What should be the Father’s and Grandfather’s Names of an Adopted Child?: a Recent Judgment of the Ethiopian FSC Cassation Bench

By Dagnachew Tesfaye
Email: dagnachew@dmethiolawyers.com

Introduction
The Federal Supreme Court(FSC) of Ethiopia Cassation Bench on File No 173628 Volume 24 held the position that adoption agreement approval does not affect the procedure in which adoption certificate will be issued. The adoption certificate that will be issued shall contain the adoptee’s given name/s, father’s and grand father’s names. The father’s name and grandfather’s name shall come from the adoptive parent’s names and not that of the family of origin. The request by the applicants to the bench to retain the original fathers and grandfathers names of the adoptees on the adoption certificate was disregarded by the FSC Cassation court as it is contrary to the Directive No 7/2018 Section 4 Sub section 3 Article 43(3) that is issued in accordance with the Registration of Vital Events and National Identity Card Proclamation No 760/2012 Article 70(2) and its amendment Proclamation No 1049/2017.
Background
The applicants were the birth parents and the adoptive mother suing the respondent Vital Event Registration Office. The claim of the applicants is that the Federal Court has approved their adoption agreement that allowed four children of the birth families to be the adopted children of the adoptor. Then the request of the applicants to register as it is the father’s and grand father’s name of the adopted children on the adoption certificate was met by opposition from the Vital Event Registration Office. The Office says that the adopted children’s father’s and grand father’s name will change to that of the adoptive parent and it dismissed the request of the applicants. Here the applicants sued the Office’s to be obliged to accept their request and its refusal to be dismissed.
First Instance and Appeal Courts
The suit of the applicants at the First Instance level was dismissed for lack of jurisdiction citing the reason that the claim should be presented to the special adoption bench or ask for execution of judgment based on the file the adoption agreement is approved. The applicants appealed to the Federal High Court. The High Court accepted the case and decided the case on the merits. The appellate court said that adoption certificates will not be issued unless the father and grandfather’s names of the adopted children change to that of the adoptive parent. The court dismissed the appeal of the appellant based on Proclamation No 760/2012 and its amendment Proclamation No 1049/2017 and Directive No 7/2018 Article 30 Section 4 Sub-section 3 and Article 43.
Court of the FSC Cassation Bench
The Cassation court accepted the application of the applicant in Cassation file no 173628. The bench coined the issues of the case to relate to whether the position of the appellate court decision based on Proclamation No 760/2012 and its Directive 7/2018 contradict the already court approved adoption agreement?
The Cassation bench held the position that the already court approved adoption agreement only shows the existence of an agreement only. There was no determination by the court that approved the adoption agreement on the manner of issuance of an adoption certificate as per Proclamation No 760/2012 and its Directive No 7/2018. Thus the court said based on the approved adoption agreement, a relevant government office shall make sure the requirements are met when it issues the adoption certificate. The bench concluded that doing so is not contrary to the law or the approved adoption agreement.
The Cassation court further concluded that as per Directive No 7/2018 Section 4 Sub Section 3 of Article 43, whenever the adoptive parent is a single woman, the name of the adopted child shall be the given name of the child on the adoption agreement, the father’s name shall be the father’s name of the adoptive mother and grand father’s name shall be the grand father’s name of the adoptive mother.
The Cassation bench highlighted that the procedure contained in the Directive 7/2018 Article 43(3) will not harm the best interest of the adopted child/children if implemented. Therefore, the Cassation bench upheld the appellate court decision and dismissed the applicants’ requests.
Conclusion
The judgment emphasizes the fact that when an adoption certificate is issued, the names of the birth parents will change to that of the adoptive parent/s. Since adoption creates a permanent family relationship, the adoptive parent/s will have precedence or priority over that of the families of origin. As a result the adopted child/children will take their given name and in addition to that their father’s name and grandfather’s name will follow the adoptive family’s name.
For further information please contact us at info@dmethiolawyers.com

 Save as PDF

Legal Update

The Federal Supreme Court Cassation Bench on Cassation File No 193292 on August 5,2021 read on August 16,2021 rendered a binding decision on the issue of how the principle of reciprocity should be interpreted for trade mark registration and protection for foreign companies or foreigners in Ethiopia. The judgment bases itself on Trade Mark Registration and Protection Proclamation No 501/2006 Articles 3 and Article 13 and Trade Mark Registration and Protection Council of Ministers Regulation No 273/2012 Article 27 Sub-Article 2. The articles above provide the fact that foreigners shall have the same rights and obligations as Ethiopians under the Proclamation so long as the principle of reciprocity is met or in accordance with any treaty that Ethiopia is a party to. The procedure for filing opposition to registration of trademarks is also included. The bench concluded that the principle of reciprocity under Article 3 of the Proclamation should be interpreted in the following manner: ‘if a foreign country does not provide similar registration and protection of trademarks for Ethiopians as it provides for its own citizens, then those foreigners from those countries cannot ask for registration and get protection of their trademark and related rights in Ethiopia’. This interpretation of the principle of reciprocity by the Cassation Bench is a binding interpretation of the law for both the Federal and Regional Courts of Ethiopia as per Federal Court Establishment Proclamation No 1234/2020 Article 10(2) from the date the decision is rendered.

https://t.me/fscethiopiaPR/73http://196.189.91.203/…/%e1%8a%a0%e1%89%b6-%e1%8a%a0%e1…

 Save as PDF

Foreign Investors Ownership of Immovable in Ethiopia

By Mahlet Mesganaw
Email: mahlet@dmethiolawyers.com


Introduction

Historically, under the Civil Code of Ethiopia in 1960, under Article 390, a foreigner is not allowed to own an immovable property in Ethiopia. However when investments are increasing by foreigners in Ethiopia, there arises a need provide incentive. Thus as part of the investment incentive together with income tax waivers, the Ethiopian government allows foreigners to own immovable property. A brief look on the subject matter is made here below.


The Shift

The 1960 Civil Code of Ethiopia on Article 390 clearly state that foreigners may not own immovable property situated in Ethiopia except in accordance with an Imperial Order. Such a stance has not been changed when the Imperial Era came out with an investment Proclamation No 242/1966. Similarly the Dergue regime’s investment Proclamation No 17/1990 did not change the situation. Neither the Transitional Government of Ethiopia Proclamation No 15/1992. Investment Proclamation No 37/1996 incorporated no specific law regarding ownership of immovable by foreigners as well. The first investment proclamation to introduce the shift was Investment Proclamation No 280/2002. Under Article 38 of the Proclamation, it states that notwithstanding the provisions of Article 390-393 of the Civil Code, a foreign national taken for domestic investor or a foreign investor is granted the right to own a dwelling house and other immovable property requisite for his investment. This right of ownership of an immovable covers those investors who have invested prior to the issuance of the proclamation. Then similar provisions allowing foreign investors ownership right of immovable has been included in Investment Proclamation No 769/2012 and the latest Investment Proclamation No 1180/2020 and its Regulation No 474/2020. We shall see who is eligible for ownership of immovable property next.


Who is Eligible

To own an immovable property in Ethiopia as a foreigner, the foreigner has to be a foreign national who invested in Ethiopia or a foreign national considered as domestic investor.“Foreign Investor” is defined under the latest investment proclamation as a person who has invested foreign capital in Ethiopia as a foreign national or as an enterprise in which a foreign national has an ownership stake or as an enterprise incorporated outside of Ethiopia by any investor. A foreign national will be considered as domestic investor by application made by the foreign investor. A foreign national or foreign enterprise will be treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia and issued with permit. A foreign national or foreign enterprise accorded a domestic investor investment permit as per laws which were in effect when the permit was issued will be considered as a domestic investor. Thus foreign nationals who brought capital to Ethiopia as an investor and foreign nationals considered as domestic investors shall have the right to own immovable property. What constitutes an immovable property will be dealt next.


Immovable Property

A foreign investor or a foreign national treated as domestic investor will have the right to own immovable property necessary for his investment. Immovable property as used in this provision does not include land. The reason land is excluded is because of the FDRE Constitution. Under Article 40 Sub Article 3 of the Constitution, the ownership right of land in Ethiopia is assigned to the Nations, Nationalities and Peoples of Ethiopia. A foreign investor or a foreign national treated as domestic investor who owns large investment may be allowed to own one dwelling house. Article 17 of the Investment Regulation No 474/2020 state that a foreign investor or foreign national considered as a domestic investor may own a dwelling house if he has invested a minimum of USD10 million. Comparing the latest proclamation with the earlier investment proclamations show strict conditions are set in this latest investment proclamation for ownership of dwelling house. For instance the previous investment proclamations namely Investment Proclamation No 769/2012 and 280/2002 provide that foreign investors or a foreign national treated as a domestic investor has the right to own a dwelling house and other immovable property requisite for his investment. There was no capital requirement for owning dwelling house.


Conclusion

In compliance with the economic progress and the size of the foreign investment in Ethiopia, the Ethiopian government has continuously amending its investment laws to meet the needs of foreign investors to reside and operate their commercial activities. Ethiopian Investment law as an investment incentive rendering ownership right of immovable for foreign investors will encourage investment, but requiring huge investment to own dwelling house may discourage the same.

 Save as PDF

Important Aspects of Court Annexed Mediation in Ethiopia

Lydia kedir –Legal Assistance – at Dagnachew and Mahlet Law Office
Email: info@dmethiolawyers.com


Introduction


Ethiopian use customary dispute resolution mechanisms to resolving disputes in civil and criminal matters in the past years. Such dispute resolutions are led by community elders. These elders act like mediator in dispute resolution. The aim is to restore peaceful relationship between the parties. And to maintain future peaceful relationship by avoiding revenge. Formal law in Ethiopia recognizing some alternative dispute resolutions mechanism such as arbitration and conciliation were adopted under the Civil Code of Ethiopia and now separately under Proclamation No 1237/2021. Similarly the new Federal Court Establishment Proclamation No 1234/2021( hereafter the Proclamation) incorporated Court Annexed Mediation(CAM). A look on the steps Ethiopia took in formalizing Alternative Dispute Resolutions(ADR) and in particular CAM shall be made here below.


Steps Taken


Ethiopia took important step towards the development of ADR. For instance in 2020-2021 Ethiopia adopted New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, enacted Arbitration and Conciliation Proclamation and incorporated CAM under its Federal Court Establishment Proclamation No 1234/2021. Before the enactment of Proclamation No 1234/2021, the courts do not have legislative mandate to use CAM to resolve dispute.


What is Mediation?


Black’s Law Dictionary define Mediation as “a method of nonbinding dispute resolution involving a neutral third party who tries to help the disputing parties reach a mutually agreeable solution.” The most important aspect of the definition is that mediation is nonbinding. The pertinent legislation i.e. Federal Court Establishment Proclamation No 1234/2021 doesn’t define the word mediation. The Proclamation only state the court annexed mediation procedure, principle of mediation, fees, and who is mediator. However from the essence of the Proclamation, court annexed mediation can be defined as ‘the conflicting parties voluntary participate in the process of court annexed mediation and parties resolve their disputes with mediator, the approved agreement have binding power like decision of the court”


What is CAM?


CAM is a voluntary process of mediating disputing parties who presented their cases to court at an early stage of the litigation process. CAM is conducted under the auspices of the court whereby the officers of the court serve as mediators. Thus in CAM the mediation services are provided by the court as a part and parcel of the same judicial system. The agreed terms and approved settlement agreement in CAM shall be like a court decision and executed automatically. Ethiopian courts provide mediation settlements as the status of executable document.


Who is Mediator in CAM?


Pursuant to Article 47 of Proclamation, three cumulative requirements are set to be a mediator in CAM. The mediator need to have bachelor degree in law and with at least five years of experience in the field of law. He/she should be a person who has taken training in mediation. And finally the mediator has to be a person who fulfilled the criteria which is set by Federal Supreme Court. However, there is a possibility of including non legal EXPERIENCED professionals in areas related to their profession, as mediators.


Types of Cases


As per article 45 (1) of Proclamation, mainly civil cases are referred to CAM. It is clear that criminal matters are not subject to mediation. From civil matters, the directive to be issued by the Federal Supreme Court, shall determine which civil matters are included and excluded. Other jurisdictions like Bahrain for example, by amending their criminal procedure laws, they are including breach of trust crimes, petty theft, issuing a bounced cheque and other misdemeanors to be subject to mediation. CAM shall be instituted for cases falling under the jurisdiction of Federal First Instance courts and Federal High Courts only.


Principles of Mediation


Proclamation No 1234/2021 doesn’t define in detail the CAM’s involved parties rights and duties. For instance request of removal of mediator or when and how a judge involve in the mediation process are not listed in detail. The Proclamation tries to briefly specify the principles of mediation. The parties are free and equal. Communication of the parties in mediation shall be confidential and such communication shall not be admissible as evidence in the process of litigation. Hence additional rights of the parties, the removal of the mediator, the role of the mediator and how the judge involves in the case should be included in the directive the Federal Supreme Court will issue in the future.


Unsuccessful CAM and Fees


Where the parties have failed to resolve their dispute through CAM, the court proceedings shall be initiated automatically. However, if the mediation proceeding is interrupted due to absence of the other party, the mediator shall report to the court by specifying the reason for the interruption and the court proceedings shall be initiated after the absent party paid appropriate fee. Fees for mediators shall be fixed by the upcoming directive of the Federal Supreme Court. Such directive will sort out how much is paid when an employee of the court serves as mediator, a non-legal professional is involved or when mediator is selected by the parties.



Conclusion

Ethiopia recognized CAM as formal law in 2021. Such recognition is step forward for the speedy resolution of litigation in courts. CAM is recognized by law and its full implementation awaits directive of the Federal Supreme Court. CAM is added to the ADR instrument available for litigating parties in the Federal Ethiopian Court system. This is in addition to private conciliation or arbitration procedures already there in the legal system. Making sure of implementation of CAM, private conciliation or arbitration will make the legal system of Ethiopia far more better.

 Save as PDF

Revisiting Minimum Capital Requirement for Foreign Investors As Part of Ease of Doing Business In Ethiopia

By Lydia Kedir
Position: Legal Assistant at DMLO
Introduction
Minimum capital requirement (MCR) is the capital that must be deposited by investor before starting business operations. The deposited amount can be withdrawn soon after the company is formed. MCR is another concern often mentioned in relation to investment codes that regulate flow of foreign investment. In recent years, many governments have stopped requiring new businesses to deposit minimum investment capital in banks or with notaries before they can begin operations. A brief look into the experiences of African counterparts that highly attract foreign direct investment (FDI) such as Rwanda and Tunisia will be made first. Based on those experiences, a brief discussion into the investment MCR of Ethiopia shall be made and a brief conclusion will follow.

1.1. Rwanda
Rwanda is land locked country. However such factor does not limit the attractiveness of the country for investment. Recently Rwanda created favorable condition for foreign investor. Seeking to attract more FDI, the government of Rwanda enacted a new investment code. The aim is to attract investor. The code provides tax breaks and other incentives to investors. Beside that, Rwanda has no minimum investment capital requirement. There is no statutory limit to foreign investor. In Rwanda there is no difference between foreign and domestic investor. Foreign investors have right to own and establish business enterprises in all sector. Rwandan laws’ provide equal treatment for local and foreign investor with regard to business operation.

Rwanda does not set minimum investment capital requirement. Hence foreign investors can start their business in Rwanda with the capital the investor wishes to invest. Rwanda provides equal opportunity to foreign investor with high capital and low capital. There is no discrimination between them. Due to these factors, investors in Rwanda are creating better employment opportunities, transfer of knowledge, skill and technology. Moreover the investment atmosphere of Rwanda is generating significant effect on the social and economic development of the country.

However rather than focusing on putting hurdles at the entry level in investment, Rwanda put criteria for investment projects evaluation. These evaluations include engaging in non trading activity, creation of quality jobs, transfer of skills and knowledge, use of local raw materials, potential for export, potential to create backward and forward linkages, and innovation and creativity.

After evaluating the investment projects, Rwanda provides investment permit for the investor. This strategy or criteria has been very successful for Rwanda. The country is also impressively ranked in the Doing business 2020 report published by the World Bank, ranking 38th out of 190 economies in terms of ease of doing business and this made Rwanda the highest ranked country in Africa.

1.2.Tunisia
Tunisia government is working on with the objectives of raising the country’s economy through foreign direct investment. Government of Tunisia attracts foreign investor to the country by reforming policies and enacting a new laws. Government of Tunisia considers the investment and business climate will be attractive by reforming and enacting laws. To mention few areas of reform include bankruptcy law, investment code and public private partnership.

Moreover Tunisian government adopted laws that allow starting investment and business more easily. The law in Tunisia does not require a minimum capital requirement, if a company being created is in the form of a Limited Liability Company or a Single Member Liability Company. For a Limited Company, a minimum capital requirement of no less than 5,000 TND is required. The capital requirement will grow to 50,000 TND if the Limited Company does make a public invitation. The minimum capital requirement must be divided in membership shares whose nominal value may not be less than 1 TND. Tunisia renders equal treatment for local and foreign investor. Both of them have the same right and can engage on any business activity. This improvement is booster to portfolio investments and helped country progress in World Bank’s Doing Business 2020 report. Tunisia ranked 78 out of 190 countries. Nevertheless, there are still huge bureaucratic problem to investment. State owned enterprises are major player in Tunisian economy. However relatively, Tunisia attract foreign investors.

1.3. Ethiopia
MCR is one of the vital preconditions for an admission/entry of a foreign investment in Ethiopia. Such requirement is solely applicable to foreign investors. Minimum investment capital requirement is a regulatory instrument that set the who can invest in the country depending on specific policy goals of country. In the Ethiopian context, MCR is put in place particularly to achieve the promises contemplated by the investment legislation.

Article 9 of the Investment Proclamation No 1180/2020 set the amount of MCR. Any foreign investor, to be given the permission to invest in Ethiopia, is obliged to allocate a minimum capital of USD 200,000 for a single project. If the foreigner is investing together with a domestic investor, the minimum capital requirement will reduce by 50k and becomes USD 150,000. A foreign investor investing in architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing works, is required to invest minimum capital of USD 100,000. If the investment is made together with a domestic investor, then the minimum capital will reduce to USD 50,000.


There are few exceptions. When a foreign investor is re-investing his profit or dividend obtained from his pre-existing company in Ethiopia, the investor will not be required to invest the minimum capital. Similarly, minimum capital requirement will not apply when a foreign investor buys the entirety of an existing company owned by a foreign investor or the shares therein. Another exception is when a foreigner is appointed a board member in a share company that is converted from a private limited company.

The minimum capital requirement need to be registered. Any foreign investor bringing investment capital into the country shall have such capital registered by appropriate investment organ within one year and obtain a certificate of registration. This enables the investor for remittance at a later stage.

Not only this recent investment proclamation but also the previous investment proclamation of Ethiopia namely Investment Proclamation No 769/2012 (as amended) also incorporate minimum capital requirement for foreign investors.

Different African countries reformed their investment laws to excluding minimum investment capital requirement. Ethiopia enacted a new investment law in 2020. However, still the MCR is incorporated. The country does not provide the opportunity for foreign investor who wanted to test the business investment environment with capital less than USD 200,000 or USD 100,000, or USD 50,000. So long as the investment area is open for foreign investment, the MCR should have been avoided. The equal business treatment of a foreign investor with that of a domestic investor is a huge attraction point in Rwanda and Tunisia. Similarly Ethiopia should avoid what seems to be a discriminatory treatment of foreign investors in doing business in Ethiopia. Entry level hurdles and obstacles to business need to be reformed. This will attract FDI. Any amount of FDI should be invited into the country. Specially small and medium FDI’s will grow into big investments in the country. More so, small and medium FDI’s attract the big ones, by showing them that doing business in Ethiopia is possible, attractive and profitable. Huge investment attraction like Dubai, for instance, allows all types of FDI’s, including structuring zones, so that anyone who wants to invest and do business can do so. The Dubai government earns its share from charging in thousands of dollars on issuing permits and licences and their renewals.


Minimum capital set out in the Commercial Code of Ethiopia Proclamation No 1243/2021 for a single member private limited company or private limited company or share company should equally serve foreign investors initial investment capital requirement. The MCR in the Investment Proclamation is discriminatory and need to be revisited.

Due to the fact that Ethiopia is fixed on setting MCR, foreign investor may look away and invest in other countries. Specially those big or small investors who wants to start business small, will be discouraged at entry level.

Ethiopia ranked 159 among 190 countries in the ease of doing business according to World Bank annual ratings. The rank of Ethiopia remained unchanged at 159 in 2019 from 159 in 2018. To change the rank, Ethiopia should repeal the statutory requirement of MCR.

Conclusion
Minimum investment capital requirements is set to regulate the flow of foreign investor into a country. Ethiopia use minimum investment capital requirements as preconditions for entry of an investment into the country. Having minimum investment capital requirement highly affect the flow of FDI. Foreign investor who wish to invest less, lack access to invest in Ethiopia. Because of this unfavorable legislative condition, Ethiopia will lose many investment opportunities. In order to improve the investment climate, attract more FDI and tackle unemployment challenges, Ethiopia should create favorable condition for foreign investor at entry level. Excluding of MCR may improve the investment climate and attract more FDI.

 Save as PDF

Few Highlights on Single-Member Private Limited Company

By Hami Bogale(Legal Assistant) and Dagnachew Tesfaye(Partner)
Emails: hamiboged@gmail.com, dagnachew@dmethiolawyers.com,

Introduction
The 1960’s Ethiopia’s Commercial Code was one of the codes that needed a deep amendment. It governed Ethiopia’s commerce and business related field for the last five decades. In the current period, the world is introducing and establishing the newest companies in accordance with most recent technologies. These new advancements need a new governing law that could go in parallel with the current time. These, of course raised various requests from scholars and investors that the code shall be amended and altered. After various attempts the Commercial Code was reviewed by the legislators and amended.

The new Commercial Code of Ethiopia Proclamation No 1243/2021 has introduced a number of changes. Among those new introductions is a Single-Member Private Limited Company(hereafter referred to as SMPLC). SMPLC is the vital new establishment. Accordingly, under the new Commercial Code, one person can establish a company by himself/herself. Therefore a brief discussion on the formalities of establishing a SMPLC shall be discussed here-below.

Membership
The normal private limited company shall have members ranging from two to fifty in number. The SMPLC, however is established only by one person. A person can be both natural and juridical person. The law is clear on Article 539(1) that a SMPLC cannot establish another SMPLC. There is no clear prohibition against Private Limited Company or Share Company from forming SMPLC. Obviously SMPLC can be formed by a natural person. It seems that SMPLC is a form of sole proprietor whereby the SMPLC enjoys limited liability. This can be confirmed by Article 538 in that the sole proprietor is allowed to convert to SMPLC. However the sole proprietor shall remain liable jointly and severally for creditors and debts happening before the conversion to SMPLC.

Establishment
A SMPLC is established by a declaration entered in front of a notary. The declaration shall be registered on the commercial registry. This is different from normal PLC formation that requires memorandum of association for its formation. However the content of the declaration is a bit different to that of the memorandum of association. One such difference is the requirement of appointing on the declaration a Property Keeper. The Property Keeper shall take over the single member PLC in case of death, absence, juridical interdiction of the Member. The property keeper should consent for the job. Once the Property Keeper consents, he cannot be a property keeper for another SMPLC.
The SMPLC once registered, shall have a different personality than the member.

Contribution and Capital
The SMPLC is established by the member having contributed in full the subscribed contribution. If the contribution is in cash, then there should be a statement stating that the full amount is paid in full. Failing to contribute in full the subscribed cash contribution shall make the member liable personally. The minimum capital should not be less than 15,000 Birr. This is similar to the minimum capital requirement for a Private Limited Company in the 1960 Commercial Code. Now the minimum capital requirement is lifted for PLC’s in the new Commercial Code. On the other hand, in- kind contribution is permissible. When it comes to in-kind contribution, the valuation has to be confirmed by an Auditor. Damage occurring due to over-valuation of the property on third parties shall make the auditor and member jointly and severally liable. However, such liability shall be barred by period of limitation after five years from the date of valuation.

Liability
In principle the member in SMPLC shall be liable to the extent of his contributions. The exceptions to this rule are detailed in Article 543, in non-exhaustive way, to include ‘doing unlawful act intentionally to harm creditors or the PLC itself; merge the Single Member PLC’s property with his personal property; fails to separate his identity from the PLC; issuing a false financial standing of the PLC to creditors; benefiting himself or others of the property of the PLC without appropriate consideration/ compensation and pay himself dividend above the legally accepted range. Committing these acts or similar other unlawful acts shall make the member jointly and severally liable with the SMPLC.

General Meeting and General Manager
The SMPLC shall have a General Meeting. The member is endowed with the power of the General Meeting of Members of a normal Private Limited Company. Any resolution as a General Meeting can be done and such resolution has to be attached to the files of the SMPLC. Similarly, the SMPLC shall have a General Manager. The General Manager can be the member himself/herself or a third party. The General Manager shall have powers and responsibilities of the any general manager in a Private Limited Company.

Dissolution
Dissolution of a SMPLC may follow the legal procedure of first liquidation and then dissolution. However, the law allows the SMPLC to dissolve without liquidation, if the member pays all debts of SMPLC. In such situation, the property of the SMPLC shall devolve to the member as it is. Nevertheless, in the circumstance that a creditor comes after dissolution without liquidation, then the member shall be personally liable. The period of limitation is five years from the date of knowledge of the dissolution by the creditor. However from date the property of the SMPLC passes to the member, any creditor’s claim shall be barred by ten years period of limitation.

Conclusion
Company law in Ethiopia used to cover only Private Limited Company and Share Company under the 1960 Commercial Code. Now under the new Commercial Code of Ethiopia 2021, an additional company is introduced namely Single Member PLC. The Single Member PLC will give options to those private limited companies, whose members are nominal or their names are included to fill the minimum number of members requirement, and the active member can convert easily to Single Member PLC. Similarly sole proprietors can now enjoy limited liability by forming a Single Member PLC. Our clients may contact our office for further legal services and advice for issues related with conversion from PLC to Single Member PLC or from sole proprietorship to Single Member PLC.

 Save as PDF

Major Attraction of FDI for Ethiopia: The African Continental Free Trade Area Agreement

By Dagnachew Tesfaye
Email: dagnachew@dmethiolawyers.com

The African Continental Free Trade Area (‘AfCFTA’) is signed by 54 African Countries out of the 55 African countries. Eritrea being the only country not to sign. As of 15 January 2021, 36 of the 54 signatories ratified the AfCFTA Agreement.

After WTO, AfCFTA is the largest free trade area in the world based on the number of participating counties. It covers nearly 1.3 billion African people. The objective of AfCFTA is to create a single continental market for trade in goods and services and to facilitate the movement of capital and natural persons. Foreign investors thus will be able to do business on a single line of trade and investment procedure across Africa. AfCFTA will promote larger, more integrated markets on the continent. This will make investing in Africa more profitable to foreign investors.

A brief discussion of the contents of AfCFTA Agreement will be made. Then binding and completed protocols namely the protocols on trade in goods, protocols on trade in service and dispute settlement protocol shall follow. A brief discussion on protocols under negotiation namely protocols on investment, protocols on intellectual property and protocol on competition policy shall be made. Finally the positive impact of AfCFTA for attraction of foreign direct investment for Ethiopia shall be discussed.

Contents of the AfCFTA
The general objectives of AfCFTA is set in Article 3 of the Agreement. Some of the major objectives include creation of a single liberalized market for goods, services and movement of persons. In addition to that the objective is to set foundations for establishment of a continental customs union. For realizing these objectives, Article 4 provides specific objectives as follows: the progressive elimination of tariffs and non-tariff barriers to trade in goods; the progressive liberalization of trade in services; co-operation on investment, intellectual property rights, and competition policy; co-operation on all trade-related areas; cooperation on customs matters and the implementation of trade facilitation measures; the establishment of a mechanism for the settlement of disputes concerning the rights and obligations of member states; and the establishment and maintenance of an institutional framework for the implementation and administration of the AfCFTA.

The administration and organization of the AfCFTA shall consist of the Assembly, the Council of Ministers, the Committee of Senior Trade Officials and the Secretariat. The composition and decision making powers of each of the above organs are detailed in the Agreement. State Parties to AfCFTA are obliged to promptly publish in their laws publications and make available to the public and the Secretariat of the AfCFTA any trade matter covered under this Agreement.

State parties to AfCFTA shall give on a reciprocal manner, preferences that are no less favorable than those given to non-members(Third Parties) states. In the event that there arises conflict between AfCFTA and any regional agreement ( such as the Arab Maghreb Union (UMA); the Common Market for Eastern and Southern Africa (COMESA); the Community of Sahel-Saharan States (CEN-SAD); the East African Community (EAC); the Economic Community of Central African States (ECCAS); the Economic Community of West African States (ECOWAS); the Intergovernmental Authority on Development (IGAD) and the Southern African Development Community (SADC), this Agreement shall prevail.

The AfCFTA Agreement contains three completed protocols on trade in goods, trade in services, and interstate dispute settlement. So-called “Phase II” negotiations are underway in relation to protocols on investments, intellectual property rights, and competition policy. Overview of the three completed protocols and the three protocols under negotiation are made here-below.

The Completed Protocols
Trade in Goods
Trade in goods protocol apply to trade in goods between State Parties. State Parties shall provide when it comes to trade in goods the most-favored-nation-treatment to one another. Article 2(1) of the Protocol on Trade in Goods provides that “[t]he principal objective of this Protocol is to create a liberalized market for trade in goods in accordance with Article 3” of the AfCFTA Agreement. In doing so, Article 2(2) sets out various objectives, including the progressive elimination of tariffs, the progressive elimination of non-tariff barriers, and the enhanced efficiency of customs procedures, trade facilitation, and transit.


State Parties shall progressively eliminate import duties or charges having equivalent effect on goods originating from the territory of any other State Party. Similarly State Parties may regulate export duties or charges having equivalent effect on goods originating from their own territories.

An important ongoing point of negotiation revolves around the Rules of Origin. Article 13 of the Trade in Goods provide that goods shall be eligible for preferential treatment if they are originating in any of the State Parties. The Rules of Origin are aimed at preventing the import of goods from non-preferential countries at preferential rates of duty. It is not yet clear what rates will apply, but compliance with the Rules of Origin will be necessary in order to access the preferential rates.


Trade in Services
The Protocol on Trade in Services defines ‘Service’ as to include any service in any sector except services supplied in the exercise of government authority. The aim of the Protocol on Trade in Service is to facilitate the liberalization of trade in services. Article 3(2)(a,b,c,d and e) of the Protocol on Trade in Services allows member states to “enhance competitiveness of services through: economies of scale, reduced business costs, enhanced continental market access, and an improved allocation of resources including the development of trade-related infrastructure; promote sustainable development in accordance with the Sustainable Development Goals (SDGs); foster domestic and foreign investment; accelerate efforts on industrial development to promote the development of regional value chains; progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services; progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services”.

Each State Party shall accord immediately and unconditionally to service and service suppliers of any other State Party treatment no less favorable than that it accords to like services and service suppliers of any Third Party.

Dispute Settlement

Article 20 of the AfCFTA Agreement establishes an interstate Dispute Settlement Mechanism that will be administered according to the Protocol on Rules and Procedures on the Settlement of Disputes (‘Dispute Settlement Protocol’). The Dispute Settlement Protocol was set out along with the AfCFTA Agreement. Article 3(1) of the Disputes Settlement Protocol state that ”This protocol applies to disputes arising between State Parties concerning their rights and obligations under the provisions of the Agreement’‘. The aim of the dispute settlement mechanism is to provide security and predictability to the regional trading system. The dispute settlement mechanism shall preserve the rights and
obligations of State Parties under the Agreement and clarify the existing provisions of the Agreement in accordance with customary rules of interpretation of public international law.


This mechanism has copied the dispute settlement system of the WTO and is therefore a state-to-state system. Accordingly, it is important for businesses and individuals to be note that, if they are of the view that a member state has breached an obligation, they should appeal to their home or host country to take up the dispute (while bearing in mind that a dispute is only likely to be taken up in exceptional cases where the subject matter is of national importance and diplomatic efforts have failed).


Procedures under the Dispute Settlement Mechanism is as follows. Where a dispute arises between or among the State Parties, in the first instance, recourse shall be had to consultations, with a view to finding an amicable resolution to the dispute. Where an amicable resolution is not achieved, any party to the dispute shall, after notifying the other parties to the dispute, refer the matter to the (Dispute Settlement Body) DSB, through the Chairperson and request for the establishment of a Dispute Settlement Panel, (“Panel”) for purposes of settling the dispute. The DSB shall adopt Rules of Procedure for the selection of the Panel, including the issues of conduct, to ensure impartiality. The Panel shall set in motion the process of a formal resolution of the dispute as provided for in this Protocol and the parties to the dispute shall, in good faith, observe in a timely manner, any directions, rulings and stipulations that may be given to them by the Panel in relation to procedural matters and shall make their submissions, arguments and rebuttals in a format prescribed by the Panel. The DSB shall make its determination of the matter and its decision shall be final and binding on the parties to a dispute. Where the parties to a dispute consider it expedient to have recourse to arbitration as the first dispute settlement avenue, the parties to a dispute may proceed with arbitration as provided for in Article 27 of this Protocol.


Protocols under negotiation
Investments
As mentioned above, there have been ongoing negotiations on the Investment Protocol of the AfCFTA. Nevertheless, the Investment Protocol has not been completed. One hurdle facing the negotiations is the already negotiated and existing international investment agreements at the bilateral and regional level. There are currently 171 intra-African bilateral investment treaties that the AfCFTA Agreement aims to supersede by creating and offering a single treaty that would regulate all intra-African investments. In the future, the AfCFTA Agreement may serve as a basis for negotiations on international investment agreements, including those with non-African countries.


Intellectual Property Rights
The on-going discussions on the Protocol on Intellectual Property will be aimed at creating a consolidated approach to intellectual property rights across the African continent. The Protocol on Intellectual Property will therefore achieve a higher level of certainty to a currently fragmented legal landscape for intellectual property.


Competition Policy
The AfCFTA Agreement will bring greater integration between member states by reducing tariff and non-tariff barriers. This will pave the way to an upward increase in cross-border business. Such cross-border business will require a strong regulatory framework in order to promote competition and protect consumers at a regional level. In this regard, according to some commentators, the Protocol on Competition Policy aims to address cross border anti-competitive cases such as cartels, abuse of dominance, mergers analysis, creation of a competitive environment conducive for existing competitors and new entrants.


Potential for Ethiopia
Ethiopia is a signatory to AfCFTA and also has ratified the AfCFTA Agreement under its Proclamation No 1124/2019 done on the 5th day of April 2019. Foreign investors thus will be able to do business on a single line of trade and investment procedure across Africa. AfCFTA will promote larger, more integrated markets on the continent. This will make investing in Ethiopia more profitable to foreign investors. The conducive business environment existing in Ethiopia, in terms of labor, land, laws, infrastructures and favorable climate will provide foreign investors with access to market across the African continent. As the seat of the African Union, Ethiopia provides direct access to expedited handling of settlement of disputes as well.


Conclusion
Therefore, the AfCFTA Agreement officially came into force as of January 1,2021, in the middle of the Covid19 pandemic. AfCFTA signals a positive hope in the middle of a global economy hardship. Foreign investors now have the opportunity to tap into a vast market that has more legal and economic certainty. Ethiopia is one great access route for such an investment. It is important for local and foreign businesses in the Ethiopia to be aware of and take advantage of the new platform that is now available.

 Save as PDF

One New Addition to the Management of Private Limited Company- Introduction of Board of Directors

By Mahlet Mesganaw, Partner
E-mail: mahlet@dmethiolawyers.com


The 1960 Commercial Code of Ethiopia had one or more managers lead the management of a Private Limited Company(PLC) . However the new Commercial Code of Ethiopia Proclamation No. 1243/2021, added a new management STRUCTURE. That is called a Board of Directors structure. The form and manner of management of a PLC by a board of directors or manager shall be briefly discussed.

The Memorandum of Association
The memorandum of Association(MoA) of a PLC is the formation document of the PLC. The MoA determines the structural organization of the management of the PLC. The MoA may state that the PLC be managed either by a board of directors or a manager.

Composition and Structure of a Board of Directors
When the MoA determines that the PLC be managed by a board of directors, then the number of board members shall be three or five or seven. It can not be less or more. The board of directors as a management body is the one that appoints the manager. There is a prohibition that the appointed manager cannot be the chairman of the board. The manager will be the employee of the PLC. The manner of selection, removal, tenure, decision making, liabilities, remuneration, powers and responsibilities of the board of directors shall follow the board of directors organization of a Share Company. Similarly the dismissal of the manager appointed by a board of directors shall follow the footsteps of the dismissal by a board of directors of its manager in a Share Company.

Management of PLC by a Manager
When the MoA determines that the PLC be managed by a manager, then the PLC can be managed by a manager. This is unlike the previous Commercial Code that allows manager or managers. The manager shall be appointed by the meeting of members. The manager can be a member of the PLC or an outsider. Such manager shall have full powers to achieve the business objective of the PLC. Limitations of the powers of the manager shall not affect third parties. The appointing body i.e. the meeting of members has the power to dismiss the manager.

In conclusion, the new Commercial Code of Ethiopia introduced two ways of management of a PLC. The management organization of the PLC can be either a board of directors structure or a manager structure. The choice is for the members of the PLC. Board of directors structure of management of PLC has been requested by foreign investors and granting that choice will satisfy the business needs of the time.

 Save as PDF

Comparative Analysis on Interim Measure in Arbitration Proceeding in Ethiopian Courts


By Lydia kedir –Legal Assistant – at Dagnachew and Mahlet Law Office
Email senilidu@gmail.com

Introduction

Due to the increase in commercial activity, having commercial law and arbitration law is important. Commercial activities sometimes result in commercial disputes. Most of the time commercial disputes use arbitration to solve their disputes. In the arbitration proceeding, the party may claim interim measure. Interim measures are grants of temporary relief aimed at protecting parties’ rights pending final resolution of a dispute. Many legal systems recognize the procedural necessity of interim measures as a complement to final awards. Provisional measures may be even more crucial due to the special risks involved in international disputes. Often the efficacy of the arbitration process as a whole depends on interim measures that may prevent adverse parties from destroying or removing assets so as to render final arbitral awards meaningless. Interim measures are usually designed either to minimize loss, damage, or prejudice during proceedings, or to facilitate the enforcement of final awards.

This article will look into the interim measures taken fist by Kenyan courts and then DIFC Courts. As a comparison a look on to the interim measures of Ethiopian Courts in arbitration proceedings will also be covered.

Arbitration Proceeding and Taking Interim Measure in Kenyan Courts

Kenya enacted an Arbitration Act in 1996 and amended in 2009. In addition Kenya has an arbitration tribunal in Nairobi called Nairobi Center for International Arbitration (NICA). However, an arbitration tribunal not exclusively working alone. Rather the local courts may assist the arbitration proceeding by giving interim relief before enforcement of award. Hence in the Act there is mandatory provision, particularly on intervention of local court. As a result, the court may take an interim measure as per section 70 of the Act. However such intervention of local court is limited. The grounds of intervention include:
-were the tribunal requests assistance in the taking of measures;
-to give interim measure orders of protection during arbitration;
-to determine the question of law on the application by parties.

The Arbitration Act provides that the tribunal can order any party to take whatever interim protection measures it considers necessary in respect of the subject matter of the dispute, with or without an ancillary order requiring the provision of appropriate security in connection with the measure. The types of relief are not specified in the Arbitration Act. The tribunal can order any party to provide security in respect of any claim or any amount in dispute, or order a claimant to provide security for costs (section 18, Arbitration Act). Under section 7, the court can grant interim orders to maintain the status quo of the subject matter of the arbitration before the tribunal has been constituted. This includes interim injunctions, interim custody or sale of goods. The High Court can also enforce the peremptory orders for protection given by the tribunal.


Arbitration Proceedings and Taking Interim Measures in Dubai Courts


Where an arbitration is seated in the Dubai International Financial Center (DIFC) , the DIFC Courts have power to award interim measures in support of arbitration proceedings pursuant to DIFC Arbitration Law No 1of 2008.
The DIFC courts can be asked for an interim measures before or during the arbitration proceedings. These measures are not exhaustive but include the following:
-Maintain or restore the status quo pending determination of the dispute;
-Provide a means of preserving assets out of which a subsequent award may be satisfied or other means for securing or facilitating the enforcement of such an award;
-Take action that would prevent or refrain from taking an action that would likely cause current or imminent harm or prejudice to any party or to the arbitral process itself; or
-preserve evidence that may be relevant and material to the resolution of the dispute.”

As a result, the DIFC Courts’ powers to award interim measures in arbitration proceedings are wider in coverage. Thus where the arbitration proceeding is seated in the DIFC, the DIFC courts assume jurisdiction and excercise their supervisory power that includes giving interim remedies.


Arbitration Proceeding and Taking Interim Measure in Courts of Ethiopia


The arbitration proceedings and interim measures by Federal Courts of Ethiopia is governed by the Arbitration and Conciliation Working Procedure Proclamation No 1237/2021. The Proclamation specifically mentions provisional interim measures taken by courts on Article 9 of the Proclamation. It states as follows:
’With respect to matters falling under the arbitration agreement, the contracting parties may request the court interim measures to be taken before the arbitration proceeding is initiated or during the proceedings. This shall not be considered as violation of the arbitration agreement by the contracting parties and as intervention by the court.’


Here the law does not specify what is included in the interim measure taken by the Ethiopian Courts. It will be a matter for the court to decide based on the arbitration agreement. However, a list of interim measures to be taken by the Tribunals are exhaustively mentioned on Article 20(2) of the Proclamation.


On the other hand as per Article 27 of the Proclamation, the Courts have jurisdiction to issue interim relief irrespective of the place of arbitration of the arbitral tribunal. The seat of the arbitration tribunal need not be situated in Ethiopia to give interim remedies.


The question of whether the tribunal cannot exercise its powers to award interim measures by the courts of Ethiopia is not a requirement. The Court has the power to order interim relief in arbitration proceedings irrespective of the arbitral tribunal’s ability to do so.


Conclusion
Parties to arbitration seated in the Dubai, Nairobi or Addis Ababa generally have access to the same interim relief by respective local courts in each jurisdiction.While the Dubai and Kenyan interim measures of their respective courts are listed, the Ethiopian courts are given general power to intervene to order interim reliefs. Ethiopia has joined through its progressive Arbitration and Conciliation Working Procedure Proclamation No 1237/2021 to the ranks of DIFC courts and Kenyan Courts in rendering interim measures and enforcing of those measures.

 Save as PDF

Ten Points on Limited Liability Partnership(LLP) Under the Commercial Code of Ethiopia

By Dagnachew Tesfaye
The 1960 Commercial Code of the Empire of Ethiopia incorporated one form of limited partnership called Limited Partnership. However the limited partnership comprises of two types of partners. General partners in full liability personally, jointly and severally and limited partners who are only liable to the extent of their contribution. The name limited partnership does not describe it perfectly. It is a two type of liability partnership rather than a limited partnership. The correction in naming is made in the new Commercial Code of Ethiopia Proclamation No 1243/2013(the new CC Proclamation hereafter). It is now called a Two Type Liability Partnership rather than limited partnership.

On the other hand, the new CC proclamation introduces a new additional form of limited partnership. It is called Limited Liability Partnership (LLP). The LLP comprises of only limited partners who are only liable to the extent of their contribution. LLP does not have partners with full liability personally, jointly and severally.

The LLP can be formed by two or more partners. The partners need to have professional practice licences. The partners come together to exercise their profession and related professional services. Not only physical persons but also juridical persons with the necessary professional competencies can also be partners in the LLP. Nevertheless, the general manager of a LLP must be a natural person who has the professional licence that qualifies him to practice the profession.

LLP once registered will have its own legal personality. The LLP shall have a name. The name need not necessarily be the name of the partners, as in the case of Two Type Liability Partnership. The name has to be a legally acceptable name and the name shall have at the end ‘Limited Liability Partnership’.

LLP shall be established by a memorandum of association(MoA) and shall contain particulars as stated in Article 185 of the new CC Proclamation. However, in addition to those particulars, licence copies and licence numbers of each partner should be attached to the formation document of the LLP. This requirement identifies LLP as a business model done by licensed practitioners of a certain duly recognized profession.

Contributions by partners is not limited to skill. Contributions can be in cash, movable or immovable property, trade mark, good will, patent, copy right, lease right, use right or any other form of contribution.

Conflict of interest between a partners and the LLP shall be governed by specific profession related laws. Such laws for example include the new Federal Advocates Licencing and Administration Proclamation 1249/2013. However, a partner seeking to do a similar job with the LLP by himself or to a third party can do so only when he obtains a unanimous vote in the LLP. The intention is to reduce conflict of interest and if so happens with the full consent of its partners.

Liability of the LLP is broad. The LLP is jointly and severally liable with a partner that inflicts damage intentionally or through negligence, to third parties while doing his job. Nevertheless, the LLP shall be free from such liability only when the third party victim knows that the partner is acting beyond his powers. For this and similar incidents and compensations thereof, the LLP is required by law to have professional indemnity insurance.

Withdrawal or expulsion of a partner happens when the partner gives a three month written notice unless otherwise a different term is mentioned on the MoA, upon death or for a legal person partner upon dissolution, creditors of the partner take over his shares or sell of ALL his share contributions, insolvency of the partner, cancellation of the professional licence, barred from his profession for a long period of time unless a different agreement is there in the MoA, incapacity or ordered by court of law for good cause. The forms of withdrawal or expulsion of a partner have become more detailed and incorporate the professional licence cancellation or barring. The withdrawal or expulsion of a partner should be entered in the register where the LLP is formed, for the protection of third parties, the LLP itself and the knowledge of the licencing body.

Shares of a deceased, incapacitated or insolvent partner shall be given to the rightful successors in CASH. A request to be a substitute partner is not allowed. When calculating the amount to be dispersed to a successor, the contributions of the partner, debts of the LLP or accumulated dividends if any of the partner, possible profits on progressive cases the partner has been working on, shall be considered. This made it clear what to consider in assessing the amount devolving a partner leaving the LLP.

Voting for normal business affairs shall be majority of the members support. For amendment of the terms of the MoA, a 2/3 approval is required. And for change in nationality of the LLP or change of business field, 3/4 approval is required. It is unclear whether majority support, or 2/3 approval or 3/4 approval are in terms of number of partners or share values. The MoA has to clarify the voting system. For that matter, a different voting requirement can be included for normal business voting and amendment of the MoA.

Dissolution of the a LLP happens when the membership is reduced to one partner and the remaining partner cannot add a partner within six month period of time. The remaining partner can request an extension for three more month. In total a 9 month period is given for the remaining partner to raise the number of partners to more than one. A partner who continues to work the LLP without taking the necessary measures of adding a partner or partners beyond one, shall be jointly and severally liable with the LLP for creditors and debts of the LLP.

In conclusion, the new Commercial Code of Ethiopia introduces limited liability partnership for professional services, with limited liability enjoyed by the partners.



 Save as PDF