use of the Redfern Schedule or any other tool generally used for document production. However, this is not the case when specific rules regarding the taking of evidence have been agreed between the parties in the arbitration agreement or during arbitration proceedings (eg, the IBA Rules on the Taking of Evidence).
It is widely accepted that witness and expert testimony are to be dealt during hearings, where examination and cross-examination is to be performed. The AML does not provide specific rules on the requirements to appoint experts from a particular list, but the COGEP establishes that the expert shall be previously registered before the National Judiciary Council (Article 224(3)). It may well be argued that parties may depart from this rule if they agreed on different rules of procedure regarding the taking of evidence, by virtue of Article 38 of the AML, which allows parties to agree on any rules of procedure as they see fit. However, this argument is resisted by a sector of practitioners who argue that the COGEP imposes limits to the will of the parties and, therefore, they are subject to those rules in any event. Finally, if there is a divergence between the statements of the expert witnesses, the tribunal may start a debate between both expert witnesses, as per the ‘hot tubbing’ proceeding set forth in article 226 of the COGEP. If the tribunal remains doubtful after the debate, it is allowed to request a new expert report.
Similar to other civil law jurisdictions, there are no specific rules on privilege; rather, this is a matter that is regulated as a general obligation or duty of attorneys not to disclose the information that has been shared with their client. As a consequence, attorney-client communications or attorney work product are matters that are regulated by criminal law as an offence against the duties of professional secrecy.
There are no rules of evidence that are applicable exclusively to arbitration proceedings seated in Ecuador. Article 38 of the AML establishes that the general rules of procedure to be applicable in arbitration proceedings are those that are established in the AML, the rules of the arbitration centre (if the arbitration is administered), the rules established in the arbitration agreement or the rules that the parties have chosen.
As the COGEP supplements the AML, the rules of evidence established therein may be applicable if the parties have not agreed otherwise in the arbitration agreement. Under Article 38 of the AML, parties are free to agree on any rules as they see fit. Although it is not yet a general practice, there is a trend for agreeing on the application of the IBA Rules on the Taking of Evidence. However, certain practitioners are reluctant to depart from the COGEP rules and argue that any rules on evidence that the parties may freely agree upon are limited by the provisions of the COGEP.
In the event that a witness does not appear before the tribunal, the COGEP establishes that a judge may resort to the National Police in order to compel the witness to appear before the tribunal (Article 177 of the COGEP). The AML does not expressly grant the tribunal this power and, arguably, it needs to resort to seeking aid from a court.
As explained earlier, the Ecuadorian system does not incorporate or recognise adverse inference in the rules regarding the production of evidence. Article 220 of the COGEP only establishes that, if a party refuses to produce evidence and it has become clear to the tribunal that the documents requested to be produced are in his or her possession, the tribunal may declare that such party is litigating in bad faith, and costs may be allocated to such party (Article 286 of the COGEP).
Confidentiality in arbitration proceedings is not the default rule under Ecuadorian law. To the contrary, the relevant provision in the AML states that the parties “may agree on the confidentiality of arbitration proceedings” (Article 34 of the AML). General practice is to agree on confidentiality in the arbitration agreement, in which case all constituent parts of the arbitral proceedings will also be confidential.
Annulment processes are carried out before local courts and, according to Article 76(7)(d) of the Constitution of Ecuador, all judicial proceedings are public. Therefore, the award (or any other element of the arbitration that is part of the annulment request) may become public if an annulment process is brought before local courts.
An arbitral award is to be rendered by the majority of the tribunal, and all arbitrators shall sign it (Article 26 of the AML). If an arbitrator does not agree with the majority, it is entitled to render a dissenting opinion, which is to be attached to the award.
As to the content of the award, the rules regarding judicial decisions are applicable. Article 89 of the COGEP establishes that all decisions shall be fully reasoned by providing a complete analysis of the application of the law to the specific facts, and by taking into consideration all evidence that has been produced. In addition, the formal requirements for an arbitral award are as follows (Article 90 of the COGEP):
According to Article 25 of the AML, the arbitral tribunal shall render the award in a maximum of 150 working days after the procedural meeting is held, although the arbitral tribunal can extend this period for an additional 150 days. In contrast to other arbitration procedures under international rules such as UNCITRAL, for example, the AML establishes that jurisdictional matters (including objections to jurisdiction) shall be resolved at the procedural hearing (Article 22 of the AML). Note that the decision on jurisdiction in the procedural hearing is not issued as an arbitral award but rather as a procedural order.
There is no provision in the AML regarding the type of remedies that a tribunal may award. However, the available remedies are regulated by the rules applicable to contracts under general Contract Law. Article 1505 of the Civil Code provides that, in the event of a breach of contract, the affected party is entitled to seek two types of relief: specific performance, and an award of damages.
As in other civil law jurisdictions, Ecuadorian legislation only recognises damnum emergensand lucrum cessans, and does not allow punitive damages.
If the award embodies a monetary obligation, interest accrues until the sum is paid to the creditor. The award must establish the date from which interest applies, and in the enforcement procedure the judge will order a liquidation of interest at the legal rate until payment is made.
There are no specific provisions in the AML regarding the allocation of costs. However, if a party has acted in bad faith, the COGEP allows the tribunal to sanction it by ordering payment of the arbitration costs. In practice, the unsuccessful party does not always bear the costs, which are generally shared between both parties.
The approach towards interest is that the affected party is entitled to recover interest running from the date of damages until the date when the obligation is finally fulfilled/paid. In practice, the award of interest generally compensates for the time value of money, and discussions of pre-award or post-award interests that recognise a risk premium are rarely held. It is generally accepted that Ecuadorian legislation does not allow compound interest.
Ecuador does not allow arbitral awards to be appealed (Article 30 of the AML). The only available recourse under the AML is the annulment of the award (Article 31).
An award can be set aside only if certain requirements are met. According to Article 31 of the AML, one or more of the following allows a party to seek annulment:
As can be seen, the reasons for annulment are restrictive, as the aforementioned requirements are the only grounds under which annulment could be sought. In addition, annulment can be only pursued on the grounds of procedural irregularities, and is not linked to the merits of the award.
Regarding the procedure for annulment (Article 31 of the AML), the applicant party has ten days after the award has been rendered to file the annulment request. The request shall be filed before the arbitral tribunal, which then has to submit the annulment request to the Provincial Court of Justice within three days of the request being filed. The president of the court has to render a decision in 30 days. However, in practice, the procedure is hardly ever carried out and finalised in the timeframe established in the AML.
Note also that the enforcement of the award may be stayed if the applicant grants a security in favour of the affected party for an amount that is sufficient to cover the damages that it may suffer due to the lack of enforcement.
The Ecuadorian National Court of Justice has further clarified how the annulment procedure has to be carried out. In a recent decision, it clarified that the President of the Provincial Court must verify whether the annulment claim was submitted within the term stated in Article 31 of the AML, and also stated that the affected party shall have five days to file a reply to the request for annulment. Once the reply has been filed, the President of the Provincial Court shall set the date for a hearing, in which the parties will produce any evidence to support their case, and the President of the Provincial Court shall issue a decision at the end of the hearing. The decision rendered cannot be appealed.
Nevertheless, the Constitutional Court of Ecuador has established that arbitral awards may be reviewed by the Constitutional Court. The constitutional review is destined to verify that all constitutional rights, including due process, have been guaranteed during the annulment process.
As explained earlier, Ecuador does not allow awards to be appealed. In addition, the reasons for annulment are established in the law and the parties cannot expand the scope of the annulment.
Awards cannot be appealed in Ecuador, and courts are not allowed to review the merits of the case.
Ecuador is a signatory of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), with a reservation to apply the Convention only to the recognition and enforcement of awards made in the territory of another contracting State, and only in relation to differences arising out of legal relationships that are considered commercial under national law. Ecuador is also a signatory of the 1975 Inter-American Convention on International Commercial Arbitration (“Panama Convention”) and the 1979 Inter-American Convention (“Montevideo Convention”); no reservations were made in respect to these treaties.
The New York Convention is directly applicable in Ecuador, without requiring a local law. However, the COGEP introduced a recognition procedure that must be initiated before the Provincial Court of the respondent’s domicile. According to article 104 of the COGEP, the Provincial Court must verify the following:
Another requirement is established in respect to awards rendered against the State. Article 104 of the COGEP establishes that, in addition to the requirements mentioned above, the applicant has to show that the award is not contrary to the Constitution and the laws of Ecuador, and is in accordance with any applicable international treaties.
The process of recognition established in Article 104 has been widely questioned, as it departs from the enforcement process established in the New York Convention by making enforcement burdensome through the incorporation of elements that are not required under the Convention. While it has been argued that the New York Convention can be directly applied for recognition and enforcement, regardless of the provisions incorporated in the COGEP, another position holds that the latter has modified the applicable regime and that the process established in the COGEP shall be mandatorily applied. This debate has not yet been resolved by local case law.
According to Article 105, the respondent may oppose the recognition, and a hearing shall be convened within 20 days of such opposition being filed. A decision on the recognition of the award shall be issued 30 days after the opposing party was notified of the recognition request. The decision of the Court is not subject to appeal.
Case law recognises the principle of favor arbitralisso, in general terms, courts have adopted a supportive attitude towards the enforcement of local awards. Formally, recognition and enforcement are to follow the New York Convention, but in practice the courts are rather inclined to directly apply the recognition and enforcement process established in the COGEP.
Likewise, the standard for refusing enforcement on public policy grounds is the one established in the New York Convention (Article V(2)(b). As explained above, however, in respect to awards rendered against the State, Article 104 establishes that the applicant has to show that the award is not contrary to the Constitution and the laws of Ecuador. This would impose a requirement that does not exist under the New York Convention. It has been argued that the COGEP has modified the standard of the New York Convention of refusing enforcement on public policy grounds when the party against whom the award is invoked shows that the award is contrary to public policy, to a new standard requiring the applicant to prove that the award is in accordance with public policy in order to proceed with enforcement. In these circumstances, the COGEP would be in contradiction of the presumption in favour of enforcement. As far as is known, the courts have not yet solved the dichotomy existing between the New York Convention and the COGEP.