.but faces investor action in the courts

12 March 2003
A series of pending investment arbitration suits against the government in the international courts is a salutary reminder that, despite Cairo?s apparent new-found commitment to economic reform, the course of foreign investment has not always run smoothly in Egypt. Two investment dispute cases have been registered with the World Bank-affiliated International Centre for the Settlement of Investment Disputes (ICSID) on behalf of local and international investors, and a further two are expected to be registered by the end of March. International law firm Shearman & Sterlingis acting for three of the four clients.

The latest case is being lodged by Wena Hotelsof the UK, which has already received $20.6 million from the government after an ICSID tribunal ruled in its favour in a dispute over the early-1990s expropriation of two hotels leased to Wena in Cairo and Luxor. The company is now pursuing a significantly larger sum relating to its rights to the two properties and to loss of earnings (MEED 3:5:02).

The government had an appeal against the award overturned by ICSID last year, marking the first time in its history that an initial application for annulment was rejected outright. The case set several other important precedents in international dispute arbitration, including the ruling that local law does not take precedence in such cases and the application of a fixed interest rate of 9 per cent on the escalating damages.

The government has since commenced both arbitration and litigation against Wena locally, claiming unpaid rent for the two hotels, the Nile Hotel in Cairo and the Luxor Hotel in Upper Egypt. International lawyers say that pursuing arbitration and litigation in parallel is considered extremely unorthodox. The case has been further complicated by the early-2000 sale of the Nile Hotel to a group led by the local Alexandria Real Estate Investment Company.

The government?s decision to resurrect the case is understood to be the main motivating factor behind Wena going back to the ICSID. 'We think that since the [ICSID] award was handed to Wena there have been a series of co-ordinated measures on the part of the Egyptian state to undermine Wena?s victory,' says a partner with Shearman & Sterling. 'Taken together, we consider these measures to constitute a violation of international law.'

US-based mining machinery manufacturer Joy Globalis also understood to be preparing to file an arbitration claim against the government with ICSID in mid-March. The case involves the delivery of phosphate mining equipment, which the company claims the government prevented Joy Global from performance testing, precluding completion of the six-month contract.

As a result, the government still holds a $15 million bank guarantee which was lodged by the company at the outset of the deal.

Two further cases expected to come to trial at ICSID in the first quarter concern the cotton and textiles industry. The counsel for the government in both cases is the Paris-based law firm Bredin Prat.

The first action involves Egyptian-born, US-based investor Mahmoud Wahba, who, along with his associates, is seeking over $100 million in compensation for losses in the mid-1990s. Wahba and Delaware-based Champion Trading set up a private cotton trading and ginning venture in Egypt following the sector?s liberalisation. The company, National Cotton Company (NCC), incurred heavy losses when the government barred it from storing its cotton inventories, and forced it to sell high-quality, long-staple cotton to local mills at prices more than 50 per cent lower than the world market price (MEED 30:8:02). The suit was registered with ICSID in August 2002, the tribunal was constituted on 31 January this year and the case is expected to go to trial in mid-March.

The Egyptian Court of Cassation has already ruled in favour of NCC, recommending in December 2000 an award of £E 100 million ($18 million) in compensation. This was the maximum amount the court was entitled to award, and Wahba made clear at the time that he would seek additional sums through other legal remedies (MEED 15:12:00).

A further claim against the government has been submitted by local textile manufacturer Ahmonsetoand its associates. An ICSID tribunal was constituted on 29 January for the case, which is expected to come to trial in April. Further details of the claim have not been disclosed.

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