John Ricketts, James
Rogers and Ben
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
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
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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