Force Majeure and Hardship Under Ethiopian Contract Law: What Businesses Need to Know (2026)

By Ashenafi Yirga Nigatu, Principal Partner, Head of Litigation, 5A Law Firm LLP.

Ethiopian contract law applies a strict test to force majeure. Under Article 1792 of the Civil Code, the event must be unforeseeable and must prevent performance absolutely. In practice, the party relying on force majeure must show that the event was outside its control, could not reasonably have been foreseen when the contract was made, and could not reasonably have been avoided or overcome. Force majeure is therefore a narrow defence to liability for non-performance. It is not a general right to renegotiate a bad bargain, recover compensation, or shift ordinary commercial loss to the other party.

This distinction matters. Ethiopia has experienced major commercial disruption in recent years, including pandemic-related restrictions, conflict-related access constraints, supply-chain interruption, inflationary pressure, and the 2024 foreign exchange liberalisation under NBE Directive FXD/01/2024, as subsequently amended, including FXD/03/2025, FXD/04/2026, and FXD/05/2026. These events have led many contracting parties to ask whether they can suspend performance, terminate contracts, or demand revised terms. Ethiopian law does not answer that question by asking whether performance became difficult or expensive. It asks whether performance became legally or physically impossible in the strict sense required by the Civil Code.

For foreign investors, contractors, lenders, suppliers, and Ethiopian businesses operating under long-term contracts, the practical lesson is clear. Force majeure and hardship must be drafted with precision. If a contract does not expressly allocate currency risk, regulatory risk, supply-chain risk, security risk, and price-escalation risk, Ethiopian default rules may leave the affected party with less protection than expected.

The Civil Code Test for Force Majeure

The starting point of Ethiopian contract law is that contracts must be performed. A party that undertakes an obligation is expected to honour it. Force majeure is an exception, and Ethiopian law treats that exception narrowly.

Article 1792 of the Civil Code releases a party only where an unforeseeable occurrence prevents performance absolutely. This is a demanding standard. It is not enough that performance has become more expensive, slower, less profitable, or commercially unattractive. The affected party must show a direct causal link between the event and the specific obligation that could not be performed.

External Cause

The event must be outside the control of the party relying on it. A failure caused by the party's own poor planning, weak internal systems, undercapitalisation, negligent procurement, or avoidable supply-chain exposure will not usually qualify. If the problem arises from the claiming party's own commercial arrangements, the externality requirement is weak.

Unforeseeability

The event must not have been reasonably foreseeable when the contract was concluded. This is assessed objectively. A party doing business in Ethiopia is expected to understand the ordinary commercial environment, including known regulatory constraints, recurrent foreign exchange pressure, regional security concerns, administrative processes, and market volatility. A risk that was known, recurring, or commercially foreseeable is difficult to characterise as force majeure unless the contract expressly provides otherwise.

Unavoidability and Absolute Prevention

The event must prevent performance in a real and practical sense. If the affected party could reasonably have performed by using an alternative supplier, alternative route, alternative bank, substitute goods, insurance, contingency stock, or another mitigation step, the force majeure argument becomes weaker. The party should preserve documents showing what alternatives were considered, what steps were taken, why performance remained impossible, and how the event affected the specific obligation in question.

Events Expressly Excluded by Article 1794

Article 1794 of the Civil Code is especially important for commercial contracts. It excludes certain events from force majeure unless the parties have agreed otherwise. These include strikes or lockouts, changes in raw-material prices, and legislation that merely makes performance more onerous.

This default rule is stricter than many international templates assume. Parties often expect labour disruption, price fluctuation, or new regulation to trigger force majeure. Under Ethiopian law, those events may not qualify unless the contract expressly includes them. A foreign company using a standard global force majeure clause should therefore adapt the clause to Ethiopian law rather than assuming that general wording will override the Civil Code defaults.

The drafting consequence is simple: if the parties want strikes, lockouts, foreign exchange restrictions, regulatory prohibitions, port disruption, regional insecurity, or major currency movements to have defined legal consequences, the contract must say so clearly.

Notice and Existing Default

Article 1797 of the Civil Code supports the notice obligation. A party invoking force majeure should notify the counterparty promptly, identify the affected obligation, describe the event, explain the expected impact, and provide supporting evidence. Late or vague notice can damage the claim and may expose the affected party to liability for losses that timely notice could have avoided.

Article 1798 also matters. A party that was already in default before the alleged force majeure event generally remains liable. Force majeure does not retroactively cure an earlier breach. A contractor already late, a buyer already in payment default, or a supplier already failing to meet delivery obligations cannot use a later external event to erase the consequences of prior non-performance.

Force Majeure Is Not Hardship

The most common error in Ethiopian contract disputes is confusing force majeure with hardship. Force majeure concerns impossibility. Hardship concerns continued possibility under significantly more burdensome conditions. Ethiopian law treats these concepts differently.

Article 1764 of the Civil Code states that a contract remains in force even where performance conditions change and obligations become more onerous. The effect of such changes is regulated by the parties, not by the court. For private commercial contracts, this means Ethiopian courts do not generally rewrite contracts merely because performance has become more expensive or commercially unfair.

That rule can be harsh in long-term contracts. A supplier may face a sharp increase in imported input costs. A contractor may see labour and materials rise well beyond the assumptions in a fixed-price contract. A borrower may face currency depreciation that makes repayment more expensive. Unless the contract contains a price-adjustment, indexation, material adverse change, hardship, or renegotiation clause, Ethiopian law will usually hold the parties to their bargain.

Administrative Contracts Are Different

Administrative contracts receive different treatment. Article 1767 allows court variation for contracts made with a public administration where changed circumstances arise through official decision. Ethiopian law also recognises administrative-law concepts that may protect a private contractor where state action or unforeseen circumstances disturb the economic balance of a public contract.

This distinction is important for infrastructure, public-service, government supply, concession, and public procurement arrangements. In those contracts, a contractor may have a route to relief where official action fundamentally alters the economics of performance. That protection does not automatically extend to private commercial contracts between private parties.

Businesses should therefore identify at the drafting stage whether the contract is private, administrative, or mixed in character. The legal tools available in a dispute may depend on that classification.

Foreign Exchange Liberalisation and Contract Risk

The 2024 foreign exchange reform is a useful stress test for Ethiopian contracts. NBE Directive FXD/01/2024, as subsequently amended, including FXD/03/2025, FXD/04/2026, and FXD/05/2026, moved Ethiopia toward a market-determined exchange-rate regime and changed the economics of many contracts priced, paid, or costed in Ethiopian Birr.

Under the original FXD/01/2024, exporters of goods and services were generally required to convert part of their proceeds into Birr and could retain part in a foreign exchange retention account subject to use or sale rules. Service exporters may retain 100% of export proceeds in an FX retention account under FXD/04/2026; goods exporters retain a portion subject to the applicable directive at the time.

For force majeure analysis, currency movement and foreign exchange access problems should be treated carefully. Foreign exchange shortages and LC delays are difficult to frame as force majeure under Article 1792 unless the party proves absolute impossibility — not merely increased cost, delay, or commercial hardship. A party relying on these events must show the specific legal or practical barrier to performance, the alternatives attempted, the documents submitted, the responses received from banks or regulators, and why performance could not be achieved by reasonable substitute means.

This is why transaction documents should separate convertibility risk from exchange-rate risk. Convertibility risk concerns whether foreign currency can legally or practically be accessed, transferred, or approved through the banking system. Exchange-rate risk concerns the economic effect of Birr depreciation or currency movement. The remedies for those risks are not always the same, and a contract that merges them into one vague force majeure phrase may fail exactly when the parties need clarity.

For contracts entered into after the 2024 reform, the safer approach is not to rely on force majeure at all. Parties should expressly allocate currency risk through pricing currency, indexation formulas, exchange-rate bands, payment currency clauses, renegotiation triggers, and termination rights if a defined threshold is crossed.

Events That May Support a Force Majeure Claim

No event category automatically qualifies. The question is whether the event satisfies the Civil Code test and prevents the specific performance in issue. However, certain events are more likely to support a properly evidenced claim.

• Armed conflict or civil disturbance that directly prevents access to a site, facility, warehouse, or transport route.
• Natural disaster that destroys the means of performance or makes performance physically impossible.
• Specific government order that prohibits the contracted activity.
• Pandemic-related legal restriction that directly prevents performance, where the restriction rather than the disease itself is the operative barrier.
• Documented port, customs, maritime, or transport disruption that prevents the relevant delivery or shipment and cannot reasonably be overcome.

Evidence is central. Ethiopian courts and arbitral tribunals are unlikely to accept broad assertions of disruption. The affected party should keep notices, government correspondence, bank letters, customs documents, shipping records, site reports, photographs, security reports, insurance correspondence, invoices, and records of mitigation steps.

Events That Usually Require Express Drafting

Several events commonly relied on by businesses are better treated through express clauses than through default force majeure law.

• Foreign exchange shortage or delay in opening a letter of credit.
• Currency depreciation that makes a contract unprofitable.
• Increase in input, raw-material, freight, energy, or labour costs.
• Supplier failure where the supplier was selected by the claiming party.
• General economic deterioration, inflation, or recession.
• Routine administrative delay where the claiming party could have planned better or submitted complete documents earlier.

These events may still be commercially serious. They may justify renegotiation, suspension, price adjustment, or termination if the contract provides for those consequences. Without express drafting, however, they are unlikely to give the affected party the same protection as true force majeure.

How to Draft an Ethiopian Force Majeure Clause

A well-drafted clause should not simply copy international boilerplate. It should be built around Ethiopian Civil Code defaults and the actual risks of the transaction.

Define Triggering Events Clearly

The clause should list specific events and include a carefully drafted catch-all. Common events include natural disasters, war, civil disturbance, epidemic, pandemic, government prohibition, regulatory restriction, customs closure, port closure, transport interruption, and utility failure. Where commercially intended, the clause should expressly include events that Article 1794 would otherwise exclude, including strikes, lockouts, raw-material price changes, and legislation that makes performance more onerous.

Address Foreign Exchange and Payment Risk Separately

If foreign exchange access is central to the transaction, the clause should say exactly what happens when foreign exchange is unavailable or delayed. The consequences may include payment extension, alternative currency payment, temporary suspension, renegotiation, partial performance, escrow, or termination after a defined period. Vague references to government action or financial difficulty are not enough.

Set a Fixed Notice Period

The contract should require written notice within a defined period, commonly 5 to 14 business days after the affected party knew or should have known of the event and its impact. The notice should identify the event, affected obligations, expected duration, mitigation steps, and supporting documents.

Require Mitigation

The affected party should be required to take reasonable steps to avoid or reduce the impact of the event, resume performance when possible, and keep the counterparty informed. Mitigation is not only good practice; it also supports the legal argument that performance was genuinely prevented despite reasonable efforts.

Provide a Long-Stop Termination Right

If the event continues beyond a defined period, usually 60 to 90 days depending on the transaction, either party may need a right to terminate. The clause should also address payment for delivered goods, completed services, advances, demobilisation costs, accrued obligations, and restitution.

Include a Separate Hardship Clause

Because hardship is not implied for private commercial contracts, long-term contracts should contain a separate hardship mechanism. That mechanism should define trigger thresholds, require good-faith renegotiation, preserve interim performance obligations, allow expert determination where appropriate, and provide a clear exit if renegotiation fails.

Arbitration and Dispute Resolution

Dispute resolution should be chosen deliberately. Ethiopia's Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021 modernised the arbitration framework, applies to commercial domestic arbitration and Ethiopia-seated international arbitration, and limits court intervention except where the Proclamation provides. Arbitration can therefore be useful for complex force majeure, hardship, construction, supply, and investment-related disputes.

AACCSA arbitration may be suitable for Ethiopian-nexus commercial disputes where the parties want a private forum familiar with local commercial practice. ICC arbitration may be preferable for high-value cross-border matters, especially where the seat, enforcement assets, counterparty identity, financing arrangements, urgency, confidentiality, or enforcement strategy point outside Ethiopia. It is too broad to say that one forum is always faster or more enforceable than another. The better approach is to select the forum that matches the transaction and enforcement plan.

The dispute resolution clause should specify governing law, seat, language, number of arbitrators, appointing authority, interim relief, consolidation, emergency measures, confidentiality, and enforcement strategy. A weak arbitration clause can create avoidable procedural disputes before the merits are ever reached.

Common Mistakes by Foreign Businesses

Using Generic Boilerplate

Generic force majeure clauses often fail to address Ethiopian Civil Code exclusions, foreign exchange risk, regional security disruption, regulatory approvals, administrative delay, or local enforcement needs. A clause that looks familiar internationally may be weak under Ethiopian law.

Giving Late or Incomplete Notice

Notice should be early, written, specific, and supported by evidence. Informal phone calls, vague emails, and after-the-fact letters may not preserve rights.

Treating Cost Increase as Impossibility

A severe cost increase can be commercially painful, but it is not automatically force majeure. If performance remains possible, the issue is usually hardship, price adjustment, or renegotiation rather than impossibility.

Suspending Performance Too Quickly

Unilateral suspension without a solid legal basis can itself become a breach. Before stopping work, refusing delivery, withholding payment, or terminating, the affected party should review the contract, the Civil Code, notice requirements, mitigation duties, bonds, guarantees, and dispute resolution consequences.

Weak Document Management

Force majeure disputes are won or lost on evidence. Businesses should maintain a contemporaneous record of the event, its impact, the legal barrier to performance, attempted alternatives, mitigation steps, and communications with the counterparty.

Practical Takeaway

Ethiopian law gives force majeure a narrow role. It protects a party where an unforeseeable event prevents performance absolutely. It does not generally protect against ordinary commercial hardship, currency loss, price escalation, or an unprofitable deal. For private commercial contracts, hardship relief depends primarily on what the parties have written into the contract.

Businesses operating in Ethiopia should therefore review their contracts before disruption occurs. The most important protections are clear force majeure triggers, express treatment of Article 1794 exclusions, fixed notice rules, mitigation obligations, long-stop termination rights, separate hardship clauses, currency-risk allocation, and a dispute resolution clause matched to the transaction.

Contract Review Checklist

Businesses reviewing an Ethiopian contract should test the force majeure and hardship framework against the following questions before signing, renewal, financing, or dispute escalation.

• Does the clause expressly include or exclude strikes, lockouts, raw-material price changes, new legislation, foreign exchange restrictions, government prohibitions, and security disruption?
• Does the clause distinguish true impossibility from hardship, price escalation, currency depreciation, and delay?
• Does the contract state whether payment obligations are suspended, extended, converted, or preserved during force majeure?
• Does the contract require written notice within a fixed number of days, with supporting evidence and continuing updates?
• Does the clause require mitigation and specify examples of reasonable mitigation for the transaction?
• Does the clause address partial performance, advance payments, delivered goods, demobilisation costs, storage, insurance, and accrued obligations?
• Does the contract provide a termination right if force majeure continues beyond a defined period?
• Does the contract contain a separate hardship mechanism with objective thresholds and a renegotiation timetable?
• Does the currency clause allocate exchange-rate movement, convertibility risk, payment-route risk, and NBE approval timing?
• Does the dispute resolution clause match the enforcement plan, the location of assets, and the type of counterparty?

For long-term contracts, the review should not be limited to the force majeure clause. The same risk may appear in pricing, payment, change-in-law, tax gross-up, import responsibility, delivery, suspension, termination, governing law, arbitration, guarantee, insurance, and limitation-of-liability provisions. A well-drafted contract treats those clauses as one system.

Evidence Package for a Force Majeure Notice

A strong force majeure position is built before the dispute reaches court or arbitration. The affected party should assemble an evidence package as soon as the event occurs. The goal is to prove the event, the causal link, the absolute prevention of performance, timely notice, and reasonable mitigation.

Event Evidence

The party should keep official notices, government directives, regulator correspondence, security advisories, port or customs documents, bank letters, shipping notices, insurance reports, site photographs, and contemporaneous internal reports. Media coverage may provide background, but it should not be the main evidence if better documentary proof is available.

Contractual Impact Evidence

The party should identify the exact obligation affected. A general statement that the business was disrupted is weak. The notice should explain whether the affected obligation was delivery, payment, construction, access, operation, import, export, installation, commissioning, or another specific duty. It should then connect the event to that duty.

Mitigation Evidence

The affected party should record alternative suppliers contacted, alternative routes considered, revised schedules prepared, banks approached, substitute approvals requested, insurance reviewed, and partial performance explored. A tribunal will often ask what the party did after the event occurred. Silence, delay, or passive reliance on the disruption can weaken an otherwise plausible claim.

Notice Evidence

Keep proof that notice was delivered in the form and within the time required by the contract. If the contract permits email notice, preserve delivery records, read receipts, and follow-up correspondence. If formal written notice is required, comply with the agreed address and service method. A strong substantive claim can be damaged by defective notice mechanics.

Frequently Asked Questions

Can foreign exchange shortage be force majeure in Ethiopia?

It is difficult, but not impossible in every case. The affected party would need to prove absolute impossibility under Article 1792, not merely increased cost, bank delay, or commercial hardship. The safer contractual approach is to address foreign exchange access expressly through payment extensions, alternative currency provisions, renegotiation triggers, and termination rights.

Can a party terminate immediately after a force majeure event?

Not usually. The answer depends on the contract and the nature of the impossibility. Temporary impossibility may suspend performance. Permanent impossibility may support termination. Many contracts also provide a long-stop period after which either party may terminate if the event continues. Immediate termination without a clear contractual or legal basis can create breach risk.

Does a new law qualify as force majeure?

Article 1794 excludes legislation that merely makes performance more onerous unless the parties agree otherwise. A new law that only increases cost is different from a legal prohibition that makes the contracted activity impossible. Contracts should distinguish change-in-law, regulatory prohibition, tax change, licensing change, and hardship because each may require a different remedy.

Can parties expand the Civil Code force majeure definition?

Yes. Ethiopian law allows parties to allocate risk by contract, subject to mandatory law and public policy. Parties may expressly include events that the Civil Code default would otherwise exclude, define consequences, preserve payment obligations, impose notice duties, and create hardship or renegotiation mechanisms.

Should a hardship clause allow automatic price adjustment?

For some contracts, yes. Construction, supply, distribution, long-term service, import-dependent, and ETB-denominated contracts often benefit from objective formulas. A price adjustment clause should identify the index, exchange-rate source, threshold, review period, supporting documents, effective date, and what happens if the parties disagree.

How should parties handle ongoing performance during renegotiation?

The contract should say whether performance continues during hardship discussions. In many commercial relationships, continued performance is essential because suspension can damage projects, licences, customers, employees, and financing arrangements. A balanced clause may require continued performance for a limited period while the parties exchange cost evidence, meet at senior level, and attempt an agreed adjustment. If no agreement is reached within the defined period, the clause can move to expert determination, escalation, arbitration, or termination.

Should force majeure clauses include examples specific to Ethiopia?

Yes, where the examples reflect genuine transaction risk. Ethiopia-specific drafting may address NBE approvals, foreign exchange access, customs clearance, port and corridor disruption, regional security restrictions, sector regulator orders, telecom or utility outages, land access issues, and licence suspension caused by government action. The clause should not become a list of excuses. Each event should be tied to a clear consequence and a duty to prove impact.

What if the counterparty rejects a force majeure notice?

The affected party should continue preserving evidence, updating the counterparty, mitigating loss, and complying with undisputed obligations. Rejection of a notice does not itself decide the legal issue. The dispute resolution clause will determine whether the matter proceeds to Ethiopian courts, AACCSA arbitration, ICC arbitration, or another forum.

Can payment obligations be suspended by force majeure?

Payment obligations are often treated differently from operational obligations because money can usually be paid by alternative means. If the parties want payment suspension, payment extension, alternative currency payment, escrow, or adjustment during a disruption, the contract should say so expressly.

Does force majeure excuse poor procurement planning?

No. If the disruption could reasonably have been avoided through ordinary commercial planning, alternative sourcing, inventory management, insurance, or timely applications, the claim is weaker. Ethiopian law focuses on prevention of performance, not inconvenience caused by a fragile procurement strategy.

Are public contracts more flexible than private contracts?

They can be. Administrative contracts may allow variation where changed circumstances arise through official decision and affect the contractual balance. Private commercial contracts do not receive the same implied hardship protection. The contract type should therefore be assessed before choosing the legal strategy.

How 5A Law Firm LLP Can Assist

5A Law Firm LLP advises Ethiopian and international clients on contract drafting, force majeure notices, hardship negotiations, currency-risk allocation, construction and supply disputes, administrative contracts, and arbitration strategy. The firm was founded by five former federal judges and combines litigation experience with practical commercial advice for businesses operating in Ethiopia.

For legal advice on force majeure and hardship in Ethiopian commercial contracts, contact 5A Law Firm LLP.

This guide provides general legal information on Ethiopian contract law and is not legal advice for any specific matter. Businesses should obtain advice tailored to their contracts, counterparties, sector, and dispute posture.