An initiative by the government to form a committee to settle investment disputes may spare the government a string of arbitration cases waiting to happen, writes Niveen Wahish There are those who say that a bad settlement is better than a good court fight. The Egyptian government is finding that out as well. This week, Prime Minister Essam Sharaf ordered the formation of a committee of government officials and legal experts to settle problems surrounding investment contracts. "This comes within the government's framework to support investment and clear all obstacles faced by investors," the cabinet said in a statement. "It is a very critical step, at a very critical time, to put investment on the right path," said Hani Sarie-Eldin, founder and managing partner of the law firm Sarie-Eldin & Partners, stressing that "investment dispute settlement is critical for the encouragement and growth of investment. The fact that the committee will be headed by the prime minister gives it credibility and sends out a clear message that the government supports investments and is keen on solving pending disputes." Egypt's dispute settlement has always been criticised because it is a lengthy process, but since the revolution it has not become just a matter of delay; investors have been hit with criminal charges, put behind bars and had their contract annulled. Many of those inculpated were charged with having bought land below its fair price. Non-Egyptians among those investors threatened to take the Egyptian government to international arbitration. This committee is not a replacement of courts or arbitration; its decisions are not binding but it is a form of mediation between the investors and the government. "It is a step to solve contracting and administrative issues amicably and possibly preventing that they get to court or arbitration, which takes a long time and will leave an impact on the investment climate," explained Sarie-Eldin. Sarie-Eldin strongly believes that if investors have not been criminalised or proved of any wrongdoing, they should be acquitted. "Investors, local or foreign, should not be penalised for respecting their contracts. It does not make sense to annul contracts and punish investors for bad judgement by the former regime," he explains. The best solution, he says, is to request amicable negotiation with investors within the civil and contractual framework, not to use criminal law to settle commercial disputes. He stressed that contracts should be respected as "acting any other way would send the wrong message; that in Egypt there is no stability of contract or legal proceedings." Furthermore, Sarie-Eldin is of the opinion that "we should not look behind us as we should change for the future not retroactively." He argues, "what guarantees that the next government does not do the same and annul these contracts?" Sarie-Eldin also pointed out that the annulment or noncompliance with contracts may result in political gains on the short term, but could cost Egypt huge sums in damage compensation and the credibility of the investment environment. "Just as we are saying that Egypt is now free, democratic and anti-corruption, it must also be a country of justice and respects the rule of law," he said. Among the companies who had threatened to go to arbitration is developer Damac Properties whose chairman, Hussein Sajwani, has been slapped with a fine as well as a jail sentence for the purchase of land near Hurghada. In a press statement, Damac said the ruling was "politically motivated" and "the result of a political campaign of persecution" against any businessman who conducted business with the former Mubarak government. Damac is not alone. Al-Futtaim Group which is developing land in the New Cairo area has also been accused of buying land below price. And Anwal, the company who had bought Omar Effendi in a deal that made headlines, also had its contract annulled by court. Should these companies choose to file for international arbitration, they would be filing their case with the International Court for Settlement of Investment Disputes (ICSID) which accepts cases from foreigners against governments. Investors would revert to ICSID within the framework of the Bilateral Investment Treaty (BIT) signed between their country and Egypt. According to an expert in international arbitration who preferred to remain anonymous, BIT countries pledge to protect each other's investments by not nationalising, expropriating or harassing investors from signatory countries. He explained that it is not a contract claim, meaning that it looks at whether the country has violated its BIT rather than the contract itself. Egypt has a BIT with 91 countries. Egypt has a good track record with arbitration. The ICSID website shows that since 1984, only 14 cases have been filed against the Egyptian government. According to the source, the court ruled in favour of the investor in only three of nine cases that have been concluded. The remaining cases are pending. However, he pointed out that what is alarming is that 2011 saw more cases being filed. The ICSID website shows two cases filed in 2011 against Egypt. "For the first time, these cases are being filed by Arab nationals," he commented. Nonetheless, he says that Egypt's track record proves that not everyone who threatens to go to international arbitration is right. But he stressed that the danger lies in the lack of preparation for these cases. In the meantime, he too opts for amicable settlement and non-criminalisation of investment disputes. "There needs to be a mechanism for crisis management," he says, "because standing on the sidelines and watching silently gives the wrong message."
