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Following the extraordinary events of last year in Libya, commentators have been watching the approach that the new regime would adopt towards foreign investors. They have not had to wait long.

On 2 May 2012, the National Transitional Council of Libya (NTC) published Decree no 36, which froze the assets of 338 entities (260 individuals and 78 companies) and put them under the control of an officially appointed administrator. The rationale underpinning this process was that the relevant entities were said to be connected with the previous regime.

The law is an attempt to move on from the Gaddafi period. However, at a time when Libya is seeking to establish an attractive business environment and promote inward investment, it sends an alarming message.

Affected entities

The law bans the disposition of the funds and properties of the entities which appear on a schedule appended to the decree, effectively preventing those businesses from operating, both in Libya and abroad. The schedule was subsequently amended by the NTC following heavy criticism that some of the entities listed had no demonstrable link to the former regime. Of the 78 companies on the original list, 72 were removed, leaving six: the As-Shararah oil marketing company, Al-Watan Al-Khaled Construction and Investment Company, the Al-Mustakbal advertising and printing company, the Ajaweed arts and media production company, Al-Wafa bank and Al-Aman bank.
Key articles of the new law include:

• A 鈥済eneral receiver鈥� will be put in control of the entity鈥檚 funds and properties and the general receiver may sell or liquidate that business if it is authorised to do so by the Libyan Minister of Justice
• Entities may not enter into any contracts or commercial transactions unless such acts are conducted through the general receiver
• The listed entities are prohibited from seeking justice via either a civil or a commercial court in Libya
• Banks must provide the general receivers with details of the accounts of entities on the list as well as any funds held on their behalf
• Punishment for failing to comply with the law is no less than two years鈥� imprisonment and a fine not exceeding 50,000 dinars.

Redress under construction contracts

The NTC has been criticised for failing to explain why some companies and sectors feature on the schedule, while others do not appear at all. Critics also note that, prior to the law being passed, there was no review or audit of the businesses on the schedule.

The remedies which may be available to contractors will depend on the terms of the contract in question and whether the contractor or employer is listed in the schedule.

Taking the FIDIC Yellow Book as an example, there are some standard clauses that are likely to be relevant, including:

• Clause 1.13: this requires the contractor, in performing the contract, to 鈥渃omply with all applicable laws鈥�. The decree would satisfy the definition of 鈥渓aws鈥�.
• Clause 2.4: this requires the employer to submit, within 28 days of receiving any request from the contractor, 鈥渞easonable evidence that financial arrangements have been made and are being maintained which will enable the employer to pay the contract price鈥�. The employers listed on the schedule would struggle to satisfy this requirement.
• Clause 16.2(g): the contractor may argue that because the employer鈥檚 assets are to be administered by a 鈥済eneral receiver鈥� the right to terminate has arisen.
• Clause 19: this entitles the contractor to an extension of time if it is prevented from performing any of its obligations under the contract by force majeure. The decree would satisfy this definition, albeit that this provision merely extends time and does not give any right to additional payment..

In a recent interview, Mustafa el-Huni, the deputy head of the interim government, expressed a desire to develop the private sector in Libya with what he described as 鈥済ood laws鈥� and joint ventures with foreign companies. While the lucrative opportunities for foreign companies, particularly in the infrastructure and energy sectors, have an obvious attraction, laws such as this do little to instil the confidence of potential investors.

Pamela McDonald is a solicitor for Pinsent Masons