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public international law

UPLAW 2009 B

“Oh little girl, what do you want to do?... That is what I call my daughter, little girl.”  This LAST digest compilation wouldn’t have been possible without the help of Cams, PJ, under section 1608 of the bill. Thus, sections 1330(b), 1608 and 1605-1607 are all carefully interconnected. Marco, and Ben.  3. Foreign Investments and Natural Resources Texaco v. Libya supra BP v. Libya supra Saudi Arabi v. ARAMCO Chorzow Factory Case supra LIBYAN AMERICAN OIL CORPORATION V. LIBYA Jan 18, 1980 in the District Court of the District of Columbia 1. LIBYA NATIONALIZES LIAMCO’S CONCESSION; LIAMCO BRINGS THE CASE TO ARBITRATION WITH LIBYA IN ABSENTIA. In 1973 and 1974 Libya nationalized both LIAMCO's rights under the concessions and certain of its oil drilling equipment. Following unsuccessful negotiations regarding compensation, LIAMCO rejected the terms of the nationalization and initiated proceedings under the arbitration clause. Libya, maintaining that the nationalization superseded the concessions altogether, refused to participate in the Geneva proceedings. 2. ARBITRAL COURT RULES IN FAVOR OF LIAMCO. LIAMCO, after obtaining a favorable ruling, brings action to the District Court of the District of Columbia to confirm and enforce such ruling. In bringing the suit, LIAMCO invokes the jurisdiction of the Court pursuant to 28 U.S.C. s 1330(a) and (b) or “Actions Against Foreign States”, arguing that Libya is not immune under the Foreign Sovereign Immunities Act of 1976 (FSIA). LIAMCO further contends that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention) requires the confirmation of the award. 3. LIBYA’S DEFENSES. Libya does not challenge the validity of the underlying award. Instead it mounts a two pronged defense arguing first that the Court is without jurisdiction, and second, that even should the Court find jurisdiction, it should refrain from enforcing the award under the Convention because of the act of state doctrine. WON Libya is immune from the suit. NO, there was an implied waiver of immunity by Libya by virtue of the concession contact’s arbitration clause. 1. REQUIREMENT FOR EXERCISE OF JURISICTION. The legislative history of FSIA clarifies that before United States courts may exercise jurisdiction over a foreign sovereign, the FSIA requires a showing not only of particular reasons for denying sovereign immunity, but also of the traditional requirements for in personam jurisdiction, including the requirements of due process. For personal jurisdiction to exist, the claim must first of all be one over which the district courts have original jurisdiction, meaning a claim for which the foreign state is not entitled to immunity. Significantly, each of the immunity provisions in the bill requires some connection between the lawsuit and the United States, or an express or implied waiver by the foreign state of its immunity from jurisdiction. These immunity provisions, therefore, prescribe the necessary contacts which must exist before our courts can exercise personal jurisdiction. Besides incorporating these jurisdictional contacts by reference, section 1330(b) also satisfies the due process requirement of adequate notice by prescribing that proper service be made 2. WAIVER OF IMMUNITY. Section 1605(a)(1) provides that a foreign state is not immune if it has "waived its immunity either explicitly or by implication." LIAMCO maintains that Libya implicitly waived its sovereign immunity by expressly agreeing to the arbitration and choice of law clauses negotiated in 1966 and 1967, more than ten years after the concessions were originally entered into. LIAMCO supports its interpretation of the effect of those clauses by reference to another passage in the legislative history of the FSIA. With respect to implicit waivers, the courts have found such waivers in cases where a foreign state has agreed to arbitration in another country or where the foreign state has agreed that the law of a particular country should govern a contract. In the present case, the arbitration clause agreed to by Liamco and Libya was a special amendment to the original concession. The 1955 agreement had provided that any eventual arbitration should take place in Libya's capitol, Tripoli. The clause that LIAMCO proposed in 1966, however, provided that arbitration should take place either where the parties agreed, or where the arbitrators might agree. Libya agreed to this provision. Although the United States was not named, consent to have a dispute arbitrated where the arbitrators might determine was certainly consent to have it arbitrated in the United States. Libya thus waived its defense of sovereign immunity for the purposes of s 1330(a) and because there is no suggestion that the requirements of notice under s 1330(b) have not been met, the Court has jurisdiction to recognize and enforce the award. The question of whether to exercise that jurisdiction remains. WON the Court can and should enforce the arbitral award. NO, the Libyan Nationalization Law is an “act of state” that is non-justiciable; the Court may still take cognizance if the case falls under the Hickenlooper Amendment, but the latter does not apply because LIAMCO’s contractual rights are not “property” within t meaning of the amendment 1. THE ACT OF STATE DOCTRINE. Of the seven exceptions listed in Article V of the Convention, one is determinative of the issue before the Court. Subsection 2(a) of Article V provides that recognition and enforcement of an award may be refused if the competent authority in the country where enforcement is sought determines that "(t)he subject matter of the difference is not capable of settlement by arbitration under the law of that country.” The "subject matter of the difference" in this case is Libya's nationalization of LIAMCO's assets and the rate at which LIAMCO should be compensated for the assets taken under that nationalization. Should that rate be determined according to the terms of the original concessions (by arbitration), or should it rather be determined according to the provision of the nationalization laws themselves (by Libyan committee)? Had the question been brought before the Court initially, the Court could not have ordered the parties to submit to arbitration because in so doing it would have been compelled to rule on the validity of the Libyan nationalization law. That law by its terms abrogated the concessions entirely and vested exclusive determination of any compensation in a special committee provided for in the same law. The practice that counsels this judicial abstention from passing on the effectiveness of the acts of foreign sovereigns is termed the “act of state doctrine”. Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.
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subsidiaries are herein collectively called " Starrett".) 2. CONSEQUENCE OF THE DOCTRINE ON THE COURT’S FUNCTION. The doctrine does not deny courts jurisdiction once it has been acquired. It requires only that when it is made to appear that the foreign government has acted in a given way on the subjectmatter of the litigation, the details of such action or the merit of the result cannot be questioned, but must be accepted by our courts as a rule for their decision. Courts have consistently found a foreign state's act of nationalization to be the classic example of an act of state. Hunt v. Mobil Oil pronounced: "Expropriations of the property of an alien within the boundaries of the sovereign state are traditionally considered to be public acts of the sovereign removed from judicial scrutiny by application of the act of state rubric." Furthermore, other nationalization decrees by the state of Libya identical to the decrees affecting LIAMCO have been considered as sovereign acts for the purposes of the act of state doctrine. As the Court noted in Hunt: “We conclude that the political act complained of here was clearly within the act of state doctrine and that since the disputed pleadings inevitably call for a judgment on the sovereign acts of Libya the claim is non-justiciable. 3. THE HICKENLOOPER AMENDMENT TO THE FOREIGN ASSISTANCE ACT. On the other hand, the Hickenlooper Amendment provides that unless the President, for foreign policy reasons, suggests otherwise, courts must not decline on the ground of the act of state doctrine to decide the merits of a claim of title or other right to property . . .based upon (or traced though) a confiscation or other taking after January 1, 1959, by an act of that state in violation of the principles of international law. The President has made no suggestion in this matter, but LIAMCO has failed to show that the amendment's requirements have been met. The contract rights that lie at the heart of petitioner's claim do not constitute property for purposes of the amendment nor have courts found that the repudiation of contractual obligations amounts to a "confiscation or other taking," as those terms are employed in the statute. Finally, LIAMCO has failed to show that the taking was in violation of international law. The nationalization provisions of Libyan law established means for LIAMCO to recover its investment. Because LIAMCO may not have been satisfied with the rate at which Libya was prepared to recompense the company does not render the original nationalization in violation of international law. STARRETT HOUSING CORPORATION, STARRETT SYSTEMS, INC., STARRETT HOUSING INTERNATIONAL, INC., Claimants, v. THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF IRAN, BANK MARKAZI IRAN, BANK OMRAN, BANK MELLAT, Respondents. INTERLOCUTORY AWARD HISTORY The Claimants in this case are Starrett Housing Corporation (" Starrett Housing") and its wholly owned United States subsidiaries Starrett Systems, Inc. (" Starrett Systems") and Starrett Housing International, Inc. (" Starrett International"). They assert claims owned directly by them, as well as claims owned by them indirectly through wholly owned or controlled foreign subsidiaries. (Claimants and their various

In the early 1970's Bank Omran, an Iranian development bank which was controlled by the Shah and his Government, instituted a program to create a new residential community in an area adjacent to Tehran known as Farahzad. Bank Omran contracted with Starrett Housing for the construction of a large portion of the Farahzad development. Described in general terms, their agreement provided for the purchase by Starrett of certain tracts of land from or through the Bank, the construction by Starrett of approximately 6000 apartment units on those tracts, and the sale of completed apartments to Iranian purchasers as condominiums (an arrangement under which each purchaser would take title to his own apartment, and to an undivided share of common areas, with Starrett ultimately retaining no ownership interest at all in the land or buildings). Construction was to proceed in three phases; only the first phase, comprising eight buildings ("the Project"), is at issue in this case. Bank Omran undertook to provide at its own expense the infrastructure necessary to the construction and sale of the Project, including water, electricity, roads and telephone services.

Starrett Housing and Bank Omran initially entered into a simple one-page contract (the "Initial Agreement"), to which was annexed the more elaborate contract governing the construction of the Project (the "Basic Project Agreement"). The Initial Agreement, dated 2 November 1974, required Starrett Housing to create a foreign subsidiary for the purpose of entering into the Basic Project Agreement with Bank Omran. However, Bank Omran from the outset intended Starrett Housing, not its specially created subsidiary, to furnish the manpower, expertise and resources necessary for the Project. Accordingly, the Initial Agreement required Starrett Housing to guarantee the subsidiary's performance. The first Starrett subsidiary to enter into the Basic Project Agreement was Starrett S.A., a Swiss entity. However, since the subsidiary would have to own the land on which the Project was to be built until the apartments were transferred to their ultimate purchasers, the parties for convenience assigned the Basic Project Agreement to Shah Goli, an Iranian company owned 79.7% by Starrett through a wholly owned German subsidiary. Starrett S.A. was thus removed entirely from the transaction, and Bank Omran was relieved of its obligation under the Basic Project Agreement to obtain for the Swiss subsidiary the governmental permission to own land that would otherwise have been required by the Foreign Nationals Immovable Properties Act (1931) and the "By-law Concerning Landed Property Ownership by Foreign Nationals" (1949). Shah Goli and Bank Omran entered into the Basic Project Agreement on 18 October 1975. Starrett Housing already had guaranteed Shah Goli's performance to Bank Omran on 16 October 1975. Starrett Housing also organized a second Iranian subsidiary, wholly owned through a German subsidiary. This Iranian subsidiary, Starrett Construction, was organized to coordinate the planning and design of the Project, to manage all of the construction work, and to supervise the marketing of the Project. It was, in other words, one of the vehicles through which Starrett Housing's expertise and experience were funnelled into the Project. Starrett Construction's compensation was in the form of a percentage of the cash proceeds received by Shah Goli from the sale of apartments;
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Shah Goli, under the Basic Project Agreement, and Starrett Housing, under the guarantee, retained ultimate responsibility for the Project. An undertaking as massive as the Project required large amounts of capital. As foreseen in the Basic Project Agreement, some of this capital was to come from the down payments by Iranian purchasers of apartments. Substantial additional capital was to be supplied from outside Iran by Starrett. Since, pursuant to the Initial Agreement, Starrett Housing was required to accomplish the Project through its specially created subsidiary, it was foreseen by all parties that Starrett would furnish the necessary capital in the form of loans to that subsidiary, Shah Goli. That this method of financing was intended by all sides is evidenced by the prior approval of various loans by Bank Markazi, the Central Bank of Iran. Through loans, Starrett provided to Shah Goli tens of millions of dollars necessary for the construction of the Project. Thus, from the Project's inception, all parties contemplated that Starrett Housing would manage and control the Project and would provide the necessary design and construction expertise, personnel and financing. All parties contemplated that Starrett Housing would develop the Project through its Iranian subsidiary, Shah Goli, that it would finance the Project through apartment sales and loans to Shah Goli, and that it would remain ultimately responsible for Shah Goli's performance. RESPONDENTS’ CONTENTION WITH RESPECT TO JURISDICTION The Respondents object to the jurisdiction of the Tribunal for the following reasons:

owners, and not as beneficiaries, under the relevant state law of the United States, and whether the trustees are United States citizens.

(ii) Increase of the Claimants' claim as compared to their claim before the U.S. District Court for the Southern District of New York.

(i) The claims are not "claims of nationals" of the United States within the meaning of Article VII of the Claims Settlement Declaration. The Claimants have to submit proper documentation to prove that nationals of the United States have continuously owned more than 50% of the shares in Starrett Housing from the date when the claim arose to the date of the final award. They have submitted only a certificate by Starrett Housing's corporate secretary, indicating the names of a number of shareholders alleged to hold in the aggregate more than 50% of the shares of the corporations, and the number of shares held by each of these shareholders. However, a certificate by the corporate secretary cannot be admissible as evidence, because the secretary is an officer of the corporation, is on the payroll of the corporation and is acting under the corporation's instructions. Moreover, Starrett Housing has not sufficiently established the number of shares issued and outstanding during the period 1979-1982 so as to allow a conclusion whether or not the number of shares held by the persons indicated in the certificate by the corporate secretary represents more than 50% of the capital stock. Further, the Claimants have not submitted sufficient evidence to prove their allegation that Starrett Systems, Inc., and Starrett Housing International, Inc., are wholly-owned subsidiaries of Starrett Housing. In particular, the evidence submitted to demonstrate the number of shares issued and outstanding in Starrett Systems, Inc., is ambiguous and contradictory. The certificate by the corporate secretary contains the names of several persons as "trustees". Although the Claimants have provided copies of some of the trust agreements, they have not established whether the "trustees" shall be considered as

It follows from General Principle B of the Declaration of the Government of the Democratic and Popular Republic of Algeria dated 19 January 1981 that the Tribunal is entitled to decide only claims that previously have been brought before a court in the United States and that the Tribunal is obligated to decide such cases "within the limits of their original characteristics. "In support of this contention the Respondents have referred to the provision in General Principle B according to which the United States has agreed to terminate "all legal proceedings in United States courts involving claims of United States persons and institutions against Iran and its state enterprises, to prohibit all further litigation based on such claims... and to bring about the termination of such claims through binding arbitration. " The Respondents allege that the words "such claims" refer solely to litigations that have been instituted before United States courts and subsequently terminated as a result of the Algiers Declarations. Since a claim originally brought before the U.S. District Court for the Southern District of New York for $38,365,000, was much lower than the amount of the claim before the Tribunal the Respondents consequently contend that the difference between the relief sought in the United States and in the instant case should be dismissed "without further judicial investigation". The Claimants respond, inter alia, that in an Amended Complaint filed in the United States District Court on 11 July 1980, and served on the Respondents' authorized attorneys, the amount of the complaint was stated to be $93,905,419 as of 30 June 1980, exclusive of interest and costs since that time.

(iii) The Tribunal is not a proper forum for this case.

Under the Algiers Declarations Shah Goli does not have standing to sue the Government of Iran and other Iranian Respondents before the Tribunal, because Shah Goli is an Iranian corporation organized, registered and existing under the laws of Iran. Only a portion of Shah Goli's shares of stock belong to a West German corporation while the rest of its stock belongs to Iranian nationals. Such a corporation is an Iranian national according to the Iranian Commercial Code as amended, and according to the Claims Settlement Declaration nationals of Iran may not sue the Government of Iran before the Tribunal. The Algiers Declarations refer to the Tribunal only claims of nationals of one State against the other. Shah Goli has been organized and is existing under the laws of Iran and 20% of its shareholders are Iranian nationals. Shah Goli has extensive financial and legal relationships with Iranian nationals, who bought the apartments in advance and made significant advance payments, with Iranian banks, who made loans to Shah Goli, and with Iranian and other non-United States subcontractors. Shah Goli as a juridical person of private law is subject to the laws of Iran and has in no way the standing to sue the Government of Iran before an
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international tribunal. Nor may the Claimants sue Respondents under the Basic Project Agreement as concluded between Shah Goli and Bank Omran due to lack of privity of contract. Under Item 13 of that Agreement, any claim related to the Project must be referred to the International Chamber of Commerce for arbitration in London, not to courts in the United States or to this Tribunal.

guarantee of Shah Goli's obligations. But having left Shah Goli with deficits of several million dollars, including debts owed to private Iranian and non-Iranian persons, the American managers and Claimants have ignored this "basic demand" and counter-claim and allege that the Government has expropriated Shah Goli.

(iv) Bank Mellat, Bank Markazi yiran and the Government of Iran are not properly Respondents in the case.

Bank Mellat as Bank Omran's successor is not liable for any of the claims asserted by Claimants. The claims are attributable to the Pahlavi Foundation as the owner of the tracts of land sold to Shah Goli. Bank Omran was involved in the transactions only as a representative of the Pahlavi Foundation. Bank Markazi Iran through its approval of the sufficiency of foreign exchange reserves for the loans or otherwise is not responsible for Bank Omran's obligations and liabilities. The claims are not attributable to the Government of the Islamic Republic of Iran on the ground that the Government did not expropriate Shah Goli's assets, the Project or the Pahlavi Foundation.

Respondents object that contradictory causes of action cannot be maintained. If the claim is based on the expropriation of Shah Goli, Claimants may not also make a contractual claim against Bank Omran and other Respondents based on the force majeure provisions of the Basic Project Agreement between Shah Goli and Bank Omran. Also, neither of these causes of action may stand if the claim is based on the alleged Bank Omran guarantee. The existence of one of those causes of action excludes the existence of the others. Moreover, Claimants have not specified in what capacity, on what cause of action and for which claim each of them is sueing each of the Respondents. Claimants have no contractual relationships with the Respondents, nor any property rights in Shah Goli. The only contractual relationships are those of Shah Goli with Bank Omran and the apartment purchasers. Proceeding with the case before clarification of these issues deprives Respondents of their right of defence and their right to substantiate their counterclaims. The Respondents make the following contentions with respect to the claims: (i) The Government of Iran did not expropriate Shah Goli or its property rights. The actions taken by Shah Goli's managers during the relevant period prove the contrary. In late January 1980 when it became certain that Shah Goli's managers would not return to Iran and other managers would not be appointed to take care of the company, the Government appointed a Temporary Manager on the basis of Bank Omran's request. This temporary measure for the caretaking of Shah Goli's interests and for prevention of stoppage of work and lay-off of the workers during the Embassy incident until arrival of the company's managers and their assumption of responsibility for its affairs must not be considered as an expropriatory action against Shah Goli or the Project. In spite of continuous demands of Bank Omran and the Government since November 1979 that the American managers return or appoint persons of their choice to take charge of Shah Goli, the managers have refused to do so or even to appoint persons of the nationality of the 79.7% shareholders in Shah Goli, i.e. Starrett Housing GmbH of West Germany. Respondents have raised this demand which became their primary counter-claim for specific performance against Starrett Housing based on the latter's performance

(ii) The force majeure conditiins in Iran, if any, do not relieve Shah Goli from its obligations. The active presence of Shah Goli's American managers in Iran during and after the Revolution until late October 1979, their continuation of the Project until that time -- also reflected in the letter of the Chairman of the Board of Directors of Shah Goli and Starrett Housing, Henry Benach, of 6 September 1979 to the then Ministry of Foreign Affairs of the Islamic Republic of Iran -- and receipt of several loans from the Alavi Foundation and Bank Omran months after victory of the Islamic Revolution are ample admissions by the American managers and Starrett that the Revolution, conditions, laws and regulations in Iran, including the Bill for Appointing Temporary Managers of July 1979, did not result in force majeure as regards Shah Goli and Starrett. The American managers left Iran prior to the Embassy incident and after realizing that even under the most conservative assessments and with the availability of all necessary facilities and an additional loan of $14 million from the Alavi Foundation and Bank Omran, the Project would be destined to bankruptcy by a loss of at least $50 million and 27 months further construction work for completion as of September 1979, i.e. a two year project would take seven years to complete. If, as admitted by the American managers of Shah Goli and Starrett, the United States Government regulations including those severing diplomatic relations with Iran barred the American managers from returning to Iran, the alleged force majeure is attributable to their own Government. In any case such regulations did not relieve Shah Goli, an Iranian company, from its obligations. At most, since Shah Goli was 79.7% owned by a West German corporation, the German shareholder could readily appoint German managers, or managers of whatever nationality, that could do the job. There were many incomplete projects with German, French, Italian, Japanese and other contractors whose construction work successfully progressed after the Revolution and during the Embassy incident in Iran. The Embassy incident was a political issue not related to the social life and activities of ordinary United States nationals. The Iranian Government and people did no harm to ordinary United States nationals and in fact clearly distinguished them from the Government of the United States during the Embassy incident.

Respondents contend that the construction work performed by September 1979 physically had progressed no more than 56%, based on an assessment carried out at the time. Based on a technical expert's report the work performed was also of mediocre quality from a technical point of view. The scope of geotechnical studies was inappropriate for the Project. The buildings' safety against earth-quake loads is questionable and requires further studies. The architectural design does not comply with the relevant Tehran regulations; in particular, the escape-stairs design in some buildings greatly reduces safety against fire. The interior design does not comply with the regional conditions. A proper Project feasibility study was not carried out. The numerous construction deficiencies greatly reduce the durability of the buildings and indicate that the construction was not carried out on the basis of proper design and working drawings.

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claims against Starrett Housing based on, inter alia, Starrett Housing's guarantee for the performance of Shah Goli's obligations under the Basic Project Agreement. As their primary counter-claim they have sought specific performance against Starrett Housing for fulfilling Shah Goli's obligations under said guarantee. The other counter-claims aggregate over $118 million. III. Jurisdictional issues (i) Whether the claims are "claims of nationals" of the United States within the meaning of Article VII of the Claims Settlement Declaration.

It is clear from the text of the Algiers Declarations that the words "such claims" in General Principle B are modified by the language of Article II, paragraph 1, of the Claims Settlement Declaration, which expressly lays down that the Tribunal has been established for the purpose of deciding such claims as are indicated in that paragraph, "whether or not filed with any court". The words "such claims" refer to litigation as between the Government of one of the States and nationals of the other. There is no language supporting the view that all claims not previously filed with United States Courts are barred from the jurisdiction of the Tribunal. Neither is there any language to support the view that claims before the Tribunal are barred from jurisdiction to the extent they go beyond claims previously filed with United States Courts. For these reasons the objections raised by the Respondents on this point are rejected.

Each of the three Claimants was a corporation organized and existing under the laws of a State of the United States continuously from the earliest date a claim in this case arose through at least 19 January 1981. Starrett Housing is a corporation whose shares are publicly-traded on the New York Stock Exchange. Although it is a publicly-traded corporation, Starrett Housing is able to identify a relatively limited group of persons who hold, in the aggregate, more than 50% of its shares of outstanding shares of stock. Because of this, Starrett Housing did not follow the Chamber's guidelines for the proof of corporate nationality as set forth in its Orders in Flexi-Van Leasing, Inc. and Iran, Case No. 36, and General Motors Corporation and the Government of Iran, Case No. 94. Instead, Starrett Housing submitted certificates of a certified public accounting firm and of its corporate secretary concerning its outstanding shares of stock as well as passport or other evidence proving the United States citizenship of persons who own more than 50% of its outstanding shares in their own names, or in connection with trust agreements or as members of a partnership which owns shares. The Tribunal considers that the evidence submitted is sufficient to prove that the Tribunal has jurisdiction over Starrett Housing's claim as the claim of a United States national within the meaning of Article VII of the Claims Settlement Declaration. Starrett Systems, Inc. is authorized to issue 1,000,000 shares of common stock, pursuant to its Amended Certificate of Incorporation. The Secretary of Starrett Systems has certified that only 100 shares of the authorized stock are issued and outstanding. A copy of a Share Certificate has been submitted showing Starrett Housing to be the owner of these 100 shares of stock. Starrett Housing International is, according to its Certificate of Incorporation, authorized to issue 1000 shares of common stock. A copy of a Share Certificate has been submitted showing that Starrett Systems, Inc. is the owner of 1000 shares of stock in Starrett Housing International. The Secretary of Starrett Housing International has certified that 1000 shares of the authorized stock are issued and outstanding.

(iii) Whether the Tribunal is a proper forum for this case.

The Respondents contend that Shah Goli has no standing to sue the Government of Iran and other Iranian Respondents in this case. Having regard to the conclusions as to the expropriation issue, the Tribunal concludes that from the date of the taking Shah Goli through the Claimants - has no locus standi in this case.

Court: The provision for arbitration in London which is contained in the Basic Project Agreement is not a forum selection clause which ousts the jurisdiction of the Tribunal.

(iv) Whether Bank Mellat, Bank Markazi Iran and the Government of the Islamic Republic of Iran are properly Respondents in this case.

As stated in the Tribunal's Order of 8 December 1982, the claims based on expropriation and other acts in breach of international obligations are directed exclusively against the Government of the Islamic Republic of Iran. There can be no doubts that these claims are attributable to the Government. That Order also stated that Bank Mellat was a proper Respondent in this case. The Tribunal does not in this Interlocutory Award have to address the question whether Bank Markazi Iran is properly a Respondent in the case, since this Award is confined to the questions of taking and valuation. IV.The expropriation claim

Since Starrett Housing International is owned by Starrett Systems, and Starrett Systems by Starrett Housing, the Tribunal also has jurisdiction over the claims of these two subsidiaries within the meaning of Article VII of the Claims Settlement Declaration.

(ii) Increase of the Claimants' claim as compared to their claim before the U.S. District Court for the Southern District of New York.

(a)Background The Claimants contend that their property interests in the Project have been unlawfully taken by the Government of Iran which has deprived them of the effective use, control and benefits of their property by means of various actions authorizing, approving and ratifying acts and conditions that prevented Starrett from completing the Project.
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In support of their expropriation claim, the Claimants introduced evidence by Deloitte, Haskins & Sells, certified public accountants, to show that the Project was profitable until alleged Revolutionary events and Government acts deprived them of their property rights to manage and control it. They asserted that they had been financially able to provide sufficient funds for completion of the Project and had done so prior to the Revolution and even afterwards. Certain loans had been sought in Iran only after Bank Omran, under Government control, had wrongfully frozen Shah Goli's bank accounts and breached its obligations to provide electricity and other infrastructure -- conditions which made it unreasonable further to increase loans from outside Iran. Claimants introduced evidence to show that the Project was properly designed, well constructed and was proceeding on schedule at the time they were deprived of control. They pointed out that after the expropriation Shah Goli had sold apartments at prices higher than those charged under Claimants' management, a fact which they noted was uncontradicted and which further confirmed that the buildings were highly desirable. The Claimants asserted that they had not left Iran because of financial problems, but only because conditions forced them and all other United States nationals to do so. As regards the acts and conditions that prevented Starrett from completing the Project, the Claimants have referred to a comprehensive account of events and conditions in Iran from early 1978 to the beginning of 1980. Out of this description the Claimants emphasize the following events and effects of the Islamic Revolution, which in their view prevented completion of the Project and amounted to unlawful taking of Starrett's property interest in the Project. In respect of these events and effects the Claimants contend:

Alavi Foundation is inconceivable, for the company owns nothing other than obligations and liabilities. The Government contends that the lack of adequate financial resources, the deficit producing nature of the Project and the mismanagement and lack of a proper schedule of work were the basic reasons for Starrett's abandonment of the Project. These problems were known to Shah Goli and Starrett since October 1976. The Respondents answer Claimant's allegations as follows: (i) Reduction in the Project work force was not due to the conditions in Iran. The reduction was due to financial problems of Shah Goli in meeting its past-due obligations of Rials 700 million (about $8 million) during late 1978 and early 1979. In that period Shah Goli was unable to pay the salaries of the many foreign workers it had hired for unspecialized work. In order to meet the payroll it resorted to selling the wooden molds, generators and construction machinery. Otherwise, work on the Project did not stop more than a week during the Revolution, according to Arthur Radice in a letter of 7 April 1979 to Bank Omran. Throughout the uprising not a single window was broken and in fact during the strikes, Starrett only missed two or three days of construction according to Henry Benach in an interview with New York Post in early 1979.

(i)Reduction in the Project work force. (ii)Strikes and shortages of materials. (iii) Collapse of the banking system. (iv) Changes in control of Bank Omran. v) Freeze of Shah Goli's bank accounts. (vi) Harassment of Starrett personnel. (vii) Further official measures of the Islamic Republic of Iran confirming its deprivation of Starrett's property interests in the Project.

(ii) Strikes did not affect the Project and the shortage of materials, if any, was due to mismanagement of Shah Goli and lack of a proper schedule of work. Owing to the abundance of cement Shah Goli could not afford to store it. Irregular purchases and resale of construction materials resulted in resales of such materials; for example, a resale of 3,000 tons of steel took place in 1978. A short port and customs strike and a short closing of the Tehran Bazaar were not the devastating factor, as alleged by the Claimants, in the securing of materials for carrying on the construction. Lack of a proper schedule of work, prepared long in advance and followed closely, resulted in day-to-day programmes prepared by the Executive Manager. For example, Arenco, in charge of concrete production for the Project, attempted but never succeeded in receiving a schedule of Shah Goli's daily concrete requirements at least a week in advance. At Shah Goli no control existed over the warehousing and inventory system. Incoming and outgoing equipment and materials were not recorded at all.

-On 27 January 1980 the Revolutionary Council approved a Bill concerning the Completion of Construction Works in Housing Cities and Housing Complexes which have remained incomplete ("Construction Completion Bill"). This Bill directed the Ministry of Housing to locate all unfinished housing projects in Iran and to prepare detailed plans for the completion and operation of those projects. The Bill provided that such plans should include a construction work schedule and a procedure for the distribution of the housing units, taking into account the interests of the public, the availability of government resources and the legitimate rights of the owners. GOVERNMENT OF IRAN’S CONTENTION The Government of Iran denies that it has expropriated Shah Goli or prevented it from completing the Project. Taking of a company whose only purpose is construction of an apartment complex, whose apartments have all been sold to third parties in advance of the construction, and whose land with all the improvements thereon is mortgaged to the

(iii) Collapse of the banking system, if any, did not adversely affect Shah Goli.

Shah Goli's statements of accounts at Bank Omran show that it conducted its daily banking activities during the six months of November 1978 - April 1979 with no difficulty. Records also show that Shah Goli took advantage of its dollar account with Chase Manhattan Bank and engaged in illegal sales of foreign currency for Iranian Rials at much higher than official rates at least during January - March 1979. Any alleged Revolutionary Council Regulations restricting payment of salaries to Shah Goli's employees are denied.

(iv) Change in control of Bank Omran was not attributable to the 28 February 1979 decree but to the June 1979 Banks Nationalization Law and that change did not affect Shah Goli or the Project.
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The Pahlavi Foundation and Bank Omran were not owned by the Pahlavi dynasty and were not covered by said decree. The Foundation was and is an endowment in which the donor has no ownership rights under Iranian law, and its change of name to Alavi did not change its status. Nationalization of Bank Omran did not affect its relationship with Shah Goli. With respect to Shah Goli, Bank Omran only acted as representative of the Foundation and under specific powers of attorney. The Foundation for the Oppressed did not control either the Alavi Foundation, Bank Omran or Shah Goli.

(v) Freeze of Shah Goli's accounts with Bank Omran was not aimed at preventing Shah Goli from continuing the Project.

in the name of the construction company concerned, so that payment to the company would be made with due regard to the progress of the construction. Therefore the Bill should not be considered to have had any expropriatory effect, but regulated the payment procedure in the interest of the advance purchasers. The Construction Completion Bill, which provided for locating unfinished construction projects, for preparation of a "detailed construction plan" and for identification of financial resources for them, was never enforced because the plan was not prepared, the plan was not approved by the Council of Revolution and the Council did not determine in which capacity the Ministry of Housing had to deal with hundreds of construction projects: i.e. as an operator, purchaser or lender. Therefore no enforcement measure under that law was taken which might have had an adverse impact on Shah Goli and its construction Project.

Shah Goli repeatedly issued overdrawn cheques (at least 14) on its accounts, and through court proceedings by some checkholders Arthur Radice was taken to court. Repayment of $15,000,000 on Shah Goli's overdraft facilities had also become due, while there was only $150 in one of those accounts to cover such indebtedness. Therefore by virtue of a Revolutionary Council Regulation providing for temporary closure of the accounts of natural and juridical persons who owed the banks large amounts of money pending thorough investigation by the authorities, the Bank closed those accounts pending termination of the investigations. However, in order to release Arthur Radice from prosecution over the overdrawn cheques, Bank Omran arranged with the authorities two bail bonds in the aggregate of Rials 42,000,000 (about $600,000), without having any obligation do so.

The Bill for Appointment of Temporary Managers that was passed in July 1979 was not applied to Shah Goli so long as its American managers were in Iran and in charge of the construction Project. The government control under the Bill does not amount to dominion over the company. Appointment of Temporary Managers for preventing shut-down of economic and industrial units and lay-off of workers or appointment of receivers and liquidators in case of insolvency, are not unusual under the laws of many countries, particularly in the context of the third world and socialist countries, such as the 1964 Iranian Law concerning Protection of Industries and Prevention of the Closure of the Country's Factories. The Temporary Manager under Article 4 of the 1980 Bill has the status and obligations of an attorney to his client with regard to the company and is considered as a trustee. As such Mr. Erfan's appointment must not be considered expropriation of Shah Goli or the Project.

(vi) Harassment of Shah Goli personnel by the Revolutionary Guards is denied. When faced with continuous demands of the purchasers of the apartments, whose delivery had been delayed two years beyond the delivery date, Shah Goli's American managers contacted individual purchasers in order to collect the remainder of the prices at considerable discounts in exchange for delivery of incomplete apartments, without procurement of the required certificate of completion and confirmation of the Architect, in contravention of the contractual provisions, rather than ameliorating the mismanagement, serious financial problems and numerous construction deficiencies of the Project. In addition to advance purchasers, local suppliers which had cheques drawn by Arthur Radice, had sued him before the Public Courts and had him arrested for prosecution a number of times; in one instance Bank Omran arranged bail for him. The above instances have been misrepresented as pressure allegedly exerted by the Revolutionary Guards on Shah Goli personnel to lower the prices.

HELD It is undisputed in this case that the Government of Iran did not issue any law or decree according to which the Zomorod Project or Shah Goli expressly was nationalized or expropriated. However, it is recognized in international law that measures taken by a State can interfere with property rights to such an extent that these rights are rendered so useless that they must be deemed to have been expropriated, even though the State does not purport to have expropriated them and the legal title to the property formally remains with the original owner.

(vii) Official measures of the Government of Iran did not amount to expropriation of Shah Goli.

The Apartment Purchasers' Bill was for protection of advance purchasers' rights, which were abused by a number of constructors and advance sellers in the circumstances before and after the Revolution, who collected large amounts of money and left the country without building and delivering the apartments. The Bill provided for depositing of further instalments on such purchase agreements with the Housing Bank in an account

1. There can be little doubt that at least at the end of January 1980 the Claimants had been deprived of the effective use, control and benefits of their property rights in Shah Goli. By that time the Ministry of Housing had appointed Mr. Erfan as Temporary Manager of Shah Goli to direct all further activities in connection with the Project on behalf of the Government. This appointment was made pursuant to the decree of the Revolutionary Council, adopted on 14 July 1979, called Bill for Appointing Temporary Manager or Managers for the Supervision of Manufacturing, Industrial, Commercial, Agricultural and Service Companies, either private or public.
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The succinct language of this act makes it clear that the appointment of Mr. Erfan as a Temporary Manager in accordance with its provisions deprived the shareholders of their right to manage Shah Goli. As a result of these measures the Claimants could no longer exercise their rights to manage Shah Goli and were deprived of their possibilities of effective use and control of it. It has, however, to be borne in mind that assumption of control over property by a government does not automatically and immediately justify a conclusion that the property has been taken by the government, thus requiring compensation under international law. In this case it cannot be disregarded that Starrett has been requested to resume the Project. The Government of Iran argues that it would have been possible for Starrett to appoint managers from any country other than the United States, but the evidence does not in other respects indicate on what conditions Starrett has been afforded any possibility to resume the Project. The completion of the Project was dependent upon a large number of American construction supervisors and subcontractors whom it would have been necessary to replace and the right freely to select management, supervisors and subcontractors is an essential element of the right to manage a project. Further, given the contents of the Construction Completion Bill it must be taken for granted that Starrett can only resume the Project subject to the provisions of that Bill, which entail far-reaching restrictions in the right of former owners to manage housing projects. Indeed, the language of that Bill seems to indicate that the right to manage such projects ultimately rests with the Ministry of Housing and Bank Maskan. Lastly, nothing in the evidence submitted in the case gives reason to believe that Starrett would be offered compensation for any reduction in the value of its shareholding and contractual rights caused by the managers appointed by the Government. It has therefore been proved in the case that at least by the end of January 1980 the Government of Iran had interfered with the Claimants' property rights in the Project to an extent that rendered these rights so useless that they must be deemed to have been taken.

Republic" - both before and after the establishment of the new Government - rendered it impossible for Starrett to continue operations at the Project and that this amounted to an unlawful expropriation under general principles of international law and under the Treaty of Amity, Economic Relations and Consular Rights between the United States of America and Iran of 15 August 1955. Thus the Claimants' argument is that they were deprived of the effective use, control and benefits of its property rights in the Project much earlier than by the end of January 1980. There is no reason to doubt that the events in Iran prior to January 1980 to which the Claimants refer, seriously hampered their possibilities to proceed with the construction work and eventually paralysed the Project. But investors in Iran, like investors in all other countries, have to assume a risk that the country might experience strikes, lock-outs, disturbances, changes of the economic and political system and even revolution. That any of these risks materialized does not necessarily mean that property rights affected by such events can be deemed to have been taken. A revolution as such does not entitle investors to compensation under international law. Therefore, when considering the events prior to January 1980 to which the Claimants have referred, the Tribunal does not find that any of these events individually or taken together can be said to amount to a taking of the Claimants' contractual rights and shares. The Tribunal therefore concludes that 30 January 1980 must be considered as the date of the taking. However, for ease of accounting the Tribunal decides that 31 January 1980 shall be considered as the date of the taking. ANENT THE EXACT NATURE OF THE PROPERTY RIGHTS THAT WERE TAKEN The next question for the Tribunal is to determine the exact nature of the property rights that were taken. The Claimants contend that It was neither the land and the buildings only nor their shares in Shah Goli that were taken. The Claimants assert that the expropriated rights comprised the assets and contractual rights and the other property of, in the first instance, Shah Goli as a controlled subsidiary of Starrett Housing. The Claimants define the principal assets of Shah Goli as the buildings and the principle contractual rights as including the rights to complete the Project and to earn reasonable profits which Starrett anticipated, and to recover the funds which it loaned and which were used to build the Project. Court: There is nothing unique in the Claimants' position in this regard. They rely on precedents in international law in which cases measures of expropriation or taking, primarily aimed at physical property, have been deemed to comprise also rights of a contractual nature closely related to the physical property. In this case it appears from the very nature of the measures taken by the Government of Iran in January 1980 that these measures were aimed at the taking of Shah Goli. The Tribunal holds that the property interest taken by the Government of Iran must be deemed to comprise the physical property as well as the right to manage the Project and to complete the construction in accordance with the Basic Project
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2. Anent the allegation that Starrett abandoned the Project for economic reasons. The Tribunal does not go into this issue because it is notorious that at least after 4 November 1979, the date when the hostage crisis began, all American companies with projects in Iran were forced to leave their projects and had to evacuate their personnel. Therefore, at least as regards the situation subsequent to that date the Government of Iran cannot possibly rely on any withdrawal of personnel as a justification for the appointment of a new manager. In fact, the evidence shows that Starrett maintained staff in Iran longer than most other American companies, obviously in an attempt to secure future possibilities to complete the Project.

3. Anent the "virulent anti-American and other policies and actions of the Revolutionary Group and the Islamic Republic” The Claimants assert that the effects of what is referred to as "virulent anti-American and other policies and actions of the Revolutionary Group and the Islamic

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Agreement and related agreements, and to deliver the apartments and collect the proceeds of the sales as provided in the Apartment Purchase Agreements.

The sum of 179,750,764 USD should be awarded to Aminoil. a. When Lawful

AMINOIL CASE Kuwait v. American Independent Oil Co. Arbitration Tribunal (1982) FACTS. Aminoil is an American company which was granted an oil concession by Kuwait. However, Kuwait, by Decree, terminated the agreement before its expiry and transferred the concession assets to itself. Aminoil question the legality of the termination under. AMINOIL ARGUES THE TERMINATION IS ILLEGAL. This contention is based on the “stabilization clauses of the contract,” particularly Art 17 and Art 11(B). The provisions prohibit a nationalization of the oil venture. Art 17 states that “no alteration shall be made in the terms of this Agreement…except in the event of the Shaikh and the Company jointly agreeing that it is desirable in the interest of both parties to make certain alterations, deletions or additions.” Art 11(B) states that “save as aforesaid this Agreement shall not be terminated before the expiration of the period specified…except by surrentder as provided in Article 12 or if the Company shall be in default under the arbitration provisions of Article 18.” KUWAIT CITES SOVEREIGNTY OVER NATURAL RESOURCES. Sovereignty over natural resources is an imperative rule of jus cogens. This principle prohibits States from giving guarantees against the exercise of the public authority over natural resources. 1ST ISSUE; WON THE NATIONALIZATION IS LAWFUL. Yes, there was a laful taking. The takeover was consistent with the contract of concession for the following reasons: [1] there is no rule of international law prohibiting a State from undertaking not to nationalize. States may pledge not to nationalize but only if: [a] it is for a serious undertaking; [b] it is expressly stipulated for; [c] it covers a limited period. [2] Arts 17 and 11(B) do not absolutely forbid nationalization because it impliedly requires that nationalization shall not have a confiscatory character. [3] nationalization is required in the context of the undertaking. The undertaking was at first, directed to narrow patrimonial ends. Later, it became an essential instrument in the economic and social progress of the State. 2ND ISSUE; WON AMINOIL SHOULD BE INDEMNIFIED. Yes. The total indemnification should be the sum of the value of the undertaking as a source of profit, and on the totality of the assets. Note that “legitimate expectations” should also be considered in deciding for compensation. The legitimate expectation in this case was Aminoil’s moderate estimate of profits.

Starett Housing supra AMOCO Case (US vs. Iran claims case) Note: this case is VERY long so I shortened/erased some parts I thought to be irrelevant. Hope tama naman. I. INTRODUCTION The present claim arises out of the Khemco Agreement, entered into on 12 July 1966 between Amoco and NPC, pursuant to which the parties thereto agreed to form a joint venture company, Khemco, for the purpose of building and operating a plant for the production and marketing of sulfur, natural gas liquids and liquified petroleum gas derived from natural gas. 2. The Claimant, AIFC, contends that the Government of the Islamic Republic of Iran ("Iran"), independently and through its agencies and instrumentalities, deprived AIFC of its 50% property interest in Khemco. AIFC now seeks recovery of the value of its property interest in Khemco. II. JURISDICTION 9. The Claimant contends that the present claim is properly within the Tribunal's jurisdiction. The Respondents have raised several jurisdictional objections, all of which, the Claimant contends, are without merit. A. The Claimant's U.S. Nationality IRAN: generally disputes the sufficiency and relevance of the evidence submitted by the Claimant as proof of its United States nationality. The Tribunal holds that this evidence satisfactorily proves the United States nationality of the Claimant within the terms of the CSD. B. The Claimant's Right to Raise an Indirect Claim IRAN: contend that AIFC does not have locus standi before this Tribunal as the Tribunal does not have jurisdiction over indirect claims owned directly by Amoco, a Swiss company. THE TRIBUNAL finds that the terms of the CSD and the consistent jurisprudence of the Tribunal clearly recognize that the Tribunal is authorized to exercise jurisdiction over indirect claims asserted by corporations that are nationals of the United States on behalf of their wholly owned foreign subsidiaries. Accordingly, AIFC may properly assert claims on behalf of Amoco. C. Possible Prejudice Caused by Multiple Proceedings IRAN: asserts possible prejudice if the present Case is adjudicated by this Tribunal. They argue that the provisions of Article 26 of the Khemco Agreement obligate the parties
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thereto to settle any disputes by arbitration and that those provisions remain binding. They argue further that Amoco neither did nor was contractually able to assign its rights arising from the Agreement to AIFC. The Respondents contend that the contracting party, Amoco, in fact, has instituted separate arbitral proceedings and that these proceedings are still pending. The Respondents conclude that a decision to entertain AIFC's indirect claim before this Tribunal could prejudice the Respondents by subjecting them to multiple liability in the event Amoco subsequently decided to pursue its claim directly in a separate forum. TRIBUNAL holds that its jurisdiction is determined exclusively by the CSD and does not depend on or arise out of any contractual assignments. As to the alleged risk that the Respondents could be subject to multiple liabilities, the Tribunal notes that, in any event, the principles of res judicata or estoppel would bar Amoco in most, if not all, legal systems, from successfully prosecuting a claim, the merits of which have been finally determined by this Tribunal. E. Exhaustion of Local Remedies IRAN contends that the Single Article Act passed by the Revolutionary Council of Iran precludes the Tribunal from adjudicating AIFC's claim. The Respondents' argument is twofold: first, that the Special Commission established pursuant to the Single Article Act has exclusive competence over Amoco's -- and thus over the Claimant's -- claim to compensation, and second, that, by not seeking compensation through the Special Commission, Amoco has failed to exhaust its local remedies. TRIBUNAL notes that the objections raised by the Respondents pertain to issues both of jurisdiction and of the merits of the present Claim. To the extent that these objections pertain to issues of jurisdiction, the Tribunal holds, as it has held earlier, that its jurisdiction over claims raised is determined exclusively by the provisions in the CSD, and that the CSD does not condition the Tribunal's jurisdiction on the exhaustion of local remedies as the Respondents contend. See Amoco Iran Oil Company and Islamic Republic of Iran, Award No. ITL 12-55-2 (30 December 1982), reprinted in 1 Iran-U.S. C.T.R. 493. G. Proper Parties to the Case IRAN argues that the Claimant has not sufficiently identified the Respondents against which the claim is directed. They contend that to the extent the claim is based on the theory of breach of contract the claim is inattributable to the named Respondents, Iran and NIOC, and that, to the extent the claim is based on an alleged expropriation, the claim cannot be brought against either NPC, Khemco or NIOC since they are separate corporate entities, distinct from Iran. TRIBUNAL finds no reason to dispute the separate corporate status of NIOC, NPC or Khemco. Such status is irrelevant in determining whether these companies are proper Respondents. It is undisputed that these three companies are entities controlled by Iran within the terms of the CSD and are thus potentially proper Respondents to this claim. The claim in this Case is based on two distinct legal theories: first, expropriation and, second, breach of contract. It is clear that each of the named Respondents is prima facie a proper party to at least one of the alternative theories. Under the expropriation theory Iran is indisputably a proper Respondent. Each of the other Respondents was directly or indirectly involved in the contractual relationship here at issue, thus raising the possibility of liability under the breach of contract theory. Whether any of the Respondents is ultimately found liable on these theories is an issue which pertains to the

merits of this Case. The Tribunal thus cannot determine the attributability of the claim to the respective Respondents named as a preliminary issue. IV. THE CLAIMS A. Facts and Contentions 1. The Contractual Background The Khemco Agreement, executed by Amoco and NPC on 12 July 1966, was part of the overall business relationship between the Claimant's corporate affiliates and the Respondents, arising out of their joint development of Iran's petroleum resources. Close to ten years prior to the signing of the Khemco Agreement, NIOC (the corporate parent of NPC) and an affiliate of the Claimant, then known as PANINTIOL, entered into the JSA providing for the exploration by PANINTOIL, and the joint development of production by NIOC and PANINTOIL, of four offshore oil fields in the Persian Gulf named Ardeshir, Cyrus, Darius and Fereidoon ("JSA Area"). The Khemco Agreement established a mechanism for processing this gas and selling various associated chemicals, especially sulphur extracted therefrom. 29. In the Khemco Agreement, Amoco and NPC agreed to and defined a structure of interrelated agreements. At the core was the establishment of an Iranian joint stock company, Khemco, which was to be jointly owned and managed by Amoco and NPC. Khemco was to receive technical assistance and services from NPC and Amoco in order to design, construct, install and initially operate the envisioned plant under a separate agreement. It was anticipated that the natural gas necessary for the operation of the Khemco plant would come primarily from the facilities on Kharg Island jointly operated by NIOC and PANINTOIL, and the Khemco Agreement was conditioned on the execution by Khemco of a gas purchase agreement with NIOC and PANINTOIL on terms and conditions set forth in the Khemco Agreement. a) The Khemco Agreement The signatories to the Khemco Agreement were, as noted earlier, Amoco and NPC. NPC was legislatively authorized by Iran to enter into the Khemco Agreement by the Act Concerning the Development of Petrochemical Industries, effective 15 July 1965, which vested authority in NPC to "enter into partnership with Iranian or foreign institutions or companies possessing technical and financial qualifications." This Act also provided that "[a]ll arrangements and agreements concluded in the implementation of this object shall be enforced after approval by the High Council of Petroleum Industries, the general meeting of the N.I.O.C. and the Council of Ministers and upon ratification by the Finance and Economic Joint-Committees of the Two Houses of Majlis." b) Establishment of Khemco Pursuant to the Khemco Agreement, Khemco was organized on 14 March 1967 as a joint stock company under the laws of Iran "for the purpose of extraction and sale of sulfur, LPG and C5 plus Natural Gas Liquids and the production of such other products as [NPC and Amoco] may agree upon." Khemco was to "install, own and operate" a plant "with a capacity to extract about five hundred (500) tons per day of elemental sulfur and about six thousand (6,000) barrels per day of LPG and C5 plus Natural Gas Liquids, with additional capacities to be provided as the parties hereto may hereafter agree." Khemco's initial share capital was Rls. 524,000,000 equivalent, at that time, to approximately U.S. $7,000,000. As required, Amoco and NPC subscribed to the same
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number of shares, each of which entitled the shareholder to one vote. Detailed provisions in the Khemco Agreement ensured the right of both parties to participate equally in the management and affairs of Khemco. c) The Technical Services and Assistance Agreement The Technical Services and Assistance Agreement was executed as of 12 July 1966 by NPC, Amoco and Khemco. Pursuant to this agreement, Amoco agreed to provide technical assistance in connection with the design, engineering, construction, installation and initial operation of the Khemco plant. This agreement was to remain effective until twelve months after the date of completion and acceptance of the plant. In accordance with the Technical Services and Assistance Agreement the plant was completed and was accepted by 1 January 1970. d) The Gas Purchase Agreement As noted earlier, performance under the Khemco Agreement was conditioned upon Khemco's concluding with NIOC and PANINTOIL a "mutually satisfactory" gas sale and purchase agreement within 30 days of the effective date of the Khemco Agreement. The Khemco Agreement defined the essential conditions regarding quantity, source and price of the feed stock natural gas. The Khemco Agreement provided that the natural gas could be purchased from other sources, but specified that JSA Gas, i.e., gas which was a by-product of NIOC's and PANINTOIL's oil extraction operations pursuant to the JSA, was to have priority "unless otherwise agreed between the parties." These terms and conditions were incorporated in the Gas Purchase Agreement which was executed on 1 April 1967. Pursuant to Article 2, paragraph 1 of the Gas Purchase Agreement NIOC and PANINTOIL agreed to sell, in equal quantities, and Khemco agreed to buy Casinghead Gas produced from the JSA Area, "to the extent available and which may be required for the operation" of the Khemco plant as initially constructed or subsequently expanded. Pursuant to Article 2, paragraph 2, NIOC further agreed "to secure from sources on Kharg Island other than the [JSA] Area, to the extent available, and sell to KHEMCO . . . such amount of Natural Gas as may be required for the operation of the aforesaid Plant in addition to the Casinghead Gas purchased by Khemco pursuant to Paragraph 1 (i.e., the JSA gas)." 2. Operation of Khemco's Facilities As mentioned above, the natural gas processing plant provided for in the Khemco Agreement and the related separate agreements commenced commercial operations as of 1 January 1970. The plant facilities consisted of gas compressors, a hydrogen-sulfide extraction unit, sulfurrecovery plant, gas dehydration units, refrigerated absorption equipment, product-fractionation towers, propane and butane treating units, and power generation facilities. In addition, there were storage facilities for large quantities of propane, butane, and sulfur as well as vessel loading facilities. It appears from evidence submitted by the Claimant that, with these facilities, Khemco had a maximum daily average product yield of about 800 metric tons of sulfur, 5,300 barrels of propane, 6,200 barrels of NGL and 3,000 barrels of butane. 50. The Khemco plant continued operations using OSCO gas without any significant interruptions through 1977, which was the last full year of production prior to the disruptions caused by the Iranian Revolution. According to evidence submitted by the Claimant, the plant produced during 1977 an average of 559 tons of sulfur, 3,647 barrels

of NGL, and 6,319 barrels of LPG per day. Due to increasing deliveries of particularly rich gas during 1977 and early 1978 production of NGL and LPG was increasing rapidly. It is not disputed that the management of Khemco by the respective parties proceeded smoothly through this period and all funds earned by Khemco were disbursed as agreed pursuant to the Khemco Agreement. 3. Events Affecting the Operation and Management of Khemco The Parties agree that after 1977 civil unrest occurring in Iran increasingly affected plant production. During 1978, as the events of the Islamic Revolution gathered momentum, strikes by workers in the oil industry disrupted production and hampered operation of oil processing facilities, including those of Khemco. These strikes began in mid-October and continued, off and on, through the end of the year. By 1 November 1978 there were total stoppages of oil exports. The Claimant contends that by the end of December 1978 the increasing levels of antiAmerican sentiment caused Amoco to propose to Khemco that the Amoco personnel working for Khemco should be temporarily permitted to evacuate Iran. By telex dated 27 December 1978 Mr. M. Tayeban, the managing director of Khemco, informed Amoco that "we concur with Amoco's suggestion that until further notice no Amoco personnel working for Khemco should remain in Iran." According to the Respondents, however, the withdrawal of Amoco's personnel was made without NPC's approval or consent and this withdrawal, as well as the general withdrawal of expatriate personnel from Iran, reduced production at the Khemco plant to negligible levels during the first quarter of 1979. As outlined in further detail below, the Respondents invoke these conditions in Iran as proof that the Khemco Agreement as well as the related agreements thereby became frustrated and non-operational. In addition, they argue that, as the JSA also had become frustrated and non-operational, the Khemco Agreement automatically was rendered non-operational. It was further reported that NPC intended to terminate all foreign interests in petrochemical plants. The Claimant refers to a statement by Mr. R. Abedi, managing director of NPC, according to which NPC intended to commence negotiations to buy out all shares of petrochemical plants held by foreign interest, with the goal of bringing such plants under a single management. Khemco's plant was specifically mentioned as targeted for such a transfer and NPC displayed an interest in a possible purchase of Amoco's share in Khemco. NPC also announced that the transfer price would be the book value of shares prior to the Revolution. The next significant event occurred by the end of June 1979. In evidence is a letter dated 27 June 1979 by which Mr. Abedi advised Mr. Tayeban, managing director of Khemco, that "in accordance with company resolutions, sales of Khemco products would thereafter be managed by NPC." This letter also announced that regular reports as to the current inventory of sulfur would be required. Prior to this time, Khemco had not approved such policies. A general shareholders' meeting was also held on 7 July 1979. According to the minutes of this meeting the shareholders approved the annual report and financial statements. Out of total 1978 profits of Rls. 1,107,000,000 Khemco declared approximately 10%, Rls. 111,000,000, as dividends payable in 1979. Payment of Amoco's share of this dividend was never received by Amoco.
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Khemco was formally notified by letter of 17 July 1979 from Mr. Hosseinali Hajarizadeh, Acting Supervisor of Management of Operations and NPC's Shareholders Representative to Khemco. The letter requested "that action be taken in accordance with the attached minutes of the meeting," and stated that "a decision for how to sell Khemco's products, as reflected in the attached minutes of meeting, has been taken considering [both the] purchase of Amoco's shares in Khemco by NPC" and the subsequent merging of Khemco's operations in the management of NPC. The events were formally announced to Amoco and its affiliates by a letter of 18 July 1979 from Khemco's managing director, Mr. Tayeban. The letter announced that "as of this date we are putting NPC's directives in this connection into effect," and "are transferring all rights and obligations under all existing contracts to NPC . . . and NIOC." The letter concluded that "any new sales will of course be made directly by NPC or NIOC." The Claimant contends that the implementation of these policies clearly and effectively excluded Amoco from all of Khemco's operations. Amoco's formal protest to the decisions announced 18 July 1979 was communicated in two telexes of 6 August 1979, one to Khemco and one to NPC. These telexes stated that the alleged takeover was beyond the authority of Khemco's managing director, inconsistent with the Khemco Agreement and Khemco's corporate articles, and had previously been rejected by Khemco's board of directors. The telex to NPC concluded that "[s]uch unilateral takeover of Khemco's marketing activities amounts to nationalization while the discussion of the purchase of Amoco's share in Khemco is still pending." The Respondents do not dispute that the announced policies were, in fact, carried out despite Amoco's protest. They argue, however, that these decisions were taken with the interest of Khemco in mind and that, furthermore, NPC was obligated to implement these policies by virtue of decisions taken by NIOC. The Respondents rely, inter alia, on a telex from NPC to Amoco of 14 August 1979, in response to Amoco's 6 August 1979 telex, in which NPC stated that the arrangement for sales of Khemco's products was made to protect NPC's interest. Higher prices could be obtained by combining sales of sulphur from Kharg and Shampur plants. Similarly [LPG] can be sold through NIOC in conjunction with IMS product at higher prices. Neither Party has submitted any evidence as to the substance of the proposed negotiations for the sale of Amoco's shares to NPC, and nothing in the record indicates that negotiations resumed at any time after 14 August 1979. It is in any case undisputed that the Parties never reached an agreement on the terms of NPC's purchase of Amoco's shares. Subsequently, on 8 January 1980, the Revolutionary Council of the Islamic Republic of Iran promulgated the Single Article Act Concerning the Nationalization of the Oil Industry of Iran ("Single Article Act"). This Single Article Act stated that "[a]ll oil agreements considered by a special commission appointed by the Minister of Oil to be contrary to the Nationalization of the Iranian Oil Industry Act shall be annulled and claims arising from conclusion and execution of such agreements shall be settled by the decision of said commission." [FN1] It appears that the "Iranian Oil Industry Act" referred to was the Act concerning the Nationalization of the Petroleum Industry Throughout the Country, dated 5 May 1951, by which the Iranian Oil industry previously had been nationalized.

On 11 August 1980 Amoco served on NPC a Notice of Arbitration pursuant to the Khemco Agreement. NPC did not respond to this notice, nor did it appoint an arbitrator as required by the Khemco Agreement. As a consequence, reference was made to a third party, who appointed a sole arbitrator. The record does not disclose whether subsequent arbitral proceedings were held. The Claimant, however, has stated that Amoco is not pursuing these arbitral proceedings. On 24 December 1980 Iran's Minister of Petroleum served notice on Amoco by telex that the Khemco Agreement was declared null and void by the Special Commission established in accordance with the provisions of the Single Article Act ("Special Commission"). The Single Article Act, inter alia, provides that any would be claim arising from the conclusion and execution of the said null and void agreement should be referred to and settled by the special committee. The Claimant contends that, prior to receipt of this telex. Amoco had not received any notification that the Special Commission was reviewing the validity of the Khemco Agreement, or that it had reached a decision. There is no evidence in the record describing the process by which the Special Commission reached the conclusion under the terms of the Single Article Act that the Khemco Agreement was "null and void." THE TRIBUNAL is further uninformed whether any settlement discussions took place between the Parties subsequent to Amoco's receipt of this notice of nullification. In any event, by telex of 19 September 1981 NPC notified Amoco that it was not authorized to provide any redress for Amoco since "the claims of Amoco in respect [of] nationalization of its shares/assets in Kharg is subject to negotiation with a special commission created for dealing with all such claims . . . . " It is undisputed that Amoco has not pursued any remedy with this Special Commission. B. The Legal Characterization of the Facts 1. The Issue The parties do not disagree on the occurrence of the factual events discussed above. They differ, however, as to the legal characterization and consequences of these events, these being the issues on which the Tribunal has to decide. AMOCO: these facts establish the Respondents' liability on one of two theories: A) First, the Claimant argues that NPC and Khemco have materially breached or repudiated the Khemco Agreement and that NIOC and Iran are liable as well because of their control over NPC and Khemco.  WON there was material alteration to the contract B) The Claimant also argues that the record demonstrates that Iran has expropriated Amoco's rights under the Khemco Agreement or its shares and shareholders' rights in Khemco and that such expropriation was wrongful.  WON expropriation was wrongful 2. Frustration by Force Majeure [DEFENSE OF IRAN WRT TO THE EVENTS] According to the Respondents, the dramatic events which took place in Iran in 1978 and 1979 had a direct bearing on the life of the Khemco Agreement. As a consequence of strikes and civil disturbances production at the Khemco plant completely stopped and remained negligible for the first quarter of 1979. Production started again in the spring of
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1979, but remained "continually hampered by sporadic strikes and difficulties in obtaining required materials and technical assistance from abroad." In addition, the revolutionary events provoked the withdrawal by Amoco of all its United States personnel in the first days of December 1978. The Respondents assert that Amoco made no serious efforts to return its personnel to Iran and it is a fact that the United States personnel did not return to Iran. The Respondents insist that Amoco's experts and technical skills were needed for the project and that "[w]ithout the Claimant's participation NPC and Khemco ceased being able to fulfil their specific obligations in conjunction with the Claimant." They conclude that because of these difficulties, and the fact that the JSA was also allegedly rendered inoperable, the Khemco Agreement was "totally frustrated." COURT: Fortuitous event DID NOT terminate the agreement [STIPULATED] A reading of the Khemco Agreement shows that the existence of a fortuitous event does not terminate the Khemco Agreement. Its effect is solely to suspend the performance of obligations and exercise of rights under the Khemco Agreement. Even if the situation of force majeure extends over a period exceeding twelve consecutive months, there is no automatic termination of the Khemco Agreement. Rather the parties have in such a case the obligation to consult; if they fail to find a solution, they have the right to resort to arbitration. 3. WRT Expropriation According to the Claimant, by the end of July 1979 the Respondents "had totally and unequivocally breached and repudiated the Khemco Agreement and had expropriated Amoco International's rights thereunder, including its ownership interest in Khemco, for their own benefit, use and ownership." The Claimant alleges, therefore, that 1 August 1979 should be considered the date of expropriation. In such circumstances the Claimant contends the expropriation must be unlawful. The Respondents do not deny that, given the Tribunal's findings on force majeure, an expropriation took place. They emphasize that the Claimant does not contest that "the enactment of the Single Article Act of 8 January, 1980 by the Revolutionary Council of Iran was a valid legislative act under Iranian Law." Therefore they argue that "the Agreement was nullified pursuant to the Single Article Act as a valid exercise of Iran's sovereign legislative power." Noting that the Single Article Act "is expressly designed to implement the original [[Nationalization] Act of 1951," the Respondents imply that the nullification of the Khemco Agreement by decision of the Special Commission in December 1980 is to be construed as a legitimate nationalization within Iran's sovereign powers. They also set its occurrence as no earlier than 24 December 1980, when the decision of the Special Commission was communicated to Amoco. 4. Lawfulness or Unlawfulness of the Expropriation a) The Applicable Law THE TRIBUNAL asserts that the lawfulness of the expropriation must be decided by reference to international law. AMOCO: maintains that the expropriation was unlawful because it was contrary to the Treaty, which in any case incorporates the rules of customary international law as a minimum standard.

RESPONDENTS: contend that any expropriation was made in conformity with international law, since it was the legitimate exercise of Iran's right to nationalize, such right being recognized by customary international law. On the other hand, the Respondents submit that the Treaty is neither operative nor applicable to this Case. (i) The Treaty [THE AGREEMENT ITSELF…DUH] RESPONDENTS: the Treaty is applicable in the instant Case only if it was operative at the time of the expropriation, at the time of the submission of the claim to the Tribunal and, possibly, at the time of the award. BUT the Respondents contend, however, that the Treaty was not operative at any of these times for several reasons: A) the Respondents argue that the Treaty was never binding on Iran, since it was executed by a Government installed as a result of a foreign intervention. If the Treaty was validly concluded, the Respondents continue, it ceased to be operative in November 1979 at the latest, by reason of the United States' violations of it by taking measures against Iranian assets, as well as by the general change of circumstances. At that time, the relations between the two countries could no longer be considered amicable, which fact is assertedly decisive, since the Tribunal is specifically authorized by Article V of the CSD to take into account changed circumstances. The Respondents deny that official notification of termination was necessary, since termination by conduct of the parties is largely admitted in international law. B) the Respondents argue that the decision to the contrary of the International Court of Justice in the Case Concerning United States Diplomatic and Consular Staff in Tehran is irrelevant, since this decision only concerned jurisdiction and the case was not argued by Iran. C) Finally, the Respondents contend that even if the Treaty were operative, it would not be applicable to the circumstances of this Case. THE TRIBUNAL finds that the time period for which the issue of the applicability of the Treaty is relevant is the time when the events which gave rise to the claim occurred, which, in all instances, was prior to signing of the Algiers Accords. The Tribunal's jurisdiction does not rest on the Treaty, but is derived from the Algiers Accords. The pertinent facts have to be assessed in the light of the law governing them at the time they occurred, not the law applicable some time after their occurrence, be it at the time of the submission of the claim to the Tribunal or at the time of the rendering of the award. The Tribunal therefore need not consider whether the Treaty was still in force when the claim was submitted to the Tribunal or whether it is in force at the present time. The Tribunal further notes that at the time the Treaty was signed and ratified the two Governments were recognized by the whole international community. There is no evidence, and it has not been contended, that the Treaty was executed under duress, or by fraud, within the meaning of Articles 49, 51 and 52 of the Vienna Convention on the Law of Treaties, U.N. Doc. A/CONF. 39/27 (23 May 1969), entered into force 27 January 1980, reprinted in 8 Int'l Legal Mat'ls 679 (1969) ("Vienna Convention"). None of the provisions of the Treaty can be considered as contrary to an imperative norm of international law (jus cogens), in the meaning of Article 53 of the Vienna Convention. Nothing, therefore, suggests that the Treaty was null and void ab initio. In its judgment of 24 May 1980 in Case Concerning United States Diplomatic and Consular Staff in Tehran, the International Court of Justice held that the Treaty was in effect at least as of 29 November 1979. It is true that because Iran declined to participate
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in the argument the case was not argued as a case normally would be presented under the Statute and the Rules of the Court, but the Iranian Government stated its position in two communications to the Court. In these communications it objected to the jurisdiction of the Court, but made no suggestion that the Treaty was not in force on 29 November 1979 when the United States submitted the dispute to the Court, as was noted by the Court itself. While the Court dealt with the question of the applicability of the Treaty mostly in relation to the problem of jurisdiction, it did not make its findings thereon in its jurisdiction only on a prima facie basis. Rather, the Court pronounced itself on the validity of the Treaty, after a careful scrutiny, in its judgment on the merits. Its holding is still more forceful because, as the Court explained, it might have grounded its decision on two other conventions which already furnished an indisputable basis of jurisdiction, without addressing the question of the validity of the Treaty. Furthermore, the Court dismissed the suggestion that the Treaty was rendered inapplicable because of the counter measures the United States had taken against Iran. Finally, the Court emphasized, in this context, that "mutual undertakings [of the Parties] to ensure the protection and security of their nationals in each other's territory" are specially related to the "very purpose of amity and, indeed, of a treaty of establishment" like the Treaty. In addition to the Judgment of the International Court of Justice, three previous Awards of this Tribunal have concluded that the Treaty is applicable to the relations between the two nations at the time the relevant claims arose. INA Corporation and Islamic Republic of Iran, Award No. 184-161- 1 (13 August 1985); Phelps Dodge Corp. and Islamic Republic of Iran, Award No. 217-99-2 (19 March 1986); Sedco Inc. and National Iranian Oil Company, Award No. ITL 59-129-3 (27 March 1986), reprinted in 25 Int'l Legal Mat'ls 629. The Tribunal sees no reason to depart from these precedents. With regard to Respondents' argument that changed circumstances and violations of the Treaty brought about its termination, the most dramatic events invoked in support of this argument -- the Islamic Revolution, the attack on the United States Embassy in Tehran and taking of embassy personnel as hostages, and the subsequent presidential freeze orders and rescue attempt -- took place before the Court's finding that the Treaty was still in force. In any event, the Tribunal need not determine whether these events constituted changes of such a nature and magnitude as to justify the termination of the Treaty in conformity with customary rules of international law as declared in Article 62 of the Vienna Convention. As Article 62 clarifies, change of circumstances never automatically terminates a treaty. It is always up to the parties to evaluate the consequences of the change and, if one or both of them arrive at the conclusion that these consequences legally justify termination of a treaty, to take the necessary steps to this effect. The same is true in case of violation of a treaty by a party. Nevertheless, the events which took place in 1978, 1979 and 1980 and caused the revolutionary change of government in Iran, the overrun of the United States Embassy in Tehran and the prolonged detention of its nationals as hostages, could not be without consequences upon the implementation of the Treaty. It is clear that the part of the Treaty which relates to consular relations was suspended with the closure of the consulates of both nations and the rupture of diplomatic relations. The implementation of the articles relating to the treatment of nationals of the other country was greatly disturbed by the civil unrest and disorders which preceded and accompanied the revolution in Iran and continued for some time after the establishment of a new government, as well as by the counter measures taken by the President of the United States in connection with the crisis. These events brought about a virtually complete

interruption of communications between the two countries until after the execution of the Algiers Accords. Obviously, such a legal and factual context has to be kept in mind in considering the application of the Treaty to specific facts during this period, but it does not necessarily lead *1341 to the conclusion that the Treaty was no longer applicable, since, in the words of the International Court, "[i]t is precisely when difficulties arise that the [T]reaty assumes its greatest importance." Thus there was no termination by changed circumstances or alleged violations of the Treaty. Formal notification of treaty termination is not necessary in every case. The intent of a party to terminate a treaty can be implied from its conduct. Yet such conduct may be construed as an implicit denunciation only if it clearly demonstrates the intent of the party concerned to terminate the treaty. In the present case, the Tribunal finds that, at all relevant times, the conduct of the parties was not such as to warrant such a conclusion. For the foregoing reasons the Tribunal does not find evidence that the parties considered the provisions of the Treaty relating to the treatment of nationals to be terminated or suspended at the time of the occurrence of the facts to which the claim relates. (ii) Customary International Law [this part is like the only fucking relevant part in my opinion so if you skipped a lot, just focus on this]  Tribunal: IL has evolved to recognize that although the State has the right to “nationalize,” they must still reasonably compensate!! As a lex specialis in the relations between the two countries, the Treaty supersedes the lex generalis, namely customary international law. This does not mean, however, that the latter [CUSTOMARY IL] is irrelevant in the instant Case. On the contrary, the rules of customary law may be useful in order to fill in possible lacunae of the Treaty, to ascertain the meaning of undefined terms in its text or, more generally, to aid interpretation and implementation of its provisions. It is worthwhile, in this context, to compare the provisions of Article IV, paragraph 2 of the Treaty with the customary rules of international law in the field of expropriation. A leading expression of these rules is the judgment of the Permanent Court of International Justice in the Case Concerning Certain German Interests in Polish Upper Silesia (Germany v. Poland), 1926. As reflected in this case, the principles of international law generally accepted some sixty years ago in regard to the treatment of foreigners recognized very few exceptions to the principle of respect for vested rights. The Court listed among such exceptions only "expropriation for reasons of public utility, judicial liquidation and similar measures. A very important evolution in the law has taken place since then, with the progressive recognition of the right of States to nationalize foreign property for a public purpose. This right is today unanimously accepted, even by States which reject the principle of permanent sovereignty over natural resources, considered by a majority of States as the legal foundation of such a right.  IMPORTANT!!!!!!!!!!!!! The importance of this evolution derives from the fact that nationalization is generally defined as the transfer of an economic activity from private ownership to the public sector. It is realized through expropriation of the assets of an enterprise or of its capital stock, with a view to maintaining such enterprise as a going concern under State control. Modern nationalization often brings into State ownership a number of enterprises of the
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same kind and may even be applied to all enterprises in a particular industry. It may result, therefore, in a taking of private property of much greater magnitude than the traditional expropriation for reasons of public utility, and is also of a very different nature, since it is always linked to determined political choices. For these reasons, and because it applies to going concerns, taken as such, modern nationalization raises specific legal problems, notably in relation to the issue of compensation. The provisions of Article IV, paragraph 2 of the Treaty [agreement] must be read against this background, since the negotiation of the Treaty must be presumed to have taken place in this legal context. Although the provisions are phrased in a negative form and emphasize the principle of the respect due to foreign property, they nevertheless amount to a clear recognition of the right to nationalize. In stating that "[s]uch a property shall not be taken except for a public purpose," the Treaty implies that an expropriation which is justified by a public purpose may be lawful, which is precisely the rule of customary international law. The other condition to a lawful expropriation provided for in the same paragraph is "the prompt payment of just compensation," an obligation which is also accepted as a general rule of customary international law as well. While a few recent resolutions of international bodies or conferences, including the General Assembly of the United Nations, have cast doubts on the existence of an international rule to this effect, other less controversial resolutions, such as G.A. Res. 1803 (XVII) (14 December 1962) on the Permanent Sovereignty over Natural Resources, confirm the existence of the rule. Furthermore, the rule is generally recognized and applied by international tribunals and reflected in the practice of States, notably in numerous conventions relating to the treatment of foreign property or to the settlement of disputes arising from nationalizations. A number of such awards and conventions were referred to by both Parties in their pleadings. The Treaty on this point is just another example of such a practice. The rules of customary international law relating to the determination of the nature and amount of the compensation to be paid, as well as of the conditions of its payment, are less well settled. They were, and still are, the object of heated controversies, the outcome of which is rather confused. Terms such as "prompt, adequate and effective," "full," "just," "adequate," "adequate in taking account of all pertinent circumstances," "equitable," and so on, are currently used in order to qualify the compensation due, and are construed with broadly divergent meanings. The parties to the Treaty agreed on a common position on this problem by the choice of the term "just compensation" and by listing, in the last sentence of Article IV, paragraph 2, what should be included under this term. The wording of the sentence, however, does not solve the problem of the method to be used in order to determine the value of the property or interest in property which was expropriated. b) The Application of the Law to the Facts of the Instant Case [a must read] AMOCO lists five arguments in support of its contention that the expropriation was unlawful: (1) the expropriation was "supported by no shadow of legal authority or regularity under Iranian law;" (2) no compensation was paid and no offer of compensation was made prior to the taking; (3) the expropriation was discriminatory; (4) the expropriation violated the Khemco Agreement, including its stabilization clauses; and (5) the decision to expropriate was not prompted by a public purpose but by the motive to avoid contractual obligations and to stop paying a share of profits. All these arguments are rejected by the Respondents.

(i) The Alleged Violation of Iranian Law  Tribunal REJECTED ARGUMENT AMOCO alleges, the expropriation of its rights in the Khemco Agreement was a violation of the 1965 Act Concerning Development of Petrochemicals Industries, which was in force at this time and which provided for the enforcement of such an agreement, once entered into and approved by the government and the competent parliamentary committees. The Claimant alleges furthermore that no statute or decree authorized the expropriation, which is therefore devoid of any legal basis. The Claimant denies that the Single Article Act and the decision of the Special Commission furnish such basis for several reasons. First, the Single Article Act and decision came much too late, since, according to the Claimant, the expropriation was complete by 1 August 1979, more than five months before the adoption of the Single Article Act. Second, the Single Article Act did not authorize or ratify takings of property; its only purpose was to authorize the Special Commission to declare contracts "null and void." Third, the Special Commission's decision was itself unlawful because it lacked fair procedure and any legal basis for its declaration. Finally, this decision did not purport to effect a nationalization, but merely repudiated ("nullified") the Khemco Agreement. THE TRIBUNAL: Conformity with domestic law is NOT A PRECONDITION for an internationally lawful nationalization, and the Treaty specifies no such condition. It is therefore doubtful whether it is one of the requisites of international law. It appears that the Claimant does not rely on any single act of nationalization, but considers that the expropriation of Amoco's contractual rights and interests in property was the result of a series of decisions of NIOC and NPC from May to July 1979, none of which can be singled out as an act of expropriation. In other words, the expropriation was the result of a process, which extended over several months, rather than of a discrete legal decision. The Tribunal agrees that the expropriation which took place in this Case was the outcome of a lengthy process, but it finds that the precise character of this process was, at the beginning and for a rather long period of time, ambiguous. The analysis of all the relevant facts known to the Tribunal thus reveals that the process which led to the expropriation of Amoco's rights and interests in Khemco was complete only on 24 December 1980, with the notification of the decision of the Special Commission. This process, which started more than twenty months before, was exceptionally lengthy, due to the extraordinary events which took place during this period. It also changed orientation over time, since, even if its original purpose was the transfer of Amoco's rights and duties to NPC, such a transfer was initially not contemplated to be accomplished by way of expropriation. Such a purpose was eventually realized by a decision taken under a procedure decided by a legislative act, the legality of which, under Iranian law, cannot be doubted by this Tribunal. The Claimant's argument that the expropriation was made in violation of Iranian law, therefore, is rejected. (ii) Lack of Compensation  the Single Article Act provisions for compensation were NOT VIOLATIVE of the treaty The Respondents reject this argument. They emphasize that the Single Article Act provided that compensation would be paid and that the Special Commission was empowered to determine its amount. They insist that Amoco never availed itself of the opportunity provided by the Single Article Act and never applied for compensation, while a number of settlement agreements were arrived at with other
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expropriated companies of various nationalities, including American companies, and the compensation payments were actually made. According to the Respondents, the Claimant cannot complain that there was no due process, since the expropriated companies were free to produce all documents they wanted in support of their demands and could be heard by the Commission. Neither, they assert, is it reasonable for the Claimant to contend that the compensation was not adequate, since neither the Claimant nor Amoco sought compensation and other companies considered the compensation offered to be adequate, and accepted it. TREATY PROVISION: Article IV, paragraph 2 of the Treaty provides that the property of nationals and companies of either Party "shall not be taken . . . without the prompt payment of just compensation." The following sentence adds more precisely that “S[uch compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.” The Treaty does not require that the amount of the compensation should be determined at or prior to the time of the taking. It only provides that "adequate provision shall have been made" in due time. The implementation of such a provision raises some problems in the case of an expropriation realized through a process which extended for more than twenty months, as in the present Case. However, the transfer of property formally took place upon the decision of the Special Commission, notified on 24 December 1980, and the provisions relating to the payment of compensation were included in the Single Article Act and hence made "at or prior to the time of the taking." Another issue is to determine whether the provisions of the Single Article Act relating to compensation were "adequate," in the meaning of the Treaty. In so far as it does not apply to the compensation itself, but to the procedure for determining such compensation, this term is not very often used in practice and does not have a specific legal connotation. Taking into account the ordinary meaning of the term, the Tribunal considers that, to be "adequate," the provisions for the determination and payment of compensation must provide the owner of the expropriated assets sufficient guarantee that the compensation will be actually determined and paid in conformity with the requisites of international law, that is, in the present Case, that "just compensation" will be promptly paid. This does not necessarily imply that a judicial procedure should be set up to this effect. As a matter of fact, such a procedure is seldom provided for in the practice of States. More usually, compensation is decided by administrative authorities, very often without formal negotiation with the interested parties, but, in many cases, in implementation of principles defined by statute, or by constitutional law, with a possible recourse to ordinary judicial remedies. The Single Article Act does not fix any standard for the compensation to be paid, but only empowers the Special Commission to determine such compensation. In practice, the Special Commission instituted negotiations with the companies party to the nullified contracts, in order to arrive at settlement agreements. Furthermore, in case of failure of the negotiations, the interested companies were entitled to have recourse to the procedures of settlement provided for in the contracts, usually by international arbitration. A number of settlement agreements were in fact executed and, in a few cases, arbitration procedures took place. In view of these facts, the Tribunal deems that the provisions of the Single Article Act for compensation were neither in violation of the Treaty nor, indeed, in violation of rules of customary international law. (iii) Discrimination – TRIBUNAL: NOT DISCRIMINATORY

Discrimination is widely held as prohibited by customary international law in the field of expropriation. Although Article IV, paragraph 2 does not expressly prohibit a discriminatory expropriation, paragraph 1 of the same article obliges each party to "refrain from applying unreasonable or discriminatory measures that would impair [the] legally acquired rights and interests" of the nationals and companies of the other party. This wording is so broad that it certainly applies to expropriations. In any event, the Respondents recognize that a discriminatory expropriation is wrongful, but deny that the expropriation was discriminatory in the instant Case. RESPONDENTS: assert that the Single Article Act applied to the entire oil industry, irrespective of the nationality of the foreign companies involved in this industry  HENCE NON-DISCRIMINATORY DAW. In the event, it was applied to non-United States corporations as well as United States corporations. Therefore, it can not be held to be discriminatory. THE TRIBUNAL finds it difficult, in the absence of any other evidence, to draw the conclusion that the expropriation of a concern was discriminatory only from the fact that another concern in the same economic branch was not expropriated. Reasons specific to the non-expropriated enterprise, or to the expropriated one, or to both, may justify such a difference of treatment. Furthermore, as observed by the arbitral tribunal in Kuwait and American Independent Oil Company (AMINOIL), (Reuter, Sultan & Fitzmaurice arbs, Award of 24 March 1982), reprinted in 21 Int'l Legal Mat'ls 976, 1019, a coherent policy of *1351 nationalization can reasonably be operated gradually in successive stages. In the present Case, the peculiarities discussed by the Parties can explain why IJPC was not treated in the same manner as Khemco. The Tribunal declines to find that Khemco's expropriation was discriminatory. (iv) Lack of Public Purpose – TRIBUNAL: Yes there was! NATIONALIZATION! AMOCO’s counsel suggested, during the Hearing, that "a principal motive and perhaps the principal motive" for the expropriation of Khemco was simply to free NPC from the obligations created by the Khemco Agreement and, particularly, from the obligation to share the profits of the venture. The Claimant asserted that such a motive certainly is not legitimate. Counsel added that "only the ventures where all the money had been put up were expropriated, not the others." This last remark, indeed, suggests a differentiation for financial reasons rather than a discrimination on the basis of nationality. TRIBUNAL: A precise definition of the "public purpose" for which an expropriation may be lawfully decided has neither been agreed upon in international law nor even suggested. It is clear that, as a result of the modern acceptance of the right to nationalize, this term is broadly interpreted, and that States, in practice, are granted extensive discretion. An expropriation, the only purpose of which would have been to avoid contractual obligations of the State or of an entity controlled by it, could not, nevertheless, be considered as lawful under international law. Such an expropriation, indeed, would be contrary to the principle of good faith and to accept it as lawful would run counter to the well-settled rule that a State has the right to commit itself by contract to foreign corporations. It is also generally accepted that a State has no right to expropriate a foreign concern only for financial purposes. It must, however, be observed that, in recent practice and mostly in the oil industry, States have admitted expressly, in a certain number of cases, that they were nationalizing foreign properties primarily in order to obtain a greater share, or even the totality, of the revenues drawn from the exploitation of a national natural resource, which,
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according to them, should accrue to the development of the country. Such a purpose has not generally been denounced as unlawful and illegitimate. TRIBUNAL: It need not determine the delicate legal issues raised in the preceding paragraph. It cannot be doubted that the Single Article Act was adopted for a clear public purpose, namely to complete the nationalization of the oil industry in Iran initiated by the 1951 Nationalization of the Iranian Oil Industry Act, with a view to implementing one of the main economic and political objectives of the new Islamic Government. The decision of the Special Commission relative to Khemco was taken in apparent conformity with the Single Article Act. Even if financial considerations were considered in the adoption of such a decision -- which would have been only natural, but which has not been evidenced -- this fact would not be sufficient, in the opinion of the Tribunal, to prove that this decision was not taken for a public purpose. LAST PARTS OF THE CASE: I did not include anymore and just pasted the “outline” since it really gets too long na. 5. Breach or Repudiation of Contract a) The Issue  Claimant alleges breach because it was excluded from the management of Khemco, from its rights to use Khemco's net cash flow on an interest-free loan basis, and from its rights to dividends. It also argues breach of "stabilization" clauses. The Claimant's alternative theory that the Respondents are responsible for breach and repudiation of the Khemco Agreement is based on the same facts that were invoked as evidence of expropriation. According to the Claimant, Amoco was wrongfully deprived of its lawfully acquired rights under the Agreement by NPC, NIOC, Iran and Khemco. Amoco was excluded from the management of Khemco allegedly contrary to Articles 4 and 5 of the Khemco Agreement and excluded from its rights to use Khemco's net cash flow on an interest free loan basis and from its rights to dividends allegedly contrary to Article 22 of the Khemco Agreement. All that occurred before the end of July 1979. The deprivation of Amoco's management rights was confirmed on 13 December 1979 when the Amoco-nominated managing director was not permitted by NPC to assume his office. The Claimant also alleges a breach of what it calls the "stabilization clauses" of the Khemco Agreement. AMOCO’s LEGAL BASIS: INTERNATIONAL LAW (not municipal law) The Claimant contends that this claim arises under international law. The Claimant maintains that the Khemco Agreement "belongs to a special category of international contracts referred to as economic development agreements." For the Claimant, such contracts "by their nature require that they be insulated from the disruptive effects of changing municipal law" and therefore "the law from which they derive their binding force (loi d'enracinement) is international law." In support of this assertion, the Claimant relies on Article 30, paragraph 1 of the Khemco Agreement, which, according to the Claimant, provides that the terms of the Khemco Agreement must first govern the interpretation and implementation of the Khemco Agreement and that the laws of Iran apply only "subject thereto." Furthermore, in case of inconsistency between the terms of the Khemco Agreement and the laws of Iran, the former must prevail. "Consequently this Tribunal should enforce the contract according to the plain meaning of its terms and should not apply Iranian Law except insofar as it is consistent with the terms of the contract and furthers the intentions of the parties as manifested in the contract." BASIC ARGUMENT: BREACH OF CONTRACT = BREACH OF INTERNATIONAL LAW

The practical consequences of this analysis, according to the Claimant, are that the Khemco Agreement would not only be governed by the principle of good faith mentioned in Article 21 of the Khemco Agreement, but also by the rule pacta sunt servanda. Therefore any breach of the Khemco Agreement would also be a breach of international law, for which the State is internationally responsible. IRAN: a)OUR LAWS RULE (power of eminent domain!); b) THAT THE CONTRACT WAS “FRUSTRATED BY FORCE MAJEURE” – hence no contract = no breach According to them, "the power of the State in the exercise of eminent domain to annul contracts, is generally recognized in municipal legal systems and, a fortiori, cannot be questioned in international law." This right is not precluded by the terms of the Khemco Agreement. Furthermore, the fact that Iran was not a party to the Khemco Agreement and thus was not bound by its terms, excludes the possibility of a breach of contract by Iran. The Respondents consider, on the basis of Article 30 of the Khemco Agreement, that Iranian law governs the Khemco Agreement and must be applied by the Tribunal. They assert that under Iranian law the Agreement was frustrated by force majeure. They contend further that the concept of "changed circumstances" incorporated in Article V of the CSD must also be applied to the interpretation and implementation of the Khemco Agreement and they assert their conclusion that the Khemco Agreement was terminated by frustration. Since the Khemco Agreement allegedly was terminated before any breach took place, the Respondents deny that there can be any breach of contract. b) The Law of the Contract The Law of Iran In the present context the issue of the applicable law is quite different from the question of the law applicable to expropriation. It relates to the problem known in conflicts of laws, or private international law, as "the law of the contract," namely the law governing the validity, interpretation and implementation of the Khemco Agreement.. The choice of the parties relating to the law of the Khemco Agreement appears in Article 30, headed "Applicable Laws," which reads as follows: 1. This Agreement shall be construed and interpreted in accordance with the plain meaning of its terms, but subject thereto, shall be governed and construed in accordance with the laws of Iran. 2. The provisions of any current laws and regulations which may be wholly or partly inconsistent with the provisions of this Agreement shall, to the extent of any such inconsistency, be of no effect in respect of the provisions of this Agreement. INTERPRETATION OF THE AGREEMENT: Ordinary meaning of the terms…if confusing, then apply law of the contract --) the agreement is NOT governed by International Law Construed according to the ordinary meaning of the terms, Article 30, paragraph 1 provides that an interpretation of the Khemco Agreement must be based first on the terms thereof. This is, of course, the normal way of interpreting a contract. If problems arise which cannot be solved in this way, the interpreter will have to look at the laws of Iran, which is also the usual way of applying the law of the contract in practice. On the basis of this reading, the Tribunal cannot accept that Iranian law plays only a subordinate role, as contended by the Claimant. Nor is the Tribunal convinced that the Khemco
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Agreement should be characterized as an agreement governed, by nature, by international law. Such a construction is manifestly contrary to the plain meaning of the terms of Article 30, paragraph 1. It is clear that the parties chose Iranian law as the law of the contract and no reason appears for reading the provisions otherwise. PAR 2 BUTRESSES THE FACT THAT IRANIAN LAW APPLIES; QUALIFIES IT The purpose of this paragraph was not to submit the Khemco Agreement to law other than Iranian law, but only to solve any question which may arise in case of inconsistency between the "current laws and regulations" of Iran and the terms of the Khemco Agreement itself. In such a case the terms of the Khemco Agreement would nevertheless be considered as valid and binding on the parties. Thus, the contractual regime established by the Khemco Agreement may constitute an exception to the legal regime otherwise existing in Iran. SPECIFIC OR SPECIAL NATURE OF KHEMCO AGREEMENT The Khemco Agreement was thus of a specific nature, since its provisions could be contrary to Iranian law without losing their binding force on the parties. In fact, a series of clauses of the Khemco Agreement determine how a number of public laws of Iran would apply to the parties in the implementation of the Khemco Agreement. For this reason, the provisions of Article 2 required NPC to submit the Khemco Agreement for approval and ratification by the High Council for Petroleum Industries, NIOC, the Council of Ministers and the Joint Economic and Financial Committees of the Majlis. The law of the contract applies only to the interpretation and implementation of the Khemco Agreement (and possibly to its validity) as between the parties. Therefore, while it certainly applies to NPC and Amoco, as well as to Khemco, it does not apply to NIOC, which was not a party to the Khemco Agreement. The issue then arises as to whether the law of the contract applies to the other Respondent, namely Iran. BASTA IRANIAN LAW APPLIES The obligations of the government described in Article 2, paragraph 2 of the Khemco Agreement are based on Iranian law (and not international law), irrespective of the law governing the Khemco Agreement as between the parties . This is made clear in Article 1 of the Act of 15 July 1965, which does not require that agreements establishing joint ventures in implementation of that act be governed by Iranian law. These obligations, under the Act of 15 July 1965, as well as under the Law Concerning the Attraction and Protection of Foreign Investment in Iran of 28 November 1955, are referred to in Article 2, paragraph 2 and may be amended in the future, as expressly provided in the same Article. Such an amendment would not be forbidden by Article 30, paragraph 2, which is fully consistent with Article 2. IRAN HAS NO OBLIGATIONS ARISING OUT OF THE AGREEMENT; NO BREACH IN THEIR PART The conclusion to be drawn from the preceding analysis is that the obligations embodied in the Khemco Agreement are obligations only as between the parties, namely NPC and Amoco, and as between the parties and Khemco, within the limits set forth in Article 28. Iran's obligations are only those embodied in the two Acts of 1955 and 1965 in so far as they are also defined in the Khemco Agreement. Since only the rights of the parties in their mutual relationship, including matters of management and share of dividends and loans, are at stake in the present Case, such rights can in no way be construed as creating obligations on the State. Iran is thus not liable for breach of contract on this basis. Such a finding was probably envisaged by the Claimant

and it could be the reason why it laid great emphasis on the applicability of what are called the stabilization clauses. c) The "Stabilization" Clauses  Argument rejected: No true "stabilization" clauses are to be found in the Khemco Agreement AMOCO: IRAN BREACHED STABILIZATION CLAUSES The Claimant alleges that the conduct of Iran in terminating the Khemco Agreement violated two articles f which the Claimant characterizes as "stabilization" clauses. COURT: NO STABILIZATION CLAUSES IN THE AGREEMENT (a) Article 30, paragraph 2: had the effect of affirming the validity of contractual clauses inconsistent with Iranian laws and regulations. This cannot be considered as a stabilization clause in the usual meaning of the term, however, since that term normally refers to contract language which freezes the provisions of a national system of law chosen as the law of the contract as of the date of the contract, in order to prevent the application to the contract of any future alterations of this system. Article 30, paragraph 2 applied only to the provisions of any current laws and regulations, clearly referring solely to the laws and regulations existing at the time of execution of the Khemco Agreement. Therefore it provided no guarantee for the future and is not a stabilization clause. Article 30, paragraph 2, furthermore, must be read in conjunction with Article 2, which, as already noted, referred to the grant of facilities and privileges conferred by the Government under the two Acts, but with the proviso that "any future amendments to such Acts" would also apply. This is the contrary of a stabilization clause. (b). Article 21, paragraph 2 is of a quite different nature. It does not relate to applicable law but to performance of the Khemco Agreement. It reads as follows: Measures of any nature to annul, amend or modify the provisions of this Agreement shall only be made possible by the mutual consent of NPC and AMOCO. The Claimant contends that this paragraph must be read in conjunction with the first paragraph of the same Article by which the parties to the Khemco Agreement undertook to perform the Khemco Agreement "in accordance with the principles of mutual good will and good faith and to respect the spirit as well as the letter of the provisions of the Agreement." It maintains that the reference to the principle of good faith is a clear indication of the intention of the parties to submit the contract to international law, where this principle plays an important role. TRIBUNAL: REJECTS INTERPRETATION The Tribunal cannot accept such a construction in view of the clear wording of Article 30. The principles of good will and good faith apply in practically all systems of law to contracts as well as to treaties. Article 21, paragraph 1 simply sets forth a principle of interpretation and implementation of the Khemco Agreement, which, as a long-term contract, implies a continuous cooperation between the parties and therefore must not be performed in a strict and formalistic way. Paragraph 2 of Article 21 has a more precise meaning in so far as it prohibited changes in the provisions of the Khemco Agreement by unilateral measures. According to the Claimant the term "measures" in this context refers to legislative or regulatory measures.
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Such an interpretation is not easily reconcilable with the terms of Article 21, however, which mentions "[m]easures of any nature" and distinctly states that such measures "shall only be made possible by the mutual consent of NPC and Amoco," neither of which has power to take legislative or regulatory measures. COURT: ON ITS FACE, ARTICLE 21, PARAGRAPH 2 APPEARS TO BE A GUARANTEE AGAINST UNILATERAL CHANGES BY ONE PARTY  BUT IT IS NOT since the Iranian Government DID NOT BECOME a party This does not mean, however, that Article 21, paragraph 2 imposed an obligation on the government of Iran. It certainly creates obligations for NPC and Amoco, confirming the preceding conclusions that they are the only parties to the Khemco Agreement. It should be noted that Khemco is not mentioned in Article 21, although pursuant to Article 28 Khemco is to be treated "as if [it] were" a party to the Khemco Agreement, but it did not become a party to the Khemco Agreement in the fullest sense of the term. Similarly, the government did not become a party to the Khemco Agreement and had nothing to do with the process of amending it. CONCLUSION: only NPC and Amoco were bound by the “stabilization” clauses, Iran is scot-free In conclusion, the Tribunal does not find that the Khemco Agreement contains any "stabilization" clauses binding on the government. The clauses referred to by the Claimant bind only the parties to the Khemco Agreement, namely NPC and Amoco. According to its own terms, Article 30, paragraph 2 cannot be construed as a stabilization clause and Article 21, paragraph 2 only prohibits unilateral measures by NPC or Amoco to "annul, amend or modify" the provisions of the Khemco Agreement. d) Breach of Contract as a Separate Basis of Claim Arqument rejected: Of the Respondents, only NPC could be held responsible for breach of contract, but NPC acted as an INSTRUMENT of the Iranian government From the previous finding of the Tribunal that Iran was not party to the Khemco Agreement it is apparent that only NPC or Khemco could be held responsible for breach of contract. The facts of this Case demonstrate, however, that although NPC acted only for itself when it concluded the Khemco Agreement, it acted as an instrument of the Iranian Government when it took, together with NIOC, the measures characterized by the Claimant as breach and repudiation of the Khemco Agreement. It has already been emphasized that the minutes of the meeting at which these measures were adopted expressly reflect that they were taken "[i]n consideration of Government's policy that all sales of hydrocarbons produced in the country must be made by NIOC." This clearly evidences that NPC did not act in its own interest, but as a performer of the government's policy of completely reorganizing the petroleum industry in Iran. In the framework of this reorganization, its own functions were to be reduced and its interest in Khemco sacrificed. NPC thus did not act independently, but with, and under the supervision of, NIOC which, although not a party to the Khemco Agreement, was to be the main actor and beneficiary of the reorganization. For the reasons just set forth, NPC (or Khemco) cannot be held liable for breach of contract for taking measures attributable to NIOC and, through NIOC, in the final analysis, to the Iranian Government. Such a conclusion is fully consistent with the previous finding of the Tribunal that these measures constituted the first steps of a process which, after the failure of the attempt to purchase Amoco's shares in Khemco, became a process of nationalization. It is, therefore, in this context that they have to be considered.

e) Breach of Contract as a Cause of Unlawfulness of the Expropriation Argument rejected: Iran is not a party to the Agreement COURT: GEN RULE IS THAT A STATE HAS THE DUTY TO RESPECT CONTRACTS FREELY ENTERED INTO WITH A FOREIGN PARTY It is worthwhile to emphasize that the CSD, concluded in dramatic circumstances between two States with very different political and judicial beliefs and traditions, thus contributed, to a greater extent than any other international compact, to the consolidation of the rule of international law that a State has the duty to respect contracts freely entered into with a foreign party. The quoted rule, however, must not be equated with the principle pacta sunt servanda, often invoked by claimants in international arbitrations. To do so would suggest that sovereign States are bound by contracts with private parties exactly as they are bound by treaties with other sovereign States. This would be completely devoid of any foundation in law or equity and would go much further than any State has ever permitted in its own domestic law. In no system of law are private interests permitted to prevail over duly established public interest, making impossible actions required for the public good. Rather private parties who contract with a government are only entitled to fair compensation when measures of public policy are implemented at the expense of their contract rights. No justification exists for a different treatment of foreign private interests. To insist on complete immunity from the requirements of economic policy of the government concerned would be the most certain way to cause the repudiation of the quoted rule. 179. In international practice, and notably in the cases submitted to international arbitration, the dispute has focused on the question of the so-called "stabilization clauses." For the reasons set forth in the preceding paragraph, it is not seriously questioned that, in the absence of such a stabilization clause, a contract does not constitute a bar to nationalization. That is one aspect of the evolution of international law in this area and of the general recognition of the right of States to nationalize. As a fundamental attribute of state sovereignty, this right, commonly used as an important tool of economic policy by many countries, both developed and developing, cannot easily be considered as surrendered. The award in the AMINOIL case, rightly in the view of the Tribunal, held that while contractual limitations on a State's right to nationalize are undoubtedly possible, "what that would involve would be a particularly serious undertaking which would have to be expressly stipulated for and be within the regulations governing the conclusion of State contracts; and it is to be expected that it should cover only a relatively limited period." In the present Case, the Khemco Agreement was concluded for a shorter period (35 years) than the concession in the AMINOIL case (60 years), but in economic and legal terms 35 years cannot be considered a "relatively limited period." Neither the Law concerning the Attraction and Protection of Foreign Investment in Iran of 28 November 1955 nor the Act concerning the Development of Petrochemical Industries of 15 July 1965, referred to in Article 2 of the Agreement, exclude nationalization. Furthermore, it would be particularly adventurous to construe any provision of a contract to which the State is not named as a party as forbidding nationalization. IMPORTANT SUMMARY: EXPROPRIATION IS NOT UNLAWFUL AS A BREACH OF CONTRACT since Iran was not a party to the Khemco Agreement and not bound by any stabilization clause
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180. To sum up, the Tribunal finds that the expropriation in this Case cannot be characterized as unlawful as a breach of a contract, since Iran, the expropriating State, was not a party to the Khemco Agreement and, therefore, not bound by any stabilization clause allegedly contained herein. Moreover, even if Article 21, paragraph 2 could be considered as binding upon the government, that clause does not expressly prohibit nationalization of the contract. 6. Conclusion The Claimant's rights were lawfully expropriated C. The Rules Applicable to Compensation 1. The Contentions of the Parties The Claimant argues for full and fair, going-concern market value without regard to reduction in value caused by the expropriation. The respondents contend that if the expropriation is lawful, the standard of compensation is lower, limited to the net book value of the residual assets 2. The Effects of Lawfulness of Unlawfulness of Expropriation on the Standard of Compensation Customary international law applies. Lost profits are usually not awarded in cases involving lawful takings. 3. The Standard of Compensation in Case of Lawful Expropriation ["Just compensation" means the full value of the expropriated property D. The Compensation 1. The Contentions of the Parties The Claimant argues for market value such that the expropriated owner could purchase a comparable going concern with the compensation, *1318 which calls for use of the "Discounted Cash Flow" (DCF) method. The Respondents argue that compensation should be net book value] 2. The Suggested Methods of Valuation a) General Remarks The Tribunal must avoid unjust enrichment or deprivation of either Party b) The DCF Method Rejected by the Tribunal as not in conformity with international practice, except for calculating profitability c) The DCF Calculations Comments on the reliability or lack thereof of the Claimant's calculations d) The Net Book Value as a Measure of Compensation Rejected by the Tribunal since the expropriating state would be unjustly enriched where it maintains the property as a going concern and benefits from its profitability] 3. Valuation of the Compensation Due to AMOCO The Tribunal orders the Claimant to submit evidence of the value of the "component parts" of the enterprise at the time of expropriation, including the amount of total investment, annual reports, control budgets, and financial statements, the book value and replacement value of Khemco as of 31 July 1979,

and the value of Khemco's intangible assets, including goodwill and commercial prospects. PHILLIPS PETROLEUM COMPANY IRAN, Claimant, v. The Islamic Republic of IRAN, The National Iranian Oil Company, Respondents. QUICK SUMMARY 1. The Usual U.S.-Iran Story – Oil Company enters into a Joint Structure Agreement with Iranian Government to exploit oil. Imam Khomeini sparks a revolution in Autumn of 1978 and it succeeds in toppling over the past regime in February 1979. The revolutionary government decides to withdraw all oil contracts with foreign companies under the guise of Nationalization/Anti-western sentiment. 2. The foreign companies are obviously f*cked so they ask for just compensation since they were deprived of their contractual rights. Iran objects invoking the defense of force majeure, that the oil workers themselves refused to work for foreigners and that the government couldn’t do anything about it. (Talk about a “Hail Mary” defense) 3. The tribunal held that force majeure wasn’t a valid defense since there was no proof that the workers would refuse to follow the orders of the Iranian High Authorities and thus, the contractual rights were not obliterated by force majeure. 4. The tribunal ruled that an expropriation does not need to be in a specific form, whether through a law or de facto. The doctrine is: “While assumption of control over property by a government does not automatically and immediately justify a conclusion that the property has been taken by the government, thus requiring compensation under international law, such a conclusion is warranted whenever events demonstrate that the owner was deprived of fundamental rights of ownership and it appears that this deprivation is not merely ephemeral. The intent of the government is less important than the effects of the measures on the owner, and the form of the measures of control or interference is less important than the reality of their impact.” 4. The tribunal also recognized a deprivation of the foreign companies contractual rights and found that since they exist, just compensation is in order. The tribunal reckoned the point of deprivation at September 29, 1979, the date when Khalili sub-commission said there was no reasonable prospect of return to an arrangement with NIOC on the basis of the JSA and that they should regard the JSA as terminated. They used the following test. “where the taking is through a chain of events, the taking will not necessarily be found to have occurred at the time of either the first or the last such event, but rather when the interference has deprived the Claimant of fundamental rights of ownership and such deprivation is "not merely ephemeral," or when it becomes an "irreversible deprivation”
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5. On the issue of compensation, the tribunal ruled that just compensation for the full value of the property takenwas in order as stated in the Article IV, paragraph 2, 1955 Treaty of Amity between U.S. and Iran. “Property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party, in no case less than that required by international law. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.” 6. Iran tried to use the following defenses to no avail: Customary International Law is dynamic and recent trends have shown compensation may be for less than the full value – Tribunal says this cannot prevail over the specific terms of the treaty, lex specialis The expropriation is lawful and therefore, shall mitigate the compensation (Iran invokes Chorzow) – Tribunal says lawfulness of the taking is irrelevant since the treaty does not distinguish between lawful and unlawful taking. Chorzow is relevant only to two possible issues: whether restitution of the property can be awarded and whether compensation can be awarded for any increase in the value of the property between the date of taking and the date of the judicial or arbitral decision awarding compensation. It provides no basis for any assertion that a lawful taking requires less compensation than that which is equal to the value of the property on the date of taking. Neither is compensation for any value other than that on the date of taking is sought by the Claimant. 7. Tribunal holds Claimant is entitled to compensation of U.S.$55 million which is the value of its JSA interests as of 29 September 1979, as adjusted for related debts owing between the Parties at that time. Taking into account all relevant circumstances, the Tribunal hereby determines that the Claimant is entitled to compensation from the Respondents.

preparation and submission of commerciality reports on the two oil fields discovered in the area covered by the Joint Structure Agreement. The third counterclaim is for money allegedly owed by Phillips, the parent corporation of the Claimant, for crude oil purchased from NIOC under a contract dated 19 June 1979. The fourth counterclaim is for money allegedly owed by the Claimant to Iranian Marine International Oil Company ("IMINOCO"). The fifth counterclaim is for damages for alleged breach of contract for the sale by Phillips to IMINOCO of certain goods. The sixth counterclaim is for various taxes allegedly due from the Claimant and IMINOCO and for 1978 Stated and Additional Payments allegedly due to NIOC. The seventh counterclaim is for indemnification by the Claimant of the Respondents for one-half of any amounts awarded by the Tribunal in other cases as liabilities of IMINOCO to the claimants in those cases. The total amount sought on the counterclaims is U.S. $1,221,475,954, plus interest. 3. Basis for JSA agreements: Iranian Petroleum Act of 1957 It authorized NIOC (National Iran Oil Company) to enter into agreements with foreign and Iranian companies for the development of Iranian petroleum resources. Relevant provisions: - preamble states that NIOC "desires to expand the production and export of Iranian petroleum, thereby increasing the benefits accruing to Iran, and that "Second Party has the capital, technical competence, and management skills necessary for carrying out the operations that it shall be carried out in a spirit of good faith and good will." - Article 13, paragraph 7, requires NIOC and the Second Party to be "always mindful, in the conduct of their operations, of the rights and interests of Iran." - Article 36, paragraph 1, which deals with force majeure provides for the extension of the term of the JSA in the event of prolonged force majeure occurrences and force majeure shall not be a basis for the termination of the agreement. Operations shall resume after the force majeure ends 4. The End begins (see timeline on Par. 17 for continuation) -On 21 October 1978, the Assistant to the Prime Minister for Political Affairs, was quoted in the press as saying that the export of oil, its price, and the selection of purchasers are "totally under the control of the authorities of the Islamic Republic of Iran." Similarly, the Minister of Petroleum said After the Revolution, practically we have not delivered a drop of oil to the second party." -On 8 January 1980 the Iranian Revolutionary Council approved the Single Article Act establishing a Special Committee and it ruled that NIOC and foreign companies for joint off-shore oil operations "are entirely inconsistent" with the 1951 Law and therefore, as a result of the Single Article Act, are "null and void ab initio." 5. Jurisdiction Issue – very minor. Tribunal said it had jurisdiction Iran alleges that since Claimant was involved with AGIP and HIL, Italian and Indian entities respectively, deprives it of standing to bring a claim before this Tribunal since such parties were not included in this suit. Court held that under the Operating Agreement, Swiss law governed and under such law, the arrangement was a societe simple and does not require all partners to file the suit. The Claims Settlement Declaration allows the Tribunal to apply, inter alia, such "principles of commercial and international law as the Tribunal determines to be applicable. The general practice of international arbitral tribunals reflects the practice of many municipal systems in requiring a member of a partnership to bring suit in conjunction with other members of the partnership, there are also exceptions to that rule. These include situations where application of the general rule would, because of foreign partners, result in a partnership being unable to pursue its claim. THE MERITS OF THE CLAIM
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1. COMPLAINT The Claims in this Case were brought by Phillips Petroleum Company Iran, a Delaware corporation, ("the Claimant") for compensation for the alleged taking in 1979 by the Respondent Islamic Republic of Iran ("Iran") of the Claimant's rights under a 1965 contract with the Respondent National Iranian Oil Company ("NIOC") for the exploration and exploitation of the petroleum resources of a certain area offshore in the Persian Gulf ("Joint Structure Agreement" or "JSA") and for damages for the alleged breach and repudiation of the same contract, also in 1979. The Claimant seeks U.S. $162,716,108, plus interest and costs. 2. Iran’s 7 Counteclaims (minor issue, all denied anyway) The Respondents have presented seven counterclaims. The first, for damages for alleged bad oil field practices, is divided into seventeen separate sub-claims. The second counterclaim is for damages for alleged breach of contract by the Claimant in the

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6. Claimants Principal Contention The Claimant's principal contention is that the Respondents are liable for the expropriation of contract rights stemming from the JSA, and that, alternatively, they are liable for breach and repudiation of that contract. The Tribunal considers that the acts complained of appear more closely suited to assessment of liability for the taking of foreign-owned property under international law than to assessment of the contractual aspects of the relationship, and so decides to consider the claim in this light. 7. Rule on Expropriation expropriation by or attributable to a State of the property of an alien gives rise under international law to liability for compensation, and this is so whether the expropriation is formal or de facto and whether the property is tangible, such as real estate or a factory, or intangible, such as the contract rights involved in the present 9. Defense of Force Majeure The principal defense of the Respondents is that the revolutionary changes which took place in Iran totally frustrated the JSA due to conditions of force majeure, that is, conditions created by forces outside the control of the Government which made performance of the JSA impossible, thereby discharging the Parties' respective obligations under that agreement and relieving the Respondents of any liability for the acts complained of. This defense, while generally associated with the contractual aspects of a relationship, is relevant to the expropriation claim insofar as it relates to whether any contract rights remained to be taken following the Revolution. Iran says the strikes and work stoppages by Iranians constituted this force majeure 10. Rule on Force Majeure “force majeure conditions will have the effect of terminating a contract only if they make performance definitively impossible or impossible for a long period of time.” 11. Effects of Force Majeure were already mentioned in the Agreements as not being a valid ground for termination but only for delay! It is clear from Article 36 of the JSA, set forth above, that the Parties intended that force majeure conditions which prevented performance by the Second Party or by the operating company would not terminate their agreement. Rather, obligations were suspended during any period of force majeure conditions 12. Alleged Force Majeure was temporary! Stoppage commenced in late 1978 when Imam Khomeini called on the oil workers to strike and they ended a few months later when the Revolution resulted in the creation of the Islamic Republic and the new Government directed resumption of production. 13. Iran Hard Sell – workers refused to work for Foreigners! No merit since no proof of such obstinance. The implication of the Respondents' frustration argument is that the oil workers would have prevented any attempt by the Government but is belied by the fact that a week after the victory of the Revolution, he called on strikers to return to work, about 90 percent of the oil workers did so. 14. Iranian Government could’ve at least tried to order the workers to resume working for foreigners but it didn’t life a finger While there is evidence that the workers did not always trust officials of NIOC to follow the strict nationalistic and anti-Second Party policies pressed by the workers--and by the

highest authorities of the new Islamic Regime--there is no evidence for the proposition that they did not ultimately follow the directives of those highest authorities. As the oil workers acted in accord with the policies of the new Government, it cannot be concluded that their "attitudes" constituted an independent and effective force creating force majeure conditions. 15. Since force majeure does not apply, contractual rights are intact and are only being deprived! 16. Are the acts attributable to the state? - Yes The Claimant asserts that the alleged expropriation did not result from any public government decrees, but rather from concerted actions of the Government of Iran, often operating through NIOC, which effectively deprived the Claimant of its property. 17. Timeline of Events heralded during days before return of Imam Khomeini to Iran on 1 February 1979. Leading members of the Revolutionary movement announced that the first step of the new Government would be the revocation of oil contracts and the taking back of oil from the hands of the multinationals in order to realize a true nationalization of oil and in order to make the oil industry an integral part of the Iranian economy. announcements of the intentions of the new leadership were repeated following the installation of the Revolutionary Government in mid-February 1979. On 14 February, Abdolhasan Bani Sadr, who later became President, declared that the nationalization of the oil industry would be Iran's first step to transforming the economy and that oil would be fully "integrated with the Iranian economy." The first concrete nationalization action was taken against the Consortium, which was by far the largest Iranian oil producer. On 10 March, NIOC sent the Consortium members a letter repudiating the Consortium agreement and stating that, in the future, the members of the Consortium could obtain oil from Iran only by purchase from NIOC NIOC unilaterally set the production rates at levels significantly below those prevailing prior to the Revolution. and only provided petroleum on the basis of a separate sales contract and reneged from the 50-50 arrangement Confirmation of this governmental policy is found in the Official Gazette No. 10066, dated 13 September 1979 which published Notice No. 52866, dated 18 August 1979, relating to the budget for the year Imam Khomeini is quoted by Tehran press as saying that the foes of Islam had had their hands cut off Iranian oil resources which "are in your own hands". promulgation of the Single Article Act in January 1980 and the written notification of the "nullification" of the JSA made in August 1980. This written notification, which emanated from the Ministry of Petroleum 18. Clear Effect to Companies – doctrine states that to determine if an expropriation occurred, look at effect on companies not the intent of government While assumption of control over property by a government does not automatically and immediately justify a conclusion that the property has been taken by the government, thus requiring compensation under international law, such a conclusion is warranted whenever events demonstrate that the owner was deprived of fundamental rights of ownership and it appears that this deprivation is not merely ephemeral. The intent of the government is less important than the effects of the measures on the owner, and the form of the measures of control or interference is less important than the reality of their impact. Therefore, the Tribunal need not determine the intent of the Government of Iran;
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however, where the effects of actions are consistent with a policy to nationalize a whole industry and to that end expropriate particular alien property interests, and are not merely the incidental consequences of an action or policy designed for an unrelated purpose, the conclusion that a taking has occurred is all the more evident. 19. Doctrine as applied to the facts = there was a taking Although a government's liability to compensate for expropriation of alien property does not depend on proof that the expropriation was intentional, there seems little doubt in this Case that the new Islamic Republic intended to bring the JSA to an end and to place NIOC fully in charge of all oil production and sales. The refusal to permit the Claimant to exercise any rights under the JSA is more relevant to such a finding than any of these pronouncements. The effects of Iran's actions on the Claimant's JSA rights can be summarized succinctly after 1979 the Claimant and the other Second Party companies no longer participated in joint operation of the fields, no longer received their share of the petroleum being produced, and were told by Iran that their agreement had been terminated and nullified. 20. Taking was done via concrete acts of Iran The conclusion that the Claimant was deprived of its property by conduct attributable to the Government of Iran, including NIOC, rests on a series of concrete actions rather than any particular formal decree, as the formal acts merely ratified and legitimized the existing state of affairs. 21. Doctrine on when to reckon the taking The Tribunal has previously held that in circumstances where the taking is through a chain of events, the taking will not necessarily be found to have occurred at the time of either the first or the last such event, but rather when the interference has deprived the Claimant of fundamental rights of ownership and such deprivation is "not merely ephemeral," or when it becomes an "irreversible deprivation. 22. Reckoning Point – September 29 1979 The Claimant's loss was felt from the time of the first refusals to permit it to lift petroleum in April 1979. It became clear, however, in the meeting which the IMINOCO Second Party companies had with the Khalili sub-commission on 29 September 1979 that there was no reasonable prospect of return to an arrangement with NIOC on the basis of the JSA. For it was in this meeting that the Second Party companies were told not only that they should regard the JSA as terminated, but also that their letter of 26 June did not deserve an answer. Consequently, the Tribunal finds that the Claimant's JSA rights were taken by 29 September 1979, and that the Respondents are liable to compensate the Claimant for its loss as of that date. 23. Compensation Issue – applicable law Art. IV, paragraph 2 of the 1955 Treaty of Amity which provides: Property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party, in no case less than that required by international law. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.

24. Iran’s 1st defense = Dynamic international Law They point to the reference in the above-quoted Treaty provision to "international law", and to a general international law principle of "dynamic" interpretation of treaties. They assert that customary international law as it exists today does not require compensation for expropriated property that is the "full equivalent”. Such qualification of international law only applies to the 1st sentence and not the 2nd and 3rd which deal with just compensation. Moreover, Tribunal has already found in the INA award that the Treaty of Amity as a lex specialis prevails in principle over general rules. 25. Iran’s 2nd defense – lawfulness of taking mitigates compensation The Respondents further argue that the taking of property in the present Case was a lawful taking, and that for such a taking, a lesser standard of compensation is required However, the Tribunal holds that it is irrelevant under the Treaty of Amity. Article IV, paragraph 2, quoted above, provides a single standard, "just compensation" representing the "full equivalent of the property taken", which applies to all property taken, regardless of whether that taking was lawful or unlawful. Clearly, as the Amoco International Finance Award, supra, recognizes, that standard applies to takings that are "lawful" under the Treaty, but the Treaty does not say that any different standard of compensation would be applicable to an "unlawful" taking. The Treaty states two requirements for any taking, that it be for a public purpose and that "just compensation", as defined therein, be paid promptly. In the present Case, there is no allegation that the taking, which extended to all petroleum production in Iran, was not for a public purpose, and the Claimant requests no more than "just compensation" based on the single standard of the Treaty. 26. Chorzow does not apply in this case! The doctrine is relevant only to two possible issues: whether restitution of the property can be awarded and whether compensation can be awarded for any increase in the value of the property between the date of taking and the date of the judicial or arbitral decision awarding compensation. The Chorzow decision provides no basis for any assertion that a lawful taking requires less compensation than that which is equal to the value of the property on the date of taking. In the present Case, neither restitution nor compensation for any value other than that on the date of taking is sought by the Claimant, so the Tribunal need not determine whether such remedies would be available with respect to a taking to which the Treaty of Amity applies. 27. Award Claimant is entitled to compensation equal to the value of its JSA interests as of 29 September 1979, as adjusted for related debts owing between the Parties at that time. Taking into account all relevant circumstances, the Tribunal hereby determines that the Claimant is entitled to compensation from the Respondents in the amount of U.S.$55 million. b. WTO

JAPAN – TAXES ON ALCOHOLIC BEVERAGES (4 Oct. 1996), Appellate Body Decision Appellant/appellee: Japan. US Appellee: Canada. European Communities
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THE PANEL REPORT. The European Communities, Canada, and the US complained against Japan because of the latter’s Liquor Tax Law, and this led to the creation of the Panel which was tasked to consider these complaints. In their report, Japan – Taxes on Alcoholic Beverages, the Panel had the following conclusions: 1. Shochu and vodka are like products and Japan, by taxing the latter in excess of the former, is in violation of its obligation under Article III:2, first sentence, of the General Agreement on Tariffs and Trade 1994. 2. Shochu, whisky, brandy, rum, gin, genever, and liqueurs are "directly competitive or substitutable products" and Japan, by not taxing them similarly, is in violation of its obligation under Article III:2, second sentence, of the General Agreement on Tariffs and Trade 1994. The Panel recommended that the Dispute Settlement Body request Japan to bring the Liquor Tax Law into conformity with its obligations under the General Agreement on Tariffs and Trade 1994 (GATT 94). Both the US and Japan appealed. Japan The Panel misinterpreted the 1st and 2nd sentences of Art. III:2 of the GATT 941. It didn’t determine if the Tax Law aimed to protest domestic production and ignored the link between product origin & tax treatment. No comparison of tax treatment of domestic products as a whole & foreign products as a whole. The Panel ignored Art. III:1, esp. the phrase “so as to afford protection to domestic production,” as part of the context of Art. ARGUMENTS US The Panel misinterpreted the 1st and 2nd sentences of Art. III:2 due to its misunderstanding of the relationship between Art. III:2 and Art. III:1. Art. III:1 sets out the object and purpose of Art. III and is thus an integral part of the context that must be considered in interpreting Art. III:2, and this was disregarded. The Panel erred in finding that "likeness" can be determined purely on the basis of physical characteristics, consumer uses and tariff EC They support the Panel’s conclusions, and largely agree with the legal interpretations of Art. III:2. Canada *Canada focused on Art. III:2, 2nd sentence.

III:2. Also the object and purpose of GATT 94 and the WTO Agreement as a whole must be taken into account. Excessive emphasis was placed on tariff classification in finding that shochu and vodka are “like products.”

In general

classification without considering the context and purpose of Art. III and without considering whether regulatory distinctions are made "so as to afford protection to domestic production." The Panel erred when it didn’t interpret Art. II:2 first sentence in light of Art. III:1. The Panel misinterpreted "directly competitive or substitutable products" by not considering whether a tax distinction is applied "in a manner contrary to the principles set forth in par. 1 of [Art. III], "so as to afford protection to domestic production". The Panel erred by using cross-price elasticity as the "decisive criterion" for whether products are "directly competitive or substitutable". Report was wrongly classified as "subsequent

WRT second sentence, Art. III:2

WRT first sentence of Art. III:2

The Panel's reasons for rejecting a specific test of "aims and effects" are "in accordance with customary rules of interpretation WRT status of the panel

Regarding the phrase “so as to afford protection to domestic production,” the Panel placed excessive emphasis on the phrase “not similarly taxed” in the Interpretative Note Ad Article III:2. It also failed to examine the issue of de minimis differences in the light of the principle of “so as to afford protection to domestic production.”

of public international law." The essential criterion for a "like product" determination is similarity of physical characteristics. Tariff nomenclatures may be relevant as they are an objective classification of products according to their physical characteristics. The Panel did not rule that cross-price elasticity is the decisive criterion, but that such is only one of the criteria to be considered. But they also argue that tax/price ratios are not the most appropriate yardstick for comparing tax burdens imposed by a system of specific taxes. The Panel was correct in ignoring the linkage between differences in taxation and the origin of products.

Canada supports the Panel's legal interpretations as well as the conclusion that the Liquor Tax Law is inconsistent with Art. III:2, second sentence.

1

And the GATT 94 is an integral part of the Marrakesh Agreement Establishing the WTO (the WTO Agreement)

The characterization of the report is
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report

Others

WRT US submission: arguments are based on a misunderstanding of the Japanese liquor tax system, which has a legitimate policy purpose of ensuring neutrality and equity, particularly horizontal equity.

practice." The report only clarifies the application of the rights and obligations of the parties in a dispute to the precise set of circumstances at that time. The decision to adopt a panel report constitutes a "decision," but the adopted panel report does not constitute a "decision." The Panel erred in not addressing the full scope of the products subject to the dispute. WRT Japan’s submissions: the national treatment provisions in Art. III of GATT 94 applies to originneutral measures; the Tax Law does protect domestic production.

intrinsically contradictory, as the essence of subsequent practice is that it consists of a large number of legally relevant events and pronouncements. The decision to adopt a panel report constitutes a "decision," but an adopted panel report is not itself a "decision" in this sense.

to domestic production from the perspective of the linkage between the origin of products and their treatment under the Liquor Tax Law; (d) whether the Panel failed to give proper weight to tax/price ratios as a yardstick for comparing tax burdens under Article III:2, first and second sentences; (e) whether the Panel erred in interpreting and applying Article III:2, second sentence, by equating the language "not similarly taxed" in Ad Article III:2, second sentence, with "so as to afford protection" in Article III:1; and (f) whether the Panel erred in placing excessive emphasis on tariff classification as a criterion for determining "like products".

by equating the language "not similarly taxed" in Ad Article III:2, second sentence, with "so as to afford protection" in Article III:1; (e) whether the Panel erred in its conclusions on "directly competitive or substitutable products" by examining cross-price elasticity as "the decisive criterion"; (f) whether the Panel erred in failing to maintain consistency between the conclusions in paragraph 7.1(ii) of the Panel Report on "directly competitive or substitutable products" and the conclusions in paragraphs 6.32-6.33 of the Panel Report, and whether the Panel erred in failing to address the full scope of products subject of this dispute; (g) whether the Panel erred in finding that the coverage of Article III:2 and Article III:4 are not equivalent; and (h) whether the Panel erred in its characterization of panel reports adopted by the GATT CONTRACTING PARTIES and the WTO Dispute Settlement Body as "subsequent practice in a specific case by virtue of the decision to adopt them".

ISSUES: WON shochu and vodka are like products. WON Japan, by taxing imported products in excess of like domestic products, violated its obligations under Art. III:2, first sentence. WON shochu and other distilled spirites and liquers are “directly competitive or substitutable products.” WON Japan doesn’t similarly tax imported and directly competitive or substitutable domestic products. WON Japan affords protection to domestic production in violation of Art. III:2, second sentence. HELD: YES to all. ON TREATY INTERPRETATION. The GATT 94 provisions must be clarified “in accordance with customary rules of interpretation of public international law,” and this is done by reference to the fundamental rule of treaty interpretation set out in Arts. 31 (1) and 32 of the Vienna Convention on the Law of Treaties. Art. 31 provides that the words of the treaty form the foundation for the interpretive process. The provisions of the treaty are to be given their ordinary meaning in their context. The object and purpose of the treaty are also to be taken into account in determining the meaning of its provisions. A fundamental tenet of treaty interpretation flowing from the general rule of interpretation set out in Art. 31 is the principle of effectiveness (ut res magis valeat quam pereat), that interpretation must give meaning and effect to all the terms of the treaty. ON THE STATUS OF THE PANEL REPORTS. The Panel concluded that: ...panel reports adopted by the GATT CONTRACTING PARTIES and the WTO Dispute Settlement Body constitute subsequent practice in a specific case by virtue of the decision to adopt them. Art. 1(b)(iv) of GATT 1994 provides
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ISSUES Japan US (a) whether the Panel erred in failing to (a) whether the Panel erred in failing to interpret Article III:2, first and second interpret Article III:2, first and second sentences, in the light of Article III:1; sentences, in the light of Article III:1; (b) whether the Panel erred in rejecting an (b) whether the Panel erred in failing to find "aim-and-effect" test in establishing that all distilled spirits are "like products"; whether the Liquor Tax Law is applied "so (c) whether the Panel erred in drawing a as to afford protection to domestic connection between national treatment production"; obligations and tariff bindings; (c) whether the Panel erred in failing to (d) whether the Panel erred in interpreting examine the effect of affording protection and applying Article III:2, second sentence,

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institutional recognition that adopted panel reports constitute subsequent practice. Such reports are an integral part of GATT 1994, since they constitute "other decisions of the CONTRACTING PARTIES to GATT 1947". WHAT IS SUBSEQUENT PRACTICE. Art. 31(3)(b) of the Vienna Convention states that "any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation" is to be considered along with the context in interpreting a treaty. The subsequent practice has been recognized as a "concordant, common and consistent" sequence of acts or pronouncements which is sufficient to establish a discernable pattern implying the agreement of the parties regarding its interpretation. An isolated act is generally insufficient to establish subsequent practice. UNDER THE (OLD) GATT (1947), panel reports were adopted by decisions of the contracting parties, a decision to adopt a panel report did not constitute an agreement by them on the legal reasoning in that panel report. Under GATT 1947 the conclusions and recommendations in an adopted panel report bound the parties to the dispute in that particular case, but subsequent panels did not feel legally bound by the details and reasoning of a previous panel report. Thus the contracting parties, in deciding to adopt a panel report, didn’t intend that their decision would constitute a definitive interpretation of the relevant provisions of GATT 1947. Neither was this contemplated under GATT 1947. ADOPTED PANEL REPORTS are an important part of the GATT acquis. They are often considered by subsequent panels. They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute. However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute. In short, their character and their legal status have not been changed by the coming into force of the WTO Agreement. WE DISAGREE with the Panel's conclusion that "panel reports adopted by the GATT CONTRACTING PARTIES and the WTO Dispute Settlement Body constitute subsequent practice in a specific case." We disagree with the Panel's conclusion that adopted panel reports in themselves constitute "other decisions of the CONTRACTING PARTIES to GATT 1947" for the purposes of par. 1(b)(iv) of the language of Annex 1A incorporating the GATT 94 into the WTO Agreement. However, we agree with the Panel's conclusion that unadopted panel reports "have no legal status in the GATT or WTO system since they have not been endorsed through decisions by the CONTRACTING PARTIES to GATT or WTO Members". Likewise, we agree that "a panel could nevertheless find useful guidance in the reasoning of an unadopted panel report that it considered relevant". INTERPRETATION OF ART. III. The WTO Agreement is a treaty. In an exercise of their sovereignty the Members of the WTO have made a bargain – in exchange for the benefits they expect to derive as Members, they have agreed to exercise their sovereignty according to the commitments they have made in the WTO Agreement, one of which is Art. III, “National Treatment on Internal Taxation and Regulation”: 1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.

2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1. Ad Article III, Paragraph 2 A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed. PURPOSE OF ART. III: to avoid protectionism in the application of internal tax and regulatory measures. Art. III obliges Members to provide equality of competitive conditions for imported products in relation to domestic products, so that imported products are treated like domestic products once they had been cleared through customs. Also it is irrelevant that "the trade effects" of the tax differential between imported and domestic products are insignificant or even non-existent; Art. III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products. Members are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Art. III or any of the other commitments they have made in the WTO Agreement. Remember this purpose when considering the relationship between Art. III and other provisions of the WTO Agreement. The Art. III national treatment obligation is a general prohibition on the use of internal taxes and other internal regulatory measures so as to afford protection to domestic production. ART. III:1’s terms must be given their ordinary meaning, in their context and in light of the object and purpose of the WTO Agreement. Thus, the words actually used in the Art. provide the basis for an interpretation that must give meaning and effect to all its terms. Consequently, the Panel is correct in seeing a distinction between Art. III:1, which "contains general principles", and Art. III:2, which "provides for specific obligations regarding internal taxes and internal charges". Art. III:1 articulates a general principle that internal measures should not be applied so as to afford protection to domestic production. This general principle informs the rest of Art. III. The purpose of Art. III:1 is to establish this general principle as a guide to understanding and interpreting the specific obligations contained in Art. III:2 and in the other paragraphs of Art. III, while respecting the meaning of the words actually used in the texts of those other paragraphs. Thus Art. III:1 constitutes part of the context of Art. III:2, in the same way that it constitutes part of the context of each of the other paragraphs in Art. III. ART. III:2, FIRST SENTENCE. Art. III:1 informs Art. III:2, first sentence, by establishing that if imported products are taxed in excess of like domestic products, then that tax measure is inconsistent with Art. III. The first sentence does not refer specifically to Art. III:1. This omission means that the presence of a protective application need not be established separately from the specific requirements that are included in the first sentence in order to show that a tax measure is inconsistent with the general principle set out in the first sentence. But this does not mean that the general principle of Art. III:1 does not apply to this sentence. To the contrary, the first sentence is, in effect, an application of this general principle. Read in their context and in the light of the overall
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object and purpose of the WTO Agreement, the words of the first sentence require an examination of the conformity of an internal tax measure with Art. III by determining, first, whether the taxed imported and domestic products are "like" and, second, whether the taxes applied to the imported products are "in excess of" those applied to the like domestic products. If the imported and domestic products are "like products", and if the taxes applied to the imported products are "in excess of" those applied to the like domestic products, then the measure is inconsistent with the first sentence. “LIKE PRODUCTS.” Because the second sentence of Art. III:2 provides for a separate and distinctive consideration of the protective aspect of a measure in examining its application to a broader category of products that are not "like products" as contemplated by the first sentence, we agree with the Panel that the first sentence of Art. III:2 must be construed narrowly so as not to condemn measures that its strict terms are not meant to condemn. Thus the definition of "like products" in the first sentence, should be construed narrowly. How narrowly is a matter that should be determined separately for each tax measure in each case, on a case-by-case basis. The Report of the Working Party on Border Tax Adjustments, adopted by the contracting parties in 1970, set out the basic approach in doing this. The criteria suggested are: the product’s end-uses in a given market; the consumer’s tastes and habits; the product’s properties, nature, and quality. This approach should be helpful in identifying on a caseby-case basis the range of "like products" that fall within the narrow limits of the first sentence. Yet this approach will be most helpful if decision makers keep ever in mind how narrow the range of "like products" in the first sentence is meant to be. In applying these criteria to the facts of any particular case, and in considering other criteria that may also be relevant in certain cases, panels can only apply their best judgment in determining whether in fact products are "like". This will always involve an unavoidable element of individual, discretionary judgment. We disagree the Panel's observation that distinguishing between "like products" and "directly competitive or substitutable products" is "an arbitrary decision". Rather, we think it is a discretionary decision that must be made in considering the various characteristics of products in individual cases. No one approach to exercising judgment will be appropriate for all cases. The criteria in Border Tax Adjustments should be examined, but there can be no one precise and absolute definition of what is "like". The scope of the concept of “likeness” must be determined by the particular provision in which the term "like" is encountered, as well as by the context and the circumstances that prevail in any given case to which that provision may apply. We believe that, in the first sentence "likeness" has a narrow scope. The Panel determined in this case that shochu and vodka are "like products". The determination of whether vodka is a "like product" to shochu under the first sentence, or a "directly competitive or substitutable product" to shochu under Art. III:2, second sentence, does not materially affect the outcome of this case. A uniform tariff classification of products can be relevant in determining what are "like products". If sufficiently detailed, tariff classification can be a helpful sign of product similarity. Tariff classification has been used as a criterion for determining "like products" in several previous adopted panel reports. However, there are risks in using tariff bindings that are too broad as a measure of product "likeness". Many least-developed countries, as well as other developing countries, have bindings in their schedules which include broad ranges of products that cut across several different HS tariff headings. This does not necessarily indicate similarity of the products covered by a binding. Rather, it represents the results of trade concessions negotiated among Members. With these

modifications to the legal reasoning in the Panel Report, we affirm the legal conclusions and the findings of the Panel with respect to "like products" in all other respects. “IN EXCESS OF.” The only remaining issue under the first sentence is whether the taxes on imported products are "in excess of" those on like domestic products. Even the smallest amount of "excess" is too much. "The prohibition of discriminatory taxes in the first sentence, is not conditional on a ‘trade effects test’ nor is it qualified by a de minimis standard." We agree with the Panel's legal reasoning and with its conclusions on this aspect. ART. III:2, SECOND SENTENCE.. Art. III:1 informs Art. III:2, second sentence through specific reference. The second sentence contains a general prohibition against "internal taxes or other internal charges" applied to "imported or domestic products in a manner contrary to the principles set forth in paragraph 1". The second sentence and the accompanying Ad Article have equivalent legal status in that both are treaty language which was negotiated and agreed at the same time. The Ad Article does not replace or modify the second sentence, but clarifies its meaning. Accordingly, the language of the second sentence and the Ad Article must be read together in order to give them their proper meaning. Unlike the first sentence, the language of the second sentence specifically invokes Art. III:1. The significance of this distinction lies in the fact that whereas Art. III:1 acts implicitly in addressing the two issues that must be considered in applying the first sentence, it acts explicitly as an entirely separate issue that must be addressed along with two other issues that are raised in applying the second sentence. Giving full meaning to the text and to its context, three separate issues must be addressed to determine whether an internal tax measure is inconsistent with the second sentence: (1) the imported products and the domestic products are "directly competitive or substitutable products" which are in competition with each other; (2) the directly competitive or substitutable imported and domestic products are "not similarly taxed"; and (3) the dissimilar taxation of the directly competitive or substitutable imported domestic products is "applied ... so as to afford protection to domestic production". “DIRECTLY COMPETITIVE OR SUBSTITUTABLE PRODUCTS.” If imported and domestic products are not "like products", then there is conformity with the first sentence. However, depending on their nature and on the competitive conditions in the relevant market, those same products may well be among the broader category of "directly competitive or substitutable products" that fall within the domain of the second sentence. How much broader that category may be in any given case is a matter for the panel to determine based on all the relevant facts in that case. As with "like products", the determination of the appropriate range of "directly competitive or substitutable products" under the second sentence must be made on a case-by-case basis. The Panel emphasized the need to look not only at such matters as physical characteristics, common end-uses, and tariff classifications, but also at the "market place," i.e. competition in the relevant markets. This seems appropriate. The GATT 94 is a commercial agreement, and the WTO is concerned, after all, with markets. It is also appropriate to examine elasticity of substitution. The Panel did not say that cross-price elasticity of demand is "the decisive criterion," but that the decisive criterion is “whether they have common end uses, inter alia, as shown by elasticity of substitution.” We agree.
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The Panel's legal analysis of whether the products are "directly competitive or substitutable products" are correct. The Panel's conclusions on "like products" and on "directly competitive or substitutable products" fail to address the full range of alcoholic beverages included in the Terms of Reference. This failure to incorporate into its conclusions all the products referred to in the Terms of Reference is an error of law by the Panel. “NOT SIMILARLY TAXED.” To distinguish the first and second sentences, the phrase "not similarly taxed" in the Ad Article to the second sentence must not be construed so as to mean the same thing as the phrase "in excess of" in the first sentence. On its face, the phrase "in excess of" in the first sentence means any amount of tax on imported products "in excess of" the tax on domestic "like products". The phrase "not similarly taxed" in the Ad Article to the second sentence must therefore mean something else. It requires a different standard. Reinforcing this conclusion is the need to give due meaning to the distinction between "like products" in the first sentence and "directly competitive or substitutable products" in the Ad Article to the second sentence. If "in excess of" in the first sentence and "not similarly taxed" in the Ad Article were construed to mean the same thing, then "like products" in the first sentence and "directly competitive or substitutable products" in the Ad Article would also mean one and the same thing. This would eviscerate the distinctive meaning that must be respected in the words of the text. In any given case, there may be some amount of taxation on imported products that may well be "in excess of" the tax on domestic "like products" but may not be so much as to compel a conclusion that "directly competitive or substitutable" imported and domestic products are "not similarly taxed" for the purposes of the Ad Article. In other words, there may be an amount of excess taxation that may well be more of a burden on imported products than on domestic "directly competitive or substitutable products" but may nevertheless not be enough to justify a conclusion that such products are "not similarly taxed" for the purposes of the second sentence. We agree with the Panel that this amount of differential taxation must be more than de minimis to be deemed "not similarly taxed" in any given case. And, like the Panel, we believe that whether any particular differential amount of taxation is de minimis or is not de minimis must be determined on a case-by-case basis. Thus, to be "not similarly taxed", the tax burden on imported products must be heavier than on "directly competitive or substitutable" domestic products, and that burden must be more than de minimis in any given case. In this case, the Panel applied the correct legal reasoning in determining whether "directly competitive or substitutable" imported and domestic products were "not similarly taxed". However, the Panel erred in blurring the distinction between that issue and the entirely separate issue of whether the tax measure in question was applied "so as to afford protection". Again, these are separate issues that must be addressed individually. If "directly competitive or substitutable products" are not "not similarly taxed", then there is neither need nor justification under the second sentence for inquiring further as to whether the tax has been applied "so as to afford protection". But if such products are "not similarly taxed", a further inquiry must necessarily be made. THE ISSUE OF WON THE PRODUCTS AREN’T SIMILARLY TAXED “SO AS TO AFFORD PROTECTION” ISN’T AN ISSUE OF INTENT. If the measure is applied to imported or domestic products so as to afford protection to domestic production, then it does not matter that there may not have been any desire to engage in protectionism in the minds of the legislators or the regulators who imposed the measure. It is irrelevant

that protectionism was not an intended objective if the particular tax measure in question is nevertheless applied to imported or domestic products so as to afford protection to domestic production. This is an issue of how the measure in question is applied. FACTORS TO BE CONSIDERED. In the 1987 Japan- Alcohol case, the panel believed that the existence of protective taxation could be established only in the light of the particular circumstances of each case and there could be a de minimis level below which a tax difference ceased to have the protective effect prohibited by the second sentence. To detect whether the taxation was protective, the panel in the that case examined a number of factors which were "sufficient evidence of fiscal distortions of the competitive relationship” including the considerably lower specific tax rates on shochu than on imported directly competitive or substitutable products; the imposition of high ad valorem taxes on imported alcoholic beverages and the absence of ad valorem taxes on shochu; the fact that shochu was almost exclusively produced in Japan and that the lower taxation of shochu did "afford protection to domestic production"; and the mutual substitutability of these distilled liquors. The 1987 panel concluded that "the application of considerably lower internal taxes by Japan on shochu… had trade-distorting effects affording protection to domestic production of shochu contrary to the second sentence". LOOK AT ALL THE FACTS. We also believe that an examination of whether dissimilar taxation has been applied so as to afford protection requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic as compared to imported products. It is possible to examine objectively the underlying criteria used in a particular tax measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products. Although it is true that the aim of a measure may not be easily ascertained, its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure. The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, as the Panel rightly concluded in this case. Most often, there will be other factors to be considered as well. In conducting this inquiry, panels should give full consideration to all the relevant facts and all the relevant circumstances in any given case. RE: THE PANEL’S CONCLUSION. In its Report, the Panel described its approach as follows: “if directly competitive or substitutable products are not "similarly taxed", and if it were found that the tax favors domestic products, then protection would be afforded to such products, and Article III:2, second sentence, is violated.” This statement of the reasoning required under the second sentence is correct. However, the Panel went on to note: ... for it to conclude that dissimilar taxation afforded protection, it would be sufficient for it to find that the dissimilarity in taxation is not de minimis. ... the Panel took the view that "similarly taxed" is the appropriate benchmark in order to determine whether a violation of the second sentence, has occurred as opposed to "in excess of" that constitutes the appropriate benchmark to determine whether a violation of the first sentence has occurred. The Panel added: (i) The benchmark in Article III:2, second sentence, is whether internal taxes operate "so as to afford protection to domestic production", a term which has been further interpreted in the Interpretative Note ad Article III:2, paragraph 2, to mean dissimilar taxation of domestic and foreign directly competitive or substitutable products. And, furthermore, in its conclusions, the Panel concluded that:
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(ii) Shochu, whisky, brandy, rum, gin, genever, and liqueurs are "directly competitive or substitutable products" and Japan, by not taxing them similarly, is in violation of its obligation under Article III:2, second sentence, of the General Agreement on Tariffs and Trade 1994. Having stated the correct legal approach to apply with respect to the second sentence, the Panel then equated dissimilar taxation above a de minimis level with the separate and distinct requirement of demonstrating that the tax measure "affords protection to domestic production". Remember that a finding that "directly competitive or substitutable products" are "not similarly taxed" is necessary to find a violation of the second sentence. Yet this is not enough. The dissimilar taxation must be more than de minimis. It may be so much more that it will be clear from that very differential that the dissimilar taxation was applied "so as to afford protection". In some cases, that may be enough to show a violation. In this case, the Panel concluded that it was enough. Yet in other cases, there may be other factors that will be just as relevant or more relevant to demonstrating that the dissimilar taxation at issue was applied "so as to afford protection". In any case, the three issues that must be addressed in determining whether there is such a violation must be addressed clearly and separately in each case and on a case-by-case basis. And a careful, objective analysis must be done of each and all relevant facts and all the relevant circumstances in order to determine "the existence of protective taxation". Although the Panel blurred its legal reasoning in this respect, still we conclude that it reasoned correctly that the Liquor Tax Law violated Art. III:2. Note that: ...the combination of customs duties and internal taxation in Japan has the following impact: on the one hand, it makes it difficult for foreign-produced shochu to penetrate the Japanese market and, on the other, it does not guarantee equality of competitive conditions between shochu and the rest of ‘white’ and ‘brown’ spirits. Thus, through a combination of high import duties and differentiated internal taxes, Japan manages to "isolate" domestically produced shochu from foreign competition, be it foreign produced shochu or any other of the mentioned white and brown spirits. CONCLUSIONS AND RECOMMENDATIONS: Conclusions: (a) the Panel erred in law in its conclusion that "panel reports adopted by the GATT contracting parties and the WTO Dispute Settlement Body constitute subsequent practice in a specific case by virtue of the decision to adopt them"; (b) the Panel erred in law in failing to take into account Art. III:1 in interpreting Art. III:2, first and second sentences; (c) the Panel erred in law in limiting its conclusions on "directly competitive or substitutable products" to "shochu, whisky, brandy, rum, gin, genever, and liqueurs", which is not consistent with the Panel's Terms of Reference; and (d) the Panel erred in law in failing to examine "so as to afford protection" in Art. III:1 as a separate inquiry from "not similarly taxed" in the Ad Article to Art. III:2, second sentence. The Appellate Body recommends that the Dispute Settlement Body request Japan to conform its tax law with its obligations under the GATT 94. WTO Appellate Body Report, European Communities—Measures Affecting Asbestos and Asbestos-Containing Products AB-2000-11 WT/DS135/AB/R (00-1157), adopted by Dispute Settlement Body, April 5, 2001 Canada, Appellant/Appellee.

European Communities, Appellant/Appellee. Brazil and US, Third Participants. Division: Feliciano, Bacchus and Ehlermann. 1. FACTS. French DECREE NO. 96-1133 (“Decree”), concerning asbestos & products containing asbestos, entered into force on Jan. 1, 1997, prohibiting the manufacture, processing & import of all types of asbestos fibres, WON incorporated in other products. The Decree’s purpose was the protection of workers & consumers. 2. ISSUES.

i.
ii.

iii.

iv.

whether the Panel erred in its interpretation of the term "technical regulation" in Annex 1.1 of the TBT Agreement in finding, in par. 8.72(a) of the Panel Report, that "the part of the Decree relating to the ban on imports of asbestos and asbestos-containing products" does not constitute a "technical regulation"; whether the Panel erred in its interpretation & application of the term "like products" in Article III:4 of the GATT 1994 in finding, in paragraph 8.144 of the Panel Report, that chrysotile asbestos fibres are "like" PVA, cellulose and glass fibres, and in finding, in paragraph 8.150 of the Panel Report, that cement-based products containing chrysotile asbestos fibres are "like" cement-based products containing polyvinyl alcohol, cellulose & glass fibres; whether the Panel erred in finding that the measure at issue is "necessary to protect human…life or health" under Article XX(b), & whether, in carrying out its examination under Article XX(b), the Panel failed to make an objective assessment of the matter under Article 11 of the DSU; and whether the Panel erred in its interpretation of Article XXIII:1(b) in finding that that provision applies to a measure which falls within the scope of application of other provisions of the GATT 1994, & in finding that Article XXIII:1(b) applies to measures which pursue health objectives.

3. SCOPE OF APPLICATION OF TBT AGREEMENT. The Panel found that the TBT Agreement did not apply to the part of France’s Decree setting out the prohibition on goods containing asbestos. The Panel separated this prohibition from the Decree’s exceptions for purposes of analysis. CANADA APPEALED this separation, & the finding that the TBT Agreement did not apply. Canada argued that a “general prohibition” can qualify as a technical regulation under Annex 1.1 of the TBT Agreement. AB FINDINGS. 1) The measure must be examined as a whole. When examined as a whole, the measure is not a total prohibition; 2) The core of the definition of “technical regulation” is the laying down of one or more product characteristics, in either positive or negative form: that is, as a requirement or as a prohibition; 3) The ban on asbestos fibres under the decree must be understood as a ban on products containing asbestos fibres; 4) The Decree lays down “characteristics” for certain products (those that might otherwise contain asbestos), & is accordingly a “technical regulation” under the TBT Agreement. But the AB emphasized that this does not mean that all internal measures covered by Art. III:4 of GATT are necessarily “technical regulations.” SCOPE OF APPELLATE REVIEW under Art. 17.6 of the DSU, which limits appeal to “issues of law covered in the panel report and legal interpretations developed by the panel.” The AB explained that it has “completed the legal analysis…only if the factual
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findings of the panel and the undisputed facts in the panel record provide us with a sufficient basis for our own analysis.” Here, the Panel made no findings under the substantive provisions of the TBT Agreement. The AB found that the TBT Agreement provisions relied on by Canada impose obligations different from, & additional to, those addressed by the Panel under GATT. Under these circumstances, the AB refrained from examining Canada’s substantive claims under the TBT Agreement. LIKE PRODUCTS. To determine compliance with Art. III:4 of GATT, it is necessary to compare the treatment of two “like products.” Here, the Panel determined that certain goods that contain asbestos are “like” certain goods that do not contain asbestos (for example, comparing chrysotile asbestos fibres with polyvinyl alcohol, cellulose & glass fibres). By way of doing so, it disregarded, for purposes of likeness analysis, the carcinogenicity of asbestos. Instead, the Panel focused on the factors adumbrated in the Border Tax Adjustments report: (i) the properties of the products (ii) the end uses of the products, (iii) consumer tastes, & (iv) tariff classification.2 AMBIGUITY. The AB found the term “like products” ambiguous, & began by examining the context of Art. III:4, including both Art. III:2 & Art. III:1. First, because of the bifurcated nature of Art. III:2, the AB found that “like products” means something different there than in Art. III:4. The AB referred to the general principle articulated in Art. III:1, to the effect that the goal of Art. III is to provide “equality of competitive conditions for imported products in relation to domestic products.” This answered a major question left open in the Japan-Alcohol case, which gave a very narrow reading to “like products” in the first sentence of Art. III:2. If this narrow reading were applied to Art. III:4, it would make the latter article substantially narrower than the 2 sentences of Art. III:2. “LIKE” IN ART. III:4 BROADER THAN ART. III:2. The AB found that “likeness” under Art. III:4 is, “fundamentally, a determination about the nature and extent of a competitive relationship between and among products.” While not wishing to decide that likeness under Art. III:4 is coextensive with the combined scope of likeness & “directly competitive or substitutable” under Art. III:2, the AB sought to avoid the circumstance where a national measure providing equivalent protective effect might be validated by one & invalidated by the other. The AB concluded that the scope of “like” in Art. III:4 is broader than in Art. III:2. DISCRIMINATE TREATMENT. The AB recognized that this interpretation of “like products” would result in a relatively broad scope of application of Art. III:4. In order to avoid a commensurately broad scope of invalidation of national law, the AB focused on the 2ND element required under Art. III:4: “A complaining Member must still establish that the measure accords to the group of ‘like’ imported products ‘less favourable treatment’ than it accords to the group of ‘like’ domestic products. The term ‘less favourable treatment’ expresses the general principle, in Art. III:1, that internal regulations ‘should not be applied…so as to afford protection to domestic production.’” Thus, 2 dimensions of discriminate treatment are required: 1) like products must be treated differently; 2) foreign like products as a class must be treated differently from, & less favourably than, domestic like products. Thus, it is not enough to find a single foreign like product that is treated differently from a domestic like product. Rather, the class of foreign like products must be treated less favourably than the class of domestic like products. It would seem necessary that the differential regulatory treatment be predicated, either intentionally or unintentionally, on the foreign character of the product. The area left for panel or AB
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discretion is in determining, in cases of de facto & unintentional disparate regulatory treatment, whether there is a violation of the national treatment requirement. FACTORS. In applying its “like products” test, the AB relied on the Border Tax Adjustments factors, but only as “tools to assist in the task of sorting and examining the relevant evidence. They are neither a treaty-mandated nor a closed list of criteria…” While the analysis will differ depending on the particular treaty provision being applied, under Art. III:4, it is necessary to examine the competitive relationship in the marketplace.3 A focus on competitive relationships would ordinarily be hostile to regulation, as regulation is necessarily an intervention into the ordinary competitive relations in the market; that is, the economic theory of regulation suggests that the reason to have regulation of products containing asbestos is because the market itself would not ordinarily differentiate sufficiently between products that contain asbestos & those that do not. Regulation is usually needed where consumers do not distinguish between safe & unsafe products, thus safety is not usually a marketplace factor in cases where there is a need for regulation. FACTORS APPLIEDLIKE PRODUCTS. The Panel utilized the Border Tax Adjustments factors. It did not find that differences in chemical composition, let alone carcinogenicity, were significant under these factors. The Panel specifically declined to “[i]ntroduce a criterion on the risk of a product.” It did not regard the different tariff classifications as decisive. It found that these were like products. AB CRITICIZED THE APPROACH as focusing only on the 1 ST of the 4 factors. The AB rejected the Panel’s reasoning that if 2 products are used for the same end-use, their properties are equivalent. Rather, the physical properties might differ markedly, including the fact of asbestos content. The AB found that “evidence relating to the health risks associated with a product may be pertinent in an examination of ‘likeness’…” The AB did not find that health risks should be viewed as a separate criterion, because it can be evaluated under the existing criteria. It determined that panels must examine the physical properties of products that affect the competitive relationship in the marketplace, including health risks.4 CONCLUSION: “[t]his carcinogenicity, or toxicity, constitutes, as we see it, a defining aspect of the physical properties of chrysotile asbestos fibres.” PANEL REVERSED. AB found that Art. III:4 & Art. XX(b) are distinct provisions, & that the fact that health effects could be considered under the latter does not prevent them from being considered under the former. “The fact that an interpretation of Art. III:4, under [customary international law rules of interpretation], implies a less frequent recourse to Art. XX(b) does not deprive the exception in Art. XX(b) of effet utile.” BURDEN ON COMPLAINANTS TO SHOW COMPETITIVE RELATIONSHIP. The AB appears to place a high burden of proof on complaining members to show a sufficient competitive relationship under circumstances where the physical properties are quite
3

It is important to note that in a concurring statement, 1 member of the division found that “the necessity or appropriateness of adopting a ‘fundamentally’ economic interpretation of the ‘likeness’ of products under Art. III:4 of the GATT 1994 does not appear to me to be free from substantial doubt.” AB Report.
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Working Party Report, Border Tax Adjustments, adopted Dec. 2, 1970, BISD 18S/97

Again, note the inconsistency between this perspective & the theory of regulation, which assumes that the reason for regulatory intervention is because the health risks are not sufficiently reflected in the marketplace.
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different, as in this case. Health risks based on physical properties are given an accentuated importance. The AB criticized the Panel for failing to examine consumer preferences where the Panel felt that this criterion “would not provide clear results.” It is incumbent on Panels to fulfill their mandate even in circumstances of ambiguity. The AB found itself persuaded that evidence of consumer tastes would show that health risks play an important part in consumer preferences. 4 CRITERIA IN ANALYSIS. The AB rejected the Panel’s finding that the goods containing asbestos were like products with the goods that did not contain asbestos. It found that it had sufficient information to complete the analysis, on the basis of the factual findings of the Panel & the undisputed facts in the Panel record. The AB examined the evidence under 4 criteria: physical properties, end-uses, consumer tastes & habits & tariff classification. The AB found differences in physical properties, & accentuated their importance relative to the other criteria. The AB found that the Panel had identified only a “small number” of overlapping end-uses, but did not know how many other overlapping enduses there might be. Combined with the fact that there was no evidence on consumer preferences, this left the “burden of proof” erected by the physical differences unmet. In fact, one member of the division, in a concurring statement, found that there was sufficient evidence for an affirmative finding that the chrysotile asbestos fibres are unlike PCG fibres. ARTICLE XX(B). The Panel found that the European Union had met its burden of making a prima facie case that chrysotile-cement products pose a risk to human health. PANEL UPHELD. The AB deferred to the Panel’s discretion as the trier of facts, in assessing the value of the evidence, & the weight to be ascribed to that evidence. Thus, the AB upheld the Panel’s finding that the Decree protects human life or health within the meaning of Art. XX(b) of GATT. Responding to Canada’s assertion that the Panel failed to make an objective assessment of the evidence, as required by Art. 11 of the DSU, the AB stressed that the Panel’s appreciation of the evidence was within the bounds of its discretion. NECESSITY OF DECREE. The AB examined whether the French measure was “necessary” within the meaning of Art. XX(b). Canada argued that the Panel failed to “quantify” the risk, that the Panel erred by “postulating that the level of protection of health inherent in the Decree is a halt to the spread of asbestos-related health risks,” & that the Panel erred in finding that “controlled use” was not a reasonably available alternative. The AB found that there is no requirement under Art. XX(b) of GATT to quantify the risk concerned: “a risk may be evaluated either in quantitative or qualitative terms.” Second, the AB noted that WTO members have the right to determine their appropriate level of protection (implicitly referring to the SPS Agreement). The AB found the Decree “clearly designed and apt” to achieve that level of protection. While PCG fibres might pose some risk, the AB found it “perfectly legitimate for a Member to seek to halt the spread of a highly risky product while allowing the use of a less risky product in its place.” REASONABLY AVAILABLE. The AB referred to its decision in Korea—Beef5 to the effect that in determining whether another alternative method is reasonably available, it is appropriate to consider the extent to which the alternative measure “contributes to the
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realization of the end pursued.” This is a significant departure from the conventional understanding of “reasonably available,” which would consider the costs of the alternative regulation but not the degree of its contribution to the end. In fact, the degree of contribution to the end seemed before to be inviolable: states were entitled to complete accomplishment of the end reflected in their regulation. This is not the ordinarily understood meaning of necessity as a search for the least trade-restrictive alternative reasonably available: that formulation would not ordinarily involve an evaluation, or any compromise, of the end pursued. Furthermore, the AB referred to Korea—Beef for the proposition that the more important the common interests or values pursued, the easier it would be to accept the national measure as necessary. Thus, the AB upheld the Panel’s finding that the Decree is eligible for an exemption under Art. XX(b). NON-VIOLATION NULLIFICATION OR IMPAIRMENT. EC argued before the Panel that Art. XXIII:1(b) only applies to measures that do not otherwise fall under the provisions of GATT 1994. The Panel rejected this argument. The AB noted that Art. XXIII:1(b) refers to nullification or impairment “whether or not [the relevant] measure conflicts with the provisions” of GATT, & that it does not refer to “non-violation.” Art. XXIII:1(b) is intended to remedy frustration of legitimate expectations of improved competitive opportunities by measures consistent with GATT. But, the AB considered this an exceptional remedy. It quoted the Japan—Film panel decision to the effect that “Members negotiate the rules that they agree to follow and only exceptionally would expect to be challenged for actions not in contravention of those rules.” SIMULTANEOUS CLAIMS UNDER ART. XXIII (a) & (b). Focusing on the “whether or not” phrase of Art. XXIII:1(b), the AB found that a claim may succeed thereunder even if the measure conflicts with a substantive provision of GATT. The AB confirmed the Panel’s view that Art. XXIII:1(b) applies to measures that fall within the scope of application of other provisions of GATT. But, as the Panel concluded that Canada did not establish nullification or impairment of a benefit within the terms of Art. XXIII:1(b), & as neither party had appealed the Panel’s ultimate conclusions on this issue, the AB did not examine the question of whether in this particular case, Canada’s legitimate expectations were frustrated by France’s health measure within the terms of Art. XXIII:1(b). III. Findings and Conclusions 1. For the reasons set out in this Report, the Appellate Body: (a) reverses the Panel's finding, in paragraph 8.72(a) of the Panel Report, that the TBT Agreement "does not apply to the part of the Decree relating to the ban on imports of asbestos and asbestos-containing products because that part does not constitute a 'technical regulation' within the meaning of Annex 1.1 to the TBT Agreement", and finds that the measure, viewed as an integrated whole, does constitute a "technical regulation" under the TBT Agreement; (b) reverses the Panel's findings, in paragraphs 8.132 & 8.149 of the Report, that "it is not appropriate" to take into consideration the health risks associated with chrysotile asbestos fibres in examining the "likeness", under Article III:4 of the GATT 1994, of those fibres & PCG fibres, and, also, in examining the "likeness", under that provision, of cement-based products containing chrysotile asbestos fibres or PCG fibres; (c) reverses the Panel's finding, in paragraph 8.144 of the Panel Report, that chrysotile asbestos fibres and PCG fibres are "like products" under Article III:4 of the GATT 1994; and finds that Canada has not satisfied its burden of proving that these fibres are "like products" under that provision;
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Appellate Body Report, Korea— Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS/161,169/AB/R, adopted 10 January 2001, para. 166.

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(d) reverses the Panel's finding, in paragraph 8.150 of the Panel Report, that cementbased products containing chrysotile asbestos fibres and cement-based products containing PCG fibres are "like products" under Article III:4 of the GATT 1994; and finds that Canada has not satisfied its burden of proving that these cement-based products are "like products" under Article III:4 of the GATT 1994; (e) reverses, in consequence, the Panel's finding, in paragraph 8.158 of the Panel Report, that the measure is inconsistent with Article III:4 of the GATT 1994; (f) upholds the Panel's finding, in paragraphs 8.194, 8.222 and 8.223 of the Panel Report, that the measure at issue is "necessary to protect human … life or health", within the meaning of Article XX(b) of the GATT 1994; and, finds that the Panel acted consistently with Article 11 of the DSU in reaching this conclusion; (g) upholds the Panel's finding, in paragraphs 8.265 and 8.274 of the Panel Report, that the measure may give rise to a cause of action under Art. III:1(b) of the GATT 1994. 2. It follows from our findings that Canada has not succeeded in establishing that the measure at issue is inconsistent with the obligations of the European Communities under the covered agreements and, accordingly, we do not make any recommendations to the DSB under Article 19.1 of the DSU. Signed in the original at Geneva this 16th day of February 2001.

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