1. 1  The Importance of the International Arbitral Process 1

2. 2  The Origins and Structure of the Iran-US Claims Tribunal 3

3. 3  The Tribunal's Use of the UNCITRAL Arbitration Rules 6

4. 4  International Investment Agreements and the UNCITRAL Arbitration Rules 10

1  The Importance of the International Arbitral Process

We undertake this study because an effective system of international dispute resolution is indispensable to the growth of more complex transnational arrangements, and–for the foreseeable future–that system of resolution is primarily international arbitration.

The evolution of an effective and trustworthy private international arbitration system over the last half a century has had three major strands. The first strand is embodied in the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards¹ which obliges the courts of state parties (1) to respect the agreement of parties to arbitrate and (2) to recognize and enforce–within certain limits–the result of such an arbitration. In essence, the treaty allows private parties to use the coercive power of national courts to implement private arrangements for international arbitration. The second strand seeks the harmonization of national arbitration statutes, that is, the national law within which the private arbitral arrangement operates and, in a sense, is regulated. This task was substantially advanced by the adoption by the United Nations Commission on International Trade Law (UNCITRAL) in 1985 of a Model Law on International Commercial (p. 2) Arbitration.² If the second strand aimed at harmonizing the national overlay of the arbitral process, the third strand sought to provide a model for the process of arbitration itself. Many sets of procedural rules defining that process exist, for example, the rules of the International Chamber of Commerce (ICC) or the American Arbitration Association (AAA). Despite the presence of such rules, however, there was a need for rules which the international community as a whole would recognize as meeting its needs.

This book is concerned with advancing our understanding of the set of rules which were the product of this third strand of effort. In particular, after several years' work, on 28 April 1976, UNCITRAL adopted a set of procedural rules for–primarily–international commercial arbitration, the UNCITRAL Arbitration Rules.³ On 15 December of that same year, the UN General Assembly adopted a resolution,⁴ stating, inter alia, “that the establishment of rules for ad hoc arbitration that are acceptable in countries with different legal, social and economic systems would significantly contribute to the development of harmonious international economic relations.” In the operative part of the Resolution, the General Assembly:

1. 1.  Recommends the use of the Arbitration Rules of the United Nations Commission on International Trade Law in the settlement of disputes arising in the context of international commercial relations, particularly by reference to the UNCITRAL Arbitration Rules in commercial contracts;

2. 2.  Requests the Secretary General to arrange for the widest possible distribution of the Arbitration Rules.⁵

This book seeks to enhance the utility of these Rules by analyzing both the drafting history of the Rules and the main sources of practice interpreting and applying the Rules. This practice includes the Iran-US Claims Tribunal, NAFTA Chapter Eleven tribunals and ad hoc tribunals constituted in accordance with the UNCITRAL Rules. Because the practice of the Iran-US Claims Tribunal is so extensive and, for the time being, continues to be paramount among these sources, the following sections introduce the origins and structure of the Iran-US Claims Tribunal and the significance of its practice (p. 3) for the UNCITRAL Arbitration Rules. Since the Iran-US Claims Tribunal is near the end of its docket, if not its work, while the NAFTA Chapter Eleven arbitrations and other ad hoc tribunals will continue indefinitely, we expect the latter sources to grow in influence with time.

2  The Origins and Structure of the Iran-US Claims Tribunal

The 1979 Islamic revolution in Iran led to a disruption of extensive economic relations, as well as to a political crisis, between Iran and the United States of America. The developments reached their culmination in the seizure of the US Embassy in Tehran on 4 November 1979 and the deprivation of the liberties of the fifty–two Americans present. This incident led to countermeasures by the United States, notably the Presidential Decree of 14 November 1979, which froze all of Iran's assets held in the United States or in foreign branches of US banks. Iran thereby lost control of some US $10–12 billion worth of assets, a considerable portion of which were subjected to pre–judgment attachments in more than 2,000 law suits brought against Iran before US courts.

The interests of these various private parties with claims against Iran became a necessary and important element of the painstaking negotiations seeking a comprehensive settlement of the outstanding issues between the two countries. On 19 January 1981, the conclusion of several agreements led to the release of the Americans held hostage since November 1979 and the release of the frozen Iranian assets. However, to address the many outstanding claims, it was also agreed that US $1 billion of the released assets would be held in a Security Account for possible satisfaction of the claims of Americans. The validity of those claims in turn was to be adjudicated by an international arbitral tribunal: the Iran-US Claims Tribunal.⁶

(p. 4) The agreements between Iran and the United States are contained in the so–called Algiers Accords, which owe their names to the central intermediary role played by Algeria in the process leading to the agreements. The Accords consist of seven interrelated documents, two of which, the General Declaration⁷ and the Claims Settlement Declaration⁸, are of paramount importance in understanding the Tribunal.

The General Declaration defines the basic obligations of the state parties regarding the release of the hostages and the unblocking of the Iranian assets. The parties agreed “to terminate all litigation as between the government of each party and the nationals of the other, and to bring about the settlement and termination of all such claims through binding arbitration.”⁹ The General Declaration also provided for the establishment of a Security Account “to be used solely for the purpose of securing the payment of, and paying, claims against Iran in accordance with the Claims Settlement Agreement.”¹⁰

The Claims Settlement Declaration, discussed more fully below, created the machinery and set up the procedural and substantive law framework for the settlement of the claims through the arbitration procedure called for in the General Declaration. In addition to the two central Declarations, five other agreements¹¹ were entered into with a view to aiding implementation of the General Declaration and the Claims Settlement Declaration, especially with respect to the more technical aspects of the payment mechanism and financial transactions.

The Claims Settlement Declaration contains eight articles. According to (p. 5) Article III(1), “the Tribunal shall consist of nine members or such larger multiple of three as Iran and the United States may agree are necessary to conduct its business expeditiously.” Given the fact that no agreement on a larger multiple of three was reached, three of the nine members have been appointed by Iran, three by the United States, and three others have been appointed by the six party–appointed arbitrators (or, failing their agreement, by a designated third party called the Appointing Authority).¹² Most of the work of the Tribunal is conducted in three Chambers consisting of an Iranian, an American and a third–country presiding arbitrator. One of the third–country arbitrators also serves as President of the Tribunal.

The main bulk of the Tribunal's case load consists of the claims by US nationals against Iran, broadly defined elsewhere in the Declaration. According to Article III(3), such claims “shall be presented to the Tribunal either by claimants themselves or, in the case of claims of less than US $250,000, by the government of such national.” Between 20 October 1981 and 19 January 1982”¹³ 965 claims of nationals seeking over US $250,000 were filed and 2,795 claims of nationals seeking less than US $250,000 were filed. As of a few years ago, all claims by nationals had been resolved.

In addition to claims of nationals, the Tribunal has jurisdiction over “official claims of the United States and Iran against each other arising out of contractual arrangements between them for the purchase and sale of goods and services,”¹⁴ as well as over certain interpretative disputes concerning the Algiers Accords.¹⁵ The latter category comprises the A–Cases; the former (p. 6) compromises the B–Cases. As of 2005, 107 government–to–government cases have been filed at the Tribunal: thirty–two A–Cases and seventy–five B–Cases.¹⁶

Article IV of the Claims Settlement Declaration contains provisions concerning the enforcement of the awards. The most interesting and innovative feature in this respect, however, is based on the provisions of the General Declaration concerning the establishment of the so–called Security Account out of which awards are paid to successful American parties before the Tribunal. The original amount of the account was US $1 billion, but Iran was obliged to replenish it to keep the balance at the minimum of US $500 million “until the president [of the Tribunal] has certified that all arbitral awards against Iran have been satisfied in accordance with the Claims Settlement Agreement, at which point any amount remaining in the Security Account shall be transferred to Iran.”¹⁷

This flexible choice of law provision, together with the broad scope of the subject matter jurisdiction of the Tribunal, has provided this body with an opportunity to give interpretations on a wide variety of issues of public international law and international commercial law. The Tribunal's contribution in this regard is expected to be of lasting value.¹⁹

3  The Tribunal's Use of the UNCITRAL Arbitration Rules

The “Tribunal Rules,” adopted provisionally on 10 March 1982 and finally on 3 May 1983, as the procedural rules of the Iran-US Claims Tribunal were based on the UNCITRAL Rules, in accordance with the above provision of the Claims Settlement Declaration. The Tribunal's practice in applying its rules represents the most extensive body of practice concerning the UNCITRAL Rules because the Tribunal's docket was so large and most importantly because the practice of the Tribunal is public.

The significance of the Tribunal's practice is heightened by the fact that the UNCITRAL Rules themselves are increasingly important. They have been adopted as the procedural rules to be applied in many different connections: for inter–state cases, arbitration between a State and a private party, and international commercial arbitration between private parties.²⁰ As to proceedings with public law elements, the UNCITRAL Rules play a role in the dispute settlement under the UN Convention on the Law of the Sea.²¹ In 1992 the Permanent Court of Arbitration adopted Optional Rules for Arbitrating Disputes Between two States, which are based on the UNCITRAL Rules.²² The Introduction to those Rules states:

Experience since 1981 suggests that the UNCITRAL Arbitration Rules provide fair and effective procedures for peaceful resolution of disputes between States concerning the interpretation, application and performance of treaties and other agreements, although they were originally designed for commercial arbitration.²³

(p. 8) Undoubtedly, it was the experience of the Iran-US Claims Tribunal with respect to all its categories of claims that was in the minds of the drafters of this passage.

As further discussed in the next section, the UNCITRAL Rules have also been regarded as useful in the investment arbitration context, as evidenced by many references to the UNCITRAL Rules in bilateral investment treaties (BIT) between states and in Chapter Eleven of the NAFTA.²⁴ In such treaties, arbitration under the UNCITRAL Rules is envisaged as the dispute settlement mechanism between a state and the investor more often than any other procedure except for arbitration under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID).²⁵ A role for the UNCITRAL Rules is also envisaged in the proceedings conducted under the auspices of the United Nations Compensation Commission established with a view to deciding claims against Iraq arising out of the Gulf War.²⁶

(p. 9) In addition, because the UNCITRAL Rules were originally intended to provide a procedural framework for “ordinary” commercial arbitration, they may serve as procedural rules in ad hoc arbitration²⁷ and as institutional rules for arbitrations conducted under the auspices of arbitral institutions. Thus, a number of arbitral institutions have adopted the UNCITRAL Rules as their institutional rules for international cases.²⁸ In addition, several well–known arbitral institutions with their own procedural rules provide services as appointing authority, as well as administrative services for arbitrations conducted under the UNCITRAL Rules.²⁹

Thus, the UNCITRAL Rules have been widely accepted as a procedural framework to be employed in international dispute settlement. Although the acceptance of the Rules, for example, as an alternative in institutionalized commercial arbitration says little about the actual use of the Rules, the various references to UNCITRAL Rules underline their increased importance–an importance that is unique in the sense that such references are not limited to commercial arbitration but extend to inter–state arbitration and arbitration between states and private investors.

Of all the above–mentioned connections, the experience of the Iran-US Claims Tribunal with its wide range of cases remains central to understanding the UNCITRAL Rules.³⁰ The Tribunal has more than any other body grappled with the application of these Rules. Moreover, the Tribunal's practice, unlike that of many other arbitral bodies, is public,³¹ thereby (p. 10) making it possible to draw lessons from that practice.³² Quickly gaining in significance is, however, the practice of investment arbitration under both Chapter Eleven of the NAFTA and under various BITs.

4  International Investment Agreements and the UNCITRAL Arbitration Rules

In addition to the Iran-US Claims Tribunal, disputes resolved under international investment treaties are another important and growing source of awards and decisions rendered under the UNCITRAL Arbitration Rules. Recent years have seen the proliferation of international investment agreements at the bilateral, regional, and multilateral level.³³ UNCTAD reports that, as of summer 2005, a total of 2,392 bilateral investment treaties and 215 preferential trade and investment agreements have been successfully negotiated.³⁴ Almost all of these agreements contain dispute settlement provisions granting a foreign investor recourse to various mechanisms of international arbitration, often including arbitration under the UNCITRAL Arbitration Rules. The NAFTA, the Energy Charter and the ASEAN Regional Investment Agreement are examples of regional and multilateral investment agreements that contain such provisions.³⁵ Similar provisions are also contained in many bilateral investment (p. 11) treaties, including those influenced by the United States Model BIT program.³⁶

UNCTAD reports that of the universe of known disputes arising under international investment treaties, so far thirty–nine have been or are being resolved under the UNCITRAL Arbitration Rules.³⁷ Of this total number of disputes, fifteen arise under Chapter Eleven of the NAFTA, while the remaining twenty–four involve arbitration under bilateral investment treaties. Due to the recent explosion of treaty–based investor–state arbitration, these figures are sure to climb–perhaps substantially–in the coming years. The awards and decisions of international tribunals in this area have already enhanced our understanding of the interpretation and application of the UNCITRAL Arbitration Rules, and will likely grow in influence with time.(p. 12)