Rethinking Ampal v Egypt

A State’s duty to provide full protection and security to foreign investments is a staple of modern investment treaty law and enjoys a place in countless bilateral investment treaties (“BITs”). A recent and somewhat controversial decision on the scope of the duty is Ampal American Israeli Corp v Arab Republic of Egypt – an award that sees widespread civil unrest pitted against a State’s duty to protect foreign investments within its territory. A post on the CILJ Blog by Amin Yacoub has claimed, however, that Ampal does not sit well with existing jurisprudence on full protection and security. Most egregiously, that the Tribunal failed to give proper weight to the exceptional circumstances facing Egypt and that, in doing so, the Tribunal transformed a due diligence obligation into a matter of strict liability. This implies that future tribunals that follow Ampal risk unfairly punishing developing countries who experience civil unrest.

This post aims to reframe the discussion of the merits of Ampal v Egypt. First, an examination of existing jurisprudence on full protection and security shows that Ampal was in fact rightly decided. Second, Ampal’s facts and the Tribunal’s reasoning demonstrate why Egypt fell short of its obligation to provide full protection and security, although the Tribunal could have been clearer in explaining how. This post begins with a brief survey of full protection and security before drilling down into the facts of Ampal and finishing with an analysis of why the facts show that the decision was indeed correct.

The Law – Custom and Full Protection and Security

It is the general position of customary international law that States are not responsible for extraordinary events of social strife or unrest that lead to physical damage or destruction of foreign investors’ assets (Dolzer & Schreuer, Principles of Investment Treaty Law (2nd edn), p. 183 citing e.g. Spanish Zone of Morocco, p. 642). However, this is qualified by a State’s duty to exercise due diligence (AAPL v Sri Lanka, paras. 49-50, 67-69) i.e. the use of the police and military to protect aliens’ interests to the extent feasible and practicable in the circumstances. The duty to provide full protection and security must, however, be applied contextually. The Ampal Tribunal confirmed this while noting that the duty “(…) is not one of strict liability. Rather, the State is obliged to exert due diligence (…) assessed according to the particular circumstances in which the damage occurred” (Ampal, para. 241).

Furthermore, legal authorities on full protection and security broadly acknowledge an implicit proportionality assessment when considering whether a State has met its due diligence obligation. Pantechniki SA v Albania, for example, also concerned damage to a foreign investor’s property during widespread civil strife. The investment in question was in a remote location and far away from any police station. Sole arbitrator Jan Paulsson, in finding for Albania, affirmed that “[a] failure of protection and security is (…) likely to arise in an unpredictable instance of civic disorder which could have been readily controlled by a powerful state but which overwhelms the limited capacities of one which is poor and fragile (…) it seems difficult to maintain that a government incurs international responsibility for failure to plan for unprecedented trouble of unprecedented magnitude in unprecedented places” (Pantechniki, para. 77).

However, to what degree full protection and security applies or goes beyond custom depends on the text of the BIT in question. In Ampal, the United States-Egypt BIT 1986 imported a duty to provide full protection and security under art 2(2) of the United Kingdom-Egypt BIT 1975. The clause states that foreign “[i]nvestments (…) shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security (…)”. Therefore, the applicable standard is no less than what is offered by custom, especially when read together with art II(4) of the Egypt-US BIT.

The Facts – The Attacks on the Pipeline

Ampal’s broad factual matrix concerned 14 terrorist attacks during the Arab Spring on a gas pipeline situated in the volatile Sinai region. The pipeline was owned by EGAS and GASCO, two Egyptian state-owned enterprises, who were in business with foreign investors supplying gas from Egypt to Israel (Ampal, paras. 24-42). Several claims were lodged in response to Egypt’s conduct (through EGAS and EGPC (Ampal, para. 146)) but the most relevant one for present purposes was whether Egypt fell short of its duty to provide full protection and security to the pipeline.

The first and second attack took place in February 2011 when saboteurs arrived at the pipeline facility, entered and damaged it, all without facing any resistance from security personnel present (Ampal, para. 277 citing para. 771 of the ICC Award). No security protocol was in place to deal with an attack on the pipeline facility and no security measures were taken after the first two attacks (Ampal, para. 277 citing para. 772 of the ICC Award). The Tribunal, however, held that the first attack was unavoidable and, in itself, not a breach of Egypt’s duty. After the third unchallenged attack on the pipeline, the Egyptian State began to take notice. At a meeting in June 2011, GASCO resolved to, inter alia:  (1) pay out E£ 3,023,000 (GBP £143,886) to the Egyptian Armed Forces (“EAF”) for additional security; (2) install more barbed wire; and (3) heighten the existing security walls (Ampal, para. 277 citing paras. 776-777 of the ICC Award).

Furthermore, at a second meeting in June 2011, GASCO approved: (1) E£ 160,750 (GBP £7,651) to heighten the security walls; and (2) E£ 400,000 (GBP £19,083) to construct housing units for security agents. A cheque for E£ 3,000,000 (GBP £142,791) was produced by Egypt, but that only proved that the monies were disbursed (Ampal, para. 277 citing para. 778 of the ICC Award). In fact, technical reports after the fourth attack following the proposed measures showed that the walls and facilities were in the same condition as they were prior to GASCO’s decision (Ampal, para. 277 citing para. 785 of the ICC Award). Also, the security personnel actually present, despite the monies “paid” for additional support, were unarmed and thus left the site at the first sign of threat to the pipeline (Ampal, para. 277 citing para. 787 of the ICC Award). What money had been paid out either never reached its intended destination or was implemented so poorly it was as if it wasn’t spent at all.

After the fifth attack, the Egyptian State again mobilized to attempt to protect the pipeline. GASCO commissioned a technical study that showed that improvements in security and monitoring systems could be made. However, no evidence of any implementation of the suggested measures was provided (Ampal, para. 277 citing para. 788 of the ICC Award). Following the seventh, eighth and ninth attack, GASCO again resolved to improve security by: (1) paying E£ 10,000,000 (GBP £475,973) to the EAF to build housing camps for security agents; (2) paying E£ 655,820 (GBP £31,215) to the EAF to protect police vehicles; (3) paying E£ 1,000,000 (GBP £47,597) to improve communication lines (Ampal, para. 277 citing paras. 796-797 of the ICC Award).

Once again, all that could be proved was that the E£ 10,000,000 (GBP £475,973) was disbursed by GASCO to the EAF. Besides that, there was no evidence that any of the promised measures were in fact implemented (Ampal, para. 277 citing para. 797 of the ICC Award). This pattern continued unchanged for the remaining attacks, with no technical reports produced that would evince any sort of preventative measures being taken. As the Tribunal itself noted “when considering the totality of these attacks, a certain pattern emerges: an attack is perpetrated, to which GASCO reacts months later and then adopts some measures to heighten the security of the pipeline, those measures are seldom implemented (or there is no evidence on the record that they were), another attack happens, and so on” (Ampal, para. 287).

Conclusion – A Reaffirmation of Full Protection and Security

In light of the above, can the Ampal Tribunal be said to have ignored previous jurisprudence on full protection and security and created a new strict liability standard? The answer must be in the negative.

First, the Tribunal was clear on the relevance of Pantechniki and not only expressly cited it multiple times, but also confirmed the necessity of a proportionality assessment when adjudicating breaches of full protection and security (Ampal, para. 285 citing Pantechniki, para. 77). Likewise, it was not blind to the trouble that Egypt was facing and it did acknowledge that the situation on the Sinai Peninsula was difficult (Ampal, para. 275 citing paras. 601-604 of the ICC Award). However, even in these circumstances, Egypt could not be said to have exercised due diligence.

Second, a State’s due diligence obligation must be judged in context. Egypt consistently represented that adequate measures were being taken when the opposite was true. Investors who invest in areas that experience civil strife cannot expect the same security they would receive in other regions that are stable and well developed. Yet, they cannot be prevented by misrepresentation from minimizing their losses either. Scant evidence was adduced by Egypt to prove that the due diligence claimed was actually undertaken. In fact, monies were purportedly disbursed to the EAF to heighten security with no visible improvement in protection to the investor’s investment. This is especially suspect considering the outsized role the EAF plays in the Egyptian economy and widespread suspicions of corruption. Therefore, it cannot be that a State which warrants that a certain standard of due diligence is being undertaken should not be judged by reference to that same standard. The measures undertaken by Egypt, in reality as opposed to on paper, fell far short of being reasonable, precautionary or preventative, as mandated by custom.

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