EGYPT Trends and Developments Contributed by: Muhammad Ussama and Adam El Shalakany, Shalakany Law Office
main contractor and such relationship is gov- erned solely by the construction contract. (b) The on-demand bonds issued by the bank at the request of the main contractor and in favour of the employer created separate, distinct legal relationships; namely (i) the legal relationship between the employer and the bank; (ii) the legal relationship between the employer and the main contractor; and (iii) the legal relationship between the bank and the main contractor. Both Egyptian and UAE laws emphasise, by virtue of mandatory provisions, that these relationships must remain separate. The bank’s arrangement with the main contrac- tor (including the conclusion of the assignment agreement) was meant to be an attempt to go around the mandatory position of the applica- ble law – in other words, the bank wants to get back from the employer using one hand (in reli- ance on the purported assignment agreement) what the bank had to pay to the employer with the other hand pursuant to the on-demand bonds. This is unequivocally unlawful (as it contradicts with the applicable law) and, thus, cannot be allowed to happen by the court/arbi- tral tribunal. • In an attempt to substantiate its argument, the employer could consider raising the following points. (a) First – both the main contractor and the bank were certainly aware of the restriction imposed in the relevant clause of the construction contract, and yet both avoided informing the employer of the assignment of rights. Also, both the bank and the main contractor failed to secure the employer’s consent to the (purport- ed) assignment as required under the relevant clause of the construction contract. (b) Second – if it is factually correct, the employer could argue that the timing of the legal action pursued by the bank against the employer after a considerable period had passed from the date on which the dispute arose between the employer and the main contractor is indicative of the sham nature of the assignment of rights agreement. An issue such as the timing of the bank’s action against the employer, in such a context, cannot be ignored or belittled; the
employer could very well argue that the bank chose to act for the first time against the em- ployer only after the latter made the call on the on-demand bonds and the bank, accordingly, was under an obligation to make payment to the employer. The point that the employer should emphasise in this respect is that the bank has only decided to pursue its first legal action pursuant to the purported assignment of rights against the employer because the bank now wants to rely on the (purported) assign- ment agreement against the employer so that the bank can get its hands on the value of the on-demand bonds which the employer was en- titled to receive and did receive from the bank pursuant to the on-demand bonds. • Based on the foregoing, the employer could sub- mit that no true, legally valid and/or enforceable assignment of rights was agreed by and between the bank and the main contractor; the true legal relationship between the bank and the main con- tractor remains one where the bank provided finan- cial facilities to the main contractor against some guarantees that the latter provided to the bank. Thus, instead of pursuing this claim against the employer in reliance on a sham assignment agree- ment, the bank should have acted in good faith by acting against guarantees that were truly provided to the bank by the main contractor. • The employer could, accordingly, submit that, once the court/arbitral tribunal finds and declares the assignment agreement as a “sham” agreement, the court/arbitral tribunal must proceed to find that the bank has no standing to sue the employer. This is simply because there does not exist any (direct) legal relationship between the employer and the bank (the assignment agreement is null and void, or, at the very least, unenforceable vis-à-vis the employer). Furthermore, priority and competing claims frequently become a real issue. This is an important issue that should not be ignored when considering a topic of such scale and magnitude. This is simply because in big and mega projects, the parameters of the matter do not simply end with the employer, the main contrac- tor and the bank; they rather extend to include other (interested) parties such as sub-contractors engaged
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