## Facts

- Between 1955 and 1968, the Government of the Libyan Arab Republic (Libya) executed 14 petroleum concession deeds with two U.S. oil companies: Texaco Overseas Petroleum Company (TOPCO) and California Asiatic Oil Company (CAOC).
- The concession deeds granted exploration and production rights and included stabilization language aimed at protecting the agreed legal and fiscal framework from unilateral change.
- The deeds also included arbitration clauses that provided for international arbitration and a default appointment mechanism if one party refused to participate (including appointment through the President of the International Court of Justice).
- In 1963, Libya issued new petroleum provisions; nine concession deeds were amended to address these changes.
- In 1973 and 1974, Libya enacted measures nationalizing foreign petroleum interests, including the claimants’ concession rights and interests.
- TOPCO and CAOC commenced arbitration, alleging that Libya’s nationalization measures breached the concessions and violated rules of international law governing expropriation.
- Libya objected to the process and did not take part in the merits phase; the proceedings continued in default after a sole arbitrator, Professor René-Jean Dupuy, was appointed under the contractual mechanism.
- The claimants sought declarations of breach and relief based on the continued binding force of the concessions and international law standards for nationalization and compensation.

## Issues

1. Whether the arbitral tribunal had jurisdiction under the concessions’ arbitration clauses despite Libya’s refusal to participate and its characterization of nationalization as a sovereign act.
2. What law governed the dispute, including whether the concessions’ terms and arbitration agreement brought the relationship under international law (in addition to any domestic law).
3. Whether Libya’s 1973–1974 nationalization measures breached the concession deeds, including the stabilization commitments.
4. Whether Libya’s nationalization, even if an exercise of sovereignty, complied with international law conditions for lawful expropriation, including the obligation to pay compensation.
5. Whether United Nations General Assembly resolutions on permanent sovereignty over natural resources and related economic declarations displaced or changed the applicable compensation standard.

## Decision

- The tribunal held it had jurisdiction based on the concessions’ arbitration clauses and could proceed even though Libya did not participate in the merits phase.
- The tribunal treated the arbitration agreement as binding and effective notwithstanding Libya’s assertion that nationalization removed the dispute from arbitration.
- The tribunal concluded that the dispute was governed by the concessions’ terms and by international law (including general principles), rather than by Libya’s unilateral legislative acts alone.
- The tribunal recognized Libya’s right to nationalize as a matter of sovereignty, but held that nationalization must satisfy international law requirements, including payment of compensation.
- The tribunal found Libya’s nationalization measures inconsistent with the stabilized contractual commitments and incompatible with the governing legal standards applied by the tribunal.
- As to reparation, the tribunal stated that the wrongful taking required reparation consistent with international law, with restoration of the contractual position as the primary form where possible and compensation required at least in principle if restoration was not carried out.

## Legal Principles

- A State may bind itself by contract to submit disputes with foreign investors to international arbitration; refusal to participate does not nullify the arbitration agreement.
- Long-term concession contracts may be treated as having an international legal character where the parties provide for international arbitration and limit unilateral alteration through stabilization commitments.
- Pacta sunt servanda and good faith apply to State contracts; a State cannot rely on later unilateral acts to negate agreed contractual obligations as against the other party.
- Under international law, nationalization/expropriation is permitted, but it must be accompanied by compensation; the taking is not treated as lawful merely because it is labeled a sovereign act.
- United Nations General Assembly resolutions are generally not binding rules by themselves and do not automatically displace applicable international law rules on compensation for expropriation.
- Where a respondent defaults, an international tribunal may continue the case, decide jurisdiction and merits, and declare responsibility and the duty of reparation based on the record.

## Conclusion

In Caltex (Texaco v. Libya), the sole arbitrator upheld jurisdiction under the concessions’ arbitration clauses, applied the concessions and international law to Libya’s nationalization measures, found Libya in breach of its stabilized contractual commitments and international law requirements for expropriation, rejected reliance on nonbinding UN General Assembly resolutions as a basis to avoid liability, and declared that Libya owed reparation—through restoration where feasible and, in any event, compensation in line with international law standards.


Caltex (Texaco v. Libya), 53 I.L.R. 87 (1982)