The LIAMCO case was one of a trio of arbitral decisions arising from Libya’s nationalization of its oil sector in 1973. LIAMCO, a US company, had entered into a number of concessions with Libya in 1955. After the nationalizations imposed by the then-new Qaddafi regime, LIAMCO initiated arbitration proceedings under its Concession Agreements, requesting as its primary remedy the reinstatement of its concessions and as an alternative, damages in the amount of US$207,652,667 plus interest. That amount consisted of the following three components: (1) Physical Plant and Equipment — US$13,882,667; (2) Concession — 20 US$186,270,000 (lost profits); and (3) Concession 17 — US$ 7,500,000 (lost profits).
Initially, the sole arbitrator ruled that he could not award restitution, stating among other things that “it is impossible to compel a State to make restitution; this would constitute in fact an intolerable interference in the internal sovereignty of States.” As to LIAMCO’s alternate claim for damages, turning first to the physical property, the arbitrator said that “there is no difficulty also that the indemnity should include as a minimum the damnum emergens, e.g., the value of the nationalized corporeal property, including all assets, installations, and various expenses incurred.” For these assets and expenses, the arbitrator awarded LIAMCO the full amount of its claim.
With respect to the two concessions, the arbitrator first undertook a full conceptual analysis of the recoverability of lost profits. He found that (1) most municipal law systems permit lost profits as part of the damages for breach of contract; (2) both Libyan law and Islamic law also allow the recovery of lost profits; and (3) classical international law allows the recovery of lost profits for both wrongful taking of property and lawful nationalizations. He noted, however, that the recent evolution of international law indicated there was no constant and uniform rule for the compensation of lost profits for nationalizations, at least not all future profits.
Turning next to the specific claims of quantum, as for Concession 20, the arbitrator considered that to award lost profits for all future concession reserves would be an “extreme” position. In lieu of this “extreme,” the arbitrator held that “it would be reasonable and just to adopt the formula of ‘equitable compensation’ as a measure for the estimation of damages...” Relying on this compensation formula, the arbitrator awarded LIAMCO only US$66 million (out of its US$186 million claim) for its rights in Concession No. 20.
The situation for Concession 17 was different. Unlike Concession 20, no oil had ever been produced from that field, but LIAMCO argued that the increase in the price of oil would have rendered the field economic, such that LIAMCO should be compensated US$7.5 million for its lost opportunity. But the arbitrator awarded nothing on this claim, reasoning that such profits were not “certain and direct,” were doubtful, and were probably not realizable.
As for interest, LIAMCO requested a 12% rate on all amounts claimed, although it recognized that setting the rate was a matter for the arbitrator’s discretion. The arbitrator concluded that it was “just and equitable to consider the interest claimed not as usury (ribd), but as a compensatory equivalent consideration of the said discount rate ....” The arbitrator elected the 5% rate allowed by Libyan law for commercial cases but granted interest only from the date of the final assessment of damages on the theory that interest cannot be awarded on unliquidated damages before they are ascertained.
As for costs, the arbitrator awarded LIAMCO US$203,000, pointing to Libyan law and a clause in the contract that suggested costs could be allocated in an appropriate manner in light of LIAMCO’s success in pursuing some but not all of its claims.
The LIAMCO case is an interesting one to read in light of more recent international jurisprudence on quantum. The arbitrator’s decision conflicts with some recent cases on the power to award restitution, against a State as well as the “full” compensation standard. Nonetheless, the arbitrator’s reasoning on awarding LIAMCO only about a third of its claimed damages mirrors to some extent the conservative approach to compensation taken by many modern tribunals, even those applying an ostensibly more robust standard. In addition, the arbitrator’s general analysis on lost profits, as well as his decisions on interest and costs, are likewise reflective of much current jurisprudence on these issues, except that his decision to award interest only from the date of the award is inconsistent with the requirements of most modern bilateral investment treaties.