Libyan American Oil Company v Libya

Year of the award: 1977
Forum/Rules: Ad Hoc Tribunal (Draft Convention on Arbitral Procedure, ILC 1958)
Applicable law: Concession agreements, Libyan law, international law, general principles of law

Arbitrator:
Dr Sobhi Mahmassani

Executive summary

In 1955, LIAMCO, an American company, entered into a number of Concession Agreements with the Libyan government for the exploration and production of petroleum. After the Revolutionary Command Council headed by Colonel el Qadhafi overthrew the government, LIAMCO was subjected to gradual measures restricting rights granted in the Concession Agreements, ultimately resulting in complete nationalization of all of LIAMCO's physical assets and concession rights in Libya.

In November 1973, LIAMCO initiated arbitration proceedings pursuant to Clause No 28 of the Concession Agreements, requesting as a principal relief the restoration of its concession rights together with all the benefits accruing from such restoration (restitution in integrum), and as an alternative relief, the payment of adequate damages (damnun emergens and lucrum cessans), in the amount of US$ 207,652,667 plus interest. The pleadings and hearings were conducted in default of the Respondent.

The Tribunal, holding that restitutio in integrum was impossible, found that the Claimant was entitled to indemnification for (lawful) nationalization of its assets and concession rights. Noting the 'confused state' of international law as to appropriate standard on compensation for nationalization, the Tribunal used Equity as the 'general principle of law' and adopted the formula of 'equitable compensation'. Applying this formula to the facts of the case, the Tribunal accepted LIAMCO's claims with regard to damnum emergens, awarding the exact same sum claimed. With regard to compensation for loss of concession rights (i.e. lost profits), the Tribunal held that LIAMCO's claims were well founded in principle, but adjusted the exact amounts claimed. The Tribunal held that, in total, Libya would have to pay US$ 79,882,677 plus interest and costs in compensation.