Annex 58 Legal disputes involving the Libyan Investment Authority

1. There are several disputes over authority, both in Libya and in other countries.

2. In Libya, Abdulmagid Breish, former Chairman of LIA, challenged Presidency Council decree No. 115 of 2016 establishing the Steering Committee. The Supreme Court of Libya nullified the decree. The Presidency Council then issued decree No. 29 of 2017 to establish an Interim Management Committee, headed by Ali Mahmoud Hassan. Thereafter, it also formed a Board of Trustees, which appointed a Board of Directors, the latter headed by Ali Mahmoud Hassan.

3. The following are the relevant decisions:

a. Resolution of the Council of Ministers/Government of National Accord No. 12 of 2017 for the formation of the Board of Trustees of the LIA dated 23 May 2017.

b. Resolution of the Board of Trustees No. 1 of 2017 for nominating the Board of Directors of the LIA dated 15 July 2017.

4. Ali Mahmoud Hassan has stated to the Panel that he works both in Malta and Tripoli, a change from the earlier situation when the two offices had separate heads. He is also the Chairman of the Malta office which is a subsidiary – LIA Advisory LTD.

5. Mr. Breish informed the Panel that the legal disputes persisted. His appeal on decree No. 29 of 2017 was combined with his appeal against the formation of a Board of Trustees and Board of Directors. According to him, the Tripoli Administrative Court held the first hearing on 31 October 2017. There is no final decision yet.

6. In another development, the eastern-based Interim Government filed an appeal with the Benghazi Administrative Court, Second Administrative Chamber, against the decision of the Presidency Council to form a new Board of Trustees. This appeal was filed by the Prime Minister of the Libyan Interim Government and 3 others, all stated to represent the Board of Trustees of the LIA, and was against Presidency Council Decision No.12 of 2017, issued on 25 May 2017, on the formation of the Board of Trustees of the LIA. The grounds of appeal were that this decision was made by ministers under the GNA which did not gain the confidence of the House of Representatives (HoR) and therefore was defective and contrary to Law No. 13 of 2010.

7. On 26 October 2017, the Benghazi Court held that the decision for formation of the Board of Trustees is in violation of the law, considering that the GNA did not gain the confidence of the HoR, the president and ministers did not take oath and the GNA did not fulfil its establishment constitutionally. It also took into consideration that the control, by an illegal Board of Trustees, of the accounts and funds of the institution could lead to waste of public funds and tampering of financial assets of the institution abroad.

8. The Presidency Council appealed against this judgement, along with an application for stay. On 24 January 2018 the Administrative Justice Chamber of the Supreme Court stayed the execution of the judgement until consideration of the appeal application.

9. Similarly, the Benghazi Court also ruled against the Board of Trustees' Resolution 1 of 2017 (277/2017). The Presidency Council appealed against this judgement, along with an application for stay. On 22 March 2018 the Administrative Justice Chamber of the Supreme Court stayed the execution of the judgement until consideration of the appeal application. No further update of the current status is available in these two cases.

10. This was discussed with the CEO of LIA in April 2018. He claimed that the controversy over the appointment of the Chair in July 2017 is resolved. He further asserted that all banks and Libyan and external institutions deal with the current Board of Directors.

11. Nevertheless, it appears that the matter of legality of the formation and functioning of the Board of Trustees and, consequently, that of the Board of Directors is still sub judice in Libya. Reporting of the above sequence of events and ongoing judicial disputes is to illustrate the uncertainty surrounding the legal authority of the current management of the LIA, under Libyan law.

12. Disputes regarding the control of LIA are not recent, as is seen from several cases in other jurisdictions, and have had consequences.

13. A case filed by Hassan Bouhadi in the Commercial Court in London is further evidence of the confusion that surrounds the governance of the Libyan Investment Authority. The case concerned the doubts about who had the authority to give instructions in the legal proceedings of the Libyan Investment Authority against Goldman Sachs Ltd and Société Générale.

14. On 17 March 2016, the Commercial Court adjourned consideration of the case because the Presidency Council failed to clarify and inform the Government of the United Kingdom of Great Britain and Northern Ireland on the leadership of the Libyan Investment Authority. The Panel notes that, despite the formation of a new Board of Trustees and Board of Directors, the Presidency Council has not reverted with the required clarifications.

15. Due to the dispute of authority, the law firm appointed in the UK could not receive proper instructions in several ongoing litigations and it withdrew. This led to the appointment of the receiver in July 2015. This dispute was also referred to in the judgement passed in the Goldman Sachs case.^[87]

16. The receiver explained that the court order of appointment requires him to act in accordance with sanctions and that he has notified the Treasury and OFSI officials how it is determined whether the amounts received are sanctioned. This was with reference to the settlement amount received from a French bank, and some other smaller cases. There is a separate fund, not under the assets freeze, which is used for fighting legal cases. The receiver has sole and exclusive power to handle legal action, but adopts a consultative approach. Written reports are submitted to the various Chairmen on legal actions and on accounting and every piece of correspondence is shared with them.

17. A case in the Netherlands concerning a dispute between LIA and an investment manager has also referred to the authority dispute.

18. Several legal proceedings linked to disputes over authority and previous financial dealings also contribute to high expenses for the designated entities.

19. The assets of the Libyan Investment Authority are also at risk because of several attachment orders in countries where these assets are located. There were claims by several companies against the Libyan government for breach of contract. Having been awarded favourable judgements, these companies proceeded to get orders to attach the funds of the Authority. In certain cases, the LIA was not even a party to the proceedings. While in some cases, the LIA has succeeded in getting these attachments set aside, in others the litigation is still pending. Such situations also pose a risk to the funds which are frozen under UN sanctions.

20. The LIA Board of Directors (which is appointed by the Board of Trustees) appoints the Board of Directors of the subsidiaries. In November 2017, the current Board of Directors of the Libyan Investment Authority declared changes in the management of subsidiaries. This generated discontent with the head of the HoR, Aguila Saleh, pronouncing that the decisions are invalid. Ali al-Qatrani, member of the Presidency Council, in his communication dated 12 December 2017, has contested the legality of Presidency Council decision No. 1253 of 2017, which authorizes the Authority, in exceptional circumstances, to amend the structure of the Board of Directors of its subsidiaries.

21. Legitimacy of these appointments is a concern for several interlocutors, their understanding being that the GNA has not been validated by the HoR. Hence, appointments made by the former suffer a legal infirmity which could be used by third parties to the detriment of the subsidiaries. The financial regulators in different countries also require to recognise the various Boards of Directors, particularly if they have to be represented on the boards of subsidiaries in different countries.