Reconsidering the Ampal v. Egypt Arbitral Award

Amin R. Yacoub

Guest Editor

The due diligence standard of Full Protection and Security Obligation (“FPS”) of Bilateral Investment Treaties (“BITs”) remains vague until today. I have argued before – in a post on the Cambridge International Law Journal (CILJ) Blog – that the Ampal Tribunal had failed to define the parameters of the Due Diligence standard.[1] On the other hand, a post published by CILJ Blog counter-argued that the Ampal case was “rightly decided.”[2] It contended that the Tribunal’s award sits well within the existing jurisprudence on FPS especially that the tribunal gave enough weight to the exceptional circumstances that Egypt was facing at the time while reaching its conclusive award.[3]

I do not disagree that the Ampal Tribunal had recognized and cited some important Arbitral Awards such as Pantechiniki in its reasoning.[4] However, I argue that it did not seem to benefit from them. By providing no guidelines to the parameters of the due diligence standard,[5] the Ampal Tribunal had returned to ground zero. This is where the counter CILJ post fails to answer the pivotal question I ask: what are the parameters of the due diligence standard?[6] Put differently, while the Ampal award’s reasoning seems incorrect and inadequate to me, it seems correct to O’Reilly – the author of the counter-post. The reason behind that is rather simple: neither the Tribunal nor us has an adequate measurement technique or accurate parameters to rightfully assess the due diligence standard of host states to fulfill their FPS obligation. The Ampal Tribunal assessed whether Egypt had met its due diligence standard by applying the vague due diligence standard.[7] The Tribunal’s approach is understandable since most arbitral tribunals fail to define, let alone suggest, any parameters to measure the due diligence standard of FPS. Each arbitral tribunal examines facts differently to reach its conclusion whether there is a breach to the FPS due diligence standard or not, and the Ampal Tribunal was no different. The same factual matrix can be assessed by one tribunal to indicate that a host State is in breach of FPS due diligence standard in one case, and by another tribunal to reach the contrary conclusion.[8] While the Ampal Tribunal had indeed confirmed that the standard applied is not one of strict liability but one of due diligence, the application of the due diligence standard itself was not clear of fault since it was not adequately measured.  The Tribunal had assessed all the measures adopted by Egypt to protect Ampal’s investment and fight terrorism in el Arish after the first three attacks, yet it still found Egypt in breach of its FPS due diligence standard.[9] The pipeline bombings, according to the claimants, took place from February, 2011 until April, 2012, and Egypt had failed to supply the gas until the termination of the GSPA in May, 2012.[10] By examining this political timeline, it is evident that it was an interim period in which Egypt was governed by a neutral institution: the Supreme Council of the Armed Forces.[11] Although the Ampal Tribunal had found no evidence of attempts by Egypt to protect the pipeline, accessible sources establish that Egypt not only deployed military personnel to guard the pipeline, it also added hundreds of additional soldiers to provide more protection after the February 5^th attack.[12] Secondly, the deployed troops successfully hindered an attempt to bomb the pipeline in March, 2011.[13] Thirdly, the Supreme Military Council delivered a warning to EGAS that the resumption of the gas transmission will be contingent upon additional security on the Pipeline following high security measures like raising height of fences, installing barbed wires on top of fences, increasing lighting, levelling sand dunes around each site, and installing monitoring system with TV Cameras.[14] Fourthly, IS-IP never stopped bombing the Pipelines of Egypt even after the termination of the GSPA.[15] It recruited operatives to bomb the pipeline between Egypt and Jordan even though they are two Arab countries enjoying a peaceful relationship.[16] This raises the question of whether additional measures of the kind that the tribunal appears to fault Egypt for not taking during the period in question, would, in fact, have made any difference. The question remaining is what more could Egypt have done to not be in breach of the FPS due-diligence standard in such extreme circumstances. The Ampal Tribunal and other scholars would argue the following: 1) deploy more soldiers to protect the pipeline from further terroristic attacks; 2) prevent further attacks by heightening the security measures of the pipeline itself – because what comes as a primary concern to many international investment lawyers and arbitrators is the foreign investor, their investment, and the BIT obligations. Yet, completely disregarding other international legal obligations of host states and the foreign investor’s obligations towards protecting its own investment could not be intellectually tolerable.[17] At the time, Egypt – as a developing host state – was faced by extreme terrorism on one hand, political disturbance on its highest levels, civil disobedience, and a revolution.[18] It takes only one of these to threaten a nation’s existence.[19] While the Ampal Tribunal was overwhelmingly concerned with what steps Egypt had taken to protect the foreign investment from further terror attacks, it did not bother to observe the fact that Egypt was on the verge of collapsing at the time: politically, economically, socially, and in terms of security.[20] The Ampal arbitrators adequately counted the terrorist attacks on the pipeline,[21] but they have failed to count any terrorist attacks on Egyptian institutions, citizens, and high-rank officials. The Tribunal indeed cited Pantechniki’s relevant capacity standard,[22] yet it failed to recognize that Egypt – as a developing country faced with extreme political, social, and security challenges at the time – could not take any further measures to protect a pipeline in the Sinai’s desert relative to its very limited resources. In conclusion, the Ampal Tribunal had not provided a clear insight into the parameters of the due diligence standard in an armed conflict zone. It wrongfully applied the due diligence standard on Egypt despite citing Pantechniki, as its only focus was limited to the sole obligation of Egypt to provide Full Protection and Security Obligation to the foreign investor regardless of the concurrent national and international obligations. A current due diligence standard of FPS obligation remains vague especially when applied to developing nations that are facing terrorism and armed conflict or even extreme political instability. Future arbitral tribunals shall take an extra effort to provide clear parameters to the due diligence standard of FPS.

Guest Editor Amin R. Yacoub: Egyptian Prosecutor; Former Research Scholar at NYU School of Law (2018); Former Legal Researcher at Physicians for Human Rights; MAHS Scholar (2017-2018); LLM in International Law, NYU School of Law (2018); LLM in Public Law, Faculty of Law, Cairo University (2017); Former Associate at the Arbitration team at Matouk Bassiouny Law Firm (2015-2016); Former Associate at Ibrachy & Dermarkar Law Firm (2015); LLB with High Distinction, Cairo University, Faculty of Law English Section (2015).

[1] Amin R. Yacoub, The Case of Ampal v Egypt: What are the Parameters of the Due Diligence Standard?, Cambridge International Law Journal (CILJ Blog), available at http://cilj.co.uk/2018/11/16/the-case-of-ampal-v-egypt-what-are-the-parameters-of-the-due-diligence-standard/. [2] Sean O’Reilly, Rethinking Ampal v Egypt, Cambridge International Law Journal (CILJ Blog), available at http://cilj.co.uk/2019/12/23/rethinking-ampal-v-egypt/. [3] Id. [4] See id. [5] AMPAL-AMERICAN ISRAEL CORP., EGI-FUND (08-10) INVESTORS LLC, EGI-SERIES INVESTMENTS LLC, AND BSS-EMG INVESTORS LLC vs. ARAB REPUBLIC OF EGYPT, italaw, ICSID Case No. ARB/12/11, paras 244-246. [6] See O’Reilly, supra note 2. [7] Ampal v. Egypt, supra note 5.. [8] Eric De Brabandere, HOST STATES’ DUE DILIGENCE OBLIGATIONS IN INTERNATIONAL INVESTMENT LAW, Syracuse J. lnt’l L. & Com., Vol. 42:2, 334-340. [9] Ampal, supra note 5, at paras 274-278. [10] Ampal v. Egypt, ICSID Case No. ARB/12/11, paras 59 and 236. [11] Khaled Elgindy, Army May Be Real Winner in Egypt, Brookings (December 13, 2011). https://www.brookings.edu/opinions/army-may-be-real-winner-in-egypt/amp/; [12] BOMBING ATTEMPT ON EGYPT-ISRAEL GAS PIPELINE FAILS, The Jerusalem Post (March 27, 2011) http://www.jpost.com/Middle-East/Bombing-attempt-on-Egypt-Israel-gas-pipeline-fails [13] Id. [14] Ampal v. Egypt, ICSID Case No. ARB/12/11, para 776. [15] Mohamed Metwali, In Dates: Bombing Gas Pipelines: 30 successful attempt and the perpetrator is “masked”, El- watan Newspaper (May 2015). https://www.elwatannews.com/news/details/741059. [16] See id. [17] See De Brabandere, supra note 8, at 354-356. [18] Egypt Government Powers: Breakdown Of Responsibilities After Country’s First Democratic Elections, Huffpost (06/09/2012), available at https://www.huffpost.com/entry/egypt-government-power_n_1628634?guccounter=1. [19] Noah Smith, A Socialist Revolution Can Ruin almost any Country, Chicago Tribune (May 18^th, 2016), available at https://www.chicagotribune.com/opinion/commentary/ct-socialist-revolution-venezuela-20160518-story.html. [20] See Ampal, at paras 274-278. [21] Id. [22] Id. at para 244. The views expressed in this post represent the views of the post’s author only.