As useless as is having a bicycle with flat tires is having an arbitral award that cannot be enforced. Fortunately, international conventions such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, have been significantly helpful for the enforcement on international arbitral awards worldwide. The signatories of the New York Convention have an obligation not to impose more strict conditions for the enforcement of an international award as they would impose for a domestic one (Article III). Ecuador is a signatory to the New York Convention, however, in 2015 the country changed its code of civil procedure and imposed an exequatur procedure for foreign awards. Some legal reforms enacted in 2018 modified this requirement. Nevertheless, there are still practical difficulties that parties face when enforcing an international award in Ecuador despite the reform of the law.
I. The Good: The Investment Law and its Reforms with Respect to the Enforcement of International Arbitral Awards
Foreign Investment is integral to Ecuador´s Economy. However, during the last administration (President Rafael Correa was in office from 2007-2017) the country enacted several legal reforms which were seen as detrimental for foreign investment because they did not guarantee legal certainty. Likewise, the former administration demonstrated a hostile attitude towards international arbitration (e.g. Ecuador withdrew from ICSID, the new procedural law imposed an exequatur process for enforcing international arbitral awards). Fortunately, as soon as President Lenin Moreno took office in 2017, he supported the enactment of some legal reforms which were needed to present investors with a more attractive scenario. Once of said reforms, is the Law of Productive Development, Attraction of Investment, Employment Generation and Tax Stability (Investment Law) enacted in 2018.
The Investment Law was certainly a positive shift in Ecuador´s legal framework as one of its main objectives was no to impose so many restrictions to foreign investments. The Investment Law offers different levels of benefits depending the type of amount of the investment. Likewise, it encouraged investors to choose international arbitration as a mechanism for dispute resolution. One of the most important aspects of the Investment Law was the derogatory of the provisions related to the homologation or exequatur process for international arbitral awards contained in the General Organic Code of Processes (procedural law or COGEP for its acronym in Spanish)
In light of the above, the Investment Law brought back to life article 42 of the Ecuadorian Arbitration Act which mandates that international arbitral awards shall be enforced in the same manner as domestic arbitral awards. This article is consistent with article III of the New York Convention of which Ecuador is a signatory.
II. The Bad: Enforcing International Arbitral Awards in Ecuador according to the Code of General Organic Proceedings
As we mentioned, the Investment Law did reform many of the provisions contained in the General Organic Code of Processes. In order to understand the impact of said reform, it is important to mention the homologation or exequatur process for international arbitral awards mandated in the General Organic Code of Processes.
The General Organic Code of Processes enacted in 2015 was seen by many as a huge step backward in the development of international arbitration in Ecuador. Under articles 102-106 of the COGEP, international awards shall follow an exequatur process in a Superior or Provincial Court before being enforced by the first instance judge. Naturally, this contradicted article III of the New York Convention as it imposed more strict conditions for the enforcement of an international award in comparison to a domestic one.
The exequatur process could take several months before recognizing an international arbitral award and it demanded the fulfillment of several complicated requirements (e.g. certification of the arbitration center validating that there were not any due process violations during the arbitration). Once the exequatur process was completed, then an international arbitral award was considered a proper title for enforcement. Under article 363 of the COGEP, titles for direct enforcement are domestic final judgments, domestic arbitration awards, domestic transactional agreements and homologated international arbitral awards.
Certainly, the exequatur process presented many difficulties for parties looking to enforce an international arbitral award in Ecuador and overall it was perceived as detrimental to the development of international arbitration in the country.
III. The Ugly: Practical Difficulties for the Enforcement of International Arbitral Awards in Ecuador
Despite the positive legal reforms that the Investment Law brought, the judicial system still makes it difficult the enforcement of foreign arbitral awards. Overall, many judges consider that the effect of the reforms contained in the Investment Law is unclear. This misunderstanding by the judges has caused practical problems. For instance, in case number 17230-2019-03159, the Superior Court claimed that although the Investment Law derogated the exequatur process mandated in articles 102-106 of the COGEP, it did not say anything regarding the titles of enforcement contemplated under article 363. In a nutshell, the Superior Court said that under article 363 of the COGEP, the only titles of enforcement are final judgments, domestic arbitration awards, domestic transactional agreements and homologated international arbitral awards. Hence, it would go against the law to enforce an arbitral award that has not been homologated because it is not considered as a title of enforcement.
It is obvious that when lawmakers passed the Investment Law, they intended to eliminate all restrictions imposed to international awards and enforce them in the same manner as domestic awards. It does not make any sense that lawmakers would want to eliminate the exequatur process but exclude international arbitral awards from the titles of enforcement.
The Investment Law brought many positive changes with respect to the practice of international arbitral in Ecuador. Likewise, it is consistent with the provisions contained under article III of the New York Convention. However, due to the judge´s misunderstanding of the legal reforms contained in the Investment Law, enforcing an international arbitral award in Ecuador is still a herculean task. Hopefully, the judicial system will understand soon that there is not any additional requirement that shall be imposed for the enforcement of international awards and that the whole purpose of the Investment Law was to foster the development of arbitration in Ecuador and to attract foreign investment.
Andrés Larrea Savinovich is an associate at TOBAR ZVS and an Arbitral Secretary at the Quito Chamber of Commerce, the Quito International Center of Arbitration (CIAM) and the Quito Arbitration Center for Construction Disputes (CENAMACO). Andrés is the co-chair of the Terralex IDR Practice Group and the representative for the ICC YAF Ecuadorian Committee. Andrés holds an LL.M. degree from McGill University. He can be contacted at [email protected]