Source: https://iclg.com/practice-areas/investor-state-arbitration-laws-and-regulations/ecuador
Timestamp: 2019-04-20 10:47:01+00:00

Document:
1.1 What bilateral and multilateral treaties and trade agreements has your country ratified?
Ecuador originally ratified BITs with Argentina, Bolivia, Canada, Chile, China, Cuba, the Dominican Republic, El Salvador, Finland, France, Germany, Great Britain, Guatemala, Honduras, Italy, Netherlands, Nicaragua, Northern Ireland, Paraguay, Peru, Romania, Spain, Sweden, Switzerland, United States, Uruguay and Venezuela. Unfortunately, since 2008, the previous government initiated the process to denounce these BITs. The process concluded on May 2017 and at present, none are in force.
Depending on the BIT, the denunciation would produce an effect after a certain period of time after the notification of termination (six to 12 months). This period has elapsed for most of the treaties. However, some of these treaties contain provisions that contemplate a “survival period” ranging from five to 15 years in respect of investments that were made when the treaties were in force.
1.2 What bilateral and multilateral treaties and trade agreements has your country signed and not yet ratified? Why have they not yet been ratified?
There are no bilateral or multilateral agreements that Ecuador has signed and has not yet ratified. However, there are some trade agreements that Ecuador is a signatory of, one of the most recent and important being the Trade Agreement with the European Union.
1.3 Are your BITs based on a model BIT? What are the key provisions of that model BIT?
As mentioned before, all the BITs that were in force were denounced by Ecuador. Originally, most of the BITs were not based on any specific model, the majority of BITs that Ecuador signed were based on models proposed by the other contracting states, from our knowledge, with little negotiation taken place.
At present, the current administration is promoting a new BIT model with the aim of starting negotiations with the international community. There is a non-official version that has circulated which, in general terms, determines the scope, the definition of investor, the standards for fair and equitable treatment (FET), expropriation, non-discrimination and some other usual protections for foreign investment. The non-official model contains some exclusions and exceptions that were not used in the previous models. There is no indication at this moment of the progress of these new negotiations.
1.4 Does your country publish diplomatic notes exchanged with other states concerning its treaties, including new or succeeding states?
As determined in the previous response, the majority of BITs that Ecuador signed were at the initiative of the other contracting state, not of Ecuador, so there was no greater process of exchange of diplomatic notes during the negotiation. As part of several arbitration processes in which Ecuador has participated, the Attorney General’s office has tried to gather information from the preparatory processes of the BITs, to present them as evidence within the proceedings, but they have not been successful in finding relevant exchanges of diplomatic notes. Regarding the negotiations of the future BITs that Ecuador may sign, up to the present date we do not have knowledge of any exchange of diplomatic notes, the terms of these negotiations have not been made public.
1.5 Are there official commentaries published by the Government concerning the intended meaning of treaty or trade agreement clauses?
No. There are no official comments published by the Government, all the interpretations that have been given to the intended meaning of a treaty or its clauses have taken place within the different arbitration proceedings in which Ecuador has participated.
2.1 Is your country a party to (1) the New York Convention, (2) the Washington Convention, and/or (3) the Mauritius Convention?
The 1928 Havana Convention on Private International Law.
The 1958 United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
The 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention).
The 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards (Montevideo Convention).
Unfortunately, in 2009 Ecuador denounced the 1966 International Convention on the Settlement of Investment Disputes between States and Nationals of other States (the Washington Convention), and it is not signatory of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention on Transparency).
2.2 Does your country also have an investment law? If so, what are its key substantive and dispute resolution provisions?
In the year 2010, Ecuador enacted the Organic Code of Production, Commerce and Investment (hereinafter, the “Production Code”) which replaced the Investment Promotion and Protection Law. The Production Code contains a chapter which describes the standard protections for foreign investors, such as the difference between productive investment, national investment and foreign investment; the principle of non-discriminatory treatment, and the rights that investors have once their investment is made. The Production Code offers investors with the possibility of executing Investment Contracts in order to protect and guarantee the stability of certain tax incentives contained in the Production Code which are applicable to certain sectors, geographical areas, minimum investments, etc. Since its enactment, the Production Code contained a dispute resolution mechanism for such Investment Contracts; however, the scope was limited due to specific exclusions in relation to tax matters and acts deriving from the exercise of the sovereign powers of the State.
Such exclusions have been repealed very recently on August 21, 2018, through the enactment of the Organic Law for the Encouragement of Production, Attraction of Investments, Generation of Employment, Stability and Fiscal Equilibrium (hereinafter, the “Production Encouragement Law”), which included a mandatory dispute resolution mechanism for investment contracts with amounts exceeding US$ 10 million.
The Production Encouragement Law also contains regulations in order to promote foreign investment in Ecuador, establishing new tax incentives, remission of interest, fines and surcharges in case of payment of taxes under litigation, provisions promoting social interest housing projects and the strengthening in standards for public-private partnerships projects, among others.
With respect to investor-state arbitration, the Production Encouragement Law recognises the possibility of submitting to international arbitration contractual controversies, under three possibilities of lex arbitri: (i) UNCITRAL Arbitration Rules – United Nations administered by the Permanent Court of Arbitration of The Hague (CPA); (ii) Arbitration Rules of the International Court of Arbitration of the International Chamber of Commerce based in Paris (ICC); or (iii) Inter-American Commercial Arbitration Commission (IACAC). The homologation procedure for the enforcement of awards was eliminated and also the need to exhaust internal administrative and judicial channels and mediation, as a prerequisite for the filing of international arbitration. Finally, the prohibition of submitting to international arbitration differences of a tax nature was also eliminated.
2.3 Does your country require formal admission of a foreign investment? If so, what are the relevant requirements and where are they contained?
No. There is not a formal admission requirement. Foreign Investment is defined in the Production Code as an investment that is owned or controlled by foreign individuals or legal entities domiciled abroad, or that involves capital that has not been generated in Ecuador.
3.1 What have been the key cases in recent years relating to treaty interpretation within your jurisdiction?
There have been no recent cases in which national courts have ruled on the interpretation of treaties within the Ecuadorian jurisdiction.
Regarding the arbitration proceedings in which Ecuador has been a party, there have been several issues that have been discussed, such as the effective means of proof, what is understood as a denial of justice, when the legitimate expectations of the investors operate, among other standards.
3.2 Has your country indicated its policy with regard to investor-state arbitration?
After the unfortunate process mentioned above in relation to the denunciation of all its BITs, the new administration has indicated a new policy with respect to investor-state arbitration, which is set out in the provisions in the aforementioned Production Encouragement Law, and also in the intent to renegotiate new BITs with the international community.
3.3 How are issues such as corruption, transparency, MFN, indirect investment, climate change, etc. addressed, or intended to be addressed in your country’s treaties?
At present, Ecuador does not have any BITs in force. However, the non-official new BIT model mentioned before does contain draft provisions addressing corruption, transparency, MFN, environmental responsibility, among others. We cannot anticipate if such provisions will remain or in what terms they will be negotiated with foreign countries.
3.4 Has your country given notice to terminate any BITs or similar agreements? Which? Why?
As mentioned above, in 2008, Ecuador initiated a process to denounce all of its BITs. Such process concluded in May 2017, and no BITs are in force at present (notwithstanding the survival periods mentioned above).
The previous administration maintained a policy against the BITs based on the position that submitting disputes to foreign jurisdiction was an attack on Ecuador’s sovereignty. This was in response mainly to the ideological position of the previous administration that lasted 10 years.
Fortunately, this is changing, and we now envisage a new policy more inclined to the protection of foreign investment through the BITs and investment protection provisions in local legislation.
4.1 What investor-state cases, if any, has your country been involved in?
OXY v. Ecuador (OXY II, Expropriation of an oil concession – Block 15, US$ 1 billion settlement paid to the investor).
Burlington v. Ecuador (imposition of windfall taxes in an oil concession, US$ 330 million paid to the investor).
City Oriente v. Ecuador (modification of terms in an oil concession, US$ 70 settlement paid to the investor).
Chevron v. Ecuador (Chevron III, Denial of Justice – damages to be awarded in favour of claimant in the final stage of the process).
Perenco v. Ecuador (imposition of windfall taxes, expropriation of an oil concession).
Albacora v. Ecuador (elimination of tax incentives in a free trade zone, US$ 25 million claimed).
Merck Sharp & Dohme v. Ecuador (denial of justice, US$ 42 million claimed).
4.2 What attitude has your country taken towards enforcement of awards made against it?
Despite its policy against BITs, even during past administration Ecuador has taken an easy attitude towards enforcement of awards. Some examples we can mention are: (i) the post-award settlement agreement reached with OXY, under which around US$ 1 billion were paid to the claimant; (ii) the settlement agreement with City Oriente under which approximately US$ 70 million were paid to the investor; and (iii) the post-award settlement agreement with Cooper Mesa Mining Corporation under which approximately US$ 20 million will be paid to the investor.
4.3 In relation to ICSID cases, has your country sought annulment proceedings? If so, on what grounds?
Annulment proceedings have been frequent in Ecuador’s investor-state arbitration cases.
Some examples are as follows: (i) OXY ICSID annulment procedure, OXY VAT UNCITRAL case, under judicial review before UK courts; and (ii) Burlington Resources Inc. ICSID annulment proceedings, claiming the lack of jurisdiction of the tribunal (currently discontinued).
4.4 Has there been any satellite litigation arising whether in relation to the substantive claims or upon enforcement?
We do not know of any relevant cases where satellite litigation has arisen. From our knowledge, the majority of the cases have been focused on arguments in the merits of the case, especially regarding the measures taken by the Republic of Ecuador. For example, Perenco, Burlington and City Oriente, are based on the issuance of Law 42 (windfall tax on extraordinary profits). The Cooper Mesa claim is based on the issuance of the Mining Constituent Mandate (No. 6), regarding the expiration of the majority of mining concessions granted by Ecuador. OXY II, Expropriation of an oil concession. Finally, there is Albacora, in which the denegation of tax incentives in a free trade zone is discussed.
4.5 Are there any common trends or themes identifiable from the cases that have been brought, whether in terms of underlying claims, enforcement or annulment?
In general, each case has been based on different substantive arguments regarding the underlying claims. The only common trend we can point out is Ecuador’s frequent defence arguing lack of jurisdiction of the tribunal in cases that deal with tax matters and exercise of sovereign powers.
5.1 Does your country allow for the funding of investor-state claims?
There are no provisions in our legislation explicitly allowing or prohibiting funding of investor-state claims, and to the best of our knowledge, no privately funded investor-state claims have been significant in any of Ecuador’s cases.
5.2 What recent case law, if any, has there been on this issue in your jurisdiction?
None, to the best of our knowledge.
5.3 Is there much litigation/arbitration funding within your jurisdiction?
6.1 Can tribunals review criminal investigations and judgments of the domestic courts?
Ecuador maintains as a principle that only matters that can be transacted can be submitted to arbitration. Based on this, Ecuador has maintained that matters that derive from the mandatory exercise of sovereign powers cannot be subject to the decision of arbitration tribunals. However, to the extent that an international tribunal reviews the “effects” of sovereign decisions made by courts (not the decisions themselves) under the provisions of a BIT that does not contain specific exclusions in such regard, we could say that judgments of domestic courts can be indirectly reviewed by international tribunals (for example, in the case of denial of justice awards such as Chevron III).
6.2 Do the national courts have the jurisdiction to deal with procedural issues arising out of an arbitration?
During a procedure to enforce an award, national courts have the duty of certifying that such enforcement does not violate matters of public interest. Such concept, when understood correctly, gives national courts the power to deal with procedural issues arising out of an arbitration in cases of severe violations of due process, right of defence, etc.
6.3 What legislation governs the enforcement of arbitration proceedings?
The enforcement law for arbitration proceeding is the Arbitration and Mediation Law and the Procedural Code (hereinafter, the “COGEP”). Since its latest amendments on both laws, foreign arbitral awards are enforced in the same way as local awards, which is, in the same manner as final instance rulings from the judicial system. Since the approval of the Production Encouragement Law, the enforcement of arbitration awards becomes simpler to the extent that no “homologation” procedure of the award is necessary.
6.4 To what extent are there laws providing for arbitrator immunity?
Ecuador has no laws regarding the arbitrator immunity.
6.5 Are there any limits to the parties’ autonomy to select arbitrators?
No, there is not a formal limitation to the autonomy of the parties. The only aspect to take into account on this point is that, if one of the parties is the State, the selection process of arbitrators must be previously stipulated and incorporated in the arbitration agreement.
6.6 If the parties’ chosen method for selecting arbitrators fails, is there a default procedure?
It will depend on the rules of the institution or arbitration centre chosen as administrator of the arbitration. If the parties consent in applying the rules of a certain arbitration centre that contains such default procedures, then such procedures would apply.
6.7 Can a domestic court intervene in the selection of arbitrators?
No. The possibility of a domestic court intervening in the selection of arbitrators is not contemplated in Ecuadorian legislation.
7.1 What are the legal requirements of an award for enforcement purposes?
For enforcement purposes, there is the possibility to apply the New York Convention or the Procedural Code (COGEP).
As mentioned before, 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 in commercial matters under national law. The Convention is directly applicable.
Regarding the procedure established in the COGEP, originally a homologation (recognition) procedure was required before the Provincial Court of the respondent’s domicile. However, since the enactment of the Productive Encouragement Law (August 21, 2018), the homologation procedure for the enforcement of awards was eliminated and awards are enforced in the same way as ultimate instance, definitive judicial rulings.
7.2 On what bases may a party resist recognition and enforcement of an award?
The current Ecuadorian legal system does not establish legal bases for a party to resist recognition of an award. The aforementioned recent amendments established that awards are executed directly, and the homologation procedure was eliminated.
However, with respect to enforcement, we must take into account that, according to Ecuadorian law, a foreign arbitration award has the same value as a domestic award, which means that it has the effect of an enforceable judgment (res judicata), and therefore is executed in the same way as judgments of last resort. Coercive or compulsory measures are available and the execution or enforcement judge cannot accept any defence or exception, except if it has arisen after the issuance of the award.
In this sense, pursuant to the COGEP, once in the execution procedure of an arbitral award, the respondent can oppose the execution within a term of five days, demonstrating any of the following causes: a) that the due payment has already been made; b) that there has been a transaction between the parties; c) that there has been a remission of the debt; and d) that a compensation between the parties has operated, among other similar standard defences applicable to execution procedures.
In the process, the defence invoked must be duly justified, as well as the fact that it occurred after the execution of the judgment or the enforceability of the respective enforcement title.
7.3 What position have your domestic courts adopted in respect of sovereign immunity and recovery against state assets?
We do not have knowledge of any domestic cases where the matter of sovereign immunity and recovery against state assets has been discussed.
7.4 What case law has considered the corporate veil issue in relation to sovereign assets?
We do not have any knowledge of any investor-state case that has discussed the corporate veil in relation to sovereign assets. However, we cannot assure if this matter has not been discussed at any commercial arbitration case.

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