By Ahmed Abaza
In 2016, the Egyptian Court of Cassation (the “Court of Cassation”) ruled, in a landmark decision, that the prosecuting attorney has the right to set aside an arbitral award despite not being a party to the arbitration agreement. For context, prosecuting attorneys in Egypt may intervene in civil proceedings addressing public policy violations, in addition to criminal proceedings, as further discussed below.
In 2018, the Court of Cassation upheld this position in two additional decisions. In each of these cases, the Court of Cassation held that, while the Egyptian Arbitration Act of 1994 (the “Arbitration Act”) does not expressly entitle the prosecuting attorney to annul an arbitral award, it nonetheless does not preclude it from doing so. What made these decisions even more controversial was the fact that the Court of Cassation held that the prosecuting attorney was not bound by the limitation period of ninety days set out in Article 54(1) of the Arbitration Act.
Annulment of Arbitral Awards in Egypt
Article 53 of the Arbitration Act provides for eight exclusive grounds for setting aside an arbitral award. Those grounds very closely mirror the grounds set forth in Article V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under Article 53(1), an arbitral award can be set aside only if (a) there is no arbitration agreement or the agreement is void or voidable; (b) either party to the arbitration agreement is deemed incapacitated under the applicable law; (c) either party is unable to present its case because it was not given proper notice of the appointment of the arbitrator, or of the arbitration proceedings, or for any other reason beyond their control; (d) the award did not apply the applicable law; (e) the arbitral authority was not constituted in accordance with the applicable law or the arbitration agreement; (f) the subject-matter of the award is not contemplated by, or falls beyond the scope of the arbitration agreement; or (g) the award is rendered void.
The eighth ground under Article 53(2) provides that the court shall, on its own motion, set aside the arbitral award if it is against public policy in Egypt. Article 54(1) imposes a statutory period of ninety days during which a party may bring an action to annul the arbitral award.
The Prosecution’s Functions in Egypt
In Egypt, the initiation of criminal proceedings is exclusively vested with the public prosecution, but the prosecution also plays a crucial role in civil proceedings. Under Article 88 of the Egyptian Civil Procedures Code (The “Egyptian Civil Code”), the prosecution must take prosecutorial action: (a) in any proceeding it may initiate; (b)…; and (c) in any other case as required by law. Importantly, a court’s decision is void if Article 88 is not complied with. In addition, Article 92 imposes an obligation on the court’s clerk to notify the prosecution of any proceedings where prosecutorial action is mandated.
Article 89 further provides that the prosecution may intervene or initiate proceedings, amongst other things, relating to a violation of public policy. Article Similarly, pursuant to Article 96, the prosecution shall intervene in any case that involves a violation of public policy.
The three Arbitral Awards brought before the Court of Cassation
All three cases decided by the Court of Cassation (mentioned above) involved the purchase of property in Egypt by foreign buyers from real estate developers, which led to a dispute and subsequently to arbitration.
In Egypt, foreigners’ ownership of real estate is regulated by Egyptian domestic law (“Law No. 230”). Article 6 provides for the annulment of any action (or real estate transaction) that violates Law No. 230, such as, for example, owning more than two properties in the territory of Egypt. It further stipulates that any interested party, or the public prosecution, may file a petition to vacate any action in violation of this law.
The three arbitral awards in question were issued in favor of the foreign buyers and enforced their purchase agreements. The prosecuting attorneys were successful in setting the awards aside at the Court of Appeal, and the cases were thus referred to the Court of Cassation. The prosecuting attorneys argued that enforcing the purchase agreements was a violation of public policy because they violated Law No. 230, rendering the arbitral awards void ab initio.
In all three cases, the claimants (i.e., the foreign buyers) maintained that the prosecuting attorneys were not entitled to set aside an arbitral award because such a right was only available to the parties to an arbitration agreement per the Arbitration Act. Since the prosecuting attorney was not a party to the arbitration agreement, it lacked legal standing to set aside the arbitral award. In addition, the claimants maintained that the actions for annulment were brought after the statutory limitation period had lapsed, in breach of the Arbitration Act. The claimants further asserted that the lower courts annulled the award on grounds that were not set forth in Article 53 of the Arbitration Act, and applied the rules of the Civil Code even though the Arbitration Act was the applicable law.
The Court of Cassation considered whether the prosecuting attorney was empowered to set aside an arbitration award despite not being a party to the arbitration agreement. The Court reasoned that under the legal maximum that special laws override general laws, except in matters not contemplated by the special law, in which case the general law applies. The Arbitration Act is regarded as a special procedural law because it provides the enforcement procedures of domestic arbitral awards. In contrast, the Egyptian Civil Code is regarded as a general procedural law since it lays down the general procedural rules that apply to any proceeding in Egypt.
The Court of Cassation further noted that while the Arbitration Act did not expressly empower the prosecution to set aside an arbitral award, it did not preclude it from doing so either. Because the Arbitration Act was silent on this matter, the Court of Cassation determined that the Civil Code applied. For this reason, the Court of Cassation, applying the Civil Code, held that the prosecuting attorneys had to take action in this case, as required under Article 6 of Law No. 230, and that an award would be deemed void if it was issued without notifying the prosecution. It also held that the arbitral tribunals’ clerks should have notified the prosecution and that they failed to do so.
The Court of Cassation further held that the awards contravened public policy, and were therefore unenforceable per Article 53(2) of the Arbitration Act, because they enforced agreements that were made without complying with Law No. 230. The Court of Cassation, however, did not elaborate on the reasons why it held that the prosecuting attorneys were not bound by the statutory limitation period.
The decisions from the Court of Cassation establish that Egyptian appellate courts will uphold lower courts’ decision that would enforce the public prosecution’s right to annul an arbitral award in matters violating public policy, even though this is not expressly provided for in the Arbitration Act, and even though the prosecuting attorney cannot be a party to an arbitration agreement. If the prosecuting attorney is required by law to take action, or if there is a violation of public policy, it has the right to set aside the arbitral award.
While most of the Court of Cassation’s reasoning makes sense, it does not explain why the prosecuting attorney is not bound by the statute of limitations set forth in Article 54(1) of the Arbitration Act. The Court of Cassation relied on the legal maximum that states that the general law applies if, and only if, the special law is silent on any relevant matter in a controversy. Conversely, if the specific law is not silent on those matters, then the specific law applies.
The Arbitration Act is silent on whether the prosecution is empowered to set aside an arbitral award. Therefore, applying the rules of the Egyptian Civil Code was and is logically justified. However, the Arbitration Act does provide for a statutory limitation period, and therefore it is not silent on this matter. Thus, the Court of Cassation should have enforced the limitation period unless it relied on article 250 of the Egyptian Civil Code which entitles the attorney general attorney to set aside final judgements that violate any law without being bound by any limitation period. This is of course is not applicable in this case since the Court of Cassation didn’t expressly rely on this article in its decision
It might be argued that matters of public policy are of utmost importance and thus justify setting aside the arbitral award even after the lapse of the limitation period. On the other hand, it could be argued that because matters of public policy are of utmost importance, they must be brought to the courts as quickly as possible, and the limitation period should be enforced. This conclusion would preserve procedural efficiency, one of the advantages of arbitration.