U.S.-IRAN CLAIMS TRIBUNAL: RECENT DEVELOPMENTS

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• Document Release Date: September 26, 2011
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Approved For Release 2011/09/26: CIA-RDP05TO2051 R0001 00150018-5
INTERNATIONAL LAW
U.S.-Iran C ims Tribunal:
Recent Developments
Statement before the Subcommittee
on International Economic Policy and
Trade of the House Foreign Affairs Com-
mittee on December 7, 1982. Mr. Michel
is Deputy Legal Adviser.'
It is a privilege to appear before you to-
day to testify in support of the proposed
legislation relating to the settlement of
claims against Iran.
The Algiers Accords
As you know, under the Algiers accords,
which led to the release of the American
hostages held in Tehran, the United
States and Iran agreed to establish an
international arbitral tribunal, the Iran-
U.S. Claims Tribunal. This tribunal-
composed of three members appointed
by the United States, three by Iran, and
three third-country arbitrators chosen by
the six party-appointed members-was
empowered by the accords to decide
claims of U.S. nationals against Iran
arising out of debts, contracts, ex-
propriations, and other measures affec-
ting property rights. The tribunal may
also hear certain Iranian claims against
the United States. Awards issued by the
tribunal are binding on the parties and
are enforceable in the courts of any na-
tion. To assure payment of awards in
favor of U.S. nationals, a security ac-
count was established at a subsidiary of
the Netherlands Central Bank, with an
initial deposit of $1 billion, using certain
Iranian assets which had been frozen in
the United States. Under the accords,
Iran has an obligation to replenish the
security account when payments to suc-
cessful U.S. claimants cause the amount
in that account to fall below $500
million.
The accords established the basic
framework for the operation of the
tribunal. They set filing deadlines for
claims, adopted the arbitration rules of
the U.N. Commission on International
Trade Law (UNCITRAL) as the basis
for the tribunal's procedural rules,
designated The Hague as the seat of the
tribunal, and provided that the expenses
shall be borne equally by the two gov-
ernments. In addition, the accords
stipulated that claims under $250,000-
so-called small claims-must be
presented to the tribunal by the govern-
ment of the claimant. So-called large
claims-those of $250,000 or more-
were to be presented directly to the
tribunal by the claimant. The accords
also gave the tribunal the authority to
decide disputes between the parties con-
cerning interpretation or application of
this agreement.
Operation of the Tribunal
When the tribunal first convened in May
1981, the arbitrators confronted the
monumental task of "setting up
shop"-establishing a claims registry,
hiring essential staff, finding competent
interpreters and translators to enable
proceedings to be conducted in both of-
ficial languages, adopting special rules
of procedure, and deciding a series of
threshold issues of jurisdiction and inter-
pretation on which the parties could not
agree.
More than 4,000 claims have been
filed with the tribunal: 2,795 small
claims and approximately 650 large
claims of U.S. nationals against Iran;
about 100 contract disputes between the
two governments; more than 200 claims
of Iranian banks based on standby let-
ters of credit and some 200 based on
disputed amounts of deposits in U.S.
banks; and several hundred claims
raised by Iran and Iranian nationals. In
order to expedite hearing this tremen-
dous case load, the tribunal divided itself
into three chambers, each headed by a
third-country arbitrator and containing
an American and an Iranian arbitrator.
While the chambers hear the individual
claims, the full tribunal convenes to
decide interpretation disputes and
significant legal issues common to many
claims when those issues are relin-
quished by the chambers.
The tribunal is a unique institution,
representing one of the most ambitious
and complex international claims ad-
judication programs ever undertaken. To
appreciate its progress to date, you
must keep in mind that it labors under
difficult circumstances. The tribunal's
operation is affected by the continued
absence of diplomatic relations between
the United States and Iran and the
ongoing domestic revolution and exter-
nal war of Iran.
Against this background, the
tribunal has made considerable progress
in the past year and a half. During its
first year of operation, the full tribunal
ruled on several major issues, setting
the framework for future decisions.
In an important decision protecting
U.S. nationals who chose not to file
claims with the tribunal, the tribunal
decided that it had no jurisdiction over
claims by one government against the
nationals of the other. As a result of this
decision, Iran withdrew over 1,400
claims from the tribunal.
In another decision, the tribunal held
that settlements between arbitrating
parties could be paid from the security
account when the tribunal approves the
settlement and issues an award on
agreed terms. This decision benefits
American claimants in two ways. It en-
courages settlements by making the
security account available for this pur-
pose. At the same time, it assures
American claimants who are unable to
obtain settlements that the security ac-
count will not be depleted unfairly, since
all settlements to be paid from the ac-
count are subject to tribunal review.
The tribunal has also decided that in-
terest earned on the security account
should not be paid to Iran but should
continue to be credited to a separate
suspense account in the depository hank.
Interest may be used by Iran to re-
plenish the security account. Until all
claims are decided and all awards paid.
however, use of the interest for any
other purpose will require the agree-
ment of both the United States and
Iran.
The tribunal recently issued another
major decision in the choice-of-forum or
forum selection cases. Here, the tribunal
had to decide whether its jurisdiction in-
cluded claims brought under contracts
within contained language referring con-
tractual disputes to Iranian courts. In
essence, the tribunal held that only those
contracts which explicitly state that all
disputes are to be referred only to com-
petent Iranian courts are outside the
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jurisdiction of the tribunal. It should be
noted that the tribunal did not dismiss
any of the claims found to contain such
a forum selection clause but remanded
each of them to the individual chambers
th,r a determination of whether any
ether legal bases exist under which the
tribunal may retain jurisdiction. The
tribunal declined to decide whether any
contractual election of an Iranian forum
is enforceable in light of the dramatic
changes in the Iranian court system
since the contract was signed and the
doubts concerning the ability of
American claimants to obtain a fair
hearing in the present Iranian courts.
Therefore, the tribunal's decision will
not operate to bar a claimant from rais-
ng such arguments in another forum,
;urh as a U.S. court, if the claim is
ultimately found to be outside the
tribunal's jurisdiction.
With a number of interpretive ques-
tions resolved, the tribunal has turned
attention to arbitrating the individual
laims of Americans. There is no ques-
t,n that the pace has been slow. The
Iranians have repeatedly requested ex-
tensions of filing dates, interposed many
.iL,risdictional and procedural questions,
and made numerous untimely demands.
Ihese delaying tactics probably reflect
i ,t h the real burden faced by Iran in
dealing with so many claims and the
Iranian desire to defer rulings on the
merits of claims they oppose. We have
repeatedly expressed our concern in the
>trongest possible terms to the tribunal
,,bout its tolerance of Iranian delays and
the resulting slow pace of operation. We
ha% e seen some progress, for example,
in less automatic approval of requests
1,,r time extensions.
Despite the delays, the tribunal has
made progress in arbitrating the private
claims. It has assigned all 650 large
claims to the individual chambers for
hearing, and the chambers have set
Iranian response dates for almost all of
these claims. Iran has filed approximate-
Iv, 250 statements of defense so far. By
t he end of the year, the three chambers
ti ill have held approximately 75 prehear-
ing conferences. Over 20 more have
already been scheduled for early next
ear. While only about 20 hearings on
the merits have been held so far, about
:t5 more are scheduled for the coming
months. To date, the tribunal has issued
I I awards in favor of American claim-
ants, 9 approving settlements, and 2
contested awards, for a total of about $8
million. In addition, the tribunal has
dismissed 2 claims for lack of jurisdic-
tion.
The tribunal registry has completed
serving the statements of claim for the
2,795 small claims on the Iranian agent
in The Hague. The tribunal is currently
deciding how most efficiently to handle
the arbitration of the small claims and is
considering the appointment of experts
or special masters to assist in this
process.
The tribunal's record to date, while
less than satisfactory in several
respects, compares favorably with
previous claims proceedings. Histori-
cally, Americans who have asserted
claims against foreign governments have
normally had to wait many years and
often have recovered only a fraction of
their actual losses. Here, only 4 years
have passed since the beginning of the
Iranian revolution, in which longstand-
ing commercial ties were destroyed and
huge losses were incurred by Americans
living or working in Iran. Resolution of
their financial disputes with Iran is now
foreseeable. An agreement to adjudicate
American claims against Iran has been
signed, a fund from which to pay awards
has been established, an arbitration
tribunal has been set up and is now
operational, and arbitration of individual
claims has begun in earnest.
Costs to the U.S. Government
The U.S. Government has incurred, and
will continue to incur, substantial ex-
penses in seeking to make the tribunal
an effective forum in which deserving
American claimants can obtain timely
relief. As I mentioned earlier, the ac-
cords divided the tribunal expenses
equally between Iran and the United
States. The United States also pays one-
half of the security account management
fees. The Federal Reserve Bank of New
York incurred expenses in transferring
Iranian assets and will incur further ex-
penses in processing payments of tri-
bunal awards. The State Department
and other government departments have
devoted, and will continue to devote,
substantial resources to maintaining the
arbitral process. The exact total of
future U.S. expenses depends on the
lifespan of the tribunal and the extent to
which some claims can be settled
i,4TERNATIONAL LAW
through negotiation rather than arbitra-
tion. However, we estimate that the
government's expenses may well exceed
$80 million.
Tribunal Expenses. Tribunal costs,
shared by the United States and Iran,
consist primarily of the salaries and
allowances of tribunal personnel; rental,
operation, and maintenance of the tri-
bunal building; and necessary supplies
and equipment.
During FY 1981, the U.S. contribu-
tion was $303,000; during FY 1982, it
was $2.05 million. The tribunal's recent-
ly adopted budget calls for payment of
$2.083 million during the period July 1,
1982, to June 30, 1983. The Department
had originally anticipated that a higher
contribution would be required for this
fiscal period on the assumption that
agreement would be reached during this
period to expand the tribunal's decison-
making capacity, by adding additional
arbitrators, employing special masters,
or through some other mechanism.
While no such agreement has yet been
reached, some form of expansion is con-
sidered likely during the next year or
two, requiring a corresponding increase
in the contributions of both the United
States and Iran.
Security Account Management
Fees. The management fees of the N.V.
Settlement Bank of the Netherlands the
depositary for the security account, are
now set by agreement of Iran, the
United States, and the Dutch Central
Bank. These fees amount to $1.8 million
per year, of which the United States
pays $900,000-or $75,000 a month.
That amount reflects considerable front-
end "start-up" expenses incurred by the
Central Bank and is not tied to the
amount of principal or interest in the ac-
count. We would expect, then, that any
increase in the fees due to inflation will
be largely offset by actual reductions in
expenses incurred.
Expenses of the Federal Reserve
Bank. In its capacity as fiscal agent of
the United States for purposes of im-
plementing the Algiers accords, the New
York Fed has incurred certain expenses,
primarily in connection with the mar-
shaling of Iranian assets and the proc-
essing of awards of the tribunal. To date
these expenses have totaled approx-
imately $100,000. This figure in large
part represents one-time costs and will
April 1983
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INTERNATIONAL LAW
be subject to a substantial reduction
beginning in FY 1983. We project an-
nual expenses directly related to proc-
essing tribunal awards to be between
$20,000 and $40,000.
State Department. The State
Department has made Iran claims one of
the top priorities in the Legal Adviser's
office. The Office of Iranian Claims,
staffed by 10 full-time attorneys, five
paralegals, and other support personnel,
has incurred sizable expenses in terms
of personnel, services, and equipment in
connection with the establishment of the
tribunal and its continuing operation.
Apart from the presentation and
defense of the official claims and inter-
pretation disputes between the two
governments, the office devotes substan-
tial resources to the preparation and
presentation of U.S. positions on major
common issues of importance to both
large and small claimants. The office
monitors tribunal activities, analyzes
Iranian factual and legal arguments, and
prepares factual and legal materials to
support U.S. positions. It acts as a coor-
dination point for the presentation of
American claims before the tribunal. In
addition, the office analyzes and
distributes tribunal decisions and other
information about the tribunal.
The U.S. agent in The Hague pro-
vides invaluable assistance to attorneys
for large claimants and essential
representation of U.S. interests across
the entire range of tribunal issues. The
agent receives and serves tribunal
documents on the claimants, briefs at-
torneys on procedural and substantive
matters, attends prehearing conferences
and hearings, and addresses issues of a
general nature that inevitably arise in
the adjudication of individual claims.
In addition to the services I just
mentioned, the Office of the Legal Ad-
viser is now preparing to present before
the tribunal the 2,795 small claims.
For FY 1982, the costs attributable
directly to the office totaled approx-
imately $1 million. The FY 1983 and
1984 estimates are $1.2 million each.
Other U.S. Government Expenses.
Both the Treasury and Justice Depart-
ments have incurred, and will continue
to incur, direct and indirect costs in con-
nection with the establishment and
operation of the tribunal. These agencies
have substantial responsibilities for
assuring U.S. compliance with the provi-
sions of the claims settlement agreement
and the various technical agreements.
And the State Department relies heavily
on their expertise in preparing U.S.
positions on interpretive questions
before the tribunal. In addition,
Treasury plays a major coordinating role
in matters relating to banks and their
customers.
The Proposed Legislation
The legislative proposal before the sub-
committee authorizes the Foreign
Claims Settlement Commission to ad-
judicate any category of claims by U.S.
nationals against Iran that may be set-
tled by lump sum agreement between
the United States and Iran. It also
authorizes the Secretary of the Treasury
to make payments to individual claim-
ants in satisfaction of the commission's
determinations.
Of course, the exercise of these
authorities will depend upon the ability
of the two governments to come into
agreement on a settlement of some
category of claims. We expect settle-
ments of large claims to occur only
through direct negotiations by claimants
on a case-by-case basis. Such individual
settlements will not involve the
authorities contained in this bill. We do,
however, hope to avoid for both govern-
ments the time, effort, and expense of
arbitrating each one of the more than
2,700 small claims now before the
tribunal. While we are prepared to go
forward with arbitration of the small
claims and to represent the claimants
vigorously before the tribunal, there are
obvious advantages to settlement of the
small claims. And if such a settlement
can be achieved, we believe the fastest,
most economical, and fairest way to
divide the amount received in the settle-
ment among the members of the class of
claimants will be through adjudication
by the Foreign Claims Settlement Com-
mission.
The proposed legislation also pro-
vides authority and procedures for reim-
bursement to the U.S. Government of
expenses incurred by the Departments
of State and the Treasury, the Federal
Reserve Bank of New York, and other
agencies for the benefit of U.S. nationals
who have filed claims with the tribunal.
This cost recovery would be achieved by
deducting 2% from each arbitral award
against Iran paid from the security ac-
count to a successful U.S. claimant.
We have transmitted with the Ad-
ministration's draft bill a detailed sec-
tional analysis. Chairman Bell is here to
address the grant of standby authority
to the Foreign Claims Settlement Com-
mission. With respect to recovery of the
governor's costs, this legislation is in-
tended to help finance the efforts of the
United States to provide American
claimants with an appropriate and effec-
tive forum for the resolution of their
disputes with Iran. In proposing a
recovery of 2% of each tribunal award in
favor of an American claimant, the bill
seeks to recover an amount that is ex-
pected to approximate the costs to the
government of this arbitration. While
the Department cannot predict the ag-
gregate amount the tribunal ultimately
will award to American claimants, we
have based our projections on the
expectation that the tribunal will award
$1 billion during its first 4 years of
operation and an additional $1 billion for
each subsequent 3-year period. At the
2% rate of recovery of costs which we
are proposing, the maximum amount of
U.S. expenses exceeds our projection of
costs recovered.
Conclusion
In sum, we think that the tribunal can
provide American claimants with an ef-
fective forum for the resolution of their
financial disputes with Iran. The Depart-
ment of State and other concerned gov-
ernment agencies are providing substan-
tial services to claimants in connection
with the operation of the tribunal and
are incurring significant costs in this
regard. We believe that the proposed
legislation will facilitate this arbitral
process and will fairly allocate among
the claimants the costs of providing this
forum.
'The complete transcript of the hearings
will be published by the committee and will
be available from the Superintendent of
Documents, U.S. Government Printing Of-
fice, Washington, D.C. 20402. ^
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