Wena Hotels v. Egypt

(41 ILM 881, 896, 933) - www.worldbank.org/icsid

Thomas W Wälde, CEPMLP

A dispute between a UK investor (owned by an Egyptian national) and Egypt about harassment of the investor by a state company, tolerated by the Egyptian government, arising out of a commercial (and presumably personal) dispute. The tribunal decided that the government on the basis of the UK-Egypt bilateral investment treaty that Egypt had breached the obligation of "fair and equitable treatment" and "constant protection and security" when it tolerated knowingly that a commercial dispute between the investor and an Egyptian state company escalated into a forceful and destructive occupation of the hotels by goons hired by the Egyptian partner. There were also allegations of corruption, but the tribunal found no evidence of either corruption, nor did the Egyptian government make the main corruption-relevant witnesses available nor did the procedure and result of the contracting (normal tendering; award to highest-price bidder) give any indications of the possibility of corruption.

The finding rests on the government being aware of its state company's actions, of non-intervention of the government or the policy, on omission to restore the hotels to the investor or punish the state company executives and to compensate the investor for the losses sustained. The tribunal also held these actions to constitute expropriation - i.e. effective deprivation of ownership rights.

Egypt had earlier unsuccessfully contested the admissibility of the claim (because the owner of the UK company was an Egyptian national). Its request for annulment (a unique ICSID quasi-appeal procedure) also failed.

In my view, the case should have never gone to arbitration. Whatever the murky relationship between the Egyptian state company, its supervisory ministry and the - Egyptian - businessman who owned the "foreign" investor, the facts of the case clearly indicate that the government company exploited its special relation with the government (the supervisory ministry, other authorities, security forces) to gain an advantage in an increasingly bitter commercial (and probably personal) conflict. That is not "fair" treatment and the government is enjoined by international treaties to behave like a "civilised" government. Corruption - or the allegation of corruption - seems to be an undercurrent in many investment arbitrations, either in its "third world" form (e.g. the Metalclad v. Myers case does not smell nicely to me) or its "Western" form (i.e. contributions to politicians for regulatory and protectionist favours, e.g. the Methanex v. US case or the Myers v. Canada case). But the tribunal acted in my view rightly: There was no evidence; prima facie indicators - complying with tender rules and awarding to highest-price bidders - suggest a normal awarding. What corruption there may have been may rather have been an intra-governmental matter which the government did not seem to wish to be investigated further.