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Security Guarantee Under Egyptian Law

1. Definition, General Introduction

Securities, in the form of guarantees, are regulated by the Egyptian Civil Code (EG-CC) in Section 5 (Securities), Art.772 – 801, EG-CC (Egyptian Civil Code).

For the guarantees which are due to the guarantee-beneficiary by the guarantor on behalf of the debtor, the following provisions are deemed of interest:

According to Art.772 EG-CC, the commitments under a guarantee of the guarantor are in favor of the guarantee-beneficiary for debtor’s payment commitments, in the event that the latter fails to meet his commitments. Under Art.774 EG-CC, a debtor may only present a guarantor who is resident in Egypt. The validity of the guarantee assumes that the payment commitment is valid; Art.776 EG-CC. Art.778 EG-CC stipulates that the total amount of the guarantee is to be specified

2. Maximum Amount, Revolving Guarantees

The law does not stipulate how the amount should be specified. Thus also a maximum-amount-guarantee appears to be permissible as long as the amount for which a guarantee may be drawn up is not higher than the underlying (total sum of the) debt.

3. Term of Validity for a Revolving Guarantee

Guarantees, for which no term of validity has been arranged, may be terminated at any time, for as long as the guaranteed debt has not emerged yet. By virtue of an agreement between the parties a term of validity for the guarantee can be arranged regardless of the law. Thus, the term of validity of guarantee may, for example, be renewed automatically for periods of three months, for a maximum of 6 months, after the day on which the last guarantee payment is due. In other words, this means that the arrangement of a deadline prevents the guarantor from terminating a guarantee prematurely. Further, it is also permissible to cover future emerging obligations through guarantees. This is particularly significant for the permissibility of a revolving-guarantee.

4. Civil Code/Commercial Law

Art.779 EG-CC stipulates that even the guarantees for debts according to the commercial law is following the Egyptian Civil Code. Back guarantees and endorsements, however, are considered commercial legal instruments. In this respect, the Egyptian Commercial Code applies.

5. Limits, Additional Costs, Knowledge

Art.780 EG-CC stipulates that the guarantee amount does not exceed the payable debt, and that the conditions of the guarantee may not be raised unilaterally. Lesser amounts and a reduction of the debtor obligations are, however, permissible.

Art.781 EG-CC includes also the additional costs, as well as the costs for the assertion “upon first request” and the costs, which incur after the assertion of the guarantee.

Under Art.785 EG-CC, guarantees are subject to a six-month limitation period as of the day on which the claim thereof was made valid.

According to Art.800 EG-CC a guarantee is also effective when the debtor has no knowledge thereof. The status of the guarantor, according to Art.774 EG-CC is therewith not compelling.

6. The Plea for Action

Under Art.789 EG-CC, the guarantor may file an action and relegate to the debtor, but has to prove the debtor’s assets and shoulder the costs for litigation, if any. Proving the assets of the debtor is limited to the borders of Egypt. The action, under Art.789 CC-EG, may be agreed upon contractually. It must, then, be elaborated in the guarantee, that the guarantor is jointly and severally liable for the underlying claim. This alternative is governed by Art.793 EG-CC. Should the guarantor pay without proof of the debtor’s assets, he receives in return by force of the law as stipulated in Art.799 EG-CC all the rights due to the beneficiary, which the latter may hold against the debtor. In accordance with Art.797 EG-CC guarantees may be strengthened through any further securities. This permits, among others, the security of the guarantee through pre-dated checks or promissory notes of the guarantor or other adequate securities.

7. Legal Processes

A guarantee in Egypt is not considered a commercial paper. Legal actions as per Art. 205-210 EG-CPL is thus not open to guarantees.

If not otherwise arranged, the competent court is the court with jurisdiction at the debtor’s domicile. Any agreement on arbitration clauses  may however be enforced.

January, 2014 Rolf Meyer-Reumann
Meyer-Reumann & Partners, Dubai Office
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