The Respondent on 7 December 1971 passed a law (the "BP Nationalisation Law") providing that the activities of the Claimant in Oil Concession 65 were nationalised. Concession 65 comprises an area of over 8,000 sq.kms. in the heart of the Sarir desert. The Claimant, by a letter to the Respondent dated 11 December 1971, addressed to the Minister of Petroleum, Tripoli, which was delivered on the same day, protested against the action taken by the Respondent and took steps to institute arbitration proceedings pursuant to Clause 28 of the Concession Agreement of 1966, as amended, between the Respondent and the Claimant (the "BP Concession"). The said Clause 28 provides as follows:
1. If at any time during or after the currency of this Concession any difference or dispute shall arise between the Government and the Company concerning the interpretation or performance hereof, or anything herein contained or in connection herewith, or the rights and liabilities of either of such parties hereunder and if such parties should fail to settle such difference or dispute by agreement, the same shall, failing any agreement to settle it any other way, be referred to two Arbitrators, one of whom shall be appointed by each such party, and an Umpire who shall be appointed by the Arbitrators immediately after they are themselves appointed.
In the event of the Arbitrators failing to agree upon an Umpire within 60 days from the date of the appointment of the second Arbitrator, either of such parties may request the President or, if the President is a national of Libya or of the Country where the Company was incorporated, the Vice-President, of the International Court of Justice to appoint the Umpire.
2. The institution of Arbitration proceedings shall take place upon the receipt by one of such parties of a written request for Arbitration from the other which request shall specify the matter in respect of which Arbitration is required and name the Arbitrator appointed by the party requiring Arbitration.
3. The party receiving the request shall within 90 days of such receipt appoint its Arbitrator and notify this appointment to the other of such parties failing which such other party may request the President, or in the case referred to in paragraph 1 above, the Vice-President, of the International Court of Justice to appoint a Sole Arbitrator and the decision of a Sole Arbitrator so appointed shall be binding upon both such parties.
4. If the Arbitrators appointed by such parties fail to agree upon a decision within 6 months of the institution of Arbitration proceedings or any such Arbitrator becomes unable or unwilling to perform his functions at any time within such period, the Umpire shall then enter upon the Arbitration. The decision of the Arbitrators, or in case of a difference of opinion between them the decision of the Umpire, shall be final. If the Umpire or the Sole Arbitrator, as the case may be, is unable or unwilling to enter upon or complete the Arbitration, then, unless such parties otherwise agree, a substitute will be appointed at the request of either such party by the President, or, in the case referred to in paragraph 1 above, the Vice-President, of the International Court of Justice.
5. The Umpire however appointed or the Sole Arbitrator shall not be either a national of Libya or of the country in which the Company or any Company which directly or indirectly controls it was incorporated nor shall he be or have been in the employ of either of such parties or of the Government of Libya or of any such Country as aforesaid.
The Arbitrators or, in the event they fail to agree within 60 days from the date of appointment of the second Arbitrator, then the Umpire, or, in the event a Sole Arbitrator is appointed, then the Sole Arbitrator, shall determine the applicability of this Clause and the procedure to be followed in the Arbitration.
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.
6. The place of Arbitration shall be such as may be agreed by such parties and in default of agreement between them within 120 days from the date of institution of Arbitration proceedings as specified in paragraph 2 above, shall be determined by the Arbitrators or, in the event the Arbitrators fail to agree within 60 days from the date of appointment of the second Arbitrator, then by the Umpire or, in the event a Sole Arbitrator is appointed, then by the Sole Arbitrator.
7. This Concession shall be governed by and interpreted in accordance with the principles of 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.
8. The costs of the Arbitration shall be borne by such parties in such proportion and manner as may be provided in the decision.
The full text of the Claimant's letter of 11 December 1971 is set out below; it appears from it that, in conformity with paragraph 2 of Clause 28 quoted above, the letter did specify the matter in respect of which arbitration was required, and the Claimant therein did name an arbitrator appointed by it:
We refer to the action taken by the Government of the Libyan Arab Republic on December 7th 1971 by the issue of the Law which, inter alia, provides for the nationalisation of 'the activities of the BP Exploration Company (Libya) Limited in Petroleum Concession Number 65' and for the vesting of 'all the funds, rights, assets and shares related to said activities' in the Arab Gulf Company for Exploration which is to be formed under this Law.
It is evident that this action purports to deprive the Company of the rights which it possesses under and in relation to Concession Number 65 dated 18th December 1957.
This action amounts to an attempt at total and unilateral repudiation by the Government of the Libyan Arab Republic of the Company's rights and accordingly to a grave breach thereof. In addition the arbitrary and discriminary action of the Government in this respect also constitutes a violation of established principles of international law.
The Company does not accept this purported repudiation or breach of its rights and accordingly a difference and dispute has arisen between the Government and the Company within the terms of Clause 28 of the Concession.
Since the manner and form of the Government's action do not leave open any other form of settlement of this difference and dispute, the Company now requests, in accordance with Clause 28(2) of the Concession, that this difference and dispute be referred to arbitration and hereby informs the Government that it has appointed as its arbitrator Professor Sir Humphrey Waldock, Q.C. Further, the Company hereby requests the Government to nominate its arbitrator in accordance with Clause 28(3).
Meanwhile the Company desires to make it clear that as the rights of the Company are capable of alteration only by mutual consent and not by unilateral action the rights of the Company continue to be those under and in relation to its Concession.
The Company, therefore, advises you that it will take such steps as it may consider necessary or desirable to assert or protect all its rights.
On 15 March 1972, the Claimant applied to the President of the International Court of Justice for the appointment of a sole arbitrator pursuant to the provisions of paragraph 3 of the aforesaid Clause 28. Citing the BP Nationalisation Law, the Claimant stated that,
This premature repudiation of the Agreement, 40 years before the expiry of its term, is a fundamental breach of the Concession occasioning a claim by the Company for reparation, and giving rise to a dispute within the meaning of Clause 28.
The Tribunal, having heard the Claimant, made the following Order:
1. The place of arbitration shall be Copenhagen, Denmark.
2. The arbitration proceedings shall be divided into two parts, the first dealing with the merits of the claim and the second with the assessment of possible damages.
3. The Claimant, on or before 31 December 1972, shall file with the Tribunal ten copies of a Memorial.
4. The Memorial shall contain:
(i) a full statement of the Claimant's main claim, divided, as the case may be, into alternatives and stating the grounds upon which the claim is based;
(ii) the Claimant's request for an interim award in respect of the merits of the claim, divided, as the case may be, into alternative submissions and containing a full statement of the relevant facts and law. The Memorial ought to be accompanied by the written evidence upon which the Claimant wants to rely. The Memorial shall not deal with questions relating to the assessment of possible damages;
(iii) the Claimant's submissions on the status of Mr. Nelson Bunker Hunt in relation to the present proceedings.
5. The Respondent shall, upon the receipt of a copy of the Claimant's Memorial and within a period to be fixed by the Tribunal at a later stage, inform the Tribunal whether it desires to file a Counter-Memorial in reply thereto and, if so, how long a period is required by it to do so.
In the Aramco case of 1955, between Saudi Arabia and the Arabian American Oil Co. (Aramco), the arbitral tribunal discussed this question of principle at some length and arrived at the following conclusion:
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 infringement 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.
(Cited from the privately printed edition of the Award, p. 47, cf. 27 International Law Reports (1963) p. 117, at pp. 155-156.)
Judge Cavin considered it unavoidable that a specific procedural law should apply to the proceedings but that the parties were free to elect domicile for the arbitration. If they had agreed to confer upon the arbitrator the right to choose the seat of the tribunal, they had impliedly submitted themselves to the procedural law of the State decided by the arbitrator to be the seat. Judge Cavin implicitly assumed that the law of the seat of the arbitration would then apply, and he went on to state that even if the will of the parties were disregarded, the rule was that an arbitration is subject to the judicial sovereignty of the State where the proceedings take place:
En l'espèce, par leur convention les parties ont laissé l'arbitre libre de déterminer le siège de l'arbitrage, faute d'accord entre elles. Acceptant ainsi d'avance le siège tel qu'il a été fixé par l'arbitre, qui a choisi par délégation de la volonté des parties, les contractants ont pris l'engagement de se soumettre à la loi de procédure qui résulte de ce choix... Si même cette interprétation de la volonté des parties était rejetée, la règie est qu'à defaut d'accord des parties, l'arbitrage est soumis à la souveraineté judiciaire du siége de l'arbitrage, au lieu où se déroule l'instance.
(Quoted from the unprinted Award, pp. 69-70 cf., 35 International Law Reports (1967), p. 136, at p. 169.)
With respect to court proceedings in which the defendant fails to appear, Danish law, as stated by Professor Hurwitz, represents a compromise between the extremes to be found among various jurisdictions:
The various procedural codes provide different solutions in this respect, extending from complete preclusion to systems attempting to protect the non-appearing defendant by requiring a wide measure of proof on the part of the plaintiff of the truth of his claims, cf. H. Munch-Petersen II, pp. 213 ff. with references. The [Danish] Procedural Code, in conformity with Norwegian and German law, has adopted an intermediary solution. (Hurwitz, Tvistemâl, 1959, p. 197.)
Briefly, the general principle of Danish procedural law on the point is:
In other words, the principle of Section 341 of the Procedural Code is that the court will base its judgment on the plaintiff's allegations of fact but will decide independently what legal consequences follow from those allegations. (Hurwitz, ibid.)
Briefly, the general principle of Danish procedural law on the point is:
In other words, the principle of Section 341 of the Procedural Code is that the court will base its judgment on the plaintiff's allegations of fact but will decide independently what legal consequences follow from those allegations. (Hurwitz, ibid.)
The leading authority on Danish arbitral law, Dr. Bernt Hjejle, has expressed the applicable principle in the following manner:
However, in contradistinction to ordinary court procedure, the arbitrator in my opinion must be allowed greater flexibility in that he should hardly be confined to the claimant's statement of the facts but might check it and, if he finds it to be at variance with the actual circumstances, base his award on the latter. Unlike a court of law, the arbitrator is not bound by a statutory provision—which, in turn, to a certain extent has to be seen in its historical context—but is absolutely free as regards his appraisal and consequently also with respect to estimating how far he is willing, without more, to base his decision on the claimant's statement of facts or subject the latter to a critical investigation. (Hjejle, op. cit., p. 135.)
The committee which prepared the Danish arbitration statute of 24 May 1972 concurred in the opinion of Dr. Hjejle, and stated:
It is the opinion of the Committee that the power, recognised in this country, of the arbitrators in each instance to decide in their discretion what the consequences should be of the nonappearance of a party, constitutes a satisfactory solution and that no statutory provisions are needed. (Betaenkning, cit. supra, p. 28.)
The facts deemed relevant and taken as established by the Tribunal have been gathered from evidence produced by the Claimant alone. With respect to certain facts the Tribunal has sought and received from the Claimant the submission of additional documentary evidence and explanations. The Tribunal deeply regrets the absence of further elucidation on the part of the Respondent.
With respect to the analysis of facts and their legal implications the Tribunal has had the benefit of argument presented by the Claimant alone. However, the Tribunal has felt both entitled and compelled to undertake an independent examination of the legal issues deemed relevant by it, and to engage in considerable legal research going beyond the confines of the materials relied upon by the Claimant. The conclusions in the Award therefore are based on a broader consideration of the issues than that permitted by the format of the Claimant's argument in support of its claims. Thus, the Tribunal to the greatest extent possible has endeavoured to eliminate any inherent adverse effects for the Respondent of its decision not to appear as a party in the proceedings.
On the basis of a contractual relationship with the Respondent, which will be explained and analysed in detail in Section 2 of this Part IV, the Claimant over a period of twelve years made substantial investments in Libya and operated a major enterprise in that country for the extraction, processing, and export of petroleum. The Claimant indirectly is and has at all times been wholly owned by the British Petroleum Company Limited, an English public company, between 48 and 49 per cent of whose ordinary share capital is held by the British Government. The Claimant was incorporated in England on 28 January 1938 and its head office is at Britannic House, Moor Lane, London E.C.2. All the statutory and other records are maintained at that address. The board consists of nine persons all of whom are British subjects resident in England. The whole of the administration, management and control of the Claimant's affairs is exercised by the board in London. Activities overseas are carried on through local representatives appointed and supervised by and subject to the directions of the board in London.
On 7 December 1971, the Respondent passed the BP Nationalisation Law which nationalised the operations of the Claimant in Concession 65. The BP Nationalisation Law claimed to restore to the State and then to transfer to a new company, the Arabian Gulf Exploration Company, ownership of all properties, rights, assets and shares relating to the above-mentioned operations.
The BP Nationalisation Law provided that the State should pay compensation to the Claimant. The amount of compensation was to be determined by a committee to be established by the Minister of Petroleum. The decision of the committee was to be documented and final, to admit of no appeal by any means, and to be communicated to the Minister of Petroleum who was to notify the Claimant of it within thirty days of its issue.
In the Claimant's submission, the BP Nationalisation Law was a measure of a unique character in that no similar step was taken against any other concessionaire of the Government or against other concessions owned by the Claimant. The Claimant states that to the best of its knowledge it believes that some 133 concessions had been granted to American, British, German, Italian and French companies prior to 7 December 1971; that in 1971 there were some 91 concessions in existence and that then and as of the date of the Claimant's submissions there were concessionaires operating in Libya who were of American, British, German, Italian and French nationality. Although the Claimant gave notice of surrender of four of its remaining six concessions on 18 December 1971, it continues to hold Concessions 80 and 81.
In the aspects unrelated to compensation, the BP Nationalisation Law was rapidly implemented. The Claimant's operations in Concession 65 were brought to a complete halt: its staff were immediately excluded from its premises and from its production and transportation facilities. These were then taken over by the Arabian Gulf Exploration Company.
As regards compensation, no action was taken until 13 February 1972. Then, according to reports in the Libyan press on 14 February 1972, a three-man committee was appointed. According to Article 7 of the BP Nationalisation Law, this committee should have reported within three months from 14 February 1972, that is, by 14 May 1972, and the report should have been notified to the Claimant by the Minister of Petroleum within thirty days of that date, i.e. by 14 June 1972. The Claimant has received no such notification. On 28 September 1972 a cable was received which read:
Before preparing its final report the Committee wishes to learn the company's viewpoint and remarks on the accounts prepared in respect of the compensation that may be due to or from your company. The Chairman and members of the Committee will be in Tripoli on Thursday 5th October 1972 at the company's Tripoli office to meet with your representatives on the same day. For Compensation Committee.
Some indication of the circumstances in which the BP Nationalisation Law was adopted is called for at this point. On 29 and 30 November 1971, the Government of Iran occupied three islands in the Gulf, Abu Musa and the Greater and the Lesser Tumb. The Iranian claim to these islands was contested by the Rulers of Sharjah and of Ras-al-Khaimah. At the moment of the occupation of the islands both were still nominally under British protection, although the treaties of protection were due to end on 30 November 1971. The British Government did not react to the occupation of the islands and was accordingly blamed in the Arab world for the loss of islands which were regarded as Arab.
On 5 December 1971, President Qadhafi of Libya sent a cable to the Ruler of Ras-al-Khaimah saying that
In our opinion Britain is primarily responsible for Iran's occupation of the islands and we hold it reponsible for the consequences of this action, through which it has demonstrated its malice towards the Arabs and its failure to fulfil its pledges.
On 9 December 1971, in the course of a discussion in the Security Council of the United Nations on the question of the islands, the Libyan Representative, Mr. Maghribi, made, inter alia, the following comments on the nationalisation of the Claimant's interest in Concession 65:
We have witnessed that a big Power can do anything it wishes, anything it deems in accordance with its chauvinistic interests, in violation of the Charter of the United Nations. The small States have always been left powerless against such actions and behaviour. Furthermore, we have seen that any State in agreement with a big Power can take similar liberties without respect for the Charter or international law. The Iranian military aggression in occupying the three Arab islands of Abu Musa and the Greater and Lesser Tumb, in connivance with Great Britain, is a clear manifestation of this.
The Government of Great Britain has violated the provisions of the very treaties it had itself imposed upon the Sheikhdoms of the Arabian Gulf decades ago. The treaties imposed occupation and colonialism. However, they also provided for the protection of the territorial integrity of those Sheikhdoms and their islands. For many decades Great Britain has exploited all the provisions of those treaties to its own advantage and until now it has readily exploited the natural wealth of the Sheikhdoms. On the one occasion that Great Britain was called upon to apply the protection provision, it failed miserably and intentionally, reflecting the true nature by which the world has known it for centuries: 'divide and rule', trickery, treachery and butchery.
A glance through past centuries gives proof of this. Indeed, hardly any major conflict or turmoil the modern world has known has not been the creation of Britain or its like-minded States, either directly or indirectly. And in the present instance of the Iranian aggression and occupation of the Arab islands Britain has been faithful to its nature and tradition. Has not Great Britain done the same in Palestine, although on a larger scale?
Great Britain violated the treaties that it had itself imposed on the Sheikhdoms of the Arabian Gulf. It violated the principles of the Charter of the United Nations.
My Government, an Arab Government, replied in the only way understood by the imperialists—by nationalizing the oil interests of Great Britain in the Libyan Arab Republic and withdrawing our deposits from British banks. The British Petroleum Company, owned in essence by the British imperialist Government, has exploited the natural wealth of my country for many years. Our step violates no principle of the Charter or international law; it is in accordance with those principles and also with the General Assembly resolutions concerning the natural resources of States.
(United Nations Security Council, Provisional Verbatim Record of the Sixteen Hundred and Tenth Meeting, S/PV 1610, p. 93.)
On December 1971, the Minister of State for Foreign and Commonwealth Affairs said in reply to a question in the House of Commons:
Obviously, I shall wish to protest in the strongest terms when I know precisely what to protest about. I have to ascertain the facts first. The important thing is to get the facts and then to decide on action in relation to them. At present we have only hearsay evidence but, in so far as any question of nationalisation or expropriation is concerned, we have never said that it is our view that countries are not entitled to nationalise—of course they can nationalise—but we do expect prompt and adequate compensation when that occurs. This will be a matter which we shall certainly want to have in the forefront of our minds.
(House of Commons, Official Report, Parliamentary Debates (Hansard), Vol. 827, No. 27, Wednesday, 8 December 1971, Columns 1299-1302.)
On 21 December 1971, the Minister of State for Foreign and Commonwealth Affairs made the following statement:
... the taking of the property of [the Claimant] is not a legitimate act of nationalisation because it is discriminatory against the company and for purposes which are not admissible in international law. We are of course supporting the company in its efforts to obtain redress.
(House of Commons, Official Report, Parliamentary Debates (Hansard), Vol. 828, No. 36, Tuesday, 21 December 1971, Written Answers to Questions, Column 312.)
On 23 December 1971, a note of protest was handed to the Ambassador of the Libyan Arab Republic in London, reading as follows:
Her Britannic Majesty's Government present their compliments to the Government of the Libyan Arab Republic and have the honour to refer to the request, made to the Libyan Ambassador on 8 December 1971 by the Minister of State at the Foreign and Commonwealth Office and subsequently to the Libyan Government by Her Britannic Majesty's Embassy in Tripoli, for an explanation of the action of the Libyan Government in nationalising the assets of British Petroleum's production operation in Libya.
Her Britannic Majesty's Government note with regret that the Libyan Government have not yet provided the explanation requested. In the absence of any such explanation and in the light of the public statements of the Libyan Government, Her Majesty's Government are bound to conclude that the measures in question amount to a breach of international law and are invalid. An act of nationalisation is not legitimate in international law unless it satisfies the following requirements:—
(i) it must be for a public purpose related to the internal needs of the taking State; and
(ii) it must be followed by the payment of prompt, adequate and effective compensation.
Nationalisation measures which are arbitrary or discriminatory or which are motivated by considerations of a political nature unrelated to the internal well being of the taking State are, by a reference to those principles, illegal and invalid.
Her Majesty's Government must, therefore, call upon the Libyan Government to act in accordance with the established rules of international law and make reparation to British Petroleum Exploration (Libya) Limited, either by restoring the Company to its original position in accordance with the Concession No. 65 or by payment of full damages for the wrong done to the Company.
The reaction of the Claimant to the nationalisation has been described above in Part I with respect to the institution and conduct of the present arbitration proceedings. Certain further steps taken by the Claimant, and evidenced in letters sent to the Minister of Petroleum, may be mentioned in this context.
On 30 December 1971, by a letter addressed to the Minister of Petroleum, Tripoli, the Claimant informed him that in the ordinary course of events the Claimant would have paid to the Respondent on that date in respect of Concession 65 the sum of £2,882,955 by way of royalty on crude oil produced and tax and supplemental payment on crude oil exported by the Claimant during the fourth quarter of 1971. The Claimant stated that in the circumstances it was withholding this payment, but that it was lodging the sum "in a special account... where the monies will be held pending the outcome of the arbitral proceedings and against such sums as are due from the Government to the Company by way of damages"..
By a letter dated 17 January 1972, addressed to the Minister of Petroleum, Tripoli, the Claimant placed on record the fact that the introduction and implementation within Libya of the BP Nationalisation Law in violation of the Claimant's rights under Concession 65 had compelled the Claimant to discontinue its operations under the concession, to withdraw its staff and to surrender to the Libyan authorities its offices, installations, equipment, oil stocks and other assets in Libya. The Claimant also pointed out that these steps were taken under duress and could not prejudice the Claimant's legal position and in particular could not prevent the vesting in the Claimant of title to its share of oil extracted from the area of Concession 65.
By a letter dated 28 January 1972, addressed to the Minister of Petroleum, the Claimant informed him, in terms similar to its letter of 30 December 1972, that on 30 July 1972, £2,882,955 would, in the normal course of events, have fallen due for payment to the Respondent on 30 January 1972, but that this sum would be lodged in a special account in a London bank pending the outcome of the arbitral proceedings.
The Libyan Petroleum Law of 1955, as amended, established a framework within which exploration and production of petroleum in Libya might take place. In particular, it set up a Petroleum Commission (the "Commission") which was to be responsible for the implementation of the provisions of the Law. The Commission was empowered in Article 9 to grant concessions "in the form set out in the Second Schedule to the Law and not otherwise, provided that they may contain such minor non-discriminatory variations as may be required to meet the circumstances of any particular case."
On December 1957 the Commission granted a Deed of Concession, designated as Concession 65, to Mr. Nelson Bunker Hunt, a citizen of the United States of America, of Dallas, Texas, U.S.A. (the "Hunt Concession"). It was substantially in the form set out in the Second Schedule of the Libyan Petroleum Law of 1955.
By Clause 1 of the Deed of Concession, Mr. Hunt was granted the exclusive right for 50 years to search for and extract petroleum within a designated area, and to take away and dispose of the same. The area was marked out on an annexed map and originally covered 32,944 sq.kms. However, pursuant to Article 10 of the Libyan Petroleum Law of 1955 and Clause 2 of the Deed of Concession, the area was progressively reduced by surrender to 8,234 sq.kms. as at 7 December 1971.
Following discussions in early 1960, the Claimant and Mr. Hunt entered into an agreement on 24 June 1960 consisting of a Memorandum and attachments in which it was agreed, inter alia, that Mr. Hunt would assign to the Claimant an undivided one-half interest in Concession 65. By a letter to the Commission dated 12 July 1960, Mr. Hunt asked for formal approval of the assignment to the Claimant of an undivided one-half interest in Concession 65. The Claimant wrote in similar terms to the Commission in a letter of the same date. The first letter was accompanied by a draft Deed of Assignment. After consultation with the Commission, an amended draft thereof was presented to the Commission with a letter dated 17 August 1960 together with a program for carrying out the terms of the concession.
On 9 September 1960 the Commission resolved to agree to the assignment and informed the Claimant of its decision by a letter dated 11 September 1960. Its resolution was approved by the Minister of National Economy on 28 September 1960 and a copy of its decision was sent to the Claimant on 2 October 1960.
On 10 November 1960, the arrangements between Mr. Hunt and the Claimant were formally settled by the signing of a Deed of Assignment in the same terms as the draft presented to the Commission with the letter of 17 August 1960 by which Mr. Hunt assigned to the Claimant an undivided one-half interest and title in Concession 65. In consideration of this assignment, the Claimant agreed to undertake a work programme in which it would advance all the costs. This programme was to include seismic surveys, the commencement of drilling operations before 17 December 1960, the drilling of six exploratory wells and the construction of production facilities, pipelines etc. The Claimant undertook to purchase all or any part of Mr. Hunt's share of the production when required by Mr. Hunt to do so. In addition, it was provided that the Claimant should be entitled to three-eighths of Mr. Hunt's share of the oil production delivered f.o.b. Libyan sea-board until the Claimant had received a quantity of crude oil equal in value to 125 per cent of all costs and expenses advanced by the Claimant for Mr. Hunt's account for exploration, development or any other work performed in connection with Concession 65.
Between 21 May 1955, i.e. the date of the coming into force of the Libyan Petroleum Law of 1955, and 20 January 1966, a number of amendments were made by the Respondent to the Libyan Petroleum Law of 1955. The legislative measures containing these amendments were the following: two Royal Decrees of 21 May 1955; Royal Decree signed 3 July 1961; Royal Decree signed 9 November 1961; Royal Decree signed 26 April 1962; Royal Decree signed 16 July 1963; and Royal Decree signed 20 November 1965.
The changes introduced by these amendments into the Libyan Petroleum Law of 1955 and its Schedules did not by themselves affect existing concessions. However, the Royal Decree of 20 November 1965 contemplated that certain provisions of these amending decrees might by agreement be incorporated into and given effect as part of existing concessions.
On 14 December 1965 the Claimant gave the Respondent an undertaking of the kind referred to in Article XII of the Royal Decree of 20 November 1965 and on 20 January 1966 concluded an agreement with the Respondent as contemplated in that Article. This agreement amended, inter alia, Concession 65. Mr. Hunt on the same date executed an amendment to Concession 65 in a form identical with the agreement made between the Claimant and the Respondent.
A number of legislative decrees and decisions concerning the petroleum industry were made after the Royal Decree of 20 November 1965 but these scarcely touched and affected Concession 65. A major amendment to the Libyan Petroleum Law of 1955 came into effect on 8 December 1968 with the passing of Petroleum Regulation No. 8. This closely followed the OPEC Proforma Regulation for the Conservation of Petroleum Resources and empowered the Ministry of Petroleum to limit exploration and production and required the concessionaire to provide the Ministry with certain data relating to exploration, drilling and production. The Claimant and Mr. Hunt were the only concessionaires not to have their production cut back under this Regulation prior to 7 December 1971. In October, 1970 all the oil companies operating in Libya agreed to increase posted prices with effect from 1 September 1970 and to a general increase in tax from 50 per cent to 55 per cent. Finally, on 18 October 1970 a Law Organising Petroleum Affairs was issued which was concerned with governmental organisation.
As required under paragraph 2 of Clause 25 of the Deed of Concession, the assignment received the approval of the Commission. The Commission did not have occasion to consider either the form of letter agreement attached to the Memorandum executed on 24 June 1960, nor the form of Operating Agreement (with three Exhibits) likewise so attached.
The Libyan Petroleum Law of 1955 provided in its Article l (which has not since been amended) as follows:
1. All petroleum in Libya in its natural state in strata is the property of the Libyan State.
2. No person shall explore or prospect for, mine or produce petroleum in any part of Libya, unless authorised by a permit or concession issued under this Law.
The Hunt Concession granted the holder the exclusive right for a period of 50 years within a defined area, inter alia, to search for and extract petroleum, to take it away by pipeline or otherwise and to use, process, store, export and dispose of the same. For such purpose, the holder had the right within the concession area to erect and maintain any constructions, installations and works required for its activities and, outside the concession area, to erect and operate transport, harbour and terminal facilities.
As between the parties to the assignment, the Operating Agreement established certain basic principles, two of the most important of which were, firstly, the designation of the Claimant as Operator with exclusive rights to conduct, direct and have full control over all operations in the concession area (Section 6), and, secondly, joint ownership (as to 50 per cent each) of all equipment and material, and all oil and gas produced in the concession area (Section 2, and specific provisions in Section 10 (a) on extracted petroleum, and in Section 21 on facilities, materials and equipment). In so far as the Hunt Concession and the parties' activities thereunder gave rise to ownership of or other rights of property in related physical installations in Libya, or petroleum extracted from the concession area, neither party could exercise and dispose of such property rights save in accordance with the terms and conditions of the agreement of 24 June 1960. The principal object of joint ownership, Concession 65, as granted by and defined in the Deed of Concession, remained an integral, undivided whole.
As mentioned under subsection (a) of Section 2 above, the Libyan Royal Decree of 20 November 1965 stipulated that certain amendments to existing concessions might be incorporated therein by agreement, and the Claimant by a separate undertaking submitted on 14 December 1965 consented to such modifications with respect to its interests both under Concession 65 and under certain other concession agreements. An agreement was concluded between the Respondent (acting through the Minister of Petroleum Affairs in the name of the Government of Libya) and the Claimant, dated 20 January 1966 and entitled "Agreement for Amendment of Petroleum Concession No. 34, 36, 37, 63, 64, 80, 81, 65". This agreement was executed on a standardised form and mainly incorporated certain fiscal provisions which were more onerous to the concessionaire than the conditions previously applicable. It included as Clause 28 the arbitration clause quoted in Part I above and, as Clause 16, the following provision:
1. The Government of Libya will take all the 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.
2. 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.
As stated in Part I above, the Tribunal at the request of the Claimant has decided to divide the proceedings into two stages. The present stage concerns what the Claimant refers to as the merits of the claim. The Claimant is asking the Tribunal to render a declaratory Award dealing with certain specific questions, viz. to make the following declarations:
(1) The Libyan Nationalisation Law of 7 December 1971 and the subsequent implementation thereof were each a breach of the obligations of the Libyan Government owed to the Claimant under the Concession Agreement and so remain;
(2) The said breaches were and are ineffective to terminate the Concession Agreement, which remains in law valid and subsisting;
(3) The Claimant is entitled to elect, at any time so long as the Respondent's breach continues, to treat the Concession Agreement as at an end;
(4) The Claimant is entitled to be restored to the full enjoyment of its rights under the Concession Agreement;
(5) The Claimant is the owner of its share of any crude oil extracted from the area of the Concession Agreement after as well as before 7 December 1971 and of all installations and other physical assets, and the Libyan Government has no right to any such oil, installations or physical assets, which it can enjoy or transfer to any third party;
(6) Performance of the Claimant's obligations under the Concession Agreement is suspended for so long as the Libyan Government remains in breach thereof; and
(7) The Claimant is entitled to damages in respect of the interference by the Libyan Government with the Claimant's enjoyment of its rights under the Concession Agreement. If the Claimant does not exercise its rights under Declaration (3) above, then it is entitled to damages accruing up to the date of the final award herein. If the Claimant does exercise the rights under Declaration (3) above, it is entitled to all damages arising from the wrongful act of the Libyan Government.
(8) The Claimant further respectfully requests the Sole Arbitrator to reserve for a subsequent stage of the proceedings the assessment of the damages due under Declaration (7) above.
The first issue is the nature of the BP Concession. The Claimant submits that "Concession No. 65 is a contractual instrument concluded pursuant to legislation which contemplated a contractual relationship." It also maintains that the BP Concession constitutes a direct contractual link between the Claimant and the Respondent. The Claimant places particular reliance on Clause 16 of the BP Concession which, inter alia, provides:
The contractual rights expressly created by this concession shall not be altered except by mutual consent of the parties.
The Claimant, in July 1973, submitted to the Tribunal an opinion of Professor Mohamed A. Omar of Cairo University in which it is stated that concession contracts under Libyan law are considered to belong to the category of administrative contracts. The following principles are said to apply to such agreements:
The Government have the right to change unilaterally the clauses of the concession, and have also the right to terminate the concession. But these two rights are not absolute: the change of the clauses of the concession or its termination must be in pursuance of a true public interest. The judges have the right to review the change or termination to see whether they are based on good reasons or not. If the change or termination are not lawful, the concessionaire is entitled to obtain complete damages covering not only his actual losses but also all the profits he would have realised had the change or termination not taken place.
The second issue is what law applies to the relationship between the Claimant and the Respondent. It will be recalled that paragraph 7 of Clause 28 of the BP Concession contains an express provision on the law governing the concession. The Claimant argues that Libyan law has been excluded as the sole governing law and that the law governing the BP Concession is public international law. Alternatively, the BP Concession itself constitutes the sole source of law controlling the relationship between the Parties. Orally, the Claimant submits that it does not place emphasis on the word "sole". In the further alternative the Claimant submits that the legal position of the parties falls to be decided by reference to "the general principles of law".
The third issue is whether the nationalisation by the Respondent constituted a breach of the contractual relationship allegedly existing between the Claimant and the Respondent. The Claimant submits that the action of the Respondent was a fundamental breach or repudiation of the concession agreement and that there was no legal justification for it.
The fourth issue is the legal effects of the nationalisation by the Respondent which in the Claimant's submission constitutes a breach of contract. The basic proposition upon which the Claimant relies in this respect is that where an agreement has been fundamentally violated by one party, the breach does not of itself put an end to the agreement. Some further act on the part of the innocent party is required. The party in breach does not have the power to put an end to the relationship by his own wrongful act. The Claimant argues that, as it has not exercised its undoubted right to treat the BP Concession as at an end, it continues in full force and effect. The Claimant submits, however, that it is not bound to fulfil its own obligations while the Respondent remains in breach.
The Claimant argues further that the primary remedy to which it is entitled by virtue of the continuing validity of the BP Concession is restoration of the position as it was prior to the BP Nationalisation Law. The Claimant also submits that it follows from the continuity of the Claimant's rights under the BP Concession to its share of oil extracted from the concession area that it remains the owner and that the Respondent has no power (either itself or through its agents) to transfer to third parties any valid title to such oil.
In particular any dealing with such oil by the Libyan Government, the Libyan National Oil Company or the Arab Gulf Exploration Company is a dealing with oil which does not belong to any of them. Such a dealing is unlawful and cannot serve as a basis for a claim to title to such oil anywhere in the world by anyone other than the Claimant.
Lastly, the Claimant submits for the purposes of the present stage of the proceedings that so long as the BP Concession remains in force, the Claimant is entitled to damages for actual loss caused to it by the Respondent's breaches of contract up to the date of the Tribunal's final Award. If and when the Claimant exercises its right to treat the BP Concession as terminated, it will be entitled not only to damages flowing from the specific breaches of contract (damnum emergens) but also damages for loss of the benefit of the contract as a whole (lucrum cessans).
In contradistinction to all national courts, the ad hoc international arbitral tribunal created under an agreement between a State and an alien, such as the present Tribunal, at least initially has no lex fori which, in the form of conflicts of law rules or otherwise, provides it with the framework of an established legal system under which it is constituted and to which it may have ultimate resort. With respect to the law of the arbitration, the attachment to a designated national jurisdiction is restricted to what, broadly speaking, constitute procedural matters and does not extend to the legal issues of substance. It is erroneous to assume, as has been done doctrinally, on the basis of the territorial sovereignty of the State where the physical seat of an international arbitral tribunal is located, that the lex arbitri necessarily governs the applicable conflicts of law rules. (See in this connection the award of 1964 in Case No. 1250 of the International Chamber of Commerce, in which Professor Henry Batiffol presided as chairman.) Even less does it necessarily constitute the proper law of the contract. Instead, if the parties to the agreement have not provided otherwise, such an arbitral tribunal is at liberty to choose the conflicts of law rules that it deems applicable, having regard to all the circumstances of the case. (Cf. Article VII of the European Convention on International Commercial Arbitration of 1961, U.N. Economic Commission for Europe, E/ECE/423; E/ECE/Trade 48.)
The Tribunal deems Danish conflicts of law rules—which not only are those of the lex arbitri but by virtue of not containing any relevant restrictive rules provide a wide leeway for the free exercise of party autonomy—to be applicable in the present case. This in the circumstances seems to be the most natural solution.
The contract containing the arbitration clause from which the Tribunal derives its jurisdiction is an elaborate document carefully drafted and conceived of by the Parties as a legal instrument binding upon them. Therefore primary reference must be made to that instrument itself in determining the law which governs the agreement.
As stated earlier, the Tribunal deems Danish conflicts of law rules to be applicable. Having regard to them, the Tribunal accepts the distinct provisions of paragraph 7 of Clause 28 of the BP Concession as conclusive with respect to the issue of which legal system governs the agreement, including the remedies available in the event of breach.
It follows from the analysis of the contractual arrangements among the Respondent, the Claimant and Mr. Hunt made in subsection (b) of Section 2 of Part IV above that the BP Concession constitutes a direct contractual link between the Respondent and the Claimant with respect to the interests of the Claimant under Concession 65. Hence the Tribunal, with respect to the first issue arising in this case, accepts the Claimant's submissions set forth in Section l of Part VI above.
Paragraph 7 of Clause 28 of the BP Concession, quoted in Part I above, stipulates which law is to govern the agreement. While the provision generates practical difficulties in its implementation, it offers guidance in a negative sense by excluding the relevance of any single municipal legal system as such. To the extent possible, the Tribunal will apply the clause according to its clear and apparent meaning. Natural as this would be in any event, such an interpretation is the more compelling as the contractual document is of a standardised type prescribed by the Respondent. The governing law clause moreover was the final product of successive changes made in the Libyan petroleum legislation in the decade between 1955 and 1965 by which the relevance of Libyan law was progressively reduced.
In paragraph 7 of Clause 28, reference is made to the principles of law of Libya common to the principles of international law, and only if such common principles do not exist with respect to a particular matter, to the general principles of law. The Claimant argues, in the first of three alternative submissions, that international law alone is applicable.
(a) After indicating that a relevant distinction exists between "principles" and "rules"—a line of reasoning which is not further pursued in this connection—the Claimant states:
... the acceptance of a principle must be supported by both Libyan and international law if it is to govern the Concession. Therefore if the conduct of a party to the Concession cannot be justified by the principles of both Libyan law and international law, it is not justifiable under the Concession. It is justifiable only if the principles of both systems of law—Libyan and international—support it. Thus conduct which is a breach of the principles of international law must necessarily be a breach of the Concession, even if not in breach of the principles of Libyan law.
This reasoning is clearly incomplete since it entirely leaves out of the picture the direction which follows from paragraph 7 of Clause 28 that conduct etc. in the last analysis should be tested by reference to the general principles of law. It is not correct to say that "a principle must be supported by both Libyan law and international law [in order to be] justifiable under the Concession" and that conduct "is justifiable only if principles of both systems of law—Libyan and international—support it". The principle may still be acceptable, and the conduct justifiable, if supported by the general principles of law. To take a few examples, one system may prescribe that payments shall be made in one currency and the other system that payment shall be made in a different currency. Clearly, in such a case, under paragraph 7 of Clause 28 the general principles of law must provide the answer to the question what currency is to be used. If one system imposes automatic, obligatory limitation after the lapse of a given period, but the other does not, again the general principles of law will be resorted to for the purpose of determining whether a claim is barred by the lapse of time. Similarly, if one system contains the principle that any default by a debtor entitles a creditor to accelerate payment of principal and interest with immediate effect, but the other system does not offer the creditor such a remedy, the general principles of law will govern the issue respecting the availability of that remedy. And so the situation must be also in regard to breach of contract. If a particular action by a party amounts to breach of contract under one system but not under the other, the issue is one which can only be decided by reference to the general principles of law. Thus, the first part of the Claimant's argument must be rejected. It is not sufficient for the Claimant to show that the conduct of the Respondent is a breach of international law as a basis for maintaining a claim based on breach of contract. In the event that international law and Libyan law conflict on that issue, the question is to be resolved by the application of the general principles of law.
(b) Secondly, the Claimant argues that since the Parties have expressly excluded the direct and sole application of Libyan law, but have made reference to the general principles of law, and since "a" system must govern, "the only system that is left is public international law".
The Tribunal cannot accept the submission that public international law applies, for paragraph 7 of Clause 28 does not so stipulate. Nor does the BP Concession itself constitute the sole source of law controlling the relationship between the Parties. The governing system of law is what that clause expressly provides, viz. in the absence of principles common to the law of Libya and international law, the general principles of law, including such of those principles as may have been applied by international tribunals.
While the questions in paragraphs (i) and (ii) above for certain purposes of analysis are separable, it is hardly realistic to treat in depth abstract rights and concrete remedies without correlating the two. For as Judge Huber said in his award in the Spanish Zone of Morocco case:
La responsabilité est le corollaire nécessaire du droit. Tous droits d'ordre international ont pour conséquence une responsabilité internationale. La responsabilité entraîne comme conséquence l'obligation d'accorder une réparation au cas où l'obligation n'aurait pas été remplie. Reste à examiner la nature et l'étendue de la réparation. (1925; II U.N.R.I.A.A., p. 615 at p. 641.)
The Claimant relies on Article 159 of the Libyan Civil Code which provides:
In bilateral contracts (contrats synnallagmatiques) if one of the parties does not perform his obligation the other party may, after serving a formal summons on the debtor, demand the performance of the contract or its rescission, with damages, if due, in either case.
The Claimant further relies on the above-mentioned opinion of Professor Mohamed A. Omar, dated July, 1973, which on the basis of pronouncements by El-Sanhoury in his book The General Theory of Obligations, 1966, states, inter alia, as follows:
When a breach of the contract occurs the wronged party has the right to ask the court to order the other party to carry out his duties. If possible, the eventual order of the court is enforced specifically. If the specific performance is not possible, the court awards damages to the wronged party.
The sole provision in the Convention which has a direct bearing on the issues dealt with here is that contained in Article 60, Paragraph 1, which reads:
A material breach of a bilateral treaty by one of the parties entitles the other to invoke the breach as a ground for terminating the treaty or suspending its operation in whole or in part.
Lord McNair, writing in 1961, referring to the Harvard Research, and relying also on Charlton v. Kelly (1913; 229 U.S. 447), expressed the rule later embodied in Article 60 in a somewhat more qualified form:
One point is clear: a breach by one party (including an unlawful denunciation) does not automatically terminate the treaty, for the other party may prefer to maintain it in existence. Viewed from one angle, the right of abrogation is a remedy which the party wronged may or may not pursue. But he must make up his mind within a reasonable time; otherwise he will lose his right to abrogate the treaty.
(McNair, The Law of Treaties, 1961, p. 553, cf. p. 571.)
With regard to the question of the availability of the remedies of specific performance and restitutio in integrum in customary international law, it is important at the outset to stress that the inquiry below will be restricted to the general field of economic interests and especially to longterm contracts of a commercial or industrial character and property and other assets employed in industrial undertakings. The relevant issues may be fundamentally different in other contexts, such as disputes concerning sovereignty over territory. A decision by a tribunal with respect to the alignment of a boundary between two States naturally implies that when the judgment has become effective; the State which is in possession of territory declared in the judgment to be the territory of the other State must cede it. Thus the judgment can be characterised as decreeing restitutio in integrum if the territory to be so ceded has been occupied by the wrongful possessor in the near or distant past. If the decision of the tribunal is based on a treaty, such restitution may be said to be of a contractual nature. Every international decision on a boundary at least impliedly presents this feature. The International Court of Justice in the Temple of Preah Vihear (Merits) case expressly decided not only that the temple in dispute was situated in territory under the sovereignty of Cambodia but also held that Thailand was under an obligation to withdraw any military or police forces or other guards or keepers stationed by her at the temple or in its vicinity on Cambodian territory. The Court went even further by ordering Thailand to restore to Cambodia any object which Thai authorities might have removed from the temple or the temple area since the date of the occupation of the temple by Thailand in 1954. (Case concerning the Temple of Preah Vihear (Cambodia v. Thailand) (Merits), Judgment of 15 June 1962: I.C.J. Reports 1962, pp. 36-37.) The restitution in kind ordered by the Court in this instance, it may be noted, comprised not only the temple and the territory on which it was situated but specific, unique works of art of religious significance.
Professor Schwebel, addressing himself to the question whether specific performance is, or should be, available to parties to a contract between a State and a foreign national, concludes, de lege lata, that "the fact that specific performance normally is not afforded against a state in the national sphere suggests that it normally will not be accorded in the international sphere" (Schwebel, "Speculations on Specific Performance of a Contract Between a State and a Foreign National" in The Rights and Duties of Private Investors Abroad, 1965, p. 201, at p. 210). However, he continues:
Good faith observance of international contracts imports performance of the terms of the contract by both parties. Where there is a breach of contract, the remedy to repair it may be specific performance—especially where it is the only remedy which can repair it effectively. If a state, as is sometimes the case, lacks the capacity to pay the damages it would be obliged to pay were monetary compensation required, it may be said that good faith requires the contract to be performed specifically. (Schwebel, ibid., at pp. 209-210.)
A particular point made by Professor Schwebel is that declaratory awards are sometimes rendered by international arbitral tribunals, which authoritatively establish the rights of the parties, or the correct interpretation of a concession agreement, or how it should be executed, and these awards subsequently have been performed accordingly. He concludes:
How far removed is this process—this effective remedy—from that of specific performance? Actually, it is very close. (Schwebel, ibid., at p. 211.)
Insofar as can be judged by American practice before World War II, the United States have requested restitution in kind, particularly in cases of taking of property, and insisted on specific performance by foreign States of undertakings made in contracts vis-àvisa American nationals. However,
the choice of remedies has closely depended on the circumstances in each case, and the aim of the State Department has invariably been the flexible and reasonable one of seeking to prevent whatever government actions that might be prevented, or if that is too late, to obtain reparation or compensation such as has seemed appropriate and effective in the circumstances at hand.
(Wetter, "Diplomatic Assistance to Private Investment; A Study of the Theory and Practice of the United States During the Twentieth Century", 29 University of Chicago Law Review , p. 275, at p. 324.)
It should be noted, however, that very recently a diplomatic action which may be differently interpreted was taken by the United States Government. By a law of 11 June 1973, the Government of Libya nationalised the property, rights and interests of the Nelson Bunker Hunt Oil Company in and relating to Concession 65. On 5 July 1973, the United States protested against this taking of the said property, rights and interests in the following terms:
The United States Government has now had the opportunity to review the public statement by the Chairman of the Revolutionary Command Council on June 11, 1973, and the official commentary accompanying Law No. 42 of the same date. It is clear from those pronouncements that the reasons for the action of the Libyan Arab Republic Government against the rights and property of the Nelson Bunker Hunt Oil Company were political reprisal against the United States Government and coercion against the economic interests of certain other U.S. Nationals in Libya. Under established principles of international law, measures taken against the rights and property of foreign nationals which are arbitrary, discriminatory, or based on considerations of political reprisal and economic coercion are invalid and not entitled to recognition by other states.
In these circumstances, the United States Government must protest the action in violation of international law against the Nelson Bunker Hunt Oil Company, and it calls upon the Libyan Arab Republic Government to take the necessary steps to rectify this situation and to discharge its obligations under international law with respect to the Nelson Bunker Hunt Oil Company.
Certain judgments in the series of decisions dealing with the Chorzow Factory are of interest in the context. It has been argued that Judgment No. 13 in the Chorzow Factory (Claim for Indemnity, Merits) case (P.C.I.J., Ser. A, No. 17 (1928)) constitutes authority for the proposition that restitutio in integrum is a recognised remedy of international law. In fact, practically all writers on international law who advance the view that restitutio in integrum is so recognised rely largely on the pronouncements of the Court in this case. (Citation of such literature is superfluous here to the extent that the writers merely repeat the statements of the Court.) However, the judgment is not authority on the point, for the claimant, the German Government, did not claim restitutio in integrum, and anything the Court may have stated on the availability of that remedy therefore is obiter. The Court had held in an earlier judgment that the expropriation by Poland violated Article 6 and the following Articles of the applicable so-called Geneva Convention. Having regard thereto, Germany's principal final submission was that "the Polish Government is under an obligation to make good the subsequent injury sustained by the aforesaid Companies from July 3rd, 1922, until the date of the judgment sought" (ibid., p. 12). It will be observed that what the Court established in the crucial passage of the Judgment were "the principles which should serve to determine the amount of compensation due for an act contrary to international law", and it was in the course of defining such principles that the Court made the following oft-quoted pronouncement:
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 reestablish the situation which would, in all probability, have existed if (hat 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; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it such are the principles which should serve to determine the amount of compensation due for an act contrary to international law. (Ibid., p. 47.)
The Court then went on to say:
This conclusion particularly applies as regards the Geneva Convention, the object of which is to provide for the maintenance of economic life in Upper Silesia on the basis of respect for the status quo. The dispossession of an industrial undertaking—the expropriation of which is prohibited by the Geneva Convention—then involves the obligation to restore the undertaking and, if this be not possible, to pay its value at the time of the indemnification, which value is designated to take the place of restitution which has become impossible.
(Ibid., pp. 47—48.)
It was argued by Greece in the Forests of Central Rhodope (Merits) case (1933; III U.N.R.I.A.A., p. 1405) that Bulgaria should restore the properties in question or, failing restitution, pay compensation for them. The arbitrator, Osten Undén, stated that in the course of the proceedings the choice between the two remedies had been left in his discretion. The claim for restitutio in integrum was rejected and the arbitrator stated that in the circumstances the only practical solution was to award an indemnity:
L'Arbitre estime qu'on ne saurait imposer au Défendeur l'obligation de restituer les forêts aux réclamants. Plusieurs raisons militent en faveur de cette attitude. Les réclamants pour lesquels une demande formée par le Gouvernement hellénique a été considéréé comme recevable, sont associés d'une société commerciale comptant d'autres associés encore. II serait done inadmissible d'obliger le Bulgarie à restituer intégralement les forêts litigieuses. II n'est guère vraisemblable, en outre, que les forêts se trouvent dans le même état qu'en 1918. Etant donné que la plupart des droits sur les forêts ont le caractère de droits de coupe d'une quantité fixe de bois, devant être enlevée pendant une période déterminée, une sentence concluant à la restitution serait conditionnée par l'examen de la question de savoir si l'on peut actuellement obtenir la quantité cédée. Une telle sentence exigerait aussi l'examen et le règlement des droits qui pourraient avoir surgi dans l'intervalle en faveur d'autres personnes et être; conformes ou non aux droits des réclamants.
La seule solution pratique du différend consiste par conséquent à imposer au Défendeur l'obligation de payer une indemnité. (ibid., p. 1432.)
International arbitral tribunals occasionally have been vested by treaty with extraordinarily wide powers to order annulment of administrative decrees, and issue injunctions and make other dispositions. Such was the case, e.g., with respect to the tribunals appointed to resolve disputes between the Algerian State and the Compagnie de recherches et d'exploitation de pétrole au Sahara (CREPS) and that between the Société francise pour la recherche et l'exploitation des pétroles en Algérie (SOFREPAL) and the Société nationale de recherches et d'exploitation des pétroles en Algérie (SN REPAL) (cf. Yearbook of the International Court of Justice, 1968-69, pp. 112-113). Both were constituted pursuant to the Franco-Algerian Agreement of 29 July 1965 concerning the settlement of questions relating to hydrocarbons and the industrial development of Algeria (Journal Officiel de la République Française, 28 December 1965, p. 11793). According to Article 178 of the said Agreement, the decisions of the arbitral tribunals are self-executory in the territories of France and Algeria. The powers of the tribunals are defined in Article 174, which includes the following provision:
[Le tribunal] peut prononcer l'annulation de toute mesure contraire au droit applicable et ordonner la réparation des préjudices subis par l'octroi de dommages et intérêts ou tout autre procédé qu'il juge approprié; il peut ordonner toute compensation entre les sommes mises à la charge de l'une des parties par sa sentence et celles dont l'autre partie serait débitrice à l'égard de la première.
The exceptional character of the treaty provisions now referred to is explained not only by the nature of the agreements reached between the contracting States but by the historical position of the concessionary enterprises which under a French statute of 1958 had had direct recourse to the Conseil d'Etat in disputes under the concessions with the Government of France:
Cette clause est remarquable; elle ne peut s'expliquer que par les circonstances dans lesquelles l'accord a été conclu et par le souci d'assurer aux sociétés pétrolières les mêmes garanties qui leur étaient antérieurement conférées. Manifestement, référence est ainsi faite au Conseil d'Etat Français, juge de l'excès de pouvoir (annulation) et juge en plein contentieux (indemnités). Pourtant, les pouvoirs du Tribunal arbitral international sont encore plus larges: il peut procéder par injonction à l'égard de la Puissance publique algérienne et ses sentences sont directement exé cutoires contre elle. (Vignes, ibid., p. 393.)
In this context, reference may be made to the claims of France in the Case Concerning the Compagnie du Port, des Quais et des Entrepôts de Beyrouth and the Société RadioOrient (France v. Lebanon, I.C.J. Pleadings). Lebanon had imposed taxes on the port company in violation of the tax exemption granted to the company in its concession, and had refused to arbitrate the resulting dispute, and further had imposed customs duties on goods imported by the radio company in violation of that company's concession which provided for certain customs duty exemptions. Before the Court, France maintined that these acts of Lebanon were unlawful and engaged her responsibility by entitling France to claim "adequate reparation". Accordingly, France claimed with respect to the port company, inter alia :
l'abandon par le Gouvernement libanais de l'exécution à l'encontre de la Compagnie des dispositions de la loi du 26 juillet 1956,
and, with respect to the radio company, inter alia :
la cessation immédiate des mesures d'exécution de la loi du 26 juillet 1956 (ibid., p. 49).
The only case in which the issue of the availability of restitutio in integrum as a remedy for breach of a concession has been presented squarely is the Anglo-Iranian Oil Co. case, but it was never judicially considered as the International Court of Justice found that it had no jurisdiction in the matter (Anglo-Iranian Oil Co. Case (Jurisdiction), Judgment of July 22nd, 1952: I.C.J. Reports, 1952, p. 93). The first alternative claim by the United Kingdom in its Memorial was formulated as follows:
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.
(I.C.J. Pleadings, Anglo-Iranian Oil Co. Case (United Kingdom v. Iran), p. 124.)
The conclusions advocated by the United Kingdom are quoted below. It should be observed that the remedy of restitutio in integrum is said to be available except in situations where it is characterised as variously "impossible", "unnecessary" or "impracticable":
The authorities adduced above show that there is nothing in the principles of international law and in international practice which prevents the Court from decreeing restitution in kind and that, on the contrary, international law prescribes such restitution as the remedy if restitution is possible. There is, in this connection, a further material factor to which the Government of the United Kingdom attaches importance. While it may be admitted that in certain circumstances restitution in kind may not be either possible or necessary for safeguarding the true interests of the parties, there may be other cases in which such restitution provides the only practicable and just solution. Such cases include those in which the offending State is unlikely to be in a position to grant adequate pecuniary compensation and in which the situation, wrongfully created by it, is calculated, if allowed to subsist, to affect adversely its solvency...
The relief to be granted in the present case in respect of the action of the Imperial Government of Iran should be full restitution of its concessionary rights to the Anglo-Iranian Oil Company, since there is no reason to render such restitution impracticable.
(I.C.J. Pleadings, Anglo-Iranian Oil Co. Case (UnitedKingdom v. Iran), pp. 116—117.)
In considering this question, it is appropriate to refer initially to the following cautious statement in Oppenheim-Lauterpacht:
The principal legal consequences of an international delinquency are reparation of the moral and material wrong done. The merits and the conditions of the special cases are, however, so different that it is impossible for the Law of Nations to prescribe once and for all what legal consequences an international delinquency should have. The only rule which is unanimously recognised by theory and practice is that out of an international delinquency arises a right for the wronged State to request from the delinquent State the performance of such acts as are necessary for reparation of the wrong done. What kind of acts these are depends upon the merits of the case.
(Oppenheim-Lauterpacht, International Law, Vol. I, Eighth Edition, 1963, § 156.)
The survey of cases and other relevant materials presented above demonstrates that there is no explicit support for the proposition that specific performance, and even less so restitutio in integrum, are remedies of public international law available at the option of a party suffering a wrongful breach by a co-contracting party. An analysis of the cases shows instead that while declaratory awards have often been made in terms of defining the rights and obligations of parties to a concession contract, these cases have never involved the total expropriation or taking by the State of the property, rights and interests of the concessionnaire; and indeed in the most important of the cases the validity and continued existence of the contract has not been questioned. The case analysis also demonstrates that the responsibility incurred by the defaulting party for breach of an obligation to perform a contractual undertaking is a duty to pay damages, and that the concept of restitutio in integrum has been employed merely as a vehicle for establishing the amount of damages. This becomes nowhere more apparent than in certain remarks on the concept made in 1927 by the late Sir Hersch Lauterpacht:
A problem of a similar kind is involved in the question as to how far the general principle of private law, that in awarding damages restitutio in integrum should, as a rule, be aimed at, applies in cases when damages are to be awarded under international law. That principle means that the injured person is placed in the position he occupied before the occurrence of the injurious act or omission; it means that, to use the Roman law terminology, not only the damnum emergens but also lucrum cessans is taken into consideration. (Lauterpacht, Private Law Sources and Analogies of International Law, 1929, p. 147.)
In summary, it is true as Professor Schwebel has stated in the article quoted earlier, that declaratory awards of the kind made in the Aramco case come close to being equivalent to orders for specific performance. However, the declaratory awards rendered in those instances are not comparable to an order for physical restitution by a State of a nationalised enterprise to a foreign concessionaire. There is considerable weight in the following statement by Dr. Z. A. Kronfol in which he sums up a review of the statements of certain writers, and some cases:
Thus, there seems to be a contradiction between theory and practice. In reality, practice follows a pattern which is exactly the opposite of the one accepted in theory. In practice, compensation constitutes the principal remedy, restitutio being clearly an exceptional one. (Kronfol, Protection of Foreign Investment; A Study in International Law, 1972, p. 100; cf. Young, "Remedies of Private Claimants Against Foreign States" in Selected Readings on Protection by Law of Private Foreign Investments, 1964, p. 905, at pp. 935-938.)
Secondly, the fact that the State is the respondent party is one which cannot be overlooked. Dr. Mitchell, on the basis of a survey of the municipal laws of England, France and the United States, has made it clear that the remedies of specific performance and restitution in kind normally are unavailable against governmental authorities under public contracts. He states with respect to what he terms the principle of governmental effectiveness:
To deny enforceability to public contracts under the present principle is then to assert no more than that, even where normally available, the remedies of specific performance or injunction or their equivalents are ruled out by the principle of governmental freedom of action. Compensation is not thereby necessarily also eliminated, since it is the performance of, or abstention from, a particular act which is obnoxious to the general rule and not the payment of money. Rarely, as has been shown, the payment of compensation may itself offend. To admit the possibility of compensation does not however necessarily mean that the quantum of compensation should be the same as the quantum of damages for breach.
The result of the general principle here advanced is therefore that the public authority may be exempt from performing its contract according to its strict expression, but that where this exemption results in loss to the individual contractor compensation should be payable save where that payment would offend the principle.
(Mitchell, The Contracts of Public Authorities, 1954, p. 20.)
THE TRIBUNAL DECIDES as follows with respect to the Declarations requested by the Claimant:
Requested Declaration No. 1
"The Libyan Nationalisation Law of 7 December 1971 and the subsequent implementation thereof were each a breach of the obligations of the Libyan Government owed to the Claimant under the Concession Agreement and so remain."
The BP Nationalisation Law and the subsequent implementation thereof were each a breach of the obligations of the Respondent owed to the Claimant under the BP Concession.
Requested Declaration No. 2
"The said breaches were and are ineffective to terminate the Concession Agreement, which remains in law valid and subsisting."
The BP Nationalisation Law was effective to terminate the BP Concession except in the sense that the BP Concession forms the basis of the jurisdiction of the Tribunal and of the right of the Claimant to claim damages from the Respondent before the Tribunal.
Requested Declaration No. 3
"The Claimant is entitled to elect, at any time so long as the Respondent's breach continues, to treat the Concession Agreement as at an end."
Refused, as a consequence of the decision on the requested Declaration No. 2.
Requested Declaration No. 4
"The Claimant is entitled to be restored to the full enjoyment of its rights under the Concession Agreement."
Refused, for the reasons stated in subsections (a) and (b) of Section 5 of Part VII.
Requested Declaration No. 5
"The Claimant is the owner of its share of any crude oil extracted from the area of the Concession Agreement after as well as before 7 December 1971 and of all installations and other physical assets, and the Libyan Government has no right to any such oil, installations or physical assets, which it can enjoy or transfer to any third party."
Refused, insofar as the requested Declaration refers to crude oil extracted after 7 December 1971. With this exception, the request is joined with the claim to be considered in the subsequent stage of the proceedings.
Requested Declaration No. 6
"Performance of the Claimant's obligations under the Concession Agreement is suspended for so long as the Libyan Government remains in breach thereof."
Refused, as a consequence of the decision on the requested Declaration No. 2 that the BP Nationalisation Law was effective to terminate the BP Concession.
Requested Declaration No. 7
"The Claimant is entitled to damages in respect of the interference by the Libyan Government with the Claimant's enjoyment of its rights under the Concession Agreement. If the Claimant does not exercise its rights under Declaration No. 3 above, then it is entitled to damages accruing up to the date of the final award herein. If the Claimant does exercise the rights under Declaration No. 3 above, it is entitled to all damages arising from the wrongful act of the Libyan Government."
The Claimant is entitled to damages arising from the wrongful act of the Respondent, to be assessed by this Tribunal in subsequent proceedings.
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