Arbitration In Investment Contracts

• Published date: 26 November 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: CorralRosales
• Author: Mr Jimmy Rodríguez

The economic crisis, worsened by the pandemic, has forced Ecuador to place greater emphasis on its interest in attracting national and foreign investment. Several measures and mechanisms have been designed to achieve this objective. Among these mechanisms, the investment contract draws the attention of several investors since it offers stability in tax incentives¹ and, tax stability for contracts that exceed US $ 100 million, and large-scale mining projects. Another feature of the investment contract, which attracts investors, is the possibility of using arbitration as a dispute resolution mechanism.

In August 2018, the Law for Productive Development, Attraction of Investments, Employment Generation, Stability and Fiscal Balance amended the Code of Production, Trade and Investment (COPCI) in order to force the State to agree to arbitration to resolve disputes generated in investment contracts² and also to agree to arbitration in investment contracts that exceed US $ 10 million³.

The first unnumbered article included after article 16 of the COPCI provides: "Investment contracts.- The Ecuadorian Government shall agree to national or international arbitration to resolve disputes generated through investment contracts, in accordance with the Law."

As a general rule, in order for two or more parties to be able to submit their disputes to the arbitration jurisdiction, the manifestation of that will is required. Unless stipulated in international instruments, article 42 of the Arbitration and Mediation Law requires the express authorization of the Office of the Attorney General for an entity of the Ecuadorian public sector to submit to international arbitration. In light of this, it is worth asking, could the Attorney General refuse to accept arbitration as a mechanism for the resolution of disputes in investment contracts? In an investment contract without an arbitration clause, is the State obliged to submit to arbitration a dispute arising from that contract?

In cases of disputes between investors and countries with legal provisions similar to those mentioned above, investment arbitration case-law favors arbitration. In the award of jurisdiction for the case of Tradex Hellas S.A. v. Republic of Albania, the arbitration tribunal considered that the consent of the State to submit disputes to arbitration jurisdiction was included in its legislation, when it stated:

"... although consent by written agreement is the usual method of submission to ICSID...