IV.

Treaties

Texaco v. Libya (1977)

Parties:
Claimants: Texaco Overseas Petroleum Company (U.S); California Asiatic oil
Company (U.S)
Respondent: The Government of the Libyan Arab Republic
Discussion: Applying Libyan law or international law in the arbitration proceedings
was a conflict encountered by in this case. Though the contract itself deferred to
Libyan law, the court noted that Libyan law does not preclude the application of
international law, but that the two must be combined in order to verify that Libyan
law complies with international law. Even though the right of a state to nationalize is
recognized by international law, this right in itself is not a sufficient justification not
to regard its contractual obligation. In this case, although the Libyan law allows
nationalization, there is still a breach of international obligation.
Facts:
-

The arbitration originates from fourteen Deeds of Concession concluded

between Libya and two United States companies, Texaco Overseas Company
and California Asiatic Oil Company (hereinafter called the Claimants)
In 1973, 51% of the properties, rights and assets relating to the Deeds of
Concession of the Claimants, as well as of seven other oil companies was
nationalized by a Decree.
In the following year, a Decree was issued, directed only to the Claimants. By
this Decree the entirety of all the properties, rights and assets relating to the
fourteen Deeds of Concession, of which the Claimants were holders, was
nationalized.
Under both Decrees, the Claimants concerned were at the same time
declared solely responsible and liable for all the liabilities and debts or
obligations arising from their activities. Both Decrees also provided for a
committee to be appointed to determine the amount of compensation to be
paid. However, it did not appear from any document submitted to the
arbitration that said committee had functioned nor that its members had
been nominated.
By the Decree of 1973, Amoseas, a company governed by foreign law, which
was formed jointly by the Claimants to be their operating entity in Libya, was
to continue to carry out its activities for the account of the Claimants to the
extent of 49%, and for the account of the Libyan National Oil Company
(N.O.C.), to the extent of 51%.
The Decree of 1974 effected a fundamental change in Amoseas: it was
converted into a non-profit company, the assets of which were completely
owned by N.O.C. Amoseas lost its name and was renamed the 'Om el Jawabi
Company'.

The Claimants thereupon notified the Libyan Government that recourse would
be taken to arbitration by virtue of clause 28 of the Deeds of Concession. In
accordance with clause 28 they designated their arbitrator. When the Libyan
government abstained from designating its arbitrator, the Claimants
requested, as provided for in this situation by the same clause, the President
of the International Court of Justice to designate a sole arbitrator. On
December 18, 1974, the President of the I.C.J. appointed the French Law
Professor Ren-Jean Dupuy as sole arbitrator.

The arbitrator fixed Geneva as the place of the arbitral tribunal (where the
award also was signed). Although the arbitrator had repeatedly notified the
Libyan Government, and allowed extension of time to submit an answering
memorial to the claims of the Claimants, the Libyan Government did not
participate in the arbitral proceedings. It should be noted that the arbitrator
kept the Libyan Government informed of all stages of the proceedings, and
each time transmitted to it all relevant documents. Moreover, throughout the
preliminary award and the award on the merits, the arbitrator paid due
attention to a Memorandum of the Libyan Government which was submitted
to the President of the I.C.J. on July 26, 1974, setting forth the reasons for
which, in its opinion, no arbitration should take place in the present case.

Issue/s:
1: Whenever reference is being made to general principles of law in the
international arbitration context, can this be held to be a sufficient criterion for the
internationalization of a contract?
2: Whether the Libyan Government, in adopting the nationalization measures of
1973 and 1974, breached its obligations under the contracts.
Held:
1: Yes. Whenever reference is been made to general principles of law in the
international arbitration context, it is always held to be a sufficient criterion for the
internationalization of a contract.
2: Yes. Although the Libyan law allows nationalization, there is still a breach of
international obligation.
Ratio:
1: The lack of adequate law in the state considered and the need to protect the
private contracting party against unilateral and abrupt modifications of law in the
contracting state is a justification to the recourse to general principles. Though
international law involves subjects of a diversified nature, legal international
capacity is not solely attributable to a state. A private contracting party, unlike a

state, has only a limited capacity and is limited to invoke only those rights that he
derives from his contract.
The arbitrator made it clear that international law governing contractual relations
between a State and a foreign private party means neither that the latter is
assimilated to a State nor that the contract is assimilated to a treaty. It only means
that 'for the purposes of interpretation and performance of the contract, it should be
recognized that a private contracting party has specific international capacities'.
Furthermore, considering that some contracts may be governed both by municipal
law and by international law, the arbitrator held that the choice of law clause
referred to the principles of Libyan law rather than to the rules of Libyan law. In this
connection the arbitrator said:
'The application of the principles of Libyan law does not have the effect of ruling out
the application of the principles of international law, but quite the contrary: it simply
requires us to combine the two in verifying the conformity of the first with the
second'.
Applying the principles stated above, the arbitrator declared that he would refer on
the one hand to the 1) principle of the binding force of contracts recognized by
Libyan law, and on the other to the 2) principle of pacta sunt servanda which is a
general principle of law constituting an essential foundation of international law. The
arbitrator found therefore on this point that the principles of Libyan law were in
conformity with international law and concluded that the Deeds of Concession in
dispute had a binding force.
2: The arbitrator stated here that 'the right of a State to nationalize is
unquestionable today. It results from international customary law, established as
the result of general practices considered by the international community as being
the law'.
The arbitrator questioned, however, whether the act of sovereignty which
constitutes the nationalization authorizes a State to disregard its international
commitments assumed by it within the framework of its sovereignty. In this respect
the arbitrator drew a distinction between a nationalization concerning nationals of a
State or a foreign party in respect of whom the State had made no particular
commitment to guarantee and maintain their position, and a nationalization
concerning an international contract. The former type is completely governed by the
domestic law. But in the case of an internationalized contract the State has placed
itself under international law. In the instant case the arbitrator investigated
therefore whether Libya had undertaken international obligations which prevented it
from taking nationalizing measures, and whether the disregard of such obligations is
justified by the sovereign nature of such nationalization measures.

The arbitrator found first that both under Libyan law and international law the State
has the power to make international commitments, including those with foreign
private parties. Such a commitment cannot be regarded as a negation of its
sovereignty, but, quite to the contrary, is a manifestation of such sovereignty. As a
result a State cannot invoke its sovereignty to disregard commitments freely
undertaken through the exercise of this same sovereignty.
The arbitrator considered that Libya had undertaken specific commitments which
could not be disregarded by the nationalization measures. The arbitrator referred to
the fact that Libya had granted a concession of a minimum duration of 50 years,
and to the stabilization clause (clause 16). This provision does not, in principle,
impair the sovereignty of the Libyan State to legislate in the field of petroleum
activities in respect of other persons. Clause 16 only makes such acts invalid as far
as the Companies are concerned for a certain period of time. The arbitrator
observed that:
'The recognition by international law of the right to nationalize is not sufficient
ground to empower a State to disregard its commitments, because the same law
also recognizes the power of a State to commit itself internationally, especially by
accepting the inclusion of stabilization clauses in a contract entered into with a
Clause 16
1. The Libyan Government, the (Petroleum) Commission and the competent authorities in the Provinces shall take all
the steps that are necessary to ensure that the Company enjoys all the rights conferred upon it by this concession,
and the contractual rights expressly provided for in this concession may not be infringed except by agreement of both
parties.
2. This concession shall be interpreted during the period of its effectiveness in accordance with the provisions of the
Petroleum Law and the Regulations issued thereunder at the time of the grant of the concession, and any
amendments to or cancellations of these Regulations shall not apply to the contractual rights of the Company except

foreign private party'.

Gabcikovo-Nagymaros
(1977)

Project

(Hungary

v.

Slovakia)

Parties:
Plaintiff: Hungary
Defendant: Czechoslovakia, Slovakia (as successor to Czechoslovakia)
Discussion: Watercourse states shall participate in the use, development and
protection of an international watercourse in an equitable and reasonable manner.
Hungary was deprived of its rights to an equitable and reasonable share of the
natural resources of the Danube by Czechoslovakia and also failed to respect the
proportionality that is required by international law. Cooperative administration
must be reestablished by the parties of what remains of the project.

Facts:
-

In 1977, the Treaty between the Hungarian Peoples Republic and the
Czechoslovak Socialist Republic concerning the Construction and Operation of
the Gabckovo-Nagymaros System of Locks was concluded on 16 September
1977.

The treaty was concluded to facilitate the construction of dams on the

Danube River. It addressed broad utilization of the natural resources of the
Danube between Bratislava and Budapest, representing two hundred of the
Rivers two thousand eight hundred and sixty kilometers.

Intense criticism of the construction at Nagymaros centered upon

endangerment of the environment and uncertainty of continued economic
viability. This growing opposition engendered political pressures upon the
Hungarian Government.

After initiating two Protocols, primarily concerned with timing of construction,

Hungary suspended works at Nagymaros on 21 July 1989 pending further
environmental studies.

In response, Czechoslovakia carried out unilateral measures.

Hungary then claimed the right to terminate the treaty, at which point the
dispute was submitted to the International Court of Justice.

Hungary also submitted that it was entitled to terminate the treaty on the
ground that Czechoslovakia had violated Articles of the Treaty by undertaking
unilateral measures, culminating in the diversion of the Danube.

Slovakia became a party to the 1977 Treaty as successor to Czechoslovakia.

On 19 May 1992 Hungary purported to terminate the 1977 Treaty as a

consequence of Czechoslovakias refusal to suspend work during the process
of mediation. As the Treaty itself did not feature a clause governing
termination, Hungary proffered five arguments to validate its actions: 1) a
state of necessity, 2) supervening impossibility of performance, 3)
fundamental change of circumstances, 4) material breach and 5) the
emergence of new norms of international environmental law. Slovakia
contested each of these bases.

Issue/s:
1. Whether a state of necessity is a ground for termination of the treaty.

2. Whether the doctrine of impossibility of performance may be applied in this

case to terminate the treaty.
3. Whether the change of circumstances cited in the case represent a
fundamental change that may justify the termination of the treaty.
4. Whether material breach in this case is valid to terminate the treaty.
5. Whether the obligation not to cause substantive damage to the territory of
another State had evolved into an obligation erga omnes pursuant to the
precautionary principle in environmental law.
Held:
1. No. A state of necessity is not a ground for termination.
2. No. The doctrine of impossibility of performance may not be applied in this
case to terminate the treaty.
3. No. The changes cited do not represent a fundamental change that may
justify the termination of the treaty.
4. No. The material breach which occurred in this case is not sufficient to justify
the termination of the treaty.
5. The Court avoided consideration of the propositions of Hungary and Slovakia,
concluding instead that these new concerns have enhanced the relevance of
Articles 15, 19 and 20.
Ratio:
1. The Court easily dismissed Hungarys first claim, simply stating that a state of
necessity is not a ground for termination. Even if a state of necessity is
established, as soon as it ceases to exist, treaty obligations automatically
revive.
2. The doctrine of impossibility of performance is encapsulated in Article 61 of
the Vienna Convention on the Law of Treaties, which requires the permanent
disappearance or destruction of an object indispensable for the execution of
the treaty. In this case, the legal regime governing the GabckovoNagymaros Project did not cease to exist. Articles 15, 19 and 20 of the 1977
Treaty provided the means through which works could be readjusted in
accordance with economic and ecological imperatives. Furthermore, Article
61(2) of the Vienna Convention on the Law of Treaties precludes application
of the doctrine where the impossibility complained of is the result of a breach
by the terminating Party. If the joint investment had been hampered to a

point where performance was impossible, it was a consequence of Hungarys

abandonment of works.
3. Article 62 of the Vienna Convention on the Law of Treaties codifies
international law in respect of fundamental change of circumstances and
treaty relations. Hungary submitted that the 1977 Treaty was originally
intended to be a vehicle for socialist integration. Fundamental changes cited
were the displacement of a single and indivisible operational system by a
unilateral scheme; the emergence of both States into a market economy; the
mutation of a framework treaty into an immutable norm; and the
transformation of a treaty consistent with environmental protection into a
prescription for environmental disaster. The Court held that although
political changes and diminished economic viability were relevant to the
conclusion of a treaty, they were not so closely linked with the object and
purpose of the 1977 Treaty so as to constitute an essential basis of the
consent of the Parties. New developments in the efficacy of environmental
knowledge were not unforeseen by the Treaty and cannot be said to
represent a fundamental change. The Court did not consider whether the
emergence of new environmental norms would catalyze the application of
Article 62 in a situation where the terms of a treaty stand abhorrent to new
norms.
4. Hungary claimed that Variant C materially breached Articles 15, 19 and 20 of
the 1977 Treaty, concerning the protection of water quality, the preservation
of nature and guardianship of fishing interests. Article 60(3) of the Vienna
Convention on the Law of Treaties recognizes material breach of a treaty as a
ground for termination on the part of the injured State. Extending its
reasoning on the principle of approximate application, the Court held that a
material breach only occurred upon the diversion of the Danube. As
Czechoslovakia dammed the Danube after 19 May 1992, Hungarys purported
termination was premature and thus invalid.
5. As its final basis for the justification of termination, Hungary advocated that,
pursuant to the precautionary principle in environmental law, the obligation
not to cause substantive damage to the territory of another State had
evolved into an obligation erga omnes (sic utere tuo ut alienum non laedas).
Slovakia countered this argument with the claim that there had been no
intervening developments in international environmental law that gave rise to
jus cogens norms that would override provisions of the 1977 Treaty. The Court
avoided consideration of these propositions, concluding instead that these
new concerns have enhanced the relevance of Articles 15, 19 and 20. Given
that international environmental law is in its formative stages, it is
unfortunate that the International Court of Justice did not grasp at this
opportunity to discuss its role in the governance of relations between States.
To that end, the Court may have clarified the controversial application of the

sic utere principle to modify notions of unrestricted sovereignty in the Trail

Smelter arbitration.

Reservations to the Convention on Genocide (1951)

Discussion: A reservation to the U.N. Convention on Genocide may be effected by
a state and still be considered a signatory thereto. In a multilateral treaty, as long
as the reservation does not defeat the purpose of the treaty, a reservation is
permitted. By virtue of its sovereignty, it has been argued that a state may affect
any reservation. In this case, the validity of each reservation must be examined on
a case-by-case basis since numerous reservations were made by different states.
(The court held that the state objecting to a reservation could if it desired, consider
the reserving state not to be a party to the Convention.
Facts:

The convention on Genocide was unanimously adopted by the United Nations

in 1951.
Several states made reservations to one or more of its provisions.
An opinion as to whether a party could express reservations and still be
considered a signatory was laid before the International Court of Justice.

Issue/s:
1. Can the reserving State be regarded as being a party to the Convention while
still maintaining its reservation if the reservation is objected to by one or
more of the parties to the Convention but not by others?
2. If the answer to question no. 1 is in the affirmative, what is the effect of the
reservation as between the reserving State and:
a. The parties which object to the reservation?
b. Those which accept it?
3. What would be the legal effect as regards the answer to question no. 1 if an
objection to a reservation is made:
a. By a signatory which has not yet ratified?
b. By a State entitled to sign or accede but which has not yet done so?
Held:
1. Yes. It can be regarded as being a party to the Convention if the reservation is
compatible with the object and purpose of the Convention; otherwise, that
State cannot be regarded as being a party to the Convention.
2. Answer on question no. 1 is affirmative
a. if a party to the Convention objects to a reservation which it considers to
be incompatible with the object and purpose of the Convention, it can in
fact consider that the reserving State is not a party to the Convention;
b. if, on the other hand, a party accept the reservation as being compatible
with the object and purpose of the Convention, it can in fact consider that
the reserving State is a party to the Convention;
3. Legal effects:
a. An objection to a reservation made by a signatory State which has not yet
ratified the Convention can have the legal effect indicated in the reply to
question no. 1 only upon ratification. Until that moment it merely serves
as a notice to the other State of the eventual attitude of the signatory
State;

b. An objection to a reservation made by a State which is entitled to sign or

accede but which has not yet done so is without legal effect.
Ratio:
1. In its treaty relations, a State cannot be bound without its consent. A
reservation can be effected only with its agreement. On the other hand, it is a
recognized principle that a multilateral Convention is the result of an
agreement freely concluded. To this principle was linked the notion of
integrity of the Convention as adopted, a notion which, in its traditional
concept, involved the proposition that no reservation was valid unless it was
accepted by all contracting parties.
This concept retains undisputed value as a principle, but as regards the
Genocide Convention, its application is made more flexible by a variety of
circumstances among which may be the universal character of the UN and the
very wide degree of participation which the Convention itself has
envisaged.
Moreover, the Convention on Genocide, although adopted unanimously, is
nevertheless the result of a series of majority votes --- which may make it
necessary for certain
States to make reservations.
In the absence of an article in the convention providing for reservations, one
cannot infer that they are prohibited. In the absence of any provisions on the
subject, to determine the possibility
of making reservations as well as their
effects, one must consider their character, their purpose, their
provisions,
their
mode of preparation and adoption.
The preparation of the Convention on Genocide shows that an undertaking
was reached within
the General Assembly on the faculty to make reservations
and that it is permitted to conclude
therefrom that States, becoming parties to
the Convention, gave their assent thereto.
In addition, the principles underlying the Convention are recognized by
civilized nations as binding
on States even without any conventional obligation.
It was intended that the Convention would
be universal in scope. Its purpose is
purely humanitarian and civilizing. The contacting States merely have a common
interest. This leads to the conclusion that the object and purpose of the
Convention imply that it was the intention of the General Assembly and of the
States which
adopted it, that as many States as possible should participate.
This purpose would be defeated if
an objection to a minor reservation should
produce complete exclusion from the Convention.
On the other hand, the contracting parties could not have intended to
sacrifice the very object of
the Convention in favor of a vague desire to secure
as many participants as possible. It follows that
the
compatibility
of
the
reservation and the object and the purpose of the Convention is the
criterion to

determine the attitude of the State which makes the reservation and of the State
which objects.
2. No State can be bound by a reservation to which it has not consented, and
therefore each State, on the basis of its individual appraisals of the
reservations, within the limits of the criterion of the object and purpose
stated above, will or will not consider the reserving to be a party to the
Convention.
3. In the case of an objection made by a State entitled to sign and ratify but
which had not yet done so, it would be inconceivable that a State possessing
no rights under the Convention could exclude another State. The case of the
signatory States is more favorable. They have taken certain steps necessary
for the exercise of the right of being a party. This provisional status confers
upon them a right to formulate as precautionary measure objections which
have themselves a provisional character.
If signature is followed by ratification, the objection becomes final. Otherwise,
it disappears.
Therefore, the objection does not have an immediate legal effect
but express and proclaims the attitude of each signatory State on becoming a
party.