Ethiopia Accedes to the New York Convention

In a positive step towards attracting increased foreign investment, Ethiopia has adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the “New York Convention”. The New York Convention is an international treaty created by the United Nations in 1958 and is widely considered the foundation for international arbitration. Ethiopia, which will officially become party to the Convention on November 22, 2020, is the 165th nation and 33rd African nation to accede to the Convention 1.

The New York Convention has two primary functions. First, it requires courts in signatory states to enforce arbitration clauses in legal agreements. In other words, when parties to a contract have agreed to resolve a dispute through arbitration, that agreement must be upheld and a party cannot try to circumvent that by instead bringing the dispute to a court 2. Second, it creates the basis for enforcing arbitral awards in another country 3. Let’s look at an example of this.

 

A party from a country that has not adopted the New York Convention (Country X) and a party from the United States (which has adopted the Convention), enter into a commercial agreement. In that agreement, they choose to resolve disputes by arbitration in the U.S. A dispute arises, the parties go to arbitration, and the U.S party “wins” the arbitration. Unless the party from Country X has assets in the U.S., the arbitral award will likely not hold much value. This is because there will not be an easy, surefire way for the U.S. party to enforce that award in Country X, where the other party’s assets are located. Having the award doesn’t mean much if there is no way to collect. The New York Convention fills that gap and provides the mechanism for the U.S. party to enforce the award -- arbitral awards rendered in any country party to the Convention will be enforced and recognized in each other country party to the Convention, subject only to certain, limited defenses.

Parties can adopt the New York Convention with certain “reservations”. Ethiopia has adopted it with three reservations: (1) the Convention will only apply to the recognition and enforcement of awards made in the territory of another contracting state; (2) Ethiopia will only apply the Convention to disputes arising out of legal relationships which are considered “commercial” under the laws of Ethiopia; and (3) there will not be any retroactive application of the Convention 4. These reservations are not uncommon but will limit the scope of the Convention in Ethiopia. Existing legal agreements will not benefit from the Convention without a new agreement to arbitrate entered into after November 22.

Ethiopia’s accession to the New York Convention will give foreign investors more certainty and security that their investments will be protected. Though Ethiopia previously had domestic rules regarding enforcement of foreign arbitral awards, adopting the New York Convention is seen as a “best practice” in the international community, and it adds to the list of recent reforms Ethiopia has undertaken to create a more attractive environment for foreign investment.

1. “Status: Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)”, United Nations Commission on International Trade Law, https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2

2. New York Convention, Article II.

3. Ibid, Articles III-V.

4. “Status”, https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2.