The Egyptian Arbitration Law and Anti-Arbitration Injunctions Due to Expiry the Time Limit for the Final Award – Case Study

By Mostafa A. Hagras (advocate, Egypt)[*]

Introduction in Brief: National courts’ involvement in the arbitration process is indispensable- when a State enacts a set of arbitration laws, it specifies a court or courts to perform certain functions such as assistance or supervision, and presumably not of impediment, to the arbitration process. The UNCITRAL Model Law on International Commercial Arbitration, which Egypt enacted in 1994,[[1]] enables national courts to perform limited functions. It enables courts:

  • to decide on the challenge of an arbitrator under Article 13 (3);
  • to review the arbitral tribunal’s preliminary award on jurisdiction under Article 16 (3);
  • to review the arbitral tribunal’s final award under Article 34 (2); and
  • to confirm the conditions for granting and to visit the grounds for refusing the recognition and enforcement of foreign awards under Articles 35 and 36, respectively.

In addition to the functions contained in the latter law, it enables the Egyptian courts to grant an injunction to terminate arbitral proceedings due to an expiry of the time limit for the final award. It is this function which raises the issue of anti-arbitration injunctions in the course of international arbitration.

This paper brings to light the Article of Egyptian Arbitration law whereby the Egyptian courts exercise the function to terminate arbitral proceedings. An Egyptian case study confronting this issue will also be discussed.

An anti-arbitration injunction is an order issued by national courts requiring an arbitration not to commence or to terminate arbitral proceedings in their tracks.[[2]]

Anti-arbitration injunctions are one of the pervasive problems in the course of international arbitration, since it causes many difficulties for “all those who involved in an arbitration” and “destabilize[s] the parties’ dispute environment”.[[3]]

It has been said that when a national court issues an injunction against an arbitration agreed to in contract, that court, therefore:

  • fails to refer the parties to arbitration (Article II (3) of the New York Convention),
  • it fails “anticipatorily” to recognize arbitral awards (Article III of the New York Convention), and
  • it “preemptively” refuses to recognize and enforce arbitral awards on grounds that “do not, may not, fall within the bounds” of Article V of the said Convention.[[4]]

Further, granting injunctions, which restrain arbitration, goes against the principles of party autonomy and ‘Competence-Competence’.[[5]]

Accordingly, the arbitral tribunal may “well” refuse to comply with an injunction issued by national courts to enjoin an arbitration.[[6]]

It is tragic to find that the party who the injunction directed to is in option between to give up to the arbitration or to face the civil charge of court competent.[[7]]

The Geneva Court of First Instance, on 2 May 2005, firmly rejected the use of anti-arbitration injunction by stating that:

“Anti-arbitration injunctions are incompatible with the Kompetenz – Kompetenz principle, a general principle of international arbitration. Swiss Courts do not issue anti-arbitration injunctions nor enforce foreign anti-arbitration injunctions”.[[8]]

It appears that the use of anti-arbitration injunctions violates the New York Convention and the accepted principles of international arbitration. Notwithstanding, it is legitimate to use them in certain circumstances, where it is “absolutely clear” that arbitration proceedings have been “wrongfully brought”.[[9]]

The Position of Egyptian Arbitration Law: The Egyptian Arbitration Law has, since its enactment in 1994, codified the use of a specific kind of anti-arbitration injunction. As per the Law, the arbitral tribunal shall render the final award within the time limit agreed by the parties. If the parties do not agree, the award shall be rendered within twelve months from the date on which the arbitral proceedings commenced.[[10]] The arbitral tribunal may extend the time limit for a period not to exceed six months, unless the parties agree to a longer period. If the time limit expires without the final award being rendered, a party to the arbitration proceedings may request the president of the bench in the competent court in Egypt to fix a new time limit or to terminate the arbitral proceedings (Art 45/1).

The effect of terminating the arbitral proceedings in this case is for each of the parties to the terminated proceedings to submit the dispute to the court of the original jurisdiction (Art 45/2).[[11]]

Relatively recently, the ICC Case No.14695/EC/ND had experienced some practical and theoretical difficulties after an injunction issued by the president of the competent bench in the Cairo Court of Appeal terminated the arbitration proceedings pursuant to Article 45/1 of the Egyptian Arbitration Law.

ICC Arbitration Case No. 14695/EC/ND (Case Study In Brief): [[12]] A joint venture agreement was signed on 14 January 2002 between a BVI company with a branch in Dubai, a Dubai company, and an Egyptian company. The object of the joint venture agreement was for the parties to construct a major residential and commercial complex located in Egypt.

Pursuant to the arbitration clause contained in the agreement:

  • The lex arbitri was the Egyptian Arbitration Law no. 27 of 1994.
  • The rules of arbitration to which the arbitration clause referred were the “1998 ICC Arbitration Rules”.
  • The arbitration shall be held in Egypt.

On 24 November 2006, the ICC received a request for arbitration from both the BVI company and Dubai company (the “claimants”), which alleged, inter alia, that the joint venture had incurred significant losses on the project and that the Egyptian company (the “respondent”) had not respected its obligations under the joint venture agreement by refusing and/or failing to contribute to the losses.

On 27 December 2006, the respondent raised some jurisdictional objections before the terms of reference hearing had been convened.

The terms of reference were submitted on 12 February 2007 and signed by the claimants on 16 February 2007, but the respondent refused to sign it. The time limit to sign or submit the terms of reference was extended several times between 11 January 2007 and 31 March 2008. Eventually the ICC Court approved the terms of reference on 28 March 2008.

The Terms of Reference included that:

“The Sole Arbitrator shall resolve this dispute in accordance with the ICC Rules of Arbitration in force as from January 1, 1998, and where these rules are silent, by the Egyptian Arbitration Law [no.27/1994] or failing them, the procedure that the Sole Arbitrator shall decide to be applicable to the procedural issues”.

At the 4 July 2007 hearing, the Parties agreed that the sole arbitrator should rule in the first place on the jurisdictional objections made by the respondent.

On 30 May 2008, and repeatedly since then, the respondent argued that the arbitration had come to an end on 27 May 2008 by operation of Egyptian Arbitration Law. The respondent wrote that:

“This arbitration was initiated on 28 November 2006. Claimants have not even presented their Statement of Claim upon the lapse of period of twelve months we demanded as shown in our letter dated 15 January 2008 that the Sole Arbitrator issues the decision to terminate this Arbitration in compliance with the Egyptian Arbitration Law. Now the (18) eighteen months period have lapsed. The Award is not issued till today. Thus this Arbitration has “par excellence” been terminated in force of the Egyptian Arbitration Law on last Tuesday 27 May 2008”.

On 7 July 2008, the president of the Cairo Court of Appeal granted, at the request of the respondent, an injunction which terminated the arbitral proceedings on the ground that the time limit for the final award had expired without the statement of claim being presented.[[13]]

When this injunction was granted, the Parties had been in the phase of exchanging the submissions on some jurisdictional issues.

The sole arbitrator refused to comply with the injunction. Therefore, the respondent’s counsel wrote to him, stating that:

“Some people make belief that they cover themselves with blanket of mission or institution which may make them again feel as if having grounds under their feet, only to find that thunderstorm is a way and they become symbols of past age as the Great Sociologist Karl Mannheim once said”.

The sole arbitrator insisted on non-compliance with the injunction and declared, on 14 May 2009, that the arbitral proceedings must resume irrespective of any court order to the contrary issued by the Cairo Court of Appeal – he continued and granted the parties the opportunity to comment on the jurisdictional issues including the issue of terminating the arbitral proceedings by the injunction.

Ultimately, the respondent, on or before 15 June 2009, filed an action for damages before the courts of Egypt against the sole arbitrator in its personal capacity, requesting the courts to hold the sole arbitrator personally liable to pay to the respondent an amount of US$2 million for the material and moral damages that the sole arbitrator allegedly caused the respondent by deciding to continue the proceedings irrespective of the injunction. The respondent further alleged that the sole arbitrator’s non-compliance with the injunction is a “defiance to [the] Egyptian Legal System” and in contempt of the Cairo Court of Appeal. A first hearing for this court action had been scheduled for 15 September 2009.

Due to the respondent’s court action for damages, the sole arbitrator determined that it is not easy to accomplish its mission but, at the same time, concluded that the proceedings should proceed. Consequently, he resigned and put the proceedings on hold as of the date in which the sole arbitrator had been notified of filing the court action until receiving the decision of the ICC Court in this respect. In its letter of resignation dated 19 June 2009, the sole arbitrator wrote to the ICC Court, stating that:

“[…] In the light of this major development, whereby:

(i) The Sole Arbitrator now has to face proceedings instituted against itself personally by the Respondent before the [Courts of Egypt], and in which the Sole Arbitrator will have to ensure its legitimate defense on the basis of matters and documents that are in relation with the present arbitration file;

(ii) While at the same time, the Sole Arbitrator has to fulfill its mission as sole arbitrator in this arbitration and rule of the issues that have to be ruled on in this arbitration.

And although the Sole Arbitrator is convinced that these arbitration proceedings have to resume for the reasons already exposed by the Sole Arbitrator in this file, noting that amongst the Jurisdictional Objections on which the Sole Arbitrator has decided to rule on in the Jurisdictional Objections Award, figures the issue of “Matters relating to the termination of the arbitral proceedings”[…] the Sole Arbitrator considers that it is currently not at ease to accomplish its mission as a sole arbitrator, and therefore hereby submit its resignation to the ICC Court of Arbitration in order for the Court to take position in this respect in accordance with article 12 of the [1998] ICC Rules.

In the meanwhile, the Sole Arbitrator considers these arbitration proceedings frozen as of June 15, 2009 and until it has received the ICC Court’s decision in this respect”.

On 23 July 2009, the ICC Court decided, pursuant to the Article 12(1) of the ICC Rules, to accept the resignation and took the necessary steps to replace the resigned arbitrator. On 13 August 2009, the ICC Court directly appointed a new sole arbitrator pursuant to Article 12(4) of the ICC Rules.

On 22 October 2009, the new sole arbitrator invited the parties to comment by 2 November 2009 on whether and what extent the proceedings should be repeated, as required by Article 12(4) of the ICC Rules.

On 2 November 2009, while the claimants answered that there was no need to repeat the proceedings, the respondent’s counsel wrote to the sole arbitrator, with no copy to the claimants, stating that your invitation to comment on repeating the proceedings is surprising. In further “utmost good faith” I am attaching the original copies of the injunction no. 19/125 issued by the Cairo Court of Appeal on 7 July 2008 as well as its injunction no. 23/125 issued on 24 March 2009, which rejected the claimant’s appeal to set aside the injunction no. 19/125 and reconfirmed the termination of the arbitral proceedings.

Although, the respondent had added the new sole arbitrator as an additional respondent in the court action for damages, the new sole arbitrator continued its role and rendered the award on the jurisdictional objections on 17 November 2009. In this award, the new sole arbitrator separately discussed the issues of expiration of the time limit and terminating the arbitral proceedings by the injunction.

As for the issue of expiration of the time limit, the new sole arbitrator found the time limit was kept on ground that the time limit provided by the Egyptian Arbitration Law may be extended by the parties’ agreement. There was such an agreement in these arbitral proceedings. The arbitration agreement referred to the ICC Rules. Such referral is tantamount to reproducing those rules as part of the arbitration clause. In the ICC Rules, article 24 (1) provides the following:

“The time limit within which the Arbitral Tribunal must render its final award is six months. Such time shall start to run from the date of the last signature by the Arbitral Tribunal or by the parties of the Terms of Reference or, in the case of application of Article 18 (3), the date of the notification of the Arbitral Tribunal by the Secretariat of the approval of the Terms of Reference by the Court”.

In this regard, the terms of reference were approved by the ICC Court on 28 March 2008; the time limit for issuance of the award was accordingly around 23 September 2008. This was extended repeatedly until 31 December2009.The deadline for issuing the award was, therefore, kept. Accordingly, the claim by the respondent that the arbitration has come to an end by operation of the Egyptian arbitration law was not well founded.

As for the issue of terminating the arbitral proceedings by the injunction, the new sole arbitrator discussed that:

  • Egypt is a member of the New York Convention and is therefore bound by Article II, which provides that each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration;
  • Moreover, the New York Convention provides that the court of a Contracting Sate, when seized of an action in a matter in respect of which the parties have made an agreement, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. The Egyptian Arbitration Law provides for the same in its Article 13;
  • The Egyptian Arbitration Law further provides for the ‘Competence-Competence’ principle in Article 22.

Hence the new sole arbitrator reached the conclusion that:

“Nowhere, does Egyptian arbitration law confer on state courts the right to terminate arbitration, […]. For the [new] Sole Arbitrator it is hard to believe that Egyptian courts might act in a manner contrary to Egypt’s international obligations and to the Egyptian statute on arbitration”.

The new sole arbitrator proceeded to consider the merits in the second phase of the proceedings and invited the Parties to present their submissions, but the respondent (although he is the injunction claimant) found himself deprived to continue the proceedings by the power of the injunction.

The new sole arbitrator rendered the final award on 26 January 2011.

Court Action for Setting Aside the Award: On 2 May 2011, the respondent instituted a court action before the bench for judicial review of arbitral awards of the Cairo Court of Appeal to set aside the award on, inter alia, the ground that by the power of the injunction:

  • The new sole arbitrator had no jurisdiction to continue the proceedings and render an award, and
  • The respondent was deprived of its right to continue the proceedings, so when the new sole arbitrator decided to proceed, the right of defense had been violated.

On 7 April 2013, the Cairo Court of Appeal[[14]] dismissed the respondent’s case and considered the injunction frustrated and with no power. The Court’s ruling in this concern was established, inter alia, on the following:

  • The parties had agreed to refer their dispute to the 1998 ICC Arbitration Rules. This referral is tantamount to incorporating these Rules in the arbitration clause, therefore, these Rules shall govern the arbitral proceedings, and the provisions of the Egyptian Arbitration Law shall be ceased to apply except those which belong to the public order;
  • In this regard, the 1998 ICC Rules contained rules governing the time limit within which the arbitral tribunal must render its final award, its extension, and the cases in which the arbitral proceedings may be terminated. It is evident that the rules governing these issues under the Egyptian Arbitration Law are not of mandatory nature but rather the parties may agree otherwise;
  • Hence, the rules governing the arbitral process including the issue of terminating the ICC proceedings fall within the exclusive jurisdiction of the ICC Court, and the Egyptian courts have no jurisdiction to terminate the ICC proceedings accordingly;
  • Therefore, the injunction is frustrated and has no sanctity or power under the Egyptian Law and there was no “blame” on the ICC sole arbitrator to proceed and to render its final award notwithstanding the injunction to the contrary.

As for the issue of violating the right of defense, the Cairo Court of Appeal concluded that as long as the respondent (the injunction claimant) was fully aware of the continuance of the arbitral proceedings and had been invited to participate until closing the pleadings, the right of defense is protected notwithstanding the that respondent’s declined to participate.

The respondent challenged the judgment of the Cairo Court of Appeal before the Egyptian Court of Cassation on, inter alia, the ground that:

  • The Cairo Court of Appeal does not have jurisdiction and is precluded to review the injunction because the Egyptian applicable procedural law determines specific channels that should be followed in order to set aside such ex parte injunctive order. The claimants (the injunction respondent) did not follow these channels; therefore, the injunction became final and bestowed the power of res judicata. [[15]]
  • The Cairo Court of Appeal erred in law when it concluded that the respondent had declined to participate in the arbitration proceedings. The proper position was that the respondent did not “decline” to participate but rather was “deprived” to continue the proceedings by the power of the injunction.

To the date, the challenge of the Cairo Court of Appeal’s judgment is still pending before the Egyptian Court of Cassation. The author will, hopefully, update this paper once the challenge reaches its final destination– or, alternatively, the interested audiences are welcome to contact him at: mostafa.a.hagars@outlook.com

To the best of author’s knowledge, the court action for damages against the two sole arbitrators is still pending before the Cairo court of the first instance. In my position it should be pending the final destination of the injunction. For the audiences’ record, both sole arbitrators were not of Egyptian nationality- the resigned sole arbitrator was Lebanese and the new sole arbitrator was Swiss.

Concluding Remakes: Regardless of the final destination of this injunction (the injunction no.19/125), this paper aims to alert the international arbitration practitioners of the injunctive statutory function of the courts of Egypt to terminate ongoing arbitration if the arbitral tribunal failed to make the final award within the time-limit as provided in Article 45/1 of Egyptian Arbitration Law.

As mentioned above, the effect of terminating the arbitral proceedings by way of injunction under Article 45/1 of the Egyptian Arbitration Law is for each of the parties to the terminated proceedings to submit the dispute to the court of the original jurisdiction (Art 45/2).

In this respect, it is perceived that only the disputes which ought to be settled under the terminated proceedings may be referred to the court of the original jurisdiction but each of the parties, even the injunction respondent, may institute new arbitral proceedings for settling further disputes fall within the arbitration agreement but must be different from those disputes which ought to be settled under the terminated proceedings.[[16]] In other words, expiry the time limit for final award is considered a partial expiry for the arbitration agreement.

Further, if a partial award brought an end some disputes had been rendered before terminating the proceedings by the injunction, such partial award should be valid and operate in case one of the parties referred the dispute to the court of the original jurisdiction. I am not inclined to find such partial award enforceable and may be judicially reviewed on the same grounds of the final award rendered in the ordinary course.

The Position of Some Arab Arbitration Laws: Finally, it would be appropriate to refer to the arbitration laws of some, but not all, Arab countries which have similar or same position of Article 45 of the Egyptian Arbitration Law.

Article 40 of the Saudi Arbitration Law which enacted in 2012 provides for the same position and uses identical text of Article 45 of the Egyptian Arbitration Law.

Also, the Jordanian Arbitration Law enacted in 2011 confers the courts the function to terminate the arbitral proceedings due to expiry the time-limit for the final award (Art 37). It uses identical text of Article 45 of the Egyptian Arbitration Law but, unlike the latter Law, it expressly permits the parties to request the court to repeatedly extent the time-limit.

By the way, the issue whether courts of Egypt may be repeatedly requested to extent the time-limit for the final award is of some controversy. While in some scholars’ opinion the text of Article 45 does not permit the court to extent the time-limit more one time, another scholar found that both the textual interpretation and practicality permit the court to extent the time-limit repeatedly, it would be a tragic end for the arbitral proceedings otherwise.

Under the Sudanese Arbitration Law 2005, the arbitral tribunal shall render the final award within the time limit agreed by the parties. If the parties do not agree, the award shall be rendered within six months from the date on which the arbitral proceedings commenced (Article 32/1). If this time-limit expired, the parties may agree to extent it. If the parties failed to agree, each of them may request the competent court to extent it. If the time limit expired without the final award being rendered, a party to the arbitration proceedings may submit the dispute to the court (Art 32/2). Although Article 32 does not expressly (or clearly) mention the function to terminate the arbitral proceedings by a court order, Article 34 of the same law provides that the arbitral proceedings shall come to end in the following cases: (a)… (b) By an order terminating the arbitral proceedings pursuant to Article 34/2.

Under the Syrian Arbitration Law no.4/2008,the arbitral tribunal shall render the final award within the time limit agreed by the parties. If the parties do not agree, the award shall be rendered within 180 days as of the date of the first hearing. The arbitral tribunal may extent one time the time limit for a period not exceed 90 days. If the time limit expired without the final award being rendered, a party to the arbitration proceedings may request the competent court to extent one time the time limit for a period not exceed 90 days (Article 39/1and 2). The Syrian Arbitration Law does not confer courts the function to terminate the arbitral proceedings, however it allowed the parties, in case of expiry the time limit, to submit the dispute to the court of the original jurisdiction (Art 39/3). It further entitles the aggrieved party to sue for damages allegedly caused by the arbitrators in case they failed to render the final award within the time-limit without an acceptable cause (Article 39/4).

 

Thank you for reading this paper. For any queries, you are welcome to contact the author at: mostafa.a.hagras@outlook.com

The author is an Egyptian lawyer, and LLB Cairo University (2006).

[*]          The author thanks Mr. Giorgio Sassine, an Associate at Obeid Law Firm in Beirut, Lebanon, for editing and commenting on the final draft of this paper. Mr. Sassine holds a B.A. from the University of California-Davis, a J.D. from the University of San Diego School of Law, and an LL.M. in international commercial arbitration from Stockholm University.

[[1]]         Law No. 27/1994 Promulgating the Law Concerning Arbitration in Civil and Commercial Matters.

[[2]]         Julian D.M.Lew, Anti-Suit Injunctions Issued by National Courts To Prevent Arbitration Proceedings_ International Arbitration Institute_ Anti-Suit Injunctions in International Arbitration_ IAI Seminar_ Paris – November 21, 2003_ Edit by Emmanuel Gaillard_ Reference editor: NanouLeleu– Knobil_ P. 25 _ Juris Publishing, Inc_ Staempfi Publishers Ltd

[[3]]         Julian D.M.Lew, Op.cit_ P. 25.

[[4]]         Stephen M. Schwebel_ Anti- Suit Injunctions in International Arbitration_ An Overview_ International Arbitration Institute_ Anti-Suit Injunctions in International Arbitration_ IAI Seminar_ Paris – November 21, 2003_ Edit by Emmanuel Gaillard_ Reference editor: Nanou Leleu – Knobil_ P. 10 _ Juris Publishing, Inc_ Staempfi Publishers Ltd.

[[5]]         Emmanuel Gaillard_ Introduction_ Anti-Suit Injunctions in International Arbitration_ IAI Seminar_ Paris – November 21, 2003_ Edit by Emmanuel Gaillard_ Reference editor: Nanou Leleu – Knobil_ P.2 _ Juris Publishing, Inc_ Staempfi Publishers Ltd.

[[6]]         Jennifer L. Gorskie_ “US Courts and the Anti-Arbitration Injunction “_Arbitration International_ The Journal of the London Court of International Arbitration (LCIA); Kluwer Law International 2012, Volume 28 Issue 2_ p. 313.

[[7]]         Jennifer L. Gorskie _Op.cit _ p. 313.

[[8]]         Decision by the Geneva Court of First Instance rendered on 2 May 2005 In Case C/1043/2005-15sp. refereed to it in Felipe Nazar Pagani_ “Anti-Arbitration Injunctions and the Principle of Competence –Competence” _ Una Publicación para Lex Arbitri_ p 4_ Footnote no.8_ available at: http://lexarbitri.pe/wp-content/uploads/2014/03/Anti-Arbitration-Injunctions-and-the-Principle-of-Competence-Competence.pdf

[[9]]         Julian D M Lew_ Does National Court Involvement Undermine the International Arbitration Processes? _ American University International Law Review_ Volume 24 | Issue 3_ article 3.P.499.

[[10]]        Pursuant to Article 27 of the Egyptian Arbitration Law, the arbitral proceeding commences from the date the respondent receives the notice for arbitration from the claimant, unless the parties agree on another date.

[[11]]        Although the Egyptian Arbitration Law has enacted the UNCITRAL Model Law, the latter law has no correspondent article in toto or similar provision at large. Further, Egypt is a member State to the New York Convention.

[[12]]        The author acknowledges that the text of the coming paragraphs is largely similar and sometimes same of the original text of the award made in the ICC Arbitration Case No. 14695/EC/ND dated 16 November 2009; the quotations mark will be used where it necessary.

[[13]]        Before obtaining this injunction (no.19/125), the respondent had instituted similar proceedings to terminate this arbitration, but its motion was denied on 6 December 2007.

[[14]] Cairo Court of Appeal_ Circuit no. 7­ commercial_ Challenges nos. 20 & 64 / 128 JY, 16, 20, & 47 / 129 JY, dated 7 April 2013.

[[15]]        It worth mentioning that the injunction no. 19/125 had been appealed by the claimant (the injunction respondent) but it was confirmed by the Injunction no. 23/125 dated 24 March 2009. Then the Injunction no. 23/125 is reversed and frustrated due to it would be issued by the complete panel of the court in the presence of both parties, however it had been rendered by the president of bench on an ex parte proceeding. See, the judgment of Cairo Court of Appeal_ Circuit no. 8­ commercial_ Challenge no. 54/ 126 JY_ dated 18 February 2013.

Therefore, this injunction no.19/125 was in operation.

[[16]]        Prof Dr Fatehy Waly_ The Arbitration in National and International Commercial Arbitration, In Theory And Practice_ Dar Monshaat El-Maarf_ Alexandria_ Egypt_ 2013_ para 295_ pp. 526-527.

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