Monday, 10 May 2021 06:10

Legal Update: Highlights Of Key Changes And Introductions Made By The New Arbitration And Conciliation Proclamation

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INTRODUCTION

Ethiopia did not have an independent piece of legislation that regulated the manner in which alternative means of settling disputes operate.  It was only the Ethiopian Civil Procedure Code and the Ethiopian Civil Code (“Previous Laws”), together with other scattered provisions in various laws, which used to regulate arbitration and conciliation for over half a century. These laws provided for basic frameworks of conducting arbitration and conciliation such as governing the arbitration agreement, manner of composition of tribunals, and the arbitration award. However, these laws were criticized for failing to sufficiently address, among other things, the manner of establishment and operation of arbitration centres, identifying arbitrable and non-arbitrable matters, providing a limitation on the role of courts during the arbitration proceeding, the appealability of arbitration awards and the competency of the arbitration tribunal to decide on its own jurisdiction. The provisions under the Previous Laws are also highly incompatible with the internationally recognized principles of commercial arbitration.

The dispute settlement mechanism prevailing in the country is litigation, more than any other, as the litigation system is characterised by protracted lawsuits that take years to resolve a matter. This has inevitably resulted in a congested court environment.  However, this system does not go along with the very nature of commerce for which time, predictability and confidentiality are of the essence; features which are not exhibited in the Ethiopian litigation system.

As part of the recent legislative reform the country is undertaking, the Ethiopian House of People’s Representatives recently ratified the new Arbitration and Conciliation Proclamation No.1237/2021 (the “Proclamation”). The Proclamation entered in to force on 02 April 2021.  It basically repealed and replaced Articles 3318-3324 of the Civil Code, which governed conciliation, and Articles 3325 to 3346 of the Civil Code, which governed arbitration. The provisions of the Civil Procedure Code from Articles 315 to 319 and Articles 350, 352, 355-357 and 461, which deal with arbitration, have also been repealed by the Proclamation.

With the aim of complementing the right to justice and to contribute to the resolution of investment and commercial disputes and to the development of the sector, the Proclamation recognized the fact that arbitration and conciliation help in rendering efficient decisions by reducing the cost of the contracting parties, protecting confidentiality, allowing the participation of experts and the use of simple procedure which provides freedom to contracting parties. It also aims to provide for a general framework for the identification of arbitrable cases, management of arbitration proceedings and execution of those decisions that fit the prevailing reality of Ethiopia. By amending the existing laws, the Proclamation aims to be in line with the international principles and practice and support the implementation of international treaties.

Under this piece of MLA’s Legal Update, we will highlight the key changes and introductions made by the Proclamation as follows.

ARBITRATION

Scope of Application:  The Proclamation regulates arbitration and conciliation modes of dispute settlement. It is primarily applicable to commercial related national arbitrations, international arbitrations with a seat in Ethiopia or outside Ethiopia and national conciliation proceedings. The Proclamation is also applicable when one of the contracting parties is situated in Ethiopia and where the place of arbitration is not designated.

Definition of International Arbitration: Unlike the Previous Laws, the Proclamation provides a clear and exhaustive definition of what international arbitration constitute. The arbitration would be considered as international when the parties agreed, in express terms, that the subject matter of the arbitration agreement relates to more than one country, when the principal business of the contracting parties is in two different countries at the time of conclusion of contract, where the chosen place of arbitration or the place of performance or the place of business of the subject matter of the dispute arises or is closely connected with a foreign country. Defining international arbitration is relevant to determine the applicable substantive laws and to ensure the independence of a sole-arbitrator who shares nationality with one of the parties to the arbitration.

Prohibition of Court Intervention: As a basic departure from the Previous Laws, the Proclamation introduced a prohibition on the intervention of courts in the arbitration proceeding. The Proclamation specifically mentions some exceptions where the courts may intervene in the arbitration proceeding.

Electronic Arbitration Agreement: In line with the Electronic Transaction Proclamation No.1205/2020 and other laws that recognize electronic communications as a valid means of creating a contract, the Proclamation recognizes that an arbitration agreement can be made by the parties to the contract using electronic communication. Electronic agreements include agreements made through electronic media and accessible for subsequent use.

Definition of Non-Arbitrable Matters: As another basic departure from the Previous Laws, the Proclamation contains an illustrative list of matters which are not subject to arbitration. Previously, it was not clear which matters are arbitrable and which are not. Matters relating to family such as divorce, adoption, guardianship, tutorship and succession cases, criminal matters, tax matters, judgement on bankruptcy and dissolution of business organizations, land matters, administrative contracts unless permitted by law, trade competition and consumer protection related matters, administrative disputes and other matters made non arbitrable by other laws are not arbitrable matters under the Proclamation and the parties cannot agree to settle those disputes by way of arbitration. In fact, the Civil Procedure Code used to take administrative contracts out of arbitration agreement and this is maintained under the Proclamation.

Applicable Substantive Law: The Proclamation gives freedom to the parties when choosing the applicable substantive law. However, in the case when the arbitration seat is in Ethiopia, the applicable substantive law will also be Ethiopian law when the parties have not chosen the applicable law.

Composition of Arbitration Tribunals: the Proclamation has regulated the number of arbitrators, appointment of arbitrators and the rights and obligations of arbitrators in a more extensive manner than what was provided under the Civil Code. The parties are free to determine the number of arbitrators, but it must always be odd in number, and the manner of appointment of arbitrators has also been regulated.  Foreign arbitrators can also be appointed by the parties to arbitrate disputes. The Proclamation also defined the rights and obligation of the arbitrators and set out some prohibitions such as individual meeting with the party or receiving gifts. An objection against the appointed arbitrators can be made by the parties to the tribunal and in case the objection is rejected by the tribunal, the matter can be referred to a court.

Removal of an Arbitrator; under the Civil Code, parties who want to remove an arbitrator owing to his default to discharge the obligations may request a court for the removal of arbitrators.  Under the Proclamation, removal of an arbitrator can be done by the agreement of the parties in the event when the arbitrator failed to discharge his obligation. The parties are required to notify the tribunal for the latter to take a measure for the removal. Any grievance by the parties relating to the decision of the tribunal on the removal of an arbitrator is appealable to the Federal First Instance Court.

The Establishment of Arbitration Centres: The other new introduction is that the Proclamation permits the establishment of arbitration centres by government authority or private persons. The Federal Attorney General is empowered to license and supervise arbitration centres and set a criterion for their establishments without affecting the operation of existing centres.

The Recognition of the Kompetenz-Kompetenz Principle: The Proclamation recognizes that the arbitration tribunal designated by the parties have a power to determine the existence or nonexistence of a valid arbitration agreement and whether the tribunal itself has a jurisdiction to preside over the matter. To this effect, the Proclamation recognizes that the arbitration agreement will remain operational irrespective of the fact that the main contract becomes null and void. This limits an ill intended party from bringing the matter before courts by objecting the jurisdiction of the tribunal. It is only after the decision of the tribunal on its own jurisdiction that the party may bring the matter before Federal First Instance Court. Under the Civil Code, only the contracting parties are expected to authorise the arbitrator to decide disputes pertaining to jurisdiction.

The Taking of Interim Measures by the Tribunal: The other major departure of the Proclamation is that it expressly permits arbitration tribunals to take an interim measure and provides the conditions under which the measures can be issued. Upon the consent of the parties or on its own initiative, the Tribunal is authorised to take various preventive interim measures such as rendering decisions that properly preserve and maintain goods in dispute or assets and finds that on which an arbitration decision may be given.  Any interim measure provided by arbitrators are binding in Ethiopia regardless of the place where the measure was issued. The parties are also free to require the court for the issuance of interim measures.

Proceedings of the Arbitration: the Previous Laws used to provide that the procedure of arbitration needs to be as near as the procedure of a civil court. The Proclamation deviated from this and has established the manner of setting the arbitration proceeding in motion, the service of arbitration notice, statement of claim and summon and their respective timing. The Proclamation also recognized the equal treatment of the parties in the arbitration proceeding, their freedom to determine the applicable procedural law and language of the arbitration. The manner of setting in motion the arbitration proceeding is by a notice to be submitted by the plaintiff and the manner of serving the notice to the other party is clearly regulated, which was not the case under the previous laws.  The plaintiff is also expected to present a statement of claim with all the supportive evidences and the defendant shall bring a response for the allegations. The oral proceeding follows the written arguments which is discretionary to the tribunal. The tribunal may even request expert opinion on a particular issue of fact and it may also request for the support of a court in receiving evidence.

Arbitral Awards:  the tribunal is expected to apply Ethiopian substantive law for resolving the dispute. If there are no such agreements, the tribunal has the jurisdiction to apply a law relevant to the matter. The Proclamation regulated the form and content of the arbitral award. Even after making the award, the tribunal is authorized to make the necessary correction on minor errors, provide interpretation or render an additional decision that is based on the application of one of the parties or on its own initiative.

Objection to and Appeal from the Arbitral Award: The Proclamation permits any third party whose interest has been affected by an arbitral award to lodge an objection against the award to the relevant court with a jurisdiction within 60 days. In principle, the Proclamation does not allow an appeal from the award unless parties agreed otherwise. However, unless the parties agreed otherwise, the parties are free to lodge an appeal to the Cassation Division when there is fundamental error of law. 

The Setting aside of Arbitration Award: The Proclamation recognized the manner in which an arbitration award can be set aside. There is exhaustive list of grounds in which a court may set aside the arbitration award. This includes the incapacity of the parties to arbitration, the arbitration agreement becoming null and void, one of the parties not having an equal right to participate in the proceeding, when the arbitrators received a bribe or acted in a way that affected their independence and impartiality or when the tribunal acted without having jurisdiction or exceeded what transpired under the arbitration agreement.

Recognition and Execution of an Arbitral Award: As a principle, the Proclamation underlines that an arbitral award rendered in Ethiopia or abroad will be executed on the basis of the Civil Procedure Code as though the decisions were rendered by a court. An objection to the enforcement of an award can be made by a party on grounds that are similar with those grounds for setting aside the arbitration itself. With regards to foreign arbitral awards, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards to which Ethiopia is a party would be applicable as long as the arbitral awards fall under the Convention. However, the Proclamation lists grounds by which a foreign arbitral award may not be enforced, which are similar in essence with the requirements provided under the Civil Procedure Code.

 

CONCILIATION

The Proclamation also regulates matters relating with conciliation. It defines conciliation as a process of dispute settlement that is facilitated by a third party designated by contracting parties in order to resolve existing or future disputes. The conciliator will be appointed by the parties themselves.

The Civil Code had only 7 provisions with regards to conciliation, while the Proclamation has become more elaborative and has 26 provisions. The basic new introductions are:

  • A conciliation agreement that is validly made can be brought before a court as a preliminary objection;
  • The Proclamation governs the formal process of initiating the conciliation proceeding, which is by the request of one party and the acceptance by another;
  • The Proclamation provides the number of conciliators to be one, unless the parties agreed otherwise;
  • The roles of the conciliator are expanded, authorising the conciliator to summon witnesses, hear expert opinion or conduct other activities. It also entrusts the conciliator to forward a proposal for conciliation;
  • The Proclamation also provides that the conciliation proceeding is not required to be bound by any substantive or procedural laws;
  • The Proclamation recognizes that a conciliation agreement shall remain confidential;
  • It also allows parties to request an interim measure from courts while the conciliation proceeding is pending;
  • When the parties agreed to the proposal of the conciliator, the conciliator will prepare a settlement agreement to be signed by the parties. Once the settlement agreement is drawn and agreed, it constitutes a final and non-appealable decision on which an application for execution can be submitted with a court of jurisdiction;
  • The Proclamation permits parties to resort to court or arbitral proceedings when the conciliator failed to perform their obligations within the time agreed or within six months, if no time is set, or it provides a written declaration confirming that the dispute cannot be resolved through conciliation;
  • One of the parties may apply to a court for the invalidation of the settlement agreement provided that the settlement agreement is null and void, lacks clarity, is contrary to public policy and peace, or the parties lack capacity to conclude the agreement;
  • The Proclamation also introduced basic prohibitions and limitations. For example, the conciliator cannot serve as an arbitrator, attorney, or agent, or be a witness in any judicial or arbitration proceeding on a similar matter he handled as a conciliator. The suggestion forwarded or an admission made by one of the parties or a settlement proposal of the conciliator in the conciliation proceeding are inadmissible in judicial or arbitral proceedings; and
  • With a bid to encourage parties to resolve their dispute through conciliation, the Proclamation offered the reimbursement of court fees paid by parties while instituting a court case when they have resolved their dispute withdrawing the court suit.

Disclaimer: This information is intended as a general overview and discussion of the subjects dealt with.  The information provided here was accurate as of the day it was posted; however, the law may have changed since that date.  This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation.  Mehrteab Leul & Associates is not responsible for any actions taken or not taken on the basis of this information.  Please refer to the full terms and conditions on our website. 

Copyright©2021 Mehrteab Leul & Associates.  All rights reserved.

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