The impact of successive legislation and the exchange rate of the foreign currency upon the contract performance

The General Assembly of the Legal Opinion and Legislation in the Egyptian Conseil D’Etat issued an opinion that the application of a new legislation, such as the Law of General Tax on Sale promulgated under Law No. 11 of 1991, affected the sales prices set forth in contracts concluded before the enforcement of the said law, as the contracting companies agreed in the contracts with the pharmaceutical company that the value of the contracting work was total and final. As such, pursuant to the civil code provisions, the company might not claim for price increases resulting from the application of the Law of General Tax on the basis that it would have rendered the contract performance difficult. It was not apparent from the documents that the application of the said law would affect only the contracting company by sustaining grave loss destabilizing

Substantive mechanisms of PPP contracts 197 the contract’s economies; thus, one of the conditions of the theory of unforeseen circumstances was not fulfilled, and the General Assembly ruled against compensation on this basis.[1] In such a case, the General Assembly restricted the application of the theory and did not consider the successive tax legislation as causing financial burdens on the party’ or grounds for compensation on the basis of the theory' of unforeseen circumstances since it did not give rise to grave losses.

In another opinion, the General Assembly concluded that the Prime Minister’s decree to devalue the Egyptian pound against the U.S. dollar was a general exceptional event, pursuant to Article 147/2 of the civil code, where both parties could not expect it when concluding the contract. For the sake of argument, if the party should have expected that the government might seek to devalue the Egyptian currency, the contracting party could not predict how far this devaluation would be; thus, the results and effect of this procedure upon the contract’s financial equilibrium must exceed what the party would have expected when concluding the contract. In both cases, if the loss sustained by the party with the obligation to perform the contract rendered the fulfillment of the obligation cumbersome and gave rise to serious loss, the other party should jointly bear such loss, to make it reasonably bearable for that party. This means that the expected loss should be borne by' the party with the obligation to perform the contract, whereas the unexpected loss should be jointly borne by both parties, to mitigate its gravity.

In another opinion, the General Assembly' concluded that the tender’s general conditions, according to Article 20, stipulated that the tenders must be submitted for the supply of goods based upon the tax rate, production duties and any other duties applicable at the time. In case the above-mentioned rates and duties changed in the period between submitting the tender and the deadline for the supply of goods, and the supply took place within the specified period, the difference should be settled accordingly, on condition that the contractor had proofs of paying the duties on the supplied goods based upon the modified increased rates. If the modification required reducing the rates, the difference should be deducted from the contract’s value unless the contractor had proofs that he or she paid the duties based on the original rates before the modification. Article 62 of the general conditions stated that ‘the final statement shall apply' the rates included in the price tables, regardless of any price changes or currencies fluctuation.’ It also stated that ‘the contractor shall bear all price increasesfor the materials, freight, shipping, all types of insurance, and labor costs during the work’s period, and may not request any increase or change the prices he accepted.’

By specifying these provisions, the court judgment varies according to the accidental reason affecting the tender’s value. If the reason is attributed to market volatility and currency fluctuation, the contractor must bear the consequences, whether it is an increase or decrease in prices; if the reason is attributed to modification in taxes and duties, the ministry must bear the consequences as provided in Article 20, whether the reason affecting the tender’s value has taken place before or after the contract conclusion.[2]

This shows that the Egyptian Conseil D’Etat was hesitant to consider the market volatility' and currency' fluctuation as unforeseen circumstances, as the General Assembly' had - in its opinion - considered it to be unforeseen circumstances on one occasion, and the Supreme Administrative Court denied such consideration on another.

The same applies to the tax and customs legislation. In a judgment issued by' the Supreme Administrative Court in the 196Os, the court considered the modification of taxes and customs duties as unforeseen circumstances, which would not be valid without legislation. In the 1990s, the General Assembly refused to consider the Law of General Tax on Sale as unforeseen circumstances unless - as expressed by the court - it rendered the contract performance difficult. The above-mentioned principles were well established, decades ago, in the MENA countries’ jurisprudence.

  • [1] The General Assembly’s legal opinion No. 328 on 24/4/1993, session, 28/3/1993, 47, Opinion No. 127 on 31/1/1993 - Session 31/1/1993, 47 - Forty Years Collection of Court Judgments, 461-462. 2 Legal Opinion No. 360 of 17/7/1954, Modern Administrative Encyclopedia, 1st edn, Vol. 18, 1986/1987, 796, Rule No. 568.
  • [2] The Supreme Administrative Court - case No. 1186 of year 10Q - session of 25/11/1967, Modern Administrative Encyclopedia, Vol. 18, 797-898, Rule No. 570. 2 Ibid. 3 The General Assembly’s legal opinion No. 328 on 24/4/1993, session (28/3/1993)47, Opinion No. 127 on 31/1/1993 - Session (31/1/1993)47 - Forty Years Collection of Court Judgments, 461 -462.
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