Fulbright Briefing : New Business Opportunities Expected, but Are Troubling Times Also Ahead for Investors in Libya?

Fulbright Briefing : New Business Opportunities Expected, but Are Troubling Times Also Ahead for Investors in Libya?

 

By: Richard Hill, Stefan John Ricketts, James Rogers and Ben Smith

Regime change will inevitably open doors to lucrative business opportunities for foreign investors in Libya, particularly in relation to Libya's oil reserves, the largest in Africa. However, troubling times may also lie ahead for existing investors as the nation moves into a rebuilding phase.

For example, reports from Libya suggest that the Libyan Transitional National Council (the "TNC") may reallocate billions of dollars of oil exploration and construction contracts that had previously been awarded by the Qadhafi regime. Early suggestions are that Chinese, Russian and Brazilian companies may feel the brunt of any such reallocation, in retaliation for the lack of support provided by those countries to the TNC compared with the efforts of the U.S., the U.K. and other NATO countries. However, in the period of uncertainty that will follow, investments held by European and American investors may also be at risk as a new regime seeks to cement its authority and to maximise profit.

Investors wishing to remain involved in the country will seek to negotiate a mutually acceptable outcome in the event that their existing arrangements are challenged or restructured by the TNC. However, a good command of what recourse is available is key to understanding the negotiating positions of the parties and hence to achieving desirable negotiated outcomes. It is therefore timely to consider what final recourse investors may have in the event of a forced restructuring of foreign investments in Libya.

The Libyan courts: Libyan investment laws do make provision for compensation to be paid in the case of nationalisation or other expropriation of foreign owned assets. However, national investment laws provide that disputes between a foreign investor and the Libyan State must be brought before the local Libyan courts. It is difficult to predict how the local courts operating under a new regime will respond to claims from foreign investors. However, foreign investors do not generally regard the courts of the host state as an attractive venue to resolve investment disputes.

Investment treaty claims: Alternatively, a foreign investor may bring a claim against the Libyan State under a bilateral investment treaty (commonly referred to as a "BIT"), or a multi-lateral investment treaty. Such treaties commonly provide for arbitration or other neutral fora for the resolution of investment disputes.

Investment treaties also typically afford foreign investors protections such as "fair and equitable treatment," "full protection and security" and treatment no less favourable than that granted to investors from other countries. They also commonly prohibit the expropriation of assets other than in the public interest and upon the payment of prompt and fair compensation.

Libya is a party to BITs with France, Italy, Switzerland and Belgium, among others, providing a means for investors from those countries to commence arbitration against Libya if Libya fails to meet its BIT obligations. Libya is also a party to the multi-lateral Unified Agreement for the Investment of Arab Capital in the Arab States ("UAIACAS"). If Libya breaches its UAIACAS obligations, investors from other contracting states may refer disputes to the Arab Investment Court in Cairo.

Investors may also be able to bring a claim under a treaty entered into between Libya and a third country, provided that the relevant investment is held through a subsidiary incorporated in that third country. For example, although neither China nor the U.S. has a BIT with Libya, a Chinese investor or a U.S. investor could nonetheless bring a claim under the France/Libya BIT if the investment vehicle through which the Libyan investment was held was a French registered entity.

For this reason, foreign investors often incorporate their investment vehicle in a third country to avail themselves of the investment treaty protections offered by any investment treaty between that third country and the country in which the investment is to be made. Selecting the home state of the investment vehicle should be an important pre-investment consideration, particularly when investing in a developing jurisdiction such as Libya.

Contractual rights: If contracts or the investment environment are adversely impacted by events, "stabilisation" clauses in a contract or concession may give foreign investors redress, depending upon how they have been drafted. If contracts with the Libyan State are not honoured by the TNC, or the ministries of the state, investors may need to pursue dispute resolution in accordance with the terms of their concessions or contracts. Investors who have negotiated contracts providing for international arbitration will be able to pursue the Libyan State without having to bring their claim before the Libyan courts. However, contractual claims will be subject to the terms of the contract and its governing law and will not provide relief from a breach of the typical treaty obligations listed above.

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