Compensation for losses exceeding the legal interest / Egyptian law / Application of Article 221 of the Egyptian Civil Code if the damages were disputed amounts / Application of Articles 226, 227 and 231 of the Egyptian Civil Code if the damages were undisputed amounts

'According to Claimant and because of the above financial hardships, he was forced to borrow heavily at commercial rates of interest (16%) in order to replace the cash shortfall for which Respondent was responsible, since Claimant had decided to carry out his contractual obligation until the works would be finally completed. Pursuant to Article 231 of the Egyptian Civil Code, he is entitled to compensation for losses exceeding the legal interest of 5% as per Article 226 of same Code.

Respondent disagrees. Article 226, he says, applies to all parties in all kinds of transactions with the exception of transactions in which a bank is a party as well as to cases of bad faith provided for in Article 231. Such article does not apply to persons who are obliged to borrow from banks.

The Arbitral Tribunal holds that, according to Egyptian law, jurisprudence and legal writers (cf. Thomas McDonald & Omar Tarhuni: Compensation for payment delays under Libyan law, the International Construction Law Review, 1985, p. 3 & seq. and the decisions of the Egyptian Cour de cassation mentioned), interests are to be computed on the basis of Article 221 of the Egyptian Civil Code if the damages are disputed amounts. The damage is then set as of the date of the judgment and includes compensatory and moratory damage. The creditor is entitled to obtain full compensation.

If, on the contrary, the damage is not disputed, i.e., is a "previously fixed and undisputed amount not subject to determination by the court", the damage shall be set at the date of the claim filed in court and a moratory interest computed from that date at the rate of 5% in commercial matters. However, a creditor may demand damages in addition to interest if he establishes that a loss, in excess of the interest, was due to bad faith on the part of the debtor (Art. 226, 227 and 231 of the Egyptian Civil Code). According to the Egyptian Cour de Cassation bad faith might consist of the unjustified and deliberate refusal on the part of the debtor to perform his obligation while being aware of the damage.

The Arbitral Tribunal therefore awards that interests on damages awarded to Claimant shall be computed on the basis of Article 221 of the Egyptian Civil Code if they were disputed amounts, and on the basis of Articles 226, 227 and 231 of the Egyptian Civil Code if they were undisputed amounts.'