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Al-Nqd rules on penalty clause after contract ending
The Court of Cassation in Egypt issued an important ruling regarding the effect of contract termination on the penalty clause. It confirmed that an independent penalty clause does not automatically lapse upon contract termination if it is a separate agreement from the original obligations. In the case, the company relied on a penalty clause stating that 10% of the unit's value would serve as compensation in the event of contract termination. The Court of Appeals rejected its claim to this amount but ordered that such a penalty cannot be applied automatically upon termination. The court affirmed that an independent penalty clause remains valid even after the contract is terminated, provided it is a separate agreement. This underscores that the penalty clause is not affected by the expiration of the original obligation unless it is directly tied to it, as clarified in the detailed reasoning of the judgment.
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