Texaco Overseas Petroleum Co. v.

Libya

Brief Fact Summary. A decree which attempted to nationalize all of Texacos (P)
rights, interest and property in Libya was promulgated by Libya (D).

Synopsis of Rule of Law. Whenever reference is been made to general principles of

law in the international arbitration context, it is always held to be a sufficient criterion for
the internationalization of a contract.

Facts. A decree to nationalize all Texacos (P) rights, interest and property in Libya was
promulgated by Libya (D). This action of the Libyan Government led Texaco (P) to
request for arbitration, but it was refused by Libya (D). A sole arbitrator was however
appointed by the International Court of Justice on Texacos request, and Libya (D) was
found to have breached its obligations under the Deeds of Concessions and was also
legally bound to perform in accordance with their terms.

Issue. Whenever reference is being made to general principles of law in the

International arbitration context, can this be held to be a sufficient criterion for the
internationalization of a contract?

Held. Yes. Whenever reference is been made to general principles of law in the
international arbitration context, it is always held to be a sufficient criterion for the
internationalization of a contract. The lack of adequate law in the state considered and
the need to protect the private contracting party against unilateral and abrupt
modifications of law in the contracting state is a justification to the recourse to general
principles. Though international law involves subjects of a diversified nature, legal
international capacity is not solely attributable to a state. A private contracting party,
unlike a state, has only a limited capacity and is limited to invoke only those rights that
he derives from his contract.

Discussion. Applying Libyan law or international law in the arbitration proceedings was a
conflict encountered by in this case. Though the contract itself deferred to Libyan law, the court
noted that Libyan law does not preclude the application of international law, but that the two
must be combined in order to verify that Libyan law complies with international law. Even though
the right of a state to nationalize is recognized by international law, this right in itself is not a
sufficient justification not to regard its contractual obligations