Arbitrators: Three Arbitrators of Egyptian nationality
Claimant: A European Company
Respondent: An Africaan Government Authority
Place of arbitration: CRCICA, Cairo, Egypt
administrative contract of supply
whether delay amounted to breach of contract
lack of necessity for performance guarantee extension
did an award of damages attract interest and if so, from when?
Language of Aritration: Arabic
Applicable law: Egyptian law
The amount of damages granted to a claimant include losses suffered and profits of which he has been deprived which were the normal result of the failure to perform the obligation or of delay in such perfonnance. These losses are considered to be a normal result, if the creditor was not able to avoid them after attempting to do so.
The Claimant entered into a contract with the Respondent for the supply of thousand (plus or minus ten percent) of live male cattle. The tender stated that the general conditions attached were complementary to its terms, and where certain provisionswere absent, government procurement regulations would apply. The purpose of the contract was to meet the market demand for meat for the period preceding the Korban Bairam (one of the Islamic Feasts) so as to curb the increase of meat prices.
The Claimant accused the Respondent of contractual breaches on three grounds. The first breach was the Respondent's failure to provide foreign currency to open documentary credits as agreed between the parties. According to the Claimant, the Respondent was aware of a problem and should not have entered into the contract with the Claimant. Secondly, the Respondent had instructed its bank to open a documentary credit which could not be drawn upon unless instructed by the Respondent. The Claimant argued that the parties had agreed upon an irrevocable confirmed credit under the UCP and the credit opened by the bank had been contrary to the 1983 Uniform 18 Customs and Practice of the ICC. Finally, the Claimants argued that when the documentary credit became operative, it was for an amount less than the agreed amount.
The Claimant requested the Respondent to expedite the operation of the documentary credit but the Respondent failed to do so. The Respondent had not objected to the shipping of goods provided that the Claimant submitted an attestation stating that the Claimant would not take any recourse against the Respondent and that the Claimant would agree to payment being made after the receipt of goods, release of goods by Customs and once the bank opened the credit. The Claimant filed a suit against the Respondent and claimed damages for incurred losses and lost profit.
Arbitration proceedings were initiated under Article__of the contract:
Any dispute, difference or claim arising out of this contract or relating thereto or to any breach, termination or nullity thereof, shall be settled by arbitration according to the UNCITRAL Arbitration Rules as prevailing in the present time provided that arbitration shall be conducted in Cairo Regional Centre For International Commercial A rbitration.
There was no conflict between the parties as to the administrative nature of the contract, the arbitrability of the subject matter and the applicability of Egyptian law and the provisions of Article 33 of the UNCITRAL Arbitration Rules which stipulated:
The Arbitral Tribunal shall apply the law designated by the parties as applicableto the substance of the dispute. Failing such designation by the parties, the Arbitral Tribunal shall apply the law determined by the conflict of law rules whichit considers applicable.
The Arbitral Tribunal shall decide as amiable compositeur or ex aequo et bonoonly if the parties have expressly authorised the Arbitral Tribunal to do so andif the law applicable to the Arbitral procedure permits such arbitration.
In all cases, the Arbitral Tribunal shall decide in accordance with the terms ofthe contract and shall take into account the usages of the trade applicable to thetransaction.
The Arbitral Tribunal ruled that the contract was an administrative one and the parties common intention would be interpreted in light of the Civil Code. An administrative contract required the consent of both parties. Article 150(2) of the Egyptian Civil Code provides a guideline in interpreting the parties intention:
... by going beyond the literal meaning of words, taking into account the nature of the transaction as well as the loyalty and confidence which should exist between the parties in accordance with commercial usage.
The Tribunal drew a distinction between administrative contracts and civil contracts, in that the former emphasised the requirement of public utility, i.e. public interest prevailed over private interest and to achieve that objective, the government was entitled to amend the contract and to indemnify the other party for any prejudice.
The Tribunal ruled that the contract had resulted in delay on the Respondent's part in opening the documentary credit for which the Claimant was entitled to an equal period of supply. The terms of the contract had provided that the goods would be shipped after the opening of the operative documentary credit within fifteen days from the date of acceptance of the performance bond by the Respondent. The Claimant had not been entitled to a claim for any expenses or damages as a result of delay in opening the documentary credit.
It was an established rule of law that non-performance of contractual obligations by a debtor amounted to a breach of contract. Where the debtor failed to discharge his obligations due to impossibility of circumstances, he would be liable for damages unless he could prove that the failure to perform was due to force majeure or a default on the part of the creditor himself.