Egypt– New Approval Required for Government Contracts and Arbitration Agreements
The Prime Ministerial issued Decree 2592 of 2020 (“Decree”) to prohibit all governmental entities and state-owned companies from concluding any contract with a foreign investor or agreeing to arbitrate without first referring the matter to the Higher Authority for Studying and Opining on International Arbitration Cases (“Authority”).
The Authority was established by virtue of the Prime Minister Decree No. 1062 for 2019. The Decree however changed its name to be the “Higher Authority for Arbitration and International Disputes” and expanded its authorities from just opining on state investment and commercial arbitration cases to include, among others:
- reviewing contracts concluded between a foreign investor and any governmental entities and companies wholly or partially owned by the state; and
- drafting the arbitration clause in such contracts as well as other ‘governing clauses’ such as those related to force majeure and the change of law.
The Decree prohibits all governmental entities and companies wholly or partially owned by the state from taking any of the following actions without referring the matter to the Authority
• concluding or amending any contract with a foreign investor;
• agreeing to arbitrate; or
• taking any measure or action in relation to any arbitration dispute.
Concluding Government Contracts
The Decree comes in broad terms and general language to indicate that the Authority will oversee all types of contracts concluded between a foreign investor and any of the governmental entities or companies regardless of the value of the contract, its subject matter or the pertaining business sector. It also provides that it will apply on all companies wholly or partially owned by the Government no matter how minor the government shareholding percentage is.
The Decree does not put a definition of what constitutes a foreign investor. It is unclear for example whether a company established under Egyptian law will be considered a foreign investor because all or part of its shareholders is non-Egyptian.
The Authority is affiliated to the Cabinet of Ministers and it is composed of high level political and judicial figures rather than technical legal experts.[^ ] It is equivocal accordingly whether the members of the Authority will have the time or the technical expertise required to review and opine on each and every contract to be concluded with the government.
The Authority will have a technical secretary which will be headed by the Assistant of the Minister of Justice and will include a number of legal experts from the Minister of Justice as well as independent experts. The technical secretary will meet on a periodical basis every month and will report to the Authority.
A question arises here as to the boundaries between the role of the Authority and that of the Opinions and Legislation Department located within the State Council. This advisory department, according to the State Council Law No. 47 for 1972, advises governmental entities on public law matters such as tenders and administrative contracts, and its consultation is mandatory with respect to government contracts with a value above EGP 5,000. In addition to the advisory department of the State Council, each governmental authority has an in-house member of the State Council who has an advisory role in relation to administrative law matters within the authority.
Agreeing to Arbitrate
The Egyptian Arbitration Law allows governmental entities to agree on arbitration in administrative contracts after obtaining the approval of the competent minister. The Decree comes to add another layer of approvals for all agreements to arbitrate whether in administrative or business contracts. Governmental entities are now prevented from signing any contract that includes an arbitration clause without referring the matter first to the Authority. The same applies on any company in which a governmental entity is a shareholder.
Handling Arbitration Disputes
Governmental entities and state-owned companies became disallowed to take any measure or action in relation to any arbitration dispute without taking the opinion of the Authority. The Authority is charged in this respect with the following:
- Approve the legal counsels, international experts, and the arbitrators who will be involved in arbitration cases.
- Provide advice and opinion regarding the defence strategy, the defence adequacy and the sufficiency of evidence.
- Assess the expected award and its impact.
- Offer all needed legal support as may be requested by legal counsels.
- Approve the costs and legal fees pertaining to arbitration cases.
- Suggest amicable settlement and lead negotiations with counterparties.
The tasks entrusted to the Authority in this respect are similar to those assigned to the Committee for Settlement of Investment Contract Disputes established under the Egyptian Investment Law No. 72 for 2017. Such committee however is empowered to conclude settlement agreements with private counterparties and its decisions are binding on the relevant governmental authorities and have the force of a writ of execution (i.e., enforceable without the need to take any further legal action) once approved by the Cabinet of Ministers.
Private counterparties who intend to enter into settlement negotiations with the government to resolve an arbitration dispute or conclude a settlement agreement have to ensure that the matter is first referred to the Authority in order to avoid any enforcement risk.
The government in Egypt and its entities and companies play an important role in the procurement of major projects in all business sectors especially the infrastructure, energy and the construction sectors. Foreign investors should therefore be alert to the new requirement which adds to the uncertainty surrounding the approvals required in order to enter into a contract or arbitration agreement with the government. The new requirements will expectedly lead to delaying the negotiation and execution process of such contracts and arbitration agreements.
Written by: Dr. Fatma Salah