CSA 6470 International Legal Framework INTERNATIONAL BUSINESS LAW 4ed CASE

1
CSA 6470 International Legal
Framework INTERNATIONAL
BUSINESS LAW - 4ed CASE 5-1 BRIEF -
FOREIGN INVESTMENT

• 1. TITLE
• Arab Republic of Egypt
• v.
• Southern Pacific Properties Ltd., et al
• Prepared by Locksley Henry
• August 19, 2003

2
Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 2. JUDICIAL BODY
• Court of Appeals of Paris, France, 1984
• This court (the appellant court) has jurisdiction
• over the arbitration hearings, since these
• hearings were originally brought before the Court
  of
• Arbitration of the International Chamber of
• Commerce (ICC) in Paris, France the same
  country.

3
Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 3. FACTS
• Background
• In September 1974, Southern Pacific Properties,
  Ltd. (SPP), a Hong Kong company, entered into an
  investment agreement with the Egyptian Minister
  of Tourism representing the Arab Republic of
  Egypt (ARE), and the Egyptian General
  Organization for Tourism and Hotels (EGOTH), an
  Egyptian state-owned corporation.
• The 3-party agreement provided for the
  establishment of two tourist complexes, one near
  the pyramids at Giza this later became the
  centre of controversy in the case.

4
Arab Republic of Egypt
v. Southern Pacific Properties Ltd.,
et al

• 3. FACTS
• THE VARIOUS PARTIES
• Investor-Related Egyptian/Govt-related Courts
• Southern Pacific (SPP) Arab Rep. of Egypt (ARE)
  Egyptian Court
• SPP (Middle East) Ltd. EGOTH Court of App
  Fra
• ETDC ICC Ct of Arbitrn
• Minister of Tourism
• Min. of Housing/Reconst.

5
Arab Republic of Egypt
v. Southern Pacific Properties Ltd.,
et al

• 3. FACTS
• Under the 3-party agreement September, 1974
• The Egyptian government undertook to secure
  title and possession to the land.
• EGOTH and SPP agreed to incorporate an Egyptian
  company to be known as Egyptian Tourist
  Development Company (ETDC) EGOTH (40) and SPP
  (60).
• Title of the land was then to be transferred by
  EGOTH and the Egyptian govt. to ETDC.
• SPP was required to provide expertise and
  financing to construct, market, and manage the
  complexes.
• Minister of Tourism was to supply the roads, and
  other infrastructure necessary for site
  accessibility.

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Arab Republic of Egypt
v. Southern Pacific Properties Ltd.,
et al

• 3. FACTS
• Supplemental Agreement December 12, 1974
• EGOTH and SPP (only) reaffirmed their obligations
  and rights in the contract.
• Reaffirmed the applicability of Egyptian law,
  including a statutory provision that put the
  tourist complexes under the supervision of the
  Minister of Tourism.
• SPP could assign its rights to a locally
  incorporated subsidiary known as Southern
  Pacific Properties (Middle East) Ltd. (SPP-ME).
• An additional statement signed by EGOTH and SPP,
  saying that EGOTHs obligation under the
  agreements were contingent on government
  approval, and satisfactory results from a
  feasibility study.
• An arbitration clause (not in the original
  3-party agreement) providing for disputes to be
  settled by ICC Court of Arbitration in Paris,
  France.

7
Arab Republic of Egypt
v. Southern Pacific Properties Ltd.,
et al

• 3. FACTS
• Subsequently
• ETDC was incorporated
• Title to the land transferred to ETDC
• Minister of Tourism improved the master plan
• Feasibility study completed
• Financing obtained
• Construction begun
• However, all was not well.

8
Arab Republic of Egypt
v. Southern Pacific Properties Ltd.,
et al

• 3. FACTS
• New Developments
• Environmentalists campaigned vigorously against
  Giza development
• Environmentalists pressure the ARE to protect
  ancient Giza
• Government declares whole area part of public
  domain
• Government orders work on complex stopped
• Government invalidates the transfer of the land
• Government appoints a legal administrator to take
  over management of ETDC
• Government cancels the entire Pyramids project

9
Arab Republic of Egypt
v. Southern Pacific Properties Ltd.,
et al

• 3. FACTS
• Following the Cancellation
• SPP and SPP-ME initiated arbitration proceedings
  in ICC Court of Arbitration in accordance with
  the arbitration clause in the Supplemental
  Agreement
• They argued that the Minister of Tourisms
  signature in the Supplementary bound Egypt to the
  arbitration clause in that contract.
• ICC Court held that the ARE was a party to both
  agreements and had therefore agreed to
  participate in the arbitration.
• ICC Court also found that the ARE had breached
  its obligation under the agreements and that it
  had to pay damages of US12.5 million to SPP et
  al.

10
Arab Republic of Egypt
v.
Southern Pacific Properties Ltd., et al

• 3. FACTS
• Arab Republic of Egypt (ARE) Appeals
• ARE asked the French Court of Appeals to set
  aside the decision of the ICC Court of
  Arbitration on the grounds that it was not a
  party to the supplemental agreement, and
  therefore never agreed to the jurisdiction of the
  ICC Court.

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Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 4. ISSUE
• The issues to be contemplated and resolved are
• Whether the ARE (a signatory to the 3-party
  agreement) was bound by the supplemental
  (2-party) agreement to arbitration proceedings
• Whether the Minister of Finance acted outside of
  his scope in making it appear that the state of
  Egypt was bound by the supplemental agreement
• As a consequence of the preceding events, whether
  the ICC Court had jurisdiction over the state of
  Egypt in arbitration hearings
• Whether the investors SPP et al, assumed the
  burden of care as required by international law,
  to ensure that the proper and appropriate
  procedures for investment approval, had been
  granted by the state at all stages of the
  proceedings.

12
Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 5. DECISION
• The French Court of Appeals of Paris set aside
  the decision of the Arbitration Court of the
  International Chamber of Commerce (ICC) and
  ordered SPP and its affiliate SPP-ME, to pay
  costs.

13
Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 6. RATIONALE
• The Appeal Court in arriving at its decision was
  guided as follows
• The approval of the Minister of Tourism did not
  necessarily imply the will or solemn commitment
  of the state to become a party to such a material
  item in the supplementary contract
• Notwithstanding that the Minister had authority
  to sign agreements in the area of tourism, this
  presumption and authority related to routine and
  administrative matters
• The intervention of the Minister by himself in
  the supplemental agreement, clearly demonstrates
  that he did not intend for the ARE to become a
  party to the contract

14
Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 6. RATIONALE
• The Egyptian state was, in fact, not a party to
  the contract, as was expressly the case in the
  original 3-party format.
• The initial agreement had implied that Egyptian
  law would have prevailed in all aspects of the
  contract.
• The ARE did not agree to be bound by an
  arbitration clause, and as such, the award was
  rendered without any arbitration agreement as far
  as the ARE was concerned.

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Arab Republic of Egypt
v. Southern Pacific
Properties Ltd., et al

• 7. RELEVANCE
• This case is relevant
• To foreign investors to ensure that proper
  approval procedures are in place at all phases of
  foreign investment agreements
• To investors to ensure that the interests of all
  stakeholders (e. g. environmentalists) be
  considered and weighed prior to signing an
  agreement and making an investment
• To ensure that Choice of Law, Choice of Forum,
  and Entire Agreement Clauses be embodied in the
  contracts before sign off and execution
• To ensure that dispute settlement arrangements be
  properly agreed upon and signed off by all
  parties to a contract.