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Nova Southeastern University Wayne Huizenga Graduate School of Business & Entrepreneurship Assignment for Course: Submitted to:

Submitted by: CSA 6470 International Legal Framework Mr. Stephen Muffler, Attorney at Law Rick A. Rudy

Location of Course: Date of Course Meeting: Date of Submission: Title of Assignment:

Case Study 1-11, - Libyan American Oil Company (LIAMCO) v. Government of the Libyan Republic

CASE TITLE: Libyan American Oil Company (LIAMCO) v. Government of the Libyan Republic

JUDICIAL BODY: Sole Arbitrator appointed by the International Court of Justice

FACTS: Libyan American Oil Company (LIAMCO) is suing the Government of the Libyan Republic for restitution of the loss of 3 petroleum concessions and its assets. In 1955 LIAMCO acquired 3 petroleum concessions from the Libyan Ministry of Petroleum giving it exclusive rights to search, extract and sell petroleum from designated areas of Libya for the next 50 years. The concessions were modeled from the Libyan Petroleum Law of 1955. In 1969 a military coup led by Muammar Gadhafi deposed the Libyan monarchy and established the Libyan Arab Republic. Between 1970 and 1973 the new government renegotiated the economic provisions of the LIAMCO concessions. However, in 1973 the Libyan government decided to nationalize 51 percent of LIAMCOs petroleum concessions and the following year nationalized the remaining rights, promising compensation. Compensation was never actually made to LIAMCO.

An important issue in the case is that several years after the original concession contract was signed there were several amendments made to the contract. These amendments included 2 clauses that were: Clause 16: The contractual rights expressively created by this concession shall not be altered, except by mutual consent of both parties. Clause 28: Provided for the settlement of disputes by arbitration and shall be governed by and interpreted in accordance with the principles of the law of Libya common to the principles of international law and in the absence of such common principles, then by and in accordance with the general principles of law, including such of those principles as may be applied by international tribunals.

ISSUE: The legal issue involved in the case is whether the Government of the Libyan Republic is bound to uphold to its contractual agreements with LIAMCO and the validity of the arbitration clause. DECISION: The final decision was that Libya was held to be bound by its arbitration agreement and to have breached its concession contracts with LIAMCO. LIAMCO was awarded $80,085,677 in damages.

RATIONAL: The arbitrator decided that LIAMCOs amended Concession Agreements were based on the law of Libya when consistent with international law. Libyan law and international law are similar and that both recognize arbitration and both recognize the sanctity of contracts. The Libyan Civil Code under Article 1, para. 2, states that if there is no legal text to be applied the judge will adjudicate in accordance with the principles of Islamic law. Libya had adopted and incorporated the legal principle of the Civil Code that was followed by many Islamic countries which states in Article 147: The contract is the law of the parties. It can not be cancelled or amended except by their (the parties) mutual consent or for reasons admitted by the Law. And in Article 148 it re-emphasizes this with: The contract shall be performed according to its contents and in the manner which accords with good faith. The case also demonstrates the importance of arbitration in Islamic Law and its consistency to Libyan Law by pointing out the arbitrations of the Prophet Mohammed.

RELEVANCY: The relevancy of this case is that it sets the precedents for all other contracts between international countries. If this case had been decided in favor of Libya, than current and future contracts would have been in jeopardy thus increasing the risk of doing business in these countries. This would have an economic impact on countries looking for foreign investment.

Pacta Sunt Servanda: A Meditation


Civilians justify their system by reference to the maxim pacta sunt servanda. This "basic and it seems universally accepted principle of contract law" means, in the civil law, that promises are binding. "The principle satisfies our philosophical and moral views: it is proper for individuals to be bound by their promises." To the civilian mind, the maxim is entirely self-evident. "The notion seems at first sight so clear and simple that it should require no explanation or comment." "The rule 'pacta sunt servanda' is therefore not only a basic legal norm, it is equally as much an ethical rule, that is, a self-evident value According to this interpretation of the pacta maxim, then, the role of the law is to provide a state sanction for moral norms. This point, so obvious to civil lawyers, is much less so to anyone trained in the Holmesian tradition. "Commitments that have been made must be performed."

An expression signifying that the agreements and stipulations of the parties to a contract must be observed. Pacta sunt servanda (Latin for "agreements must be kept"[1]), is a brocard, a basic principle of civil law and of international law. In its most common sense, the principle refers to private contracts, stressing that contained clauses are law between the parties, and implies that nonfulfilment of respective obligations is a breach of the pact. The general principle of correct behavior in commercial practice including the assumption of good faith is a requirement for the efficacy of the whole system, so the eventual disorder is

sometimes punished by the law of some systems even without any direct penalty incurred by any of the parties. With reference to international agreements, "every treaty in force is binding upon the parties to it and must be performed by them in good faith."[2] Pacta sunt servanda is based on good faith. This entitles states to require that obligations be respected and to rely upon the obligations being respected. This good faith basis of treaties implies that a party to the treaty cannot invoke provisions of its municipal (domestic) law as justification for a failure to perform. The only limit to Pacta sunt servanda are the peremptory norms of general international law, called jus cogens (compelling law). The legal principle clausula rebus sic stantibus, part of customary international law, also allows for treaty obligations to be unfulfilled due to a compelling change in circumstances.

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