Arbitration in investment contracts

arbitraje-en-los-contratos-de-inversion-jimmy-rodriguez-abogados-ecuador

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 incentives[1] 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 contracts[2] and also to agree to arbitration in investment contracts that exceed US $ 10 million[3].

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 jurisdiction, it can now be considered as established and not requiring further reasoning that such consent can also be effected unilaterally by a Contracting State in its national laws the consent becoming effective at the latest if and when the foreign investor files its claim with ICSID making use of the respective national law. Therefore, the 1993 Law together with Tradex’s Request for Arbitration must be considered as sufficient consent (…).”[4]

In the case Zhinvali Development Ltd. v. the Republic of Georgia the court found that despite the absence of a written arbitration agreement between the parties, the Georgia Investment Law contained a written offer to submit the dispute – among others – to the jurisdiction of ICSID, and that this constitutes written consent:

“Here, at the time that the Claimant filed its Request for Arbitration on December 3, 1999, there was (a) no bilateral investment treaty in force between Ireland and Georgia and (b) no written agreement between the Parties that submitted disputes to ICSID jurisdiction. Accordingly, the question becomes whether Article 16(2) of the 1996 Georgia Investment Law, in spite of Article 19 of the earlier 1994 Georgia Concession Law, did constitute Georgia’s written offer to submit this dispute to ICSID, which offer was later accepted by the Claimant when it commenced this arbitration.”[5]

In the case of Southern Pacific Properties (Middle East) Limited v. the Arab Republic of Egypt[6], the arbitral tribunal concluded that the phrase “shall be resolved”, referring to disputes, is a mandatory provision.

In light of these arbitration awards, the provision contained in the first unnumbered article included after article 16 of COPCI has two characteristics. The first is a mandatory provision for the State and, the second is an offer to submit to arbitration, which can be made effective at the time of initiating an arbitration procedure.

In conclusion: there are solid legal grounds for determining that any dispute arising from an investment contract should be submitted to arbitration jurisdiction, even if the respective contract does not contain an express convention on that matter.

[1] Specifically, stability in the exoneration of the Tax on the Outflow of Foreign Currency for the distribution of dividends and importation of capital goods for the term of the contract

[2] First unnumbered after article 16 of the COPCI

[3] Second unnumbered after article 16 of the COPCI: “Arbitration.- For investment contracts that exceed ten million dollars of the United States of America, the State must agree to national or international arbitration in law, in accordance with the law. […] ”

[4] Decision on Jurisdiction Tradex Hellas SA v Republic of Albania, ICSID ARB /, 1996

[5] 94/2Zhinvali Development Ltd. v. Republic of Georgia ICSID Case No. ARB / 00/1, 2001

[6] Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB / 84/3,

Jimmy Rodríguez
Associate at CorralRosales
jirodriguez@corralrosales.com

Protection of Test Data for Medicines and Agricultural Chemicals

prueba-protection-of-test-data-for-medicines-and-agricultural-chemicals

Test data is the necessary information required by the health Authority to approve the marketing of a medicine or agricultural chemical product in order to guarantee its safety and efficacy. This information is protected by intellectual property regulations to avoid possible unfair commercial use. Ecuador has signed several international instruments that impose the obligation to guarantee the protection of this data. Internal regulations have developed this protection.

When we talk about intellectual property, we usually think exclusively about patents, trademarks and copyrights, however, there are some other modalities that are also part of intellectual property, such as, for example, test data. The importance of its protection lies in avoiding the use, by unauthorized third parties, of valuable information about the research and development process of a novel product, activities that demand a considerable economic and human effort on the part of its creators.

Test data is often associated with patents; however, these are figures that, although both are closely related to the development of drugs and agrochemicals, the test data has independent protection.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) established a minimum standard of protection to prevent unfair commercial use of test data[1]. Similarly, Decision 486 of the Andean Community provides for this special protection “against any disclosure, except when necessary to protect the public, or unless measures are adopted to guarantee data protection, against any unfair commercial use.[2]

In the Trade Agreement between the European Union and its Members on one hand and Colombia, Peru and Ecuador on the other, the protection of undisclosed information is included within the intellectual property rights.[3]

In the aforementioned international instruments, although the protection of test data is established as an obligation for the Members, a specific period of time is not foreseen for its material protection, which is therefore regulated by each State. However, in the case of Ecuador, the Organic Code of the Social Economy of Knowledge, Creativity and Innovation establishes:

 “Article 508.- Test Data.- Test data or other undisclosed data on safety and efficacy of pharmaceutical products and agricultural chemical products, in accordance with the provisions of Article 27 number 7 of the Organic Law of Market Power Control, when the information contained in the data meets the following conditions:

  1. a) It is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known or easily accessible to people introduced in the circles in which the type of information in question is normally used;
  2. b) It has a commercial value because it is secret; and
  3. c) Has been subject to reasonable measures, in the circumstances, to keep it secret, taken by the person who legitimately controls it.

 Article 509.- Exclusivity of test data.- When the competent authority requires as a condition to approve the commercialization of pharmaceutical or agricultural chemical products that contain new chemical entities, the presentation of test data or other undisclosed information on safety and efficacy, whose elaboration demands a considerable effort, will be granted an exclusivity period of five years from the date of marketing approval for pharmaceutical products, and ten years for agricultural chemical products. “

Thus, Ecuador has provided a period of five and ten years of exclusivity for the protection of test data on drugs and agricultural chemicals, respectively.

The National Service for Intellectual Rights -SENADI- has reiterated that, although the Agency for Regulation and Control of Phytosanitary and Zoosanitary and the Agency for Regulation, Control and Sanitary Surveillance are the entities in charge of defining the requirement to submit test data prior to granting a marketing authorization and to define its deposit and safeguard procedures, the test data protection system remains in force and that said protection is without a doubt a modality of Intellectual Property.[4]

On August 21, 2020, the State Attorney General’s Office issued a statement regarding agrochemical products expressly stating that, since the Agency for the Regulation and Control of Phytosanitary and Animal Health – AGROCALIDAD- is the competent Authority to approve the commercialization of agricultural chemical products, it is also responsible for granting the period of exclusivity when it has required the submission of test data on their safety and efficacy.[5]

This protection system and the corresponding establishment of a period of time for the exclusivity of the test data guarantees that, at least during that period, any interested party who intends to market a medicine or agrochemical product with a new chemical entity, must carry out their own studies and trials that prove its effectiveness and efficacy. Thus, avoiding the use of test data that have already been developed by a third party. Hence, it is vitally important that the public entities called upon to intervene in this protection system work in an integrated manner to ensure compliance with these international and national provisions.

[1]Article 39 (…) 3. Members, when they require, as a condition for approving the marketing of pharmaceutical products or agricultural chemical products that use new chemical entities, the submission of undisclosed tests or other data, the preparation of which requires considerable effort , will protect that data against any unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure the protection of data against unfair commercial use. ”

[2] “Article 266.- The Member Countries, when they require, as a condition to approve the commercialization of pharmaceutical products or agricultural chemical products that use new chemical entities, the presentation of undisclosed test data or other, whose elaboration involves a considerable effort, will protect those data against any unfair commercial use. In addition, Member Countries will protect this data against any disclosure, except when necessary to protect the public, or unless measures are adopted to guarantee the protection of the data, against any unfair commercial use. The Member Countries may take the measures to guarantee the protection enshrined in this article. ”

[3] “5. For the purposes of this Agreement, intellectual property rights include: (…)

  1. j) protection of undisclosed information. “

[4] Official Letter No. SENADI-DG-2019-0402-OFLetter

[5] Official Letter No. OF-PGE-09818

Katherine González H.
Associate at CorralRosales
katherine@corralrosales.com

Advantages of Having an In-house Secondment Lawyer

ventajas-tener-abogados-secondment-in-house-abogados-ecuador

Why can having a secondment lawyer be advantageous for a company? The needs in the field of business have changed over time; having quality legal advice at the right time has become essential. Not all companies have an in-house legal team and, if they do, it is usually a small team that is very busy with the core business of their company; therefore, they usually look for one or more external firms to provide the necessary support when needed.

Sometimes unexpected needs arise, such as large projects or new lines of business that require specialized attention and special advice. It is then when a lawyer in secondment can be an excellent solution for the company.

This service consists of assigning the company a lawyer from a trusted firm to temporarily form part of the in-house legal team allowing said in-house team to focus on the core business and its internal client. Thus the qualified reinforcement, who also has all the usual support of the firm, can take on any special project; it could be M&A, a new line of business, any complex labor or intellectual property issues, among other options.

The decision to have an external lawyer within the team can result in great benefits for all types of companies, from start-ups, through medium-sized companies, or large multinationals that need quality legal solutions. In addition to having a full-time external lawyer dedicated to their matters, they will continue to have the support and experience of their own legal team.

In this way, the company receives a personalized, continuous service adapted to the specific situation and industry. The immediacy and development of the relationship with the lawyer from the trusted firm will redound to benefits for both parties.

What are the benefits of choosing an in-house service?

  • Integration: In every way: understanding the client’s needs first-hand and adapting to absolutely all aspects, such as, for example, reporting.
  • Immediacy: The fact that the lawyer works directly in the client company will speed up the advice and maintain a much more direct communication, which will also translate into very significant cost savings.
  • Experience: The client company will have a lawyer highly specialized in their sector, who will also benefit from an even more intensive knowledge of the company and its policies. In addition to this, our lawyer has the continuous support of the rest of the CorralRosales team.
  • Effectiveness: Starting from the very first day of the legal secondment, thanks to continuous collaboration and prior knowledge about the client and their industry.
  • Collaboration: The relationship between the law firm and the client company will be deepened allowing them to become true ‘partners’ focused on business.
  • Flexibility: There is a total adaptation to the specific needs that the company requires and all in real time.

In addition to being advantageous for the client company, this will provide greater tools to the lawyer who will become part of the in-house team temporarily. In this way, he will be at the center of the client’s business, deepening into the knowledge of the client’s day-to-day life and learning about their policies and ways of doing business. Once this period is over, the lawyer will get to know his client in depth and will bring this experience back to his usual team, generating benefits for all the parties involved.

Rafael Rosales
Partner at CorralRosales
rrosales@corralrosales.com

Notarial Acts and Contracts Through Electronic Means

notarial-acts-and-contracts-electronic-means-ramon-paz-mino-lawyers-ecuador

By legal provision, previously, acts and contracts had to be performed and granted before a Notary Public as a single act. Thus, all the deeds and some proceedings conclude with the famous phrase “before me, in my presence as a single act, to which I attest.-”

Ecuador had to wait for a pandemic that paralyzed a large part of the sectors to realize that technological-telematic means are useful and allied tools in all areas, which energize productive activities, including those who provide legal services.

Now, it is possible to hold mediation hearings by any technological means through the centers authorized by the Judiciary Council and to sign the corresponding minutes with electronic signatures. It is also allowed to hold judicial, arbitration and constitutional hearings by these means. However, certain regulations already did establish the appearance at proceedings and hearings through telematic means before confinement. Since the entry into force of the Organic Law of Humanitarian Support to Combat the Health Crisis Derived from Covid-19 on June 22, 2020, it is possible that certain acts, contracts and notarial proceedings be carried out by telematic, electronic or remote means . For this purpose, the Judiciary Council had to issue the corresponding regulations in which it determines the acts, contracts and proceedings that, because they require the physical intervention or the verification of the intervening parties, cannot be carried out with the appearance of the grantors or participants through the use of telematic, electronic or remote means.

Resolution 075-2020 of the Plenary of the Judiciary Council, issued on July 7, 2020, contains the Regulation for the Progressive Implementation of Acts, Contracts and Notarial Proceedings through the Use of Electronic Means and Reduction of Fees (hereinafter the “ Regulation ”). It established two phases. In the first one, article 3 of the aforementioned Regulation provides the following acts, contracts and proceedings that may be   carried out electronically:

  1. Protocolization of public or private instruments by court order or at the request of an interested party.
  2. Electronic certification of a dematerialized document.
  3. Electronic certification of original electronic document.
  4. Certification of the document materialized from the website or from any electronic support.
  5. Registration of lease contracts with the request electronically signed by the applicant.
  6. Electronic petitions to establish reasons and notes on the margin.
  7. Subscription of minutes of requirements for the constitution in arrears to the debtor party.
  8. Subscription of minutes for the fulfillment of the contract promise, as well as for the delivery of what is owed and the execution of obligations.
  9. Incorporation of companies, provided that the grantors have expressed their express will to grant the deed electronically and they have electronic signatures; and,
  10. Constitution of associations or consortia in matters of public procurement, provided that the grantors have expressed their express will to grant the deed electronically and they have electronic signatures.

All requests for voluntary jurisdiction that are presented before a notary public by grantors who have an electronic signature may be sent electronically. Likewise, notaries may receive the corresponding minutes submitted by the attorneys who require the service, provided they have an electronic signature.

In the second phase, it was established that the Council of the Judiciary will decide on the inclusion of new acts, contracts and notarial proceedings, once the corresponding budgetary allocations are in place. It should be noted that the Judiciary Council, aware of the technological difficulties, did not provide that these acts, contracts and proceedings be compulsorily executed by these means, which implies that it will be optional for users of the notarial system.

Resolution 083-2020 of the Plenary of the Judiciary Council dated July 28, 2020, approved the Operational Instructions for the Progressive Implementation of Acts, Contracts and Notarial Proceedings through the Use of Electronic Means. which made the operational scope of the acts, contracts and proceedings feasible by electronic means, as referred to above. However, so far phase two foreseen in the Regulation has not initiated.

In conclusion, the use of electronic means for notarizations is not a novelty, but the inclusion of other acts and contracts has been a significant advance in favor of the speed of business and in judicial and arbitration activity that have been seriously affected by the pandemic. However, the legislators and the Judiciary Council remain in debt. The former because it gave the Council the power to limit the acts, contracts and proceedings that could be entered by electronic means; and, the latter, because it limited them too much. Let us hope that the Judiciary Council includes other acts, contracts and necessary procedures in the execution of the planned phase two.

Ramón Paz y Miño
Senior Associate at CorralRosales
rpazymino@corralrosales.com

The exhaustion of Instances by the State: A Problem in Intellectual Property

The administrative authority and one or more private parties intervene in the vast majority of administrative procedures regarding Intellectual Property. Once this stage has been exhausted, resolutions issued by the National Intellectual Rights Service (SENADI) can be judicially challenged before the competent Administrative Contentious Court. The processes culminate with the sentence that agrees with one of the parties. With its execution, the mission of imparting justice is considered accomplished. However, the experience in intellectual property matters is different.

Once the client obtains a favorable ruling from the Contentious Administrative Court, SENADI usually files a cassation extraordinary appeal to prevent the execution of the Court’s ruling. This attitude is not justified because it is a dispute between private parties, in which the resources of the State are not compromised.

The competence of the aforementioned institution to appeal adverse decisions is not questioned, since we understand that it wants its criteria to prevail, however, it is necessary to consider that the filing of these appeals by SENADI is not always motivated to protect public interests.

In terms of intellectual property, there is no justification for SENADI in all cases to try to nullify the sentence so that its legal criteria prevail. With this attitude, state resources are wasted because the Supreme Court must allocate time to address these challenges. Worse still, in cases in which SENADI files an extraordinary protection action before the Constitutional Court.

It is very difficult for Intellectual Property clients to accept this behavior from the administrative authority, which seems to be destined to hinder the timely exercise of the corresponding rights. This reality is even worse in the case of patents, whose validity is 20 years from the filing of the application, since the administrative and judicial procedures can consume half of that time and in some cases the full term.

The justice system is saturated in Ecuador; responsibility, effective judicial protection and legal security do not go hand in hand with the principle of opportunity. The exhaustion of resources and actions by SENADI should not become the rule, since this causes the processes to be delayed, the execution of the sentences postponed and greater public and private resources spent.

Ruth Holguín
Associate at CorralRosales
ruth@corralrosales.com

Employee Leave of Absence in Ecuador

employee-leave-of-absence-in-ecuador-lawyers

According to Ecuadorian law employees are entitle to 8 legal leaves of absence, as detailed below:

LEAVE OF ABSENCE REASON DURATION
Maternity Birth of a child (general rule) 12 weeks
Multiple birth 10 additional days
Child with disability or serious congenital diseases. 3 additional months
Paternity Birth of a child 10 days
Multiple birth or cesarean section 15 days
Premature children or in conditions of special care 8days additional
Birth of a child with a disease: degenerative, terminal, irreversible or with severe disability (75% or more) 25 days
In the event of the mother’s death during childbirth or while on maternity leave, the father is entitled to enjoy all, or as appropriate, the remaining part of the period of leave corresponding to the mother Up to 12 weeks
Unpaid leave for childcare After maternity or paternity leave employee may request a unpaid leave to care for the newborn 9 months in addition to maternity or paternity leave
Adoption Adoptive parents are entitled to a leave from the date the child is legally delivered to them. 15 days
Illness Medical rest for common or occupational illness Indeterminate
Child Illness Care for  hospitalized child or with  degenerative disease 25 days (annually)
Family leave for death Death of the spouse, common-law partner, relatives up to 2nd degree of consanguinity or affinity to the worker 3 days
Education Employees with more than 5 years in the company that obtain a scholarship for studies abroad, in fields related to work activity, will be entitle to a leave of absence.

* Applies to employers with 15 or more employees and the number of scholarship holders does not exceed 2%.

Up to 1 year, entitled to payment for 6 months.

Maternity and sick leave are subsidized by IESS, under the following conditions:

  • In case of maternity leave, IESS requires that the affiliate maintain at least 12 continuous contributions prior to childbirth and that the employer has not registered arrears during the mentioned period. In these cases,  IESS will pay the employee a cash allowance of 75% of the average remuneration the last 3 contributions paid to IESS, for the period of 12 weeks (the remaining 25% must be covered by the employer).
  • To access sickness allowance, according to the rest ordered by the physician, the affiliate must maintain at least 6 continuous contributions prior to the month in which the disability occurred and the employer must not register arrears during that period. If these conditions are met, as of the 4th day of disability, IESS will pay the employee a cash allowance for a period of up to 6 months, in the following proportions: (i) the first 70 days, employee will receive 75% of the average of the 3 last contributions; and, (ii) in the remaining period, 66% of the same average. The employer is only obliged to pay 50% of the remuneration during the first 3 days of disability.

The Labor Code also provides leave for domestic calamity or force majeure. Although the norm is not clear in which situations these types of leave should be granted, it gives the employer the power to qualify and authorize them. In this case, the worker maintains the right to receive his/her remuneration – or a percentage of it – for the duration of the leave.

Upon agreement of the parties, the employer may grant unpaid leave to cover different needs of the employee (e.g. studies abroad).

The main characteristic of this kind of leave is that the employment relationship continues and the employee does not lose his seniority in the company. Since the employee will not be receiving income during the leave, the obligation to make contributions to  IESS is not generated. Therefore, an exit notice must be filed in the Institution’s platform.

 

Marta Villagómez
Senior Associate at CorralRosales
mvillagomez@corralrosales.com

Auxiliary Services to Air Transport: What is behind a flight operation?

flight-operation-auxiliary-services-aviation-veronica-olivo

If we ask any passenger about their next trip, we find that most of them think that during the flight they are in the hands of the pilot and we tend to think the same way. Well, the truth lies in the fact that no flight crew can operate without a large team of people doing their groundwork.

Behind the operation of a flight there are providers of “Auxiliary Services to Air Transport” that are technical services specialized in supporting air transport operations. Ground handling addresses many services required for the aircraft; from the time it arrives at the terminal to the time it departs on its next flight. Speed, efficiency and precision are important in ground-handling services to minimize response time. This is the time during which the aircraft must remain parked in the terminal; these services include the following activities:

1. Operational Flight Dispatch

There is a team in the operations center of each airline, which monitors every minute of the flight.  They are called the eyes and ears of the crew. So much so that, when the pilot announces a change of route due to weather conditions, for example, it is likely that this decision was not made by the pilot in the cabin of the plane, but by the flight dispatcher in the center of ground operations that could even be hundreds of kilometers away from where the aircraft is located.

Dispatchers not only plan the flight, they monitor it and are ready to provide any information pilots require, at any time.

2 Ramp Service

These are services that are provided on the airport platform or runway and are directly related to all the activities that are carried out with the aircraft to execute the flight. Among the main ones we find:

  • Guide the aircraft in and out of the parking position, both at landing when it is routed to the passenger sleeves to disembark, and at takeoff when the aircraft is driven to the runway.
  • Load water for the toilets in the aircraft and drain.
  • Supply engine-starting units.
  • Handle the loading and unloading of luggage, generally by means of belt loaders and luggage carts.
  • Handle air cargo, generally through loading platforms and loaders.
  • Refueling, which can be done with a refueling tank truck or refueling pump.
  • Provide power on the ground (so that the engines do not need to be running to provide power to the aircraft on the ground).
  • Provide passenger stairs (used in place of a bridge or aerial stairs. Some airlines on a budget use both to improve response speed).
  • Provide wheelchair lifts, if passengers require them.
  • Supply hydraulic mules (units that provide hydraulic energy to an aircraft externally).
  • Provide de-icing equipment, which is the process of removing snow, ice or frost from the surface of the aircraft using chemicals that not only defrost, but also protect the surface and help delay the formation of ice during a certain period of time, or avoid ice adhesion to facilitate mechanical removal.

3. Passenger services

These services are carried out at the airport terminal and range from the passenger’s arrival at the airport to boarding the aircraft or leaving the terminal. Among the main tasks we find:

  • Provide counter services for the registration and billing (check-in) of each passenger prior to boarding the flight.
  • Provide assistance to passengers on arrival and departure at the boarding gate.
  • Staff the transfer and customer service desks.

4. Catering Service

It consists of loading and unloading food and beverages that will be served during the flight for both passengers and crew. The service is not limited to preparing food, but it must comply with sanitation standards, adequate forms of packaging, as well as waste management. This service should ensure, as far as possible, minimal preparation activities in the air, limiting them to heating the food when necessary.

5. Cleaning and disinfection of aircraft

The first step is cleaning the exterior of the aircraft, the fuselage. Care is taken in areas such as propellers, brakes and the surroundings of electric chargers to ensure that there are no elements that cause static. While the exterior cleaning is carried out, so is the cabin work, both cleaning and disinfection. For these activities, there are international standards that must be followed and are constantly updated.

It must be taken into account that the majority of airlines subcontract these auxiliary services and that their providers are generally the same airports, and assistance agents that are duly qualified by the aeronautical authority of each country or even another airline. According to the International Air Transport Association (IATA), it is estimated that airlines outsource more than 50% of ground-handling services to fulfill their operations at airports around the world.

Therefore, compliance with local regulations and excellence in the provision of these services make airlines opt to subcontract them, allowing operations to be carried out quickly and effectively. All this translates this efficiency into greater safety of operations and of course optimization and better profits.

 

Verónica Olivo
Associate at CorralRosales
volivo@corralrosales.com

Advantages of the simplified joint-stock company

simplified-joint-stock-company-corporate-milton-carrera-lawyers-ecuador

The main advantage of the Simplified Joint-Stock Company is its flexibility to adapt to the particularities of each business. Its formation process is very agile and its shareholders have ample freedom to establish the rules of its operation in the bylaws. Therefore, entrepreneurs can count on a legal figure that allows them to develop formal businesses that are entirely adapted to the will of the partners and the peculiarities of the businesses.

Small and medium-sized companies will be the most benefited by this new type of corporate association. Its main advantages are the following:

  1. Incorporation of the company: The creation of this company does not require a public deed, it is constituted by a private document, with the exception of those cases in which real estate property is contributed.
  2. It can be a single-member company: The company can be incorporated and exist with a single shareholder, natural or legal person.
  3. Flexible capital structure: There is no minimum capital and there is no percentage that must be paid at the time the company is incorporated. However, the term for the payment of the capital will not exceed 24 months.
  4. Multiple corporate purpose: The corporate purpose can be broad, that is, it can include many activities without being related to each other. If the corporate purpose is not specified in the act of constitution, it is understood that the company may carry out any lawful activity.
  5. Indefinite term: It is not mandatory to establish a term for the company. Failure to do so implies that it is indefinite.
  6. Principle of existence of the company: The existence of the company occurs with the registration of the contract or unilateral act of creation before the Registry of Companies of the Superintendence of Companies, Securities and Insurance. It is not required the registration before the Mercantile Registry, which simplifies the procedure and reduces costs.
  7. Free negotiation of the shares: The shares are freely negotiable unless the bylaws states the prohibition to do so. This prohibition may not last for more than 10 years.
  8. Change of control in the shareholder company: The bylaws can establish the obligation of shareholder companies to inform the Simplified Joint-Stock Company about any operation involving a change of control. In the event of a change of control, the general meeting of shareholders of the Simplified Joint-Stock Company may exclude shareholder companies in which such event has occurred.
  9. Shareholder agreements with binding force: Shareholder agreements on the transfer of shares, preference and restrictions to transfer them or to increase share capital, exercise of the right to vote, share´s representative at the meeting and any other lawful matter are mandatory for this type of company. To comply with this, such agreements must be kept in the offices where the administration of the company works. Otherwise, without affecting the force and effect between the parties, such agreements do not bind the Simplified Joint-Stock Company.
  10. Auditis optional: The existence of an audit body is not mandatory, but the bylaws may foresee its creation.

Milton Carrera
Senior Associate at CorralRosales
mcarrera@corralrosales.com

Public purchases in a state of emergency

public-purchases-in-a-state-of-emergency-ricardo-mancheno-lawyers-ecuador

By Ministerial Agreement No. 00126-2020 of March 11, 2020, the Ministry of Health declared a state of sanitary emergency in Ecuador due to the COVID-19 virus pandemic. Subsequently, by Executive Decree No. 1017 of March 16, 2020, the President of the Republic declared a state of emergency throughout the national territory. Consequently, various resolutions and administrative provisions have been established to regulate public management and the relations between the Public Administration and those administered.

In this context, the National Public Procurement Service – SERCOP issued the regulations applicable to the state of exception and emergency, in order to coordinate actions to fulfill its purposes and, in particular, guarantee the rights of suppliers to avoid discretion of contracting entities during public procurement processes due to emergencies.

The following is a summary of the regulations issued by SERCOP:

  • Memorandum No. SERCOP-SERCOP-2020-0012-C of March 16, 2020 contains the following recommendations for suppliers and contracting entities:
    • Procurement will be prioritized to guarantee the normal operation of public services and emergency procurement. Special service stations with health safety measures are established to receive offers.
    • In the case of non-priority procedures, it is recommended to cancel or declare them void, depending on the status of the procedure.
    • In the absence of conditions to carry out the pre-contractual stage of planned procurement procedures, entities are encouraged not to publish them.
    • If there are contracts in the contractual execution stage, the administrator must fully comply with the functions established in the respective contracts.
    • Although recommendations do not include it, the legal provisions on unforeseen events and force majeure are applicable to public contracts. The act of authority that declared the state of emergency in the territory of Ecuador, which suppressed and limited the rights of people, among them economic operations and activities and mobility, except in certain excepted cases, constitutes an event of force majeure. These acts of authority are spearheaded by Executive Decree 1017 but include others such as Ministerial Agreement 126-2020, which establishes the health emergency and the constant provisions of the National Emergency Operations Committee (“COE”). In turn, these force majeure events originate from an unforeseen event and its effects, which go beyond the decreed state of emergency, such as the COVID-19 virus declared by the World Health Organization as a pandemic, which has also been ratified by the government of Ecuador. These events constitute extraordinary and irresistible unforeseen events, which have placed the population of Ecuador (and the world) in an emergency situation, making it impossible for the normal development of the usual commercial and productive activities of the public and private. Likewise, they have placed current obstacles to the execution of contractual relationships, which clearly exceed the control and predictability of the parties, and which could be alleged as long as they generate real and verifiable effects with the purpose of exempting the fulfillment of contractual obligations or the termination of contracts according to each case.
    • SERCOP guarantees service for procedures, claims and complaints through telematic means. Face-to-face trainings will be rescheduled.
  • Memorandum No. SERCOP-SERCOP-2020-0013-C of March 17, 2020 establishes the guidelines for submission of offers during the health emergency, and provides that contracting entities in the different contractual procedures, in a compulsory way, will indicate in the field of observations in the form, that the offers and validations can be received by the following means: physical, Courier (regular mail) or email, also indicating in the form the institutional mailing address to receive them.
  • Resolutions Nos. RE-SERCOP-2020-0104 of March 19, 2020 and RE-SERCOP-2020-0105 of April 6, 2020, which reform Resolution No. RE-SERCOP-2016-0000072, of August 31 2016, which contains the Codification and update of resolutions issued by SERCOP. These resolutions, the main aspects of which are listed below, should apply to contracts in an emergency as of March 20, 2020:
    • The contracting entity must expressly declare that there is an impossibility to carry out common procedures to overcome the emergency situation, qualifying this situation through a motivated administrative act that must be published on the PUBLIC PURCHASES Portal, and that will constitute a requirement which enables to continue with the emergency contracts.
    • The term of the emergency declaration may not be greater than 60 days unless a new Executive Decree is issued extending the state of exception.
    • For the procurement of works, goods or services in emergency situations, including consultancy, a direct and objective relationship must be verified between the emergency situation and the urgency of carrying out a procurement procedure to supply a current and emergency need that has arisen as a result of the aforementioned situation. For all emergency procurement, prior certification of budget availability will be necessary.
    • Emergency purchase will be made through a selection of suppliers in an agile, fast, transparent, and simple way, seeking to obtain the best costs. For this purpose, the entity or central governing body may consolidate the demand of all bodies or entities of any nature to carry out a single selection procedure.
    • In emergency procurement for the acquisition of drugs, medical devices or supplies, biochemical or diagnostic reagents, and other strategic goods in health, or the provision of health services or funeral; The analysis of the market offer will be considered fulfilled when the contracting entities publish their contracting needs on their institutional website; and, based on the proposals they receive, select the ones that best suit institutional interests. For these contracts, the supply and demand that exists on the market at that date will be considered as an indispensable parameter.
    • In emergency procurement carried out directly by the contracting entity (acquisition of goods abroad), verification of the absence of national production or supply will not be required, nor will import authorization by SERCOP.
    • All contracts, purchase orders or invoices generated within the framework of the emergency declaration must be done in writing through physical or electronic means. Contracting entities may improve the instruments using transmission of data messages in accordance with the provisions of the Electronic Commerce, Electronic Signatures and Data Messages Act. When in emergency contracts is impossible to access to notarial services, the contracting entity, in an exceptional and provisional manner, will endorse with administrative officials those enabling documents necessary for the signing of the contracts. The establishment of consortiums by private means will be allowed, which will be formalized by public deed once the notarial services have been restored. The contracts that by provision of the law require to be protocolized will be executed from their subscription and will be protocolized later. Currently, some notaries may protocolize these contracts.
    • For contracts in an emergency, SERCOP may, at any time, initiate the necessary control actions to guarantee compliance with the issued regulations.
    • The norms that regulate the temporary association to make corporate purchases between contracting entities will not be applicable to cases of centralized (corporate) purchases of emergency.
    • In the event of emergency declarations issued and published by the contracting entities until before the validity of the Resolutions, they will be forced to comply with and adapt to their provisions.
  • Memo No. SERCOP-SERCOP-2020-0014-C of March 26, 2020 reiterates, within the framework of the regulations issued by the state of emergency and health emergency, the obligation of the contracting entities to implement electronic signature in public procurement procedures; which will allow the opening of a new way of communication with citizens in a more agile way and will reduce the processing time of the procurement procedure, safeguarding and guaranteeing the safety of citizens.

Additionally, SERCOP maintains on its website an updated list of products and services needs in the state of emergency along with delivery conditions. They can be found in the following link:

https://www.compraspublicas.gob.ec/ProcesoContratacion/compras/EMG/EmgRegistros.cpe

It is essential that SERCOP efficiently apply in practice the provisions of the regulations issued and carry out the necessary control management for its effective compliance.

Ricardo Mancheno
Senior Associate at CorralRosales
rmancheno@corralrosales.com

Procedure for the Exchange of soon-to-be-expired Medicines

medicines-procedure-for-the-exchange-mario-fernandez-lawyers-ecuador

Article 175 of the 2006 Health Law required medicines suppliers  to exchange products that are about to expire in accordance with “… with what the corresponding regulation establishes.”[1]

Almost 13 years after the aforementioned law entered into force, Ministerial Agreement No. 00015-2019 published in Official Registry No. 30 on September 2, 2019 issued the “Soon-to-be-expired General Medicine Exchange Regulations” (hereinafter, the “Regulations”), which are mandatory for all health establishments and warehouses of the institutions of the National Health System.

Due to the time it took to issue the regulation, doubts have arisen about theirs application. This article summarizes and clarifies the implemented procedure.

The procedure[2] for the exchange  of medicines in general, biological medicines and medicine kits containing medical devices (hereinafter and collectively, “medicines”), which are about to expire, has the following stages:

  1. Periodically, the person in charge of the information system of the pharmacy, medicine cabinet and / or warehouse of the institution of the National Health System will send the head of the requesting unit the stock of those medicines that are about to expire and subject to exchange.
  2. The technical manager of the pharmacy or warehouse and the staff in charge of the medicine cabinet of the institution will carry out the physical verification along with the warehouse keeper who will draw up the list of medicines subject to exchange.
  3. The head of the institution´s requesting unit will prepare the technical report of the medicines to be exchanged, taking into account the information sent by the technical manager of the pharmacy or warehouse or the staff in charge of the medicine cabinet and will request the supplier the respective exchange.
  4. The supplier will notify the head of the requesting unit of the date, information and quantity of the medicines to be exchanged.
  5. The head of the requesting unit will notify the technical manager and the warehouse keeper of the exchange to be executed.
  6. Once the technical manager and the warehouse keeper have been notified, the medicines that are about to expire shall be placed in the warehouse withdrawal area for the respective exchange.
  7. The person in charge of the warehouse will deliver the medicines that are about to expire to the supplier. Then, a reception delivery document[3] will be drawn up and signed between the person in charge of the warehouse, the head of the requesting unit and the supplier.
  8. The supplier will deliver the “new” medicines to the warehouse manager for the corresponding technical and administrative reception, in which the quantity and technical specifications of the medicines will be verified in accordance with the internal procedures that each institution of the National Health System has for this purpose.
  9. A record will be drawn up and signed[4] for the receipt of the “new” medicines between the person in charge of the warehouse and the supplier. Said act must be verified and signed by the head of the requesting unit.
  10. The institution must prepare the complete file on the exchange. The responsibility for filing said files shall be laid down in the instructions drawn up by each institution.

Regarding the procedure, the following requirements must be taken into account:

  • Supplier must withdraw the medicines subject to exchange up to one month before the expiration date.
  • Medicines that are about to expire must be exchanged for medicines with the same technical specifications and a shelf life of at least twelve months.
  • Withdrawal of medicines that are about to expire and the delivery of the “new” medicines may be carried out at different times, subject to an agreement between the parties, provided that the provisions of the Regulations are complied with.

Here are some details regarding doubts that may arise in the application of the Regulation:

  • Exchange of medicines that are about to expire is regulated regardless of the date on which they were purchased. Therefore, it also applies to the exchange of medicines that were purchased before the Regulation entered into force.
  • A maximum of one exchange for each acquisition will be accepted[5]. In addition, for exchanges involving the health establishments of the Comprehensive Public Health Network – RPIS, it must be taken into account that:
    • The percentage of exchange cannot be greater than fifteen percent (15%) of the total volume of the medicine purchased in each acquisition process.
    • In purchases through corporate reverse auction or other joint mechanisms, the indicated percentage will not be applied, but the provisions of the specifications prepared by the Commission of Public Purchases. In no case may they contemplate a percentage higher than ten percent (10%).

Although the Regulation does not expressly[6] indicate it, it is considered that these percentages would apply only to the replacement of the medicines and not to their withdrawal, in accordance with the provisions of article 175[7] of the Health Law. Therefore, the supplier would have the obligation to withdraw all the medicines that are about to expire, but their replacement will be limited to the percentages established in the Regulation.

  • In the case of vital[8] medicines or medicines that are difficult to access for rare or orphan
  • [9] diseases, which are about to expire, the Regulation establishes that the supplier must carry out the number of exchanges that are necessary, without considering the percentage of medicine to be replaced in each exchange.
  • If the supplier justifies that it cannot make the exchange with the same products, the Regulation allows it to be carried out with other medicines with an equivalent economic value. If this is not possible, the supplier, in agreement with the buyer, must reimburse the institution the respective value.

In conclusion, while the Regulation for the exchange of medicines is welcome, it is necessary for the authority to clarify rules that may lead to confusion, without waiting for conflicts to arise from  different ways of interpreting and applying the Regulation by the acquiring institutions.

Mario Fernández
Associate at CorralRosales
mfernandez@corralrosales.com


[1] Art. 175.- Sixty days before the expiration date of the medicines, the pharmacies and medicine cabinets will notify their suppliers who have the obligation to withdraw said products and exchange them in accordance with the provisions of the corresponding regulations. (highlighted out of text).
[2] Ministerial Agreement No. 00015-2019, Official Registry 30, September 2, 2019, Art. 9.
[3] In accordance with number 6 of article 9 of the Regulation, based on this act, the institution will generate the release of the medicines in the inventory control information system that it has.
[4] In accordance with number 8 of article 9 of the Regulation, based on this act, the institution will generate the entry of the “new” medicines in the inventory management system that it has.
[5] Art. 1 of the Regulation defines the acquisition of medicines as “… the process by which medicines are purchased in general, biological medicines or medicine kits that include sufficient medical devices to meet the expected demand, according to the corresponding contracting mechanism and based on the approved schedule. ”
[6] Ministerial Agreement No. 00015-2019, Official Registry 30, September 2, 2019, Art. 12.
[7] Art. 175.- Sixty days before the expiration date of the medicines, the pharmacies and medicine cabinets will notify their suppliers, who have the obligation to withdraw said products and exchange them in accordance with the provisions of the corresponding regulations. ” (Highlighted out of text).
[8] The Regulation defines vital drugs as those indispensable or irreplaceable drugs to safeguard the life or alleviate the suffering of a user / patient or a group of users / patients. Each health establishment will define its list of vital drugs, through the Pharmacotherapy Committee or whoever takes its place
[9] The Health Law defines rare or orphan diseases as those potentially fatal, or long-term debilitating, low prevalence and highly complex diseases.