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UNIT V Arbitration of Administrative Contracts


Arbitration of Administrative Contracts


Unit objectives

At the end of this chapter, students will be able to:

  Arbitration in general

Arbitration is one of the alternative dispute resolution mechanisms that we have. When we say it is part of the Alternative Dispute Resolution (ADR) mechanism, we do not forgett the controversy behind arbitration and the categorization of the same as Alternative Dispute Resolution mechanism. Some, taking arbitration by its outcome, resist accepting that it is really an alternative since it does not give the chance to the parties as to its execution.  In this sense, we are saying that arbitration is one of the Alternative Dispute Resolution mechanisms by taking the fact that it is optional for the parties whether to take their case to a judge appointed by the state or judge appointed by them. Arbitration is reference of a dispute to an impartial person or persons, called arbitrators, for a decision or award based on evidence and arguments presented by the disputants. The parties involved usually agree to resort to arbitration in lieu of court proceedings to resolve an existing dispute or any grievance that may arise between them. Arbitration may sometimes be compelled by law, particularly in connection with labor disputes involving public employees or employees of private companies invested with a public interest, such as utilities or railroads. Amicable settlement is a desirable solution for business disputes and differences.  It can occur before or during the litigation or arbitration of a dispute and can often be facilitated through the aid of third party (the neutral) acting in accordance with these rules.

In the first place, arbitration is a contract by which parties decide to resolve their disputes by a person duly appointed by them.      Despite litigation, arbitration has different advantages.          Arbitration is more flexible and adaptable as well as quicker and more efficient than litigation.

Economically, ADR mechanisms including arbitration significantly reduce case congestion in courts. Out of court resolution of disputes reduces burdens both of courts as well as judges’. Hence arbitration saves the state’s resources as well as the judge’s time.

The economic and social implication of arbitration makes it more preferable than litigation. Especially in Ethiopia, the experience is native so it needs no further domestication. The society’s way of life i.e. its communal nature makes ADR mechanisms preferable than litigation. In communal societies where the face-saving practice has a wide speared acceptance, litigation has undesired consequences. Here the group is more important and indeed fundamental than the individual. The group is the refuge of the individual and it is protected at any cost. Conciliation plays a very important part in African law since the community life and group isolation give rise to a need for solidarity. As a result Africans always seek unanimity through dialogue, since only conciliation can put an end to disputes.

A society with a face –saving value wants to solve disputes in a win-win condition. The win-lose arrangement has negative implication on the status quo ante of such a society. From this point of view, ADR should be harnessed. . The recourse to legal actors and proceedings is costly emotionally debilitating, and potentially counter productive .It is to meant that now it is a common knowledge that existing justice system is not able to cope up with the ever increasing burden of civil and criminal litigation . The problem is not of a load alone. The deficiency lies in the adversarial nature of judicial process which is time consuming and more often procedure oriented.  There is growing awareness that in the bulk of cases court action is not appropriate recourse for seeking justice. Alternative Dispute Resolution mechanism  is a process where disputes are settled with the assistance of a neutral third party generally of parties own choice: where the neutral is generally familiar with the nature of the dispute and the context in which such a dispute normally arise; where the proceedings are informal, devoid of procedural technicalities and are conducted, by and large, in the manner agreed by the parties; where the dispute is resolved expeditiously  and with less expenses: where a decision making process aims at substantial justice, keeping in view the interests involved and the contextual realities. In substance the ADR process aims at rendering justice in the form and content which not only resolves the dispute but tends to resolve the conflict in relationship of the parties which has given rise to that dispute.

5.2. Arbitration of Administrative Contracts

Arbitrability: What is it?

Fortunately or unfortunately all matters submitted to arbitration may not be arbitrated. There is a further distinction between matters that cannot be arbitrated. This will lead us to one other discussion in arbitration called the arbitrability of matters.

Matters amenable to arbitration are called arbitrable matters and those not amenable as non-arbitrable matters. What do you think is the importance of such distinction?   

The concept of arbitrability is in effect a public policy limitation upon the scope of arbitration as a method of setting disputes. Each country may decide, in accordance with its own public policy considerations, which matters may be settled by arbitration and which may not.  Often the arbitration clause is ineffective since it will be unenforceable. Moreover, recognition and enforcement of an award may be refused if the subject matter of the difference is not arbitrable under the law of the country where enforcement is sought.

Arbitration purely is a policy consideration. It is however also a private consideration. The law may clearly prohibit arbitration of a matter. The contract of arbitration might even do the same. Even when the contract authorizes arbitration, if the law prohibits arbitration, the same may not take effect.

 What is the position of Ethiopian law from this angle?

No matter how careful you might be in drafting contracts you cannot totally avoid disputes especially in complex contractual undertakings. In such cases, the questions, whether or not we may submit the dispute to an arbitral tribunal? Can we allot a place in the contract to regulate its arbitration?  Are there special conditions which necessitate extra- judicial adjudication of administrative contracts? are of paramount importance.

The next discussion will therefore be devoted to consider the above questions.

In Ethiopia there are legal documents appropriate to consider the legality of the arbitration of administrative contracts. One is the Civil Code and the other is the Civil Procedure Code. Finally we have Proclamation No. 430/2005.

According to the civil procedure code, administrative contracts are not amenable to arbitration. Article 315(2) reads: “No arbitration may take place in relation to administrative contracts as defined in article 3132 of the civil code or in other case where it is prohibited by law in the civil procedure code”. But nothing to that effect or even similar to that is stated in anyone of Articles 3325-3346 of the civil code dealing with arbitration in general.

Article 315(4) of the civil procedure code further says “nothing in this chapter shall affect the provisions of Articles 3325 – 3346 of the civil code”.

Confusingly, those provisions embodied in Articles 3325 -3346 do not mention anything about the arbitrability of administrative contracts. To be clear Articles 3325 – 3346 are silent on the issue. If so, what is the implication of the reference made to them by the civil procedure code? Does it mean that administrative contracts are not subject to arbitration because nothing allowing their arbitration is said in the civil code provisions? Or does it mean that the silence in the law is acceptance of their arbitrability? Please consider this excerpt from THE FORMATION, CONTENT AND EFFECT OF AN ARBITRAL SUBMISSION UNDER ETHIOIAN LAW (Bezzawork Shimelash, Journal of Ethiopian Law, Vol. XVII, 1994)

 The submission must specify which dispute is referred to arbitration. Specially where  the submission  related to future  dispute  (where  the dispute was  not  known at the  time  of making the submission) the law  provides that “this shall not  be valid unless it concerns  disputes which  flow  from  a contract or other  specific legal obligation” (Art. 3328 of the C. C.).

The intention of the parties whether they have chosen a “narrow arbitration clause” or a “broad arbitration clause” is determined by the words they have used in the submission. A formation such as “a dispute arising under the contract” is held to be a narrow one while “all disputes arising out of the contract or in connection with it” is considered a broad one. If a case is brought in  Ethiopia, there is little doubt that the courts  will   follow similar lines  because  they  will enforce an arbitral  submission only  when  they are convinced that the dispute  is “ covered by the submission” (Art, 3344 C. C).

In one case the arbitrator assumed jurisdiction on a formulation that reads  “If a difference arises as to the amount of any loss or damage such difference shall…. (Be settled by arbitration).”  But the Supreme Court revised the Award on the ground that the dispute relating to liability of the   insurer was not covered by the submission.

As stated above, specifying a dispute is important  but, the more important point (that may well affect the legality of the arbitration process) is that the dispute must be capable of settlement by arbitration. The Civil procedure code (Art. 315) in which this principle is strangely laid down provides: “No arbitration may take place in relation to administrative contracts as defined in Art.3132 of the civil code or in any other case where it is prohibited by law.”

If this provision had been placed in the civil code rather than in the civil procedure code or alternatively, or if the civil code had similar provision, no one would have dared to make an issue out of it. But  because  of this  stated  situation, the  question  of whether or not  administrative contracts  are  capable  of settlement by  arbitration has continued  to be  a subject of  much  controversy.

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Even though establishing a principle  regarding capacity of  persons is not  within the  domain   of  procedure law,  our  civil  procedure  code provides thus: “No person  shall  submit a right to  arbitration  unless he is  capable   under  the law  of  disposing of  such right.” (Art. 315 of the civil Pr. C.). As stated earlier, even here the code uses the phrase ‘unless he is capable under the law’ implying that capacity is governed by other substantive laws. Accordingly, the principle regarding the capacity of persons to arbitrate as laid down in the civil code reads: “The capacity to dispose of a right without consideration shall be required for the sub-mission to arbitration of a dispute concerning such right.” (Art. 3326 of the C. C)

Where the party to an arbitral agreement is a physical person, the basic requirement that he must be capable, i.e. free from all disabilities is obvious. Where the party is a juridical person, such person must be endowed with a legal personality. This too is obvious. Rather, we are concerned, here, with the content of the additional requirement, i.e. “the capacity to dispose of a right without consideration.”

It has been said earlier that arbitral agreements are not ordinary agreements. Rather they are agreements that subject parties to different and private type of dispute settlement process. They “may lead to a solution of the dispute other than that which would be given by the courts?”(R. David, Arbitration in P. 174.). Hence, it is necessary that the parties must have the power to dispose of the right in question, in the words of the Amharic version, “without price”.

Where the parties are acting on behalf of other persons, either physical or juridical, then, a special authority to settle a dispute by arbitration is required. That special authority is derived from the principal who has the necessary capacity. Where the principal is a juridical person, such as a business organization, it is derived from its governing body, i.e. the board of directors.

So much for capacity at the level of physical persons and business organizations – It is at the level of public bodies  such  as the  state, public administrative  authorities and  public enterprises  that  more controversial  points could be expected to arise, considering the fact  that the  interest of the public is involved in their  transactions. So, the question is: do these bodies have the capacity to make arbitral agreements? If so, to what extent?

Let us first take the Ethiopian state. In the civil code, it is stated that the state is “regarded by law as a person” and that as such it has “all the rights which are consistent with its nature.” (Art. 394 C. C). If the distinction is not to be stressed between the state and the government, we see that the Ethiopian Government, for instance in a   petroleum agreement, is allowed to submit a dispute to arbitration. (Petroleum Operations Proclamation, No. 295/1986, Art. 25). We also see that the state, as one of the parties in a joint venture agreement, can settle disputes by arbitration (Joint venture council of state special Decree, No 11/1989, 4(1), 36.). Other than these, we have not found a general provision that expressly allows or expressly prohibits the state from making an arbitral agreement. In these circumstances, the easier answer would have been to say that the state does not have the capacity to submit to arbitration. But that would be unrealistic. The state is the source of all rights and obligations and of all laws (including the provision on capacity). It is also the trustee of all public property. It follows, therefore, that as long as the right which is to be the subject of arbitration belongs to that state, and not to someone else, i.e. individual citizens or groups, it can be said that the state has  the capacity to make arbitral agreements.

Regarding the capacity of public authorities and public enterprises, after making a short survey of various legislations, we find amongst them three categories: Those with no express power   to submit to arbitration, those with limited power and those with express power to do so.

Public authorities such as the Ethiopian Science and Technology Commission (Proclamation No.62/1975.) are conferred with such powers like entering into contracts, suing and being sued, pledging and mortgaging property. The power to submit to arbitration is not expressly given to them. The same is true for public enterprises like the Agricultural Inputs Supply Corporation (Proclamation No. 269/1984). On the  other  hand, we see  that  public enterprises like  the  Ethiopian  Domestic Distribution  Corporation   and the Ethiopian  Import-Export  corporation  have  the  power  to  settle  disputes out of  court  (Presumably this includes arbitration) only with the   permission of their supervising minister (Legal Notice No. 104/1987. Art.12 (3) and Legal Notice No. 14/1975 and public Enterprises Regulation No. 5/1975, Art 7(2)). Then there are  many  public authorities  which  are  expressly empowered to  submit  disputes  to  arbitration like the Civil Aviation or the  National  Water  Resources Commission which are empowered to  settle disputes out of court (Proclamation No. 111/1977.Art. 8(18)  Proclamation No.217/1981,Art .8(16)). Public enterprises like the Blue Nile Construction Enterprise (Proclamation No. 234/1982, Art. 10(2) (C)) are also given similar power. The conclusion to be made is, therefore that in the case of public authorities  and public  enterprises, the  power to submit a  dispute to arbitration  is not  to be presumed and that they need either an express  power, or in the case of some  public enterprises, special permission to do  so.

On top of that, the special nature of administrative contracts requires a clear answer to the arbitration question. In addition to the advantages we raised in connection with ADR mechanisms, some administrative contracts themselves are good indicators justifying this.

Administrative contracts that involve foreigners as parties are good examples here. To this end, we may consider some basic issues.

                – Domestic courts might not be reliable in the eyes of foreign investors. This             suspicion in the hearts of foreign investors requires a special form which settles         their doubt and hence independent dispute settlement organs. In international     investment ventures devising systems of such kind is normal. We thus have the International Chamber of Commerce (ICC). ICC is perhaps best known for its    role in promoting and administering international arbitration as a means to resolve     disputes arising under international contracts. It is one of the world’s leading        institutions in providing international dispute resolution services, together with               the American Arbitration Association, the London Court of International                 Arbitration (LCIA), the Singapore International Arbitration Centre (SIAC)              and the Stockholm Chamber of Commerce.

It is common for international commercial contracts to provide for an agreed means of resolving any disputes that may arise, and the ICC is one of leading institutions for administering international arbitration. The ICC’s dispute resolution services also include ADR procedures such as mediation and expert determinations. That is why in its preamble, the ICC provides:

– To promote investment, we also have such organs as MIGA    (Multilateral Investment Guarantee Agency) .The basic objective of MIGA is protecting investors from domestic political realities. The Multilateral Investment Guarantee Agency (MIGA), established in 1988, is designed to encourage foreign investment by insuring investors against loss from noncommercial risks, such as war and civil disturbances.

-International donors and organizations may make it a condition to extend assistance or loan as the case may be only when arbitration is possible. In effect the dispute settlement mechanism may be stipulated or dictated by the said organizations. In such cases ignoring the stipulations will have its own repercussions. In effect we have a contract to have a contract of arbitration.

The practical observations we made earlier have legal backing under Proclamation No 430/2005. Article 4(1) says:“To the extent that the proclamation conflicts with an obligation of the federal government under or arising out of an agreement with one or more other states or with an international organization, the provisions of that agreement shall prevail”.

The Proclamation seems cognizant of the importance of giving effect to terms of an international agreement one possible term being arbitration clause.

Art.9 of the FDRE constitution makes ratified treaties part of the legal system. Obligations undertaken by the federal government are nothing but treaties. As far as these obligations fulfill the requirements of Art.9 of the FDRE constitution, they form part of the legal system. As such anything embodied in such a treaty will have an overriding effect on the Civil Procedure Code. We have other possible mechanisms of enforcing arbitration clauses. Let us consider these mechanisms.

 [An excerpt from: Arbitrability in Ethiopia: Posing the Problem (Zekarias Keneaa, Journal of Ethiopian Law Vol .XVII, 1994)]

I. Introduction

Despite the advantage one can avail himself of by resorting to arbitration, not all disputes or quarrels, or even differences arising in peoples’ relations can be submitted to the adjudication of parties’ chosen experts. For different reasons, different states exclude disputes of certain categories from the ambit of arbitration. Hence, in every state, there would always be matters capable and permitted to be submitted to arbitration – arbitrable matters and there would, as well, always be matters regarded as not capable of being arbitrated – in arbitrable matters. Redfrern and Hunter beautifully summarized it as quoted here below:

The concept of arbitrability is in effect a public policy limitation upon the scope of arbitration as a method of settling disputes. Each state may decide, in accordance with its own public policy considerations which matters may be settled by arbitration and which may not. If the arbitration agreement covers matters incapable of being settled by arbitration, under the law of the agreement is ineffective since it will be unenforceable. Moreover, recognition and enforcement of an award may be refused if the subject matter of the difference is not arbitrable under the law of the country where enforcement is sought. (Allan Redfern and Mertin Hunter, Law and Practice of International Commercial Arbitration, Sweet and Maxwell. London, 1986, p. 105).

As inferable from the above quotation, which disputes may be submitted to arbitration (arbitrable) and which ones may not be submitted to arbitration (in arbitrable) is usually decided on by states and such decisions are expressed in national laws pertaining to arbitration. Because of diverse policy considerations, national interests and commercial realities, matters that are capable of being arbitrated in some states may constitute matters incapable of being arbitrated in other states. I other words, in some categories of disputes must, as a matter of public policy, be adjudicated by state courts staffed by sovereign – appointed – judge and the submission of such matters to disputing parties’ – appointed private judges may be considered as illegal and the resultant award unenforceable.

In this work, an attempt is made to assess what is arbitrable and what is not in Ethiopia. The work does not exhaustively deal with the question. Far from it, all it does is, it tries to posse the problems that have occurred to the author’s mind related to arbitrability in Ethiopia. The endeavor, however, might hopefully assist future research to be conducted on the subject.

II. Arbitrability and Family Law

In Ethiopia there are no other substantive legal provisions, other than civil code articles 722, 724, 729 and 730 wherein it is clearly stated that it is only the court that is competent to decide on matters stated under those provisions. The message contained in the above – mentioned civil code articles may be put as: it is the court only the court, in exclusion of all other alternative dispute settlement mechanisms and tribunals, including arbitration, that can give decision on the issues of which squarely fall within the spirit of those provisions. In other words, matters falling within the limits and bounds of those provisions are not arbitrable.

Pursuant to Art 722 of the civil code, the issues of whether a betrothal has been celebrated or not and whether such a betrothal is valid, cannot possibly be submitted to arbitration because the very article makes the court the only competent organ to hear and give decisions on such matters. To put it otherwise, the phrase “only the court is competent” does away with the possibility of submission of matters the issue of which pertains to the celebration of a betrothal or whether a betrothal is valid or not to private adjudication.

Similarly, in line with the provisions of Article 724 of the civil code, the possibility of submission of reference of suits the issues of which relate to the determination of whether or not a marriage has been contracted and whether such marriage is valid to arbitrators is prohibited and it is only the court that is recognized as competent to hear and decide on such matters. In a similar vein, in Art 730 of the civil code, the law has taken the stand that no other tribunal except the court is competent to decide whether an irregular union has been established between two persons. Unlike difficulties and/or disputes arising between spouses during the currency of their marriage or even the petitions for divorce whether made by both or one of the spouses, which have to compulsorily be submitted to arbitration, disputes arising out of irregular unions have to be submitted for resolution to the court and to no other tribunal.

In spite of the fact that pursuant to the mandatory provision of Article 725 – 728 of the civil code, despite, (difficulties) arising out of existing marriages, petition for divorce or even disputes arising out of divorces have to but compulsorily be submitted to arbitration: it is according to Article 729 of the civil code, only the court that is competent to decide whether a divorce has been pronounced or not. Article 729 of the civil code may be taken as having the message that the divorce decision made by family arbitrators have to be obligatorily be submitted to the court. The court, after having ascertained that family arbitrators have compiled with the necessary  legal requirements, and that the decision for divorce is rendered by a duly constituted panel of arbitrators, make its own decision that an enforceable decision of divorce has been pronounced. Though in line with the provision of Article 729 of the civil code the court seems to be making the latter decision on its own initiative, on the other hand, appeal may also be lodged to the court to have the decision of arbitrators impugned on the ground of corruption of arbitrators or third parties fraud or the illegal or manifest unreasonableness of the decision made by arbitrators (Art. 736 of the civil code). Yet still, Article 729 also seems to be imparting the message that the court renders a kind of homologation and or certification service with respect to divorce decision given by family arbitrators. In other words, certifications that a married couple has been divorced or a marital union has been dissolved can only be given by the court and not by arbitral tribunal or the arbitrators that pronounced the divorce. The article seems to be imparting the latter message particularly when one considers the controlling Amharic version of Article 729 of the civil code. (Include the Amharic version here) 

III. Matters Relating to Administrative Contracts Inarbitrable?

On the other hand, when one shifts from the substantive law over to the procedural one, one encounters Article 315(2) of the civil procedure code wherein it is clearly provided that only matters arising from Administrative Contracts and those prohibited by law are said to be Inarbitrable. Naturally, therefore, a question follows as to whether or not all other matters except those arising from Administrative Contracts and those prohibited by law could be regarded as arbitrable in Ethiopia, subject of course to the provisions of Articles 3325-3346 of the civil code. First of all it is surprising to find a provision that reads:

No Arbitration may take place in relation to Administrative Contracts as defined in Article 3132 of the civil code or in the other case where it is prohibited by law in the civil procedure code but nothing to that effect or even similar to that is stated in anyone of Articles 3325-3346 of the civil code.

As issue of interpretation or construction of the two legal texts i.e. Article 315(2) of the civil procedure code on the one hand and Articles 3325-3346 of the civil code on the other might as well arise. This becomes even more glaring as one considers the provisions of Article 315(4) of the civil procedure code which states that “Nothing in this chapter shall affect the provisions of Articles 3325-3346 of the civil code”.

If nothing in Book IV of the civil procedure code affects the provisions of Articles 3325-3346 of the civil code, and nothing as to whether or not matters arising from Administrative Contracts are Inarbitrable is mentioned in Articles 3325-3346, could Article 315(2) be given effect? In other words, if the overriding text of Articles 3325-3346 of the civil code are silent as to whether or not disputes emanating from Administrative Contracts are arbitrable; can’t that be taken as an implication that even disputes from Administrative Contracts are arbitrable in so far as nothing express is stated in Articles 3325-3346 that they are not? Or should there be a manifest contradiction between the two codes’ relevant texts for Articles 3325-3346 to be overriding?

In Water and Sewerage Vs Kundan Singh Construction Limited (High court, Civil file No 688/79) the court took a stand that Article 315(2) is a sufficient provision to exclude disputes relating to Administrative Contracts from the ambit of arbitrable matters. A close consideration of the main reasoning of the High Court to justify this stand, however, tells that the court based its reasoning on a point jurisdiction instead of taking Article 315(2) of the civil procedure code as a legal provision, sufficient on its face, to prohibit the submission of matters relating to Administrative Contracts to Arbitration. In the course of justifying its stand, the court said “question pertaining to which court or which tribunal has jurisdiction is a matter of procedure and that procedural matters are provided for in the code of civil procedure and not in the civil code”. The court, it may be said, endeavors to use this line of argument in its attempt to defeat the strong point in Article 315(4) of the civil procedure code, i.e. that nothing in the chapter in which Article 315 of the code of the civil procedure is found shall affect the provisions of Articles 3325-3346 of the civil code. By so doing, the court rejected the argument raised by the defendant that Article 315(2) of the civil procedure code should not be given effect in the face of Articles 3325-3346 of the civil code wherein nothing is mentioned as to the inarbitrability of disputes arising from Administrative Contracts.

The other point the High Court raised to justify its ruling that matters related to Administrative Contracts are Inarbitrable was that the provisions of our civil code relating to Administrative Contracts were taken from French law. The court went further and stated that in French law there is a prohibition that disputes arising from Administrative Contracts should not be submitted to arbitration, and that such a prohibition is found in the French Code of Civil Procedure. Consequently, said the court, the prohibition in Article 315(2) is appropriate taking French law and the fact that provisions on Administrative Contracts in our civil code were taken from French law.

On the principle of interpretation that a latter law prevails over a preceding one it could be said that the civil procedure code which was promulgated in 1965 as opposed to the civil code which was promulgated in 1960, is overriding. This, point of interpretation was also raised by the court in the Kudan Singh case.

Would the approach of interpretation that follows the hierarchy of laws be of help in the context under consideration because of the fact that the seemingly contradictory legal provision appear in different types of legislations, i.e., Arts.3325-3346 in a proclamation, whereas, Art 15(2) of the civil procedure appears in an Imperial Decree?

IV. Other Substantive Law Provisions Indicative of Arbitration

Yet still, the main problem in relation to arbitrability in Ethiopia, however, seems to emanate from the confusion created by the Civil, Commercial and Maritime codes’ express provisions for arbitration in certain respects and their silence otherwise. Family disputes arbitration dealt with in the civil code is, I think, a compulsory arbitration (Starting 1977, disputes between state – owned enterprises were also made as compulsorily arbitrable in Ethiopia by virtue of a directive No 2756/fe 1 ha/20 issued on Hamle 14, 1969 (July 21, 1977) by the then Prime Minister, Ato Hailu Yimenu.) rather than it is consensual. In other respects, the 1960 civil code for instance, expressly provides for arbitration under Articles 941, 945, 969(3), 1275, 1472ff, 1534(3), 1539, 1765, 2271 and is silent otherwise. (However, it is good to note that it is doubtful if Article 2271 of the civil code may be taken as a provision indicative of arbitration in the sense of Article 3325 of the same code. Where a seller and a buyer, refer the determination of a price to a third party arbitrator, it doesn’t mean that the parties submit a dispute to be resolved. Unless the parties have unequivocally agreed that they will bound by it the “price” to be quoted by the “arbitrator”, cannot be taken as binding as an award is in case of arbitration proper.)

The commercial code expressly provides for arbitration under Articles 267, 295 and 303 by way of reference to Articles 267, 500(1), 647(3), 1038, 1103(3) and the Maritime Code’s only provision wherein it is expressly mentioned about arbitration in Article 209.

In the labor legislation we had for the last two decades, i.e. Proclamation 64 of 1975, the possibility of submission of a collective or individual trade dispute to arbitration was provided for in Article 101(1). In sub-article 3 of the same provision, arbitration, in fact, seems to have been envisaged as obligatory with respect to disputes arising in undertakings which do not have trade dispute committee.

In the new Labor Proclamation, i.e. Proclamation No 42 of 1993, it is provided in Article 143 that “parties to a labor dispute may agree to submit their case to their own arbitrators…”

Now, therefore, it would be appropriate if one asks a question doesn’t the fact of the existence of such express provisions for arbitration by the Codes mean that all other matters are Inarbitrable? What was it that necessitated express provision for arbitration in certain cases only? Was it just an endeavor to bring the possibility of arbitration to the attention of the parties concerned as an alternative dispute resolution mechanism or as an alternative to court action? Or was it meant to clear out the doubts from people’s mind that disputes arising from those situations for which the codes mention arbitration may be submitted to arbitration although the Codes’ provisions, including those mentioned under Article 3325-3346 of the civil code, do not mention what is not arbitrable as a matter of Ethiopian public policy except what is stated under Article 315(2) of the civil procedure code?

In some jurisdictions, there are well defined areas of matters which, as a matter of public policy, are designated as not arbitrable. For example, the German Civil Procedure Code Article 1025a provides: “An agreement to arbitrate disputes on the existence of contract referring to renting rooms is null and void. This does not apply when reference is made to section 556a paragraph 8 of the German Civil Code.” (Reproduced in Ottoatndt Glosner, Commercial Arbitration in the Federal Republic of Germany. Kluwer, 1984, p. 42.)

The French Civil Code Article 2060, on the other hand, provides: “One may not submit to arbitration questions relating to the civil status and capacity of persons or those relating to divorce or to judicial separation or disputes concerning public collectivities and public establishments and more generally in all areas which concern public policy.”

In Italy, parties may have arbitrators settle the disputes arising between them excepting those provided in the civil code Articles 409 i.e., those concerning labor disputes and those provided I Article 442 concerning disputes relating to social security and obligatory medical aid.

Some other jurisdictions have adopted different approaches from that of German and France. The Swedish Arbitration Act of 1929 (as amended and in force from January 1, 1984) for instance, provides in Section 1 that “Any question in the nature of civil matter which may be compromised by agreement, as well as any question of compensation for damage resulting from a crime, when a dispute has arisen with regard thereto, be referred by agreement between the parties to the decision of one or more arbitrators.”

The Swiss International Arbitration Convention of March 27/August 29, 1969, on the other hand, provides in article 5 that “the arbitration may relate to any right of which the parties may freely dispose unless the suit falls within the exclusive jurisdiction of state authority by virtue of a mandatory provisions of the law.”

Coming back to Ethiopian law, wherein we don’t have provisions limiting the kind of question that may or may not be submitted to arbitration except for what is stated under Article 315(2) of the civil procedure code, how should we go about deciding what’s arbitrable and what’s not? Especially, how should the approach taken by the codes to have here and there provided for arbitrable matters be viewed? Can we argue a contrario that the rest, i.e. those numerous matters for which the codes do not expressly provide for the discretion to arbitrate, save of course those matters for which the civil code imposes obligatory arbitration, are Inarbitrable? Or can we by way of argument settle on the test of arbitrability that is close to the Swedish test that bases itself on the provisions of Article 3326(1) of our civil code and say “any matter which relates to any right which the parties can dispose of without consideration” is arbitrable in Ethiopia? This test becomes a fallacious on the moment one reads the provisions in sub-article 1 of Article 3327 that goes; “the provision of Art 3326 shall not apply where this code provides for arbitration.” It, therefore, follows that if the capacity to dispose of a right without consideration is not needed when the codes expressly provide for arbitration, the test that “any matter which relates to any right which the parties can dispose of without consideration is arbitrable in Ethiopia” fail to be an always working criterion.

Added to the above, the very approach taken by the legislator i.e. considering the situation where the codes provide for arbitration and where they don’t, tells us that matters not expressly provided for in the codes may as well be made subjects of arbitral jurisdiction. The Swedish approach, therefore, doesn’t, I think, work for the present Ethiopian reality and the test that’s similar or identical to there’s should be seen cautiously if not totally dismissed. The line of thought that pursues the idea that the matters not expressly provided for by the civil or other codes are inarbitrable also fails automatically because of the above mentioned argument. Hence, it could be said that the codes’ express provision for arbitration here and there is meant to hint to the parties involved pertaining to matters provided for, that arbitration is an alternative to judicial proceedings or to encourage them to submit to arbitration.

Except for what is stated under Article 315(2)of the civil procedure code, the approach taken by the German, Italian and French arbitration laws also doesn’t seem to fit in to the existing Ethiopian legal reality.

V. Arbitrability and the High Court’s Exclusive Jurisdiction

The provisions of Article 25(2) of the civil procedure code may also be worth considering at this stage to see if there is in anyway the possibility of arguing that those matters provided for under Article 15(2) (a-i) could be taken as not arbitrable. One thing clear from Article 15(2) of the code is that the High Court, in exclusion of all other courts, shall have an initial material jurisdiction to try cases the matters of which emanate from those areas enumerated (a-i). Does this, however, mean that the exclusion applies to arbitration as well? If the extension is appropriate to speak in terms of tribunals does the exclusion apply to arbitral tribunal as well or is it limited to courts? Most important of all, could it be taken that those matters provided for under Article 1592) of the code are meant to be inarbitrable?

Provisions of Article 15(2) of the code, coming under chapter 2 of the Book I of the code and dealing with material jurisdiction of courts, are meant to serve as a exception to the principle laid down under Article 12(1) as further expounded by the two articles immediately following and sub-article 1 of article 15.

Article 15(2) in other words, confers jurisdiction on the High Court irrespective of whether or not the amounts involved in the suits springing from matters listed (a-i) are worth either 5,000 Birr or below for suits not regarding immovable property or the amount involved is 10,000 Birr or less in a suit, for instance, relating to expropriation and collective exploitation of an immovable property.

The clear message in Article 15(2) is that the High Court has jurisdiction to try cases involving matters listed (a-i) by virtue of the law itself ousting the material jurisdiction of the Awraja and Woreda Courts. The clarity of the message of the article, however, doesn’t seem to have ready answer to quarries like: What if the parties to a contract or even to a dispute agree to oust the jurisdiction of the High Court by considering to submit their future or existing disputes in relation to those matters mentioned under Article 15(2) to arbitration? Should such an agreement be regarded as illegal or unenforceable? If parties knowingly or unknowingly agree to submit an existing or future dispute emanating from one of those areas mentioned under Article 15(2) to arbitration, and there arises some sort of disagreement as to the formation of the tribunal: should the court whose assistance is sought in appointing an arbitrator decline to do that on the strength of the provisions of Article 15(2) of the code? What about a tribunal duly constituted either by the parties themselves or through the assistance of the court, should it decline jurisdiction in favor of the High Court or should it assume jurisdiction, proceed and give an award? At the enforcement stage, would such an award be recognized and be given effect by the court to which an enforcement application is filed? These and other related questions may be raised in relation to Article 15(2) of the code and arbitrability.

Would figuring out the rationale behind the giving of exclusive jurisdiction of the High Court regarding suits springing from those matters provided for under Article 15(2) (a-i) be an answer to the questions raised above? Could the purpose behind Article 15(2) be the public policy to make sure that the matters provided for in that sub-article are tackled by the court of high position that is staffed with high trained and or experienced judges? Or could the purpose be more serious than that? Was the intention behind the conferring of exclusive jurisdiction on the High Court in suits regarding those areas to single out certain areas of importance in Commercial and Maritime relations and other sensitive areas, to give emphasis to some and to thereby ensure certainty in the way of interpretation of the laws involving those areas which in turn would help develop the jurisprudence of the laws in those area?

The rationale behind Article 15(2) may be to facilitate trials of the suit arising from those matters by (highly) trained and experienced judges, or judges that have specialized in dealing with those matters. If that is the case, the submission to arbitration of disputes emanating from those matters might have not been intended to be excluded altogether because in the modern world arbitration are, generally, qualified enough to deal with all sorts of complicated matters. Incidentally, the provision o the civil code Article 3325(1) makes it clear the arbitrators “under take to settle disputes in accordance with the principles of law.” And if arbitrators have to resolve disputes in accordance with the principles of law, then it follows that arbitrators should, of necessity, be legal professionals of some sort whether trained or those who have managed to acquire the expertise through practice and /or experience.

On the other hand, if the intention behind Article 15(2) was to ensure certainty and, may be, predictability in the way in which the areas of law dealing with those matters are interpreted, then the argument that those matters provided for under Article 15(2) may not be submitted to arbitration could, generally speaking, hold true. Nevertheless, even if the disputes arising from those matters are submitted to arbitration, in certain respects, it could be argued that it doesn’t make a glaring difference because Ethiopian arbitrators are appointed to resolve disputes according to principles of law anyways. It should, however, be noted that in accordance with the provisions of Article 317(@) of the civil procedure code, arbitrators may, where the parties at dispute have agreed to that effect, decide with out giving regard to the “principle of law”. The authorization given to arbitrators by disputing parties to decide with out being bound by the strict application of the law is referred as to amiable composition or ex aequo et bono. The arbitrator(s) who is (are) authorized to proceed in amiable composition is (are) called amiable compositeur(s).

If parties in their agreement to arbitrate existing or future disputes empower their arbitrator to proceed as an amiable compositeur, that would be tantamount to ousting the provisions of Article 15(2) of the civil procedure code, unless it is arguable that parties can not contract out the exclusive jurisdictional power of the High Court vested in it by virtue of the said provision. Unless the existence of Article 15(2) is taken as a prohibition (to meet the requirement of the last part of Article 315(2) of the same code), not to submit to arbitration disputes emanating from any one of those areas, there is no convincing reason, I would say, why parties can not submit disputes of at least some of those matters to arbitration.

Off hand, what is it, for instance, that prohibits the submission of disputes arising from insurance policies (Article 15(2) (c) of the code to arbitration? I wonder if there is any public policy reason that precludes insurance disputes from being submitted to arbitration. If the provision of Article 15(2) (c) of the code is to be construed as showing the inarbitrability of insurance disputes, then those arbitration clause in a number of standard policies that have been in use and currently in use by the Ethiopian insurance corporations are to be taken as contrary to the spirit of the above-mentioned provision, and hence are not to be given effect. The clauses may, as well, be taken as an evidence showing circumstances of opting out the application of Article 15(2) (c) by parties to insurance contracts, thereby waiving their right to initially submit their disputes to the High Court and only to it. True, the legislator might have had it in mind that consumers (insurance policy holders) and insurers usually are unequal parties and hence might have thought that policy holders need to be given the backing of state courts, in fact that of the High Court right from the initiation stage of their cases.

 One also wonders if there is a public policy reason why suits relating to the formation, dissolution, and liquidation of bodies corporate (Article 15(2) (a) of the code cannot be submitted to arbitral jurisdiction.)Could the legislative worry that triggered this specific provision be the protection of interests of individual third parties so that there won’t be miscarriage of justice when arbitrating disputes between giant big business monopolies or trust and individuals? If that is the case, dos it imply that third parties interests cannot be protected through arbitral adjudications? Or is it because formation, dissolution and liquidation of bodies corporate could as well be applicable to the so called “administrative bodies” which category includes the “State, Territorial subdivision of the state, Ministries and Public Administrative Authorities?”(Article 394-397 of the civil code) Though it may be understandable why suits pertaining to the state, its territorial subdivisions, Ministries and Public Administrative Authorities may not be arbitrable; one, but, can’t help wondering why suits regarding the  formation, dissolution and liquidation of bodies corporate, for instance associations, may not be submitted to arbitration.

As mention has been already made, French law prohibits arbitration in a number of specific areas among which “disputes concerning public collectivities and public enterprises” constitute one category. Mr. Charbonneau is of the opinion that it should be emphasized that disputes falling in the latter category “in which arbitration agreements are prohibited has been interpreted to entail lack of capacity of the state and its entities to arbitrate disputes in which they are involved. (T. E. Charbonneau, The Elaboration of a French Court Doctrine on International Commercial Arbitration, Tulane Law Review, 1980, p. 9).

It is also true that in many countries matters relating to patents and trade marks are excluded from being arbitrable (Rene David, Arbitration in International Trade, 1985, p. 188). Bankruptcy is also regarded not arbitrable matter in quite a number of states. But I wonder if Article 15(2) (b) and (d) of the code were formulated with the objective excluding those matters from the purview of arbitrability.

It is difficult to understand why maritime disputes or suits arising from negotiable instruments are put out of arbitral adjudication. If Article 15(2) of the code in general, and Article 15(2) (b) in particular is to be construed as indicating inarbitrable matters, I wonder as to what construction should be given to Article 209 of the Maritime Code where it is stated that parties t the Bills of Lading may insert arbitration clauses and hence agree to adjudicate their future disputes by way of arbitration as long as they (parties) do not, give power of amiable composition to the arbitrator. In England, maritime arbitration is a very specialized arbitration and for that matter Londoners have a kind of specialized association, the London Maritime Arbitration Association (LMAA) just to arbitrate maritime disputes.

When one thinks of disputes relating to or arising out of negotiable instruments, one necessarily wonders why such disputes or matters pertaining to negotiable instruments cannot be submitted to arbitration. Starting from the Geneva Protocol of 1923, arbitrable matters (at least for international arbitration) were formulated as limited to “…Commercial matters or to any other matter capable to settlement by arbitration.” If this is the yardstick, there seems to be no reason, why disputes relating to negotiable instruments cannot be arbitrable. After all, negotiable instruments are, typically, commercial in their very nature. Or if according to Article 715(2) of the Commercial Code some negotiable instruments fail to qualify to be in the category of “Commercial” like, “documents of title to goods” or “transferable securities”, could it be argued that the latter two categories of negotiable instruments are not “Commercial” in their very nature? I personally doubt. True, “transferable securities” or “documents of title to goods”, do not, as such, carry “unconditional order(s) or promise(s) to pay a sum certain in money”, a typical characteristics of Commercial negotiable instruments under Ethiopian law (Articles 732, 735, 823, 827 of the commercial code). Minus the requirement of carrying unconditional order(s) or promise(s), however transferable securities are generally understood as “evidence of obligation to pay money or of rights to participate in earnings and distribution of corporate, trust and other property are mere choses in action. Nevertheless, in modern commercial intercourse, they are sold, purchased, delivered and dealt with the same way as tangible commodities and other ordinary articles of commerce…” Being evidence of debt, of indebtedness or of property, transferable securities usually include bonds, stock (share) certificates, debentures and the like. In other literatures dealing with negotiable instruments, it is good to note that the term “securities” is usually preceded by “instrument” and documents known as “transferable securities” in our commercial code are transferable to as “Investment securities”. 

“Documents of title to goods” from legal point of view, though they may as well have other meanings, may be generalized as written evidences that enable the consignee to dispose of goods by endorsement and delivery of the document of title which relates to the goods while the goods are still in the custody of            the carrier or in transit. Documents of title to goods may as well be evidences as to the title of the person claiming the status of a consignee of the goods.

The generic expression of documents of title to goods in modern business includes Bills of Lading, Airway and Railway Bills, depending on whether goods represented by the document on title are carried by sea, air or by rail.

In so far as documents of title to goods are very much related to international sale, purchase and carriage of goods, it is hard for one to categorize such documents as falling out side the purview of commercial transactions and/or relationships. As transferable securities and documents of title goods, the other two categories of negotiable instruments given recognition by the Ethiopian Commercial Code, are not, function wise, away from business activities, there seems to be no reason why disputes arising from or suits relating to negotiable instruments irrespective of whether the instruments fall in the category of commercial, transferable securities or documents of title to goods may nor be submitted to arbitration.

What about those matters stated under Article 15(2) (e) and (f) of the code? Should matters that pertain to “expropriation and collective exploitation of property” be excluded from being seen as matters capable of being arbitrated in Ethiopia? I as far as expropriation results from an act of a competent public authority, and in as much as an “authority” is to be taken as “administrative body”

There may be the possibility of arguing that matters relating to expropriation are inarbitrable. The private person whose interest is affected by expropriation, it seems, may apply to a competent court of law where he/she thinks is expropriated out side the spirit of the relevant constitutional provisions, if any, or with out due process of law. Otherwise, disputes arising out of a competent authority’s appropriate decision to expropriate and the dispute (agreement) ensuing because of resistance of the interested owner to such a decision, cannot be submitted to arbitration on the ground of sovereign immunity. Nevertheless, it is worthwhile to note that though disagreements relating to expropriation per se are inarbitrable, matters of compensation due by expropriating authority to the owner of an expropriated immovable and possibly the claims of third parties against the expropriating authority may be submitted to arbitration (Article 1467(3) cum 1472ff).

What about disputes pertaining to “collective exploitation of property”? Would there be a valid public policy reason why such disputes may be regarded as inarbitrable? Why should, in particular, disputes arising from collective exploitation be termed to be inarbitrable where all the parties concerned have freely consented to arbitrate? One possible reason why such disputes may be seen as inarbitrable might be because of the plurality of the parties involved, lest it might be difficult to justifiably safeguard the interests of all of them. Imaginably, the interests of the pluri-parties concerned could be quite complicated and such multiple interests and the ensuing complication it creates may, as well, constitute sufficient public policy reason not to submit such dispute to arbitration. Moreover, an arbitral tribunal generally doesn’t have the power to order the consolidation of actions by all parties involved even if this would seem to be necessary or desirable in the interests of justice.

With respect to suits relating to “the Liability of public servants for acts done in discharge of official duties” (Art 15(2) (f) of the code), it would be argued that the exclusion of such suits from the ambit of arbitrable matters may be justifiable based on the widely known reasoning of sovereign immunity again. Under Art 2126 of the civil code, (It is worth to note that arbitration, save in situations it is imposed by law, arises from contract. Doubt may, therefore, be expressed whether tort cases are, generally, arbitrable. As to the non arbitrability of suits arising from contracts to which the state or its territorial sub-division is a party, and may be the liability of officials involved in state contracts, Art 315(20 of the civil procedure code is the only authority available.) whose title reads: “Liability of the State” particularly in the second sub-article, it is provided “Where the fault is an official fault the victim may also claim to be compensated by the state, which may subsequently recover from the public servant or employee at fault.”

The above quoted provision shows that the state, almost certainly, becomes a party to literally all suits instituted on the basis of this provision (the state, it is submitted, is presumed to be financially better off than the official, employee, or public servant that causes the damage by his fault.). Article 2128 further states that the provisions of the two immediately preceding articles apply to the liability of public servants or employees of a territorial sub-division of the state or of public service with legal status (Art 394ff of the civil code).

Those suits emanating from sub-sub-articles (g) nationality; (h) filiation and (i) habeas corpus of Art 15(2) of the code may be said, fall outside the purview of arbitrable matters. Suits relating to these matters are instituted based o specific legal provision(s) and usually for the personal protection and interests of the person(s) filing them. The state and the public at large would, normally, have interests in the final outcome of cases pertaining to these matters as well. Nationality “represents a man’s political status by virtue of which he owes allegiance to some particular country.” This, without more, can be taken as indicative of the interests of the state in nationality suits and which may constitute a sufficient public policy reason why nationality suits should not be submitted to private adjudication.

As to filiation, which is “primarily the relation of parent and child,” it would, I think, be possible to argue that such suits (filiation suits) are inarbitrable. The society would definitely be interested in the final outcome of filiation cases, and the law wouldn’t want, as far as practicable, that children be left without fathers or mothers. From family matters, filiation seems to be the only aspect that may have been envisaged as inarbitrable, for other family disputes particularly divorce cases and those related ones ate compulsorily arbitrable in Ethiopia. (Art 725-737 of the civil code).

Generally, matters relating to status, like filiation, nationality, etc. are regarded as inarbitrable. Family disputes are not regarded as arbitrable in quite a number of jurisdictions, and ours in that respect is an exception that came about, presumably, because of tradition.

Suits (actions) relating to habeas corpus, for sure, can’t be arbitrable. Robert Allen Sedler, based on Article 177 of the civil procedure code argues that, habeas corpus suits are actions for a writ “usually sought by persons in custody on a charge of having committed a penal offence, and that the action to obtain the writ is considered a civil action”. Often it is expected that the official to whom the writ is addressed might refuse to obey to “bring the body” to court and it is in that respect that the compelling power of the High Court for the public official in question comes in to play. So, it may be said that it is understandable if actions for suits of habeas corpus are said to fall outside arbitrable matters.

VI. Arbitrability and Objects of a valid Contract

Finally, in the absence of provisions supplying us with adequate guidelines of arbitrability in Ethiopia, we would, I think, make some further interpretational endeavors. Except for the provisions of Article 315(2) of the civil procedure code and in situations where the law provides for a compulsory one, arbitration arises from contracts whether it is an agreement to submit existing or future disputes to private adjudication. If arbitration emanates from contracts, it is, by virtue of Article 1676 of the civil code, subjected to the general provisions of contract i.e., Article 1675-2026 of the civil code and without prejudice to the application of the special provisions of Arts 3325-3346 of the same code and probably Arts 315-319 and 461 of the civil procedure code. If arbitration is subject to the general provision of contracts, then the requirements laid down under the provisions of Art 1678 viz:

No valid contract shall exist unless:

  1. The parties are capable of contracting and give their consent sustainable at law;
  2. The object of the contract is sufficiently defined and is possible and lawful;
  3. The contract is made in the form prescribed by law, if any apply to arbitration. From among those elements mentioned under Article 1678, the requirement that the object of a contract must be sufficiently defined, must be possible and lawful for it to validly exist in the eyes of the law, are quite pertinent to the subject of arbitrability. It may be debatable whether those three strict requirements do squarely apply to the arbitration agreement per se. Nevertheless, they definitely do apply to the underlying contract for the enforcement, variation, or interpretation of which parties agree to submit their disputes to arbitration. It could, therefore, at least be said that disputes arising from illegal or immoral underlying contracts cannot be arbitrable.       

(An excerpt from Particular Features of Contracts. Michael Gunta Ethiopian Bar Review, Vol.1 No.1, 2006. Translation mine)

The claim of the contractor with regard to anything is to be addressed by the consultant. Any decision made in this order is subject to arbitration (Art.67, FIDIC Contract).

There is no doubt that arbitration is a better option to solve construction disputes. Even arbitration is not a first hand option given the time it takes and the cost it has. International arbitration takes three to five years and when appeal is lodged it will take a minimum of two years. Execution of decision and the consequent process of execution may take another two years, the time between initiation and decision will be seven years. The cost of proceeding which includes the one paid to lawyers and arbitrators and the cost of transportation and accommodation is another burden especially for those who await payment in the meantime. Domestic arbitration is not different from this.

In England, after an intensive study of the matter and the subsequent shocking result, the country has embarked upon different courses of actions. Among the actions taken, legislating laws which will highly assist the construction industry was one. The Housing Grants, Construction and Regeneration Act 1996 came up with a new dispute settlement mechanism called “Adjudication”. Parties to a construction contract have a right to submit a dispute to the adjudicator. The manner of selecting the adjudicator and the time to be taken to adjudicate a given case is fixed by the Act. Accordingly the adjudicator shall decide a dispute presented to him/her within twenty eight days. This might be extended by the agreement of both parties. The decision of the adjudicator is subject to review by a court. However until the decision is reversed by a court of law, the decision of the adjudicator will be effective.

To avoid construction disputes, the system in the United States came up with a system of “Dispute Review”. Under this system, the contractor and the owner of the work will elect a person who will examine the dispute and come up with a recommendation. This person is called Dispute Review Expert.


Alternative Dispute Resolution mechanisms are upheld for their efficiency and other substantive merits than litigation.

Most international systems accept the subjection of administrative contracts to arbitration.

In Ethiopia we have different provisions that try to regulate the issue but with a substantive confusion they inject in the system.

Because no clear cut solution is provided in the law, it was important to consider the merits of ADR in the chapter. Accordingly we saw the different advantages of ADR and the relevance it has to administrative contracts.

The indigenous nature of ADR to Ethiopia and the especial advantages it provides was also discussed.

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