Immediate appeal in Ethiopian Arbitration Law?

An interesting article, published on Jimma University Journal of Law, entitled “the immediate appealability of a court order against arbitration: it should be allowed and even made compulsory”, argues that an immediate appeal against a court order which is against arbitration must be allowed; article 320/3/ of the Civil Procedure Code should be amended to take the special nature of arbitration into account.

This post counter argues the thesis forwarded by Mr. Berhanu Beyene, the author of the article cited above: there lies no reason to amend article 320/3/, immediate appeal against a court order which is against arbitration must be disallowed. To support my argument, I will forward the following points: practically, parties ought to wait untilfinal judgment is rendered; immediate appeal might create congestion on the appellate court,repeated interruption of trial and weakens the efficient operation of the case by the trial court.

VALIDITY OF ARBITRATION AGREEMENTS

It is generally accepted rule that arbitration agreement cannot be assumed; the parties have to show a clear and unequivocal intention to refer their case to arbitration.This rule is consolidated by a recent Federal Supreme Court Cassation Decision File Number 97021. According to article 3325/1/ of the Civil Code, arbitral submission is 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.

Ethiopian law recognizes two kinds of arbitral submission: parties are free to sign an arbitration agreement for a dispute which may arise in the future /article 3328/2// or they can refer it to arbitration after a dispute arose /article 3328/1// of the Civil Code. Furthermore, the arbitration agreement must not be inoperative and/or incapable of being performed.

The words “inoperative” or “incapable of being performed” needs an explanation. According to Redfern and Hunter on International Arbitration, “an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of failure by the parties to comply with a time limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression, ‘incapable of being performed’ appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal.”

It is important to understand arbitration agreements because it has a direct relation with enforcement of an award. Especially, if it is foreign arbitral award, the award debtor can raise defenses based on irregularity of arbitration agreement, as per article 461/1/b/ of the Civil Procedure Code. Note that the Ethiopian law uses the term “regular arbitration agreements” vis-a-vis enforcement of foreign arbitral awards, but fails to define “regular arbitration agreement.”

Arbitrators’ power cannot emanate from an invalid arbitration agreement. As any kind of contract, the elements mentioned under article 1678 of the Civil Code must be fulfilled to conclude an arbitration agreement is valid; however, nothing prevents a party from contesting the same.

A party who wants to challenge the arbitration agreement’s validity can raise arguments based on form, capacity, and lapse of the agreement and invalidity of the main contract. The reader should note that it is the parties’ prerogative to waive their right to arbitrate. This happens when the defendant fails to object the court proceeding based on the arbitration agreement, or “actively pursues claims covered by the agreement.”

In other words, despite the validity of the arbitration agreement, if the defendant does not object the court’s jurisdiction, judges are not allowed to raise the existence of arbitration agreement on their own motion.

After the parties institute the case in court, the judge has the discretion to refer the case to arbitration. If arbitration agreement exists, during oral hearing, the defendant will raise objection based on 244/2/g/ of the Civil Procedure Code.

Often times, courts refer the case to arbitration if such an agreement exists. The invalidity of the main contract should not defeat the purpose of the arbitration agreement. Based on the doctrine of separability, courts shall refer the matter to arbitrators so that they can determine the legality of the main contract.

Therefore, it is unlikely that courts will continue to entertain the case given the fact that there exists a valid arbitration agreement; yet, let us assume the worst case scenario. A judge decided that he has jurisdiction. The question becomes should immediate appeal be allowed?

IS IMMEDIATE APPEAL PRACTICALLY FEASIBLE?

Parties choose arbitration for various reasons: to save time, confidentiality, to appoint experts as arbitrators, etc. Practically, amending article 320/3/ of the Civil Procedure Code creates the exact same thing the law wants to avoid: repeated interruption of the trial court, excessive interlocutory appeals, repeated appeals permit  wealthy parties to harass or financially exhaust their opponent, burden on appellate courts.

After oral hearing on preliminary objections, the court will adjourn the case to given an order. Let us say, it decided against the arbitration agreement. The next thing it will do is to adjourn the case to hear both parties on the merit. However, after this, the aggrieved party will file an appeal and may ask the appellate court to stay the proceeding /based on article 332 et seq of the Civil Procedure Code/, since there is no purpose in litigating at first instance and appellate court on the same issue.

The problem with this move is that article 332 of the Civil Procedure Code cannot be used to stay a pending case. In fact, it says that “an appeal shall not operate as a stay of proceedings…” Article 332 etseq of the Civil Procedure Code are commonly used to stay executable judgments. According to Ethiopian law, enforceable decisions must be final; final decision is one which creates a res judicata effect.

To understand more about this we must take a glimpse at prerequisites laid down under article 335/1/ of the Civil Procedure Code

1. Substantial loss may result to the party applying…
2. The application has been made without unreasonable delay
3. The money has been deposited, security has been given or a surety produced by the applicant for the due performance of such decree.

All of these conditions imply that must be a final and enforceable judgment before the appellate court orders stay of execution.

Since it is impossible to ask for stay as per article 332 et seq of the Civil Procedure Code,the appellant has to litigate at the appellate court and continue proceed with the order given by the trial court. What if the higher court decides in favor of arbitration after the lower court pronounces a final judgment on the merit? Does not this prevent the trial court from efficient management of the case? What if the trial court decides the merit of the case in favor of the appellant?

APPEAL: ON WHAT?

As Robert Allen Sedler puts it, “the most common method of obtaining review of a judgment is by way of appeal.” Appeal is an application made by a party to a higher court asking that court to set aside or review a decision of a subordinate court. When appeal is lodged, the appellate court reviews the judgment rendered by the lower court to determine if error of law or fact is committed.

The judgment appealed from is presumed to be correct, and the burden is on the appellant to show that it should be reversed. The appellate court retains the right to vary, reverse or confirm the decision given by the subordinate court. In general, appeal is not a retrial, but a review by the appellate court. Hence, under Ethiopian law appeal is lodged on a final decision.For example, a party whose case is dismissed by period of limitation can lodge an appeal since the entire case is finally determined.

The order given by the trial court against arbitration clauses is not final; the court who is seized is asserting jurisdiction. Asserting jurisdiction does not have anything to do with the subject matter of the case; nor does it create res judicata effect. Therefore, it would be impossible to allow immediate appeal since the nature of the order does not constitute to be final. 

Thus, due to the reasons, it becomes impossible to allow immediate appeal against orders against an arbitration agreement.