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Foreign Contractors Resorting to Force Majeure under Libyan Law

After decades of oppression and injustice, the Libyans, after many attempts, were finally successful in their eradication of the Gaddafi regime. Peaceful demonstrations initiated by the Libyan people morphed into armed conflict due to the irresponsible and brutal acts of the regime. As a result of the destruction that was launched by the Gaddafi regime against its own people, normal life during this period ended. Business establishments closed and expatriate workers fled. After eight months of bloody battles and the loss of tens of thousands of lives, the Libyan Transnational Council declared the liberation of Libya from the Gaddafi regime on 23rd of October 2011.
At a time when Libyans are eagerly gearing up towards the task of rebuilding their country, previous international contractors are gathering their records to calculate their losses during the Libyan revolution. Although, these claims have a legitimate place in commerce, it is unfortunate at time of rebirth; Libyans are left to deal with the uneven commercial legacy of the old regime. Yet, this is the insistent nature of commerce. Further, as a Libyan, I would say that everything sacrificed by the Libyan people, whether in lives or money was worth the result of uprooting Gaddafi and his henchmen to create a more representative nature in the commercial sector. Therefore, we Libyans look forward to build a more responsible relationship with the previous or new contractors in our New Libya.
In this brief paper, we shall shed some light on the possibilities of settling claims between international contractors and Libya.

DID THE LIBYAN REVOLUTION TRIGGER AN EVENT OF FORCE MAJEURE
To claim an event of force majeure, in general, a party to a contract must find a degree of difficulty in discharging his obligations. There is no doubt that the Libyan revolution is an obvious example of a clear case of force majeure. Note, that it was impossible for an average individual to live a normal life. Government offices, especially in the eastern part of the country, closed its doors and communication with these offices was impossible.
As a result of the revolution, the expatriate work force fled to neighboring countries and materials became scarce as a result of the state of war. Therefore, it became impossible for international contractors to continue performing their obligations under the contract.
Simply stated, all acts by the Gaddafi regime triggered an event of force majeure that justified the nonperformance of the international contractors’ obligations under their contractors.

CONTRACTS SIGNED WITH THE LIBYAN GOVERNMENT
Article no. 147 of the Libyan Civil Code states that a contract that is signed and is enforceable among the parties shall be the first source of law in any conflict resolution process. Therefore, the terms and conditions set out in the contract will govern the relationship between the parties.
An examination of the terms of the signed contract is the first step in deciding the obligations and rights of the international contractor. The assumption here is that all contracts which were valid during the Libyan revolution contained a force majeure clause. 

UNDER THE LIBYAN CIVIL CODE
There is no need to dwell in detail on all points of the Libyan law related to force majeure, as the Libyan Civil Code recognizes the option of non performance of an obligation based on the event of force majeure.
Therefore in the case of the Libyan Conflict, an international contractor is fully justified not to perform its duties under the Libyan Civil Code. I reiterate that this is due to the fact that the upheaval caused by the revolution was a direct result of the Gaddafi regime's decision to use excessive force on peaceful demonstrators. 

UNDER BILATERAL INVESTMENT TREATIES
As of June 1st 2011, Libya has entered into 33 bilateral investment agreements with various countries such as Italy, Austria, Morocco, Croatia, Portugal, Switzerland, Belgo-Luxembourg and France. The aim of these treaties is to provide certain guarantees, as stated in each treaty, to investors of both parties to the treaty. It also allows investors from both parties to the treaty to bring claims against the other state before international arbitration.
Each investment treaty are tailored, however, all of them guarantee that in matters relating to the treatment of investments, the investors of each contracting party shall enjoy national treatment and most-favored-nation treatment in the territory of the other party.
At also requires that each contracting party undertakes not to adopt any measure of expropriation or nationalization or any other measure having the effect of directly or indirectly dispossessing the investors of the other contracting party of their investments in its territory.
Most importantly, an investment treaty restricts the acts of a contracting party to take any action to deprive and limit the ownership of investors from the other contracting party. For example, the treaty signed between Libya and Belgo-Luxembourg Economic Union states that: 

 Investors of one Contracting Party whose investments suffer losses owing to war or other armed conflict, revolution, a state of national emergency or revolt in the territory of the other Contracting Party shall be granted by the latter Contracting Party a treatment, as regards restitution, indemnification, compensation or other settlement, at least equal to that which the latter Contracting Party grants to the investors of the most favoured nation. 

In summary, it is clear that the Gaddafi regime triggered the violent acts that rendered normal life impossible in Libya. This forced international contractors to cease their performance under contracts signed with the Libyan government. Therefore, international contractors are entitled to claim force majeure as a defense of nonperformance.
International contractors may claim compensation due to the fact that the Gaddafi regime was responsible for the force majeure event. The claim may be granted based on (i) the contract signed between the Libyan government and the international contractor, (ii) the Libyan Civil Code, and if applicable (iii) a bilateral investment treaty signed between Libya and the country of the international contractor.

Dr. Mohamed Karbal is a New York lawyer and founder of Karbal & Co, a full-service international law firm with offices in Libya and Dubai that serve the needs of businesses and governments in Libya and the United Arab Emirates. Finds us at www.karbal.net

About KARBAL & CO

 

With offices in Dubai, United Arab Emirates and Tripoli, Libya, KARBAL & CO is an international law firm that provides legal consultancy and arbitration services to contribute to the growth and development of the Middle East and North Africa.

In our extensive experience in the region, our firm has provided legal and arbitration services to clients in the governments of both Libya and the United Arab Emirates, as well as corporations and individuals. 

 


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