Dr.Ismail Selim (Partner)
Abdallah El Nokaly (Associate)
Nour & Selim in association with Al Tamimi Advocates & Legal Consultants
The Egyptian court of cassation empowers the public prosecution to challenge arbitral awards violating the regulation of foreign ownership of real estate
The regulation of foreign ownership of real estate in Egypt, especially in Sinai Peninsula is a matter of national security which finds an echo in the legislation and the Court of Cassation rulings. By way of example, Article 2 of Law of Integral Development of the Sinai Peninsula No.14/2012 provides that ownership of real estate in the Sinai Peninsula is exclusive to Egyptian nationals having two Egyptian parents. Recently, the Court of Cassation has rendered a landmark decision in January 2016 in line with the same trend of heavy regulation of foreign ownership of real estate. Prior to analyzing such decision, we shall shed light on the geneses thereof.
Indeed, during the years preceding the 25 January 2011 Revolution, Egypt has witnessed a phenomenon of fraudulent arbitral proceedings aiming to breach public policy rules regulating the publicity of real estate lawsuits and restricting the acquisition of real estate property by foreigners. These arbitral proceedings were characterized as fraudulent for several reasons.
Firstly, the arbitral proceedings would be means to evade the requirement of Article 65(3) of the Code of Civil and Commercial Procedures (“CCCP”) which provides that the real estate lawsuits’ initiatory pleading before local courts shall be notarized.
Secondly, such arbitral proceedings would also aim to evade payment of taxes due on such notarization.
Thirdly, the aforesaid arbitral proceedings, under the cover of the principle of confidentiality of arbitration, would be conducted without the participation of the owner of the real estate. Finally, the arbitral award rendered would permit a foreigner to unduly acquire a real estate in violation of public policy provisions. For the purpose of protecting private property, being a fundamental right guaranteed by the Egyptian Constitution, and combating such fraudulent arbitral proceedings, the Public Prosecution took the initiative to challenge these awards through the setting aside proceedings under Article 53(2) of the Egyptian Arbitration Law No.27/1994 which provides for the annulment of awards contravening Egyptian public policy.
In this respect, the Public Prosecution aimed to protect the real estate property against fraudulent arbitral proceedings which violated public policy rules and harmed third parties rights. The Egyptian Arbitration Law does not contain any provision empowering the Public Prosecution to challenge arbitral awards. Nevertheless, the Public Prosecution relied on Article 87 CCCP which provides: “Public Prosecution is entitled to file lawsuits in the cases provided by the Law (…) ”. The Public Prosecution has also invoked Article 89(6) which entitles it to intervene in lawsuits pertaining to public policy and good morals, as well as Article 96 that entitles it to challenge court decisions in cases where the law authorizes such intervention and if the court decision breaches a public policy rule, or if the law permits the Public Prosecution to file an appeal.
According to the prevailing scholarly view, the Egyptian Legislation lacks a provision that empowers the Public Prosecution with the right to initiate setting aside proceedings against arbitral awards even for the sake of safeguarding public policy. Solely the losing party in the arbitral proceedings may have the interest and locus standi to file setting aside proceedings pursuant to article 3 of the CCCP.
Yet, such scholarly view did not influence the Court of Cassation in its recent landmark decision (No.5162/79j) rendered on January 21, 2016. The case relates to two foreigners which have purchased a real estate property from a company in Sharm El Sheikh and have further initiated arbitration proceedings by virtue of a submission agreement. On June 25, 2005, an award (Arbitration award No.12/2005) was rendered in their favour, establishing the validity and the enforceability of the purchase agreement despite its breach of Laws No.114/1946 (Law for Property Registry and Certification) and No.230/1996 (Law regulating the Ownership by Foreigners of Buildings and Land Plots). The Public Prosecution initiated setting aside proceedings against the award before Ismailia Court of Appeal. The latter rendered a judgment on January 28, 2009, by which the award has been annulled. The Company lodged an appeal against the said judgment before the Court of Cassation.
The Court of Cassation clearly stated that if an arbitration award violates a public policy rule (which is the purchase by a foreigner of a real estate property without complying with the conditions of the Law 230/1996), the Public Prosecution is entitled to file setting aside proceedings against both the award and the arbitration agreement itself.
By way of conclusion, the Court of Cassation prioritized the protection of public policy by remedying to the aforesaid legislative lacuna through extending to post-arbitral proceedings the CCCP rules regulating the intervention of the Public Prosecution in civil litigation proceedings.