Force majeure and the protection of international contractors in Libya by Leonardo Carpentieri

Force majeure and the protection of international contractors in Libya by Leonardo Carpentieri

Force majeure and the protection of international contractors in Libya by Leonardo Carpentieri

Leonardo Carpentieri[1]



The deteriorating political situation in Libya over the last few years has been causing much concern for all international contractors with projects in the country.

Domestic and international law may provide remedies for international operators when a project is likely to become more difficult and onerous to perform.


The Libyan case

A growing number of international operators have recently initiated arbitration proceedings to obtain assurances to be able to return to Libya and complete suspended works safely. In parallel, international businesses have sought compensation for projects which have become more onerous – or impossible – to perform over the years.

Ever since the Arab Spring – which reached Libya around February 2011 – major security concerns have meant that most international operators were forced to leave the country, often very hastily. As a result, some of the country’s key infrastructure projects have been abandoned, with equipment and materials deteriorating and losing value.

While international contractors have been exploring ways to return to Libya to complete their projects, this has often proved difficult given Libya’s ongoing political instability.[2]  Numerous governments have advised their nationals to leave the country as diplomatic presence was no longer available. A growing number of international contractors may therefore be tempted to seek financial compensation, considering the State’s inability to effectively protect their investments.  Libya is currently facing seven post-Arab Spring arbitration proceedings.[3]


Assessing the legal bases for a claim

International contractors should carefully consider the various bases which they can use to bring claims relating to civil unrest affecting their project.

The legal basis for a claim can be drawn from four major sources: (i) the contract between the Employer (often a State-owned or State-related entity, a Ministry, or the host State) and the Contractor, (ii) the Administrative Contract Regulations of Libya (“ACR”), (iii) the Libyan Civil Code and (iv) applicable bilateral and multilateral investment treaties.


  1. The Contract

Contracts for the development of infrastructure projects in Libya are generally long-term agreements.  As such, they often include remedies dealing with exceptional circumstances making it more difficult for a contractor to operate. There are various contractual mechanisms allowing a party to seek the readjustment of a contract following “exceptional events”.

Civil unrest and war generally fall in the category of “exceptional events”. If the contractor can demonstrate hardship under the contract and that there has been a major change of circumstances during the life of the project, it may be granted additional time, as well as compensation, in order to complete the works and reduce its losses.

Hardship clauses offer appropriate protection to investors because they can apply in the event of war or civil conflict. However, not all contracts include such provisions. Indeed, international contractors often have little or no bargaining power, especially vis-à-vis a State entity, the Government or a Ministry. Therefore, they seldom have sufficient leverage to amend the contract to include strong remedies such as a hardship clause.


  1. The Libyan Administrative Contract Regulations (“ACRs”)

The ACRs are a set of Libyan administrative law rules which may assist international contractors operating in Libya.[4]

If applicable, the ACRs may provide significant rights to financial compensation and extension of time if a contractor can demonstrate that exceptional circumstances have occurred, rendering the performance of the contract more difficult, albeit not impossible.

Article 105 of the ACRs, which is titled “Emergency Conditions” provides as follows:[5]

If general exceptional conditions occur, being unforeseeable, as would make execution of the obligation burdensome threatening the contractor with serious loss, without becoming impossible, the contractor shall have the right to compensation for recovering the contract financial balance to the reasonable limit.  If such conditions continue, and [are] hopeless to disappear, the contract may be terminated upon […] request.

The ACRs therefore provide for a re-balancing mechanism aimed at re-establishing the equilibrium of the contract when exceptional events such as civil unrest or war have occurred.


  1. The Libyan Civil Code

The Libyan Civil Code[6] provides for additional remedies which may be available to international contractors operating in Libya.

Article 147 of the Libyan Civil Code provides that:

  • The contract makes the law of the parties. It can be revoked or altered only by mutual consent of the parties or for reasons provided for by the law.
  • When, however, as a result of exceptional and unpredictable events of a general character, the performance of the contractual obligation, without becoming impossible, becomes excessively onerous in such way as to threaten the debtor with exorbitant loss, the judge may, according to the circumstances, and after taking into consideration the interests of both parties, reduce to reasonable limits the obligation that has become excessive. Any agreement to the contrary is void.

Libyan courts are therefore authorised to reduce contractual obligations to reasonable limits if a party can prove that exceptional and unpredictable events have made a contractual obligation excessively onerous and that it is likely to suffer an exorbitant loss.

Libyan judges have discretionary powers to decide how to adjust such obligations. Within those powers, they may decide to grant a contractor additional time and money to complete their project or portions of the works.


  1. Investment treaties

Investment treaties are agreements between two or more States dealing with a State’s treatment of investments made in that State’s territory by foreign individuals or companies. They are negotiated on a bilateral, multilateral or regional basis and they include substantive and procedural protections for businesses operating outside of their home jurisdiction.  A key feature of investment treaties is the possibility for investors to bring claims in a neutral, international forum, such as ICC, ICSID, UNCITRAL arbitration, thus avoiding litigation before the local courts of the host State.

International contractors may qualify as foreign investors under investment treaties.  As such, they can rely on the protections contained in these instruments in the event of a dispute.

Libya has concluded 39 bilateral investment treaties (or BITs) with other countries, of which 25 are in force, 12 are signed but not in force, and 2 have been terminated.[7] Within the African Continent, Libya has entered into BITs with Congo, Kenya, Tunisia, Ethiopia, South Africa, Algeria, Morocco, Gambia and Egypt. In other words, businesses from any of these countries may rely on treaty protections when operating in Libya.

Libya is also a party to multilateral and regional treaties, including the Organization of the Islamic Conference Investment Agreement[8] and the Unified Arab Investment Agreement.[9]

Investment treaties are particularly relevant in the context of war and civil unrest.  They contain specific protections for international contractors, some of which are set out below.


  • Full protection and security

Article 2.2 of the Libya-Korea BIT is a typical full protection and security (or FPS) provision and states as follows:[10]

Investments made by investors of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party (emphasis added)     

In other words, Korean contractors operating in Libya, as well as their investments, are afforded protection by the Libyan State, under certain conditions.

In order to comply with their FPS obligations, host States must carry out a due-diligence exercise vis-à-vis foreign investors and, where necessary, take concrete and proactive measures to protect them.

For infrastructure projects, States must inter alia ensure that contractors’ premises and personnel are kept safe from political, military and social rebellions, acts of violence and similar threats which may affect the integrity of their investment and project assets.

In the context of civil unrest, war and insurrections, international contractors are often at a higher risk than local operators of being discriminated against or treated unfairly. Also, violent attacks seldom occur in isolation and are often followed by other attacks, whether targeted or perpetrated randomly, often threatening the viability of an investment.

Host states have often been found in breach of their FPS obligations for not taking sufficient measures to protect foreign investors despite the re-occurrence of attacks, acts of looting or destruction.[11]


  • Prohibition of unlawful and uncompensated expropriation

While States are entitled to expropriate or nationalise privately-owned property, they must do so subject to a certain number of conditions.

Most investment treaties require States to compensate foreign investors and observe due process while carrying out an expropriation. Also, expropriation must generally be performed in the public interest and States must be able to produce sufficient evidence to this effect.

The likelihood of expropriation is particularly enhanced in countries where the risk of armed conflict, civil unrest and war is high. Indeed, large infrastructure projects may often be targeted and taken over by the host State authorities – but also by rebel militia or other military or paramilitary forces – for security, public interest or other reasons.

Investment treaties contain safeguards against unlawful and uncompensated expropriation, as is the case for Article 4.1 of the Turkey-Libya BIT:[12]

Investments shall not be expropriated, nationalized or subject, directly or indirectly, to measures of similar effects except for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law and the general principles of treatment provided for in Article 3 of this Agreement.

On this basis, Libya may be held liable for unlawful expropriation if it decided to take over and operate assets owned by a Turkish company, without compensation.


  • War clauses and extended war clauses

Some, but not all, BITs also provide for remedies for international contractors in the event of war or conflicts taking place in the territory of the host State. Such provisions are particularly relevant to projects located in countries having suffered civil unrest following the Arab Spring events of 2011.

For instance, Article 5 of the Turkey-Libya BIT provides that:[13]

Investors of either Contracting Party whose investments suffer losses in the territory of the other Contracting Party owing to war, insurrection, civil disturbance or other similar events shall be accorded by such other Contracting Party treatment no less favourable than that accorded to its own investors or to investors of any third country, whichever is the most favourable treatment, as regards any measures it adopts in relation to such losses.

War clauses do not create additional substantive rights for investors.  They however ensure that nationals or companies from a specific country receive the same level of compensation which other foreign or domestic investors do.




In conclusion, international contractors may rely on numerous legal bases to bring claims against their host State in times of conflict. The losses which foreign operators have suffered as a result of the Arab Spring events often form the basis for arbitration proceedings initiated against host States which still through political and military turmoil exist today.

The recent decision in the Ampal v. Egypt[14] case demonstrates that arbitral tribunals are fully aware of the difficulties faced by investors facing the backlash of the Arab Spring in the region.

Host States, on the other hand, also have several defences which they can rely on in order to defeat claims brought by disgruntled investors. In this respect, there are two major principles which States going through periods of turmoil or war may seek to use: force majeure and necessity.

Both theories can be invoked as grounds for precluding the wrongfulness of an act of the State carried out in breach of an international law obligation. Force majeure comes into play when the State is effectively compelled to act in a manner contrary to the requirements of one of its obligations, for example the State’s duty to protect under an applicable investment treaty.  Necessity has also been invoked by host States, in particular in circumstances of economic and social strife, such as the Argentinian economic crisis in the early 1990s.[15]



[1] Leonardo Carpentieri is a Counsel in the London office of LMS Legal LLP specializing in international commercial and investment treaty arbitration.  Recognition should be given to Basil Thévignot (Trainee Lawyer at LMS Legal LLP) for his contributions to this paper.

[2] Please note that this article does not address issues of continuity of State under international law.  Please contact the author for more information on this issue.

[3] (last accessed on 23 July 2019).

[4] Libyan Administrative Contracts Regulation, Law No. 563 of 2007.

[5] See Article 105 of the Libyan Administrative Contracts Regulation, Law No. 563 of 2007.

[6] Libyan Civil Code, 1954.  It is important to note that the Libyan Civil Code closely follows the Egyptian Civil Code of 1949, which was the result of a reform project led by jurist Abd al-Razzaq al-Sanhuri and has been very influential since its adoption. The Egyptian Civil Code, also known as the Sanhuri Code, has been adopted in various jurisdictions throughout the Arab world.  It has roots in the French Code Civil interpreted in light of Egyptian jurisprudence and influenced by Islamic law.

[7] (last accessed on 23 July 2019).

[8] Agreement on the Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of the Islamic Conference, signed on 5 June 1981 and entered into force on 1 February 1988.

[9] Unified Agreement for the Investment of Arab Capital in the Arab States signed on 26 November 1981 and entered into force on 7 September 1981.

[10] Agreement between the Republic of Korea and the Great Socialist People’s Libyan Arab Jamahiriya for the Promotion and Protection of Investments signed on 21 September 2006 and entered into force on 28 March 2007.

[11] In AMT v. Zaire (American Manufacturing & Trading, Inc. v. Republic of Zaire, 1997, ICSID Case No. ARB/93/1) and, more recently, in Ampal v. Egypt (Ampal-American Israel Corporation and others v. Arab Republic of Egypt, 2017, ICSID Case No. ARB/12/11), arbitral tribunals were tasked to assess whether Zaire and Egypt had complied with their respective full protection and security obligations under relevant treaties.  Both States, albeit on dissimilar grounds and to a different extent, were found liable for not providing adequate protection to the claimant investors.

[12] Agreement between the Republic of Turkey and the Great Socialist People’s Libyan Arab Jamahiriya on the reciprocal promotion and protection of investments, signed on 25 November 2009 and entered into force on 22 April 2011.

[13] Agreement between the Republic of Turkey and the Great Socialist People’s Libyan Arab Jamahiriya on the reciprocal promotion and protection of investments, signed on 25 November 2009 and entered into force on 22 April 2011.

[14] See Ampal-American Israel Corporation and others v. Arab Republic of Egypt, 2017, ICSID Case No. ARB/12/11.

[15] See, for example, CMS Gas Transmission Company v. the Argentine Republic, ICSID Case No. ARB/01/8 (Award dated 12 May 2005); and LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. the Argentine Republic, ICSID Case No. ARB/02/1 (Decision on Liability dated 3 October 2006).

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