An injunction against an advance payment guarantee or a performance guarantee is usually granted only in exceptional circumstances, such as fraud, unconscionability, or irreparable harm. Courts are generally reluctant to interfere with the autonomy of guarantees, but they will act if there is clear evidence of wrongful conduct. The legal tests applied are similar to those for other types of guarantees, including the requirement to show a serious issue to be tried, irreparable harm, and no adequate remedy at law.
The Legal Framework for Injunctions
Injunctions against guarantee payments or foreclosure proceedings are extraordinary remedies, rooted in Ethiopia’s Civil Procedure Code, specifically Articles 151, 154, and 155, and tempered by constitutional property rights (Article 40(1) of the Federal Constitution). Courts apply a tripartite test to determine whether to grant an injunction: there must be a serious issue to be tried, irreparable harm if the injunction is denied, and no adequate remedy at law.
For guarantees, their autonomous nature—obligating payment upon a compliant demand—heightens the threshold for granting an injunction. Similarly, foreclosure under Proclamation No. 97/90, which empowers banks to auction collateral for debt recovery, limits judicial interference, prioritizing efficiency over equitable relief unless procedural flaws or fraud emerge.
Exceptional Circumstances: When Injunctions Prevail
An injunction may be justified if the legitimacy of the guarantee itself is in question, particularly to prevent irreparable harm. Cassation Case No. 211694 (February 28, 2014) provides a compelling illustration. Ato Tadesse Alemseged sought to halt Bunna International Bank’s auction of collateral tied to an advance payment guarantee of Birr 20,551,492.40. The bank had paid the employer (Amhara Regional State Water, Irrigation, and Energy Development Bureau) without verifying the guarantee’s terms, prompting Tadesse to challenge its validity. Initially, the Federal High Court granted an injunction, but later lifted it under Proclamation No. 97/90. The Cassation Bench reversed this, finding a fundamental error: with the guarantee’s legitimacy disputed, proceeding with the auction risked irreparable harm. The Bench clarified that Proclamation No. 97/90 applies primarily to loan contracts, not disputes over guarantees, and remanded the case, suspending the auction pending resolution. This ruling underscores that unresolved disputes over a guarantee’s validity justify injunctive relief to preserve rights. This case highlights the judiciary’s willingness to intervene when the very foundation of the claim (the guarantee’s validity) is under serious dispute, prioritizing the prevention of irreversible prejudice.
The Autonomy of Unconditional Guarantees: A High Bar
Injunctions against unconditional guarantees are rare because they fundamentally undermine the instrument’s purpose. Cassation Case No. 191402 (September 26, 2013) exemplifies this. Yemane Girmay General Contractors Plc. sought to enjoin Wegagen Bank from paying Birr 48,300,000 under advance payment and performance guarantees after China CEMC terminated a construction contract. Yemane argued delays stemmed from force majeure and China CEMC’s faults, requesting arbitration per the contract. The Federal High Court upheld the termination and the guarantees’ unconditionality, refusing an injunction. The Cassation Bench partially agreed: while the lower courts lacked jurisdiction over the contract dispute (due to the arbitration clause), the unconditional guarantees obligated payment upon demand. Yemane failed to demonstrate fraud or meet the injunction criteria—serious issue, irreparable harm, and no remedy—leading the Bench to uphold the payment’s enforceability. This case reinforces that injunctions against unconditional guarantees are granted only when exceptional misconduct is proven, as they otherwise compromise the reliability and swift payment function of these instruments.
Foreclosure and Jurisdictional Limits
Regular courts generally lack jurisdiction to interfere with auction sales conducted under Proclamation No. 97/90. Cassation Case No. 127995 (January 24, 2009) involved Birhan International Bank auctioning properties of Mr. Daniel Tesfaye and Ms. Rachel Abera to recover Birr 11,600,000 tied to an expired advance payment guarantee. The couple sought to annul or suspend the auction, alleging procedural violations. The Federal High Court dismissed the bank’s appeal, but the Cassation Bench overturned this, ruling that regular courts lack jurisdiction under Proclamation No. 97/90 to interfere with bank-led auctions. Article 7 of the proclamation allows for damage claims for improper auctions but not for their suspension, ensuring banks’ efficient debt recovery. This case emphasizes that foreclosure injunctions face a steep jurisdictional bar, with relief confined to post-auction remedies unless statutory procedures are breached. This legal stance prioritizes the efficiency of debt recovery for financial institutions, limiting judicial intervention to post-facto remedies rather than pre-emptive disruption of the foreclosure process.