In November, a panel of arbitrators at the International Centre for Settlement of Investment Disputes (ICSID) dismissed a case filed by a pair of Belgian companies embroiled in a dispute about a dredging contract issued by Egypt’s Suez Canal Authority. The pair accused the Canal Authority of deceiving them during a public tendering process in 1991 for the widening and deepening of certain portions of the Suez Canal.

Although the firms won the competition in 1992 – and completed the works in question by 1994 – they alleged that they were fraudulently misled with respect to the quantity and type of material to be dredged. After spending years pursuing financial damages in the Egyptian courts, the companies turned to ICSID – accusing Egypt of breaching a bilateral investment treaty with Belgium.

Advertisement

But, in a decision rendered on November 6, 2008, arbitrators rejected the claims. Most importantly, the arbitrators determined that the acts of the Suez Canal Authority were not attributable to the Egyptian government. Rather, the tribunal ruled that the Canal Authority had acted during the dredging tender process as a commercial actor – not as an arm of the government.

Notably, the tribunal did rap Egypt on the knuckles for the “unsatisfactory” length of time that the dispute has played out in the Egyptian courts. However, the tribunal acknowledged that the complexity of the dispute – with various dredging experts exchanging highly technical reports – meant that the delay did not amount to a “denial of justice” on the part of Egypt.

Egypt has accounted for more than its fair share of arbitration claims filed by foreign investors at the World Bank arbitration centre. However, the recent victory is the second obtained by Egypt this year.

In July, the Egyptian government won an ICSID arbitration with a Danish hotels group, Helnan International, which had accused authorities of conspiring to downgrade the tourism status of a state-owned hotel (from five stars to four) as a prelude to terminating a long-term management contract with the Danish group.

Helnan alleged that Egypt was in breach of the Denmark-Egypt bilateral investment treaty. However, a trio of arbitrators ruled that the property in question had long been on notice of a possible status downgrade from ministry of tourism inspectors, following an unfavourable 2003 inspection. The arbitrators conceded that a subsequent inspection was carried out in an unusual manner, but this did not put Egypt in breach of its treaty promises to Danish investors.

Rather, the tribunal chastised the Danish investor for not turning to the local courts in an effort to challenge the earlier unfavourable inspection report.

As with the more recent Suez Canal dredging dispute, the arbitrators determined that the relevant stage agency was acting as a commercial partner in the hotel case – not as a sovereign government – and that the actions of the Egyptian Organisation for Hotels and Tourism should have been challenged in contractual proceedings – rather than framed as breaches by Egypt of its treaty obligations to Denmark.

Luke Peterson is the editor of Investment Arbitration Reporter www.iareporter.com a legal news, analysis and intelligence service.