International Commercial Arbitration in Ecuador

Like most Latin American countries, Ecuador adopted an arbitration law based – with certain modifications – on the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law). Since 1997, arbitration in Ecuador has been regulated by the Arbitration and Mediation Law (AML),^[2] which has a friendly approach towards international arbitration. However, it was not until the constitutional recognition of arbitration and other alternative dispute resolution methods^[3] that the myth of hostility towards arbitration was finally put to rest.

Moreover, in 2021, President Guillermo Lasso took one step further in strengthening arbitration in pursuit of greater foreign investment in Ecuador. By enacting the Regulations to the Arbitration and Mediation Law (RAML), it is fair to say that the Golden Age of Arbitration has arrived in Ecuador.

In this chapter, first, the authors address local provisions, practices and customs in Ecuadorian arbitration so international practitioners can have a glimpse of Ecuador as a seat of arbitration. Additionally, this chapter focuses on recent Ecuadorian developments in arbitration that fortify the system and show Ecuador’s approach to arbitration as a means to foster foreign direct investment.

AML: guidelines for applicability

As it was previously mentioned, arbitration in Ecuador is regulated by the AML, and, according to Article 1(3) of the RAML, in procedural matters, the tribunal must decide pursuant to arbitration principles, usages and practices.^[4] The tribunal can only have recourse to other bodies of law, such as the General Organic Code of Procedures, the Organic Code for the Judiciary and the Civil Code,^[5] when these norms do not provide a clear procedural rule. The applicability of AML as lex arbitri will depend on the law chosen by the parties to govern their arbitration or, in its absence, if Ecuador was chosen as the seat of arbitration.

As an UNCITRAL-oriented norm, the AML regulates basic aspects of arbitration, such as:

• validity requirements of the arbitration agreement;
• challenge of arbitrators;
• kompetenz-kompetenz principle;
• favor arbitralis principle;
• due process rules;
• provisional measures, with the novelty that, under the AML, if parties agree, arbitral tribunals can directly order the assistance of public authorities to enforce provisional measures without recourse to local courts;^[6]
• judicial assistance;
• formalities for issuing the arbitral award;
• actions and recourses against the award; and
• jurisdiction of courts.

After almost 20 years of the AML, Ecuador has evolved the arbitration practice following global trends that can be seen in the RAML. However, it is also important to recognise that, some of the procedural aspects of the AML still have a judicial-type approach.

Next, we conduct a brief summary of the procedural aspects regulated in the AML that will apply in case parties have agreed on its application. If parties agree on a different set of procedural – institutional or ad hoc – party autonomy will prevail.^[7]

According to Article 10, the arbitration procedure in Ecuador begins with the submission of the statement of claim before the director of the arbitration centre in the case of an institutional arbitration or the independent arbitrators appointed in accordance with the agreement of the parties in the case of an ad hoc proceeding. Once the statement of claim is submitted, the director analyses its admissibility – which consists of verifying formal requirements provided for in the AML – and orders the service of process on the respondent. Considering that the arbitration begins with the statement of claim^[8] and not with a notice of arbitration, AML does not provide for a time where parties can agree the arbitration schedule. On the contrary, the procedure will follow the times and terms set by in the AML.

According to the AML, the respondent has 10 days to file a response or counterclaim.^[9] Once the claim and response have been submitted, there is a mandatory mediation phase.^[10] Only after the mediation phase has passed will the tribunal be constituted. If no agreement of the parties regarding the designation of the arbitral tribunal exists, AML^[11] establishes that parties need to agree on the identity of all the arbitrators conforming the tribunal or otherwise, they will be designated by lottery from the arbitrators’ list.^[12]

Once the arbitral tribunal is constituted, Article 22 of the AML provides that a jurisdictional hearing must take place at which the appointed secretary shall be sworn in, the arbitration agreement shall be read, and the tribunal shall decide on its jurisdiction. Only if the tribunal declares it has jurisdiction, shall it order that the evidence presented in the statement of claim and response memorials be practised^[13] within the term set by the arbitral tribunal.

Before the issuance of the award, the parties can request, or the tribunal can sua sponte order, for the production of new evidence. Once all the evidence (documents, experts and witnesses) has been presented, parties can request to be heard in order to conduct final arguments.

It is important to note that, pursuant to the AML, the tribunal has a term of a 150 days counted from the date it declared it had jurisdiction to issue the award. This term may be extended for a maximum of one 150 days sua sponte by the tribunal. This term cannot be extended any further. However, issuance of the award later than the legal term does not constitute a ground for nullity, but merely a fact to be considered when finding the arbitrators liable in the case of gross negligence. With the issuance of the award, the arbitration procedure is concluded.

It also important to mention some default rules applicable pursuant to the AML in case parties do not agree otherwise:

• the arbitration must be decided ex aequo et bono except in cases where a state entity is involved where, by law, the dispute must be decided in law (if parties wish for the arbitration to be decided in law, then they must expressly provide for it in the arbitration agreement);^[14]
• the arbitral tribunal is to consist of three arbitrators designated randomly by the arbitral institution (AML Article 16); and
• the arbitration is not confidential.

International arbitration

The AML provides for a dualist regime comprising detailed rules governing local arbitration and a few, albeit controlling, rules on international arbitration. As previously mentioned, party autonomy will prevail, especially in the case of international arbitration. Therefore, it is important to establish when an arbitration can be considered international pursuant to Ecuadorian law.

The AML does not have an explicit definition for international arbitration. It only mentions the requirements for a proceeding to be considered as such. Article 41 sets forth two kinds of requirements: subjective and objective. In the former case, the parties must establish in their agreement that the arbitration will be international. In our opinion, this agreement does not have to be explicit – the mere adoption of foreign laws, regulations or other set of rules regarding international arbitration ought to be interpreted as the parties’ positive decision that the arbitration is international. In the latter case, it is necessary that the dispute be included within at least one of the following assumptions:

• if at the time of execution of the arbitration agreement the parties are domiciled in different states;
• if the place where a substantial portion of the obligations is to be performed or to which the issue under litigation is most closely related is situated outside the state in which at least one of the parties is domiciled; or
• if the issue being litigated relates to an international trade operation susceptible to compromise and not affecting or impairing national or collective interests.

Agreeing on an arbitration to be international is important because the parties may accede to the pre-eminence of the free will principle set forth in the AML and mentioned in the preceding section, as well as to international instruments regarding this issue executed and ratified by Ecuador.

As regards international arbitration, Article 42 of the AML categorically provides the following:

International arbitration shall be regulated by treaties, conventions, protocols and other acts of international law signed and ratified by Ecuador. Every natural or juridical person, public or private with no restrictions whatsoever is at liberty, directly or by reference to an arbitration regulation, to stipulate everything concerning the arbitration proceeding, including its establishment, discussions, language, applicable legislation, jurisdiction and seat of the arbitration panel which may be in Ecuador or in a foreign country.^[15]

The above provision sets forth the principle of pre-eminence of party autonomy in matters of international arbitration on the basis of which the procedural rules can be freely agreed by the parties, resulting in important consequences, including the following.

Parties may elect the rules to govern an ad hoc or institutional arbitration proceeding. This attribution would mean that, in principle, the procedural norms for international arbitration chosen by the parties would not clash with local law unless they infringe norms pertaining to public policy. Public policy is not clearly defined in Ecuador. Despite this lack of definition, we consider that norms such as those relating to due process (specified below) and other constitutional rights would be included in this category that the parties cannot contravene by agreement.

AML provisions for local proceedings (domestic arbitration) apply absent an agreement of the parties regarding applicable procedural rules. Therefore, party autonomy on the selection of procedural rules will prevail, with the exception of public policy provisions that are mandatory pursuant to Ecuadorian law.

Ecuador does not have a law on international arbitration that might limit the prerogatives of Article 42 of the AML with respect to an arbitration proceeding.

Substantive non-procedural provisions in the AML, such as the validity of the arbitration agreement, requirements for arbitration agreements with public entities could be important and applicable to international arbitration.

Judicial review of arbitral awards in Ecuador

Article 32 of the AML establishes that awards are final and binding and have the res judicata effect of an enforceable judicial decision. The AML also states that arbitral awards shall be enforced in the same way as judicial decisions. Finally, Article 30 of the AML provides that an arbitral award cannot be subject to appeal but only to the actions provided for in the AML.

Pursuant to the AML,^[16] the clarification of the award, presented to the tribunal, and the annulment action decided by national courts, are the only recourses that can be proposed against an arbitral award.

More recently, since the entry into force of the 2008 Constitution – considering that according to Article 7 of the Organic Code for the Judiciary, arbitrators have jurisdictional powers – the Constitutional Court was given the power to control the constitutionality of arbitral awards by means of the Extraordinary Protection Action (AEP). The AEP is a constitutional guarantee that can be presented by the parties, with a limited scope of analysis regarding potential infringement of constitutional rights.

The AML’s regulation of the setting aside procedure complies with the features highlighted in the UNCITRAL Model Law, since the annulment action ‘is an extraordinary remedy that proceeds on exhaustive grounds’ when the award was rendered in Ecuador (as the seat of arbitration).^[17] The competent court to decide on the annulment of the award is the appellate court of the place where the award was rendered.

The grounds to annul an award issued by an Ecuadorian arbitral tribunal are the following, pursuant to Article 31 AML:

• The defendant has not been legally notified with the claim and the procedure has been carried out and terminated in default. It will be necessary that the lack of notification has prevented the defendant from interposing its exceptions or asserting its rights and, in addition, that the defendant asserts the objection when it first appears in the proceeding.
• One of the parties has not been notified of the orders of the tribunal and this fact prevents or limits the right of defence of the party.
• When the hearing has not been convened, the hearing has not been notified, or after the notification has been issued, the evidence has not been practised, despite the existence of facts that should be proven.
• The award refers to matters not submitted to arbitration or awards more than was claimed.
• When the procedures provided by this Law or by the parties for appointing arbitrators or constituting the arbitral tribunal have been violated.^[18]

The Constitutional Court has defended arbitration by clarifying that the setting aside procedure needs to be applied within the strict framework of the AML. Additionally, it has ruled that an arbitral award can only be annulled if the conduct of the arbitral tribunal fits within one of the grounds expressly provided for in Article 31 of the AML. In this sense, the Constitutional Court decisions reflect a minimal intervention approach as it has ruled the judicial control of an arbitral award through the setting aside procedure must follow the strict framework of the provisions set forth in the AML. The Court has also ruled that the grounds for annulment must be construed narrowly and following a textual approach.^[19]

Finally, in terms of applicability of the AEP,^[20] the Constitutional Court has concluded that arbitral awards are of a jurisdictional nature,^[21] and therefore, that the AEP is available against arbitral awards to control rulings on constitutional issues.^[22] Nevertheless, the Constitutional Court, through its jurisprudence, has limited the application of the AEP in arbitration. For example, in judgments No. 31-14-EP/19 and No. 323-13-EP/19, the Court has referred to the need to exhaust the nullity action against the arbitral award prior filing an AEP. The Court has also established that constitutional violations not set forth as grounds for annulment, can be challenged via an AEP. In this sense the Court has reiterated that arbitral awards are subject to constitutional control. Judgment No. 323-13-EP/19 expressly provides that ‘[t]he arbitrators are at all times obliged to observe and enforce respect for constitutional rights and guarantees’. Nevertheless, the Court has also established that, when analysing an AEP, it will also consider: the flexible and alternative nature of arbitration and a minimal intervention approach with deference to the decisions of arbitral tribunals.

Enforcement of awards rendered in Ecuador (domestic or international)

As previously mentioned, Article 32 of the AML establishes that awards shall be enforced as judicial decisions, without any other requirement. With regard to international and foreign awards, there have been several legislative changes, specifically with respect to the recognition and enforcement process,^[23] which is addressed in the following section.

Arbitration with state entities

In Ecuador, it is not uncommon for state entities to agree to arbitration. In fact, the RAML, that entered into force in 2021, provides that, ‘[i]n public procurement, it shall be preferred and encouraged that contractual disputes be resolved through arbitration.’

Pursuant to Article 190 of the Ecuadorian Constitution and the AML, for an arbitration agreement included in a public contract to be valid, the public entity must seek prior authorisation by the Attorney General’s Office. The authorisation, as explained in the following section, has been a controversial requirement with unclear limits of applicability. However, as addressed in the following section, the RAML have clarified the cases in which prior authorisation is mandatory and the consequences of its absence.

AML regulations: a new golden age of Ecuadorian arbitration?

As mentioned, the RAML enacted in 2021 contain a comprehensive effort to codify the practices developed over more than 20 years by arbitration practitioners as well as decisions by national courts dealing with arbitration.^[24] Briefly, the RAML starts by recognising basic arbitration principles that shall be applied when conducting arbitration proceedings in Ecuador. For instance, the RAML recognises principles such as flexibility in the proceedings and in the interpretation of procedural regulations, as well as the independence and autonomy of arbitrators.^[25] Moreover, when a potential procedural issue is not solved by the agreement of the parties, the lex arbitrii or the applicable rules, arbitrators have the power to decide with reference to global principles, uses and practices in arbitration.^[26]

Emergency arbitration

One of the main innovations contained in the RAML is the recognition of emergency arbitration procedures. Before the Regulations, the AML defined the power of arbitrators to order interim or provisional measures, and even request the direct enforcement of such measures, with the support of the public force. Specifically, Article 9 of the AML provided that ‘[t]he arbitrators may issue precautionary measures, in accordance with the rules of the Code of Civil Procedure or those deemed necessary for each case, to secure the assets subject of the proceeding or to guarantee the result of the proceeding’.

Following that tradition, the RAML expressly provides the possibility for arbitration centres to administer emergency arbitrations. Article 8 of the RAML establishes: the option for interim measures to be issued by emergency arbitrators; that the measures may be ‘those deemed necessary’ and not only those contemplated in General Organic Code of Procedures; and that the purpose of the interim measures may be:

a. to maintain or re-establish the status quo pending the resolution of the dispute.
b. to prevent the continuation of any actual damage, or the materialisation of an imminent damage or the impairment of the arbitration proceeding;
c. to preserve assets that are the subject matter of the proceeding or, in general, the assets of the debtor or creditor;
d. preservation of evidence that may be relevant to the resolution of the dispute;
e. to ensure compliance with the obligations that are the subject matter of the arbitration; or
f. to preserve the jurisdiction of an arbitral tribunal.

Since then, arbitration centres have begun to amend their rules to include provisions for emergency arbitrations. For example, the Arbitration Rules of the Ecuadorian American Chamber of Commerce (AMCHAM), issued new rules effective as of January 2022, whose Annex 1 already expressly regulates emergency arbitration.^[27] These rules follow the model rules issued by the Ecuadorian Arbitration Institute. Likewise, several arbitration centres have already announced reforms that would continue with this trend.

Arbitration with state entities

One of the most debated issues among arbitration practitioners has been the requirements for arbitration with state entities. Article 190 of the Constitution establishes that arbitration agreements in public contracts^[28] require prior approval of the Attorney General of the State. For many years, the debate has centred on whether approval is necessary in all arbitration agreements to which a state entity is a party or only the agreements to arbitrate executed after the contract was executed.

The RAML states that approval is required only in two specific cases: (1) if the parties agree to submit the dispute to international arbitration, whether it is included as a clause of a contract or a separate instrument; or (2) when the arbitration agreement is concluded after controversy has occurred. ^[29] Therefore, there is no need to seek approval from the Attorney General of the State in the case of domestic arbitration agreements included as a clause in a contract. In the case of international arbitration agreements in contracts with state entities, prior approval is mandatory.

Additionally, the RAML provides that, if a private contractor wishes to agree to arbitration after the contract has come into force, it may seek consent from the public entity sending a proposal of the agreement. If the public entity fails to respond within 30 days, the consent is deemed to have been granted.^[30]

Finally, the RAML takes one step forward to foster arbitration with the public sector and foreign investment. On its final dispositions,^[31] the RAML orders the national authority of public procurement to include arbitration agreements in the mandatory contract templates. Therefore, all public contracts will now include an arbitration agreement that can be negotiated with contractors.

Arbitrability of administrative acts

Another major debate on arbitration practice in Ecuador has been the arbitrability of administrative acts carried out in the context of public contracts. After years of contradictory decisions by local courts, Article 4.3 RAML finally settled the discussion by providing that:

If the State or a public sector entity has agreed to arbitration, the arbitrators shall have exclusive jurisdiction to resolve any dispute over the facts, acts or other administrative actions that are related to or arise in connection with the legal relationship submitted to them, including acts of termination, expiration, or penalties issued in the framework of the legal contractual relationship, regardless of the administrative body that issues them.

Today, the trend is to accept the validity of arbitration awards deciding on administrative acts issued in the context of a public procurement contract. This approach was followed in a recent decision in case No. 17100-2020-00026. The action was based on Article 31(d) of the AML, which provides for the ground to set aside an award when the award refers to issues not submitted to arbitration. Specifically, the state entity argued that the arbitral tribunal did not have jurisdiction to declare a breach of a concession contract conducted through the issuance of an administrative act of termination, arguing this matter must be submitted before the administrative courts. The annulment court confirmed that, due to the alternative and conventional nature of arbitration, the judicial control of the awards must follow a de minimis approach. In this sense, the court ruled – following decision No. 323-13-EP/19 by the Constitutional Court mentioned above – that the annulment action is limited to the grounds provided in the AML and cannot be transformed into an appeal process. Next, the court decided that since the controversy arose from the execution of the concession contract, the decision of the tribunal was an issue submitted to arbitration and, therefore, it denied the annulment petition.

Referring to the arbitrability of administrative acts, the court established the following:

It is important to establish that arbitration is protected in Article 190 of the Constitution of the Republic of Ecuador, where it is recognised as an alternative method of conflict resolution, which is regulated in the Arbitration and Mediation Law. The state may avail itself of such mechanism, distancing itself from the jurisdiction of the Contentious Administrative Courts, which is clearly stated in Article 126 of the Organic Administrative Code where it deals with the controversies of the administrative contract stating that: ‘Should there be differences between the contracting parties not solved within the execution process, they may use the mediation and arbitration processes at law, in accordance with the respective arbitration clause’, and it is clearly applicable in concession contracts as has occurred in this case, so that the arbitrators may resolve all disputes arising therefrom, without excluding from this power the administrative acts of contractual execution.

Set-aside proceedings

For many years, Ecuadorian practitioners debated whether the grounds to annul an award were those established in Article 31 of the AML or whether there could be additional grounds not expressly contemplated in the law. On this matter, the Constitutional Court, in rulings No. 323-13-EP/19 and No. 31-14-EP/19, confirmed the exhaustive character of the grounds provided in Article 31 of the AML by determining that:

the nullity action is designed to examine defects in procedendo, that is, the protection of due process and the right to defense in the arbitration process, so that Article 31 of the LAM contemplates a series of grounds related to violations to different elements of due process, which, verified, empower the President of the Provincial Court of Justice to annul the arbitration process up to the time prior to the occurrence of the defect.^[32]

Judgment No. 323-13-EP/19, therefore, settled the discussion by stating that ‘in matters of nullities in general, the principle of specificity has always governed, which implies that there is no nullity without text, there is no nullity without law’.^[33]

Confirming the case law by the courts, Article 13.1 of the RAML establishes the principles that shall lead the setting aside procedure:

• the alternative character of arbitration;
• minimum intervention;
• specificity;
• preservation;
• ‘convalidación’;
• preclusion; and
• transcendence.

Then, RAML provides a series of non-exhaustive examples of how these principles should be applied. For example, both Paragraphs (a)^[34] and (e)^[35] clearly reflect the principle of convalidación. This principle seeks to prevent the nullity action from being used as a remedy to review errors that were validated by the party alleging the claim. In this sense, RAML ratifies that, for an annulment action to succeed, the party seeking the setting aside must demonstrate it complained about the illegality when it happened.

On the other hand, Paragraph (d)^[36] reflects the principle of transcendence, which reflects the basic notion of the action for annulment, as the only and exceptional remedy for judicial review of the arbitral award. The fundamental basis for accepting an action for annulment is the protection of due process and legal certainty. It would be wrong to allow national courts, after their jurisdiction has been excluded by the will of the parties, to annul awards for the mere fact of non-compliance with formal procedures that do not transcend in a concrete procedural violation.

These grounds apply to all awards rendered in Ecuador.

Recognition and enforcement of foreign arbitral awards

Ecuadorian legislation has undergone major changes with respect to the recognition and enforcement of international awards.^[37]The original version of the AML provided that foreign arbitral awards were deemed to have the same effect as domestic awards, and therefore were to be executed in the same manner as domestic awards.^[38]Therefore, pursuant to Ecuadorian law, the enforcement of foreign awards did not require for a prior recognition procedure or exequatur consisting in a declaration by local judges accepting the foreign award as a local decision.^[39]Nevertheless, some practitioners have considered that the recognition was necessary because awards could not have ‘a better quality than a foreign judgement’.^[40]

Following this trend by some scholars, the legislature enacted the General Organic Code of Procedures on May 2016, which, for the first time, established a procedure for the recognition of foreign arbitral awards^[41]and eliminated Article 42 of the AML, which provided that ‘awards issued within an international arbitration proceeding, shall have the same effects and shall be enforced in the same matter as awards issued in a domestic arbitration proceeding.’

Since the procedure of recognition contradicted the New York Convention,^[42] and to encourage investments, the legislature enacted in 2018 the Law to Incentivize Production and Investments (LIPI). The LIPI modified the General Organic Code of Procedures, excluding arbitral awards from the recognition process and reinstated Article 42 of the AML. However, the LIPI did not amend Article 363 of the General Organic Code of Procedures, which establishes that only ‘duly recognised’ international arbitral awards are execution titles.

The omission to reform Article 363 generated, once again, the debate on the applicability and necessity of a recognition process for foreign arbitral awards. On one side, some scholars argued that the intention of the legislator was to return to the previous stage where recognition was not necessary to enforce a foreign arbitral award. Nevertheless, other scholars considered that a recognition process was necessary pursuant to Article 363 of the General Organic Code of Procedures. In the authors’ opinion, the correct interpretation of Ecuador is that the legislature expressly sought to eliminate the exequatur by enacting the LIPI. This position is consistent with Article 7 of the New York Convention, under which local provisions are applicable in cases where they are more favourable than the New York Convention itself.

However, certain local courts have ignored the direct enforcement process set forth in Article 42 of the AML. For example, in 2018, SEITUR Cía. Ltda. pursued an ‘unenforceability action’^[43] against an ICC award No. 19058/GFG (17230-2018-14203). Although the request was rejected due to a formality, the appellate court deciding the matter confirmed in dicta that the amendment introduced in LIPI implied that foreign awards did not require a prior recognition decision to be enforced. However, while this ‘unenforceability action’ was pending, CW Travel Holdings N.V., SEITUR’s counterparty, tried to enforce the same award before a first-level judge (Case No. 17230-2019-03159). The judge decided that CW Travel Holdings NV was not entitled to request enforcement because the award had not been recognised according to the rules set out in the General Organic Code of Procedures.

Fortunately, the enactment of the RAML has put an end to this debate, confirming that the intention of the legislature when enacting the LIPI was the elimination of the exequatur process for foreign awards. The RAML expressly states that ‘whether the seat of arbitration is within or outside the Ecuadorian territory [international awards] will have the same effects and will be enforced before the same judge and in the same manner as awards rendered in a domestic arbitration proceeding, without the prior requirement of an exequatur process’.^[44]

Additionally, it was clarified that the party that intends to oppose the enforcement, may only do so by justifying two grounds: (1) that the award has already been effectively enforced; or, (2) that the effects of the award were suspended or that the award was declared null and void by the competent authority.^[45]

Conclusion

As can be seen, the latest developments in Ecuador with regard to arbitration are positive – both from the legislature and the court sides – seeking to follow global trends and fostering foreign investment. In the opinion of the authors, nevertheless, for these initiatives to be strengthened, Ecuador needs a reform and update to the AML containing the recent developments regarding the annulment procedure, the enforcement of international awards and the dispositions of arbitration in the public sector^[46] in order to secure the country as an international arbitration hub.

Notes