Out-Law Guide | 12 Jan 2012 | 11:19 am | 4 min. read
I have a contract with a Libyan Government entity. Is it still valid?
In May 2011, the Transitional National Council (TNC), the interim legislative body in place in Libya until a democratically elected Parliament is formed, declared "its engagement and respect to all ongoing legal contracts and agreements concluded with the former Libyan regime".
The Libyan authorities have recently reiterated that existing contracts would be honoured provided that such contracts have been properly entered into.
In practice, the TNC is likely to examine each contract on a case by case basis and might see this as an opportunity to re-structure a contract.
In any case the revolution is likely to be deemed a "force majeure event" which should have suspended your contract for now. To determine where you stand on your contract you need to contact the TNC.
How should I get in contact with the TNC?
You should first contact your own government trade body, for example UK Trade & Investment or the Chambre de Commerce Franco-Libyenne and ultimately the commercial attaché or equivalent at your embassy in Libya and the TNC itself in order to determine whether your contract will be upheld.
The Government owes me money. How can I get it back?
In pursuing any monetary claim you need to consider how much you value future projects in Libya.
In parallel to reviewing your contract, you could try to recover debts by declaring your debt to your own government trade body and engaging with the TNC. This is an approach that appears to be working. If this is not successful you could look to applying payment provisions and ultimately dispute resolution mechanisms set out in your contract.
It may be possible to go after the Libyan Government to try and recover some of your losses via, for example, commercial or bilateral investment treaty arbitration.
Whilst the chances of this leading to successful and timely recovery might be hard to quantify, it is clear that choosing the dispute option is likely to damage your chances of successfully working in the country in the future.
Do I need to protect myself against a bond call in response to the suspension of the works?
In considering the potential risk of a bond call, you should check whether your bond is an on-demand or default bond. In the context of an on-demand bond, the employer does not need to prove a breach of contract to call the bond. A notice to the bondsman in the required form may be sufficient. Other factors include the identity and location of the bondsman and the bond's governing law and jurisdiction clause.
You could inform the bondsman that the works have been suspended and ask to be immediately notified of any call or threat of call by the employer.
I don't want to damage my company's relationship with Libya. How else can I mitigate my losses?
There are a number of practical measures available to minimise your management time and monetary losses caused by the events in Libya. These include:
Checking your insurances: 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.
Looking 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 TNC gives the all clear for your project to continue.
Restructuring your contract: if you decide to continue your project, you need to look at your funding arrangements and consider the implications of the recent events on your contractual provisions. Key factors will include the stage of completion of the project, liability for defects, liquidated damages, payment provisions or collateral warranties. There will be cost involved in any restructuring exercise which should be factored in.
Recovering site materials: you need to look at your contracts and determine whether any site materials you might have still belong to you or whether title has passed to the employer. If not, you might be able to recover them and use them on other projects. There is, however, potentially a practical barrier to this as materials might have been damaged during the revolution.
I am looking to take advantage of future opportunities in Libya. What should I do?
There will be a host of energy and infrastructure opportunities in Libya in the future.
As is the case for contractors with existing agreements in Libya, the first step should be contacting your own government trade body, then the commercial section of your embassy in Libya and in due course the TNC itself.
As for future projects, recent evidence indicates that previous involvement with the old regime will not of itself preclude future involvement with a new Libyan government.
It is important to be ready to take on projects when the newly elected Government is in place. Elections are due to take place later in 2012 so acting fast and contacting your own trade body is vital.
Getting ready means considering what Libya's reconstruction and development will entail and the projects you might want to be involved with. Current priorities include infrastructure repair and medical facilities rehabilitation. Larger contracts are likely to arise later rather than immediately. Amongst other factors, the unfreezing of Libyan assets overseas will be relevant here. Unsurprisingly, there is a lot of interest in Libyan opportunities amongst contractors and competition is likely to be fierce.
Don't forget any obligations under the Bribery Act 2010 as so called commission payments in the region are common.