(1)  Submission of the statement of claim

The statement of claim must be prepared in writing⁶ and communicated to the respondent and to all of the arbitrators. It may be included in the notice of arbitration. In that case, the notice should be communicated to the arbitrators as soon as they have been appointed. The rules in Article 2(1) apply to the mode of communication of the statement of claim.

If the statement of claim is submitted separately, this must be done “within a period of time … determined by the arbitral tribunal.” According to Article 23, such a period should not exceed 45 days. Although that Article allows the arbitral tribunal discretion to extend time limits for various filings, an extension for a statement of claim is likely to be granted only in exceptional circumstances. First, because the claimant decides whether, and at what moment, to commence the proceedings, it is his responsibility to ensure that enough time remains to submit the claim.⁷ Indeed, because quick proceedings are in the interest of the claimant, the claimant is well–advised to include the statement of claim in the notice of arbitration. Where the (p. 395) language of the arbitration is as yet undetermined and the notice (including the statement of claim) is submitted in another language, a translation of the statement of claim in the language(s) of the arbitration⁸ must be submitted within a period determined by the tribunal.⁹

Article 18(1) further provides that “[a] copy of the contract, and of the arbitration agreement, if not contained in the contract, shall be annexed” to the statement of claim. The purpose of this is to “apprise the arbitrators of the scope of their jurisdiction and the frame of reference for the dispute.”¹⁰

(2)  Contents of the statement of claim

Article 18(2) lists the information to be included in the statement of claim. The first sub–paragraph sets forth the essential elements which a statement of claim must contain. The second sub–paragraph indicates additional evidentiary material which may be annexed to the statement of claim. The annexation of such materials was made discretionary on the grounds that it may be “impossible for a claimant to determine at such an early stage of arbitral proceedings what would be all the relevant documents; for example, the relevance of certain documents would depend on the position taken by the respondent in his defence.”¹¹ However, since the claimant is normally interested in avoiding delays, it is advisable that the claimant annex as many relevant materials as possible to the statement of claim.”¹² In this spirit, the Iran-US Claims Tribunal has amended the provision in question to make it “advisable” to annex documentary evidence to the statement of claim.¹³

(p. 396) Article 18(1) requires the claimant to annex the relevant contract, if any, to his statement of claim. He must include in his statement those particulars listed in Article 18(2), i.e., the name and addresses of the parties, a statement of the facts supporting the claim, the points at issue, and the relief or remedy sought. While mandatory, these elements need not be fully elaborated at the time the statement of claim is submitted. Thus, in place of the “full statement of facts and a summary of evidence supporting the facts” envisaged in the Preliminary Draft, a more general description of the alleged facts is sufficient at this stage. The requirement concerning the “points at issue” presupposes explication of the legal arguments, but does not necessitate a final elaboration of the legal theories supporting the claim.¹⁴ Similarly, although it is necessary to specify whether monetary damages are sought as a remedy, the exact amount of damages claimed can be determined at a later point in the proceedings. Nevertheless, it is essential that the statement of claim be specific enough that the respondent can reply adequately in his statement of defence.¹⁵ Further elaboration of the case can be left to subsequent written statements, which are usually ordered in keeping with Article 22.¹⁶

(3)  Sanctions for an inadequate statement of claim

Although the requirements of Article 18(2) may be somewhat flexible depending on the nature of the case, a statement which fails to meet these requirements is not a “statement of claim” within meaning of Article 18.¹⁷ If the 45–day time limit (or any other time limit required by the arbitral (p. 397) tribunal) passes, the consequences envisaged in Article 28(1) can, in principle, be applied.¹⁸

It is accepted, both in theory and in practice,¹⁹ that a claimant who has submitted a defective statement of claim may cure the shortcomings by submitting supplementary information. This practice is dictated by the most elementary principles of justice and is rarely prejudicial to the respondent. Authorization to allow the claimant to cure defects to the statement of claim may be inferred from Article 15(1), which provides that “the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate.”²⁰

Sanctions imposed under Article 28 for failure to submit a claim in a timely manner presuppose that no “sufficient cause” has been presented for the delays. As noted above, the claimant need not elaborate all of his arguments fully in the statement of claim. Additionally, a claimant may have a bona fide expectation that his submission, though sketchy, fulfils the requirements of Article 18(2).²¹ Moreover, the exact contents of these requirements, as interpreted by the arbitral tribunal, depend on the nature of the case. Therefore, rather than equating a defective submission with non–submission of the statement of claim, the arbitral tribunal should ask the claimant to clarify his position with respect to specified issues. Even if the submission is manifestly defective and does not amount to a statement of claim under any interpretation,²² a tribunal should consider granting an extension of time to cure the defect. An extension can more easily be justified under Article 23 where at least some kind of document purporting to be a statement of claim has been submitted. Defects in what purports to be the (p. 398) original statement of claim only rarely justify the termination of the proceedings under Article 28.²³

(4)  A note on the Iran-US Claims Tribunal

This chapter has made reference to the experience of the Iran-US Claims Tribunal to the extent it offers practical examples relevant to the interpretation of Article 18. Certain other features peculiar to this Tribunal also warrant comment.²⁴

As mentioned earlier in this Chapter and Chapter 8, the UNCITRAL Rules concede the possibility of inclusion of the statement of claim in the notice of arbitration. Although the Rules do not specifically mention the reverse situation, such a modification is not prohibited. Such modifications in fact have been made to the Tribunal Rules of the Iran-US Claims Tribunal. These Rules dispense with separate notice of arbitration and insert relevant information from Article 3 (Notice of Arbitration) into the modified version of Article 18 (Statement of Claim). Although essential to ad hoc arbitration, a distinct precedent notice of arbitration (i.e., demand for arbitration and notice of intention to proceed with arbitration), was deemed superfluous in the Tribunal process established by interstate treaties.²⁵

Explanations of other features of Tribunal regulation concerning the statement of claim may be derived from the specific nature of the Tribunal's claims settlement proceedings. For example, the provision reducing the importance of the exact date of filing of the statement of claim, now contained in paragraph 4 of note 2 of the Tribunal Rules,²⁶ can best be understood in light of the fact that the Claims Settlement Declaration (Article III, paragraph 4) requires all claims to be filed within a short period of (p. 399) time.²⁷ Without this provision, there might have been a chaotic “rush to the court room,” with all the claimants wishing to be “heard first and have clear access to the billion dollar fund set aside to pay awards.”²⁸ Apart from such features, however, the modified Tribunal Rule 18 contains essentially the same elements as the UNCITRAL Rules dealing with the notice of arbitration (Article 3) and statement of claim (Article 18). Accordingly, we agree that the “UNCITRAL procedures for filing claims are capable of providing a framework for tribunals with a large caseload as well as ad hoc individual arbitrations.”²⁹

(1)  Tribunal Rules, Article 18(1)

The Tribunal decides that the Registrar was correct in refusing the Statement of Claim submitted by Sara Helali. The Statement of Claim fails to meet the requirements of Article 18 of the Provisional Rules of Procedure. To the extent that the Tribunal can understand the claim, it is directed primarily against various individuals, some of them Iranian, for refusal to account for or return funds obtained from Claimant and invested in property within the United States. No Claim against Iran is stated such that a Statement of Defence could reasonably be requested.

Re Refusal to File Claim Concerning Sara Helali, DEC 3–REF11–2 (7 May 1982), reprinted in 1 Iran-US CTR 134 (1981–82).

1. 37.  …Article 20, read together with Article 18, 19 and 28 of the Tribunal Rules, makes it clear that the arbitrating parties are obliged to present their claim or defence, in principle, as early as possible and appropriate under the circumstances in each case. Compliance with this obligation is indispensable, in the Tribunal's view, to ensure an orderly conduct of the arbitral proceedings and equal treatment of the parties.

Arthur Young & Company and The Islamic Republic of Iran, Award No. 338–484–1 (1 Dec 1987), reprinted in 17 Iran-US CTR 245, 253–54 (1987–IV).

(p. 400) (2)  Tribunal Rules, Article 18(2)

Claimant is hereby ordered to file with the Tribunal by 16 August 1982 a Statement clarifying the basis for his claim and, in particular, the grounds upon which he asserts the liability of Iran and the ultimate relief sought.

Mishik Movsessian and The Islamic Republic of Iran, Case No. 272, Chamber Three, Order of 9 Jul 1982.

If the Claimant does not provide additional factual information, the Tribunal must consider whether the claim has been presented with sufficient particularity to be capable of adjudication. The Claimant is therefore requested to address this point and to file by 7 September 1982 further written submissions which should also include any proposals the Claimant may have for procedures which will both meet the Claimant's asserted need for safeguards and fully protect the Respondent's right of defence.

Kay Lerner and The Islamic Republic of Iran, Case No. 242, Chamber Three, Order of 6 Aug 1982, reprinted in 1 Iran-US CTR 215 (1981–82).

The Respondents in this case filed with the Tribunal on 14 February 1983 a request that the Claimant be required to provide more detailed explanation not only as to the amount of the claim but also as to the manner in which liability is alleged against both Respondents.

The Tribunal notes that the Statement of Claim contains forty pages of explanation dealing with the demand for arbitration (p. 1); the parties (p. 1 and following); the Tribunal's jurisdiction (p. 6); the basis and general nature of the claim (p. 7 to p. 10); the applicable law (p. 11); a statement of the facts (p. 12 to p. 37); the points at issue (p. 38); and the relief sought (p. 39 to p. 40). These explanations have since been supplemented by written and oral submissions particularly concerning the issue of jurisdiction.

Article 18 of the UNCITRAL Rules, as modified by the Tribunal, imposes on the Claimant the sole obligation of giving the following particulars: [reproduces Article 18(1) of the Tribunal Rules, see above, n 5].

It appears that in the present case the Claimant has complied with that Rule.

Amoco Iran Oil Company and The Islamic Republic of Iran, Case No. 55, Chamber Two, Order of 22 Feb 1983.

(p. 401)

1. 1.  By an Order of 18 January 1983, the Tribunal ordered the Statement of Claim to be amended in conformity with Article 18 of the Tribunal Rules by 4 March 1983. The time limit for such amendment was later extended to 29 April 1983.

2. 2.  On 23 May 1983, the Claimant filed a copy of a telex from Claimant together with materials which had previously been filed as an annex to the Statement of Claim. On 18 July 1983, the Tribunal received a telex from Claimant Jonathan Ainsworth, containing, inter alia, a request for a 30 days' extension “to file supplemental papers in support of claim.”

3. 3.  On 18 July 1983, the Tribunal also received a number of video tapes from Claimant and on 5 September 1983 a written submission supplementing his previous filings.

4. 4.  Noting that Tribunal Rules do not provide for filing a Statement of Claim or supplements to such Statement through use of video tapes, the Tribunal finds that Claimant has not as yet amended his Statement of Claim in accordance with Article 18 of the Tribunal Rules. In particular, the Statement of Claim and the Claimant's subsequent filings do not contain a satisfactory reference to the “debt, contract … expropriations or other measures affecting property rights out of or in relation to which the dispute arises” or a statement of the facts supporting the claim. Furthermore, the points at issue have not been stated by Claimant.

5. 5.  In view of the foregoing, the Claimant is hereby ordered to file by 1 December 1983 a written Statement containing the items mentioned under paragraph 4 above.

Jonathan Ainsworth and The Islamic Republic of Iran, Case No. 454, Order of 7 Nov 1983, reprinted in 4 Iran-US CTR 26 (1983–II).

[T]he language of Article 18, paragraph 2 [of the UNCITRAL Rules as modified by the Iran-United States Claims Tribunal], is merely advisory in nature, not mandatory. While it is conceivable that Article 18 might be viewed as setting forth certain minimum requirements of an orderly understandable submission, so that in exceptional cases non–confirming submissions might be refused, the submission of the Claimant in this case is not of such an exceptional nature.

Questech, Inc. and The Ministry of National Defence, Award No. 191–59–1 (25 Sep 1985) at 3, reprinted in 9 Iran-US CTR 107, 109 (1985–II).

The Tribunal notes that the Claimant's submission consists of the following elements: a brief introduction outlining the claims; a section on (p. 402) jurisdiction; statement of facts; points at issue; and the relief sought. The Tribunal is satisfied that the Claimant's submission, which is labelled as a “Statement of Claim”, substantially meets the requirements in Article 18…

The United States of America and The Islamic Republic of Iran, Case No. A/28, Full Tribunal, Order of 3 Dec 1993.

1. 67.  The United States maintains that the Counter–claim meets the requirements of Article 18 of the Tribunal Rules.

2. 68.  In the United States' view, Tribunal practice demonstrates the general nature of, and the low threshold for, the pleading requirements for statements of claim. In particular, the United States contends, it is not necessary to include a detailed statement of facts. In the rare cases where the Tribunal has dismissed preliminarily a claim for defects in pleadings, the claimant typically failed to provide extremely basic information (for instance, the claimant failed to identify clearly the respondent parties). The United States also submits that the Tribunal has indicated that it will refuse cases on the basis of Article 18 of the Tribunal Rules only in “exceptional circumstances.”

3. 69.  The United States contends that such circumstances are not present in this Case and that sufficient information has been provided in the Counter–claim for Iran to respond to its particulars. The Counter–claim devotes distinct sections to each of the Article 18 requirements and explains with sufficient detail the facts supporting the Counter–claim, the general nature of the claim, the amount requested, and the points at issue. The United States recalls that the annexation of additional evidentiary material is a discretionary matter under Article 18(2) of the Tribunal Rules. The United States notes that Iran has been able to respond to the Counter–claim repeatedly and not just on jurisdictional issues.

The Islamic Republic of Iran and The United States of America, Case No. B1 (Counter–Claim), Award No. ITL 83–B1–FT (9 Sep. 2004) (footnotes omitted).

(1)  Submission of the statement of defence

After a statement of claim fulfilling the conditions of Article 18³¹ has been submitted, the arbitral tribunal issues an order asking the respondent(s) to submit a statement of defence both to the claimant and each arbitrator by a prescribed date. In determining the time frame for the submission of statement of defence, the arbitrators must take into account Article 23³² according to which such a period normally “should not” exceed 45 days. If, however, it is clear at the outset that this period is inadequate under the circumstances, the parties may modify the rules so as to extend it pursuant to Article 1(1). Such modifications have occurred in the arbitration process (p. 408) before the Iran-US Claims Tribunal, which involves many respondents who must reply to several claims. Article 19(1) of the Tribunal Rules sets the time limit at 135 days.

According to Article 23, the time limit may be extended if the tribunal finds that such an extension is “justified.” Such a determination is left to the discretion of the arbitral tribunal and depends on the circumstances of each case. Generally speaking, an extension of the 45–day time limit is more likely to be permitted for submission of the statement of defence rather than the statement of claim.³³ Note 1 to Article 19 of the Tribunal Rules of the Iran-US Claims Tribunal contains a useful list of factors to be taken into account when deciding whether or not to extend the period of time for the submission of the statement of defence. In the case of non–compliance with the time limit, the arbitral tribunal has the power to order that proceedings continue notwithstanding the lack of the statement of defence.³⁴

(2)  Contents of the statement of defence

The intent of Article 19 is to ensure that the statement of defence responds to the information and contentions included in the statement of claim.³⁵ If a document purporting to be the statement of claim does not fulfil the requirements of Article 18, then there is no duty to submit a statement of (p. 409) defence in accordance with Article 19.³⁶ The correspondence between Articles 18(2) and 19(2) is heightened by the fact that the latter permits the respondent to annex any documents on which it relies, or to “add a reference to the documents or other evidence he will submit” at this stage.

Although from the point of view of effective arbitral proceedings it is advisable that the respondent do so,³⁷ the permissive wording of the second sentence of Article 19(2) makes it clear that the provision is “without prejudice to his right to present additional or substitute documents at a later stage in the arbitral proceedings.”³⁸ According to Article 21(3), the respondent should make any objections to the arbitral tribunal's jurisdiction at the latest when submitting its statement of defence. Whether the filing of a statement of defence should be postponed pending the resolution of jurisdictional objections depends on the circumstances of the case.³⁹

(3)  Submission of counter–claims and claims for the purpose of set–off

(4)  Supplementary provisions on counter–claims and claims for the purpose of set–off

Insofar as it fulfils the aforementioned conditions relating to jurisdiction (p. 416) and admissibility, a counter–claim or a set–off claim should be treated on a commensurate basis with the principal claim.⁶⁸ In this spirit, Article 19(4) provides that a counter–claim shall follow the structure of the statement of claim as prescribed in Article 18(2). In Note 2 to Article 19 of the Tribunal Rules of the Iran-US Claims Tribunal, this main provision has been supplemented by additionally providing that the “counterrespondent” (i.e. the claimant) has the right to reply to the counter–claim, whereby Article 19(2) on the statement of defence is correspondingly applicable. The same basic principles apply to claims and counter–claims under the UNCITRAL Model Law.⁶⁹

(1)  Tribunal Rules, Article 19(1)

The Tribunal extends the time within which the Respondents shall file their Statements of Defence to 18 August 1982.

In view of the fact that the Statement of Claim and the Exhibits attached thereto set forth what is owed by each of the Respondents as well as the grounds for each claim, the Tribunal does not find reasons to grant the Respondents' request that the Claimant be directed to address its claims separately to each Respondent.

Pepsico, Inc. and The Islamic Republic of Iran, Case No. 18, Chamber One, Order of 30 Jun 1982, reprinted in 1 Iran-US CTR 173 (1981–82).

I dissent from the decision of the Chamber granting a second extension of time for filing the Statement of Defence in this case.

This claim is one of the earliest cases before the Tribunal, having been filed November 3, 1981. It involves transaction between Pepsico, Inc. and a number of Iranian bottling companies.

Article 19 of the Provisionally Adopted Tribunal Rules provides that a Chamber may extend time limits for filing Statements of Defence only (p. 417) “if it concludes that such an extension is justified.” Note 1 to Article 19 sets forth certain criteria which will be taken into account in this regard. The first criterion is the “complexity of the case.” That criterion is not met in this instance because the transactions are relatively simple, the underlying contracts are identical and the Statement of Claim includes quite detailed documentation thereby facilitating response.

The second criterion of Note 1 to Article 19 justifying extension is any “special circumstances, including demonstrated hardship.” The fact that operations of some of the Iranian bottling companies covered by the claim may have been in what later became a war zone, as alleged by Respondents for the first time on June 3, does not excuse the Respondents not so located from filing their Statements of Defence on time, and may not even be a basis for delay as to those few Respondents who where in the war zone because, as noted above, all of the contracts are identical and there has been no showing that the same basic defences are not applicable to all.

Note 1 to Article 19 also provides that if a Chamber determines that a requirement to file a large number of cases would impose an unfair burden on a Respondent, “it will in some cases extend the time periods.” That clearly means that extension will be granted in some, not all, cases. That criterion was never intended to justify delay in responding to even the earliest claims filed, such as this, but was designed to relieve proven cumulative burden, if any, arising in later cases.

In summary, there is no showing to justify permitting a total of over eight months–more than twice the time originally granted–for filing the Statement of Defence in this case.

Pepsico, Inc. and The Islamic Republic of Iran, Howard M Holtzmann, Dissent from Decision Granting Second Extension of Time for Filing Statement of Defence (9 Jul 1982), reprinted in 1 Iran-US CTR 174 (1981–82).

In reply to your request for an extension of four months from 30 April 1983 to file a Defence in this case, I confirm by the present letter what I told you in my office and what I told Mr. Kashan in Mr. Lagergren's office, as well as what I told Mr. Mouri yesterday.

Since there were already three extensions of time, it seems difficult to grant a new one. Moreover, as the last given date was ordered by an award, it is impossible to modify it without the consent of all the Parties.

It should be on the other hand possible for the Respondents to give before the deadline a written statement with your counter–claim, if any, even if it is very short, to be completed in your further statements.

(p. 418)

I regret not to be able to grant you the requested extension but legally I cannot do anything else.

Phillips Petroleum Company, Iran, et al. and The Islamic Republic of Iran, Cases Nos. 39 and 55, Chamber Two, Order of 27 Apr 1983, reprinted in 2 Iran-US CTR 283 (1983–I).

It is incumbent upon the Tribunal to provide all the parties to any given claim with sufficient time to defend its case properly. The interests of justice dictate that this Tribunal offer its sincere co–operation to the parties.

In your letter of 27 April 1983, issued in response to the request by the Agent of the Islamic Republic of Iran for an extension, you write:

Since there were already three extensions of time, it seems difficult to grant a new one. Moreover as the last given date was ordered by an Award, it is impossible to modify it without the consent of the parties.

I wonder to what extension your phrase, “three extensions of time” refers!

Therefore, by virtue of the facts briefly dealt with in this letter, I am obliged to point out that the reasons adduced in the Chamber's letter of 27 April 1983, issued in response to Mr. Eshragh's request for an extension, are entirely unjustified and that the Chamber's refusal of an extension is unconscionable on the grounds of justice and legality.

Phillips Petroleum Company, Iran, et al. and The Islamic Republic of Iran, Cases Nos. 39 and 55, Chamber Two, Order of 27 Apr 1983, Dissenting Opinion of Shafei Shafeiei (1 Jun 1983), reprinted in 2 Iran-US CTR 284 (1983–I).

(2)  Tribunal Rules, Article 19(2)

The Respondent on 17 January 1983 filed a Statement of Defence stating, inter alia, that it was unable to respond to the Statement of Claim, which it said was “totally vague, the relief sought is unknown, and the action allegedly taken by Respondent is rather obscure and unclear.” By Order filed 15 February 1983 Claimant was ordered to respond to these objections by 14 March 1983. Claimant failed to comply with that Order, or even to seek an extension of the time within which to do so. By further Order filed 31 August 1984, the Claimant was ordered to file a Response by 1 October 1984 and was informed that (p. 419) if a Response was not filed by that date the Tribunal would proceed to decide this case on the basis of the pleadings and documents submitted.

The Tribunal informs the Parties that it now intends to decide this case on the basis of the pleadings and documents before it.

The Cyrus Petroleum Ltd and The Islamic Republic of Iran, Case No. 624, Chamber One, Order of 30 May 1985. See also related Award No. 230–624–1 above, note 24.

(3)  Tribunal Rules, Article 19(3)

Finally, in a Rejoinder filed 12 October 1982, the Air Force supplemented its Statement of Defence filed 20 April 1982 and added an additional counter–claim for Social Security insurance premium payments. The Tribunal notes that this counter–claim was filed six months after the Statement of Defence. Pursuant to Article 19 of its rules of procedure, the Tribunal can accept a late counter–claim if satisfied that the delay was justified under the circumstances, but in the present case the Tribunal finds no such justification and declines to accept the late counter–claim.

Intrend International, Inc. and The Imperial Iranian Air Force, Award No. 59–220–2 (27 Jul 1982) at 12, reprinted in 3 Iran-US CTR 110, 116 (1983–II).

In the Statement of Claim the Islamic Republic of Iran and the Ministry of Housing and Urban Development are named as Respondents. The Ministry of Housing and Urban Development as well as some other government ministries and agencies have filed Statements of Defence, two of which contain counter–claims.

On 12 July the Claimant filed a “Motion to exclude extraneous parties and strike improper pleadings,” stating that only the Ministry of Housing and Urban Development is proper Respondent in this case.

The Tribunal, however, sees no reason for not allowing the Islamic Republic of Iran to file Statements of Defence and/or Counter–claims through the ministries and agencies in question. The Claimant's Motion is therefore dismissed.

William L Pereira Associates, Iran and The Islamic Republic of Iran, Case No. 1, Chamber Three, Order of 22 Sep 1982.

No experts will be appointed to study the counter–claims relating to (p. 420) seismology insofar as those counter–claims were presented too late within the terms of Article 19(3), and our own Order of June, 1982 scheduling the proceedings. The use of our discretion under 19(3), to admit the late filing would be inappropriate in view of the uncertain and speculative nature of the alleged damages.

Richard D Harza and The Islamic Republic of Iran, Award No. ITL 14–97–2 (23 Feb 1983) at 5, reprinted in 2 Iran-US CTR 68, 71 (1983–I).

On 31 January 1983, Claimant and MHUD filed their arguments and evidence.

On 1 March 1983, Gostaresh Maskan filed a Statement of Defence and sought to raise a counter–claim. MHUD also filed additional papers.

On 11 and 14 March 1983, Gostaresh Maskan filed additional material. Claimant objected to such late filings and moved to strike them from the proceedings. The hearing was held on 14 and 15 March 1983. During the course of the Hearing Gostaresh Maskan submitted a second counter–claim. The matter was submitted to the Tribunal at the conclusion of the Hearing.

By an Order of 19 April 1983, the Tribunal determined that the late filings of Gostaresh Maskan would be accepted, but that its late filed counter–claims would be rejected pursuant to Article 19(3) of the Tribunal Rules, no justification for the delay in presenting them having been shown. The Tribunal further decided that Claimant would have an opportunity to submit a reply to the accepted late filings, and it did so.

Blount Brothers Corp. and Ministry of Housing and Urban Development, Award No. 74–62–3 (2 Sep 1983) at 2–3, reprinted in 3 Iran-US CTR 225, 226 (1983–II).

As stated above, the Claimant was entitled to receive 255,205,242 rials for its supervisory services under the contract. It has already received 163,748,479 rials, including the 9,864,867 rials withheld for the 5.5 percent contract tax. From the balance of 91,456,763 rials still owing to the Claimant, 5.5 percent of the total amount due under the contract, representing the Iranian contract tax, must be deducted, because the parties agreed that it was to be withheld from all payments made to the Claimant, and it was in fact withheld from all such payments. 5.5 percent of 255,205,242 rials is 14,036,288 rials, of which 9,864,867 rials have already been withheld. Thus, 4,171,421 rials additional should be deducted. The Claimant is thus entitled to receive 87,285,342 rials from the Housing Organization.

(p. 421)

The Housing Organization has also presented a counter–claim alleging, inter alia, that TCSB did not pay social insurance contributions due to the Social Security Organization in respect of TCSB's employees in Iran and owes a sum of money “as his due tax”. The former allegation was elaborated upon in a memorial filed 11 November 1983, it appears from a “Supplement” filed on 29 December 1983 that the latter allegation was meant to refer to “taxation in respect of revenues arising out of its (i.e., TCSB's) operations.”

Under Article II, paragraph 1, of the Claims Settlement Declaration the Tribunal has jurisdiction to decide

…any counter–claim which arises out of the same contract, transaction or occurrence that constitutes the subject matter of that national's claim, if such claims and counter–claims … arise out of debts, contracts … expropriations or other measures affecting property rights.…

Accordingly, a distinction must be made, in particular, between legal relationships arising out of the application of the law to a situation in which either party individually finds itself and the contractual relationship between the parties to the contract inter se. In the present case, the Tribunal holds:

1. (i)  that only the 5.5 percent tax withholdings referred to above may be said to arise out of the contractual relationship between the parties to the contract; and

2. (ii)  that the remaining part of the taxes and social insurance contributions referred to in the counter–claim, in the absence of satisfactory evidence establishing the contrary, must be deemed to arise out of the application of the law to the contractor's particular situation and hence to be outside the jurisdiction of the Tribunal.

Since the 5.5. percent tax has been taken into account in the present Award, the tax and social security counter–claims must be dismissed for lack of jurisdiction.

TCSB, Inc. and The Islamic Republic of Iran, Award No. 114–140–2 (16 Mar 1984) at 15, 23–24, reprinted in 5 Iran-US CTR 160, 168, 173 (1984–I).

1. 4.  Issue: Does the Tribunal lack jurisdiction over any of the counter–claims on the ground that they do not arise out of the same contracts, transactions or occurrences which constitute the subject matter of the claims?

(p. 422)

(i)  Counter–claims based on Contract No. 112.

Respondents base their counter–claims in part on Contract Nos. 112, 118 and 138; however, they do not specify which amount are sought under each of these contracts.

ABII has not challenged the Tribunal's jurisdiction over the counter–claims insofar as they are based on the latter two contracts. The dispute concerns whether or not any counter–claim can be asserted on the basis of Contract No. 112. More specifically, the issue is whether such a counter–claim can be held to arise out of “the same contract, transaction or occurrence that constitutes the subject matter of that national's claim,” as required under Article II, paragraph 1, of the Claims Settlement Declaration.

The three contracts now mentioned were entered into successively. The first contract, No. 112, was a short term contract intended to cover ABII work under the Seek Switch Program during the negotiations of Contract No. 118. The Government of Iran entrusted the carrying out of that program to one company only, originally AT & T and later in actual fact ABII. Thus it was apparently foreseen that all the successive contracts would go to ABII. The subject matters of the three contracts were closely interrelated, within the framework of the Seek Switch Program.

In light of these particular circumstances, the Tribunal finds that the linkage between all three contracts must be considered sufficiently strong so as to make them form one single “transaction” within the meaning of the Claims Settlement Declaration.

Accordingly, the Tribunal concludes that it has jurisdiction over the counter–claims in so far as they are based on Contract No. 112.

American Bell International, Inc. and The Islamic Republic of Iran, Award No. ITL 41–48–3 (11 Jun 1984) at 16–18, reprinted in 6 Iran-US CTR 74, 83–84 (1984–II) (footnotes omitted).

Article II, paragraph 1, of the Claims Settlement Declaration gives the Tribunal jurisdiction over certain claims of nationals of the United States or Iran and over counter–claims which “arise out of the same contract, transaction or occurrence that constitutes the subject matter of that national's claim.”

It is clear from both this language and from the Tribunal Rules that the Tribunal's jurisdiction extends only to counter–claims which are presented against claimants. Therefore, to the extent that the counter–claims seek recovery from Cofraran, they must be dismissed.

(p. 423)

Claimant also contends that Contract 81 constitutes the subject matter of its claim and that the Tribunal's jurisdiction is limited to counter–claims which arise out of the same contract. Consequently, Claimant argues, counter–claims based on Contracts 87 and 88 do not fall within the Tribunal's jurisdiction.

MORT contends that Contracts 81, 87 and 88 are all part of the same “transaction”, that the claims arise out of this transaction and, therefore, that the counter–claims arise out of the same transaction which constitutes the subject matter of this claim.

The Tribunal, however, cannot share the view that Contracts 81, 87 and 88 are part of one single transaction. Although an early intention, as reflected in MORT's letter of intent of 14 April 1976, was to treat the whole motorway project as one whole in the sense that all the four contracts contemplated were to be given to the consortium, this intention was later abandoned. Thus, by the time that Contract 81 was signed, the prospects for the remaining contracts was a matter to be negotiated. This is supported by the language of Article 2(3) of Contract 81, which provides as follows:

After the performance of this Contract, the EMPLOYER will have no other obligation towards the CONTRACTOR, except what may derive from EMPLOYER's Letters of Intent to the CONTRACTOR, No. 6155 of 9 February 1975 and No. 1045/2 of 14 April 1976 to the CONTRACTOR, and from any subsequent contracts or agreements the parties hereto may have entered into. (Emphasis supplied.)

The contracts were executed on different dates, and involved different services to be performed at different times. There is no relation between the disputes concerning Contract 81, on the one hand, and those concerning Contracts 87 and 88 on the other hand. Findings with respect to Contract 81 would have no effect on claims and defences made in connection with Contracts 87 and 88. That the Contracts may refer to one another or may even contemplate the execution of another does not necessarily make the linkage between them sufficiently strong so as to make them form one single transaction within the meaning of the Claims Settlement Declaration. Compare American Bell International Inc. and The Government of the Islamic Republic of Iran, Interlocutory Award No. 41–48–3 (11 June 1984).

Therefore the Tribunal concludes that, to the extent that they arise out of Contacts 87 and 88, the counter–claims do not arise out of the same (p. 424) contract, transaction or occurrence which constitutes the subject matter of any of the claims.

Morrison–Knudsen Pacific Limited and The Ministry of Roads and Transportation, Award No. 143–127–3 (13 Jul 1984) at 51–54, reprinted in 7 Iran-US CTR 54, 82–84 (1984–III).

Without prejudice to the final decision the Tribunal … notes that the specific issue raised by the Agent of the Islamic Republic of Iran, a period of delay of one or two days in filing counter–claims, would not by itself ordinarily result in the dismissal of counter–claims.

Anaconda–Iran, Inc., and The Islamic Republic of Iran, et al., Case No. 167, Chamber Three, Order of 11 Oct 1984.

The indisputable fact remains that Claimant invoked the jurisdiction of the Tribunal by filing a Statement of Claim here and, under the Claims Settlement Declaration and Tribunal Rules, Respondents were thus entitled to file certain counter–claims. While Claimant remains free to withdraw any and all of its claims for relief, such withdrawal can have no effect on the Tribunal's jurisdiction over the counter–claims, unless the Tribunal were to determine that it had no jurisdiction over the claims as originally filed. To date, the claims have not been withdrawn and in any event the Tribunal finds no basis for holding that they do not fall within the scope of its jurisdictional grant.

Behring International, Inc., and The Islamic Republic Iranian Air Force, Award No. ITM/ITL 52–382–3 (21 Jun 1985) at 38, reprinted in 8 Iran-US CTR 238, 265 (1984–I).

cc)  Taxes

Pursuant to Article II, paragraph 1, of the Claims Settlement Declaration, the Tribunal's jurisdiction over counter–claims is limited to those counter–claims “which arise[] out of the same contract, transaction or occurrence that constitutes the subject matter of” the main claim. The asserted obligation to pay taxes in this case is imposed not by the contract that is the subject matter of the claim, but by operation of the applicable Iranian tax law. The Respondent itself states that “[t]he claim is based on the taxation laws of the Islamic Republic of Iran.” The obligation to pay taxes is a legal relationship that arises out of the application of the law to a factual situation of a person or legal entity rather (p. 425) than a contractual relationship that exists between the parties to a contract by virtue of that contract. For these reasons, the Respondent's counter–claim for taxes is outside the Tribunal's jurisdiction.

dd)  Social security premiums

Pursuant to Article II, paragraph 1, of the Claims Settlement Declaration, the Tribunal's jurisdiction over counter–claims is limited to those counter–claims “which arise[ ] out of the same contract, transaction or occurrence that constitutes the subject matter of ” the main claim. The asserted obligation to pay social security premiums in this case is imposed not by the contract that is the subject matter of the claim, but by operation of the applicable Iranian Social Security law. Any such obligation is, as the Tribunal found in Award No. 114–140–2 of 16 March 1984 in T.C.S.B., Inc., and Iran, at 24, and confirmed in Award No. 180–64–1 of 27 June 1985 in Sylvania Technical Systems, Inc. and The Government of the Islamic Republic of Iran, at 41, a “legal relationship arising out of the application of the law to a situation in which either party individually finds itself ” rather than a “contractual relationship between the parties to the contract inter se.” The Tribunal thus has no jurisdiction over the Respondent's counter–claim for social security premiums.

Questech, Inc., and The Ministry of National Defence of the Islamic Republic of Iran, Award No. 191–59–1 (25 Sep 1985) at 38–40, reprinted in 9 Iran-US CTR 107, 134–36 (1985–II).

In its Memorial filed 2 January 1985, just 22 days before the Hearing, AFIRI sets forth for the first time several counter–claims for damages allegedly caused by ITP Export's breaches of the Civil Works Contract. These counter–claims were not timely filed, and no explanation for the delay has been provided. Tribunal Rules, Article 19, paragraph 3. The Tribunal orders that they be dismissed.

International Technical Products Corp. and The Islamic Republic of Iran, Award No. 196–302–3 (28 Oct 1985) at 29–30, reprinted in 9 Iran-US CTR 206, 226–27 (1985–II).

The Claimant contends that public law debts may not be offset against private law claims. Even if a tax counter–claim was justifiable as a claim for set–off, in the Claimant's view it is clear from Article II, paragraph 1, of the Claims Settlement Declaration that such a set–off is governed by the same jurisdictional standards as a counter–claim. According to the (p. 426) Claimant, Article 19, paragraph 3, of the Tribunal Rules subjects counter–claims and claims for the purpose of a set–off to the same jurisdictional restrictions.

The Tribunal determines that as far as its jurisdiction is concerned claims for set–off are generally governed by the same standards as counter–claims. The concept of set–off necessarily presupposes the existence of a claim that can be used for such set–off. When a respondent seeks to offset alleged tax arrears against contract claims, he can use his alleged right to the payment of taxes for set–off only if this right is an admissible claim under the Claims Settlement Declaration. As the Full Tribunal has decided in Case No. A2, Decision DEC 1–A2–FT (13 Jan. 1982), the Claims Settlement Declaration does not grant the Tribunal jurisdiction over claims against nationals of either State party unless those claims are brought as counter–claims. Claims for taxes can thus only be used for set–off if they fulfill the requirements for counter–claims as laid down in Article II, paragraph 1, of the Claims Settlement Declaration. This conclusion is confirmed by the provision of Article 19, paragraph 3, of the Tribunal Rules which states that

…the Respondent may make a counter–claim or a claim for the purpose of a set–off, if such counter–claim or set–off is allowed under the Claims Settlement Declaration (emphasis added).

This provision incorporates by explicit reference the requirements of the Claims Settlement Declaration for counter–claims. The Claims Settlement Declaration does not mention set–off explicitly. But it is clear from a comparison of Article 19, paragraph 3, of the UNCITRAL Rules with that provision as modified in the Tribunal Rules that counter–claims and claims for the purpose of set–off must meet the same jurisdictional requirements. Article 19, paragraph 3, of the UNCITRAL Rules stipulates that

…the Respondent may make a counter–claim arising out of the same contract or rely on a claim arising out of the same contract for the purpose of set–off.

Because the description of the qualification of admissible counter–claims in the Claims Settlement Declaration was different from the one in the UNCITRAL Rule, this qualification was modified accordingly. By substituting the two identical qualifications in the UNCITRAL Rules of counter–claims and claims for the purpose of set–off with the single reference to the Claims Settlement Declaration, Article 19, paragraph 3, of the Tribunal Rules makes clear that, as under the original UNCITRAL (p. 427) Rule, both counter–claims and claims for the purpose of set–off are governed by the same jurisdictional standards.

The Tribunal has held in a number of cases that the obligation to pay taxes other than withholding taxes specifically provided for in the parties contract arises from the tax laws of Iran rather than from the contract, even where the contract otherwise identifies which contractual party is responsible for the payment of taxes. It consequently has dismissed, tax counter–claims other than counter–claims for such withholding taxes for lack of jurisdiction, see International Technical Products Corporation et al. and The Government of the Islamic Republic of Iran, Final Award No. 196–302–3; p. 29 (28 October 1985), and decisions cited therein. The Tribunal confirms these holdings in the present case and finds that the Ministry's tax counter–claim does not arise out of the Contracts, none of which required IACI or ISIRAN to deduct income tax from payments.

Computer Sciences Corporation and The Islamic Republic of Iran, Award No. 221–65–1 (16 Apr 1986) at 51–54, reprinted in 10 Iran US CTR 269, 309–11 (1986–I).

1. 182.  This counter–claim, as admitted by Respondents, was not raised until TCI's counter–claim Memorial submitted on 30 August 1985. Therefore it raises questions under Article 19, paragraph 3 of the Tribunal Rules which requires a counter–claim to be made “[i]n the Statement of Defence, or at a later stage in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the circumstances.” In the assessment of the circumstances, among other things, the possible prejudice caused to Claimant by the late presentation of the counter–claim has to be taken into account as an important factor.

2. 183.  The Tribunal notes that the counter–claim was presented about five weeks before the Hearing, and four weeks before ABII was due to submit its rebuttal. As to the factual issues involved, this counter–claim belongs to one of the least complicated parts of the whole case. Thus the preparation of a defence would not have caused to ABII such hardships as would amount to undue prejudice, and such prejudice is not even alleged by Claimant. In view of this, and accepting that Respondents may not, at the time of the presentation of the Statement of Defence, have detected the evidence (mainly letters of ABII) supporting this counter–claim among voluminous documentary materials relating to the Seek (p. 428) Switch Program, the Tribunal decides that the late presentation of the Counter–claim was acceptable under the circumstances.

American Bell International Inc., and The Islamic Republic of Iran, Award No. 255–48–3 (19 Sep 1986), reprinted in 12 Iran-US CTR 170, 225 (1986–III).

The Tribunal notes two Counter–claims filed on 16 June 1987 by the Government of the Islamic Republic of Iran, The Islamic Republic of Iran Navy and Bank Tejarat naming as Counter–Respondents Collins Systems International (“Collins”) and City Bank of New York in one and Collins and Bank of America, International, Houston, Texas (“Bank of America”) in the other. The Tribunal also notes the Claimant's comments on these Counter–claims filed on 15 September 1987.

The Tribunal further notes that Bank Tejarat, the Government of the Islamic Republic of Iran, City Bank of New York and Bank of America are not Parties in this Case. Therefore, the Counter–claims against City Bank of New York and Bank of America cannot be admitted and neither Bank Tejarat nor the Government of the Islamic Republic of Iran have standing to assert counter–claims in this Case.

Collins Systems International, Inc., and The Navy of the Islamic Republic of Iran, Case No. 431, Chamber Two, Order of 23 Sep 1987.

1. 8.  With regard to Bank Markazi's argument concerning counter–claim jurisdiction, the Tribunal has already held that claims can “only be used for set–off if they fulfil the requirements for counter–claims as laid down in Article II, paragraph 1, of the Claims Settlement Declaration.” Computer Sciences Corporation and The Government of the Islamic Republic of Iran, et al., Award No. 221–65–1 (16 April 1986); Howard Needles Tammen & Bergendoff and The Government of the Islamic Republic of Iran, et al., Award No. 224–68–2 (8 August 1986). However, in view of the fact that the Claim has been withdrawn the question of a possible set–off has become moot.

Interfirst Bank Dallas, NA and The Islamic Republic of Iran, Decision No. DEC 66–338–2 (9 Oct 1987), reprinted in 16 Iran-US CTR 291 (1987–III).

c)  Late Counter–claim

1. 88.  The Tribunal now turns to an examination of the counter–claim filed by the Ministry of Defence on 3 April 1986 on behalf of (p. 429) itself, the Islamic Republic of Iran, and Bank Melli, naming Harris and Chase Manhattan Bank as Respondents.

2. 89.  The Claimant and Chase Manhattan Bank contend that this counter–claim should be dismissed because it is untimely, because no reason has been offered for the delay in its filing, and because Chase Manhattan Bank is not a party to this Case.

3. 90.  Again, the principles guiding the Tribunal's determination of this issue are to be found in the Tribunal Rules. Article 19, paragraph 3, of the Rules require that a counter–claim be made

   [i]n the Statement of Defence, or at a later stage in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the circumstances.

4. 91.  In the normal course of events, then, a counter–claim must be contained in the Statement of Defence. When counter–claims are filed late, the Respondent has the burden of justifying the delay. Again, considerations of equality in treatment, prejudice to the other party, and delay of the proceedings underlie this requirement that delays be justified.

5. 92.  Consequently, the Tribunal has uniformly rejected late–filed counter–claims when it concludes that the delay was not justified under the circumstances, although it has occasionally rejected late–filed counter–claims without entering into such an analysis.

6. 93.  The Tribunal has been particularly reluctant to accept late–filed counter–claims which are filed shortly before the Hearing, during the Hearing, or after the Hearing. Amman & Whitney and Ministry of Housing and Urban Development, Award No. 248–198–1, pp. 8–9 (25 Aug 1986), is a good example of the Tribunal's practice in this area. In that Case, one day after the Hearing, the Respondent filed a “counter–claim arising out of letter of guarantee” on behalf of itself and Bank Melli against the Claimant and Citibank of New York concerning a failure to make payment under a letter of guarantee securing an advance payment made to the Claimant under the contract in question. Neither Bank Melli nor Citibank was a party to the Case. The Tribunal rejected the Counter–claim, that

   [A]side from any question as to the Tribunal's jurisdiction over a counter–claim thus formulated and the parties named in it, the Tribunal is bound to reject a pleading filed not only considerably later than the Statement of Defence (see Article 19 and 20 of the Tribunal Rules), but, indeed, after the Hearing (p. 430) itself the more so since no explanation has been advanced as to why such a delay may be justified.

7. 94.  Indeed, cases are rare in which the Tribunal accepted late counter–claims. In Starrett Housing Corp. and Government of the Islamic Republic of Iran, Interlocutory Award No. ITL 32–24–1, p. 35 (19 Dec. 1983), the Tribunal, without further explanation, admitted four counter–claims “[i]n accordance with Article 19, paragraph 3, of the Tribunal Rules … although they were not included in the Statement of Defence” and not filed until approximately six weeks before the Hearing. But see Concurring Opinion of Howard M Holtzmann, Starrett Housing Corp., supra, at pp. 45–46 (arguing that the late–filed counter–claims should not have been admitted). Starrett, however, is a unique case in many respects. Given the drawn–out nature of the proceedings in that case, the Tribunal may have concluded that prejudice to the Claimant was unlikely. In any event, Starrett represents the exception rather than the rule. The predominant practice of the Tribunal is that when it accepts a late–filed counter–claim it bases such a determination on an examination of the possible prejudice to the other party and the explanation, if any, for the delay.

8. 95.  A more representative example of this practice is American Bell International, Inc. and Islamic Republic of Iran, Award No. 255–48–3, pp. 78–79 (19 Sep. 1986), in which the Tribunal accepted a late–filed counter–claim.

   In the Case the Counter–claim was filed five weeks before the Hearing and four weeks before the Claimant's rebuttal was due. The Tribunal examined the possible prejudice to the Claimant that might result from the counter–claim, but concluded that there was little likelihood of prejudice because the counter–claim related to one of the least complicated portions of the case and because the Claimant had not alleged prejudice. Further, the Tribunal noted that the Respondent may not have been able to find the evidence supporting the counter–claim earlier. Consequently, the Tribunal accepted the counter–claim.

9. 96.  The Tribunal has been less hesitant to accept counter–claims which clarify or provide detail for previous timely–filed counter–claims, or amend previous timely–filed counter–claims.

10. 97.  In applying these principles to the Case at hand, the Tribunal notes that this Counter–claim was filed for the first time more than 39 months after the Statement of Defence. Thus, it is (p. 431) apparent that this Counter–claim does not comply with Article 19, paragraph 3, unless the delay can be justified by Iran.

11. 98.  The Tribunal notes, however, that this Counter–claim may be distinguished from other late–filed counter–claims as it was originally filed as several direct claims by Bank Melli against Chase Manhattan Bank in Cases Nos. 510, 534, 540, 541, 543, 548, and 556. These direct claims were later determined to be outside of the Tribunal's jurisdiction in Award No. 108–A–16/582/591–FT, p. 21 (25 Jan. 1984). The Tribunal, however, expressly left open the possibility that the claims might be filed as counter–claims. It stated that

    Whether an Iranian bank claim on a standby letter of credit can be joined as a counter–claim against the relevant United States contractor is a matter that each Chamber will have to deal with in accordance with Tribunal Rules concerning jurisdiction over counter–claims. It is up to the Chambers to take the necessary steps in each case, in accordance with the Tribunal Rules and this decision.

    Id. at 21.

12. 99.  By Order filed on 2 July 1985, Chamber One terminated Cases Nos. 510, 534, 536, 540, 541, 543, 548, and 556, among a series of other bank claims, in accordance with Article 34 of the Tribunal Rules. In those Orders the Tribunal drew the Parties' attention again to a paragraph of its Order filed on 24 April 1985 providing: “[i]f a letter of credit involved in the present claim relates to any other claim pending before the Tribunal, then the consequences of that letter of credit should be decided as part of the decision on that other claim, and any request to submit a counter–claim with respect thereto should be made in the case where that other claim is pending.” It further announced that it would consider as soon as possible what guidance could be given for the submission of such requests.

13. 100.  The Ministry of Defence alleges that the Tribunal failed to issue any clear guidelines concerning the filing of such counter–claims. This is incorrect, at least as far as the Cases in question are concerned. On 16 August 1985, following the Termination Orders and in response to a request of the Agent of the Islamic Republic of Iran for further guidance, the Tribunal, again drawing the Parties' attention to the above–quoted paragraph, stated that the request to submit a counter–claim must be made by a Party to the Case in which the underlying, related claim is (p. 432) pending, and filed in the Case while such Case is still pending. The Tribunal did not specify the precise form in which the request should be made but left this to the discretion of the Parties. It noted, however, that such requests “must be timely filed, not later than six months from the date of this communication.”

14. 101.  As far as the Cases at issue are concerned, this period expired on 16 February 1986. The Counter–claim filed on 3 April 1986 was therefore submitted late with no justification for the delay offered by the Respondent. In such a case the Tribunal's practice is clear. To permit such late counter–claims might prejudice the Claimant and would in any event run directly contrary to the plain meaning of Article 19, paragraph 3, of the Tribunal Rules, Accordingly, the Counter–claim is dismissed as untimely.

Harris International Telecommunications Inc., and The Islamic Republic of Iran, Award No. 323–409–1 (2 Nov 1987), reprinted in 17 Iran-US CTR 31, 57–61 (1987–IV) (footnotes omitted).

1. 115.  The Tribunal has consistently held that it has no jurisdiction over counter–claims relating to allegedly unpaid taxes, when the obligation to pay such taxes does not arise out of the contract, transaction or occurrence that constitutes the subject matter of the claim in the same proceedings. (See International Technical Products Corp. and Islamic Republic of Iran, Award No. 196–302–3 (28 October 1985), reprinted in 9 Iran-U.S. C.T.R. 206; General Dynamics Telephone Systems Center and Islamic Republic of Iran, Award No. 192–285–2 (4 October 1985), reprinted in 9 Iran-U.S. C.T.R. 153; Questech, Inc. and Ministry of National Defence, Award No. 191–59–1 (25 September 1985); reprinted in 9 Iran-U.S. C.T.R. 107; Sylvania Technical Systems, Inc. and Islamic Republic of Iran, Award No. 180–64–1 (27 June 1985), reprinted in 8 Iran-U.S. C.T.R. 298; T.C.S.B., Inc. and Iran, Award No. 114–140–2 (16 March 1984), reprinted in 5 Iran-U.S. C.T.R. 160.) The three Chambers fully concurred on this finding. The Tribunal does not see any reason to depart from these precedents in the instant case.

2. 116.  The two States Parties to the Algiers Accords deliberately refrained from giving jurisdiction to the Tribunal over claims of one of them against nationals of the other (see Case A12, Decision No. DEC 1–A2–FT (26 January 1982), reprinted in 1 Iran-U.S. C.T.R. 101.) This exclusion obviously extends to claims (p. 433) arising out of unpaid taxes. The only exception to this negative rule relates to counter–claims. In order to be admissible, such counter–claims, however, have to meet the conditions set forth in the Claims Settlement Declaration, namely to arise out “of the same contract, transaction or occurrence that constitutes the subject matter” of the claim of the national who initiated the proceedings (Article II, paragraph 1).

3. 117.  The obligation to pay taxes finds its source in the domestic law of the State concerned. In the case of income taxes, it arises out of the earning of revenues by a person subject to the law. The fact that these revenues are earned as the result of the performance of a contract is immaterial: it does not change the legal nature of the obligation, which remains statutory and not contractual, and creates no legal link between such an obligation and the contract which allowed the revenue to be earned. It cannot be said, therefore, that the obligation to pay taxes “arises out of ” this contract and, accordingly, the conditions set forth by the Claims Settlement Declaration for the admissibility of a counter–claim for allegedly unpaid taxes are not fulfilled. The same is true if reference is made to the “transaction” to which the contract relates since the obligation to pay taxes exists independently of the dealings between the parties to a transaction. The fact that such parties include the amounts to be paid as taxes among the costs to be taken into consideration for the calculations of the price of the contract does not suffice to change the legal situation: as with all the other costs, such as the cost of the items to be delivered or labor costs, the taxes to be paid do not constitute a legal obligation of one party to the contract vis–a–vis the other.

4. 120.  On the other hand, the situation is quite different if the contract includes provisions which create specific obligations, which do not exist in the law, of one party towards the other, in relation to the burden of the taxes to be paid, or provisions which set forth conditions for payment of amounts earned under the contract in relation to the payment of taxes. Examples of such provisions are those, very frequently encountered, that a certain percentage (usually 5.5 %) of the amounts due will be withheld by the buyer and directly paid by it to the Ministry of Economic Affairs and Finance, or that the buyer will reimburse the seller the amount of the taxes paid by it, either as a general rule, or if there is an increase in the rate of these taxes after the execution of the (p. 434) contract. Like all other contractual obligations, such provisions must be enforced by the Tribunal and may be the subject matter of counter–claims. The counter–claim in this case is not based upon a provision of this kind and, accordingly, is dismissed.

Houston Contracting Company and National Iranian Oil Company, Award No. 378–173–3 (22 Jul 1988), reprinted in 20 Iran-US CTR 3, 36–38 (1988–III).

Distinction between the concepts of “Set–off” and “Counter–claim”

“Set–off. Remedy employed by defendant to discharge or reduce plaintiff's demand by an opposite one arising from transaction extrinsic to plaintiff's cause of action. Edmonds v. Stratton, MO. APP., 457 S.W. 2d 228, 232.” Black's Law Dictionary.

“Set–off. A defence or an independent demand made by the defendant to counterbalance that of plaintiff, in whole or in part. Mack v. Hugger Bros. Constr. S. 153 Tenn. 260, 283 SW 448, 46 ALR 389.” Ballentine's Law Dictionary.

“A counter demand which a defendant holds against a plaintiff, arising out of a transaction extrinsic to the plaintiff's cause of action, 20 Am J2d Council section 2.” Ibid.

“When two persons are indebted to one another, their mutual debts are to be set off in the manner provided for in the following Articles.” Civil Code of Iran, Article 294.

“In this connection, it will be immaterial whether the two debts arise from the same or different causes, because a difference of cause does not lead to a different effect. Therefore, [even] if one of those two debts arises from a sale and the other from a loan or lease, the two debts are set off against one another.” Emani, Hoquq–e Madani, vol. I, p. 345.

“La compensation s'opère de plein droit par la seule force de la loi, même a l'insu des debiteurs; les deux dettes s'èteingnent reciproquement, à l'instant où elles se trouvent exister à la fois, jusqu'à concourence de leurs quotités respectives.” Article 1290, French Civil Code.

“No counter–claim is required if the defendant wants to set off liquidated debt against the plaintiff's claim. Such a set–off, called compensation legale, is considered a defence on the merits (Dalloz, Repertoire de procedure civile et commerciale, Demande reconventionelle, at No. 14).” P Herzog, Civil procedure in France, Martinus Nijhof, 1967, p. 277.

(p. 435)

“Set–off. Generally, in set–off, it is not necessary that the defendant's claim arise from the contract or transaction sued on or be connected with the subject matter thereof.” 80 C.J.S., Section 35.

“The distinguishing feature of counter–claim, as opposed to set–off, is that it arises out of the same transaction as that described in the complaint.…” Ibid., Section 36.

The Distinction between the two concepts of “counter–claim” and “set–off” can be clearly understood from the legal texts cited above. That is to say, the counter–claim is an independent claim which is brought vis–à–vis the original claim. In other words, the original claim provides the motive or justification for bringing the counter–claim, and the latter must therefore be related to it. As for the set–off, it is brought as a distinct claim as well, but it indicates the existence of a debt which in itself, by the operation of law, sets off and extinguishes all or part of the claimant's claims in advance. Thus, the legal set–off constitutes a substantive rule and principle and, as we saw in the above cited texts, it is one of the respondent's grounds of defence.

The First National Bank of Boston and The Islamic Republic of Iran, Decision No. DEC 83–202–2 (19 Sep 1988), Separate Opinion of Seyed Khalil Khalilian (23 Sep 1988) at 3–4, reprinted in 19 Iran-US CTR 310, 311–12 (1988–II).

1. 56.  The Tribunal notes that, apart from alleging that the foreign managers violated Article 141 of the Commercial Code of Iran by not calling an extraordinary general meeting of the shareholders after CBS SSK had lost over 50 percent of its share capital, CBS SSK does not indicate the acts and omissions for which it reproaches the foreign managers, and that allegedly led to the damages it claims to have suffered. At any rate, CBS SSK tendered no evidence to prove its alleged damages. Accordingly, the Tribunal must dismiss CBS SSK's Counter–claims for lack of proof. In view of this finding, the Tribunal need not decide the jurisdictional issues related to these Counter–Claims.

CBS Incorporated and The Islamic Republic of Iran, Award No. 486–197–2 (28 Jun 1990), reprinted in 25 Iran-US CTR 131, 149–50 (1990–II).

1. 97.  Article 19(3) of the Tribunal Rules provides that “the respondent may make a counter–claim or rely on a claim for the purpose of a set–off if such counter–claim or set–off is allowed under the Claims Settlement Declaration.” This could be read merely as (p. 436) confirming that the Claims Settlement Declaration governs which counter–claims are permitted; pursuant to this interpretation, Article 19(3) of the Tribunal Rules does not provide any additional information as to whether counter–claims are permitted under Article II, paragraph 2, of the Claims Settlement Declaration.

2. 98.  On the other hand, Article 19(3) of the Tribunal Rules could be read as indicating that official counter–claims are permitted so long as the substantive claim made therein is of the type that could be heard by the Tribunal under Article II, paragraph 2, of the Claims Settlement Declaration, i.e. a claim of one State against the other “arising out of contractual arrangements between them for the purchase and sale of goods and services.” Therefore, according to this second interpretation, Article 19(3) of the Tribunal Rules would confirm that a counter–claim that could have been filed as an autonomous claim under Article II, paragraph 2, of the Claims Settlement Declaration would fall within the Tribunal's jurisdiction.

3. 99.  The Tribunal does not consider it necessary to decide which of these interpretations should be adopted; suffice it to say that consideration of Article 19(3) of the Tribunal Rules does not provide a clear answer to the question of the Tribunal's jurisdiction over official counter–claims.

4. 100.  It may also be noted that Article 19(3) of the Tribunal Rules is a modified version of Article 19(3) of the UNCITRAL Rules, which provides that “the respondent may make a counter–claim arising out of the same contract.” It appears doubtful that the modification of Article 19(3) of the UNCITRAL Rules was intended to prevent counter–claims arising out of the same contract as the claim. Rather, it seems that this modified version was adopted only to ensure that Article 19(3) conformed with the special jurisdictional regime of Article II, paragraph 1, of the Claims Settlement Declaration. First, the modification was adopted in response to the suggestion of the Iranian Members that the defence of set–off be allowed even if that set–off did not arise out of the same contract, transaction or occurrence that formed the subject matter of the national's claim. Second, because Article II, paragraph 1, of the Claims Settlement Declaration provides that claims and counter–claims must arise out of “debts, contracts …, expropriations or other measures affecting property rights,” whereas Article 19(3) of the UNCITRAL Rules only refers to “contract[s],” Article 19(3)'s counter–claim authorization (p. 437) would otherwise have been inconsistent with the terms of the Claims Settlement Declaration absent modification. This being noted, even if the history of the modifications to Article 19(3) of the UNCITRAL Rules shows that the Tribunal's concerns were related to Article II, paragraph 1, of the Claims Settlement Declaration, it still does not tell us how–in the face of a general reference to the Claims Settlement Declaration by Article 19(3) of the Tribunal Rules–Article II, paragraph 2, of the Claims Settlement Declaration is to be interpreted. Therefore, the Tribunal cannot draw any firm conclusion from the history of the modifications to Article 19(3) of the UNCITRAL Rules.

5. 101.  In light of the foregoing, the Tribunal finds that the context of Article II, paragraph 2, of the Claims Settlement Declaration does not provide a clear answer to the question of the Tribunal's jurisdiction over official counter–claims.

The Islamic Republic of Iran and The United States of America (Case No. B1 (Counter–Claim)), Award No. ITL 83–B1–FT (9 Sep 2004) (footnotes omitted).

(4)  Tribunal Rules, Article 19(4)

The Respondents in this case are hereby ordered to submit to the Tribunal by 15 December 1982 their Rejoinder to the Claimant's Reply filed on 9 August 1982. The Respondents are requested in particular to substantiate the basis for the counter–claim.

Herman Blum Consulting Engineers, Inc. and The Islamic Republic of Iran, Case No. 138, Chamber One, Order of 20 Sep 1982.