CSA 6470 International Legal Framework INTERNATIONAL BUSINESS LAW - 4ed CASE 5-1 BRIE

1. 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. 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. 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. 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. 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.

6. 6 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 EGOTH�s 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. 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. 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. 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 Tourism�s 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 US$12.5 million to SPP et al.

10. 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.

11. 11 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. 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. 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. 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.

15. 15 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.