Egypt, with a population of about 90 million inhabitants and with very high growth rates, is an important market for international trade, being a key country for access to the Middle East and Africa. The low costs of raw materials and the discrete qualifications of the workforce in some segments of the Egyptian labor market are factors that make Egypt a fertile country to operate in.
Despite recent troubles, coincided with the "Arab Spring", historically Egypt has always been a country characterized by a certain political, economic and social stability, which does not exclude the possibility that soon a new phase of relative comfort will begin for the country. And in this new situation, the entrepreneur who wants to do business with the country can find plenty of opportunities, in particular through the agency and commercial distribution, but also through franchises.
The broad principles about commercial contracts
Before explaining the main contractual ways for trading in Egypt, it is necessary to point out some general considerations that must always be kept in mind before entering into a contract.
Firstly, a good rule is to be able to regulate by the contract all the relevant parties for one’s own sphere of interests, regardless of the legal system in which you have to act. In fact it is advisable to being responsible for the direction of contract drafting, irrespective of the legal framework and the language applicable to the specific case. It will be difficult to impose an effective and efficient contract management if the foreign trader accepts without compromise the fortuity of the law and of the practice of the local market.
It should also be remembered that in the Arab world, the principle that << quod non est in actis non est in mundo >>, for which it is recommended, in the drafting of contracts, to exhaustively regulate in writing important issues such as the object, the territorial scopes, the exclusivity rights, the amount of commissions /royalties /various salaries, the obligations of the parties, the duration and termination of the relation, the clauses aimed at settling any partial nullities of the contract, the applicable law, the relevant jurisdiction and the language of the contract.
In any case, when drafting a contract, then it is always necessary to check if the choice of law can, then, in fact find an actual application before the court which will probably be seized in case of dispute. In fact, the courts of many Countries (including those of economically advanced countries) have the widespread tendency not to use foreign law, even in cases where they will would be required according to the rules of their private international law, especially because of the difficulty for judges to obtain information in relation to the foreign law and of the lack of preparation and international attitude, in general, of the judges of many countries.
So it is advisable to rely on arbitration clauses, and this in consideration of the generally good consequences of an arbitration decision: the arbitration panel composed of competent professionals, binding decision in one instance, speed of the process and possibility to execute the arbitration abroad (e.g. Italy and Egypt are both signatories to the New York Convention of 1958).
It should also be noted that the private autonomy of the parties is limited by mandatory or necessarily applicable rules in force in each country. They usually are established for the weakest party of the contract or for particular values considered fundamental by the various legal systems and, therefore, they cannot be derogated. In view of these mandatory or necessarily applicable rules, the content of the contract agreed by the parties is no longer valid and the judge is obliged to apply the mandatory rules instead of those agreed by the parties.
In Egypt the concession contract is also well-known. The licensee buys products from a specific manufacturer, and sells them to the final consumer in its own name and on its own behalf. The licensee is therefore, like the agent, in a durable contractual relationship with a particular manufacturer, but it is different from the agent because the latter acts in the name and on behalf of the principal.
Egyptian law, like the majority of legal systems, does not regulate this contract, since it is thought to be largely regulated by the rules on agency contracts (in Egypt in fact the distribution contract is normally called "agency").
Therefore, in the absence of specific legislation, the regulation of the contract depends on the free will of the parties. However, it is highly recommended to regulate, in writing, every aspect: the granting, or not, of the exclusivity/unilateral or mutual, a specification of the distributor obligations, the terms and conditions for the supply of products, the protection of trademarks and patents, the possible causes that may give rise to an immediate termination of the contract, the applicable law and jurisdiction.
In fact, in the absence of specific contractual provisions, the competent judge in settling a dispute, whether Egyptian or not, might relate this contract to the agency contract, with regard to crucial aspects such as the causes for withdrawal and the acknowledgement of severance allowances.
Egyptian law in the field of agency contracts is regulated partly by the Law on agents (l. N. 120/1982), and partly by the Commercial Code (Law no. 17/1999, in force since 01.10.1999). While the law on the agents only provides for administrative requirements (registration, bookkeeping, etc.) Arts. 148 et seq. of the Commercial Code concern the most important substantial conditions for agency relations.
On the basis of the agency contract, one party, the commercial agent, stably undertakes to - on behalf of the other called the principal - promote the conclusion of negotiations or to conclude these negotiations by himself upon payment of a commission, usually composed of a part of the turnover resulting from the negotiations promoted or concluded directly.
There are agents for the promotion of negotiations ("Commission Agent" or in Arabic "Wakil bi-l- umûlât") and agents for the conclusion of negotiations ("Contract Agent" or in Arabic "al-Wakil, uqûd "). The agent which is a natural person must have the Egyptian citizenship. In the case of a legal entity, it must be totally, or for the majority stake, owned by Egyptian citizens and have its headquarters in Egypt.
The agent does not need to be independent; however he cannot be an employee of a state enterprise or of one of its agencies or subsidiary companies, nor a public officer. In addition, the agent cannot be directly related to a member of the legislature or of the government power or of an executive public servant.
Both legal and natural persons who undertake the role of agent should be registered in the register of agents or in that of mediators, held at the Ministry of Economy and Foreign Trade. If the principal foreign legal person grants to the agent the representation power, the agency contract must be endorsed by the Egyptian Chamber of Commerce or by another similar institution or, in the case of conclusion abroad, by the Egyptian consulate.
As for the contract, the Egyptian law provides that the requirement of written form is binding. First of all it is recommended to cover matters such as the scope of application by territory - by attaching the geographical map - the object of the contract, by attaching a description of the product, and the exclusivity, by attaching a list of customers. It should be underlined that the agent has always an exclusivity right, unless otherwise specified, so in the same region or for the same branch of stores the principal can only use one agent. With reference to the commissions, their amount and the method of payment may be freely determined by the parties.
However it is reported that in Egypt the most usual forms of remuneration appear to be those bearing the "encashment clause" by which the agent is entitled to exercise rights in the interest of the principal, or the "del credere clause", by which the agent takes the risk of the success of the procured negotiations. Generally, however, the commission is due from the moment when the third party which was contacted by the agent pays the price to the principal.
Furthermore, the agent's obligations have to be well regulated, in particular with regard to the confidentiality of negotiation secret/confidential information of the principal, prohibition of competition when the relation ends (allowance for the period of non-competition yes / no) and the specific regulation regarding the appraisal of the solvency of customers procured, in addition to the specific regulation of the general duties to inform on market developments. Moreover it is necessary to clarify the obligation of the agent to comply with the directives given to him, as well as its liability for damage to goods that have been delivered to him by the principal.
The agency contracts may be concluded for a fixed or indefinite term. The law does not provide for a trial period. In cases of open-ended contracts, nor the law on agents, nor other special laws restrict the right of the contracting parties to freely set a deadline for withdrawal. However, according to Egyptian law, it must be guaranteed at least a reasonable time-limit (3-6 months) or only in the presence of agent's wrongful conduct. Fixed-term contracts may be terminated before the end of the final term only in the event of a serious reason, or if the agent adopts a "serious and unacceptable behavior". Any clause waiving that right is void.
As for the competent jurisdiction over disputes between the principal and the agent in charge of the conclusion of negotiations, the Egyptian procedural law determines the jurisdiction of the court in which the agent has his registered office or residence, even for the international jurisdiction. However, in the event of a suit filed by the agent against the principal, the jurisdiction can be waived by agreement of the parties. In the absence of an agreement between the parties, the Egyptian courts will always recognize a lawsuit filed by an Egyptian agent.
The contractual figure called franchising falls under the broader category of distribution contracts, and can be defined as a relationship between subjects, autonomous and independent, the franchisor and the franchisee, which collaborate in order to distribute goods and / or services. Also the franchising agreement, like the distribution one, is not regulated by law.
Marketing in Egypt through franchising was made more appealing after Egypt signed the Madrid Convention on industrial and commercial trademarks and the adoption of the law 13/6/2002 relating to the protection of intellectual property rights.
The purpose that drives a company to use this contractual form in Egypt is the possibility to have a major presence in the market, for example through the creation of several points of sale of products having the same image (brand diffusion) and through the distribution of goods having the same characteristics and qualities. By contrast, the franchisee, while performing an independent activity, may seek technical assistance from the franchisor and use its "solid" distribution network and its well-known image. The franchisee must pay a fee to the franchisor for the use of its brand, of the know-how, of the distribution and organizational network, and it cannot transfer the contract unless the franchisor agrees in written.
The clauses characterizing a franchising contract are the normal provisions containing the assumptions, the specification of the parties and the object of the contract, and they regulate the license of the franchisor's brand and the know-how, as well as the obligation for the franchisee to maintain consistency with the franchising network.
Other clauses provide for the establishment of points of sale, resale prices, confidentiality, non-competition, exclusivity, the mutual obligation of disclosure and all modalities on orders and on the supply of the contractual goods, including the way of delivery and the warranty for any defects of the products.
Finally, the contract must regulate the duration of the relationship and the effects of its termination, as well as the circumstances leading to the early termination of the contract and severance pay, in addition of course to the specification of the applicable law and the competent court (or arbitration).
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