Shalakany discusses private and administrative disputes in the Egyptian legal system
One important point to immediately note about disputes law in Egypt is the difference between private law and administrative disputes. While it adopts a purely civilian system with respect to private law disputes, the Egyptian legal system adopts a hybrid system in relation to administrative disputes. Said hybrid system entails that, while the Egyptian administrative judiciary is tasked with applying statutory provisions to administrative disputes, it also enjoys the right to create the law in case of a lacuna in existing, applicable statutes. This dual role that is played by the administrative judiciary in Egypt of creating and applying the law carries with it important legal ramifications that should be noted and adequately studied by investors and companies who intend to carry out business in Egypt with the Egyptian government.
Pacta sunt servanda is a legal principle that is well established within the Egyptian legal system. However, contrary to private law disputes, it does not have an absolute, all-encompassing application within the context of administrative contracts. It is a well-established principle within the administrative judiciary in Egypt that, when a contract is classified under Egyptian law as an administrative contract, an administrative judge, or even an arbitral tribunal applying Egyptian law, would be empowered, even obliged, to read into the relevant administrative contract administrative law principles that are created by the Egyptian administrative judiciary throughout the years since its establishment in 1946. Said judge-made principles include, but are not limited to, principles that grant the contracting administrative authority the right to unilaterally amend contractual clauses, the power to apply sanctions onto the other, private law contracting party whenever the latter is in breach of its obligations under the relevant contract, the power to withdraw the works and enforce pending work at the expense of the other contracting party, and the power to unilaterally terminate an administrative contract whether for cause or for convenience.
Said judge-created legal principles form part of Egypt’s public order. Thus, said principles cannot be validly overridden, opted out of, or amended by way of adding contractual clauses that provide for a certain contractual order. A judge or an arbitral tribunal that applies Egyptian law would necessarily set aside any conflicting contractual clauses and, instead, give force and effect to said general, judge-made legal principles of administrative law, or otherwise risk its judgments or awards being nullified or denied recognition and enforcement by Egyptian courts.
There are immediate caveats to note when contemplating the validity and enforceability of arbitration agreements that are concluded within the ambit or in relation to administrative contracts.
Rather than being a theoretical legal problem that only occupies Egyptian legal textbooks, the aforementioned limitation on the application of the pacta sunt servanda principle within the context and sphere of administrative contracts has numerous practical applications, not only in Egypt but also in other civilian jurisdictions such as the UAE and Oman. Shalakany have recently been simultaneously involved in several international commercial arbitrations in relation to mega construction contracts for the execution of airports-related works in Egypt, Abu Dhabi and Oman. It is of importance to note that arbitral tribunals tend to approach substantive legal issues, such as unilateral termination by an employer for convenience or cause and the withdrawal of the works by an employer, with delicate care in an attempt to reach conclusions that do not offset the legitimate expectations of the contracting parties at the time of contracting, but does not conflict with judge-made legal principles that form part of the relevant jurisdiction’s public order. Realising such a goal is far from a simple task, it can be fairly described as a difficult, if not impossible one. The likely end result being the court or arbitral tribunal reaching findings that do not necessarily flow from the common intention of the contracting parties as outlined and reflected in the relevant agreement.
Secondly, in relation to the contracting parties’ freedom of choice with respect to dispute resolution and governing law clauses, Shalakany notes that said freedom does exist but is not absolute. For instance, there are immediate caveats to note when contemplating the validity and enforceability of arbitration agreements that are concluded within the ambit or in relation to administrative contracts. Egyptian statutory provisions require the approval of the competent minister or whoever enjoys the competent minister’s powers and privileges within public law personas. To ensure the fulfillment of said statutory requirement, a private law contracting party would need to ensure that the competent public official signs the arbitration agreement itself, not only the underlying agreement within which context and umbrella the arbitration agreement is concluded. Further, opting for a foreign, non-Egyptian law as the governing law of the underlying contract should not be considered as bulletproof means to evading mandatory, potentially unfavourable provisions of Egyptian law. Recognition and enforcement-related issues of a foreign judgment or award in Egypt tend to be important legal issues in the context of administrative contracts that are concluded with the Egyptian government. As such, it is of crucial importance that businesses, as well as transaction lawyers, approach such issues strategically by ensuring the non-existence of any fatal discrepancies between the governing law of the underlying contract as chosen by the contracting parties and the mandatory provisions that form part of Egypt’s public order. Otherwise, a non-Egyptian investor would, in case of a dispute, end up expending substantial amounts in litigation or arbitration proceedings only to find that it cannot have a favourable ruling or award recognised and enforced in the host country of the investment. Moreover, it should be noted that Egyptian law does, in certain cases, adopt a strict regulation that denies the contracting parties any freedom to choose the governing law of their contract. For instance, transfer of technology contracts that are enforced in Egypt cannot be validly subjected, through the consent of the contracting parties, to a non-Egyptian governing law. Said restriction flows directly from a statutory provision of the Egyptian commercial law. Hence, when contemplating the conclusion of a mixed/hybrid contract that involves various elements rather than one simple transaction, one idea that could be explored is bifurcating said hybrid contract into stand-alone agreements. This solution could help realise various goals, including allowing a certain degree of flexibility in relation to the choice of governing law and dispute resolution mechanisms.
Adam El Shalakany
Tel: +20 (2) 272 88 888 (219)
Tel: +20 (2) 272 88 888 (314)