The Establishment of an Arbitration

On 11 July 2019, the President issued a decree (the “Decree”) to establish an arbitration centre for the settlement of disputes arising from the application of laws governing non-banking financial transactions (the “Centre”).[1] This comes as an application of Article 10 of Law No. 10 of 2009 which regulates non-banking financial transactions, which provided for the establishment of the Centre.

Background

Arbitration and settlement are among the most prominent means of alternative dispute resolution. In the absence of a clear agreement between the parties to resort to such alternative means, the regular judicial process remains the method for the resolution of disputes. The main effect of an arbitration agreement is that the parties to a dispute resort to a special system of private judiciary through which they exclude national courts and freely choose (through different methods) individuals to adjudicate their disputes. To this end, the Egyptian Arbitration Law No. 27 of 1994 (“EAL”) established a legal framework setting out the main rules and regulations that apply to arbitration proceedings subject to its jurisdiction and granted arbitral awards solid legal standing. Despite the fact that Egyptian law prohibits arbitration of certain disputes (for example, Art. 11 of the EAL states that arbitration is prohibited when the subject matter or dispute in question may not be settled), arbitration of non-banking finance disputes is not prohibited. Thus, even before the Decree was issued, parties to a non-banking financial transaction had the option of choosing arbitration as the dispute resolution method. Such disputes included matters related to capital markets, insurance operations, real estate financing, financial leasing and other non-banking financial activities. The Financial Regulatory Authority (“FRA”) highlighted in a recent statement the importance of arbitration and settlement as alternative means to dispute resolution, noting that they have become significant elements of a proper investment environment. According to the statement, this reflects the conviction that parties involved in non-banking finance do not only care about the ease of incorporation procedures or licensing, but also pay significant attention to the available dispute resolution methods. While regular courts in general remain the primary authority for the adjudication of disputes, many commercial parties prefer to refer their disputes (especially disputes relating to international transactions) to arbitration, seeking a more flexible, expeditious and confidential means to resolve their dispute. This is primarily due to arbitration rules being relatively similar in different countries as opposed to normal litigation procedures which may vary greatly from one country to the other.

The Jurisdiction of the Centre

The Centre will have jurisdiction over arbitration and settlement of disputes arising from the application of laws related to non-banking finance. The focus of the Centre will be especially on disputes among partners, shareholders or members of companies and entities operating in the field of non-banking financial markets. The Centre will also have jurisdiction over disputes arising between the aforementioned individuals/entities and the wider public they interact with. To reflect the essence of arbitration and settlement, the Decree provides that the jurisdiction of the Centre is only granted if the parties to a dispute agree to resort to it; meaning that in the absence of a clear arbitration agreement, the parties may not refer their disputes to the Centre.

The Structure of the Centre

It is noteworthy that the structure of the Centre, as envisaged in the Decree, raises some questions on its independence from the Egyptian government. The Decree stipulates that the Chairman of the FRA shall be the Chairman of the Centre’s Board of Trustees. The remaining members of the Board of Trustees include the two vice presidents of the FRA, as well as four other members appointed through a decision of the FRA’s Board of Directors. Furthermore, the Board of Trustees appoints an Executive Director for the Centre, who will be responsible for managing the Centre and its affairs for a period of four years (renewable for one term). In addition, the FRA provides the Centre with its headquarters and equipment. As for financial resources, the Centre relies on funds allocated to it by the state, as well as other finances such as arbitration and dispute resolution fees.

Conclusion

While some may see that the state’s support for the Centre is a positive indicator of the potential role it might have in the future, this structural relationship may raise some doubts about the Centre’s independence and neutrality. This may affect the decision of some parties to refer disputes to the Centre, especially if the counterparty to the dispute is related to the state. In addition to concerns of independence, the Decree has failed to set out clear guidelines regarding the rules and procedures of the Centre’s operations, which could have been benchmarked by best practice. For example, the Decree does not refer to the UNCITRAL Arbitration Rules issued by United Nations Commission on International Trade Law in 1976 (as revised in 2010), which are the most important rules in arbitral proceedings and are used as a base for the rules of many centres, including the Cairo Regional Centre for International Commercial Arbitration. On a separate note, the decision to establish the Centre could be viewed as a step in the right direction and a positive acknowledgement of the state of the important role of arbitration and settlement in dispute resolution. This follows other important steps indicating a similar approach, such as the creation of the centre for the arbitration and settlement of sports disputes created by the Sports Law No. 17 of 2017.   [1] Presidential Decree No. 335/2019 establishing an arbitration centre for the settlement of disputes arising out of applying law in connection with non-banking financial transactions, Official Gazette, Issue No. 28 (cont.) (a), 11 July 2019.