Egypt's new investment law ignites controversy

Bassem Abo Alabass, Deya Abaza, Monday 14 Apr 2014

Amendments barring third parties from challenging contracts between Egypt's government and investors, supposed to quell business fears, have angered judges and labour lawyers, who warn of 'legalised thuggery'

Workers of Tanta and Shebeen el Koom factories waiting for the hearing on appeal decision at the court of council ‎of state.

A new investment law approved by Egypt’s cabinet last week has stirred controversy among activists and businessmen as it includes a clause that prevents third parties from challenging contracts made between the government and investors.

According to the amended law, only the government or the investor will have the right to challenge the contract.

The amended 70-article investment law – number 8 of 1997 – was initially approved under the last government led by then-prime minister Hazem El-Beblawi in February. Last week, it was re-approved by the current interim cabinet, drawing criticism from legal experts, economists and investment insiders.

But the State Council, Egypt's administrative court, has handed the amendments back to the investment ministry on grounds that the law effectively immunises government contracts.

However, the statements of the court are not binding, said Magdy El-Garhi, a judge in the Supreme Administrative Court. The law can still be ratified by the president, pending a final parliamentary vote, El-Garhi said.

The court is nonetheless defiant, vowing to continue its current policy.

"The court will keep reviewing challenges made by third parties to such contracts regardless of the amendments, especially if such contracts carry hints of unconstitutionality," said El-Garhi.

Yassin Tag-El-Din, attorney at the Cairo Court of Cassation, told Ahram Online that "the court will have no legal grounds to rule on such cases once the law is definitively passed, as constitutional disputes must be referred to the Supreme Constitutional Court anyways."

"The general rule in Egyptian law is that the effects of a contract are only binding between its parties,” Tag-El-Din explained, "so third parties have no right to challenge the legality of a contract.”

Constitutionally, the law is sound, maintained Tag-El-Din, and article 2 of the constitution – which calls for the general protection of the public interest – does not provide a solid basis for opposing the law.

"Article 3 of Egypt’s code of civil and commercial procedures clearly stipulates that a legal action can only be accepted by a court if the claimant has a personal (as opposed to public) interest in his demand," he said.

Former investment minister Osama Saleh stated earlier in February that the new amendments were intended to reassure investors unnerved by previous legal challenges to such deals, which have left companies sold by the government in legal limbo.

Over the last three years, under the previous investment law, Egyptian courts have issued over 11 rulings invalidating privatisation deals made under the ousted regime of Hosni Mubarak, with dozens of other lawsuits still in the courts, according to activist lawyers who maintain that the deals were corrupt.

The business community has, as expected, rallied behind the law.

Mohamed Saad El-Din, a member in the Egyptian Investors Federation, told Ahram Online that the new amendments will restore the appetite of local and foreign investors.

"The investor will feel safe once it is no longer legally possible for a disinterested third party to cancel the contract," he said.

"On the other hand," added the businessman, "the law should have made provisions for any aggrieved person to challenge the contract in the first 60 days after its signing, in order to avoid people resorting to protests and strikes."

Activists and lawyers have defied the new law, suspecting the government of foul play.

"The new amendments will open the door to rampant corruption," rights lawyer and activist Malek Adly told Ahram Online.

Prominent lawyer and former 2012 presidential candidate Khaled Ali went as far as to describe the amended law as "legalised thuggery".

In 2011, legal challenges from industrial workers resulted in a landmark court decision to renationalise three companies: Shebin El-Kom Textile Company, the Tanta Company for Linen and Derivatives and the Steam Boilers Company.

In 2010, a legal challenge from Ali and fellow lawyer Hamdy El-Fakharany led to the annulment of the sale of state land to real estate developer Talaat Moustafa Group (TMG) for its $3 billion Madinaty project on grounds that the land in question had been sold at deflated prices.

At the time, the government drew up a committee that re-valued the land. Accordingly, a new contract was signed between the government and TMG in late 2010.

More recently in August 2013, Egypt's Supreme Administrative Court annulled the 2006 sale of state-owned department store Omar Effendi to Saudi Arabia's Anwal United Trading Company, after employees demanded the cancellation of the deal.

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