December 19, 2021

Favorable Arbitral Award for a Multinational Construction Company

Tribunal decided unanimously the inarbitrability of construction social insurance disputes and dismissed the claim

Riad & Riad scored a victory defending one of the international construction conglomerates in an arbitration case before the Cairo Regional Centre of International Commercial Arbitration (CRCICA). The arbitration was initiated by a leading state-owned construction company in connection with a dispute over construction social insurance.

The arbitral tribunal decided unanimously the inarbitrability of the dispute as social insurance matters are of public policy nature. The tribunal confirmed that disputes arising from the calculation, payment or exemption from construction social insurance are subject to the exclusive jurisdiction of the national courts given that these matters relate to public fund and the right of the workers.

A construction contractor (or a sub-contractor) is required under Egyptian law to notify the Social Insurance Authority (SIA) about each project before starting the implementation of the works. The contractor will notify the SIA with the total value of the project and any variations thereto and submits copy of the project contract.

The Egyptian legislator noticed that certain categories of workers do not have a permanent or regular employment relationship and usually do not have fixed monthly salary (like construction and mining workers). Therefore, unlike regular employees, calculating the social insurance contribution for the employees in such categories based on their salaries is not viable.

The law presumed that the salaries of the employees in a construction project constitute part of the value of the project contract. The law accordingly provided that calculating the social insurance contribution shall be based on the value of that part of the contract. Detailed list of the value of the salaries in each type of the construction works is set by the law. For example, the law valuated and decided that the workers’ salaries in a contract for civil works will be 12%, while the value of the workers’ salaries in a contract for energy production and supply works will be 3%.

Certain categories of contractors are exempted from paying the contractor social insurance; among these categories is the state-owned construction companies. In order to enjoy the exemption, a state-owned company must implement the works by its own workers who must be covered under the regular social insurance scheme.

Riad & Riad team working on the dispute was led by Dr. Fatma Salah and Mohamed Riad along with Mohamed Abdelaty. Dr. Fatma Salah said “Our victory in this case was truly a team effort, each member of the team deserves significant credit for this win. The case underlines the capability and strength in depth of our dispute resolution team.”

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