By Sherif Serag and Mostafa Salah
The Supreme Constitutional Court of Egypt (SCC) recently struck down article number 189 of Commercial Law No. 17 of 1999 as well as the first clause of article number 190 of the same law.
The SCC stated in its ruling that article number 189 imposed constraints on agents and restricted their freedom of choice.
The SCC also said the article resulted in an imbalance in the relationship between the contracting parties, wherein the contracting party was not able to exercise its right to end the agreement according to the expiration of the contract.
In addition, the article contained requirements to compensate agents in such a way that contractors would be compelled to continually renew agreements, even if costs became prohibitive.
Hany Sarieldin, a professor of commercial law at Cairo University, said that the SCC’s ruling on article number 189 of Commercial No. 17 of 1999 will have a significant impact on all commercial disputes currently before Egyptian courts, especially the dispute between businessmen Farag El-Rawas and the Japanese company Mitsubishi.
Sarieldin criticised the ruling and its assumption that the agents committed errors during the implementation of agreements. “The law was just because it required contractors to compensate agents for costs they incurred while implementing agreements.”
He said that if the SCC had looked into the reasons behind the article, it would have dismissed the case, noting that the article is modelled after European Union (EU) texts and is designed to achieve social justice.
Sarieldin stated that the SCC’s ruling threatens the interests of agents.
Rafat Masrooga, an expert in the automotive industry and President of the Engineering Automotive Manufacturing Company, stated that the ruling on article 189 was natural, but that it will not greatly affect the automotive industry.
He said that contracts between local car dealerships and parent companies contain very specific provisions about contract cancellation and renewal.
He added that contracting parties in the automotive sector often resort to international arbitration in the case of disputes. As such, the SCC’s ruling will not significantly affect the automotive sector.
Masrooga mentioned that businessman Waleed Tawfik, Chairman of the Board of Directors for the company Wamco Motors, had resorted to article 189 of Commercial Law No. 17 and received a favourable ruling in his dispute with the Korean company Kia.
The businessman Farag El-Rawas, however, did not receive such a ruling because of the more precise terms included in his agreement with Mistubishi.
Mohamed El-Masry, Vice President of the Federation of Egyptian Chambers of Commerce, said that Article 189 was designed to protect the interests of Egyptian businessmen.
He added that the article protects local investors from parent companies who would otherwise be able to cancel contracts without any compensation for agents.
El-Masry added that the Federation will request that the new People’s Assembly pass a law protecting Egyptian agents.