Winter 2014

Rejection of Annulment of Malicorp v. Egypt ICSID Award

In an Award rendered on 7 February 2011 (the “Award“), an arbitral tribunal (the “Tribunal“) constituted under the auspices of the International Centre for Settlement of Investment Disputes (“ICSID“) rejected a claim for compensation for expropriation by Malicorp Limited (the “Claimant” or “Malicorp“) against the Arab Republic of Egypt (the “Respondent” or “Egypt“). Malicorp had brought the claim under the 1975 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Arab Republic of Egypt for the Promotion and Protection of Investments (the “BIT“).

Malicorp subsequently applied for the Award to be annulled under Article 52 of the ICSID Convention on the grounds that: (i) there has been a serious departure from a fundamental rule of procedure; (ii) the Award failed to state the reasons on which it is based; and (iii) that the Tribunal manifestly exceeded its powers. On 3 July 2013, an ad hoc annulment committee (the “Committee“) rejected Malicorp’s application for annulment and declined to annul the Award.

Factual Background

In May 2000, Malicorp, a UK company, entered into a preliminary contract with the Egyptian Civil Aviation Authority (“ECCA“) to put in place the concession for an airport in Ras Sudr, an Egyptian city located on the Gulf of Suez and the Red Sea coast. In November 2000, Malicorp entered into a concession contract with Egypt (“Contract“), under a Build Operate and Transfer system, for the construction, management, operation and transfer of the Ras Sudr International Airport.

In December 2000, ECCA sent Malicorp a first notice concerning the non-performance of the Contract, in particular, the obligation to provide a bank guarantee. ECCA sent a second notice to Malicorp in January 2001, notifying Malicorp that it had not complied with its contractual obligations concerning the establishment of an Egyptian company and concerning increasing the bank guarantee. ECCA then sent a third and final notice threatening to take measures to end the Contract by the end of February 2001 if Malicorp did not comply with its contractual obligations. On 12 August 2001, the Ministry of Transportation notified Malicorp of the termination of the Contract.

In 2006, Malicorp was awarded certain costs under a contractual arbitration award rendered by a tribunal constituted under the auspices of the Cairo Regional Centre for International Commercial Arbitration Tribunal (“CRCICA Tribunal“). In that award, the CRCICA Tribunal held that: “(i) the arbitration agreement in the Contract was binding on the Republic; (ii) the Republic had been the victim of a fundamental error in signing the Contract in that it believed that Malicorp had a capital of £100 million; therefore (iii) the Contract was void; and (iv) respondents were ordered to reimburse Malicorp for certain costs in the amount of $14.8 million”.

The Tribunal’s Award

A dispute arose between the parties under the BIT and Malicorp sued Egypt before ICSID claiming that Egypt had wrongfully terminated the concession Contract and had expropriated Malicorp’s investment. Malicorp sought US$ 500 million in damages. Malicorp’s view was that “the Contract was terminated for reasons connected to national security” and that “such termination entitled it to compensation for the damage caused by unfair treatment and the expropriation of its investment.” Egypt’s view was that “the Contract was terminated for a reason contained in the Contract itself”. Egypt argued that Malicorp had produced false documents, had not fulfilled its obligation to set up an Egyptian company, had failed to provide the necessary guarantees and had failed to properly perform the Concession Contract.
The Tribunal rejected Malicorp’s claim for compensation for expropriation and ordered the parties to bear costs equally. The Tribunal decided that “the reasons on which the Respondent relied in order to bring the Contract to an end appear serious and adequate; the termination, justified in fact and in law, could not be interpreted as an expropriatory measure”.

Malicorp subsequently applied for annulment of the Award under Article 52 of the ICSID Convention.

ICSID Annulment Proceedings

The Committee rejected Malicorp’s application for annulment and declined to annul the award.

No manifest excess of powers (Article 52(1)(b))
Malicorp argued that the Tribunal manifestly exceeded its powers by failing to apply the proper law (i.e., Egyptian law and the terms of the Contract) and by unduly relying on the prior award of the CRCICA Tribunal to reach its decision. The Respondent contended that the Tribunal did not exceed its powers because it rightfully considered that the contract issues addressed before the CRCICA Tribunal were res judicata and thus were not to be adjudicated de novo.

The Committee found that the Tribunal did not err in relying on the CRCICA Tribunal’s award, especially since the CRCICA Tribunal applied Egyptian law (which was also to be applied by the Tribunal). The Committee concluded that “whether the Tribunal should have subjected specific provisions of Egyptian law to closer scrutiny and analysis, or whether the Tribunal should have invoked and examined different provisions of Egyptian law, is not a question that should be dealt with in an annulment proceeding”.

No breach of a fundamental rule of procedure (Article 52(1)(d))
Malicorp also argued that the Tribunal violated the principe du contradictoire (equality of arms) by allowing Egypt to submit a hard copy of its PowerPoint slides to the Tribunal during the hearing, while denying Malicorp the opportunity to file its dossier de plaidoirie. The Respondent contended that the use of modern methods such as PowerPoint Presentations in support of oral arguments did not per se constitute a departure from a fundamental rule of procedure.

The Committee concluded that the principe du contradictoire is a fundamental rule of procedure. To determine if there was a departure from that fundamental rule of procedure, and whether it was serious, the Committee deferred to the ad hoc committees in MINEWena and Continental Casualty but decided that a case-by-case approach should be adopted. In this case, the Committee found that it was outside its mandate in an annulment proceeding to “second guess the Tribunal’s conclusion to admit the PowerPoint presentation but not the dossier de plaidoirie“, and that doing so was within the Tribunal’s discretion.

No failure of the Award to state the reasons on which it was based (Article 52(1)(e))
Malicorp finally argued that the Tribunal contradicted itself on several occasions in the Award, thereby failing to state reasons for the purposes of Article 52(1)(e).

The Committee addressed the three alleged contradictions put forward by Malicorp; namely Malicorp’s contentions that the Tribunal contradicted itself with respect to: (1) certain financial information Egypt claimed to have received from Malicorp’s representatives; (2) Malicorp’s alleged failure to prove that it took the necessary steps to establish a local Egyptian company as required under the Contract and (3) its rejection of Malicorp’s request for compensation for expropriation, as the Tribunal followed some of the CRCICA Tribunal’s reasoning but not the section awarding Malicorp damages.

The Committee determined that an award should be upheld unless its logic was so contradictory as to be “as useful as no reasons at all”. In this case, the Committee analysed each of these three alleged contradictions proposed by Malicorp and concluded that there was no basis for annulment for failure to state reasons.

Comments

While Malicorp had been awarded a modest sum in its contractual dispute, it had claimed a far more substantial sum – approximately US$ 500 million – under its investment treaty claim. Malicorp’s failure to annul the original ICSID Tribunal’s decision demonstrates again the difficulty of succeeding with an annulment claim under Article 52 of the ICSID Convention. It also brings to an end a long sequence of litigation which has seen Malicorp shareholders subject to criminal proceedings in Cairo and which has resulted in only modest compensation for the company (US$ 15 million from its CRCICA arbitration, in respect of a claim for US$ 1.3 billion). Indeed, the Committee in the annulment proceeding further determined that, while each party was responsible for its own legal fees, Malicorp should bear the arbitration costs.