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UAE developer Damac takes Egypt to arbitration

UAE developer Damac takes Egypt to arbitration

Dubai-based Damac Properties said Tuesday it had filed an international arbitration case against Egypt following the conviction in absentia of the company's chairman, spotlighting the delicate balance Cairo faces in an anti-corruption campaign that could have the side effect of driving away potential investors.
Hussain Sajwani was convicted in an Egyptian court and sentenced to five years in prison and fined $40.5 million on May 10 in a case that also landed Egypt's former tourism minister and another businessman in jail. The case stemmed from a 2006 deal to award Damac 30 square kilometers (11.5 square miles) of land for its Gamsha Bay project.
Property developers are among the most prominent targets in the country's post-revolutionary corruption clean-up effort, and Damac's purchase of the tract is one of several deals facing legal scrutiny. The developers, in general, have tailored many of their projects to the wealthy, offering spacious villas in closed communities far removed from the human mosh pit of 18 million that is greater Cairo.
In filing the arbitration claim, Damac said that Egypt violated a bilateral investment treaty with the United Arab Emirates that protects investments by UAE nationals in the country. The filing maintains that Sajwani's prosecution and conviction also caused "significant damage to his investments in Egypt and the wider Gulf area." The claim was filed with the Washington-based International Center for Settlement of Investment Disputes.
Sajwani's prosecution and conviction were "a classic case of 'guilt by association,'" said his attorney, Ken Fleuriet, who is based in law firm King & Spalding's Paris office. Fleuriet said while the court held that the price paid for the land was too low, "the transaction was entirely proper, and Damac was entitled to rely upon the price charged by the government at the time."
"It was an arm's length transaction that was fully vetted by the appropriate Egyptian officials at the time of purchase," Fleuriet said of the land sale for the sprawling Gamsha Bay development along the Red Sea. The project is Damac's most ambitious venture in Egypt.
The Egyptian government stripped Damac of the land for Gamsha. The project had promised residents villas, townhouses and apartments nestled along canals and lagoons, along with marinas, 5-star hotels, shopping centers, golf courses and a theme park.
Fleuriet said that the firm had yet to decide on a figure it was seeking as compensation, saying it wasn't a requirement to file the arbitration claim.
Damac paid $30 million, or $1 per square meter, for the land, but the price was subject to an "uplift" depending on use, said Niall McLoughlin, Damac's senior vice president. He declined to quantify how much the company had so far sunk into in the project, aside from describing the investment as "substantial."
Egyptians have complained that officials in deposed President Hosni Mubarak's regime routinely awarded public lands at discount prices to wealthy businessmen, and the current government has stepped up prosecutions, in part to satisfy reformers worried that these individuals will escape punishment.
In a move that could further fuel that sentiment, the country's military rulers said that a law was being drafted that would absolve businessmen who bought land from the government and built projects of criminal liability, the daily el-Masry el-Youm reported Tuesday. The law would limit criminal liability to government officials, according to the London-based pan-Arab daily Asharq al-Awsat.
Deputy Defense Minister Mahmoud Nasr, the military rulers' finance chief, said the bill was being drafted by a committee that "enjoys special immunity and has the legal authority" to enact such measures, the Egyptian newspaper reported.
The report comes as Mubarak's wife turned over her property and money to the state in a move aimed at settling the corruption allegations against her. Her husband, according to the independent El-Shorouk daily, plans to release an audio appeal for amnesty in return for turning over all his holdings.
The draft, along with the arbitration case and the steps by the Mubaraks, reflect Egypt's current quagmire.
The mass protests that ousted the 82-year-old former president have battered the economy, lowering GDP growth forecasts to as low as 1 to 2 percent versus the projected 6 percent level for fiscal 2010-2011 and hammering the manufacturing sector amid mushrooming labor strikes.
Tourism revenues have dropped 80 percent since the uprising started on Jan. 25, Nasr said on Monday, warning that poverty levels could reach 70 percent in the nation of 80 million.
While the country sorely needs to boost the economy, officials are facing daily pressure in the form of protests over a host of issues _ ranging from the pace of reform, sectarian strife, and demands that the Mubarak regime be held accountable for what critics have said was rampant cronyism.
Analysts have voiced concern that the focus on the property sector _ a key part of the economy _ could undercut investor confidence if courts consistently rule to overturn land deals even after investors have sunk in billions of dollars into the projects.
Egyptian media had reported that Saudi billionaire Prince Alwaleed bin Talal's investment firm, Kingdom Holding Co., had considered taking the country to arbitration over disputes over tens of thousands of acres in the south, where a massive agricultural project was being developed. Alwaleed, however, later said he would return 75 percent of the Toshka land as a "gift" to the Egyptian people.
Damac, one of Dubai's better known privately held developers and a unit of Damac Holding, said the arbitration case could cast the spotlight "on the political vendettas currently being pursued by Egypt's new regime at the behest of the Egyptian public."
The case "may subject Egypt to international liability far greater than what it apparently hopes to recover by its ongoing legal actions against investors who conducted business with Mubarak's ministers," the developer said in a statement. "It will also raise serious questions among foreign investors about the safety of investing in Egypt."
Fleuriet said that the prosecution and conviction was "a consequence of a travesty of justice and a trial process that was rushed at lightning speed."
He said that Sajwani first learned of the case through the Egyptian media and that it was never clear what charges he faced. Fleuriet maintained that Sajwani was not allowed legal representation at some key hearings, in a violation of due process of law.
Established in 2002, Damac expanded aggressively from Dubai throughout the Arab world, with projects announced in Jordan, Lebanon, Egypt, Saudi Arabia and Qatar.
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AP Business Writer Adam Schreck in Dubai contributed.


Updated : 2021-05-13 13:31 GMT+08:00