Part 3: How should international investors deal with dispute resolution issues in Ethiopia: sovereign immunity

Posted in Blog post Northern Africa Southern Africa Central Africa Western Africa Eastern Africa Agriculture Infrastructure Mining OHADA and francophone Oil and gas Power Renewables Transport

As discussed in our previous blogs, investors are currently negotiating with the government of Ethiopia to establish acceptable dispute resolution procedures to govern disputes that might arise in the context of the significant infrastructure (and other) investments they are making in the country. We considered some of the background to these discussions in Part 1 and the practical considerations in Part 2 of this blog.

But, negotiations of such dispute resolution procedures will be for nothing if the government of Ethiopia is simply allowed to claim immunity when a dispute arises. As part of our series on dispute resolution issues in Ethiopia, this blog will look at the doctrine of sovereign immunity and the need to obtain a waiver of such rights if contracting with a government or state-owned entity in Ethiopia (and indeed any other jurisdiction). 

What is sovereign immunity and who benefits from it?

In general terms, sovereign immunity is a doctrine of international law that prevents courts and arbitral tribunals from exercising jurisdiction over states and state-owned assets.

Sovereign immunity can be split into three distinct categories:

  • Immunity from jurisdiction or suit i.e. from the bringing of proceedings against the state/state-owned entity;
  • Immunity from execution i.e. from the enforcement of an award or decision against the assets of the state; and
  • Immunity from process i.e. from procedural processes, such as service of court papers. 

Each jurisdiction will have separate rules on immunity and the extent to which states (and state-owned enterprises) can benefit from immunity. It will be important for investors to consider the rules both in the jurisdiction of the state/state-owned enterprise (in this case Ethiopia) and also in the jurisdiction(s) in which they may seek to enforce (e.g. the jurisdictions in which offshore project accounts are situated). 

Can sovereign immunity be waived and how?

Given that sovereign immunity essentially prevents investors from being able to enforce their rights against their state/state-owned counterparties, an effective waiver of such immunity is essential for both investors and their financiers from a bankability perspective.

But how does this waiver work?

  • Typically (including in Ethiopia), where a state has agreed in writing to submit a dispute to the courts or arbitration, that is taken to be a waiver of its immunity from suit. However, this will be dependent upon the immunity rules of the jurisdiction in question. Zimbabwe is a counter example, where an express waiver is required.
  • Conversely, submission to arbitration is not generally considered to be a waiver of state immunity from execution. As such, it is recommended that investors seek an express waiver of such rights of immunity in order to ensure that judgments or awards can be enforced against the state’s assets. As a general rule, states will not agree to waive immunity over certain classes of assets e.g. the relevant state’s foreign embassies or consular possessions, and will try to limit the assets available for execution as far as possible. Investors will want to keep this asset class as broad as possible to heighten their chances of recovering the full value of the judgment or award.

Additional factors which will need to be considered include the ability of the state counterparty to waive immunity on behalf of the state and, if that counterparty is a government department, whether it is entitled to bind the whole government or indeed future governments.

 

About

Africa is as dynamic a market as it is diverse. We understand that changes impacting your business can arise rapidly and vary significantly across the continent.

Our understanding of Africa’s markets stems from extensive experience on the ground. Through our Inside Africa blog, we aim to apply this insight to provide you with timely commentary on the latest developments across Africa, as well as insight into the many nations that make up this vast continent.

Read more
Blog Network

Topics

Archives