“Unknown and the subsequent freezing by the

“Unknown to most
observers, even those interested in international dispute settlement, the Iran
US Claims Tribunal is arguably the most important dispute settlement body of
the 20th century.”

 

Critically discuss this
statement, reflecting on the factors that account for the importance of
international dispute settlement bodies.

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The means
available for the settlement of international disputes are commonly divided
into two groups, namely diplomatic means and legal means of dispute settlement.
The former consists of negotiation, mediation, inquiry and conciliation where
the parties retain control of the dispute and may accept or reject a proposed
settlement as they see fit. The latter consists of arbitration and judicial
settlement which lead to a binding decision, usually on the basis of
international law.1 The
Iran-United States Claims Tribunal (hereafter “the Tribunal”) is an arbitral
tribunal established by the Claims Settlement Declaration of the 1981 Algiers
Accords in order to resolve various claims by the nationals of one country
against the other country and also the two countries against each other. This
measure had to be taken as part of the negotiations between the United States
and Iran following the capture and detention of fifty-two diplomatic, consular
and administrative personnel of the United States Embassy in Iran on 14
November 1979 during the Iranian Revolution, and the subsequent freezing by the
United States of all Iranian assets subject to United States jurisdiction. The Iran
hostage crisis which lasted for 444 days stands as the longest
hostage crisis in recorded history.2
As can be
inferred the Tribunal arose out of an extremely sensitive and difficult
political situation, which is one of the reasons why it is so important as an
example of the peaceful settlement of disputes. This essay will first focus on some
of the more unique technical aspects of the Tribunal, and will then examine the
Tribunal’s significance in the context of the peaceful settlement of disputes and
in relation to other dispute settlement bodies.

 

First, it must be noted that while the Tribunal
has contributed greatly to the field of international arbitration in various
ways, due to the complexity
and impressive number of the cases before it, and due to its quasi-permanent
existence, it has assumed an almost court-like character.3
When it comes to the jurisdiction of the Tribunal according to article II (1)
of the Claims Settlement Declaration, the Tribunal has jurisdiction over “claims
of nationals of the United States against Iran and claims of nationals of Iran against
the United States, and any counterclaim which arises out of the same contract,
transaction or occurrence that constitutes the subject matter of that national’s
claim.” This jurisdiction is limited to claims and counterclaims that “arise
out of debts, contracts (including transactions which are the subject of letters
of credit or bank guarantees), expropriations or other measures affecting
property rights.” Therefore, the Tribunal was clearly envisioned to decide
all outstanding disputes between the nationals of one country and the
government of the other that had arisen before the Accords were reached, notably
the claims that were already pending against Iran in United States courts. The
Tribunal also was given jurisdiction, under articles II (2) and (3), to decide
certain claims arising out of contracts between the two governments and to rule
on questions regarding the interpretation or implementation of the Algerian Accords.
The Claims Settlement Declaration also provides for two explicit exceptions to
the Tribunal’s jurisdiction. First, article II (1) specifically excludes claims
arising out of the taking of the American hostages and the United States’
actions in response following that. As well as, the Claims Settlement
Declaration excludes from the Tribunal’s jurisdiction such claims arising under
contracts specifically providing for settlement of all disputes in “competent Iranian
courts.” Roger
Alford, a professor of law, referred to the Tribunal as “the darling of the
international legal community’s response to revolutions”, as he emphasised
that, without the establishment of this mechanism to address and resolve
disputes between the two countries, it is unlikely that their relations would
have normalised.4

Turning
to more specific aspects, The Claims Settlement Declaration provided that the
United Nations Commission on International Trade Arbitration Rules (hereafter
“the UNCITRAL Rules”) apply, although there were some modifications made.5
The Tribunal pioneered the use of UNCITRAL rules, which can be seen as an
important step for international commercial arbitration in and of itself as this
helped to provide a considerable body of interpretation for these rules. Another key aspect of
the Tribunal was its creation of a security fund, which avoided a commonly
perceived problem in international law, that being enforcement of arbitral
awards. While parties generally prefer to avoid the political costs of
disregarding an award, the Tribunal surmounted this in a way by ensuring that
Iran was required to replenish the fund established by the original agreement
whenever it falls below US$500 million.6
While this still requires Iran to perform an obligation to ensure that the
funds are there, the existence of such a fund clearly provides a sense of
security to the claimants before the Tribunal.

One
interesting element of the Tribunal is that while normally during arbitration
the parties are free to choose their own arbitrators, Article III (1) of the
Claims Settlement Declaration provides that the full Tribunal consists of nine
members, six having been appointed by the two governments, which can be divided
by the President into three panels consisting of three members each. Following
the modifications in the UNCITRAL rules clarification was added to the text;
‘As used in Articles 6, 7 and 8 of the UNCITRAL Rules, the terms
“party” and “parties” refer to the one or both of the two
Governments, as the case may be.’ Therefore, it becomes clear that according to
both Article III (1) and the Rules of the Tribunal, that only the governments
of the United States and Iran, and not the individual parties, are allowed
input in determining the composition of a panel. The individual parties also do
not have any input as to which of the three panels forming the Tribunal is to
hear their case. Thus, concerning the parties’ ability to choose the panel to
hear the case, parties before the Tribunal are powerless in determining the
composition of the panel and must present their case to whichever panel they
are assigned by the President.  This is
an interesting distinction when comparing the Tribunal to a mechanism such as
the International Centre for the Settlement of Investment Disputes (hereafter
“ICSID”), where the parties before an ICSID arbitration are free to choose
their own arbitrators.7
Regarding the choice of arbitrators, there have been several instances where
members have been challenged, and where incidents further illustrate the level of
animosity between the two states, such as that there was a physical attack by
two Iranian arbitrators on Judge Mangard in September 1984. Although such an
event would seemingly suggest that the Tribunal’s work would be disrupted or
possibly ended, the situation was resolved quite swiftly between the two states
and the Tribunal’s work was resumed.8

An essential
reason for the Tribunal’s importance is its contribution via its awards to international
law. First, the Tribunal has added vastly to the body of public international
law.9 It dealt with such issues as the
conditions of a nation’s right to expropriate and what actions may amount to an
expropriation, the standard of compensation for such an expropriation, the
rights and duties of nations with regard to foreign nationals, the succession
of a revolutionary government to the obligations of its predecessor, and what constitutes
a stabilization clause and quite significantly, the standing of dual nationals
to assert claims in an international tribunal against one of their countries of
nationality stating that the “dominant and effective nationality” of
the claimant will determine jurisdiction.10

Second due to its unique
character, the Tribunal has made contributions to the development of the law
concerning international commercial arbitration.11
While commercial arbitration occurs often, two of the key problems often
identified is that it is generally a confidential and private process, and that
due to the lack of continuity in personnel as matters are dealt with by ad hoc
tribunals, there is a lack of coherency in the legal principles established.
The Tribunal’s decisions, however, are public and as already mentioned, it has
a somewhat predetermined composition, so it has been able to advance helpful
decisions in cases concerning the rights and

duties of parties to
international commercial agreements. Moreover, there is ‘there is little
evidence that the precedential value of Tribunal awards has depreciated over
time, or that Tribunal awards are being displaced by the increasing stock of
ICSID awards.’12

Beyond the aforementioned elements contributing to its
significance, the sheer amount of money paid out to claimants is in itself
noteworthy, as almost all of the private United States claims submitted against
Iran at the Tribunal have been resolved and have resulted in more than $2.5
billion in awards to United States nationals and companies.13

 

A
crucial reason why the Tribunal can be said to be a success from the point of
view of an observer not concerned with its technical aspects or its
contribution to precedent in international law, is its political significance.
It was a compromise reached through much deliberation at a time when, relations
between the two countries were critically tense to the point where the Algiers
Accords were reached even though; ‘No face-to-face negotiation between
representatives of the two powers took place. The Algerians shuttled back and
forth between the American delegation installed in Algiers and the Iranian
negotiators in Tehran.’14
As Article Article 3(2) of the United Nations Charter states “All Members shall settle
their international disputes by peaceful means in such a manner that
international peace and security, and justice, are not endangered” and Article
33(1) provides that;
“The parties to any dispute, the continuance of which is likely to endanger the
maintenance of international peace and security, shall, first of all, seek a
solution by negotiation, enquiry, mediation, conciliation, arbitration,
judicial settlement, resort to regional agencies or arrangements, or other
peaceful means of their own choice.”15
Considering that the relationship between United States and Iran remained
strained even following the establishment of the Tribunal, the mere fact that
such an arrangement was reached at all could be said to be a true
accomplishment for the peaceful settlement of disputes.

It can be said that modern international arbitration
began with the three commissions that were established by the Jay Treaty
between Great Britain and the United States in 1794. Following on from that the
nineteenth century saw the creation of numerous arbitral or claims tribunals by
Governments. Governments often either submitted an existing dispute or group of
disputes to arbitration or sought to provide for arbitration in a treaty to
cover disputes that might arise in the future. During the nineteenth and
twentieth centuries, a quasi-public international process developed whereby
claims of individuals against foreign States were adjudicated. Originally the
claimants were not parties to the dispute rather the State in which they were
nationals was the party representing them, espousing their nationals’ claims. Among
Governments, there have been ad hoc arbitrations, quasi-permanent tribunals
and other forms of claims mechanisms. The number and variety of inter-governmental
dispute mechanisms has been extensive.16

Professor Richard Lillich, a notable American scholar, has referred to
the Iran-US Claims Tribunal as “the most significant arbitral body in
history.”17
It is precisely this distinction of arbitration that must be taken into account
when analysing the Tribunal. While
it is of a unique character and has been successful, the Tribunal is ultimately
an agreement reached by two countries to resolve their particular issues. When
placing it on to the greater plane of dispute settlement bodies such as the
International Court of Justice or the Permanent Court of Arbitration the
Tribunal may seem to slightly fade in comparison, as the jurisdiction of these
bodies has been accepted by a large range of countries and they have also
experienced a surge in the number of claims they handle.18
Yet looking at the historical evolution of arbitration and the greater accessibility
to various dispute settlement mechanisms, the creation of this Tribunal marks
an interesting innovation. As David Caron has noted;

 

The emergence of
specific machinery such as the Tribunal and ICSID, and the increasing incidence
of transnational litigation involving states and international commercial
arbitration with state parties – all concurrent with an arguably decreasing
need to rely on diplomatic protection – indicate that the various private,
state and interstate mechanisms for the resolution of international disputes
should not be viewed as operating in isolation, but as competing with, and
evolving in response to, one another.19

 

Thereby with the proliferation of a wide array of mechanisms
that may better address the particular needs of disputing parties, states are
more likely to resort to them, as they have done. As such, since there is no
true way to enforce the obligation to peacefully settle international disputes
this easier access to dispute settlement bodies and helpful precedents, marking
the key elements in the evolution of the peaceful dispute settlement, namely
its ‘externalization’ and its institutionalization, have been crucial in
international law.20
While originally limited to diplomatic negotiation between the parties of a
particular dispute, the trend towards systemically involving third parties and
international organizations, such as ICSID or the World Trade Organization, has
shown a greater willingness by states to quickly resolve their disputes, for
example also indicated by the resurgence of mixed claims commissions at the end
of the 20th century.21
This proliferation
in international courts and tribunals does not come without its risks, as
interrelationships between them should be explored more fully, so that, due to the
decentralized character of the international
society, a lack of coherency in precedent does not become prevalent.22
Moreover, it can be said that modern practice then indicates that in the future
there could be more forms of settlement where members of the litigating States
play an important role in the deciding body, which may increasingly show the  characteristics of an independent judicial
tribunal.23

 

While
it can be tempting to often focus on particular technical distinctions
regarding such unique institutions as the Tribunal, for example to analyze its
legal character of being either of a public or private in nature, the essential
aspect is that it can clearly be called a success. It is noteworthy, that this was the first time a Western country and a
non-Western country worked together in such an institution and despite the
difficulties the Tribunal has at times encountered as it tried to complete its
work, the organization has been somewhat of an outstanding body in the arena of
public international law, specifically international commercial law. The fact
that various international tribunals are now citing precedents established by
the Tribunal in their decisions, and the two countries have shown potential for
cooperation shows that the idea of the peaceful settlement of disputes is an
achievable one which can bring great results to the forum of international law.24

 

1 Merrills,
J.G. International dispute settlement, Cambridge
University Press; 6th edition, page 88

2 Köhler, Michael, ‘Two Nations, a Treaty, and the World
Court – An Analysis of United States-Iranian Relations under the Treaty of
Amity before the International Court of Justice’; Wisconsin
International Law Journal, 18 (Winter 2000), p. 287

3 There
have been 3844 claims filed and the Tribunal is a hybrid arbitration entity
focusing on both commercial and non-public international law issues as well as
intergovernmental disputes and other disputes that require the application of
public international law. The Tribunal only hears claims that were filed on or
before January 19, 1982.

4 Alford, Roger P., “On War as Hell”
(2002). Journal Articles. 672, p.208-209

5
Article III (2) of The Claims Settlement Declaration of Algiers Accords 20
I.L.M. 223 (1981) available at;
http://www.iusct.net/General%20Documents/2-Claims%20Settlement%20Declaration.pdf

6 Merrills, J.G. supra at page 121

7
Guilds, John C., “If It Quacks Like a Duck:” Comparing the ICJ
Chambers to International Arbitration for a Mechanism of Enforcement, 16 Md. J.
Int’l L. 43 (1992) pages 53-57

8
Brower, Charles & Brueschke Jason D., The Iran-United States Claims
Tribunal, Kluwer Law International, 1998, pages 170-171

9 Brower,
Charles N. & Davis, Mark D., The Iran-United States Claims
Tribunal After Seven Years: A Retrospective View from the Inside,
Arbitration Journal. Dec88, Vol. 43 Issue 4, p16-30, at page 29

10 Decision
in Case No. A/18 Concerning the Question of Jurisdiction over Claims of Persons
with Dual Nationality

11 Particularly relating to specific issues such as the applicability
of general commercial principles, the principles of unjust enrichment, defences
of force majeure and impossibility, and entitlement to interest (ibid page 30)

12 Gibson, Christopher S. and Drahozal, Christopher R.,
Iran-United States Claims Tribunal Precedent in Investor-State Arbitration.
Journal of International Arbitration, Vol. 23, p. 521, 2006; Suffolk University
Law School Research Paper No. 07-15, p.25

13 United States Department of State Website, Iran-U.S. Claims Tribunal,
available at https://www.state.gov/s/l/3199.htm

14
Briner, Robert, Luncheon Talk: The Iran-United States Claims Tribunal and
Disputes Involving Sovereigns, Arbitration International, Volume 18, Issue
3, 1 September 2002, Pages 299–303, at page 300

15 The Charter
of the United Nations, available at http://www.un.org/en/charter-united-nations/index.html

16 Hudson, Manley, International Tribunals: Past and Future. Washington, D.C.,
Carnegie Endowment for International Peace and Brookings Institution, Chapter 1,
also see Christopher, Warren & Mosk, Richard, The Iranian Hostage
Crisis and the Iran-U.S. Claims Tribunal: Implications for International
Dispute Resolution and Diplomacy, 7 Pepp. Disp. Resol. L.J. 165 (2007) page
170-171

17 David
D. Caron, The Nature of the Iran-United States Claims Tribunal and the Evolving
Structure of International Dispute Resolution, 84 Am. J. Int’l L. 104 (1990)
p.104

18 Guillaume, Gilbert, The Contribution Of The Permanent Court Of
Arbitration And Its International Bureau To Arbitration Between States,
available at https://pca-cpa.org/wp-content/uploads/sites/175/2016/01/Reflections-on-the-Current-Relevance-of-the-PCA-Presentation-by-H.E.-Judge-Gilbert-Guillaume.pdf last
accessed on 9/1/2018 page 2

19 Caron, David D., The Nature of the Iran-United States
Claims Tribunal and the Evolving Structure of International Dispute Resolution,
84 Am. J. Int’l L. 104 (1990) page 156

20
Pellet, Alain, Peaceful Settlement of Disputes available at Max Planck
Encyclopedia of Public International Law MPEPIL; http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-e70?rskey=Hd43iv&result=1&q=Pellet,%20%E2%80%98Peaceful%20Settlement%20of%20International%20Disputes%E2%80%99&prd=EPIL
last accessed on 8/01/2018

21 Dolzer
Rudolf, Mixed Claims Commissions available at Max Planck Encyclopedia of Public
International Law MPEPIL; http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-e64
last accessed at 10/1/2018 para.19-20

22 Alford,
Roger P., “The Proliferation of International Courts and Tribunals:
International Adjudication in Ascendance” (2000), Scholarly Works. Paper 9,
page 160

23 Dolzer supra at para. 21

24 Exemplified
by the 2015 nuclear deal (the Joint
Comprehensive Plan of Action or JCPOA) which was intended to dismantle Iran’s
nuclear weapons capabilities, with Iran complying in 2016 and the United States
subsequently lifting sanctions on Iran.