A possessory lien under Libyan law is created by contractual agreement. It permits a creditor the right to remain in possession of an encumbered item, movable or immovable until the debtor has satisfied the debt. Therefore, a lien is a legal claim that one person, the creditor or the pledgee, has over the property of another, the debtor or pledgor, as security for paying a debt.
Under Libyan law, possessory lien grants the pledgee the right to (i) possess the pledge until the terms of the possessory lien are met, and (ii) the right to seek a court’s decision to sell the pledge if its value deteriorates to a point where the value of the pledgee becomes, or fear to become, less than the debt. On the other hand, the pledgor (i) is under obligation to guarantee the safety of the pledge, and (ii) shall be responsible for the deterioration of value or loss of pledge due to his/her negligence or force majeure (Articles 1105 and 1106 of the Libyan Civil Code).
Article (1101) of the Libyan Civil Code
As stipulated by Article (1101) of the Libyan Civil Code, the thing subject of a possessory lien must either be movable or immovable, which can be sold independently in a public auction. It should also be well defined and subject to possession. Therefore, the subject of a possessory lien could be real estate or a car that falls under the definition of the thing subject to be pledged.
The property, the pledge, could be kept, in possession of, the pledgee, until the debt has been paid, or it could remain in possession of the pledgor. In some cases, the pledgor remains in possession of the pledge but will not own it. In case the pledged item was in the position of the pledgor, and after the debt was satisfied and the pledged item was returned to the pledgee, the pledgee has the right to claim any such entitlement against the pledgor for damages for the pledged item.
The pledgor is responsible for the safety of the thing pledged. Consequently, the pledgor is accountable for any damage to the pledged item. Article 1106 (1) of the Libyan Civil Code holds the pledgor responsible for damages to the pledged item if the damage is due to his negligence or due to force majeure even if the pledged item is in possession of the pledgee.
Article 1107 of the Libyan Civil Code rest the duty to maintain the pledged thing on the pledgee. The pledgee becomes responsible for the safety of the pledge if he has possession of the pledge. He will use the care of a reasonable person and shall be liable for deterioration or loss of the pledged item unless he proves the cause of damage is not attributed to him.
The management of the thing pledged shall be the responsibility of the pledgee, who shall manage the thing pledged item as a reasonable person would under the circumstances. The pledgee shall not change how the pledged item is used unless approved by the pledgor.
If the pledgee miss manages the pledged thing or misuses it, the pledgor shall have the right to ask for the pledged item to be placed under judicial deposit. The pledgor will also have the right to ask the court for the restitution of the pledged thing, provided he will be the debt.
Unless the pledge contract states otherwise, the thing pledged must be invested as stipulated in Article 1108. The pledgor is not allowed to benefit from the investment, in the form of revenue or production, of the pledged thing. On the other hand, the investment of the pledge is considered an obligation on the pledgee if he is in possession of the thing pledged.
Net Profits Details
The net profits received by the pledgor from managing the pledged item shall cover (i) the pledgee’s expenses on the preservation and maintenance, expenses of the pledged item, (ii) the interest and, (iii) the rest of the amount of the net profit, if there is any, shall be deducted from the capital amount of the debt.
Dr Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. He served as an expert witness on Libyan law. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya and Washington D.C.