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Texaco Overseas Petroleum Co. v.

17 ILM or 53 ILR 389,1978

• On September 1, 1973 and February 11, 1974, Libya (defendant) issued decrees nationalizing all of
the rights, interests, and property of the Texaco Overseas Petroleum Company (TOPCO) and
California Asiatic Oil Company (CAOC) in Libya that had been granted to them jointly by the Libyan
government under 14 deeds of concession.

• TOPCO and CAOC requested arbitration and appointed an arbitrator. However, Libya refused to
submit to arbitration and did not appoint an arbitrator.

• The 14 deeds of concession provided by Libya to the two companies permitted the President of the
International Court of Justice (ICJ) to appoint a sole arbitrator to hear and determine the disputes.

• The Libyan government opposed this practice and argued that the disputes were not subject to
arbitration because they involved sovereign acts by Libya.

• The President of the ICJ rejected these arguments and appointed a sole arbitrator, hence the Libyan
government refused to participate in the subsequent arbitration proceedings.

• On January 19, 1977, the arbitrator issued an award on the merits in favor of TOPCO and CAOC. He
held that the deeds of concession were binding on all parties, that the Libyan government breached
its obligations under the deeds of concession, and that the Libyan government was legally bound to
perform the deeds of concession according to their terms.

• The deeds of concession contained a provision stating that the concession would be governed by
principles of Libyan law common to principles of international law, and that in the absence of
such common principles, then they would be governed by and in accordance with the general
principles of law, including those which have been applied by international tribunals.

• The arbitrator concluded that the nature of the deeds of concession agreement made it an
internationalized contract. He then considered the effect and consequences of an internationalized
contract on the rights of the parties.

Whether or not reference made to general principles of law in the International arbitration context a sufficient
criterion for the internationalization of a contract?

YES. Whenever reference is being 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. 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.