Ecuador's Constitutional Court Approves UAE Investment Treaty, Restricts Arbitration
TL;DR
- Ecuador's Constitutional Court allows ratification of an investment treaty with the UAE.
- Approval is conditional on explicitly excluding arbitration of contractual and commercial disputes.
- Disputes of a contractual nature must be resolved by national courts or as per contract terms.
Overview
The Constitutional Court of Ecuador has conditionally approved a bilateral investment agreement with the United Arab Emirates, requiring a clear exclusion of arbitration for contractual and commercial disputes involving the State to comply with Ecuador's Constitution.
What Happened
On March 30, Ecuador's Constitutional Court issued a decision regarding the investment protection agreement signed in December 2023 between Ecuador and the United Arab Emirates.
The Court found that, as drafted, the agreement's arbitration provisions could conflict with the constitution, which prohibits Ecuador from ceding sovereign jurisdiction in contractual or commercial disputes to international arbitral tribunals.
Therefore, the Court demanded the treaty include an unequivocal clause excluding the arbitration of such disputes and mandated that contractual claims be handled according to national law or contractually agreed mechanisms.
The Court also reiterated that the agreement requires approval from the National Assembly before ratification.
Context
Ecuador's constitution restricts international arbitration in disputes where the state is a party, especially in contractual or commercial matters, to preserve national jurisdiction.
This new decision departs from a previous Court determination which did not distinguish between contractual and treaty-based investment claims, and did not require such an explicit exclusion.
Why It Matters
- This ruling clarifies Ecuador's constitutional limits on international arbitration involving state contracts, setting a precedent for future investment treaties.
- It affects how foreign investors and the Ecuadorian state will handle disputes arising from investment projects and may influence treaty negotiations with other countries.