Southern Pacific Properties (Middle East) Ltd. v Egypt

Year of the award: 1992
Forum: ICSID
Applicable law: Egyptian law, international law

Arbitrators:
Dr Eduardo Jiménez de Aréchaga - President
Dr Mohamed Admin El Mahdi
Mr Robert F. Pietrowski

Executive summary

In 1974, SPP, a Hong Kong company, entered into agreements with Egypt to establish a joint venture (ETDC) with a view to develop an international tourist complex at the Pyramids Oasis in Egypt. SPP's Egyptian subsidiary, SPP(ME), held 60% of shares in ETDC, with the remaining 40% owned by the Egyptian partner.

The project went ahead until 1978 when, as a result of parliamentary opposition, the Government effectively cancelled the project placing ETDC in judicial trusteeship. By that time, SPP(ME) and SPP had invested approximately US$ 5 million in the project (capital contributions and loans to ETDC, expenses for infrastructure design and development) and sold 286 building lots for a total of more than US$ 10 million.

In 1978, pursuant to the contractual arbitration clause, SPP and SPP(ME) commenced an ICC arbitration, and obtained an award of US$ 12.5 million in damages. However, this award was later annulled by French courts on jurisdictional grounds.

In 1984, the Claimants decided to take the same matter before an ICSID Tribunal, pursuant to Egyptian Law which contained an ICSID arbitration provision. The Claimants maintained that Egypt's actions violated the agreements and amounted to expropriation of the investment, and thus claimed compensation for the value of their investment in ETDC plus interest.

In its 1992 award based on Egyptian and international law, the Tribunal held that Egypt's actions constituted a lawful expropriation of the Claimants' investment (their shareholding in ETDC) and that Egypt was therefore liable to pay "equitable compensation" for the value of the expropriated investment. In establishing this value, the Tribunal rejected the Claimants' DCF analysis, as well as the analysis based on past sales of SPP(ME)'s shares. The Tribunal awarded all out-of-pocket expenses incurred by the Claimants with interest at a 5% rate, prescribed by Egyptian law, and with an upward adjustment to account for post-1978 US dollar devaluation. In addition, the Tribunal compensated the Claimants for the loss of opportunity to make a commercial success of the project. In total, the Tribunal awarded US$ 27.6 million.