'B. Motion for Security for Costs

a) Enforceability of an Award in Egypt

(v) Respondent submits in support of its Motion for Security for Costs that the Contract Agreement is a technology transfer contract within the meaning of Art. 72 of the Egyptian Commercial Code ("ECC") and that Art. 87 ECC gives exclusive jurisdiction to the Egyptian courts in matters relating to technology transfers and that these provisions are part of the Egyptian international order public so that an award on costs by our Arbitral Tribunal would not be enforceable in Egypt.

(vi) In its letter to the Arbitral Tribunal dated January 16, 2003 Respondent clarified that the relevant provisions of the Egyptian Commercial Code "were already applicable on October 21, 2001 when the Contract Agreement containing the Arbitration Clause ... was signed". Therefore, through the consultation of an expert of the Egyptian law Respondent would have been able to find out prior to the signing [of] the Contract Agreement that this agreement might violate Egyptian law in an area of Egyptian international order public and, therefore, could have become aware of the risk that an award of an arbitral tribunal sitting in Switzerland could not be enforceable in Egypt.

(vii) In international arbitration, a famous, but controversial case to be considered in connection with requests for security for costs is Coppée Lavalin, SA/NV v. Ken Ren Chemicals and Fertilisers Ltd (in liquidation in Kenya) ([1994 2 All ER 449, Application p. 8), generally referred to as the "Ken-Ren Case". Although in that case security for costs was granted, Lord Woolf who was in favour of the respective decision of the House of Lords shared the opinion that the fact that a claimant in an arbitration proceeding might not have sufficient means to honor an award on costs is not per se a sufficient reason to order security for costs. Lord Woolf stated ([1994] 2 All ER, p. 476): "Mere lack of means of a party is not, however, in ordinary circumstances sufficient by itself to justify the grant of security in this class of arbitration. The parties must be taken to accept these risks involved in the other party in the ordinary way, while having the means necessary to enable him to take part in the arbitration, lacking the means, if he is unsuccessful to meet his opponent's cost" (emphasis added).

(viii) Similarly Katherine Lynch in her article on "Security for Costs in Domestic and International Arbitration in England and Hong Kong" (Journal of International Arbitration Vol. 12 No. 2, June 1995, p. 27) emphasizes that the mere fact that a party may lack the means to pay the costs of a defendant in an international arbitration shall not by itself merit the ordering of security for costs thereby referring to the above-quoted statement of Lord Woolf.

(ix) As a result of this, special circumstances must exist to justify an order for security for costs. In the Arbitral Tribunal's opinion, circumstances can only be special if they do not constitute an accepted risk, i.e. a risk that-as Lord Woolf puts it-is not "involved in the other party in the ordinary way". In fact, an accepted risk remains within the Parties reasonable and fair expectation and can, therefore, not be a reason to balance inequalities between the Parties by an order for security for costs.

(x) As stated in consid. (vi) hereinabove, Respondent could have become aware of the alleged hindrances or obstacles to the enforceability of an award to be rendered in this arbitration proceeding and, therefore, known the risk it now invokes as a reason for its Motion for Security for Costs by consulting an expert in Egyptian law. In fact the article from the Journal of International Arbitration submitted by Respondent as Exhibit R-33 was published one year before the signing of the Contract Agreement (Vol. 17/5 is dated October 5, 2000).

(xi) In its submissions dated December 11 and 27, 2002 Respondent does not state whether it investigated the enforceability of awards in Egypt and whether it was thus aware of the alleged hindrance to the enforceability of an award of this Arbitral Tribunal in Egypt. In the Arbitral Tribunal's view these questions can be left open since a party who fails to review the validity and enforceability of a choice of law clause and an arbitration clause under the laws applicable at the domicile of its contract partner takes the risk of an unexpected surprise and cannot invoke this lack of due diligence as reason for security for costs. In fact, general principles of law do not protect the party which waits to examine the said issues until it is confronted with an arbitration proceeding as a respondent. In that respect the same level of due diligence a party exercises in the course of an arbitration proceeding must be applied already at the time of the signing of a contract.1

(xii) In conclusion Respondent could have known the risk of the alleged hindrances to the enforceability of an award of this Arbitral Tribunal and, therefore, cannot invoke them as a reason for security for costs. Accordingly, it is not necessary to invite Claimant to comment on the aspects of Egyptian law described in consid. (v) hereinabove and to examine whether the respective allegations of Respondent are correct.

b) Capital Decrease

(xiii) In its submission to the Secretariat dated December 11, 2002 Respondent confined itself to alleging that on April 3, 2002 Claimant reduced its share capital from EGP 115,000,000.00 to an amount of EGP 60,000,000.00, to referring to Exhibit R-32, a recent excerpt from the Egyptian Commercial Register and to alleging that Claimant2 "will immediately dissolve and distribute any leftover share capital to its shareholders if it would become apparent that Respondent prevails in the pending arbitration" (pp. 3/4).

(xiv) This very limited substantiation does not show how the alleged reduction of Claimant's share capital constitutes a relevant change of the risk once accepted by Respondent at the time of the signing of the Contract Agreement which goes beyond Respondent's reasonable and fair expectations. Accordingly, Respondent's argument relating to the capital decrease for lack of substantiation does not have to be further entertained in this First Order.

c) In view of the above, the Motion for Security for Costs has to be dismissed.

Therefore, there is no need for the Arbitral Tribunal to examine whether it has the power to order security for costs and whether, in the affirmative, such power is vested in Art. 183 PIL or rather in an arbitral tribunal's general powers under Art. 182 PIL which might require an arbitral tribunal to balance inequalities between the parties by an order for security for costs if the risk accepted by a party at the time of concluding a contract has thereafter substantially increased for reasons attributable to the sphere of risks of the other party.'

1
An exception might apply in the event of a duty to disclose a particular rule of law applicable at the domicile of a party by such party or a misrepresentation made by such party. No such argument has been alleged in Respondent's submissions dated December 11 and 27, 2002.

2
From this excerpt from the Egyptian Commercial Register results that only a part of Claimant's share capital has been paid in.