• Search

Construction Arbitration

Last verified on Wednesday 26th July 2017

Egypt

Nagla Nassar

    Legal system

  1. 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?

    1. Egypt is a civil law jurisdiction with its laws substantially derived from the French Codes. The Constitution, which is issued by voting, is the supreme law of the land. Then comes the laws which are issued by the Parliament and executive regulations that are issued by the Cabinet or concerned ministry as the case may be. Then ministerial orders. New laws and executive regulations are published in the Official Gazette. Yes, laws can be passed by retrospective effect but for those that impose direct financial obligations or a criminal punishment.

    Contract formation

  2. 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?

    1. A construction contract is formed by an offer and acceptance evidencing exchange of promises. A letter of intent is a none binding document unless its wording comprises a work order which is conclusive.

    Choice of laws, seat, arbitrator and language

  3. 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?

    1. Yes, the parties are free to choose all of the above so long as they do not contradict mandatory rules of public policy in Egypt if the construction is taking place in Egypt.

    Implied terms

  4. 4.

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

    1. Any term relating to good faith implementation of the contract or that is necessary for the proper execution of the contract is an implied term since the Egyptian Civil Code (ECC) requires that contracts be executed in good faith. This is a general principle of contract law implying several duties like the duty to cooperate, duty to exchange information, duty to give early notice … etc. Also, there are several warranties implied by law concerning intended purpose, latent defects, dispossession or encumbrance and charges and decanal warranty of good workmanship.

    Certifiers

  5. 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?

    1. A certifier has to act impartially, fairly and honestly according to professional standards. The extent to which the parties are bound by certificates depends on the parties agreement under which the certifier was appointed or which allowed certification. Once a certificated is issued, and regardless of the terms of the parties agreement, a contractor may challenge the certificate. Here, it must be remembered that the standard of liability of a certifier is that of all professionals and he is only liable for his or her gross negligence. Also, if the parties original agreement states that a certificate is final and binding then the grounds of challenging it are narrower and the standard of prove is higher.

    Competing causes of delay

  6. 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?

    1. It depends on the other facts and whose fault is more serious and whether one fault factually over rides the other. However, Egyptian law recognise contributory fault and requires mitigation of losses otherwise recovery may be wholly or partly denied.

    Disruption

  7. 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)?

    1. Employer’s breach of contract in whatever form is a fact to be proven by all means of proof losses resulting from such breach are compensated like all other losses either by quantifying them in monetary terms or regarding them as contributory negligence affecting employer’s recovery rights.

    Acceleration

  8. 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?

    1. If a contractor is legally entitled to a time extension all costs relating to constructive acceleration are compensated provided they are proven. The contractor must prove its entitlement to extension of time and the costs incurred must be substantiated by documents. Unreasonableness is not always regarded as a contract breach unless there is an express contract provision to the effect. Bad faith is a breach of mandatory principle of contract law and hence is always regarded as a breach that gives rise to recovery.

    Force majeure and hardship

  9. 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?

    1. FM is an event unpredictable by an ordinary man in similar circumstance at the time of contracting and which renders performance impossible. Impossibility is what distinguishes FM from hardship under the ECC where performance becomes excessively onerous. The parties may agree to shift the burden of FM events. Accordingly, contract provisions may affect whether or not an event may qualify as FM and whether some or all contractual obligations are affected. Upon prove of FM the affected obligation(s) are suspended until such time as the FM event ceases to exist. Where an FM event is expected to be permanent or have a prolonged duration the contract or affected obligation(s) may be terminated.

  10. 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?

    1. Contracts are entitled to relief for unduly expensive or hard to perform construction contract under ECC hardship provision which holds that when the performance of contractual obligation(s) becomes excessively onerous in such a way as to threaten the debtor with exorbitant loss as result of exceptional and unpredictable events of a general character the affected party may request the judge or arbitrator to reduce its obligation to reasonable limits. This rule may not be excluded by agreement.

    Impossibility

  11. 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?

    1. A contractor may rely on the principle of good faith to argue for change of the contract specification. Other than that, he has to apply the contract unless it is a standard form contract which contractor did not review and had to sign blindly the doctrine of adhesion contracts may come into play.

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 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?

    1. Such clauses are fully binding and recognized since ECC regards the Contracts as the law of its parties.

    Duty to warn

  13. 13.

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

    1. The good faith principle requires that the warning must be as soon as contractor knows of the error.

    Good faith

  14. 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?

    1. Yes, there is a general duty of good faith but a contract must be performed according to its content. Therefore, reasonableness is the test for exercising any discretionary powers under the contract or otherwise bad faith may be established. Also, levels of interventions by employer must confirm to the normal standard practice or otherwise it may be considered as impeding proper performance that is contrary to good faith.

    Time bars

  15. 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?

    1. The contract is the law of the parties, and, hence its provision cannot be deviated from unless the complaining party can prove duress, undue influence or invoke the doctrine of adhesion contracts. There is no unfair contract term in the absence of hardship or FM as explained above. Claims based on matters that employer caused may give rise to contributory breach and/or failure to mitigate one’s own losses. Weather or ground conditions and other natural disasters may qualify as FM or hardship as the case may be. Liquidated damages may be reviewed and readjusted by the judge or arbitrator if they are grossly exaggerated or if it is established that no loss was suffered. Extension of time may only be awarded in cases of changed circumstances or FM.

    Suspension

  16. 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?

    1. Egyptian law recognises the doctrine of anticipated breach in the case of bilateral contracts when correlated obligations are due either party may abstain from performing its obligation if the other party does not perform its obligation.

    Omissions and termination for convenience

  17. 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?

    1. In case of express contract provision allowing employer to terminate for convenience or at will it may do so regardless of the motives behind such termination, and, provide it is not acting in bad faith or is abusing its contract’s rights. In all cases it has to adequately compensate the contractor for works done and for lost profits unless otherwise agreed in the contract.

    Termination

  18. 18.

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

    1. A contract can be terminated pursuant to its own terms or where performance becomes impossible or where one party does not perform. Under the latter two cases the judge or arbitrator may rescind the contract and reinstitute the parties to their former positions before contracting.

  19. 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?

    1. No, other rights of termination do not exist unless it is a FM or changed of circumstances hardship case.

  20. 20.

    What limits apply to exercising termination rights?

    1. Good faith and no abuse of contractual right.

    Completion

  21. 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?

    1. Once the works are completed contractor has to notify employer and latter has to take delivery as soon as possible. The works will be deemed delivered if employer fails to take delivery, without reasonable excuse, though the works have been put at its disposal.

  22. 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?

    1. It depends on the wording of the approval and whether it is with or without reservation but generally speaking it does not bar subsequent complains especially if the defect is not a manifested one. Taking over does not necessarily means acceptance and does not bar subsequent complaints in all cases.

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 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?

    1. Liquidated damages are considered an exhaustive remedy for delay to completion date or prior to that date, provided that the contract does not state otherwise. Delay caused by contractor’s fraud, recklessness, wilful misconduct or gross negligence allow for the increase of awarded damages beyond the agreed liquidated damages. The definition for these behaviours are the standard ones and Egyptian law does not allow exclusion of liability in respect of any such behaviour.

  24. 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?

    1. Where employer causes critical delay, the judge is entitled to reduce or deny award of liquidated damages depending on how grave is employer’s contributory fault.

  25. 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?

    1. There is discretion to the judge or arbitrator to reduce liquidated damages if they are grossly exaggerated or if the contractor’s obligations have been partially performed. Substandard work is more difficult since the beneficiary value of such substandard work is the determining factor in deciding on the adequacy of liquidated damages.

  26. 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?

    1. Hiking liquidated damages up is more difficult than reducing it. Employer must prove that the intended purpose of the work was frustrated or that the delay reduced the beneficiary value of the work or made it redundant.

    Assessing damages and limitations and exclusions of liability

  27. 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?

    1. The test for award of damages is sustained losses and lost profit provided that they are a normal result of the failure to perform a contractual obligation or delay in such performance. Losses are considered a normal result if contractor could have foreseen them at the time of contracting. This test severely limits recovery of compensation to direct losses.

  28. 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?

    1. If the contractor’s work is technically non-compliant, yes, the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy if the contract so specify otherwise he can claim from the judge to reduce its obligation because of hardship.

      Yes, the parties can agree on a regime that is stricter for the contractor than under the law.

  29. 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?

    1. If the contract prescribes a DNP then the contract provision with all its details apply. If the contractual DNP expires then it depends on the contract if it allows claims after its expiration. At any rate there are always the implied warranties discussed under question 4 that an employer can use to claim for defects appearing after the DNP expires.

  30. 30.

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

    1. Indirect or consequential losses are not recoverable under Egyptian law and a contract provision to this effect is upheld.

  31. 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?

    1. Exclusion of liability whether in contract or in tort is allowed except for fraud, gross negligence and wilful misconduct; recklessness is a form of gross negligence. Prohibiting exclusion of liability in respect of the last four categories is a mandatory rule of the law forming part of public policy and the parties cannot agree otherwise. For causation see question 27.

    Liens

  32. 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?

    1. A contractor has a general lien on works done; it has a priority over all other unsecured liens & mortgages except for owed taxes and judicial fees. However, if the lien is on an immovable property it has to be registered and its priority is determined by the day of registration. The lien is only in respect of the increase of value resulting from such works and not the full payment owed to contractor unless without works done the property would not have existed. In case of competing contractors, the sums owed will rank in inverse order of the dates in which they were incurred.

    Subcontractors

  33. 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)?

    1. Conditional payment provision is upheld and applied as agreed in the contract. If provision is not clear or lacks details the ECC rules of interpretation apply where the intention of the parties is deduced from the circumstance surrounding contracting bearing in mind commercial usage and custom and subject to the good faith principle.

  34. 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)?

    1. Yes, a subcontractor can claim directly against the employer for sums due to the subcontractor from the contractor but only to the extent of sums due from employer to contractor on the date on which sub-contractor judicial case is commenced. Also, a sub-contractor may serve an attachment on money owed by employer to contractor. The rights of sub contractor under such direct action against employer has priority over the contractor or other debtors. This right of direct action only applies to the first layer of sub-contractors; a sub-contractor of a sub contractor may not sue employer directly but may sue the main contractor who is regarded as the employer for this purpose. If the applicable law is not Egyptian law then this direct action is not available remedy but such contractor may resort to the Egyptian courts to serve an attachment as a conservatory measure.

  35. 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?

    1. According to Egyptian law an arbitration agreement has to be in writing, and, hence extending it to a sub contractor will be difficult unless the identity of both is confused. However, employer can sue contractor for the faults and errors of sub contractor since under the law contractor is responsible vis a vis employer for sub contractor’s work. What matters is not seat of arbitration but the law applicable to arbitration.

    Third parties

  36. 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?

    1. Third parties do not obtain rights under a contract unless there is an assignment or succession and in which case all contract terms (including limitation and exclusions) will apply to them unless otherwise expressly set aside by the new contracting parties in the accession agreement.

  37. 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?

    1. Not likely and if it happens they can claim the benefit of any contractual exclusion or limitation of liability.

    Limitation and prescription periods

  38. 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?

    1. In respect of the mandatory decennial liability, the prescription period is three years from the date of discovery of the defect. Prescription period for contractual claims is fifteen years from the date the obligations or debt becomes due or the conditions for the warranty are fulfilled. Prescription does not run if there is a barrier (including moral ones) impeding the creditor from claiming. Prescription is interrupted by legal proceedings, express or tacit admission of the right and a new period starts to run from the time that the effect of interruption act has ceased.

    Other key laws

  39. 39.

    What laws apply which 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?

    1. The parties are free to contract as they wish except for mandatory public policy rules; the most relevant of these are interest rates, liens, hardship clauses and implied warranties.

  40. 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?

    1. If the construction is in Egypt but is subject to a foreign law still mandatory public policy rules (the most relevant of these are interest rates, liens, hardship clauses and implied warranties) as well as local regulation of site and works will apply.

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 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?

    1. An interim award yes if the arbitration agreement so permits but not an interim relief from a court cause DAB decisions are not enforceable arbitral decisions unless the contract expressly states that they are. However, it is always possible to use DAB to seek a conservatory or provisional measure from the courts.

    Courts and arbitral tribunals

  42. 42.

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

    1. Construction is a civil or commercial contract and addressed by judges in the civil and commercial divisions of courts. Yes, the Court of Appeals has a circuit specialised in arbitration.

  43. 43.

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

    1. Egypt is a civil law country where precedents have persuasive effect. Yes, court decisions are public and published. Construction matters are ordinary contract matters. Setting aside or enforcement of arbitral awards goes to the arbitration circuit of the Cairo Court of Appeals whose decision may be challenged in front of the cour de cassation.

  44. 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?

    1. Yes.

  45. 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)?

    1. Pre-conditions to arbitration are a matter for the arbitral tribunal to decide on. If there is a written arbitration agreement the courts decline jurisdiction.

  46. 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?

    1. No.

    Expert witnesses

  47. 47.

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

    1. Yes they are used and they have to be impartial and independent.

    State entities

  48. 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)?

    1. State or public entities before signing an arbitration agreement have to obtain the approval of the minister concerned. Sovereign assets are immune from enforcement and monetary awards in favour of the state have priority over all other debts owed by the debtor. Public procurement has to be done by public bidding and rights to terminate, suspend or settle an arbitration have to be approved by the minister concerned.

    Privilege

  49. 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?

    1. “Without prejudice” is recognised. A sum would only be payable as compensation if disclosure is in breach of the parties’ agreement or such sum is expressly stated in the contract as a penalty.

  50. 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?

    1. Disclosure is very limited and it is substantive law.

    Guarantees

  51. 52.

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

    1. Oral contracts are binding provided that their content can be proven.

  52. 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?

    1. The guarantee contract determines its scope, subject matter and beneficiaries. If the guarantee is silent, or not clear, in respect of any aspect the rules of interpretation apply. If essential matters are neither expressly stated nor could they be deduced by interpretation the whole document may be disregarded.

  53. 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?

    1. A guarantor is released from liability if the original debtor has fulfilled the guaranteed obligation or if such obligation is barred by prescription or impossibility of performance. Also, if the beneficiary of the guarantee releases the guarantor. The contributory fault of creditor be it in respect of procedural or substantive matters.

    On-demand bonds

  54. 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.

    1. An on-demand bond in Egypt is one stating” pay on request” without reservations. Thus, challenging an on-demand bond is exceptionally difficult and rarely successful unless the wording of the bond itself provides for specific instances of call. However, an unjustifiable call for an on-demand bond is provides cause for an action for damages.

  55. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like 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?

    1. As stated above a stay of a call of an on-demand bond is exceptionally difficult & rarely successful unless the wording of the bond itself provides for specific instances of call. What is in the underlying contract is relevant to a claim for damages because of unjustifiable call but rarely is it relevant to the banks.

    Further considerations

  56. 57.

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

    1. No.

Interested in contributing to this Know-how?

E-mail our Co-Publishing Manager


GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 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?


  2. Contract formation

  3. 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?


  4. Choice of laws, seat, arbitrator and language

  5. 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?


  6. Implied terms

  7. 4.

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


  8. Certifiers

  9. 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?


  10. Competing causes of delay

  11. 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?


  12. Disruption

  13. 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)?


  14. Acceleration

  15. 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?


  16. Force majeure and hardship

  17. 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?


  18. 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?


  19. Impossibility

  20. 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?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 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?


  23. Duty to warn

  24. 13.

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


  25. Good faith

  26. 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?


  27. Time bars

  28. 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?


  29. Suspension

  30. 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?


  31. Omissions and termination for convenience

  32. 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?


  33. Termination

  34. 18.

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


  35. 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?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 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?


  39. 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?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 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?


  42. 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?


  43. 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?


  44. 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?


  45. Assessing damages and limitations and exclusions of liability

  46. 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?


  47. 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?


  48. 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?


  49. 30.

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


  50. 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?


  51. Liens

  52. 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?


  53. Subcontractors

  54. 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)?


  55. 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)?


  56. 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?


  57. Third parties

  58. 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?


  59. 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?


  60. Limitation and prescription periods

  61. 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?


  62. Other key laws

  63. 39.

    What laws apply which 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?


  64. 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?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 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?


  67. Courts and arbitral tribunals

  68. 42.

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


  69. 43.

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


  70. 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?


  71. 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)?


  72. 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?


  73. Expert witnesses

  74. 47.

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


  75. State entities

  76. 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)?


  77. Settlement offers

  78. 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?


  79. Privilege

  80. 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?


  81. 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?


  82. Guarantees

  83. 52.

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


  84. 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?


  85. 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?


  86. On-demand bonds

  87. 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.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like 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?


  89. Further considerations

  90. 57.

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