The global pandemic (COVID-19) is having a severe impact on commercial activities all over the world. This is leading governments to take stringent measures to address the virus’s effects on public health and the global economy.
Force majeure is a legal recourse for parties to a contract who are unable to fulfill their obligations due to circumstances beyond their control. Force majeure circumstances and the consequences thereof can be explicitly stipulated in an agreement.
If the parties have failed to provide for a force majeure scenario, and one of the parties claims force majeure as a justification for breaching the contract, the matter may be heard before a judge. Although judges have the discretionary authority to determine whether force majeure circumstances actually exist, the Egyptian Cassation Court has determined the following factors to classify the event as force majeure, namely:
- the impossibility of predicting the event’s occurrence,
- the absolute impossibility of implementing the contractual obligations, and
- the externality of the event to the actions of the concerned parties
Whereas, the Egyptian law distinguishes between the descriptive factors of unpredictability, externality, and the consequential factor, which is the absolute impossibility of implementing the contractual obligation.
Consequently, if a judge determines that the prerequisite conditions have been met, he has the choice between revoking the individual contractual obligation or nullifying the entire contract. Either option may be accompanied by a ruling exempting the party claiming the existence of force majeure from the payment of any compensation to the opposing party.
Performance vs. Nullification
Depending on the nature of the contract, a force majeure scenario may only frustrate the performance of one or more contractual obligations without nullifying its entirety. An instance thereof, may be a year-long contract between a performer and a hotel, consisting of monthly performances. The inability of the performer to hold a concert during the period of March-May may only nullify the parties’ obligations during that period, without affecting the performer’s obligation to hold concerts in the months for which COVID-19 restrictions have been lifted or the hotel’s obligation to pay the performer for such concerts.
Commercial contracts are governed by Commercial Law No. 17 of the year 1999, which states that contractual provisions take precedence over existing laws unless the provisions of such contracts violate public policy. The Commercial Law includes several articles intended to protect parties to a commercial transaction from the consequences of force majeure scenarios. For example, transport companies unable to complete trips during the government-imposed COVID-19 curfew hours are exempted from paying customers additional compensation for the cancellation of such trips.
In general, contracts can contain an exclusive list of force majeure scenarios or a force majeure description that can be interpreted by the parties. From a drafting perspective, it’s preferable to employ a force majeure description flexible enough to handle circumstances so unforeseeable that the parties haven’t listed them, then specifically enumerate circumstances that will not be considered force majeure events. That is the ratio legis of the Commercial Law, which explicitly exempts terrorism, fires and the driver’s incapacitation from force majeure in transportation contracts.
The principle of force majeure in administrative contracts applies differently to private and public entities. With regard to private entities, their rights under administrative contracts are superseded by the government’s overriding obligation to ensure the provision of public services. Public authorities, on the other hand, can use force majeure as a justification for circumventing the bids and tenders process and concluding administrative contracts via direct agreement. The rationale for this force majeure exemption is to fulfill an instant and pressing public need. If a rise in COVID-19 cases in Egypt necessitates the production of ventilators and face masks, the Ministry of Health can choose a purveyor directly, even if such an action engenders the violation of an exclusive administrative contract with another contractor.