Hernán Pérez Loose June 11 2015 New (and difficult) rules for enforcing international awards Coronel & Pérez | Arbitration & ADR - Ecuador Hernán Pérez Loose Arbitration & ADR IntroductionBackgroundNew rulesCommentIntroductionEcuador's new code of judicial procedures has abandoned the speedy system for the enforcement of international awards that existed under the Arbitration and Mediation Law and replaced it with a cumbersome two-tier procedure. The winning party must first initiate a process to obtain a favourable ruling by a court of appeal declaring the homologation and recognition of the award. Only if a positive ruling is obtained can the actual enforcement of the award be initiated before a first-level judge. Further, if the losing party is the state the procedure becomes more complicated, as the petitioner is required to prove that the award does not conflict with the Ecuador constitution.BackgroundOn May 22 2015 a new code of civil procedure was promulgated. The 'General Organic Code of Processes' (Official Register, Supplement 52) contains a body of judicial rules applicable to various areas, including civil, labour and tax. The code has also introduced certain changes into arbitration, with the most important relating to the enforcement of international arbitral awards.The new code has repealed a provision found in Article 42 of the Arbitration and Mediation Law, by which international awards were enforced in the same was as any ordinary sentence. If the defeated party of a civil process resists complying with the adverse sentence, all that the winning party needs to do is file a petition with a judge to have the assets of the defendant attached after it has been served.The procedure provided in Article 42 has already been tested before the courts. An International Chamber of Commerce arbitral award issued in Miami was enforced by a Guayaquil judge effectively and within a short time (for further details please see "Guayaquil court enforces award issued in Miami").New rulesUnder the new rules the winning party of an international arbitration must first file a petition with a court of appeal (provincial court) asking for the homologation of the international award. According to Article 104 of the code, the court must verify that:the award bears all external formalities to be regarded as authentic in the state of origin;the award is firm and definitive in accordance with the law of the nation where it was issued, and that documents annexed are duly legalised;the award has been translated as required;the defendant was legally served in accordance with arbitration papers and pertinent certification, and that his or her rights to a due process of the parties have been respected; andthe petitioner's request states the address of the person against which the award is to be enforced.In a case where an international award is sought to be enforced against Ecuador, the new code imposes on the petitioner the burden of demonstrating that the award does not conflict with the constitution and domestic law. The petitioner must also prove that the award was issued in conformity with international treaties. In the event that no treaty exists, the homologation of the awards will be approved if its efficacy and validity are so declared in the respective letter rogatory. Article 104 of the new code states that the reason for this additional requirement is because international awards against Ecuador are not commercial affairs.Once the court receives the petition of homologation and the defendant has been served, the defendant will have five days to oppose the petition. The court will rule in 30 days. However, if the opposition is well founded and the issues are of a certain complexity the court will hold a hearing. The court's ruling is not appealable.After the award has been homologated, the winning party must initiate the procedure for its enforcement before a judge of ordinary jurisdiction for civil matters.Although the new code will enter into effect after one year, the new rules affecting arbitration – including those for the enforcement of international awards – entered into effect immediately after the code was published in the Official Register.CommentThe new rules on the enforcement of international awards are a regrettable setback for international arbitration. The two-tier method established by the code compels the winning party to follow a cumbersome procedure which creates many uncertainties. The requirement imposed on the petitioner to demonstrate that during the arbitration the parties' right to a due process were respected is unfair. Such procedure runs against modern arbitration developments that try to facilitate the enforcement of international awards and not to restrict it. The provision of the new code stating that the ruling of the court of appeal on the homologation and recognition of an international award is not appealable runs against a precedent of the National Court. In fact, an unfortunate ruling of the National Court held an Arbitration and Mediation Law provision to be unconstitutional because it did not provide for an appeal mechanism for rulings on the nullity action against arbitral awards (for further details please see "Welcome ruling on arbitration may open new questions"). Therefore, in most probability, the losing party will succeed in delaying the process of recognition of international awards for months.The situation becomes extremely difficult when the award to be enforced is against the state. In such cases the plaintiff will be asked to prove that the award is not in conflict with Ecuador's constitution and laws. The reason given by the code for imposing such a burden on the petitioner is unsatisfactory. Ecuador is engaged in international commercial transactions just like any other player is in the international arena.Given the scarcity of international awards enforced in Ecuador, it is unclear why the new rules entered into effect immediately instead of one year after its promulgation as with the rest of the code. That waiting period could have been an opportunity to discuss the reform's shortcomings.For further information on this topic please contact Hernán Pérez Loose at Coronel & Pérez by telephone (+593 4 2519 900) or email ([email protected]). The Coronel & Pérez website can be accessed atwww.coronelyperez.com.