Conflict of Laws in Labour and civil cases


Conflict of Laws in Labour and civil cases

In a conflict of law case, a court is expected to address three basic issues:

  1. Determining the presence  judicial jurisdiction
  2. Determining the applicable law to solve the dispute
  3. Determining whether a foreign judgment should be given recognition by domestic courts

Before these three issues are addressed, the court is primarily tasked with determining whether the case is really a conflict of law case or not?

So, how does a case become a conflict of law case? A short to the question is that it becomes a conflict of law case, it contains a foreign element. What then is a foreign element?

“When a case is said to contain a foreign element, the reference(s) may be of three natures __ personal, local, or material __ in that, respectively illustrated, if one of the parties of the case is a foreigner (including one from another federating unit) or the transaction of any nature took place, totally or partially, abroad (outside the forum state) or, finally, the object of the dispute (property, esp. immovable property) is situated in another state (including a member of federation); the case is said to contain a foreign element.” (Araya Kebede and Sultan Kasim, Conflict of laws teaching material, sponsored by Justice and Legal System Research Institute)

The draft conflict of rules also defines foreign element in the following way.

Art.4. Foreign Element

Foreign element refers to:

  1. A personal nature and may pertain to nationality, domicile or residence of the interested parties; or
  2. A local nature and may pertain to the place where facts occur or contracts are made from which the juridical situation arises; or
  3. A material nature and may pertain to the place where the property to which the juridical situation applies is situated.

According to article 11 sub article 2 (a) of Federal Courts Proclamation No. 25/1996, when a case is related to private international law, the Federal High Court will have first instance jurisdiction to solve the dispute. This article is not a conflict of law rule regarding judicial jurisdiction in conflict of law cases. It simply gives exclusive material jurisdiction to the Federal High Court, to address the above three questions of conflict of law disputes. What follows is a brief summary of the way this article is understood by lower courts and the cassation bench.

1.   Conflict of laws in labour cases

1.1.        Determining the governing law by the agreement of the parties

 

Applicant: Foundation Africa

Respondent: Ato Alemu Tadesse

Cassation File Number: 50923

Date: 19-9-2003 (E.C.)

An employment contract between the employee and employer made in Ethiopia, for a work to be performed in Ethiopia, stipulating a foreign law to govern any dispute arising between them is invalid. The presence of such contract does not oust the ordinary material jurisdiction of first instance court in labour disputes.

In a similar case, [C.A.S. Consulting engineers salezgiter GMBH vs. Ato Kassahun Teweledeberhan Cassation File Number 54121 Date 1-3-2003 (E.C.)] where the parties indicated German Law to be the applicable law to solve their disputes, it was held that such contractual provision is not valid. The case by its nature is not a case “regarding private international law” as provided in article 11 sub article 2 (a) of Federal Courts Proclamation No. 25/1996. As a result, it is the Federal First Instance Court not the Federal High Court who has jurisdiction over such matter.

1.2.        Employment contract made in a foreign country

Applicant: Ato Bezabeh Eshetu

Respondent: Salini construction

Cassation File Number: 60685

Date: 21-6-2003 (E.C.)

When the employment contract is made in a foreign country, it is a case regarding private international law. Hence, the Federal High Court will have first instance jurisdiction as per article 11 sub article 2 (a) of Federal Courts Proclamation No. 25/1996. But, it should be noted that, this does not imply Ethiopian courts will assume judicial jurisdiction merely because the contract was made in a foreign country. The fact that a certain case is a ‘case regarding private international law’ only confers a power on the Federal High Court to determine whether Ethiopian courts have judicial jurisdiction and if yes to determine the applicable law.  In short, article 11 sub article 2 (a) of Federal Courts Proclamation No. 25/1996 simply gives material jurisdiction exclusively to the Federal High Court.

2. Conflict of laws in civil cases

2.1. Extra-contractual liability (foreign company not registered in Ethiopia)

Applicant: Ethiopian Electric Light Corporation

Respondent: Dragados Construction

Cassation File Number: 42928

Date: 12-5-2002 (E.C.)

This case relates an action by applicant for compensation for damage caused by respondent while doing business in Ethiopia. Respondent argued that it a foreign company registered according to the law of Greece and domiciled in Athens. It also stated that it is not registered in Ethiopia. Based on these facts, respondent challenged the jurisdiction of the Federal First Instance Court, because the conflict of law rules apply to determine courts having jurisdiction and the applicable law. The Federal Instance Court accepted this argument and ruled that it does not have jurisdiction over the case. On appeal, the ruling of the lower court was affirmed by Federal High Court on the ground that the mater falls within its first instance jurisdiction.

The cassation bench reversed both decisions of the lower courts. The bench in its reasoning stated that damage was caused in Ethiopia while respondent was doing business in Ethiopia. The case was brought to the court where the damage caused. Therefore, the Federal First Court should exercise jurisdiction according to article 27(1) of the Civil Procedure Law.

2.2. Contract made in Ethiopia with a foreigner

Applicant: Global Hotel Private Limited Co.

Respondent: Mr. Nicola As Papachar Zis

Cassation File Number: 28883

Date: 26-3-2000 (E.C.)

The fact that one of the parties in litigation is a foreigner does not automatically make the case ‘a case regarding private international law.’ The defendant should necessarily challenge the jurisdiction of the court on the ground that Ethiopian law is inconsistent with the law of his nationality or domicile. If the foreign party does not invoke lack of jurisdiction of Ethiopian courts, the case is not a private international law case.

Proclamation No.760/2012 Registration of Vital Events and National Identity Card Proclamation


Proclamation No. 760/2012

A PROCLAMATION REGISTRATION OF VITAL EVENTS AND NATIONAL IDENTITY CARD

WHEREAS establishing a system of registration of’ vital events  plays  a  key role  in  planning   political, social and economic developments in providing  different  social  and  economic services to citizens  and  in  making  the  justice  administration expedient and effective

WHEREAS it has become necessary to create accessible, comprehensive and compulsory registration system on the basis of which citizens can effect proper and timely registration of vital events

WHEREAS the  issuance  of  national identity cards  to citizens  has  become  important  for the protection of  national  security and  for  providing efficient services to citizens by the public and private sector

NOW THEREFORE in accordance with Article 55 sub-article (1) and (6) of the Constitution of the Federal Democratic Republic of Ethiopia, it is hereby proclaimed as follows

Click on the link below to read full text

http://www.abyssinialaw.com/uploads/760.pdf

The Duty to serve: Cassation Bench on the legal effects of employer-sponsored Tuition Assistance


The Duty to serve: Cassation Bench on the legal effects of employer-sponsored Tuition Assistance

As an employee, you have a duty to serve your employer diligently. But, you don’t have a duty to continue serving your employer for life. If you ever feel like leaving, you are free to resign even without any valid ground (Article 31 of the labour proclamation No. 377/2003.) The only procedural requirement is giving a one month prior notice. Failure to give notice results in your liability to pay compensation (a maximum of your thirty days wages) to the employer (Article 45 of the labour proclamation No. 377/2003.)

But, is it always true that an employee does not have a duty to continue serving his employer at least for a limited period of time? There is one exception (limitation?) to the freedom of the employee to leave his employment. That is when the employer has covered education expenses of the employee and there is an express of employee to continue his employment for a limited period of time. The nature of this contractual obligation is not absolute rather it is alternative. This is to mean that the employee has still a choice either to serve his employer or reimburse all the expenses of education.

The following is a very brief summary of the position of the Cassation Bench of the Federal Supreme Court on issues related to the duty to serve.

My summary is based on the following six cases decided by the bench Continue reading →

Directive No 46/2007 Issued to Provide for the use of Sales Register Machines


Directive No 46/2007

Issued to Provide for the use of Sales Register Machines

 1.      Issuing Authority

This Directive is issued by the Minister of Revenue pursuant to the power given by Article 22 of the council of Ministers Regulations to provide for the obligatory use of sales Register machines No 139/2007.

PART ONE

GENERAL

 2.      Short Title

This Directive may be cited as the “Directive issued to provide for the use of sales register machines No 46 /2007”.

3.      Definition

    

 In this directive:-

  1. “Machine” Means a sales register machine.
  2. “Machine identification code” means a code that uniquely identifies a machine and is provided by the Authority.
  3. “User” mean a person or body that is obliged to use a sales register machine under the Regulation and this directive.
  4.  “Service Center” means a body registered by the Tax Authority and certified by an accredited Sales Register Supplier to carry out control, maintenance and repair of machines.
  5. “Service person” means an authorized person who performs control, maintenance and repair of sales register machines, on the basis of a contract entered between the service center and the user.
  6. “Fiscal Documents” mean sales receipts, refund receipts, daily sales and periodical summary reports.
  7. “Fiscal Logo” means a graphical symbol which is printed on each machine generated fiscal document.
  8. “Terminal” means a two way data transfer communication device that is connected to the sales register machine and interfaces with the Tax Authority’s server through wireless communication.
  9. “Inspection booklet” means a maintenance and inspection recording booklet that must accompany each machine and bears the unique registration number of the machine.
  10. “Z-report” means a summary sales report printout generated by a sales register machine at the close of each session.
  11. “Regulation” means the Council of Minister’s Regulation to provide for the obligatory use of sales register machines.
  12. Other words and phrases used in this directive shall have the same meaning assigned to them as in the Regulation. Continue reading →

Consequential loss in Insurance Cases: Review of Cassation Decisions (Part I)


Consequential loss in Insurance Cases: Review of Cassation Decisions

One of the basic principles of insurance applicable to property insurance is the principle of indemnity. This underlying principle provides that compensation payable to the insured upon occurrence of loss to his property could not exceed the actual value of the property at the time of loss. This principle is clearly stated in article 678 of the commercial code. However, the clarity of the provision didn’t save courts from giving contradictory decisions in determining the amount of compensation to be paid to the insured. When a dispute as to the amount of compensation arises, some courts took a position that the amount payable should be equal to the maximum amount specified in the insurance policy. In order to justify their position courts usually rely on article 665 of the commercial code which imposes an obligation on the insurer to pay “the agreed sum” within the time specified in the policy or when the risk insured against occurs or at the time specified in the policy. In principle a court does not make a mistake if interprets “the agreed sum” as “the amount stated in the insurance policy.” It becomes a mistake if a court applies it to property insurance or insurance of objects.

Article 665 of the code is found in the general provisions applicable to all forms of insurance contract. Hence, the relevance of the provision is limited to determining the time of making payment. As regards the amount of compensation it could only make sense if it is made applicable to life insurance policies. As the value of a human body or life could not be valued, the amount to be paid at the time of materialization of risk is left to the agreement of the parties. The principle of indemnity does not apply to such type of insurance. In property insurance cases article 678 of the code always prevails over the general insurance provisions.

Consequential loss and principle of indemnity

One of the challenges in applying the principle of indemnity in insurance cases is the issue of consequential loss. The commercial code does not make any reference to consequential loss and whether the insurer has an obligation to make payment for such type loss in the absence of a specific policy to this effect. Consequential loss in short refers to lost of profits  and  income resulting  from  harm  to  or  destruction  of  one’s  insured property. It is an indirect loss since it is not a result of a direct act but a loss incurred due to the consequences or results of the act. If a commercial vehicle insured against collision is totally destroyed the owner in addition to the direct loss of his property incurs an indirect loss of income as a consequence of the loss of his vehicle. This will be usually loss of income from the time of destruction of the vehicle until he is paid compensation by the insurer. Now the question is: is it possible to claim for such type of consequential loss under Ethiopian insurance law?

In this regard the position of the Federal Supreme Court Cassation Bench is that the insurer has an obligation to compensate the insured for consequential loss. The absence of any clear provision in the insurance policy providing coverage for consequential loss is not a valid ground to relieve the insurer from his liability. What if there is an exclusion clause in the policy? According to the cassation bench, the insurer’s obligation is still effective even though the policy clearly excludes compensation for consequential loss.

However, this firm position of the cassation bench could not be taken as a full answer to the question raised above. Depending on the nature of the claim by the insured ‘consequential loss’ may refer to loss caused as a result of an act (harm to  or  destruction  of  one’s  insured property) or it may also be similarly used to refer to loss caused as a result of an act of a party (i.e. an act of the insured.) An act of the insurer causes consequential loss on the insured when there is unjustified delay in making payment upon occurrence of loss.

According to article 665 of the commercial code compensation should be paid within the time specified in the policy or when the risk insured against occurs or at the time specified in the policy. If the policy does not provide such time, then payment should be effected immediately (Article 1756 of the Civil Code.) Unjustified delay constitutes non-performance of contract entitling the other party to claim damage caused to him by non-performance. (Article 1771 sub article 2 of the Civil Code)

It is only in this sense that the decisions of the cassation bench could be understood and analyzed. This is important because in most of the decisions no clear distinction is made between consequential los as a result of the act and as a result of the insurer. The absence of clear distinction is not totally the fault of the bench. The parties are also partially responsible for the confusion. When one looks in to the argument of the insured and the insurer, they tend to be at variance in understanding the underlying issue and even in the usage of terminology. Usually the insured claims “compensation for the loss of income” and the insurer challenges such claim on the ground of the absence and/or exclusion of consequential loss in the insurance policy. Yes it is true that a party is not entitled to compensation for loss of income as a result of loss of his insured property. However, what the insured is really demanding by “consequential loss” or “compensation for the loss of income” is payment of compensation for delay of non-performance of the insurance contract. This usually happens when the insurance company delays payment or refuses to compensate the insured upon occurrence of loss.

Consequential Loss in Liability Insurance Cases

Case One

Applicant  Ethiopian Insurance Company

Respondents 1.Ato Demesie Werekeneh

2. Genesis Farms Ethiopia Pvt.

Cassation File Number 27565

Date: Hidar 24-2000 E.C.

Court: Federal Supreme Court Cassation Bench

In this case, a vehicle belonging to 2nd respondent caused a total damage on 1st respondent’s vehicle. Applicant became a party to the case as it has insured 2nd respondent’s vehicle. The value of the 1st respondent’s vehicle was estimated to be 80,000 br. (Eighty thousand birr). In addition to this amount 1st respondent also claimed 18, 300 br. (Eighteen thousand three hundred birr) lost income for 211 days.

Applicant challenged the claim for lost income on the following two grounds:

  1. 1st respondent should not be compensated twice for a single loss, as compensation for the loss of income will have the effect of double compensation.
  2. 1st respondent could not claim compensation for the loss of income caused as a result of damage to his property, without having consequential loss insurance policy.

The cassation bench, responding to applicant’s 1st argument stated that once 2nd respondent is found liable for causing total damage to 1st respondent’s vehicle there is no reason it could not be liable for the loss of income to 1st  respondent as the result of the damage. As regards the second argument the bench said:

“Applicant has not argued (or submitted similar argument) that the insurance policy it issued to respondents excludes consequential loss”

In other words, it held a position that consequential loss is always payable unless the insurance company shows to the satisfaction of the court that it is excluded by the insurance policy.

The cassation bench may not be criticized for its analysis of consequential loss but, for its failure to relate it to the maximum liability of the insurance company. Applicant was made a party to the case because it insured the liability of 2nd respondent. Since this is a liability insurance case the applicable provisions are articles 685 to 688 and of the Commercial Code and the general provisions of insurance (articles 654 to 674 of the Code.) Irrespective of the type of insurance article 665 sub article 2 of the code states that the insurer’s liability shall not exceed the amount specified in the policy.

If the maximum liability of applicant in the insurance policy is 80,000 br. (Eighty thousand birr), then that is the only amount it is obliged to pay. Even assuming that the policy limit is above 80,000 br. (Eighty thousand birr) the insurance company is still not liable to consequential loss. In liability insurance case, the nature and extent of liability of the insurer is determined based on the terms and conditions of the policy. If the policy only provides coverage against the liability of insured as a result of direct damage to the property of third parties, then there is no contractual or legal ground to make the insurer liable for consequential loss. The bench found 2nd respondent liable for the loss of income caused to 1st respondent. However, how this liability is transferred to the applicant insurance company is not clear.

Regulation no. 4/2010 Regulation for the issuance of certificate of professional competence to private auditors and accountants


Regulation no. 4/2010

Regulation for the issuance of certificate of professional competence to private auditors and accountants

WHEREAS, the Office of the Federal Auditor General has been empowered, under the Office of the Federal Auditor General Establishment Proclamation No. 669/2010, to issue and renew certificates of professional competence to private auditors and accountants as well as to supervise the proper fulfillment of the activities of private auditors and accountants and to suspend and cancel their certificates of professional competence where they undertake their activities inappropriately;

WHEREAS, Article 22(1) of the Office of the Federal Auditor General Establishment Proclamation No. 669/2010 has provided that the Office of the Federal Auditor General discharge the above responsibility in accordance with a regulation to be issued by the House of People’s Representatives;

NOW, THEREFORE, in order to determine the procedure for the Office of the Federal Auditor General to issue and supervise certificate of professional competence of private auditors and accountants and to suspend and cancel of those inappropriately undertake their activities, the House of Peoples’ Representatives in accordance with the Office of the Federal Auditor General Establishment Proclamation No. 669/2010 Article 22(1) has issued this Regulation as follows Continue reading →

WORKING TOWARDS RESTORATIVE JUSTICE IN ETHIOPIA: INTEGRATING TRADITIONAL CONFLICT RESOLUTION SYSTEMS WITH THE FORMAL LEGAL SYSTEM


WORKING TOWARDS RESTORATIVE JUSTICE IN ETHIOPIA: INTEGRATING TRADITIONAL CONFLICT RESOLUTION SYSTEMS WITH THE FORMAL LEGAL SYSTEM

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Dr. Julie Macfarlane Professor of Law, University of Windsor, Ontario Canada, juliem@uwindsor.ca.

Most legal scholars study the formal legal system, focusing on principles of law and state-sanctioned procedures and institutions.[1] However, we know that this is only one aspect of the complex landscape of dispute resolution. In every country, community, and organization, systems of informal dispute resolution systems – often based on community customs or familial relationships, or embedded in institutional practices – run alongside the “official” state sanctioned processes. Despite their lack of formal authority and legitimacy, these informal alternatives may have as great, or even greater, an impact on the lives of those who use them as the state-sanctioned system. A growing interest in informal systems of dispute resolution has spawned a vibrant literature representing the intersection of many disciplines, including law, anthropology, sociology, and social psychology. Scholars of conflict resolution in their various disciplinary guises explore the substance and the role of informal systems of disputing and dispute resolution and their relationship, if any, to the formal legal system.[2]

This paper considers how the multiple realities of dispute resolution in any environment affect the work of conflict resolution practitioners. Conflict resolution practitioners are almost always invited in by representatives of the formal legal system, and their work generally focuses on managing – and perhaps reforming – this system. In practice, they cannot ignore the existence of parallel informal systems of conflict resolution that may undermine or distract from the formal state system. These may include structured alternatives to law, such as religious tribunals or community mediation programs. There may be other, more informal but equally significant family or community-based processes which provide their own social order outside the legal system. Whatever form an informal system takes, it is a mistake to overlook or underestimate its impact on the formal legal process and any reforms or innovations planned there. Whether invited to assess existing systems, or to develop new processes or models, practitioners and consultants often find themselves mediating between formal and informal systems already in place.

The second part of this paper focuses on a particular example of the intersection of a formal and an informal system in the development of an innovation – Restorative Justice (RJ) programming – within the formal criminal justice system. It describes my experience working in the People’s Republic of Ethiopia and efforts to introduce RJ as an alternative regime within current criminal system. The dilemma facing reformers in Ethiopia – though this initiative is supported by the highest levels of government and the judiciary – is how to affect reform of the criminal justice system in a way that harnesses the energy of Ethiopia’s vibrant culture of informal tribal conflict resolution processes. In many regions of Ethiopia and especially those far from regional centers, these informal processes are in fact more influential and affect the lives of more Ethiopians than the formal system, which is remote from the lives of many ordinary people. How can the formal justice system become an appealing and appropriate alternative to customary justice for Ethiopians who have little or no contact with the formal justice system? How can RJ principles be legally entrenched in a way that is compatible with community traditions and customs of dealing with conflict, yet maintain the oversight of the State to ensure that human rights and due process are respected? And perhaps most important of all, how can trust and collaboration be enabled between the key players – the tribal elders and the officers of the state system – for the good of Ethiopia’s many diverse communities?

Despite the focus of this paper on Ethiopia, there are many lessons here for RJ programming in the West, which still wrestles with the dilemma of its relationship with the formal criminal justice system.[3] The issues I encountered working in Ethiopia are familiar ones in the West. Those committed to RJ question whether working with the state will dilute or undermine “alternative” approaches and whether the state can be trusted to be the steward of RJ programs. Whose justice is Restorative Justice – the individual actors, their communities, or the state which must enforce and oversee its outcomes? Many would argue that the very essence of RJ is its fidelity to intuitive and organic forms of informal justice within any given community, and that its adoption by a State machinery inevitably detracts from that authenticity.4 Throughout this paper, I shall reflect on parallels these challenged for RJ models and similar issues which arise wherever dispute resolution systems are provided and administered – often by distinctive religious and cultural groups – as an alternative to the state system, civil or criminal. What is the relationship between such informal systems and the formal justice system? Can the formal and informal systems work together? How should the interests of cultural diversity on the one hand, and respect for universal rights of due process and equality on the other, be balanced when it comes to the relationship between state and non-state justice systems?


[1] Austin Sarat & Susan Silbey, Dispute Processing in Law, 66 DENV. U. L. REV. 472, 459–462 (1989).
[2] For an anthropological analysis, see LAURA NADER, LAW IN CULTURE AND SOCIETY (1997) and SALLY ENGLE MERRY, GETTING JUSTICE AND GETTING EVEN: LEGAL CONSCIOUSNESS AMONG WORKING CLASS AMERICANS (1990); in sociology see, for example, PATRICIA EWICK & SUSAN SILBEY, THE COMMON PLACE OF THE LAW: STORIES FROM EVERYDAY (1998); and in peace studies see, for example, JOHN BURTON & FRANK DUKES CONFLICT: PRACTICES INMANAGEMENT, SETTLEMENT AND RESOLUTION, (1990).
[3] See section “The Case of Ethiopia,” infra.

INTERPRETATION OF CONTRACTS UNDER ETHIOPIAN CIVIL CODE: SUBJECTIVE OR OBJECTIVE METHOD?


INTERPRETATION OF CONTRACTS UNDER ETHIOPIAN CIVIL CODE: SUBJECTIVE OR OBJECTIVE METHOD?

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Hussein Ahmed Tura

(LL.B, LL.M, Lecturer, Wolaita Sodo University, School of Law.

Email: hatura7@mail.com)

Introduction

Formation and interpretation of contracts are influenced by the objective and subjective theories of contracts. Objective theory of contracts gives emphasis to the contractual assent that is “determined by analyzing external evidence” rather than the subjective or internal intention of the contracting parties[1]. This theory regards contract formation on the basis of communication, and not cognition. On the other hand, the subjective theory of contract holds the view that “subjective assent has little to do with external perceptions, but rather is concerned with whether the parties each subjectively intended to make the contract.”[2]

Interpretation of contacts plays a crucial role in the domestic and international business transactions. However, the legislatures, courts, and the legal academies of different countries of the world present considerably diverging views on the issue of the intent of the parties in the process of interpretation. For instance, in the European Union, the courts in the common law countries (the UK, Ireland) have voiced a preference for relying on objective manifestations of the parties’ intentions (objective method of interpretation); while in the other Member States (Germany, Austria, France, Italy) the doctrine of the subjective interpretation takes precedence.

The Ethiopian legal system is characterized by its reception of substantial elements from continental law and common law legal systems. Though there are many concepts from the common law legal system particularly incorporated in the procedural laws, it has been pictured for its zealness to the continental law legal system due to the fact that its substantive laws have been mainly transplanted from this legal system. Nevertheless, since the two legal systems currently are mixed or at least mixing, it is difficult to conclude that the substantive laws, mainly Civil Code, of Ethiopia are solely influenced by continental legal system. One has to conduct the empirical research to reach genuine conclusion, particularly, whether subjectivist civil law’s theory of contract solely influence the formation and interpretation of contracts under Ethiopian Civil Code or whether there is influence of the objectivist common law theory of contracts.

The purpose of this essay is to examine the extent to which the rules of contract interpretation under the Ethiopian Civil Code are influenced by the objective and subjective theories of contracts. With the view to substantiate the theoretical aspect with the practical reality in light of contract interpretation in Ethiopia, the essay will examine the approach followed by the Federal Supreme Court in deciding one of the cases involving contract of sale of immovable presented before it.


[1] Wayne Barnes, The French Subjective Theory of Contract: Separating Rhetoric from Reality, (Works-in-progress presentation, Texas Wesleyan University School of Law, August 26, 2008), p.5

[2] Ibid

OVERVIEW OF CORPORATE GOVERNANCE IN ETHIOPIA: THE ROLE, COMPOSITION AND REMUNERATION OF BOARDS OF DIRECTORS IN SHARE COMPANIES


OVERVIEW OF CORPORATE GOVERNANCE IN ETHIOPIA:

THE ROLE, COMPOSITION AND REMUNERATION OF BOARDS OF DIRECTORS IN SHARE COMPANIES

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Hussein Ahmed Tura

(LL.B,  LL.M, Lecturer, Wolaita Sodo University, School of Law.

Email: hatura7@mail.com)

Abstract

Good corporate governance is an important pillar of the market economy and it enhances investor confidence. A strong and balanced board of directors is necessary as a supervising body for the executive management of a company with dispersed ownership. The Ethiopian company law does not have adequate legislative provisions on governance issues related to the separation of supervision and management responsibilities, and on the composition, independence and remuneration of board of directors in share companies. Besides, the draft Commercial Code has not yet been finalized. This article critically examines Ethiopia’s company law with specific reference to the powers, composition and remuneration of board of directors in light of internationally recognized best practices and principles of corporate governance. It argues that there is a need to distinguish between corporate governance and corporate management in Ethiopian company law, and that the board should be suitably composed of non-executive and truly independent members who should be professionally competent. Furthermore, directors’ remuneration should be incentive-oriented based on company and individual best performance, subject to the caveat against excessive amounts of remuneration that go beyond the achievement of this purpose.

Keywords:

Corporate governance, powers of board of directors, composition of board of directors, remuneration of board of directors, share companies, Ethiopia.

DOI http://dx.doi.org/10.4314/mlr.v6i1.2

Acronyms:

BIS Bank for International Settlement

CEO Chief Executive Officer

GTP Growth and Transformation Plan

LSE London Stock Exchange
MFI Micro Financing Institutions
NBE National Bank of Ethiopia
OECD Organization for Economic Cooperation and Development SEBI Securities and Exchange Board of India

______________

Introduction

Good corporate governance enhances the confidence of investors in the companies and positively contributes towards the overall business environment.1 Well-governed companies often draw huge investment premiums, get access to cheaper debt, and outperform their objectives.2 Good corporate governance requires competent board of directors as a supervising body for the executive management of a company. In companies with dispersed ownership, shareholders are usually unable to closely monitor management, its strategies and its performance for lack of information and resources.3 Hence, the function of non-executive directors in one-tier board structures and supervisory directors in two-tier board structures is to fill the gap between the uninformed shareholders as principals and the fully informed executive managers as agents by monitoring the agents more closely.4

The Commercial Code of Ethiopia (hereinafter the Commercial Code) incorporates provisions pertinent to the governance of share companies.5 However, such provisions are inadequate to address specific issues in corporate governance related to board of directors such as separation of roles of non-executive directors and CEOs, composition and independence of the board as well as director’s remuneration. Moreover, proclamations and directives governing financial share companies in Ethiopia do not sufficiently address the aforementioned issues.

This Article examines the law pertinent to the governance of share companies in Ethiopia with specific reference to the powers, composition and remuneration of board of directors with a view to identifying deficiencies in the company law and suggests the solutions in light of internationally recognized best principles and practices of corporate governance. It contends that the supervisory powers of the board should be separated from the management responsibilities of the executives of share companies in the relevant laws. It also argues that the composition and independence of directors should be reconsidered. Moreover, it examines the effects of quantum of directors’ remuneration on the integrity of share companies, independence of directors and the retention of competent and diligent directors. It further provides some conclusions based on the findings of the study.

 

Advertisement Proclamation No. 759/2012


PROCLAMATION No. 759/2012          DOWNLOAD (.pdf)

A PROCLAMATION ON ADVERTISEMENT

WHEREAS, advertisement plays a significant role in the economic, social and political development of the country, by influencing the activities of the public in commodity exchange or service rendering;

WHEREAS, advertisement makes a significant contribution in establishing healthy market competition in the market-led economic system of the country;

WHEREAS, advertisement, if not regulated, may harm the rights and interest of the people and the image of the country;

WHEREAS, it is necessary to clearly define the rights and obligations of advertising agents,

advertisement disseminators and advertisers;

NOW, THEREFORE, in accordance with Article 55(1) of the Constitution of the Federal Democratic Republic of Ethiopia, it is hereby proclaimed as follows: Continue reading →

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