Why COVID-19 is Unforeseen Circumstance?

Written By - Hatem Ahmed Sayed, Senior Associate
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What is the theory of Unforeseen Circumstances in the Egyptian Law?

The Egyptian Law and the Egyptian Court of Cassation’s judgments have defined the theory of Unforeseen Circumstances as exceptional and unexpected accidents occurred when concluding the contract or prior to its execution which cannot be controlled by the contracting parties, thus, the execution of the contract becomes exhausted. Examples for such accidents, including but not limited to, earthquakes, floods, wars, pandemics, governmental resolutions such as imposing curfews.

Is Coronavirus “COVID-19” considered as an Unforeseen Circumstances?

Yes, Coronavirus is subject to the theory of Unforeseen Circumstances in accordance with the Egyptian Civil Code and it is not considered as a Force Majeure. Coronavirus is an exceptional and not expected accident that cannot be controlled by the normal individual. Thus, Coronavirus as well as the precautionary measures taken to prevent it from spreading is considered an Unforeseen Circumstance.

So, what is the difference between an Unforeseen Circumstance and a Force Majeure?

The significant difference is that Force Majeure leads to an automatic contract termination due to the impossibility of performing the obligations of the contract, which happens due to the occurrence of a Force Majeure event. Whilst, an Unforeseen Circumstance leads to the execution of contract to become, although not impossible, exhausted – which means that one of the parties is at risk of incurring a great loss if he continued performing the contract. In such cases, the judge is given the discretionary power whether to reduce the parties obligations or to postpone the execution until such emergency is over.

Can we apply the theory of Unforeseen Circumstances on contracts?

In order to do so, we should first determine the type and nature of the contract and the obligations of the contracting parties. In this regard, the Egyptian Law has identified four conditions to be met in order to apply the theory of Unforeseen Circumstances to contracts, which are:

  • The existence of a contract signed between two or more parties;
  • The occurrence of an Unforeseen Circumstances after concluding the contract and before its execution;
  • An exceptional and not expected accident that cannot be controlled by the parties;
  • The implementation of the contractual obligation has become exhausted.

What is the effect of applying the theory of Unforeseen Circumstances on contracts?

The Law gives the judge a discretionary power to reduce the contract obligations if one of the contracting parties proves that the execution of its obligations has become exhausted or will cause serious loss.

With regards to commercial contracts in general, it depends on where the contract will be executed to determine such case is considered as Unforeseen Circumstance or Force Majeure. For instance, if one of the contracting parties undertakes to export abroad specific products or goods and a Presidential resolution was issued to prevent such exportation during this crisis (such as exporting alcohol and all sterilizers, etc.) Hence, the execution becomes impossible and the Force Majeure theory shall be applied.

If you are interested to know more about the difference between an Unforeseen Circumstance and a Force Majeure, please send us on lucy@levarilaw.com