Algeria

Arbitrating construction disputes is a dense subject.  Arbitrating construction disputes in Algeria has its peculiarities, which this article will try to outline.  For those unfamiliar with Algeria, we will first provide an overview of the legal environment of international arbitration in Algeria and the issues involved in construction arbitration in Algeria. We will then address a recurring issue in Algerian construction arbitration: the question of the law applicable to international construction contracts. I. Arbitral environment: Can Algeria be considered as offering a favourable framework for international arbitration? A. Before official recognition, knowledge and use of arbitration in practice in Algeria  Algeria, like other countries, adopted specific legislation on international arbitration after decades of mistrust of an institution that was suspected of representing the predominance of liberal ideology and had a reputation for favouring the powerful in an unbalanced power relationship with Third World countries. In the 1960s, international trade was regarded in Algeria as a sovereign/regalian prerogative, in the same way as justice. The Algerian state therefore had a monopoly on foreign trade, and the international economic agents of the time, i.e. the state-owned companies, were forbidden to engage in arbitration because they were considered to be emanations of the state. Under pressure from foreign companies, and with the inevitable liberalisation of foreign trade, public companies became accustomed to making extensive use, sometimes clandestinely, of the arbitration clause in their international contractual relations. B. Late introduction of a legal framework but rapid and effective catch up, providing a framework similar to that of Western countries Although international arbitration already existed in practice, it was only in 1993 that it became fully enshrined in formal law, thus confirming in an appropriate text an already long-standing recognition. A 2005 law then enshrined recourse to arbitration for the first time in the field of hydrocarbons, and a 2008 law on the new code of civil and administrative procedure definitively confirmed recourse to arbitration. In terms of bilateral treaties, Algeria has signed a network of investment promotion and protection agreements with several countries, all of which give pride of place to arbitration as a means of settling disputes between investors and host countries. Algeria has also acceded to several multilateral conventions governing arbitration, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, ratified by Algeria in 1988, and the ICSID Convention on Investment, ratified in 1995. C. Construction projects in Algeria Turning specifically to construction arbitration, we know that the construction sector is one of the most prone to disputes. The large-scale operations carried out here involve complex, multi-party contracts whose execution extends over the long term. The growth of the sector, coupled with increasing globalization, often brings together parties from different countries, generating an ever-greater risk of conflict. This is now the biggest sector among those dealt with by the ICC, even ahead of the oil and gas industry. Algeria is one of the most active construction markets in the region. It is a huge open-air construction site: trans-Saharan road projects linking the North to sub-Saharan markets, the construction of pipelines and gas pipelines also crossing the country from one side to the other, the construction of new towns and futuristic urban centres, all kinds of factories, airports, stations and ports, not to mention gigantic projects in the renewable energies sector. The multiplication of these regional infrastructures of international scope inevitably leads to an increase in disputes, and to the trivialization of arbitration as a means of settling them. Interim conclusion The ICC recently ranked Algeria first in the Mena-Middle East-North Africa zone in terms of the origin of arbitration cases. That is the volume of business. Or the volume of problems (depending on how you look at it). There are three reasons for this situation, two of which are legal and the third economic. 1-The reform of the public procurement code, which authorized the settlement of public procurement disputes through arbitration. 2-The promulgation of the new Code of Civil and Administrative Procedure, which authorizes legal entities under public law to get involved in arbitration in their economic relations. 3-The economic reason is financial ease, due in particular to a good situation in terms of gas and oil exports, which has led to a boom in public procurement and an increase in both domestic and international contracts. II. The question of the law applicable to international construction contracts A recurring question often asked by foreign investors is the question of the law applicable to international construction contracts, i.e. contracts involving at least one foreign element, either because the contracting parties do not have the same nationality or because one of them is acting in a territory other than its seat’s headquarters in order to achieve the purpose of the contract. This perfectly legitimate question generally stems from: - the reservations expressed by foreign investors about subjecting the contract to a law that they do not know and of which they are distrustful, and - the reservations of the Algerian party about venturing into complex, distant legal systems that they consider unfavorable. Two consequences follow from this: one relating to the applicable law, the other relating to the settlement of disputes. A. Applicable Law i. No restriction: autonomy of determination principle The principle is that the Algerian Civil Code leaves the choice of applicable law to the autonomy of the parties. It follows that the construction of an infrastructure in Algeria by foreign companies gives rise to a contract that may be governed by a law other than Algerian law, provided it is not contrary to public policy or morality. This freedom of choice of law is not, however, total. It is attenuated and requires the following clarifications: ii. A nuanced freedom of choice - The law must have an actual relationship with either the contractors or the contract The first nuance, set out in the Civil Code, is that the law chosen must have an effective, actual relationship either with the contracting parties or with the contract. The Algerian legislators wanted to avoid situations where, for example, an Italian company building a highway in Algeria for an Algerian project owner would choose to apply English law to their contract. If this principle of relationship is not respected, the law offers two alternatives to the parties: - either the law of the common domicile or the common nationality. - or, failing that, the law of the place where the contract was concluded. - Overriding mandatory rules Secondly, when the contract concerns a construction that takes place in Algeria and is governed by a foreign law, it must not be considered that the foreign law has full jurisdiction. The choice of a foreign law in the contract can indeed not have the effect of ousting a set of regulations that are compulsory in Algeria - the so-called police laws - such as social and tax laws and, of course, laws that cover construction standards, for example anti-seismic standards. It is also clear that if equipment has, for example, to be imported temporarily into Algeria to enable the construction contract to be executed, this import will be subject to Algerian customs regulations, even though the contract would be governed by Chinese or German law. Equally, when the project owner is a legal person under Algerian public law, which often happens in practice in Algeria in international construction contracts, mandatory provisions of Algerian law, drawn from public procurement law, may also apply. This may seem obvious, but many players in the construction sector are unaware of those aspects when approaching the Algerian market. - Immovable properties are subject to the law of the location of the property The third nuance, or "subtlety", concerns a provision of the Civil Code which states that although the parties are free to choose the law applicable to their contract, "[...] contracts relating to immovable property are subject to the law of the location of the property". This third paragraph of Article 18 of the Civil Code, following the first paragraph which affirms the principle of autonomy of will, is disturbing because it seems to contradict the principle of autonomy of will and would therefore require the parties to a construction contract to systematically submit it to Algerian law. The subtlety lies in the fact that even if the purpose of the construction is to build a building / an immoveable property, one must be careful not to think that the construction contract is a contract relating only to a building, as it also relates to the provision of material and intellectual services (technical, feasibility and engineering studies, maintenance services, etc.), making it possible for the contract to be exempted from Algerian law, if the parties so wish. B. Settlement of disputes If the contract is international, it must also be inferred that the disputes to which it may give rise are likely to be settled by international arbitration. This is an opportunity, since we are talking about Algeria, to make a few remarks: i. Public procurement In Algeria, the fact that an international construction contract is subject to public procurement regulations does not preclude the contract from containing an arbitration agreement. What the Public Procurement Code requires is a "dispute settlement clause", a requirement that leaves room for the possibility of concluding an arbitration clause. ii. State-owned companies With regard to public companies (public companies in Algeria remain the providers of the largest number of contracts and the largest construction projects in the country; they are therefore of particular interest to our discussion), their situation is that they can now, since the reform of the Civil and Administrative Procedure Code, get involved in arbitration in two cases: 1) in their economic relations; and 2) in public procurement matters, which consequently allows them to insert arbitration clauses in their construction contracts. Conclusion When the Algerian parties, mainly public companies, express reluctance, and sometimes refusal, to accept the application of a foreign law to a construction project taking place in Algeria, the arbitration clause comes to “save” the contract and gives sufficient assurances to foreign investors to continue the negotiations. It is indeed practically very difficult to convince the Algerian party that the application of a foreign law is more convenient than Algerian law when the contract is fully performed in Algeria. For the Algerian party, it would not make sense to interpret customs rules or exchange control rules by reference to a foreign law. Investors are therefore encouraged to accept Algerian law to avoid the confusion that could arise from the competing application of multiple laws, and roadblock situations, but at the same time are advised to ensure that the arbitration clause in the contract will submit disputes to an international arbitration institution. Local authorities will undoubtedly find it more difficult to accept the application of foreign law than an international arbitration clause. What makes us different?  Our team has attained a strong stature in the market as a result of both the depth of its expertise and the strength of its advocacy across all aspects of construction arbitration. Our expertise relies on more than two decades of experience in accompanying major infrastructure clients in all aspects of their project lifecycle, from the early stages of financing, development and design to implementation, construction and close-out. We have a unique track record in providing legal and strategic guidance and are used to team up with prominent international law firms to provide our clients with seamless support. Drafted by:  Maya GHELLA Partner « Construction & Infrastructure, Energy, International Arbitration »

Introduction: "Fide Sed Cui Vide" or -in a more prosaic style -"trust does not exclude control". This deep-rooted principle has governed the set-up of an Investment Screening Mechanism (ISM) in most countries in the world eager to protect strategic autonomy in sectors considered essential. ISM first appeared in the United States, Canada and Australia in the mid-1970s. They became widespread in successive waves following (i) the 2008 subprime crisis, (ii) then to deal with the rise of sovereign investments from China, Russia or the Middle East and (iii) more recently as a reaction to the effects of the Covid-19 crisis. It is now widely acknowledged that the enactment of ISM is necessary to reconcile openness to growth-fostering inward FDI with States’ ability to prevent unwelcomed investments. Algerian investment law is part of this global trend and aims at striking a balance between inbound investments incentive and the legitimate need to subject some business sectors to specific oversight. A peculiar feature of ISM in Algeria is that it has primarily appeared as a reaction to unamicable change of control in strategic sectors. In the aftermath of the subprime crisis, Algeria enacted a stringent ISM in 2009 based on a cross-sectoral approach (i.e. applying to all economic sectors), and a pre-emption right to the benefit of the State designed as a shield against “aggressive” cross-border transactions. Since the enactment of the 2020 Supplementary Finance Law and subsequent amendments thereof (2020 SFL), the ISM has shifted to a sectoral approach, as it only applies in strategic sectors. Likewise, the 2009 preemption right has been replaced by an approval requirement prior to any equity transfer to foreign investors. These legislative amendments metabolize a deep evolution of the Algerian ISM towards simplification and greater legal certainty. One of the main progresses of the 2020 reform was to specify the scope of the ISM. Lawmakers have indeed taken care to specify the sectors deemed strategic and then - within these sectors - to list the activities referenced in the Nomenclature of Economic Activities (NEA) subject to the ISM. This double-trigger mechanism considerably enhances the predictability and efficiency of the ISM. From an investor perspective, this positive development is to be highlighted but also nuanced. Despite the ISM's facelift, FDI screening still entails a certain level of complexity requiring in-depth review. This is due to the very fact that, in strategic sectors, ISM does not apply to all activities nor is the exclusive legal basis regarding matters it address (I). Moreover, in non-strategic sectors, some activities remain subject to specific regulations having ISM-similar effects (II). In strategic sectors, ISM does not apply to all activities, nor is the exclusive legal basis regarding matters it address: In strategic sectors, the reformed 2020 ISM enshrines 2 core principles: The limitation to 49% of foreign shareholders’ equity stake. The mandatory approval requirement prior to any equity transaction to the benefit of foreign investors. Within this legal playfield, the main challenge remained to define - or at least to clarify - the scope of strategic sectors. From this point of view, the legislator has shown a remarkable proactivity  that breaks with the “catch-all” approach prevailing under the 2009 regime. Under the 2020 ISM (as amended) the following are considered strategic: The exploitation of the national mining domain, as well as any underground or surface resource resulting from an extractive activity on the surface or underground, with the exception of quarries for non-mineral products The upstream of the energy sector and any other activity governed by the law on hydrocarbons, as well as the operation of the distribution and transmission network of electrical energy by cables and gaseous or liquid hydrocarbons by overhead or underground pipelines; Industries initiated or related to military industries under the control of the Ministry of National Defense for the local market and export; Railways, ports and airports; Pharmaceutical industries, with the exception of investments related to the manufacture of innovative, high value-added essential products requiring complex and protected technology, intended for the local market and for export. Fertilizer production has also been added to the list of strategic sectors following the 2025 Finance Law. Within these strategic sectors, Executive Decree 21-145 has subsequently listed 44 activities of the NAE subject to the ISM. This normative architecture has considerably enhanced the predictability of the ISM. However, it still calls for specific attention in critical respects: Not all activities in strategic sectors are subject to the ISM. In the pharmaceutical industry, the manufacture of innovative products has been excluded to not discourage international players from producing locally high value-added drugs requiring massive investments. It should also be noted that in the vital energy sector, activities such as drilling, pipeline construction or study and engineering activities are not listed in Executive Decree 21-145 and therefore escape the ISM. In terms of military and defense industries, Executive Decree 21-145 does not list any activity subject to the ISM but simply specifies that activities initiated by or in relation to entities under the control of the Ministry of National Defense must be considered strategic. Here, the strategic feature does not rely on a material assessment of the activities but on a mere organic criterion. Executive Decree 21-145 has not yet been updated to specify the fertilizer production- related activities subject to the ISM. In strategic sectors, another layer of complexity stems from the coexistence of IMS with other sectorial regulations having the same purpose. For instance, in the hydrocarbons industry, transfers of rights and obligations related to a contract are subject to (i) prior approval of the sectorial regulator and (ii)  a preemption right of Sonatrach, as a state-owned monopoly. In the same vein, in the event of a change of control of one of the persons constituting the contracting parties, the Minister in charge of hydrocarbons may decide that this operation is incompatible with the continued participation of the person concerned in the hydrocarbon contract. The way this prerogative articulates with the IMS prior approval requirement is not clear since the relevant  implementing decree is yet to be taken. From a more general point of view, under Article 49 of the 2020 SFL import for resale as is activities remain subject to the 51/49 rule but are not considered strategic. In this sector of activity, transfers of shareholdings to foreigners are therefore not subject to any specific prior approval requirement. This hybrid regime of import for resale as is exemplifies that even in non-strategic sectors a number of activities are subject to specific regulations producing ISM-similar effects. In non-strategic sectors, a number of activities are subject to specific regulations producing ISM-similar effects: Activities in non-strategic sectors do not ipso jure escape from any kind of investment screening. Due to their features, some are subject to specific regulations. Executive Decree 15-234 defines “regulated activities” as those likely to directly affect concerns or interests related to: public order; security of property and people; the preservation of natural resources and public goods that make up the national heritage; public health; environment The concerns addressed by Executive Decree 15-234 are broad and can therefore give rise to a wide range of grounds for regulatory intervention. Out of 1600 activities of the NEA, 318 are regulated. A significant part of these regulations is totally unrelated to FDI screening and simply relates, for instance, to diploma requirements in some professions or concerns urban planning and safety rules in all places open to the public (restaurants, malls, sports facilities, cinemas, etc.). However, other activities regulated based on the Executive Decree 15-234, are subject to different type of controls that may entail effects close to a formal ISM. In the galaxy of sectoral regulations, foreign investments can indeed be subject to a  wide spectrum of measures, encompassing: Exclusion: Foreign investments are sometimes prohibited. This is the case, for instance, with activities related to information and the media, which can only be carried out by (i) natural persons of Algerian nationality, exclusively, and (ii) legal entities incorporated in Algeria whose capital is held exclusively by natural persons of Algerian nationality. Limitation: In some sectors, foreign investments are not prohibited but remain restricted by the 51/49 rule. This is the case in the smoking tobacco manufacturing sector, in which foreign investors can only hold a minority stake. Enhanced control: In the telecommunications sector, operators are subject to enhanced technical, commercial and legal scrutiny from the regulatory watchdog. The legal control relates, first of all, to licenses and authorizations which cannot be assigned due to their intuitu personae The control also covers operators’ shareholding structures. Indeed, for licensees (4G, 3G, GSM, V-Sat), any direct or indirect acquisition of a stake in the share capital and/or voting rights must be subject to the prior approval of the regulator, under penalty of nullity or withdrawal of the license. For authorization holders (ISP, cloud services, VoIP, audiotex), ex ante approval requirement applies only if the proposed transfer relates directly to more than one third of the share capital or voting rights. Enforceability: In the financial field, transactions involving the share capital of banks and financial institutions are also subject to prior scrutiny. Additionally, amendments to the articles of association of a foreign bank or financial institution having a branch in Algeria shall be submitted, in order to become enforceable in Algeria, to the Council of Money and Credit when they relate to the purpose of the company. Restriction on dividends: Algerian investment law has consistently and very effectively enshrined the right of international investors to repatriate their dividends and any other proceeds arising from their activities. A notable exception remains for imports for resale as is businesses, for which the repatriation of dividends is not permitted and which – as previously shown - also remains subject to the 51/49 rule. This restriction on the repatriation of dividends is justified by the fact that foreign investments in this field are not deemed productive investments. The above examples reflect how foreign investments in "regulated activities" can be subject to specific scrutiny even though they fall outside the list of strategic sectors. Despite the considerable improvement resulting from the latest reform of the ISM, foreign investment remains subject to a fragmented regulatory framework. This heterogeneous framework is far from being specific to Algeria. In the US, the cross-sectoral IMS resulting from the FIRRMA (Foreign Investment Risk Review Modernization Act) has led to the scrutiny of 20% of incoming foreign investments in all economic sectors. In the European Union, Member States have notified around 100 different ISMs under the cooperation mechanism and the Commission reported that in 2023 more than 1800 investments had been subject to approval request. In China, the National Development Commission recently updated its "Negative List" prohibiting or restricting foreign investment in more than 100 sectors or economic activities. Conclusion: Algerian IMS is now well-anchored in the business environment and the principles thereof have been stabilized. However, it could still be finetuned in the following respects: From a procedural point of view, it is essential to clarify the rules pertaining to the approval requirement prior to equity transfers to foreign investors. This clarification is necessary to anticipate the issues encountered in recent years with regard to transactions that have not obtained a certificate of renunciation of the exercise of the pre-emption right that was required before the 2020 reform. To mitigate the consequences related to the nullity of such transactions, the lawmaker has been compelled to set up an ex-post regularization procedure that can be implemented until December 31, 2026. However, this regularization process does not apply to transactions carried out in strategic sectors, nor those carried out after the entry into force of the 2020 SFL. From a substantive point of view, consideration could be given to removing the nexus between import for resale as is and the principles governing the IMS. In this industry, the prohibition of dividends repatriation resting on foreign shareholders seems self-sufficient to justify the abolition of the 51/49 rule. Similarly, it could be envisaged to relax the rules relating to the mining sector in order to make it more FDI-friendly. By its very nature, the IMS must remain evolving to allow constant adaptation to new risks likely to jeopardize States’ strategic interests. This level of agility should not be perceived as detrimental to the legal certainty but is rather to be appraised in relation to the need to adapt the concept of strategic autonomy to an ever-changing environment. In this respect, it is noticeable that investments in activities involving the access and management of personal data are subject to increasing attention due to the specific risks they entail. Another major trend is the increase of IMS dedicated to outbound investments, as evidenced by the EU Recommendation issued on January 15, 2025 urging Member States to scrutiny outbound investments outside of the EU in three strategic sectors, namely: semiconductors, artificial intelligence ("AI"), and quantum technologies What makes us different? Our FDI experts work seamlessly with clients and international law firms, implementing coordinated strategies designed to navigate within ever-moving complex regulatory landscapes. As a trusted independent law firm, we have developed solid working relationships with administrative and regulatory bodies entitled to screen investments. Our FDI experts work in close cooperation with our M&A team to offer fully integrated solutions to our clients. Authors: Mahieddine RAOUI, Partner, [email protected] Steven ALDRICH, Partner, [email protected]

Fares Legal, a global law firm specializing in Energy and Infrastructure law, has been named in Legal 500 for its expertise in the field. The prestigious ranking is a recognition of Fares Legal's 15 years of experience as a trusted partner for some of the biggest companies in the world, government agencies, and leading midsize organizations. "Our inclusion in Legal 500 is a testament to our commitment to providing practical solutions that meet the needs of our clients," said Fares Legal's Managing Partner Yannil Belbachir . "We are proud to be recognized for our expertise in Energy and Infrastructure law, and we will continue to work hard to maintain our reputation as a trusted legal partner for businesses and organizations worldwide." Fares Legal's unique selling proposition lies in its expertise in Energy and Infrastructure law, global network, local knowledge, proven track record, and commitment to transparency, respect, and results. With over 200 international cases and a strong network in the region with offices in Italy, Algeria, and Libya, Fares Legal provides seamless dispute resolution with global expertise and local solutions. "We are grateful to our clients for their trust and support over the years," said Fares Legal's Managing Partner. "Our team of local lawyers and international lawyers with in-depth knowledge of global compliance will continue to provide practical, effective, and timely legal solutions for our clients." Fares Legal offers language capabilities in French, Arabic, English, Italian, and Spanish to serve diverse clients across the world. For more information about Fares Legal and its areas of expertise, visit www.legal500.com orwww.legalease.co.uk. Media Contact: Name: Djilali TAHAR BELKACEM Phone: +213 664 10 28 47 Email: [email protected]"