Introduction
Ethiopia has been undertaking major economic reforms lately. These reforms are equally supported by legal reforms one of which is the ratification of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention (NYC) on February 12, 2020. This makes Ethiopia the 33rd African and the 162nd international State to sign the NYC.
Significance of Ratification of the NYC
Ratifying the NYC is a significant step forward for Ethiopia and underpins the country’s ongoing efforts to attract greater foreign investment. The adoption of the uniform framework for the recognition and enforcement of arbitral awards will certainly help to improve the country’s profile as a business-friendly jurisdiction.
This is self-evident when considered in relation to the fact that the enforceability of an award is one of the crucial considerations investors make in their choice of dispute settlement mechanism. It also plays part in their decision to invest in a country.
One of the main challenges under the old system was the requirement for ‘reciprocity’. Put in other words, in order for a party to enforce a foreign arbitral award in Ethiopia, the party must be able to show that the State where the arbitral award was made would recognize and enforce an arbitral award made in Ethiopia. If an investor chooses to designate other countries as the seat of the arbitration, he/she risks unenforceability of the awards made in Ethiopia. Prior to Ethiopia’s adopting the NYC, this rule meant that it was virtually impossible to enforce a foreign arbitral award in Ethiopia.
In Ethiopia, the notion of ‘reciprocity’ requirement is interpreted to mean the existence of a judicial assistance treaty between or among Ethiopia and other countries. Up until the ratification of the NYC, however, Ethiopia had only one judicial assistance treaty – which is with China – which therefore means that only awards from China are enforceable in Ethiopia. As a result, choosing a foreign seat, other than China, meant that an investor risked an enforcement of its foreign award on Ethiopian soil.
In the well-known Paulos Papassinus case, the Federal Supreme Court denied an application for enforcement of a Greek judgment because the applicant failed to prove reciprocity. The Supreme Court found that a party would need to establish the existence of a judicial assistance treaty signed between Ethiopia and the other State. Although the decision rendered by the Supreme Court relates to foreign judgments and not to arbitral awards, it was widely considered that the courts would reach a similar conclusion regarding the enforcement of foreign arbitral awards.
The ratification of the NYC, thus, means that Ethiopian courts have to automatically recognize and enforce foreign arbitral awards from close to 166 NYC member countries, unless the award is set-aside by the limited grounds listed under the NYC. The requirement for a judicial assistance treaty is now surpassed and foreign arbitral awards’ enforcement is guaranteed.
In view of the fact that Ethiopia is already the recipient of significant flows of FDI, notably in the infrastructure sector, the decision to bring its arbitral award recognition and enforcement procedures into cohesion with international best practice is a welcome development.
The NYC ratification proclamation is not however without reservations. Major reservations are:
- The convention will apply to arbitral awards made after the date of its accession to the NYC, meaning that there is no retrospective application of the convention to agreements signed before Ethiopia’s accession. Existing long terms contracts will therefore not benefit from the new regime.
- Ethiopia will apply the NYC on arbitral awards made only in the territory of another contracting state to the NYC.
- The NYC may only be applied to differences arising out of legal relationships considered as ‘commercial’ under the laws of Ethiopia. Fact is, Ethiopian law does not make clear distinction between civil and commercial matters and therefore it would be left to the discretion of the enforcing court to determine whether the dispute is commercial in nature or not.
Conclusion
It is indeed a great leap for Ethiopia to ratify the NYC. Among other advantages, the ratification will expectedly boost investors’ confidence in investing in a country that recognizes and enforces a foreign arbitral award. Investors do have an interest in a neutral and independent forum with no risk of national bias or political pressure to resolve potential disputes, the prospect of potential foreign awards being enforced. Allowing parties to agree on a neutral playing field and enforcing the outcome of their contention promotes business and investment. It also makes courts more efficient by avoiding unnecessary diversion of judicial resource.
The fact that Addis Ababa, is home to both the AU and the United Nations Economic Commission for Africa, and has many of the facilities and international transport connections which are the envy of other African cities makes it well-placed to become a hub for international arbitration in Africa.
The promulgation of the Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021 is also an added advantage to the assets that ratification of the NYC contributes to the international best practice.