Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others

Case summary

At a glance

Parties: Mohamed Abdulmohsen Al-Kharafi & Sons Co. (Kuwait) v. the Government of the State of Libya, the Libyan Ministry of Economy, the General Authority for Investment Promotion and Privatization Affairs, the Libyan Ministry of Finance and the Libyan Investment Authority
Case no.: Ad hoc arbitration (no institutional number); enforcement and annulment cases in France and Egypt (e.g. Paris CA RG 13/18811; Cairo CA case 39/130 J; Egyptian Cassation appeal 12262/90 J)
Forum and rules: Ad hoc arbitration under the Unified Agreement for the Investment of Arab Capital in the Arab States, with the CRCICA Arbitration Rules applied but not administered by CRCICA; seat Cairo
Treaty: Unified Agreement for the Investment of Arab Capital in the Arab States (1980), through Article 29 of the lease contract of 8 June 2006
Tribunal: Abdel Hamid El-Ahdab (Chairman), Ibrahim Fawzi, Mohamed El-Kamoudi El-Hafi (who refused to sign the award)
Sector: Tourism; real estate development
Outcome: Majority award of 22 March 2013 for the claimant. Paris granted exequatur (confirmed 2014). The Cairo Court of Appeal annulled the award in 2020, but the Egyptian Court of Cassation reversed that in 2021 and dismissed the annulment action. French courts lifted the attachments of Libyan Investment Authority assets because the assets were frozen under EU sanctions.
Amount: Claim raised from USD 55 million to USD 1,144,930,000 and then to USD 2,055,530,000. Awarded USD 936,940,000 with 4% interest from the date of the award: USD 900 million for lost profits, USD 30 million for moral damage, LYD 6,292,350 (equivalent to USD 5 million) for losses and expenses, and USD 1,940,000 for arbitration costs. Each party bore its own counsel fees.

The dispute

On 7 June 2006 Libya's Ministry of Tourism approved, by Decision No. 135/2006, a tourism investment project by the Kuwaiti company Al-Kharafi at Sidi Al Andalusi in Tajura, Tripoli. The investment value was USD 130 million. On 8 June 2006 the Tourism Development Authority leased the company 240,000 m² of land for the project. The contract's arbitration clause (Article 29) referred disputes to arbitration under the Unified Agreement for the Investment of Arab Capital. The land was never delivered free of occupants: people claiming ownership, and municipal guards, stopped the works. In 2010 the Minister of Industry, Economy and Trade revoked the approval by Decision No. 203/2010, citing the company's failure to start the works. Al-Kharafi claimed breach of contract, breach of Libyan investment and tourism laws, and breach of the Unified Agreement. Libya argued that the tribunal lacked jurisdiction, that the clause did not bind the State entities, that the claim was premature and that the investor itself was in breach. It also argued that the investor had failed to mitigate its loss and to prove its damages.

Key holdings

Jurisdiction upheld. The project is an investment under Libyan Law No. 5 of 1997 and Law No. 9 of 2010 and is governed by the Unified Agreement. The arbitration clause can be invoked against the State of Libya, the Ministry of Economy, the General Authority for Investment Promotion and the Ministry of Finance. The request to join the Libyan Investment Authority was rejected. Award, pp. 387–388, 391
Liability. The respondents alone were responsible for failing to hand over the land free of occupants, as Article 5 of the lease required. Decision No. 203/2010 was arbitrary and unlawful: it relied on the repealed Law No. 5 of 1997 and breached Article 20(1) of Law No. 9 of 2010. Together these acts amounted to confiscation and freezing of the investment, contrary to Article 9(1) of the Unified Agreement. Award, pp. 349–358
Damages. The tribunal took the average of four valuation reports filed only by the claimant, USD 2,092,394,150, and capped it at the USD 2 billion claimed. Citing the respondents' counsel's plea for Arab cooperation, it then used its discretion to reduce lost profits over 83 years to USD 900 million. It added USD 30 million for moral damage, USD 5 million for losses and expenses, and 4% interest from the date of the award. The award was declared summary and immediately enforceable. Award, pp. 368–383
The Paris Court of Appeal confirmed the exequatur. The Libyan Investment Authority was deemed to have waived its objection to the constitution of the tribunal. The arbitration clause extended to the State entities directly involved in performing the contract. Majority voting and alleged lack of reasons did not breach international public policy, and immunity from execution does not bar exequatur. Paris CA, 28 October 2014, pp. 5–8
The Cairo Court of Appeal annulled the award as contrary to public order. It held the lost-profits award grossly disproportionate to the loss and based on speculative reports, given that the project never started and given conditions in Libya. The Egyptian Court of Cassation quashed that judgment and dismissed the annulment action: excessive damages are not a ground of annulment under Article 53 of Arbitration Law No. 27 of 1994, which lists the grounds exhaustively. Egyptian Court of Cassation, 24 June 2021, pp. 3–4
The French Court of Cassation held that EU Regulation 2016/44, which freezes Libyan Investment Authority funds, prohibits any enforcement measure on frozen funds without prior authorisation from the Director of the Treasury, even a measure that only gives the creditor a right of priority. It applied the CJEU ruling of 11 November 2021 on Iranian frozen assets. Because no authorisation had been sought, lifting the attachments of 11 March 2016 was justified. French Court of Cassation, 7 September 2022, ¶¶ 14–17
The Treasury's authorisation must come before the enforcement judge's authorisation. The Paris Court of Appeal therefore confirmed the annulment of the attachment of 15 October 2020. In its judgment of 23 November 2023 it also lifted the attachment of 13 August 2013, as authorisation to release the frozen funds had been refused. Paris CA, 2 February 2023, pp. 16–18; Paris CA, 23 November 2023, pp. 8–10

Procedural history

27 March 2011Al-Kharafi asked the Secretary General of the Arab League to approve the start of arbitration. Approval was received on 11 April 2011.
13 June 2012The two party-appointed arbitrators chose Abdel Hamid El-Ahdab as chairman. Cairo was fixed as the seat, with the CRCICA Rules applied on an ad hoc basis.
9–10 March 2013Hearing in Cairo with expert witnesses.
22 March 2013Final award rendered by majority: USD 936,940,000 plus 4% interest. Justice El-Hafi refused to sign.
13 May 2013Exequatur order of the President of the Tribunal de grande instance de Paris. Attachments of assets of the Libyan Investment Authority and LAFICO followed on 5 July and 13 August 2013.
28 October 2014The Paris Court of Appeal confirmed the exequatur.
5 September 2019The Paris Court of Appeal upheld the 2013 attachments, finding the Libyan Investment Authority and LAFICO to be emanations of the Libyan State. This judgment was later quashed by the Court of Cassation on 7 September 2022.
3 June 2020The Cairo Court of Appeal annulled the award, after earlier rulings of inadmissibility (2014) and lack of jurisdiction (2018) had each been quashed by the Court of Cassation, most recently on 10 December 2019.
24 June 2021The Egyptian Court of Cassation quashed the annulment and dismissed the annulment action.
7 September 2022 – 23 November 2023The French Court of Cassation and the Paris Court of Appeal lifted or annulled the attachments of Libyan Investment Authority assets because the funds were frozen under EU sanctions (judgments of 7 September 2022, 2 February 2023 and 23 November 2023).

Tribunal, counsel and experts

Decided by: Abdel Hamid El Ahdab President — chosen by the co-arbitrators
Ibrahim Fawzi Co-arbitrator — appointed by the claimant
Mohamed El-Kamoudi El-Hafi Co-arbitrator — appointed by the respondent (refused to sign the award)
Emmanuelle Lebée Judge, Paris Court of Appeal — appointed by a court
Gilles Malfre Judge, Paris Court of Appeal — appointed by a court
Anne de Lacaussade Judge, Paris Court of Appeal — appointed by a court
Amir Mostafa Judge, Cairo Court of Appeal — appointed by a court
Ashraf Atwa Judge, Cairo Court of Appeal — appointed by a court
Ismail Ibrahim El-Zayadi Judge, Cairo Court of Appeal — appointed by a court
Abdel Aziz Ibrahim El-Tantawy Judge, Egyptian Court of Cassation — appointed by a court
Abdullah Lamloum Judge, Egyptian Court of Cassation — appointed by a court
El-Raidy Adly Judge, Egyptian Court of Cassation — appointed by a court
Salah El-Din Kamel Saadallah Judge, Egyptian Court of Cassation — appointed by a court
Yasser Ekram Nassar Judge, Egyptian Court of Cassation — appointed by a court
Claire Argouarc'h Judge, Paris Judicial Court (enforcement judge) — appointed by a court
Bénédicte Pruvost Judge, Paris Court of Appeal — appointed by a court
Catherine Lefort Judge, Paris Court of Appeal — appointed by a court
Raphaël Trarieux Judge, Paris Court of Appeal — appointed by a court
For the claimant: Tisias · Fathi Waly · Mahmoud Samir Sharkawi · Nasser Ghanim El-Zaid · Rajab Bashir Al-Bakhnug · Mohamed El-Kalyoubi · Hassan Gemei
For the respondent: Gide Loyrette Nouel · Mahfouz Ahmad El-Fokhi · Hafiza El-Haddad · Hisham Sadek · Jean-Philippe Autier · Ahmed Imam Khalifa
Experts: Habib Khalil El-Masri (claimant) · Ernst & Young (claimant) · Prime Global (claimant) · Ahmad Ghatour (claimant) · Khaled Abu El-Faraj Ahmad Fahim El-Ghannam (claimant) · Salah El-din Mohamed Malek (claimant) · Burhan Amrallah (claimant)