Sedco, Inc. v. National Iranian Oil Company, Award (Award No. 309-129-3), 7 July 1987

1.

This Award follows two previous Awards issued in this Case. The Case involves claims by SEDCO, INC. ("SEDCO" or "Claimant"), a company which leased and operated drilling rigs in Iran. Claimant brought both direct claims and indirect claims relating to two subsidiaries, SEDCO INTERNATIONAL, S.A. ("SISA") and SEDIRAN DRILLING COMPANY ("SEDIRAN"), against the NATIONAL IRANIAN OIL COMPANY ("NIOC") and the ISLAMIC REPUBLIC OF IRAN ("Iran"). The Claims involve three contracts between SEDCO affiliates and NIOC or the Oil Service Company of Iran ("OSCO"), and allegations of appropriation or expropriation of drilling rigs and other property or interests owned by SEDCO and its affiliated companies.

2.

In the first Interlocutory Award, SEDCO, Inc. and National Iranian Oil Company, Award No. ITL 55-129-3 (28 October 1985) ("October Interlocutory Award"), the Tribunal found that SEDCO is a U.S. national, as defined in the Claims Settlement Declaration, and that it has jurisdiction over SEDCO's indirect claims relating to SISA. The Tribunal declined to exercise jurisdiction over SEDCO's purported indirect claim on behalf of SEDIRAN, but found that it does have jurisdiction over SEDCO's direct claim for the expropriation of its shareholder interest in SEDIRAN. In addition, the Tribunal found that SEDCO's interest in SEDIRAN was expropriated by Iran on 22 November 1979.

3.

In the second Interlocutory Award, SEDCO, Inc. and National Iranian Oil Company, Award No. ITL 59-129-3 (27 March 1986) ("March Interlocutory Award"), the Tribunal determined the standard of compensation to be applied in deciding SEDCO's right to recovery on its claim for the expropriation of its shareholder interest in SEDIRAN, finding that Claimant is entitled to compensation for the full value if any of its expropriated interest.

4.

These prior Interlocutory Awards left for our decision in this Award the following principal issues:

a. NIOC's or Iran's liability for appropriation or expropriation of SISA's rigs and other property;

b. The value of SISA's property, if appropriated or expropriated;

c. The merits of SEDCO's claim for invoices issued by SISA under a contract with OSCO but unpaid;

d. The value of SEDCO's expropriated shareholder interest in SEDIRAN; and

e. Our jurisdiction over and the merits of the counterclaims asserted by NIOC against Claimant.

5.

The procedural background of this Case is fully set forth in the earlier Interlocutory Awards. Subsequent to the October Interlocutory Award, and in light of the Tribunal's finding therein that SEDCO's interest in SEDIRAN was expropriated as of 22 November 1979, Claimant submitted a calculation of the liquidation value of SEDIRAN as of 22 November 1979. This was followed by a submission of NIOC responding to Claimant's calculations.

6.

Beginning in 1978 SISA, pursuant to Contract No. 3-75-322-339 ("Contract 339") entered into with OSCO, supplied and operated six drilling rigs for OSCO in Iran. These rigs were designated by SISA as rigs 52, 61, 68, 77, 83 and 87.

7.

Claimant has alleged that until approximately November 1978 amounts invoiced to OSCO were paid by it or its agent, Iranian Oil Services Ltd. ("IROS"), in the normal course of business, but that thereafter "OSCO/NIOC failed and refused to make regular payments as contemplated by the contract." (SEDCO's claims for unpaid SISA invoices are discussed at para. 55 below.)

8.

By 31 December 1978 all of SISA's expatriate personnel had departed Iran and work on the rigs was suspended. Claimant alleged that the departure of its personnel was necessary given the political unrest in Iran at that time, and that suspension of work was at OSCO's direction. As discussed in detail below at paras. 124-131, Claimant alleged that OSCO authorized SISA to remain on "standby" status during the period of suspension of work. NIOC, however, alleged that SISA's suspension of work constituted an unauthorized abandonment of its contractual duties.

9.

On 27 February 1979 OSCO telexed SISA concerning Contract 339, stating:

Following advice from Iran please accept this telex as formal notice to terminate the abovementioned contract. Our personnel in Iran will assist SEDCO in expediting customs clearance and release of rigs.

SISA allegedly telexed OSCO shortly thereafter stating that it assumed the Contract was terminated under Clause 40, "Termination by the Company Without Cause," and that therefore the 180 day notice period required by Clause 40 would commence 27 February. A telex from Mr. Raoofi of OSCO in Ahwaz to IROS in London dated 9 April 1979 confirmed that "termination is without cause" and that the rigs should operate for the 180 day notice period commencing 27 February 1979.

10.

Formal notice to restart rig operations during the 180 day period was given by Mr. Fakhraie, by then NIOC's Manager of Drilling, in a letter to SISA dated 28 March 1979. Claimant alleged that by 31 March 1979 five of the six SISA rigs were started. Efforts were made to make the sixth rig (rig 87) operational as well, but on 13 April 1979 Mr. Fakhraie wrote to SISA purporting to terminate Contract 339 with cause as of that date.¹

11.

Claimant alleged that upon expiry of the 180 day notice period on 29 August 1979² the Contract actually terminated in accordance with Clause 40 with respect to rigs 61, 68 and 83; rigs 52 and 77 continued to operate under Clause 39, "Termination Procedure," at the request of NIOC, until 17 November 1979. Claimant alleged that despite the assurance given by OSCO in its telex of 27 February 1979 neither OSCO nor NIOC assisted SISA in the exportation of its rigs following termination of the Contract. Claimant alleged that SISA made many verbal requests for return of the rigs, and that its Iranian materials manager, Mr. Babbibion, who remained in Iran after the expatriates were evacuated, was instructed to obtain export approval. Claimant further alleged that Mr. Babbibion had been threatened with physical harm if he continued to make export requests and that ultimately he was arrested. NIOC's representative Mr. Sadri agreed at the Hearing that Mr. Babbibion had made attempts to get export approval, but stated that his arrest was on charges of bribery unrelated to his export requests.

12.

Three written requests from SISA requesting NIOC's assistance in exporting the rigs appear in the record. On 24 July 1979 Mr. Carl Thorne, on behalf of SISA (and SEDIRAN), telexed NIOC stating:

We have been unable to secure any definitive information from NIOC nor OSCO concerning the number of rigs which you will require.... We must, however, be allowed to export any rigs not required by the Government of Iran so as to be able to put the said equipment to work thereby generating urgently needed cash flow.... We therefore urgently solicit your advice relative to future rig requirements and your permission to and assistance with export of any equipment not required.

13.

On 8 November 1979 SISA telexed NIOC again as follows:

We understand that two of the six drilling rigs whose operations are covered by the Contract, Numbers 52 and 77, are still being operated, while the other four... are no longer being operated. We assume that rigs 52 and 77 are being operated in accordance with Clause 39 of that Contract and that they will therefore be released when appropriate work contemplated by that Clause has been completed.

Since you have not chosen to exercise your option to purchase the rigs as permitted under Clause 14.1 of the Contract, we have expected you to comply with your obligations under Clause 14.5 of the Contract and the promise contained in your telex notice of termination, to arrange for the necessary permits to enable the rigs to be exported from Iran. It appears, however, that you have made no efforts to facilitate exportation of any of the six rigs. Your failure to comply with your obligations in this regard is a substantial breach of the Contract.

14.

NIOC responded to this message on 28 November 1979, stating, inter alia:

As you have noticed termination... took effect on 27 August but upon written request of then SEDCO/SEDIRAN manager, operation of two units were allowed to continue to help financial position of SEDCO/SEDIRAN which were not supported by its principales [sic].... We assume these units [rigs] are kept here by the contractor [SISA] for operational reasons and NIOC would reserve the right to exercise its option if deemed necessary, before submission of such formal documents [requesting export].

15.

Finally, SISA telexed NIOC on 4 December 1979, stating:

BBB)... The purchase option does not survive the termination of the contract whether or not NIOC permits the rigs to be exported from Iran.

CCC) Several requests have been made to NIOC management to export the rigs.

GGG) In view of your failure to export our rigs, your failure to pay receivables, and other breaches of contract, we have found it necessary to file a complaint against you in United States District Court in New York for approximately forty three million dollars plus consequential damages.

16.

Claimant stated on information and belief that the six SISA rigs continue to operate in Iran under NIOC's supervision and control. NIOC alleged that it came into lawful possession of the six SISA rigs following a "purchase" of the rigs by SEDIRAN (then Government-controlled) on or about 2 August 1980.

17.

The Tribunal has held in this Case that in the event of an expropriation implicating the rules of public international law the Treaty of Amity, Economic Relations, and Consular Rights between the United States of America and Iran, signed 15 August 1955, entered into force 16 June 1957, 284 U.N.T.S. 93, T.I.A.S. No. 3853, 8 U.S.T. 899 ("Treaty of Amity), "is applicable to the issue of compensation due Claimant...." March Interlocutory Award, p. 7. Further, the Tribunal has stated that "the Treaty of Amity on the particular issue of what constitutes a taking incorporates the rules of customary international law...." October Interlocutory Award, p. 34. To the extent the taking here alleged is seen as a non-governmental appropriation, general principles of commercial law then become controlling.

18.

Claimant alleged that the rigs were appropriated by NIOC on various dates in 1979, as the Contract terminated for particular rigs:

Rig No. Alleged Date of Taking

52 17 November 1979

61 29 August 1979

68 29 August 1979

77 17 November 1979

83 29 August 1979

87 13 April 1979

19.

In Raygo Wagner Equipment and Star Line Iran, Award No. 20-17-3, p. 8 (15 December 1982), reprinted in 1 Iran-U.S. C.T.R. 411, 414, the Tribunal held that a party "should... be compensated for the value of the equipment which was not returned to the lessor after termination of the agreement." According to Claimant, NIOC's failure to provide essential assistance for the exportation of the rigs when they were released from work under the Contract amounts to an appropriation of the rigs. NIOC, however, contended that it did not come into possession of the equipment left behind after termination of the Contract until on or about 2 August 1980. NIOC also argued that it was required contractually only to "use its best endeavors to secure export permits" for the rigs and that it would have done so if Claimant had submitted to NIOC the proper request forms. Claimant contended that "[u]nder the political circumstances then existing in Iran, SEDCO was hardly in a position to prepare customs forms in quadruplicate for submittal to NIOC." SEDCO pointed out that "NIOC was well aware of SEDCO's demand for return of its rigs" and argued that "[i]f it was acting in good faith, NIOC could easily have arranged for export of the equipment...."

20.

Clause 14.3 of the Contract, referring to an option granted OSCO by Clause 14.1 to purchase SISA's drilling plant at the completion or earlier termination of the Contract, provides that "[s]Should the Company [OSCO] not exercise its above-mentioned right, the Contractor shall either... export the Drilling Plant or [pay appropriate duties to permit sale of the equipment in Iran]." Clause 14.5 then contains the following provision:

On expiry or earlier termination of this Contract the Company will use its best endeavoour to secure export permits for that part of the Contractor's Drilling Plant in respect of which the Company does not exercise its right [to purchase] under subclause 14.1 hereof.

Thus, under the Contract SISA in principle had to arrange for the export of the rigs, while OSCO was under a duty to cooperate in the exportation by using its best endeavors to secure necessary export permits. The question to be examined here is therefore whether NIOC breached this contractual duty and thereby, as contended by Claimant, caused SISA to be deprived of the use of its rigs.

21.

It is true that Claimant or SISA requested in writing on at least three occasions that the rigs be exported. It is also true that Claimant never provided NIOC with the customs forms which, according to NIOC, were a necessary requirement for the obtaining of export permits. Due to the political situation in Iran in 1979 and the fact that all SEDCO expatriates had left the country by then, it was no doubt difficult for SISA to handle the practical problems related to the exportation, including the preparation of export forms. SISA therefore arguably had a legitimate expectation that NIOC should take a more active part in the exportation than the more limited assistance required by it under Clause 14.5, at least on the face of that provision.³ The failure of a party to render contractually required assistance towards exportation could at some point in time ripen into a taking or conversion of the property affected. In view of its holdings, infra, on the issue of appropriation, however, the Tribunal need not determine whether or not NIOC's failure to comply with Claimant's requests to have the rigs exported should in the circumstances be deemed to constitute a breach of contract, as no separate claim for damages is based on such alleged breach.

22.

The Tribunal is unable to determine, on the basis of the evidence in the record, the precise status of the SISA rigs during late 1979 and early 1980. Several facts indicate that they may have been taken by Iran or NIOC during that time. For example, as the Tribunal has already held, SEDCO's shareholder interest in SEDIRAN was expropriated on 22 November 1979 (as confirmed by Iran's subsequent application to SEDIRAN of Clause C of the Law for the Protection and Development of Iranian Industries ("Clause C")). October Interlocutory Award, pp. 34-39. The Tribunal recognized that "Iran's intention to form the National Iranian Drilling Company necessarily meant that 'all drilling activities in Iran will be taken over."' Id. p. 42. SISA obviously was involved in drilling activities, and also was closely associated with SEDIRAN. For example, the spare parts for the six SISA rigs were stored at the SEDIRAN warehouse facility. In addition, NIOC appeared generally not to be maintaining a distinction between SEDIRAN and SISA operations at this time. Indeed, SISA's affairs within Iran were then being directed by SEDIRAN's Iranian managers. The Tribunal does not, however, consider these evidences to constitute sufficiently compelling proof that the SISA rigs were definitively taken as early as November 1979.

23.

NIOC alleged that following formal application of Clause C to SEDIRAN on 2 August 1980 SEDIRAN (in fact Government-controlled since 22 November 1979) "decided to exercise its right to purchase the equipment [rigs] in accordance with the terms of the Purchase and Mortgage Agreement dated January 1, 1975 [between SISA and SEDIRAN] and it did purchase the equipment." NIOC stated further that it began to use the rigs after Iran, through SEDIRAN, took possession of them. NIOC thus admitted that it or Iran took possession of the six SISA rigs on or about 2 August 1980 allegedly in accordance with the 1975 purchase agreement (the "Agreement"). Indeed, NIOC has offered in its submissions here to credit SEDCO with the "fair and reasonable" value of the rigs, thus conceding that it ultimately obtained possession of them and considers itself liable for their appropriation.

24.

NIOC submitted to the Tribunal a copy of the Agreement (which in fact is dated 1 February 1975). The Agreement grants SEDIRAN the option to purchase a group of nine SISA rigs "at any time subsequent to the date of this Agreement."

25.

Claimant has not contested the validity of the Agreement, which it says "was granted as a means, in the indefinite future, of consolidating SEDCO's Iranian operations if such a consolidation were deemed desirable," a goal which Claimant states it abandoned "as conditions worsened in Iran."⁴ Claimant has alleged, however, that the Agreement as submitted by NIOC is not complete and that the option in the Agreement never was exercised.

26.

The Tribunal notes first that the Agreement submitted by NIOC appears on its face to be complete, although the various annexes referred to therein are not attached; it is also noted, however, that the minutes of a 28 April 1975 meeting of the Board of Directors of SEDIRAN indicate that there was at least one amendment to the Agreement which has not been submitted to the Tribunal.

27.

NIOC submitted no evidence whatsoever, however, that the purchase option in fact was exercised. Given particularly that the option purchase price formula is somewhat complicated, consultations with SISA regarding the option price necessarily would have accompanied any exercise of the option.⁵ NIOC alleged the option purchase price for the six rigs was "$5,500,000 or an even lesser amount," which proportionally is far short of the basic option price in the Agreement of $32,567,222 for nine rigs.⁶ No record of payment nor any relevant communication with SISA has been submitted to the Tribunal, and SEDCO denies that SISA was paid anything. NIOC's contention that Iran, through SEDIRAN, purchased the rigs thus fails for lack of proof.⁷ This conclusion does not negate, however, NIOC's admission that it or Iran, the other Respondent in this Case, had taken possession of six rigs on approximately 2 August 1980, and that NIOC thereafter operated the rigs.

28.

There is evidence in the record suggesting that the taking of the rigs may have been part of broader Government policies nationalizing the oil drilling industry, thus amounting in effect to an expropriation of the rigs by Iran.⁸ In the circumstances of this case, however, a finding of expropriation by Iran is not necessary. Claimant styled the taking of its rigs as an appropriation by NIOC and that characterization of the taking is adequately supported by the record. Indeed, NIOC has in effect admitted it possesses the rigs and owes compensation for them in offering to credit SEDCO with what NIOC considers a "fair and reasonable amount" for the rigs. Since NIOC clearly is a controlled entity under the Claims Settlement Declaration we need not find that the Government of Iran itself expropriated the rigs in order to grant Claimant compensation for the loss of the rigs.

29.

The Tribunal thus concludes that NIOC appropriated the six rigs belonging to SEDCO's wholly-owned subsidiary SISA not later than 2 August 1980.

30.

Having determined that NIOC appropriated SISA's six drilling rigs at the latest by 2 August 1980, the Tribunal must now determine the compensation due Claimant for the appropriated rigs. As held by the Tribunal in the March Interlocutory Award, p. 13, "Claimant must receive compensation for the full value of its expropriated interest... as claimed, whether viewed as an application of the Treaty of Amity or, independently, of customary international law, and regardless of whether or not the expropriation was otherwise lawful." While our earlier Award dealt specifically only with the standard of compensation due for the taking of SEDOC's shareholder interest in SEDIRAN, the principles there expounded are equally relevant to the taking of SISA's rigs and other property. See Oil Field of Texas, Inc. and Islamic Republic of Iran, Award No. 258-43-1, para. 43 (8 October 1986). If NIOC's appropriation is seen as implicating Iran's duties under international law (pursuant to either the Treaty of Amity⁹ or customary law), then the holding of our earlier Award is directly relevant. If, however, NIOC is considered to have acted in a purely private capacity, its conversion of SISA's rigs would be unsupported by the rights of sovereignty which may justify expropriation, cf. American International Group, Inc. and Islamic Republic of Iran, Award No. 93-2-3, pp. 11, 14 (19 December 1983), reprinted in 4 Iran-U.S. C.T.R. 96, 103, 105, and thus a fortiori would give rise to a duty to pay full value for wrongfully acquired property. Accordingly, we must award Claimant the full value of the appropriated assets.

NIOC argued that the Treaty of Amity, which we found to require full compensation for the taking of SEDCO's shareholder equity in SEDIRAN, should not be applicable to the taking of SISA's properties, since SISA, unlike SEDCO, is not a United States corporation, but is incorporated in Panama. This objection is without merit. As the Tribunal found in the March Interlocutory Award, at p. 13, the Standard of compensation to be applied to a taking of property is the same whether viewed as a requirement of the Treaty of Amity or as an application of principles of customary international law. Therefore, the fact that SISA is a Panamanian corporation would not alter NIOC's obligation to pay full compensation for property appropriated, even if the Treaty of Amity were not applicable.
Moreover, we find in any case that the Treaty of Amity should be considered applicable to an indirect claim. The Treaty of Amity provides the following standard of compensation:
Property of nationals and companies of [Iran or the United States], including interests in property... shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.
Article IV(2). (Emphasis added.) This provision explicitly applies both to "property" and to "interests in property" held by nationals of the United States. The term "interests in property" clearly is broad enough to encompass property owned indirectly through subsidiary corporations. This meaning is confirmed by the negotiating history of the Treaty of Amity. The Iranian negotiators initially asked that the phrase "interests in property" be deleted. The United States negotiators considered the provision essential, since, as expressed in Department of State messages, it was expected that many of the most significant foreign investments in Iran "will be through companies registered in countries other than the United States and Iran." Therefore the State Department considered "Coverage [of] indirect interest essential and in Iran's interest.... U.S. investment through third country operations also contributes Iran's economic development. Department cannot neglect U.S. investors whether investments direct or indirect." Affidavit of William M. Roundtree, Ex. A, Amoco International Finance Corp. and Islamic Republic of Iran, Case 56, Doc. 118, Ex. 5. Iran receded from its objection and the provision protecting "interests in property" was maintained. Affidavits by the principal U.S. negotiators of the Treaty of Amity confirm that their Iranian counterparts understood the Treaty provision ultimately agreed upon applied "to indirect investments through American owned corporations registered in countries other than the United States and Iran." Affidavit of William. H. Bray, Jr., id. at Ex. 4. It is clear, accordingly, that property indirectly owned by American nationals, as was the property appropriated by NIOC, was intended to be covered by the Treaty of Amity.

31.

In determining the full value of tangible assets such as drilling rigs, our task is substantially to determine the fair market value of the properties, i.e., what a willing buyer and a willing seller would reasonably have agreed on as a fair price at the time of the taking in the absence of coercion on either party. INA Corporation and Islamic Republic of Iran, Award No. 184-161-1, p. 10 (13 August 1985). In making such a determination, we must not consider as an element of value the taking itself, nor events preceding the taking calculated to diminish the value of the property. American International Group, Inc. and Islamic Republic of Iran, supra, pp. 16-17. On the other hand, the general state of political, social and economic conditions and their effect on the value of property may properly be considered. Id. p. 18.

32.

The Tribunal obviously has no independent basis for determining the value of the rigs, but the Parties have submitted an abundance of evidence substantiating their estimates of value. Claimant's appraisal of the value of the rigs is $29,430,000. This figure is the estimate of SISA's President, Carl F. Thorne, who Claimant has alleged is knowledgeable regarding oil rig values in general and is aware specifically of the condition and value of each of SISA's rigs. NIOC has submitted its own valuation of the rigs based on an appraisal by Harvey A. Davis, a professional property appraiser, who concludes that the total value of the SISA rigs is $10,382,800.

33.

The evidence in support of the Parties' alternative valuations, as well as certain relevant supplemental materials submitted, will be considered in turn in the following sections.

34.

Mr. Thorne purported to have based his valuation of SISA's rigs on his personal, first-hand knowledge of the condition of the rigs and of their value in the market at the alleged dates of taking (between 13 April and 17 November 1979). According to Mr. Thorne, the value of a drilling rig is determined most significantly by its drilling capacity, specifically the capacity of its "drawworks," which determines the depth to which a rig can drill. Other factors which Mr. Thorne considered as affecting value include the type of power transmission used on a rig¹⁰ and the amount and quality of ancillary tools, drill pipe and collars, transportation equipment and housing facilities assigned to a particular rig. Also relevant to value is the age of a rig, although Mr. Thorne asserted that the value of a rig is more dependent upon its condition than upon its age. He stated that if a rig is properly maintained, as various components wear out they are replaced by new parts so that after several years nearly all major components would be significantly newer than the originally assembled rig.

35.

He stated that while the SISA rigs were relatively older and technically less advanced than the rigs owned by SEDIRAN, they were nevertheless maintained "in first class operating condition," consistent with SEDCO's operating philosophy. Based on his assessment of the "top quality equipment" used in the rigs, his experience regarding rig values in the drilling industry in general and his "specific experience in the Middle East and in Iran in particular," Mr. Thorne stated that the value of the rigs as of the alleged dates of appropriation in 1979 was as follows:¹¹

Rig No. Fair Market Value

--------------------------

52 $ 4,155,000

61 4,655,000

68 4,655,000

77 4,655,000

83 5,655,000

87 5,655,000

-----------------

--------------------------

TOTAL $29,430,000

36.

Mr. Thorne explained that rig 52 is valued at less than the others because it was a smaller rig, originally used for workover operations and then upgraded for light drilling Rigs 61, 68 and 77 were older mechanical rigs, while rigs 83 and 87 were newer and more advanced diesel electric rigs with superior drilling depth capacity. These differences are said to account for the different values assigned to the rigs. The value assigned to each rig by Mr. Thorne includes the value not only of the actual drilling unit, but also of miscellaneous tools, drill pipe and collars, transportation equipment and housing facilities associated with the rig. This allegedly is in accordance with industry practice. According to Mr. Thorne, the ancillary equipment supplied with the rigs according to the Contract schedules was substantially identical for each rig.

37.

Recognizing that the Tribunal might be reluctant to accept a valuation of property based solely on the estimate of one of its officers, Claimant submitted certain purportedly independently verifiable and objective information in support of the valuation proposed by Mr. Thorne. Included are evidence regarding certain allegedly comparable contemporary sales, the amounts of coverage in SISA's insurance policies, and calculations of 1979 replacement cost for the rigs. In addition, an expert opinion of Mr. Lee A. Drake was submitted confirming the valuation made by Mr. Thorne.

38.

As evidence that Mr. Thorne's valuation is accurate, and even conservative, Claimant has submitted evidence of sales of allegedly similar rigs at substantially higher prices. The sales involved three mechanical rigs similar in size to rig 52, but allegedly with inferior ancillary equipment, in Dubai (directly across the Gulf from Iran). The rigs sold in October 1981 for approximately $6.6 million each.¹² Claimant initially alleged that the market for land drilling rigs in the Middle East in 1981 was substantially similar to the market in 1979 when, it said, the rigs were taken. NIOC submitted evidence showing that in fact prices for rig equipment in 1981 were substantially higher than in 1979. Claimant subsequently agreed with that point, but alleged that the 1981 sales nevertheless are comparable and instructive. Claimant argued that the price escalation between 1979 and 1981 to which NIOC referred is reflected in the difference between Mr. Thorne's valuation of SISA's rig 52 at $4,155,000 in 1979 and the sales of allegedly similar but less complete rigs for $6.6 million in 1981.

39.

Claimant also pointed to certain appraisals that it commissioned as to the value of three rigs owned by SEDIRAN which were outside of Iran at the time of the Revolution and of which SEDCO subsequently took direct ownership.¹³ Two of the rigs, SEDIRAN rig 12 and SEDIRAN rig 17, are alleged to be similar to SISA rigs 52 and 77, respectively. The appraisals were conducted on site by two independent appraisers, Miller & Miller and Davis Auctioneers, in April 1980. The two appraisers found, respectively, that SEDIRAN rig 12 was worth $6,321,265 and $6,498,500. The values they placed on rig 17 were $5,645,301 and $5,902,000, respectively. The appraisals of the SEDIRAN equipment did not include any value for transportation equipment, but nevertheless uniformly valued the rigs at levels substantially higher than Mr. Thorne's estimate of value for the allegedly similar SISA rigs. Claimant argued that these appraisals (which were conducted less than four months before the taking in August 1980) of similar rigs and conducted by independent appraisers with no affiliation with SEDCO confirm and support the reasonableness and accuracy of the valuation submitted by Mr. Thorne.

40.

While Claimant did not specifically press the point in this context it is significant as well that when SEDCO subsequently took direct ownership of the SEDIRAN rigs for which the appraisals were performed, it did so under a U.S. Treasury license permitting it to do so in exchange for the payment or cancellation of certain foreign currency debts owed by SEDIRAN. The amount of the debts thus paid was $16,196,189.91. This amounts in effect to an average purchase price of approximately $5,398,730 each. The fact that SEDCO was willing to pay that much for rigs already in its control is strong support that they were worth at least that amount.

41.

Claimant has submitted excerpts from its insurance policy insuring SISA's rigs against casualty risks. The policy insured the rigs (including some but not all of the allocated ancillary equipment) for a total of $25,940,456, as follows:

Rig No. Insured Values¹⁴

-------------------------------------------------------------------------------

52 $ 3,573,409.33

61 4,073,409.33

68 4,073,409.33

77 4,073,409.33

83 5,073,409.33

87 5,073,409.33

-------------------------------------------------------------------------------

TOTAL $25,940,455.98

Claimant alleged that these levels of insurance confirm the substantial accuracy of Mr. Thorne's valuation.

42.

Claimant explained the $3.5 million discrepancy between its claimed valuation and the policy limits as attributable to the non-inclusion of some ancillary equipment in the insurance policy, and to SEDCO's practice of insuring for less than 100% of actual value. This allegedly is a result of SEDCO's conclusion that in case of a casualty much of the equipment would likely remain undamaged. Claimant further stated that oil field insurers encourage a margin of uninsured value as an incentive to careful operations.

43.

As a further indication of the value of the expropriated rigs SEDCO calculated and submitted detailed replacement cost data. It did so by obtaining vendor quotations for the 1979 costs of each item contained in SISA's (and SEDIRAN's) drilling contracts. Claimant alleged that the lists actually undervalue the replacement cost of the rigs as taken because the calculations do not include certain equipment actually assigned to the rigs which was not listed in the Contract. Nevertheless Claimant alleged that the calculations are an accurate indication of the replacement value of the appropriated rigs. Those values for the SISA rigs are as follows:

SISA Rig No. 1979 Replacement Cost

-----------------------------------

52 $ 5,305,216.88

61 5,503,106.11

68 5,603,476.48

77 5,835,784.79

83 6,427,487.88

87 6,435,608.38

-----------------------------------

TOTAL $35,110,680.52

44.

In support of its replacement cost calculations Claimant submitted an affidavit of Mr. A. Reid Smith, an executive of United States Steel Corporation's oil well operations, attesting that the calculations done by SEDCO "accurately reflect the costs of the various rig components in 1979" and "fairly and accurately reflect the cost, in 1979, of replacing the SISA and SEDIRAN rig equipment with new equipment of comparable drilling capacity." This opinion was subsequently affirmed by two other experts.

45.

As further confirmation of its replacement cost calculations Claimant submitted an actual quotation it received in October 1979 for a new rig of the same type as rig 52 (but without ancillary equipment). Claimant calculated that the quoted price, plus the 1979 value of related ancillary equipment, would result in a replacement cost for rig 52 of $5,332,806.74, which is substantially similar to the $5,305,216.88 replacement cost obtained by Claimant's computation from vendor price lists.

46.

Claimant has alleged that the differential between the replacement cost and the actual alleged value of the rigs in 1979 accurately reflects the difference between new and well-maintained used equipment. Claimant argued that the replacement value data shows that its asserted values for the rigs are conservative and that the total amount claimed for the six rigs does not overstate their 1979 value.

47.

In support of its valuation of the SISA rigs, and also in rebuttal of NIOC's valuation, Claimant submitted an affidavit by Mr. Lee A. Drake, President of LTV Energy Products Company, an oil drilling equipment company. As further discussed below, he confirmed the value of the SISA rigs as stated by Mr. Thorne. He also confirmed the accuracy of Claimant's replacement value calculations.

48.

NIOC objected that the Claimant's estimate of value for the appropriated rigs was "by no means acceptable," but NIOC did agree to give SEDCO credit for the "fair and reasonable value" of the rigs. NIOC did not, however, originally propose in its Statement of Defense an alternative "reasonable" value for the appropriated rigs to that claimed by Claimant. Rather it pointed out several alleged defects which it said discredit Claimant's valuation evidence.

49.

First NIOC objected to the Tribunal's giving credence to a valuation proposed by Mr. Thorne because he is employed by Claimant. NIOC stated that under the (allegedly applicable) civil law of Iran, where there is a master and servant relationship between a party and a witness, such testimony is open to challenge. It alleged that Mr. Thorne's valuation was biased and non-objective, and that the Tribunal should therefore reject it.¹⁵

50.

On the merits of Claimant's valuation, NIOC objected that Mr. Thorne did not take into account the age of the rigs and alleged that at least one of them had been in service for 25 years in 1979. NIOC also contested SEDCO's claim that the rigs were properly maintained, alleging particularly that in the months following the Revolution SEDCO had failed to make available needed replacement parts.

51.

NIOC also took issue with the evidence submitted to support the Thorne valuation. On the issue of the three allegedly comparable 1981 rig sales NIOC contested Claimant's statement that the price of drilling rigs remained stable throughout the period 1979 to 1981 and, as mentioned above, offered a NIOC price index showing that prices for NIOC oil field equipment increased during that period. NIOC also contested the technical comparability of the purchases alleged by Claimant to be comparable, and noted particularly that the three rigs whose sale is alleged to be comparable were "transferred under the terms of a relative contract," which was said to increase the value of the rigs.¹⁶

52.

NIOC rejected Claimant's explanation as to the discrepancy between its insurance policy and alleged value, and stated that Claimant's lower insurance coverage shows that the appraisal overstates true value. NIOC argued that it is obvious "that for insurance of any unit the insurer usually fixes a maximum which includes many factors... [and] the insurance value of the units is [normally] much higher than the actual price." In particular, NIOC alleged that SEDCO's insurance policy was intended to insure the equipment at new equipment values. In support of that allegation, NIOC quoted a clause of an insurance policy issued by Bimeh Omid, an Iranian insurance company, for eleven land rigs:

It is hereby understood and agreed that in respect of the property insured all cost of repair and replacement for which the Company may be liable shall be on the basis of new for old with no deduction for depreciation.

53.

Although NIOC did not allege that such a clause was included in SISA's or SEDIRAN's insurance policies, an examination of those policies as submitted by Claimant discloses that such language was included. The Tribunal does not agree, however, that the clause has the effect NIOC asserts. The policies do not state that the insured values represent full replacement value, but rather they are stated to be agreed values, i.e., the limits of the policies. The quoted clause merely provides that in case of repair or damage the insurance company will pay for actual replacement or repair costs at current values up to the limits of the policy. Given SEDCO's stated practice of underinsuring to provide a margin of self-insurance, and in light of the substantial evidence on actual replacement values, the Tribunal is not convinced that the insurance values should be considered to represent the full replacement cost of new rigs.

54.

NIOC ultimately commissioned an appraisal from an American property appraiser, Mr. Harvey A. Davis. Mr. Davis formerly was a purchasing manager for an oil field equipment manufacturer and he began performing rig appraisals in 1982. He stated at the Hearing that he had completed all the requirements for a business appraisal certificate but had not yet received the certificate. The technical accuracy and professionalism of his appraisal was supported by reviews by three other appraisers. The appraisal was based on inventories furnished by NIOC (purportedly based on those submitted by Claimant) without an inspection of the equipment.

55.

Mr. Davis stated that a major flaw in Claimant's appraisal was that it does not take into account the factors surrounding the "location market and its effect on the fair market value of the equipment." Mr. Davis' appraisal, on the other hand, purported to set the value of the rigs "on their location" in 1979. The appraiser concluded that it would be "highly unlikely the rigs will be sold or moved from Iran."

56.

The appraiser further stated that he identified a dip in the market in the first part of 1979 which resulted in values being markedly lower in June 1979 than they were either before or after. This was based on data about the source market, which Mr. Davis determined was the United States. According to the appraiser, in 1979 the SISA equipment would have been "in average demand in the open market. Demand dropped in 1979 which directly affected prices. The market demand increased dramatically in 1980 and 1981...."

57.

Applying these assumptions, Mr. Davis arrived at the following values:

Rig No. Fair Market Value Ancillary Equipment Total Fair Market Value

---------------------------------------------

52 $ 765,800 $146,650 $ 912,450

61 1,078,600 146,650 1,225,250

68 842,400 146,650 989,050

77 1,183,200 146,650 1,329,850

83 2,826,500 146,650 2,973,150

87 2,806,400 146,650 2,953,050

---------------------------------------------

TOTALS $9,502,900 $879,900 $10,382,800

The allocated ancillary equipment allegedly included transportation equipment and miscellaneous tools.

58.

It should be noted that all the SISA rigs and eight of the SEDIRAN rigs were subject to purchase options whereby OSCO had a potential right to obtain the rigs "at the completion or earlier termination" of the contracts. The option set a purchase price of $4.5 million each for the SISA rigs and $6 million each for the SEDIRAN rigs, less depreciation at 12 1/2% per year from the effective date of the contracts. Claimant argued that the option is irrelevant to valuing the rigs and specifically stated that

The option prices largely reflected the rates provided for in the contracts and SEDCO's anticipation that these rates would be paid through completion of the contract term. It would be totally inequitable to SEDCO under these circumstances to be awarded only the option prices without being awarded, for example, lost profits through the contracts' completion.

59.

NIOC has not alleged that such options were exercised or that the option prices are a proper measure of value for any of the rigs.¹⁷ In any case no party has calculated what the option price would have been at the time the contracts terminated.¹⁸

60.

In addition to the OSCO option, the SISA rigs had been subject to a prior "Purchase and Mortgage Agreement" dated 1 January 1975 granting SEDIRAN the option to purchase the six SISA rigs at issue here (and three others).¹⁹ While it appears that this option was superseded by or at least subject to the subsequent option granted to OSCO, noted above, NIOC stated that after SEDIRAN was taken over by Iran it exercised the option (on or about 2 August 1980).

61.

Claimant denied that the option was exercised, and NIOC has provided no evidence that it or SEDIRAN paid SISA for the rigs, merely stating that SEDIRAN paid "$5,500,000 or even lesser amount" for all six rigs. In its Statement of Counterclaim NIOC stated that the option price was "$4,303,323 subject to the terms stipulated in the agreement." Elsewhere NIOC has alleged that "the option to purchase the equipment for $5,000,000" shows that Claimant's valuation of the rigs is incorrect.

62.

The Tribunal has already found these unsupported statements to be insufficient evidence that the option was exercised. They also are not evidence as to the value of the SISA rigs.

63.

Having reviewed the proposed valuations and supporting documents and arguments of both sides, the Tribunal determines that the valuation submitted by Claimant more reasonably and accurately reflects the full value of SISA's rigs appropriated by NIOC.

64.

While the Tribunal has no independent knowledge of drilling rig values by which to evaluate the correctness of the various competing appraisals offered by the Parties, it can and must assess the legal and factual sufficiency of the assumptions upon which the Parties' appraisals were based. While Mr. Davis' appraisal may have been reasonable given his assumptions, certain of his fundamental assumptions appear to be legally or factually flawed. First is Mr. Davis' assumption that the rigs were appropriated in June 1979 and his apparent valuation of the rigs as of that date. As noted above, however, the Tribunal has determined that SISA's rigs were appropriated in August 1980; therefore the market as of June 1979 is not directly relevant. His use of June 1979 as his valuation date is a particularly important assumption given his determination that the June 1979 market suffered a sharp and anomalous dip compared to the otherwise steady growth in the market between 1978 and 1981.

65.

For example, Mr. Davis emphasized that the market in 1979 "was so overshadowed by the previous year and the following two years that the particular time of June 1979 and the preceding months were all but forgotten as a period of time when there was a depressed market." He referred to a "plunge" in the U.S. drilling rig market "in the first six months [of 1979] and in June of 1979." Later Mr. Davis stated that "it is obvious that the problems of 1979 created a very soft demand for rigs and equipment, especially in the first haf [sic] of 1979," that "the last half of 1979 was unlike the first half which had been down," and that the first half of 1979 was "totally opposite from the second half." Thus although his appraisal purports to present an "average value" for 1979, it is quite clear that his valuation was based on his assumptions about the market as of June 1979.

66.

A second assumption upon which Mr. Davis based his appraisal was that the value of SISA's rigs should be determined in the "context of the political situation in Iran." While consideration of the political situation in determining value is certainly proper, it is clear that Mr. Davis considered in addition the effect of the appropriation itself on value. Indeed, he stated that he considered in his valuation the question of who would buy a rig in Iran given that the drilling business had been nationalized by the Government, considering in particular

the location of the equipment and the associated political problems. There would have necessarily have had to be a limited number of potential buyers for the equipment if it had been put on the market for sale. Who would be interested in buying the equipment at any price? Who could have purchased the equipment and removed it from Iran? Who could put the equipment to work in Iran if it could not be moved? These are a few of the questions that I have considered in my valuation.

67.

This assumption is evident as well in an opinion by another rig appraiser, Mr. Roger Armstrong, which Mr. Davis solicited and included as supporting evidence:

In my opinion rigs located in Iran in June 1979 would have little or no value to drilling contractors anywhere. The political problems of that time would have prevented a sale on a normal market. It is impossible to determine a value without a market and the only buyers who would have been interested would have been the Government. They would not want to buy something they already had control of. (Emphasis added.)

68.

It is well recognized that in determining the value of appropriated property we must not consider the effect on value of the appropriating act itself. This, however, appears to be exactly what Mr. Davis has done.

69.

A further fundamental assumption made by Mr. Davis was that "Rigs in Iran under prevailing conditions as I understand them could not have been removed from Iran" and that their value must therefore be determined in the Iranian market. It seems evident, however, that the correct market for determining fair market value is the entire Middle East area. As just stated, the effect of the appropriating act itself must not be taken into consideration in our appraisal of the value of the rigs, which must be valued as if no appropriation had taken place. The question is therefore whether their removal from Iran would have been impossible because of any other circumstance of such a nature that it should be allowed to influence our valuation. When Mr. Davis refers to the prevailing conditions in Iran he obviously means the political conditions there. We accept that the general political (and economic) conditions in a country and their effect on the value of property may properly be considered (supra para. 31). The Tribunal, however, is not convinced that the general political or economic conditions prevailing in Iran in August 1980 would have restricted Claimant's possibilities to have the rigs exported. It may rather be assumed that any obstacle Claimant at that time might have encountered would have been due to the situation, affecting American nationals in particular, which was created by the events of 4 November 1979, a situation for which the Iranian Government has been held responsible. See, e.g., Case Concerning United States Diplomatic and Consular Staff In Tehran (United States v. Iran), 1980 I.C.J. 3; accord International Technical Products Corp. and Islamic Republic of Iran, Award No. 186-302-3, pp. 23-24 (19 August 1985) (Iran may not invoke hostage crisis as force majeure event). Considering the close connection between NIOC and the Government it would be highly improper to let a restriction of the geographical market due to a Government policy specifically directed against American interests affect the valuation of rigs in these proceedings. Mr. Davis' assumption of a restriction of the market to Iran again suggests a likely depression of value.

70.

Certain factual errors also appear in Mr. Davis' analysis. Most notable is his assumption that the land drilling rig market, which otherwise experienced a constant expansion in the 1978-1981 period, nevertheless suffered a slump during or immediately before June 1979. As mentioned above, the relevance of the June 1979 market is questionable. It appears, moreover, that Mr. Davis based his assumptions as to market strength on data relating only to rigs in the United States. It appears clear, however, that the Middle East rig market was quite separate from the U.S. market and was experiencing market conditions very different from those described by Mr. Davis as occurring in the United States. Indeed, a price index submitted by NIOC purporting to show "the trend of prices of drilling equipment" in Iran shows a steady increase between 1978 and 1981. This is confirmed by an exhibit submitted by Claimant (from the same source used by Mr. Davis to derive his data on the United States market) showing that the total number of active rigs in the Middle East and Africa, including Iran, rose dramatically in 1979.

71.

Claimant provided support for its claim that the Middle East market in 1979 was strong and that rig values were high with data from an American drilling rig supplier, LTV Energy Products Co. (then known as Continental Emsco). The data show that the sales of rigs and components by the company in the Middle East-North Africa area²⁰ increased sharply in 1979 and continued to increase in 1980 (i.e., a 74% increase in 1979 and a 35% increase in 1980). Indeed, if Iran is excluded from the Middle East export figures (since Iran, because of the 1979 Revolution, obviously was not following the general market trends), the Middle East sales figure show increases of 212% in 1979 and 47% in 1980. These high levels of sales of new rigs would have been unlikely if there were large numbers of idle rigs available at low prices as suggested by Mr. Davis. Therefore, it appears that, far from the slump described by Mr. Davis, the demand for drilling rigs grew steadily during 1979 and 1980 in the Middle East,²¹ suggesting that rig values must have been high as well.

72.

In addition, Mr. Davis apparently mixed figures from two different data sources in finding a downturn in the U.S. market, where proper reference to each source separately would show instead that even in the United States throughout 1979 the number of active rigs increased, and that between August 1979 and August 1980, during which time the SISA rigs were appropriated, the number of active rigs increased sharply and the number of idle rigs decreased. This suggests quite strongly that the market was in fact expanding and casts doubt on the existence of the slump in the U.S. market posited by Mr. Davis, even if it is relevant. In turn, this puts into question his appraisals, which were based on the existence of a declining market.²²

73.

A final factual error of Mr. Davis' appraisal is its apparent failure to include in his equipment list certain equipment included in the Thorne appraisal. Claimant alleged that the omitted equipment had a total replacement cost of $6,484,827.²³

74.

As noted, the Tribunal cannot easily evaluate the substance of property appraisals, but it can evaluate the legal and factual sufficiency of the assumptions underlying appraisals. For the above reasons the Tribunal is of the opinion that the appraisal submitted by NIOC is based on assumptions which make the appraisal unreliable. On the other hand, it appears that the Claimant's estimates and subsequent confirmations of value were performed by persons with actual knowledge of the market conditions, based on their experience in the market area during the relevant period. Their assessment of the rigs at substantially higher values than those proposed by Mr. Davis by means of his reconstruction of market conditions is unanimous and is untainted by improper assumptions.

75.

Although for these reasons the Tribunal is persuaded that Claimant's valuation forms a more credible basis for a determination of the fair market value of the six SISA rigs than the valuation offered by NIOC, nevertheless Claimant's appraisal must be approached with some caution. The task of the Tribunal is to appraise the value of these specific rigs on the evidence before it. In that process certain inferences may of course be drawn from rig values in the drilling industry in general. One of the most important elements on which to base the value of a particular rig, however, appears to be the operating condition of that rig at the valuation date. The only one of Claimant's expert witnesses who had personal knowledge of the SISA rigs during the five years preceding the appropriation is Mr. Thorne, who stated that the rigs were maintained in "first class operating condition," consistent with SEDCO's operating philosophy and that the equipment was "top quality."²⁴ Other experts who have confirmed Mr. Thorne's appraisal have based their opinions on Mr. Thorne's assessment of the operating condition of the rigs. Their opinions on this point thus must be approached with the same caution as that of Mr. Thorne. Mr. Thorne is a leading officer of the Claimant company and the President of SISA. In that last capacity he was ultimately responsible for the maintenance of the rigs. Although the Tribunal in principle does not accept NIOC's objection to Claimant's experts as unreliable because of their alleged master-servant relationship with Claimant,²⁵ Mr. Thorne's close affiliation to Claimant and SISA could quite naturally have caused a certain subjectivity (which must be distinguished from bad faith) to taint his assessment. Furthermore, it is arguable that he somewhat underestimated the relevance of the age factor to a prospective buyer.

76.

Reluctant to give full credence to Mr. Thorne's valuation, the Tribunal finds that the various types of information provided by Claimant in support of Mr. Thorne's appraisal vary in their degree of independent helpfulness. Comparable sales, which generally are higher than the claimed values of the SISA rigs, are a useful but only approximate guide.²⁶ The fact that replacement values are higher than the claimed values is broadly confirmatory, but there is an absence of expert testimony establishing a conventional ratio of actual value to replacement value. As to the SISA rigs the insured value gives a helpful and independent indication of actual value. While Claimant alleges that this value, a total of $25,946,456, is only a percentage of actual value in conformity with the practice of both Claimant and its insurers, the Tribunal has not been informed in this Case of what conventionally or usually such percentage should be. Considering the range of values suggested by these various indications, the Tribunal holds that a total amount of $26,000,000 represents a prudent estimate of the value of the six SISA rigs at the dates in 1979 when according to Claimant the taking took place.

77.

Claimant's appraisal was based on values as of mid- to late 1979, while the Tribunal has determined that the proper valuation date is 2 August 1980.²⁷ Evidence submitted by both parties makes it clear that the demand for drilling rigs grew steadily during 1979 and 1980 in the Middle East. As previously noted, that increase in demand suggests that rig values in general must have been high as well (supra para. 71). One might therefore conclude that as a consequence the value of the SISA rigs would have increased in the period between Claimant's proposed valuation dates and the date ultimately chosen by the Tribunal. This seems not to be an inevitable conclusion, however. To his original affidavit Mr. Thorne annexed a bar graph depicting the average revenue per day for land rigs owned by SEDCO and SEDCO affiliated companies in the Middle East for the fiscal years ending 30 June 1977 through 30 June 1982. Referring to the graph Mr. Thorne stated that the day rates for land rigs remained relatively stable from 1 July 1978 to 30 June 1981, and that because the value of the land rigs is a function of the day rates which the rigs can command in the market place, the value of such rigs from 1979 through 1981 was stable. Furthermore, even if properly maintained²⁸ the rigs were approximately one year older in August 1980 than at the dates used by Mr. Thorne.²⁹ In any case, the Tribunal lacks the factual information upon which to calculate the amount of any possible increase in the value of SISA rigs. Under the circumstances the Tribunal does not find that its determination of 2 August 1980 as the proper valuation date warrants any amendment of its previous estimate. Accordingly, Claimant is awarded the amount of $26,000,000 for the six SISA rigs appropriated by NIOC.

78.

In its Statement of Claim SEDCO alleged that NIOC's appropriation of its rigs had deprived it of revenue in the amount of $5,000 per day per rig. SEDCO also alleged that at the relevant time it took at most 60 days to place a rig on lease and move it to its new drilling location, and requested that damages be assessed therefore in the amount of $5,000 per rig per day starting 60 days after appropriation of the rigs and continuing "until the rigs' return."

79.

In its Memorial Claimant modified this claim, recharacterizing it as a claim for "profits lost during the period of time which would have been required to replace the converted property." SEDCO cited legal authorities to the effect that compensation for property wrongfully destroyed or taken must include both the fair market value of the property and recovery "for its loss of use during the time reasonably necessary to secure a replacement. Failure to award recovery for loss of use undercompensates the Plaintiff, because he was not only deprived of the chattel but of its use during the time reasonably required to replace it."³⁰

80.

SEDCO argued that if it had had the use of its rigs it could have leased them immediately to other oil companies in the region at a profit of at least $5,000 per day. It alleged that it is entitled to damages in the amount of $5,000 per day from the time of appropriation until the time at which SEDCO reasonably could have procured and assembled replacement rigs. It introduced evidence that during that time it took at least nine months to obtain new rigs, and that there were no surplus used rigs available for purchase or lease in late 1979 or 1980. Thus it sought lost profits in the amount of $5,000 per day per rig for nine months.³¹

81.

To support its claim that it could have leased the rigs at a profit Claimant introduced evidence showing that subsequent to NIOC's appropriation of the rigs SISA received over fifty unsolicited inquiries from potential customers seeking land-drilling rigs. Claimant also introduced evidence that a similar rig, SEDIRAN rig 69, which before the Revolution had been moved to Dubai, showed a profit of $6,308 per day for the year ending 30 June 1980. Thus Claimant argued that its claim of $5,000 per day per rig was reasonable and conservative.

82.

NIOC objected generally to Claimant's suggestion that it could have leased the rigs to other customers in the Middle East, noting that the "inquiries are inquiries and that... is far from a firm contractual commitment." NIOC also took issue with Claimant's calculation that it reasonably could have expected $5,000 profit per day per rig. NIOC pointed out that Claimant's exhibit which supposedly showed a per day income of $6,308 for SEDIRAN rig 69 in fact shows an average daily income of only $4,840 for the year ending 30 June 1980. NIOC also provided income statements for the ten SEDIRAN rigs operating in Iran for the six months ending 31 December 1978 that show an average per day income ranging from only $1,017 to $2,916. NIOC alleged that these figures show that Claimant has manipulated its profit figures and that in fact it could expect a profit much lower than the daily amount claimed.

83.

Claimant in response explained that it obtained the rate of $6,308 for rig 69 by adding to the daily income figures shown on the income statement depreciation, which is a non-cash expense, in order properly to reflect actual income. (Actually, adding the depreciation figures shown on the statement to the income figure provides a total of $6,195.) Claimant also argued that in order to reflect actual profit accurately depreciation must be added to the 1978 SEDIRAN figures NIOC submitted as well; if done, the result is an average daily profit of $3,787 each for the ten SEDIRAN rigs in 1978. To the extent the 1978 SEDIRAN figures are less than $5,000 per day Claimant argued that this is attributable to the lower daily rates prevailing in 1978 compared to 1980. It thus reasserted that $5,000 per rig per day is a conservative estimate and accurately reflects its lost revenue.

84.

Although Claimant termed its claim for lost revenue a "lost profits" claim related to the value of SISA's appropriated rigs, the Tribunal has determined that the claim is in fact "a direct loss resulting from the unavailability of the rigs to Claimant for use elsewhere and as such is damnum emergens." March Interlocutory Award, p. 4, n.2.

85.

It appears from the evidence that Claimant indeed could have leased the rigs profitably had it had possession of them. We also accept Claimant's statement that it would have taken nine months to replace the rigs. Claimant's evidence supporting its claim for a daily profit of $5,000 per rig is not compelling, however, based as it is on figures from only one rig operating in Dubai. A more reasonable guide to the amount of lost revenue is the average amount of profit actually earned on the ten SEDIRAN rigs operating in Iran in 1978, i.e., $3,787 per rig per day.

86.

It appears that recovery for the nine months during which SEDCO could not have mitigated its damages should be reduced by the initial 60 days which SEDCO admits it ordinarily would have taken to move and restart operations for another company. Thus lost revenue damages are properly awardable for a period of seven months, beginning two months after appropriation. Accordingly, the Tribunal awards as damages for loss of its use of SISA's rigs $4,817,064, an amount equal to $3,787 per day for each of the six rigs for 212 days starting 2 October 1980 and ending 1 May 1981.

87.

In addition, as NIOC pointed out and as Claimant in effect has conceded, where actual damages for loss of use of an asset are awarded it is not appropriate to award interest on the value of the appropriated property (which also is intended to compensate for loss of the use of the property) until the theoretical replacement date, i.e., in this case nine months following the taking of the rigs on 2 August 1980. Therefore, interest on the amounts awarded for compensation of the appropriated rigs will run from 2 May 1981.

88.

In its Statement of Claim Claimant alleged that SISA maintained a warehouse in SEDIRAN's Ahwaz complex which contained equipment, materials and spare parts owned by SISA. Claimant alleged that NIOC took the contents of the warehouse with an alleged value of $2,210,059. In a later submission Claimant stated that certain of the warehouse contents worth $87,619 that were included in its prior calculations actually had been "in transit" to Iran at the time of taking and subsequently had been returned by carriers to SISA or to the equipment suppliers. Other adjustments were also made for freight and insurance and for stock returned for credit totaling $6,433. Therefore Claimant reduced the amount of its claim for SISA warehouse stock by $94,052, to $2,116,007.

89.

In support of its claim SEDCO provided the stock records of the SISA warehouse allegedly maintained in the ordinary course of business. Claimant explained that these company records showed the value of the items physically in the SISA warehouse. The valuation was made by means of a hand posted cardex system which was used to control warehouse balances. There was a cardex card made out for each individual item "in warehouse," showing its original purchase price (excluding freight to Iran and insurance). The warehouse balance was made by a monthly total of each of the individual cards. From this total a monthly warehouse report was prepared. Claimant has submitted the June 1979 warehouse reports covering SISA's warehouse stock.³² To the purchase price amounts shown for the goods actually "in warehouse" was then added the purchase price of in-transit goods not returned to SISA or its suppliers. In addition, a "freight and insurance" component, equal to 4.2% of the price of the goods in warehouse and in transit, was added. The total equals the amount claimed. Claimant noted that NIOC had submitted balance sheet figures substantiating the accuracy of the SEDIRAN warehouse records (see discussion at paras. 315-16 below), and alleged that because the SISA records were kept in the same manner they therefore should be considered credible.

90.

NIOC in response alleged that the business records of SISA (and SEDIRAN) submitted by Claimant do not sufficiently prove the existence of the warehouse goods in the amounts and values claimed, and demanded instead "substantiating documents concerning the quantity and the value of the warehouse stocks and documents related to purchase, shipment, receipt in the warehouses, and use of the goods." NIOC also denied that its earlier submission of the reconstructed balance sheet of SEDIRAN should be construed as an admission of the value therein listed for the SEDIRAN warehouse stock or of the accuracy of SISA's accounting methods. It stated that it had submitted the exhibit only "to show that SEDIRAN liabilities exceeded those of its assets." (It is of note that in NIOC's final submission it continues to show the SEDIRAN warehouse stock at a book value higher than the amount sought by Claimant.)

91.

While NIOC has demanded the submission of further documentary evidence as to the existence of the warehouse goods, it is clear that such evidence, if it exists, is within NIOC's control. NIOC has made no attempt to provide correct or actual inventories of the warehouse. Therefore, we agree that SISA's documents, apparently prepared in the ordinary course of business, adequately substantiate the existence of the goods in the SISA warehouse in the amounts claimed as of June 1979.

92.

As in the case of the SISA rigs, the Tribunal is unable to determine, on the basis of the evidence in the record, the precise status of the SISA warehouse goods during the latter half of 1979 and early 1980. While there is no evidence that the goods were taken already in June 1979, it could be argued that they were expropriated by Iran or came into NIOC's possession on 22 November 1979, the date when, as the Tribunal has held, SEDIRAN was expropriated. The expropriating act, i.e., the appointment of provisional managers, however, was directed only towards SEDIRAN and would not necessarily have had any effect on property belonging to a third party, even if such property were stored at the SEDIRAN warehouse facility. In the absence of compelling proof that SISA was definitely deprived -- legally or physically -- of the use of its warehouse stock at an earlier date than the presumed date of the appropriation by NIOC of the SISA rigs, the Tribunal determines that also the SISA warehouse stock was appropriated by NIOC on 2 August 1980.

93.

Both Claimant and NIOC asserted their view of the value of the SISA warehouse stock as of 30 June 1979, but neither Party supplied any evidence on the state of those goods on the date we have found they were taken in August 1980. The obvious reason for this lack of evidence is that both Parties were laboring under the assumption that the stock would be valued as of 30 June 1979. The Tribunal is faced therefore with deciding an issue that was not precisely addressed by the Parties.

94.

There is reason to believe, however, that even if the Parties had been on notice of the proper valuation date, no significantly different valuation would have been submitted. This can be inferred from the Parties' actual submissions in the context of valuing SEDIRAN's warehouse contents. Claimant initially valued SEDIRAN's warehouse goods as of 30 June 1979. Following our October Interlocutory Award finding that the proper valuation date for SEDIRAN assets is 22 November 1979 both Parties submitted revised figures for other assets, but not for the warehouse stock. They in fact did not even mention the possibility that the value of warehouse stock changed in the ensuing months. NIOC's final submission listed the 22 November 1979 book value of the assets at nearly the full value shown on NIOC's SEDIRAN balance sheet for 30 June 1979, an amount higher than that sought by Claimant. Thus both Parties must be considered to have admitted that there was no substantial increase or decrease in the value of the SEDIRAN warehouse goods. As previously noted, neither were there any revised figures submitted for the SISA warehouse goods, although the Interlocutory Award must have made the Parties aware of the possibility that a date later than 30 June 1979 might be determined as the date of the taking also of the SISA property and of its valuation. It therefore appears reasonable that similar factors were relevant there as well. As, moreover, there is no clear indication that the quantity or value of the goods stored changed decisively between November 1979 and August 1980, the Tribunal determines that the 30 June 1979 figures should be deemed to represent the value of the SISA warehouse stock appropriated on 2 August 1980.

95.

We therefore find that SEDCO is entitled to recover from NIOC for the taking of SISA warehouse stock the amount of $2,116,007.

96.

Following a review of the general background of the contractual relations between the Parties, the specific invoice claims arising under Contract 339 will be described seriatim.

97.

As described above, SISA and OSCO were parties to Contract 339, dated 30 January 1978, pursuant to which SISA supplied OSCO with six drilling rigs (designated 52, 61, 68, 77, 83 and 87) together with the personnel to operate them, and OSCO in return paid specified compensation. Invoices issued by SISA pursuant to this Contract, but allegedly not paid by OSCO or NIOC, form the basis of the SISA contract claims.

98.

In September and November of 1978 drilling operations were suspended twice because of strikes by Iranian oilfield workers. Following the November strike work resumed until the assassination of OSCO's General Manager, Mr. Grimm, in the latter part of December of 1978. According to Claimant, following Mr. Grimm's death OSCO directed SISA to suspend drilling operations, evacuate all expatriate personnel from Iran, and go on "standby" status. Operations ceased by 28 December 1978, and all non-Iranian SISA employees departed Iran by 31 December 1978. Claimant alleged that the rigs remained on "standby" until operations on the rigs were restarted, beginning in late February, when OSCO's Iranian managers gave SISA verbal instructions to start up the rigs for operations.

99.

On 27 February 1979 OSCO telexed SISA (via IROS) giving notice of termination of the Contract. In response to a telexed inquiry by SISA, OSCO later confirmed that the termination was "without cause" and that therefore the termination would be effective after the contractual 180 day notice period, during which time the rigs should continue to be operated. On 28 March 1979 NIOC wrote SISA giving formal instructions to restart the rigs:

This is to advise you that this company desires for all drilling rigs stipulated under contract No. 339 322 75 3 to be equipped to start operations as soon as possible.

100.

Claimant has alleged that pursuant to OSCO's verbal instructions SISA already had succeeded in starting up operations with four of the six rigs (rigs 52, 61, 68 and 77) by the time the 28 March instructions were received, and that one other rig (rig 83) was started by 31 March. The remaining rig (rig 87) was not started up because, according to Claimant, the skilled workers to operate that rig were unavailable in Iran. Claimant alleged that its inability to recommence operations with rig 87 was caused by NIOC's secondment, for work on NIOC's own projects, of several trained Iranian specialists employed by SISA and SEDIRAN, two of whom were needed to operate rig 87. Claimant alleged that it wrote to NIOC requesting the return of its specialists, and that it simultaneously applied in early April to the proper government agency for approval for the entry of additional expatriate personnel to start the rig.³³ NIOC ultimately did not return SISA's employees, however, and the permission for entry of expatriate specialists had not been received by 13 April 1979, on which date NIOC notified SISA that it was terminating Contract 339, at least with respect to rig 87, "with cause," pursuant to Clause 41 of the Contract.

101.

Claimant has alleged that NIOC's purported termination with cause was unjustified, and constituted a breach of the Contract. Accordingly, SISA itself gave notice of termination and demanded that the rig be returned to it. Claimant has not argued, however, that it should have been allowed to continue to work on the rig, and it has not requested damages for early termination.

102.

According to Claimant, following the contractual 180 day notice period the Contract terminated as to the five remaining rigs, on 29 August 1979, pursuant to the original 27 February termination order. Two of those rigs (52 and 77), however, continued to be operated under Clause 39 of the Contract, which permitted operations to continue following final Contract termination to the extent necessary "to protect and preserve work already in progress."³⁴ Operations eventually ceased on those rigs on 17 November 1979.

103.

NIOC originally took issue with Claimant's views on Contract termination, stating that when work was not restarted with rig 87 the entire Contract terminated immediately for all six rigs. It thus disputed Claimant's characterization of Contract 339 as terminating at various times with respect to the different rigs. NIOC did not deny that work on the other rigs continued under the Contract terms, but stated that this was based on special permission granted SISA by OSCO at the time it terminated the Contract, and not on the continued validity of the Contract. This appears contrary, however, to an OSCO telex of 24 April 1979, following upon the termination of the Contract with respect to rig 87, which states that the "[o]ther rigs however, could, for the remaining period of six months continue i.e. up to 29 Aug. 79 under existing contract." (Emphasis added.) Indeed, NIOC ultimately agreed with Claimant that "Rig 87 was terminated with cause since February 1979. The contract with respect to other 5 rigs had been terminated after expiration of the notice of termination in Aug. 1979 except for Rigs No. 52 and 77 which was kept until September 1979 for completing the work."

104.

Under the terms of the Contract, which in any case concededly were valid both before and after the 13 April "termination," SISA was to be paid monthly on the basis of invoices submitted for the preceding month.³⁵ Invoices were to be paid within one month after receipt by OSCO. Claimant alleged that until November 1978 the invoices issued by SISA under the Contract were paid in the normal course of business (with certain exceptions relating to adjustments and disputed amounts). After November 1978, however, OSCO allegedly failed to make regular payments as contemplated by the Contract, and the payments which were received were insufficient to satisfy all invoices issued. Claimant therefore has claimed the right to payment for amounts invoiced and not yet paid.

105.

A preliminary issue concerns NIOC's objection that OSCO, the party to the Contract at issue, was a private, foreign owned company, the obligations of which are not chargeable to NIOC and may not properly be determined by this Tribunal. According to Claimant the basis for our jurisdiction over OSCO is that

[f]rom its inception, OSCO has been completely controlled and dominated by NIOC in all of its operations, as well as its finances. Thus, OSCO has at all times been the alter-ego and agent of NIOC.

NIOC responded that OSCO was owned and controlled by the foreign oil companies, not by NIOC, and that NIOC therefore is not liable for any obligations of OSCO.

106.

This identical issue was raised and decided in Oil Field of Texas, Inc. and Islamic Republic of Iran, Award No. ITL 10-43-FT (9 December 1982), reprinted in 1 Iran-U.S. C.T.R. 347. In that case the Full Tribunal held that OSCO's relationship with NIOC was not such that it properly could be considered either the agent of NIOC or so completely controlled that it should be considered its alter ego. Id. pp. 16-18. The Full Tribunal nevertheless did find NIOC liable for OSCO's obligations, determining that the "factual circumstances of NIOC's assumption of control over OSCO's personnel and operations and its taking over of the contracts with sub-contractors and consultants, resulted in NIOC's de facto succession to OSCO's rights and obligations with respect to these sub-contractors and consultants." Id. p. 21. Therefore the Tribunal determined that it had jurisdiction over claims against OSCO, id. p. 23, although it left to the individual chambers in each case the "task of determining the extent and the amount of NIOC's liability." Id. p. 22.

107.

The record leaves no question but that NIOC took over OSCO's obligations completely. In a letter dated 10 March 1979 from Mr. Hassa Nazihm, Chairman of NIOC, to OSCO's owners, the Consortium Members, NIOC terminated the agreement between OSCO and NIOC and stated in addition that

4. All Iranian personnel employed in the operations by OSCO shall be transferred to NIOC under the terms and conditions of the contracts with OSCO.

5. NIOC is willing to take over all contracts which contractors and consultants entered into by OSCO for its operations under the present arrangements.

Id. p. 19. In a March 1979 telex NIOC specifically represented itself as the successor to all OSCO contracts, stating

We are requested to inform you that Mr. Esmail Fakhraie has been appointed as Manager, Drilling and that he will be the company representative in all OSCO contracts related to drilling, effective immediately.

We request you to advise your interested associated companies, subsidiaries and sub-contractors of this appointment.

See id. p. 20.

108.

NIOC's stated approach to OSCO's contracts in general was followed in the context of the SISA Contract. It was Mr. Fakhraie who on behalf of OSCO dealt with SISA concerning the continued operation and termination of its Contract. As indicated above at paras. 99-100, NIOC at an early stage began exercising rights belonging to OSCO under Contract 339 with SISA. On 28 March 1979 it was NIOC that wrote to SISA requesting the restart of operations with all the rigs and NIOC that on 13 April 1979 purported to terminate the Contract. Later events show that NIOC purported not only to avail itself of rights necessary to protect basic Iranian interests in connection with the Contract, but also, in addition, to make full use of the rights granted to OSCO by the Contract. On 28 November 1979 NIOC telexed SISA (through IROS) purporting to reserve to itself the purchase option to which OSCO was entitled under Contract 339. NIOC stated further that, in case certain claims by Iranian employees were not satisfied, "NIOC would... seek legal measures for all damages to the company in relation to various causes of breach of contract by SEDCO."

109.

Apart from NIOC purporting to have succeeded to OSCO's rights under the Contract, there is contemporaneous evidence suggesting that NIOC recognized that it had taken over all of OSCO's liabilities, too. Thus in the 28 November 1979 telex referred to above it is alleged that "[w]ith regards to payment NIOC has so far remitted all invoices made out by SEDCO and is not in default of non payment." From this it can be concluded that, as a matter of principle, NIOC did not dispute its liability for invoices submitted on the basis of Contract 339 between SISA and OSCO.

110.

In view of the above the Tribunal concludes that NIOC is successor to all of OSCO's rights and obligations under Contract 339.

111.

Claimant has arranged its claims pursuant to Contract 339 according to the clause of the Contract under which the invoices were issued. Before examining the individual clauses, certain issues applicable to a large number of invoices must be addressed. Thereafter the invoices relating to the various Contract clauses will be considered seriatim.

112.

In response to many invoices presented by Claimant NIOC submitted letters written shortly after the invoicing describing technical errors in calculation of the invoice amount and declaring the amount in error not payable. Claimant generally has presented no rebuttal to any of these letters offered by NIOC.

113.

Such minor corrections made within a reasonable period after receipt of the invoice no doubt occurred with some frequency. Indeed Clause 7.2 of the Contract recognizes such practice:

In the event that the Company disagrees with an invoice, or a part thereof, it shall correct the same and notify the Contractor in writing as soon as possible, and Contractor shall respond within a reasonable time.

114.

Therefore written corrections to invoices made by NIOC within a reasonable time and not objected to by SISA in writing within a reasonable time thereafter are accepted by the Tribunal. These deductions will be quantified in each section in which they appear.

115.

In several instances NIOC alleged that instead of the invoice submitted by Claimant it received a different invoice bearing the same date but charging a different, generally lower, amount. Claimant has not offered any rebuttal to these differing invoices. The Tribunal notes no irregularities in either set of invoices but does observe that the invoice number on the invoices submitted by NIOC often is followed by a letter "A" or "B." The Tribunal presumes that such invoices therefore are most likely revised invoices submitted to NIOC following comments by NIOC. The Tribunal therefore accepts the amounts charged on such invoices having a letter added to the invoice number.

116.

In respect to many of the amounts claimed for invoices issued to OSCO or NIOC by both SEDIRAN and SISA NIOC's defense is that the amounts in question already have been paid. With respect to many of those invoices it appears that the reason why Claimant continued to consider such invoices unpaid arises from the contractual provision obligating NIOC to pay dollar denominated invoices only 65% in dollars, while the remaining 35% was to be paid in rials, converted at a specified rate of 70.5 rials per dollar. (Invoices originally denominated entirely in rials were properly payable in rials.) In the event, however, many of the dollar invoices were paid entirely in rials. Claimant stated that in its calculations it has given NIOC "full credit for rial payments, but only to the extent the pertinent invoices were payable in rials." For any excess which should have been paid in dollars Claimant considered the specific invoices to be to that extent unpaid, but has agreed to credit the excess rial amount at the contractual exchange rate as an overall deduction from total amounts due. SEDCO in effect has considered that NIOC has underpaid dollar amounts and overpaid rial amounts, resulting in a net credit for excess rial payments under the Contract.

117.

NIOC alleged that the reason some dollar invoices were paid entirely in rials was that SEDIRAN's Iranian management, on behalf of both SISA and SEDIRAN, requested such payments in rials. In support NIOC submitted four letters in which various persons, writing on SEDIRAN stationery, and signing their names variously as "deputy managing director," "deputy for drilling operations," "SEDCO/SEDIRAN manager," or "general manager," requested that "100 percent of payables to SEDCO [SISA] and SEDIRAN rigs" for the months of Esfand 1357, Farvadin 1358, Ordibhesht 1358 and Khordad 1358 (February through June 1979) "be paid in rials in order that this company may be able to pay the salaries and wages of more than 1800 Iranian workers and other pertinent expenses and costs." The letters all were addressed to Mr. Esmail Fakhraie, the "director of drilling equipment" of NIOC.³⁶

118.

In support of the authority of the listed persons to make their request, and also in support of SEDIRAN's authority to make the request on behalf of SISA, NIOC pointed to Claimant's statement that one of the signatories, Mr. M. Dehghan, was "deputy managing director of SEDIRAN." NIOC also referred to a telex from Mr. Thorne of SEDCO specifying that the SEDIRAN management in Iran "continues to look after the interests of both SEDCO International and SEDIRAN Drilling Co."

119.

Claimant has not seriously denied that the letters are authentic or that they were sent³⁷ and Claimant conceded that both Mr. Dehghan and Mr. Farshi, one of the other signatories, arguably would have had authority to bind the companies. It stated that Mr. Moosavi, the third signatory (one of the letters is unsigned), was only a rig manager for SEDIRAN and could not have had the authority to bind the companies. In other correspondence, however, Mr. Moosavi is referred to as "supervisor of SEDIRAN Drilling Company and SEDCO in Ahwaz" as of 4 August 1979, soon after he signed the rial payment request as "general manager." Claimant argued that, in any case, neither SISA nor SEDIRAN authorized these local managers to waive the companies' right to obtain payment of the 65 percent portion of the invoices in dollars.

120.

While the Parties have expended considerable energy arguing the issue it does not appear that it has any practical significance, since Claimant has agreed that credit ultimately must be given for excess rial payments at the exchange rate specified in the Contract. Accordingly, we decide that NIOC will be given full credit for the excess rial payments of invoices under the Contract, converted to dollars at the Contract rate, i.e., 70.5 rials per dollar.

121.

Amounts awarded for claims or counterclaims based on invoices denominated and payable entirely in rials, to which the contractual conversion rate is not applicable, will be converted to dollars at the rate prevailing at the time payment was due. Claimant alleged that the official rate in 1978 and 1979 was 70.35 rials per dollar and that rate appears in numerous contemporaneous documents submitted by both SEDCO and NIOC reflecting transactions at that time. Thus all conversions from rials to dollars not subject to the contractual rate will be made at the rate of 70.35 rials per dollar.

122.

In order to relate certain figures used in this Award to the evidence submitted by the Parties it is helpful to recognize the Parties' different approach to one invoice item, the "contractors' tax." This was a 5.5% tax paid by means of a 5.5% reduction on the invoices in the gross amount payable for services; thereafter OSCO, or NIOC, would actually pay the tax. In its discussions of the claims Claimant uniformly has considered the tax as a valid reduction to gross amounts outstanding, and stated all the amounts due as net of the tax. NIOC, however, used gross figures for all amounts although it stated that the tax must be deducted. For convenience of discussion, NIOC's figures will be given in this Award net of the tax.

123.

This clause set forth the various rates pursuant to which OSCO would pay SISA for drilling operations.³⁸ SISA alleged in its Statement of Claim that invoiced amounts totalling $8,924,343 remained outstanding and unpaid under Clause 6.1, but in its Memorial increased the amount claimed to $10,923,594. NIOC conceded only that a net amount of $391,070 is payable under the invoices. It stated that the amount claimed must be reduced by payments it alleges to have made totalling $4,628,117 in addition to the amounts shown as paid by Claimant. It also alleged mistakes in invoicing totalling $231,821, and objected to payment of invoices totalling a net $5,672,586 as unpayable.

124.

As described below there is generally no dispute as to invoices issued for operating rigs. Rather, the invoices that NIOC contends are unpayable are for periods of time when no actual drilling operations were performed by SISA, but SISA nevertheless billed OSCO at the "standby rate." These periods include the strike periods in the autumn of 1978 and the shutdown period following the evacuation of expatriate personnel between December 1978 and February 1979. Claimant has based its right to payment at the standby rate on its allegation that OSCO authorized standby during the strike periods and during the shutdown that followed the assassination of Mr. Grimm.

125.

In support of this claim Claimant referred to a 17 January 1979 letter which SISA wrote to OSCO seeking confirmation from OSCO that the standby rate was applicable during the period when the rigs were not operating because of the strikes and following the evacuation of expatriate personnel. In pertinent part this letter states:

(2) You will recall that as a result of the recent political unrest in Iran, Contractor experienced two strikes during the second half of 1978. The first strike lasted from approximately September 17, to September 23, 1978. For the period of the said strike, Company has paid Contractor at the Standby Rate. We would request your formal confirmation that the Standby Rate was applicable during the referenced period.

(4) A second strike ensued which lasted approximately from November 6, to November 30, 1978. During the continuation of this strike, Contractor was advised that it had been placed on the Standby Rate, and we would again request your formal confirmation that Contractor will be so remunerated.

(6) Company suspended Contractor operations during the last week of December, 1978, and verbally instructed Contractor to remain on Standby Rate and be ready to recommence operations at any time. We would be grateful to receive your confirmation of this instruction, and that Contractor shall continue to remain on Standby Rate until formal advice to the contrary is received.

These statements are "[a]Acknowledged and agreed" to on behalf of OSCO by Mr. "H. H. Bush."

126.

Claimant argued that applicability of the standby rate during periods of strikes in September and November 1978 is further evidenced by the fact that OSCO and NIOC initially paid the invoices issued for the strike time billed at the standby rates, and only later purported to deduct these payments from future invoices due.

127.

NIOC has denied the relevance of the 17 January 1979 letter and argued that it resulted from Claimant's efforts at "manufacturing supporting documents." NIOC has objected further that even if the letter is genuine the signatory of the letter confirming authorization of standby rates was not authorized to do so on behalf of OSCO. NIOC objected that Mr. Bush had abandoned his post at OSCO without authorization and that he was therefore "disqualified by deserting his duties and departing Iran" and that in any case to authorize standby rates would have exceeded his authority. Finally NIOC argued that OSCO employees fraudulently were favoring American contractors over NIOC and did not pay adequate attention to the interests of their employer.

128.

We note initially that it appears entirely reasonable that amidst the unrest of late 1978 OSCO would give only verbal instructions and that SISA would write to OSCO shortly thereafter seeking confirmation of those instructions. The key issue thus presented is the authority of Mr. Bush to give those instructions.

129.

Mr. Bush held the position of "Manager, Drilling" for OSCO and as such "was generally in charge of OSCO's drilling operations and was designated as OSCO's representative" under the Contract. Under Clause 35 of the Contract Mr. Bush was "impowered [sic] to act on behalf of the Company in respect of all routine day to day matters in connection with this Contract," and under Clause 26.9.3 had the right to "modify, add to or delete from the drilling and related work under the Contract in such terms as may be agreed by the parties hereto." As OSCO's manager of drilling, Mr. Bush thus had general supervisory control over SISA's performance.

130.

The Tribunal first notes that as to the authorization of standby Mr. Bush would not have required authority on 17 January 1979, because he then was merely purporting to confirm earlier verbal instructions to invoice at the standby rate allegedly given during a time when he clearly was in authority. Second, the Tribunal can not accept the contention that the fact that Mr. Bush operated from OSCO's London office in January 1979 rather than its Ahwaz office somehow deprived him of his authority.³⁹ There is no evidence that Mr. Bush abandoned his duties or severed his relationship with OSCO when he left Iran in December of 1978.⁴⁰ That he left the country with Mr. Grimm's body hardly can be considered in the circumstances as grounds for finding him disqualified by "deserting his duties."

131.

The first clear indication of OSCO or NIOC altering Mr. Bush's scope of authority arises in a telex dated in March 1979 announcing the appointment of Mr. Esmail Fakhraie as Manager Drilling:

We are requested to inform you that Mr. Esmail Fakhraie has been appointed as Manager, Drilling and that he will be the company representative in all OSCO contracts related to drilling, effective immediately.

Prior to this notice, the earliest possible date on which Mr. Bush may have been relieved of his duties at OSCO appears in a 10 March 1979 telex of Mr. H. Nazih, NIOC Chairman and Managing Director, which states:

In our future operations, there will be no place for OSCO, nor for the large number of expatriate personnel who used to work for it. Expatriate personnel for secondment or direct employment by us, has already been advised as per our telex JR28 dated 22nd January 1979 and subsequent telexes.

132.

Thus even if the referenced 22 January telex (which is not before us) can be said to imply a loss of authority by Mr. Bush at, or at some date after, 22 January 1979, there is no reason to doubt that Mr. Bush was still the Manager of Drilling for OSCO and the designated representative of OSCO on 17 January 1979 when he "[a]Acknowledged and agreed" to the SISA letter.⁴¹

133.

The issue thus is whether Mr. Bush's authority extended to the authorization of standby under the conditions prevailing in late 1978 and early 1979. NIOC has argued that even if Mr. Bush retained his authority at the time he allegedly ordered standby, the use of standby rates in these circumstances was inconsistent with the purpose for which that rate is contemplated in the Contract, asserting that the standby rate is properly applicable only when "the contractor is ready to render services at the site with full crew and equipment, [but] the Employer may not be able to utilize the contractor's services for reasons not related to contractor." If such is not the situation "there were other proper contractual ways and means to handle the case, inter alia, it could terminate the contract or declare the state of force-majeure." In support of its contention that the standby rate would be authorized only for short periods with the only stoppage being "the rotation of drilling bit and digging of wells", NIOC observed that the standby rate of $9,142 is only slightly less than the daywork rate of $9,726 but substantially greater than the force majeure rate of $5,544.

134.

Clause 6.1 and Schedule VII of the Contract expressly provided specific situations calling for billing at the standby rate. Those situations were limited to the following:

2. When delays occur due to the forward Drilling or Camp Sites or access thereto not being ready or any other delay caused by the Company during rig moves.

4. Maintenance, repair, and replacement of Drilling Plant -- waiting on Contractor supplied plant, materials, or personnel.

a. 3 hours per occurrence subject to a maximum of 3 hours down-time in any one day and subject to a maximum of 30 hours per Month.

135.

Arguably neither of those situations could be said to apply at the times standby rates purportedly were authorized by Mr. Bush. Since they were the sole contractual basis for the standby rate, authorization of standby in any other situation necessarily would have required a modification to the Contract.

136.

Such a Contract modification appears in fact to have occurred with respect to the standby rate for the September and November strike periods. OSCO and NIOC originally paid the invoices at least for September at the standby rate without objection, and only subsequently, after the Statement of Claim was filed, stated to Claimant that the payments should not have been made and that the sums originally paid for those invoices should be credited to other invoices. Whatever use NIOC ultimately determined to make of the sums paid, it is clear that by actually paying invoices for strike periods at the standby rate NIOC and OSCO demonstrated that the rate was authorized at the time by the necessary company officials. It appears entirely plausible that uncertainty as to the length of the periods of strikes and a desire to resume normal operations as quickly as possible thereafter reasonably could have lead OSCO to request SISA to stand by rather than stand down in a force majeure context. Thus the Tribunal determines that the standby rate was authorized and properly was due during the strike periods in late 1978.

137.

No such basis appears for the standby rate charged after the evacuation of expatriates. While we have found that Mr. Bush still held the position of Drilling Manager for OSCO, it does not appear that his authority in that position would have empowered him to authorize such a change in the express Contract terms, and there is no other indication that OSCO had agreed to a Contract modification. Thus, although it appears SISA may in fact have "stood by" during the relevant months, we find no contractual basis for payments at the standby rate in the period following 28 December 1978.

138.

Instead, the proper rate provided for in the Contract during periods of disruption such as existed at the time at issue appears to be the force majeure rate. "Force Majeure Rate" is defined in Clause 2.21 of Contract 339 as "a daily rate for a 24-hour operating day payable when work is not possible due to causes unforeseeable by and outside the control of either party to this Contract." The general political unrest present in the instant case presents a classic force majeure situation. Under Clause 6.1 the force majeure rate was $5,544 per rig per day.

139.

Therefore we find that Claimant is entitled to payment at the standby rate for the periods of non-operation because of the strikes in September and November 1978, and to payment at the force majeure rate following the evacuation of SISA's expatriate personnel beginning on 28 December 1978.

140.

Claimant has alleged the right to charge the standby rate for the entire period following OSCO's instruction to cease operations until either actual operations were recommenced on a rig or the Contract was terminated as to the rig. As mentioned above, Claimant has alleged that four of the rigs were started towards the end of February (following oral instructions from OSCO) and a fifth, rig 83, by the end of March 1979, following NIOC's official request that operations be recommenced. NIOC does not deny that operations were recommenced as claimed.⁴² It thus appears that SISA "stood by" on those five rigs, albeit, as we have found, without proper authorization from OSCO. It is clear, in any case, that as soon as it was possible, and upon NIOC's request, SISA recommenced operations on the five rigs. The Tribunal therefore concludes that the Claimant is entitled to payment on invoices at the force majeure rate for the period from 28 December 1978 to the commencement of operations for rigs 52, 61, 68, 77 and 83.

141.

As noted, however, a sixth rig, rig 87, was not restarted. Claimant has alleged that it could not comply with OSCO's request to restart the rig because of the lack of trained personnel, due to NIOC's transfer of needed SISA specialists to itself. As shown by the evidence discussed above at para. 100, in response to NIOC's instruction to start the rig SISA wrote to NIOC explaining that to do so it needed NIOC to return its specialists; in addition, on 5 April 1979 SISA petitioned the "Foreign Resident Bureau" of the Iranian Government for authorization to hire additional expatriate workers needed to restart the rig. Before permission could be granted, however, and without returning the SISA workers, on 13 April 1979 NIOC notified SISA that because the rig had not been restarted NIOC terminated the Contract (at least as to rig 87) for cause.

142.

The Tribunal concludes that SISA was doing what it could to recommence operations and that it was ready to start such operations from the time force majeure ceased -- in this Case at the latest 31 March 1979 -- until the Contract was terminated on 13 April 1979. It appears that the reason the rig was not restarted was NIOC's secondment of trained Iranian specialists employed by SISA and needed to operate the rig in the absence of Iranian Government permission to import replacement expatriate workers. Obviously, if the rig had been restarted SISA would have been entitled to payment at the operating day rate. Since the non-starting of the rig was attributable to NIOC, a party to the Contract, there is no justification to believe that force majeure continued beyond 31 March, or that payment should therefore be limited to the force majeure rate. Rather SISA would have been entitled to submit invoices at the full operating rate for rig 87 during the period 31 March 1979 to 13 April 1979. SISA actually invoiced at the somewhat lower standby rate, however, and has claimed only for that amount. Thus the Award for that period will be limited to an amount equal to the standby rate, as invoiced and claimed.

143.

Accordingly, the Tribunal determines that NIOC owes SISA $1,050,776 for invoices issued at the standby rate for the strike periods in 1978; $2,088,982 for the force majeure period commencing upon evacuation of expatriates and continuing in each case until the rig was restarted or until 31 March 1979; and $112,309 for the period following the cessation of force majeure for rig 87, at the standby rate.⁴³

144.

In support of its claim that it already paid $4,628,117 for invoices issued for operating rigs which Claimant does not acknowledge NIOC submitted payment advices purporting to evidence payment of the disputed amounts, but paying them entirely in rials. The amounts listed by Claimant as unpaid correspond to the 65% of the invoices that should have been paid in dollars. As noted above at para. 120, these invoices are properly considered paid in full.

145.

As NIOC pointed out, Claimant erroneously included four invoices in its claim summary for which subsequent corrected invoices (with a sub-letter "B") were issued, totalling $231,821 less. Making this correction results in the net amount NIOC conceded as due to Claimant under Clause 6.1, i.e., $391,070.

146.

Finally, NIOC objected to payment of invoices for the operation of rigs 52 and 77 for the months of October and November 1979. As noted above, despite the final termination of the Contract at the end of the 180 day notice period on 29 August 1979 these two rigs continued to be operated under Clause 39 of the Contract. SISA billed for work in the rigs through Aban 1358 (21 November 1979) and submitted invoices for such work at the operating day rate. NIOC objected in its submission that the rigs were operated only through 22 September 1979, and that it had paid the invoices through that date. Thus it objected to further amounts due for the rigs.

147.

NIOC's objection that operations ceased on the rigs in September is belied by the fact that there was no contemporaneous objection to the invoices submitted for the October and November operations, the contention appearing for the first time in NIOC's submissions here. It is also contradicted by SISA's reference in an 8 November 1979 telex to NIOC that "two of the six drilling rigs... numbers 52 and 77 are still being operated" and NIOC's confirmation on 28 November 1979 that "operation of two units were allowed to continue to help the financial position of SEDCO...." Thus we find the invoices to be payable.

148.

NIOC conceded it has not yet made any payment for the October and November 1979 invoices. Accordingly, an amount of $1,029,398 is awarded for the October and November invoices for rigs 52 and 77. The total award under Clause 6.1 thus is $4,660,547.⁴⁴

149.

Under Clause 6.2 of the Contract SISA was entitled to a mathematical adjustment in the rates charged under Clause 6.1, to compensate for increases in labor, material or transport costs above the levels prevailing on 30 January 1978. SEDCO claimed an amount of $1,410,234 in charges invoiced under this clause and unpaid. NIOC did not dispute specifically SISA's calculation of the adjustments, but objected to paying the cost price adjustment relative to invoices issued reflecting the standby rate for periods when the rigs were not actually operating.

150.

Inasmuch as the Tribunal has determined above that the standby rate was properly invoiced for the six SISA rigs during the 1978 strike periods the Tribunal concludes that the cost price adjustment invoices pertaining to those rigs also are payable. The amount payable for those invoices totals $58,990. The Tribunal has determined that for the remaining standby invoices billings should have been made instead at the force majeure rate through 31 March 1979, and at the standby rate thereafter for rig 87. Making that correction, the remaining cost adjustment invoices total $230,895.⁴⁵ NIOC conceded, in addition, that a net amount totalling $1,067,893 is payable for invoices issued under Clause 6.2 with respect to operating rigs, taking into account certain errors made by Claimant in its calculations. The total amount thus payable under Clause 6.2 is $1,357,778.

151.

Clause 6.3 of Contract 339 provided that upon termination of the Contract by OSCO "without cause" SISA was to be paid a demobilization fee. Following termination of the Contract with respect to rig 87, SISA invoiced OSCO for the demobilization amounts under 6.3. NIOC did not challenge the amount of such invoices but argued instead that such amounts were not payable because "SISA has never demobilized the mentioned rig from the site of operation."

152.

The Contract does not, however, require that the rig actually be moved from site, as NIOC's defense appears to assume. Rather, Clause 6.3 states:

The Company shall pay to the Contractor on expiry of this Contract or earlier termination by the Company without cause, the Rate for Rig Moves to Ahwaz or equivalent. (Emphasis added.)

Thus the operative event is not the removal of the rig, but the expiry or termination of the Contract without cause. We have already found the termination of rig 87 to have been caused by NIOC's own actions, and thus to have been "without cause." Accordingly, the amount of the invoices, $220,367, is awarded.

153.

Under Contract Clauses 6.4 and 6.7 SISA was entitled to charge set rates for camp and rig moves necessary during the life of the Contract. Claimant alleged that a total of $988,126 remained outstanding on such invoices. NIOC did not object to the validity of the invoices, but alleged that substantially all the invoices have been paid. In support NIOC submitted payment authorizations and orders relating to the invoices in question. Again, Claimant appeared to have considered the invoices unpaid because payment was made in rials. For the reasons discussed above, full credit will be given to NIOC for all payments made, whether in rials or dollars.

154.

NIOC alleged that the remaining minor amounts claimed were unpayable because they related to invoices which had been corrected and replaced with invoices carrying the subletter B, or resulted from improper billing and various other technical mistakes in the invoices. On examination of the uncontested proof the Tribunal determines that all the invoices properly payable have been fully paid, and no further amounts are due under Clause 6.4/6.7.

155.

This clause provided that at OSCO's request SISA was to furnish drilling equipment additional to the equipment listed in the Contract, for which SISA would bill OSCO at specified rates. Claimant alleged that SISA provided certain equipment pursuant to Clause 6.5 and submitted invoices. Claimant alleged non-payment of $31,645 and rials 2,872,422.

156.

NIOC agreed with the amount outstanding for rial invoices, but objected that only a net amount of $12,618 remains payable under the dollar invoices. NIOC objected to payment of the sums invoiced by two invoices issued during periods in which the rigs were not in operation. The net amounts considered non-payable by NIOC for these invoices total $3,522.

157.

It does not appear, however, that payment for rental of this equipment under Clause 6.5 is dependent upon operation of the rigs. Rather, payment is stated simply to be at the "standard U.S. Gulf Coast Rates... plus 20%, or at local printed rental rates, if cheaper." There is no suggestion that the rental equipment was not on site and available at the relevant times. The objection is therefore rejected.

158.

The remaining contested amounts sought are not payable. The two invoices for which the amount of $15,505 is claimed either contained errors (such as miscalculation of the number of days for rental on pumps and charging rental for two water pumps when only one pump was provided) or have been paid in rials. These corrections were not refuted by Claimant and seem to have been raised in the ordinary course of business.

159.

Therefore we find the total amount payable under Clause 6.5 to be $16,140⁴⁶ and rials 2,872,422, converted to $40,830, for a total of $56,970.

160.

This Clause provided for an additional rate for transportation incurred with regard to drilling at remote locations. Rig 87 was operated on Kharg Island, a remote location.⁴⁷ Claimant alleged that invoices totalling $27,832 and rials 67,400 remain outstanding and unpaid. NIOC stated that only $1,428 remains payable, rejecting the remainder since, it stated, the charges relate to periods during which rig 87 was shut down and not operating and it had paid $1,655 not recognized by Claimant.

161.

Clause 6.8.1 states "in the event that Contractor is required to drill [in] a remote location," then OSCO will be obligated to provide certain transportation and also to pay "in addition to the other rates provided for herein" an extraordinary daily rate of $150 per day "until release with respect to the said remote location." Rig 87 was not released until 13 April 1979. The contested invoices all relate to periods before that time. The fact that the rig was idle does not under the Contract affect the extraordinary daily rate payable under Clause 6.8.1. The rates we have determined were properly due were among "the other rates provided for herein" and the remote location charge thus is clearly payable during that period.

162.

Therefore Claimant is entitled to payment in the full amount claimed (less $1,655 already paid in rials), i.e., $26,177 and rials 67,400, converted to $958, for a total of $27,135.

163.

Clause 6.8.3 of Contract 339 provided for the provision by SISA of oil field and pickup trucks upon OSCO's request. SEDCO alleged that a total amount of $39,359 remains outstanding for invoices issued under this clause. NIOC objected to payment of the remaining balance because the trucks allegedly provided relate to rig 87, which was not operative during the period to which the invoices relate.

164.

Again, it does not appear that payment for provision of trucks is dependent upon drilling operations actually being performed at the time. NIOC has not disputed that it requested such trucks or that they were provided, nor has it alleged that it notified SISA that the trucks were no longer needed. In these circumstances the Tribunal rejects NIOC's objections to these invoices. Accordingly, we award $39,359 under Clause 6.8.3.

165.

Clause 6.9 of the Contract obligated SISA to supply personnel requested by OSCO in addition to those listed in the Contract at cost plus twenty percent. SEDCO claimed an outstanding amount totalling 2,380,720 rials. NIOC admitted that that amount remains payable. Claimant is therefore awarded rials 2,380,720, which is equivalent to $33,841.

166.

Under Clause 6.11 SISA was to supply water for the operations at OSCO's request at cost plus ten percent. SEDCO alleged that invoices totalling rials 10,787,213 remain outstanding. NIOC has conceded the payability of that amount. Therefore SEDCO is awarded rials 10,787,213 under Clause 6.11, converted to $153,336.

167.

Under Clause 6.13 SISA was obligated to provide "messing and accommodation" for OSCO personnel at stated rates. SEDCO claimed an amount of $42,756 under this clause.

168.

NIOC alleged that it has substantially paid the amounts invoiced. It stated that it has paid a total of $35,385 not recognized by Claimant and that only a net amount of $7,313 remains outstanding. The difference between the amounts NIOC alleged to have paid and those shown on Claimant's records to have been paid is accounted for by the fact that the payments were made in rials. As noted above, full credit will be given for rial amounts paid.

169.

NIOC noted in addition two minor corrections reducing the amount payable by $58. Claimant has not contested the validity of those reductions. Therefore Claimant is awarded an amount of $7,313 under Clause 6.13.

170.

Clause 7.7 provided that SISA's payments under Contract 339 would be "adjusted accordingly" to reflect any changes "in the rates of Iranian taxation[,] tax surcharges, Iranian government dues, SSO charges or similar levies such as local labour board decrees, from those in effect at 30 January, 1978," so long as those "levies have not been included in the provisions for cost price adjustment as set out in sub-clause 6.2." SEDCO has made a series of claims for invoices issued under Clause 7.7 for various cost increases totaling $3,123,543, broken down into five categories, i.e., increased Social Security Organization ("SSO") costs, increased labor costs, collective agreement labor costs, double time wages, and new work schedule costs. NIOC denied the validity of all invoices and claimed that no amounts are due.

171.

As confirmation that the amounts are properly reimbursable under Clause 7.7 Claimant submitted and relied upon certain cost projection analyses audited by SISA's independent accountants, Deloitte Haskins & Sells, which it had submitted at the time to OSCO to substantiate the necessity and justification for the increases.

172.

As additional proof that the increases were properly reimbursable under Clause 7.7 Claimant referred to the 17 January 1979 SISA letter, countersigned by Mr. Bush of OSCO, which referred to the cost increases and the accountants' audit:

(1) Contractor has submitted to Company a rate adjustment request of U.S. $49 per rig day, effective March 21, 1978, in respect of increased premiums payable to the Social Security Organization ("S.S.O"), resulting from both an increase in SSO rates and an increase in the base on which such premiums are calculated. This request was supported by Deloitte Haskins and Sells audit opinion number 3553 dated October 30, 1978. Contractor would request that Company honor seventy five percent of the said claim pending formal audit confirmation.

(3) As a result of the strike and the general industry wage settlement which followed, Contractor was obliged to grant an extraordinary National salary and benefit increase amounting to U.S. $730 per rig day, effective as from August 23, 1978. This increased operating cost was supported by Deloitte Haskins and Sells audit opinion number 3555, dated October 30, 1978, a copy of which has been submitted to Company. We would request that Company reimburse Contractor seventy five percent of the said amount pending formal audit confirmation.

(5) Upon cessation of [the November] strike, Contractor was instructed by the Military Governor of Khuzestan province, General Jafarian, to make a double time payment to the National employees who had not participated in the strike. The cost of complying with this instruction amounted to $213,243. We would request that you pay seventy five percent of an invoice covering said payment, pending completion of a formal audit.

173.

NIOC, as noted above, has rejected the Bush letter as fraudulent and entirely irrelevant. We have already found the Bush letter to be authentic, and while we have determined that his authority did not extend to modifying the contractual provisions governing standby rates, there is no reason to doubt that as OSCO's Drilling Manager Mr. Bush would have had authority to confirm the applicability of the provisions of Clause 7.7 to the cost increases described in the letter. In addition, it is clear from later payment authorizations and other documents submitted by NIOC that the provisional 75% payment of the requested amounts was made by OSCO and NIOC as authorized in the Bush letter. This demonstrates the substantial validity of the charges in principle, subject to correction in the auditing process.

174.

NIOC also discounted the validity of the submitted cost projections, stating that they were never approved by OSCO. NIOC did not allege, however, that it performed any audit disproving the costs alleged.

175.

SEDCO alleged that certain increases in SSO costs were incurred by means of an increase in SSO rates and an increase in the base on which the premiums were calculated. SEDCO argued that the relevant contract provision, SISA's rate adjustment request, the Deloitte Haskins & Sells audit, and the 17 January 1979 letter countersigned by Mr. Bush, all confirm its entitlement to the adjustment. Claimant argued that although the Bush letter only agreed to pay 75% pending confirmation, it was an admission in principle of OSCO's liability for the entire correct amount.

176.

NIOC countered that because no formal audit confirmation was ultimately given no amount should be payable.

177.

The Tribunal notes that the cost calculation and audit by Deloitte Haskins & Sells appear to substantiate the claim for increased costs. NIOC has submitted no evidence suggesting that the costs were not incurred. Rather it stated that "practice and experience have shown that usually after studying [such] demands, it [is] revealed that the contractors were either not justified in claiming the said costs adjustments or had indulged in exaggeration in claiming them." NIOC did not, however, allege that in this case any such exaggeration or inaccuracies were found.

178.

NIOC also alleged that increases such as those sought would be reflected in the Clause 6.2 cost adjustments. It does not appear, however, that SSO cost increases would necessarily be covered by Clause 6.2, which was intended to cover adjustments for general changes in labor or transport costs. This is evident by examining the formula provided in the Contract for calculating the Clause 6.2 adjustments. The formula was based on certain United States wholesale price indexes, U.S. Department of Labor reports and Iranian price indexes. Therefore that formula would not reflect extraordinary increases related only to SISA or the particular projects involved and, in particular, it would not reflect SSO cost increases. Therefore it appears that Claimant is entitled to amounts claimed for increased SSO costs, i.e., $143,461.

179.

Claimant has alleged that because of the strikes in the fall of 1978 SISA was obliged to grant an extraordinary salary and benefit increase amounting to $730 per rig per day retroactive to 23 August 1978. The increased cost was also set forth in the report audited by Deloitte Haskins & Sells which had been submitted to OSCO. The Bush letter similarly confirms payment of 75% of the requested amount pending formal audit confirmation.

180.

Again, the supporting documentation here justifies Claimant's demand. NIOC has presented no evidence that the costs were not incurred as claimed or that they are not reimbursable under this provision. Therefore Claimant is entitled to recovery for increased labor costs under Clause 7.7 in the amount of $1,532,868.

181.

Claimant alleged that a further industry-wide wage increase settlement mandated by the Government was effective retroactively to 1 January 1979. Claimant has listed invoices totalling $716,423 which were issued to OSCO in June and October 1979 allegedly to recoup these increased costs.

182.

The Tribunal notes initially that the amount claimed should be reduced by $23,956 to reflect the erroneous inclusion of a claim to that amount which relates to rig 11, one of the SEDIRAN rigs. In any event, Claimant has supplied no proof that the wage settlement was imposed, that it actually paid the increased wages, or on what basis it calculated the invoices. The wage settlement allegedly occurred subsequent to the date of the Bush letter and thus was not mentioned therein. More importantly, there is no auditor's opinion or other report purporting to explain the derivation of the costs. While the invoices issued refer to a letter of Mr. Fakhraie No. "303-1C-58 dated 21-1-1358 (April 10, 1979)," neither that letter nor any other basis for the charges other than the invoices was submitted. Therefore this portion of the Claim must fail for lack of evidence.

183.

Claimant alleges that upon cessation of the strike in November of 1978 SISA was ordered by the military governor of Khuzestan Province, General Jafarian, to "make a double time payment to the National [Iranian] employees who had not participated in the strike." Claimant alleged that those double time payments amounted to $213,233.

184.

There is no evidence in the record of the order from the Iranian Government itself or on the calculation of the amounts. However, the letter countersigned by Mr. Bush acknowledges the existence of the order and commits OSCO to pay 75% pending formal audit. NIOC has not denied the existence of the wage order nor has it alleged that it attempted an audit or that the result of the audit was other than the claimed amount. Therefore the Tribunal decides that Claimant is entitled to recover the amount of $213,233 as claimed.

185.

Claimant alleged that on 22 May 1979 NIOC imposed changes in the work schedule for SISA's employees requiring SISA to give its employees 14 days off for every 14 days worked, rather than 7 days off as previously done, in effect increasing the size of SISA's crews. SEDCO alleged that invoices for the increased costs of this change totalling $517,558 are outstanding.

186.

NIOC has not denied that this order was given. Rather it states that the invoices relate to rigs which were not operating. Even if this were a defense, which is by no means clear, it is incorrect, as the invoices relate to rigs 52 and 77, which the Tribunal has found were operating during October and November 1979 (which period is covered by the invoices).

187.

These invoices were issued pursuant to Clause 7.7, which speaks of cost increases caused by decrees of Iranian public organs. The increased crew size was mandated by NIOC, however, not by the Government. As we have noted before, it is possible, although we do not reach the question in this Award, that NIOC was to all intents and purposes tantamount to the Government by May 1979, the time the order was given. On the other hand, although NIOC did not object to the invoices on this ground, if NIOC was an independent corporation, it may be that technically the increased cost would not fall within Clause 7.7.

188.

This is not to say, however, that NIOC would not be nevertheless liable for the increased costs. It is apparent that SISA saw NIOC as quasi-governmental, at least, and thus felt both that it could not resist NIOC's demand and that it would be compensated under Clause 7.7. Indeed, the nature of the order, i.e., to give workers more time off, appears to be inherently governmental rather than commercial. In any case, such a unilateral demand requiring changes in the operations is clearly additional to SISA's obligations under the Contract, and was at the very least a breach of the Contract, for which NIOC should be responsible to SISA.

189.

The Tribunal therefore determines that Claimant is entitled to payment, whether under Clause 7.7 or under general principles of contract law, for the cost of increased crew sizes demanded by NIOC in the amount of $517,558.

190.

In its Statement of Claim SEDCO alleged that NIOC had forbidden it to discharge any employees. Claimant since has abandoned that Claim.

191.

In Clause 12.6 SISA agreed to supply emergency services and materials at agreed rates. Claimant alleged that invoices totalling $1,378 and rials 803,831 are outstanding.

192.

NIOC stated that the reason for the nonpayment of part of the dollars requested is that the invoice involved was a duplicate and in fact SISA already had been paid for the services. SEDCO has not disputed that fact; therefore the Tribunal finds that the amount claimed should be reduced by $991, leaving a total payable of $387.

193.

As regards rial invoices, NIOC conceded that the full amount claimed remains payable. Therefore under Clause 12.6 the Tribunal awards $387 and rials 803,831 (converted to $11,426), for a total of $11,813.

194.

This clause obligated OSCO to provide gasoline and gas oil to SISA. When OSCO failed to meet this obligation SISA was required to purchase these materials. SISA submitted invoices to OSCO for reimbursement of the gasoline and gas oil purchased. SEDCO alleged that a total of rials 127,290 is outstanding. NIOC conceded that that amount is payable; therefore Claimant is awarded rials 127,290, which equals $1,809, under Clause 20.1.

195.

Under Clause 8.1 of Contract 339 SISA was obligated to provide OSCO with a bank guarantee for five percent of the total amount payable by NIOC under the Contract, as a guarantee of SSO payments by SISA. This Clause also provided that if SISA failed to provide such a guarantee OSCO could retain five percent of all payable amounts. SEDCO alleged that SISA established the proper bank guarantees but that nevertheless in early 1979 NIOC began deducting five percent of payable amounts. SEDCO accordingly claims the return of these excess SSO deductions allegedly improperly made in the amount of $143,011 and rials 34,304,474.

196.

NIOC objected both to SEDCO's claim for the return of the deducted amounts and to the amount allegedly deducted. NIOC alleged that the five percent deduction was authorized. It agreed that SISA originally had provided it with the necessary bank guarantees, but alleged that despite its "endeavors to extend the SSO bank guarantee submitted by SISA to OSCO, the bank guarantee expired due to illegal actions by SEDCO." NIOC did not, however, specify what was the nature of those illegal actions.

197.

In disputing the amount retained NIOC stated that according to the books of account in Iran the total retained was only $277,314. NIOC did not provide any documentary support for this claim, however.

198.

It appears from the documents submitted that the necessary letter of guarantee was issued in a total amount of rials 116,110,000 for an initial term ending "29 February 1979 [sic]," and that it was subsequently extended at least to 10 April 1980. Other than to allege that SEDCO "contrived to block the bank guarantee issued by former Bank Bazarghani (Tejarat), to be cashed" NIOC provided no basis for its claim that the guarantee expired or that it was otherwise entitled to deduct the amounts from Claimant's invoices. Therefore we find that the deductions were not justified and that Claimant is entitled to a refund.

199.

As to the amount that was deducted, certain payment orders introduced by NIOC to prove its payment of SISA's invoices also show that it deducted at least $708,932 as the five percent SSO deduction, an amount much greater than that now admitted by NIOC. NIOC offers no explanation for this discrepancy. Accordingly, we accept Claimant's accounting of the amount of SSO deductions that were made, i.e., $143,011 and rials 34,304,474 (converted to $487,626), the total of which, $630,637, more nearly approximates that shown in NIOC's payment evidence. $630,637 is therefore awarded under Clause 8.1.

200.

Claimant alleged that NIOC issued certain "debit notes" deducting an amount totalling rials 7,120,231 from certain invoices between March and August 1979. Claimant originally had accepted the debit notes as valid and thus included the amount of the notes in its calculations of amounts previously paid. Claimant argued, however, that the debit notes were in fact issued without adequate explanation or support, and therefore should not be recognized. Accordingly, Claimant alleged that the amount of the notes should be deducted from the amounts shown as paid, and added to the total amount due under the Contract.

201.

As NIOC made no response to this claim, it must be considered admitted. Accordingly, Claimant is awarded the amount of rials 7,120,231, converted to $101,212, to compensate for improper deductions from invoices.

202.

Claimant conceded that advance payments were received totalling $2,957,961 and rials 196,000,000, while NIOC alleged that advances of $2,428,512 and rials 202,375,562 should be credited against any amounts owed.

203.

The reason for the discrepancy in the amounts claimed as advances made in rials appears to be Claimant's omission of an advance which according to NIOC was issued 3 Mehr 1358 (i.e., late September 1979). The check is marked "Advance payment against 75% of the invoices Nos. B123326/28/36/46 and B-23338/53/55/63/64 and claims for the increased insurance premium of that company's [sic] for the month of Tir 1358 (month ending 22 July, 1979)." The invoice summary Claimant submitted shows that it received and credited NIOC with payments made in the amount of 75% of the 22 July 1979 invoices referred to in the check.⁴⁸ This shows that credit already has been given for the "advance" as an actual payment and it should not be counted again. Therefore we find the Claimant's calculation of rial advances credited to be proper.

204.

The reason for the larger amount stated by Claimant to be owing for dollar advances is that NIOC shows additional amounts "recovered" or charged off against the advances. As we have generally accepted in this Award NIOC's proof on the amounts of payments it has made on various invoices, NIOC's admission that part of the amounts originally paid in advance have been applied to pay those invoices and are no longer outstanding should be accepted. Thus those amounts should be deducted from the total amounts of dollar advances to be credited. Therefore $5,214,582 (i.e., $2,428,512, plus rials 196,000,000, converted to $2,786,070) shall be set off against the amounts due and owing for SISA invoices.

205.

In summary, we find the following amounts due for invoices under Contract 339:

DESCRIPTION AMOUNT AWARDED

---------------------------------------------

Clause 6.1 $4,660,547

Clause 6.2 1,357,778

Clause 6.3 220,367

Clause 6. 4/6.7 0

Clause 6.5 56,970

Clause 6.8.1 27,135

Clause 6.8.3 39,359

Clause 6.9 33,841

Clause 6.11 153,336

Clause 6.13 7,313

Clause 7.7 (SSO costs) 143,461

Clause 7.7 (1978 labor costs) 1,532,868

Clause 7.7 (1979 labor costs) 0

Clause 7.7 (double time wages) 213,233

Clause 7.7 (increased crew size) 517,558

Clause 12.6 11,813

Clause 20.1 1,809

Clause 8.1 630,637

Improper Deductions 101,212

---------------------------------------------

Subtotal $9,709,237

---------------------------------------------

Less Advances (5,214,582)

---------------------------------------------

TOTAL $4,494,655

---------------------------------------------

206.

NIOC has alleged that when SISA's expatriate personnel and directors left Iran in December 1978 SISA in effect abandoned its operations. NIOC has argued further that SISA was thereafter able to restart only five of the six rigs, and that those rigs that were restarted operated inefficiently because of the absence of expatriate specialists. Accordingly, NIOC has counterclaimed that the full contractual rates were therefore not properly payable.

207.

Specifically, as to the five rigs that were restarted, NIOC alleged that "reduced efficiency and failure to provide complete, suitable rigs equipped with specialized man-power as undertaken by SISA in the contract" resulted in "enormous damages." NIOC stated that determination of the amount of the damages thus caused "is easily possible through employing expert." NIOC itself, however, did not propose a quantification of the damages alleged, but instead suggested that, should the Tribunal decline to refer the matter to an expert, it should award damages equivalent to "at least ten percent of the total sum paid to it under the contract, between signing of the contract and termination thereof." NIOC alleged that this proposed ten percent damage figure accords with oil industry practice of providing a ten percent performance bond to guarantee implementation of a contract.

208.

In addition to the above damages NIOC counterclaimed for damages allegedly arising from the shutdown of operations with rig 87, which was being operated on Kharg Island. NIOC alleged that it had paid SISA $300,000 to transport the rig to Kharg Island, and that SISA's inability to continue operations there deprived NIOC of the value of the transport fees. In addition, it alleged that certain chemicals, drilling mud and other materials which had been transported to Kharg Island during operations had decayed and become useless as a result of the failure to resume operations. NIOC estimated the "minimum cost of the material thus lost" to be $500,000. In addition, NIOC alleged the existence of "additional transportation and overhead costs" in the amount of $200,000.

209.

In total NIOC counterclaimed for ten percent of the total amount paid under the contract for the six rigs (an amount, however, which NIOC has not supplied) and $1 million in additional damages caused by the failure to resume operations with rig 87.

210.

In response Claimant denied that SISA had breached the Contract and refuted NIOC's characterization of the evacuation of expatriate personnel as an abandonment. Claimant noted that NIOC had never claimed a breach at the time of the events in question, and that in fact it had terminated the Contract explicitly "without cause." Claimant denied that the evacuation of SISA's expatriate personnel constituted abandonment of the work, since the rigs remained on standby status with Iranian crews ready to commence operations. Claimant further denied that operations after the startup were incomplete or inefficient, alleging that the Iranian crews who were left to operate the rigs were fully qualified.

211.

As to the claim for damages related specifically to rig 87, Claimant admitted that the rig was never restarted "[d]ue to reasons best known to NIOC." Claimant alleged that the Contract was terminated with respect to rig 87 as part of NIOC's overall decision to terminate the Contract "without cause" and that its subsequent release was not motivated by the Claimant's inability to restart the rig. Claimant posited instead that the rig was released by NIOC as part of an internal business decision and not a shortage of SISA workers. Claimant provided a list of the personnel assigned to the rig in December 1978. Among the SISA workers for rig 87 were only two non-Iranian personnel, two electricians needed to maintain the equipment on the rig, which was a diesel-powered electric rig. Claimant argued that NIOC could have, if it wanted, sent other electricians to help run the rig, especially since SISA's inability to restart the rig was caused in part by NIOC's having requisitioned for NIOC projects other trained Iranian electricians employed by SISA.

212.

NIOC, which has the burden of proof to support its counterclaims, has entirely failed to prove its claims of inefficient and incomplete operations and any damages caused thereby. Other than general allegations there is no description of what kinds of inefficiencies and inadequacies existed and what damages they caused NIOC. For five of the six rigs NIOC did not even venture a quantification of the damages alleged. The fact that NIOC did not make any claim at the time of the alleged breach, but rather paid the invoiced amounts for the operation of the rigs, casts further doubt on its claims. Further, its suggestion that we award ten percent of the total contract amounts already paid under the Contract (an amount which again it did not specify) is a request for purely speculative damages. As for rig 87, we have already found that the rig was not started because of actions taken by NIOC, and that fact cannot therefore be the basis of liability of SISA. Even if it were the case that SISA wrongfully ceased work on rig 87, NIOC has totally failed to justify its claimed damages. NIOC's counterclaim therefore must fail for lack of evidence.

213.

Severance Pay: NIOC has alleged that SISA failed to pay severance benefits owing to its employees, and that NIOC itself had to pay such amounts. In support NIOC submitted documents allegedly evidencing a judgment for severance pay issued on 11 December 1979 in favor of SISA's workers by the "Workshop Council" (also known as "labor board") and apparently issued for enforcement on 13 May 1980 by the Khuzestan Province Justice Department. The documents refer to SISA's liability "to pay the wages of the workers" in amounts "according to the list herein;" NIOC later submitted the referenced list, which in fact shows "termination compensation" in an amount of rials 562,022,412, which NIOC converted (at 70.35 rials per dollar) to a claim for $7,989,018.

214.

Nowrooz Bonus: In addition, NIOC alleged that SISA failed to honor its obligations to pay its workers the New Year's or "Nowrooz" bonus. According to NIOC the Nowrooz bonus "is paid at the end of the year or proportionately equal to the months of services, at the time of severance of the work relation." NIOC alleged that SISA's employees "repeatedly referred to the proper judicial and administrative authorities and upon requests by SEDCO and SEDIRAN officials NIOC was compelled to pay Nowrooz bonus and not consumed leaves to SEDCO's workers." To support its claim NIOC submitted a computer-generated list of employees, of unexplained origin, headed "Sedco International S.A. - Bank List," and showing, according to NIOC, balances owed employees by SISA. In addition, there appears a handwritten summary titled "List of Balance Paid for Annual Leave and EIDI (New Year Allowance 1358 (1971⁴⁹ to SEDCO/SEDIRAN Employees until the end of Nov. 1979." This list shows rials 17,288,740 as "Total amount due to Sedco's employees." NIOC also supplied a notice from the National Iranian Drilling Company ("NIDC") (the Government-owned company set up to perform drilling work) dated 12 May 1980 whereby NIDC invoiced NIOC for "Eid bonus" and leave salaries a total amount of rials 225,428,254, of which 17,288,740 (or $245,743) was shown to be chargeable to SEDCO. NIOC supplied, too, a telegram from the "Deputy Director Oil Field Areas" of NIOC to a Dr. Morshad of NIOC dated 8 June 1980 approving the payment of 225 million rials to NIDC. Finally, there is what appears to be an invoice, dated Esfand 1360 (February - March 1982), describing as "booked to" the account of "SEDCO Drilling Co." the amount of $245,743 for "NIOC Vac. N.B."

215.

NIOC alleged that SISA's obligation for both severance pay and the Nowrooz bonus arises out of Contract Clause 11, which makes SISA responsible for "all costs incurred in connection with the employment, administration... and other matters relating hereto." According to NIOC, this obligation constitutes a SISA obligation vis-a-vis OSCO to pay the employee benefits. NIOC also claimed that even if this counterclaim does not arise specifically out of SISA's contract claims, NIOC still may assert counterclaims arising out of any obligations "related to the whole of [SISA's] relations (transactions)" in Iran. Together the total amount alleged by NIOC to be owed to it for SISA employee severance pay and bonuses is $8,234,771.⁵⁰

216.

SEDCO alleged initially that the counterclaim for employee severance or bonus payments did not arise until after appropriation of the SISA rigs by NIOC. SEDCO based this objection on the fact that the Workshop Council judgment on which the severance pay liability is based was dated 11 December 1979 and the letter from NIDC requesting Nowrooz bonus payments is dated 12 May 1980, both subsequent to the date on which it alleged the rigs were appropriated. Claimant argued in addition that NIOC has submitted no evidence that it in fact paid the judgment of the Workshop Council or the bonuses and therefore NIOC has no standing to assert the claim here.

217.

Claimant alleged also that in any case the counterclaim does not arise out of Contract 339 and is therefore beyond the jurisdiction of the Tribunal. Claimant argued that Clause 11 of the Contract did not make SISA's obligation to pay employee benefits a provision of the Contract, but rather simply made it clear that as between OSCO and SISA the obligation was SISA's. SEDCO argued that any claim for such benefits is a claim by an individual employee against SISA and not within the scope of the Contract. Claimant also argued that there was no proof submitted that any of SISA's employees had in fact been terminated, which it argued was an obvious necessary condition to entitlement to severance pay. SEDCO argued instead that in fact SISA's employees continued to work at the same jobs on the same rigs after the rigs were appropriated.

218.

Finally, as to the additional severance payment costs SEDCO argued that even if any were otherwise chargeable to SISA, they were largely reimbursable under Clause 7.7 of the Contract, which provides:

Should any change occur in the rates of Iranian taxation, tax surcharges, Iranian Government dues, SSO charges, or similar levies such as local labor board decrees, from those in effect at 30 January 1978, the Contractor [SISA]'s remuneration under the contract shall be adjusted accordingly. (Emphasis added.)

Claimant argued that under the general labor law SISA normally was required to pay termination benefits in the amount of only 15 days salary for each year of service. The law provides that amounts in addition to the base 15 day payment may be awarded to a dismissed employee upon petition to the local labor board. The labor board decree for which NIOC seeks compensation allegedly increased this amount to approximately 207 days per year. Claimant argued accordingly that the additional levy, if chargeable to SISA, would be reimbursable from NIOC under Clause 7.7.⁵¹

219.

Given the Tribunal's determination that SISA's rigs were appropriated in August 1980, SEDCO's argument that the debts based on decrees issued in December 1979 and May 1980 necessarily were for NIOC's account must fail. The Claims Settlement Declaration, however, permits counterclaims to be brought only by a respondent against whom a claim has been brought. The claims here appear quite clearly to belong to the individual workers alleging the right to payments. Such counterclaims could be considered as belonging to NIOC, and therefore possibly within our jurisdiction, only if NIOC had paid the amounts allegedly due to the SISA employees under legal obligation in circumstances giving rise to subrogation in favor of NIOC of the employees' claims against SISA.

220.

So far as severance payments based on the Workshop Council decree are concerned, there is no evidence purporting to show that NIOC in fact paid the workers the amounts allegedly owing. Therefore the Tribunal dismisses the counterclaim.

221.

As to the Nowrooz bonus claim, NIOC's evidence showed that NIDC, the company that took over supervision of drilling operations in Iran, asked NIOC in May 1980 to "place at the disposal of NIDC as soon as possible, the following amounts into the accounts of relevant companies" so that the drilling and service companies, SISA included, could pay the bonus to their workers. (Emphasis added.)

222.

The legal status of such payments, whether as loans, grants or invoice payments, was not stated, nor was the basis of NIDC's right to make the request on the companies' behalf. The stated purpose of NIDC's request was not any legal or contractual obligation, but its desire that "by paying the said amounts, immediate financial problems of the workers may be solved to a certain extent." Further, while a NIOC telex authorizing payment of the requested sums to NIDC is in evidence, there is no indication whether NIDC paid the sums over to the companies or whether it paid the employees directly, if at all. The only evidence of any chargeability to SISA of the alleged payment is an invoice of undisclosed origin dated February - March 1982 referencing NIDC's 12 May 1980 letter and charging "SEDCO Drlng Co." $245,753 for "NIOC Vac. N.B." On such evidence the Tribunal cannot conclude that NIOC paid the Nowrooz bonus to SISA's workers, or that it paid SISA any sums to allow SISA to pay the bonus, giving rise to a debt to NIOC. This counterclaim therefore is dismissed as outside our jurisdiction.

223.

NIOC alleged that SISA owes SSO premiums for the period June through November 1979 in the amount of rials 59,364,926 (which it converted to $843,851); income tax in the amount of rials 17,518,508 (converted to $249,019); and contractor's income tax of rials 656,490 (converted to $9,332).⁵² NIOC alleged that it paid to the SSO and tax authorities the amounts owed by SISA which now are being claimed.

224.

In support of SISA's liability NIOC submitted copies of 33 checks drawn on SISA's account at Bank Bazargani Iran in Ahwaz but which allegedly were returned for insufficient funds. The 33 checks are dated variously on the last days of June through November 1979. Thirteen are made "payable to the Bank Refah Kargaran Ahwaz for SIO A/C No. 5020," seven of these checks bear the notation "27% national SIO of SEDCO rigs payroll" and the other six "27% national SIO on special payrolls of SEDCO rigs." The other twenty checks are made payable to "Income Tax Department Ahwaz," with notations showing payment for SEDCO rigs "National Income Ta"x (7 checks), "National Income Tax on Special Payroll" (6 checks), or "Contractor's Income ta"x (7 checks).

225.

NIOC did not explain how the amounts claimed due were calculated,⁵³ but alleged that in having attempted to pay the amounts SISA has conceded its debt. NIOC alleged further that in response to a request by Mr. M. Dehghan, the Deputy Managing Director of SEDIRAN, requesting a cash advance from NIOC in order to pay tax and SSO liabilities, NIOC itself paid the amounts which now are being claimed.

226.

NIOC alleged that its counterclaim for tax and SSO premiums is admissible because SISA was obligated under the contract to pay SSO premiums and taxes. The Contract provisions state:

7.5 There shall be deducted on account from all payments made under this Contract the applicable tax in accordance with Article 76 of the Direct Taxation Act....

8.1 The Contractor shall produce to the Company a bank guarantee... for 5% of the total amount estimated to be payable to the Contractor hereunder. Until the Contractor provides to the Company such bank guarantee, the Company shall retain 5% of all sums payable to the Contractor.

8.2 In the event that the Contractor furnishes to the Company at any time, an interim clearance certificate from the Social Security Organization (SSO) the amount guaranteed shall be revised accordingly. On the Contractor furnishing to the Company a final settlement of account certificate from the SSO, the Company shall return such guarantee or any remaining retention held in respect of SSO premium, to the Contractor.

11.1.9 [The Contractor shall] comply with the provisions of the Workers Social Security Law and in particular shall be responsible for payment of the compulsory Social Security Organization contributions for Staff and Labour as provided in Article 29 thereof as amended....

NIOC therefore argued that payment of tax and SSO premiums should be considered as obligations of SISA under the Contract.

227.

In response SEDCO argued that as an initial matter the Tribunal lacks jurisdiction over counterclaims alleging nonpayment of SSO premiums or taxes. Claimant argued that the counterclaims do not arise out of SISA's claim, and while it confirmed NIOC's contention that the contract contains references to SSO and tax obligations it argued that, as in T.C.S.B., Inc. and Iran, Award No. 114-140-2, pp. 23-24 (16 March 1984), reprinted in 5 Iran-U.S. C.T.R. 160, 173, mere reference to the tax or SSO obligation of a party in a contract does not make claims under those obligations cognizable before the Tribunal.

228.

On the merits Claimant alleged that it fulfilled the tax and SSO obligation as stated in the Contract and denied that NIOC had been required to pay any of the claimed amounts. As to the tax referred to in Clause 7.5 of the Contract, it stated that 5.5 percent of all invoices was automatically deducted as required. Accordingly, the amounts were retained by OSCO, and OSCO (rather than SISA) actually paid the applicable tax. As for SSO premiums referred to in Clauses 8.1 and 8.2 of the Contract, Claimant alleged that SISA fully paid all SSO premiums and that in any case it had posted a valid guarantee which could have been used if any amounts were in fact owing.

229.

Claimant also alleged that to the extent NIOC's claims for SSO premiums or taxes were for amounts greater than those payable at the time of the execution of the Contract, the additional amounts would be reimbursable under Clause 7.7.

230.

In the T.C.S.B. case, supra, the Tribunal found that claims for payment of taxes or SSO premiums arising out of work performed in Iran cannot be asserted as counterclaims, even though the contract on which the main claim is based may refer to the tax or SSO obligation of one of the parties. In the T.C.S.B. case the contract stated that the contractor had the responsibility for "payment of any kind of taxes, custom duties, levies and income taxes." That was held not to transform the tax or SSO claim into a contract claim.

231.

The Tribunal reaffirmed this holding in International Technical Products Corp. and Islamic Republic of Iran, Award No. 196-302-3 (24 October 1985). There, as here, the contract at issue required the claimant to pay taxes and SSO premia. Nevertheless the Tribunal held that

[Claimant's] obligation to pay [SSO] insurance premiums and taxes, if any, arose not under the Contract, but independently under the relevant principles of municipal law. As such, the obligation upon which the counterclaim is based does not arise out of the... Contract or any other contract, transaction or occurrence relating to the claims.

Id. p. 29.⁵⁴ We find this language to be equally apposite here, and therefore find that the paragraphs of Contract 339 referring to SSO and tax obligations of SISA did not create an independent contractual obligation to OSCO upon which NIOC may base a counterclaim.

232.

Furthermore, even if the claim did arise out of the Contract, NIOC could state such a counterclaim only if it could prove that under the Contract it was obligated to pay taxes and SSO premiums on behalf of SISA, that it had done so, and that it was entitled to reimbursement from SISA for such payments. No provision to that effect appears in the Contract and NIOC has submitted no proof that it paid the assessed amounts for taxes or SSO premiums on SISA's behalf. Indeed, the letter from SISA's Deputy Managing Director upon which NIOC bases its claim that it has paid these obligations makes it clear that despite SISA's requests for advance payments to cover, inter alia, SSO and tax obligations, "the managers of NIOC in Ahwax [sic] refrained from payment of the said amount."

233.

Therefore we dismiss NIOC's counterclaims based on SISA's nonpayment of SSO premiums or taxes.

234.

NIOC alleged that OSCO and NIOC ordinarily advanced payments to SISA "on account" pending verification and determination of the payability of invoices, or against future invoices. NIOC alleged that advance payments in the amount of rials 202,375,562 and $2,428,512 remain outstanding.

235.

Claimant stated that "there appears to be no dispute as to the amount of the 'advance' received." Claimant admitted that the payments had been received and were to be applied to invoices outstanding and payable, although it alleged slightly different sums for the total advances.

236.

This counterclaim was properly considered above as part of the overall invoice claim. Claimant has conceded the existence of advance payments and has agreed that all such payments received should be subtracted from amounts found owing pursuant to Claimant's invoice claim. For the reasons outlined in para. 204 above we have determined that advance payments totalling $2,428,512 and rials 196,000,000 will be credited against sums owing. As those amounts were subtracted from the amounts due for invoices no further deduction is warranted.

237.

NIOC alleged that under Contract 339 certain services were to be provided to SISA by OSCO, for which SISA would pay the cost. Services for which payment remains outstanding allegedly include provision of water, watchmen, and housing rental for a SISA employee.

238.

Water: For water charges NIOC alleged an amount due of rials 646,380, which it converted to $9,188. In support it has appended a payment authorization for drinking water supplied "in the month of Azar 1358." The authorization requests payment to a "Mr. Hossein Raji."

239.

Watchmen: NIOC has stated that after SISA's expatriate employees departed "the wages of watchment [sic] responsible for the security and safety of SEDCO's rigs were paid on behalf of that corporation." In support NIOC submitted several contracts between NIOC and certain persons for the provision of guard service for SISA rigs in the months of Azar, Dey and Bahman 1359 (November 1980 to February 1981) specifying a total amount of rials 2,870,706, which NIOC converted to $40,806.

240.

House Rental: In addition NIOC has alleged that Claimant owes a debt of rials 890,000 for rent for the months of January through June 1979 on a house leased to a SISA employee, Mr. Roy Flaman, in Ahwaz, and for damages to the house as a result of the lessee's failure to deliver the property at the time of evacuation. In support NIOC appended a copy of the lease agreement and a letter from a Mrs. Mahrokh Madanipoor dated 29 May 1982 wherein Mrs. Madanipoor represents herself to be the owner of a house leased to "a Mr. Roy Fleming," a SEDCO employee, and alleges the nonpayment of rials 390,000 in rent plus rials 500,000 in damages.

241.

Water: Claimant stated that it has no independent knowledge of whether the invoice for water services was valid or paid. It alleged, however, that under Clause 16.2 of the Contract OSCO was primarily liable for provision of water, and that SISA was entitled under Clause 6.11 to pass on to OSCO any water service cost, including a 10% surcharge. Thus Claimant argued that no amounts could be payable for the service or, if payable, the expense would be ultimately chargeable to NIOC pursuant to Clauses 6.11 and 16.2.

242.

Watchmen: Claimant denied this counterclaim in its entirety based on the fact that the service orders for all invoices are dated in February of 1981, and that payment was made in February or March of 1981, making it clear that the counterclaim arose, if at all, after 19 January 1981, and thus is outside the Tribunals' jurisdiction. Claimant alleged in addition that all the claims clearly arose after appropriation of the SISA rigs and are for NIOC's account.

243.

House Rental: Claimant responded that the counterclaim was in reality owned not by NIOC but by a third party and it therefore is not admissible. Claimant noted that the lease agreement submitted states clearly that it is made between the landlord and the lessee, Mr. Roy M. Flaman. Claimant denied that SISA was a party to the lease and therefore denied the assertability of the claim as a counterclaim in this Case.

244.

Water: The Contract appears clear that OSCO, not SISA, was to provide water for the rigs and that if SISA incurred costs for water it could pass those costs on to OSCO. Indeed NIOC has admitted, and the Tribunal has awarded, NIOC's debt to SISA for water services for previous months. See para. 166, supra. Thus the claim for payment for such services is not considered valid.

245.

Watchmen: The Tribunal finds that because these services were provided between November 1980 and February 1981 at least part of the claim arose before 19 January 1981. Nevertheless it is clear that the services were provided for rigs which already had been appropriated by NIOC several months earlier. Therefore no payment is owing from SISA.

246.

House Rental: The Tribunal agrees with Claimant that the claim for rent payments, if it is valid, is a claim of a private Iranian citizen who is not a respondent, against a private American citizen who is not a claimant. As such it is not within our jurisdiction. Therefore the counterclaim for house rental is dismissed.

247.

NIOC claimed that SISA left unpaid certain debts to Bank Bazargani. These debts allegedly include promissory notes in the amount of rials 130,000,000 and a "bank credit facility" obtained by Mr. Amos Carter, a SEDCO director, in the amount of "more than rials 20,000,000."

248.

In support of its claim on promissory notes to the bank NIOC submitted a number of promissory notes payable to Bank Bazargani totalling rials 116,200,000. Admitting that Bank Bazargani is not a respondent in this case, NIOC argued that it should be permitted to file counterclaims on any subject related to Claimant's activities in Iran.

249.

In support of its claim for the loan to Mr. Carter NIOC submitted four promissory notes dated 28 November 1978 totalling rials 17,500,000. NIOC alleged that since Mr. Carter was a SISA director he was an "authorized signator[y] whose signatures could create a said obligations on SISA behalf." Therefore, according to NIOC, "the counterclaims... are claims against SISA and not against the directors of that company."

250.

As to the debt allegedly owed by SISA, Claimant argued first that since Bank Bazargani is not a respondent in this Case the Tribunal has no jurisdiction over its claim against SEDCO. In addition, it stated that the promissory notes were not in fact given in return for a loan and that they do not represent a valid debt. They were instead, it argued, delivered to the bank as security for the issuance of the SSO premiums guarantee referred in Clause 8 of the Contract. Claimant argued that since the guarantee never was called the promissory notes should have been cancelled and returned. In support Claimant noted that the copies of the promissory notes supplied by NIOC do not list maturity dates and argued that without maturity dates the notes were not negotiable. Claimant asserted that the notes were issued without a maturity date in order to enable the bank to insert a date only upon the event of default. Claimant denied, therefore, that the notes represent valid liabilities.

251.

As to the promissory notes of Mr. Carter, Claimant asserted that the debt, if owed at all, is owed by Mr. Carter and not SISA. Claimant argued that we lack jurisdiction over the claim because it is asserted by an Iranian entity which is not a respondent against a private United States national who is not a claimant. Claimant denied that Mr. Carter's position as a director of the company necessarily makes any obligation entered into by Mr. Carter an obligation binding upon the company.

252.

The Tribunal holds that since Bank Bazargani is not a respondent in this Case the claims cannot properly be asserted as counterclaims. NIOC has not alleged that it was under any duty to pay the debts upon SISA's alleged default or that it did so. Therefore NIOC is without standing to present these claims and the counterclaim is therefore dismissed.

253.

NIOC has asserted as counterclaims certain miscellaneous debts allegedly owed by SEDCO for services provided to SISA by various subcontractors.⁵⁵ NIOC alleged that SISA failed to pay for the services rendered.

254.

Air Services: NIOC stated that charges for air services provided SISA remain unpaid in the amount of rials 7,239,085. In support NIOC submitted a series of invoices from "Air Service (Private Company)," "Pars Air Co." and "Air Taxi (Private Co.)"; the invoices submitted in fact total rials 1,968,594.

255.

Telex and Postal Charges: NIOC claimed that SISA failed to pay its telex subscription fee of 8,000 rials per month for the months of June through December 1979, and that in addition it failed to pay invoices issued by DHL International for shipment of documents in November and December 1979. The telex charges amount to a total of 74,151 rials and the DHL charges total 24,100 rials. NIOC stated that as a result of SISA's failure to pay these invoices, "it has made the Employer face with these debts and liabilities."

256.

Guard Services: NIOC alleged that SISA subcontracted for watchman services but failed to pay for those services. In support NIOC has appended a memorandum dated 21 January 1982 from a Mr. Habibollah Vaziriyan to "Mr. Moorie" of NIOC requesting that an amount totalling rials 1,630,000 be "included in the counter-claim against SEDCO Company" and referring to enclosed documents (not submitted) "pertaining to claims of Mrs. Khavar, the widow of Safar Ali Najafiyan, and Mrs. Lalijan, the widow of Jaber Bahadori." NIOC subsequently explained that the contractors who had provided watchman services to SISA had died and that their claims for remuneration under those contracts for those services were being asserted by their widows.

257.

In response Claimant denied that any of the amounts are owing or are assertable as counterclaims. As to all claims Claimant alleged that the owners of the claim are private companies or other persons who are not respondents. Claimant repeated its objection to NIOC's assertion of damages for counterclaims it does not own on behalf of third persons. Claimant in addition alleged that the air services charges invoices already were paid. Concerning the guard services claim SEDCO also objected that there is a total lack of evidence supporting the claim.

258.

NIOC has not alleged that it had a legal duty to pay any of the charges and it has provided no proof that it in fact did so. Therefore, the counterclaims asserted by NIOC on behalf of third parties must be dismissed for lack of jurisdiction.

259.

NIOC alleged that in 1974 SISA imported into Iran, in NIOC's name, a number of pick-up trucks. SISA allegedly was granted an exemption from customs duties on condition that it not sell the trucks or that upon sale it pay applicable duties. NIOC's evidence showed that 87 pick-up trucks had been imported in 1974, 44 by SISA and 43 by SEDIRAN. A 1977 OSCO audit of the equipment assigned to the SEDIRAN and SEDCO rigs noted that 44 of the vehicles had been sold by SEDIRAN to William Frank & Partners, and that 43 had been sold to Martirossian. As reflected in the report of the audit, OSCO's accountant objected to the sales as a violation of contractual provisions requiring SISA (and SEDIRAN) to obtain OSCO's permission before selling any equipment imported for operations duty-free in NIOC's name and recommended "that SEDCO should pay all the relevant customs duties and penalties, if any." It does not appear, however, whether in 1977 or subsequently OSCO asked SISA to pay the duties allegedly owed. NIOC estimated, apparently by reference to a similar import license granted to another company in 1978, that the minimum amount of customs due "will reach to 1,566,000 rials approximately." NIOC did not, however, submit any assessment of customs duties from the customs authorities nor did it explain how it arrived at the estimated figure. After Claimant pointed out that SEDIRAN was also involved NIOC stated that as much of the claim as is attributable to SEDIRAN "should be considered in the aggregate claims against SEDIRAN."

260.

SEDCO objected that the purported counterclaim does not arise out of the claim, noting that the transaction is alleged to have taken place three years prior to the effective date of the Contract at issue. Further it objected that the exhibits do not show any basis for damage calculations or the applicable provisions of law that permit the imposition of customs duties.

261.

Claimant explained that the vehicles were sold as a deferred sale to subcontractors because, in SEDCO's view, if the subcontractors owned, or eventually would own, the trucks used, they would perform better maintenance than if SEDCO kept the trucks in its own name. In any case, according to Claimant, if there is any basis to the counterclaim it is owned by the customs authorities of Iran and NIOC has no standing to bring the claim. Therefore, SEDCO argued, the claim is outside our jurisdiction.

262.

This counterclaim is owned by the Iranian customs authorities rather than NIOC. More importantly, it arose long before the Contract at issue was signed and accordingly cannot be said to arise out of it. It is not within our jurisdiction and therefore is dismissed.

263.

Even were we to address the merits of the claim, the absence of any authoritative assessment of customs obligations would make it impossible for us to award any amounts on this counterclaim. The Tribunal is in no position to sit as a court applying the customs and revenue laws of Iran to evaluate SEDCO's alleged liability.⁵⁶

264.

The Tribunal previously has determined that SEDCO is entitled to receive from Iran the full value of its expropriated shareholder interest in SEDIRAN as of 22 November 1979. Claimant asserted that at the time of expropriation it owned 50% of the shares of SEDIRAN, i.e., 500 of 1000 issued shares. NIOC contended instead that Claimant owned only 498 of the 1000 shares, the contested two shares belonging to Amos L. Carter and Carl F. Thorne, two of SEDIRAN's SEDCO-appointed directors. Claimant countered that the two directors' shares were assigned to SEDCO on 12 April 1977 and that it thereafter owned directly a full 50% of SEDIRAN.

265.

The Tribunal in the October Interlocutory Award found that SEDCO owned at least 49.8% of the shares of SEDIRAN, but did not resolve the question concerning the validity of the assignments of the remaining two shares, since the issue was of no legal significance to the jurisdictional questions under consideration in that Award. See October Interlocutory Award, pp. 16-18.

266.

The Tribunal must now resolve the issue. The assignments from Messrs. Thorne and Carter of their shares to SEDCO were submitted to the Tribunal and appear valid on their face. Even absent the assignment, it is clear from the evidence that the two directors held their shares only as nominees of SEDCO in order to comply with the requirements of Iranian law. SEDCO's independent accountants certified that at all relevant periods SEDCO was the beneficial owner of 50% of the shares, including the two shares "nominally held by two Directors of SEDIRAN." Thus, we find that SEDCO should be considered the owner of 50% of the shares of SEDIRAN as of 22 November 1979.

267.

As the Tribunal has noted, SEDCO is not seeking lost profits or its share of the value of SEDIRAN as a going concern, but has asserted its right to recovery of its one-half share of what it called the "liquidation value" of SEDIRAN as of 22 November 1979. See March Interlocutory Award, p. 4, n.2. Claimant does not use "liquidation value" in the strict accountancy sense, as it does not request that we attempt to reconstruct what it might have recovered had SEDIRAN actually undergone liquidation proceedings in November 1979. Rather it requests that we assume "the winding up of Sediran's affairs and the disposition of its assets... on the open market," presumably with no discount from the fair market value of the assets as might occur in actual distress liquidation circumstances. Id. We agree that this is a fair measure of value in this Case. See Tippetts, Abbett, McCarthy, Stratton and TAMS-AFFA Consulting Engineers, Award No. 141-7-2 (29 June 1984), reprinted in 6 Iran-U.S. C.T.R. 219, 226. Thus, in compensation for the expropriation of its shares in SEDIRAN, Claimant is entitled to one-half of the full value of all of SEDIRAN's assets, including property, cash, securities, and accounts receivable, reduced by the liabilities of the company outstanding at the date of taking.

268.

Claimant submitted its valuation of the properties owned by SEDIRAN as of 22 November 1979, including drilling rigs, fixed assets, warehouse stock, cash and investments, as well as the value of accounts receivable pursuant to a number of invoices issued by SEDIRAN to NIOC and OSCO which allegedly are still outstanding and payable. Claimant also has stated the amount of liabilities it concedes SEDIRAN owed at the time of the taking and which should be subtracted from its assets in determining its net value. Based on its calculations, SEDCO alleged that the shareholder's equity, i.e., the total net value of SEDIRAN's assets over its liabilities at the time of taking, was $96,493,476 and that it is entitled to one-half that amount or $48,246,738. In addition, SEDCO alleged the right to recover damages in the amount of one-half of the lost revenues allegedly caused by NIOC's expropriation of SEDIRAN and its rigs. This adds $6,750,000 to the claim, for a total of $54,996,738.

269.

NIOC submitted its own valuations of the properties and the amounts payable on outstanding invoices. In addition, it alleged the existence of liabilities (described in the form of counterclaims) to be subtracted from the value of SEDIRAN's assets. NIOC's calculations showed that on 22 November 1979 SEDIRAN held assets with a total value ranging from $53,165,000 to $61,276,000 (depending on the method of valuation). NIOC's alleged counterclaims and other liabilities total $66,599,000, which in either valuation results in a net deficit. NIOC thus argued that Claimant's equity interest in SEDIRAN was worthless and, indeed, has asserted counterclaims for Claimant's share of the alleged deficit.

270.

The various elements of valuation of SEDCO's shareholder equity in SEDIRAN will be discussed in the following sections.

271.

As with the SISA rigs, both SEDCO and NIOC submitted appraisals of the value of the oil drilling rigs owned by SEDIRAN. Claimant's appraisal of the value of the SEDIRAN rigs is $76,600,000. This figure is the estimate of Mr. Carl F. Thorne, who, as noted above, was the Managing Director of SEDIRAN.

272.

NIOC's valuation of the rigs, based on the appraisal by Mr. Harvey A. Davis, is $34,186,600.

273.

Mr. Thorne stated that he had personal, first-hand knowledge of the condition and value of SEDIRAN's rigs, based on his experience in Iran with the rigs as Managing Director of SEDIRAN. Mr. Thorne stated that the SEDIRAN rigs were all relatively new (less than five years old) and were modern diesel electric rigs assembled with top quality equipment. They all were allegedly technically more advanced and had greater capacities for depth of drilling than the SISA rigs. He alleged that, as with the SISA rigs, all the SEDIRAN rigs were in first class operating condition. Accordingly, he stated that the value of the SEDIRAN rigs was as follows:

Rig No. Fair Market Value

--------------------------

1 $ 7,500,000

2 7,500,000

3 7,500,000

4 7,500,000

6 7,500,000

7 7,900,000

8 7,900,000

10 8,300,000

11 8,300,000

13 6,700,000

--------------------------

TOTAL $76,600,000

274.

Mr. Thorne explained that while all the SEDIRAN rigs were substantially equivalent in technological features and drilling capacity, rigs 7, 8, 10 and 11 were newer than the other rigs, while rig 13 was somewhat older. Rigs 10 and 11 are alleged to have been practically brand new; the NIOC contract was only their second project. According to Mr. Thorne, the varying ages of the rigs explains the different values assigned.

275.

As with the SISA rigs, Claimant alleged that certain objective data support the reasonableness of the Thorne valuation. These data include comparable contemporary sales and appraisals, insurance policy coverage values, and replacement value. In addition, Claimant provided computations purporting to show the current net book value of the SEDIRAN rigs. Finally, Claimant submitted an independent valuation by another expert, Mr. William E. Whitney, supporting that of Mr. Thorne.

276.

Claimant has pointed to its sale of three rigs in Dubai in 1981, referred to above in the discussion of the SISA rigs, which it stated confirms the accuracy of Mr. Thorne's valuation. Claimant alleged that the sale of much smaller and technically less advanced mechanical rigs (allegedly most similar to the least valuable SISA rig, rig 52) at an average value of $6.6 million shows the reasonableness of the Thorne appraisal of much newer, technically more advanced and larger rigs for only relatively slightly higher amounts (i.e., an average of $7 million each for the SEDIRAN rigs as opposed to $6.6 million each for the three Dubai rigs).

277.

As further support Claimant referred to the record of another case before the Tribunal, Santa Fe International Company and Government of Iran, Case No. 10, Chamber 2. Santa Fe, the claimant in that case, alleged that three rigs it owned had been appropriated by NIOC. Claimant stated that the Santa Fe rigs were almost exactly identical to six of the SEDIRAN rigs (rigs 3, 4, 6, 7, 8 and 10). A Santa Fe executive valued the rigs at an average of $9,372,625, while an appraiser, James W. Davis, valued the rigs at an average of $9,225,862. SEDCO pointed to Santa Fe's valuations of the rigs as evidence of the reasonable and conservative nature of its own rig valuations.

278.

In addition, Claimant adverted to the appraisals it commissioned in April 1980 of the three rigs owned by SEDIRAN that were outside Iran at the time of the Revolution. Claimant alleged that one of the three rigs, rig 16, was most comparable to SEDIRAN rig 11, one of the rigs owned by SEDIRAN at the time of expropriation. The two appraisers found rig 16 to be worth $6,603,047 and $6,503,500, respectively. While this is considerably less than the $8,300,000 claimed by SEDCO for rig 11, Claimant stated that the pumps and engines on rig 16 were much older than those on rig 11, that rig 11 had substantially more drill pipe assigned to it than rig 16, and that the appraisal of rig 16 did not include any transportation equipment.

279.

While Claimant did not mention it in this context, it appears in the record that SEDCO eventually "paid" SEDIRAN $16,196,189.91 for the three rigs, by paying (or cancelling) certain loans owed by SEDIRAN in that amount, pursuant to a U.S. Treasury license.⁵⁷ Allocated equally among the three rigs, the purchase price SEDCO paid for the three rigs amounts to $5,398,730 per rig.

280.

Claimant has submitted a copy of SEDIRAN's casualty insurance policy for its rigs and some related equipment. The policy insured the rigs for a total of $57,623,419 as follows:

Rig No. Insured Values

-------------------------------------------------------------------------------

1 $ 5,762,341.90

2 5,762,341.90

3 5,762,341.90

4 5,762,341.90

6 5,762,341.90

7 5,762,341.90

8 5,762,341.90

10 5,762,341.90

11 5,762,341.90

13 5,762,341.90

-------------------------------------------------------------------------------

TOTAL $57,623,419.00⁵⁸

281.

While in the case of the SISA rigs the insured value was not quite twelve percent less than the claimed appraised value of the rigs, the insured value of the SEDIRAN rigs amounts to only 75% of the claimed value. Claimant advanced two explanations for this discrepancy. First, as in the case of the SISA rigs, the policy did not insure the rigs for 100% of value. Second, and allegedly most important, is that SEDIRAN's accountants mistakenly failed to include in the policy a substantial amount of the miscellaneous equipment assigned to the rigs. Claimant did not quantify, however, the amount of equipment alleged to have been omitted from the policy, or explain how much of the discrepancy is due to which factor.

282.

As with the SISA rigs, SEDCO calculated and submitted detailed replacement cost data for the 1979 costs of replacing each of SEDIRAN's rigs. Those values are as follows:

Rig No. 1979 Replacement Cost

------------------------------

1 $ 8,686,788

2 8,686,788

3 8,703,577

4 8,604,982

6 8,694,919

7 8,694,919

8 8,703,577

10 8,522,029

11 11,574,512

13 11,641,020

------------------------------

TOTAL $92,513,111

283.

Like the SISA replacement cost data the SEDIRAN replacement cost calculations were attested to by A. Reid Smith, an executive of the oil well operations of United States Steel Corporation, and also in later expert submissions by Mr. William E. Whitney and Mr. Leo A. Drake.

284.

Claimant calculated the "current net book value" of the SEDIRAN rigs as an additional indication of the reasonableness of Mr. Thorne's estimate. Current net book value, obtained by applying "current cost accounting," was alleged by Claimant to reflect the actual value of assets more accurately than does the usual book value, since book value normally reflects only historical cost of the assets, less a rather arbitrary depreciation percentage, while current cost book value purportedly makes an allowance for inflation of values. Under current cost accounting methods the historical net book value of an asset is adjusted by an appropriate price index in an attempt to reflect the effects of inflation on the actual value of an asset.

285.

Pursuant to this method Claimant originally calculated the current net book value of the rigs as $70,277,304. However, after objection by NIOC to the method of calculation, Claimant submitted recalculated figures obtained with the assistance of an accounting firm (Deloitte Haskins & Sells), showing the following values:

Rig No. Historical Cost Current Cost

----------------------------------------

1 $ 2,590,834 $ 4,859,440

2 2,580,328 4,918,354

3 2,782,287 5,147,553

4 2,845,753 5,330,342

6 2,968,606 5,410,982

7 3,501,153 6,271,159

8 3,458,269 6,164,523

10 5,262,860 7,567,334

11 6,091,193 8,726,833

13 1,820,895 2,879,850

Common Equipment 8,673,742 13,098,968

----------------------------------------

TOTALS $33,848,178 $57,276,370

286.

In its original valuation memorial Claimant emphasized the similarity between its original current cost value ($70,277,304) and Mr. Thorne's estimate ($76,600,000) as evidence of the correctness of the latter figure, noting that "current cost accounting methods... will slightly undervalue SEDIRAN's assets," because the analysis overlooks the income earning capacity of the rigs. Claimant has not, however, stated whether the recalculated and substantially lower figures subsequently provided affect the reasonableness of Mr. Thorne's valuation.

287.

As mentioned above, Claimant obtained and submitted a valuation by Mr. William E. Whitney, who had extensive oil drilling experience in Iran and elsewhere in the Middle East for Chevron and the Arabian American Oil Company, and who had held the position of "Manager Drilling" of OSCO and its predecessor from 1969 to 1974. Between 1974 and 1976 he had personally inspected the eight SEDIRAN rigs which were under contract with OSCO (but not the two contracted to NIOC) and confirmed that the SEDIRAN rigs were at the time of his inspection high quality and well maintained rigs. Mr. Whitney based his appraised value for the ten SEDIRAN rigs on Claimant's calculations of new replacement costs for the rigs, as discussed above. He arrived at his valuation essentially by discounting the replacement value by a percentage reflecting his estimate of the equipment's "remaining working life, its comparative working efficiency versus new equipment, and the higher cost of maintenance." He based his valuation on an assumption that all the rigs were five years old, although he stated that in fact several were substantially newer. His calculations resulted in the following values, which he termed "true value":

Component Replacement Cost Value Factor 1979 True Value

----------------------------------------------

Rig Surface Equipment $58,300,000.88 $51,300,000

----------------------------------------------

Rig Downhole Equipment 12,000,000.61 7,300,000

----------------------------------------------

Camp Facilities 6,500,000.82 5,300,000

----------------------------------------------

Transport Equipment 15,700,000.82 12,900,000

----------------------------------------------

SUBTOTAL $76,800,000

----------------------------------------------

Freight Cost Advantage $ 2,600,000

----------------------------------------------

TOTAL $79,400,000

288.

Mr. Whitney concluded that because the rigs were available for use in the Middle East they enjoyed a freight cost advantage of approximately 50% of what it would cost to transport the new rig components from the United States to the Middle East. Accepting SEDCO's calculation of freight cost of $5,200,000 for the ten rigs, he added a $2,600,000 freight advantage to their value determined by reference to their remaining useful life. That resulted in a total appraised value of $79,400,000.

289.

As noted in the discussion of the valuation of the SISA rigs, NIOC did not originally propose an alternative value for any rigs but raised certain objections as set forth above at paras. 48-53. Those objections applied equally to Claimant's valuation of the SEDIRAN rigs.

290.

NIOC also objected to Claimant's calculations of "current net book value" of the SEDIRAN rigs. As noted above, NIOC objected that Claimant incorrectly applied the accounting principles applicable to current cost accounting in arriving at its current net book value analysis. Refiguring the values using the proper principles and methods, NIOC arrived at a current net book value of $58,170,589. Claimant, as noted above, accepted NIOC's criticism of its calculations and substantially agreed to NIOC's net book valuation.⁵⁹

291.

NIOC argued, however, that the current net book value should be further reduced by application of a 12 1/2% depreciation rate, instead of the 10% rate actually used. The use of this rate, which NIOC alleged was stipulated in the SEDIRAN-OSCO contract, would lower the current net book value of the assets to $47,854,657. NIOC also argued that mobilization costs should not be capitalized but rather should be treated as expenses, and therefore subtracted the mobilization costs from the current cost valuation for a final proposed value of $41,650,977 under the current cost analysis.

292.

NIOC finally argued that the current cost accounting basis was in any case not a proper method for valuation of assets, stating that historical book value is to be preferred. NIOC calculated the historical net book value as $21,693,047. NIOC suggested that that amount was "closer to reality," although allegedly still higher than the rigs' actual value.

293.

As discussed at paras. 54-57, NIOC eventually commissioned an appraisal of the SISA and SEDIRAN rigs from Mr. Harvey A. Davis. As there discussed, Mr. Davis took issue with certain aspects of Claimant's valuation. He then arrived at the following values for the SEDIRAN rigs:

Rig No. Fair Market Value Ancillary Equipment Total Fair Market value

-------------------------------------------------------------------------------

1 $ 2,953,700 $ 94,250 $ 3,047,950

2 2,953,700 94,250 3,047,950

3 3,109,100 94,250 3,203,350

4 3,078,000 94,250 3,172,250

6 3,849,500 94,250 3,943,750

7 3,849,500 94,250 3,943,750

8 3,819,000 94,250 3,913,250

10 4,369,600 0 4,369,600

11 4,369,600 0 4,369,600

13 1,080,900 94,250 1,175,150

-------------------------------------------------------------------------------

TOTALS $33,432,600 $754,000 $34,186,600⁶⁰

294.

The ancillary equipment included transportation equipment, cranes and trailers. No ancillary equipment was included for the two rigs, 10 and 11, assigned to the NIOC contract.

295.

For the reasons discussed at paras. 63-74 above, the Tribunal is of the opinion that NIOC's appraised values were based on several incorrect assumptions which render the values reached unreliable as a guide to actual values. On the other hand, some of the reasons why the Tribunal approached Claimant's proposed valuation of the SISA rigs with certain caution are pertinent also to its appraisal of the SEDIRAN rigs. Notably, Mr. Thorne, in addition to his position in the Claimant company, was at the relevant time the Managing Director of SEDIRAN. It is true that Mr. Thorne's assessment of the operating conditions and the value of the rigs was confirmed by an independent expert, Mr. Whitney, who testified that he had personally inspected eight of the SEDIRAN rigs and had found them to be high quality and well maintained rigs. His inspection, however, took place between 1974 and 1976.

296.

As discussed in connection with the SISA rigs, supra para. 76, Claimant's comparable sales information and replacement value data are helpful in a general way. Claimant's insurance values also provide some guidance, but Claimant has cautioned that in SEDIRAN's case, those values are not an accurate indicator of full value. The actual total of insurance on the SEDIRAN rigs was $57,623,419, a figure which is only about 75 percent of the claimed value of the rigs, $76,600,000. (The SISA rigs, it will be recalled, were insured at about 88 percent of their claimed value.) Claimant asserted that its personnel mistakenly failed to include certain equipment when insuring the rigs, but the precise scope of this error is not related in the record before us. If the SEDIRAN rigs had been insured at 88 percent of claimed value, as the SISA rigs were, the total insured value would have been $67,408,000. If, on the other hand, the total actual insured value of $57,623,419 were in fact 88 percent of actual value, that value would be $65,481,158. These figures, given the state of the record in this Case, provide relevant guides for the Tribunal.

297.

Claimant has introduced an additional factor in respect of the SEDIRAN rigs to which, for unexplained reasons, it did not refer in regard to the SISA rigs: Current cost accounting, producing a "current net book value," in conformity with the guidelines of Statement of Financial Accounting Standards No. 33 ("SFAS No. 33") entitled "Financial Reporting and Changing Prices." As noted, this method adjusts historical book value to reflect inflation, producing a figure which "will slightly undervalue SEDIRAN's assets." In purported application of SFAS No. 33 Claimant originally calculated the current net book value of the SEDIRAN rigs as $70,277,304, or approximately 91.7 percent of the claimed value of $76,600,000. When Claimant's calculation was challenged by NIOC, however, Claimant conceded that based on an expert consultation with the accounting firm of Deloitte Haskins & Sells it had commissioned in the meantime the current figure was not $70,277,304, but rather $57,276,370. Neither Claimant nor its expert has suggested that the basic relationship of current net book value thus calculated to actual value is any different than originally alleged. On that basis, i.e., of current net book value representing approximately 91.7 percent of actual value, the resulting value of the SEDIRAN rigs would have to be revised from $76,600,000 to approximately $62,500,000. The value resulting from this analysis of the relationship of current net book value to actual value falls within the fairly wide range of values suggested by the various indications adduced by Claimant. It appears reasonable in view of the record. The Tribunal therefore finds $62,500,000 to be the appropriate valuation of the SEDIRAN rigs.

298.

As mentioned above at para. 78, Claimant claimed the right to damages for loss of revenue caused by the taking of SISA's and SEDIRAN's drilling rigs. While SEDCO initially appeared to assert the claim as an element of lost profits, recoverable as part of the full compensation due for loss of the rigs, the Tribunal found that the claim is in fact a claim for damages arising out of the deprivation of use of the rigs, for the time needed to replace the rigs. The Tribunal determined above that Claimant was entitled to compensation for loss of revenue from the SISA rigs.

299.

It is important to note that SEDIRAN's rigs were not taken from SEDIRAN by Iran; Iran took over the corporation, but so far as the evidence shows the corporation retained its assets. Therefore there presumably was no loss of revenue to SEDIRAN, the compensation for which Claimant might be entitled to share. This element of the claim therefore cannot be honored.

300.

Claimant has alleged that SEDIRAN owned substantial amounts of land and other fixed assets in Ahwaz and Bandar Abbas, Iran. The Ahwaz property was the center of SEDCO's operations in Iran and allegedly encompassed more than 55,000 square meters. It originally had been purchased in 1966 by another SEDCO affiliate and was transferred to SEDIRAN in 1975. The Ahwaz compound comprised eight buildings, including an office building, a central warehouse for SEDIRAN, a warehouse for SISA, a central transportation office building and warehouse, workshops, a training school, and a living, dining and recreation building.

301.

The Bandar Abbas property, purchased in 1976, consisted of a warehouse building and surrounding land. In addition, SEDIRAN maintained an office in Tehran, including furniture and fixtures.

302.

NIOC has not disputed the existence of the described assets. It has, however, contested Claimant's valuation of the property.

303.

Claimant used two methods to establish the value of SEDIRAN property. First, for the land value of the Ahwaz compound Claimant has alleged a value of rials 2,500 per square meter, which is the price NIOC allegedly paid SEDIRAN in 1978 for a similar tract of land located in the Ahwaz compound. Claimant attached a letter sent to Bank Bazargani Iran in August 1978 seeking the bank's permission, as mortgagee, for the sale to NIOC. Claimant alleged -- but without evidentiary support -- that the value of real estate in fact increased substantially following the 1978 sale, and that other parcels of land near the Ahwaz compound sold in 1979 for prices in excess of rials 8,000 per square meter. Claimant nevertheless has based its claim on rials 2,500 per square meter, alleging a value of $2,003,444 for the 55,271 square meters of Ahwaz land.⁶¹

304.

For the parcel of land at Bandar Abbas, and for all buildings, improvements and fixtures on all sites, Claimant has derived the values by means of current cost accounting. As described in the discussion of valuation of the SEDIRAN rigs at paras. 284-86 above, current cost accounting purportedly presents accurately the present value of an asset. It does so by (1) increasing the historical or book cost of an asset through application of an appropriate price index to arrive at an estimate of "current cost new" of the asset, and (2) subtracting from the "current cost new" a "current depreciation" amount derived by application of the same price index to the book depreciation of the asset.

305.

Claimant chose two indices to use in its current cost calculations. The first was the consumer price index for Iran, published by Bank Markazi, and the second was the consumer price index for the United States, published by the U.S. Department of Labor. Claimant alleged that both indices result in conservative valuations, since they reflect general inflation and ignore any specific supply and demand changes in an individual industry or type of asset. (In particular, Claimant alleged an extraordinary increase in land and building values in Iran in the 1970's.)

306.

Claimant also alleged that its calculations are conservative because current cost accounting bases its measure of actual diminution in the value of assets on book depreciation, which almost always results in apparent de

Nils Mangard	President
Charles N. Brower	Appointed by the claimant
Parviz Ansari Moin	Appointed by the respondent

Sedco, Inc. v. National Iranian Oil Company

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary

Award (Award No. 309-129-3)

I. INTRODUCTION

II. INDIRECT CLAIMS RELATING TO SISA

A. Claims for the Appropriation of SISA's Rigs

1. General Background

2. Conclusions of the Tribunal

a) The Applicable Law

b) The Events of Fall 1979 as a Taking

c) The Events of August 1980 as a Taking

B. Valuation of the Appropriated SISA Rigs

1. SEDCO's Valuation of the Appropriated Rigs

a) Thorne Valuation

b) Comparable Sales and Appraisals

c) Insurance Policy Coverage

d) Replacement Value

e) Expert Opinion

2. NIOC's Valuation of the Appropriated Rigs

a) NIOC's General Objections

b) NIOC's Alternative Appraisal

c) Purchase Option Values

3. Decision by the Tribunal

4. Loss of Revenue

C. Appropriation of SISA Warehouse Stock

D. SISA Invoice Claims

1. General Background

2. Liability of NIOC for Obligations of OSCO

3. Preliminary Issues

a) Alleged Errors in Invoicing

b) Differences in Amounts Invoiced

c) Rial Payment Issue

d) Rial Invoice Awards

e) Contractors' Tax

4. Amounts Claimed Pursuant to the Contract

a) Clause 6.1

b) Clause 6.2

c) Clause 6.3

d) Clause 6.4/6.7

e) Clause 6.5

f) Clause 6.8.1

g) Clause 6.8.3

h) Clause 6.9

i) Clause 6.11

j) Clause 6.13

k) Clause 7.7

(1) Social Security Costs

(2) Increased Labor Costs

(3) Subsequent Labor Cost Increase

(4) Double Time Wages

(5) Increased Crew Size

(6) Unneeded Employees

l) Clause 12.6

m) Clause 20.1

n) Clause 8.1

o) Improper Deductions from Invoices

5. Advance Payments

6. Summary

III. NIOC'S COUNTERCLAIMS RELATED TO SISA

A. Counterclaim for Poor Performance

1. NIOC's Claim

2. Claimant's Response

3. The Tribunal's Decision

B. Counterclaim for Severance Pay and Nowrooz Bonus

1. NIOC's Claim

2. Claimant's Response

3. The Tribunal's Decision

C. Counterclaim for Social Security Premiums and Taxes

1. NIOC's Claim

2. Claimant's Response

3. The Tribunal's Decision

D. Counterclaim for Advance Payments

1. NIOC's Claim

2. Claimant's Response

3. The Tribunal's Decision

E. Counterclaim for Services Rendered by OSCO

1. NIOC's Claim

2. Claimant's Response

3. The Tribunal's Decision