Arbitration in Ethiopia: Law and Practice

Dispute settlement modalities, other than judicial litigation, were known even before the era of codification. They were continuously practiced as a traditional form of settling grievances. It had different names, like shimgelina, giligil. Irrespective of the nomenclature, each of these institutions sought to reach at amicable solution between the disputants.

The growing interdependence of intra and interstate trade in Ethiopia, the need to modernize the legal system demanded an institutionalized dispute settlement method. People were already aware that the judiciary is entrusted in resolving disputes, but they did not want to bear the costs, wait for a long time, frustrate in the process of execution. The expedition to modernity, the necessity to save time and money, the intention to preserve future business relationships brought arbitration into the picture.

The enactment of the Civil Code and Civil Procedure Code /CPC/ of Ethiopia had a significant impact in the introduction and development of modern arbitration. The Civil Code, which was enacted in 1960 govern the substantive aspect of arbitration; whereas, the Civil Procedure Code of 1965 contained provisions regarding procedural part of the process.

In the case of Ethiopia, arbitration proceedings resemble to regular court litigation. In a case between Mr. Gebru Kore v. Mr. Amadeyiu Federeche the court articulated that according to Art 3345 of the Civil Code and 317/1/ of CPC, the procedure to be followed by arbitration tribunals is the same as ordinary court litigation. It went on to add: “but this does not mean that arbitration /ye gilgil dagnenet/ needs to follow rigid court procedure or nonflexible litigation style.

Ethiopia’s arbitration law seems to be designed for domestic arbitration. This can be attributed to the fact that Ethiopia has not yet ratified New York Convention and International Convention for Settlement of Investment Disputes, commonly known as Washington Convention; the arbitration law is not drafted in accordance with UNICTRAL Model Law. The pertinent provisions of the CPC do not make a difference, except in cases of execution of foreign arbitral awards, between domestic and international arbitration.

The Civil Code of Ethiopia defines arbitration 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 law. These provisions will come into effect if arbitration is required by law; the persons have entered into a written agreement to submit their disputes.

In the sphere of Ethiopian arbitration law, special form can be prescribed for arbitration. Art 3326/2/ of the Civil Code urges the disputants to take the form prescribed by law whenever they sign an agreement. For example, if a party signs an arbitral submission agreement with administrative agents, the agreement has to be in writing and registered in a public notary.

Art 7/4/ of UNICTRAL Model Law says that electronic communication is allowed if it is readable and accessible for subsequent references. Art 7/5/ of the Model Law says that an arbitration agreement can be contained in writing in a statement of claim and defense “in which the existence of an agreement is alleged by one party and not denied by the other.

One can be prompted to ask: does this mean that arbitration agreements that are not registered in a public notary that are found in letter exchanges, fax, which are valid under the New York Convention, UNICTRAL Model Law, void? If so, why is the point of putting such a huge barrier?

Under the auspices of Art 3340, the parties can authorize the arbitrator to decide difficulties arising out of the interpretation of the submission itself. Also, the second sub-article stipulates that the arbitrator can be empowered to decide disputes relating to his own jurisdiction. The wordings of the code go in line with the widely accepted principle of competence-competence.

The doctrine of competence-competence allows the arbitral tribunal to decide on its own competence. Since speedy trial became the necessity of business, acknowledging the principle of competence-competence has become fundamental. The power of judicial body to determine its own competence is an accepted principle and a common feature of instruments governing international and judicial procedures. By the same token, arbitration tribunals are allowed to decide on their own competence.

On the contrary, what the Civil Code is silent is about the principle of separability. Generally, it is presumed that arbitration clauses are separate from the general contractual provisions. The traditional approach disallows arbitration to take place if the arbitral panel finds out that it has to decline jurisdiction.

The modern approach speaks differently: the immediate effect of the separation would be that the arbitration agreement would not be affected by the termination of the contract. The reason behind recognizing such possibility is that the parties agree on the institution of adjudication process, where third party arbitrators will be conferred with jurisdictional power to evaluate all aspects of the contract’s existence including its validity.

The doctrine of separability is absent from Ethiopian Civil Code. Art 3330/3/ says: “the arbitrator may in no case be required to decide whether the arbitral submission is or is not valid.” The kind of legislative restriction is unclear and makes the independence of the tribunal vaguer.

Arbitrability of administrative contracts is another unresolved issue in Ethiopian context. Inarbitrability of administrative contracts serves as exception to the rule. According to Art 3132 of the Civil Code, administrative contracts are those that serve the general interest of the public or are clearly qualified as such by the contracting parties or could only have been inspired by urgent considerations of general interest extraneous to relations between private individuals.

A dispute is arbitrable if it concerns a subject matter capable of settlement by arbitration. Such kind of arbitrability precludes subjective arbitrability, the capacity of the parties to submit their dispute to a panel; but objective arbitrability that implies the capacity of the subject matter to be settled by arbitration (the case of arbitrability of administrative contracts is objective arbitrability).

The issue of arbitrability in international commercial arbitration is governed by both national law and transnational public policies. Under the Swiss Private International Law, for example, a dispute would be capable of being resolved by arbitration if involves property. Note that the role of national law in determining the jurisdiction of international arbitral tribunals remains significant. Yet, in international commercial arbitration, agreements to infringe certain basic rights, bribe public officials to secure investment projects remain inarbitrable.

Though arbitrability is often considered to be a requirement for the validity of the arbitration agreement, it is primarily a question of jurisdiction. The arbitration panel will lose competence if the national law says the dispute is not arbitrable, but the parties did otherwise. Consequently, any award given will not be enforced by national courts.

The case of arbitrability of in Ethiopia is open for interpretation, i.e. the arbitrability of administrative contracts. Art. 315/4/ says that nothing contained in the CPC shall affect Art 3325-3346 of the Civil Code. On the contrary, the provisions of the Civil Code are silent regarding the arbitrability of administrative contracts, although reference to CPC is made that needs to be followed by arbitration. It is vital to keep in mind that the Civil Code does not unequivocally prohibit the arbitrability of administrative contracts. Hence, we ought to relay on case law to determine the arbitrability of administrative contracts. 

In a case law from Cassation Bench, the Supreme Court set a precedent in the matter of arbitrability of administrative contracts. The Cassation Bench ignored the application of Art 315/2/ of CPC, which exonerated government agencies from arbitration, and interpreted the silence of the Civil Code as a positive sign of arbitrability. The failure of the court to deal with Art 315/2/ and the final decision given as to the arbitrability of the subject matter depicted the enforceability of arbitration agreements over administrative contracts.

The other point worth mentioning is appointment arbitrators by the parties. The parties have the discretion to appoint an arbitrator in accordance with the arbitral submission. Yet, if they fail to do so, within the time limit given, courts will be in charge of appointing members of the arbitral tribunal.

The cumulative reading of Art 3332/3/ with 3334/1/ and 3343 will lead to the conclusion that courts are empowered to keep an eye on arbitration proceedings. Art 316/1/ of the CPC says that such kind of appointment can be made by any court, i.e. any court is competent to appoint arbitrator when seized. One author argues that it neither imprecise nor clear if the power of courts is administrative matter.

The author claims that when courts are asked to appoint arbitrators, in practice, they check the underlying arbitration agreement. In a Cassation court decision, the court decided was silent regarding the appointment of arbitrators, but held that the appellant is not allowed to submit its case to arbitration and reversed the decision of lower courts.

The other issue worth considering is disqualification of arbitrators. The grounds for disqualification as stated in Art 3340 are, inter alia, age, criminal conviction, impartiality and independence, illness and unsound mind. Art 13/3/ of the Addis Ababa Chamber of Commerce and Sectoral Association Arbitration Institute Arbitration Rules /AACCSA/, among the legally mandated arbitration institutes in Ethiopia, orders the arbitrator to notify the parties if he became aware any kind of circumstance that may disqualify him.

Art 15/2/ of AACCSA rules allow the arbitrator to be replaced upon his death, acceptance by the institute of Arbitrator’s resignation, upon acceptance of by the institute of a challenge or upon the request of all parties. Art 12 of UNICTRAL Model Law puts justifiable doubt as prerequisite before asking for disqualification.

In a case between Harar Trading Co. v. Gelateli Hankina & Co the court tried to explain the elements that constitute independence. According to Art 3340/2/, if a party wants an arbitrator to be removed/replaced, then he has to furnish persuasive evidence to the tribunal, i.e. the appellate court said that enough and persuasive evidence was not presented as to the partiality and dependence of the arbitrator due to their previous relationship; therefore, he must stay on the proceeding.

Thus far, we have been looking into Ethiopian arbitration law before and during the arbitration proceeding. In any jurisdiction, the application of national law will not cease until the award is executed or set aside. Similarly, Ethiopian arbitration law governs arbitration, even after an award is given, by the CPC. Art 318/2/ of CPC enjoins arbitral awards to be made in the same form as judgments. The award will be signed and will be handed out to the litigating parties.

If any party is dissatisfied with the award, Ethiopian law allows for it to appeal to higher court. However, either of the parties can waive their right to appeal, if it is made with full knowledge of the circumstances. This means, the parties can grant the finality of the arbitration clause.

Finality of an arbitration clause was deemed to be the freedom of the parties to agree upon. In the case between National Motors Corp. v. General Business Development, the court upheld the finality of the arbitration clause. Irrespective of the nature of the agreement, if such an agreement is made with full fledged consent, the parties are prohibited from appealing to a higher court. If such an agreement exists, the only choice is available to the displeased party is setting aside the award. In another decision, the Supreme Court affirmed finality clause.

The court said that after entering into valid arbitration finality clause, the appellant cannot ask for the judgment to be reviewed, or the grounds for setting aside the award are not fulfilled. Hailegabriel posits that this decision may take Ethiopian arbitration law to new modern arbitration legislation.

Nevertheless, the essence of this thought was challenged and seems to be changed by fairly recent Cassation Bench decision. In the case between National Mineral Corp. Pvt. Ltd. Co. v. Danni Drilling Pvt. Ltd. Co., the Cassation Court allowed appeal despite the existence of arbitration finality clause. The court asked itself if it will be viable to review awards, even after arbitration finality clause. It answered in the affirmative. It said that this has to be evaluated against the background of 454/1997, Ethiopian Constitution that gives mandate the Cassation Bench formal interpretation of law throughout the country.

Art 351of CPC approve of appeal

1. If the award is inconsistent, uncertain or ambiguous;
2. The arbitrator omitted to decide matters referred to him;
3. If the arbitrator, failed to inform the parties of the time or place of hearing, refused to hear evidence, acquired interest in the subject matter.

An appeal from an arbitral award is only authorized on these grounds, and the award is not subject to review to the same extent as a judgment. It is only reviewed if the decision is patently incorrect, where he enforced an oral contract, where the law requires it to be in writing that it is subject to writing.

The arbitral submission must be consulted to determine what matters so referred, and if he has failed to decide one of matters referred; the award is subject to appeal. The practice of national courts tells differently. Courts are tempted to review arbitral awards as if they were judgments. After careful examination of the merit, the appeal from both parties, the court reached the conclusion that the respondent should pay Br. 493,468.35.  

Art 355 of CPC contains permits any award to be set aside, if the conditions on Art 356 are fulfilled:

• The arbitrator decided matters not referred to him, made an award pursuant to an invalid submission;
• The arbitrators did not act together;
• The arbitrator delegated part of his authority to one of the parties as co-arbitrator. The immediate effect of setting aside is nullity of the award based on Art 357/2/ of CPC.

Ethiopian arbitration law allows foreign arbitral awards to be recognized in Ethiopia. The title of Book IV Chapter 2 omits recognition, but only sticks to enforcement of foreign judgments. Though a rarity, certainly a person may only seek recognition of a judgment. It is unclear why the legislature wants to concentrate only on execution of foreign judgments. 

Inspite of the fact that recognition and enforcement are often read together, they have different legal effect, both domestically and internationally. The difference between recognition and enforcement is that an award may be recognized, without being enforced; but if it is enforced, then it is necessarily recognized by the court which orders enforcement.

As Ethiopia is not part of the New York Convention, we have to rely solely on the law and decisions from national courts. Basically, New York Convention contained provisions for recognizing and enforcing international awards. Due process and public policy grounds can be used as a refusal for recognizing and enforcing judgments. There are various grounds for refusing to recognize and enforce a foreign arbitral award.

ArtV/1/ of the NY Convention puts 5 conditions as a ground for refusing recognition and enforcement of arbitral awards: if the parties were incapable to submit their case to arbitration; the defendant was not given proper notice; the award deals with a different matter than the arbitral submission; the composition of the arbitral tribunal was not in accordance with the agreement of the parties; and, the award has not yet become binding on the parties. In the same way, Art V/2/ of the convention lay down arbitrability and public policy requirements as a ground for declining recognition and enforcement.

The Federal High Court is legally mandated to appraise the application of recognition and enforcement of foreign arbitral award in accordance with Art 11/2/c/ of proc. 25/1996. If the foreign arbitral award for which recognition and enforcement is sought satisfies the requirement under the law, it will have legal force and binding effect in Ethiopia, i.e. res judicata effect.

There are 6 conditions laid down for refusal of recognition and enforcement of foreign judgments under Art 461 of CPC: a) reciprocity; b) the award was not made following a regular arbitration agreement; c) the parties did not have equal rights in appointing arbitrators; d) the arbitration tribunal was not duly constituted; e) the award relates to inarbitrable matters under Ethiopian law; f) the award is of such a nature that it cannot be enforced under Ethiopian law.

The reciprocity criterion of the law is among the first listed. Reciprocity has a retaliation effect, i.e. if Ethiopian judgments are not recognized elsewhere, why Ethiopia should recognize other country’s judgment. This parameter has a political effect. In order to show courtesy, countries recognize each other’s judgments. A US court noted that, “no nation is under unremitting obligation to enforce foreign interests that are prejudicial to those of domestic forum. Comity never obligates a national forum to ignore the rights of its own citizens or of other persons who are under the protection of its laws.”

There is also the requirement of equal treatment of the parties, which can also be the base for rejecting an international award in ArtV/1/b/ of the NY Convention. This norm obliges the international tribunal to grant fair hearing to both parties- fair hearing is further qualified by giving timely and proper summon, notifying appointment dates or availing him during the trial day. It is quintessential for the tribunal to enable both parties to participate in the arbitral proceeding. The court is required to examine that:

• The award debtor had been properly represented in the arbitral proceeding;
• The right of defense is complied with that the award debtor was enabled to submit his defense and had access to the opponent’s documents;
• All the claims in respect of which the foreign award was passed had been properly notified to the party against whom a decision was given.

The arbitral tribunal is said to be duly constituted if, according to Art 3332/1/, the arbitrators appointed a presiding arbitrator where their number is even. When a party wants to obtain recognition and enforcement, he must bring duly authenticated original award and the original arbitration agreement.  Too, Art 457 of CPC tells the person petitioning for recognition and enforcement of a foreign judgment to bring a certified copy of the judgment and a certificate that confirms the finality and enforceability of the judgment.

CONCLUDING REMARKS

Eventually, states will benefit from an efficient arbitration regime. Ethiopian arbitration law seems to approve the role of courts higher than arbitral panels. Before the arbitral proceeding, during and after the trial, there is notorious involvement of state courts.

Ethiopia needs to become an arbitration friendly country. Ethiopia has to usher into the era of modern arbitration law and its application assisted by various conventions. There exists a highly elevated restrain on arbitral panels from national courts. This control intention to control arbitral proceeding is not clear. For instance, National Mineral Corp. Pvt. Ltd. Co. v. Danni Drilling Pvt. Ltd. Co. Cassation File 42239/2003 discount party autonomy and allows the losing party to take advantage of the arbitration proceeding.

Arbitration is a potential income generating regime. Friendly private international law, arbitration rules means that many international companies will look towards Ethiopia. Secondly, there will be a lot of trained professionals specializing in the field of arbitration. Arbitration can be a promising means of employment. The qualified and trained professionals will support the legal system’s development.

Friendly arbitration rule means attracting foreign investment. Investors will be assured that they property will not be confiscated, though this happens, they may have a recourse to fair arbitration, which they can enforce anywhere.

Ethiopia cannot exclude itself from globalization. The more the arbitration law becomes obsolete, the more courts intervene in a manner that discredits the independence of the award creditor, the more international parties avoid Ethiopia as a seat of arbitral tribunal. From Salini Costruttori S.p.A v.The Federal Democratic Republic of Ethiopia Addis Ababa Water and Sewage Authority, we can infer the trend of international arbitral panels.

Arbitration does not go counter national interest, undermine judicial sovereignty, and does not generate expenses. An arbitration friendly environment presupposes a modern arbitration act, i.e. a trustworthy court system, judicial support in taking evidence, pronouncing interim measures, granting full substantive and procedural law autonomy of the arbitral tribunal, if there is a gap in choosing a law, interpreted in the context of international criteria. The parties expect cost-effective procedures to be underway and enforceable awards to be rendered.

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