IBTBlog

The International Business Transactions Blog

Libya’s Foreign Investment Troubles

By Aaron Fellmeth, Faculty Co-Editor
and BethEl Nager, Law Student Editor

During the 2011 Arab Spring, Libya endured its first civil war. This war was fought between supporters of long time dictator Muammar Gaddafi and rebel groups with a range of agendas, from pan-Islamism to democratic republicanism. The war lasted over eight months and resulted in the death of Gaddafi and a new government was formed. Prior to 2011, Libya had begun the reconstruction of roads and infrastructure and had signed contracts with foreign investors to complete the updates. However, the civil war caused Libya to halt construction, resulting in numerous legal battles with foreign investors over the financial consequences. 

Strabag Investment Treaty Award 

Strabag SE, a Vienna-based engineering company, entered into a joint venture with a Libyan entity to create Al Hani General Construction Co. Al Hani entered into six contracts with the Libyan government to assist with the “suburban development in Libya” over a four-year period. These contracts included road construction and infrastructure design. However, due to the first civil war in 2011, Al Hani was forced to stop construction. During this time, company equipment was seized, stolen, and destroyed. Also, several construction locations were occupied by military forces, making progress impossible.

In 2015, Strabag filed a claim for breach of the Austria-Libya bilateral investment treaty (BIT) and seeking compensation for the joint venture’s losses. The BIT included a “war clause” providing that each party must promptly, adequately, and effectively compensate the other on nondiscriminatory terms for any loss “due to war or to other armed conflict” as well as “revolution, insurrection, civil disturbance,” or similar events, if not “required by the necessity of the situation.” . Strabag claimed that its property was requisitioned by military forces and destroyed under this clause, creating an obligation of compensation. It further claimed that its right to “full and constant protection and security” under the BIT had been violated. In June of 2020, a tribunal formed under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) concluded that Libya breached its obligations under the BIT. 

The tribunal rejected the argument that the war clause precluded invoking the full protection and security clause, but it also rejected the “full protection” claim, finding that “it was not reasonably possible” for Libyan authorities to protect Al Hani’s assets during the conflict. However, it found that Al Hani’s property had been requisitioned, giving rise to an obligation of compensation. It further found that substantial equipment had been destroyed by Libya’s armed forces, rebels, looters, and even NATO bombardment. The tribunal found that Al Hani could only claim compensation for the losses caused by Libya’s armed forces, but it awarded damages based on its conclusion that these losses were not due to “military necessity.”

Libya then petitioned the U.S. District Court for the District of Columbia to vacate the award due to the advance payments Strabag had received in the course of the work progress. According to Libya, failing to account for these payments made the award incomplete. Libya also argued that the tribunal lacked jurisdiction and had impermissibly based its award on fairness rather than the contract and law. In declining to vacate, the court found that the tribunal had fully considered and rejected the set-off claim, that the tribunal properly exercised the authority to determine its own jurisdiction, and that its decision was based on law rather than fairness. The court also granted Strabag’s cross-motion to confirm the award, but it refused to allow a prejudgment bond. 

Nurol’s Jurisdictional Award 

Recently, the Paris Court of Appeal also upheld a treaty award against Libya in favor of Nurol Inşaat ve Ticaret A.Ş, a Turkish construction company that had had several agreements with Libyan state agencies before 2011. Libya had argued that the 2011 Turkey-Libya BIT never entered into force, and therefore the arbitral tribunal lacked jurisdiction.

At the start of the war, the construction locations were attacked and Nurol was forced to halt progress. After the war, both sides agreed to resume the projects, but the construction never restarted and Nurol evacuated Libya in 2014 after alleged threats by government officials. 

In 2016, Nurol initiated arbitration under the Turkey-Libya BIT with the International Chamber of Commerce (ICC) International Court of Arbitration, alleging the investment had been expropriated without compensation. Libya countered that the BIT was invalid, because Turkey had never validly notified Libya that ratification was complete.  Among other claims, Turkey also argued that the BIT does not cover investments that began before the BIT entered into force. The Paris court found the BIT to be effective because it did not require any specific notification of ratification, and it rejected Libya’s claim that the BIT did not protect investments begun before the treaty entered into force, as long as the dispute arose after the BIT entered into force, as it did in this case.

Conclusion 

Both claims reflect the challenges Libya has faced in dealing with foreign investments disrupted by the civil war.  Other arbitral awards and judicial appeals are pending, and Libya has prevailed in some of them.

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