INTRODUCTION:

 The principle of “equitable estoppel” is arguably well established and recognised in many jurisdictions. Alas, in the dynamic realm of arbitration, and in the Egyptian legal system, the Egyptian judiciary has long played a crucial role in shaping and upholding legal principles as such which seem to have a blurry origin and roots. As such, the Egyptian judiciary has an interesting history with its approach to upholding the equitable estoppel principle, which has particularly garnered significant attention by the Egyptian arbitration practice.

 Marking an important development in an already well-established practice by the Court; in a relatively recent judgment, the Egyptian Court of Cassation (the “Court”), being the court that interprets, creates and/or develops the legal principles applicable pursuant to the Egyptian laws as well as represents the Egyptian judiciary’s views on the legal system as a whole, has explored and applied a common law principle by deriving its roots from the Egyptian law’s sources.

This article will briefly elucidates the principle of equitable estoppel under Egyptian law and explores the Court’s current definition of the Estoppel principle, where the Court finds the roots of the principle in the Egyptian law’s sources, and the conditions for the principle’s application.

KEY TAKEAWAYS:

• The Court has adopted a clearer definition of the principle of Estoppel and detailed the equivalent historical equivalent principles;
• The Egyptian judiciary recognises the Estoppel principle on all court levels, giving comfort to disputing parties under the Egyptian legal system, whether through arbitration or the judiciary;
• The Estoppel principle has its roots as a customary legal principle that is recognised by the Egyptian legal system;
• Estoppel is recognised by the Court across all areas of law and practices and may not be limited to arbitration;
• The practice of the Court remains unchanged in upholding the Estoppel principle.

DEFINITION OF ESTOPPEL

Estoppel under English Law

In common law jurisdictions, particularly, England, estoppels operate where one party has been induced to act on the basis of a proposition made by another in circumstances where that other party has subsequently sought to resile from that proposition. Where an estoppel is successfully established, it will typically operate to bind the other party to its original proposition.

Estoppel is based on the legal maxim “allegans contraria non est audiendus”, which means, a person alleging contradictory facts should not be heard. Under this doctrine, the fact presumed is taken to be true, but it is not against the entire world, just the particular party.

The term “estoppel” can refer to any of a number of discrete legal doctrines which prevent parties from departing from statements or promises that they have previously made to another party. In its simplest sense, that party is then stopped (or ‘estopped’) from asserting or denying something in the course of legal proceedings. Having said this, central to all estoppels is the aim of preventing unconscionable conduct and the principle that “the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations” (Grundt v Great Boulder Proprietary Gold Mines Ltd (1938) 59 CLR 641 at 674).

There are various forms of estoppel which were developed in both the courts of law and equity. For example, there is:

• Promissory estoppel (also referred to as equitable forbearance or equitable estoppel);
• Proprietary estoppel;
• Estoppelby representation;
• Contractual estoppel;
• Waiver by estoppel; and
• Estoppel by convention.

Whilst it is important to consider the requirements of the various forms of estoppel individually, it is possible to identify some common features between them. In his guide on Estoppel, Richard Hanke mentions that a party (A) is unlikely to be able to rely upon an estoppel against another party (B), unless it can show:

• Clear and unequivocal communication from (B) as to a particular state of affairs, or a shared understanding between A and B.
• B must objectively have intended A to rely upon that statement or promise.
• A reasonably relied upon the communication or understanding to its detriment.
• B now seeks to resile from the original communication or understanding.

In other words, it could be simply defined as “prohibition of taking advantage of one’s own wrongdoing”.

Definition as shaped by the Court, is it different?

In its judgment on Challenge no. 18309 of Judicial Year 89, on 27 October 2020 (the “Judgment”), the Court indicated that the principle of estoppel applies in cases where “a party that seeks to set aside the results of their actions should be halted by what they sought”. The Court, upon laying down such a language further explained that it is recognised in its practice that a defaulting party may not benefit from his wrongdoing, whether it is conducted out of fraud or negligence, even if such a counterparty or third party has committed a wrongdoing of their own, and after they have dealt with the wrong party in reliance on the validity of their actions.[1] The court further explained in its Judgement that the principle of Estoppel is a rather “general principle” that is derived from the roman law’s principle of “non concedit venire contra factum proprium”, which roughly translates to the prohibition of contradiction that results in damage to others.[2]

ROOTS OF THE ESTOPPEL PRINCIPLE IN THE EGYPTIAN LEGAL SYSTEM:

While the estoppel principle is not addressed under any legislative text, the Court, in its application to such principle, relied on the Egyptian Civil Code No. 131 of 1984 (“Egyptian Civil Code”) which allows a judge, in absence of an applicable legislation, to decide upon a matter through custom, the principles of Islamic Sharia, or principles of natural law and justice.

This approach comes in line with the already established practice of the Egyptian judiciary, albeit this time on another level, that is of the courts of appeal that oversee arbitration annulment cases where many incidents of the application of the principle of estoppel take place. In an interesting judgment by the Cairo Court of Appeal, the court illustrated that the estoppel principle is an application of known commercial customs of good faith, which transcends the realm of commerce and inherently extends to all areas of law and transacting, regardless of the various sources that molded it.[3] Hence, it can be affirmed that the Egyptian judiciary, and the Court, uphold the principle of estoppel out of application of well-known customs, regardless of an express legislative text. This approach should comfort disputing parties under Egypt’s jurisdiction, whether before national courts or arbitral tribunals.

CONDITIONS FOR THE APPLICATION OF THE PRINCIPLE OF ESTOPPEL:

The Court has finally given a conditional formula for the application of the principle of estoppel, which is inspired by the common cases or issues that are seen in arbitration annulment cases. In most annulment cases, there is a known tactic of raising the validity of representation in the arbitral proceedings by a losing party (who is often the claimant in arbitration annulment cases). Usually, this claim is known to be raised by parties who were aware of the issues they are raising or have acted in a manner that implies waiver of such issues where possible.[4] However, the Court establishes in the Judgment that even if the claiming party raises such a concern during the arbitral proceedings in compliance with the principles that require them to be properly presented in arbitration[5] and raise any concerns thereto in a timely manner,[6] the estoppel principle will apply whenever it appears that a claiming party is trying to avoid the outcome of their wrongdoings.[7]

In that regard, the Court laid in the Judgment two conditions for the application of the principle of estoppel, as follows:

• First: a party must make a statement, take an action, or omit from taking an action that contradicts a previous behavior of such a party; and
• Second: this contradiction should cause damage to the counterparty that have dealt with that party in reliance on the validity of the previous behavior (that is being currently contradicted).[8]

It is noteworthy that the principle of estoppel, being a general principle shall extend to any area where such conditions are met.

In this respect, while the Court has made it clear that they have not relied on a legislative text, the estoppel principle may be recognized as the equivalent of good faith principle applicable in civil law jurisdictions. Good faith is a principle which exists under the Egyptian Civil Code, where parties should act in good faith while performing their contractual obligations. Taking advantage of one’s wrongdoing may be deemed as bad faith and hence, the application of the Court may be interpreted as an extension to the application of the good faith principle by rejecting a party from taking an advantage of his wrongdoing resulting in causing harm to the other party. Others may perceive the Court’s application to be prevention of fraud which is also exists within the legislative text, being non-possibility of releasing a party from its obligations arising out of fraudulent actions.

While the Egyptian judiciary may have applied natural justice, the essence of such application is rooted from the general principles under the Egyptian Civil Code.

In light of the foregoing, the application of estoppel within the Gulf countries, in particular to UAE and Kuwait, may be alarming. Arbitration agreements in UAE and Kuwait are typically challenged on the basis of lack of capacity. In this respect, it may be argued that a party was aware not to have an adequate capacity which is a wrongdoing that caused a harm to the other party by claiming the annulment of the arbitration clause. Hence, the court may be in a challenging position on whether to approve its jurisdiction by accepting a claim based on bad faith or make a precedent of applying the internationally recognized concept of estoppel.

In conclusion, once again, the Court’s recent judgment stands as a testament to the Egyptian judiciary’s commitment to correctly apply and follow the letter of the law as it was originally drafted to ensure that the ultimate wellbeing of the entire society is achieved through preserving fairness and justice.

[1] Egyptian Court of Cassation, Commercial and Economic Circuit, Session Dated 27 October 2020, Judgement on Challenge No. 18309 of Judicial Year 89, p.10.

[2] Supra note at 1, p.10.

[3] Cairo Court of Appeal, Commercial Circuit 7, Session Dated 5 February 2013, Judgement on Challenges No. 35, 41, 44, and 45 of Judicial Year 129, pp.32, 33.

[4] Supra note at 3, p 32, See also: Cairo Court of Appeal, Commercial Circuit 7, Session Dated 6 January 2016, Judgement on Challenge No. 18 of Judicial Year 132, p.4.

[5] Egyptian Arbitration Law no. 27 of 1994, Article 11.

[6] Supra note 5, Article 8.

[7] Supra note at 1, p. 10.

[8] Ibid, p. 10.

 

Authors: Yousef Al Amly, Partner and Maha El Meihy, Legal Director, and Khaled Al Khashab, Associate.

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Yousef A lAmly (y.alamly@glaco.com).