Desert Line Projects LLC v. The Republic of Yemen
ICSID · Investment (ICSID and treaty) · Yemen · 6 Feb 2008
Why it matters
This is a landmark ICSID case because it recognized that a state's coercion of an investor into a settlement agreement can violate the fair and equitable treatment standard. It also awarded moral damages for the first time in an ICSID case, setting a precedent for compensating non-material harm such as stress and reputational loss. The decision clarified that domestic arbitration awards can be protected under investment treaties.
Summary
Desert Line Projects LLC, an Omani construction company, entered into seven road construction contracts with the Republic of Yemen between 1999 and 2002. After completing most works, Yemen failed to pay outstanding amounts, leading to disputes. In June 2004, the parties agreed to a domestic arbitration in Yemen, which resulted in an award of approximately YR 18.4 billion (about USD 100 million) in favor of Desert Line. However, Yemen challenged the award in Yemeni courts and simultaneously pressured Desert Line to sign a settlement agreement for only YR 3.5 billion. Desert Line signed under duress, citing threats and harassment by Yemeni authorities. After signing, Desert Line rescinded the settlement and initiated ICSID arbitration under the Oman-Yemen BIT. The Tribunal found that Yemen's conduct, including physical threats, arbitrary detention of employees, and military interference, violated the BIT's fair and equitable treatment and full protection and security standards. It held that the settlement agreement was coerced and thus not a valid waiver of Desert Line's rights. The Tribunal ordered Yemen to pay the full amount of the Yemeni arbitral award plus interest, and awarded USD 1,000,000 in moral damages for the stress and reputational harm suffered by Desert Line's executives. The case is notable for establishing that moral damages are available in investment arbitration and that states cannot use coercive tactics to escape treaty obligations.
The detail
Parties: Desert Line Projects LLC v. The Republic of Yemen
Case number: ICSID Case No. ARB/05/17
Outcome: The Tribunal found Yemen breached the Oman-Yemen BIT by coercing Desert Line into a settlement agreement that undervalued the Yemeni arbitral award. It ordered Yemen to pay the full amount of the Yemeni arbitral award (YR 3,585,446,554 plus interest) and USD 1,000,000 in moral damages.
Quantum: YR 3,585,446,554 (approx. USD 19.4 million) plus 5% simple interest from August 9, 2004; USD 1,000,000 moral damages
Applicable law: Oman-Yemen Bilateral Investment Treaty (BIT) of 1998; ICSID Convention; Yemeni law for the underlying contracts
Issues in play: The case involved the interaction between a domestic arbitral award and the BIT's fair and equitable treatment standard. The Tribunal had to decide whether a settlement agreement signed under alleged duress could waive rights under the BIT.
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