Karbal & Co

Contribution to the World Bank’s “Doing Business 2021” publication

Dr. Mohamed Karbal contributed for the second time to the World Bank Group’s flagship annual publication “Doing Business 2021.” Doing Business publication is a comparative law study which measures regulations which enhanced business activity using quantitative indicators for 190 economies.

More on the “Doing Business” publication can be found here.

Awarding Lost Profits in International Investment Disputes:

Awarding Lost Profits in International Investment Disputes:

A Comparative Analysis

Dr. Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. and served as an expert witness on Libyan law for Tekfen-TML Joint Venture v. Man-made River. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya,  Washington D.C.and Turkey.

For more information on our legal services relating to Libyan law, please visit our page.


Tribunals, whether national or international, exercise discretion when awarding lost-profits claims since such claims involve complex economic and financial data.  In lost-profits claims, the common practice is to award claimants damages to place the claimant in the same pecuniary position they would have been in had the contract been performed.  However, in general, tribunals use various methods to calculate lost-profits such as the “Benchmark” and the “Before and After” methods. 

Calculating lost-profits is complex and has resulted in courts awarding damages for lost-profits inconsistently or arbitrarily. This article will examine and compare how two tribunals analyzed the facts and explain the methodology and reasoning it relied on to issue its damages in lost-profits claims. 

In this article, we will review the case of PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v Republic of Turkey[1] (“PSEG v Turkey”) as decided by the International Centre for Settlement of Investment Disputes (“ICSID”) in applying Turkish law.  As a comparison, we will discuss the case of Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. the State of Libya, et al.[2], which was decided under the Unified Agreement for the Investment of Arab Capital in the Arab States (Unified Agreement) and applied Libyan law. 


PSEG v Turkey

​​​​​​ As the ICSID is considered “the international body” designated to arbitrate and settle international investment disputes arising between investors and states, the ICSID has tried hundreds of cases on various procedural and substantive topics ranging from decisions on provisional measures to decisions on annulment of agreements, and matters relating to lost-profits. 


In PSEG v Turkey,PSEG Global applied to the Turkish Ministry of Energy and Natural Resources in 1994 to build a lignite-fired thermal power plant in Turkey. Authorization was granted in 1994 to prepare a feasibility study which was submitted in early 1995, and the project was approved late that year. The Implementation Contract required PSEG to conclude several agreements and protocols, most notably the Energy Sales Agreement, the Fund Agreement, and the Treasury guarantee ICSID arbitration.[3] After the Concession Contract was signed, a performance bond for USD 8.04 million was posted by PSEG on February 23, 1999,[4] which was terminated at a later time.

In its claim, registered with the ICSID on May 2, 2002, the PSEG estimated the pre-construction costs to be in excess of USD 10.5 million, which included engineering and consultant studies, development costs, and legal fees.[5]  The Project envisaged thirty-eight (38) years of commercial operation and a total investment cost of USD 804.8 million.

Assessing Lost-Profits

Based on the experts’ reports submitted, PSEG proposed to the ICSID tribunal  (“ICSID Tribunal”) three approaches to assess the damages: the fair market value, the lost-profit valuation, and the actual investments made and out of pocket expenses incurred by the Project sponsors.[6] A claim by PSEG against Turkey was based on the lost-profit valuation approach and was calculated as the equivalent to the amount of profits that PSEG would have obtained under the Concession Contract. Using the lost-profit valuation approach, PSEG estimated its lost-profits to be USD 223.742 million, where the interest incurred on the lost-profits would amount to USD 334.756 million at the end of 2006.[7]

In return, Turkey argued that the PSEG should show a record of profits in addition to performance records. Turkey convincingly invoked the awards granted in AAPL159 and Metalclad,160, which required the plaintiff to show that it had a record of profits and a performance record. Turkey explained that the for awards under Wena161 Tecmed162 and Phelps Dodge163, the ICSID refused to consider profits that were too speculative or uncertain. Furthermore, Turkey noted that in cases where lost profits were awarded to plaintiffs, such as Aminoil, the claim was based on the fact that the plaintiff had a long history of operations.[8]

The ICSID Tribunal examined other ICSID decisions whose awards were granted based on the precedent in Aucoven.  The PSEG Tribunal concluded that previous ICSID tribunals were “reluctant to award lost profits for a beginning industry and unperformed work.” As decided in Aucoven, the PSEG Tribunal added that compensation based on the lost-profits, is “normally reserved for the compensation of investments that have been substantially made and have a record of profits.”  Otherwise, compensation for lost-profits is “refused when such profits offer no certainty.”[9]

PSEG argued that its claims are based on contractual arrangements “that establishes the expectation of profit at a certain level and over a given number of years.” An identified period of investment specified in a contract renders calculating future profits an easy task.  On the contrary, the PSEG Tribunal considered that long term contracts subject to adjustment mechanisms and other possible variations with time were the “most difficult if not impossible to calculate such future profits with certainty.”[10]

In explaining the basis for its decision not to award PSEG lost-profits, the PSEG Tribunal stated:

Even assuming that none of those difficulties existed, in this case the exercise becomes moot because the parties never finalized the essential commercial terms of the contract, and as a result neither could the additional agreements concerning the sale of electricity, the Fund payments and the Treasury guarantee be finalized. Relying on cash flow tables that were a part of proposals that did not materialize does not offer a solid basis for calculating future profits either.[11] The future profits would then be wholly speculative and uncertain. By definition, the concept of lucrum cesans requires in the first place that there is a lucrum that comes to an end as a consequence of certain breaches of contract or other forms of liability. Here such an element is not only entirely absent but impossible to estimate for the future.[12]

As a result, the PSEG Tribunal awarded PSEG compensation in the amount of USD 9,061,479.34 out of the claimed estimated lost profits of USD 223,742,000 with interest at the six months average LIBOR rate plus two (2) percent per year for each year during which amounts are owing to be compounded semi-annually.  In addition, Turkey was ordered to pay sixty-five (65) percent of the costs of the arbitration and legal costs and fees of USD 20,851,636.62.

Unified Agreement for the Investment of Arab Capital

Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. State of Libya, et al

Signed on November 26, 1980, and entering into force on September 7, 1981, the Unified Agreement for the Investment of Arab Capital in the Arab States (“Unified Agreement”) is a regional agreement limited to the Arab States which are willing to solve investment claims raised by an Arab national in its territory.  The Unified Agreement called for the establishment of an Arab Investment Court (“Al‐KharafiTribunal”), and the draft statutes of the said court came into force on February 22, 1988.

Even though it was decided in 2013, the case of Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. the State of Libya, et al. (“Al‐Kharafi v Libya”) is considered the first arbitral award issued under the Unified Agreement and was the first to apply Libyan law.


In 2006, the Libyan Ministry of Tourism approved an investment project proposed by Al-Kharafi & Sons Co. for the construction and operation of a tourism complex (the “Project”). Shortly thereafter, the Kuwaiti company signed a Built-Operate-Transfer contract with the Libyan Tourism Development Authority for a ninety (90) year land-leasing contract comprised of twenty-four (24) hectares of state-owned land in Tajura, a city in the Tripoli District. The Project was to build a small town consisting of a four-star hotel, hotel apartments, residential apartments, townhouses, villas, a shopping mall, offices, public areas, and a beach totaling 69,500 sqm.    The Project was to start in 2007, but construction work never commenced. The Ministry of Economy annulled the project’s approval in 2010 and as a result, the land-leasing contract was also invalidated.

Expert Witness

At the beginning of the dispute with the Libyan government, Al‐Kharafi was satisfied to receive USD 5 million as compensation for the loss. However, the amount of compensation was revised until it reached the amount stated in the expert’s reports submitted by Al-Kharafi.  The submitted financial reports prepared by international financial experts showed that the value of the lost-profits during the investment period of the Project covered by the contract ranged between USD 1.74 million and USD 2.55 million.

All financial experts used the data and documents provided by Al-Kharafi to prepare their scientific and unbiased reports on the estimation of the company’s lost profits for eighty-three (83) years according to commercial practice and the international accounting and financial standards.

Al‐Kharafi Tribunal’s Reasoning  

The Al‐KharafiTribunal described the experts’ reports submitted by Al-Kharafi as being:

prepared by highly renowned, specialized and expert accounting firms with vastly reliable and credible research, studies, and results… All financial experts have built on the data and documents provided by the Plaintiff to write their scientific and unbiased reports on the estimation of the company’s 83-year-long lost profits, pursuant to the commercial practice and the international accounting and financial systems.[13]

In its decision, the Al‐KharafiTribunal failed to analyze the reasoning and analysis contained in the experts’ reports. The Al‐KharafiTribunal instead reached its decision for the plaintiff based on the following reasons:

  • The experts’ “reports are considered among expertise works that the defendants could have objected to and refuted by means of response expert reports prepared by specialized firms having an excellent professional reputation.”
  • “The defendants did not submit any response expert report to refute the content of the reports submitted by the [Al-Kharafi].”

The Al‐KharafiTribunal added, “the [d]efendants’ discussion of these four reports was limited to the form and did not tackle the details and calculations through the submission of reports characterized by the same level of expertise as the submitted four reports.”[14]

Concerns with the Experts’ Reports

Instead of questioning the experts’ method of forecasting the lost profit of the Project which had never commenced, the Al‐KharafiTribunal asked the same question twice framed differently to the two experts.   The Al‐KharafiTribunal first asked if the damages mentioned in the reports were real and certain lost opportunities and constitute a lost profit.”[15]  The experts replied that the lost profit was certain and represents the minimum.” 

After the Al‐KharafiTribunal repeated the same question (for an unknown reason), and the experts’ answer was, “[t]hese are certain profits that the Plaintiff has lost and which it would have otherwise certainly realized in the normal conditions currently prevailing in Libya.”[16] In cases where a court rewards the claimant compensation for lost-profits based on the breach of a contract  if for goods and/or services, the contract would refer to the amount of items/service to be provided and the corresponding price.

For the case at hand, the Al‐KharafiTribunal appears to have failed to review the facts. The case did not involve the purchase and sale of products or the provision of services: The case involved a land lease on which the Project will be built and there was no guarantee on the number of clients would seek the service provided by Al-Kharafi. Furthermore, the Project never commenced.    

In Al-Kharafi v. Libya, the experts relied on the fair market value based on the “conditions currently prevailing in Libya.”  The experts calculated how much profit the Project would generate during the first year and later multiplied such a figure by the number of years remaining of the land lease agreement (i.e., eighty-three).

The experts, in theory, should have obtained a performance record to establish that the Project is generating a profit in order for Al-Kharafi to be awarded damages of lost-profits. Logically, Al-Kharafi should not have been awarded loss-profits as the Project did not have a performance record.

The Status of Al-Kharafi v Libya

Since Al-Kharafi v Libya’s award was published in 2013, both parties became involved in legal proceedings.  Al-Kharafi filed for proceedings to seize Libyan properties around the world, as an attempt to enforce the award. In 2015 and 2016, Al-Kharafi Construction Group failed to take ownership of the luxurious Libyan plane, previously used by Kaddafi.  The aircraft was on a maintenance program in France.

On the other hand, the Libyan authorities filled legal proceedings with the Egyptian courts.  At first, the Cairo Court of Appeal rejected the Libyan request to annul the award in Al-Kharafi v. Libya.  The Court of Appeal’s decision was appealed before the Supreme Court, who in December 2019 overturned Cairo’s Court of Appeal decision and ordered rehearing.   

In June 2020, the Cairo Court of Appeal found that the arbitral award should be set aside. The court based its decision to annul the award on two significant issues.  The first issue was that the judicial system, from a public policy view, is always entitled to examine and ensure that the core procedural standards, such as standards of fairness, have been adhered to by the arbitral trial.

The second issue was the judges are entitled to evaluate whether the award was based on reasons and conclusions that represent a clear and real violation of public policy.  The court concluded that the award was unproportioned to the actual damage, especially when Al-Kharafi, at the beginning of the dispute, was only demanding five (5) million dollars as compensation. 

This article was first written in 2018.

[1] PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v Republic of Turkey, ICSID Case No. ARB/02/5

[2] Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. State of Libya, et al. Final Award Document downloaded from http://www.italaw.com

[3] Id. para.24.

[4] Id. para.21.

[5] PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v Republic of Turkey, ICSID Case No. ARB/02/5, para.19.

[6] Id. para.283.

[7] Id. para.285.

[8] Id. para.311.

[9] Id. para.310.

[10] Id. para.312.

[11] Id. para.313

[12] Ibid.

[13] Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. State of Libya, et al. Final Award Document downloaded from www.italaw.com p.378.

[14] Ibid.

[15] Ibid.

[16] Ibid.

Identifying Government Entity Under Libyan Administrative Law

Identifying Government Entities Under Libyan Administrative Law

Dr. Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. and served as an expert witness on Libyan law for Tekfen-TML Joint Venture v. Man-made River. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya,  Washington D.C.and Turkey. For more information on the legal services we offer on Libyan law, please visit our page dedicated to Libyan law.

After the fall of Gaddafi’s regime, foreign companies which had performed works in Libya rushed to the international tribunals seeking compensation.  Since the counterparty in agreements for public procurements in Libya is a public entity established by the Libyan government, foreign companies file their claims against both the public entity and the state of Libya. It is understood that the aim of such a litigation strategy is to have the state of Libya jointly liable.

Since I served asexpert witness on Libyan administrative and civil law on behalf of the Respondent  in Tekfen-TML Joint Venture v. Man-made River Authority and the State of Libya and my law firm was retained to advise the Respondent, it is worth mentioning that the said case dealt with the issue of defining a “government entity”. The case was first brought before the International Chamber of Commerce in Geneva, Switzerland.  The Arbitral Tribunal decided not to hear the allegations against the State of Libya based on its conclusion that the Man-Made River Authority was not a “government entity.” As a result, the Arbitral Tribunal determinated that the State of Libya is not responsible for violations committed by the Man-Made River Authority and by a majority decision, dismissed the claim against the State of Libya.

The Arbitral Tribunal upheld the claim against the Man-made River Authority in part. It awarded the Tekfen-TML Joint Venture sum of USD 40,134,129 payable immediately by the Man-made River Authority, after setting-off a counter-claim of USD 354,520.

The Arbitral Tribunal (by majority decision) found that the Man-made River Authority is an independent legal entity under Libyan law.  Therefore, the Arbitral Tribunal rejected Tekfen-TML Joint Venture’s notion that the Man-made River Authority was an organ of the Libyan state or an auxiliary of the state, and thus identical to the state.

Under Libyan law, the Libyan Supreme Court (the “Supreme Court”) considers  various factors to determine whether an entity is a “state entity” or a “state organ.” The Supreme Court examines, inter alia, whether the entity/organ:

  1. has an independent legal personality;
  2. is chaired by a minister or under the direct influence and supervision of a minister;
  3. exercises a legislative function such as enacting policies for public sectors;
  4. serves public needs, i.e., providing health service, education, food products, etc.;
  5. recruits employees to be governed by the Civil Service Code or other laws or special policies and procedures.
  6. was intended by the legislature to be a part of the government and exercise public functions or whether the legislature intended the entity to operate as a commercial company.

(the “Test”).

In practice, the Supreme Court did not rely merely on the “independent legal personality” factor alone  to determine whether an entity is a “state entity.” An example of a precedent where the Supreme Court considers the Test is its decision in Cassation No. 296/24 dated 25 April 1978 where the Supreme Court concluded that the Agriculture Development Board (“ADB”), which had an independent legal personality, is a government entity. The Supreme Court reviewed and analyzed in detail the power and practices granted to ADB by Law 146/1972 which established the ADB.

As mentioned by the Supreme Court, and based on the Law 146/1972, the ADB:

  1. has a separate legal personality;
  2. is chaired by the Minister of State for Agricultural Development;
  3. has a mission to participate in the development of the national economy in the agriculture sector by increasing agricultural production to ensure self-sufficiency in grain, meat and other protection of natural resources, etc.;
  4. establishes general policy for agricultural development in areas listed in Law 146/1972; and
  5. oversees the integrated agrarian development plan.

In its conclusion, the Supreme Court ruled that

the Agricultural Development Board, which enjoys legal personality, administrative authority, which is a part of public authority, and participates in the development of the national economy in the agriculture sector, should be considered as one of state public facilities…

Rebalancing Administrative Contracts under Libyan Law

Rebalancing Administrative Contracts under Libyan Law

by Dr. Mohamed Karbal

Dr. Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. and served as an expert witness on Libyan law for Tekfen-TML Joint Venture v. Man-made River.

Under the Libyan Civil Code, a Libyan tribunal is empowered to adjust or rebalance a civil contract to “restore its equilibrium” as a result of extraordinary or unforeseen events if one party may still continue the performance of the contract.  A Libyan judge may rebalance the contract due to unforeseen events or circumstances (La théorie de l’imprevision).

The doctrine of unforeseen events or circumstances is also applicable to administrative contracts.  Article 105 of the Administrative Contract Regulations (“ACR”) requires an administrative unit to rebalance the contract in the case of unforeseen circumstances that render performing an obligation under the contract difficult, but not impossible.

The Libyan law empowers a tribunal to rebalance a contract, whether civil or administrative, only when the contract is “excessively onerous.” However, if the contract is impossible to perform, it is illogical to adjust the terms of the contract. The contract will be terminated in this case.  

The doctrine of unforeseen events or circumstances (La théorie de l’imprevision) is provided under Article 104 and 105 of the ACR and is detailed in Art. 147(2), and Art. 657(4) of the Libyan Civil Code.

Art. 147(2) of the Libyan Civil Code states:

When … as a result of exceptional and unpredictable events of a general character, the performance of the contractual obligation, without becoming impossible, becomes excessively onerous in such way as to threaten the debtor with exorbitant loss, the Judge may, according to the circumstances, and after taking into consideration, the interests of both parties, reduce to reasonable limits the obligations that have become excessive. Any

agreement to the contrary is void.

The rebalancing of a contract under the Libyan Civil Code is also applicable to lump-sum contracts.  Article 657(4) of the Libyan Civil Code, which deals with lump-sum contracts states: 

As a result of exceptional events of a general character which could not be foreseen at the time of the contract was concluded, the economic equilibrium between the respective obligations of the master and of the contractor breaks down, and the basis on which the financial estimates for the contractor were computed has subsequently disappeared, the judge may grant an increase of the price or order resiliation of the contract.

For administrative contracts, article 105 of the ACR provides:

If general exceptional conditions occur, being unforeseeable, as would make execution of the obligation burdensome threatening the contractor with serious loss, without [being] impossible, the contractor shall have right to compensation for recovering the contract financial balance to the reasonable limit.”

In summary, the doctrine of unforeseen events or circumstances requires that an event must (i) be exceptional and unpredictable, (ii) of general nature and (iii) occurs during the performance of the obligation under the contract.

GCC UAVAT: The UAE to implement VAT in 2018 What we know so far

GCC UAVAT: The UAE to implement VAT in 2018 What we know so far

By Karbal & Co, Legal Consultants

Last updated: 27 April 2017

With the Gulf nations aiming to diversify their economies through the implementation of a VAT in 2018, what can we expect?

In recent years, the Gulf States have sought measures to diversify their economies to reduce their oil dependency and seek alternative means of state revenue.

In a unified effort, six GCC countries have announced plans to simultaneously enact a VAT law by January 1, 2018 under the Unified Agreement for Value-added Tax (“UAVAT”). The VAT shall levy funds at a rate of 5% for both goods and services that are sold or provided to consumers within the Gulf States.

When shall the law come into force?

Although the legal framework shall be agreed upon between the countries by January 1, 2018, the VAT law shall be implemented in the GCC countries between January 1, 2018 and January 1, 2019. The UAE has stated in particular that it shall implement the law by January 1, 2018.  

To whom is the law applicable?


Not all businesses operating in the UAE will be required to pay a value-added tax. According to a statement issued by the UAE Ministry of Finance, companies whose annual revenue exceeds AED 375,000 shall be required to register with the relevant authorities and pay the tax. However, companies whose annual turnover is between AED 187,000 and AED 375,000 have the option to register. Although the 5% VAT may be applied to all industries operating within the UAE, specialists believe that certain industries may be exempt, including water and energy (oil & gas and renewable energy). Additionally, international trade between GCC member states is likely to call for special statutory exceptions to facilitate trade between the countries. It is also unclear whether the VAT will be applied to imports. The details of the legislation for each GCC member state remain to be seen.


Concerns have been raised about the applicability of the VAT to consumer goods. Reports indicate that in its essence, the VAT aims to tax tobacco, energy drinks and soft drinks. A list of 100 items shall be issued stating items that shall be exempt from the VAT tax, including healthcare, basic food items and education fees.

Measures taken to enact law

Member states in the GCC shall have from January 1, 2018 to January 1, 2019 to implement the legislation internally by enacting their own laws. It is therefore presumed that each member state shall impose its own specific details on VAT compliance requirements for companies.

Although the UAE has yet to release the general framework for the VAT law, reports indicate that the UAE has drafted a law internally. In anticipation of the implementation of the new GCC VAT law, the UAE established a Federal Tax Authority which shall enforce federal tax laws and levy taxes. The Federal Tax Authority shall also perform tax audits on firms and issue penalties in the case of non-compliance.

Significance of new tax law on businesses operating in the Emirates

Many questions raised by businesses operating in the Emirates concern compliance for the highly anticipated tax law. Compliance with the legislation will most likely include periodic reporting requirements, such as quarterly or monthly filings for VAT returns. A predicted effect of the tax law shall be an increase in detailed record keeping for businesses. Furthermore, if companies shall be expected to periodically remit funds to the Federal Tax Authority, companies may be faced with issues concerning cash flow management.  

Looking for tax law services in the UAE or Libya? Please visit our Contact us page to connect with us. 

Karbal & Co is an international law firm with offices in Dubai, United Arab Emirates and Tripoli, Libya. Our corporate law practice advises clients on all ownership, corporate governance and regulatory matters. Our experience includes setting up companies, ownership agreements and drafting articles of association for various different companies in the information techonology, medical and oil & gas industry.

Ship Finance: Structuring Islamic finance transactions in the Shipping Industry of the UAE

Ship Finance: Structuring Islamic finance transactions in the Shipping Industry of the UAE

By Nabilah Karbal, specialist in Islamic Finance and Associate at Maritime law firm Karbal & Co in Dubai, United Arab Emirates.

Islamic finance is a branch of finance that raises capital and provides financial services in compliance with Islamic rules and principles. Islamic finance not only establishes rules for providing financial services, but also legal rules for commercial transactions, such as sales.

Seeing as Nasdaq Dubai is the largest exchange for sukuk globally, and since the Dubai Maritime Vision 2030 aims to “establish Dubai as a leading Global Islamic Maritime Economy,” Dubai is rapidly growing as a world Islamic financial hub.  

This article briefly examines (I) the specific contractual rules required for a valid Islamic finance transaction and (II) the commonly used Islamic finance products in the maritime industry.

(I)                Contractual rules specific to Islamic Finance

Islamic finance contractual rules

The purpose of Islamic finance contractual rules is (1) to encourage development and (2) to ensure that transactions between parties are sound and fair. Islamic finance requires that the parties to a contract be of sound mind, and that the contract be formed on the basis of offer and acceptance. Furthermore, the terms of the acceptance by one party must mirror the terms of the offer proposed. The basic contractual rules of Islamic finance transactions therefore reflect the same contract law rules of common-law jurisdictions, thus making the Islamic finance contracts enforceable in many western jurisdictions.

Like many of the rules throughout various jurisdictions that aim to protect consumers, Islamic finance requires the seller to fully disclose all known flaws of goods that may not be evident to a buyer. Parties must also avoid any misrepresentations, and a seller may not take advantage of a buyer’s ignorance.

Furthermore, the seller must disclose the profit made from the transaction by disclosing the actual cost incurred (i.e., the cost of acquiring, producing or manufacturing the good). A permissible exception to this requirement is a musawama transaction, whereby a buyer agrees not to know the profit earned by the seller.

Prohibitions in Islamic finance transactions

Islamic Finance transactions must be based on honesty and fair trade. Profiteering and cheating are therefore impermissible or haram. Furthermore, certain practices of the financial services industry of western jurisdictions are prohibited in Islamic finance. In addition to the prohibition on transactions concerning impermissible goods (i.e., investing in the production or sale of pork and alcohol), one of the absolute prohibitions in Islamic finance is the prohibition of riba.

There are two categories of Riba; The first is the act of charging interest on a loan (Riba al Nassiyah), and the second is the compensation received by one party which is in excess of the value of the underlying transaction (Riba al Fadl). The act of charging interest in addition to the principal on a loan is therefore impermissible in Islam. Islamic finance therefore provides alternatives to conventional financial products that use riba through various Islamic finance products.

Transactions must also avoid gharrar, or uncertainty. All terms of the contract, such as date of delivery in a sales contract, must be defined in order to avoid uncertainty. However, price need not be agreed upon in order for the contract to be valid if the price can be readily determined on the market. A seller must also own the property that is the object of the contract prior to the conclusion of the sale or transaction in order to avoid gharrar. Ownership can be either constructive or actual.

Finally, maysir, or speculation, is a major prohibition in Islamic finance. The interdiction therefore prohibits the use of derivatives in Islamic Finance transactions.  

(II)             Common Islamic finance products used in Ship Finance

Amongst the various Islamic finance products available, certain products are well-suited to the needs of the shipping industry. The following are the most popular Islamic finance products used in ship finance:  

Ijara- Operating and Finance leases

Ijara is the Arabic word for “rent.” It is defined as a bilateral usufruct contract, or contract which grants one party the right to use the property of another party for a specific duration. In order to avoid gharrar, a lessor must therefore own the asset before entering into a lease contract with a leasee.

The ijara contract can be structured as either an operating lease or a finance lease known as ijara wa iqtina.

Ijara wa iqtina allows a leasee to pay periodic rental payments to the owner of the property with the promise to purchase the property at the end of the lease term. In the shipping industry, ijara wa iqtina is therefore used to finance the purchase of ships and other marine assets. Islamic finance also allows transactions to be structured with a security or mortgage in order to protect the lessor from the leasee’s default.

Istisna’a – Project finance

Istisna’a is a commonly used Islamic finance product which enables a bank to act as an intermediary between a customer and a manufacturer hired to produce or construct an asset. It is mainly used for project finance or working capital as an alternative to a loan.

In practice, a customer approaches a bank in order to construct property or manufacture goods. The bank pays for the construction of the project, and ownership of the finished product is transferred to the bank upon completion. In the maritime industry, istisna’a is predominately used in ship building. It enables a bank to exercise pre-delivery financing of ships under construction.

Upon completion of construction, ownership may be transferred from the bank to the customer. The customer has the right to pay for the property either (1) in installments, or (2) in whole at the end of the construction.

Murabaha – Cost-plus financing

Another commonly used Islamic finance product is murabaha, which is the Islamic finance equivalent of cost-plus financing in conventional banking.

Murabaha is often used for acquiring assets and working capital. In the maritime industry, murabaha would therefore be used to acquire ships and other marine assets.

In a murabaha transaction, the bank enters into a contract to acquire an asset on behalf of a customer. The bank acquires ownership of the asset in order to avoid gharrar. The rules of Islamic finance allow a bank to acquire the property in its name, or to appoint an agent to act on the bank’s behalf to acquire the asset. The bank may even appoint the customer as an agent.

After the bank acquires the asset, the asset is immediately transferred to the customer. The customer then pays for the asset by a deferred payment on a date that is pre-agreed upon between the two parties.

Like other Islamic finance transactions, banks may protect themselves from loss through mortgages, collateral (rahm), and/or guarantees (kafala).

Sukuk – Bond

Sukuk is considered the fastest growing and most popular Islamic finance product on the market. The growing popularity can be accredited to the fact that, like bonds and shares, sukuk certificates are securities that can be publically-traded on a secondary market (exchanges). The popularity is also due to a sukuk’s capability of raising large amounts of capital.

Sukuk can be defined as a beneficial interest or proof of ownership in an underlying asset whereby a sukuk holder receives periodic payments based on the performance of the underlying asset. Sukuk is often equated to bonds in conventional banking. However, many characteristics clearly distinguish sukuk from conventional bonds. For example, periodic payments based on performance of the underlying asset differ from coupons attached to a conventional bond, as coupons allow a bond holder to receive interest payments. Furthermore, due to the ownership interest a sukuk grants a holder of its certificates, a sukuk can be classified as a hybrid security that combines the characteristics of both bonds and shares (debt and equity).  

There are various forms and structures of a sukuk, however ijara sukuk appears to be a popular form of sukuk in the maritime industry. In a typical sukuk transaction, the obligor, or the party who wishes to raise funds, approaches an Islamic bank for funding. The Islamic bank then establishes a special purpose vehicle (“SPV”). The SPV issues the sukuk certificates, which are title deeds of equal shares for leasing project, to shareholders in exchange for capital. The obligor transfers the property to the SPV in exchange for the capital provided by the sukuk holders. The obligor enters into a rental agreement with the SPV, and agrees to pay periodic rentals on the property, with a promise to purchase the property at a maturity date. The certificate shares are only issued once the obligor transfers the property to the SPV. Seeing as the certificates represent ownership, the certificates grant the holders the right to receive rental fees paid by the obligor and dispose of their property affecting the lessee’s rights.

Liability for Collisions under UAE Maritime Law

Liability for Collisions under UAE Maritime Law

Hosting one of the world’s largest ports, Dubai has rapidly expanded to become a leading maritime hub. As an expected consequence of the growth of Dubai’s maritime industry, the number of marine accidents has steadily increased over the past few years, as Dubai Port police have reported that there were 53 maritime accidents in 2013, 37 accidents in 2012, and 34 accidents in 2011. According to Marasi News, 9 of the 37 accidents that had taken place in 2013 were collisions.

Collisions cause a variety of  adverse consequences, ranging from  fires and explosions to loss of cargo and damage to the vessel, marine pollution, and death or injury sustained by individuals such as members of the crew. In the most extreme cases, the aforementioned effects may be coupled in the vessel sinking. Depending on the severity of the effects, damages for collisions may cost those who are liable millions in losses. The major area of concern during a collision is the allocation of liabilities amongst the parties implicated.

The purpose of this article is to address the legal issues surrounding fault and liability that arises from a maritime collision that occurs within UAE territory by applying the applicable legislation, the UAE Maritime Code of 1981(Maritime Code).

Definition of a collision under Maritime Law

UAE Maritime law defines a collision an accidents that occur between vessels, regardless of whether physical contact has occurred; the UAE law allows victims to recover from tortfeasors even if no physical contact has occurred where  damage by an act or failure to act or violation of navigation rules is caused to another vessel, the goods or persons aboard the vessel (Article 318/2 of Maritime Code).  In case a collision occurs, persons or cargo aboard a ship or an innocent third party involved in the collision may recover for damages and losses suffered. However, the physical contact between ship and structures, such as a bridge or dock, is not a collision, and in fact constitutes tortious liability. 

Determining liability of a vessel

Like many other jurisdictions, a collision occurs due to either a fault of a vessel, force majeure, or unidentified cause. Determining the allocation of liability is determined by assessing which party is at fault.  If a Court determines one vessel is at fault for the collision, the owner of the vessel will be held liable for paying damages to successful claimant(s) (Art. 320 of Maritime Code). The UAE Maritime Law code provides for joint and several liability for collisions where more than one vessel is at fault. If a Court finds both vessels jointly at fault, then the Court will accord liability to ships in proportion to the amount of blame of each vessel.  (Art. 321 of the Maritime Code). Incidents may arise where Courts are faced with the difficulty of determining the percentage of  fault of the vessels, such as when evidence is vague and does not permit the court to determine who is at greater fault. In this case, the courts will find  all vessels involved in the collision equally at fault.     

Force majeure is the commonly used legal principal to describe an unknown cause or an irresistible force outside of the control of either party which causes a tort. Under maritime law, examples of force majeure include forces of nature, such as a hurricane or flood, which leads to a collision between vessels. In case of a force majeure, the UAE Maritime Code explicitly exempts each party from liability to the other. (Article 319 of Maritime Code) Instead,  a vessel shall only be responsible for its own losses.


As it is mentioned above, the ship-owner of a vessel that is found at fault for the collision shall be liable for paying damages to the victims of the collisions.

In dividing damages when more than one vessel has determined to be liable in a collision, , Article 321 of the UAE Maritime Code provides that damages will be determined and divided in proportion to the fault of more than one vessel. In effect, each vessel shall only remain liable for damages in in proportion to the percentage of the fault.  Furthermore, the UAE recognizes joint and several liability, which allows a victim to recover the totality of their damages from one of the defendants. (Article 321/3 of the Maritime Code).   Joint and several liability is limited, as vessels will only be jointly and severally liable for death or personal injury. if the damages relate to death or personal injury. Under UAE law, a charterer may also be required to indemnify the ship-owner for any claims for damages in a collision caused by the ship to third parties. (Art. 255of Maritime Code)

Business setup Dubai & Corporate Governance – UAE Commercial Companies law and legal reforms

Business setup Dubai & Corporate Governance – UAE Commercial Companies law and legal reforms

By Nabilah Karbal, Associate at Karbal & Co’s Dubai Office. 


Federal Law No. 2 of 2015 “The New Commercial Companies law” (CCL), which came into force on July 1, 2015, replacing the Federal Law No. 8 of 1984. The purpose of the new legislation was to bringing the UAE up to speed with corporate legislation currently enacted in many developed nations. The New CCL requires that corporations subject to the legislation amend their articles of association and memoranda to comply with the legislation’s new provisions. Failure to amend a corporation’s articles of association before June 30, 2016 will result in the dissolution of the company.

The purpose of this article is to highlight certain changes and new additions enacted by the new legislation, and what corporations and shareholders need to know.

Applicability and scope of the New Commercial Companies Law

The scope of the new legislation covers a variety of areas of ownership and corporate governance rules for different company models and concerns the protection of shareholders and fiduciary duties of directors.  

Although the CCL suggests that it applies to all commercial companies, the CCL is not applicable to free zone companies (Article 5 of the CCL). Article 5 of the CCL will only apply to free zone companies if they operate outside of their designated areas.

Furthermore, Article 4 stipulates that certain companies are not subject to the new CCL. These companies include

(1)   Companies that the federal cabinet had specifically exempted from application due to resolution;

(2)   Companies that are wholly or partially owned by the federal or local government; and

(3)   Companies of which the federal or local government owns 25% or more and which operate in the oil, gas, and power sectors.

General rules

Foreign ownership: Restrictions codified

The UAE provides a system of ownership where foreign ownership is restricted to 49% of the company’s shares and where the remaining 51% is required to be owned by an Emirati national. With the new CCL, Article 10(1) provides that the restrictions must be strictly observed, as any share transfers to foreign nationals greater than 51% will be invalidated. With the original CCL, this provision was nonexistant.

Fiduciary duties (the duties of Directors and Managers)

Fiduciary duty can be defined as a duty owed by an agent to a principal. For a corporation or business entity that is an independent person, directors and managers owe a fiduciary duty to the corporation. Corporate laws of jurisdictions of developed nations impose a duty of ordinary care and prudence on a director and manager. Article 22 of the New CCL imposes the duty for directors to act with the care of a “precise person.” Prior to the New CCL, fiduciary duties of directors and managers had not been codified.

In its attempts to protect corporations, Article 24 of the new CCL provides that all provisions exempting directors and managers from personal liability are void.

A form of a “duty not to compete” requirement has been enacted in Article 86 of the New CCL, which applies specifically to limited liability companies. Article 86 stipulates that a director of a company is not allowed to manage or govern another company unless the director obtains the consent of the company for which she is already a director.

Updated Accounting Requirements

The Enron crisis is considered the event which highlighted the importance of the role of accountants. As a reaction, legislation in developed nations, such as Sarbannes-Oxley, set into force accounting requirements to which many jurisdictions now adhere.

In the UAE, accounting requirements were already in force prior to the New CCL. However, the New CCL brings accounting requirements up to international standards. Article 26 of the New CCL stipulates that business entities subject to the new legislation are required to retain accounts of books at their relevant head offices for five years. The aim is to give shareholders and directors an accounting of profit and loss for a given period.

Introduction of Holding Companies into UAE legislation

Although “groups” exist in the Emirates, Article 266 of the new CCL legally recognizes the existence of holding companies in the UAE. 

Rules applicable to Joint Stock Companies

Responsibility of board of directors

For both private joint stock companies and public joint stock companies, the board of directors shall be held accountable for compliance with corporate governance framework. Article 6 and 7 of the New CCL provides that failure for a director may result in a statutory penalty of up to 10 million AED.

Rules applicable to Private Joint Stock Companies

Corporate governance

The New CCL provides that the Minister of Economy shall issue resolutions concerning a corporate governance framework for companies with more than 75 shareholders.

Rules applicable to Public Joint Stock Companies

Corporate governance

The Securities & Commodities Authority shall issue the resolution regarding the corporate governance framework. The framework will include rules relating to the corporate governance applicable to the a public joint stock company. 


Modern securities regulation, such as Sarbannes-Oxley, provides rules on independent auditors. The New CCL provides that all public joint stock companies must have at least one or more auditors that are nominated by the board of directors. The new CCL further provides that all auditors must be thereafter approved by the general assembly.

Article 243 of the New CCL provides that the mandate of the auditor shall not exceed 3 successive years. The reasoning behind this is most likely the same as other western jurisdictions. A restriction on the employment of an auditor aims to ensure independence from the corporation, and genuine auditing of the books.

Protection of Minority Shareholders

Protection of a class of shareholders

In order to protect a specific class of shareholders, Article 170 of the New CCL provides that the class may seek to void any resolutions passed for or against the class. 

Petitioning the court against actions that are detrimental to a shareholder

Western jurisdictions provide certain safeguards to protect minority shareholders. Article 164 of the New CCL provides the possibility for a shareholder who owns more than 5% of total outstanding shares the possibility of petitioning the competent court of the Securities & Commodities Authority for any actions of the company (board of directors) that are against the interests of any of the shareholders. This condition is common place in many jurisdictions, such as New York, where shareholders with a 20% ownership share of a closed corporation may petition a court for dissolution for a number of reasons, i.e., reasonable expectation of governance.

Rules applicable to Limited liability companies

New rules for sole shareholders

Prior to the New CCL, the concept of a sole shareholder was non-existent in the UAE legislation. Article 71 of the New CCL recognizes the right of one natural person or a corporate entity to be a sole shareholder of an LLC.

Number of directors

Many jurisdictions require that the the articles of association or by-laws to stipulate the number of directors and managers of a company.  Article 83 of the New CCL requires that the number of directors to be set in the articles of association and a company’s memorandum.  

Valuation of shares for shareholders for non-cash consideration

Valuation of shares for shareholders is essential to equity ownership. The valuation enables shareholders to obtain an accurate value of the ownership for the purpose of purchase or sale of equity. Due to the importance of the valuation of equity within financial centers and seeing as Dubai is growing into a regional financial hub, we understand the need for the addition to UAE legislation.  

Article 78 of the New CCL provides that shares will be valued in non-cash consideration or “in-kind.” The valuation of the shares can be done in one of two ways, either (1) the shareholders agree to determine the value of their shares, which shall be approved by the Department of Economic Development, or (2) a financial consultant approves the value of the shares, where the value is also subject to approval by the Department of Economic Development.

Medical Malpractice in the U.A.E: The Authority of an Expert Opinion in Medical Malpractice Litigation

Medical Malpractice in the U.A.E: The Authority of an Expert Opinion in Medical Malpractice Litigation

Expert opinions in litigation aim to shed light on a matter presented in a case and assist the court in its understanding the matter presented by applying knowledge of a specific study to the facts of the case. Expert opinions are extremely important, as they are often taken into consideration by a court in its ruling. Expert opinions may therefore lead the court to rule in favor of one party over another.

The purpose of this article is to examine the authority of the expert opinions of the High Committee on Medical Liability in medical malpractice litigation in the U.A.E.

Federal Law no. 10 of 2008 on Medical Liability regulates the liability of medical practitioners in the United Arab Emirates.  Article 15 of the Federal Law no. 10 of 2008 established the High Committee on Medical Liability (the “Committee”), which is made up of consultant physicians selected by the Cabinet.  “The Committee members are from the Ministry of Health, the Ministry of Justice, the Health Authority Abu Dhabi, the Health Authority Dubai, a professor from the School of Medicine, the Armed Forces Medical Services Directorate, the Ministry of the Interior Medical Services Directorate, Emirates Medical Association, and the private medical sector.”

The Committee serves as a body of medical experts and it provides opinions upon the request of the public prosecution office, a competent court or a medical body.  The Committee’s report should address whether a medical error and harm had occurred and whether there is causation between the culpable act and harm.  

Due to the composition of the Committee, as well as how it is established and appointed by the Cabinet, one may consider that the Committee shall provide a holistic and accurate medical opinion.  The composition also brands the Committee as the most legitimate source of medical opinion since it was established by a federal law, unlike other experts who are appointed by the courts.

This cloak of legitimacy given to the Committee, in my opinion, led various judges to consider the Committee’s reports as the authority on the subject matter which should override any other report. 

Appeal no. 48-63-70/2013 (The U.A.E. Supreme Court)

This case involves charges filed against a gynecologist for medical malpractice which was filed before the competent criminal court and a court of first instance in Abu Dhabi.

The Court of First Instance requested the Committee to provide a report on the facts of the case.  The Committee’s report concluded that the gynecologist had committed medical malpractice.  In the meantime, the gynecologist submitted three expert opinion reports prepared by the head of the medical liability department of the Ministry of Health, the Medical Committee of Dubai Health Authority and a medical consultant.  All three reports concluded that the report submitted by the Committee was inaccurate and that there was no medical malpractice committed by the Respondent. Furthermore, the three reports concluded that the harm caused to the claimant was due to medical complications recognized within the medical community. 

However, the Court of First Instance relied on the Committee’s report and ignored reports submitted by the gynecologist. In relying on the Committee’s report, the Court of First Instance ruled that the gynecologist had committed medical malpractice and decided to compensate the Claimant (the patient) for damages.  The Court of Appeals affirmed the Court of First Instance’s ruling and the gynecologist appealed the Court of Appeals’ ruling.   The case was heard by the Supreme Court of Abu Dhabi. 

The Supreme Court explained that the Committee is merely a body of experts in the medical profession and its opinion should be treated by the court as any other expert opinion report.

The Supreme Court also added that relying only on the Committee’s report and ignoring other reports submitted by the gynecologist is an error in examining evidence.  Furthermore, the Supreme Court pointed out that a report submitted by the Committee should not be considered as exclusive evidence.  This means that a court should not dismiss other expert reports submitted by one party to the litigation just because such reports contradict the conclusions in the Committee’s report.

In conclusion, the Supreme Court of the United Arab Emirates set an important precedent in that a committee established by law, such as the High Committee on Medical Liability, should not viewed as the supreme authority and should not override other reports in weighing the evidence in a court of law.

Liability of a Freight-Forwarder Before the Dubai Courts

Liability of a Freight-Forwarder before the Dubai Courts

There has been a debate in many countries on the degree of liability of the carrier and a freight forwarder on the issue of cargo claims; is a freight forwarder a principal or an agent?  The debate indicates that a freight forwarder’s legal status in the shipping industry depends on the degree of involvement of a freight forwarder in the overall operation of shipping goods.  A freight forwarder could limit his liability by limiting his rule and act only as an agent on behalf of the carrier.

Contrary to the belief that the courts of the U.A.E. are still behind their western counterparts when it comes to maritime litigation, the courts of Dubai have proven to be very advanced.

Despite the important role played by a shipping agent in the chain of logistics, the Federal Maritime Commercial Law No. 26 of 1981 did not establish the responsibilities of a shipping agent.   Nevertheless, the courts of Dubai, in its efforts to determine the liability of a shipping agent, apply Article 8 of the aforementioned law, which allows a court to apply international maritime customs and rules of justice.  

The general rule followed by Dubai courts is to consider the freight forwarder not as an agent in litigation of cargo claims, unless proven otherwise.   There has been a clear application by the Dubai Court of Cassation which distinguishes between the carrier and the freight forwarder.  In one case filed against a ship-owner and a freight forwarder for damages to goods, the Court of Cassation of Dubai stated that in performing duties such as delivering cargo to the ship, delivering bills of lading to shippers, delivery of cargo to consignees, and supplying fuel to the ship, a freight forwarder is acting as an agent for the carrier or ship-owner. All such acts performed by a freight forwarder are considered to fall under Agency Law, and a freight forwarder is therefore considered an agent.  

The Court of Cassation of Dubai in the said case dismissed the claim against the freight forwarder for lack of evidence that the freight forwarder violated the rules of agency and acted as a principal. The Court also decided that unless the freight forwarder committed a tortuous act, the laws of the United Arab Emirates and the courts of Dubai place minimum liability on the shipping agent. This is due to the fact that a freight forwarder is not a party to the main shipping document, the Agreement of Affreightment.

One of the incidents that a freight forwarder may find itself responsible for is case of loss or damage to cargo is when the freight forwarder commits a tortious act.   

As long as the freight forwarder acts on behalf of the shipper and refrains from acting as a principal in shipping matters, a freight forwarder’s liability will be limited.

Therefore, it is advisable that a freight forwarder limit their role to receiving cargo from the shipper and issuing bills of lading on behalf of the carrier.

Liability for collisions under Libyan Maritime Law

Liability for Collisions under Libyan Maritime Law

It is a known fact that the Libyan people are still struggling to establish a strong central government in order to fulfil the hopes and aspirations that inspired the revolution of February 17, 2011.

At present, there are two parliaments and two governments claiming to be the legitimate representative of the Libyan people. In order to resolve the dispute, both the United Nations and the European Union are bringing the two sides to the negotiation table, in hopes of establishing one internationally-recognized government to bring peace and security to Libya through the support of the international community.

The strategic location of Libya and its tremendous wealth gives Libya an important status for the world, most notably to the EU.

Evidently, peace and economic development will soon come to Libya and that will lead to security and prosperity, not only in Libya, but in the world especially Europe. Trade will flourish and the part of the Mediterranean adjacent to Libyan ports shall be frequently visited by vessels. This leads to the topic of this article which discusses vessel collisions as regulated by Libyan Maritime Law.

Although the effects of certain collisions may not lead to sinking, collisions may still cause adverse consequences, including but not limited to, fires and explosions, loss of cargo and damage to the vessel, marine pollution, and death or injury sustained by individuals, such as members of the crew.

The repercussions of the collision may cost those who are held liable, such as shipowners or insurance companies (P & I clubs) thousands, even millions of dollars in losses depending on the severity of the damage. One of the biggest concerns is how each party implicated will assume liability and how loss will be allocated amongst the parties.

The purpose of this article is to address the legal issues surrounding fault and liability that may arise from a maritime collision that occurs within Libyan waters by using the applicable legislation, the Libyan Maritime Law of 1953.

The Libyan Maritime Law considers collisions as accidents that occur between vessels. Although a collision is commonly believed to require physical contact, the Libyan Maritime Law allows victims to recover from tortfeasors even if no physical contact has occurred, where damage by an act or failure to act or violation of navigation rules is caused to another vessel, the goods or persons aboard the vessel (Article 241 of Libyan Maritime Law).

In case of a “collision,” as defined under the Libyan Maritime Law, persons or cargo aboard a ship involved in the collision or an innocent third party may recover for damages and losses suffered. However, the physical contact between ship and structures, such as a bridge or dock, is not considered by the Libyan Maritime Law as a collision, and in fact constitutes tortious liability.

For a collision to have occurred, the accident must have caused by either a fault of a vessel or force majeure, or unidentified cause. The fault of a vessel is extremely important in determining the liability for damages. If a Court determines one vessel is at fault for the collision, the owner of the vessel will be held liable for paying damages to successful claimant(s) (Art. 238 of Libyan Maritime Law).

In case where a Court determines that both vessels are jointly at fault, then the Court will accord liability to ships in accordance to the amount of blame of each vessel (Art. 239 of the Libyan Maritime Law). Courts may be faced with the difficulty of determining the allocation of fault, such as when evidence is vague and does not permit the court to determine who is at greater fault. In case where the fault of the vessels is difficult to determine, courts will find both vessels equally at fault.

Force majeure is the common term used in various jurisdictions to describe an unavoidable or an irresistible force outside of the control of either party which causes a tort. Under maritime law, examples would be a hurricane or flood which causes a collision between vessels. The Libyan Maritime Law stipulates that both parties are exempt from liability to each other in case of force majeure (Article 237 of Libyan Maritime Law). Instead, each party will be responsible for its own losses.

In terms of division of damages, Article 239 of the Libyan Maritime Law stipulates that if more than one vessel is at fault, liability will be assessed in proportion to their fault, meaning that each vessel will only be held liable for the damages to the degree of their liability.

If it is impossible to calculate the degree of fault of each vessel, liability will be divided equally among the vessels involved. Each defaulting vessel will be severally proportionally liable for damages caused to other vessels, belongings of the crew and passengers.

However, defaulting vessels will be jointly and severally liable for death or personal injury, meaning that the plaintiff can recover the entirety of the damages (Article 239 of the Libyan Maritime Law) from one of the defaulting vessels.

If such vessel pays for damages exceeding its percentage of the fault, it is entitled to be reimbursed by other defaulting vessels for the amount it paid in excess of its percentage of fault. Military and government vessels serving public interest are not subject to the pervious rules of compensation (Article 244 of the Libyan Maritime Law).

Cruise Safely…

Arrest of Ships in Accordance with Libyan Law

Arrest of Ships in Accordance with Libyan Law

Dr. Mohamed Karbal is a New York lawyer and founder of Karbal & Co, a full-service international law firm that serves the needs of businesses and governments in Libya and the United Arab Emirates.

Libyan Seaports
Despite the current security problems, the Libyan government due to its efforts to rebuild the New Libya, has situated the nation at the apex of a widely-anticipated economic boom of development in all sectors. Prior to the revolution of 2011, Libya’s exports reached $30 billion USD and its imports exceeded $6 Billion USD. With new liberal economic views and the willingness to compensate for the 42 years of stagnation under the Gaddafi regime, Libya’s economic development is projected to be one of the fastest growing economies in the world.

Libya is largely dependent on imports, consisting mainly of industrial and food commodities. Libya’s biggest trading partner is the European Union and Italy leads with 30% of Libyan imports. This significance of the Libya/EU trade-link across the Mediterranean is undisputed as the seaports of Libya are invigorating their connections to the southern European seaports. This will continue to play an increasingly important role in the future. The Libyan foreign trade is carried out through seven major commercial seaports, seven petroleum seaports, and one seaport for the steel industry. This significant number will be the basis of the trade link across the Mediterranean once security and stability dominate the Libyan political scene.

The seaports are reasonably equipped, nevertheless, in the near future the Libyan government will be investing in improving the efficiency and productivity of its seaports. The government is presently contemplating involving foreign investors to develop and operate the Libyan seaports on the basis of public-private partnership (PPP).

As the efficiency of these seaports improves, the frequency of ships berthing at Libyan ports is expected to increase. It is a commercial fact that the majority of ships calling at the Libyan ports are neither registered in Libya nor owned by Libyan entities. With the expected increase of the tonnage and containers to be handled by the Libyan seaports, legal problems between the foreign ship-owners and shippers are expected to increase before the Libyan courts. These disputes shall be mainly related to the arrest of ships in the Libyan seaports. Parties involved in shipping disputes shall use the Libyan courts as a venue to force a settlement without resorting to litigation.

The Libyan Law and the Arrest of Ships
Libya is not a signatory to the International Convention relating to the Arrest of Seagoing Ships of 1952, however, a ship in Libyan territorial waters could be arrested as a property owned by a debtor.

In general, the Libyan law grants the Libyan courts original jurisdiction to hear a case brought against non-Libyan. Article 3 (2) of the Civil and Commercial Procedures Law gives the Libyan courts power to hear and decide a case involving property located in Libya. Since international law and Libyan law consider the water surrounding Libya as a part of that country’s territory, accordingly, a vessel located in the Libya’s territorial water will be subject to the original jurisdiction of the Libyan courts.

Another applicable rule to arrest a ship is to commence proceedings to secure claim. According to Article 516 (1) of the Civil and Commercial Procedures Law, a claim can be filed in a Libyan court against a property located in Libya even when the owner is a non-resident of Libya. Concerning a ship arrest, a ship located within the territorial waters of Libya will be subject to arrest despite the non-residency of the owner.

Here, we must draw a distinction between an arrest order obtained in the enforcement of priority rights conferred by a maritime lien and a prejudgment attachment or prejudgment writ of attachment as it is known in the United States of America. Prejudgment attachment under the Libyan law is a provisional remedy to preserve the status quo until the court issues a final judgment. It is mainly the seizure of the ship temporarily.

The plaintiff (creditor) has to commence the action in the court which has jurisdiction over the ship. The plaintiff must submit evidence of the debt owed by the debtor, in this case, the ship owner. The court orders the seizure or attachment of the ship specifically described in the writ by issuing a notice of attachment which will be served to the ship’s master in order to commence the attachment. The ship will be seized and maintained in the custody of a designated official (guardian). The guardian is usually appointed by the court or the ship’s master/crew member to ensure that the ship remains in custody until a final judgment is issued.

Usually, a good legal team will be able solve the issue of a ship’s seizure in Libya by arranging the offering of a guarantee, and/or letters of undertaking to the creditor in order to release the ship. As is unusually the final result, further details such as litigation or the sale of the ship by the court is unnecessary for this discussion and left best discussed with a debtor’s lawyer, if the need does arise.

This article was first published in Libya Business News August 2014 and republished in Marasi News January 2015 issue.