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Etrak Insaat Taahhut Ve Ticaret Anonim Sirketi v. Libya, No. 22-cv-864 (D.D.C. Feb. 4, 2025)[1]

Factual Background
 
In October 2012, Libya contracted with a Turkish corporation, Etrak Insaat Taahhut Ve Ticaret Anonim Sirketi (“Etrak”), for the performance of public-construction projects. Libya never paid Etrak for the work. Etrak sought recovery in a Libyan court, which entered a judgment for Etrak. The parties then agreed to settle any related claims for roughly 5.4 million Libyan Dinar (about USD 1 million). But Libya again refused to pay, this time contending that no valid settlement agreement was ever formed because the Ministry of Finance Undersecretary who signed the settlement agreement lacked authority to do so.
 
Etrak then initiated arbitral proceedings in Geneva, Switzerland, invoking Libya and Turkey’s bilateral investment protection treaty (“BIT“), which, among other things, entitles Turkish investors to “fair and equitable treatment” and requires “good faith” settlement of disputes. Thereafter, in March 2018, Libya filed suit in Tripoli, Libya, seeking a declaration of invalidity of the parties’ settlement agreement.
 
The Arbitral Award

In July 2019, the Swiss tribunal issued an award for Etrak for almost USD 22 million. It held, among other things, that the Undersecretary had apparent authority to sign the settlement agreement and that, in violation of the BIT, Libya failed to provide Etrak fair and equitable treatment.
 
At the time the tribunal rendered its award, and on account of issues related to the Second Libyan Civil War, the parties were not aware that the Tripoli court had already issued an opinion declaring the settlement agreement invalid. Libya sought to vacate the award in Swiss federal court based on the decision of the Libya court. The Swiss court ruled in favor of Etrak. The arbitration began in August 2016, while the Tripoli proceedings did not begin until March 2018. The court found that, “a decision rendered abroad will not be recognized in Switzerland if one party proves that a dispute between the same parties on the same subject matter was first instituted in Switzerland, even if the Swiss proceedings last longer than the foreign proceedings.”
 
The Enforcement Proceedings

Etrak then filed enforcement proceedings in the courts of several countries, including in the U.S. District Court for the District of Columbia in February 2019. Libya moved to stay the U.S. proceeding pending resolution of Etrak’s other confirmation proceedings. The court first held that it had subject matter jurisdiction under the arbitration exception in the Foreign Sovereign Immunities Act because (i) the BIT was an arbitration agreement “for the benefit of” private parties, (ii) Etrak held an arbitration award, and (iii) the New York Convention governed enforcement of the award.

The district court then denied Libya’s motion for a stay. First, the court cited the “limit[ed] grounds for deferral” of enforcement proceedings under the New York Convention and found such grounds absent because the Swiss courts had already rejected Libya’s appeal of the award, meaning there existed no danger that the award might be annulled or set aside (one of the bases for a stay under the Convention). The court also declined to exercise its “general discretion” to stay the case for docket-management purposes.

The court then granted Etrak’s motion to confirm the award. Libya opposed confirmation under the “public policy” defense in the New York Convention. More specifically, Libya argued that confirming the award would run “contrary to the United States’ public policy in favor of res judicata,” because the Tripoli judgment invalidating the settlement agreement was a final judgment on the merits that should have had res judicata effect in the arbitral proceeding.

The court noted that the public policy exception is relied on only “in clear-cut cases” where “enforcement would violate the forum state’s most basic notions of morality and justice.” Libya could not point to any decision that declined to enforce an arbitration award under the public policy exception on res judicata grounds. The district court also explained that confirmation of the Swiss award would not offend res judicata principles because the Tripoli and Swiss proceedings implicated distinct issues: the former solely addressed the settlement agreement’s validity, while the latter also addressed whether Libya had breached the BIT. Further, and finally, the court noted the prior rejection of Libya’s res judicata argument by the Swiss court.

The court granted Etrak’s motion to confirm the arbitration award.

This article was originally published in the North America Newsletter.


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Author

David Zaslowsky, a partner in Baker McKenzie's New York office, has been practicing international litigation and international arbitration for 40 years. He has been Chambers ranked in international arbitration and also sits as an arbitrator. He specializes in technology cases and is the editor of the firm's Blockchain Blog as well as its International Litigation & Arbitration Newsletter.

Author

Reese is a litigation associate in Baker McKenzie’s Dallas office. Before joining the Firm, Reese served as a law clerk for the Honorable Liles C. Burke of the U.S. District Court for the Northern District of Alabama, during which time he gained valuable insight into federal practice and procedure under the tutelage of both Judge Burke and the Honorable C. Lynwood Smith, Jr. Reese can be reached at Reese.Griffin@bakermckenzie.com.