## Facts

- Between 1955 and 1968, Libya granted Texaco Overseas Petroleum Co. and California Asiatic Oil Co. fourteen petroleum exploration and production concessions.
- The concessions were based on a statutory model and were later amended by agreement to reflect changes in Libyan petroleum legislation.
- The concessions included (i) an arbitration clause providing for an ad hoc tribunal and (ii) a governing-law framework referencing Libyan law plus “general principles of law,” pointing to application of international law principles.
- In September 1973, Libya nationalized 51% of the interests and properties of several foreign oil companies operating in Libya.
- In February 1974, Libya nationalized the remaining 49% of Texaco’s and California Asiatic’s joint interests and properties, purporting to terminate their concession rights.
- The companies commenced arbitration under the concessions; Libya refused to participate in constituting the tribunal or in the merits phase.
- The President of the International Court of Justice appointed Professor René-Jean Dupuy as sole arbitrator; the arbitrator issued a preliminary award on jurisdiction (1975) and a merits award (1977).

## Issues

1. Whether the petroleum concessions were binding “internationalized” state contracts governed in part by general principles of international law, limiting unilateral alteration by Libya.
2. Whether Libya’s 1973–1974 nationalization measures, though an exercise of sovereign authority, breached Libya’s contractual obligations and applicable international law standards.
3. What remedy international law required for the breach: restoration of the contractual position or compensation.

## Decision

- The arbitrator held the concessions were binding contracts with an internationalized character, governed by Libyan law as combined with general principles of international law.
- The arbitrator found Libya’s nationalization measures breached Libya’s obligations under the concessions and the applicable international law regime incorporated by the parties.
- The award ordered Libya to give full effect to the concessions and to take measures to restore the companies’ rights (restitutio in integrum), with a reporting requirement and the possibility of further proceedings if Libya failed to comply.
- The award treated compensation as a potential alternative only if restoration proved impossible.

## Legal Principles

- A state contract may be “internationalized” where the parties incorporate general principles of law and international arbitration into the governing framework, making the relationship subject to international law constraints in addition to domestic law.
- A state’s permanent sovereignty over natural resources includes a right to nationalize, but the exercise of that right remains subject to international law standards and the state’s contractual undertakings.
- Nationalization does not, by itself, extinguish contractual commitments where the state agreed to stabilize the legal regime and to resolve disputes through international arbitration.
- For internationally wrongful interference with protected contractual rights, primary reparation may be restoration of the pre-breach legal situation (restitutio in integrum), with compensation as a secondary remedy when restoration cannot be achieved.

## Conclusion

The award treated Libya’s petroleum concessions as binding, internationalized agreements and held that Libya’s nationalization measures breached those commitments; it ordered restoration of the companies’ concession rights as the principal remedy, reflecting the view that sovereign nationalization powers must be exercised consistently with contractual obligations and international law standards.


Texaco Overseas Petroleum Co. & Cal. Asiatic Oil Co. v. Gov’t of the Libyan Arab Republic, 17 I.L.M. 1 (1978)