Page 1

1 of 43 DOCUMENTS

Copyright (c) 1978 American Society of International Law, Washington, D.C.

International Legal Materials

Volume 17, Number 1

January, 1978

17 I.L.M. 1; (1978)

SECTION: JUDICIAL AND SIMILAR PROCEEDINGS

INTERNATIONAL ARBITRAL TRIBUNAL: AWARD ON THE MERITS IN DISPUTE BETWEEN TEXACO

OVERSEAS PETROLEUM COMPANY/CALIFORNIA ASIATIC OIL COMPANY AND THE GOVERNMENT OF
THE LIBYAN ARAB REPUBLIC (Compensation for Nationalized Property) *

* [Reproduced from the English translation authorized by the Texaco Overseas Petroleum Company and the
California Asiatic Oil Company. The Award on the Merits was delivered in French. The French text of Part III
appears in the Journal du droit international, Vol. 104, No. 2 (April, May, June, 1977), at page 350.]

DATE: January 19, 1977

LENGTH: 32058 words

INTRODUCTION:

Introductory Note **

** [The Introductory Note was provided to International Legal Materials by Robert B. von Mehren of the
New York Bar.]

The following arbitral award was rendered by a sole arbitrator in connection with disputes between the Libyan
Arab Republic ("Libya") and two international oil companies arising out of decrees of nationalization promulgated by
Libya. This award is being reproduced herewith in its entirety. The award not only considers many fundamental
principles and doctrines of international law but is also unique in two major respects. For the first time in the history of
international arbitration relating to economic development contracts, an arbitral tribunal held that the injured parties
were entitled to restitutio in integrum and that the sovereign state was obliged to perform specifically its contractual
obligations with private foreign investors. In addition, the arbitral tribunal, after reviewing the legal effect in
international law of the United Nations General Assembly resolutions concerning permanent sovereignty over natural
wealth and resources, concluded that such resolutions could not be used by the state to violate its contractual obligations
 Page 2
17 I.L.M. 1, *

in commercial transactions. The remaining portion of this Introductory Note will briefly describe the steps leading to
arbitration, the arbitral proceedings and the resolution of the disputes.

On September 1, 1973 and February 11, 1974, Libya promulgated decrees purporting to nationalize all of the rights,
interests and property of Texaco Overseas Petroleum Company and California Asiatic Oil Company (the "Companies")
in Libya granted to them jointly under 14 Deeds of Concession. The Companies objected to the decrees and claimed
that such action by the Libyan Government violated the terms and conditions of their Deeds of Concession.

Exercising their rights under their Deeds of Concession, the Companies requested arbitration and appointed an
arbitrator. The Libyan Government refused to accept arbitration and did not appoint an arbitrator. Pursuant to the
arbitration provision in their Deeds of Concession, the Companies requested the President of the International Court of
Justice to appoint a sole arbitrator to hear and determine the disputes. The Libyan Government opposed such request
and filed a memorandum with the President contending, inter alia, that the disputes were not subject to arbitration
because the nationalizations were acts of sovereignty. This memorandum represented the only appearance by the Libyan
Government in the arbitration proceedings.After considering the Libyan Government's objections, the President of the
International Court of Justice, on December 18, 1974, appointed Rene-Jean Dupuy, Secretary General of The Hague
Academy of International Law and Professor of Law at the University of Nice, as the Sole Arbitrator. Professor Dupuy
named Jean-Pierre Sortais, Professor of Law at the University of Nice, as the Registrar of the Arbitral Tribunal.

The Sole Arbitrator first resolved the procedural aspects of the Arbitration and then determined that the initial stage
of the Arbitration should be devoted to the question whether he had jurisdiction to hear and determine the disputes. He
invited the parties to submit memorials in support of their positions and on June 16, 1975, the Companies submitted
their Memorial on the Jurisdiction of the Sole Arbitrator. It should be noted that although the Libyan Government did
not submit a memorial during the jurisdictional or merits phase of the Arbitration, the Sole Arbitrator did specifically
consider at each phase of the arbitral proceedings the arguments raised by the Libyan Government in its memorandum
referred to above.

On November 27, 1975, the Sole Arbitrator delivered a Preliminary Award deciding that he had jurisdiction to hear
and determine the disputes between the parties. The Sole Arbitrator immediately proceeded to the next phase of the
arbitration to determine the merits of the disputes. The damages portion of the arbitration was reserved for a later phase
if necessary. The Sole Arbitrator again invited the parties to submit memorials in support of their positions and on
February 28, 1976, the Companies submitted their Memorial on the Merits. On June 15 and 16, 1976, the Arbitral
Tribunal held oral hearings in Geneva at which time the Companies presented their case and responded to a series of
questions asked by the Sole Arbitrator.

On January 19, 1977, the Sole Arbitrator delivered an Award on the Merits in favor of the Companies. The Sole
Arbitrator held that (a) the Deeds of Concession are binding on the parties, (b) by adopting the measures of
nationalization, the Libyan Government breached its obligations arising under the Deeds of Concession and (c) the
Libyan Government is legally bound to perform the Deeds of Concession and to give them their full force and effect.
The Award on the Merits was delivered in the French language and the following version is the Companies' authorized
English translation.

Approximately eight months after the Award on the Merits was rendered, Libya and the Companies reached a
settlement of their disputes. As reported on September 26, 1977 in The Wall Street Journal and The New York Times,
Libya agreed to provide the Companies over the next 15 months with $ 152 million of Libyan crude oil, and the
Companies agreed to terminate the arbitration proceedings.

TEXT:

[*3] [TRANSLATION OF THE AWARD ON THE MERITS]

 Page 3
17 I.L.M. 1, *3

International Arbitral Tribunal

established pursuant to Clause 28 of the Deeds of Concession between the Government of the Libyan Arab Republic, on
the one hand, and California Asiatic Oil Company and Texaco Overseas Petroleum Company, on the other hand.

Award on the Merits

Geneva, 19 January 1977

TABLE OF CONTENTS

ILM
PAGE

I. THE FACTS 4

II. THE PROCEDURE 5

A. The Development of the Procedure 5

B. The Law Governing the Arbitration 7

III. THE MERITS 9

SECTION I. Concerning the Binding Nature of the

Deeds of Concession 10

A. Whether the legal acts through

which plaintiffs obtained concessions
from the Libyan State are
contracts? 10

B. How did the parties to these Deeds

of Concession deal with the question
of the applicable law? 11

1. First question: Did the parties

have the right to choose the
law or the system of law which
was to govern their contract? 11
 Page 4
17 I.L.M. 1, *3

2. Second question: Under what

circumstances was the choice of
applicable law made and what
consequences shall be derived
therefrom as to the
internationalization of the Deeds of
Concession in dispute? 14

(a) Clause 28 of the Deeds of Concession

in its final version 14

(b) The clause relating to the

choice of law and the internationalization
of the contract 15

C. Meaning and scope of the internationalization

of the contracts in
dispute 17

SECTION II. Did the Libyan Government, in adopting

the nationalization measures of
1973 and 1974, breach its obligations
under the contracts? 19
A. Can the Deeds of Concession in
dispute be regarded as administrative
contracts? 19
B. The concept of sovereignty and the
nature of measures of nationalization 21
C. The present state of international
law and the resolutions concerning
natural resources and wealth
adopted by the United Nations 27

SECTION III. Is the Libyan Government required to

perform and give full effect to the
Deeds of Concession? 31

A. The principles of Libyan law with

 Page 5
17 I.L.M. 1, *3

respect to restitutio in integrum 31

B. The principles of international law

with respect to restitutio in integrum 32
(a) International case law and
practice 32
(b) Writings of scholars in international
law 34

C. The particular characteristics of this case 36

SECTION IV. Should the Libyan Government have

a time limit, and if so for what duration,
in order to make known to the
Arbitral Tribunal the measures which
it has adopted to comply with and
carry out the award? 37

SECTION V. Operative part 37

[*4] International Arbitral Tribunal Award on the Merits *

* This text is an English translation of the Award which was handed down in the French language. All
quotations from judicial decisions, arbitral awards, scholarly works, etc., which appear in French in the Award,
have also been translated. The original French text of quotations from a thesis by Mr. Cohen-Jonathan, which is
not readily available outside of France, has been quoted with the translation. The original texts of other
materials, which have been translated, are not quoted.

Acting in his capacity as Sole Arbitrator, pursuant to the appointment made on 18 December 1974 by the President
of the International Court of Justice, of an arbitration between, on the one hand, the Government of the Libyan Arab
Republic and, on the other, California Asiatic Oil Company and Texaco Overseas Petroleum Company,

The undersigned Sole Arbitrator has rendered the following award on the merits:

I. The Facts

1. The present arbitration arises out of 14 Deeds of Concession concluded between the competent Libyan
Authorities (Petroleum Commission or Petroleum Ministry, depending on the date of the contracts) and the
above-mentioned companies, that is to say:

--six contracts (Nos. 42, 43, 44, 45, 46 and 47) dated 31 December 1955;

--one contract (No. 51) dated 2 May 1956;

--one contract (No. 73) dated 10 November 1957;

 Page 6
17 I.L.M. 1, *4

--one contract (No. 83) dated 6 December 1959;

--three contracts (Nos. 131, 132 and 133) dated 18 July 1966;

--in addition, the two above-mentioned concessionaire companies had obtained, with the consent of the Libyan
Government, a share first of 37 1/2% and then of 75% in Deeds of Concession Nos. 119 and 120 originally obtained by
the Libyan Clark Oil Company.

2. The wording of these fourteen contracts is a copy of the text of a model contract annexed to the text of the
Libyan Law on Petroleum of 1955. This relationship is indicated by a statement appearing at the top of the deeds of
concession to the effect that the deed of concession is concluded on its date "under the authority of the Petroleum Law
of 1955". n1

n1This footnote of the Sole Arbitrator is omitted from the English translation because it is merely the
English version of the Petroleum Law of 1955 quoted above.

3. Among the provisions which are contained in the model contract annexed to the Petroleum Law of 1955 and
reproduced in the contracts concluded by the concessionaire companies, Clause 16 is worth, at this time, special
mention. In its original wording, Clause 16 provided that:

"The Government of Libya, the Commission and the appropriate provincial authorities will take all steps necessary
to ensure that the Company enjoys all the rights conferred by this concession.

The contractual rights expressly granted by this concession shall not be altered except by mutual consent of the
parties."

The final version of Clause 16, as established by the Agreement of 20 January 1966, which was subsequent to the
Decree of 22 November 1965, reads as follows:

"The Government of Libya will take all steps necessary to ensure that the Company enjoys all the rights conferred
by this Concession. The contractual rights expressly created by this concession shall not be altered except by mutual
consent of the parties.

This Concession shall throughout the period of its validity be construed in accordance with the Petroleum Law and
the Regulations in force on the date of execution of the agreement of amendment by which this paragraph (2) was
incorporated into this concession agreement. Any amendment to or repeal of such Regulations shall not affect the
contractual rights of the Company without its consent."

4. It is normal that, in long-term contracts, provisions originally agreed upon by the parties are amended from time
to time: amendments of this type were the subject matter of agreements concluded in 1963, 1966, 1970 and 1971 n2
with the aim, among other things, of harmonizing the deeds of concession with new Libyan legislation and regulations
relating to petroleum. It should be emphasized that such amendments have always--pursuant to the above-mentioned
provision of Clause 16 of the Deeds of Concession, which itself conforms to Clause 16 of the model contract--resulted
from agreement between the competent Libyan Authority (i.e., the Ministry of Petroleum) and a duly authorized
representative of the concessionaire companies.

n2 The texts of these amendments are contained in Exhibits 1.2, 1.3, 1.4 and 1.5 to the Memorial on the
Merits of the plaintiffs.

5. It does not appear necessary to this Tribunal to recall, at the present stage of this matter, the various steps that
have marked the evolution of the Libyan legislation and regulations relating to petroleum: a summary thereof has been
 Page 7
17 I.L.M. 1, *4

given in the Preliminary Award and complete copies of the pertinent texts appear among the exhibits submitted during
these proceedings. n3 However, it is appropriate to point out again and to analyze, because they are at the center of the
instant case, the two following texts.

n3 See Exhibits 2.1 to 2.10 to the Memorial on the Merits of the plaintiffs.

6. Law No. 66 of 1973 (the Decree of Nationalization of 1 September 1973) applicable to the California Asiatic Oil
Company [*5] and Texaco Overseas Petroleum Company and providing for the nationalization of 51% of all property,
rights and assets of these companies relating to the Deeds of Concession held by them; it is appropriate to note now the
following features of this first text:

--that it was directed against California Asiatic Oil Company and Texaco Overseas Petroleum Company, as well as
seven other companies operating in Libya, but it was not directed against all foreign companies holding concessions in
Libya;

--that the nationalization extended to 51% of all the properties, rights, assets and interests, that is to say, to all the
assets, in the broadest sense, of the plaintiffs, while at the same time these companies were declared solely responsible
and liable for all the liabilities and debts or obligations arising from their activities--the Libyan Government being in no
way liable for such liabilities or responsible for such obligations;

--that Article 2 provided for the payment by the State of compensation without further specification: its amount was
to be determined by a Committee appointed by the Minister of Petroleum and composed of three members who were to
be nominated by a Minister of the Libyan Government. It does not appear from any of the exhibits submitted during the
prceedings that this Committee has functioned or that its members have been nominated;

--that another Committee was to proceed to make an inventory of the nationalized properties and assets, without
any analogous measure being provided with respect to the liabilities (Article 3);

--that by virtue of a decision issued by the Minister of Petroleum, any contract, undertaking or legal relationship,
the existence or continuation of which may affect the value of the nationalized properties, may be cancelled (Article 5);

--that the properties, rights and assets which the Libyan State had thus appropriated are to be transferred to the
Libyan National Oil Company (N.O.C.); and

--that the company Amoseas, which was formed jointly by the two plaintiff companies to be their operating entity
in Libya, was to continue to carry out its activities for the account of the plaintiffs to the extent of 49%, and for the
account of N.O.C. to the extent of 51%. But the structure of Amoseas was, at the same time, changed: it was to have a
new board of directors of three members, two of whom would represent the Government of Libya and one the
concessionaire companies.

7. Law No. 11 of 1974 (the Decree of Nationalization of 11 February 1974) nationalized the totality of the
properties, rights, assets and interests of California Asiatic Oil Company and Texaco Overseas Petroleum Company
arising out of the fourteen Deeds of Concession held by those companies. The more important aspects of this second
text may be summarized as follows:

--it was directed against only the plaintiff companies, to the exclusion of any other company or enterprise;

--the text provided for the nationalization of all the properties and interests, rights and assets of California Asiatic
Oil Company and Texaco Overseas Petroleum Company;

--the provisions relating to possible compensation (Article 2) were nothing more than a repetition of those which
were already contained in Law No. 66 of 1973 (Article 2);
 Page 8
17 I.L.M. 1, *5

--the transfer of all the properties, rights and assets to N.O.C. was confirmed (Article 6);

--finally, Article 7 effected a fundamental change in Amoseas, a company governed by foreign law: it was changed
into a non-profit company, the assets of which were completely owned by N.O.C. Amoseas lost its name and was
renamed the "Om el Jawabi Company".

II. The Procedure

8. The Tribunal should now, on the one hand, recall and complete the indications already given in its Preliminary
Award of 27 November 1975 relating to the arbitration procedure and, on the other, pronounce on the law applicable to
the arbitration of which it has been seized.

A. The Development of the Procedure:

9.--by two separate letters, dated 2 September 1973, California Asiatic Oil Company and Texaco Overseas
Petroleum Company notified the Government of the Libyan Arab Republic that, pursuant to Article 20 (1) of the Law
on Petroleum of 1955 and to Clause 28 of the Deeds of Concession, they intended to submit to arbitration the dispute
between them and the Government and advised the Government that they had appointed as arbitrator a member of the
New York Bar, Mr. Fowler Hamilton.

--during the time which was allowed it by Clause 28 of the Deeds of Concession (and which expired on 1
December 1973), the Government of the Libyan Arab Republic did not appoint its arbitrator and, by a circular letter of 8
December 1973, it declared that it rejected the request for arbitration;

--the Libyan Government's failure and refusal to appoint an arbitrator led the companies to use the provision of
Clause 28 of the Deeds of Concession which allows the concessionaires to request that the President of the International
Court of Justice appoint a Sole Arbitrator: this was the purpose of the joint letter which the two companies sent on 3
April 1974 to the President of the International Court of Justice;

[*6] --in this letter of 3 April 1974, the companies also referred to the second decree of nationalization, issued on
11 February 1974, and stated that they would also seek arbitration with respect thereto. They made it clear in advance
that if, as could be expected, the Government of the Libyan Arab Republic did not designate its arbitrator within the
time provided, they would apply to the President of the International Court of Justice so that the terms of reference of
the Sole Arbitrator appointed by him would be extended to this second dispute;

--the joint letter, dated 11 September 1974, of the companies to the President of the International Court of Justice
confirmed the previous one, dated 3 April 1974: following the nationalization decree of 11 February 1974 and the
arbitration proceedings instituted by the companies, the Libyan Government having again failed to appoint an arbitrator,
the companies requested that the Sole Arbitrator appointed by the President of the International Court of Justice should
also consider this second dispute. Hence, the companies completed their request so that the Sole Arbitrator appointed by
the President of the International Court of Justice would have authority to hear the two disputes;

--by letter, dated 18 December 1974, the President of the International Court of Justice requested the undersigned,
who accepted, to act as Sole Arbitrator to consider the two disputes;

--by letters, dated 10 January 1975, directed, on the one hand, to the Minister of Petroleum of the Libyan
Government and, on the other hand, to the representatives of the companies, the undersigned informed them that he had
appointed as Registrar of the Arbitral Tribunal Professor Jean-Pierre Sortais of the Faculty of Law of Nice, and
requested them to reach agreement before 10 February 1975 on a mutually acceptable date proposed by them for the
first hearing of the Arbitral Tribunal;

--as no date had been proposed by common agreement of the parties to the dispute, the Sole Arbitrator, by cables
 Page 9
17 I.L.M. 1, *6

dated 11 February 1975, confirmed by letters dated 12 February 1975, fixed 24 February 1975 and Geneva as the date
and place of the first hearing of the Arbitral Tribunal;

--by letter, dated 10 February 1975, the undersigned Sole Arbitrator requested that the Registry of the International
Court of Justice transmit to him the documents submitted by the parties to the said Registry relating to the disputes with
respect to which he had been appointed Sole Arbitrator: on 28 February 1975, the Registry of the International Court of
Justice sent to the undersigned a copy of correspondence exchanged in connection with the request for the appointment
of a Sole Arbitrator; among these documents was a letter, dated 26 July 1974, from the acting Permanent Representative
of the Libyan Arab Republic at the United Nations in Geneva, to which was annexed the text of a Memorandum
prepared by the Minister of Petroleum of the Libyan Government: this Memorandum, after setting forth the facts,
explains the reasons why, in the view of the Government of Libya, there should be no arbitration in the present case; it
is the only document submitted by the defendant Government which the Tribunal had at its disposal during the arbitral
proceedings;

--on 24 February 1975, the first hearing of the Arbitral Tribunal took place in Geneva at which the Government of
the Libyan Arab Republic did not appear. During this hearing the Arbitral Tribunal adopted its Rules of Procedure: the
text of these Rules and detailed Minutes of the hearing were sent to the parties to the dispute;

--on 19 March 1975, the undersigned Sole Arbitrator issued Order No. 1 which provided that the arbitral
proceedings should be divided into two parts, the first being specifically devoted to the question of jurisdiction. The
same Order gave to the plaintiffs a time period-initially fixed at 5 May 1975, then extended by Order No. 2 until 16
June 1975--for the submission of a memorial on jurisdiction: this Memorial on Jurisdiction, accompanied by a volume
of exhibits, was submitted on 16 June 1975 and two copies of the Memorial and exhibits were immediately sent to the
defendant;

--on 16 June 1975, Order No. 3 gave the Government of the Libyan Arab Republic a time period expiring on 13
September 1975 for the submission of a counter-memorial on the question of the jurisdiction of the Sole Arbitrator: the
time period expired without any document having been received from the defendant;

--on 3 July 1975, Order No. 4, following observations made by the plaintiffs, made some modifications in the text
of the Rules of Procedure;

--on 15 September 1975, Order No. 5 closed the written proceedings of the first part of this arbitration and gave the
parties a time period expiring on 10 October 1975:

(1.) to advise the Arbitral Tribunal whether either of them intended to request that oral argument on the question of
jurisdiction be waived, and

(2.) to transmit to the Arbitral Tribunal written testimony, documents and other information relating to the
discussions and negotiations that took place between the parties from 1 May to 1 September 1973;

-on 9 October 1975, the Registry of the Arbitral Tribunal received a request from the plaintiffs to the effect that,
subject to any contrary view of the Sole Arbitrator, there be no oral argument on the question of jurisdiction: this
request was accompanied by the documents which the parties had been requested to submit by Order No. 5;

[*7] --on 21 October 1975, Order No. 6 rendered by the undersigned Sole Arbitrator decided that oral argument
should be waived insofar as the first part of the arbitral proceedings relating to the jurisdiction of the Sole Arbitrator
was concerned and that the Preliminary Award on this point would be given before 29 November 1975;

--on 27 November 1975, a hearing was held in Geneva at which the Preliminary Award relating to the jurisdiction
of the Sole Arbitrator was handed down, the operative part of which stated as follows:
 Page 10
17 I.L.M. 1, *7

"The undersigned Sole Arbitrator, having examined the documents of the case indicated hereinbefore, declares
himself competent to deal with the merits of the litigation which opposes the Government of the Arab Republic of
Libya on the one hand to California Asiatic Oil Company and Texaco Overseas Petroleum Company on the other hand."

Minutes of this hearing were drawn up by the Registrar: these Minutes and the text of the Preliminary Arbitration
Award were sent to each of the parties as well as to the Registry of the International Court of Justice;

-by Order No. 7, dated 6 December 1975, the Sole Arbitrator gave to the plaintiffs a time period expiring on 28
February 1976 for the submission of a memorial on the merits of the case. This Memorial was submitted, accompanied
by a volume of annexes and two volumes of supporting exhibits, within the prescribed time limit;

-by Order No. 8, dated 1 March 1976, the Sole Arbitrator gave the Government of the Libyan Arab Republic a time
limit expiring on 24 May 1976 for submission of a memorial in defense on the merits;

-by Order No. 9, dated 29 May 1976, the Sole Arbitrator fixed 15 and 16 June 1976 (with a possible extension if
necessary to 17 June 1976) for the hearings on the merits of the case;

-on 15 and 16 June 1976, the hearings on the merits of the case took place in Geneva: only the agents and counsels
of the plaintiffs appeared. Minutes of this hearing were drawn up and copies thereof were sent to both the defendant
Government and to the plaintiffs.

10. It appears from the preceding discussion that from the beginning to the end of the arbitral proceedings, the
Government of the Libyan Arab Republic has deliberately chosen not to take part in the proceedings and to default: the
Tribunal can only say, once again, that it deeply regrets this attitude and recalls that it did everything it could in order
that the defendant should be kept constantly and exactly informed of the various stages of the proceedings: the
documents of the proceedings (Orders of the Sole Arbitrator, the plaintiffs' Memorial on Jurisdiction and its annexes,
the plaintiffs' Memorial on the Merits and its annexes and exhibits, the Preliminary Award of 27 November 1975, the
Minutes of the Hearings of 27 November 1975 on jurisdiction and of 15 and 16 June 1976 on the merits of the case)
have all been sent, by registered mail, to the defendant. The defendant--with the sole exception of the letter which it sent
on 26 July 1974 to the President of the International Court of Justice and which was transmitted, upon his request, to the
Sole Arbitrator by the Registry of the International Court of Justice--has never appeared.

This persistent default does not affect the right of the appearing plaintiffs "to request the Sole Arbitrator to
pronounce judgment in their favor" (Rules of Procedure, Article 25, para. 1), it being clear that the Sole Arbitrator could
only do so "after justification in fact and in law" (Rules of Procedure, Article 25, para. 3).

B. The Law Governing the Arbitration

11. The Arbitral Tribunal must now state precisely what law or what system of law is applicable to this arbitration,
it being understood that the parties themselves are entitled freely to choose the law of procedure applicable to the
arbitration and it is only, as is the case here, in the absence of any express agreement between them that the Arbitral
Tribunal must determine the law or system of law applicable to the arbitration. Two solutions are theoretically possible:

12. (a) The first solution, which was adopted with respect to the arbitration between Sapphire International
Petroleum Limited and the National Iranian Oil Company (NIOC), consists in submitting the arbitration to a given
municipal law which will generally, but not necessarily, be that of the place of arbitration: thus, in the above-mentioned
case, it was decided that the arbitration would be "governed by the procedural law of the Canton of Vaud and submitted
to the judicial sovereignty of Vaud". This solution was completely justified, if one takes account of the following:

-from a theoretical point of view, neither of the two parties in that arbitration was a sovereign State: NIOC was, of
course, closely linked to the Iranian State of which it was ultimately only an emanation. It was not, however, the Iranian
State itself. In the present case, on the contrary, the defendant is a State;
 Page 11
17 I.L.M. 1, *7

--from a practical point of view, it is not unreasonable to think that an arbitration award connected with a national
legal system may perhaps be easier to enforce: if the procedural law of a specific country has been stated to be
applicable and has been effectively applied to the arbitration proceedings, one can conclude that the award itself will be
more favorably received by judges--and in particular by the national [*8] judges of the State whose law has been
applied--in connection with any subsequent enforcement proceedings.

But this is a consideration relating to enforcement, which is not within the jurisdiction of the Arbitrator. The
plaintiffs have in fact stressed this point, both in their oral argument (Minutes of the Hearings of 15-16 June 1976, pp.
151-152 French text, pp. 187-188 English text) and in their Memorial on the Merits (Memorial, para. 289, pp. 334-335
French text, pp. 228-229 English text) and they have indicated that they intended that the present arbitration should be
an arbitration on matters of principle, a fact which the Sole Arbitrator did not fail to note on the occasion of the oral
hearings (Minutes of the Hearings of 15-16 June 1976, p. 95 French text, p. 117 English text).

There is in this case, therefore, no decisive reason, either theoretical or practical, to adopt this first solution.

13. (b) All the elements of this case support, on the contrary, the adoption of a second solution which is to consider
this arbitration as being directly governed by international law.

But such a solution must appear to be possible. In this connection, the Tribunal can only adopt the reasons invoked
by the Arbitral Tribunal which decided the dispute between the Government of Saudi Arabia and the Arabian American
Oil Company (Aramco), and these reasons should be recalled:

"... The arbitration is to take place, in all cases, outside Saudi Arabia. It is obvious, therefore, that the law to be
applied to this institution is not the law of Saudi Arabia, since the Parties have intended from the very beginning to
withdrawn their disputes from the jurisdiction of local tribunals. This is an essential provision of their agreements as the
concessionaire wished to secure the guarantee of a neutral judge.

Although the present arbitration was instituted, not between States, but between a State and a private American
corporation, the Arbitration Tribunal is not of the opinion that the law of the country of its seat should be applied to the
arbitration.

The jurisdictional immunity of States (the principle 'par in parem non habet jurisdictionem') excludes the
possibility, for the judicial authorities of the country of the seat, of exercising their right of supervision and interference
in the arbitral proceedings which they have in certain cases." (French text of the award published in 52 Rev. Crit. D.I.P.
272 (1963), at pp. 304-305; original English text in 27 Int'l L.R. 117 (1963), at 154-155.)

Further on the same award continued:

"Considering the jurisdictional immunity of foreign States, recognized by international law in a spirit of respect for
the essential dignity of sovereign power, the Tribunal is unable to hold that arbitral proceedings to which a sovereign
State is a Party could be subject to the law of another State. Any interference by the latter State would constitute an
infringment of the prerogatives of the State which is a Party to the arbitration. This would render illusory the award
given in such circumstances. For these reasons, the Tribunal finds that the Law of Geneva cannot be applied to the
present arbitration.

It follows that the arbitration, as such, can only be governed by international law, since the Parties have clearly
expressed their common intention that it should not be governed by the Law of Saudi Arabia, and since there is no
ground for the application of the American law of the other Party. This is not only because the seat of the Tribunal is not
in the United States, but also because of the principle of complete equality of the Parties in the proceedings before the
arbitrators..." (52 Rev. Crit. D.I.P 272 (1963), at 305; 27 Int'l L.R. 117 (1963), at 155-156.)

The reasons which have just been recalled--and which, once again, this Tribunal endorses--apply to this case just as
 Page 12
17 I.L.M. 1, *8

much as to the case in which they had been formulated.

14. Other considerations, specific to the present dispute, can be added to these already important arguments, to
reinforce the necessity of subjecting this arbitration directly to international law:

--if in the dispute which is before this Tribunal, the parties also "intended from the outset to remove their
differences from the jurisdiction of the local courts", one must moreover add that the procedure for the appointment of
the Sole Arbitrator and in particular the provision that he should be appointed through application to the President of the
International Court of Justice strengthens the presumption that the parties intended that any possible arbitration between
them should be governed by international law: if, in the Sapphire case, the designation of the sole arbitrator by the
President of the Swiss Federal Tribunal (coupled with the fact that the seat of the arbitration had been fixed at
Lausanne) could be considered as implying that that arbitration should be subject to the judicial sovereignty of Vaud,
the fact that, in the present dispute, the parties had agreed to have recourse, if need be, to the President of the
International Court of Justice implies that it was their intention that this arbitration should come under the aegis of the
United Nations and, therefore, that the system of law governing this arbitration should be international law. It is true
that this was an ultimate recourse: at the beginning, neither could it be ruled out that the parties would appoint two
arbitrators nor that these two would agree on the choice of an umpire, in which case it would undoubtedly have been
necessary to subject the arbitration [*9] to international law (for the reasons recalled above, set forth in the Aramco
award), but with less cogency. Furthermore, it should be noted first that--with respect to the appointment of an umpire
(in case of disagreement between the two arbitrators as to his appointment)--recourse to the President of the
International Court of Justice is expressly contemplated by Clause 28 of the Deeds of Concession and, second and
above all, that this Tribunal does not have to rule on the merits of hypotheses which might have materialized, but has to
decide on the basis of actual facts. In this regard, the fact of having requested the President of the International Court of
Justice to appoint the Sole Arbitrator can only reinforce the necessity of subjecting this arbitration directly to
international law.

15. Furthermore, only this solution seems to conform with the will of the parties as expressed in Clause 28 of the
Deeds of Concession: it is, for this reason, that Article 1 of the Rules of Procedure, after having in paragraph 1 fixed
Geneva as the seat of this Tribunal, provides in paragraph 2 that "the arbitration shall be governed by these Rules of
Procedure to the exclusion of the local law", this rule being complemented by Article 29 of the same Rules which states:

"Insofar as he is competent, the Sole Arbitrator may modify and complete the present Rules of Procedure and,
should the occasion arise, settle any questions of procedure not formally mentioned in the present Rules."

It should be observed also that these formulas did not give rise to any comments, and even less any objections, from the
parties to this dispute. This is altogether normal because, in adopting these provisions, the Tribunal did nothing more
than conform to general practice, as expressed in particular in the two following documents:

--The Rules of Arbitration and Conciliation for the Settlement of International Disputes between two Parties One of
Which Only is a State, prepared in February 1962 by the Bureau of the Permanent Court of Arbitration: it is stated, in
Article 10 of these Rules that "unless otherwise agreed by the parties, the rules of procedure laid down in the following
articles shall apply", and this provision is supplemented by the provision of Article 21 that "the Tribunal shall be
competent to complete the rules of procedure".

--The draft Convention on Arbitral Procedure adopted by the International Law Commission of the United Nations
in its Fifth Session (U.N. Doc. A/CN.4/92 (1955)) in which it is stated: a) in Article 9, the second paragraph, that:

"In addition to any other provisions deemed desirable by the parties, the compromise may also specify the
following:

(3) The procedure to be followed by the tribunal;" and b) in Article 13, paragraph 2, adds that:
 Page 13
17 I.L.M. 1, *9

"(2) In the absence of any agreement between the parties concerning the procedure of the tribunal, the tribunal shall
be competent to formulate its rules of procedure."

16. Therefore, if it is appropriate for the Tribunal to declare that this arbitration, for the reasons stated above, is
governed by international law, it is because--the parties wanting to remove the arbitration from any national
sovereignty--one cannot accept that the institution of arbitration should escape the reach of all legal systems and be
somehow suspended in vacuo.

III. The Merits

17. In their final submissions, those which were stated both at the close of their Memorial on the Merits and at the
close of the oral hearings, the plaintiffs requested that the Arbitral Tribunal rule:

"A. Finding in favor of the Companies as follows:

(1) that the Deeds of Concession are binding on the Parties;

(2) that Libya, in adopting the Decrees of 1973 and 1974 and by its subsequent action pursuant thereto, breached its
obligations under the Deeds of Concession;

(3) that Libya be held to perform the Deeds of Concession and fulfill their terms; and

(4) that Libya have ninety days after the award, being from the time of the declaration of the award or from the date
fixed by the Sole Arbitrator, to inform the Arbitral Tribunal of the measures which it has taken in order to comply with
and to execute the award.

B. Assuming that the Sole Arbitrator would not accept or would only partially accept the conclusions of the
Companies formulated above in paragraph A,

To reserve for a later stage of this Arbitration the examination of all other questions which might arise and to
reserve to the Companies the right to assert their grounds for any claims in this regard.

C. In any event,

To reserve the continuation of the proceedings in the situation where Libya does not comply with the arbitral award
in the fixed time allowed." (pp. 230-231 English text, pp. 336-338 French text.)

18. The Tribunal must rule on these submissions by answering the following questions:

[*10] (1) Are the Deeds of Concession of a binding nature as regards the parties or not?

(2) In adopting the nationalization measures of 1973 and 1974, has the Libyan Government breached its obligations
under these contracts or not? In answering the second question, the Arbitral Tribunal will respond to the two objections
raised by the Libyan Government in its Memorandum dated 26 July 1974, the examination of these objections having
been postponed at the time of the delivery of the Preliminary Award of 27 November 1975 since they related to the
merits of the case.

(3) Is the defendant Government required to perform, and give full effect to, the Deeds of Concession?

(4) Should the defendant Government have a time limit and, if so, of what duration, in order to inform the Arbitral
Tribunal of the measures it has taken with a view to comply with, and to perform, the award?

Alternatively, in case the principal submissions were totally or partially rejected by the Tribunal, should the
 Page 14
17 I.L.M. 1, *10

examination of any other question which might arise be postponed for a later stage of the proceeding and should the
right be reserved to plaintiffs to present their arguments relating thereto?

In any case, should jurisdiction over the proceeding be further reserved, in the event the defendant Government
does not conform with the arbitration award within the time limit fixed?

SECTION I. Concerning the Binding Nature of the Deeds of Concession

19. The question of the binding nature of the Deeds of Concession raises two preliminary questions which this
Tribunal must deal with at the outset:

A. Whether the legal acts through which plaintiffs obtained concessions from the Libyan State are
contracts?

The Tribunal must consider this question in the light of the general principles of law and the teachings of
comparative law: a contract is defined as an agreement of one or several wills for the purpose of creating legal
obligations. It appears therefore that, from a formal point of view and prima facie, the Deeds of Concession in dispute
were of a contractual nature since they expressed an agreement of the wills of the conceding State and of the concession
holders. Furthermore, the contractual nature of the Deeds of Concession corresponds to the standard accepted both by
international practice and by international theory:

20.--as regards international practice, the Tribunal will refer in the first instance to judicial practice: it should be
recalled, in this respect, that in a comparable case which also dealt with oil concessions--the Anglo-Iranian case--the
International Court of Justice on many occasions used the expression "deeds of concession" ([1952] I.C.J. 93, at
111-112); at no point did it appear to the International Court that the use of this expression would be inappropriate.
Arbitral practice is just as clear: thus, in the Lena Goldfields arbitration, the arbitral tribunal constantly referred to the
concept of contract, indicating that the company would "never have signed the contracts of concession without the
express stipulation in the contract of an arbitration clause" and indicating further that the defendant Government "still
would remain bound by its obligations under the concession contract" (5 Annual Digest of International Law Cases,
Nos. 1 and 258 (1929-1930), at 38 and 426; Nussbaum, "The Arbitration between the Lena Goldfields, Ltd. and the
Soviet Government", 36 Corn. L.Q. 31 (1950)). The award delivered in the Aramco arbitration is the one which seems
to have dealt most thoroughly with the matter and concludes that "the contractual nature of the Concession does not
conflict in the least with the present state of comparative law, of the general principles of law and of pure legal science"
(52 Rev. Crit. D.I.P. 272 (1963), at 312; 27 Int'l L.R. 117 (1963), at 164) before noting that:

"The Government maintains that the sovereignty of the State which is Party to the Concession is a decisive factor in
the determination of the legal nature of the Concession. This contention finds no support in Moslem Law. On the
contrary, no distinction is drawn by Ibn Taimiya between State treaties, contracts of public or administrative law, and
contracts of civil or commercial law...." (Id. at 312 and 165, respectively.)

21. The contractual analysis of the concession, in particular of mining or petroleum concessions, is today so clearly
accepted that one author (M. Cohen-Jonathan, Les Concessions en Droit International Public, these, Paris 1966, at
133-134) wrote:

"The contractual nature of a concession in the international field is in fact no longer seriously disputed either by
writers or in case law. The judge or international arbitrator does not always even take the trouble to demonstrate the
contractual nature of the deed: he simply states it. This coincides with the behaviour of States in their contractual
relationships as well as within international organizations. Previously in the codification work undertaken by the League
of Nations, a concession was assimilated to a contract. Recently, in the United Nations, during the discussions
preceding the adoption of Resolution 1803 (XVII) of 14 December 1962, relating to permanent sovereignty over natural
resources, the contractual nature of concessions was not disputed, not even by the strongest supporters of sovereignty
[reference being made here to the statements [*11] of the delegates of Iraq,. the United Arab Republic and Turkey: cf.
 Page 15
17 I.L.M. 1, *11

U.N. Doc. A/C2/SR236]."*

* The original French text translated above reads as follows:

"Le caractere contractuel de la concession dans le domaine international n'est, d'ailleurs, plus serieusement
conteste ni dans la doctrine in dans la jurisprudence. Le judge ou l'arbitre international ne prend meme pas
parfois la peine de demontrer la nature contractuelle de l'acte: il se contente de l'affirmer. Il rejoint en cela le
comportement des Etats dans leurs rapports conventionnels comme au sein des organizations internationales.
Deja, dans les travaux de codification entrepris par la S.D.N., la concession etait assimilee a un contrat.
Dernierement encore, aux Nations-Unies. lors des discussions precedant l'adoption de la resolution 1803 (XVII)
du 14 decembre 1962, relative a la souverainete permanente sur les ressources naturelles, la nature
conventionnelle des concessions n'a pas ete mise en doute meme parmi les partisans les plus farouches de la
souverainete [reference etant ici faite aux declarations de delegues de l'Irak, de la Republique arabe unie et de la
Turquie]."

It is therefore quite understandable that quite recently a writer could state in a concise way: "From the international
point of view, a concession, in particular, is simply a contract" (F.A. Mann, "Contrats entre Etats et Personnes Privees
Etrangeres: The Theoretical Approach towards the Law Governing Contracts between States and Private Persons", Rev.
Belge D.I. 562 (1975), at 564). And if the same author adds: "A concession, it is true, may not be a contract at all", this
is only true when it has been "conferred by and contained in a legislative instrument" (Id.).

Thus, this Tribunal will agree with the opinion which is generally if not unanimously accepted by considering that
the deeds under which plaintiffs obtained concessions from defendant are indeed contracts.

B. How did the parties to these Deeds of Concession deal with the question of the applicable law?

22. This is the second preliminary question: the juridical value and, consequently, the binding nature of the Deeds
of Concession in dispute can only be judged on the basis of the law which is applicable to them because it is obvious
that, if--assuming arguendo--these contracts were governed by Libyan law, the result would have been that their binding
nature could be affected a priori by legislative or regulatory measures taken within the Libyan national legal order (quite
apart from the questions of responsibility which the adoption of such legal measures might, should the case arise, entail
in conformity with Libyan municipal law).

But the Deeds of Concession in dispute are not controlled by Libyan law or, more exactly, are not controlled by
Libyan law alone. It is incontestable that these contracts were international contracts, both in the economic sense
because they involved the interests of international trade and in the strict legal sense because they included factors
connecting them to different States, an international contract having been recently defined as being "that contract whose
elements are not all located in the same territory" (Horsmans and Verwilghen, "Stabilite et Evolution du Contract
Economique International", in Le Contrat Economique International 451 (1975), at 464).

23. What was the law applicable to these contracts? It is this particular question that the parties intended to resolve
in adopting Clause 28 of the Deeds of Concession in a form which must be recalled here:

"This concession 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 have been applied by international
tribunals."

Thus, a complex system to determine the law applicable or the "choice of law" has been provided by the
contracting parties involving a two-tier system:

--the principles of Libyan law were applicable to the extent that such principles were common to principles of
 Page 16
17 I.L.M. 1, *11

international law;

--alternatively, in the absence of such conformity, reference was made to general principles of law.

24. Two questions must therefore be decided by the Tribunal in order to rule on the binding nature of the Deeds of
Concession which are in dispute:

--first question: Did the parties have the right to select the law which was to govern their contract?

--second question: Under what circumstances was the choice of law applicable and what consequence should be
derived from the international character of the contracts?

1. First question: Did the parties have the right to choose the law or the system of law which was to govern
their contract?

25. The answer to this first question is beyond any doubt: all legal systems, whatever they are, apply the principle
of the autonomy of the will of the parties to international contracts. As regards the merits, all legal systems confirm this
principle which appears therefore as universally accepted, even though it may not always have the same meaning or the
same scope (the schools of thought on this point divide among a subjectivist tendency, an objectivist tendency and a
mixed theory).

26. But the Tribunal must further specify on what grounds and for what reasons the principle of the autonomy of
the will is in actual fact applicable in this case. In this respect, it seems desirable to establish a distinction between the
"law which governs the contract and the legal order from which the binding nature of the contract stems" (to use the
terms of Professor G. Van Hecke in Preliminary Observations on the Provisional [*12] Report prepared by the Institute
of International Law on the Agreements Between a State and a Foreign Private Person, question No. 22), although some
people think that this matter relates only to pure theory.

Indeed, unless one were to concede that, in the initial stage where the parties are to choose the applicable law, the
relevant contractual stipulation may depend solely on their choice, it is necessary to determine the legal system in which
the clause designating the applicable law is found and from which that same clause will draw its binding force.

And this Tribunal will immediately take a position on this point by stating that in this case "the legal order from
which the binding nature of the contract derives" is international law itself and "the law which governs the contract" is
the two-tier system provided for by the parties in Clause 28 and which, brevitatis causa, will be referred to as "the
common principles". This calls for some further explanation.

27. One cannot fail, in fact, on this point to recall the famous dictum stated by the Permanent Court of International
Justice, in its judgments in the cases relating to the Serbian and Brazilian Loans:

"Any contract which is not a contract between States in their capacity as subjects of international law is based on
the municipal law of some country. The question as to what this law is forms the subject of that branch of law which is
at the present day usually described as private international law or the theory of conflict of laws." (Case Concerning
Various Serbian Loans Issued in France, [1929] P.C.I.J., Ser. A, No. 20, at 41.)

Despite its cogency, this formula is not without ambiguity with respect to the matter which we are now considering;
indeed, in stating that "every contract... is based on the municipal law of some country", the judgment seems to refer to
the "legal order from which the binding nature of the contract derives", but the subsequent part of the reasoning which
refers to "the question what is the law" seems to refer only to "the law which governs the contract". Furthermore, it does
not seem that this formula has had an absolute value in the eyes of the Permanent Court of International Justice itself
which, as early as 1929, seems to have held the view that contracts between States and private persons of foreign
nationality could be subjected to law of a truly international character since, if one reads further the text of the award,
 Page 17
17 I.L.M. 1, *12

one reads there that "the rules may be common to several States and may even be established by international
conventions or customs and, in this latter case, may possess the character of true international law". If, therefore, the
Permanent Court of International Justice in 1929 derived from the fact that one of the parties to such a contract was a
sovereign State, the consequence that it could not "be presumed to have submitted the substance of its debt and the
validity of the obligations undertaken by it to any law other than its own", the Court clearly admitted that this principle
could be set aside depending on the specific case under consideration.

28. Similar formulas have been used more recently in judgments representative of some national
jurisprudence--judgments which the Tribunal only mentions to document them--in particular the judgment of the French
Court of Cassation in the Messageries Maritimcs case (Cass. Civ., 21 June 1950, Recueil Dalloz de Doctrine de
Jurisprudence et de Legislation ("D. Jur.") 749 (1951), note Hamel) in which it is said that "every international contract
is necessarily attached to the law of a State", a phrase which seems to refer as well to the "law which governs the
contract" as to the law from which "the binding nature of the contract derives", and which probably implies that the
drafter of the judgment refused to make a distinction between the two concepts.

It is important to observe that, even under a system as strict as the one illustrated by this French judgment of 21
June 1950, it is accepted that, subsequent to the conclusion of the contract, the parties may by common agreement make
any modification to the law initially chosen, particularly by replacing such law by one or several other laws: this
solution is indeed accepted in French case law in the field of private international law (cf. Cass. Civ., 5 December 1910,
91 Recucil General de Lois et des Arrets ("S. Jur.") (III, 1911), pt. 1, at 129, note LyonCaen, 39 Journal du Droit
International Prive et de la Jurisprudence Comparee ("Clunet") 1156 (1912) and Cass. Req., 3 March 1924, 104 S. Jur.
(III, 1924), pt. 1, at 252). This same solution is to be found also in the provisional draft convention on the law
applicable to contractual and non-contractual obligations adopted in June 1972 by a group of governmental experts of
the six original member States of the E.E.C. (62 Rev. Crit. D.I.P. 209 (1973)): indeed, after stipulating, in Article 2,
para. 1, the principle that "the contract shall be governed by the law chosen by the parties", the provisional draft text
says, in Article 3:

"The choice of the parties as to the law applicable can take place either at the time of the conclusion of the contract
or subsequently. This choice can be modified at any time by agreement between the parties. Any modification with
respect to the determination of the applicable law made subsequent to the conclusion of the contract does not affect the
rights of third parties." (Id. at 210.)

29. However, because it is a long time since the Permanent Court of International Justice delivered its judgments in
the cases relating to the Serbian and Brazilian Loans, juridical analysis has been much refined in this field, in particular
under the influence of contractual practice. This tends more and more to "delocalize" the contract or, if one prefers, to
sever its automatic connections to some municipal law: so much so that today [*13] when the municipal law of a given
State, and particularly the municipal law of the contracting State, governs the contract, it is by virtue of the agreement
between the parties and no longer by a privileged and so to speak mechanical application of the municipal law, as at a
certain time was believed. Under the pressure of the needs of international trade, the principle of the autonomy of the
will of the parties appears today to be much more significant than at the end of the 1920s.

30. French case law, which in 1951 expressed views very close to those expressed by the Permanent Court of
International Justice, testifies to this evolution. Thus, in a noted judgment given in the famous Hecht case (Paris, 19
June 1970, 45 La Semaine Juridique, Juris-Classeur Periodique ("JCP") (1971-II), at Case No. 16927, note Goldman, 60
Rev. Crit. D.I.P. 692 (1971), note Level, 98 Clunet 833 (1971), note Oppetit, and Revue de l'Arbitrage Bulletin du
Comite Francais de l'Arbitrage ("Rev. Arb.") 67 (1972), note Fouchard; appeal rejected by Cass. Civ. lere, 4 July 1972,
63 Rev. Crit. D.I.P. 82 (1974), note Level, 99 Clunet 843 (1972), note Oppetit), the Paris Court held that in principle the
linking of an international contract to some national law was necessary "only as to those matters which the parties do
not specifically decide". More recently, another judgment of the same Court (Paris, 13 December 1975, 65 Rev. Crit.
D.I.P. 507 (1976), note Oppetit) states that "having regard to the autonomy of the arbitration clause instituting
arbitration under an international contract, such a clause is valid independently of reference to any State law". Thus,
 Page 18
17 I.L.M. 1, *13

when one deals with an arbitration clause, the linking of the latter to a national law giving it validity is no longer
necessary. And, as observed by the commentator on the judgment:

"...the lawfulness of the arbitration clause would therefore stem, not from the will of the parties, but only from the
principle of autonomy which thus would be recognized as having an absolute scope: if the parties remain silent, the
validity of the arbitration clause would stem, not from an inferred intention of the parties to remove that clause from the
law governing the main contract, but from the sole fact that the arbitration clause was stipulated in an international
contract." (Id. at 514.)

31. It is under the influence of the above-mentioned ideas that arbitration case law and the theory of international
law were induced to "internationalize" the contract in one or the other of the following ways:

(1) Under one analysis, the contract would come under a specific legal order created by the contract itself. The
parties therefore would be free not to link the contract to a given State order and to consider the contract itself as being
the sole law applicable to their relations. This is what is sometimes referred to as the system of the "contract without
law", a description which is not correct because the agreement comes in fact under the ambit of a law, a set of rules
constituted by the lex mercatoria which derives from the usages accumulated in the field covered by the contract
recognized under the general principles of national juridical systems and common to all nations.

Whatever views one may entertain as to this first analysis, this Tribunal does not have to dwell on this unduly
because it is clear that in the case under consideration the contracting parties did not intend the contract itself to be the
sole and exclusive law governing their relationships, but that on the contrary they chose a legal system which was
intended to govern it by referring to "the principles of the law of Libya common to the principles of international law"
and, failing any conformity between the first and the latter principles, to the "general principles of law, including such
of those principles as may have been applied by international tribunals".

(2) A second analysis permits the conclusion that the contract has been internationalized; international practice and
arbitration case law having, in that connection, established a number of criteria which will be referred to later (see infra
para. 40 et seq., p. 31 et seq.).

32. For the time being, it will suffice to note that the evolution which has occurred in the old case law of the
Permanent Court of International Justice is due to the fact that, while the old case law viewed the contract as something
which could not come under international law because it could not be regarded as a treaty between States, under the new
concept treaties are not the only type of agreements governed by such law. And it should be added that, although they
are not to be confused with treaties, contracts between States and private persons can, under certain conditions, come
within the ambit of a particular and new branch of international law: the international law of contracts.

33. As Dr. F.A. Mann wrote (Studies in International Law (1973), at 223):

"...In regard to treaties between international persons, the nature and subject matter of which frequently are not
substantially different from contracts between international and private persons, those legal rules have been, or are
capable of being, and, in any event, must be developed. The law which is available for application to the one type of
contractual arrangement can, without difficulty, be applied to the other group of contracts."

Commenting on this point in a recent article ("Contrats entre Etats et Personnes Privees Etrangeres: The Theoretical
Approach towards the Law Governing Contracts between States [*14] and Private Persons", Rev. Belge D.I. 562
(1975), at 564-565), Professor Mann writes further:

"Although normally the law of a given State will govern the State contract, precisely years ago another possible
solution was suggested. It was said that a contract between a State and an alien private person could be
'internationalised' in the sense of being subjected to the only other legal order known to us, namely public international
law. This does not mean or was ever intended to mean that the State contract should be considered to be a treaty or
 Page 19
17 I.L.M. 1, *14

should be governed by public international law in the same way as transactions between States. It simply means that by
exercising their right to choose the applicable legal system the parties may make public international law the object of
their choice. Certainly French law is designed normally to apply to French people or French transactions. Certainly
public international law is designed to apply as a rule to States and the transactions between them. But nothing prevents
a contract between the German State and a Dutch firm to be submitted to French law. Similarly, the fact that one party
is not a State should nor prevent the contract from being submitted to public international law. It would thus become
subject to the mandatory rules of public international law. No mandatory law of any national system as such could touch
it. If the parties desire this, why should we put any obstacle in their way?...Of course, we must guard against abuse. For
this reason the teachings of private international law in general are to the effect that the choice of the legal system
adopted by the parties must be reasonable, free from capriciousness, supported by rational, legitimate grounds. These
conditions will be fulfilled if one party to the contract is a State or, one may add, a State corporation, though for reasons
of social policy private persons contracting among themselves should be precluded from choosing a legal system other
than a national one. The public international law thus applicable within a limited field would normally be found in the
general principles accepted by civilized nations."

34. This phenomenon as described could hardly be taken into account by the Permanent Court of International
Justice in 1929, if it is recalled, as one writer states (Francescakis, "Lueurs sur le Droit International des Societes de
Capitaux: L'Arret 'Barcelona' de la Cour Internationale de Justice", 59 Rev. Crit. D.I.P. 609 (1970), at 658) that it was
the epoch of the First World War and the Versailles Treaty "which sounded the massive entry of private interests into
the field of international law". The same author states further that:

"The evolution of international relations, especially economic relations, shows that States are more and more
directly interested in the regulation of interests which, at least under the capitalist system, appear to be those of private
persons whether natural or corporate. It can therefore be stated that international public law sometimes takes into
account considerations of the interests of private persons as much as private international law. There would even seem
today to be a tendency for them to be in the forefront in certain fields, such as the international activity of the great
corporations, operating under the new concept of investment." (Id. at 615.)

Furthermore, this phenomenon itself is extremely complex and the internationalization of contracts concluded between
States and private persons may, as will be demonstrated later, come about in a variety of ways.

35. This Tribunal therefore holds that it is established that the Deeds of Concession in dispute are within the
domain of international law and that this law empowered the parties to choose the law which was to govern their
contractual relations.

2. Second question

36. Under what circumstances was the choice of applicable law made and what consequences should be derived
therefrom as to the internationalization of the Deeds of Concession in dispute?

(a) In its final version, the clause designating the applicable law or the choice of law established by Clause 28 of the
Deeds of Concession reads as follows:

"This concession 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 have been applied by international
tribunals."

37. It should be recalled that the wording of this clause had varied at different times (see Memorial on the Merits of
plaintiffs, para. 42 et seq., p. 51 et seq. French text, p. 32 et seq. English text, and Minutes of the Hearings of 15-16 June
1976, p. 138 et seq. French text, p. 170 et seq. English text). The first formulation of the clause, in conformity with the
Petroleum Law of 1955, was the following:
 Page 20
17 I.L.M. 1, *14

"This Concession shall be governed by and interpreted in accordance with the laws of Libya and such principles
and rules of international laws as may be relevant, and the umpire or sole arbitrator shall base his awards upon those
laws, principles and rules."

This was the first version that was adopted: it made Libyan law applicable in the first instance while giving the arbitral
tribunal [*15] the option of also applying the principles and rules of international law, but only to the extent that the
tribunal would deem them to be relevant.

38. This wording remained in effect until 1963. Then, following the modification effected by the Royal Decree of
15 July 1961, a modification agreed to by the concession holders in 1963, a controlling position was given to the law of
Libya because, at that time, the clause read as follows:

"This concession shall be governed by and interpreted in accordance with the law of Libya and such rules and
principles of international law as may be relevant but only to the extent that such rules and principles are not
inconsistent with and do not conflict with the laws of Libya."

Pursuant to Clause 16 of the Deeds of Concession, this modification was subject to the agreement of the concession
holders, who accepted it.

It is only at a third stage, following the Royal Decree of 22 November 1965 to which the companies gave their
acceptance in 1966, that the present wording was adopted.

39. Thus, the clause relating to the choice of law varied over time: it does not seem that the process itself can give
rise to any objection because, to the extent that it is admitted that the contracting parties themselves are free to decide
the choice of the law or the system of law which is to govern their relations, one does not see why they could not, by
mutual consent, agree to change this choice (this result, as the Tribunal has already noted in passing, is accepted by
certain national jurisprudences). Here, this should be the case even more as these amendments were in accordance with
the fundamental charter of the parties in the sense that they always gave rise to acceptance by the concession holders as
provided for under Clause 16, and considering further that they had a very distinct contractual character: it is truly the
whole balance of the contract that was at stake, in particular with respect to the last amendment. This did in fact tend to
improve the legal situation of the concession holders while, for its part, the defendant Government obtained, as a
counterpart, substantial economic advantages (see Minutes of the Hearings of 15-16 June 1976, French text, pp.
142-143, English text, p. 175). Therefore, not only is there no objection as a matter of principle to taking account of
these amendments, but there is also the fact that failure to approve them would fundamentally change the contractual
balance which was intended and achieved by the contracting parties.

Therefore, this Tribunal holds that it must apply the choice of law clause, which appears in Clause 28 of the Deeds
of Concession, in its latest formulation.

(b) The clause relating to the choice of law and the internationalization of the contract:

40. As the Tribunal has already observed (see supra, para. 31, in fine), the internationalization of contracts entered
into between States and foreign private persons can result in various ways which it is now time to examine.

41. a.a) At the outset, it is accepted that the reference made by the contract, in the clause concerning the governing
law, to the general principles of law leads to this result. These general principles, being those which are mentioned in
Article 38 of the Statute of the International Court of Justice, are one of the sources of international law: they may
appear alone in the clause or jointly with a national law, particularly with the law of the contracting State.

In the present dispute, general principles of law have a subsidiary role in the governing law clause and apply in the
case of lack of conformity between the principles of Libyan law and the principles of international law: but precisely the
expression "principles of international law" is of much wider scope than "general principles of law", because the latter
 Page 21
17 I.L.M. 1, *15

contribute with other elements (international custom and practice which is accepted by the law of nations) to constitute
what is called the "principles of international law". To take the same terms used by the Permanent Court of International
Justice in its judgment in the "Lotus" case ([1927] P.C.I.J., No. 10, Ser. A, at 16): the meaning of the "words 'principles
of international law', as ordinarily used, can only mean international law as it is applied between all nations belonging to
the community of States". Now, these principles of international law must, in the present case, be the standard for the
application of Libyan law since it is only if Libyan law is in conformity with international law that it should be applied.
Therefore, the reference which is made mainly to the principles of international law and, secondarily, to the general
principles of law must have as a consequence the application of international law to the legal relations between the
parties.

There are many international contracts comparable to the contracts in dispute which refer to the general principles
of law. It will suffice to cite here: the contract between Iran and Agip Mineraria of 24 August 1954 (Art. 40), the
contract between Iran and the Consortium of 19 September 1954 (Art. 46), the contract between Kuwait and Kuwait
Shell Petroleum Company of 15 January 1961 (Art. 35), and the contract between the United Arab Republic and Pan
America U.A.R. Oil Company, of 23 October 1963 (Art. 42).

42. International arbitration case law confirms that the reference to the general principles of law is always regarded
to be a sufficient criterion for the internationalization of a contract. One should remember, in this respect, the awards
delivered in Lena Goldfields v. U.S.S.R. in 1930, Petroleum Development Ltd. v. Sovereign of Abu Dhabi in 1951, and
International Marine Oil Company v. Sovereign of Qatar in 1953, and [*16] in Sapphire International Petroleum Ltd.
v. N.I.O.C., all cases in which the arbitrators noted a reference to the general principles of law in order to reach their
conclusions as to the internationalization of the contract.

It should be noted that the invocation of the general principles of law does not occur only when the municipal law
of the contracting State is not suited to petroleum problems. Thus, for example, the Iranian law is without doubt
particularly well suited for oil concessions but this does not prevent the contracts executed by Iran from referring very
often to these general principles. The recourse to general principles is to be explained not only by the lack of adequate
legislation in the State considered (which might have been the case, at one time, in certain oil Emirates). It is also
justified by the need for the private contracting party to be protected against unilateral and abrupt modifications of the
legislation in the contracting State: it plays, therefore, an important role in the contractual equilibrium intended by the
parties.

43. This evolution toward the internationalization of contracts was foreseeable: indeed, in its judgments in the cases
relating to the Serbian and Brazilian Loans and on the occasion of the examination of the criteria which could be
adopted for the determination of the applicable law, the Permanent Court of International Justice laid down a rule of
great flexibility:

"The Court which has before it a dispute involving the question as to the law which governs the contractual
obligations at issue, can determine what this law is only by reference to the actual nature of these obligations and to the
circumstances attendant upon their creation, though it may also take into account the expressed or presumed intention of
the Parties." ([1929] P.C.I.J., Ser. A, No. 20, at 41.)

The three criteria laid down by the Permanent Court of International Justice and derived from the nature of the
obligations, the circumstances of their creation and the will of the parties, converge, in the instant case, to reverse the
presumption which was established, in another connection, by the judgments of 1929, a presumption to which reference
was made already (see para. 27 supra, in fine), and according to which a State cannot, from the outset, be presumed "to
have made the substance of its debt and the validity of the obligations accepted by it in respect thereof, subject to any
law other than its own".

44. b.b.) Another process for the internationalization of a contract consists in inserting a clause providing that
possible differences which may arise in respect of the interpretation and the performance of the contract shall be
 Page 22
17 I.L.M. 1, *16

submitted to arbitration.

Such a clause has a twofold consequence:

--on the one hand, as this Tribunal has already noted (see para. 16 supra), the institution of arbitration shall be that
established by international law.

--on the other hand, as regards the law applicable to the merits of the dispute itself, the inclusion of an arbitration
clause leads to a reference to the rules of international law.

Even if one considers that the choice of international arbitration proceedings cannot by itself lead to the exclusive
application of international law, it is one of the elements which makes it possible to detect a certain internationalization
of the contract. The Sapphire International Petroleum Ltd. award is quite explicit: "If no positive implication can be
made from the arbitral clause, it is possible to find there a negative intention, namely to reject the exclusive application
of Iranian law" (35 Int'l L.R. 136 (1963), at 172); this is what led the arbitrator in that case, in the absence of any
explicit reference to the law applicable, not to apply automatically Iranian law, thus dismissing any presumption in its
favor. It is therefore unquestionable that the reference to international arbitration is sufficient to internationalize a
contract, in other words, to situate it within a specific legal order--the order of the international law of contracts.

45. (c) A third element of the internationalization of the contracts in dispute results from the fact that it takes on a
dimension of a new category of agreements between States and private persons: economic development agreements (see
Bourquin, "Arbitration and Economic Development Agreements", 15 Bus. Law. 860 (1960); A.A. Fatouros,
Government Guarantees to Foreign Investors (1962); Hyde, "Economic Development Agreements", 105 Recueil des
Cours de l' Academie de Droit International de la Haye ("R.C.A.D.I.") 267 (1962), and Verdross, "The Status of Foreign
Private Interests Stemming from Economic Development Agreements with Arbitration Clauses", in Selected Readings
on Protection by Law of Private Foreign Investments 117 (1964)).

Several elements characterize these agreements: in the first place, their subject matter is particularly broad: they are
not concerned only with an isolated purchase or performance, but tend to bring to developing countries investments and
technical assistance, particularly in the field of research and exploitation of mineral resources, or in the construction of
factories on a turnkey basis. Thus, they assume a real importance in the development of the country where they are
performed: it will suffice to mention here the importance of the obligations assumed in the case under consideration by
the concession holders in the field of road and port infrastructures and the training on the spot of qualified personnel.
The party contracting with the State was thus associated with the realization of the economic and social progress of the
host country.

In the second place, the long duration of these contracts implies close cooperation between the State and the
contracting [*17] party and requires permanent installations as well as the acceptance of extensive responsibilities by
the investor.

Finally, because of the purpose of the cooperation in which the contracting party must participate with the State and
the magnitude of the investments to which it agreed, the contractual nature of this type of agreement is reinforced: the
emphasis on the contractual nature of the legal relation between the host State and the investor is intended to bring
about an equilibrium between the goal of the general interest sought by such relation and the profitability which is
necessary for the pursuit of the task entrusted to the private enterprise. The effect is also to ensure to the private
contracting party a certain stability which is justified by the considerable investments which it makes in the country
concerned. The investor must in particular be protected against legislative uncertainties, that is to say the risks of the
municipal law of the host country being modified, or against any government measures which would lead to an
abrogation or rescission of the contract. Hence, the insertion, as in the present case, of so-called stabilization clauses:
these clauses tend to remove all or part of the agreement from the internal law and to provide for its correlative
submission to sui generis rules as stated in the Aramco award, or to a system which is properly an international law
 Page 23
17 I.L.M. 1, *17

system. From this latter point of view, the following considerations should be noted, which were mentioned in the
Sapphire award, and which stress the interest of the internationalization of the contract:

"Such a solution seems particularly suitable for giving the guarantees of protection which are indispensable for
foreign companies, since these companies undergo very considerable risks in bringing financial and technical aid to
countries in the process of development. It is in the interest of both parties to such agreements that any disputes between
them should be settled according to the general principles universally recognized and should not be subject to the
particular rules of national laws. . ." (35 Int'l L.R. 136 (1963), at 175-176.)

C. Meaning and scope of the internationalization of the contracts in dispute

46. The Tribunal must specify the meaning and the exact scope of internationalization of a contractual relationship
so as to avoid any misunderstanding: indeed to say that international law governs contractual relations between a State
and a foreign private party neither means that the latter is assimilated to a State nor that the contract entered into with it
is assimilated to a treaty.

This distinction is worth making, because the situation of individuals, and more generally private persons, in
respect of international law, has recently been the subject matter of important doctrinal debates on the occasion of which
excessive positions sometimes may have been stated. Thus, for some:

"The rules of economic international law concern not only States but directly the individuals; because economic
and social progress has as its objective to assure its direct application to those concerned. The result is that individuals
are directly the subjects of economic or social international law." (P. Vellas, 1 Droit International Economique et Social
(1965), at 30.)

47. This Tribunal will abstain from going that far: it shall only consider as established today the concept that legal
international capacity is not solely attributable to a State and that international law encompasses subjects of a diversified
nature. If States, the original subjects of the international legal order, enjoy all the capacities offered by the latter, other
subjects enjoy only limited capacities which are assigned to specific purposes. The proposition which has just been
stated is in conformity with the statement by the International Court of Justice in its Advisory Opinion on Reparations
of 11 April 1949 under which "the subjects of law, in any legal system, are not necessarily identical in their nature or in
the extent of their rights and their nature depends on the needs of the community" ([1949] I.C.J. 174, at 178). In other
words, stating that a contract between a State and a private person falls within the international legal order means that
for the purposes of interpretation and performance of the contract, it should be recognized that a private contracting
party has specific international capacities. But, unlike a State, the private person has only a limited capacity and his
quality as a subject of international law does enable him only to invoke, in the field of international law, the rights
which he derives from the contract.

48. This is what is noted by Professor I. Seidl-Hohenveldern who, when referring to the work of Professor
Bockstiegel, writes ("Contrats entre Etats et Personnes Privees Etrangeres: The Theory of Quasi-International and Partly
International Agreements", Rev. Belge D.I. 567 (1975), at 570):

"If it is possible to recognize international organisations, insurgents, etc. as subjects of international law and if
some authors at least consider that even individual human beings under certain circumstances may be subjects of
international law, why should a State be prevented from recognizing its partner to such a contract as a subject of
international law? Of course such recognition does not mean that the State recognizes its partner to such a contract as a
subject enjoying all rights and duties due to a State. The private partner is recognized as a subject of only those rights
and duties, as are embodied in the contracts concerned."

Or, as stated by Professor Garcia Amador ("International Responsibility", 2 Y.B. Int'l L. Comm'n 1, U.N. Doc.
A/CN.4/119 (1959), at 32):
 Page 24
17 I.L.M. 1, *17

[*18] "...In the matter of contracts, the international personality and capacity of the individual [that is to say the
private person, natural or fictitious] depend on the recognition granted to them by the State in its legal relations with
him. Agreements which provide in one form or another for the application of a legal system or of principles alien to
municipal law, or for the settlement of disputes by international means and procedures, differ from those governed
exclusively by municipal law in that the contractual relation between a State and a private person is raised to an
international plane, thus necessarily conferring upon that person the necessary degree of international personality and
capacity."

Thus, the internationalization of certain contracts entered into between a State and a private person does not tend to
confer upon a private person competences comparable to those of a State but only certain capacities which enable him
to act internationally in order to invoke the rights which result to him from an internationalized contract.

49. The above quotation from Mr. Garcia Amador is all the more appropriate as it refers to the conclusion of
agreements which are "governed exclusively by municipal law", implying thereby that some agreements may be
governed both by municipal law and by international law. It is precisely this latter kind of hypothesis which is to be
found in the case under consideration since the clause of the contracts under dispute relating to the applicable law refers
to the "principles of Libyan law which are common to the principles of international law". It is significant in this respect
that, in a formula in which it must be assumed that each term has been weighed, the parties concerned referred not to
Libyan law itself, but to "the principles of Libyan law". Indeed, the parties thereby wanted to demonstrate that they
intended the Arbitral Tribunal to base itself on the spirit of the Libyan law as expressed in the fundamental principles of
that law, rather than by its rules which may be contingent and variable since these rules depended, in the last instance,
on the unilateral will--even arbitrariness--of one of the contracting parties: hence, the reference which is also made to
the principles of international law.

It follows that the reference made by the contracts under dispute to the principles of Libyan law does not nullify the
effect of internationalization of the contracts which has already resulted from their nature as economic development
agreements and recourse to international arbitration for the settlement of disputes. The application of the principles of
Libyan law does not have the effect of ruling out the application of the principles of international law, but quite the
contrary: it simply requires us to combine the two in verifying the conformity of the first with the second.

50. The Tribunal must in this respect make two observations in order to clarify the scope of the internationalization
of the contracts in dispute:

--in the first place, the national law (that is: the principles of Libyan law) can be raised to the level of the
international legal order: in other words, the national law is incorporated into the international legal order as a body of
substantive law ("regles materielles"), by reason of its normative content which becomes a set of rules to be applied by
the International Tribunal. The grounds of its applicability does not result from the automatic operation of the
sovereignty of the contracting State, but from the common will of the parties: the national law of the contracting State is
therefore regarded as lex contractus by incorporation. This is what Professor Weil expressed in the following terms
("Les Clauses de Stabilisation ou d'Intangibilite Inserees dans les Accords de Development Economique," in Melanges
Offerts a Charles Rousseau 301 (1975), at 319-320):

"...Municipal law does not therefore apply in itself but as a law of renvoi. The presence in the contract of a
provision referring to the municipal law of the host State does not therefore necessarily mean that internationalization
must be ruled out: if such internationalization results from the other characteristics of the contract--and this is the case
with most economic development agreements--the contract will nonetheless be internationalized, and national law will
therefore be applicable as a law of renvoi on the basis of the choice of the parties as authorized by the international law
applicable in the field of contracts...."

--in the second place, the municipal law of the contracting State itself includes principles of international law: every
municipal law is a vehicle for the general principles of law as provided for under Article 38 of the Statute of the
 Page 25
17 I.L.M. 1, *18

International Court of Justice. Under this generic name of general principles of law, reference is made in fact to certain
principles common to the legal systems of the various States of the world. They constitute a source of international law
which originates in the various municipal laws: therefore, the application of municipal law does not exclude the
application of the general principles of law which themselves are part and parcel of the principles of international law.

51. Applying the principles stated above, the Arbitral Tribunal will refer:

(1) On the one hand, as regards the principles of Libyan law: regardless of the source of Libyan law taken into
consideration, whether we refer to the Sharia, the Sacred Law of Islam (a special reference should be made to Surah 5 of
the Koran which begins with the verse: "O ye believers, perform your contracts|") or to the Libyan Civil Code which
includes on this point two basic articles illustrating [*19] the value which Libyan law attaches to the principle of the
respect of the word given:

--Article 147, under which "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 by the law";

--Article 148, under which "A contract must be performed in accordance with its contents and in compliance with
the requirements of good faith", one is led to the same conclusion, that is: that Libyan law recognizes and sanctions the
principle of the binding force of contracts.

(2) On the other hand, as regards the principles of international law: from this second point of view, it is
unquestionable, as written by Professor Jessup in concluding his opinion (p. 71) that the maxim "'pacta sunt servanda' is
a general principle of law; it is an essential foundation of international law".

No international jurisdiction whatsoever has ever had the least doubt as to the existence, in international law, of the rule
pacta sunt servanda: it has been affirmed vigorously both in the Aramco award in 1958 and in the Sapphire award in
1963. On can read, indeed, in the Sapphire award, that "it is a fundamental principle of law, which is constantly being
proclaimed by international Courts, that contractual undertakings must be respected. The rule 'pacta sunt servanda' is the
basis of every contractual relationship" (35 Int'l L.R. 136 (1963), at 181). This Tribunal cannot but reaffirm this in its
turn by stating that the maxim pacta sunt servanda should be viewed as a fundamental principle of international law.

52. The conformity, on this essential point, of the principles of Libyan law with the principles of international law
relieves the Tribunal from discussing the matter further--in particular from going to the second part provided for
subsidiarily in Clause 28 of the Deeds of Concession--and enables it to conclude that the Deeds of Concession in
dispute have a binding force.

SECTION II: Did the Libyan Government, in adopting the nationalization measures of 1973 and 1974,
breach its obligations under the contracts?

53. The Tribunal must now rule on the point whether, in adopting nationalization measures in 1973 and 1974, the
defendant Government has, or has not, breached its obligations arising from the contracts it executed. For this purpose,
this Tribunal should examine the various reasons which could be envisaged in order to justify the defendant
Government's behavior and which, if established, would constitute reasons for freeing or exonerating it from the
obligation which it had assumed and from its related responsibilities.

Three types of reasons could be put forward in order to justify, or attempt to justify, the behavior of the defendant
Government:

--the first reason could be based on the nature of the contracts under dispute: if they were administrative contracts,
they could give rise, under certain conditions, to amendments or even to abrogation on the part of the contracting State;
in relation to concession contracts, the nationalization measures would then be analyzed as being decisions bringing
about, at least implicitly, abrogation;
 Page 26
17 I.L.M. 1, *19

--the second reason could be based on the concept of sovereignty and on the very nature of measures of
nationalization;

--the third reason, lastly, could be deduced from the present status of international law, and in particular from
certain resolutions concerning natural resources and wealth as adopted, in the last few years, by the United Nations.

A. Can the Deeds of Concession in dispute be regarded as administrative contracts?

54. This question cannot be evaded, particularly because Libyan legislation confirms the existence of that special
category of contracts which are administrative contracts: now, one of the consequences which attaches to an
"administrative contract" under legal systems which have this category of contracts is that an administrative contract,
because it is essentially unequal, enables the State legal entity which has executed it to amend unilaterally the
provisions thereof, and even in certain cases--subject to the requirements of public interest--to decide that it shall be
abrogated.

This Tribunal holds, however, that this analysis and its consequences cannot be applied in the instant case for two
reasons:

55. (1) The first reason, as demonstrated by Professor Morcos (Morcos Opinion, pp. 23-26 French text, pp. 17-19
English text), is that the Deeds of Concession do not fulfill the three conditions imperatively and cumulatively required
by Libyan law for a contract to be regarded as an administrative contract, i.e.:

--to have for its object the management or the exploitation of a public service;

--to have been entered into by the administrative authority as such, that is by an authority regarded as a state or
public legal entity;

--to confer upon the administrative authority rights and powers which are not usually found in a civil contract, such
as the power to amend unilaterally or abrogate unilaterally the contract if the public interest so requires, or--to use the
usual terminology in French law--to include provisions "which go beyond the ambit of ordinary law" ("clauses
exorbitantes du droit commun").

[*20] In the case under consideration, in addition to the fact that any idea of operating or exploiting a public
service is out of question here, it is obvious that the Government of Libya had intended to deal with its partners on a
footing of equality with respect to the Deeds of Concession in dispute and that these contracts do not include any clause
going beyond the ambit of ordinary law; quite the contrary, it is indeed stipulated that laws or regulations, the effect of
which might be to amend the contractual rights of the concession holders, cannot be applied to the concession holders
unless accepted by them. It is true that, in a certain way, the view could be held that the "stabilization clauses"--in the
instant case Clause 16 of the Deeds of Concession--appear as clauses going beyond the ambit of ordinary law in the
sense that they are not usually found in contracts entered into between private parties (although private parties, precisely
in order to provide a stable framework to their relationship, may well decide to consider as "frozen", as of the date of
their agreement, the legislation which they declared to be applicable to their contract). Certain authors have indeed
accepted this view and hold that the so-called stabilization clauses or other similar clauses go beyond the ambit of
ordinary law: this is the case in particular of Mr. Cohen-Jonathan (Les Concessions en Droit International Public, these,
Paris 1966, at 214), who writes in this respect:

"Conversely, these special immutability clauses are those which give to the contract its character of derogation
from ordinary law. It is not unusual to find a clause similar to that inserted by Persia in the Anglo-Iranian Agreement
which gave rise to the controversy before the International Court of Justice. That agreement provided: 'This concession
shall not be rescinded by the Government and the provisions contained therein shall not be modified by general or
special future legislation, by administrative measures or by any other acts on the part of the executive authorities.' It is
clear that this promise not to exercise essential powers is the most typical clause going beyond the ambit of ordinary
 Page 27
17 I.L.M. 1, *20

law". *

* The original French text translated above reads:

"A l'inverse, ce sont les clauses d'immutabilite speciales qui donnent au contrat son caractere derogatoire au
droit commun. Il n'est pas rare de trouver une clause semblable a celle qu'avait inseree la Perse dans son accord
avec l'Anglo-Iranian qui a donne lieu a une controverse devant la Cour internationale de justice. Il y etait dit:
'Cette concession ne sera pas annulee par le Gouvernment et les dispositions y contenues ne seront alterees ni
par une legislation generale ou speciale future, ni par des measures administratives ou tous autres actes
quelconques des autorites executives'. Il est evident que cette promesse de ne pas exercer des pouvoirs essentiels
constitue la clause exorbitante la plus caracteristique qui soit."

56. This is not the view of this Tribunal: in Libyan law as in Egyptian law, on the basis of the opinion of Professor
Morcos (Morcos Opinion, p. 23 French text, p. 17 English text), what gives a contract entered into by a public or State
legal entity its administrative character is the fact that it "confers on the administration rights and powers which are not
usual in a civil contract, such as the power to modify, terminate or revoke the contract when the public interest requires
it to do so", which is of course the most characteristic evidence that the parties have intended not to contract on a
footing of equality--an administrative contract is essentially unequal. But when, as is the case in the present instance,
the clause has an essentially negative import, the State or the administrative authorities undertaking not to use powers
which are normally their powers, without the partner's agreement, it expresses, on the contrary, the fact that the State
intended to contract on a footing of strict equality with its partner: that it was the intention of the State, as under a civil
contract, to deal on an equal basis with the contracting party. Indeed, if the clause were not in the contract, one would
have to presume that the State had intended to conserve intact, in respect of its contracting partner, the free and full
exercise of its privileges and usual powers. If the foregoing reasoning is not adopted, contracts entered into by a State or
any administrative authority would always and necessarily be of an administrative nature; indeed, three eventualities
could arise:

--either such contracts would include a clause attributing to the State or its administrative authorities powers which
are not those of an ordinary contracting party;

--or, in the absence of such a clause, the silence of the parties would necessarily lead one to presume that the State
had maintained the free exercise of its usual prerogatives;

--lastly, and this is the case in the present instance, the State explicitly undertook not to use, with respect to its
contracting party or without the contracting party's agreement, its powers to amend unilaterally the terms and conditions
of the contract.

While, in the first two cases, there is no difficulty in recognizing that the contract is of an administrative nature,
however, in the third case, such analysis must necessarily be ruled out. Otherwise one would have to admit, once again,
that contracts entered into by the State or the administration could never be anything else but administrative contracts.
Such a result does not seem to be acceptable because, in both Libyan and Egyptian law, certain specific conditions are
required for a contract to have the character and nature of an administrative contract: this character and nature cannot
therefore be inferred solely from the participation in the contract of a State or an administrative authority. On the other
hand, the very presence of the State or of an administrative authority as a contracting party raises the question as to
whether this public entity intended to act jure imperii, that is with its privileges as a public power, [*21] or jure
gestionis, as an ordinary contracting party would. If the contract is silent, one can and should even accept the idea that
the public authority intended to reserve the possibility of changing, by unilateral actions taken under normal conditions,
certain of the contractual provisions and, in some cases, to abrogate the contract. The balance between the rights of the
parties is technically achieved by other means: for instance, in French administrative law, by the theory of the financial
equation or the financial equilibrium of the contract. But when the State or the administrative authority has formally
 Page 28
17 I.L.M. 1, *21

undertaken to waive its right, in regard to the contracting party, to use its prerogatives as a public power, failing the
contracting party's agreement, it is difficult to imagine that such State or such administrative authority could have
demonstrated more clearly that it intended to deal on an equal footing with its partner. This Tribunal cannot therefore
but conclude, as does Professor Morcos (Morcos Opinion, p. 25 French text, p. 18 English text), that the so-called
stabilization clause "is a negation of one of the principal characteristics of an administrative contract", i.e., its basically
and essentially inegalitarian nature. Lastly, resorting to international arbitration would confirm, if need be, the idea that
the parties had intended to deal on a footing of equality.

57. (2) A second reason supplements the first one: assuming--notwithstanding the preceding considerations--that
the contracts under dispute must be analyzed as administrative contracts, the consequences to be derived therefrom (i.e.,
the possibility for the contracting State or administrative authority to make, by virtue of its prerogatives as a public
power, certain amendments to the stipulations of the contract, or perhaps even to abrogate it) could not be drawn. In so
doing, in effect, one would leave the field of the "principles common" to Libyan law and international law. One should
take into account here the fact that the theory of administrative contracts is somewhat typically French: it is consecrated
by French law and by certain legal systems which have been inspired by French law. But it is unknown in many other
legal systems which are as important as the French system and it has not been accepted by international law
notwithstanding wishes which de lege ferenda may have been expressed in this field. The distinction made by certain
legal systems between "civil contracts" and "administrative contracts" cannot therefore be regarded as corresponding to
a "general principle of law" if it is recalled that general principles of law postulate that they should be "sufficiently
widely and firmly recognized in the leading legal systems of the world" (W. Friedmann, The Changing Structure of
International Law (1964), at 196).

B. The concept of sovereignty and the nature of measures of nationalization

58. Prior to any consideration concerning nationalizations, it is necessary to rule in respect of an objection raised by
the defendant: in the Memorandum addressed to the President of the International Court of Justice on 26 July 1974, the
Libyan Government contended in effect that the plaintiff companies could not invoke the procedure provided for in
Clause 28 of the Deeds of Concession on the ground that nationalization terminated not only the agreement which
linked them to the Libyan State, but also their legal status. This Tribunal cannot regard nationalization measures as
having such a radical effect. Although they concern the total assets of the companies located within the territory of the
State which nationalizes, such nationalizations cannot purport to destroy the existence of these companies as legal
entities.

It should be observed, at the outset, that such a claim can only have the value of a petitio principii, since it tends to
nullify the clauses of the contract relating to the settlement of disputes, clauses which this Tribunal has concluded
survived any denunciation or abrogation of contractual links by reason of the inherent juridical nature of such
provisions and taking account of the case law in the matter. Furthermore, it is a well-known rule that nationalizations do
not, in principle, produce any extra-territorial effect and that they cannot, in any case, impair or affect the existence of
companies as legal entities which do not have the nationality of the nationalizing State.

59. This being so, the right of a State to nationalize is unquestionable today. It results from international customary
law, established as the result of general practices considered by the international community as being the law. The
exercise of the national sovereignty to nationalize is regarded as the expression of the State's territorial sovereignty.
Territorial sovereignty confers upon the State an exclusive competence to organize as it wishes the economic structures
of its territory and to introduce therein any reforms which may seem to be desirable to it. It is an essential prerogative of
sovereignty for the constitutionally authorized authorities of the State to choose and build freely an economic and social
system. International law recognizes that a State has this prerogative just as it has the prerogative to determine freely its
political regime and its constitutional institutions. The exclusive nature of such a right is in fact confirmed by the fact
that in practice a decision to nationalize very often is made by the organ which is regarded as the supreme level in the
internal hierarchy of State institutions.
 Page 29
17 I.L.M. 1, *21

60. Diplomatic precedents confirm the right of a State to nationalize. Immediately after the nationalizations
resulting from the establishment of the Soviet regime in Russia, the Powers which met in Cannes did not feel that they
were in a [*22] position to question this principle in their Declaration of 6 January 1922. In fact, subsequently,
international practice as expressed within the framework of diplomatic protection for nationals abroad has hardly varied
at all; it has not endeavored to limit as a matter of principle a power expressing the sovereignty of the State, but simply
to claim reparation in one form or another, for the benefit of those who were injured by nationalization measures.

Thus the Joint Expert Commission, designated after the nationalizations decreed by Mexico in 1938, stated in its
report of 17 April 1942 that "expropriation is the characteristic feature of the sovereignty of all States". On the occasion
of the Cuban nationalizations in 1959, the United States Government recognized in a note to the Ministry of Foreign
Affairs in Havana that: "The United States recognizes that under international law a State has the right to take property
within its jurisdiction for public purposes...." Similarly, after the nationalizations decreed by Algeria in 1971, the French
Government, in a Memorandum dated 9 March 1971 declared that "it did not intend to question, as a matter of principle,
the right of Algeria to nationalize...."

One can also recall the London Declaration of 22 August 1956 after the nationalization of the Suez Canal, or the
British note addressed to the Government of Mexico on 8 April 1968 stating that "Her Majesty's Government does not
question the general right of a government to expropriate in the public interest...." The Government of the United
Kingdom restated its recognition, as a matter of principle, of the right of a State to take nationalization measures after
the measures taken in Libya against the assets of the British Petroleum Company.

61. Even though, for a State, the decision of nationalizing is an expression of its sovereignty, which this Tribunal
fully recognizes, does not the exercise of the right to nationalize know some limits in the international order? In
particular, does the act of sovereignty which constitutes the nationalization authorize a State to disregard its
international commitments assumed by it within the framework of its sovereignty?

It is clear from an international point of view that it is not possible to criticize a nationalization measure concerning
nationals of the State concerned, or any measure affecting aliens in respect of whom the State concerned has made no
particular commitment to guarantee and maintain their position. On the assumption that the nationalizing State has
concluded with a foreign company a contract which stems from the municipal law of that State and is completely
governed by that law the resolution of the new situation created by nationalization will be subject to the legal and
administrative provisions then in force.

62. But the case is totally different where the State has concluded with a foreign contracting party an
internationalized agreement, either because the contract has been subjected to the municipal law of the host country,
viewed as a mere law of reference, applicable as of the effective date of the contract, and "stabilized" on that same date
by specific clauses, or because it has been placed directly under the aegis of international law. Under these two
assumptions, the State has placed itself within the international legal order in order to guarantee vis-a-vis its foreign
contracting party a certain legal and economic status over a certain period of time. In consideration for this
commitment, the partner is under an obligation to make a certain amount of investments in the country concerned and to
explore and exploit at its own risks the petroleum resources which have been conceded to it.

Thus, the decision of a State to take nationalizing measures constitutes the exercise of an internal legal jurisdiction
but carries international consequences when such measures affect international legal relationships in which the
nationalizing State is involved.

63. In order to appreciate the scope of the nationalization measures, one must therefore investigate whether the
nationalizing State has undertaken international obligations which prevent it from resorting to such nationalizing
measures for a certain period of time and whether the disregard of such obligations is justified by the sovereign nature
of such nationalization measures. Such an investigation, in the instant case, can only be conducted in the light of the
agreements binding the two parties and in the light of the applicable law; it therefore is not purely theoretical but falls
 Page 30
17 I.L.M. 1, *22

within the examination of the pertinent existing law.

64. (a) There is no doubt that in the exercise of its sovereignty, a State has the power to make international
commitments. Is this rule, which is accepted in general law, confirmed by the law applicable to the agreements between
the parties in the present case? In other words, is this rule confirmed both by Libyan law and by international law? And
does it therefore constitute a "common principle" in the sense of Clause 28 of the Deeds of Concession?

First, as regards Libyan municipal law, it does not seem possible for this Tribunal to question the principle that the
Libyan State can validly contract with subjects of foreign law. This is the case whether one considers the legal traditions
deriving from Muslim law or those deriving from the Libyan Civil Code.

The observance of contracts generally speaking is proclaimed by the Koran (see in particular Surah V, 1); the
practice of the Prophet, which is the second source of the law of Islam, confirms this rule: "Muslims are bound by their
contracts" [*23] (S. Bukhari, III, 187). The writings of Muslim jurists uphold the same principle, in particular Ibn
Qudama, a jurist of considerable authority of the Hanbali School, which is predominant in Saudi Arabia, who states that
"... if the Imam concludes a truce, and then dies or is deposed, the covenant should not be rescinded, but it is the duty of
his successor to observe it. This is because the Imam concluded it in the exercise of his legal discretion [ijtihad], and it
is not lawful for it to be rescinded at the discretion of another ..." (quoted by J.N. Anderson and N.J. Coulson, "The
Moslem Ruler and Contractual Obligations", in Selected Readings on Protection by Law of Private Foreign Investments
407 (1964), at 420).

65. This principle applies not only to agreements concluded by private persons, but also to agreements entered into
by the sovereign. Thus, under the Sharia, nobody, neither the sovereign nor any official, is exempted as a matter of
privilege. If, in conformity with the siyasa doctrine, the sovereign has large discretionary powers as regards the
promotion of public interest, he must nonetheless abide by the commands of the supreme law, and Ibn Qudama states
that "a breach of a commitment on the part of the Imam is more serious and more heinous than a breach committed by
anybody else, because of its baneful consequences". Now, it is accepted that this rule covers also agreements entered
into with non-Muslims. This general application of the principle is provided for by the Koran itself in respect of
contracts entered into with polytheists (Surah IX, 4). Thus, one can note that Muslim law recognizes the possibility of
the sovereign's entering into commitments with aliens and the principle that such agreement must be observed.

The Libyan Civil Code does not deviate from such provisions. Under Article 147 (1): "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".
This principle, of general scope, is not limited to contracts entered into between private persons. The public authority,
when it acts within the framework of its authority and without disregarding the requirements of "ordre public", is also
empowered to enter into contracts, as is confirmed by the practice followed by Libya which has entered into many
agreements and which, after changing its political regime as a consequence of the downfall of the monarchy, in
September 1969, recognized through the spokesman of the Revolutionary Command Council that it would maintain the
commitments undertaken with respect to plaintiffs by the preceding Government.

66. There is no need to dwell at any length on the existence and value of the principle under which a State may,
within the framework of its sovereignty, undertake international commitments with respect to a private party. This rule
results from the discretionary competence of the State in this area and also from the principle which confers upon the
parties to a contract the right to choose the law governing their relationship.

The right of a State to undertake commitments under a treaty concluded with another State is unquestionable; this
has always been recognized by international case law, in particular by the Permanent Court of International Justice in its
judgment in the Wimbledon case, a decision which emphasized that sovereignty is not negated by the conclusion of a
treaty but, quite the contrary, that the conclusion of a treaty is a manifestation of such sovereignty. This observation has
logically the same scope and significance in the case of an agreement entered into by a given State with a foreign
private company. Of course, this agreement is not a treaty commitment because a treaty can be entered into only as
 Page 31
17 I.L.M. 1, *23

between States, but it is an agreement which falls within the international legal order since the contracting State agreed
to submit the agreement not to the exclusive, and unlimited in time, application of its municipal law, but to rules falling
at least in part within the framework of international law or of general principles of law.

If States alone can be parties to a treaty, this does not mean that a State cannot commit itself internationally by
becoming a party to instruments of another nature with non-State partners, international organizations or private foreign
entities, as has already been mentioned.

It does not seem therefore that one can establish a distinction in this respect between a treaty and an
internationalized contract.

67. Under these two assumptions, the State, by entering into an international agreement with any partner
whatsoever, exercises its sovereignty whenever the State is not subject to duress and where the State has freely
committed itself through an untainted consent.

As recognized in the award delivered in the case between the Government of Saudi Arabia and Aramco, it is not
incompatible for a State to grant a concession while desiring not to alienate its sovereignty:

"... By reason of its very sovereignty within its territorial domain, the State possesses the legal power to grant rights
which it forbids itself to withdraw before the end of the Concession with the reservation of the Clauses of the
Concession Agreement relating to its revocation. Nothing can prevent a State, in the exercise of its sovereignty, from
binding itself irrevocably by the provisions of a concession and from granting to the concessionnaire irretractable rights.
Such rights have the character of acquired rights..." (52 Rev. Crit. D.I.P. 272 (1963), at 315; 27 Int'l L.R. 117 (1963), at
168.)

This rule, as has already been seen, has also been stated and confirmed by the Sapphire award.

[*24] 68. Lastly, and without prejudice to anything which may be said later as to the legal value of the Resolutions
of the General Assembly of the United Nations, it should be noted that dismissing the objections made by certain
delegations, this body has stated in Resolution 1803, dated 14 December 1962, on the permanent sovereignty over
natural resources, that "foreign investment agreements freely entered into by, or between, sovereign States shall be
observed in good faith...." Thus, this text places on the same footing agreements entered into between States and
agreements concluded by a State and foreign private enterprises.

The result is that a State cannot invoke its sovereignty to disregard commitments freely undertaken through the
exercise of this same sovereignty and cannot, through measures belonging to its internal order, make null and void the
rights of the contracting party which has performed its various obligations under the contract.

This impossibility of nullifying, in the name of the sovereignty of the State, a bilateral agreement to which the State
could only commit itself within the framework of its own sovereignty, is recognized by legal writers; it will suffice to
quote Judge Charles de Visscher's opinion:

"But the international responsibility of the nationalizing State is brought into play when it nationalizes a foreign
enterprise in violation of an obligation freely and precisely assumed by it in an international agreement. This
responsibility may also be involved, in connection with an undertaking contained in a contract under municipal law, if
there is a denial of justice to the foreign concessionary through default of the ordinary courts or through a refusal to
submit the dispute to any arbitral procedure that may have been substituted for internal jurisdiction." (Theories et
Realites en Droit International Public (2d ed. 1955), at 244; Theory and Reality in Public International Law (1957), at
194.)

69. Such is the present state of international positive law. The fact that various nationalization measures in
disregard of previously concluded agreements have been accepted in fact by those who were affected, either private
 Page 32
17 I.L.M. 1, *24

companies or by the States of which they were nationals, cannot be interpreted as recognition by international practice
of such a rule; the amicable settlements which have taken place having been inspired basically by considerations of
expediency and not of legality. Nothing prohibits the parties involved in a nationalization, that is the parties which
promulgated the measures as well as those affected, from negotiating a new agreement leading to a new legal status.

70. It is therefore necessary to examine in the light of these principles whether the nationalization measures decreed
by the Libyan Government with respect to the plaintiffs disregard any specific commitment undertaken by that
Government, a commitment which should have been sufficient to protect the plaintiffs from such a decision.

The Deeds of Concession entered into by the parties do not include any provision by which the Libyan Government
limited its recourse to nationalization. However, Clause 16 of the Deeds of Concession contains a stabilization clause
with respect to the rights of the concession holder. As consideration for the economic risks to which the foreign
contracting parties were subjected, the Libyan State granted them a concession of a minimum duration of 50 years and,
more specifically, containing a non-aggravation clause, Clause 16, which provided:

"The Government of Libya will take all steps necessary to ensure that the company enjoys all the rights conferred
by this concession. The contractual rights expressly created by this concession shall not be altered except by mutual
consent of the parties".

Another paragraph was added to this provision under the Royal Decree of December 1961 and became an integral
part of the contract on the basis of the Agreement of 1963. It provides:

"This Concession shall throughout the period of its validity be construed in accordance with the Petroleum Law and
the Regulations in force on the date of execution of the agreement of amendment by which this paragraph (2) was
incorporated into the concession agreement. Any amendment to or repeal of such Regulations shall not affect the
contractual rights of the Company without its consent".

71. Such a provision, the effect of which is to stabilize the position of the contracting party, does not, in principle,
impair the sovereignty of the Libyan State. Not only has the Libyan State freely undertaken commitments but also the
fact that this clause stabilizes the petroleum legislation and regulations as of the date of the execution of the agreement
does not affect in principle the legislative and regulatory sovereignty of Libya. Libya reserves all its prerogatives to
issue laws and regulations in the field of petroleum activities in respect of national or foreign persons with which it has
not undertaken such a commitment. Clause 16 only makes such acts invalid as far as contracting parties are
concerned--with respect to whom this commitment has been undertaken--during the period of applicability of the Deeds
of Concession. Any changes which may result from the adoption of new laws and regulations must, to affect the
contracting parties, be agreed to by them. This is so not because the sovereignty of Libya would be reduced, but simply
by reason of the fact that Libya has, through an exercise of its sovereignty, undertaken commitments under an
international agreement, which, for its duration, is the law common to the parties.

Thus, the recognition by international law of the right to nationalize is not sufficient ground to empower a State to
disregard [*25] its commitments, because the same law also recognizes the power of a State to commit itself
internationally, especially by accepting the inclusion of stabilization clauses in a contract entered into with a foreign
private party.

72. It does not seem to this Tribunal that one may invoke here the theory of administrative contracts for the purpose
of justifying nationalization measures. Without reverting in detail to this question, which has already been considered, it
suffices to note that this theory is not part of the principles common to Libyan law and international law which
constitute the law applicable to the Deeds of Concession. Even on the assumption that Libyan law applies the theory of
administrative contracts, which is of French origin and has inspired Egyptian administrative law which itself has
influenced Libyan law, this theory is not known in international law. In addition, one should also observe that in French
law, an oil concession is not regarded as having the status of a public service concession. It is precisely with respect to a
 Page 33
17 I.L.M. 1, *25

public service concession that the public authority has prerogatives which go beyond the ambit of ordinary law, which
enable the public authority to alter or abrogate unilaterally a given contract. Oil concessions, on the other hand, while
remaining in the nature of acts governed by public law, have a contractual character which is much more designed to
afford to operators who assume important economic risks guarantees of greater stability (see A. de Laubadere, 3 Traite
Elementaire de Droit Administratif (3d ed. 1963-1966), para. 1157, at 712).

Precisely, under these Deeds of Concession, Clause 16 which constitutes a stabilization clause leads to the
conclusion that the contracting parties did not wish to refer to the theory of administrative contracts.

Finally, nationalization is a measure which falls outside the public authority prerogatives recognized by the theory
of administrative contracts. On the one hand, nationalization measures cannot be regarded as the exercise of a power by
the State provided for by the contract; such measures appear as the implementation of an extra-contractual power,
whereas in French administrative law the possibility of the use by the public authority of its own prerogatives is
provided for, at least tacitly, by the contracting parties. One cannot hold the view that any international contract is
implicitly subject to a termination clause by way of nationalization, as this would deprive the stabilization clauses
contained therein of any effectiveness. On the other hand, one cannot assimilate the privileges of public authority falling
within the theory of administrative contracts with the considerably more extensive powers exercised by a State which
resorts to nationalization. Indeed, while the theory of administrative contracts recognizes that the State has the right, in
certain conditions and subject to certain limitations, to make some alterations or even to terminate unilaterally a given
contract, nonetheless such measures can affect only the contract and cannot in themselves include acts of expropriation
or confiscation affecting private property. For this reason, in French administrative law, which is considered here only
by virtue of the importance therein of the theory of administrative contracts, the law of nationalization is not to be
confused with the theory of administrative contracts which belongs to an autonomous category of the acts of a State.

73. Thus, in respect of the international law of contracts, a nationalization cannot prevail over an internationalized
contract, containing stabilization clauses, entered into between a State and a foreign private company. The situation
could be different only if one were to conclude that the exercise by a State of its right to nationalize places that State on
a level outside of and superior to the contract and also to the international legal order itself, and constitutes an "act of
government" ("acte de gouvernement") which is beyond the scope of any judicial redress or any criticism.

74. (b) if one accepts that the right to nationalize is exercised within the framework of international law, one must
also wonder whether this is not a mandatory rule of general international law (jus cogens):

(1) One can at the outset attempt to determine whether those conditions, which are usually considered as being
prescribed by international law as regards the validity in the form and in the substance of nationalizations, have been
observed by the Libyan Government. Plaintiffs contend in particular that the Government has failed to act within the
framework of general interest and charge that it was motivated by political considerations. The plaintiffs also contend
that the measures which affect them are vitiated by discrimination. Considering the conditions under which this
Tribunal was required, in view of the default of the defendant, to deliver its award and the resulting impossibility of
having an opposing statement as to the facts of the case, the Tribunal does not wish to rule on this question of fact. The
Tribunal therefore concludes that it must regard the Libyan Government as having acted in accordance with its own
sovereign appreciation of the national interest.

In such circumstances, this Tribunal will not reach a decision on the basis of motives but will consider the legal
validity of the acts of the Libyan Government within the framework of its own international commitments. In addition,
it seems difficult to examine here the discriminatory nature of the measures enacted against plaintiffs. While it seems
that such measures were of such a nature at the time when they were imposed, in fact analogous measures were taken in
respect of other companies, in successive stages, which is evidence that the measures taken against plaintiffs were part
of what may have been regarded as a policy of nationalization (cf. Retal, "La Libye Republicaine Face au Cartel
Petrolier", 13 Annuaire de l'Afrique du Nord 93 (1974), [*26] at 109 et. seq. and Talha, "Chronique Economique", id.
397, at 400-401).
 Page 34
17 I.L.M. 1, *26

75. Furthermore, it does not seem necessary to determine whether the nationalizations which have taken place with
respect to the plaintiffs were enacted in a regular form and, in particular, whether they were promulgated in the
legislative form. It can be noted that Law No. 66 of 1973 and Law No. 11 of 1974 are decisions by the Revolutionary
Command Council and that under Article 18 of the Libyan Constitution, promulgated on 11 December 1969, the latter
"is the supreme organ of the Libyan Arab Republic. It exercises all powers inherent in national sovereignty,
promulgates laws and issues decrees, and determines, in the name of the people, the general policy of the State and
makes all decisions which it deems necessary to safeguard the revolution and the Government." The formal regularity of
the measures enacted does not therefore seem questionable. But this observation, which would be undoubtedly valuable
if we were dealing with a contract originating exclusively in Libyan law, is not particularly of interest because this is a
contract entered into within the framework of the international legal order and containing stabilization clauses. It is,
indeed, a well-known principle that, with regard to international law, municipal law is a mere fact and that the act of a
State which is irregular internationally cannot be affected by its legal character under municipal law within which the
State acted. This classical principle of international law was confirmed again in the report submitted to the International
Law Commission of the United Nations in 1973 (Rep. Int'l L. Comm'n 1973, U.N. GAOR, Supp. 10, U.N. Doc
A/9010/Rev. 1 (1974), Art. 4, at 23). It is therefore by reference not to internal but to international law that the legal
validity of nationalization measures affecting an internationalized contract must be judged.

76. (2) However, analysis from this point of view of the conditions under which the right to nationalize is exercised
is of interest only if it is assumed that such right, being exercised within the framework of international law, would be
supervised by international bodies empowered to do so. Such supervision should be limited, if one regards the right to
nationalize as falling within the ambit of jus cogens, to establishing the submission to such control and, by the same
token, the judge or the international arbitrator should refuse to examine its validity. This seems to be the opinion of the
Libyan Government which, in its Memorandum addressed in July 1974 to the President of the International Court of
Justice, invoked permanent sovereignty over natural resources as a supreme principle justifying nationalization in every
case. Is this principle, which has continuously been affirmed in the United Nations, a standard of jus cogens?

77. It should be noted that an affirmative answer to this question would not be sufficient to provide justification in
favor of all nationalizations enacted on the basis of this principle. It could only be a justification in those cases where a
Government resorted to nationalization procedures in order to retract an effective alienation of its sovereignty to which
it or one of its predecessors had agreed. But this is not--or at least this is not necessarily--the significance of a petroleum
concession. Particularly when, as in the instant case, the State granting the concession has recognized in concession
holders only rights limited in their scope and duration. The notion of permanent sovereignty can be completely
reconciled with the conclusion by a State of agreements which leave to that State control of the activities of the other
contracting party. As regards the question of permanent sovereignty, a well-known distinction should be made as to
enjoyment and exercise. The State granting the concession retains the permanent enjoyment of its sovereign rights; it
cannot be deprived of the right in any way whatsoever; the contract which it entered into with a private company cannot
be viewed as an alienation of such sovereignty but as a limitation, partial and limited in time, of the exercise of
sovereignty. Accordingly, the State retains, within the areas which it has reserved, authority over the operations
conducted by the concession holder, and the continuance of the exercise of its sovereignty is manifested, for example,
by the various obligations imposed on its contracting party, which is in particular subjected to fiscal obligations that
express unquestionably the sovereignty of the contracting State.

78. To decide otherwise would be to consider as contrary to a rule of jus cogens any contract entered into between a
State and a foreign private company the moment it concerns the exploitation of natural resources. This would be to give
the concept of jus cogens a scope which the Vienna Convention on the law of treaties certainly did not intend to assign
to it. Assuming that the concept of jus cogens should be extended to agreements entered into between States and foreign
private companies, which seems acceptable, it is nevertheless true that this concept should not apply to any treaty or any
contract simply because such treaty or contract concerns the exploitation of natural resources; in each particular case,
verification should be made as to whether the act considered does in fact alienate the sovereignty of the State over such
resources. The moment the examination of the legal relationship established between the parties shows that the State
 Page 35
17 I.L.M. 1, *26

retains not only the enjoyment of its sovereignty, but also a significant part of its exercise, the conclusion should be that
the contractual act creating it within the international legal order is valid, because this was done by virtue of an act
which itself expresses the sovereignty of the State. Now, in the instant case, it appears that, in entering into concession
contracts with the plaintiffs, the Libyan State did not alienate but exercised its sovereignty and ensured that it would not
be affected in principle, the limitations accepted by it in respect of the exercise of certain of its prerogatives having been
accepted only in particular areas and for a specific period of time.

[*27] 79. Admittedly, one can note some tendencies to separate completely nationalization from international law,
tendencies which, if they were to be confirmed by positive law, would result in restricting to the framework of the
national law of the State all its relations with foreign private companies. This Tribunal is aware of these tendencies but
it cannot anticipate the legal situation in this respect. The International Court of Justice has found itself on two
occasions at least confronted by this desire to have it establish as a rule of law a principle regarded by some people as
desirable but not yet recognized or confirmed by positive law, whether written or not. In the South West Africa cases
(Judgment), the Court stated that "its duty is to apply the law as it finds it, not to make it" ([1966] I.C.J. 4, at 48).

In its judgment of 25 July 1974, in the Fisheries Jurisdiction case, the Court, on the occasion of the preparation of
the 3rd United Nations Conference on the Law of the Sea, stated:

"The Court is also aware ... of the various proposals and preparatory documents produced in this framework, which
must be regarded as manifestation of the views and opinions of individual States and as vehicles of their aspirations,
rather than as expressing principles of existing law... In the circumstances, the Court, as a Court of law, cannot render
judgment sub specie legis ferendae, or anticipate the law before the legislator has laid it down." ([1974] I.C.J. 3, at 23.)

This Tribunal, therefore, in the present state of international law, must adopt the same attitude in a field which is
also subjected to the pressure of tendencies which have not acquired the force of law.

Therefore, this Tribunal must recognize that neither the concept of sovereignty nor the nature of the nationalization
measures taken against the plaintiffs provides any legal justification for these measures.

C. The present state of international law and the resolutions concerning natural resources and wealth
adopted by the United Nations

80. This Tribunal has stated that it intends to rule on the basis of positive law, but now it is necessary to determine
precisely the content of positive law and to ascertain the place which resolutions by the General Assembly of the United
Nations could occupy therein.

In its Preliminary Award of 27 November 1975, this Tribunal postponed the examination of the objection raised by
the Libyan Government in its Memorandum of 26 July 1974 according to which:

"Nationalization is an act related to the sovereignty of the State. This fact has been recognized by the consecutive
Resolutions of the United Nations on the sovereignty of States over their natural resources, the last being Resolution
No. 3171 of the United Nations General Assembly adopted on December 13, 1973, as well as paragraph (4/E) of
Resolution No. 3201 (S. VI) adopted on 1 May, 1974. The said Resolutions confirm that every State maintains complete
right to exercise full sovereignty over its natural resources and recognize Nationalization as being a legitimate and
internationally recognized method to ensure the sovereignty of the State upon such resources. Nationalization, being
related to the sovereignty of the State, is not subject to foreign jurisdiction. Provisions of the International Law do not
permit a dispute with a State to be referred to any Jurisdiction other than its national Jurisdiction. In affirmance of this
principle, Resolutions of the General Assembly provide that any dispute related to Nationalization or its consequences
should be settled in accordance with provisions of domestic law of the State."

81. At the stage of the Preliminary Award, it was premature to go into these arguments, since they were related to
the merits of the case. Now, this Tribunal must examine the relevancy and the scope of these arguments to the instant
 Page 36
17 I.L.M. 1, *27

case.

The practice of the United Nations, referred to in the Libyan Government's Memorandum, does not contradict in
any way the status of international law as indicated above. This Tribunal wishes first to recall the relevant passages for
this case of Resolution 1803 (XVII) entitled "Permanent Sovereignty over Natural Resources", as adopted by the
General Assembly on 14 December 1962:

"3. In cases where authorization is granted, the capital imported and the earnings on that capital shall be governed
by the terms thereof, by the national legislation in force, and by international law...

4. Nationalization, expropriation or requisitioning shall be based on grounds or reasons of public utility, security or
the national interest which are recognized as overriding purely individual or private interests, both domestic and foreign.
In such cases the owner shall be paid appropriate compensation, in accordance with the rules in force in the State taking
such measures in the exercise of its sovereignty and in accordance with international law...."

82. The Memorandum of the Libyan Government which has just been quoted relies, however, on more recent
Resolutions of the General Assembly (3171 and 3201 (S-VI), in particular) which, according to this Government would
as a practical matter rule out any recourse to international law and would confer an exclusive and unlimited competence
upon the legislation and courts of the host country.

Although not quoted in the Libyan Memorandum, since subsequent to the date of 26 July 1974, Resolution 3281
(XXIX), proclaimed [*28] under the title "Charter of Economic Rights and Duties of the States" and adopted by the
General Assembly on 12 December 1974, should also be mentioned with the two Resolutions in support of the
contention made by the Libyan Government. Two portions of such Resolutions are of particular interest in the present
case:

--Resolution 3201 (S-VI) adopted by the General Assembly on 1 May 1974 under the title "Declaration on the
Establishment of a New International Economic Order", Article 4, paragraph (e):

"Full permanent sovereignty of every State over its natural resources and all economic activities. In order to
safeguard these resources, each State is entitled to exercise effective control over them and their exploitation with
means suitable to its own situation, including the right to nationalization or transfer of ownership to its nationals, this
right being an expression of the full permanent sovereignty of the State. No State may be subjected to economic,
political or any other type of coercion to prevent the free and full exercise of this inalienable right."

--Article 2 of Resolution 3281 (XXIX):

"1. Every State has and shall freely exercise full permanent sovereignty, including possession, use and disposal,
over all its wealth, natural resources and economic activities.

2. Each State has the right...

c) To nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation
should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all
circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a
controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely
and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality
of States and in accordance with the principal of free choice of means."

Substantial differences thus exist between Resolution 1803 (XVII) and the subsequent Resolutions as regards the
role of international law in the exercise of permanent sovereignty over natural resources. This aspect of the matter is
directly related to the instant case under consideration; this Tribunal is obligated to consider the legal validity of the
 Page 37
17 I.L.M. 1, *28

above-mentioned Resolutions and the possible existence of a custom resulting therefrom.

83. The general question of the legal validity of the Resolutions of the United Nations has been widely discussed by
the writers. This Tribunal will recall first that, under Article 10 of the U.N. Charter, the General Assembly only issues
"recommendations", which have long appeared to be texts having no binding force and carrying no obligations for the
Member States (see Sloan, "The Binding Force of a 'Recommendation' of the General Assembly of the United Nations",
25 Brit. Y.B. Int'l L. 1 et seq. (1948); Fitzmaurice, "The Law and Procedure of the International Court of Justice,
1951-4: Questions of Jurisdiction, Competence and Procedure", 34 Brit. Y.B. Int'l L. 1 et seq. (1958); Virally, "La
Valeur Juridique des Recommendations des Organisations Internationales", 2 Annuaire Francais de Droit International
("A.F.D.I.") 66 et seq. (1956); Vallat, "The Competence of the United Nations General Assembly", 97 R.C.A.D.I. 203
et seq. (1959); Galino, "Las Resoluciones de la Asemblea General de Las Naciones Unidas y su Fuerza Legal", Revista
Espanola de Derecho International 96 et seq. (1958); Johnson, "The Effect of Resolutions of the General Assembly of
the United Nations", 32 Brit. Y.B. Int'l L. 97 et seq. (1955)).

Refusal to recognize any legal validity of United Nations Resolutions must, however, be qualified according to the
various texts enacted by the United Nations. These are very different and have varying legal value, but it is impossible
to deny that the United Nations' activities have had a significant influence on the content of contemporary international
law. In appraising the legal validity of the above-mentioned Resolutions, this Tribunal will take account of the criteria
usually taken into consideration, i.e., the examination of voting conditions and the analysis of the provisions concerned.

84. (1) With respect to the first point, Resolution 1803 (XVII) of 14 December 1962 was passed by the General
Assembly by 87 votes to 2, with 12 abstentions. It is particularly important to note that the majority voted for this text,
including many States of the Third World, but also several Western developed countries with market economies,
including the most important one, the United States. The principles stated in this Resolution were therefore assented to
by a great many States representing not only all geographical areas but also all economic systems.

From this point of view, this Tribunal notes that the affirmative vote of several developed countries with a market
economy was made possible in particular by the inclusion in the Resolution of two references to international law, and
one passage relating to the importance of international cooperation for economic development. According to the
representative of Tunisia:

". . . the result of the debate on this question was that the balance of the original draft resolution was improved--a
balance between, on the one hand, the unequivocal affirmation of the inalienable right of States to exercise sovereignty
over their natural resources and, on the other hand, the reconciliation or adaptation of this sovereignty to international
[*29] law, equity and the principles of international cooperation." (17 U.N. GAOR 1122, U.N. Doc. A/PV. 1193
(1962).)

The reference to international law, in particular in the field of nationalization, was therefore an essential factor in the
support given by several Western countries to Resolution 1803 (XVII).

85. On the contrary, it appears to this Tribunal that the conditions under which Resolutions 3171 (XXVII), 3201
(S-VI) and 3281 (XXIX) (Charter of the Economic Rights and Duties of States) were notably different:

--Resolution 3171 (XXVII) was adopted by a recorded vote of 108 votes to 1, with 16 abstentions, but this Tribunal
notes that a separate vote was requested with respect to the paragraph in the operative part mentioned in the Libyan
Government's Memorandum whereby the General Assembly stated that the application of the principle according to
which nationalizations effected by States as the expression of their sovereignty implied that it is within the right of each
State to determine the amount of possible compensation and the means of their payment, and that any dispute which
might arise should be settled in conformity with the national law of each State instituting measures of this kind. As a
consequence of a roll-call, this paragraph was adopted by 86 votes to 11 (Federal Republic of Germany, Belgium,
Spain, United States, France, Israel, Italy, Japan, The Netherlands, Portugal, United Kingdom), with 28 abstentions
 Page 38
17 I.L.M. 1, *29

(South Africa, Australia, Austria, Barbados, Canada, Ivory Coast, Denmark, Finland, Ghana, Greece, Haiti, India,
Indonesia, Ireland, Luxembourg, Malawi, Malaysia, Nepal, Nicaragua, Norway, New Zealand, Philippines, Rwanda,
Singapore, Sri Lanka, Sweden, Thailand, Turkey).

This specific paragraph concerning nationalizations, disregarding the role of international law, not only was not
consented to by the most important Western countries, but caused a number of the developing countries to abstain.

--Resolution 3201 (S-VI) was adopted without a vote by the General Assembly, but the statements made by 38
delegates showed clearly and explicitly what was the position of each main group of countries. The Tribunal should
therefore note that the most important Western countries were opposed to abandoning the compromise solution
contained in Resolution 1803 (XVII).

--The conditions under which Resolution 3281 (XXIX), proclaiming the Charter of Economic Rights and Duties of
States, was adopted also show unambiguously that there was no general consensus of the States with respect to the most
important provisions and in particular those concerning nationalization. Having been the subject matter of a roll-call
vote, the Charter was adopted by 118 votes to 6, with 10 abstentions. The analysis of votes on specific sections of the
Charter is most significant insofar as the present case is concerned. From this point of view, paragraph 2 (c) of Article 2
of the Charter, which limits consideration of the characteristics of compensation to the State and does not refer to
international law, was voted by 104 to 16, with 6 abstentions, all of the industrialized countries with market economies
having abstained or having voted against it.

86. Taking into account the various circumstances of the votes with respect to these Resolutions, this Tribunal must
specify the legal scope of the provisions of each of these Resolutions for the instant case.

A first general indication of the intent of the drafters of the Charter of Economic Rights and Duties of States is
afforded by the discussions which took place within the Working Group concerning the mandatory force of the future
text. As early as the first session of the Working Group, differences of opinion as to the nature of the Charter envisaged
gave rise to a very clear division between developed and developing countries. Thus, representatives of Iraq, Sri Lanka,
Egypt, Kenya, Morocco, Nigeria, Zaire, Brazil, Chile, Guatemala, Jamaica, Mexico, Peru and Rumania held the view
that the draft Charter should be a legal instrument of a binding nature and not merely a declaration of intention.

On the contrary, representatives of developed countries, such as Australia, France, Federal Republic of Germany,
Italy, Japan, United Kingdom and United States expressed doubt that it was advisable, possible or even realistic to make
the rights and duties set forth in a draft Charter binding upon States (Report of the Working Party on its 1st Session,
U.N. Doc. TD/B/AC. 12/1 (1973), at 6).

The form of resolution adopted did not provide for the binding application of the text to those to which it applied,
but the problem of the legal validity to be attached to the Charter is not thereby solved. In fact, while it is now possible
to recognize that resolutions of the United Nations have a certain legal value, this legal value differs considerably,
depending on the type of resolution and the conditions attached to its adoption and its provisions. Even under the
assumption that they are resolutions of a declaratory nature, which is the case of the Charter of Economic Rights and
Duties of States, the legal value is variable. Ambassador Castaneda, who was Chairman of the Working Group entrusted
with the task of preparing this Charter, admitted that "it is extremely difficult to determine with certainty the legal force
of declaratory resolutions", that it is "impossible to lay down a general rule in this respect", and that "the legal value of
the declaratory resolutions therefore includes an immense gamut of nuances" ("La Valeur Juridique des Resolutions des
Nations Unies", 129 R.C.A.D.I. 204 (1970), at 319-320).

[*30] As this Tribunal has already indicated, the legal value of the resolutions which are relevant to the present
case can be determined on the basis of circumstances under which they were adopted and by analysis of the principles
which they state:

--With respect to the first point, the absence of any binding force of the resolutions of the General Assembly of the
 Page 39
17 I.L.M. 1, *30

United Nations implies that such resolutions must be accepted by the members of the United Nations in order to be
legally binding. In this respect, the Tribunal notes that only Resolution 1803 (XVII) of 14 December 1962 was
supported by a majority of Member States representing all of the various groups. By contrast, the other Resolutions
mentioned above, and in particular those referred to in the Libyan Memorandum, were supported by a majority of States
but not by any of the developed countries with market economies which carry on the largest part of international trade.

87. (2) With respect to the second point, to wit the appraisal of the legal value on the basis of the principles stated,
it appears essential to this Tribunal to distinguish between those provisions stating the existence of a right on which the
generality of the States has expressed agreement and those provisions introducing new principles which were rejected
by certain representative groups of States and having nothing more than a de lege ferenda value only in the eyes of the
States which have adopted them; as far as the others are concerned, the rejection of these same principles implies that
they consider them as being contra legem. With respect to the former, which proclaim rules recognized by the
community of nations, they do not create a custom but confirm one by formulating it and specifying its scope, thereby
making it possible to determine whether or not one is confronted with a legal rule. As has been noted by Ambassador
Castaneda, "[such resolutions] do not create the law; they have a declaratory nature of noting what does exist" (129
R.C.A.D.I. 204 (1970), at 315).

On the basis of the circumstances of adoption mentioned above and by expressing an opinio juris communis,
Resolution 1803 (XVII) seems to this Tribunal to reflect the state of customary law existing in this field. Indeed, on the
occasion of the vote on a resolution finding the existence of a customary rule, the States concerned clearly express their
views. The consensus by a majority of States belonging to the various representative groups indicates without the
slightest doubt universal recognition of the rules therein incorporated, i.e., with respect to nationalization and
compensation the use of the rules in force in the nationalizing State, but all this in conformity with international law.

88. While Resolution 1803 (XVII) appears to a large extent as the expression of a real general will, this is not at all
the case with respect to the other Resolutions mentioned above, which has been demonstrated previously by analysis of
the circumstances of adoption. In particular, as regards the Charter of Economic Rights and Duties of States, several
factors contribute to denying legal value to those provisions of the document which are of interest in the instant case.

--In the first place, Article 2 of this Charter must be analyzed as a political rather than as a legal declaration
concerned with the ideological strategy of development and, as such, supported only by non-industrialized States.

--In the second place, this Tribunal notes that in the draft submitted by the Group of 77 to the Second Commission
(U.N. Doc A/C.2/L. 1386 (1974), at 2), the General Assembly was invited to adopt the Charter "as a first measure of
codification and progressive development" within the field of the international law of development. However, because
of the opposition of several States, this description was deleted from the text submitted to the vote of the Assembly.
This important modification led Professor Virally to declare:

"It is therefore clear that the Charter is not a first step to codification and progressive development of international
law, within the meaning of Article 13, para. 1 (a) of the Charter of the United Nations, that is to say an instrument
purporting to formulate in writing the rules of customary law and intended to better adjust its content to the
requirements of international relations. The persisting difference of opinions in respect to some of its articles prevented
reaching this goal and it is healthy that people have become aware of this." ("La Charte des Droits et Devoirs
Economiques des Etats. Notes de Lecture", 20 A.F.D.I. 57 (1974), at 59.)

The absence of any connection between the procedure of compensation and international law and the subjection of
this procedure solely to municipal law cannot be regarded by this Tribunal except as a de lege ferenda formulation,
which even appears contra legem in the eyes of many developed countries. Similarly, several developing countries,
although having voted favorably on the Charter of Economic Rights and Duties of States as a whole, in explaining their
votes regretted the absence of any reference to international law.
 Page 40
17 I.L.M. 1, *30

89. Such an attitude is further reinforced by an examination of the general practice of relations between States with
respect to investments. This practice is in conformity, not with the provisions of Article 2 (c) of the above-mentioned
Charter conferring exclusive jurisdiction on domestic legislation and courts, but with the exception stated at the end of
this paragraph. Thus a great many investment agreements entered into between industrial States or their nationals, on
the one hand, and developing countries, on the other, state, in an objective way, the standards of compensation and
further provide, in [*31] case of dispute regarding the level of such compensation, the possibility of resorting to an
international tribunal. In this respect, it is particularly significant in the eyes of this Tribunal that no fewer than 65
States, as of 31 October 1974, had ratified the Convention on the Settlement of Investment Disputes between States and
Nationals of other States, dated March 18, 1965.

90. The argument of the Libyan Government, based on the relevant resolutions enacted by the General Assembly of
the United Nations, that any dispute relating to nationalization or its consequences should be decided in conformity with
the provisions of the municipal law of the nationalizing State and only in its courts, is also negated by a complete
analysis of the whole text of the Charter of Economic Rights and Duties of States.

From this point of view, even though Article 2 of the Charter does not explicitly refer to international law, this
Tribunal concludes that the provisions referred to in this Article do not escape all norms of international law. Article 33,
paragraph 2, of this Resolution states as follows: "2. In their interpretation and application, the provisions of the present
Charter are interrelated and each provision should be construed in the context of the other provisions". Now, among the
fundamental elements of international economic relations quoted in the Charter, principle (j) is headed as follows:
"Fulfillment in good faith of international obligations".

Analyzing the scope of these various provisions, Ambassador Castaneda, who chaired the Working Group charged
with drawing up the Charter of Economic Rights and Duties of States, formally stated that the principle of performance
in good faith of international obligations laid down in Chapter I(j) of the Charter applies to all matters governed by it,
including, in particular, matters referred to in Article 2. Following his analysis, this particularly competent and eminent
scholar concluded as follows:

"The Charter accepts that international law may operate as a factor limiting the freedom of the State should foreign
interests be affected, even though Article 2 does not state this explicitly. This stems legally from the provisions included
in other Articles of the Charter which should be interpreted and applied jointly with those of Article 2." ("La Charte des
Droits et Devoirs Economiques des Etats. Note sur son Processus d'Elaboration", 20 A.F.D.I. 31 (1974), at 54.)

91. Therefore, one should note that the principle of good faith, which had already been mentioned in Resolution
1803 (XVII), has an important place even in Resolution 3281 (XXIX) called "The Charter of Economic Rights and
Duties of States". One should conclude that a sovereign State which nationalizes cannot disregard the commitments
undertaken by the contracting State: to decide otherwise would in fact recognize that all contractual commitments
undertaken by a State have been undertaken under a purely permissive condition on its part and are therefore lacking of
any legal force and any binding effect. From the point of view of its advisability, such a solution would gravely harm
the credibility of States since it would mean that contracts signed by them did not bind them; it would introduce in such
contracts a fundamental imbalance because in these contracts only one party--the party contracting with the
State--would be bound. In law, such an outcome would go directly against the most elementary principle of good faith
and for this reason it cannot be accepted.

Section III: Is the Libyan Government required to perform and give full effect to the Deeds of Concession?

92. It being admitted, as has previously been established, that the defendant Government, by adopting the
nationalization measures promulgated in 1973 and 1974, has failed to perform its obligations under the Deeds of
Concession entered into with plaintiffs, the question submitted by the plaintiffs leads this Tribunal to consider whether
or not the defendant is under the obligation to perform such contracts and to give them full effect. The question is
whether, having disregarded its obligations, the Libyan Government should be held to restitutio in integrum or restitutio
 Page 41
17 I.L.M. 1, *31

in pristinum.

This question will be examined by applying the principles of Libyan law and international law and taking into
account the specific factors of this case.

A. The principles of Libyan law with respect to restitutio in integrum

There is no doubt that the principles of Libyan law permit one to conclude, and even force one to conclude, that
restitutio in integrum is the appropriate remedy in favor of one contracting party when the other party has breached its
obligations.

93. (a) If one refers to the sacred law of Islam (Sharia), it appears that the sacred law confirms the principle of
specific performance: this is the conclusion of the writings of specialists on Muslim law, in particular Professor Chafik
Chehata (Theorie Generale de l'Obligation en Droit Musulman Hanefite, 1969) and Professor Sobhi Mahmassani (The
General Theory of Obligations and Contracts in Islamic Law; A Comparative Study of the Teaching of the Various
Schools of Islamic Law and of Modern Systems of Law, in Arabic, 1948). Professor Mahmassani writes specifically:

"We know that one of the principles of Islamic law is that rights should revert in kind whenever there is a way to do
this. We also know that as a consequence of this principle, obligations must be specifically performed so long as this is
possible. Hence, performance through a substitute [*32] is not acceptable except when specific performance is
impossible...." (Id., vol. 2, at 251-252).

94. b) If one considers the written law, that is the Libyan Civil Code (and the Egyptian Civil Code from which it is
derived), the confirmation of the principle of restitutio in integrum is just as certain. This results from Articles 206
(corresponding to Article 203 of the Egyptian Civil Code) and 215 through 218 of the Libyan Civil Code. Under Article
206, paragraph 1, in particular:

"A debtor shall be compelled, upon being summoned to do so in accordance with Articles 222 and 233, specifically
to perform his obligations, if such performance is possible."

The other above-mentioned provisions are derived from this principle and show that damages are a substitute for
specific performance, being ancillary to it since they are granted "only when specific performance ... is impossible"
(Article 218 mentioned above). The meaning of these provisions is unquestionable. It is therefore superfluous that the
Tribunal will recall here the comment on the Egyptian Civil Code made by the Code's Drafting Committee, according to
which: "If the wronged party chooses specific performance of the contract and asks for it, and if such specific
performance can be accomplished, the judge has to grant his request." (quoted by A.R. Sanhouri, in 1 Al-Wasit (The
Theory of Obligations) (2d ed. 1964), para. 466, at 787 (in Arabic).) It follows from the above texts and the related
commentaries, that, in Libyan law, specific performance is the primary and normal sanction for breach of contract.

95. (c) In truth, only one obstacle could, possibly, have prevented the application in Libyan law of the principle of
restitutio in integrum: this would be the case if the contracts in dispute were administrative contracts, by reason of the
possibility of unilateral action which this type of contract provides for the contracting State or public authority. But, as
this Tribunal has already stated, such objection could not even be considered, for the two fundamental reasons
previously mentioned (see supra, paras. 55-57, pp. 42-47).

96. The answer therefore should be yes to the question raised and it must be concluded that, by application of the
principles of Libyan law, breach of a contract by a party thereto justifies the judgment of restitutio in integrum against
that party.

B. The principles of international law with respect to restitutio in integrum

The principles of international law relating to restitutio in integrum should be determined by reference to:
 Page 42
17 I.L.M. 1, *32

--international case law and practice, and to

--writings of scholars.

97. (a) International case law and practice

This Tribunal should, first and foremost, recall the often cited principle laid down by the Permanent Court of
International Justice in one of its judgments delivered in the Chorzow Factory case ([1928] P.C.I.J., Ser. A, No. 17, p.
47):

"The essential principle contained in the actual notion of an illegal act--a principle which seems to be established
by international practice and in particular by the decisions of arbitral tribunals--is that reparation must, as far as
possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability,
have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum
corresponding to the value which a restitution in kind would bear ...."

98. It could be claimed that, in the case where the above-mentioned principle was laid down, the principle had only
the value of an obiter dictum and not of a true ratio decidendi since restitution in kind was not formally requested and
the impossibility of restitution in kind had been established by agreement between the parties. But the fact remains that
the principle was expressed in such general terms that it is difficult not to view it as a principle of reasoning having the
value of a precedent: the very numerous quotations of this part of the opinion in doctrinal writings confirm, if this were
necessary, that all authors see in it a declaration of principle. Moreover, one could mention here the explanation given
by Sir Gerald Fitzmaurice as a preliminary to his individual opinion given in relation to the judgment delivered by the
International Court of Justice in the Barcelona Traction case (¢1970! I.C.J. 3, at 65):

"Although these comments can only be in the nature of 'obiter dicta', and cannot have the authority of a judgment,
yet since specific legislative action with direct binding effect is not at present possible in the international legal field,
judicial pronouncements of one kind or another constitute the principal method by which the law can find some
concrete measure of clarification and development...."

While such observations may justifiably apply to individual opinions issued on the occasion of a judgment, they
lead us a fortiori to consider the fundamental grounds of a judgment stated in terms of principle, as an essential means
"to clarify and develop law", especially if one recalls that these observations were expressed in the light of the opinion
by Sir Hersch Lauterpacht, stating that "compelling considerations of international justice and of development of
international law which favour a full measure of exhaustiveness of judicial pronouncements [*33] of international
tribunals" (II. Lauterpacht, The Development of International Law by the International Court (1958), at 37, quoted by
Judge Jessup in his individual opinion in the Barcelona Traction case, [1970] I.C.J. 3, at 162; see also the reference
made by Sir Gerald Fitzmaurice in this opinion, Barcelona Traction case, id., at 65 note 1).

99. Other judgments by the Permanent Court of International Justice involved the application of the principle of
restitutio in integrum: this was the case in the judgment in the case of the Mavrommatis Jerusalem Concessions, where
the Permanent Court of International Justice decided that

". . . the concessions granted to M. Mavrommatis ... are valid:

that and the existence, for a certain space of time, of a right on the part of M. Rutenberg to require the annulment of
the aforesaid concessions of M. Mavrommatis was not in conformity with the international obligations accepted by the
Mandatory for Palestine". ([1925] P.C.I.J., Ser. A, No. 5, at 51.)

The principle of restitutio in integrum was applied again by the International Court of Justice, in the judgment
relating to the Temple of Preha-Vihear case: the Court in fact ordered restitution to Cambodia of all the objects
(sculptures, steles, fragments of monuments, ancient potteries, etc.) removed from the temple and its surroundings by
 Page 43
17 I.L.M. 1, *33

the Thai Authorities from the time when they first occupied this site in 1954 ([1962] I.C.J. 6, at 36-37); similarly, the
Central American Court of Justice, in a judgment relating to a claim by Nicaragua against San Salvador, stated:

". . . that the Government of Nicaragua is under the obligation--availing itself of all possible means provided by
international law--to reestablish and maintain the legal status that existed prior to the Bryan-Chamorro Treaty ...." (11
Amer. J. Int'l L. 674 (1917), at 730.)

100. Instances of restitutio in integrum are also to be found in arbitration case law: this is true of the Martini case
(25 Amer. J. Int'l L. 554 (1931), at 585) where the arbitral tribunal ruled that the obligations imposed on Maison Martini
& Cie., by a judicial decision of a striking injustice, "must be annulled under the heading of reparation", the award
stating that "in pronouncing their annulment, the Arbitral Tribunal emphasizes that an illegal act has been committed
and applies the principle that the consequences of the illegal act must be effaced". There can be no doubt that, in the
mind of the authors of that award, there exists a principle whereby, when an unlawful act has been performed, the first
remedy to be envisaged is the restoration of the situation in conformity with law by the annulment of the unlawful act
itself. It does not matter that the unlawful act has not in fact been performed, which was the situation in the Martini
case.

101. Also evidencing the state of international practice in this field are the requests formulated in the course of
proceedings before the International Court of Justice, even though for one reason or another (lack of competence or lack
of standing (jus standi) on the part of the claimant) this High Jurisdiction did not have the occasion to decide on the
merits. This was particularly true in the Anglo-Iranian and Barcelona Traction cases:

--in the first case (Anglo-Iranian Oil Co. case, [1952] I.C.J. Pleadings 124), the request by the Government of the
United Kingdom was stated in the following terms:

"The Government of the United Kingdom accordingly submits:

A. That it is entitled to a declaration and judgment that

(1) The putting into effect of the Iranian Oil Nationalization Act of 1st May 1951, inasmuch as it purports to effect
a unilateral annulment, or alteration of the terms, of the Convention concluded on 29th April 1933 between the Imperial
Government of Persia and Anglo-Persian Oil Company Limited, is an act contrary to international law; ... and

(2) (a) The Imperial Government of Iran is bound, within a period to be fixed by the Court, to restore the
Anglo-Iranian Oil Company Limited, to the position as it existed prior to the said Oil Nationalization Act and to abide
by the provisions of the aforesaid Convention, including the obligations of Article 22 thereof, providing for the
arbitration of any differences of any nature whatever between the Imperial Government of Iran and the Anglo-Iranian
Oil Company, Limited...."

--in the second case (Memorial of the Belgian Government, 1 Case Concerning the Barcelona Light & Power Co.
Ltd., [1962] I.C.J. Pleadings 1 (New Application), at 183), the Belgian Government concluded that its opponent "was
bound, in principle and in the first instance, to wipe out the consequences of the unlawful activities of its Authorities (by
restoring the status quo ante 'restitutio in integrum')".

It is remarkable that in these two cases restitutio in integrum was what was requested in the first instance: if this
was the case, it is precisely because the plaintiffs were convinced that this was the solution accepted and confirmed by
general international law. That, in a fair number of awards [*34] and judgments (for instance in the Delagoa Bay,
Chemins de Fer de Palestine, Lena Goldfields, Losinger & Cie., or Sapphire cases), only the award of damages was
envisaged or adjudicated does not detract from the overriding nature of restitutio in integrum: if, in such cases, restitutio
in integrum was not awarded and did not have to be, the reason is that it had not, in view of the circumstances, been
requested by the plaintiffs.
 Page 44
17 I.L.M. 1, *34

(b) Writings of scholars in international law

As regards writings of scholars in international law relating to restitutio in integrum, two series of observations
should be made:

102. (1) The highest doctrinal authorities favor restitutio in integrum and make it the basis of reparation, thus giving
to it primacy among the various forms of reparation. One may quote here:

--Lauterpacht, for whom "the rule [is] that in international law, as in private law, restitutio in integrum is regarded
as the object of redress". (Private Law Sources and Analogies in International Law (1927), at 149);

--Reitzer, quoted at length in the Jessup Opinion (pp. 31-34), draws attention, in recalling the Martini award, to the
idea that "restitution may consist in the annulment of the judgment of a national tribunal delivered in contradiction with
international law." (La Reparation comme Consequence de l'Acte Illicite en Droit International (1938), at 173);

--similarly, Professor G. Schwarzenberger mentions "the principle accepted by international law of 'restitutio in
integrum'". (1 International Law as Applied by International Courts and Tribunals (1945), at 233);

--also, President of the International Court of Justice, E. Jimenez de Arechaga, writes (in Manual of Public
International Law 531 (M. Sorenson ed. 1968), at 564 et seq.) that "the word 'reparation' is the generic term which
describes the various methods available to a state for discharging or releasing itself from" its responsibility, and after
quoting the classical judgment in the Chorzow Factory case mentioned above, he specifies that "the nature of reparation
may consist therefore, in restitution, indemnity or satisfaction". Among all possible remedies, restitutio in integrum is
therefore the fundamental remedy because it expresses the basic principle. Regarding restitutio in integrum, the same
author adds that it "is designed to re-establish the situation which would have existed if the wrongful act or omission
had not taken place, by performance of the obligation which the state failed to discharge" and the examples given are
the rescission of an unlawful act and the abstention, in the future, from wrongful behavior on the part of the State which
performed the unlawful act. As to the possible award of damages, it appears as a secondary or derivative remedy, of a
subsidiary character in relation to restitutio in integrum which leads President Jimenez de Arechaga to state:

"The fact that indemnity presupposes, as the PCIJ stated, the 'payment of a sum corresponding to the value which a
restitution in kind would bear' has important effects on its extent. As a consequence of the depreciation of currencies
and of delays involved in the administration of justice, the value of a confiscated property may be higher the time of the
judicial decision than at the time of the unlawful act. Since monetary compensation must, as far as possible, resemble
restitution, the value at the date when the indemnity is paid must be the criterion". (Id. at 567.)

It would be difficult to find a more categorical statement on the primacy of restitutio in integrum;

--As for Charles de Visscher ("Le Deni de Justice en Droit International", 52 R.C.A.D.I. 362 (1935), at 436 et seq.),
the primacy of restitutio in integrum is also beyond any doubt:

"Direct reparation . . . should normally be in the form of restitutio in integrum, in the restoration of the state of
affairs which would have existed if the unlawful act had not been committed. This restitution in kind must in fact be
made whenever it is physically possible and authorized by international law."

And that great scholar, after recalling that

"one finds in international practice examples of this direct sanction . . . [having] sometimes been ordered by
arbitrators to correct a denial of justice independently of the agreement [between the parties] and by application of
general principles of law"

concludes that it is only

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17 I.L.M. 1, *34

"where restitution in kind is not possible that the award of damages will most often afford adequate reparation";

--Professor Tenekides, for his part, affirms ("Responsabilite Internationale", in 2 Encyclopedie Juridique Dalloz
(1969), at 790) that

"It is a general principle of law, recognized by civilized nations, that any violation of a right imposes, first of all, on
the responsible party the obligation to establish the status quo ante."

And the author mentions among cases of application of this principle

"the repeal of a law promulgated in violation of a rule of international law";

--Professor P. Guggenheim also is of the opinion that

[*35] "One of the first applicable principles is that of restitutio in integrum of the restoration of the original
situation. Reparation thus has the effect of annulling the norm contrary to law ...." (2 Traite de Droit International Public
(1954), at 68-69.)

And the primacy of restitutio in integrum thus unanimously recognized is justified by the fundamental reason that it is
in principle

"the most perfect performance possible of the original obligation" (Reuter, "Principes de Droit International
Public", 103 R.C.A.D.I. 425 (1961), at 595).

--The only partially dissenting opinion comes from the German Jurist H.W. Baade who, in an article ("Indonesian
Nationalization Measures before Foreign Courts--A Reply", 54 Amer. J. Int'l L. 801 (1960)) has attempted to
demonstrate the primacy of the remedy of damages as compared with restitutio in integrum, in order to assure the
reparation of injuries in international law: his opinion has remained isolated and, further, it is quite questionable as
shown by Professor Jessup (Jessup Opinion, at pp. 35-40). In fact, the position adopted by Prof. Baade on the ground of
principle seems to have been influenced by a consideration of a different kind: the application which in practice is
effectively made of restitutio in integrum in international case law and practice. It is now this second point of view that
the Tribunal must consider.

103. (2) While the authors are unanimous, except one, in recognizing that restitutio in integrum expresses, in
international law, as a matter of principle the proper remedy to repair injuries by an unlawful act, there are in fact many
of them who declare that in practice restitutio in integrum would only be ordered in or be suitable to exceptional cases.

A summary of the view generally accepted on this point is given by Professor Fatouros (Government Guarantees to
Foreign Investors (1962), at 310-311) in the following terms:

"It has been widely held in the theory of international law that 'restitutio in integrum' or, in common law
terminology, 'specific performance', is the principle mode of reparation of a material wrong, pecuniary compensation
being subsidiary in character, applicable only when 'restitutio' is not possible or not claimed. On the other hand, it is
generally admitted that in practice 'restitutio' is possible only in exceptional cases and that in the overwhelming majority
of cases the responsibility of the State is discharged by the payment of pecuniary compensation. The latter view is
supported by the case law of international tribunals as well as by the prevailing diplomatic practice. In fact, it is only in
exceptional cases that reparation is made through 'restitutio', especially whenever compensation is manifestly
insufficient as a remedy".

In this statement, Professor Fatouros does seem to state a commonly accepted opinion according to which

"in diplomatic and judicial practice it is ... infrequent to find cases where the arrangement on the content of the
reparation leads to 'restitutio in integrum'. In most cases, the victim of the unlawful act must be content either with
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17 I.L.M. 1, *35

damages or satisfaction of another kind". (Guggenheim, "La Validite et la Nullite des Actes Juridiques Internationaux",
74 R.C.A.D.I. 191 (1949), at 239 note 2.)

In fact, reparation in the form of a pecuniary compensation would in practice be much more widely used than restitutio
in integrum.

104. Although it is neither possible nor useful to establish precise statistics on this point, there is no doubt that there
are many more cases where pecuniary compensation was granted rather than restitutio in integrum (on the reasons why
this is so, see M.B. Alvarez de Eulate, "La 'Restitutio in Integrum' en la Practica y en la Jurisprudencia Internacionales",
Temis: Revista de Ciencia y Tecnica Juridica 11 (Nos. 29-32, 1971-1972), at 16-19). But this statement in turn calls for
two remarks:

105. In the first place, even authors who take the position that restitutio in integrum should only be used in unusual
situations nevertheless agree that restitutio in integrum is a remedy which is recognized and accepted by international
law. Even more important, restitutio in integrum being in spite of everything the basic principle, it is this principle
which (in conformity with the rule laid down by the Permanent Court of International Justice in the Chorzow Factory
case according to which there should be restitution in kind or, if that is not possible, "payment of a sum corresponding
to the value which a restitution in kind would bear . . .") will serve as the reference for calculating the amount of a
possible pecuniary indemnity, as noted by Professor Jimenez de Arechaga (supra para. 102).

106. In the second place, the exceptional character which is often assigned to restitutio in integrum is questionable
and has in fact been questioned: that reparation, through pecuniary compensation is much more frequent, in practice is
also something which is incontestable. But this does not mean that restitutio in integrum would be so extraordinary or
exceptional as to be practically unknown in international law.

108. * This is the result of a recent study by a Spanish lawyer (M.B. Alvarez de Eulate, "La 'Restitutio in Integrum'
en la Practica y en la Jurisprudencia Internationales", Temis: Revista de Cienca y Tecnica Juridica 11 (Nos. 29-32,
1971-1972), at 19-20) the author states that one can [*36] "... identify and study several scores of cases in diplomatic
practice and in international arbitration and judicial cases where restitutio in integrum was used as the sole remedy or as
a basic element of reparation. This stands in contrast with the statements of the writers who traditionally accept only a
very limited and quasi symbolical number of cases of restitutio in integrum. In fact one finds a fair number of cases of
restitutio in integrum and those cases have a fairly varied content: restitution of persons, vessels, documents, monies,
rights and properties of various types, cancellation of measures taken, etc. . . . It is therefore inaccurate to say that
restitutio in integrum would be a form of reparation practically unknown in international law; it should only be
admitted--and this is quite a different thing--that reparation was made by equivalence in many more cases."

* The French text does not contain a paragraph 107.

And the author goes on to review six cases concerning restitution of persons, four cases of restitution of ships, two cases
of restitution of documents, twelve cases of restitution of monies, twelve cases of restitution of various rights or
properties (it is in that part of the study that there is a statement on the measures taken or ordered in the Mavrommatis
Concession in Palestine and the Temple of Preha-Vihear cases) and a fairly high number of examples of annulment of
measures taken by various authorities (such as measures of expulsion, segregation or imprisonment) which permits Mr.
Alvarez de Eulate to conclude that

"... it can be contended that the theoretical statement that restitutio in integrum or restitutio in pristinum constitutes,
in principle, international reparation has been confirmed by a considerable number of precedents in which this form of
reparation, whether voluntarily offered or ordered by an international body, has been effectively adopted in diplomatic
practice and international case law." (Id. at 31.)

109. Thus, for the general reasons mentioned above, this Tribunal must hold that restitutio in integrum is, both
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17 I.L.M. 1, *36

under the principles of Libyan law and under the principles of international law, the normal sanction for
non-performance of contractual obligations and that it is inapplicable only to the extent that restoration of the status quo
ante is impossible. To these general grounds should be added other grounds, which are specific to the present case.

C. The particular characteristics of this case

110. Beyond the fact that restitutio in integrum was formally claimed by the concessionaires, which obliges this
Tribunal to decide this point, there are specific reasons derived from the language of the Deeds of Concession in
dispute, which support this remedy in the instant case.

In fact, Clause 28(5) of the Deeds of Concession provides that

"In giving a decision, the Arbitrators, the Umpire or the Sole Arbitrator, as the case may be, shall specify an
adequate period of time during which the party to the difference or the dispute against whom the decision is given shall
conform to the decisions, and such party shall not be in default if that party has conformed to the decision prior to the
expiry of the period."

111. This is the stipulation of a true period of grace the result of which is to postpone the moment when, in law,
non-performance would be finally effective. In other words, as long as the time limit, which the Tribunal will have to
fix, has not expired, breach or disregard of its obligations by the defendant will be a mere fact and cannot produce
anything except factual consequences: in law--and this is the only point that the Tribunal has to consider because it is
called upon to rule in law--the situation is stabilized.

Such a stipulation, which is evidently intended to establish an ultimate time limit before, once again, the breach is
legally consummated, implies that any possible award of damages should necessarily be subsidiary to the principal
remedy of performance itself. In this, the provision is in complete conformity with the principles of international law
which require--even though it may not be the most often ordered--that restitutio in integrum remain the rule of principle.
This is, for this Tribunal. an additional ground to order restitutio in integrum as claimed by plaintiffs.

This Tribunal will add further that, de lege ferenda, substantial efforts have been made by the writers which tend to
give a certain flexibility to the contracts concluded between States and private persons. In the instant case, the
application of the solution chosen by the parties agrees fully with this necessary flexibility because it leaves open to the
defaulting party a final choice between two possibilities: principally, restitution of the previously existing state, which it
can choose as long as the time limit fixed has not expired, and, subsidiarily, the prospect of a judgment for damages
which would eventually be the monetary equivalent of specific performance, if non-performance were to become final.

112. In so doing, the Tribunal does not lose sight of the consideration that the solution in principle which is
constituted by restitutio in integrum should be discarded when there is absolute impossibility of envisaging specific
performance, or when an irreversible situation has been created. This does not seem, at least until further information is
available, to be the case here: so far as this Tribunal can determine, the performance of its obligations by the defendant
seems to depend on the defendant itself and it should, in all likelihood, be possible [*37] for the Libyan Government to
take the necessary measures to restore the situation as postulated by the application of legal principles. If, for reasons
which would not have been brought to its knowledge, a situation irreversible and beyond the will of the parties has been
created, this Tribunal can only regret that this has not been brought to its knowledge. The Tribunal must note that only
the defendant could have been in a position to bring forward information tending to establish that there was an absolute
impossibility, beyond its control, that eliminated the possibility of restoring things to the previous state, and the
Tribunal can only regret, once again, the default in which the defendant seems to have thought it necessary to take
shelter.

Such are the grounds, both generally and in particular, on the basis of which this Tribunal invites the Libyan
Government to perform specifically its own obligations.
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17 I.L.M. 1, *37

SECTION IV. Should the Libyan Government have a time limit, and if so of what duration, in order to
make known to the Arbitral Tribunal the measures which it has adopted to comply with and carry out the
award?

113. This question originates in Clause 28(5) of the Deeds of Concession, whereby:

"In giving a decision the Arbitrators, the Umpire or the Sole Arbitrator, as the case may be, shall specify an
adequate period of time during which the party to the difference or dispute against whom the decision is given shall
conform to the decision, and such party shall not be in default if that party has conformed to the decision prior to the
expiry of that period."

It is pursuant to this provision that the plaintiffs have requested that the Arbitral Tribunal state and judge:

"that Defendant has ninety (90) days after the award, being from the time of the declaration of the award or from
the date fixed by the Sole Arbitrator, to inform the Arbitral Tribunal of the measures which it has taken in order to
comply with and execute the award".

114. This Tribunal must accept the principle of this request so long as it is in conformity with the provisions of the
arbitration clause by virtue of which this Tribunal has been seized. But this Tribunal also intends to use the power of
judgment conferred upon it by these very same provisions and this Tribunal holds the view that it is necessary:

--on the one hand and taking account of the seriousness of the case, on account of both the interests and the
principles at stake, to grant to the defendant a time limit notably longer than the time limit requested by the plaintiffs;

--on the other hand, and for reasons of convenience, to fix this time limit not in terms of days, as requested, but in
terms of months.

A time limit of five (5) months, commencing as from 1 February 1977 and expiring on 30 June 1977, appears, in
this respect, to be a desirable solution.

SECTION V. Operative part:

FOR THESE REASONS,

The undersigned Sole Arbitrator

1. pronounces and decides that the Deeds of Concession in dispute are binding upon the parties;

2. pronounces and decides that the Libyan Government, the defendant, in adopting measures of nationalization in
1973 and 1974, breached its obligations arising from the said Deeds of Concession;

3. pronounces and decides that the Libyan Government, the defendant, is legally bound to perform these contracts
and to give them full effect;

4. grants to the Libyan Government, the defendant, a time period of five months running from 1 February 1977 to
30 June 1977 at midnight (GMT) in order that it may bring to the notice of the Arbitral Tribunal the measures taken by
it with a view to complying with and implementing the present arbitral award;

5. decides that, if the present award were not to be implemented within the time period fixed, the matter of further
proceedings is reserved and that the costs and expenses of the arbitration shall be borne, for the present, wholly by the
plaintiffs;

6. decides that the present award shall be, within a period of six months from 1 February 1977, filed with the
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17 I.L.M. 1, *37

Registry of the International Court of Justice.

Made and drawn up in six original copies and pronounced in Geneva on 19 January 1977.

[signed]

The Registrar,

JEAN-PIERRE SORTAIS

[signed]

The Sole Arbitrator,

RENE-JEAN DUPUY