Libya’s contracts with international firms that were signed during the Qadhafi regime and shortly after the revolution have remained largely frozen, which has led some firms to seek compensation through international commercial arbitration mechanisms. While the Libyan state has been unable to fulfil most core government responsibilities, it has had significant success in international courts in these cases.
The Tripoli-based Ministry of Justice recently announced that it had won two more commercial arbitration cases in May. It won an International Court of Arbitration case brought by Portugal’s Way2B construction company which was seeking €60 million (US$70 million) in compensation plus legal expenses. It involved the failure of the Libyan Development Administration Centre (DAC) to implement its contract to build two university complexes as well as damage sustained to company infrastructure and profitability during the 2011 revolution. The court not only dismissed the case but also compelled Way2B to pay all of Libya’s legal fees as well.
Secondly, the Libyan state was able to defend itself in Lebanese courts against a lawsuit from the Beirut based Before Trading Offshore, which claimed it had supplied a field hospital in the city of Khoms during the 2011 revolution. The Lebanese court found no proof of this transaction and the Beirut Summary Court rejected the suit.
The court cases reveal several characteristics about the current commercial space that are of interest to any future investors. First, Libya will remain on the defensive for years to come and will be pre-occupied with commercial arbitration procedures regarding both real and fake past contracts. This pre-occupation, along with the inherent weaknesses of Libya’s financial institutions, requires international companies to lower their expectations of what their Libyan interlocutors can do.
Second, it is imperative that investors factor in realistic risk when calculating the profitability index for potential projects in Libya. The courts clearly lean toward ruling in Libya’s favour when companies seek damages caused during the 2011 revolution. There is a high risk of civil unrest and companies should budget accordingly because it will be hard to recoup potential losses in court. There are also risks of becoming embroiled in corruption investigations by being associated with Libya, even after the fall of Qadhafi.
Now that Libya is winning many of these legal cases, it will not suffer from an undue drain on its already depleted foreign currency reserves. The government may therefore have the necessary funds needed to pay for future contracts with international firms in a variety of sectors.