International Business During Regime Change: Libya, Syria, and Beyond

An interesting update today from law firm Reed Smith, writing about the added complications of conducting international business during times of unrest and regime change. Timely analysis, indeed, as the world watches the dramatic events unfolding in Libya’s capital and pressure mounts on Syrian President Assad to step down.

Titled Regime Change and State Contracts, today’s analysis asks [bold is ours]:

For international companies with economic interests in these states,
questions will nevertheless remain about the position of their
investments over the coming weeks and months. What rights would such
companies have following a change in the regime?
What would happen if
the country is divided? Equally, what will the position be if the
current regime does not change after all?

For you reference, here are some highlighted points in Reed Smith’s answer:

– Just as the replacement of the CEO does not affect the legal identity and contractual obligations of a company, under the international-law doctrine of ‘state continuity’, changes in national governments do not affect the legal identity or legal obligations of a state.

– Nevertheless, it is common for new governments taking power following a significant political upheaval to seek, for political reasons, to distance themselves from the economic and commercial dealings of the previous regime. There are many examples of national laws being changed by new governments in order to nullify or revoke contracts and agreements entered by predecessor governments.  

– Foreign investors who were treated unfairly, or required to give up contractual rights without adequate compensation, could seek redress under investment promotion and protection treaties, such as Bilateral Investment Treaties (or “BITs”)…

– As a matter of international law, it is generally accepted that established (or acquired) private law rights under state contracts are unaffected by changes in national sovereignty at least until the newly formed state introduces new laws that state otherwise. 

– …there will be some cases in which the doctrine of frustration or similar concepts could have the effect of bringing any continuing obligations to an end whether or not the law has been changed. In other cases, the performance of a state contract could be entirely unaffected by a territorial split elsewhere in the country.

Read the entire commentary here>>

Additional, related law firm news & updates:

New Sanctions on Syria Result in Broad Embargo (Wilson Sonsini)
New Sanctions Against Libya (McDermott Will & Emery)
Iran and Syria sanctions (Reed Smith)
EU Libyan Sanctions Council Decision and Regulation Published (Bryan Cave) 
Libya Sanctions UN Security Council Resolution 1970 [Full text copy]

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