As the number of confirmed cases of COVID-19 rises one thing is certain: the virus has caused major business disruptions throughout Ecuador and the world. Although the future of this crisis is still unknown, COVID-19 has already impacted the legal field and international disputes. For instance, some companies have already invoked force majeure clauses to suspend their contractual performance, which might result in the rise of litigation and arbitration proceedings later down the road. In addition, local Courts and most Arbitration Centers have already suspended deadlines and implemented mechanisms in order to avoid the virus from spreading. This document explores the impact of COVID-9 on arbitration and litigation in Ecuador.
The first confirmed case of COVID-19 in Ecuador was reported on February 29, 2020. As of today, local authorities have reported 367 confirmed cases in the country. Ecuador has replicated the strategy of many other countries in adopting preventive measures in order to flatten the curse of new infections. On March 13, 2020, the President issued an executive decree declaring a national state of health emergency. This decision restricts citizens´ rights of transit and free movement, excepting of those engaged in strategic sectors (e.g. energy, health or telecommunications).
As a result of the national state of emergency, businesses and individuals have called into question the scope of their legal obligations amidst the expansion of this pandemic. For instance, Are force majeure clause applicable? What are the labor obligations that must be taken into account? These questions are subject of many interpretations from a legal standpoint and this will likely result in a spike of disputes before local courts and arbitration tribunals in the near future.
Under Ecuadorian law, force majeure consists of unforeseeable circumstances that cannot be resisted (e.g. earthquake). In general terms, this definition encompasses the outbreak of a pandemic like COVID-19. Naturally, a party attempting to invoke the principle of force majeure must prove the causal link between the consequences of the virus and the breach of their contractual obligations. It is worth noting that there are contracts in which parties have already defined the events that shall be considered as force majeure. In those cases, those contractual provisions shall prevail. For instance, parties may have agreed the suspension in the performance of a contractual obligation under a goods or service contract in case a pandemic arises.
Regarding labor matters, the President prohibited employers from firing their employees during the health emergency. However, some employers might still go to local courts and invoke force majeure clauses in order to terminate labor contracts. In light of the above, the application of force majeure clauses in contracts must be analyzed on a case by case basis.
In addition to a potential rise in litigation cases in the near future, it is important to consider that this pandemic has already impacted ongoing cases. Since March 16, 2020, the Judiciary has suspended all their activities, with the exception of some criminal matters. Consequently, all the judicial deadlines have been interrupted.
Likewise, most of the country´s arbitral institutions and tribunals ordered the suspension of deadlines in ongoing arbitral proceedings. However, this decision does not mean the interruption of arbitral activity in the country. Technology plays a key role in the efficiency of arbitration, both domestic and international. In the midst of this pandemic, arbitrators and parties may take advantage from the flexibility principle of arbitration to conduct hearings through videoconferences, submitting evidence online and conducting an expert hearing through digital platforms. For this reason, technology is one of the best alternatives to guarantee the efficiency of arbitration in the upcoming months.
In conclusion, COVID-19 will have a great impact on international commerce and thus it will bring many changes in dispute resolution forums in the near future.
Disclaimer: This document is informative and does not, and is not intended to, constitute legal advice.