## Facts

- Desert Line Projects LLC (DLP), an Omani construction company, entered into seven government contracts to build asphalt roads in Yemen.
- Disputes arose over unpaid sums; work was suspended and the parties proceeded to arbitration in Yemen, resulting in a domestic arbitral award for DLP equivalent to about USD 108 million.
- After the domestic award, an incident occurred involving DLP personnel and the Yemeni army; three DLP employees were arrested and detained for three days.
- DLP reported harassment, threats, and theft by armed groups and repeatedly requested protection from Yemeni authorities.
- Yemen sought annulment of the domestic award in its courts while proposing a settlement that reduced payment to roughly half the awarded amount.
- DLP objected in writing that the settlement terms were unjust, but executed the settlement after continued official pressure, including communications urging acceptance, and received payment.
- DLP later attempted to rescind the settlement and initiated ICSID arbitration under the 1998 Oman–Yemen bilateral investment treaty (BIT), alleging its consent was obtained under duress.

## Issues

1. Whether DLP’s road construction activities constituted a protected “investment,” accepted by Yemen, sufficient for jurisdiction under the BIT and the ICSID Convention.
2. Whether the settlement agreement barred treaty claims, or was invalid/ineffective because it was obtained through duress or coercion.
3. Whether Yemen’s conduct breached the BIT’s fair and equitable treatment (FET) / minimum standard of treatment obligations (and, if necessary, other asserted protections such as full protection and security, denial of justice, expropriation, or non-discrimination).
4. Whether and to what extent compensation could include non-material (moral) damages arising from intimidation, detention, and threats.

## Decision

- The tribunal upheld jurisdiction, finding DLP’s long-term road construction operations and contractual commitments qualified as an “investment” accepted by Yemen.
- The tribunal held Yemen breached the BIT’s FET obligation by inadmissibly pressuring DLP to accept and execute a reduced settlement in place of the final and binding domestic arbitral award.
- Having found an FET breach, the tribunal found it unnecessary to decide the remaining treaty claims.
- The tribunal awarded DLP 7.2 million Omani rials (approximately USD 18.8 million) as a lump-sum measure of compensation, including a limited moral-damages component.
- Costs were allocated 70% to Yemen and 30% to DLP; Yemen was also ordered to pay USD 400,000 toward DLP’s legal fees.

## Legal Principles

- Long-term construction activities involving substantial commitments may qualify as an “investment” for BIT and ICSID jurisdiction when accepted by the host state.
- A host state violates FET when it uses coercive state power to force an investor to abandon or discount legally established rights (including rights embodied in a binding domestic arbitral award) through a purported settlement.
- A settlement agreement reached under intimidation or undue pressure may not extinguish an investor’s treaty claims or bar international responsibility.
- Treaty standards operate independently of domestic proceedings; international responsibility is assessed under the BIT standard rather than by re-litigating domestic law merits.
- Moral damages may be compensable in exceptional circumstances in investor–state arbitration where state conduct causes serious non-material harm, though tribunals may award such harm conservatively within a lump-sum figure.

## Conclusion

The tribunal concluded that Yemen’s coercive conduct surrounding a reduced settlement—against the backdrop of detention of employees, security threats, and annulment efforts—breached the BIT’s fair and equitable treatment obligation, supporting an award of monetary compensation, partial costs, and limited moral damages despite the existence of a signed settlement.


Desert Line Projects LLC v. Republic of Yemen, ICSID (W. Bank) Case No. ARB/05/17 (Award Feb. 6, 2008)