After the National Assembly passed a law regulating agreements for public-private partnerships involving foreign investors, the executive branch promulgated a decree establishing regulations to facilitate the law's implementation. Some of the new regulations deal with arbitration in the context of public-private partnerships with foreign corporations. Although this is a positive step in the recognition of arbitration as an efficient dispute resolution mechanism, the regulations contain some shortcomings.

Background

In December 2015 the National Assembly passed a law creating certain tax incentives for the construction of public infrastructure and the provision of services or goods under public-private alliances between the central or decentralised governments and foreign investors. The law marked a departure from the government's long-standing ideological animosity towards private investment in the public realm. This policy shift was driven mostly by the decline of oil prices and its negative impact on government income. The law contains some clauses devoted to the regulation of the mechanisms for the resolution of disputes, including arbitration.

On June 29 2016 the president issued an executive decree establishing regulations to facilitate the implementation of the 2015 law. Some articles of the regulations deal with national and international mediation and arbitration.

Regulations

The main points of the regulation which deal with dispute resolution are as follows:

  • Regarding direct negotiations and mediation, the Interinstitutional Committee (a special gency for the application of the law) issues specific regulations for these two mechanisms of dispute resolution.
  • The submission of any dispute to local or international arbitration requires a favourable ruling from the attorney general's office.
  • Before commencing arbitration, the gestor of the project should exhaust all administrative remedies that are available under local law, including the Statute for the Juridical and Administrative Regime of the Executive Function.
  • Once all administrative remedies have been exhausted, the gestor of the project will have to wait 30 days before filing for arbitration.
  • Local arbitration should be conducted before an arbitration centre with 10 or more years of experience. Arbitration must be conducted in Spanish and the applicable law must be the law of Ecuador. The award should be enforced according to the 1997 Arbitration and Mediation Law.
  • International arbitration must be conducted in Spanish and the applicable law must be Ecuador's.

Moreover, the following rules apply:

"The arbitration will be considered as the valid choice for the resolution of the disputes derived from the APP contract, or that are related with it, in accordance with what is provided for in any Treaty for the Promotion and Protection of Investments that may be invoked by the investor."

All disputes directly or indirectly related to tax matters must be resolved not through arbitration, but through Ecuador's competent tribunals.

Comment

The regulations reflect the government's general attitude of distrust regarding private-public arbitration. Thus, they unduly burden the foreign investor with the duty of exhausting all administrative remedies before commencing arbitration. Such a requirement is not mandatory when a private party files a complaint against a public entity before any administrative tribunal.

Unlike the 2005 law, the regulations assume that an investor that accepts to submit the dispute to arbitration under their conditions waives its right to file arbitration under the respective bilateral investment treaty. It also excludes any tax matter from arbitration, despite the fact that the purpose of the law is to create tax incentives for the foreign investor.

Finally, it is important to note that the new executive regulations for arbitration were issued for the benefit of foreign investors only. In contrast, by virtue of a presidential order, public entities of the central government are forbidden from entering into arbitration clauses or agreements with Ecuadorean contractors.

For further information on this topic please contact Hernán Pérez Loose at Coronel & Pérez by telephone (+593 4 2519 900) or email (hperez@coronelyperez.com). The Coronel & Pérez website can be accessed at www.coronelyperez.com.

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