COMMERCIAL LAW

1. COMMERCIAL LAW Prepared by Dr. Yassin EL SHAZLY Presented by Dr. Fady Tawakol

2. Plan of the course

3. Introduction • Commercial law is that part of private law which governs commercial acts and regulates merchant's activities. • Compared with civil law, commercial law is a specific law with limited scope of application. While civil law applies to all relations between private persons and can justifiably be considered as the heart of private law, and the common law with regard to all private transactions, commercial law, on the other hand, has only a limited sphere of application, restricted to merchants and commercial acts.

4. Introduction • However, at the economic level, commercial law plays a far more important role than civil law. In today's world, trade and commerce are the main driving forces of national and international economies. • The importance of movable property has exceeded by far the importance of immovable property as the source of wealth of nations. • Since commercial transactions are mainly concerned with movable property; goods, services , money and credit, as distinguished from immovable property that was and still is the main object of civil transactions, it is only natural that the economic importance of commercial law has outclassed the economic importance of civil law.

5. Introduction • On the other hand, the main actor in world economy today is the big corporation. • We all know that the world economy is actually dominated by a small number of multinational corporations, which are commercial legal entities, governed by commercial law.

6. Introduction • The existence of commercial law as a separate corpus of law distinct from civil law is not by any means a world wide phenomenon known to all legal systems. • The existence of a distinct commercial law separate from civil law is a proper feature of the civil law system and other systems which are influenced by it. • Unlike civil law systems, English law, for instance, does not possess a commercial code, nor does it formally subject transactions between merchants to a separate corpus of law different from the ordinary civil law regulating transactions with or between non traders

7. Introduction • However even in English law, some principles have developed, and some statutes have been enacted in relation to dealings of commercial nature : example are; the Bill of Exchange Act 1882 , the Partnership Act 1890 , the Sale of Goods Acts 1893, the Companies Act of 1948, and the Unfair contract Terms Act of 1977. • On the other hand, the Common law courts have modified some of their principles and practices to accommodate the needs of the merchant community and ultimately to absorb some of the usages of commerce developed by this same community in the common law itself.

8. History of Egyptian Commercial Law : • 8- At the dawn of its modern era, Egypt was still part of the Ottoman Empire. At the time of Mohammed Ali, the founder of modern Egypt , the Shari'a law applied by Mahakim Shari'a was still the fundemental law of the country. • As we all know Shari'a law does not recognize the distinction between civil and commercial law. In fact commercial law as a distinct corpus of law was introduced in Egypt from outside as part of what came later to be called the Reform of the Capitulatory system, in force in the Ottoman Empire.

9. History of Egyptian Commercial Law : • The Capitulatory system or the Capitulations consisted in certain, privileges which were unilaterally granted by the Ottoman Empire to the nationals of certain Western Powers, and were later confirmed by a series of treaties starting in 1454. • In the Ottoman Empire as a whole these privileges came to mean that foreigners of the same nationality would be heard in their consular courts; cases involving foreigners of different nationalities would be heard in the defendant's, consular court; and cases involving foreigners and Ottoman subjects would be heard in Ottoman courts.

10. History of Egyptian Commercial Law : • But in Egypt a different rule prevailed, partly as a result of the policy of encouraging western capital investments in Egypt, at the time of the decline of the authority of the State after Mohammed Ali, and partly as a result of the unjustifiable and abusive extension of these privileges by many of the Western Capitulatory Powers. As a result, a principle was established that the defendant's courts had jurisdiction in all cases. •  Consequently, in any case where the defendant was foreigner and the claimant was Egyptian, it was the consular court of the defendant that had jurisdiction over the case. It goes without saying that the consular courts applied only the laws of their own countries.

11. History of Egyptian Commercial Law : • There were 17 Capitulatory Powers enjoying these privileges in Egypt in the 19 th century, which means that 17 different laws were applied in Egypt, besides the local Shari'a law. This gives us a rough picture of the legal anarchy prevailing in Egypt at the time. Needless to add that such system constituted a serious breach of Egyptian sovereignty. • Therefore , the Egyptian government started in 1867 long negotiations with the Capitulatory Powers aiming at a radical reform of the existing Capitulatory system.

12. History of Egyptian Commercial Law : • After long negotiations, the Capitulatory Powers finally agreed to the establishment of Mixed courts to be staffed by foreign and Egyptian judges, and which apply unified modern codes derived form the famous French codes. A civil code, a commercial code , a code of maritime commerce, a code of civil and commercial procedure and a code of criminal Procedures were enacted in 1875 and came into effect in 1876. • The first Egyptian commercial code was more or less a replica of the French code of 1808 with very few variations. It was drafted in French and administered by the Mixed courts whose judgments were drafted also in French.

13. History of Egyptian Commercial Law : • In 1883, the Egyptian national judiciary system was radically reformed. National courts modeled on the mixed courts were established. New codes, modeled on the mixed codes were promulgated. The national commercial code was no more than a pure Arabic translation of the mixed commercial code, with few alterations. • The code stayed in force for more than a century without any amendment. However new specific laws were enacted starting from the end of the thirties of last century, to complete the existing lacunae in the code, specially in the area of trade marks, sale of commercial businesses and capital companies.

14. History of Egyptian Commercial Law : • In 1999 a new code of commerce was promulgated. The old code was abolished with exception of the first chapter of the second part concerning the companies of persons which continues to be in force. • For Egypt, no investment or business-related law was found that overtly and specifically • restricts/demonstrates differential treatment in the following areas: • • owning a business; • • managing a business; • • applying for loans and accessing credit; or, • • trade, taxation and bankruptcy.

16. Historical development of commercial law

17. Historical development of Egyptian commercial law

18. Art.2 of he new commercial code issued by the law n 17 / 1999 declares • “1- Commercial matters shall be governed by the disposition of the agreement between contracting parties. In case such agreement does not exist, the provisions of the present law, or any other law related to commercial matters, then the rules of trade custom and trade usage shall apply. If no trade custom or trade usage exist, the provisions of the civil code shall apply. • 2-The agreement between contracting parties or the rules of trade custom or trade usage shall not apply in so far as they contradict pubic order in Egypt”.

19. Sources of commercial Law

20. 1. Contracts • The commercial code gives primacy to the contract over any other source of commercial law. • By adopting a contract parties are making their own law • In commercial transactions the contract is the law of the parties, with only one limitation, that no disposition of the contract may contradict public order. • Negotiations is not no more an essential features • Standard-contract has become an essential feature of business life which are not individually negotiated

21. 2. Commercial code and other statutes • Frequently the parties to a contact do not set out terms for all aspect of their transaction. • In case of a lacuna in the contract, the dispositions of the commercial code or of any other concerned commercial legislation should be applied • This applies only to the dispositions of the code or of any other legislation that are of a declaratory or permissive character. • Dispositions that are of a mandatory nature, and are of public order, cannot be excluded or restricted by any contractual disposition.

22. 3. Usage and custom • A usage means a regularly and generally observed practice over a long period by the community of merchants in their transactions. • A trade usage starts as a simple term in a contract between two merchants. If such contractual term is consistently used by the community of merchants in a certain place; a village, a city or a country, over a relatively long period, in their contractual agreements, and is believed after the passing of certain period of time to be binding, so that any deviation there from is not acceptable, it becomes a trade usage.

23. Trade Custom • A trade usage cannot be applied in a dispute before a court of law unless its application is claimed by a party to the dispute. • Such party must prove the existence of the trade usage. • The judge is not supposed to know the trade usages. • Trade custom should be applied by the court, even if no party to the dispute has claimed its application. • The application of custom by the court is subject to the control of the Court of Cassation (the supreme court) • In other words the Supreme Court can investigate whether the inferior Court has correctly interpreted the trade custom or not.

24. Customs x Usage • Customs = a long established tradition or usage that becomes customary law if it fulfils two conditions: • A) consistently and regularly observed • B) recognized by those state observing it as a practice that they must obligatorily follow • Usage: consistent and recurring practice = there is no recognition that it is binding (i.e. the Lotus case between France and turkey)

25. Trade custom may be local or general. The former is the custom which is confined to a particular area, such as a city or a province, while the later is the one that is widely applied in the country "as a whole . • Trade custom may be also international. such as the ICC (the International Chamber of Commerce in Paris).

26. Custom

27. Usage

28. 4. Civil code • If, in relation to a commercial matter in dispute, there is lacuna in the contract or in the commercial legislations, and if there is no trade usages or custom, the judge must apply the Civil Code, which is the general law with regard to all private transactions.

29. Importance of distinction with civil acts

30. 1 Rules of evidence • In commercial transaction there is a need to ensure and protect the free flow and rapidity. In commercial no need for the strict and formalistic rules of civil law with regard to evidence. • In civil matters, if the value of the transaction is undetermined or exceed 1000 LE, it must be proven by writing. Whereas, commercial acts can be proven by any means of evidence regardless of the value of the transaction. • in civil law writing cannot be disproved except by writing, commercial law provides for the principle of liberty of evidence • Art. 70 of the new code of commerce makes an exception to the general principle that no one can rely on an evidence of his own making

31. 2 Grace period • Art. 346 of the Civil Code = Art. 59 of the Code of Commence • The difference in the wording of these two articles shows very clearly that commercial law is much more restrictive than civil law with regard to the powers of the judge to grant grace periods. While the civil text starts by declaring that the judge may grant..., the disposition of the code of commerce declares that the judge may not. • According to art. 59 of, the code commerce, no grace periods should be granted except in extreme cases where commercial credit is not threatened.

32. 3- Joint liability of debtors. • According to art. 279 of the civil code, joint liability of debtors cannot be presumed. It can only exist by an explicit clause of a contract or by a provision of the law. • With regard to commercial debts the rule is quite different. According to art. 47 of the code of commerce, if there are two or more debtors of a commercial debt, they will be jointly liable for tthe payment of the debt, unless such joint liability is excluded by the contract or by the law.

33. 4- Legal Notices. • If a person does not perform his part of a contract at the time it is due, he will be liable for a breach of the contract. • If the obligation is civil, the notification of the debtor should be made in the manner prescribed by art. 219 of the civil code, namely, by an official warning through an officer of the court, • Commercial law is much more liberal with regard to the manner in which the notice should be effected. Art. 58 of the code of commerce declares In case of urgency, the notice may be effected by telex, fax or any other means of quick communication".

34. 5- Interests on Money. • First the rate of interest on commercial debts is calculated in accordance with the rate used by the Central Bank, while the rate of interest on civil debts is 4% unless the parties to the contract agree to another rate which cannot exceed seven percent. • On the other hand , the interests on commercial debts start running as of the date of maturity of such debts, while the interests on civil debts are due as of the date of judicial claim by the creditor, unless otherwise provided by agreement or by the law.

35. 6- Prescription by lapse of time: • The general rule in civil law as provided by art. 347 of the civil code is that any obligation shall prescribe by the lapse of 15% years, unless otherwise prescribed by the law. • This means that if within fifteen years the creditor of a civil obligation fails to file a suit to force his debtor to fulfill his obligation, the debtor is discharged. • In commercial law, according to art. 68, prescription in commercial mattersis 7 years from of the date on which the obligation falls due. In carriage contracts, this period is reduced to one year delivery of the transported goods

36. 7- The conditions of merchant • According to Art. 10 of the code commerce ,the merchant is defined - as a general rule- by reference to commercial acts. The merchant is a person who performs a commercial act regularly as a profession. • This mean that the concept of merchant cannot be defined unless, the concept of commercial act is already defined. • As an exception to this general rule, a company that assumes any of the forms prescribed by company laws is considered commercial and hence treated as a merchant.

37. 8-Bankruptcy • Bankruptcy is a proceeding by which the creditors, through a trustee appointed by the court, take possession of the properties of a debtor. • Only a merchant can be subjected to bankruptcy. A merchant cannot be declared bankrupt unless he stops paying his commercial debts. If a merchant stops paying his civil debts, he cannot be declared bankrupt.

39. Commercial Acts by Nature Or By law • Commercial acts by nature, or by law, are those which are considered as such by a disposition of the code of commerce. • They are divided into two sub- categories. On the one hand there are the individual commercial acts which are considered as such even if they are performed once. • On the other hand , there are the commercial acts which are considered as such only if they are performed by way of profession.

40. Section IIndividual Commercial Acts • These acts are enumerated in art. 4 and art. 6 of the code of commerce. • Art. 4 of the code of commerce declares : " Is considered commercial acts : • Buying movables of any kind, with the intent of selling or leasing ; Renting movable with the intent of leasing them, and also the leasing of such movables. • Founding commercial companies. Art. 6 of the code of commerce declares : • Any act related to maritime or air commercial navigation,

41. Purchase or renting of movables with the intent of selling or leasing them. • It is the simplest and most traditional meaning is the exchange of goods and services for consideration. Buying and selling of goods for profit is the essence of trade. However, we are not dealing here with the economic definition of trade. • The article of the code of commerce here deals with the legal conditions or prerequisites which are required for such act of buying or selling to be considered legally as a commercial act. • We will deal with the conditions and then the exceptions of such a rule.

42. Three cumulative conditions

43. - First condition : Purchase or Renting : • Purchase means here acquiring the property in goods for a consideration. Hence, acquiring the property through inheritance or donation shall not be considered purchase under art. 4 of the code commerce. Consideration as required here, need not to be in money . It could be paid in kind. • Renting, on the other hand, is the operation through which a person acquires the right to use a property for a rent. Once again under art. 4 , rent needs not to be paid in money . It may be paid in kind.

44. Second condition: The Object of the transaction should be a movable : • Whether the transaction is purchase or renting, the object thereof should be a movable. Immovable are completely outside the sphere of application of art. 4 of the code of commerce. • It is immaterial whether such movable is tangible or intangible. The object of the transaction may be an agricultural or an industrial product as well as any intangible movable such as a patent, a trademark a share or a debenture.

45. Third conditions: The intent to sell or lease : • If a person buys a product for his own use or for his direct consumption, such transaction cannot be considered commercial, even if he decides later on to sell the product for profit. The reason is that the intent to sell must exist at the time of buying. • On the other hand, if a person decides to purchase a product with the intent of selling it for profit, the operation is deemed commercial even if he decides afterwards to keep the product for his personal use.

46. Third conditions: The intent to sell or lease : • In any case, such act shall not be deemed commercial unless it is made for profit. Hence, the purchase of consumer goods by a cooperative with the intent of selling them back to its members at cost price cannot be considered commercial. • If the intent to make profit exists at the time of buying or renting, it is irrelevant whether such profit is effectively realized or not • Finally, the intent to sell or to lease may be proven by any means of evidence, including presumptions. • For instance the court may deduce the intent to sell from the fact that quantity purchased of the product exceeds by far what is needed for the personal use of the purchaser's family.

47. Exceptions on article 4

48. Operations of agricultural exploitation • A farmer selling the products of the land cultivated by him is not performing a commercial act under art.4 of the code of commerce. Such sale is not preceded by purchase of the same products. This interpretation is confirmed by art.9 • The same rule applies even when the products of the farm are sold after being transformed into other products so far as the farmer uses traditional methods of production, and without extensive recourse to hired labor.

49. Operations of agricultural exploitation • For example, the selling by a farmer of the butter manufactured from the milk produced in his farm by traditional methods of manufacturing and without recourse to hired labor, is not a commercial act. • But if the farmer uses more extensively machines and hired labor for his manufacturing operations, the selling of the manufactured products shall be considered commercial, provided that such operations are undertaken as a profession. • In such case the manufacturing operations will be considered as industry which is deemed commercial if undertaken as a profession (art.5 of the code of commerce).

50. Operations of agricultural exploitation • The same kind of difficulty will arise in the case where a farmer sells in one operation the product of his land in addition to a certain quantity of the same product which he has previously bought from other farmers. • The solution he will depend upon the amount of the product produced from the farmer's own land as compared to the amount purchased. If the amount purchased is much smaller, then the operation will be civil and vice versa.