Michael Teshome, is Director of the Ethiopian Mediation & Arbitration Center, Attorney and Consultant at Law, as well as Co-author of the book Arbitration in Ethiopia.
Michael specializes in handling business arbitration cases, which is a leading alternative model to settle business disputes. However, Ethiopia was not on the international business arbitration map until this year when it ratified both the international 1958 New York Convention and the local Arbitration and Conciliation Working Procedure Proclamation, in which Michael participated at the drafting level.
Now, arbitration awards rendered in Ethiopia can directly be implemented in the 167 signatory countries, with reciprocity. Michael stresses this has an immense and multidimensional benefit in making Ethiopia business-friendly and Addis Ababa an international arbitration seat.
Why are Ethiopian arbitration cases usually seen abroad?
Most businesses prefer to go to arbitration than court. Significant numbers of Ethiopian businesses sign international arbitration clauses in their contracts without knowing the consequences. The articles usually state the arbitration seat as a European or US city. The cost for Ethiopian businesses to go and win cases in such places is very costly and difficult. Many Ethiopians sign such clauses without due diligence and come to us for legal consult, but only after the damage is done.
Countless cases are going through arbitration. Ethiopian Airlines, Ethiopian Shipping and Logistics Services Enterprise, Ethio Telecom, the Ministry of Mines, and many others contract all of their arbitration cases to be seen overseas. Even wheat procurement has a vast arbitration field. Construction projects including GERD involve huge international contracts. All these institutions, handle their cases under arbitration. They never go to court.
In Ethiopia, almost all international business contracts are seen under arbitration. Only the very few with no such clauses in their contracts go to courts. Many Ethiopian businesses come to us after the arbitration process has already begun. For them, going to Singapore or Germany, for just a half-a-million dollar arbitration case is not feasible.
The cost can be double the amount of the contract. The arbitrators charge per hour. Institutional service fees, accommodations, flight, and other expenses are also there. Such costs and responsibilities are unseen by local businesspeople when signing contracts. Ethiopian companies sign such clauses not only with foreign partners, but also with local ones.
African institutions such as arbitration centers in Kigali and Nairobi charge reasonable fees that fit the continent’s business context. But if you go to similar centers in Europe, Asia, or the US, they charge many millions, because they are made purely for their business community. Comparatively, courts are very cheap because you only pay once for the service fee and then for your lawyer. Court fees are set. Under arbitration, you pay for the institution to open your file, and then pay by the hour for arbitrators and lawyers.
Why are Ethiopian cases predominantly referred to arbitration centers under the World Bank or International Chamber of Commerce (ICC)?
Before, Ethiopian cases were seen abroad, because Ethiopia was not signatory to the New York convention. Even after Ethiopia ratified it last year, there is lack of arbitration institution to implement the convention, specialized Ethiopian arbitrators and lack of awareness among Ethiopian businesses to pick Addis Ababa as arbitration seat.
When Chinese firms contract with Ethiopian firms, they mandate any case to be seen under the China Chamber of Commerce. A Chinese case is handled by a Chinese lawyer, not by a French or British lawyer. An American case, whether seen by the ICC or International Court of Justice (ICJ) or anywhere, is handled by US lawyers.
If we could establish an arbitration institution in Ethiopia, we could solve many issues here, whilst preserving the time and foreign currency spent abroad. When an Ethiopian case is seen in Paris or Geneva, the contracting party has to cover all the accommodations and take witnesses to these cities where they could stay for weeks.
What makes arbitration advantageous over a court of law?
Usually, disputes are settled in courts. However, courts are inflexible and time consuming because they are usually flooded with many cases and it could take years for a court pass a ruling, especially on complicated commercial cases.
On the other hand, an arbitration tribunal takes shorter time, because it is installed to look into a particular case. Especially when cases are business-related and require timely rulings, courts are less helpful. In addition, the decision of courts relies on lawyers and judges lacking the required knowledge and working procedures of complicated business dealings.
In terms of process and result, arbitration has many advantages over court proceedings. Parties own the process, including language, place of arbitration, and the arbitrators. Courts do not provide such freedom. Arbitrators are selected from different disciplines. The other big advantage of arbitration is confidentiality. Court hearings are public and people can access documentations even after the file is closed.
But the cost of arbitration is somewhat expensive.
Yes, Compared to court litigation, arbitration is more expensive. But we can analyze this increased cost from different a perspective. For any business endeavor, time is critical. A case which takes up to four years in court can be settled in six months by arbitration. So, from this perspective, arbitration is cheaper than court.
In addition, if businesses go to court, their case becomes public. This might hurt their reputation and bring a loss of revenue. So, arbitration is incomparably cheaper when such things are considered.
Professionals in the field of the contract are picked as arbitrators. In court, cases are only seen by judges, who are basically lawyers without a deep understanding of business fields. One drawback, however, is that arbitration is conducted in far away cities. For an Ethiopian company, the cost could be too exorbitant, especially when including arbitrators’ fees. In court, judges do not charge.
Globally, arbitration is very expensive but establishing national arbitration institutions can solve this. For instance, the Kigali Arbitration Center is envisioned to primarily handle domestic cases first, but also regional and continental ones in a secondary manner. They did not directly go for international arbitrations. Ethiopia must draw from this lesson. The problem is not creating an international arbitration institute here in Ethiopia, but rather finding cases. So, the target is to not establish an arbitration center, but to build up your reputation from small to big cases.
Is it only business related cases that can be settled by arbitration?
In principle, any case is arbitrable from family issues to complicated industrial disputes. But in practice, there are exceptions such as criminal, tax-related, and bankruptcy cases. These cases cannot be settled by arbitration.
What are the key changes recently made concerning arbitration in Ethiopia?
Until recently, arbitration had been governed by the commercial, penal, and other legal codes—laid down in the 1960s. There were some articles regarding arbitration, but nothing in depth. Ethiopia has been stuck in the 1960s while multilateral and unilateral economic, trade, and investment relations have gone forward by leaps and bounds.
Over the past couple of years, some of these old laws and codes were amended, including the ratification of the Commercial Code in 2020. Additionally, the Arbitration and Conciliation Working Procedure Proclamation and the New York Convention were ratified in 2021.
What are the implications of the ratification of the Arbitration and Conciliation Working Procedure Proclamation?
Before the proclamation was introduced, there were gaps in accepting and implementing arbitral awards. Even if the contracting parties agreed to the arbitration settlement being final, the Ethiopian court system—especially the Court of Cassation of the Federal Supreme Court—had been intervening and ruling otherwise.
This new proclamation now states that an arbitral award is final unless the parties agree that the case can go to the Court of Cassation. How and when courts can intervene in an arbitration process is clearly specified in the new proclamation. It states courts can intervene only to support and facilitate the arbitral award. The previous commercial and other codes left the door wide open for courts’ intrusion.
What is the significance of ratifying the convention and proclamation? What does it impart towards attracting foreign investors?
An arbitral case awarded in a signatory country is deemed final and will be accepted and enforced in all other signatory countries. If the country where the involved parties are operating is not a signatory to the convention, the ruling is just a piece of paper. Before Parliament ratified the New York Convention, an arbitrational settlement passed in Paris or London could not be implemented in Ethiopia.
You can be awarded in any city around the world, but the court in Ethiopia cannot be forced to accept and enforce the arbitration award because Ethiopia was not a signatory at the time.
In addition, the previous commercial and other codes did not allow reciprocity. But contracts signed after Ethiopia adopted the convention and proclamation are applicable in all signatory nations. An arbitral award rendered in any of the 195 signatory countries can now be directly enforced in Ethiopia as if awarded by an Ethiopian court of law and vice versa.
Ratifying the New Yok Convention makes Ethiopia an arbitration-friendly investment destination. International investors are willing to invest in countries where the judiciary system and courts accept and implement arbitral settlements.
Previously, the major challenge faced when drafting commercial agreements was deciding where the legal seat of arbitration should be. If the arbitration seat was abroad, the decision was not enforceable in Ethiopia.
Are the convention and proclamation applicable to agreements and contracts involving public institutions and state-owned enterprises (SOEs)?
The proclamation states that any case not involving administrative issues is arbitrable. Purely administrative contracts, entered by government institutions and SOEs, cannot be settled by arbitration. However, commercial agreements signed by these entities are fully arbitrable. They are just like any private contract.
Are Public Private Partnership contracts arbitrable?
The Arbitration and Conciliation Working Procedure Proclamation clearly states that arbitration can be used to settle any dispute between private and contracting government agencies.
Which institutions are responsible for the implementation of the New York Convention in Ethiopia?
Upon the request of the arbitration winner, courts are responsible to enforce the rulings rendered in any part of the world in Ethiopia. Courts do not have to review the cases because they are closed cases.
As long as the arbitration seat is in a signatory country and the award is rendered by a duly recognized arbitration institute, Ethiopian courts must enforce that decision.
However, both the convention and proclamation give Ethiopian courts the right to refuse arbitral awards if contracting parties were not given equal chance and evidence is left out. Also, if there is a contractual or moral fallacy, or a breach of basic laws, courts can review.
What are the new areas that the arbitration proclamation charted? What was left out?
The proclamation addressed many issues previously untouched. Arbitration’s shortcoming is that it does not say anything about other conflict resolution mechanisms for business cases. Another shortcoming is that it states an arbitration institution will be established.
That is good, because many African countries have such entities which are critical for the organization of forums, conducting of research, and publishing of books and journals. However, regulations and directives that can enable the establishment of this institution are not yet introduced. We appreciate that the proclamation tried to reduce the intervention of courts in arbitration processes.
The proclamation utilized a negative listing, meaning any case not prohibited on the proclamation is arbitrable.
Will the Ethiopian cassation bench accept foreign arbitral awards as final in Ethiopia?
The cassation bench has the final verdict on constitution-related violations. On the other hand, contracting parties agree that the decision of arbitrators is final. Ethiopian courts, including the cassation bench, have to accept and implement foreign arbitral awards. But until Ethiopia ratified the New York Convention, the cassation bench had the power to revise such things. In the new arbitration proclamation, contracting parties can include a clause if they do not want their arbitral award to be revised. EBR
9th Year • Nov 2021 • No. 101