On February 13, 2020, the Ethiopian parliament approved the ratification of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention). The Convention was adopted by the United Nations diplomatic conference on 10 June 1958 and entered into force on 7 June 1959. To date, 161 states have become parties to the Convention. Ethiopia signed the Convention early on but stalled the ratification for more than 60 years. The ratification of the Convention results in the legislation becoming an integral part of the law of the land. Further, the ratification comes at a time when Ethiopia is currently drafting a new and comprehensive domestic arbitration legislation whose advanced draft circulated for public consultation suggests that it is modelled after the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Commercial Arbitration. In this issue of our legal update, we consider the substance of the Convention and the significance of its ratification by Ethiopia.
The Convention is widely recognized as the basic legal instrument governing international arbitration. Since its inception, the Convention’s regime for recognition and enforcement of foreign arbitral awards has developed significantly contributing to the wide use of international arbitration as the preferred means of resolving commercial disputes. State parties to the Convention are obliged to recognize and enforce arbitration agreements as binding and enforce arbitral awards in accordance with the rules and conditions laid down in the Convention. The Convention sets out the maximum level of control by member States over recognition and enforcement of foreign arbitral awards although member States are free to apply more liberal rules and procedures than those provided in the Convention. However, States may only refuse to recognize and enforce foreign arbitral awards on grounds that are provided under the Convention.
Recognition and Enforcement of Foreign Arbitral Awards in Ethiopia
The procedure and requirements of executing foreign arbitral awards is governed by the Ethiopian Civil Procedure Code of 1965 which provides that specific requirements such as listed below must be fulfilled for a foreign award to be executed in Ethiopia:
Out of the foregoing six conditions, the first requirement of reciprocity has practically made enforcement of foreign arbitral awards in Ethiopia impossible. Reciprocity means parties must prove that the state where the award was made would, reciprocally, recognize and enforce arbitral awards made in Ethiopia. The federal Supreme Court has interpreted the principle of reciprocity in the Paulos Papassinus case, stating that the only way to prove that another state allows execution of Ethiopian judgements is by producing a judicial assistance treaty signed between Ethiopia and the other State. Without such a treaty, the Court ruled that reciprocity is not considered to have been met. Although the decision of the Supreme Court relates to foreign judgements and not arbitral awards and the Court’s decision does not have a precedence value, courts in Ethiopia have adopted the same approach in determining whether reciprocity exists or not. This meant that even if the party seeking enforcement could produce proof of recognition and enforcement of an Ethiopian award by the other state party, Ethiopian courts would not entertain it short of a judicial assistance treaty. To date, Ethiopia has signed one such treaty with the People’s Republic of China that was concluded on 4th May 2014 and ratified by Proclamation No. 1007/2017 on June 7th, 2017. This has in effect meant that only those arbitral awards that were made in China could directly be enforced in Ethiopia. As this treaty recently came into force, it has not been well tested in practice and enforcement of foreign arbitral awards remains an elusive subject.
The Draft Ratification Proclamation
The Draft Ratification Proclamation (the Draft Proclamation) provides in its preamble that the ratification of the Convention is expected to enhance foreign direct investment by boosting the country’s goodwill to enforce contracts involving foreign parties. The Office of the Attorney General is the designated authority that will oversee the implementation of the Convention.
Consistent with Article I of the Convention, the Draft Proclamation makes two reservations (though it names it Declarations) that are permitted under the Convention. These are: (a) Ethiopia will apply the Convention only for arbitral awards made in the territory of another state that is party of the Convention and (b) Ethiopia will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the laws of Ethiopia. Currently, the existing Ethiopian legal framework does not make a distinction between civil and commercial matters and hence it would be left to the discretion of the enforcing court to determine whether the dispute is commercial in nature or not.
The Draft Convention further expands Ethiopia’s reservations to the Convention by providing that the Convention will only be applicable to arbitration agreements concluded after the date of Ethiopia’s accession. The implication of this clause is that any outstanding awards against an Ethiopian party made prior to the ratification of the Convention cannot be enforced.
Generally, the ratification of the New York convention will assist in branding Ethiopia as an attractive destination for foreign investment and adding a significant symbolic value in that respect. The Convention will oblige Ethiopia to recognize and enforce foreign arbitral awards made in the jurisdiction of other states without reviewing the merits of the award. Moreover, the ratification of the Convention by and its own will likely initiate a process of institutionalization of arbitration proceedings. It will also be an assurance to the business community that they will not remain uncompensated so long as they have legally enforceable arbitration agreement and awards. While this is the positive picture that comes out of the ratification of the Convention, the long held position of Ethiopia’s highest court, the Cassation Division of the Federal Supreme Court, that arbitration awards are reviewable on the basis of error of law in spite of the finality clause agreed by the parties may make the impact of the ratification challenging on the ground. One would be reminded of the case of Consta Joint Venture v. Ethio-Djibouti Railway Company where an Ethiopian party who lost in an arbitration proceeding brought and succeeded in nullifying the award by the Cassation Division of the Federal Supreme Court on the grounds that the applicable law is Ethiopian law and an error of law is allegedly committed by the Arbitration tribunal. This is more of a concern especially in relation to contractual transactions where the parties are mandatorily required to apply Ethiopian law. Such is the case, for example, in contracts relating to Public Private Partnerships. The future of the effectiveness of the Convention depends more on the disposition of the courts to interpret Article V of the Convention restrictively or expansively when presented with an enforcement request.