Cypriot investor awarded EUR 18 million for expropriation and violation of national treatment and FET

Olin Holdings Limited v. State of Libya, ICC Case No. 20355/MCP

In an arbitration initiated by Cypriot company Olin Holdings Limited (Olin), an ICC tribunal found that Libya breached its obligations to accord to the investor FET and to treat Olin’s investments no less favourably than it treated Libyan nationals’ investments. In addition, the tribunal held that Libya had unlawfully expropriated Olin’s investments. The award was rendered on May 25, 2018.

Background and claims

In the 1990s, Libya initiated reforms to foster foreign investments. In this context, Olin decided to invest in a dairy and juice factory in Tripoli. By the end of 2006, when Olin’s factory was built and ready to operate, it received an eviction order (the Expropriation Order) informing that the factory had been dispossessed and requesting it to vacate the property within three days.

The Libyan army, soon after the issuance of the Expropriation Order and pursuant to it, destroyed several buildings around the factory. Although two Libyan competitors of the same business sector were formally exempted from the order, the Libyan government refused to exempt Olin from it. Olin started court proceedings in Libya, and the order was voided in 2010. However, in February 2011 a period of revolution started, and the Libyan court decided to reopen the proceedings. In 2014 it ruled that Olin had failed to prove the harm it suffered. Olin ceased all operations in the factory in October 2015.

Olin initiated ICC arbitration in July 2014, requesting the tribunal to declare that Libya breached Article 7 of the Cyprus–Libya BIT (the BIT), related to expropriation; the national treatment clause (BIT Article 3); and the FET and full protection and security (FPS) standards (BIT Article 2(2)). Olin requested compensation for its past and future losses.

Libya disregarded the standards for lawful expropriation

First, the arbitrators analyzed BIT Article 7(1) and Article 23 of the Libyan Investment Law, which provided the standards for lawful expropriation: (i) public interest; (ii) in accordance with due process of law; (iii) non-discriminatory basis; and (iv) prompt, adequate and effective compensation. The tribunal concluded that the Expropriation Order did not comply with these requirements.

Initially, the tribunal assessed who was affected by the Expropriation Order. Although the land where Olin’s factory was located belonged to a Libyan national, “the Expropriation Order necessarily entailed an expropriation of all the buildings on the land in question” (para. 156). Referring to Sd Myers v. Canada, the tribunal considered that the state measures had an effect equivalent to expropriation.

Regarding the public interest requirement, the arbitrators ruled that the disputing parties “failed to produce sufficiently compelling evidence allowing it to make a conclusive finding” (para. 169). Even so, it considered the Expropriation Order unlawful because due process was disregarded. As it was an administrative resolution, the tribunal held that it did not comply with the requirement of being a law or court decision. Furthermore, the tribunal found the order to be discriminatory and held that Libya failed to provide prompt or effective compensation.

Libya breached its national treatment obligation

Olin alleged that Libya accorded treatment less favourable than that accorded to Libyan investors, thus breaching BIT Article 3. The tribunal, considering the standards provided by Total v. Argentina, established that “a discriminatory treatment can be demonstrated if the investor proves that the State has been treating differently persons who are similarly situated” (para. 202). In order to pass this threshold, the tribunal analyzed whether: (i) Olin and the domestic investors were similarly situated; (ii) Libya treated Olin less favourably than those domestic investors; and (iii) the alleged discrimination was justified.

First, the arbitrators considered Olin and the domestic investors to be similarly situated, as the companies operated in the same business sector and were closely located in the same industrial zone. Second, Libya expressly exempted domestic investors from demolitions and allowed them to remain on site permanently, while Olin faced 4.5 years of uncertainty until Libyan courts cancelled the Expropriation Order. Third, they held that Libya failed to prove that the difference in treatment was justified. Accordingly, the tribunal upheld Olin’s national treatment claim.

Libya did not accord FET to Olin and violated the impairment clause

The tribunal considered that the FET obligation entailed “respect for the investor’s ability to operate its investment with a minimum level of certainty as to its fate and as to the ability to implement basic business decisions in an unfettered manner” (para. 311). It ruled that the issuance of the Expropriation Order frustrated Olin’s legitimate expectations, as Libya prevented Olin from operating its plant under normal business conditions.

According to the tribunal, Libya breached its FET obligation due to the lack of transparency in the expropriation of the land in which Olin’s plant was located, as well as by taking a series of measures related to the importation of a new production line and the repatriation of Olin’s profits. However, the tribunal held that Olin did not satisfy the burden and “relatively high threshold” (para. 353) of proving a denial of justice.

In addition, the arbitrators considered that the impairment clause embodied in BIT Article 2(2) would be breached if Libya “impaired the management, maintenance, use, enjoyment, and expansion of the Claimant’s investment” (para. 374) through unreasonable or discriminatory measures. Thus, the tribunal ruled that Libya’s actions negatively impacted Olin’s investment, violating the impairment clause.

Libya did not breach full protection and security

Regarding BIT Article 2(2), the arbitral tribunal also found that Libya had an obligation to “ensure a climate of protection and security” (para. 362). The tribunal referred to Saluka v. Czech Republic and ruled there was neither use of force nor physical integrity harassment. Therefore, although Olin’s factory had to slow down its pace, the arbitrators affirmed that there was no evidence to conclude that Libya breached the FPS standard.

Claimant is awarded EUR 18 million in compensation for past losses

The tribunal decided that Olin was entitled to full compensation for the losses it suffered. Considering that Olin did not satisfy its burden of proof regarding the amount of its future losses, the arbitrators ruled that it should receive compensation solely for past losses. The damages were evaluated through the discounted cash flow (DCF) method.

Decision and costs

The tribunal concluded that Libya breached BIT Articles 2(2), 3 and 7 and ordered the state to pay Olin EUR 18,225,000 as compensation for its past losses, plus simple interest of 5 per cent per year. Regarding legal costs and expenses, the tribunal decided that Libya should reimburse 75 per cent of Olin’s costs, amounting to EUR 1,069,687. Additionally, Libya was ordered to pay USD 773,000 in arbitration costs.

Notes: The arbitral tribunal was composed of Nayla Comair-Obeid (president appointed by the ICC International Court of Arbitration, Lebanese and French national), Roland Ziadé (claimant’s appointee, Lebanese, French and Ecuadorian national) and Ibrahim Fadlallah (respondent’s appointee, Lebanese and French national). The final award of May 25, 2018 is available at https://www.italaw.com/sites/default/files/case-documents/italaw9766_0.pdf

Pietro Benedetti Teixeira Webber is a final year law student at the Federal University of Rio Grande do Sul, Brazil.