Unconditional, but Not Untouchable: The Legal Basis for Freezing Independent Guarantees under Ethiop

Construction contracts rank among the most intricate commercial agreements, and the independent guarantees associated with them are no exception. A pressing question in this domain is whether unconditional guarantees can be subjected to interim injunctions under Ethiopian law.

Independent (unconditional) guarantees allow the beneficiary (the employer) to call on the bond without needing to demonstrate a breach, and without the guarantor being able to raise defenses based on the underlying contract.

In Ethiopia, these guarantees are governed by Articles 1920 et seq. of the Civil Code. However, Ethiopian courts, referencing an obiter remark in Cassation File No. 191402—which I believe lacks binding precedent—conclude that there is no legal basis to freeze payment under an unconditional guarantee, even in cases of abusive or fraudulent demands by the employer. This interpretation contradicts both international norms and, crucially, Ethiopian law itself.

International practices tell a different story. Civil law jurisdictions like France, Egypt, and China allow courts to freeze payments when a beneficiary's demand is clearly abusive or fraudulent. Similarly, common law jurisdictions such as England, South Africa, and Kenya reach similar outcomes through the "unconscionable call" doctrine. So, does Ethiopian law have a comparable legal framework?

It does—and it’s right in front of us: Article 1713 of the Civil Code. This foundational yet often overlooked article states that parties are bound not only by their express agreements but also by the incidental effects of their obligations as dictated by custom, equity, and good faith.

In this context, while an unconditional guarantee is technically independent of the main contract and the guarantor's promise to pay appears unqualified, Article 1713 introduces an implicit good-faith limitation on how the employer exercises this right. A contractor providing an unconditional bond does so with the expectation that the employer will act diligently and in good faith when calling it—not abusively or fraudulently.

When might this apply in practice?

• The employer calls the bond after certifying practical completion or issuing a defects-free certificate—directly contradicting the basis for their demand.

• The employer calls the bond seemingly in retaliation.

• The employer demands an amount that is grossly disproportionate to any conceivable loss, indicating an improper motive rather than genuine recovery.