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
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.
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".
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
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
1 Published in Official Register Supplement No. 652 dated
December 18, 2015.
2 Published in Official Register No. 786 dated June 29,
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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