IRAN'S INTEREST BEST SERVED IF MOSSADEGH WILL SUMBIT ITS CASE AGAINST THE AIOC TO THE INTERNATIONAL COURT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83-00423R000701130001-8
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 18
• Document Creation Date: November 9, 2016
• Document Release Date: February 18, 1999
• Sequence Number: 1
• Publication Date: August 1, 1953
• Content Type: REPORT

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I f M o s s a d e g h W i 1 1 S u b m i t I t s
C a s e A g a i n s t T h e A I O C T o T h e
I N T E R N A T I O N A L C 0 U R T
By DR ABOLBASHAR FARMAN FARMAIAN
STANDARD PANEL
It is significant that the author of the following
article is a Prince of Iran by heritage, and now of
the Columbia University Law School. Like many other
clear-thinking men of his country, he realizes the
great importance of early settlement of the unfor-
tunate oil dispute between his Government and the
Auglo-Iranian Oil Co., and recommends that their
respective claims should be placed in the hands of
the International Court of Justice as the best way
out of the difficult situation. He does not hesitate
to speak freely tout the attitude of both parties for
he believes that neither can get what has been demanded.
This is the second discussion by Dr. Farmaian, and
supplements an article in our November, 1952, issue by
his ?-r brother, Prince Manouoher Farman Farmaian,
former Director General of the Government's Oil Dept.,
who is now bank in Teheran.
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It it to the Intere^t of Iran to Submit to the uurisdiction
of thz International Court of Justice, by Ze. Abolbashai? Farmanfarma
The gulf that once separated the position of Iran from that of
England in respect to the settlement of the oil dispute, and rendered
futile all endeavors made by the United States to solve this rather
awkward problem,, is now far more narrow than it has ever been. A
glance at the change of position b2 Dr. ?ossade;h, indicated in the
recent statements made by his advisers, demonstrates this fact.
At the beginning Dr. Mossadegh and his advisers were absolutely
against any su;s-estions to settle in the International Ccurt of Justice
the dispute,which has been confined to the amount of damages due the
British as a result of nationalization of the oil industry in Iran.
The Iranians maintained that the Court had no power to order an
interim measure of protection for the preservation of the status quo
until the Court had decided upon its own jurisdiction of the case.
;'hen the Court ruled against the Iranians in this respect, Dr. Mossadegh
and his advisers were greatly indignant and made no secret of this fact,
giving; rise to sentiments by the public in Iran. The visit of Dr.
Mossadegh to the United 3tates to defend the case in the United Nations
seems to have had decisive effects upon him. At least it made him
realize that it was better for his country to appear in the Court while
that body was considerin,r its competence to deal with the merits of
the case. The decision of the Court, w_lich was against its own juris-
diction, was a new experience to I)r. 1 oosaclegli. He saw for himself that
legal ar ;urments and not politic; considerations are the basis for the
Court's decisions. :e learned icr the first time that his own speech
in the Court, which was prepared by a staff of political-speech writers
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iho accompanied him from Teheran, was given almost no weight, while the
guments of his Belgiari"courj?1 finally won the day.
One should bear in mind that Dr. Mossadegh had, with the
azceptioA of a few months during the twenties, never been in an executive
position to have learned about such newly created international bodies.
r the first time g e became prime minister: in 1951 and had naturally
very little understanding of international relations. He has since
learned a great deal but, as yet, not enough. His l e a ~.u res eetG
10 the International Court of Justice has mos ~~eeted his to trust
this international body.
The uncompromising position of Dr. Mossadegh, that the dispute
is one of domestic concern, has been somewhat modified. Recently Dr.
Mossadegh has declared that he would submit to the jurisdiction of the
Court ifthe British would first announce the maximum sum of damage which
they might claim. The British on the other hand say that the parties
should submit to the jurisdiction of the Court without reservation. The
differences between these two views are in reality negligible, if the two
sides could only make use of a slight measure of sense and overcome their
psychological difficulties. In the reriainir. - p ara(gra,)'hs I shall
endeavor to demonstrate# scree of these psychological difficulties and
also that legally speaking the position taken by the parties is in the
last resort almost exactly the same.
I
The dispute between Iran and England began when, on Larch 16,
1951, the Parliament of Iran declared the oil industry nationalized.
This law was applied to the contract between Iran and the Anglo-Iranian
Oil Company which was concluded in 1933 for a tern, of sixty years. The
operations came to a halt and the company was expelled.
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There is no doubt that the Parliamentof Iran had the power
to enact the law of March 16 and cancel the concession of 1933. It is
an established principle of law in the civilized nations of the world
that a nation, when it deems it necessary, may take over k contracts
granted to private concerns. This principle was fully and completely
recognized and articulated by the United States Supreme Court in the
case of West River Bridge Company v. Dix et al. (47 U.S. 507). But.,
of course) this power of a nation is limited by the requirement of a
just compensation. Iran therefore, by enacting the mentioned law, has
not committed an international delinquency. It is however required by
law to make compensation for the rights of the British company. The
dispute is now upon the formula by which the sum of the damages will
be computed.
There is no hard and fast rule concerning such a formula.
A great deal depends upon the discretion of the deciding tribunals, and
also upon the peculiarities of the particular case under consideration.
The uncertainty inherent in the case between Iran and England seers to
be the most decisive factor in keeping the parties apart. A brief
examination of the similar disputes which have been settled before will
explain the adament position of the llovernzent of Dr. Lossadegh, which
is also perplexed by fear and distrust.
There are a number of cases in which an international tribunal
has been asked to decide upon a dispute between Jovernr.-.ent and an
alien, in which the abrogation of a concession granted by the lovernrrnent
to that alien have been the basis of the litigated claim.
The formula employed by the international tribunals to solve
such problems has two different parts. First they compute the expenses
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suffered by the contractor or the damages sustained, and secondly they
add to it the profits which he would have made if the contract had not
profits and in the natural course of events he could have continued in
the same fashion. It,therefcre) a ?:axdled Dr. Check the rcrc f '? t s ,?rhich he
presumably would have made, and the basis was the average of his yearly
profits during the -,-cars cf r er:iorrrmance.
The rule of dan:a-;es sust-a'Lned plus the profits lost is applicable
to the case of Iran, and. ~nglaiid.
The f_i_rst, i t.u , that is, dar ego
kv.
sustained by the Company, easy to conpu e Iran has on d4 r erect
occa.s_cns indicated that it, is rc add to pwy t. is part. The difficulties
been interfered with. The first item is usually easy in computation.
The principle of fair in:-estment will provide a basis. It is in
connection with'the second part that the tribunals encounter difficulties.
No one can really say what Would have been the profits of a contractor
who has been prevented from perfornin.F,. It is a process of iiesswcrk.
The Courts usually take as a basis the average yt arly profits of the
contractor during the years in which he perfon;;ed and multiply it by
the years remaining from the teens of the contract. For eacample, if a
contractor was to cut a certain ar:oant of trees and pay c_:-,ertain
royalties, as the case was in the Estate of Dr. Cheek (U.S. v. Siam),
the tribunal may say that ~k had made a certain aa.aa:ount of yearly
arise when the second item, the future profit's, are tc, to calculat
The company operated from 1933 to 1950. The follow r.;; table Will show
an average of the annual profits:
Year
Profits in Pounds
1933
1,
4,199,000
1943
13,300,000
94
52 700,000_
Total, 3 years
70,1),0 i0
Average
23,399,100
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This average multiplied by 42, the number of years remaining for
the concession, would make almost one billion pound2,, or 2.8 billion
dollars. Such an astronomical figure is surely beyond the reaches of the
power of Iran and explains the adarsent position of Dr. L:ossadegh. Adding
to this figure the capital investment and the interest, one cannot help
but sympathize with the uncompromising position taken by the Iranians
in connection with submitting to the jurisdiction of the Court without
reservation. If the true surfs due the British were as large as these
the Iranians would forever remain in debt.
The truth, however, is different. There are certain mitigating
factors which Iranians seen not to have considered with care or submitted
to learned counsels or authorities in the field of international law.
These mitigating factors, the writer mair.tairs, may reduce the above
sum to a manageable amount.
II
It is tc the mitigating; factors involved in the : articular case
of Iran and England that this section shall be devoted.
1. At the first glance one may easily dismiss the "averages'.,
system discussed above. In the example given and in all of tl;e analogeoua
cases in which the average system has been employed, the deciding tribunil
was acting years after the terms of the contract had expired and thus
could look back and calculate the conditions of the business involved
in the contract. The case of Iran, however, is very different. The
future profits of the company durint7 the forty years from now are to
be calculated. No one is certain about the ups and downs that the oil
i usiness will have to suffer in such a ion#- period in the future. Taking
only one controlling factor out of many involved in deciding the ~rcfits
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of the company, the point will be clearer.
The contract of 1933 was concluded between the parties when
f w ..., . ~.. L. fa r)
Of
oil in the Gulf of Llexico was no more than a fey; cents ,er? har??el. Today
it is nearly three dollars. In l033 r::ost c ? the oil companies lost
money and not until the war did they recoverc:4 their previous conditions.
War caused a rise in prices unprecedented and also in profits.
certainly was an unusual event, and no one can say what events will
increase or decrease the price of oil the fcrt.y years to cone. This
uncertainty in the business is one of the most decisive factors in
rendering the average system entirely un ust and inapplicarties e . n the c< n , r .c,t J cooncluded.
The English case of ifadloyr v. Faxerda1c is t!', '.,_;sis fc: tiffs doctrine.
Now the question is whether such pr'( fits 'n : ricie in the v,:ar and pcstwar
years were within the center.,pla.ticn of the i;: r~-~~:_s ir; 1 33. The
answer is obviously to the ne,-,ative, and Iranians have solid grcund to
prove their point.
of. In 1933 and years thereafter thft prcFitn c f ti..e c.,,p i ?r.ere
small; the rise came during the latter yeirs of the war. No prophetical
soul in 1933 could have possibly ir::a ;ine,3 3srch unusual rises in demand
for oil. The bargain in, 1933 seen ed sc precariCus to the , i_ti.,h cor.q;an
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. .........
that it demanded and finally obtained a condition in the concession
it could unilaterally cancel the contract by a two-year's notice. "N
Q OF
such previsions were made it is obvious that such extraordinary profits
could not have been expected and hence were not in the coast A-, tion of
the parties.
I. After the war the disproportionate profits of the company and
the negligible share of the Iranians caused some
in charge. Protracted negotiations between Iran and the Goppan~ finally
produced results. The Company admitted that the rise in prices Was
unusual and a supplemental agreement was concluded which considerably
increased the share for Iran. This agreement failed to be ratified
the parliament of Iran in 1949. The terms of this agreement, even though
unratified, show that such fabulous profits were not in the centeuplation
of the parties, and the concession would have been different if the
Iranians had thought of these unusual rises in prices.
C, During and at the conclusion of the war American companies
becare interested in the oil of the Dear mast anc, concluded a number of
concessions for exploitation and construction of refineries.
14.1-1 41L."
all of these contracts Page arranged on a 50-50 basis, while
of Iran in the 1933 concession was far below that. The more
terms given by the Americans to the countries bordering Iran
the same circumstances is an indication that in 1933 neither
have possibly foreseen what changes were to happen in the business, and
by the same token neither side could contemplate such profits as are now
being made. The offer by the Anglo-Iranian Oil Company to share the
profits with Iran on the basis of 50-50 from 1950 is another evidence-of
extremely unusual and unexpected profits.
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The factors mentioned all show that the future profits as
calculated on an average basis have riot, or indeed could not have
been within the contemplation of the parties and surely will not be
allowed if the case is submitted to the International Court of Justice.
3. It is important to inquire whether the Anglo-Iranian Oil
Ccl4 - has actually suffered losses and to what extent. In an
C
advertisement _T.i the Ang;lo-Iranian
Oil Company gave the following; figures for its profits of the year
1951 and 1952:
1952 (in Pounds) 1951
Gross Trading Profits-- 59,553,678 7i,377,882
Profits before U.K. 47,061,638 52,217,016
Taxation - '
Net profits after 25,165,966 24,233,050
Taxes
These figures after the loss of Iran's oil are by no means
comparable with the years preceding 1945. In 1943 the Company's profits
were only L13,300,000, with Iran's oil in full operation. The Company
therefore, has not actually suffered losses as reat as it may in the
first glance ap ear. True, tie;,- no lon~? r own