Global Development

I. Defining ‘international’ arbitration and arbitration institutions¹

The Egyptian Arbitration Law No. 27 of 1994 (‘EAL’) does not distinguish between domestic and international arbitration other than for determining the competent court in relation to arbitration related matters. To that effect, Article 9 of the EAL determines that the competent court for international arbitration related matters is the Cairo Court of Appeal unless the parties have agreed to a different court of appeal, and the competent court for domestic arbitration is the court that would originally have had subject matter jurisdiction over the dispute.

Article 3 of the EAL deals with the ‘internationalization’ of arbitration and reads:

For the purpose of this Law, an arbitration shall be international if the subject matter thereof relates to international trade and this is so in the following cases:

Firstly: If the principal places of business of the parties to the arbitration are located in two different countries at the time of concluding the arbitration agreement. In the event a party has more than one place of business, regard shall be had to the place that is most closely connected to the subject matter of the arbitration agreement. In the event a party does not have a place of business, regard shall be had to its habitual residence.

Secondly: If the parties to the arbitration agree on resorting to a permanent arbitration organization or an arbitration institution located in Egypt or abroad.

Thirdly: If the subject matter of the dispute falling within the scope of an arbitration agreement is connected to more than one country.

Fourthly: If the principal place of business of the parties to the arbitration is located in the same country at the time of concluding the arbitration agreement, and one of the following places is located outside this country:

a) The seat of arbitration as determined in the arbitration agreement or determinable in accordance therewith;

b) The place of performance of a substantial part of the obligations arising out of the commercial relationship between the parties;

c) The place most closely connected with the subject matter of the dispute.

This provision has generated a lot of debate and controversy on whether an arbitration can simply qualify as international if it fulfills one of the criteria listed in Article 3 of the EAL or whether the subject matter of the arbitration must pertain to ‘international trade’ as a prerequisite to internationalization.

Prior to 2019, the majority of judgments and scholarly writings supported the view that an arbitration under the EAL must pertain to international trade and also satisfy one or more of the criteria set forth under Article 3 of the EAL. The view of the author differs: the textual, rational and logical interpretation as well as the desired legislative policy of the statute lead to the conclusion that an arbitration is ‘deemed’ international for the purpose of the EAL provided it fulfils one of the criteria listed under Article 3 of the EAL because these criteria reflect the Egyptian legislator’s definition of ‘international trade’.² On 11 April 2019, the Egyptian Court of Cassation (the Civil and Commercial Circuit) finally settled the matter and held that an arbitration is deemed international if one of the criteria listed under Article 3 of the EAL exists – with no further requirement.³

On 22 October 2019, the Egyptian Court of Cassation (Commercial and Economic Circuit), in a ground-breaking judgment affirming what arbitrations are deemed international under Article 3 of the EAL, elaborated on the proper definition of a permanent arbitral institution or an arbitration centre within the meaning of Article 3(2) of the EAL.⁴ In this judgment, the Supreme Court held:

It is inferred from the travaux préparatoires of Law No. 27 for the year 1994 on Arbitration in Civil and Commercial Matters, and its international sources, and the doctrine and jurisprudence of international arbitration, that a permanent arbitral institution or an arbitration centre, considered under this law [the EAL], is an institution or centre established and based in Egypt by virtue of an international or regional treaty, law, or pursuant to a law, for the purpose of administering international commercial arbitration cases, as well as all permanent arbitral institutions or arbitration centres headquartered outside Egypt, which are internationally or regionally well-known and have gained the trust of clients – over the years – in the field of international business, trade and investment, for their internal rules and regulations, and stable administrative bodies refined by practical experience and frequency of administering arbitration cases, which ultimately provide legal and procedural security for the parties to arbitration.⁵

The Court went on to affirm that an entity that does not satisfy said criteria will not be considered a permanent arbitral institution or arbitration centre within the meaning of Article 3(2) of the EAL. The Court also held:

It is irrelevant to the above that the arbitral award be printed on papers bearing the name of an ‘international arbitration centre’ and stamped with its [the centre’s] stamp …⁶

It is also worth noting that this landmark judgment expressly referred to the ICC as the ‘global benchmark’ for what constitutes an international arbitral institution. These were the words used by Prof. Dr. Mohsen Shafik when he was asked in the Parliament, at the time of the enactment of the EAL back in the 1990s, to give an example of an international arbitral institution.

With this judgment, the Egyptian Court of Cassation affirmed its support for international arbitration and provided useful guidance as to what constitutes a proper arbitral institution, which will undoubtedly help in the global fight against sham institutions and sham arbitral awards.⁷ It also recognizes the global stature of the ICC as a market leader in the provision of dispute resolution services.

In an African and Middle Eastern context, the importance of this judgment could not be overemphasized; it clearly evidences a profound understanding of the role of arbitral institutions and offers much needed guidance on the criteria that ought to be observed by arbitration centres should they wish to be recognized as credible institutions, especially if they aspire to ‘internationalize’ their caseload and services and gain the trust of users. Amongst the said criteria set out by the Egyptian Court of Cassation are the existence of:

• modern and trustworthy internal rules and regulations;
• stable administrative organs and bodies within the institution; and
• refined practical experience and frequency of administration of arbitration cases in a manner that demonstrate the institution’s expertise and capabilities. ⁸

II. Acknowledging the role of the ICC Court and the ICC Scrutiny of awards⁹

Less than four months after the 22 October 2019 Judgment, the Egyptian Court of Cassation issued another remarkable decision in a dispute between Egyptian and Swiss parties, in which it upheld the binding and enforceable nature of arbitration agreements. In a case involving an ICC arbitration clause, the Supreme Court specifically held that:

This clause [the arbitration clause in the contract], in itself, is sufficient to evidence the parties’ agreement to resort to arbitration to resolve the dispute which may arise in the future with respect to this Contract. This results in an obligation on them to refrain from filing an action before the judiciary on the dispute subject to the arbitration agreement. If one of them breached such passive obligation and filed his action before state courts, and the other party pleaded before [state courts] that the case is inadmissible, before raising any request or defense in the case, [the court] must – in application of Article 13(1) of the EAL – rule that the case is inadmissible.

Quite remarkably in this Challenge, the Appellant argued that the ICC arbitration clause was invalid on the basis that, under the ICC rules, the arbitral tribunal must submit a draft award to the review and scrutiny by the ICC Court (in accordance with Article 27 of the ICC Rules) prior to rendering the award. The Appellant alleged that this inevitably lead to the invalidity of the arbitral award, because the EAL does not permit the participation of persons other than the arbitrators in the decision making and award rendering processes. However, the Court of Cassation rejected such argument and expressly held that:

[S]ince’institutional arbitration’ is the arbitration whereby the parties agree that the arbitration shall be conducted by a permanent arbitration centre or a permanent arbitral institution, whether national, regional, or international, the arbitration takes place according to the system of such institution and its procedural rules which must be followed in arbitration. The aforesaid institution may appoint the arbitrators, or one of them, according to the agreement of the parties, or conduct a review of the arbitral award according to [the institution’s] regulations, however, what remains distinctive [for such institution] is that it enjoys the trust of users – over years – in the field of business, international trade, and investment, for the internal regulations and systems availed thereto, and established administrative bodies, enhanced by practical experience, and frequent administration of arbitration cases, which, eventually, affords to it [the institution] the legal and procedural safety…

Amongst what is included in these ‘Rules’ is that the parties accept, upon agreeing to arbitration according to the ‘Rules’, that the ‘Court’ ‘administers the arbitral process’ and that the decisions of the ‘Court’ are final with respect to the appointment of the arbitrator, confirming his/her appointment, challenging him/her, or replacing him/her ... It [the ICC Court] is entrusted with the Scrutiny of the Award, whereby the arbitral tribunal, before signing any arbitral award, must submit it as a draft to the ‘Court’, and the ‘Court’ may suggest modifications as to the form of the award. Also, it [the ICC Court] may - without affecting the arbitral tribunal's liberty of decision - draw the arbitral tribunal’s attention to points of substance. Further, no award shall be rendered by the arbitral tribunal until it has been approved by the ‘Court’ as to its form …

As evident from the Supreme Court’s express words, it acknowledges and affirms the status, experience and expertise of ICC in administering international arbitrations. Moreover, the Court demonstrated a profound understanding of the role of the ICC Court in administering arbitration proceedings, where the ICC Court, inter alia, appoints arbitrators, determines challenges to arbitrators, fixes the seat of arbitration (if not agreed by the parties), approves the terms of reference as and when they are required in non-expedited proceedings, fixes the advances on costs and determines the final costs of the arbitration and scrutinizes arbitral awards. Specifically, in relation to scrutiny, the Supreme Court carefully considered the applicable ICC Rules and its appendices and correctly determined that ‘scrutiny’ is a unique feature of ICC arbitrations and does not constitute an intervention in the arbitral tribunal’s decision making process, which would render the ICC Court an arbitral tribunal or a judicial organ. In this context, the Supreme Court expressly held that:

When the Court scrutinizes draft awards in accordance with … the Rules, it considers, to the extent practicable, the requirements of mandatory law at the place of arbitration …

It appears then from the foregoing that the International Court of Arbitration (‘the Court’) is not an adjudicatory body and it does not decide arbitration cases, and that it does not participate with the arbitral tribunal in the rendering of the arbitral award. Although it is named a ‘Court’ it is not a court in the strict known sense, but rather an ‘arbitral institution’, thus, it is an administrative body and its mission is to oversee the progress of the arbitral proceedings conducted according to the arbitration rules of the ICC, and it has nothing to do with the subject-matter of the arbitration case, or the extent to which each party has a right in what they are claiming, or the determinations of the arbitral tribunal on the merits of the dispute, and its work with respect to the review of the arbitral award is limited to ensuring that it is correct on the form, and that it is free of the defects which expose it to annulment, or those which lead to the rejection of its enforcement according to the law of the country in which enforcement is sought. Also, although [the ICC Court] may provide remarks on the correctness of the award from a substantive perspective, such remarks are not in any way binding on the arbitral tribunal. Nevertheless, this is done in the interest of the parties to the dispute to ensure the correctness of the arbitral award to be rendered … From another perspective, the review of the draft arbitral award achieves a benefit for the system of arbitration under the auspices of the ICC in Paris, through ensuring the quality of awards, and reducing the probabilities for challenging the said awards or rendering them unenforceable, which preserves for [the ICC’s] arbitration system the international reputation it enjoys in the international trade arena.

The above evidently demonstrates that Egypt’s Supreme Court appreciates and understands the role of arbitral institutions, and, more specifically, how the ICC functions. The Supreme Court’s profound understanding of the scrutiny process sends a clear message regarding the outcome of any future rogue attempts to distort and confuse the roles of arbitral tribunals and the ICC Court, or attempts to file frivolous claims or commence disruptive proceedings.

Concluding remarks

The above judgments by the Egyptian Court of Cassation align Egypt’s Supreme Court with the judiciary in leading arbitration-friendly jurisdictions. To the extent that such judgments represent an irreversible normative approach towards legitimate international arbitration proceedings and credible arbitral institutions, this will boost trust, confidence and certainty in the dismissal of frivolous challenges against arbitral proceedings and awards. This will also boost Egypt’s image and reputation as a welcoming seat of arbitration, and will furnish credible arbitrators and counsel with the much-needed comfort as to the supportive and assuring role of Egypt’s Supreme Court.

Whilst much remains to be done, these recent judgments by the Egyptian Court of Cassation (i) represent a quantum progressive leap forward, (ii) evidence the absence of enmity and skepticism towards arbitration, (iii) demonstrate the high caliber of Egyptian judges sitting at the apex of the judiciary and dealing with arbitration-related matters, (iv) reveal the Supreme Court’s careful consideration and profound understanding of the principles of international arbitration, (v) affirm its appreciation of credible arbitral institutions and their role in supporting and developing international arbitration, and (vi) reflect its approval of leading market players and global standard-setters such as ICC, which has been referenced by the Supreme Court as a global benchmark and a leading institution that enjoys the trust and confidence of its users.

It is indeed hoped that such pioneering judgments will resonate across the courts of all African and Arab states, so that Africa and the MENA region can live up to their well-deserved place in the international arbitration arena. These judgments will undoubtedly help streamline judicial practices and shape positive perceptions towards arbitration throughout Africa and the MENA region. They also provide tangible evidence as to the fact that Africa and the MENA region are rich in talented judges and skilled practitioners who can indeed contribute to the advancement of the rule of law and the evolution of credible dispute resolution processes nationally, regionally and globally.

By and large, thanks to such judgments, it is no longer far-fetched to envisage a real change of judicial perception towards arbitration from hostility towards an ‘exception’ or a ‘threat’ to court jurisdiction to accepting it as a ‘natural and alternative forum’ for resolution of business disputes. This will undoubtedly have far reaching legal implications and ramifications regarding, inter alia, the interpretation and determination of the scope of arbitration agreements, the scope of the ‘in favorem validatis’ presumption, as well as the setting aside and enforceability of arbitral awards.

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