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.

The new law is part of larger efforts in the country to modernise its laws and position Ethiopia as business-friendly, thereby attracting more foreign investment.

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, it barred them from deciding the validity of an arbitral submission (arbitration agreement). 

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.”

The Proclamation is partly based on the United Nations Commission on International Trade Law’s (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 (finality of a court ruling), confidentiality, and the establishment and regulation of arbitral institutions. Nonetheless, a few potential challenges remain.

The Proclamation applies to domestic and international arbitration seated in Ethiopia and arising out of arbitration agreements signed after the coming into force of the Proclamation on April 2nd. 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.

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 for any arbitral award unless parties agree to waive the right of appeal “with full knowledge of the circumstances”.

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.¬†Nonetheless, Article 49(2) of the Proclamation allows parties to apply for cessation (highest instance of appeal) “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.

JD Supra

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