[00:00:00] Speaker 04:
Case number 21-7128.

[00:00:01] Speaker 03:
State of Lydia, Appellant, versus Stravack, Etsy.

[00:00:07] Speaker 03:
Mr. Perla for the Appellant, Mr. Berndt for the Appellate.

[00:00:11] Speaker 02:
Morning, Council.

[00:00:12] Speaker 02:
Mr. Perla, please proceed when you're ready.

[00:00:35] Speaker 04:
Good morning, and may it please the court.

[00:00:37] Speaker 04:
The fundamental defect in this arbitral award is that the tribunal failed to decide an issue submitted by the parties.

[00:00:44] Speaker 04:
Who is entitled to keep 98 million euros that Lydia advanced to the straw bag for work that was never done?

[00:00:51] Speaker 04:
Even though the contracts provide for who gets the money, the arbitrators refuse to decide the issue.

[00:00:58] Speaker 04:
because they were worried that if they credited Libya for the advanced payments, Libya might get a double recovery if it later called on, wrongfully called on certain guarantees securing those funds.

[00:01:12] Speaker 04:
What did they do instead?

[00:01:14] Speaker 04:
They said in a quote, this matter should be addressed, must be addressed outside the context of this arbitration.

[00:01:21] Speaker 04:
In doing so, they awarded a straw bag in effect, a double recovery.

[00:01:26] Speaker 04:
The arbitrators believe this was acceptable because after balancing the equities and their concerns over the status of the guarantees, they found it was more acceptable for their own sense of good order and fundamental fairness to put the risk on Libya rather than Strabeck.

[00:01:41] Speaker 01:
You're focusing on one sentence at the end of that section of the order.

[00:01:48] Speaker 01:
But if you read the section in its entirety, they do seem to reject

[00:01:54] Speaker 01:
of various grounds that were asserted for the set off.

[00:01:59] Speaker 01:
They say there's no unjust enrichment.

[00:02:01] Speaker 01:
There was no misuse of funds.

[00:02:03] Speaker 01:
Libyan law doesn't compel this.

[00:02:07] Speaker 01:
It seems like they decided against you.

[00:02:11] Speaker 01:
And then they have this aside at the end that had they gone the other way, they would have created a fairness problem.

[00:02:19] Speaker 01:
And it might or might not be right, but

[00:02:24] Speaker 01:
It sure seems like they decided the issue.

[00:02:28] Speaker 04:
Well, Your Honor, I don't believe that they decided the advanced payments issue, which is ultimately the issue that was before them.

[00:02:35] Speaker 04:
Who's entitled to keep this money?

[00:02:36] Speaker 04:
And when you look at the entire structure of the section, section nine that deals with this issue, it identifies it as the issue of the advanced payment.

[00:02:45] Speaker 04:
And then it puts a footnote that refers to the dissent and says this section of the award should be read in conjunction with the dissent.

[00:02:53] Speaker 04:
And when you read the dissent, it's criticizing the majority precisely for failing to, and I believe it is, having performed a task partially completed because they had failed to decide the issue of the advance payment.

[00:03:06] Speaker 04:
The majority does not rebut or reject that characterization of what they did in that section.

[00:03:11] Speaker 04:
And when you go through it, you realize that nowhere in the section do they say that Strabegg is entitled to keep the money.

[00:03:18] Speaker 04:
In fact, nowhere in the award do they make that conclusion.

[00:03:23] Speaker 04:
And multiple times they say, we're not conducting a global settlement of accounts.

[00:03:27] Speaker 04:
We're not doing a wrapping up of who owes what to who ultimately under these contracts.

[00:03:33] Speaker 04:
And they focus on the guarantees.

[00:03:36] Speaker 04:
which is a very critical point.

[00:03:37] Speaker 04:
Their obsession with the guarantees shows that they weren't deciding the issue of the advance payments because otherwise, if they had intended to say Strabeck is entitled to keep the money, they wouldn't be preoccupied about the guarantees.

[00:03:50] Speaker 04:
It would have been clear to the parties that Libya didn't have a right to call on those guarantees.

[00:03:56] Speaker 04:
In fact, multiple times Libya throughout the litigation has conceded that if the award had clearly said that Libya was entitled to this money, it would not have a right to call in the guarantees afterwards.

[00:04:09] Speaker 02:
So you view that issue to be a closed one, whether Libya has the right to call on the guarantees?

[00:04:13] Speaker 02:
I'm sorry, I didn't hear you.

[00:04:15] Speaker 02:
You view that to be a closed issue, whether Libya has a right to call on the guarantees?

[00:04:20] Speaker 04:
Well, that is a status that is uncertain right now, as the tribunal points out, because there is no determination of liability who is entitled to those funds.

[00:04:30] Speaker 04:
So it remains an issue that must be addressed outside the context of this arbitration as the arbitrators concluded.

[00:04:37] Speaker 01:
Do you think the arbitrators contemplate doing anything more when and if this is addressed outside the context of this arbitration?

[00:04:49] Speaker 04:
If I understand correctly, Ron, yes, they contemplated that more needed to be done outside the context.

[00:04:54] Speaker 01:
No, do they contemplate doing more?

[00:04:57] Speaker 04:
They, the arbitrators?

[00:04:59] Speaker 04:
Yes.

[00:05:01] Speaker 04:
They don't feel like they need to go any further because they believe that after balancing the equities, they couldn't get themselves to say who owed the money to whom.

[00:05:12] Speaker 01:
But that doesn't mean... Which is another way of saying that you all sought a set off

[00:05:19] Speaker 01:
from the arbitrators and they declined to give it to you?

[00:05:24] Speaker 04:
Again, Your Honor, I think the issue is not a set off.

[00:05:27] Speaker 04:
It is who is entitled to keep this money?

[00:05:29] Speaker 04:
What do we do about these advance payments that Stravag did not do any work to earn?

[00:05:35] Speaker 04:
So this is a real commercial conundrum because it's important to understand that the advance payments were not a signing bonus that they just get to keep from day one.

[00:05:44] Speaker 04:
It was a loan to finance the upfront costs of the project.

[00:05:47] Speaker 04:
So here they are holding 98 million euros of Libya's money.

[00:05:51] Speaker 04:
And there is no determination as to whether they have to return that money, even though they haven't earned it.

[00:05:58] Speaker 04:
They haven't done the work and they've never claimed that they've done the work to earn those funds.

[00:06:04] Speaker 04:
But your honor, this brings me to the other point, which is excessive powers.

[00:06:09] Speaker 04:
I'm sorry, which is excessive powers.

[00:06:12] Speaker 04:
Say it again?

[00:06:13] Speaker 04:
What?

[00:06:14] Speaker 04:
Excessive powers.

[00:06:15] Speaker 04:
Oh, excessive.

[00:06:16] Speaker 04:
Yeah.

[00:06:16] Speaker 04:
OK.

[00:06:17] Speaker 04:
So this is the other round upon which the award should be.

[00:06:20] Speaker 00:
But before you go to that, can I just ask you about a different part of your brief?

[00:06:25] Speaker 00:
You say in your brief, and I'm quoting here, that it's a, you say that panel's decision is lawless because the majority considered food order and fundamental fairness.

[00:06:40] Speaker 00:
But as I read their decision, they only considered fairness after they rejected all of your other legal arguments.

[00:06:47] Speaker 00:
So how can you call this decision lawless?

[00:06:50] Speaker 04:
Well, Your Honor, lawless in the sense that they didn't rely on a rule of law or a contract.

[00:06:56] Speaker 00:
They rejected every one of your arguments and then considered fairness at the end.

[00:07:03] Speaker 04:
Well, they rejected reasons for not applying a set off, but they didn't resolve the underlying issue which was submitted to them, which is the question of the advanced payments.

[00:07:11] Speaker 04:
And we know that they didn't do that because otherwise it wouldn't have been so preoccupied about the status of the guarantees and Libya potentially getting a double recovery.

[00:07:20] Speaker 04:
That issue just would not remain because they would have made it clear that Strabe was entitled to keep that money.

[00:07:26] Speaker 00:
Is there any evidence in the record that Libya, that there was a double recovery or even could be?

[00:07:33] Speaker 00:
I couldn't find any numbers where I could even figure that out.

[00:07:36] Speaker 04:
Yes, your honor.

[00:07:37] Speaker 04:
Where is that?

[00:07:39] Speaker 04:
Well, well, you know, I can point you to a couple of places.

[00:07:44] Speaker 04:
One is the damages section towards the end of the award, where the tribunal concludes that straw bag is entitled to get about 74 million euros plus costs and interest.

[00:07:56] Speaker 04:
Uh, and then in the advanced payment section, section nine, I believe it's paragraph eight 76 or 77 right around there, right around there.

[00:08:05] Speaker 04:
Uh, the tribunal says that Libya paid about 98 million euros in advances that were not earned.

[00:08:13] Speaker 04:
So if they weren't earned, that means that the money was Libya's money.

[00:08:18] Speaker 04:
And if they use the money as straw bag claims to buy equipment, to cover costs,

[00:08:22] Speaker 04:
to continue running the projects even though they were getting late payments.

[00:08:27] Speaker 04:
That means that Libya has already paid for those damages.

[00:08:31] Speaker 04:
So to give them damages for those same expenses on the award is basically making Libya pay twice.

[00:08:39] Speaker 04:
Once with the advance payments and then again by having to pay on this award.

[00:08:44] Speaker 04:
And the problem, in addition to the finality point, is that the tribunal looked to their own sense of good order and fundamental fairness.

[00:08:53] Speaker 04:
There was no rule of law that required them to resolve the issue of the advance payments together with the issue of the guarantees.

[00:09:01] Speaker 04:
Their mandate was to determine what the party's rights and obligations were vis-a-vis each other under these contracts.

[00:09:08] Speaker 04:
And instead of doing that, they were concerned, they were, they wring their hands saying, well, we don't know what's going to happen with these guarantees and can't do anything about that.

[00:09:16] Speaker 04:
And because they believed it would be unfair to straw bag, they decided to put the burden on Libya.

[00:09:23] Speaker 04:
And that is an excess of powers because they, when a panel decides an issue based on their own brand of economic fairness, rather than a rule of law, it has to be vacated as an excess of power.

[00:09:35] Speaker 01:
Now add a couple of points.

[00:09:38] Speaker 01:
In a contract case, an arbitrator can ask whether or not a particular element of damage would amount to a double recovery?

[00:09:55] Speaker 04:
Yes, but Your Honor, that's not what they determined.

[00:09:59] Speaker 04:
They didn't make a determination as to whether

[00:10:03] Speaker 04:
Strabe was entitled to the advance payments and therefore would be subject to, as they put it, double jeopardy, the inverse, if Libya called on the guarantees.

[00:10:11] Speaker 04:
And they left open whether Libya would be getting a double recovery if they called on the guarantees after being credited for the monies in the award.

[00:10:20] Speaker 04:
So the issue was not, they don't say, are we granting a double recovery?

[00:10:26] Speaker 04:
And this is why we're avoiding it.

[00:10:27] Speaker 04:
They're saying we're concerned that there might be an issue of double recovery.

[00:10:31] Speaker 04:
We don't have a way to control for that.

[00:10:33] Speaker 04:
So we're going to avoid putting straw bag in the situation of being, your honor, I see that my time is up.

[00:10:39] Speaker 04:
I can finish your response.

[00:10:40] Speaker 04:
Okay.

[00:10:42] Speaker 04:
We don't want to put straw bag in a situation of being at a disadvantage.

[00:10:45] Speaker 04:
If Libya were wrongfully to call on the guarantees, we're just going to avoid the issue altogether and let the parties resolve it somewhere else.

[00:10:52] Speaker 02:
Can I ask you one question and then we will give you a bit of time for rebuttal.

[00:10:57] Speaker 02:
you've in your briefing and then this morning you've said several times that there's a difference between the set off issue and who's entitled to advance payments.

[00:11:04] Speaker 02:
And I'm just wondering, did you ever make that argument in any make that distinction and ask for a decision on that in any post decision submission to the arbitral panel or even to the district court?

[00:11:20] Speaker 04:
Yes, Your Honor, to both.

[00:11:22] Speaker 04:
And the issue was clear that the underlying basis for the progressive set-off was the advanced payments issue.

[00:11:29] Speaker 04:
That was the issue that was before the tribunal, and that is what the tribunal focused on.

[00:11:34] Speaker 04:
You look at the title of Section 9, and it's not the set-off.

[00:11:37] Speaker 04:
It's the advanced payment.

[00:11:39] Speaker 04:
That is what they knew that they had to decide, and that is what they left open as the dissent.

[00:11:43] Speaker 02:
But did you point that out?

[00:11:45] Speaker 02:
I know you're making the distinction now, but did you submit something

[00:11:49] Speaker 02:
to the tribunal.

[00:11:50] Speaker 02:
Maybe you did.

[00:11:51] Speaker 04:
Yes, Your Honor, we did and I can get you a joint appendix sites on rebuttal if that's okay.

[00:11:56] Speaker 04:
Thank you.

[00:11:57] Speaker 04:
Thank you.

[00:12:08] Speaker 00:
Mr. Byrne.

[00:12:10] Speaker 00:
Thank you.

[00:12:25] Speaker 03:
Thank you, Chief Judge, and may it please the court.

[00:12:28] Speaker 03:
Libya's argument this morning has asked in a number of ways for this court to essentially displace the findings of the arbitration tribunal, both with respect to the factual findings that it made in reviewing the claims before it, but also with respect to what the issue was before the tribunal.

[00:12:48] Speaker 03:
So several times this morning, Libya has indicated that there's a distinction between asking for a set off and asking for the advance payments.

[00:12:55] Speaker 03:
But I would direct this court to paragraph 74 and 880 of the arbitral tribunal's decision in which it said, Livia only requested a set off, not a counterclaim for unpaid balances, doesn't go on to talk about asking for the advance payments or the guarantees.

[00:13:14] Speaker 03:
Rather, Livia only requested a set off.

[00:13:16] Speaker 03:
So that was the issue that was submitted to the tribunal and the tribunal resolved it.

[00:13:22] Speaker 03:
Libya admits on now concedes on page 13 of its opening brief at the tribunal, quote, specifically denied Libya's request for a settle, unquote.

[00:13:31] Speaker 03:
And Libya further admits on page six of its reply brief that the tribunal rejected the particular arguments that Libya advanced in favor of its set off claim.

[00:13:40] Speaker 03:
That, that particularly given the deferential standard of review when a, when a court looks at an arbitral award should be the beginning and the end of this, of this case.

[00:13:50] Speaker 01:
Did they decide, they firmly decided not to order a set off as I read it, but they didn't decide whether the letter of credit was still in place, which would enable the double recovery, right?

[00:14:15] Speaker 01:
That's right.

[00:14:16] Speaker 01:
So, I mean, don't they have to resolve that

[00:14:21] Speaker 01:
one way or the other.

[00:14:22] Speaker 01:
I mean, there's either going to be a double recovery one way or the other, depending on how you treat the advance payments, right?

[00:14:34] Speaker 03:
Yeah, I know.

[00:14:35] Speaker 03:
I don't think that's right.

[00:14:37] Speaker 03:
So a couple of points.

[00:14:38] Speaker 03:
First of all, the only question before the tribunal was a question of whether Libya was entitled to a set off from Strava.

[00:14:47] Speaker 03:
And so Libya presented several arguments in favor of why I thought it was due a set off, either under the terms of the contracts themselves or under the terms of Libyan law, unjust enrichment, so on and so forth.

[00:14:59] Speaker 03:
As you said, suppose the letter of credit had expired.

[00:15:02] Speaker 01:
There's no question about that.

[00:15:05] Speaker 01:
And the harm to Strawback is whatever it is without reference to the advance payments.

[00:15:14] Speaker 01:
I mean, how could you, and that's what's awarded.

[00:15:17] Speaker 03:
Right, so let me help.

[00:15:20] Speaker 03:
The reason why there's no double recovery, and I think this is indicated by the tribunal's decision, is that when you're talking about, on the one hand, Libya's claims for damages, and on the other hand,

[00:15:33] Speaker 03:
the advanced payments, which Libya is referring to.

[00:15:36] Speaker 03:
These are sort of separate pots of money.

[00:15:38] Speaker 03:
These aren't overlapping pots of money.

[00:15:40] Speaker 01:
The one way of thinking about it is that imagine that... I thought they were advanced payments for performance only.

[00:15:47] Speaker 03:
They are for performance under the contract, but Libya's claims for damages were on things like, for instance, payment certificates for work that have already been done.

[00:15:55] Speaker 03:
and other damages.

[00:15:57] Speaker 01:
But forget about any affirmative claims Libya might have asserted but did not.

[00:16:03] Speaker 01:
Just in terms of figuring out what damages your client would be entitled to.

[00:16:09] Speaker 03:
Right, so their claim on the advance payments was premised on the idea that this was money that was sitting out there that Libya had paid to Stravok that had not been used, that was basically sitting in Stravok's pocket.

[00:16:23] Speaker 01:
Right, it's like an advance on performance.

[00:16:25] Speaker 03:
Yeah, and what the tribunal found, and this is I believe at paragraph 900, is that the testimony of the witness has established the tribunal's satisfaction that not only the advance payments, but actually substantial additional funds from Stravok had actually been deployed in service of the contract.

[00:16:49] Speaker 03:
So this is like a circumstance where imagine that you hired a contractor to build a home.

[00:16:54] Speaker 03:
And the house costs $100,000.

[00:16:58] Speaker 03:
And the contractor is given an advance payment of $10,000 to start work.

[00:17:04] Speaker 03:
So work happens for a month.

[00:17:06] Speaker 03:
The contractor sends a bill for $8,000 for the work that's been done to date.

[00:17:12] Speaker 03:
And it takes out a little bit, the proportional amount of the advance payment.

[00:17:16] Speaker 03:
but no payment is ever made.

[00:17:18] Speaker 03:
And so the contractor then takes the money from the advanced payment and puts it towards the work of building the house, buys the lumber, buys the paint, hires people to do that work.

[00:17:28] Speaker 03:
That's sort of the circumstance that we're in now.

[00:17:30] Speaker 03:
So our plan was for work that we had already done.

[00:17:33] Speaker 03:
Libby is now claiming for the advanced payments, but the advanced payments have already been employed for Libby's benefit in terms of putting forward the work

[00:17:48] Speaker 03:
So that's why the district court found there is no double recovery here.

[00:17:53] Speaker 03:
The money has already basically been used for Libya's benefit.

[00:17:57] Speaker 03:
On the other hand, there really was a risk of double jeopardy to Libya.

[00:18:01] Speaker 03:
I'm sorry, to Stravok had the tribunal gone in a different direction because, you know, Libya's witnesses indicated that depending on how the arbitration was going to come out, they were going to call on these guarantees.

[00:18:14] Speaker 03:
And the guarantees are

[00:18:18] Speaker 03:
the ultimate, or at least Libya has argued that they're separate from the ultimate question of who gets what under the contract.

[00:18:24] Speaker 03:
And so Strava would have been a real risk.

[00:18:27] Speaker 03:
Libya attempted to call into guarantees.

[00:18:31] Speaker 03:
And I think one of the things that the tribunal, which I think was fair for it to consider, after all, Libya is invoking these equitable arguments, unjust enrichment, restitution.

[00:18:41] Speaker 03:
One of the things I think that the tribunal appropriately considered is, OK, well, what are the consequences?

[00:18:46] Speaker 03:
Would it really be just?

[00:18:47] Speaker 03:
Is this a circumstance that calls for unjust enrichment and restitution?

[00:18:53] Speaker 03:
Those are among the things that the tribunal looked at.

[00:18:54] Speaker 03:
But the ultimate question, I think, before this court isn't whether the tribunal got it right or wrong.

[00:19:00] Speaker 03:
It's simply the question of whether the tribunal decided the questions that were before it.

[00:19:05] Speaker 03:
This court has indicated that as long as the tribunal is even arguably acting within the scope of its authority or construing or applying the contract or fee to hand, there's no basis to vacate the tribunal's decision, even if the court were to disagree with the tribunal's legal or factual findings.

[00:19:21] Speaker 03:
And here we do think that those findings, they were not the product of some sort of material miscalculation of the, or the tribunal's lawless mistrust of Libya and civil servants as Libya has argued, rather the tribunal's reasoned analysis of the contracts, the treaty and the law.

[00:19:40] Speaker 03:
And therefore, Libya falls well short of the very heavy burden that bears to show that

[00:19:46] Speaker 03:
not only that the tribunals award, I'm sorry, that the district court, which is in deference, that its findings should be reversed, but also that the tribunals award should be vacant.

[00:19:59] Speaker 02:
I have one quick question just about the issue that's going to come up with the guarantees if it arises.

[00:20:05] Speaker 02:
Is it your understanding that the parties disagree on whether

[00:20:09] Speaker 02:
the Libya's entitlement to call on the guarantees turns on whether the advanced payments were in fact used in furtherance of Libya's interest under the contract?

[00:20:18] Speaker 03:
I don't think that the status of the advance payments is dispositive of what would happen if the guarantees are called for.

[00:20:28] Speaker 03:
My understanding of the guarantees is that the guarantees may be called on independent of any legal claim.

[00:20:33] Speaker 03:
So in other words, let's say that the contract was going swimmingly

[00:20:39] Speaker 03:
on the guarantees.

[00:20:40] Speaker 03:
And then there might well be subsequent claims that the parties could bring in against themselves, probably between Alhany and Libya, the actual parties for a contract.

[00:20:50] Speaker 03:
So I think that that's a separate question.

[00:20:52] Speaker 03:
And what happened with the advanced payments certainly might bear upon the outcome of that subsequent claim, but I don't think they bear on whether the guarantees themselves could be pulled.

[00:21:04] Speaker 03:
Any other questions?

[00:21:06] Speaker 03:
Thank you.

[00:21:07] Speaker 03:
Thank you.

[00:21:08] Speaker 03:
Thank you, Mr. Byrne.

[00:21:20] Speaker 02:
I'm going to give you the two minutes that you reserve for rebuttal.

[00:21:27] Speaker 04:
A couple of quick points.

[00:21:30] Speaker 04:
One, the counterpoint, it doesn't resolve the issue of what

[00:21:36] Speaker 04:
what the arbitrators didn't do because ultimately they understood that the issue was the advance payments.

[00:21:41] Speaker 04:
There's a court of investment treaty arbitrations where a contracting state can't bring a claim.

[00:21:47] Speaker 04:
Some of our tribunals have decided that they can't bring claims under the treaties.

[00:21:51] Speaker 04:
But either way, whether it had been styled as a counterclaim or a set off, the basis upon which the tribunal relied for not deciding the issue of the advance payments would have remained, which

[00:22:02] Speaker 01:
as the uh your honors have focused on is the status of the guarantees that would have still troubled the tribunal so wouldn't have made a difference what what can they do other than just decide the claims that's presented to them and you didn't bring an affirmative claim on this for that pot of money you just sought an offset and they denied it uh again your honor i think

[00:22:27] Speaker 04:
it wouldn't have made a difference if it had been styled as a counterclaim affirmatively or as an affirmative defense in terms of a set-off.

[00:22:32] Speaker 04:
The underlying concern about the status of the guarantees would have remained and the tribunal presumably would have not ruled on the issue just like it didn't in the set-off.

[00:22:42] Speaker 04:
And that's important.

[00:22:43] Speaker 04:
I think Strabeck concedes that these are two separate instruments, the contracts and the guarantees.

[00:22:49] Speaker 04:
You don't need to resolve the guarantees to determine liability.

[00:22:52] Speaker 04:
Yet it also acknowledges that if you resolve the liability question, then that would have a bearing on whether or not the guarantees could be called on.

[00:23:01] Speaker 04:
And before my time is up, Chief Judge, I will give you the sites that I promised you.

[00:23:06] Speaker 04:
You can look at JA 856.

[00:23:10] Speaker 04:
This is where we talk about the difference between the terms of the contracts and in terms of the advance payments versus the set off.

[00:23:18] Speaker 04:
And also as an example, in our reply brief at five,

[00:23:22] Speaker 04:
and I believe also 14, which is on the record, but it's on the district court.

[00:23:26] Speaker 04:
We make the distinction as well.

[00:23:29] Speaker 02:
Thank you.

[00:23:30] Speaker 02:
Thank you, counsel.

[00:23:31] Speaker 02:
Thank you to both counsel.

[00:23:32] Speaker 02:
We'll take this case under submission.