The Impact of Coronavirus (COVID-19) on the Contractual Obligations as per the Provisions of the Egyptian Law.

Coronavirus government decisions

It is well-known that the disease shall not affect the performance of the contractual obligations as the disease may not be deemed as force majeure, however, what the case will be if this disease turned into an epidemic? 

Shall the spread of this epidemic constitute a force majeure event? moreover, what about the consequences of this epidemic?

As a matter of fact, many procedures and decisions were adopted by the governments of the world to overcome the widespread of Coronavirus (COVID-19) including the closure of the borders, suspending all air flights, imposing a curfew…Etc.

May these consequences relieve a party of its contractual obligations based on the force majeure?

Indeed, there are some multinational companies that declared Force Majeure due to the difficulties they face in meeting their contractual obligations.

Moreover, there are many countries declared Coronavirus (COVID-19) epidemic a force majeure.

France declared on Feb 28, 2020, that Coronavirus (COVID-19) shall be deemed as a force majeure in the construction field and the French government promised to not impose any fines on the companies that failed to meet their contractual obligations under national or international contracts made therewith.

On the other hand, the Chines government attempted to protect its national companies and issued force majeure certificates to thousands of companies that breached agreements with a value exceedings $ 50 billion! There is no doubt that those certificates will help in the national disputes but it will be a matter of debate in international disputes.
 

Based on the above, how does Coronavirus (COVID-19) affect contractual obligations, as per the provisions of Egyptian law?

Article 165 of the Egyptian civil law states that:

In the absence of a provision of the law or an agreement to the contrary, a person is not liable to make reparation, if he proves that the damage resulted from a cause beyond his control, such as unforeseen circumstances, force majeure, the fault of the injured, or a third party.

As per article 165, it is clear that the Egyptian law recognizes the unforeseen circumstances, force majeure, the fault of the injured or a third party as a reason for relieving from the compensation in case of failing to meet the contractual obligations, provided that the caused damage is out of his control.

 It was established by the court of cassation that “Article 165 of the civil law defines the force majeure and the unforeseen circumstance as a reason out of control of the reasonable person, however, this definition needs more determination.

Hence, as it was established by the court of cassation, the event shall be unpredictable and cannot be prevented in order to be considered as a force majeure or unforeseen circumstances. The event shall be unpredictable whether by the defendant or by the most caring person based on an objective standard. The lack of capacity to prevent the event means that the event shall not be considered as a force majeure or unforeseen circumstances if it is possible to prevent it, even if it is unpredictable.

It should be noted that the performance of the obligations should be impossible due to the event and the impossibility of performing the obligations shall exist for anyone in the situation of the debtor.   (Appeal no. 677 of the judicial year no. 69 held on April 10, 2012)

Therefore, there are two main elements to claim force majeure which are as follows:

1. Unpredictability
2. The impossibility of prevention the force majeure

(you may also refer to appeal no. 77of the judicial year no. 72 held on Nov 28, 2002).

Therefore, our first advice to the companies failed to meet their contractual obligations due to the difficulties caused by the Coronavirus (COVID-19) outbreak is to review the contract articles in general, with a focus on the following articles:

1. The governing law

It is an important point as the meaning of force majeure is different from one law system to another.

2. The force majeure.

 In the past, the parties to the contract usually skip the force majeure article without reading it, considering it as a standard article, now we think it is the time to read it carefully and it is better if this article states that the epidemic or at least the act of God shall be considered as a force majeure.

However, a party may refer to article 147 of the civil law, even if the contract does not include the force majeure article.

3. Notices:  

We advise a party claiming the application of a force majeure to serve a notice, as per the provisions of the contract, subject matter, and clearly declare the force majeure to the second party.

In the meantime, it is worth mentioning that a party shall not relieve himself from his contractual obligations during the Coronavirus (COVID-19) outbreak based on the general consequences of the epidemic if those consequences are not really affecting his contractual obligations.  

Thus, it was established by the court of cassation that “the trial court is entitled to decide whether the alleged event is considered a force major or not within his discretion” (appeal no. 258 of the judicial year no 31 held on Feb 22, 1996).

Moreover, the judge may decide not only to release a party from compensation based on the force majeure event but also terminate the agreement itself if there is a permanent impossibility in performing the agreement, pursuant to articles nos. 159 and 373 of the Egyptian civil law as follows:

Article 159 states that “When an obligation, arising out of a bilateral contract, is extinguished because of the impossibility of performance, correlative obligations are also extinguished and the contract is rescinded ipso facto”.

Article 373 states that “An obligation shall be extinguished if the debtor establishes that its performance has become impossible due to some reasons beyond his control”.

however, what the case will be if the judge decided that Coronavirus (COVID-19) consequences don’t justify the contract breach in some cases?

certainly, the current global situation will affect the contractual obligations somehow because of its horrible consequences, even if, accident, does not constitute a force majeure.        

Article 147/2 of the Egyptian civil law states that “ if there are public exceptional and unpredictable events, caused that the performance of the contractual obligation, even it is not impossible, becomes excessively onerous in such way as to threaten the debtor with exorbitant loss, the judge may according to the circumstances, and after taking into consideration the interests of both parties, make the excessive obligation reasonable. Any agreement to the contrary shall be void”.