Commercial contracts are often drafted under tight deadlines, across languages, and between parties with different expectations. As a result, ambiguity sometimes creeps into agreements, whether in price adjustment formulas, termination conditions, or performance obligations. When a dispute arises, these ambiguities can become the starting point for significant legal conflict.

Under Egyptian law, the interpretation of contracts is guided by clear principles anchored in the Civil Code. Alongside the rules of interpretation, the doctrine of good faith imposes an obligation on contracting parties not only to perform but also to interpret and enforce agreements fairly and honestly. 

Understanding how these principles work together is essential for any business operating in Egypt or contracting with Egyptian counterparties.

Interpretation of Ambiguous Clauses Under Egyptian Law

The Egyptian Civil Code devotes specific provisions to contract interpretation. Article 148(1) requires that a contract be performed in accordance with its content and in a manner consistent with good faith. Where ambiguity arises, Article 150 provides that if the wording of the contract is clear, it shall not be deviated from to ascertain the intention of the contracting parties. This means that when a clause is unambiguous, courts will enforce it as written, even if this leads to a result that one party finds unfavorable.

However, when a clause is ambiguous or susceptible to multiple interpretations, courts will look beyond the literal wording. In these cases, judges consider the common intention of the parties, the nature of the transaction, relevant trade practices, and the history of prior dealings. Supplementary evidence, including correspondence and negotiations, may also be used to clarify the true scope of the parties’ obligations. This approach allows the courts to align contractual obligations with commercial reality and the presumed expectations of the parties rather than relying solely on strict textual interpretation.

The Role of Good Faith in Interpretation and Performance

Beyond interpretation, Egyptian contract law recognizes good faith as a cornerstone of contractual relationships. Article 148(1) of the Civil Code affirms that a contract must be performed in accordance with its contents and in conformity with the requirements of good faith.

This doctrine influences contracts in two important ways. First, when interpreting ambiguous provisions, courts are guided by what is reasonable and fair in light of the relationship between the parties. If a party relies on an interpretation that exploits an ambiguity in an unfair or opportunistic way, the courts have the discretion to reject that interpretation.

Second, good faith applies to performance itself. Even when the wording of a clause is clear, conduct that undermines the other party’s legitimate interests, such as creating artificial obstacles to performance or enforcing the contract in a way that is inconsistent with its purpose, can constitute a breach of good faith. This principle often arises in long-term agreements where cooperation and mutual trust are expected, including distribution contracts, agency agreements, and complex supply arrangements.

Practical Examples

Several scenarios illustrate how ambiguity and good faith frequently intersect in commercial contracts. For example, a price adjustment clause that refers to “market price” without specifying an index or methodology can lead to disputes over which benchmark should apply. In such cases, Egyptian courts often look to trade practices or prior invoices to establish the parties’ intention.

Termination clauses are another common source of contention. A provision that permits termination “in the event of material breach” without defining what constitutes a material breach leaves room for disagreement. Courts must then assess materiality in context, considering the nature of the obligation breached and its importance to the overall contractual relationship.

Similarly, performance standards such as “best efforts” or “reasonable speed” can create uncertainty if left undefined. In resolving disputes over such clauses, courts typically rely on accepted commercial norms and the parties’ established course of dealing.

Reducing the Risk of Disputes

While not all ambiguity can be avoided, businesses can significantly reduce the risk of litigation by taking proactive measures. Clear and precise drafting is essential, particularly for critical terms relating to price, scope, duration, and termination rights. Where possible, contracts should include examples or references to objective standards that clarify expectations.

Maintaining thorough records of negotiations and clarifications can be invaluable in the event of a dispute. Consistent communication among contract managers, legal counsel, and operational teams also helps to ensure that the agreed terms are properly understood and applied.

Finally, seeking legal advice before entering into significant agreements remains the most effective way to protect business interests and avoid unintended consequences.

Conclusion

Ambiguity in commercial contracts is more than a drafting oversight, it is a potential source of significant business risk and disruption. Under Egyptian law, courts balance the literal text of the contract with the duty of good faith to achieve a fair and reasonable outcome. For businesses, a proactive approach to contract drafting, interpretation, and management remains the most reliable defense against costly disputes.