Companies with Libyan operations should tread carefully on contract negotiation, says expert

Out-Law Analysis | 12 Jan 2012 | 11:15 am | 2 min. read

OPINION: Libya has gone through dramatic recent political and social changes, and economic change cannot be far behind. For companies already doing business there it is an unsettling time, but they should be careful about how they go about protecting their interests.

Aggressive tactics to reinforce existing contractual rights may or may not yield benefits in the short term, but they are likely to damage longer term prospects of doing business in Libya.

Elections are expected in Libya later this year. Until then the Transitional National Council (TNC) is in charge, and it has said that it will assess contracts and honour those that were entered into properly. The TNC may well use this as an opportunity to restructure or renegotiate a contract.

Businesses should understand that the revolution that swept away the Muammar Gaddafi regime last year is likely to count as a 'force majeure' event which suspends the contract.

You could take a hard line on the contracts and on any money owed, but you should ask yourself whether this would serve your longer term interests. Pursuing disputes through formal channels is likely to damage the chances of a company working in Libya again.

There are other ways to mitigate your losses. Insurance may help you to recover some money. If you have a 'contractors all risks' or 'material damage' insurance policy in place on your project you may be able to claim on it. Some projects in the region have 'political risk' insurance – check to see if you have such a policy in place. Don't forget to check the levels of deductibles to make sure claiming on the policy makes commercial sense.

Pay particular attention to your bonds. Depending upon the jurisdiction in question, it may be possible to protect your position in relation to any call which might be made on your bonds.

Look at your supply chain: can you suspend your subcontracts (or at least your payment obligations under them) or even terminate them if you need to? Consider whether you will need subcontractors ready to start work if and when the all clear is given for your project to continue.

You could also look at restructuring your contract in light of the state of your funding arrangements, and you could look to recover any physical material from sites that belongs to you, though this may have been damaged in the revolution.

It is worth taking this more co-operative approach because there will be a host of energy and infrastructure opportunities in Libya in the future, and it seems that involvement with the Gaddafi regime will not preclude your company from working with a new Libyan government.

So how do you go about engaging with the TNC? The first step is to contact your Government's trade body – UK Trade & Investment in the UK's case. The commercial attaché at your country's Libyan embassy is also a good first contact. Once this is done you can get in touch with the TNC itself to discuss your contracts and how to proceed.

Mark Lane is projects and construction law expert at Pinsent Masons, the law firm behind Out-Law.com