Legal Advice No. 3762
Issued on 29/05/2023
1- Considering the contract to be the agreement of two or more wills in view of creating legal effects.
2- Considering the contract to be valid in accordance with the legal elements and conditions required from the contracting parties who shall be subject to the binding force of the contract and to the contractual obligations arising from it, as long as the contractual relationship exists between them.
3- Permissibility for one of the parties to the contract to be released from his corresponding obligations through rescission, in the event where the other party refrains from implementing his contractual obligations.
4- Nature of rescission of the contract and types thereof.
5- Considering the issuance of a court ruling for rescission of the contract and [payment of] compensation in the case of contractors’ contracts concluded between the housing programme, the beneficiary, and the contractor, and when any of the parties resorts to the judiciary to resolve the dispute between them, as a judicial rescission and there is no room for any entity other than the competent court to settle the dispute, starting by addressing the issue of bank guarantees in terms of the amount of the bank guarantee provided by the contractor before the commencement of the contract to the housing programme, as well as the amount reserved for maintenance, which is contrary to the conventional rescission requiring referral to the provisions of the contract.
Request for legal advice regarding the mechanism for disbursing the bank guarantee and maintenance guarantee to the contractor in the implementation of individual projects in a housing programme. If a judicial ruling is issued for rescission and compensation and the ruling does not address bank guarantees or maintenance guarantees, will these guarantees be returned to the contractor in accordance with the usual housing programme procedures related to the completion of the project in normal circumstances in which there is no dispute, or is the disbursement of guarantees to the contractor suspended until a judicial ruling is issued, which shall clarify to whom these guarantees belong between both parties, similar to the rest of the elements of the dispute between both parties.
Whereas the Legislation Department has cited That a contract is the agreement of two or more wills in view of creating legal effect, whether this effect is the creation, transfer, modification or termination of an obligation.
If the contract is valid and in accordance with the elements and conditions required by the law, it shall have binding legal effects for both parties, then the contracting parties become subject to the binding force of the contract and the contractual obligations thereof as long as the contractual relationship exists between them.
However, even if the contract is valid and meets all its legal effects and one of its parties refuses to implement its contractual obligations, the other party shall have the right to be released from its corresponding obligations through rescission.
The rescission is in fact a civil penalty that puts an end to the contractual relationship in the contracts binding both parties, and includes three types:
1- Judicial rescission, in which it is assumed that the contract did not explicitly stipulate rescission, and therefore the damaged party in the implementation of the contract resorts to the judiciary in order to oblige the other party to implement the obligation or to rescind the contract according to the ruling issued by the judiciary.
2- Conventional rescission, where it is assumed that there is an agreement between the contracting parties that the contract will be considered rescinded sua sponte without the need for a judicial ruling when the obligations arising therefrom are not met.
3- Legal rescission in the contracts binding both parties, if an obligation is cancelled due to the impossibility of implementing it, then the corresponding obligations are also cancelled, and the contract is rescinded sua sponte.
By applying the same to the case of contractors’ contracts concluded between the housing programme, the beneficiary, and the contractor, in which any of the parties resorts to the judiciary to resolve the dispute between them, and in which the court decides the rescission of the contract and [payment of] compensation, then the rescission is judicial and no entity other than the court can settle the issue of bank guarantees and whether it is necessary to return them to the contractor or consider them part of the compensation in the event of a ruling thereof, or be kept by the programme as a penalty for failure to meet the contractual obligations. Therefore, the issue of bank guarantees shall be raised before the court competent to hear the dispute initially, and these guarantees shall not be handled except in accordance with the decision of the court.
This is contrary to what is applied if the rescission is conventional between the parties. In this case, it shall be referred to the provisions of the Articles regulating the same in the contract and acting in accordance therewith.
The Legislation Department concluded the following:
1- If the contract is terminated by a judicial ruling of rescission and compensation and does not address the issue of guarantees, then the amount of the bank guarantee provided by the contractor before the commencement of the contract to the housing programme, as well as the amount reserved for maintenance, shall not be addressed except in accordance with the decision of the court that initially settled the dispute, considering that they may be part of the awarded compensation.
2- If the contract is terminated by conventional rescission, the amount of guarantees shall be handled in accordance with the explicit provisions of the contract regulating the same.

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