Cementos La Union S.A. and Aridos Jativa S.L.U v. Arab Republic of Egypt

Case summary

At a glance

Parties: Cementos La Unión S.A. and Áridos Jativa S.L.U. (Spain) v. Arab Republic of Egypt
Case no.: ICSID Case No. ARB/13/29
Forum and rules: ICSID Convention; ICSID Arbitration Rules 2006; place of proceeding Washington, D.C.; hearing held in Paris
Treaty: Spain–Egypt BIT of 3 November 1992; Article II(7) of the US–Egypt BIT applied through the MFN clause in Article 4(2)
Tribunal: Christer Söderlund (President), Charles N. Brower, Philippe Sands
Sector: Cement production; industrial licensing; gas and electricity supply
Outcome: Award of 30 October 2020: Egypt breached the BIT only by failing to provide 'effective means' before its Administrative Courts. By majority, the declaration of breach was held to be adequate satisfaction. All monetary claims were dismissed. Brower dissented in part. The application for partial annulment was dismissed on 31 July 2023.
Amount: Claimed: EUR 78.9 million (licence and electricity fees), EUR 5.4 million (Line II gas cut-off in 2011), EUR 151.6 million (gas shortfall from 2012) and EUR 100,000 (litigation costs), plus interest. Awarded: nothing. Arbitration costs of USD 1,092,443.92 were shared equally, so Egypt pays the Claimants USD 546,221.96. Annulment: the Claimants bear all costs of the proceeding (USD 342,946.68) and EUR 600,000 of Egypt's legal costs (¶ 269 states USD 600,000).

The dispute

Áridos Jativa holds 60% of the Arabian Cement Company S.A.E. (ACC), an Egyptian cement and clinker producer in the Suez Governorate, and Cementos La Unión owns all of Áridos Jativa. ACC began building its plant without an Industrial License under the 1958 Industry Law. The Industrial Development Authority (IDA) treated ACC as one of five 'legalization cases'. ACC had to pay licence fees set by the bids in the October 2007 auction for new cement licences (EGP 281.4 million for the first line, prorated), and to fund power generation capacity (EGP 246,160,000). Gas supply to its second line was cut in 2011 for unpaid licence instalments, and later shortages followed. The Claimants alleged breaches of fair and equitable treatment, discrimination and arbitrariness, breach of legitimate expectations, denial of justice and failure to provide 'effective means' (imported from the US–Egypt BIT), pointing among other things to the delays in ACC's Egyptian court case. Egypt replied that a licence had always been required by law, that the auction was lawful, transparent and non-discriminatory, and that ACC's gas rights were governed by its contract with City Gas. Egypt withdrew its jurisdictional objections at the hearing.

Key holdings

Jurisdiction upheld. The Claimants' direct and indirect shareholding in ACC is an investment under Article 1(2) of the BIT and Article 25 of the ICSID Convention. Egypt had withdrawn its objections at the hearing. Award ¶¶ 262–277
The licensing claims fail. GAFI's 1996 'preliminary approval' was not a licence under the 1958 Industry Law. There was no 'one-stop shop' and no 'negative list' of regulatory relevance. The licensing requirement was not imposed retroactively. Making the legalization cases pay fees set by competitors' bids in an open auction was fair, transparent and non-discriminatory. ACC was rightly compared with the 2006–2007 new entrants, not with earlier licensees. The Claimants did no proper due diligence and must bear the regulatory risk. Award ¶¶ 587–613, 656–668, 711, 730
No breach as to electricity or gas. The quantities of electricity and gas stated in IDA's Final Approval were estimates, not undertakings. The duty to fund generating capacity was a licence term that ACC could have accepted or refused. The gas stoppages ordered through City Gas are attributable to Egypt but were tied to ACC's non-payment of licence fees and were not arbitrary. Shortages caused by civil unrest or technical failures were excluded by contract. Overcapacity, devaluation of the Egyptian pound and VAT changes fall within commercial and country risk. Award ¶¶ 770–778, 847–853, 864–868
Legitimate expectations are not a separate standard but form part of fair and equitable treatment. The Claimants relied on no specific commitment from Egypt. Award ¶¶ 870–878
Effective means: Article 4(2) of the BIT imports the 'effective means' standard of Article II(7) of the US–Egypt BIT, as part of fair and equitable treatment. ACC's case began in the Administrative Court in November 2008 and was decided in March 2013, and its appeal was still pending in April 2019. This delay breached the standard. The Settlement Committee had no judicial function, so its inaction did not. Because the underlying measures were not Treaty breaches, the breach does not give rise to compensation. By majority, the declaration of breach is adequate satisfaction. Award ¶¶ 901–916, 907, 940
No denial of justice. The court delays did not reach the level of egregiousness required. The Administrative Court's reasoning was detailed and coherent. ACC's dealings with administrative agencies, including its exchanges with IDA, did not amount to a denial of justice either. Award ¶¶ 917, 922–923, 942
Brower dissented on three points. He would have awarded damages for the effective-means breach after deciding ACC's claims as an impartial Egyptian court would have. He would have extended the breach to the Ministerial Committee. He would also have ordered Egypt to pay some of the Claimants' costs. By majority, the Tribunal held that each side bears its own costs and half of the arbitration costs. Award ¶ 944; Brower Concurring and Dissenting Opinion
Annulment refused. The Tribunal applied the effective-means standard; refusing compensation was at most an error of law, not a manifest excess of powers. The Claimants had never put a separate claim for compensation for this breach to the Tribunal. The ruling on the Settlement Committee, the refusal to admit the late 'Negative List Decree', and the treatment of the 'one-stop shop' evidence involved no serious departure from a fundamental rule of procedure and no failure to state reasons. Costs follow the event. Decision on Annulment ¶¶ 104–117, 142, 193–197, 212, 249–256, 266–270

Procedural history

14 November 2013ICSID receives the Request for Arbitration. It is registered on 22 November 2013.
6 November 2014Tribunal constituted.
6 April 2019Procedural Order No. 7: Prof. Badran's legal opinion stays on the record despite his absence from the hearing; the Claimants' request to add further documents is refused.
8–11 April 2019Hearing on the merits in Paris. Egypt withdraws its jurisdictional objections.
30 October 2020Award: breach of the effective-means standard declared without compensation; all other claims dismissed. Brower files a concurring and dissenting opinion.
25 February 2021The Claimants apply for partial annulment. The application is registered on 5 March 2021, and the ad hoc Committee is constituted on 26 March 2021.
19 October 2022Hybrid hearing on annulment, with in-person attendance in London.
31 July 2023Decision on Annulment: application dismissed; the Claimants bear the costs.

Tribunal, counsel and experts

Decided by: Christer Söderlund President — appointed by the institution
Charles N. Brower Co-arbitrator — appointed by the claimant (concurred on breach; dissented on compensation, the Ministerial Committee and costs)
Philippe Sands Co-arbitrator — appointed by the respondent
Mónica Pinto Committee president — appointed by the institution
Wendy Miles Committee member — appointed by the institution
Carita Wallgren-Lindholm Committee member — appointed by the institution
For the claimant: Youssef & Partners Attorneys · Amereller Legal Consultants · Khalifa Associates
For the respondent: Egyptian State Lawsuits Authority · Bredin Prat
Experts: Mohamed Badran (respondent)