tutorial video tutorial video Discover the CiteMap in 3 minutes

Disenting Opinion of Dr. M. A. Movahed

This Dissenting Opinion consists of two Parts: Part one, dealing with the relevant aspects of Jurisdiction, and Part Two discussing the issue of "applicable Law". The two Parts correspond respectively to Parts D and E of the Majority Award. Different conclusions reached concerning "jurisdiction" and "applicable Law" will necessarily reflect on the treatment of the subject matter of Part F of the Majority Award dealing with "Statue of Limitations".
The Majority Awards Starts discussion on Jurisdiction in para. 74 with "Preliminary Remarks" as follows:

• As the subsequent discussion will show, the jurisdictional issue to be decided here consists of many factual and legal elements, which maybe compared to many Stones, which, in the end, will form a completed mosaic. None of the Stones taken alone, carries enough weight to form the shape or outcome of the "mosaic". Rather, each stone or element (factual and legal) has its own significance, its position and inter-relatedness, and must be considered and weighed as such. The mosaic, i.e. the outcome of the present analysis, therefore, is the result of the shape and weight of all its stones".

The prescription on it's face sounds sensible enough, but the mosaic which is proposed to be made is simply the denial of jurisdiction. It makes a good sense co rely on a cumulative effect of a multitude of elements, where no single element offers a decisive solution. The problem, however, arises once a sensible prescription is used with a mental predisposition of a conservative nature. It is indeed curious chat a Tribunal refuses its jurisdiction on the basis of a mosaic argument, while admitting that the mosaic is made out of many stones and "none of these stones taken alone carries enough weight to form the shape or outcome of the mosaic". The Majority Award makes such a "mosaic" to deny jurisdiction in spite of the fact that there is always a strong presumption in favour of arbitrability in commercial contexts and there is no restrictive interpretation of jurisdiction in international commercial arbitrations.

By introducing this mosaic argument, the Majority Award has destroyed the Claimant's chance for being ever heard in a neutral forum notwithstanding the closing remarks of Claimant’s Counsel: "it is this Tribunal or nothing" (see Majority Award, Para. 210).
In order to put the case in its right perspective, the following explanations are needed:


a) The description of the nine contracts under consideration as contained in para. 1-7 of part A of the Majority Award is correct.
All of the nine contracts had a single purpose and followed the same general objective of providing Iran with a comprehensive Air Defence Network.

b) The First Contract, contained an arbitration provision which was subsequently revised and amended.

c) The Second Contract, was to provide radome protection for GPS-11 radars acquired under the First Contract.

d) Contracts Nos. 3, 4 and 7, referred to the letter of 27 June 1973, which in turn referred to the "prior and current contracts", i.e. Contracts Nos. 1 and 2.

e) Contracts Nos. 8 and 9, were for the procurement of equipments and spare parts for radar systems provided under previous contracts.

It is a meaningful fact that the arbitration agreement included in the first contract was subsequently amended with a view to enlarging it's scope and extending its applicability beyond the life of the contract. The Amendment demonstrates the importance attached by Parties to this matter and gives the importance attached by Parties to this matter and gives the Arbitral Tribunal every reason to believe that they wanted their agreement on arbitration extended beyond the confines of the particular contract in which the arbitration clause was incorporated.

The Parties wanted that any and all disputes arisen out of, or related to, or connected with their relationship be finally settled through arbitration.

Claimant and Defendant concluded two different sets or contracts at various times between 1971 and 1978. One set consisted of contracts concerned with the implementation of a comprehensive air defence coverage program (hereinafter referred to as Radar contracts), which is the subject matter of the present dispute. The other set of contracts concerned the execution of an "Integrated Electronics Depot Program" (hereinafter referred to as Depot contracts). Each set started with a contract signed in 1971.
These two sets of contracts are similar also in chat the first contract in each set contains an arbitration clause while the ensuing contracts do not contain such a clause.
The arbitration clauses included in both sets of contracts are identical in wording (compare Art. XI of Depot Contract dated 16 June 1971 with relevant Art. page 15 of Radar Contract dated 1 August 1921. The Arbitration clause of Radar Contracts was, however, subsequently amended with a view to enlarging its scope of applicability as we discussed in para. 6 above.
The first Depot Contract dated 16 June 1971 together with six successive Depot Contracts have been submitted to this Tribunal under Exhibit C-59.

The total number of Depot contracts amounted to 25-contracts and 25 amendments (see Majority Award para. 1681.

The Seven Contracts out of the total number of Depot Contracts as described above, have been submitted by Claimant to prove its case that it was the practice of the Parties (mod and Westinghouse) to agree on an arbitration clause at the outset of each series of the contracts. Accordingly MOD and Westinghouse:

"Would include an arbitration agreement in the first of the series of their contracts, and this agreement would not be repeated in the subsequent contracts" (see: Claimant's Third Memorial, page 62; see also Skeleton Argument of Claimant's Counsel, dated 3 July 1995, page 9).

This line of the claimant's argument remained uncontested by Defendant Party.
There is a striking similarity between the Depot contracts and the Radar contracts, not only in the fact that none of the subsequent contracts repeats the arbitration clause embodied in the first contract, but also in that the subsequent contracts do repeat the same provisions of "Indemnification", "Limitation of Liabilities", "Force Majeure", "Warranty", "Termination", "information", "Assignment" and "Integration" as contained in the first Depot contract. This is exactly the pattern followed in the nine Radar contracts under examination by this Tribunal.

Part One- Discussion On Jurisdiction

The relevant points on the matter of jurisdiction will be discussed under different headings as described below:

A- Inter-relatedness of the contracts

B- Trade usage

C- Contra Proferentem

D- Allocation of burden of proof

E- Principle of good faith

F- The significance of Case No. 389


a) Precontractual Relationship

The documents submitted to this Tribunal demonstrate that prior to the conclusion of the first contract under review, five (5) Tactical Air Defence Systems made by defendant were procured by Claimant through intermediary of U.S. Air Force. Thus Defendant was introduced to claimant by U.S. Military Assistance Advisory Group (MAAG) in the context of the acquisition of air defence systems required by Claimant.

The earliest documents submitted to the Tribunal of the direct contract between the parties is Defendant's letter dated November 25, 1969, proposing "to extend intensive technical coverage to Iran" (Exh. C-43).

The second document in the chronological order is the letter of December 24, 1969 from "commander of the Imperial Iranian Air Force to Chief of the Army General Staff" Referring to a conference held in Tehran, where the Defendant's representatives made presentation concerning their Mobile Type Radar Systems proposed for Iran. (Exh. C-20)

Thirdly is Memo dated 1.3.1970 concerning a meeting held in Tehran "to Discuss IIAF Operational Concept For Mobile Type Radar" which confirms "The forthcoming visit of Westinghouse personnel to Iran" and proceeds with discussion of an "operational concept". Considered as "binding for future mobile radar acquisition" adding that:

"...the mobile radar package must be compatible with expected future automation of the air defence system". (Exh.C-44)

Fourthly in the same chronological order is Defendant's Letter of 27.11.1970, proposing to bring a team of it's personnel to Iran to study:

"The problems of automating and netting of all ground-based radars... in order to meet future requirements in this respect..."(Exh. C-24)

The documents referred to above clearly indicate the background of intimate familiarity of Defendant with "The imperial Government's intention to buy a comprehensive radar protection system", even before the First Contract under dispute was concluded i.e. prior to the date August 1, 1971.

On 1971 Parties decided to enter into two series of contracts which I have referred to in "Summary of Facts" as "Depot Contracts" and "Radar Contracts". Each series started with a mother contract concluded in the year 1971 which embodied an arbitration clause. The subsequent contracts in both series which continued until the Iranian Revolution and the collapse of the Shah's regime in 1978 did not include such a clause.

The individual contracts in each series were made in the form of sale and purchase contract.

b) Radar Contracta Nos. 1 and 2

Contract No. 1 in the Radar Contracts series was signed on August 1, 1971 at a time when none of the five radars previously purchased through the intermediary of U.S. Air Force was yet delivered. The new contract which contemplated the procurement of three more of the same radars (GPS-II) was directly concluded between Claimant and Defendant. The Statement of work included in the Contract No. 1 acknowledges that the five radars previously acquired are still under construction in Defendant's facilities. Claimant therefore had to wait until the delivery takes place in order to discover that "rigid geodesic radomes" were required "for the first two GPS-11 sites". That is how "Radomes" were recommended to protect radars antenna in regions experiencing high winds (Exh. C-55). That explains the time gap between contract No. 1 and contract No.2 (See proposal for Radomes for Two AN/GPS-11 sites, dated September 25, 1972, amended May 14, 1973 and letter of January 9, 1973).

The delivery of three systems acquired under contract No.1 did not start until July 1974 (See Claimant's Third Memorial, page 19; see also Exh. C-45, Defendant's letter dated 16.7.1974).

There is no doubt that the conclusion of Contract No.2 was necessitated by Contract No.1. The second contract was to supplement the first one and to make it operational. The two contracts together should be considered as the first step in a step by step movement in the implementation of Claimant’s air defence program in which Defendant was exclusively engaged.

c) Contracts Nos. 3, 4 and 7

Then we have Contracts Nos. 3, 4 and 7 for fixed radar units, which invariably refer to Defendant's proposals of June 15, 1973 and June 27, 1973 with amendments of August 8, 1973, August 18, 1973 and October 8, 1973. These contracts refer also to Defendant's letter of August 11, 1973. The said references clearly indicate that all three contracts were closely linked together. These contracts were based upon and originated from same common understandings recorded in documents to which they referred. Therefore there can be no doubt that three contracts in question were not stand-alone contracts but contracts, united in "one organic relationship".
Letter of June 27, 1973, referred to in contracts Nos. 3, 4 and 7, in turn refers to terms and conditions embodied in 'prior and current contracts" between the parties. There is an organic link between contracts No. 3, 4 and 7 of the one hand, and contracts Nos, 1 and 2 of the other hand due to commonality of purposes and commonality of components and equipments. (See Exh. C-28, Defendant's letter August 18, 1973 in answer to questions raised by IIAF October 14 th review of Westinghouse Karadj radar proposal: "Many of the subassemblies and components are already in inventory in the IIAF").

See also Exh. C-30(A), letter of January 5, 1974 referring to Westinghouse letter of October 8, 1973 and its attachment i.e. "list of the spare parts which the IIAF is to supply to the karadj Radar Site".

In this letter it has been further stated that:

"The spare parts which Westinghouse asked IIAF to supply are known to be in IIAF inventory... only spares which are unique to the ADS-4 system are to be supplied by Westinghouse in the two year supply of spares according to Amendment 1 of Contract ESD-003. During this first two year period spares which are known to be in IIAF inventory (the above mentioned list) will be obtained from IIAF stores through normal procedures. It should be noted that the users of the above spares, will in future, include eight ADS-4 Radar systems in addition to GPS-11 and HF 2000 systems".

It is also interesting to review Exh. C-30(C); Westinghouse, Recommendations Radar Coverage Improvement Program dated October 10, 1976 to enhance Iran’s air defence capabilities through a "time phased program", and schedule "which results in 16 operational GPS-11/ADS-4 radar sites within 27 months". Recommendations state inter alia:

"We believe that within twenty-seven months, sixteen (16) GPS-11 and ADS-4 sites can be operational and fully supported via the time phased program we suggest. We have structured a program which minimizes GOI costs by maximizing usage of equipment already in GOI inventory.... By month 27 we can have eight (8) ADS-4 and eight (8) GPS-11's operational and supported..."

Phase 1 of this Program was to:

"make maximum use of Westinghouse technical services personnel already contracted by the IIAF for the Karadj (ADS-4), GPS-11 and Integrated Electronics Depot (IED) Programs".

Phase II as suggested was to be "a direct continuation of the Program from Phase I".

The organic relationship between contracts Nos. 1 and 2 of the one part and contracts Nos. 3, 4 and 7 of the other part is further illustrated in Exh. C-27; a report attached to Defendant’s letter of December 1, 1971 which includes the following statements:

"The design... is identical to PPIS being supplied with GPS-11 Tactical Air Defence system soon to go into operation with IIAF (P. 33)".

"The design and operation of the intercome is the same as used in GPS-11 except for the specific modifications. (P.34)".

"These are the same radios that are used in GPS-11 system. This commonality will simplify training and reduce logistic costs" (P.35)".

"Equipment in this system will minimize the logistic support requirements added by this U system..." (P.41).

d) Contract a Nos. 5 and 6

As to contracts Nos. 5 and 6, these two contracts concerned the acquisition of TPS-61 radar system.

Reference to TPS-61 radar could be found in Exh. C-59; letter of May 8, 1971 from Defendant where it is stated:

"The Imperial Iranian Air Force will find much compatibility and commonality between TPS-43 TADS equipments and TPS-61.

The printed circuit cards of two radars are generally the same. Over 150 of the cards in the TPS-61 are the same as these used in TPS-43 components.... A maintenance technician qualified on the TPS-43 can be quickly cross-trained to maintain the less complicated TPS-61" It must be observed that TPS-43 radar, referred to in the above letter, was purchased from Defendants under contract No. 1 for GPS-11 (see Exh. C-25, Defendant's letter March 7, 1971; See also Exh. C-43, Defendant’s letter November 25, 1969).

e) Contracts Nos. 8 and 9

There remain contracts nos. 8 and 9. These two contracts, as correctly described in Majority Award, page 5, were for spare parts for different radar systems as previously delivered. Contract No. 9 was originally intended to provide spare parts for eight (8) ADS-4 systems acquired under contracts Nos. 3, 4 and 7 only. It was later amended to include spare materials for GPS-11 systems as well.

f) Contracts put on their Chronological order

SerialDateContract No. Signed for II AF By
1 8.8.1971 001 Toufanian
2 8.8.1971 suppl. 001 Toufanian
3 21.5.73 002
4 5.11.73 003 Ashari
5 9.1.74 1st suppl. 003
6 28.1.74 004 Toufanian
7 7.5.74 005 Ashari
8 26.5.74 2nd suppl. 003
9 10.6.74 1st suppl. 004 Toufanian
10 10.8.74 007 Toufanian
11 16.10.74 2nd suppl. 004 Toufanian
12 22.10.74 3rd suppl. 003 Mehrabanzad
13 29.10.74 006 Mehrabanzad
14 5.11.74 4th suppl. 003
15 31.1.75 3rd suppl. 004 Toufanian
16 26.2.75 008 Sadeghi
17 15.9.75 suppl. 002
18 76 3th suppl. 003
19 76 6th suppl. 003
20 13.2.78 009 Shakib
21 10.4.78 suppl. 009 Shakib

g) Regarding time Frame of Contracts

There is a totality of 21 Radar Contracts (9 main contracts and 12 supplemental contracts) signed by Westinghouse and IIAF within a period of approximately 7 years time (First Contract dated August 1. 1971 and last one April 1978).

There are also series of 50 Depot contracts (25 main contracts and 25 supplementals) in addition to 21 contracts referred to above, negotiated and signed by the same parties within the same time frame.

The seven year period under consideration was, therefore, a time frame of heavy contractual traffic between the two Parties. This intensive involvement of Westinghouse in the development of IIAF's defence capabilities is a clear evidence of a large and ongoing relationship which rules out the contention that the contracts in question consist of stand-alone, haphazard deals of accidental nature. In my view, it seems rather naive to imagine that contracts of such importance and complexity successively entered into in a relatively short period of time as pointed above, were the outcome of regular bidding procedure, whereby "several competitors received the Request for Quotation and thus were insisted to bid in competition with Defendant. (Majority Award, para. 124)
There is no evidence to make us believe that such a physically cumbersome and time consuming procedure of competitive bidding was conducted in such a congested time frame. In addition to the time constraint, important elements such as the commonality of materials and equipments provided under various Contacts, plus the presence of Defendant's office in Tehran and its active role in day to day contacts with IIAF and MAAG authorities, rules out the possibility that any competitive bidding could be conducted under the prevailing circumstances.

h). Defendant as the Exclusive Supplier

In actual terms, it is a fact that during the time frame we are discussing about, all of Claimant's air defence coverage requirements are acquired from Defendant exclusively and no other competitor is known to strike a deal with Claimant in this field.

The Majority Award has acknowledged this fact in para. 86, stating that:

"Based on the documents on file, the Tribunal must assume that there were indeed no other acquisitions of radar systems as such from other suppliers than Defendant".

The Majority, however, adds immediately that:

"This fact alone, however, does not as such prove that as early as in 1969 to 1971 (i.e., prior to the signing of contract No. 1 on 1 August 1971) Defendant had been chosen as the exclusive supplier for any perceived or upcoming requirements for the purchase of such equipment".

i) Final Evaluation and conclusion

The Majority Award then goes on with extensive quotation from Parties’ witnesses to end up with the following observation:

"The witnesses nominated by the Parties did not convince the Tribunal that Prior to 1 August 1971 (under which date Contract No. 1 had been signed) a decision had been made and communicated to Defendant chat Defendant would be the sole and exclusive supplier of radar systems for Iran."(para. 87)

This is, in my view, an inconclusive land may be also an inconsequent) observation. Once the fact with regard to interrelationship between the contracts is established and a further fact is acknowledged also that during 1971-1978 Claimant had no supplier of radar systems other than Defendant, it does little matter whether or not "prior to 1 August 1971 a decision had been made and communicated to Defendant chat Defendant would be the sole and exclusive supplier of radar systems for Iran". The contractual relationship of the Parties under review by this Tribunal starts on 1 August 1971 and extends to late 1978. What happened and what decision was made prior to the said period does not concern this Tribunal except to the extent such early happening and or decision would shed some light on the relevant period of time proceeding 1 August 1971.

The Majority attaches special importance to the confirmation by one of witnesses "that the Karadj mountain radar contract was concluded only after an earlier proposal for a fixed radar had been made by Defendant... December 1971". The point is important, in the view of majority, because "this shows that Iran had, even if Defendant had indeed chosen as the sole and exclusive supplier of radar equipment, still the liberty of entering into contract or not". (See para. 91)

This is a quite extraordinary argument, nobody has ever suggested that the contracts were made under duress or Iran was deprived of it's liberty to conclude or not to conclude a deal with Defendant. Claimant and Defendant were of course both free not to enter into contract, but once they exercised their free will by making a new contract for the radar acquisition, the new contract was considered as a further step, in a step by step implementation of IRAN’S air defence coverage network and as such subject to the conflict resolution mechanism agreed upon in Contract No. 1.

Once again the Majority Arbitrators reiterate their opinion in para. 107 that:

"the lack of documents supporting Claimant’s explanation as to the passing of an internal decision to use Defendant as exclusive supplier for Iran's radar requirements, coupled with an overall appreciation of the different witness statements (briefly summarized above) must lead to the conclusion that, even if a decision had been made in the sense chat Defendant will be the sole supplier of radar equipment- which alleged decision, however, remained without a legally sufficient proof-

such a decision was not communicated or otherwise, in any sufficient manner, made known to Defendant at the time of entering into Contract No. 1.

In any event, and this must suffice here, claimant was not able to furnish a legally sufficient proof as to the existence of such a communication.

The Majority, therefore, takes the view that although Defendant was in actual terms the exclusive supplier of Claimants' requirements of radar equipment in the period of 1971-1978, this factual state does not suffice to affirm jurisdiction over the totality of Radar contracts, because there is no proof that:

1) Claimant "had indeed selected Defendant to be or become it's supplier for radar device"

2) Defendant was made aware of "such a decision at the time when entering into contract No. 1 i.e., on or prior to 1 August 1971.(See Majority Award Para. 213(I),(II) and (III)

My objection to the above view is based on three considerations as follows:

Firstly: I see no justification for such a formalistic approach in this respect. The Tribunal does not need to establish the existence of a decision formally taken and formally communicated by claimant to Defendant. The fact that Parties created such a steady contractual relationship on an exclusive basis speaks for itself. Clearly this special relationship concerning such a sensitive purpose did not happen accidentaly but was shaped by the conscious attention and persistent care of both Parties.
Secondly; there are enough evidence in the file to prove- if such a proof is needed at all- that the Parties knew what they were doing, and most particularly Defendant was not only aware of, but had full and detailed information of what the Majority Award (para. 63) describes as "the Imperial Government’s intentions to buy a comprehensive radar protection system".

This awareness and intimacy is demonstrated by the documents in file including C-20, C-24, C-43 and C-44 to which I referred above in my discussion of the Parties "precontractual Relationship".

There is also a document entitled "Proposal For AN/GPS-11 Operational Readiness Program Management Assistance", submitted by Defendant to "The imperial Iranian AIR FORCE" in the interval between the First and Second Contracts. In this document, which dates November 1972, Defendant displays a thorough knowledge of the entire program engaged by the Claimant with regard to the procurement and integrated of it's defence network. In fact the document not only demonstrates the Defendant's complete awareness of the Claimant's program, it proposes the services of a Westinghouse resident personnel to be appointed as program manager.

According to this proposal, Claimant was expected to give, "access to classified information as required by the program manager to effectively carry out these responsibilities". (C-61)

Thirdly ; the establishment of a permanent office by Defendant in Tehran which was opened on or before October 7, 1971 and was active until the Revolution, with a considerable number of employees (including 12-20 expatriates) demonstrates that Defendant was indeed aware of its unique and privileged position in Iran.
The Majority Award has discussed this matter also but has not found it "a legally sufficient basis" to conclude "that Defendant, when opening an office in Tehran, had knowledge that future orders will be placed with its Group" (para. 114). The Award suggests that, 'Defendant's opening of an office in Tehran was, or may have been sufficiently warranted after Iran had acquired the GPS-11 systems as per the Foreign Military Sales (’FMS') contract in November 1970 and Contract No. 1; such decision may well have been inspired not only by its intention to service better the needs under the already sold equipment, but also by its intention to be well placed as candidate to be considered for the supply of future equipment" (ibid).
It goes against the common sense to assume that a well placed and experienced Company like Defendant takes upon itself the burden of establishing a permanent office in a remote country without being somehow assured that it is going to be a permanent work to do there. The first part of Majority's assessment, that opening of an office in Tehran may have been warranted by the intention to service the already sold equipment, does not seem corroborated with Defendant’s presentation that contracts for the sale of GPS-11 radars did not include any service obligation.
The latter part of the assessment that Defendant considered itself as a candidate for the supply of future equipment comes very close to the reality, but it’s importance is down played soon on the pretext that it is not qualified as "a legally sufficient base" for a positive conclusion.

B- Trade Usage

The Majority Award has also discussed the argument that "it is customary for parties to international contracts to choose international arbitration as method of dispute resolution" (Para.161). It is true, as it is observed in the Majority Award, that "No tribunal can affirm its arbitral jurisdiction just because of the fact that arbitration clauses are usually included in international commercial contracts..."(para. 163). All relevant aspects of the case must therefore be explored in order to reach a conclusion in this respect.

One might start with general assertion that arbitration is the most preferred and commonly accepted method of dispute settlement in international transactions. This could only be taken as a starting point, to be followed by an investigation into the nature and characteristics of the specific contract (or contracts) in question. Furthermore the search should include specifically the examination of the practice of the relevant parties in each case. In other words, borrowing from legal terminology of lex generalis and lex specialis, one should include in this examination both practice generalis and practice specialis.

Characteristics of the Contracts

The purpose of the Radar contracts was net to provide a normal commercial commodity or product such as sugar, refrigerators or garments. It was to achieve the most sensitive objective of national security and defence of a nation.

One party to the Radar Contracts (the Defendant party) was a private entity, while the other party (Claimant) was a sovereign State.

The above considerations are elements which should be taken into account in an appreciation of trade usage in general. Generally speaking, the most a private party could expect from a State party in such sensitive contracts, and under similar circumstances is to submit itself to the jurisdiction of an impartial international arbitration tribunal. The other alternative would be for the private party to accept the jurisdiction of the national court of the State party for the resolution of disputes.

Trade Usage of Contracting Parties

The Defendant party has acknowledged that their trade practice was to include an arbitration clause in their international contracts. Their standard form of contracts for international sales contained such a clause. (see for example: Mr. Xintas's Statement in this regard. The same statement was repeated, in its content, by other witnesses for Defendant in the hearing.; This has been acknowledged in the Majority Award (para. 162).
Claimant also consistently affirmed that they frequently included arbitration clause in their international contracts. Document C-52 exhibits samples of contracts entered into during the period 1971-78 which included arbitration clauses.
More specifically, both parties accepted arbitration as the only dispute resolution mechanism in their first contract. The provision in this respect was revised with a view to enlarging its scope of application. The parties did not indicate a change of mind, throughout their contractual relationship, to make us believe that they disliked their initial agreement or that they opted for a different dispute resolution mechanism.
Defendant contends that, an arbitration clause was in fact proposed by it and rejected by Colonel Ashari. This arbitration clause as alleged by Defendant was included in the first draft of contract 3 and was not repeated in the later drafts of contracts 4-9.

This bold contention which is not based on any documentary evidence is not sustainable for the following reasons:

The alleged story of Colonel Ashari does not explain the lack of arbitration provision in a previous contract (Contract 2). It does not explain either the lack of such provision in later contracts. If Colonel Ashari disliked the arbitration clause then what was to stop Defendant from proposing such a provision in contract 4, which was signed only two months later by General Toufanian. This General who was superior to Colonel Ashari signed the first contract which included an arbitration clause. General Toufanian also signed contract 7, and Defendant did not attempt to propose an arbitration clause in that contract.
Other Contracts (Contracts Nos. 6, 8 and 9) were not signed by Colonel Ashari either (they were signed by Generals Mehrabanzad, Sadeghi and Shakib).

The argument that Defendant did not attempt to include an arbitration clause in contracts 4-9 because such a clause was already rejected in contract 3 is against the whole position of Defendant that these contracts were stand-alone contracts, each independent and complete in itself.

Defendant’s other suggestion that there might have been a change of policy in Claimant’s side is not credible either.

We know so many of contracts signed by the Government authorities of Iran during the same period of time, which contained arbitration clauses. Samples of such contracts have also been submitted to this Tribunal under C-52.

Exh. c-52 comprises evidence of eleven contracts signed by Claimant during the relevant periods of time which contain arbitration clauses. This evidence was introduced to counter Defendant's suggestion that there was a change of policy on the Iranian side after the first Radar Contract which resulted in the elimination of arbitration clause from the ensuing contracts. The first contract exhibited in C-52, on a chronological order, dates 19 August 1969 and the last contract dates 21 August 1978. These contracts are signed either by General Toufanian, or General Massoumi or General Shakib i.e., the same persons who’s signatures appear in Radar Contracts.

Seven out of the eleven Contracts exhibited in C-52 are made between IIAF and British Aircraft corporation Ltd, each containing an Arbitration clause under ICC Rules, The remaining contracts consist of:

- Contract dated 23 October 1977 between IIAF and Cubic Corporation of U.S.

- Contract dated 5 August 1975 between IIAF and TPW Systems International of U.S.

- Contract dated 10 August 1977 between IIAF and Stanford Technology Corporation of Switzerland, and

- Contract dated 30 April 1978 between IIAF and Teledyne Industries Inc. of U.S.

The Majority Award has discussed these exhibits to conclude that they "do not fully support claimant's allegation" (para. 165). what is called "Claimant's allegation" is no more than presentation of evidence to counter and refute a suggestion by Defendant that there was a change of policy on the Iranian side after the first Radar Contract which resulted in the elimination of arbitration clauses from the ensuing contracts.

The examination of Exhibit C-52 in the Majority Award is another clear example of a negative attitude which transpires throughout the jurisdictional discussion.

The Majority Award under para. 165(b) reads as follows:

(b) The fractional contract between TRWSI and the IIAF (signed by on party only) makes, on page 9, reference to an arbitration in the sense that "the arbitration body will be composed of two representatives of each party and one representative of the MAAG Office in Tehran. The place of arbitration shall be in Tehran and the arbitration decision shall be final, binding and non-appealable". This provision is certainly not a typical arbitration clause in that two of the "arbitrators" were in fact representatives of Parties."

The Majority Award under 165(m) also reads:

(m) The Support Services Agreement entered into on 5 August 1975 by the Imperial Iranian Air Force and TRW System International Inc., on page 7, makes reference (in Section F) that any dispute "arising under this paragraph F will be handled by arbitration as provided for in Article VIII". However, the page containing that particular Article VIII had not been exhibited by Claimant".

It would require a little attention and sympathy to find out chat "fractional Contract" under (b) and incomplete contract under (a) are not separate, but they are two parts of one and the same contract. This is in fact contract with TRW System International which is the ninth Contract dated 5 August 1975 in my list. A clerical mistake has separated the first nine pages of document (including Article VIII on arbitration from the rest of it. Contrary to what is said in the Majority Award the Contract has not been signed "by one party only" but by both parties. LT.GEN. BAHRAM has signed it for the Iranian Party and George SOLOMON for the other Party, and their signatures appear on the last page of document under Article XIX titled "interpretation".
The Majority Award, do not consider the arbitration provision in Article VIII of this contract as a "typical arbitration" because the arbitrators appointed by the Parties are referred to in the said Article as representatives of Parties. The Majority Award ignores the point that these exhibits are not presented to be used as model arbitration agreements. The only purpose of Exh C-52 was to demonstrate chat during the period 1971-1978 the Government of Iran did not show any sign of dissatisfaction against the arbitration in its international Commercial contracts.

The same negative attitude is also reflected in the Majority Award's remarks concerning the arbitration clause contained in contract of Stanford Technology Corporation providing for a "final arbitration" to be "carried out by an Iranian court'.

The Majority Award suggests that such a clause "would rather to be interpreted as providing for adjudication by State Court". Certainly this is not how the Parties understood this provision when they signed the contract.

They wanted to have a "final arbitration" of their disputes and they wanted the proceeding of such arbitration to be carried out under the sanction of a competent Iranian Court. Adjudication by State Court is not called "arbitration" and decisions of judges in State Courts are subject to the appeal and not "final".

As to the seven contracts concluded between IIAF and British Aircraft corporation some of these contracts have also been subject to scrutiny under the suspicious eyes of Majority Arbitrators.

For example there is a correct but inconsequential critism regarding contract dated 7 September 1977 of which Article 18 has been exhibited, whereas according to the Table of contents, Article 17 on arbitration should have been exhibited. The Majority Award has also some vague comments on these exhibits which may be taken as to indicate doubt on the credibility of the evidence submitted therein. (See para. 165 (I) (g), (h), (k) and (l) observing that evidence have been submitted in pages written on a different typewriter, inserted in between). To clarify the situation I have to mention that the seven Contracts in question are amongst in the nine Contracts on which the ICC Case No. 7110 is based. A partial Award has been rendered in this Case, by Iran-US Claims Tribunal which is referred to and discussed under para. 310 and 311 of the Majority Award. This has certainly escaped the notice of the Majority Arbitrators as they made remarks which might be taken as implying some irregularities or possible falsification in the exhibited documents. I have to note further that the extensive oral discussions of the arbitrators at the deliberation stage did not include a detailed examination of Exh. C-52 and the discussion on these exhibits did not appear in the earlier drafts of the Award, therefore, the present arbitrator was always under impression that his co-arbitrators had no problem with the said Exhibit. This is a matter of public knowledge that government authorities of Iran, during the relevant period of 1970-1970 especially after exceptionally big increases in the oil revenue, were very active in concluding contracts of different types and these contracts usually contained arbitration clauses. Numerous contracts of Iran concerning the oil sector have been published in series of "Selected Documents of the International Petroleum Industry" by the Organization of the Petroleum Exporting Countries (OPEC). All of these contracts included an arbitration clause. The Petroleum Laws of 1957 and 1978 expressly provided that disputes arising out of oil Agreements should be resolved through arbitration. Therefore one might say with a good degree of confidence that the Government of Iran during the period 1971-1978 continued to rely on arbitration in its international Commercial Contracts.

The point was also acknowledged by the chairman of Arbitral Tribunal in the course of examination of witness where the commented:

"It is striking and you will please bear with us that we need time to really feel comfortable with what has been explained to us from Westinghouse delegates. Comfortable because there is some common understanding that Iran every so often, particularly during the 1970, had agreed to arbitration clause". (Transcription p. 426-71 Exh. C-59

As it is mentioned under para. 9 above this exhibit has been submitted with the purpose of demonstrating that it was the practice of the parties to include an arbitration clause only in the first one of a series of contracts.

The Majority Award acknowledges "a somehow striking similarity’ between Depot contracts submitted m Exh. C-59 and Radar Contracts at issue in this Arbitration, (para. 168)

The Majority Award while recognizing the similarity of these two series of contracts, tries to draw a negative conclusion in respect to jurisdiction as it vaguely indicates that perhaps General Toufanian who signed the first contract in each series was more amenable to accept the arbitration clause proposed by Defendant. But "when Col. Ashari had the lead and responsibility for signing a contract, Defendant's arbitration clause" disappeared.
To draw such a conclusion, the Majority Arbitrators rely on certain "elements" which as put in para. 174 of the Award "represent a further stone Ln the overall "mosaic".These elements are unfortunately imaginary ones and consist of following propositions;

1) That Radar Contract No. 2 has been signed by Col. Ashari. The proposition is contradicted by statement in para. 172 that "The Tribunal could not clearly established who signed contract No. 2".

2) That Col. Ashari was against the idea of arbitration and that he was responsible for the elimination of arbitration clause proposed by Defendant.

This proposition has no bases save the statements made by witnesses for Defendant and the Majority Arbitrator has already asserted under para. 159 that they "do not attribute to these statements an independent or decisive weight".

One must be mindfull of the fact that General Toufanian was most powerful and influential man in Imperial Iranian Army. He was the Deputy Minister of war and he was not the authority to be overruled by an officer of much inferior rank as col. Ashari. If General Toufanian was agreeable to arbitration, then Col. Ashari was not in a position to reject it. It is important to note that the key contracts in both aeries of Radar Contracts and Depot Contracts have been signed by General Toufanian.

C- Contra Proferentem

The other important point, is the fact that the contracts which are the subject matter of the present Case, have all been drafted by one of the parties i.e. the Defendant Party. The Radar Contracts invariably refer also to the proposals submitted and letters initiated by Defendant. Defendant not only had the upper hand in what was related to the expertise and knowledge requirement for the formulation of technical aspects of the contracts such as specifications, scope of work etc., it actually took upon itself the charge of drafting and preparing the full text of the contracts.
The Majority takes the view that wording of arbitration clause embedded in contract No. 1 is perfectly clear and also there is no ambiguity in that contracts Nos. 2-9 do not contain an arbitration provision. The Majority, therefore, does not see any room for a contra proferentem consideration in this Case (para. 178-181). My appreciation of the case is, however, different. I believe the examination of witnesses during the hearing demonstrated how poorly equipped the claimant party was in its dealing with the Defendant party. No legal adviser was involved from the Claimant's side, and there was no drafting committee to discuss and sort out the possible legal implications of the provisions embodied in the contracts Defendant, on the other hand, was admittedly a well organized, fully equipped and amply experienced party. Their "Law department in Pittsburgh had Iranian advisers", as testified by Mr. Hawkins (Transcript, page. 492:. Defendant, therefore, is not in a position to rely on the absence of an arbitration clause on Contracts 2-9.

Defendant cannot question the other party, why certain provisions of the first contract such as force majeure are repeated in contracts 2-9 while the arbitration clause has been disregarded.

D. Allocation of Burden of Proof

The Majority Award has based it's examination of Case on assumption that the burden of proof is absolutely on the Claimant Party. (para. 81-83)

As to the existence of an arbitration agreement between the parties, I concur with the Majority view that it is for Claimant to establish that such agreement existed in a satisfactory form.

The essential question in this Case, however, is not the existence of an agreement to arbitrate, but the scope of reach and application of such agreement: whether the arbitration agreement of Radar Contract No. 1 should be read and interpreted in a way to encompass the entire relationship of the parties concerning various radar contracts or the said agreement should be confined to the single contract in which embedded?

Clearly, this is a question of interpretation which requires a careful evaluation of relevant elements of fact and Law.

The Majority Award appreciates however that allocation of burden of proof is to be reversed if a prima facie evidence exists in favour of Claimant. That is exactly my point. I believe such a prima facie evidence exists in the present case.

1. I refere to what is rightly observed by Majority Award in Par. 204 that:

"under various factual and legal situations, an agreement to arbitrate must sometimes be affirmed even though an arbitration clause as such is not existent between the actual parties to an arbitration. Thus, the absence of an arbitration clause, taken as such, is not as yet an insurmountable obstacle against affirming arbitral jurisdiction".

2. I refer also to various passages wherein the Majority Award has advocated not to take a "formalistic" or processualistic approach in this case.

3. I think the arbitrators are bound to establish, to the extent possible, the intention of the parties to a contract and interpret it accordingly.

Here we have the express and explicit evidence of the Party's choice of arbitration as the dispute resolution mechanism. This was agreed upon right at the outset of their contractual relationship. No evidence exists co indicate that they have subsequently changed their mind in favour of different mechanism.

In fact Defendant has taken the position that their standard form of contract for international sales did contain an arbitration clause and that Defendant had proposed an arbitration provision in the Draft contract. This proves the intention of Defendant and it’s commitment in favour of arbitration. It is a familiar concept that in large business relationships, arbitration is highly regarded for its special values including speed, privacy and expert knowledge of specialized areas. Therefore, in the international Commercial disputes of the type and magnitude before this Tribunal the presumption must always be in favour of jurisdiction, and the arbitration clause relied upon should be accorded a liberal extensive interpretation.
There is a strong, congressional ordained presumption in favour of arbitrability in the United States.

Reference may be made to Case: Pattern Securities Corp. v. Diamond Greyhound & Genetics Inc. 3 Cir. 1987 where the Court said:

"as a matter of federal law any doubts concerning the scope of arbitrable issue should be resolved in favour of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay or like defence to arbitrability, and if doubts arise as to whether this dispute is arbitrable or not, such doubts must be resolved in favour of arbitrability".

This strong presumption in favour of arbitrability is certainly even greater in cases similar to the instant case where the security interest of a Government is at stake. Considering the close involvement of MAAG in the whole matter and having taken cognizance of the fact that the contracts under dispute were the outcome of binding understanding between U.S. and Iran Governments of "operational concept" (C-44). One can clearly see the magnitude and depth of sensitivity of the subject matter of the contracts. It seems highly improbable to imagine that disputes so closely linked with such a political relationship of two Governments be left to jurisdiction of any municipal court.
In a similar case of dispute arisen out of contract which was part of a project to modernise and expand Iran’s electronic intelligence gathering system (Questch Inc. Against Ministry of Defence of Iran; Case 59) brought before the Iran-US Claims Tribunal, the first chamber of the said Tribunal (presided over by Dr. Bockisteagle) had the following to say:

• the contract being part of the IBEX program was rooted in military co-operation, and even belonged to highly secret intelligence gathering system. As such it touched on specially sensitive aspects of the state partner’s defence interests and policy. In this particular situation the political relationship between the states concerned was of greater importance than the ordinary commercial relations, and in this case even more than with regard to contracts for the sale of less sensitive military equipment on services". (Award No. 191-59-1)

Numerous cases of State contracts could be cited m which a government organisation against which the proceedings were initiated, attempted to avoid the arbitration. In all these cases the international arbitral tribunals stood up against such attempts and decided in favour of arbitrability. The strong motive behind such decision being always that the private party should not be deprived of neutral conflict resolving mechanism contemplated at the outset of the contractual relationships. Curiously enough the case at hand is the odd situation whereunder the private party in a State contract tries to dwarf the arbitration agreement. In my view it would be flagrantly unfair to allow it succeed.
There is no doubt that parties herein, just in their first contract, agreed on an arbitration clause of widest scope and applicability. There is no doubt that the contracts were drafted by one of the parties, which is now the Defendant party. Matters such as specifications of the systems required for "technical coverage" according to "operational concept" were always discussed and agreed upon on the higher levels of Iranian authorities, MAAG and Westinghouse, and contracts were executed "step by step" according to the availability of finance and budgetary allocations. Once such technical and financial aspects were discussed and determined, it was left to Westinghouse to prepare the contract. There was not a joint drafting committee or something like that order in to review the contract and agree on its wordings. Any ambiguity in the terms and conditions of contract therefore must be construed and interpreted against the Defendant according to the rule contra proferentem.

E- Principle of Good Faith

There remains a last point to complete this discussion and that is the very important point relevant to the principle of good faith. This principle is in the background of all arguments advanced in this case concerning the jurisdictional aspects, and the Majority Award has referred to it in more than one occasion. Law and machinery of justice have been created for the sole-purpose of protecting and sanctioning the right, but the- law cannot afford to protect a right which is exercised abusively and in disregard to the principle of good faith. A defendant party is perfectly within it's right and entitled to ask the claimant party to prove its case, but the burden is reversed if the circumstances point to possible abuse of right or disregard of bona fides standards.

Defendant's relying in the present case on arguments such as the existence of integration clauses in each contract and absence of an arbitration clause in contracts 2-9 in the circumstances whereunder the contracts were drafted by Defendant and Claimant had no active role to play, invokes the principle of good faith and alerts the Tribunal to be watchful. Several other objections raised by Defendant in the course of proceedings also indicate the obstructive nature of its whole attitude in dealing with Claimant’s Claims.

The First objection, raised by Defendant, was based on the contention that some of the nine (9) contracts were signed by Widasco, some by Widapsco and some others by Westinghouse Electric Co. Defendant denied chat all these entities are one and the same. (See Defendant's Brief, P.39).

Defendant's contention that each of the nine contracts (1-9) should be considered as a stand-alone contract, not related to the others, was also based on this argument. Thus, Defendant in its Response Brief, page 38, states that Claimant "has ignored the fact that the parties to the nine contracts were not the same and that fact alone precludes a finding of a single transaction".

Although this objection was later withdrawn in the course of proceedings, the mere fact that it was initially raised costs serious doubt or. Defendant's good faith.

The Second objection was the locus standi argument. As observed in the Majority Awards, the position taken by Defendant in this respect might come close to a "venire contra factum proprium",
The third objection to the jurisdiction was based on Article 139 of the Iranian Constitution. The Draft has also rejected this objection describing it, as "quite inappropriate to allow Defendant to rely on the said Article.

The three objections, as outlined above, are all designed to escape jurisdiction and obstruct the proceedings. They are deprived of any substance and require the Tribunal to treat more cautiously the Defendant’s explanations with regard to the presence of integration clause or the absence of an arbitration clause in contracts 2-9, etc..

An issue was raised by a Claimant's representative at the end of the hearing regarding the various dates on the RFQ exhibited under D-41. (See page 733 of the Transcript). I have, carefully reviewed the said Exhibit comparing the Iranian dates in question with corresponding dates indicated in Mr. Fracyon’s translation. (Attachment D to Fracyon's Declaration). On page 4 of the RFQ, Mr. Fracyon has incorrectly translated a very significant date. The second signature from top of the said page belongs to a Mr. Shayegan and the date in Farsi is 11.4.1352. Mr. Fracyon has incorrectly translated this date to June 1, 1973. The Iranian calendar begins on March 21st. Therefore the 4th month of the Iranian year corresponds to June/July. The correct translation of this date (i.e. 11.4.1352) is

This date is very significant. The Defendant proposal for ADS-4 Radars daces 15 June 1973, and they say chat it was in response to RFQ (Exh. D-43). Obviously this could not be possible because the last signature in RFQ is dated seventeen days later. Also Mr. Geikler's letter referring to RFQ is dated June 27. 1973 which again is several days before the date of the last signature on the said document i.e., July 2, 1973.

Even if we suppose that the so-called RFQ was in fact sent cut to various companies, it could not have obviously been any sooner than July 2, 1973! This confirms the Claimant's statement chat the RFQ was indeed a mere formality and that Westinghouse was going to be the contractor for the Karadj radars from the very beginning when the decision to provide Iran with an air defense system was made.

F- The Significance of Case No. 389

I have to say something also about Case no. 389 (RE. Westinghouse v. The Islamic Republic of Iran. IRAN-US Claims Tribunal I which has been discussed under paras. 199-202 of the majority Award. I have already offered some explanation concerning Depot Contracts and similarities of the said contracts with Radar contracts.

Some of the Depot Contracts were the subject matter of claims and counter claims by Westinghouse and MOD in Case No. 389 before the Iran-US Claims Tribunal. Westinghouse, as the Claimant in the said case, based its counter claims on certain of Depot contracts, while MOD based its claims on certain other of Depot contracts. A counter claim could not be entertained in the Iran-US Claims Tribunal unless it was based on "the same contract, transaction or occurrence that constitutes the subject matter" of the claim. Now MOD argued that the Depot contracts constituted a single transaction while Westinghouse contended that these contracts, individually negotiated and separately signed, constituted "entirely different issues of fact and law with no legal relationship between them".

As in the present Case, Westinghouse in Case No. 389 also argued that the Depot Contracts were the outcomes of separate biddings conducted in respect of each individual contract.

The Iran-US Claims Tribunal, however, in a unanimousely held Interlocutory Award rejected the contention of Westinghouse. The Tribunal decided that the linkage between the Depot Contracts was "sufficiently strong" to make then a single transaction. The Tribunal considered that:

"The Parties maintained communications with each other throughout the period from 1971 to 1970 cn depot - wide basi3, not simply contract by contract, although questions of their mutual obligations and performance were, of course, determined in each instance by relevant contract".

This finding in respect of Depot Contracts is important also for our Case because of parallel settings and identical patterns of two series of contracts in two Cases. Contracts in both Cases include provisions with regard to force majeure, Assignment, information, Indemnification, Termination, Limitation of liabilities etc.., in almost identical terms and wordings. They also include integration clause of identical wordings. A cursory examination of the documents submitted by both parties in this Case reveals the fact that, as it was put by the relevant Tribunal in Case No. 389, Parties in this Case maintained communications with each other throughout the period from 1971 to 1978 on a radar-wide basis, not simply contract by contract.
Based on these considerations, I am of the opinion that:

a) The Depot Contracts presented in exh. C-59 should be taken as a proof of Parties practice. The Parties included an arbitration clause in the first of a series of contracts and did not repeat it in the subsequent contracts.

The arbitration clause embodied in the first Radar contract of 8.8.1971 was not repeated in the succeeding contracts as the arbitration clause embodied in the first Depot Contract was not repeated in the succeeding contracts. This in fact, is another indication why all of nine contracts in the present Case should be considered as of one set or one series of transactions.

b) The Case No. 389 is important not because there was an issue of arbitration provision in that Case, but because there was an issue whether or not the Depot Contracts under examination in the said Case were interrelated. The question of inter-relatedness of the nine Contracts in our Case is also a decisive factor on the matter of jurisdiction.

Iran-US Claims Tribunal found that the Depot Contracts examined in Case 389 constituted a single transaction. This Tribunal should decide the same for the nine contracts of identical pattern which are the subject matters of the instant Case.

c) The integration clause embodied in the Depot Contracts did not prevent Iran-US Claims Tribunal from considering the said contracts as a single transaction. The integration clause of the identical language have also been included in the nine contracts in our case. There is no reason why this Tribunal should attach a greater weight to the same clauses in the present Case, as suggested in para. 213 (VII) of the Majority Award.

The integration clause embodied in all of the seven Depot contracts reads as follows:

"This Agreement supersedes and cancels any previous understandings or agreements between the Parties relating to services covered hereby. It and proposals incorporated by reference herein express the complete and final understanding of the parties with respect thereto and may not be changed in any way except by an instrument in writing signed by both Parties'.

This integration clause is almost identical to a similar clause embodied in each of the nine contracts related to the acquisition of the radar system (see: Majority Award para. 142).

Not withstanding the integration clause as quoted above the Iran-US Claims Tribunal held that:

"It is evident that each of the counterclaim contracts was legally separate and distinct from the claim contracts. The Respondent was under no contractual obligation to buy the services and equipment covered by the claim and counterclaim contracts from the Claimant or, indeed even to give the Claimant an opportunity to bid for that work. On the other hand, it is apparent that the claimant, as designer of Depot and supplier of most of the Depot's equipment, had great competitive advantages with respect to receiving any proposed contract for the expansion, modification, or servicing of Depot...

While the various contracts here covered different goods and services and were entered into at different times, all the contracts were linked to the Depot project, with respect to which both Parties were, in practice, committed as whole. As a practical matter, even though the Parties agreed, to conclude separate contracts, the Respondent had no reasonable opportunity to obtain tha desired services from a competitor of the claimant...

In this sense, the Depot project as a whole consisted of a single transaction. The Tribunal therefore holds that it has jurisdiction over the counterclaims at issue in this Award". (underlinings provided)

Part Two: Applicable Law

General Considerations

In the previous discussion, dealing with the matter of jurisdiction, I tried to highlight the fact that the contracts under consideration are fundamental different from the normal commercial contracts. The objects of the contracts are not the usual commercial transactions. This point must also be borne in mind in the application of rules of conflict to designate the proper law of the contracts.
The Majority Award attempts to examine both the objective approach and the subjective approach in the determination of the applicable law. The objective approach has been discussed first, concluding that the outcome under the said approach "sounds wrong and unsatisfactory and, on further reflection does not do justice to this particular case and to these parties'. (para. 273)

Once the outcome of the objective approach rejected, the Majority Award proceeds with the examination of subjective approach arguing that the absence of a positive choice in the contracts should be taken as an implied negative choice meaning that neither party wanted to submit its contract to the other party's national law. The conclusion is therefore that the Tribunal must lock for a 'neutral law'. The solution proposed by the Draft to satisfy this goal is the denationalization of the contracts which, according to the Majority Award, would respond "to both Parties objectively fair and subjectively justified and reasonable expectations". (para. 289)


There is no question that the Tribunal must resort to both objective and subjective methods for the determination of the applicable law. But before embarking on the relevant tests, I should like to propose to go back to the point underlined at the Part One of this discussion and reflect, for a moment, on the nature of contracts with which we are concerned. What kind of contracts do we have under examination?. No doubt that they are state contracts proper.

There are voluminous literature and many scholarly analyses concerning State contracts. I find, particularly, helpful Professor Bernard Audits' classification of these contracts into three categories: The first category relates to the contracts in which the private party placed itself under a regime of public law of co-contracting State, such as the law of French administrative contract. These contracts are subject co the law of the State and, in any case, to the jurisdiction of it's tribunals. The second category is related to the contracts in which the public authority presents itself as a private person. Therefore, it can be specified that the contract is a private contract, a choice of law clause, and a jurisdiction clause remove the contract from the jurisdiction of the law and tribunals of the contracting State.(such as the Loan agreements between the Government authorities and the banking institutions.)

Between these two categories, there is a third category of State contracts, stricco sensu,"characterized by the fact that one party acts in the public interest or as public power, whereas the other purports to remain under a regime of private law. The public party is negotiating in a domain connected with State sovereignty or its special responsibilities" [Transnational Arbitration And State Contracts: Findings And Prospects", Hague Academy of International Law (1987)]

Elements of Delocalization

If the parties to a contract of this third category intend to avoid a presumption in favour of the application of the State Law, they would normally include in their contract a "stabilization clause" or particular provisions providing for immutability and intangibility of the contract's terms.

In certain cases also elements in the contract such as providing for good faith practice or reasonable manner or referring to general principles of law night be construed as indications of party's intention to delocalize the contract and to avoid the application of the state party's law.

As for the State Contracts in which no such elements is contained, the application of the law of the contracting State does not seem to be questionable.

The applicability of the law of the State party to this category of contracts could be considered as the outcome of an objective approach, as reflected in Hans kelson's words: "the essence of the legal state consist in the fact that the State, as the possessor of authority is always subject to her own legal system"

The same conclusion could be arrived at also by applying a subjective method test as reflected in the observations by M. Florentino P. Felliciano:

"It is very difficult to presume that a sovereign State would lightly subject itself to the effects of the internal law of another State, or even to international or the general principles of law".

(Institute de Droit Internacional, Annuaire, Vol. 51, Session d' Oslo 1977, Travaux Preparatoires)

Is There A Presumption?

What then for a presumption in the favour of the applicability of the law of the State party to the State Contract, where the contract does not provide otherwise? There is no question that for chose scholars who adhere to the "traditional school of thought" such presumption exists. The juridical cornerstone of this view is enshrined in the famous dictum of the P.C. I. J. in cases relating to "Certain Serbian and Brazilian Loans’. However it cannot not be denied that, the presumption has been subjected to conflicting views in the recent years.

There are authorities such as D.W. Bowett and M. Seidle-Hohenveldern who affirm the said presumption.

In Professor Bowett's words "although this is rebuttable it will normally be a difficult presumption to rebut", (see D,W. Bowett, "State Contracts with Aliens: Contemporary Developments on Compensation For Termination or Breach", The British Year Book International Law, 1988)

Of course, one cannot fail in this discussion to recall the points raised by Professor Dupuy in the famous Texaco Case. One can easily agree with Dupuy that a "so to speak mechanical application of the municipal law" is no longer sustainable.

One could agree with him also when he says that "under the pressure of the needs of international trade, the principle of autonomy of the will of the parties appears today to be much more significant than at the end of the 1920s"; but these points do not mean that the presumption has ever been reversed or lost all of its value and effects.

At Least A Weighty Indication

In fact going through the "Travaux Preparatoires’ of the "Institut de Droit International" concerning "Les accords entre un Etat et une personne privée étrangère", it appears that chose who object the existence of such a presumption do it on the basis that it should not be called "presumption" in the technical sense of the word. The objections did not assume ever that the fact that a State is party to a contract means nothing and that it should be disregarded altogether. Thus we read in the report by Georges Van Hecke that:

"Il en est autrement de la question de savoir s'il existe une présomption en faveur de la loi de l’Etat Contractant. M. Seidle-Hohenveldern admet cette presomption sans restriction....Pour H. Mann il ne peut s'agir d'une présumption proprement dite, mais d'un indice relativement important et tel semble être également l'avis de M. Wortley. M. Batiffol est du même avis",

(underlining provided)

The report can be checked against the texts of observations wherein Professor Mann describes the whole idea not in terms of:

"a presumption in the technical sense but very great weight attaches to the status of the contracting parties", (underlining provided)

professor Batiffol also states:

"Bien que la présomption ait été posé en 1929 par la Cour Permanente de Justice International dans les affaires des emprunts serbes et brésiliens, en France, elle parait aller très loin...".

in Wortly’s view the presumption is admitted,

"Only in the absence of express or implied indications".

Professor Lalive after stating that he does not admit the presumption, immediately tries to explain that:

"Ceci n’est pas contredit par le fait que, en pratique, le droit de l’Etat a été assez souvent jugé applicable, soit à titre de lieu d’ éxécution, soit en vertue du grouping of contrats etc. C’est à dire en vertue des principes classiques du droit international privé".

Reference To The Iranian law

Pondering over paragraphs 183-184 of the Draft. I have got the impression that there is some misunderstanding in what a reference to Article 968 of the Iranian Civil Code means. This certainly does not mean "to assimilate the task of an arbitral tribunal with the quite different task of a national court". A tribunal proceeding under Article 13(3) of ICC Rules is required to determine the proper law if the parties have not indicated such law. The determination of the proper law would necessitate the recourse to the objective and subjective appreciations of the elements appropriate co the case.

Now, the first step in a subjective approach is to investigate the degree of autonomy allowed to the contracting parties under the ground law in which the contract is rooted.

There is a distinction between the law governing the contract and the law, or legal order, within the frame of which the contract is made, and from which the contract derives its binding force. It is in this context that the Article 968 of the Iranian Civil Code matters.

"Did the parties have the right to select the law which was to govern their contract?"

This was the question put by professor Dupuy in Texaco Case. That question was pertinent in relation to the said case where the contract included a choice of law clause. The question is even more pertinent in the present case where the parties have abstained from making such a choice.

What did stop the parties from indicating the law which was to govern their relationship?, whereas the contract's 'from their nature and importance, clearly cried out for the need of such a choice of law-clause'?. The key to understand the situation is found by reference to Article 968. The ground law (loi d'enracinement) denied the autonomy to the contracting parties to make a choice. If that is the case, how could the Tribunal assume an implied intention by the parties to subject their contracts to any law other than the law of Iran.

Had the parties intended to do that, they would have concluded their contracts outside Iran. That is what the common sense says. Defendant party who cook upon itself the drafting of the contracts is supposed to have competent lawyers who knew of the legal consequence and implication of signing the contracts in Iran. The conclusion based on a subjective approach is therefore that the parties intended to subject their contracts to the governance of the law of Iran.
The objective criterion of lex loci contratus also leads to the same conclusion. This criterion carries great weight which until quite recently prevailed over all other indications in a search for the determination of the proper law of contract. The defendant’s contention that the place of negotiation, the place of execution and the situs of equipment are all accidential does not carry any weight, and since the total performance of the contracts is not attributable to one single place, the conclusion based on this criterion and confirmed by the use of subjective methods as explained in the previous paragraphs must prevail.
Whole document
Click on the text to select an element Click elsewhere to unselect an element
Select a key word :
1 /