Construction Arbitration: Egypt

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

Egypt

Egypt is a civil law jurisdiction. Its Civil Code No. 131 of 1948 has its origins in French civil law, although with some nuances. According to article 1 of the Civil Code, when there is no legislative provision on point, the court decides according to custom and in the absence of custom in accordance with the principles of Islamic Law. In the absence of such principles, the court will apply the principles of natural justice and the rules of equity.

Local legislation consists of the Constitution, laws issued by the Parliament, and Decrees issued by the government within the parameters permitted and/or delegated by the Laws. According to article 225 of the Constitution, new laws are published in the Official Gazette within 15 days of the date of issuance and enter into force within 30 days of the date of their publication in the Gazette, unless otherwise stated in the relevant legislation. Except in criminal and tax legislation, the laws may apply to events preceding their issuance, provided that two-thirds of the Parliament approve such retrospective effect, and that this be stipulated in the law.

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

Egypt

According to article 89 of the Civil Code, a contract shall be concluded when an offer and a matching acceptance are exchanged between the parties. If the acceptance includes different or additional elements to the offer, the acceptance is considered a counteroffer, and the contract is concluded when the counter-offer is met by a matching acceptance. The existence of a formal (written) contract is not a requirement for the formation of a construction contract but is crucial as proof of the existence of (and the terms governing) the relationship between the parties; likewise, its signature is not a prerequisite to valid contract formation.

In the construction context, a contractor’s tender submission would constitute an offer; any act (whether express or implied) that leaves no doubt as to the employer’s intention to accept the offer would result in the formation of a construction contract. A ‘letter of intent’ or a ‘letter of award’ would be given contractual effect from the date it is received by the contractor, unless, of course, it is subject to a condition precedent.

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

Egypt

Parties are free to agree to all the above, except that provisions that contravene Egyptian public order or morals are not enforceable in Egypt. Also, if Egypt is the seat of arbitration, the institutional rules chosen by parties shall not contravene mandatory provisions of the Egyptian Arbitration Law (EAL). As to arbitrators, in addition to not being minor or under guardianship, they shall not be deprived of their civil rights for having been declared bankrupt or convicted in a felony or misdemeanour contravening morals, unless their civil rights are reinstated.

4. How might terms be implied into construction contracts? What terms might be implied?

Egypt

The Civil Code regulates construction contracts and determines the rights and obligations imposed on parties thereto. Those rights and obligations are implied in construction contracts and apply to parties thereto to the extent they do not contravene a provision in their construction contract.

Additionally, article 148 of the Civil Code imposes an obligation on parties to act in good faith and stipulates that a contract is not limited to its terms but includes all other obligations that are considered by law, custom or equity, accessory or incidental to the obligations set in the contract.

Also, according to article 150(2) of the Civil Code, where there is room to interpret a contract, a court may look past the literal wording of its terms and take into consideration the common will of the contracting parties, the nature of the dealing and the custom applicable thereto, and the trust and integrity that must exist between them.

Consequently, any term might be implied, unless the law requires that such a term be evidenced in writing – such as an agreement to arbitrate or a guarantee.

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

Egypt

Egyptian law is silent on the impartiality of certifiers. Parties shall be bound by certificates to the extent that they agree contractually to be, however, nothing will prevent an aggrieved party from resorting to the competent court or tribunal to claim its entitlement(s) under a contract. A contractor cannot bring proceedings directly against the certifier where there is no contractual nexus between them, unless the certifier is liable to the contractor in tort and the contractor suffered damage as a direct result of the certifier’s breach of his or her duty in tort.

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

Egypt

The concept of Extension of Time is not per se regulated by Egyptian law. Where there is concurrent delay to the works, the competent court or tribunal would look to identify the dominant cause thereof – that is, to ascertain whether one breach is of sufficient magnitude to ‘absorb’ the other. If that is the case, the party responsible for the dominant cause will bear liability for the delay. Where neither cause is determined to be dominant, liability for the delay will be apportioned between the parties in accordance with their respective degrees of fault.

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

Egypt

While Egyptian law does not specifically deal with disruption, the employer has statutory obligations to (i) permit the contractor to perform the works and (ii) prevent obstructions to the contractor. Thus, Egyptian law would view ‘disruption’ as a breach of contract. To be successful in a claim for compensation, the contractor would need to establish (i) breach by the employer of his or her contractual obligations; (ii) damage to the contractor; and (iii) a link of causality between the two. Damage must be quantifiable to be compensable. The obligation of proving quantum in these circumstances would lie with the contractor, and the court or tribunal will quantify the loss based on evidence to be submitted by the contractor. It is worth noting that the Evidence Law allows the court to appoint experts if it considers this necessary to establish matters such as quantum of loss.

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

Egypt

If the cause of the delay that necessitated the acceleration is attributable to the employer, the employer may be liable to compensate the contractor for the results of that breach. To succeed in bringing such claim, the contractor must establish breach caused by the employer, damage suffered and a link of causality between the two.

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

Egypt

According to article 373 of the Civil Code, “An obligation is extinguished if the debtor establishes that its performance has become impossible by reason of causes beyond its control.”

Also, article 159 of the Civil Code provides that, in the context of bilateral contracts, if performance by one of the contracting parties of its obligation(s) becomes impossible (that is, not merely difficult) for an extraneous cause beyond its control, the contract shall be dissolved – automatically, by force of law.

In the application of those articles, for a force majeure defence to be available, the performance of the obligation must be rendered impossible because of extraneous cause beyond the control of the defaulting party. If the impossibility was due to the fault of the defaulting party, there will be no force majeure and the contract will remain binding. Two conditions are essential for a force majeure event to exist; the unpredictability, judged objectively, of the event at the time of entering the contract and the fact that it could not be avoided. The competent court has the discretion to decide, depending on the facts and evidence submitted before it, whether a certain event amounts to a force majeure that can release the affected party from its obligations.

If a force majeure event is established and rendered the obligor’s obligation impossible to be performed, the excused party will be released, by force of law, from performing its obligations and no compensation will be awarded in lieu of the non-performed obligation.

The above is the general rule under the Civil Code in respect of the party’s liability in the event of force majeure. However, article 217 of the Civil Code permits the parties to agree that the debtor should assume the risk of force majeure and hardship events.

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

Egypt

According to article 658 (3) & (4) of the Civil Code, in lump sum contracts, an increase in the price of raw materials, labour or other expenditure does not entitle the contractor to financial relief, except where the contractual equilibrium between parties’ obligations and the financial basis on which the contract was concluded falls apart due to exceptional incidents that were not foreseeable at the time the contract was concluded. In this case, the judge or arbitrator may increase the contractor’s fees or rescind the contract.

While article 658 does not prevent parties from excluding these rules by agreement, article 147(2) of the Civil Code, of which article 658 is a reiteration specific to contracts for works, such as construction contracts, stipulates that parties cannot exclude the rules allowing recalibration of the contract equilibrium.

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

Egypt

Where no external events (including events of force majeure, exceptional incidents, acts or omissions of the employer, and acts of a third party) are at play, the contractor will be responsible for performing its obligations in full, even when doing so is burdensome.  If, however, performance becomes impossible for reasons attributed to the contractor, the contractor will be required to compensate the employer for the failure to perform its obligations.

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

Egypt

The contractual allocation of risk to the contractor for matters it cannot foresee or control (other than exceptional incidents contemplated by article 147(2) of the Civil Code) is permissible under Egyptian law. Of relevance with regard to the examples cited here is article 217 of the Civil Code, which provides that contracting parties may agree that the debtor shall assume the risk of force majeure events.

13. When must the contractor warn the employer of an error in a design provided by the employer?

Egypt

The preparatory works of the Civil Code included an article that stipulated:

1- If during the execution of the work some defects arise or appear in the materials provided by the employer, or there are other factors preventing the execution of the work in appropriate conditions, the contractor shall immediately notify the employer.

2- If the contractor neglects to notify, he shall be liable for the results of such negligence.

While reviewing the Civil Code draft, the Reviewing Committee removed this article as it considered the said article as an application to these general rules. This implies that, under general rules, the contractor should notify the employer immediately of an error in a design provided by the employer. This is the case especially considering the skill and care according to which the contractor should perform its obligations, and the obligation to perform the contract in good faith.

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

Egypt

Article 148(1) of the Civil Code stipulates that a contract must be performed in a manner consistent with the requirements of good faith – both in the performance of obligations, and the exercising of rights provided for thereunder.

This entails that a party using a right, whether to intervene, terminate, suspend or apply liquidated damages, must do so in good faith, in proportion to the interest it wishes to protect, and without excess or abuse. For instance, it could be argued that a party that did not incur damages from the delay should not seek to apply the liquidated damages clause.

It is important to note that abusing one’s right can be deemed unlawful pursuant to article 5 of the Civil Code, and thus entitle the counterparty to compensation.

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

Egypt

Article 388(1) of the Civil Code stipulates that contracting parties may not agree upon a prescription period different from that prescribed by law. Denial of access to justice is also prohibited, under general principles of Egyptian law. As such, one could argue that brief claims notification periods in construction contracts contravene the mandatory provisions of article 388 and are therefore unenforceable as a matter of Egyptian law. However, it could also be said that by agreeing to include such notice periods in a contract, the parties are waiving their underlying rights, rather than waiving their entitlement to claim those rights (ie, their right of access to court, which cannot be prescribed other than in accordance with the law). Much would depend here on the wording of the contractual provision in question.

No claims may be brought under the contract other than those arising from the performance by the parties of their respective obligations as set out therein. A contractor has no right to claim against an employer for matters not caused by the latter, or for which the employer did not contractually assume the risk.

Egyptian law does not regulate the concept of Extension of Time per se. Claims for EOT are not pursued to vindicate a standalone substantive right, rather they aim to achieve one or both of two principal objectives:

• to defeat or minimise a demand for payment of compensation in the form of liquidated damages; and/or
• to claim for prolongation costs.

In principle, the right to claim for EOT – which, in essence, concerns compensation – can validly be regulated by contract. In so far as they relate to variations, claims for money (for additional work performed) are more unlikely to be regulated under contract given that it may be difficult to foresee – in advance – the variation(s) that may be entrusted by the employer to the contractor.

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

Egypt

According to article 161 of the Civil Code, “In contracts which are binding on both parties, if the corresponding obligations are due, either party may refrain from performing its obligations if the other party has failed to perform its obligations.”

A party seeking to rely on article 161 to justify withholding or suspending the performance of its obligations should ensure that:

• the obligation of the defaulting party has already crystallised ­– that is, is immediately due in order to match the aggrieved party’s performance to date;
• the obligation of the defaulting party is corresponding to the obligation the withholding party wishes to suspend;
• by withholding or suspending its own performance, it is not acting in bad faith (abusing its lawful right under article 161) – for instance, if the breach of the party originally in default is immaterial relative to the performance of the contract as a whole, the other party should not abandon performance of its obligations in retaliation; and
• it is not itself responsible for total or partial failure to execute its obligations, or for the inability of the other party to perform its obligations.

As article 161 is of non-mandatory application, it is permissible to contractually exclude a party’s right to withhold or suspend performance in the event of breach (or even in specified instances of breach) on the part of the other contracting party.

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

Egypt

Article 663(1) of the Civil Code speaks to an employer’s entitlement to terminate a contract for convenience at any time, provided that the employer compensates the contractor for all work performed and expenses incurred up to that point, and for the profit the contractor would have gained had it been left to complete the work. Article 663(2) of the Civil Code empowers the court to reduce, at its discretion, the amount of compensation payable to the contractor in such circumstances, specifically where the contractor has in fact benefited from the employer’s decision to terminate and/or to the extent that the contractor has been able to recoup its loss by engaging in other work for the remainder of the original programme. 

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

Egypt

In addition to termination for the employer’s convenience discussed in answer 17, articles 157, 158 and 650 of the Civil Code deal with termination for breach. Articles 157(1) and 650 permit a party to petition the court to rescind a contract where its counterparty fails to perform its obligations thereunder, and to request compensation for the breach. This is provided that the employer gives notice to the contractor to rectify its performance of the works, unless such rectification is impossible. Article 158 stipulates that a contract may be considered terminated for breach without the need for a court order, or without notice, if the wording of the contract clearly evidences the parties’ intention to afford the non-defaulting party the option to terminate the contract without having recourse to court.

There is no general rule on whether termination can be partial. However, in case the contract or the scope of works is severable, termination for convenience (descoping) or breach may take place, subject to fulfilment of the foregoing conditions.

The party that elects to terminate in such a scenario may be entitled to claim compensation (actual loss and loss of profit) from the defaulting party for the latter’s breach. Also, in case the employer terminates for convenience, the contractor may be entitled to claim compensation as explained in answer 17.

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

Egypt

In circumstances of material breach, the non-defaulting party may have recourse to court to seek a judicial order terminating the contract and awarding compensation for the breach – irrespective of whether the particular breach in question is provided for within the contract’s termination clause(s). The potential outcomes in such circumstances are as outlined in answer 18.

20. What limits apply to exercising termination rights?

Egypt

Where a contract does not clearly allow for termination without a court order, the defaulting party may initiate legal proceedings with a view to having any purported termination declared unlawful and of no legal effect. Even if the party wishing to terminate seeks judicial confirmation of the termination, the court may afford the defaulting party additional time to cure its breach or refuse to grant the order for termination if the breach is adjudged of minimal importance relative to the debtor’s total obligations under the contract. A party exercising termination rights ought also to be cognisant of article 5 of the Civil Code, which speaks to unlawful abuse of right.

In all circumstances, the party seeking to terminate must serve a notice to the other party, unless (i) a contractual termination clause provides that termination can take place without notice, or (ii) it is impossible for the contractor to rectify the breach even if notified.

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

Egypt

Article 655 of the Civil Code provides that where a contractor completes its work, places it at the disposal of the employer, and notifies the employer of same, the employer must take over the work as soon as possible in accordance with applicable custom. Should the employer fail or refuse to take possession of the works without legitimate justification, the works shall nonetheless be deemed to have been delivered to the employer.

This, however, is a default rule, and parties can derogate from its application by virtue of their construction contract.

The law does not specifically address the beneficial possession or use of the works by the employer. However, under general contract rules, the contractor may argue that using the works or taking beneficial possession thereof without reservation can be considered an expression of the employer’s will to accept the works or consider them completed.

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

Egypt

The Egyptian Civil Code did not address this issue explicitly. However, article 655 of the Civil Code, which confirms that where work has been actually received, or deemed to have been received, the contractor’s liability for apparent defects or non-conformance with requirements of the contract will be extinguished. However, article 655 goes on – impliedly – to allow an employer who discovers latent defects after taking over the works to require the contractor to perform remedial works, where such a demand is reasonable in line with industry norms; silence on the part of the employer in such circumstances will equate to deemed acceptance of the defects.

Article 655 is a non-mandatory provision of Egyptian law; thus, where latent defects are discovered after the expiration of any contractual defects liability period, the employer will have no recourse against the contractor – unless those defects threaten the structural stability of any fixed installations or cause same to collapse entirely or in part, and are discovered within 10 years of the completion of their construction, in which case the mandatory decennial liability provisions set out at article 651 of the Civil Code will apply.

The preparatory works of article 655 mentioned above referred to:

1- Whenever the contractor completes the works and delivers them at the employer's disposal, the employer should inspect such works in accordance with prevailing custom as soon as possible and receives the works within a short timeframe if needed. If the employer refrained from receiving the works after the examination without justifiable reason despite being invited to; then the employer will be considered as if he has received the works.

2- However, the employer may refrain from receiving, if the contractor breached the clauses of the contract, or did not follow the technical principles governing this kind of work.

3- Each of the contracting parties may request the appointment of experts at its own expense to examine the works, noting that such expert should prepare a record of its work.

Nevertheless, the Reviewing Committee decided to keep general rules only and removed the second and third paragraphs. As such paragraphs are considered as implementation to the general rules, then they can be relied on despite being removed.

Accordingly, it is stipulated that in order for the employer to be under an obligation to receive the works and that such receipt includes acceptance, then the works have to be in conformity with the agreed-upon conditions. If there are no agreed-upon conditions or the conditions agreed upon were incomplete, then the requirements of the concerned industry replace the non-existent agreed-upon conditions or incomplete conditions. If the parties had a conflict about the conformity of the works, then any of the parties may at its expense request to appoint an expert to examine the works and record a report of the result of such inspection. Such a report should be put into consideration in the case of filing a lawsuit unless it was challenged by the other party, then the judge may appoint another expert, or decide in the case based on the documents provided and the case’s circumstances.

The breach of the agreed-upon conditions or the requirements of the concerned industry that justifies for the employer to refrain from receiving the works must be of material significance to the extent that it would be fair not to compel him to receive. The works might not satisfy the sought purpose according to the circumstances of the contract. If the breach does not reach such significance, then the employer is obliged to receive the works, however, it will still either request to reduce the contractor’s dues to be in line with the gravity of the breach, or to ask for compensation for the damage incurred. In all cases, the contractor may rectify the works within a reasonable period if the works could be rectified. Moreover, the employer may hold the contractor liable for the costs of rectification if these costs are not burdensome.

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

Egypt

While liquidated damages for delayed completion of works are permitted by article 223 of the Civil Code, article 225 goes on to confirm that where the quantum of the damage exceeds the amount of compensation agreed upon, the creditor may only claim the balance if he can prove that the debtor committed ‘deceit or gross mistake’. Consequently, liquidated damages would be considered an exhaustive remedy for the employer’s losses resulting from the breach addressed by the liquidated damages clause.  In case such breach was caused by the contractor’s fraud, willful misconduct or gross negligence, the employer can request compensation beyond that set in the liquidated damages clause.

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

Egypt

Article 216 of the Civil Code stipulates that the court may reduce the amount of compensation payable by the debtor by reason of its non-performance or delayed performance where the creditor participated in the occurrence of the damage or exacerbated it. This provision is non-mandatory and can be excluded by agreement. As such, the parties can, in principle, agree to allow the employer to impose liquidated damages on the contractor even where the employer is responsible for the delay. This is without prejudice to the possibility that the liquidated damages be declared undue or reduced if the contractor proves that the employer did not incur damages or the damages it incurred are less than the liquidated damages’ amount.

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

Egypt

Article 224 of the Civil Code – a mandatory provision of Egyptian law – states that the debtor will not be liable for liquidated damages if it establishes that the creditor did not suffer any damage. Article 224 goes on to provide that the court may reduce the amount payable if the debtor proves that the pre-agreed amount greatly exceeds the quantum of actual damage, or that it has partially fulfilled the obligation in question.

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

Egypt

If the debtor’s breach was caused by fraud, willful misconduct or gross negligence on its part. See further answer 23.

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

Egypt

Article 221(1) of the Civil Code provides that compensation shall include actual loss and loss of profit (however high), provided the damage claimed is a natural result of the breach – that is, the creditor could not have avoided it by exerting reasonable effort (duty to mitigate). Article 221(2) confirms that, absent fraud or gross negligence, a debtor will only be liable to compensate for damage that was foreseeable at the time of contracting. Also, under article 650 the employer may either request to terminate the contract or to complete or remedy the work on the contractor’s expense.

It is important to note that indirect and consequential damages (including indirect or consequential profits) are not compensable under Egyptian law.

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

Egypt

If a contractor’s work is discovered to be defective, but not to the extent that the work is rendered unfit for its intended purpose, article 655 of the Civil Code entitles – impliedly – the employer to either make an appropriate deduction from amounts due to the contractor, or require the contractor to carry out the necessary repairs within a reasonable period, if it is possible to do so and the cost of the rectification works is not excessive relative to the benefit ultimately derived therefrom. Article 655 provides – impliedly – that a contractor shall always be entitled to perform remedial work within a reasonable time after being notified of the existence of defects, unless doing so would cause the employer to incur further material damages. As article 655 is a non-mandatory provision of Egyptian law, contracting parties are free to agree on a stricter regime in relation to rectification than that provided for therein.

Please see further answer 22.

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

Egypt

Article 655 of the Civil Code could be relied on to address a contractor’s liability for defects in its works. A contractor’s liability for apparent defects ceases upon actual or deemed acceptance of the works by the employer. Where latent defects are discovered, it is recommended that the employer notify the contractor of their existence and allow the contractor to perform rectification works, or risk losing its right to claim for those defects. These provisions are non-mandatory and will be subordinate to any relevant contractual provisions on point. If the parties agree to a DNP but fail to expressly confine the employer’s right to claim for any defects to that period, it is possible that a court would consider that the parties’ intention was to relieve the contractor of liability for latent defects once the DNP expires (subject of course to the decennial liability provisions set out at article 651 of the Civil Code).

Please see further answer 22.

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

Egypt

Indirect or consequential loss is not recoverable under Egyptian law in any circumstances.

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

Egypt

Article 217 of the Civil Code provides that a debtor may be exempted from responsibility for non-performance of his contractual obligations, unless its breach results from fraud or gross negligence – this applies irrespective of the contractual wording. Article 221(2) of the Civil Code stipulates that a debtor will be liable to compensate its creditor for its actual loss and loss of profit, provided the damage is a natural and direct result of the debtor’s breach. There is no foreseeability requirement in the context of tortious liability.

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

Egypt

Attachment of state assets is prohibited by Egyptian law. In the context of privately held property, article 1148(1) of the Civil Code provides that to the extent that its work in constructing, renovating or repairing a building or fixed installation increases the value of the real property, amounts due to a contractor in relation to such work will be repaid from the proceeds realised from the sale of the property in preference to other, unsecured debts – this applies irrespective of whether or not the employer has an interest in the site. To pursue its rights under article 1148(1), a contractor must file a substantive case before the competent court or tribunal, obtain a judgment or award in its favour, petition Egypt’s enforcement court to attach the property, and await settlement of its debt from the monies collected from the sale of the property at public auction.

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

Egypt

Conditional payment provisions are, in principle, enforceable under Egyptian law. The law will consider that the contractor has contractually assumed the risk of delayed payment.

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

Egypt

Article 662(1) of the Civil Code allows a subcontractor to claim its dues directly from the employer within the limit of the amount owed by the employer to the contractor (in respect of the main contract works) at the time the subcontractor’s claim is filed. Once notified of the claim, the employer should withhold from payments made to the contractor an amount equivalent to the subcontractor’s claim, until such time as the substantive dispute between the contractor and the subcontractor is determined. The subcontractor’s right of direct recourse against the employer derives not from any contract, but from Egyptian law. As such, where the site for permanent works is in Egypt, the Egyptian courts may accept jurisdiction to hear proceedings brought by a subcontractor pursuant to article 662, irrespective of whether either or both of the main and sub-contracts are governed by a foreign law.

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

Egypt

According to article 661 of the Civil Code, the contractor remains responsible vis-à-vis the employer for the works of the subcontractor. The fact that the dispute between an employer and a contractor concerns a subcontractor will not invalidate the arbitration agreement between the former parties, irrespective of whether the seat of the arbitration is Egypt.

Likewise, the employer can always invoke the arbitration agreement it has with the contractor and request the inadmissibility of a case filed by the contractor against both the employer and subcontractor. 

It is worth noting that if there is no arbitration agreement between the contractor and the subcontractor, and the subcontractor files claims before an Egyptian court (separately, or within the same proceedings) against the contractor (under the subcontract), and against the employer (under the law article 662 above), the court may stay the proceedings pending the outcome of any ongoing arbitration between the employer and the contractor, or may continue to investigate the merits of the subcontractor’s claims but stop short of issuing judgment until the arbitration concludes.

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

Egypt

According to article 154 of the Civil Code, a party to a contract may stipulate rights for a third party. In that event, the third party can request performance from the contractor. Also, article 146 of the Civil Code provides that if a contract (including a construction contract) relates to a particular property and ownership of that property is subsequently transferred to a third party, that party steps into the shoes of the previous owner (the employer) vis-à-vis all of the latter’s rights and obligations under the contract (including any applicable exclusions and limitations of liability set out therein). The provisions of article 146 operate by force of law.

In both events, since third parties obtain their rights from the contract, contractual exclusions and limitations apply to their claims arising therefrom.

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

Egypt

In the context of a construction contract, the employer’s contractual nexus is with the contractor; assuming that the contractor is an entity with its own legal personality, its affiliates, directors or employees will – absent fraud or gross negligence on their part – have no exposure whatsoever to liability under the contract, irrespective of whether any such potential liability is excluded or limited by the contract itself.

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

Egypt

Claims for money are subject to the general prescription period for contractual claims set down in Article 374 of the Civil Code – that is, 15 years from the date on which the right to claim crystallises. It must be noted, however, that when the contract is between traders (such as between a real estate developer and a construction company) obligations prescribed by the lapse of seven years from the date the obligation is due.

Guided by the critical impact of damages, the Legislator has enlarged the contractor’s liability to rectify any latent defects, as article 651 provides that the employer is entitled to recover any destruction or latent defect that may occur or appear following 10 years (the decennial guarantee) of the handover of the works. It must be noted that article 651 has to be read in accordance with article 654, as the employer’s right to recover or to get remedied by the contractor is prescribed within three years of the discovery of defects. In simple words, the decennia liability is a period that serves to protect the owner against major defects that occur within ten years after delivery while article 654 is regulating the prescription period that the actions and warranties shall prescribe after three years from the date of destruction of the works or the discovery of defects.

Egyptian law does not determine a specific period within which a contractor is liable for the rectification of defects; rather, article 655 of the Civil Code provides – impliedly – that an employer that discovers such defects may require a contractor to remedy them if to do so would be reasonable taking into account industry norms (and this non-mandatory requirement may be varied or excluded by the contract).

Where latent defects threaten to compromise the structural integrity of a building or fixed installation, or result in the total or partial collapse thereof, within ten years of the works being taken over by the employer, article 651 of the Civil Code (decennial liability) imposes strict liability upon the contractor. Article 651 is a mandatory rule of substantive Egyptian law; its provisions cannot be varied or excluded by contract. The employer has three years from the discovery of the defects or from the collapse of the structure in which to bring a claim against the contractor (article 654).

According to article 382 of the Civil Code, prescription can be suspended whenever there is an impediment preventing the debtor from claiming its rights, even if such impediment was moral. When suspended, the remaining part of the prescription period continues to run after the event causing suspension ends.

As to interruption, article 383 of the Civil Code stipulates that the filing of a judicial claim interrupts prescription, even where the case is filed in an incorrect forum. Article 384(1) also provides for a prescription to be interrupted if the debtor expressly or implicitly admits the creditor’s right. A new prescription period equivalent in length to the original shall commence from the date on which the cause of the interruption ceases to have effect (article 385(1).

Article 388 unambiguously confirms that parties may not agree upon limitation or prescription periods different from those prescribed by law.

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Egypt

Where Egyptian law governs a contract, provisions thereof that relate to the public order or are otherwise of mandatory application cannot be excluded or modified by agreement. For instance, a clause that purports to exclude the possibility that a competent court or tribunal may grant relief to a debtor whose performance is affected by an exceptional incident (pursuant to article 147(2) of the Civil Code would be unenforceable. If the contract is silent as to responsibility for, say, poor ground conditions, absent the occurrence of an exceptional incident contemplated by article 147(2), the contractor will bear the risk of encountering such conditions.

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Egypt

None – see the Introductory Comments above.

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

Egypt

According to article 24(1) of the EAL, both parties may agree to grant the tribunal the power to order, upon request of either party, to render an interim award and to require any party to provide appropriate security to cover the costs of such interim award. Article 24(2) has granted judges of Egyptian courts the power to enforce interim measures issued by an arbitral tribunal such as DAB if the party against whom the award was issued fails to enforce it voluntarily.

Article 14 of EAL authorises the court (mentioned in article 9 of the same law) to order interim or precautionary measures, upon request of either party to the arbitration, whether before the commencement of the arbitral proceedings or during said proceedings.

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

Egypt

There are no courts within the Egyptian court system dedicated to the resolution of construction disputes.

As to arbitration, in international arbitration, the Cairo Court of Appeal has jurisdiction over the matters the EAL refers to courts, such as appointment of arbitrators in case of default and absence of contractual provisions regarding same, issuance of interim measures before or after arbitration commences, and enforcement and set aside proceedings.

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

Egypt

Substantive disputes arising under construction contracts subject to the jurisdiction of the Egyptian courts will be heard by the Court of First Instance, and potentially, by the Court of Appeal and the Court of Cassation on appeal. The Court of Cassation, however, is a court of law, and does not review the facts of the case or matters that are left to lower courts’ discretion.

In international arbitration, for all matters the EAL may refer to courts, parties shall resort to the Cairo Court of Appeal, unless they agree to the jurisdiction of another court of appeal.

Not all decisions of the Egyptian courts are published; those that are will be in Arabic.

The doctrine of stare decisis does not exist in Egypt; instead, decisions of the higher courts can be said to be of persuasive effect upon the lower courts.

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

Egypt

Under Egyptian law, neither a court nor arbitral tribunal is expected to, nor should, give preliminary indications as to its views in relation to the merits of a dispute before it.

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

Egypt

Where a dispute is referred to arbitration, either party may bring an application for interim relief before the Egyptian courts.

As to parallel proceedings, including in relation to respecting preconditions of the contract, they will, in principle and depending on the objective scope of the arbitration agreement, not be admitted before Egyptian courts. In this relation, although arbitration agreements are respected and upheld by an Egyptian court, such a court cannot of its own motion refuse to hear a dispute that ought properly to be referred to arbitration. A party seeking to rely upon an arbitration agreement to remove proceedings from the remit of an Egyptian court must bring the said agreement to the attention of the court before making any plea or discussing the subject matter of the case otherwise it will lose its right to object to the proceedings being heard in that forum.

The foregoing holds true irrespective of whether any preconditions to arbitration have been met or respected by the parties.

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

Egypt

No.

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

Egypt

Experts giving evidence before the Egyptian courts will be court-appointed and will owe their duties to the court. Likewise, according to article 36 of the EAL, tribunals can appoint experts and parties can appoint experts to rebut or argue matters in the tribunal-appointed expert report.  This suggests that experts, whether tribunal or party-appointed owe their duty to the tribunal.

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

Egypt

When the employer is a state entity or public authority, the provisions of the Contracts Concluded by Public Entities Law No. 182 of 2018 that abolished Tender Law No. 89 of 1998, will regulate the procurement process. Attachment of state public assets is prohibited pursuant to article 87(2) of the Civil Code. Article 91 of Law No. 182 of 2018 mentioned hereof requires that the approval of the competent minister be obtained before a state entity can subscribe to an agreement to arbitrate, which article 1 of the Egyptian Arbitrations law has mentioned too.

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

Egypt

The concept of ‘without prejudice’ is not recognised under Egyptian law. As such, a party to an arbitration will not be prohibited from putting a settlement offer or any other evidence relating to any settlement negotiations before the arbitral tribunal at any stage during the proceedings.

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

Egypt

No, the concept of ‘without prejudice’ is not recognised by Egyptian law. Parties to a litigation or an arbitration are free to agree not to disclose communications related to settlement negotiations to the court or arbitral tribunal and, further, to agree as to the amount of compensation payable in the event that one of them breaches that agreement. Payment of such compensation will, however, be subject to the provisions of article 224 of the Civil Code, discussed in answer 25.

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

Egypt

Article 66 from the Egyptian Civil and Commercial Law of Evidence No. 25 for 1968 governed a special kind of protection in respect to the information exchanged between a client and its counsel where the law forbids the lawyer from disclosing any information gained due to their profession unless the client itself requested from the lawyer as witness to disclose such information. The same applies in accordance with article 65 of the Advocacy Law No. 17 of 1983 which confirms privilege attached to information lawyers get to know by virtue of their clients’ relationships, which applies to in-house counsel.

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

Egypt

The Civil Code dictates that a guarantee must be evidenced in writing (article 773), the extent of any future obligation to be guaranteed must be defined (article 778(1)), and the guarantee must not exceed the amount of, or be subjected to more onerous terms than the original debt (article 780).

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

Egypt

According to article 780 of the Civil Code, the guarantor’s liability should not exceed that of the guaranteed party. This position may not be affected by the wording. Also, unless parties agree otherwise, according to article 781, the guarantor should be liable for the debt’s accessories as well as the expenses related to the claim and the expenses following notification of the guarantor to pay the debt.

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

Egypt

According to articles 782–786 of the Civil Code, a guarantor will be released from liability under a guarantee if the original debtor has been released from the guaranteed obligation; if the original debtor is entitled to be excused from the guaranteed obligation, unless the grounds for excuse relate to the debtor’s incapacity and the guarantor was aware of that incapacity at the time of providing the guarantee; if the creditor accepted another performance or thing in place of the debt, if the creditor lost any of the security guaranteeing payment of the debt by virtue of its own negligence; if the creditor fails to take action for six months after it receives a notification from the guarantor to act against the original debtor; and if the creditor fails to submit its debt within bankruptcy procedures ongoing against the original debtor, to the extent that such failure prevented the creditor from recovering its debt from the original debtor.

Additionally, according to article 778(2) of the Civil Code, in case of guaranteeing a future debt, the guarantor may retract from the guarantee, and thus be released, so long that the future guaranteed debt has not materialised.   

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

Egypt

A party seeking to resist a call on an on-demand bond – on the basis that the call is unjustified or unlawful in the circumstances – may make an application to the urgent court in Egypt for an injunction to enjoin the bank from honouring the call.

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

Egypt

documents put before it that the call (for any amount) is potentially unjustified, and there is a likelihood that the applicant will experience great difficulty in recouping the money from the other party in the event that the call is later adjudged unlawful. Courts are, however, generally reluctant in ordering such relief, while arbitral tribunals can be more inclined to accept a request for such interim measures to preserve the status quo, especially if the damages the employer will sustain from not calling the bond do not outweigh the damages the contractor will sustain from calling the bond.

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

Egypt

No.