After rejoining the ICSID Convention in June 2021, Ecuador has made a further contribution to the growth of international arbitration within its borders. On August 18, 2021, President Guillermo Lasso issued Executive Decree No. 165-2021, introducing the Regulations to the Arbitration and Mediation Act (the “Regulations”).
Ecuador’s Arbitration and Mediation Act was originally enacted in 1997 and subsequently amended in 2015. Certain aspects of the arbitration process remained unregulated by the Arbitration and Mediation Law, and some of its provisions were vague, which caused confusion and conflicting interpretations. The Regulations, which were published in Ecuador’s Official Registry on August 26, 2021, specifically address the aspects of the arbitration process which were not previously regulated and aim to clarify previous ambiguities. In this connection, the First Transitory Provision provides that, following publication in the Official Registry, the Regulations’ procedural rules will apply immediately to every ongoing arbitration.
We discuss below the most relevant provisions that the Regulations introduced.
Arbitration involving the State of Ecuador or Ecuadorian State entities
One of the first provisions of the Regulations deals with arbitrations involving the State of Ecuador and public entities. Article 4 of the Regulations states that the State of Ecuador and the public entities defined in Article 225 of the Constitution of Ecuador may resort to either domestic or international arbitration by entering into an arbitration agreement (before or after a dispute arises) or when a law or a treaty permits it. If the arbitration agreement is entered into after the dispute arises or in the event of the commencement of international arbitration proceedings, the arbitration agreement needs to be approved by Ecuador’s Attorney General.
Article 4(3) further clarifies that where a dispute is referred to arbitration, the arbitral tribunal will have exclusive jurisdiction to resolve any dispute on the facts (including any legally operative acts) or administrative actions that are related to the dispute. These include the termination, unilateral termination of a contract (caducidad), or penalties issued in the context of the contractual relationship by any administrative body.
Moreover, pursuant to Article 5, where a contract with a public entity does not include an arbitration agreement, the private party can request that any existing or future disputes related to that agreement be resolved through arbitration. The public entity will then have 30 days to respond. During that same time frame, the parties may negotiate the specifics of the arbitration agreement. In the case of no response by the public entity, the arbitration agreement will be deemed to be accepted by the latter.
Finally, the Fourth Transitory Provision states that, following 90 days from the publication of the Regulations in the Official Registry, the National Public Procurement Service will incorporate in its bidding documents arbitration agreements which provide for contractual disputes to be submitted to arbitration; and following the awarding of the public tender, parties may negotiate the specific terms of the underlying arbitration agreement.
Scope of the arbitration agreement
Article 6 of the Regulations states that an arbitration agreement binds (1) those parties whose consent to arbitration, according to the principles of good faith, derives from their active and decisive participation in the negotiation, execution, performance or termination of the contract that either contains the arbitration agreement or to which the arbitration agreement is related; (2) those parties that claim any rights or benefits arising out of that contract; (3) any relevant administrative bodies. The broad scope of the arbitration agreement is particularly relevant as it appears to bind non-signatories, thus revealing a particularly pro-arbitration stance.
Pursuant to Article 7 of the Regulations, arbitrators that have accepted an appointment will have to comply with the obligations resulting from their appointment, and are responsible for any damages caused by gross negligence or willful misconduct. Article 7 also states that parties and arbitrators may agree to submit to arbitration any claims against the arbitrators.
Importantly, Article 7(2) extends arbitrator responsibility to arbitral institutions, their directors and employees, for any damages caused while carrying out their functions (as with the arbitrators, any damages are limited to those caused by gross negligence or willful misconduct).
Article 8 of the Regulations specifies that arbitral tribunals or emergency arbitrators pursuant to institutional arbitration rules may order any provisional measure that they deem necessary, with the goal of: (a) maintaining or re-establishing the status quo while the arbitration proceedings are pending; (b) preventing any actual damages, or the materialization of imminent damage or impairment of the arbitration process; (c) preserving goods that are the subject of the arbitration proceedings, or the assets of the debtor or creditor; (d) preserving evidence that could be relevant to the resolution of the arbitration proceedings; (e) guaranteeing the discharge of the obligations that are at issue in the arbitration; (f) preserving the jurisdiction of the arbitral tribunal. This is a notable development of the provisions on provisional measures in the Mediation and Arbitration Act as they stood until now.
In addition, because none of the Ecuadorian arbitration institutions’ rules provide for emergency arbitration, the inclusion of these types of proceedings in the Regulations may encourage the amendment of those arbitration rules to provide for the use of emergency arbitration, which would follow international practice.
Article 8 further states that before the constitution of the arbitral tribunal, the parties may apply for provisional measures before the civil court that would have been competent to resolve the dispute had it not been submitted to arbitration. The Regulations specify that such application before the civil court does not constitute a waiver of the right to arbitrate the claim.
The provisional measures ordered by the arbitral tribunal may be modified, suspended, or revoked by the tribunal itself, either upon application of one of the parties or sua sponte. The tribunal may also modify, suspend or revoke interim measures ordered before the constitution of the tribunal by the emergency arbitrator or a judge (similarly upon application of one of the parties or sua sponte).
Article 10 of the Regulations recognizes explicitly the principle of party autonomy. Article 10 states that the parties are free to agree to the arbitration procedure as they deem fit, including by referring to arbitration rules. Failing agreement by the parties, the arbitral tribunal may choose the arbitration rules that they deem most appropriate in light of the circumstances of the case.
The Regulations contain provisions aimed at protecting the confidentiality of arbitration proceedings. In particular, Article 11 provides that the arbitration institutions may publish information related to administered arbitration proceedings, as long as such information does not identify the parties. Similarly, the institutions may (for purely academic reasons) publish anonymized orders by arbitrators, revealing the names of the arbitrators. Article 11(2) states that a party to an annulment action that has agreed to confidential arbitration may request the President of the Provincial Court (the competent court to hear annulment actions in Ecuador) that measures be taken to preserve the confidential nature of sensitive information.
Article 13 of the Regulations specifies that in an annulment action, the courts will need to respect the principle of minimal judicial intervention. The Regulations require the judge (a) to ascertain that the party seeking the annulment of the award had timely and unequivocally raised the issues which form the basis of its annulment action before the arbitration tribunal; (b) where possible, to find that any annulment be limited only to the portion of the award that needs to be annulled (recognizing the possibility of partial annulment of arbitral awards); (c) where in doubt, to find the award valid (pro arbitri principle); (d) to find that where there is no certain and irreparable prejudice, the mere existence of a reason to annul an award does not warrant annulment of the award; (e) to find that the award not be annulled where the ground for annulment could have been cured during the arbitration procedure, and the interested party failed to take any action.
In addition to clarifying the procedure to be followed by courts hearing annulment actions, Article 13 further states that public sector entities are not required to seek the annulment of an award rendered against them and may seek annulment only where an annulment ground (pursuant to the Regulations, or the Arbitration and Mediation Act) which may affect the validity of the award exists.
The Second Transitory Provision provides that the Regulations’ rules applicable to annulment actions will apply to actions initiated following publication of the Regulations in the Official Registry.
Article 14 of the Regulations specifies that any of the parties may seek enforcement of an award before the judge of the civil court residing in the domicile of the non-executing party or where the assets are located. Article 15 equates awards rendered in arbitrations seated outside of Ecuador to awards rendered in arbitrations seated in Ecuador. It states that all awards will be enforced before Ecuadorian judges, as if they were a domestic award, without requiring any further formality. Moreover, the party against whom an international award is being enforced may only challenge the enforcement action if it provides proof of payment of the award or if the enforcement of the award was suspended or annulled by the foreign competent authority. Additionally, Article 15 states that Ecuadorian judges will not permit any action that has the objective of delaying, filibustering, or preventing the enforcement action of an international award.
As set out in detail above, the Regulations contain a number of pro-arbitration provisions that have the goal of providing arbitration in Ecuador with a legal framework that will permit it to thrive, limiting judicial intervention and behaviour aimed at frustrating arbitral awards. It will be particularly interesting to see the impact of the Regulations on arbitration in Ecuador, especially where foreign parties are involved. The Regulations are also a favorable step in the process of modernization of arbitration law in Ecuador, which also envisages the enactment of a new arbitration act that the ICC National Committee of Ecuador has been working on for the last three years.
For more information, please contact Amal Bouchenaki, Partner, Florencia Villaggi, Counsel, Daniela Paez, Associate, Chiara Cilento, Associate, or your usual Herbert Smith Freehills contact.