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FRA Decree Amending the Dispute Resolution Mechanism provided in Several Template Agreements

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The Financial Regulatory Authority (“FRA”) enacted Decree No. 1305 of 2022 (the “Decree”) amending the existing FRA decrees issuing the following template agreements: (i) the financial leasing and factoring agreement issued by Decree No. 177 of 2019 (the “Financial Leasing and Factoring Agreement”); (ii) the consumer finance agreement issued by Decree No. 869 of 2021 (the “Consumer Finance Agreement”); and (iii) the factoring agreement of financial rights arising from the marginal purchase of securities (the “Factoring Agreement”) (hereinafter referred to as the “Template Agreements”).

The Decree was issued by the FRA on 4 August 2022 and published in the Official Gazette on 18 September 2022.

We will delve below into the key amendments made to the Template Agreements as follows:

Amendment to the Dispute Resolution Mechanism

The Decree amends the existing dispute resolution mechanism provided in the Template Agreements. Previously, the Financial Leasing and Factoring Agreement and the Consumer Finance Agreement provided that all disputes arising thereunder are to be handled by the Economic Courts and granted the parties the right, by mutual agreement, to resort to arbitration without specifying any further details regarding the same. On the other hand, the Factoring Agreement did not expressly provide the right to resort to arbitration and solely outlined the Economic Courts as the relevant dispute resolution mechanism.

Under the Decree, all disputes resulting or relating to the Template Agreements, their interpretation, execution and/or termination may now be resolved by arbitration in accordance with Egyptian Laws and must adhere to the rules of the Egyptian Center for Arbitration and Settlement of Non-Banking Financial Disputes. The seat of arbitration is Cairo, Egypt and the language of arbitration is required to be undertaken in Arabic.

The Decree further allows the parties to choose the number of arbitrators as long as the number of arbitrators is an odd number.

Arbitration Clause Conditions

In addition to the above, the Decree provides that in order for the arbitration clause in the Template Agreements to be applicable, the value of the dispute must be a minimum of EGP 3 million, unless agreed otherwise by the parties.

The Decree allows the parties to deviate from the abovementioned arbitration clause and instead opt for dispute resolution via the competent courts. This, however, must be expressly agreed between the parties.

Market Reaction

The Decree encouraging the use of arbitration as the preferred dispute resolution mechanism goes in parallel with the market-wide preference in opting for arbitration as the most sought out mechanism to resolve disputes. Arbitration has become a more popular mechanism due to its advantages including confidentiality, flexibility and expedient procedures.