Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Submitted By
Dr. Walaa Arakeeb
L.L.M, S.J.D(PhD) Southern Methodist University, USA
The Faculty of Law-Tanta University, EGYPT
I. INTRODUCTION
The proper law of the contract has great of influence on each and every
contract. The law which governs the contract provides for:
• Concepts, which must be known in order to understand the effects of
the contract and its underlying mechanisms
• Legal language and terminology, which is highly influenced by the law,
and may sometimes prove difficult to translate and understand
• Legal rules which may clarify any remaining gaps
• Mandatory legal rules
• Rules of contract interpretation
As ignorance of the law is usually no excuse, contractors, either local or, in
particular, those coming from abroad, must familiarize themselves with the
applicable law - its concepts and language. Engineers often believe that they
have a "common language", which consists of drawings. However even
drawings must be interpreted and understood in their legal context. Civil law and
common law concepts often also differ from each other to a considerable extent
and a simple translation of words constitutes no sufficient basis for a common
understanding.
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Dr. Walaa Arakeeb
(1)
Compare Art. 1 Egyptian Civil Code and Art. 1 the Algerian Civil Code.
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contract and even in tort. Thus Scottish courts have said: It a person is employed under
a contract locatio opens faciendi, "for services" rather than "of service", the law does
not hold the employer vicariously liable tor wrongs committed by the contractor in the
course of the employment. Such a person is an independent contractor, and is personally
liable only, not being subject to detailed direction or control from the employer in the
manner of performing the work. His contract is not to serve, but to bring about a
required result in his own way, and if, in so doing, he injures a third party, he alone is
responsible.
(5)
See Axel-Volkmar Jaeger & Gotz-Sebastian Hok, FIDIC- A Guide for Practioners,
(Springer-2009).
(6)
The legal enforceability of a contract is based not on "promise," as is the case under
the Anglo-American common law system, but rather on "agreement" in the tradition
of continental European civil law systems.
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(7)
The French Code Civil lists four requirements essential for a contract to be valid:
consent, legal capacity to contract, an object certain that forms the material purpose
of the agreement, and a licit cause for the contract; Code Civ. art. 1108 (trans.
author) ("Quatre conditions sont essentielles pour la validite d'une convention:
Le consentement de la partie qui s'oblige;
Sa capacite de contracter;
Un objet certain qui forme la matiere de l'engagement;
Une cause licite dans l'obligation.")
(8)
The French Code Civil lists four requirements essential for a contract to be valid:
consent, legal capacity to contract, an object certain that forms the material purpose
of the agreement, and a licit cause for the contract; Code Civ. art. 1108 (trans.
author) ("Quatre conditions sont essentielles pour la validite d'une convention:
Le consentement de la partie qui s'oblige;
Sa capacite de contracter;
Un objet certain qui forme la matiere de l'engagement;
Une cause licite dans l'obligation.")
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(9)
See E.C.C. § 90(1).
(10)
See E.C.C. §§ 120:30.
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i. offer
Offer is defined as [a] manifestation of intent that displays the
offerror’s willingness to enter into a contract on specified terms”(11) In
general, no formalities are required for an offer. A declaration of intent, in
order to be qualified as an offer from the Egyptian law point of view, it
should be furnished by the following requirements: (i). willingness to be
bound, (ii) complete, and (ii) definite.
ii. acceptance
Acceptance results in the formation of a contract. Ordinarily,
acceptance must be expressed (pronounced) or communicated by the
offeree to the offeror, in order to manifest mutual assent (consent). A
declaration of intent, in order to be qualified as an Acceptance, from the
Egyptian law point of view, it should be furnished by the following two
requirements: (i) it must be manifested, and (ii) it must be in conformity
with the Offer. Acceptance leads to the formation of contract.
2. Subject-Matter ‘Object’
People form contracts in order to produce obligations to be undertaken
by any of them or both of them. Then, the ‘subject-matter’ of a contract (or
in other words its object) is the obligations which creates. This object can
be property, a debt, a benefit, a pecuniary right, work to be performed, or
abstention from work. In order for a contract to exist, its subject-matter
should be ‘determined or determinable’, ‘possible’, ‘licit’ Absence of any
of these requirements will lead to absence of a contract. Namely, any
claimed contract of such defect will be absolutely null.
3. Cause
A cause can be defined as the reason why a party binds himself. While
an object of a contract address a question related to what is the debtor
obligation, the cause of a contract addresses a question associated with
why is a debtor bound? In civilian systems derived from the French, such
as the Egyptian system of private law, absence of cause, or unlawfulness or
(11)
Egyptian Cassation Court judgment rendered on : June 16th of 1969 , appeal no. 323,
judicial year no. 35, collection of the technical bureue of the court of cassation, year 20, p.
1517.
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(12)
See P. Atiyah, The Rise and Fall of Freedom of Contract 463 (1979); see also
Restatement (Second) of Contracts § 71 (1981); See also Restatement (Second) of
Contracts § 90 and caption to §§ 82-90 (1981). “At common law, lack of
consideration is a good reason to deny enforceability of a promise. At common law a
consideration is needed to make a promise binding. That consideration must be
given by the promisee to the promisor as a sort of price for the promise. Moreover,
it does not suffice that the promisee give anything to the promisor. That which is
given is a true consideration only if it has been bargained for as such by the
recipient. In many instances, however, a promise is made for which no
consideration is given, and the promisee, though the promise is not technically
enforceable, relies on it to his detriment. In a proverbial example, a grandfather
gives his granddaughter a promissory note and tells her that he is giving her the note
because he does not want her to have to work for a living. The grandfather does not
ask that the granddaughter give up her employment, nor does he make it a condition
of his promise, which should be taken to mean that he does not request a
consideration for the note. Nevertheless, relying on her grandfather's promise, the
young lady resigns her position with a business concern. As is further proverbial in
situations of that sort, the old gentleman dies without having paid the note, and when
the granddaughter demands payment from the promisor's estate the executor raises
the defense of a lack of consideration. In situations of that kind an American
common law court and, to some extent, an English one also, will conclude that the
promise is enforceable because it induced the promisee's reliance and that reliance
substitutes itself for consideration. In a slightly different approach it is said, also, that
in that kind of situation a promise is enforceable without consideration. ”
(13)
See, e.g.,La. Civ. Code arts. 1966 and 1968.
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(14)
Modern Egyptian law is therefore an intriguing mixed legal system, blending civilian
rules fashioned, in style, structure and content, on the model of the French Civil
Code of 1804, with the law of Islam and, in family law areas (such as marriage,
divorce, filiation and alimentary obligations), with a variety of religiously-founded
personal laws.
(15)
“A contract is created, subject to any special formalities that may be required by law
for its conclusion, from the moment that two persons have exchanged two
concordant intentions.”
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(16)
See Egyptian Civil Code § 647 provides “ (1) The contractor may undertake to
supply his work only, the master of the work being responsible for the supply of
materials which the contractor uses in or for the performance of his work.(2) The
contractor may also undertake to supply the materials as well as his work.”
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(17)
FIDIC conditions are inspired by the Institute for Civil Engineers (ICE) form, which,
in turn, was based on English law concepts and construction industry practice in the
United Kingdom. Thus, FIDIC conditions are based on U.K. domestic contract law.
The changes made to transform the domestic form (ICE) to an international form
(FIDIC) were, except for a few, insubstantial. n9 Professor Wallace has clearly
pointed out this problem in his comment on FIDIC conditions, stating that: "There
has . . . been far too little internationalization of the contract in this sense, which
remains far too domestically English in character and language."
(18)
A. El Shalakany, The Application of the FIDIC Civil Engineering Conditions of
Contract in a Civil Codes System Country: A Comparison of Legal Concepts and
Solutions, 6 INT'L CONSTRUCTION L. REV. 267 (1989); see also A. Andre-
Dumont, The FIDIC Conditions and Civil Law, 5 INT'L CONSTRUCTION L. REV.
43 (1988); see also Hani Sarie-Eldon, Operation of FIDIC Civil Engineering
Conditions in Egypt and Other Arab Middle Eastern Countries, 28 Int’l Law, 951
(1994).
(19)
The Federation Internationale des Ingenieurs Conciels (International Federation of
Consulting Engineers, or FIDIC) form of contract for civil engineering work is the
most used international standard form for civil engineering projects in Arab Middle
Eastern countries. The first edition of the FIDIC conditions was published in 1957.
Revised forms were introduced in 1969 and 1977 and the latest, the fourth edition, in
1987. According to some commentators, the third edition of the FIDIC forms was
adopted in more than 30 percent of the civil engineering contracts carried out in the
Middle East in the 1980s. n1 Undoubtedly, this percentage has increased under the
current edition.
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(articles 646-676). In regulating the contract for work , the law made the
majority of its rules imperative, for instance, art.653 provides “ Any
clause tending to exclude or restrict the warranty of the architect and the
contractor is void.” Thus, any agreement contrary to the related to these
kind of imperative provisions shall be null and void. Conversely, other
issues may assigned to the will of the contracting parties, even if the law
provides otherwise. For example, art. 656 provides “In the absence of a
custom or an agreement to the contrary the price is payable upon delivery
of the works.”
2. The contract for work is a consensual bilateral contract. It is subject
to the general provision of the ECC that governs all types of consensual
contract ( articles 89-161). Each of its parties is bound to perform an
obligation in favor of the other party. The contractor is obliged to perform
the assigned job or service, while the master-in return- is obliged to pay the
agreed on amount of money. A construction contract by its very nature
creates reciprocal obligations. The reciprocity is one sided in that the
complete performance of his contractual obligation by the contractor and
acceptance of it by the employer is a condition precedent to the performance of
the reciprocal obligation by the employer. In other words the obligations,
though inter dependent, fall to be performed consecutively. Thus the
contractor is normally obliged to carry out the work which he is engaged to
do before the contract money can be claimed. The obligation to pay the
money is conditional on the pre-performance of the obligation to carry out
the work. The remuneration falls due at the time of acceptance of the works.
Art. 656 of the ECC provides “In the absence of a custom or an agreement to
the contrary the price is payable upon delivery of the works.”
Even though it may be stipulated that the payments shall be made in
installments, it arises from the very nature of the contract that nevertheless any
installment shall only become due dependent on the further development of the
transaction.35 Where either the common intention of parties to a contract or its
nature is that there should he a reciprocal performance of all or certain of their
respective obligations the exceptio non adimpleti contractus operates as a
defense for a defendant sued on a contract by a plaintiff who has not
performed, or tendered to perform, such of his obligations as are reciprocal to the
performance sought from the defendant.
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(20)
See Egyptian Civil Code § 1 (2) provides “In the absence of a provision of a law that
is applicable, the Judge will decide according to custom and in the absence of
custom in accordance with the principles of Moslem Law. In the absence of such
principles, the Judge will apply the principles of natural justice and the rules of
equity.”
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are part of the French national law, e.g. among others the United
Nations Convention on contracts for the International Sale of Goods
(CISC) is part of Egyptian substantive law and should apply whenever
an international sales agreement is made; the domestic sales are
subject to the national provisions, after being signed and ratified by
the competent authority.
3. Principles of Islamic Law:
Moreover there is Islamic law [also referred to as Shari'a law] which
comprises all of the legal framework within which the public and private
aspects of life are regulated for those living in a legal system based on
Islamic principles of jurisprudence,(21) as well as for Muslims living outside
the domain. The concept of Shari'a consists of the Qur'an and Sunnah. For
some, it also includes classical fiqh. Shari'a is often explained as law based
upon the Qur'an, the Sunna, and classical fiqh derived from consensus
(ijma) and analogy(qiyas). Most Arab countries refer to the Qur'an or
Islamic principles in their existing Civil Codes as a primary source of
enlightenment
4. Case Law:
Two collections of cases are essential to follow Egyptian Case Law.
The first is the collection of Cases of the Egyptian Cour de Cassation, the
second is the collection of Cases of the High Administrative Court cases.
Both are official publications and published in Arabic.
(21)
Whether Shari'a law is sufficiently certain in order to be applied as the proper law of a
contract has been discussed in detail in Musawi v. Re International (UK) and others.[ [2007|
EWHC 2981 (Ch); see also Beximco Pharmaceuticals Ltd & Ors v. Shamil Bank of Bahrain EC [2004]
EWCA Civ 19 (28 January 2004)]. In Sluimil Bank of Bahrain EC v Beximico
Pharmaceuticals Ltd the English Court of Appeal held that a choice of the principles of
Shari'a law was not a choice of law of a country for the purposes of the Rome
Convention["Beximco Pharmaceuticals Ltd & Ors v. Shamil Bank of Bahrain EC [2004]
EWCA Civ 19 (28 January 2004); However see also Halpern & Ors v. Halpern & Anor
[2007] EWCA Civ 291 (03 April 2(K)7) concerning the incorporation of Jewish
law].However and despite this judgment Islamic Law is not an unsophisticated, obscure and
defective system. Instead it is a basic element of the Islamic society.
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5. Legal Writing:
The basic and main study on the contract for works is Vol. 7/1 of Al
Wassit fi shark' al-Kanoun al-Madani^ (a treaty on Civil Law in ten
volumes, published between 1952 and 1970 by Dar Al-Nahda Al-Arabia,
Cairo, Egypt) written by the drafter of the Egyptian Civil Law and the most
eminent jurist in the Arab World, Abdel Razzaq Al-Sanhouri (1895-1971).
Al-Sanhouri was the most eminent disciple at Lyon University of Edouard
Lambert, the most prominent comparative Law scholar in France in the
1920s and 30s. According to Al-Sanhouri it is Edouard Lambert who
drafted the first version of the section on The Contract for Works and the
Concession of public service contract, of the Egyptian Civil Code (see Al-
Sanhoun, Al-Wassit, Vol. I). (22) For Government Contracts the basic study
is done by Professor Suleiman EL-Tawawy, Al-Okoud al-Idariyah,
Administrative Contracts (last edition), by Dar Al-Fikr Al-Arabi, Cairo,
1991.
C. CLASSIFICATION OF CONSTRUCTION CONTRACT (PRIVATE V. PUBLIC
CONTRACT)
Two basic varieties of construction contracts are recognized by
Egyptian Law. The first is that or privately financed contracts (private- law
contract) regulated two sets of rules under the Egyptian Civil Code (ECC):
(a) the general provisions of the ECC that govern all types of contracts
(articles 89-161); and (b) particular ECC provisions regarding
"construction and building contracts" (articles 646-676).(23) The second is
(22)
AJ-Sanhoun was appointed professor of Civil Law in 1927, and became dean of
the Cairo Law School (1936), Minister of Education (1945-49), Head of the
Conseil d'Eiat (1949-54). In 1954 the Nasserist regime organized a mob attack
against the Conseil d'Eiat during which A]-Sanhouri was assaulted and injured.
Forced to retire for political reasons he concentrated his efforts on completing his
Al-Wasit and helping newly independent Arab countries such as Kuwait and
Bahrain in drafting their constitutions and various codes after having helped Iraq,
Syria and Libya in drafting their codes, in particular their civil codes following his
chef d'oeuvre on the Egyptian Civil Code.
(23)
The differences between American law and Egyptian law are not limited to rules
applied specifically to the contracts for works; they also extend to such differences
as general rules of interpretation and principles of contract drafting. The following
examples may illustrate these differences. Unlike under common law, when the
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judge or the arbitrator has to interpret a private contract under Egyptian law,
reference is always made to Civil Code principles, rather than looking too closely to
a precedent. Further, the Egyptian judge is entitled to look at the negotiation phase
when construing a works contract, whereas the power of the English judge is more
limited.(23) Finally, when a discrepancy is in dispute, the contract must be interpreted
in favor of the debtor under article 151.1 of the ECC, regardless of whether the
debtor was the maker or the grantor.
(24)
See Borham Atallah, FIDIC “An Anylysies of Inernational Construction Contracts”,
KLUWER LAW INTERNATIONAL and International Bar Association, P.21-35.
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Dr. Walaa Arakeeb
the estimated price, the contractor is bound to notify the master thereof
forthwith and to inform him of the anticipated increase in price; if he fails
to do so he forfeits his right to recover the expenses incurred in excess of
the estimate.”
The contract based on “serie des prix” is only a variant of the last
method, in which the schedule applicable to each article instead of being
freely debated by the parties, or according to the usage of the place, is
fixed officially by a tariff called “schedule of prices”, and considered as
obligatory, in the absence of an agreement to the contrary, in the building
industry on the tariffs of the honoraria of architects.
E. ARE THERE ANY FORMAL REQUIREMENTS FOR CONSTRUCTION
CONTRACTS TO BE VALID?
Construction contract is a consensual contract. A principle is driven
and founded upon the autonomy of the will rule which the parties can
freely enter into any binding relationship, as they wish. Consensual
contracts were those of which construction contract would be an example,
which might be perfected by consent, and to which no particular form was
essential, but they are only binding upon consent.(25) Therefore, no
formality prescribed by the law for the construction contract to be
concluded.
In construction contract, writing is only required only as a matter of
proof. If a construction contract is deemed as a civil transaction and the
value of the contract exceeds L.E 1000, a plaintiff must furnish the
(25)
Although most non-lawyers think of contracts as written documents, generally, unless it is
provided by a statute, a formal expression of a contract (written contract) is not necessary for
lawfully creating a contractual obligation and it is merely necessary in order to prove the
existence of a contract. However, some contracts may be executed only in written form and
may need an authentic instrument (e.g. conveyance of real estate, mortgage on real property).
Where a written document is required for the validity of a legal transaction, it may be established
and stored in electronic form; exception to that is made in regard to instruments relating to
family law, to the law of succession and to instruments relating to securities or real charge. Some
contracts may require under French law the handing over of the contract's material object (e.g.
pawn, deposit, loan, called controls reels); if there is promise without handing over, the creditor is
entitled to damages.
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(26)
Egyptian Evidence Law article 60.
(27)
Egyptian Trade Law No. 17 of 1999, article 69(1).
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without the need to sign the document physically. The law reflects
Egyptian business desire not only to carry out traditional, handwritten
signatures in an electronic environment, but also to ensure that shared data
remains fully secure and under full control.(28)
The current Egyptian E-sign Law has deferred in many occasions to
the evidentiary rules as the main vehicles entitling the legislature to
regulate all evidentiary matters. Egyptian E-sign Law article 14 stipulates
that “within the scope of civil, commercial, and administrative
transactions, E-signatures shall have the same determinative effect that
signatures have under the provisions of the Evidence Law in the civil and
commercial articles, if the creation and completion thereof come in
compliance with the terms stipulated in this Law and the technical and
technological rules identified in the Executive Regulations of this law.”(29)
Also, article 15 includes similar references that state, “Within the scope of
civil, commercial, and administrative transactions, E-writing, and
electronically written messages shall have the same determinative effect
that writings, official, and unofficial messages have under the provisions of
the Evidence Law in the civil and commercial articles . . . .”(30)
The law aim to confer legal validity to electronic signatures, writings,
and duplicates, in order to share the same global view toward conducting
electronic business legally and with high levels of security. Article 15
stipulates that “within the scope of civil, commercial, and administrative
transactions, E-signatures shall have the same determinative effect that
signatures have under the provisions of the Evidence Law in the civil and
commercial articles if the creation and completion thereof is in compliance
with the terms stipulated in this Law and the technical and technological
rules identified in the Executive Regulations of this law.”(31) One should
note that the Egyptian E-Signature Law has tried to remove E-commerce
(28)
See Walaa Arakeeb, ELECTRONIC CONTRACT – BETWEEN PRACTICE AND
THEORY: A CRITIQUE OF THE
CURRENT STATE OF EGYPTIAN LAW (WITH RECOMMENDATIONS FOR
REFORM), SJD’ Thesis- SMU-Dedman School of Law (2007-unpublished).
(29)
Egyptian E-Sign Law No. 15 of 2004, § 14.
(30)
Id. § 15.
(31)
See The Executive Regulations supra note 1; see also Egyptian E-Signature Law §§
14-18.
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b. Registration Requirements
One should here take into consideration Art. 61 of The Tenders
Regulations (1998) which requires that the tenderer should be resident in
Egypt or has or shall have an agent in Egypt.
Also relevant here is Law No. 104 of 1994, establishing the Egyptian
Federation of Construction and Building Contractors (EFCBC),(34)
requiring in Art. 7 that works forming part of contracting activities shall be
entrusted for execution to parties who are active members of the
Federation, if the value of the operation exceeds fifty thousand 'Egyptian
pounds. Exempted from this rule are contracts funded through loans or
grants approved by the People's Assembly. Article 9 of the Regulations of
this Act requires that foreign nationals and corporations exercising in Egypt
an activity of contracting construction and building works shall submit an
application to be a correspondent member of the Federation, provided that
such persons or entities fulfill all conditions required for exercising such
activities in the country to which such persons belong. The period of
membership shall be limited to the period required for exercising the
construction activity in Egypt. No sub-contracting could be done but to
members of the Federation, of the proper category.
c. Workmen Acting as Contractor
Certain workmen on buildings, masons, carpenters, locksmiths,
occasionally make a contract for lump sum for the execution of a large part
of the work; should this make them subject to the soundness application of
work contract rules? Though, the first hand interpretation of current rules
declares them subject to the rules of this section “ceontracts for work”.
Another favorable opinion claim that the quality which it attribute to them
is inadvisable. If we are treat such persons as entrepreneurs because the
nature of the contracts which they make, it would be unjust not to let them
participate in the advantages which this quality would give them,
particularly when they are subject to the obligation imposed.
(34)
See http://www.tasheed.org/english/eng_home.aspx (last visited, 30th of
January,2010)
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d. Sub-Contractor
The contract of work by the job (construction) can be made by a sub-
contractor. Often the original contractor contracts for a number of works
which exceed by their Varity or by their quantity those he can execute by
himself, and he assigns a part of them to other contractors how undertake
for him to execute certain parts of the work (carpentry, plumbing, painting,
etc.) or certain detached parts of the whole. The latter, not having dealt
directly with the person for whose account the work is done, are-
subcontractors.
Therefore, for the purpose of the rules of the ECC, subcontracting
shall be understood to mean the process by which a contractor entrusts, by
means of a subcontract, and under their responsibility, all or part of the
execution of a works contract or public contract concluded with the client to
another person known as the subcontractor. Also for the purposes of the
aforementioned law subcontractors shall be considered as the main contractor
with regard to their own subcontractors.
Art. 661 of the ECC provides that “(1)A contractor may entrust the
execution of the whole or part of the work to a sub-contractor, unless he is
precluded from so doing by a clause in the contract, or unless the nature of
the work presupposes reliance on his personal skill.(2) In such a case the
contractor remains responsible to the master for his sub-contractor.”
Egyptian law protects subcontractors by the contract of work rules.
According to Art.661 of the ECC subcontractors who have been accepted work
shall be paid directly by the latter for the part of the contract executed by the
former. Pursuant to Art. 662 (1) of the ECC, the subcontractor shall be able
to take direct action against the client, should the main contractor fail to pay
the monies due by virtue of the subcontract. A sub-contractor may demand his
payment against the client (master) directly. Also, In the case of an
attachment served by one of them upon the master or the main contractor,
workmen have a right of privilege on the sums due to the main contractor
or to the sub-contractor at the time of the attachment, in proportion to the
amount due to each of them. These sums may be paid to them directly (art.
662(2) ECC).
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2. Engineer
The Egyptian Civil Code distinguishes the two functions of the
architect: the design and the supervision. We will see one aspect of this
when we discuss the defects liability. However, Article 660 ECC is worth
quoting:
"An architect is entitled to a separate fee for the preparation of the
plans and specifications and another for the supervision of the work. If
these fees are not specified in the contract they shall be fixed according to
prevailing custom.
If, however, the work is not completed in conformity with the plans
prepared by the architect, the fee shall be assessed on the basis of the time
taken in their preparation, taking into consideration the nature of the work.
"The philosophy behind this provision coincides with Article 659
ECC which states that "when the price in a contract for works has not been
fixed in advance, it must be calculated according to the value of the work
and the expenses of the contractor. " Both provisions are applications to
the rule enunciated in Article 95 ECC. According to this rule, "when the
parties have agreed on all the essential points of a contract and have left
certain details to be agreed upon at a later date without stipulating that
failing agreement on these details, the contract shall not be concluded, the
contract is deemed to have been concluded, and the points of detail will, in
the event of dispute, be decided by the Court according to the nature of the
transaction, to provisions of the law and to custom and equity."(35)
Engineer may not be characterized under Egyptian law as an agent.(36)
Instead the relationship between the engineer and the employer is generally
based on a contract for work governed by ECC articles 646 to 667.(37) It is
essential in the view of Egyptian law to distinguish between two categories
of the engineer's functions: nonjuridical acts (such as drawings,
(35)
It can be seen that the application of these provisions could extend beyond design to
much of the work done by contractors under FIDIC.
(36)
El Kholy, supra note 45, at 3.
(37)
Decision of May 16, 1967, Case No. 150 (18 Judicial Year) at 1005 [Egyptian
Supreme Court], in 7 A. EL SANHURI, EL WASEET 30 (1989).
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Dr. Walaa Arakeeb
(38)
El. Kholy, supra note 45, at 4..” [T]he legal relationship with the employer as to
these nonjuridical acts is a relationship based on a contract for work governed by
Arts. 646 to 667 of the Egyptian Civil Code. For this category of nonjuridical acts,
the engineer is an independent contractor who has to perform his obligations in
consideration of the agreed remuneration, but with no agency relationship
whatsoever.
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by Ihe employer. Thus the Civil Code imposes on the contractor a duty to pre-
perform..
The central characteristic of a contract for works is the obligation to
achieve a specific result (Art. 656 of the ECC). (39) The contractor remains free
to decide how to achieve the result. Thus in principle the individual
responsibility of the contractor and the fact that the contractor is not generally
bound to directives of the employer are constitutive elements of a contract for
works. The responsibility of the contractor includes scrutinizing the
employer's requirements and any materials provided by the employer. In
addition the works must be fit for use together with the existing facilities.
When completed the works must be fit for running. In a summary and in
accordance with Art. 655 ECC the contractor must meet the agreed conditions
or. if not agreed, the mutually assumed purpose. Any of the works is defective
if it is not in accordance with the contract or if there is a functional
discrepancy or a technical deficiency or if it proves that the contractor did not
comply with recognised technical rules. The work is defective irrespective of
its cause. If the work is defective there is breach of contract. (Arts. 148, and 157
ECC). However, although art. 650 apply to defects occur prior to acceptance of
the works, the right to request the remedy of any defect prior to acceptance of the
works is slightly restricted and subject to Art. 209 of the ECC.(40) Art. 650 of the
ECC provides “ (1) If, in the course of execution, it is established that the
contractor is performing the work in a manner that is defective or contrary
to the agreement, the master may formally summon him to alter, within a
reasonable period fixed by him, the manner in which he is performing the
work. If after the expiration of such a period the contractor fails to adopt
the proper manner of working, the master may either demand resiliation of
the contract or the handing over of the works to another contractor at the
cost of the first contractor, in accordance with the provisions of Article
209. (2) Immediate resiliation of the contract may, however, be demanded
(39)
See § 656 –ECC that provides “ In the absence of a custom or an agreement to the
contrary the price is payable upon delivery of the works.”
(40)
See § 209 –ECC that provides “ (1)In the case of non-performance by the debtor of
an obligation to do something, the creditor may apply to the court for an order to
carry out the obligation at the cost of the debtor, if this is possible.
(2) In a case of urgency, the creditor may carry out the obligation at the cost of the
debtor without an order from the court.”
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must carry out his duties with due care and diligence, and must complete
works to fit their purposes.
To sum up, a one can claim that the Egyptian law imposes three
implied obligations on the contractor: (1) the contractor is obliged to
complete works with care and skill; (2) the contractor warrants that the
material he uses and works he erects are reasonably fit for the purpose for
which they are required; and (3) the contractor warrants that the materials
he supplies are of good quality.
1. Performance of Security
Relevant to public-work contracts (administrative contract), Art. Of 18
of the Tenders Act and Art. 7 of the Tender Regulation regulate
performance securities. These provisions collectively impose upon bidder
whose tender has been accepted should pay a deposit equivalent to 5%/of
the value of the contract or present a letter of guarantee or a bond issued
by an approved local bank without being subject to any restriction or
condition. The bank will declare its readiness to pay to the contracting
Administration the amount of the letter "of guarantee or bond, upon the
first demand, without taking into consideration any objection that might be
raised by the contractor.(41)
2. What Does Non-performance mean?
Under Egyptian law, the non-performance may occur in different ways: it
may be total (e.g. the contractor who did not build anything), partial (e.g. the
contractor who executed only the masonry works); moreover, a defective
performance (e.g. delayed or malfunctioning works) is equal to a non-
performance. As a matter of fact, the creditor is entitled, alternatively, to seek
proper enforcement (if possible), to perform the debtor's obligation by himself but
at the debtor's costs, or terminate the contract (resolution du contrat). If economic
loss occurs as a result of the non-performance, the creditor may be awarded
damages (dommages-inte'rets).(42)
(41)
It can be seen that these terms contradict some of the provisions of Silver Book
Article 4.2.
(42)
See art. 157 ECC “ (1) In bilateral contracts (contrats synallagmatiques) if one of
the parties does not perform his obligation, the other party may, after serving a
formal summons on the debtor, demand the performance of the contract or its
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default may follow from a letter missive where a sufficient requisition results
from it.
ii. case of exemption
If the debtor does not prove that the non-performance/the delay in
performing is due to an external cause, he shall be ordered to pay damages even
in absence of bad faith". The corollary of this rule is that damages should not
be due if the debtor was prevented from performing by reason of force majeure
or of a fortuitous event (Art. 1148 Code Civil). According to Art. 165 of the
ECC, " In the absence of a provision of the law or an agreement to the
contrary, a person is not liable to make reparation, if he proves that the
injury resulted from a cause beyond his control, such as unforeseen
circumstances, force majeure, the fault of the victim or of a third party.”
Nevertheless, the concept of force-majeure does not include the
unforeseeable physical conditions, e.g. those related to the ground (risque
du sol). The most important consequence of this rule is that in the case of lump
sum contracts (marche' dforfait), the contract price is quasi-untouchable, as
additional works caused by unforeseeable conditions have to be carried by
the contractor as long they are necessary and do not affect the object and
general economy of the contract.29
According to the sound understanding of rules of construction contract
rules, the responsibility for unforeseeable physical conditions related to the
ground shall be taken by the contractor, who has a general duty of inspecting the
site while working in the so-called secteur prote'ge'. Therefore, under
Egyptian law the employer (master) doesn't have to bear additional costs
related to unforeseeable physical conditions of the soil1".
iii. penalty clause (liquidated damages )
"A penalty is a clause by which a person, in order to ensure performance
of an agreement, binds himself to something in case of non-performance." A
penalty clause is a compensation for the damages which the creditor suffers
from the non-performance of the principal obligation. The penally clauses
with purely punitive aims are usual on the continent, but are prohibited
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under Common Law and as a result are not enforceable by the courts.(43)
Article 223 of the ECC gives the parties to a contract the right to "fix in
advance the amount of damages either in the contract or in a subsequent
agreement. Article 224 states clearly that "damages fixed by agreement are
not due, if the debtor establishes that the creditor has not suffered any loss.
The Judge may reduce the amount of these damages, if the debtor
establishes that the amount fixed was grossly exaggerated or that the
principal obligation has been partially performed. Any agreement contrary
to the provisions of the two preceding paragraphs is void."
Working the other way, Article 225 ECC provides that "when the loss
exceeds the amount fixed by the contract, the creditor cannot claim an
increased sum, unless he is able to prove that the debtor has been guilty of
fraud or gross negligence".
In the public-work contract realm (administrative contract) , the
Tenders Act has what are known as delay fines, (gharamat el taakheer),
which would not be subject to any reduction and would be applicable
without the need to prove any loss. One typical delay fine clause under the
repealed Tenders Act (no. 9/83) would go like this, paraphrasing the
provision of the Act itself: Without prejudice to any of the rights assigned
to the "owner-employer" under this contract, any delay in the execution of
the works may be assessed a delay fine in the percentages and under the
conditions which follows:
1% The first week or any part thereof The second week or
1.5% any part thereof The third week or any part thereof the fourth
2% week and any part
2.5% thereof For each subsequent month or part
4% thereof
(43)
The difference between the penalty clause and the liquidated damages is that the sum to be
paid when breaking a promise under Common Law has to be reasonably estimated at the
time of contracting, taking into account the actual damage that will probably ensue from
breach. On the contrary, under French Contract Law there isn't any relationship
between the actual damage and the sum to be paid as a penalty. A creditor may not
claim at the same time the principal and the penalty, unless it was stipulated for a mere
delay; instead of claiming the penalty stipulated against the debtor who is under notice of
default, a creditor may proceed with the performance of the principal obligation.
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The fine, if assessed, will be calculated on the total final price of the
entire contract if the (owner-employer) is of the opinion that the delayed
part directly or indirectly prevents it from benefiting fully from the work
already completed on the specified dates. But, if the (owner-employer)
shall decide that the delayed part of the works shall not prevent making use
of the pans completed, then the final percentage shall apply only to the
value of the delayed parts at the rates and rules specified above.
The fine may be assessed by virtue of the (mere) fact of delay even if
no damage is incurred as a result, with no need for warning or legal
measures to be taken. The fine will be deducted from the amounts due to
the contractor immediately after the contract completion date.
The contractor is responsible in all cases and must bear any increased
fees, taxes, and similar charges during the delay period."
The new Tenders Act (1998) maintained the structure of the delay fine
but with some few important modifications. According to the Regulations,
the rate of the delay fine is 1 % per week or part of the week, and the total
fine shall not exceed 10% of the contract value. In an attempt to pass the
test of constitutionality, the Tenders Act allowed for the exemption from
the delay fine if there is no loss, or the delay was outside the control of the
contractor. Such exemption should be done after consultations with the
competent Section of the Conseil d'Etat. The new Article 23 of the Tenders
Act also allows for arbitration. The last two paragraphs of this Article state
that:
The imposition of the fine shall not prejudice the right of the
Administrative Entity to have recourse against the contractor for full
indemnification for whatever damage done due to the delay. In case of
allegations that the Administrative Entity failed due to its fault to perform
its contractual obligations, the contractor shall be entitled to have recourse
to courts to obtain damages for any loss resulted, unless the two parties
agreed to proceed by Arbitration in accordance with the Arbitration Act
(no. 27/1994) as amended by (Law no. 9/1997).
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unless, in this case, the constructions were intended by the parties to last for less than
ten years.(2) The warranty imposed by the preceding paragraph extends to defects in
constructions and erections which endanger the solidity and security of the works.
(3) The period of ten years runs from the date of delivery of the works. This Article
does not apply to the rights of action which a contractor may have against his sub-
contractors.”
(47)
“An architect who only undertakes to prepare the plans without being entrusted with
the supervision of their execution, is responsible only for defects resulting from his
plans.”
(48)
“Any clause tending to exclude or restrict the warranty of the architect and the
contractor is void.”
(49)
“Actions on the warranties above referred to are prescribed after three years from the
date of the destruction of the works or the discovery of the defect.”
(50)
A. Yaseen, The Civil Liability of the Engineer and the Contractor: A Comparative
Study 208 (1987) (Ph.D. thesis, Cairo University) (in Arabic)., at 665
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to a court or tribunal with no jurisdiction. The three year period starts not
from the demolition or deterioration of the works but from the detection of
any defect which might lead to a demolition or deterioration. What is
important is that die defect is discovered during the ten year period.
In cases where a sign of defect is discovered during the ten year
period, then other signs of defects appear, the three year period starts with
the apparition of the new signs of defects, on condition that we are still
within the original ten year period.
k- The Egyptian legislature introduced in 1976 a system of mandatory
decenial liability insurance covering the contractors liability during the
execution period and the ten year period of guarantee. Originally this
insurance covered the contractor's liability towards the employer (i.e. the
owner) as well as third parties. Since a 1983 amendment the mandatory
insurance covers only third parties, victims during the ten year period and
the period of execution of the construction contract.
Now the insurance does not cover the owner in case die construction
works collapse or deterioration as was originally intended in 1976. There
has been a campaign to reinstall die original system. Until a change in
legislation occurs it would not be a bad idea for the contractor to buy a
decenial liability insurance covering die liability of die contractor vis-a-
vis die owner in order to complete die mandatory decenial liability
insurance covering third parties.(52)
E. LIMITATION PERIODS FOR LIABILITY CLAIMS ARISE FROM
CONSTRUCTION CONTRACTS
According to Art. 374 of the ECC , the general limitation period under
Egyptian law lasted 15 years.(53) Claims for tort liability are barred after 3
years from the manifestation of the injury or of its aggravation, and
provided that victim knew of the injury and the identity of the person who
was responsible, worthies general limitation period (15 years) prevails (Art.
(52)
See Borham Atallah, FIDIC “An Anylysies of Inernational Construction Contracts”,
KLUWER LAW INTERNATIONAL and International Bar Association, P.21-35.
(53)
“The term of prescription for obligations is fifteen years with the exception of those
cases for which a special provision is contained in the law and with the exception
also of the following cases.”
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172 of the ECC).(54) Also, claim for the rights of workmen, merchants, and
servants are barred after 1 year form the date of rendering their services
(Art. 378 of the ECC).(55)
Shorter limitation period is provided for claims resulting of
construction contract. Claims for liability directed against contractor and
architect for reason of liabilities and warranties barred after three years from
damaging of the work or discovery of the defect (Art. 654 of the ECC).(56)
(54)
“ (1)An action for damages arising from an unlawful act is prescribed after three
years from the date upon which the victim knew of the injury and the identity of
the person who was responsible. An action for damages is prescribed in any case
after fifteen years from the date on which the unlawful act was committed. (2)
When a claim arises out of a penal offence and the penal action is not prescribed
after the delays set out in the preceding paragraph, the action for damages is only
prescribed when the penal action itself is prescribed.”. It must be also noted that
The French law concerning limitation has recently been reformed. According to Art.
2262 Code Civil (old version), the general limitation period under French law lasted 30
years. Claims for tort liability were barred after 10 years from the manifestation of
the injury or of its aggravation (Art. 2270-1 Code Civil - old version). Since 2008
the general limitation period under French law lasts 5 years (Art. 2224 Code Civil).
The time limit for tort claims is still ten years (Art. 2226 Code Civil).
(55)
The term of prescription is one year for the following rights of action:
a) the rights of action of merchants and manufacturers in respect of things supplied
to persons who do not trade in these articles, as well as the rights of action of hotel
and restaurant proprietors for the cost of accommodation and food and for expenses
incurred by them on behalf of their clients.
b) the rights of action of workmen, servants, wage earners, in respect of their pay,
daily or otherwise, and for the cost of supplies provided by them.
When a person claims this prescription of one year, he must take oath that he has
actually paid the debt. The judge will of his own accord pass the oath. If the debtor is
dead, such oath will be passed to the heirs of the debtor, or, if they are minor, to their
guardians, so that they may declare either that they do not know the existence of the
debt or that they know that the debt has been paid.”
(56)
“Actions on the warranties above referred to are prescribed after three years from the
date of the destruction of the works or the discovery of the defect.”
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under the contract, the creditor (the employer) can ask the competent court
to issue an order allowing him "to carry out the obligations at the cost of
the debtor (the contractor), if this is possible." Paragraph 2 of article 209,
goes on to say. "In a case of urgency, the creditor (the employer) may
carry out the obligations at the cost of the debtor (the contractor) without
an order from the court." In essence, this possibility is explicitly provided
by article 650 ECC. It provides: "If, in the course of execution, it is
established that the contractor is performing the work in a manner that is
defective or contrary to the agreement, the owner-employer may formally
summon him to alter, within a reasonable period fixed by him, the manner
in which he is performing the work. If after the expiration of such a period
the contractor fails to adopt the proper manner of working, the owner-
employer may either demand resolution of the contract or the handing
over of the work to another contractor at the cost of the first contractor, in
accordance with the provisions of article 209.
Immediate resolution of the contract may, however, be demanded
without it being necessary to grant any delay, when rectification of the
defective manner of performance is impossible."
B. TERMINATION BY LAW
Article 664 of the ECC states that the contract is terminated "if the
performance of the work for which the contract was concluded becomes
impossible." This is the case of frustration of the contract by the
occurrence of a fortuitous event, an act of God, or any cause outside the
power and the will of the parties. The effect of such impossibility to
perform is to be found in the general provisions of articles 159 and 160 of
the ECC: the obligations of the parties are extinguished and the contract is
rescinded by operation of law.
Articles 665 determines the position of the parties in case of
destruction of the works by fortuitous event before the reception of the
works by the employer. According to paragraph I of article 665: "The
contractor has no claim for the price of his work or for reimbursement of
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his expenses." As to the materials provided for the work, the loss "falls on
the party who supplied them."(58)
C. TERMINATION AT WILL
1. Termination at the Will of Employer
Furthermore another interesting feature of Egyptian construction law is
worthwhile to be empha-sized, which is the right of the employer (master) to
terminate the contract by convenience (Art. 663 ECC). Whilst under English law
the concept of repudiation prevails if either of the parties refuses to perform the
contract, under Egyptian law the employer is not in breach of contract if he
terminates the contract prematurely. However according to Art. 663 ECC, the
contractor then will be entitled to claim for all expenses he has incurred, for
the work that he has done and the profit that he would have made if he had
completed the work as a result of the premature termination of the contract,
which in fact leads to the result that he is entitled to what he failed to earn as a
result of the deliberate termination or omission that is conducted by the
employer. In practice, it is common to find that this amount is pre-estimated and
fixed in the contract. Alternatively, a court sets a discretion compensation. The
court may, however, reduce the compensation due to the contractor for loss
of profit if the circumstances justify such reduction. In particular, the court
shall deduct from such compensation any saving realized by the contractor
as a result of the rescission of the contract by the master and any profit
which the contractor could have made by employing his time otherwise
(Art.663(2) ECC).
2. -Termination and Suspension at the Will of Contractor
Contractors in Government Contracts, having the nature of
Administrative Contracts cannot, according to the established doctrine of
the High Administrative Court, stop the work or raise the defense of the
exceptio non adimpleti contractus. This defense is otherwise regulated by
the Egyptian Civil Code in Article 161, which states that "when, in the case
of a bilateral contract, correlative obligations are due for performance,
(58)
If the destruction of the works has occurred after the contractor has failed to comply
with a formal summons to deliver the works he must indemnify the employer for the
material supplied.
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either of the contracting parties may abstain from the performance of his
obligations, if the other party does not perform his obligations." Such
defense could be raised in privately financed contracts, but has no
application if we are facing an Administrative Contract stricto sensu. The
recognized doctrine is that the public service is to continue providing its
services to the public and the contractor will be indemnified fully
afterwards.
D. VARIATIONS OF CONSTRUCTION CONTRACT
Variation or change, as used in construction contracts, refers to an
alteration in one or more aspects of the construction of the works from that
required under the contract documents.(59) The general principle in
Egyptian Law is that no modification or variation of the contract can be
done without die agreement of the parties to the contract. This principle is
enshrined in Article 147/1 of the Egyptian Civil Code: "The contract
makes the law of the parties. It can be revoked or altered only by mutual
consent of die parties or for reasons provided by the law." The principle is
also subject to the contract, as that is the law of the parties.
According to the principle of pacta sunt servanda (Latin for
"agreements must be kept"), under Egyptian law, without a variation clause
the employer could only vary the work with consent of the contractor. The
contractor must comply with the engineer's instructions in this respect. In
any event, the power of the engineer to order variation is limited in nature
and time. Thus, the contract should emphasize that these changes are
permitted to the works but not to the other terms of the contract, which
cannot be altered or modified without the prior consent of the contractor.
Also, such variation should be instructed before the completion of works;
hence no variation should be instructed in the event of defect liability.
(59)
Variation orders under the FIDIC conditions are invested in the engineer. The scope
of variation according to clause 51.1 of the FIDIC conditions includes alteration of
the form or the design, quality, or quantity of the works or any part that may be
necessary or appropriate, according to the discretion of the engineer. Changes of
works by addition or omission may also include changes of materials, equipment, or
any goods to be used in the works. In addition, changes of works programs are
deemed to be variations under clause 51.1.
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On the other hand, the power of the public employer to vary the works
in public-works contracts is restricted by two substantial factors. First, the
additional works should remain within the technical and economic capacity
of the contractor. That is, the alteration should not lead to an economic
non-equilibrium of the contract. (60) Second, the Council of State has ruled
that new works that are alien to the original works cannot be permitted.
The following works have been considered new works: a request to move
construction three kilometers from the site of the original works; an order
to a contractor who is carrying out a maintenance contract to undertake a
construction job; an order to a dredging contractor to carry out a
dewatering job; and an order to follow a new method of execution radically
different from that originally agreed.
Article 78 of the Tenders Regulations, which gives the Administration
in Government Contracts the right to modify the quantities or the volume
of its contracts, for more or less, within the limits of 25% of each item with
the same prices and conditions, the contractor having no rights to ask for
any indemnification whatsoever. In cases of absolute necessity and this
time with the approval of the contractor, the limits of 25% could be
exceeded.
Article 657 of the Civil Code stipulates that the contractor has no
claim to an increase of price, even if the modifications and additions are
made to the plan, when a contract is concluded on a lump sum basis
according to a plan agreed upon by the owner-employer. However, this
rule does not apply if such modifications or additions are due to the fault of
the owner-employer or have been authorized by him and the price thereof
agreed with the contractor. Such agreement should be made in writing
unless the principal contract was concluded verbally.
It is to be noted that Art. 658(3) states that "the contractor has no
claim to an increase in the price of raw materials, labor or any other item of
expenditure, even if such increase in the price is so great as to render the
performance of the contract onerous." The rule is different if the economic
equilibrium of the contract is broken down as we discuss elsewhere. Also
(60)
Decision of Dec. 16, 1956 [Administrative Court].
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the contractor can protect himself by a special clause like the one taken
from an agreement concluded in the early nineties.
"If after the Tenders opening date there is an increase in the price of
any of governmental subsidized cement, steel and timber or in the
minimum wages of permanent labor through a governmental decree or
order, the contractor shall be reimbursed for any additional cost resulting
from the exception of the contract workers."
E. CLAIMS, DISPUTES AND ARBITRATION
By the late of 1990s, several important changes were evident. Foreign
related litigation in the Egyptian courts was increasing and with the need to
resolve lingering uncertainties on such issues. As jurisdiction over issues
as jurisdiction over foreign-invested Egyptian companies and the
implication the implication for civil litigation stemming from contract
arbitration clause. The Egyptian Arbitration Act (1994), as amended in
1997, adopted generally most of the rules of the UNCITRAL Model Law.
Thus it paved the way for the liberation of the arbitration process. The Act
recognizes the autonomy of the arbitration clause and the principle of
competence. The parties have the right to choose the procedural law, the
substantive law, the place, the language and the Arbitration Institution
handling the dispute. The reference in the Tenders Act (1998) to the
Arbitration Act (1994) as amended in 1997, put an end to the discussion,
once vehement, by the admission of the arbitrability of Administrative
Contracts disputes(61).
(61)
Arbitration of public-works contracts has been strongly challenged in some recent
cases, even when FIDIC conditions were used. The Administrative Supreme Court
decided the exclusivity principle of the administrative courts' jurisdiction relating to
public contracts. This trend was inherited from French law, which prevents
arbitration in local public-works contracts. However, the general assembly of the
advisory opinion department and legislative department of the state council has
decided that arbitration agreements are permitted in public contracts whether such
contract is concluded with a foreign contractor or not; see also Borham Atallah.
"The Egyptian Arbitration Law Ten Years On." International Court of Arbitration
Bulletin. Vol. 14/No. 2/Fall 2003 (13-22).
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