Force Majeure Clauses: Friend to Private Parties, Foe to Gov't

Jan 1 , 2022
By Yehualashet Tamiru Tegegn

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Most administrative contracts concluded in the country between the government and foreign investors are governed by Ethiopian law. Attempts from private investors to exonerate themselves from liability as a result of the civil war by citing force majeure clauses would likely be rejected, writes Yehualashet Tamiru Tegegn (yehuala5779@gmail.com), lawyer, consultant and researcher.

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Force majeure or the doctrine of frustration is one of the most frequently used legal concepts in various contracts as escaping clause to exonerate a party from any liability arising from the contract's non-performance. Force majeure clauses are traditionally used in circumstances beyond the parties' control and are forced to contend with unforeseen "acts of God" or of governments and regulatory authorities.

This clause has come to the fore following the attack of rebel forces in parts of the Amhara and Afar regional states. This has been worsened by Western countries' ill-informed yet well-intentioned decision to tell their citizens working in Ethiopia to leave. The United States, on top of this, issued a warning due to “armed conflict, civil unrest, communications disruptions, crime and the potential for terrorism and kidnapping in border areas.”

Government invocation of the force majeure clause is very rare and it is usually private investors’ that frequently raise it as an affirmative defence. In connection with the ongoing unrest in the country, most Western-origin investors, thus, triggered force majeure provisions either to terminate or prolong their obligation in their contractual relationships with administrative bodies.

Usually, contracts concluded between private parties and administrative authority contains a force majeure clause which is designed to provide excuses for the non-performance of the obligations envisaged under the contract. This clause typically will provide identification of events that would be considered as force majeure, the effect of the happening of such event in the performance or continuation of the contract and the obligation and manner of notification to the other party. However, any force majeure clause in the contract should be examined in line with the mandatory provisions of the law.

The issue of force majeure is regulated under the Civil Code of Ethiopia. Force majeure results from an occurrence that the debtor could usually not foresee and which prevents them absolutely from performing their obligations. The cumulative tests of force majeure are externality, insurmountability, unforeseeability and impossibility. The cause that gave rise to force majeure should not have been attributable to the act of the debtor. In other words, the source must be external to the debtor. On top of this, the cause should be beyond the debtor's control and must not be reasonably expected to take place, which ultimately makes the performance of the contract absolutely or materially impossible. This has been further enshrined under various decisions of the Federal Supreme Court cassation bench.

Force Majeure does not apply simply because the performance of an obligation has become more difficult because of internal political turmoil. A contract shall remain in force notwithstanding that the conditions of its performance have changed, and the obligations assumed by a party have become more onerous than foreseen.

The Civil Code has an open-ended enumeration of acts that may be considered to constitute force majeure: an unforeseeable act of a third party, such as official prohibition; natural catastrophe; war; and death, serious accident or unexpected illness of the debtor. All these are, however, subject to the tests specified above. This list is illustrative since a court or an arbitration tribunal or other adjudicating bodies may include other grounds as force majeure when circumstances justify.

It also provides a restrictive enumeration of grounds that do not constitute force majeure unless the parties agree to include them in a contract by a force majeure clause. These are strikes, lockouts, fluctuations in prices of raw materials and enactment of new laws that render the debtor's obligation more demanding than anticipated.

Does the conflict between the federal government and TPLF meet the requirement of impossibility and insurmountability?

The type of "impossibility" the Ethiopian law adopted is that of an absolute impossibility, not a relative one. Consequently, a mere circumstance rendering performance more burdensome does not constitute a case of force majeure. For one to successfully invoke the affirmative defence of force majeure, the supervising event that makes the non-performance of the contract absolutely impossible that the debtor has no alternative measure are available to discharge his obligation rather than rendering the performance mere impracticable or more cumbersome.

In one case, the Arkansas Supreme Court captured well the meaning of impossibility and its related burden of proof when it said “the burden of proving impossibility of performance, its nature and extent and causative effect rests upon the party alleging it. He must show that he took virtually every action within his power to perform his duty under the contract. It must be shown that the thing to be done cannot be effected by any means.”

The government failed to extend adequate protection in the regions because of an imminent and serious national security situation. Even any damage private investors have faced could not be attributed to the government as it was caused by a general condition of internal war rather than a state’s direct omission or action.

This is especially true in administrative contracts, where the authority has a prerogative right. As rules, they are meant to provide for some prerogatives that administrative authorities exercise over the private contracting party. Administrative contract provisions are, therefore, designed to enable contracting administrative bodies to exercise certain preferences, which enable them to properly maintain the smooth functioning of the public service. Such prerogatives are intended to give heavier weight to public interest vis-à-vis private interest so that the administrative bodies should guarantee the dispensation of public service without disruption.

Where circumstances that could not be foreseen on the contract upset the balance of the contract, the party contracting with the administrative authorities shall perform its obligations where such performance remains materially possible. An unforeseen event is defined as one where the parties could not reasonably envisage it on the making of the contract, where an event shall not be deemed to be unforeseeable where it is due to the act of the person that avails themselves and where the fact that an event has unforeseen consequences or an unforeseeable extension of events which had already happened on the making of the contract.

In such cases, a person contracted with administrative authority shall require the administrative authorities to assist them in overcoming the supervening difficulties by sharing in the loss arising from such circumstance. This implies that if the Government has undertaken to prevent the particular situation arising or has otherwise assumed that risk, force majeure does not excuse non-performance.

Most administrative contracts concluded here between the government and foreign investors are governed by Ethiopian law. It is highly likely that the allegation of private investors to exonerate themselves from liability by citing force majeure clause would be rejected.

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PUBLISHED ON Jan 01,2022 [ VOL 22 , NO 1131]

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