EGYPT Trends and Developments Contributed by: Muhammad Ussama and Adam El Shalakany, Shalakany Law Office
cases, there exist a high threshold of proving fraud and/or manifest abuse on the part of the beneficiary by calling on the bond. Unless the particulars and the factual matrix of a given case allow for such argu- ments to be successfully advanced, attempts made to block the liquidation of on-demand bonds carry – and rightly so – a low chance of success. An assignment of rights, on the other hand, aims at creating a direct legal right for the assignee (in our context the bank) to have recourse against the debtor (in our context the employer in whose favour the on- demand bond was issued). This end result should, with the overall picture in mind, immediately bring to mind the potential friction between the intended goal behind the assignment of rights in a context where the assignee, pursuant to the bond, should not have an avenue for legal recourse against the debtor. In other words, the bank should not be able, with the aid of some clever structuring of the bundle of agree- ments that the bank enters into with the its client (the orderer), to go around the mandatory statutory provi- sions regulating on-demand bonds and, accordingly, be able to recover with one hand monetary amounts that it had earlier released to the beneficiary of the bond (at the same time, the debtor in the context of the assignment of rights agreement) pursuant to the call on the bond made by the latter. Structural and dispute complexities – where things break First of all, one should consider whether the assign- ment of rights, being a contract entered into by and between the bank (the assignee) and the bank’s cli- ent (the assignor), is legally enforceable vis-à-vis the employer (the debtor). While statutory provisions in countries such as Egypt and the UAE do not require the consent of the debtor in order for the assignment of rights to be legally valid and enforceable vis-à-vis the latter, one must note that, in big and mega pro- jects, the employer is usually a highly sophisticated party that ensures that its contract with the main contractor contains explicit contractual provisions that clearly require the prior, written consent of the employer to any assignment of rights that the main contractor may wish to conclude with a third party. Absent any mandatory provisions of law that provide otherwise, such contractual arrangements in the rela-
tionship between the employer and the main contrac- tor should be deemed legally valid and enforceable and, hence, the employer (the debtor in the context of an assignment of rights agreement) would be entitled to argue for the unenforceability of the assignment of rights agreement against it if it had not provided its consent to such assignment of rights. This issue forms one of the legal complexities standing in the way of the clever corporate structuring of the bun- dle of agreements that the bank may arrange to be entered into between it and the main contractor (the assignor). Assuming that the employer does not provide its con- sent to the assignment of rights agreement and that the employer is not even notified of the conclusion of the assignment of rights agreement by and between the bank and the main contractor, another possible argument to be raised, depending on the factual matrix of the relevant dispute, is that the assignment of rights agreement is nothing but a sham agreement. Provided that the factual matrix of the relevant dispute allows for any or all of these points to be advanced in support of the sham argument, the author notes that the following points should be considered as poten- tially relevant points that could be raised by the debtor (the employer). • The assignment agreement is a “sham” agreement that was formulated by and between the bank and the main contractor with the (unlawful) aim of circumventing mandatory statutory provisions of UAE law. • The employer finds it is necessary and important to ensure that the court/arbitral tribunal is aware of the following overall picture (as no correct ruling can be issued that fails to capture and take into consideration this important background as to the legal relationships – or lack thereof – between the relevant parties to this dispute). (a) There has never been any contract entered into between the employer and the bank. Thus, there has never been any (direct) legal relation- ship between the employer and the bank. The bank’s legal relationship is with the main con- tractor, not the employer. From the employer’s side, and as far as the project is concerned, the employer only has a legal relationship with the
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