New Restriction on Arbitration Clauses in State – Foreign Investor Contracts16 Feb 2021 820 Views
In order to improve the Egyptian status with regards to the international arbitration disputes, in which the state is party of whether wholly or partially, the Egyptian Prime Minister has issued a new Decree No. 2592 of the year 2020 (hereinafter referred to as the “New Decree”), which fundamentally and ambiguously amended the provisions of the Decree No. 1062 of the year 2019 on organizing the Supreme Commission to study and provide opinion on international arbitration cases, in which the state is part of.
Decree No. 1255 of the year 2014 established this Commission; the latter Decree was canceled and replaced by virtue of the Decree No. 1062 of the year 2019.
First: Formation of the Commission
New Decree changed the name of the Commission to be the Supreme Commission for Arbitration and International Disputes (hereinafter referred to as the “Commission”). New Decree reformed the Commission, where it added other governmental authorities and representatives to the Commission to be as follows:
- Governor of the Central Bank or his representative;
- The Minister of Justice shall represent the President in his absence;
- Minister of Petroleum and Mineral Resources;
- Minister of International Cooperation;
- Minister of Finance;
- Minister of Public Business Sector;
- Minister of Trade and Industry;
- Minister of Parliamentary Affairs;
- Head of the State Cases Authority;
- Chairman of the Council of Ministers Council of Advisors;
- CEO of the General Authority for Investment and Free Zones;
- Assistant Minister of Justice for Arbitration and International Disputes (Rapporteur of the Commission);
- Assistant Minister of Foreign Affairs for Legal Affairs and Treaties;
- A representative of the Ministry of Defense;
- A representative of the Ministry of Interior;
- A representative of the Administrative Control Authority; and
- A representative of the General Intelligence Service.
Commission’s meeting is not considered valid unless attended by its chairman (Prime Minister) or his representative and at least 50% of the Commission’s members, the Commission’s decisions are issued by the majority of the votes of those who are present.
New Decree focused on composing the Commission of members with high political power and it failed to determine the existence of the concerned Ministry as well as the legal technical experts in the sessions in which their existence is required and their expertise is needed to discuss and reach accurate professional decisions.
Second: Setting Commission’s Competencies
New Decree broadened and added more competencies to the previously stated in Decree No. 1062 of the year 2019.
- Approving international expertise offices, arbitrators appropriate for the nature of each dispute and law firms who will be assigned to defend Egypt in arbitration disputes.
- Providing opinions concerning conclusion of contracts between the state and foreign investors in which a clause agreeing to resort to international arbitration is included or other contracts concluded with a foreign investor for the purpose of resorting to arbitration; Provided that the Committee shall be responsible of drafting the provisions governing these contracts, whether the arbitration clause or the other governing clauses (including but not limited to force majeure, changing laws).
- Evaluating the status of arbitration cases and the expected stance of the judgments issued therein.
- Coordinating with the Ministerial Committee for Settlement of Investment Contracts Disputes with regards to proposing and reaching an amicable settlement between the parties of the dispute.
- Approving fees, expenditures and other expenses necessary to defend international arbitration disputes.
- Other tasks assigned to it by the President of the Republic or the Prime Minister.
New Decree did not set any criteria concerning what is deemed as a governing clause nor the criteria, method or conditions for choosing legal experts, law firms and technical experts.
Third: Technical Secretary
New Decree restructured the formation of the Technical Secretary and added other members to it. It stated as well that the Technical Secretary shall meet monthly or whenever necessary by virtue of an invitation sent by the head of the Technical Secretary (Assistant of the Minister of Justice) and prepare a report with the results of each meeting to be sent to the Commission, however, New Decree did not mention the competencies of the Technical Secretary.
Fourth: Restriction on Concluding Contracts between the State and Foreign Investors
New Decree restricts any of the administrative bodies such as ministries, public bodies, government agencies and their affiliated agencies or companies in which state contributes by any kind of contribution to take any of the following measures without referring to the Commission:
- Concluding any contracts with a foreign investor or signing any contracts containing a clause agreeing to resort to international arbitration, or making any amendment to these contracts.
- Taking any measure or action regarding any arbitration dispute.
A new approval is added to all the agreements that is related to arbitration. Whereas Article 1 of Law No. 9 of the year 1997 concerning the amendment of the Egyptian Arbitration Law, states that with regard to disputes relating to administrative contracts, agreement on arbitration shall be reached upon the approval of the competent Minister or the official assuming his powers with respect to public juridical persons. Not to mention the approval that must be taken by the advisor appointed by the Advisory Committee established by the State Council Authority as Article 58 of the State Council Law No. 47 of the year 1972 states that it is not permissible for any ministry, public authority, or governmental agency to conclude, accept or authorize any contract, reconciliation, arbitration, or arbitration award whose value exceeds five thousand Egyptian Pounds without a referendum by the competent department (State Council’s Advisory Committee). Hence, New Decree failed to organize the above approvals and their timelines.
New Decree raises several questions with regards to whether the Commission has sufficient capabilities, time, technical experience and manpower to review all the contracts to which the state is a party to whether wholly or partially. Moreover, New Decree failed to mention whether the decisions issued by the Commission is binding on the companies in which the state contributes by any kind of contributions or the state-owned companies, whereas Decree No. 1062 of the year 2019 only mentioned that the Commission’s decisions will be binding after being ratified by the Cabinet on the administrative entities. New Decree overlooked the timeline during which the Commission should perform its roles mentioned in the New Decree, which might hinder the conclusion of contracts with foreign investors; hence, the latter might rethink about investing in Egypt. Additionally, New Decree did not impose penalties on those who violates its provisions.
Consequently, it is not known whether New Decree will facilitate and increase the investments in Egypt or will hinder as the requirements mentioned and the obstacles due to the loopholes of the New Decree might lead to failure of executing or concluding new contracts with foreign investors or even delay the negotiation process of any subsequent contract or the amendment of previous contracts.