Öztaş Construction, Construction Materials Trading Inc. v. Libya, ICC Arbitration No. 21603/ZF/AYZ
ICC · Investment (ICSID and treaty) · Libya · 14 Jun 2018
Why it matters
This case illustrates the limits of BIT protection for purely contractual disputes. The tribunal held that without an umbrella clause, a breach of a termination agreement does not automatically constitute a BIT violation. It also clarified that an MFN clause cannot be used to import an umbrella clause without evidence of a more favorable treaty. The decision underscores the importance of the distinction between contract claims and treaty claims in investment arbitration.
Summary
Öztaş Construction, a Turkish company, entered into a contract with the Libyan Investment Development Company (LIDCo) before the 2011 Libyan civil war. After the war, the contract was terminated, and LIDCo agreed to pay compensation under a termination agreement. However, the compensation was never paid. Öztaş initiated ICC arbitration against both LIDCo and the State of Libya under the Turkey-Libya Bilateral Investment Treaty (BIT), even though neither the original contract nor the termination agreement contained an arbitration clause. Öztaş argued that Libya breached the BIT by failing to ensure LIDCo's payment, and that the BIT's MFN clause allowed it to import an umbrella clause from another Libyan BIT to turn the contractual breach into a treaty breach. The tribunal first addressed jurisdiction. It unanimously declined jurisdiction over LIDCo because LIDCo was not a state entity and the BIT only allows claims against a 'Contracting Party' (i.e., the state). However, it accepted jurisdiction over Libya because Öztaş qualified as an investor under the BIT and had made an investment in Libya. On the merits, a majority of the tribunal dismissed all claims against Libya. It found that Libya did not breach the BIT through LIDCo's actions because LIDCo was not a state organ or entity exercising governmental authority. Libya's own conduct, such as not paying the termination fee directly, did not violate the BIT's standards of fair and equitable treatment or expropriation, as the BIT lacked an umbrella clause. The tribunal also rejected the MFN argument because Öztaş failed to provide any evidence of another Libyan BIT containing an umbrella clause. Consequently, the tribunal ordered Öztaş to bear the ICC costs of US$236,900 and pay Libya's legal costs of €97,891.40.
The detail
Parties: Öztaş Construction, Construction Materials Trading Inc. v. Libya, ICC Arbitration No. 21603/ZF/AYZ
Case number: italaw/cases/8098
Outcome: The tribunal declined jurisdiction over LIDCo, accepted jurisdiction over Libya, but dismissed all claims against Libya on the merits. Claimant was ordered to bear ICC costs of US$236,900 and pay Respondents' legal costs of €97,891.40.
Applicable law: Turkey-Libya BIT (2009), ICC Rules (2012), Libyan law, international law
Issues in play: The BIT's substantive protections (fair and equitable treatment, expropriation) versus contractual obligations under a termination agreement. The tribunal considered whether the BIT's MFN clause could import an umbrella clause from another treaty, but found no evidence.
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