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The US-Iran Claims Tribunal
Charles Brower/ Jason Brueschke, The US-Iran Claims Tribunal, Nijhoff/Kluwer The Hague 1998, ISBN 9041106278, Euro 237.50, 931 pages, Appendix with primary legal material; extensive bibliography; table of tribunal cases; index
This book is exciting - in spite of weighing over 3 pounds. It is the so far most comprehensive, detailed and best documented study of close to 20 years of US-Iran claims tribunal history, written by one of the American judges - supported by a very large team of what appears very dedicated assistants. It is well written, beautifully documented and referenced, pleasurable to read and with an outstanding bibliographical machinery.
The US-Iran claims tribunal has, so far, made the most extensive contribution to the specific interpretation and application of international customary law (including, based on the US-Iran treaty of amity, on bilateral investment treaty) relating to investment protection, the role of protected property, the distinction between legitimate exercise of regulatory and police powers on one hand and, on the other, governmental action or negligent omission which is equivalent to a "normal" taking, compensation for expropriation and valuation of affected property for calculating compensation - in addition to numerous other issues, such as the application of the UNCITRAL arbitration rules in very difficult, politicized and internally complex relationships between the arbitrators and the two, then and still, hostile governments.
The large number of cases decided, with extensive reasoning and full transparency (an issue with current NAFTA chapter XI investment arbitration cases where transparency under normal application of UNCITRAL rules is not mandatory and therefore very controversial) makes this the most significant source of specific international economic and commercial law precedent after World War II - and probably more significant than the post WW I and subsequent US-Mexico claims commission awards still feeding the discussion of investment protection principles today. It has influenced the subsequent UN Claims Commission which determines payment on claims against Iraq subsequent to the 1991 Gulf war - though, at least in this reviewer's opinion, the UNCC should have taken the US-Iran claims tribunal's reliance on internationally recognized dispute settlement rules embodying impartiality, due process and procedural fairness on board.
The story of the US-Iran claims tribunal is well known and recounted in the beginning chapter. It needs no re-telling. In essence, the "Algiers agreement" was a brokered agreement between the US and Iran exchanging the hostages taken in the US embassy against assets taken by the US, with use of such assets to pay for claims of US persons against Iran affected by the Iranian revolution and its particular opposition against the US. The tribunal's history is recounted here in reasonably dispassionate style - though it is clear this is written from the US perspective. The moment of crisis - when two Iranian judges beat a Swedish judge - is narrated in more detail.
That incident is not so far from the hijacking of an Indonesian arbitrator in a recent Indonesian government guarantee arbitration recounted in more detail by Jacques Werner ( Journal of World Investment, Vol. I,l issue No. 2, December 2000, "The frailty of the arbitral process in cases involving authoritarian states, p. 321. The then President, Gunnar Lagergren, comes off not very well, both in his management capacity and his capacity to stand up for the integrity of the judicial process and support for an elderly fellow compatriot judge - but his side of the story, as well as the Iranian one, still needs to be told.
There are, or were, disputes about the precedential value of the US-Iran claims awards. One can perhaps still argue if they are subsidiary sources of international law under Art. 38 of the ICJ statute. I would tend to agree with the authors that this long line of cases does contribute to international customary law, though the effect is somewhat diluted by the fact that the decisions were frequently inconsistent in terms of key principles relied upon. But then, this is the fact of most arbitral and many judicial decisions without a hierarchical supervisory body emphasizing at least nominal consistency. But quite apart from such perhaps more formal arguments, the fact is that counsel, judges and arbitrators, will tend to rely on previous decisions and authority if they are issued by a respected authority and persuasive both because of such authority and the quality of the reasoning.
The shere number of cases, their public availability (and the quality of analysis and reference of this study) is likely to make them as a first port of call when the very open-ended articles of modern bilateral and multilateral investment treaties, including their recourse to customary international law standards, are to be interpreted. Any member of the legal professional community will feel on safer grounds if a group of brethren have decided a similar case with similar arguments as he/she now wishes to rely upon, and that creates a de-facto, even if not legally binding, precedent.
The tribunal made a large number of relevant decisions in the area of jurisdiction, in particular in cases of dual nationality where the tendency was to accept complaints from dual nationality investors, at least where US nationality was the "dominant" one. It did not, this is criticized in the book, accept most claims from persons that were expelled from Iran. Under the pressures of sometimes very hostile and non-cooperative relations between the two groups of "partisan" arbitrators, difficult procedural issues came up for resolution: Temporary absence of arbitrators (the authors explain the practical difficulty of finding competent full-time arbitrators for this sort of long-term, but not permanent job), replacement of arbitrators, challenges to arbitrators and the appointing authority's powers, evidentiary considerations, interim measures and re-opening of awards.
The conclusions of the book explain some of the pressures the arbitrators were under - including the need to accommodate each other in view of a long-term co-habitation in a "small-town setting", the wish not to disadvantage a developing country for its lower level of preparation which, so the authors argue, imposed a de-facto higher standard of substantiation on the US plaintiffs and the fact that several legal cultures were (in particular US , Iran and European civil law) compelled to produce a series of joint results.
It is particularly interesting that the authors note that traditional conflict of law rules played almost no role in determining the legal rules actually applied; perhaps conflict of law rules have become too complex and scholastic to be of practical significance. The authors rather find that on most issues of commercial contract law a de-facto "lex mercatoria", i.e. common understanding of the technical rules of international contract emerged out of the deliberations. Tribute is here paid to comparative contract law and the influence of UNIDROIT harmonization efforts on the minds of the arbitrators - including the Iranians.
The major interest of the book is in the contribution of the awards to international economic law. The issues at stake - expropriation, ability of government to affect contracts made with foreign contractors, stabilization clauses, compensation, valuation methods, interest - have been subject to much discussion, often under the "New International Economic Order" heading, but relatively little arbitral practice - though that is now changing with the current wave of Nafta chapter XI and BIT-based ICSID arbitration. Here, the US-Iran claims tribunal have had to face these issues in numerous cases and that provides ample precedent.
It does not, though, provide an absolutely consistent precedent as the authors note critically as the three chambers of the tribunal apparently were not well coordinated. The few issues I would like to select are: The tribunals as a rule affirmed the that expropriation, lawful or not, required full and prompt compensation of market value; the real dilemma comes with the calculation of such market value. While most awards have relied to some extent on discounted cash flow calculations - which imply a highly speculative element about future events affecting earnings, the authors suggest that the most persuasive way is to rely on alternative methods to reach similar results. One gets the impression that the quite senior judges - typically retired judges - have had difficulty of getting to grips with modern accounting methods, all subject to considerable discretion, subjectivity and manipulability, an issue that has come up again in UNCC awards. In principle, the effect of the Iranian revolution - lowering the compensable value - is recognized to the extent it occurred before the relevant time of the "taking".
But then, the "takings" here often proceeded in an incremental way, with the relevant date where a "taking" can be finally assumed often uncertain and quite subjective. Some cases seem to have disregarded that assets in a revolutionary situation are very depressed - and thus in effect imposed on Iran the duty of a compulsory political risk insurance agency for the risk of revolution in their own country. Stabilisation clauses seem to have - when identified - been recognized, but only if explicitly formulated and for a limited - reasonable - duration.
From the precedents presented here, one can infer that it is advisable to include stabilization clauses in contracts with governments and government agencies; at least they reduce to some extent the force of the "sovereignty argument" and can help to enhance the valuation for compensation. A particular contribution of the cases is their effort to distinguish between a legitimate exercise of "police powers" - in a difficult, revolutionary situation and the stage where government action or omission is equivalent to an expropriation. The precedents are of some value for the now starting distinction between "regulatory taking" and legitimate economic or environmental regulation, but they are coloured by the specifics of a revolutionary situation where normal government power did not really exist and only emerge gradually.
In essence, an expropriation is assumed by the awards when the foreign investor is definitively deprived of the economic control over his assets, even if a formal "taking away" of the property title did not take place or occurred much later.
The book contains the Algiers Accords, the tribunal rules of procedure and extensive and very useful references. It appears to me to be written with great effort at balance and impartiality, though the authors' natural bias towards the US view of this dispute comes out as well. They do, perhaps, not appreciate fully that the Iranian government was exposed in an internal revolution which must have put tremendous pressures on the Iranian participants in this game which created, through the litigation process, a situation of continous and visible confrontation, and the need of the two partisan actors to be seen as sufficiently loyal to their country's cause , and on the "third party" actors a need to be seen as very balanced.
There is also the question if actions taken by a government involved in revolution, i.e. in turmoil, in an inability of "normal" government to comply with the usual international law obligations and requiring special measures - e.g. for securing the operation of occupied foreign-owned facilities, do not need special considerations. I presume that in many cases, even cases criticized by the authors in this study, the fact of revolution underlies decisions, e.g. on compensation and on the determination of the point of no return where expropriation, even without formal decision to transfer property, takes place.
An Iranian view on this book and the process would therefore be very interesting, and desirable. They also criticize the inefficiency of the "docket management process"; again, that seems to be due to sometimes quite reasonable political considerations (i.e. to postpone inflammatory cases to a later stage), to the seniority of the many retired judges - the second chairman, Prof Boeckstiegel, seems to come out best from this account. But then, I am not sure if a more efficient process that sacrifices legal principles of fairness and due process is better than a less efficient process that in the end can not be faulted for such essential principles of the international rule of law. To sum up: An excellent and so far the best study available on the US-Iran claims tribunal which is likely to form an academic and legal authority for decades to come.
