ARCO Steel

Letter of Guarantee Exceptional Chronicle

Shehata & Partners defended Arco Steel against Korean steel giant Posco’s procedural tactics in a dispute worth USD 14 million. In November 2000 both Arco Steel and Posco entered in a USD 140 million agreement to establish a steel manufacturing factory in Egypt. As part of the agreement, Posco issued a letter of guarantee with an amount of USD 14 million in favor of Arco Steel, to serve as a performance guarantee. However, upon delivery, the factory was found to be noncompliant with the agreed technical criteria. An ICC arbitration arose between both corporate entities.

Appointed by Arco Steel, Shehata & Partners was tasked to combat the procedural maneuvers utilized by Posco before the Egyptian courts to stop the liquidation of the USD 14 million issued in conjunction with the agreement. Posco proceeded to apply for a petition to halt the said liquidation, but was successfully refuted by Shehata & Partners arguing that the list of petitions that could be ordered by the courts were listed in an exhaustive manner under the Egyptian law. Hence such a petition should not be granted due to the absence of any provisions that would allow issuance of a petition in relation to letters of guarantee.

Posco then initiated a second failed attempt trying to engineer a different procedural trick. They applied this time to seize the receivables arising out of the liquidation, a novel tactic that had not been used before in Egypt making this fact-pattern a matter of first impression before the Egyptian courts. Shehata & Partners’ deep understanding of the practice and approach of the Egyptian courts when it comes to banking and finance disputes enabled us to make it clear to the court that the objective of Posco’s new tactic was evading the mandatory provisions of the Egyptian law by reframing the application.