News Letter | Third Quarter 2012

Abou El-Fadl, El-Kassed, and Partners Law Office "AK&P"

News Letter | third quarter 2012

News Letter | Third Quarter 2012

In This Issue: The Application of Foreign Law and the Enforcement of Foreign Judgments and Arbitration Awards in Egypt The Rights of Minority Shareholders Recognition and Protection Trademarks in Egypt

of

How Does the Egyptian Legal System Deal With Electronic Commerce?

Real Estate Ownership by Foreigners in Egypt

The Application of Foreign Law and the Enforcement of Foreign Judgments and Arbitration Awards in Egypt Many

foreign investors inquire about the enforceability of foreign judgments and

arbitration awards before entering into a contract that is executed in Egypt. Naturally, many investors would rather turn to foreign courts or arbitration than having the Egyptian courts handle a legal dispute in part because of the common perception that it takes an awful lot of time for the Egyptian courts to render their judgments as it could take years for a final judgment to be issued in a case. In addition, some investors would prefer a greater form of security by hoping to have the law of their country as the governing law of the contract.

As a principle, Egyptian courts will recognize, uphold, and apply the foreign law governing a contract to the extent the foreign law does not contradict with Egyptian public order or morality. However, what exactly is Egyptian public order or policy falls entirely to a judge’s discretion. Judges would most likely consider any provision that would contradict the basic economic and social principles applicable in Egypt as against the public order. Further, Egyptian law shall be applied at all times when it comes to a number of matters regardless of what the parties to a contract had agreed upon. For example, according to the Egyptian Trade Law, in the event a dispute arises between two parties concerning the execution of a technology transfer agreement to Egypt (the party receiving or importing the technology is Egyptian) then Egyptian law shall apply and the Egyptian courts shall be the competent destination to settle the dispute.

Furthermore, even if the parties agreed in their agreement to turn to arbitration in the event a dispute arises between them, the arbitration shall only take place in Egypt even if the parties had agreed on a different location for the arbitration.

Concerning the enforcement of a foreign judgment, the Egyptian courts would recognize and enforce a foreign judgment if a number of conditions are met: First of all, a treaty or convention is signed between Egypt and the country of the court that issued a judgment agreeing on reciprocal treatment when it comes to enforcing each other’s judgments.

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News Letter | third quarter 2012

Second, the Egyptian courts are not the exclusive jurisdiction to hear the dispute, as the courts of another country are also competent to hear the dispute in accordance with that country’s laws.

Third, the parties to the dispute were duly notified by the foreign court and were properly represented in the proceedings.

Fourth, the foreign judgment is final and has the force of law under the laws of the foreign court.

Fifth, the foreign judgment does not conflict with a prior Egyptian judgment on the same subject matter and does not contravene Egyptian public order or morality.

If such conditions are not met then the Egyptian courts will not enforce the foreign judgment and they will re-examine the merits of the case and render their own judgment.

Further, it is imperative to note that a foreign judgment may take up to two years to be enforced in Egypt from the date an Egyptian court decides to enforce it. Also, any of the two parties to the dispute may appeal the Egyptian court’s decision to enforce a foreign judgment on the grounds that the conditions mentioned above were not satisfied in their entirety and in such an event the enforcement of the foreign judgment may be delayed until the court issues a final decision to enforce the foreign judgment, which could delay the enforcement of the foreign judgment for at least one more year. Having said that, we would like to indicate that even if a foreign judgment might take some time to be enforced, it would be a mistake to ignore the fact that contrary to many countries around the world, some of which are more economically advanced than Egypt, do not enforce foreign judgments at all while in Egypt the Egyptian law grants two parties to a contract the freedom to resort to foreign courts to settle their dispute.

With regards to the enforcement of a foreign arbitration award, Egypt has ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, the Egyptian courts recognize the submission of the parties to a contract to arbitration and the courts are obliged to enforce foreign arbitration awards without re-examination of the merits of the case. However, it should be noted that similar to the enforcement of foreign judgments, there are a number of conditions that should be met in order for an Egyptian court to enforce a foreign arbitration award. These conditions are stipulated in the Egyptian Arbitration Law. First, the award cannot conflict with a prior Egyptian judgment on the same subject matter and does not contravene Egyptian public order or morality.

Second, the tribunal duly notified the defendant party. Similarly to the enforcement of foreign judgments, the losing party may claim that any of the said two conditions were not met and file an action for annulment. However, it should be noted that in many instances where a court handles an action for annulment, the court refuses to handle it if the Egyptian Arbitration Law was not specifically mentioned as a governing law in the agreement between the two parties. In other words, if the two parties to an agreement do not specifically mention in it that the Egyptian 2 www.ak-p-law.com

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Abou El-Fadl, El-Kassed, and Partners Law Office "AK&P"

News Letter | third quarter 2012

Arbitration Law shall be one of the governing laws in the event of arbitration, and then the losing party will not be entitled to file an action for annulment.

Finally, as per the enforcement of a foreign judgment, an award might take quite some time to be executed, however, it is shorter than the time usually taken to enforce a foreign judgment.

The Rights of Minority Shareholders As a country deeply interested in attracting foreign investment to boost its economy, especially after the revolution in 2011, Egypt has been modernizing its investment laws in order to provide efficient protection to foreigners desiring to invest in Egypt. One of such laws is the Egyptian Companies Law No. 159 of 1981 (Companies Law). And, while the said law is focused to a large extent on the establishment and management of companies, it also includes some important corporate governance rules that serve to provide decent protection to minority shareholders. And, that should be of great interest to foreign investors contemplating about investing in Egyptian companies but not to the extent of becoming controlling shareholders. This article aims to provide a short summary of some of the main rights minority shareholders benefit from according to the Companies Law. Any shareholder, whatever his/her ownership is, has the right to attend, participate, and vote in any of the company’s shareholders meetings. Further, any shareholder has the right to discuss the company’s financials with the management and the management has to provide adequate explanation sand clarifications so long as doing so will not reveal any company secrets. Moreover, the management of a company has to convene an ordinary shareholders meeting (general meeting) upon the request of shareholders owning five percent of the capital and the management has to convene an extraordinary meeting (special meeting) upon the request of shareholders owning ten percent of the capital.

Also, any shareholder may acquire copies of any of the company’s documents that are submitted to the competent authority, such as the Articles of Association and any amendments to it, and the financial statements.

Furthermore, the Companies Law grants minority shareholders substantial protection against possible abusive actions by the majority shareholder(s). First, in limited liability companies, which are the majority type of Egyptian commercial companies, the Companies Law accords pre-emptive rights to shareholders to protect the minority shareholders against dilution of voting or ownership rights and they have priority rights that they can use in the event of a capital increase of the company. However, in joint stock companies, such rights need to be specifically mentioned in the Articles of Association in order to take effect.

Second, in the event a share holders meeting approves the merger of the company with another, all disapproving shareholders have the right to withdraw from the company through, selling their shares/parts/allotments, and getting all their financial rights prior quitting the company.

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Third, minority shareholders have the right to file a petition or a complaint to the competent authority against the company if they believe a decision was taken in a shareholders meeting that was unfair or unfavorable to them. In other words, the majority shareholders are not allowed to benefit from their majority to take any decision that is only favorable to them and accordingly unfavorable to the rest of the shareholders.

In short, the Companies Law grants all shareholders considerable access to a company’s files and documents and it also allows them to participate in the decision making process of the company. Additionally, the law grants the minority shareholders some important rights against abusive actions by the majority shareholders. However, such rights and protections are not sufficient enough to offer minority shareholders the same protection that may be offered to them in other countries in Europe but the Egyptian Laws have progressed considerably throughout the last dozen of years when it comes to improving corporate governance rules, especially when it comes to minority rights.

Recognition and Protection of Trademarks In Egypt

Trademarks are recognized and protected under the Intellectual Property Rights Law No. 82 of 2002 (“IP Law”). According to said law, a trademark is protected if it has been registered with the Trademarks Authority in Egypt. Further, even if a trademark was not registered in Egypt, there are two ways for it to still enjoy the protection of Egyptian law.

First, Egypt signed the Madrid System for the International Registration of Marks (“Madrid System”) under which trademark owners gain protection for their trademark in the states party to the Madrid System by the filing of a single application at a national or regional trademark office Accordingly, in the event a trademark owner registers his/her trademark in one member party to the Madrid System, the mark will enjoy the protection of all other signatory states provided that the trademark owner specifically demands to extend his/her protection to one or more or even all the member jurisdictions. It should be noted that as of February 2012, there are 85 member countries to the Madrid System, which provides trademark owners an easy way to register and protect their marks in dozens of countries around the world.

Second, the IP Law stipulates that a trademark that is not registered in Egypt but is considered as ‘well known’ in Egypt and worldwide shall enjoy the protection of Egyptian laws. Further, the Trademarks Authority will even refuse the registration of a trademark if it considers it as identical or similar to a ‘well known’ trademark that is registered in a member country to the Madrid System. Finally, the period of protection conferred by the registration of a trademark is ten years renewable for similar periods upon the request of its owner.

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Abou El-Fadl, El-Kassed, and Partners Law Office "AK&P"

News Letter | third quarter 2012

How Does the Egyptian Legal System Deal With Electronic Commerce?

To

date, Egypt has not finalized its drafting of the Electronic

Commerce Law. However, it has adopted only one e-commercerelated regulation, which is the Electronic Signature Law No. 15 of 2004 (the "E-Signature Law"). The main focus of the said law is the removal of barriers to e-commerce and the establishment of both "trust" and "predictability" in e-commerce transactions, through the recognition of digital signatures.

To do so Egypt created a new governmental body to regulate the procedures for the obtainment of a digital signature/certificate. Further, the E-Signature Law stipulates that an e-commerce contract can be valid so long as the contract can be evidenced through the regular procedures mandated by the Egyptian Evidence Law. In addition, for electronic documents (including contracts) to be admissible, a few conditions must be met, such as, evidencing that the digital signature belongs only to the signer and that the signer has exclusive control over the electronic medium.

Nevertheless, due to the fact that the use of digital signatures is still seldom in Egypt, the conditions for evidencing an electronic document are in turn rarely met and therefore electronic contracts are largely inadmissible as evidence before Egyptian courts. In other words, although electronic documents may be considered valid between the parties thereto if it can be evidenced through the regular procedures mandated by the Egyptian Evidence Law, they are not admissible before Egyptian courts as means of evidence in the event a dispute arises between the parties.

Notwithstanding the forgoing, there are a couple of provisions in several Egyptian Laws that touch upon ecommerce related issues that we will discuss in brief. For instance, with regards to the sale of goods on the Internet to the Egyptian market, the Consumer Protection Law requires producers to describe the product/goods in Arabic in conformity with the data necessitated by Egyptian Standards. In addition, any sale of products or goods should be targeted to Egyptians of at least 21 years of age, as this is the maturity age in Egypt according to the Egyptian Civil Code.

Moreover, with regards to protection of the data provided by the consumer when making a purchase, there is no special regime for data protection under Egyptian Law. Therefore, the Egyptian Constitution should serve as guideline with regards to data protection as it stipulates that the Egyptian law shall protect the private lives of the citizens as a public order principle.

Finally, in the event there is no mention of the governing law in the electronic contract, the provisions of the United Nations Convention on Contracts for the International Sale of Goods treaty shall apply as it offers a uniform international sales law to contracting parties from signatory states.

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News Letter | third quarter 2012

Real Estate Ownership by Foreigners in Egypt

With an average of twelve million tourists visiting Egypt every year1, Egypt is one of the most favorite tourist destinations in the Middle East. Many tourists as well as expatriates working in Egypt consider from time to time buying land and/or property in Egypt. Fortunately, Egyptian law has set some fairly relaxing rules for foreigners to own real estate in Egypt when compared with other countries in the region. It should be noted that the below not only applies to non-Egyptian individuals but also on all types of companies where foreigners own more than 50% of its shares even if such a company was established in Egypt and in accordance to Egyptian law.

In general, a foreigner may own up to two real estate properties in Egypt for personal residential purposes and the area of each property should not be more than four thousand square meters. Also, a foreigner may not transfer the title of his/her property before the lapse of 5 years from the date of its registration. Nevertheless, a foreigner may file a request to the Prime Minister requesting to be exempted from said restriction.

Furthermore, the Prime Minister is entitled by law to set specific conditions for the ownership of property in the touristic and residential areas he specifies.2 In 2005, in order to encourage foreigners to purchase real estate units in some touristic areas, the Prime Minister issued a Decree granting foreigners the same treatment as nationals (Egyptians) when it comes to owning real estate properties in a number of specified touristic areas, which include most notably Hurghada, on condition they obtain the prior approval of the competent authorities. Although the said Decree does not include Sharm El Sheikh, which is one of the most famous beach resorts in the Middle East, in the list of exempt touristic areas, it does allow foreigners to be granted a usufruct3 for a period of no more than 99 years if the consent of the competent authorities is given. More importantly, the Decree allows foreigners who own or were granted a usufruct in Sharm El Sheikh or in any of the specified touristic area to dispose of or transfer the ownership of their property at any time they wish to do so. In other words, the lapse of five years period is not applied in such a case.4 1

number of tourists decreased in 2011 because of the instability that existed in some parts of Egypt during and in couple of months after the revolution 2 Law 230 of year 1996 3 a usufruct gives the foreigner the right to use an apartment as if he/she owns it but he/she may not damage or alter it in any way 4 Prime Minister Decree 548 of year 2005

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Abou El-Fadl, El-Kassed, and Partners Law Office "AK&P"

News Letter | third quarter 2012

As aforementioned, foreigners are allowed to own real estate property in any part of Egypt with few exceptions.

Such exceptions include Egypt’s western, eastern, southern borders, and islands situated in the Red Sea or Mediterranean Sea, and Archeological areas among others.5 In any event, it is recommended that foreigners desiring to own properties in Egypt conduct a legal examination based on the location and the type of the property they intend to acquire.

5

Prime Minister Decree 350 of year 2007

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Abou El-Fadl, El-Kassed, and Partners Law Office "AK&P"

News Letter | third quarter 2012

AbouElfadl, ElKassed& Partners Law Office, "AK&P" AK&P is an international corporate law firm committed to serving the business community with its cutting edge expertise and professionalism. AK&P has experience and expertise in diverse legal fields across a wide array of business. The accumulated experience and reputation of the Partners is the result of more than 25 years within long-standing international law firms. AK&P partners have firsthand knowledge of several major mergers and acquisitions, due diligences, and a variety of business transactions.

This issue was supervised By: AK&P Law Office info@ak-p-law.com Partner

Edited by: Mrs. Tami Clay Address: 13 El Themar St., Moustafa Mahmoud Square, Mohandessin, Giza, Egypt P.O. Box: 12311 Tel: (+202)374 93 924 Fax: (+202)374 93 932 E-Mail: info@ak-p-law.com

Copyright 2012 AbouElfadl, ElKassed, & Partners Law Office Reproduction is permitted provided that the source is acknowledged For inquiries: Ms. Yara Ahmed | yara@ak-p-law.com

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