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Ethiopia Modernizes Arbitration Framework

On 2 April 2021, Ethiopia enacted a new arbitration law, known as the Arbitration and Conciliation Working Procedure, Proclamation Number 1237/2021 (the "Proclamation"), to apply to commercial domestic arbitrations and international arbitrations whose seat is in Ethiopia.1

The new law is part of larger efforts in the country to modernize its laws and position Ethiopia as business-friendly, thereby attracting more foreign investment. Ethiopia is the second most populous country in Africa, with a population of over 112 million, and the fastest-growing economy in the region according to the World Bank.2

Prior to the enactment of the new law, under the previous legal framework for arbitration in Ethiopia, there was a limitation on the scope of the competence-competence doctrine, which allows arbitrators to rule on their own jurisdiction. While the Civil Code allows arbitrators to rule on their jurisdiction, Article 3330(3) of the Civil Code barred arbitrators from deciding the validity of an arbitral submission (arbitration agreement).3 Thus, before the issuance of the Proclamation, challenges to the validity of arbitration agreements were decided by the courts. The Proclamation has addressed the issue by providing that arbitral tribunals "have the power to determine the existence or non existence of a valid arbitration agreement between the contracting parties including as to whether it has jurisdiction to hear the case or not."4

The Proclamation is partly based on the UNCITRAL Model Law and contains many provisions embracing international arbitration best practices. It also contains some interesting provisions relating to the finality of awards, non-arbitrability, res judicata, confidentiality, and the establishment and regulation of arbitral institutions. Nonetheless, a few potential challenges remain.

 

The Scope of Application

The Proclamation applies to domestic and international arbitration seated in Ethiopia,5 and arising out of arbitration agreements signed after the coming into force of the Proclamation on 2 April, 2021. Arbitration agreements signed before the Proclamation will continue to be governed by the old regime, except if the parties agree for such agreements to be governed by the Proclamation.6 Likewise, "proceedings initiatedbefore the coming into force of the Proclamation or cases of arbitration pending before courts, ongoing proceedings and execution of decisions" will continue to be governed by the law in force before 2 April, 2021.7 The Proclamation also applies to domestic conciliation cases pursuant to its Articles 54-76.

 

The finality question

Under the previous recognition and enforcement regime governed primarily by the 1960 Civil Code and the 1965 Civil Procedure Code, there were questions regarding the finality of arbitral awards in Ethiopia, resulting from the application and interpretation of Article 350(2) of the Civil Procedure Code, which presumes a right of appeal from any arbitral award unless parties agree to waive the right of appeal "with full knowledge of the circumstances".8 The problem was highlighted in the recent case between the Federal Democratic Republic of Ethiopia and the Republic of Djibouti (represented by Chemin de Fer Djibouto-Ethiopien) and Consta JV,9 where the Federal Supreme Court Cassation Bench relied on its precedent in the case of National Mineral Corporation v. Dani Drilling10 to hold, in essence, that the waiver provision of Article 350 does not preclude the Bench from reviewing arbitral awards for fundamental errors of Ethiopian law.

Unlike the Civil Procedure Code, the Proclamation adopts a presumption that arbitral awards are final and not appealable unless the parties agree otherwise in their arbitration agreement.11 Nonetheless, Article 49(2) of the Proclamation allows parties to apply for cassation "where there is a fundamental or basic error of law", but parties may waive the right of appeal. Thus, unless the parties are able to agree to waive judicial review for errors of law, the potential for second-guessing final arbitral awards still exists through the appeal process. This is separate from the set-aside provision of Article 50, which mirrors the UNCITRAL Model Law's grounds for setting aside arbitral awards and thus requires that judicial review of arbitral awards12 be limited to narrow and well-defined situations.13

 

The non-arbitrability of 'administrative contracts'

The Proclamation contains a list of matters that are not arbitrable under the law, similar to the laws of most arbitration-friendly jurisdictions.14 However, the law provides that "administrative contracts" – which are contracts concluded between administrative authorities and individuals or companies to carry out the activities of public services,15 such as public supply contracts and contracts of public services16 – are non-arbitrable.17 The provision of the Proclamation on the non-arbitrability of administrative contracts mirrors the Civil Procedure Code, which provides that "[n]o arbitration may take place in relation to administrative contracts as defined in Art. 3132 of the Civil Code or in any other case where it is prohibited by law."18 With this provision, invoking arbitration agreements against agencies of government under Ethiopian law may be challenging. However, Ethiopian courts, particularly the Federal Supreme Court,19 have generally been consistent in nonetheless enforcing arbitration agreements and awards resulting from administrative contracts. For example, in Zemzem Plc v. Ilu Abbabor Educational Bureau,20 the Supreme Court relied on Article 1731 of the Civil Code, which provides that "[t]he provision of a contract lawfully formed shall be binding on the parties as though they were law" to override the provision of the Civil Procedure Code. It is hoped that this trend will continue under the new law.

 

Interim and precautionary measures, confidentiality and res judicata

The Proclamation contains pro-arbitration provisions that are designed to strengthen the arbitral process and enhance the utility of arbitration in Ethiopia. For example, in addition to embracing the full Model Law provision on interim measures,21 the Proclamation allows a tribunal to "order precautionary measure without notifying the other party if it believes with sufficient cause that such notification would hinder the implementation of the interim measure."22 The Proclamation also provides that arbitral proceedings and awards must be kept confidential.23 Furthermore, under the Proclamation, any decision rendered by the tribunal is deemed to be a decision of a court and creates a res judicata effect, preventing the parties from initiating an action based on a "similar matter" between the same parties.24

 

Arbitration centers

Prior to the issuance of the Proclamation, the existing arbitration centers – such as the Addis Ababa Chamber of Commerce and Sectorial Association, Ethiopian Arbitration and Conciliation Center, and Ethiopian Mediation and Arbitration Center – were established by various laws as non-profit institutions.25 Unlike under the old regime, the Proclamation allows private organizations to establish arbitration centers. The Attorney General of the Federation is empowered to issue and renew licenses, provide the criteria for establishing new arbitration centers, and supervise the operation of such centers.26 Given the significance of Ethiopia as the largest economy in East Africa, the fastest growing economy in Africa and the headquarters of the African Union, and the drive to make Addis Ababa the air transport hub of the region, it is expected that other independent international arbitration centers will emerge in the future.

 

Conclusion

In all, the Proclamation mainly aligns with general best practice in international arbitration, except for a few provisions that may be problematic, as highlighted above. However, the success of the law, as is always the case, will be determined in its application by the Ethiopian courts.

 

1 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 3(3). The enactment of the Proclamation follows the Ethiopian Parliament’s ratification of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 13 February 2020, and its formal accession on 24 August 2020, becoming the 165th State and the 40th African state to accede to the Convention. See, https://www.newyorkconvention.org/news/ethiopia+ratifies+the+new+york+convention; https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2.
2 https://www.worldbank.org/en/country/ethiopia/overview.
3 The 1960 Civil Code of Ethiopia, Article 3325(1) defines an arbitral submission as a "contract whereby the parties to a dispute entrust its solution to a third party, the arbitrator, who undertakes to settle the dispute in accordance with the principles of law."
4 The Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021, Article 19.
5 The Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021, Article 3(1).
6 The Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021, Article 77(1) and (3).
7 The Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021, Article 77(2).
8 The 1965 Civil Procedure Code of Ethiopia, Article 350(2): "The parties may waive their right of appeal but any such waiver shall be of no effect unless made with full knowledge of the circumstances."
9 Consta Joint Venture v. Chemin de Fer Djibouto-Ethiopien, Federal Supreme Court Cassation Bench, File number 128086, year 2018. The case resulted from award issued by the Permanent Court Arbitration in case No. 2013-32 (Consta JV v. Chemin de Fer Djibouto-Ethiopien). The arbitration was governed by Ethiopian law while the arbitration proceeding was conducted under the Procedural Rules on Conciliation and Arbitration of Contracts Financed by the European Development Fund ("EDF Rules"). See, https://www.iarbafrica.com/en/news-list/17-news/660-the-ethiopian-supreme-court-annuls-a-%E2%82%AC-20-million-euro-international-arbitral-award-in-favor-of-an-italian-contractor-under-the-european-development-fund-rules-edf.
10 National Mineral Corporation Plc. v. Dani Drilling Plc., Federal Supreme Court Cassation Bench, File Number 42239, year 2010.
11 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 49 (1).
12 United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, Article 34.
13 P. Ortolani, Article 34: Application for Setting Aside as Exclusive Reourse against Arbitral Award, in UNCITRAL Model Law on International Commercial Arbitration: a Commentary, eds. I. Bantekas, et al., 2020, 859.
14 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 7.
15 M. M.Bulto, Arbitrability of Administrative Contracts under Ethiopian Legal System: Critical Appraisal, in Journal of Law, Policy and Globalization, Vol.105, 2021, p. 9.
16 The 1960 Civil Code of Ethiopia, Articles 3132, 3297-3306; 3244-3296.
17 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 7(7).
18 The 1965 Civil Procedure Code of Ethiopia, Article 315(2).
19 See, Zemzem Plc v. Ilu Abbabor Educational Bureau, File no.16896, 1998. In Imperial Highway authority v. Solel Boneh Ltd (Supreme Imperial court civil Appeal No. 670/57), the Supreme Court of Ethiopia affirmed the decision of the High court ordering the government agency to comply with a clause of its contract with Solel Boneh Ltd. that provided for the submission of all disputes under the contract to arbitration, Both cases as cited in The Role of Ethiopian Courts in Commercial Arbitration, in Mizan Law Review, Vol. 4, No. 2, 2010, available at https://www.ajol.info/index.php/mlr/issue/view/7894.
20 Zemzem Plc v. Ilu Abbabor Educational Bureau, File no.16896, 1998. The dispute arose out of a contract for the construction of an elementary school, which falls under contracts of public works pursuant to article 3344 Civil Code. The Federal Supreme Court reversed the lower court’s decision and held that the arbitration agreement was binding on the parties under Article 1731 of the Civil Code.
21 United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, Articles 9 and 17.
22 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 22(2).
23 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 39.
24 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 44(6).
25 See, the General Notice No. 90/1947; Chambers of Commerce and Sectorial Associations Establishment Proclamation No. 341/2003; Civil Code and Legal Notice No. 321/1966; and Civil Societies Organizations Proclamation No. 1113/2019.
26 The Arbitration and Conciliation Working Procedure Proclamation Number 1237/2021, Article 18.

 

Isobel Blakeway-Phillips (White & Case, Legal Assistant, Paris) contributed to the development of this publication.

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