Libyan American Oil Co. v Government of Libyan Arab Republic LIAMCO case Mahmassani (Lebanese) arbitrator

1955 Libya granted three concessions to Libyan American Oil Company, Delaware corporation. The concessions followed a model set out in the Libyan Petroleum Law, and gave the concessionaire the right for 50 years to extract oil. Each concession provided: Clause 16, the contractual rights shall not be altered, except by mutual consent of the parties. Clause 28: Applicable law: this concession shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles of international law, and in the absence of such common principles then by and in accordance with the general principles of law as may have been applied by international tribunals. Following a revolution, Libya nationalised the concessions. The government said in a press statement that compensation would be according to the net book value, but no compensation was offered. LIAMCO referred to arbitration under clause 28 of the concessions, Libya refused to appoint its arbitrator and the sole arbitrator was appointed by the ICJ president Claims: 1. nationalisation constituted a fundamental breach of concessions 2. nationalisation laws were ineffective to transfer rights under the concessions and the rights of LIAMCO are entitled to international recognition 3. In the event of LIAMCO not being restored to its concessions rights, it should be entitled to damages It was alleged besides: nationalisation was done as part of an overall program of political retaliation against US, nationalisation discriminatory against selected foreign companies. [This case is v. GA Res 1803 need of public purpose in nationalisation and more according to 1974 Charter. Public purpose is easily satisfied because the ‘margin of appreciation’ AMOCO case 1987]

Clause 28 was a binding arbitration agreement between the parties possessing the capacity to conclude such agreement. The law of its place of incorporation, Delaware, supports LIAMCO’s capacity. Libyan government is empowered to arbitrate by an explicit legislative text, art 20 of the Petroleum Act, complemented and amplified by clause 28 annexed to the law. According to international law and Islamic law, the clause survived even if the concessions had been terminated. The dispute arising from the nationalisation concerned the interpretation and execution of the concessions and was thus an arbitrable issue under clause 28 The sovereign right to nationalise was recognised in State practice and several GA Resolution 1803 and 1974 Charter ‘if not a unanimous source of law’ both were ‘evidence of the recent dominant trend of international opinion concerning the sovereign of states over their natural resources’ Although concessions were a form of property entitled to respect, their premature termination by nationalisation was not an international delict so long as it was not discriminatory or accompanied by some other wrongful act. Such nationalisation did, however, give rise to a duty to pay compensation. International law no longer inquires into the motives for the nationalisation to see if they involved a legitimate public purpose, unless those motives were discriminatory. Public utility principle is not a necessary requisite for the legality of a nationalisation, mentioned by Grotious, no international authority supports its application. Non-discrimination is a requisite for the validity of a lawful nationalisation. This is a rule well established in International legal theory and practice. Nationalisation was not discriminatory (requirement easy to met) because Libya’s motive for nationalize was its desire to preserve the ownership of its oil, the political motive was not the predominant one. Considering against the due respect to the sovereignty of the nationalising state, restitutio in integrum was generally imposible in IL. Since restitutio amounted to an order to revoke nationalisations measures which were not in themselves unlawful and had the character of ‘act of state’. The declaratory award request by LIAMCO would also be contrary to the notion of sovereign right to nationalise. The holder of the concession was entitled, at least to the value of any corporeal property and expenses, danmnun emergens. In case of wrongful taking he may also be entitled to compensation for value of concession and loss of profits, lucrum cessans. The award gave an equitable measure in the middle.