Foreign law, Egyptian assets

A foreign investor contracting with an Egyptian counterparty will usually ask for its own law to govern the agreement, and will usually get it. The request is reasonable and the answer is commonly yes. The difficulty is what follows. The same instinct produces a foreign court as well, and the combination of a foreign law, a foreign court and a counterparty whose entire balance sheet sits in Egypt is the weakest of the arrangements available.

Two choices made as though they were one

Governing law decides how the contract is read: how obligations are construed, what remedies exist, how termination operates, how long a claim survives. Forum decides who reads it and, more consequentially, what that reader produces at the end. A judgment or an award, and whether the document can be turned into money. A contract can sensibly be governed by English law and referred to arbitration seated in Cairo, or governed by Egyptian law and referred to arbitration abroad. Collapsing the two decisions into one is where the value leaks.

What a chosen law does not reach

A choice of foreign law governs the contractual relationship. It does not displace Egyptian rules that apply because of where the activity, the asset or the person is. Rights over immovable property in Egypt are governed by Egyptian law. Security over assets located here is created, perfected and ranked under Egyptian formalities, so a pledge valid under the chosen law and unregistered in Egypt secures nothing against third parties. Employment of staff in Egypt is governed by Egyptian labour rules whatever the employment contract provides. Licensing and regulated activity, commercial agency and distribution protections, the insolvency of an Egyptian company and anything touching public order all sit outside the chosen law.

Corporate authority is the point most often missed. Whether the person who signed could bind the Egyptian company is answered by that company’s own governing documents and commercial register, not by the law chosen in the contract. A well drafted foreign law agreement signed by someone without authority is an agreement with nobody on the other side of it.

A chosen law still has to be proved

Choosing a foreign law is a contractual act. Establishing its content in a dispute is an evidential one. Where a matter comes before an Egyptian court, the party relying on the foreign law carries the burden of showing what it says, through expert evidence and certified translation. Where it is not established to the court’s satisfaction, the court applies Egyptian law, and the clause negotiated hardest delivers the outcome the parties were contracting away from.

The consequence is one of cost and timing. Proving foreign law is slow and it is charged for, so a contract of modest value governed by a law that will have to be established in Cairo has acquired a fixed litigation cost at signature. Below a certain commercial weight, Egyptian law with an Egyptian forum is usually the cheaper and the more predictable pair, and saying so early saves a negotiation that will not repay the time spent on it.

The judgment problem

A foreign court judgment has no direct effect in Egypt. Turning it into an enforceable title requires a separate action here, and the conditions attached to that action are examined before enforcement is ordered: jurisdiction, proper service, finality, consistency with decisions given in Egypt and with public order, and reciprocity. That is a second proceeding, conducted in Arabic, on translated and legalised documents, years after the first one began. Counterparties who intend not to pay understand this well.

Why an award behaves differently

Arbitral awards travel on a different instrument. Egypt is a party to the New York Convention, and a foreign award is recognised through a narrow review directed at the arbitration agreement and the integrity of the process, without reopening the merits. That is the practical reason arbitration appears in cross-border contracts here far more often than in domestic ones. Neutrality and confidentiality are secondary considerations; enforceability of the output is the point.

Choosing arbitration does not end the analysis. The seat determines the supervisory court and the annulment route. The institution and its rules determine cost and timetable. The award still has to be enforced against assets, which returns the question to where those assets are.

Interim relief is local

Whatever the contract provides, an attachment over a bank account, a plant or receivables in Egypt is obtained from an Egyptian court. Contracts sometimes close that route by accident, through a clause referring every dispute without exception to arbitration before any step is taken. Preserve the right to seek conservatory and interim measures from any competent court, and preserve it expressly.

Language, and the version that prevails

Proceedings and filings here run in Arabic, and every foreign language document is submitted with a certified translation. Where a contract will be performed and enforced in Egypt, preparing an Arabic version alongside the English one, with an express statement of which prevails on divergence, costs a fraction of what a translation costs in the middle of a dispute and removes the risk of the other side producing one.

Choose backwards from enforcement

The workable question at the drafting stage is short. If this counterparty stops paying, what do we attach, and where is it? If the answer is receivables from Egyptian customers, a factory in an industrial zone and a local bank account, the contract should be built to produce an instrument that Egyptian execution courts will act on quickly. If the counterparty holds assets abroad, or the exposure is covered by a bank guarantee or a parent company outside Egypt, the calculation changes and a foreign forum may cost nothing at all.

Foreign governing law is rarely the expensive mistake. The expensive mistake is pairing it with a forum whose output cannot reach the money.