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.”
4The 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
WRITTEN BY: WHITE & CASE LLP
The Ethiopian Herald May 9/2021
