Ecuador: Arbitration In Public-Private Alliances – Challenges For Its Application

Last Updated: 3 October 2016
Article by Perez Bustamante Ponce

The Law on Incentives for Public-Private Alliances ("PPA Law")1 and its regulations ("PPA Regulations")2 include provisions approving local and international arbitration as a means for dispute resolution in relation to PPA contracts.  Specifically, I will make reference to Article 20 of the Law and Articles 19, 20, 21 and 22 of the Regulations.

Those provisions, however, raise doubts about the feasibility of the arbitral system and its application within the scope of PPA contracts.

In this paper we will refer specifically to (i) exclusions with respect to arbitrable issues, and (ii) the requirement to exhaust the administrative channels. This paper only refers to the arbitral mechanism deriving from a PPA contract and sets aside any possible claims deriving from bilateral investment treaties.

Arbitrable issues

In relation to issues that may be arbitrable, Article 20 of the PPA Law includes a very general provision which excludes from the arbitrators' decision any "tax matters as well as any other actions directly deriving from the legislative and regulatory powers of the Ecuadorian State". (Emphasis added)

The excessive generality of that provision gives rise to much concern because it seems that any infringement of the rights and benefits acquired by a private sector entity or investor through a PPA contract due to a legal norm having been promulgated – even a simple resolution or regulation – could not be brought before a local or international arbitral tribunal for its consideration.  In other words, if by using its legislative and regulatory powers the State decides to cut down the tax benefits of a private sector entity, the private sector entity would have no other option than to submit its contractual claim to the administrative-litigation jurisdiction in accordance with the aforementioned Article 20.

In this respect, and although the Regulations cannot change the provisions of the PPA Law, it is important to highlight that the Regulations only refer – as non-arbitrable issues – to "tax matters", without mentioning those relating to the legislative and regulatory powers of the State.   Furthermore, this exclusion is included in Article 22 which solely refers to international arbitration.

Exhaustion of the administrative channels

As a previous requirement for filing an arbitral claim, Article 20.2 of the PPA Law provides that the parties are to exhaust the direct negotiations and mediation phase and, additionally, the administrative channels.

The latter requirement was a surprise when the PPA Law was published because it revived a legal problem that had expired when the Modernization Law was published in 1993, which eliminated the requirement to exhaust the administrative channels for submission of judicial claims by appealing an administrative action.  However, aside from this historical clarification, the language of Article 20 of the PPA Law did not allow an adequate interpretation regarding the scope of that requirement.  In this sense, it was not clear when those channels would be exhausted and – as an only alternative – it was left to resort to Article 179 of the Rules for the Legal Regime of the Executive Function that would be inapplicable for administrative actions other than those of the Executive.  Besides, although it could be understood that the lawmaker's intention set forth in Article 20(b) of the PPA Law was to establish a fixed period for submission of a possible arbitral claim, its text was not clear regarding the limit applicable to that period and the date for its beginning.

Article 20 of the PPA Regulations explained this issue and determined that it would be understood that the administrative channels have ended when the private sector entity has exhausted all ordinary recourses within those administrative channels. Besides, those provisions made it clear that once exhausted, the private sector entity would be allowed a fixed 30-day period to file an arbitral claim.

Unfortunately, the provisions of the aforementioned norms left a very important issue unresolved in relation to that requirement.  What will happen with any claims from a private sector entity that do not have an administrative action as an antecedent? Contractual default by the State instrumentality that is the contracting party in respect of paying the agreed amounts would be an example.  It is not clear if in such cases the private sector entity may directly resort to the arbitral channels or, rather, if it should cause the administration to perform an administrative action in order to exhaust those channels. Although the former option seems more reasonable, only time and an interpretation by the decision-making organs will give us a certain answer.


1 Published in Official Register Supplement No. 652 dated December 18, 2015.

2 Published in Official Register No. 786 dated June 29, 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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