(a) a decision on the part of the Ministry of Tourism to downgrade the Hotel’s classification from the five star status required under Helnan’s long-term Management Contract (‘the Management Contract’) with the Egyptian Organisation for Tourism and Hotels (‘EGOTH’); and,
(b) an award of 20 December 2004 by an arbitral tribunal appointed under the aegis of the Cairo Regional Centre for International Commercial Arbitration to decide the contractual dispute between Helnan and EGOTH (‘the Cairo Arbitration’).
That latter award, in the making of which appointees of the parties took part, unanimously terminated the Management Contract on the ground that it was impossible to execute, and that both parties were responsible for failing to execute the contract. The tribunal awarded a sum to Helnan in settlement of debts, which Helnan encashed. The Cairo tribunal did not consider any claims for breach of treaty, no such claims having been submitted to it.
(a) the finding that Egypt’s plan to terminate the Management Contract cannot constitute a treaty violation;
(b) the finding that all Helnan’s claims are disqualified because it did not challenge the downgrade in the Egyptian courts;
(c) the finding that conduct of EGOTH and Ministry of Tourism officials did not go beyond contractual matters and commercial motivation; and,
(d) the finding that Helnan’s claims fail due to lack of legal causality.1
[T]his does not necessarily lead to the conclusion that because of this suspicious inspection and the following downgrade, Egypt is responsible for breaches of the Treaty provisions. It must be recognized that the decision to downgrade the hotel, could as well have been taken after the 14 June 2003 inspection, as suggested by the subsequent Memorandum submitted to the Minister of Tourism... This was not done and, instead, the Egyptian administration decided that it had to organise a semblance of an inspection to produce a report which reached the same result as the June report. The Tribunal cannot ignore that after the 28 June letter of the Ministry of Tourism, Helnan never seriously challenged the conclusions in favour of the downgrading of the hotel. Its main line of argument was to put the responsibility on EGOTH. As already pointed out, the allocation of the responsibility for the downgrading was of a contractual nature outside the scope of jurisdiction of this Arbitral Tribunal. Under these circumstances, the downgrading as such cannot amount to a breach of Egypt’s obligations under the Treaty, even if the procedure followed was rather suspicious.5
(a) It observed that the essence of Helnan’s claim was that Egypt had orchestrated a series of events which ultimately led to Helnan’s eviction from the Hotel, because Egypt considered that the Management Contract was an obstacle to the privatisation of the Hotel. Both the June and September inspections were alleged by Helnan to be part of that single strategy. As a result of it, Helnan claimed that its investment had been expropriated and that it had been treated unfairly and inequitably.
(b) As to the June inspection itself, the Tribunal recorded Helnan’s observation that this inspection did not follow customary practice. But the Tribunal also found that the inspection had concluded that the Hotel was not of a five star standard. This finding was not challenged by Helnan at the time - a fact that was unsurprising since the problems with the Hotel had persisted for some years, there being an outstanding and longstanding dispute between Helnan and EGOTH as to which of them was financially responsible for the investments required to upgrade and maintain the Hotel at a five-star standard. Given this broader context, the June inspection did not violate the principle of fair and equitable treatment.14
(c) Against this background, the September inspection was a ‘mere formality,’ since the decision to downgrade could have been taken after the June inspection. Helnan never challenged the substantive findings of the June inspection, since its real dispute was a contractual one - that EGOTH and not Helnan had financial responsibility for the necessary works.15
(d) The management of the hotel previously received a notice and it was notified several times with remarks in order to act accordingly. However, the management of the hotel does not respond and does not observe such remarks. Consequently, the hotel will be downgraded to Four Stars....
(e) Because the hotel is owned by the State (Egoth Company) and because there was a contract between the owning company and the management company, we suppose the following:
To consider the hotel position with the owning company before imposing penalties (by downgrading its class), so that such penalties are not used for the benefit of one of the parties in such a manner as to adversely impact the public interest, (emphasis added.)
It may be true that the particular approach adopted by the Tribunal in attempting to reconcile the various conflicting elements of the case before it came as a surprise to the parties, or at least to some of them. But even if true, this would by no means be unprecedented in judicial decision-making, either international or domestic....
From the record, it is evident that the parties had a full and fair opportunity to be heard at every stage of the proceedings. They had ample opportunity to consider and present written and oral submissions on the issues, and the oral hearing itself was meticulously conducted to enable each party to present its point of view. The Tribunal’s analysis of the issues was clearly based on the materials presented by the parties and was in no sense ultra petita.
The ministerial decision to downgrade the hotel, not challenged in the Egyptian administrative courts, cannot be seen as a breach of the Treaty by EGYPT. It needs more to become an international delict for which EGYPT would be held responsible under the Treaty.
[l]t is not open to an ICSID tribunal having jurisdiction under a BIT in respect of a claim based upon a substantive provision of that BIT, to dismiss the claim on the ground that it could or should have been dealt with by a national court.
The question of excess of power or jurisdiction is, in essence, a question of treaty interpretation. It is a question which is to be answered by a careful comparison of the award or other contested action by the tribunal with the relevant provisions of the compromis. A departure from the terms of submission or excess of jurisdiction should be clear and substantial and not doubtful and frivolous.39
Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.
Arbitration as an Exclusive Remedy
It may be presumed that when a State and an investor agree to have recourse to arbitration, and do not reserve the right to have recourse to other remedies or require the prior exhaustion of other remedies, the intention of the parties is to have recourse to arbitration to the exclusion of any other remedy. This rule of interpretation is embodied in the first sentence of Article 26. In order to make clear that it was not intended thereby to modify the rules of international law regarding the exhaustion of local remedies, the second sentence explicitly recognizes the right of a State to require the prior exhaustion of local remedies.
It is doubtful whether a breach by a state of its contractual obligations with aliens constitutes per se a breach of an international obligation, unless there is some such additional element as denial of justice, or expropriation, or breach of treaty, in which case it is that additional element which will constitute the basis for the state’s international responsibility.60
It then observed:
A treaty cause of action is not the same as a contractual cause of action; it requires a clear showing of conduct which is in the circumstances contrary to the relevant treaty standard. The availability of local courts ready and able to resolve specific issues independently may be a relevant circumstance in determining whether there has been a breach of international law (especially in relation to a standard such as that contained in Article 3 [fair and equitable treatment]). But it is not dispositive, and it does not preclude an international tribunal from considering the merits of the dispute.61.
(1) To annul the holding of the Arbitral Tribunal in paragraphs 148 and 162 of its Award which, while disclaiming a requirement of exhaustion of local remedies before ICSID arbitral recourse may be implemented, nevertheless accepts that challenge by Helnan of the decision to terminate its Management Contract in competent Egyptian administrative courts was required in order to demonstrate the substantive validity of its claims.
(2) To deny the claims of Helnan otherwise to annul the Arbitral Tribunal’s Award of 3 July 2008.
(3) To require the parties equally to share the costs and expenses of ICSID and the fees of the members of the ad hoc Committee, each party being left to meet the costs of its representation in the annulment proceedings.