Conceptual Compensation in the Egyptian Civil Code – Civil Law

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The Egyptian Civil Code (the “CEC“) provided for compensation as an alternative method of performance of contractual obligations, namely in both cases of delay or non-performance (the “Breach“) of these bonds.

The general rules of contractual indemnification, according to the ECC, are that it can be claimed after the debtor has been legally summoned by the creditor to perform his contractual obligations. The compensation is then set by the judge, equivalent to the damage suffered by the creditor. Damage here means physical damage, which includes loss suffered and lost profits which the debtor should have expected at the time of the creation of the contract; in addition to any emotional harm that affects the creditor due to the debtor’s breach of obligations.

The contracting parties, in accordance with the general rule of the ECC, have the right to predetermine the amount of compensation in the contract, in the event of a breach of their contractual obligations. This rule is well recognized in the Egyptian legal system in all types of contracts. In reality, the contractual clause is generally a clause which determines an amount to be paid, without requiring notice or additional steps, in specific cases of Default. And although this clause is in line with the CCE, the amount of this conceptual indemnification is still questionable.

The amount of conceptual compensation can be challenged, as an exception to the general rule, according to the ECC in three cases. The first case is where the defaulting party can prove that no prejudice has affected the plaintiff as a result of its breach of contract, in application to the principal of “No harm, no fault“. In this case, the judge may decide that despite the validity of the conceptual indemnification clause, the plaintiff’s non-entitlement to conceptual indemnification.

The second case of contesting the conceptual indemnification clause consists in proving that the indemnification has been greatly overestimated, the determination of such an overestimate being decided only by the judge, according to his discretion.

The third and last case of dispute of the Conceptual Indemnity is the case where the defaulting party proves the partial execution of its contractual obligations. In these last two cases, if he considers that the compensation is greatly overestimated or that the contractual obligation is partially fulfilled, the judge may reduce the amount of compensation to the extent that becomes appropriate to the damage suffered by the plaintiff.

The ECC has also set out another important rule for applying conceptual netting, which is to summon the other party to perform its obligation, unless the parties agree otherwise. In addition, the ECC specified the following as a reason for not summoning the other party:

  1. If the performance of the obligation becomes impossible or without interest due to an act of the debtor.

  2. If the object of the obligation is reparation for damage resulting from an unlawful act.

  3. If the object of the obligation is the restitution of a stolen thing known as such by the debtor, or of a thing which has been wrongfully received by the debtor who has knowledge of it.

  4. If the debtor declares in writing that he will not perform his obligation.

Based on the aforementioned rules, the conceptual indemnification clause of any contract should be very well drafted. Moreover, the claim of the Conceptual Indemnity will not be considered certain by any Default of the defaulting party, even if such Default is invoked as a ground for the right to indemnification.

Finally, the Conceptual Compensation is only a means of determining the compensation, but it does not prevent the judge from verifying that this compensation is in accordance with the law and appropriate to the damage.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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