Note on Administrative Contract and Arbitration

Part One

1. Arbitrability of Administrative Contracts

When it comes to arbitrability, there is no uniform application throughout the world; what is arbitrable in one jurisdiction may be non-arbitrable in another jurisdiction. In the United States of America, for instance, administrative contracts are arbitrable but not in many countries including Ethiopia.

In principle, administrative contracts are not arbitrable in Ethiopia. Article 7(7) of the Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021 states that an administrative contract is not arbitrable except where it is permitted by law.[1] So, unless special laws permit for a certain administrative contract to be arbitrable, administrative contracts are not arbitrable.

This provision seems to accommodate previous laws that allowed administrative contracts. While there was a general restriction by the Civil Procedure Code (Article 315), there were laws that permitted arbitration of administrative contracts. These laws include the following.

1. Investment Proclamation No. 1180/2020[2]

Article 28 states “[t]he Federal Government may agree to resolve investment disputes involving [f]oreign investments through arbitration”. (emphasis added)

2. Public-Private Partnership Proclamation No. 1076/2018

Article 61: Disputes between the Contracting Authority and the Private Party

1. Any disputes between the Contracting Authority and the Private Party shall be settled through the dispute settlement mechanism agreed by the parties in the Project Agreement.
2. Notwithstanding any contrary provision in any existing law, the Project Agreements may provide for the settlement of disputes through arbitration or any other form of alternative dispute resolution mechanism. (emphasis added)

3. Mining Operations Proclamation No.678/2010

     Article 76: Settlement of Dispute

1. Any dispute, controversy, or claim between the Licensing Authority and a licensee arising out of, or relating to an agreement for reconnaissance, exploration, retention, or mining, or the interpretation breach or termination thereof shall, to the extent possible, be resolved through negotiation.
2. In the event that an agreement cannot be reached through negotiations, the case shall be settled by arbitration in accordance with the procedures specified in the agreement. An arbitral award shall be final and binding upon the parties.
3. Any party aggrieved by the decision of the arbitration may lodge an appeal to the concerned court. (emphasis added)
4. Petroleum Operations Proclamation No. 295/1986

Article 25: Arbitration

1. Any dispute, controversy, or claim between the Government and the contractor arising out of. Or relating to. The petroleum Agreement or the interpretation. Breach or termination thereof shall to the extent possible be resolved through negotiations.
2. In the event that an agreement cannot be reached through negotiations, the case shall be settled by arbitration in accordance with the procedures specified in the petroleum Agreement. (emphasis added)

Therefore, the above proclamations are exceptions to the rule that administrative contracts are not arbitrable because they fall within the clause “unless it is permitted by law”. In other words, administrative contracts that fall within the scope of the above laws are arbitrable.

2. Courts’ Practice

Before the Arbitration and Conciliation Working Procedure Proclamation was enacted, there were two different positions. But the prevailing one was that Administrative contracts were not arbitrable. Taking two examples:

In ZemZem PLC Vs. Illubabor Zonal Educational Bureau, the Bench stated that parties are at liberty to enter into arbitration agreements and administrative contracts are arbitrable.[3]

In another case, in Tana Drilling and Industries Vs. Dire Dawa Administration Water and Sewerage Authority, however, the Bench stated that administrative contracts are not arbitrable. In fact, it goes further by stating that the prohibition also applies to adjudication; administrative contracts are not adjudicate-able.[4]

3. What Happens If An Administrative Contract Contains An Arbitration Clause?

• Who Decides On Non-arbitrability of Administrative Contracts? The Court or the Arbitral Tribunal?

Scenario 1

One of the parties submitted the case to an arbitral institution (or a tribunal) based on the arbitration agreement made in relation to an administrative contract.

Scenario 2

One of the parties requested the court to establish an ad hoc arbitral tribunal based on the arbitration agreement entered into in relation to the administrative contract.

Scenario 3

One of the parties opened a file in the court believing that the arbitration agreement is not valid.

In scenario 1, the tribunal will be constituted even if the defendant objects and the tribunal will decide on the arbitrability of the administrative contract.

In scenario 2, the court appoints arbitrators on behalf of the parties and establish the tribunal that will decide on the arbitrability of the administrative contract.

In scenario 3, however, the court has two options: either to refer the case to an arbitral tribunal and allow the tribunal to decide on the arbitrability of the administrative contract (Article 8) or continue to hear the case (article 8/2). In so doing, the court determines if the arbitration agreement is valid or not.

• When May the Issue of Arbitrability of Administrative Contracts Arise?

The issue of arbitrability may arise at different levels of the proceeding.

1. As a preliminary objection
2. To set aside the award ( Article 50/2/b)
3. To object to the enforcement of the arbitral award (article 52/2/a)

4. But What is an Administrative Contract?

Dealing with the definition of Administrative Contract requires a close look at the following provisions of the Civil Code.

“Art. 3131. Rules applicable to contracts of administrative authorities.

( 1) Contracts concluded by the State or other administrative authorities shall be governed by the provisions of this Code which relate to contracts in general or special contracts.

(2) The provisions of this Title shall supplement or replace such provisions where the contract is in the nature of an administrative contract.

3132. Administrative Contract

A contract shall be deemed to be an administrative contract where:

(a) it is expressly qualified as such by the law or by the parties; or
(b) it is connected with an activity of the public service and implies permanent participation of the party contracting with the administrative authorities in the execution of such service; or

(c) it contains one or more provisions which could only have been inspired by urgent considerations of general interest extraneous to relations between private individuals.”

From the above provisions, we can understand that firstly, Administrative Contract refers to contracts made by the state or other administrative authorities. In other words, one of the parties to a contract is a government entity in order for the contract to be considered as administrative contract.

However, it has to be noted that not all contracts made by administrative authorities are administrative contracts.

Secondly, either of the following must exist in order to consider a contract as an administrative contract:

1. The contract must be qualified as an administrative contract whether by the parties or by the law. Accordingly, a contract that involves any government entity would be considered an administrative contract if the parties agree to consider it as such or the law qualifies it as such.
2. The work is connected with public service and implies permanent participation of the party, or

The concession contracts of public services, the public works procurement contracts, and the public supplies contract were deemed to be administrative contracts.

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[1] This provision adopted the previous approach adopted by the Civil Procedure Code, Article 315 which states that no arbitration may take place in relation to administrative contracts.

[2] Investment Proclamation No. 37/1996 (repealed) also contained a provision that allows foreign investors to submit their claim to international tribunals within the framework of bilateral or multilateral agreements.

[3] ZemZem PLC Vs. Illubabor Zonal Educational Bureau, Federal Supreme Court Cassation Bench Decision, File No. 16896, 2005.

[4] Tana Drilling and Industries Vs. Dire Dawa Administration Water and Sewerage Authority, Federal Supreme Court Cassation Bench Decision, File Number 127459, Vol. 22, 2017.