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Iran-US Claims Tribunal, Starrett Housing Corp. v. Iran, 16 IRAN-U.S. C.T.R., at 112 et seq.

Iran-US Claims Tribunal, Starrett Housing Corp. v. Iran, 16 IRAN-U.S. C.T.R., at 112 et seq.
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Table of Contents


(Case No. 24)

Chamber One: Lagergren,1 Chairman; Ameli,2 Holtzmann,3 Members

Signed 14 August 19874

AWARD NO. 314-24-1

The following is the text as issued by the Tribunal:







I. The Interlocutory Award in this Case

1. In the present Case, an Interlocutory Award was rendered5 for the purpose of deciding certain jurisdictional questions and whether114there had been a taking of the Claimants' property by the Government of the Islamic Republic of Iran ("the Government"). The Interlocutory Award describes the factual background of this Case as follows:

Starrett Housing Corporation is the parent company of a group of subsidiary corporations engaged in construction and development projects. Starrett Housing Corporation ("Starrett Housing") and two of its . . . wholly-owned subsidiaries, Starrett Systems, Inc., and Starrett Housing International, Inc., have asserted claims on their own behalf and on behalf of foreign corporations controlled by them against the Respondents for damages alleged to have been suffered due to events which occurred in the course of the development of a large housing project in Iran. (Starrett Housing and its subsidiaries are hereafter referred to collectively as "Starrett").

The Claimants' involvement in Iran began in 1974, when Starrett Housing agreed to participate in a program to construct a residential community on then-unimproved land adjacent to northwest of Tehran. The area, known as Farahzad, consisted of about 1500 hectares of land, a portion of which would be developed by Starrett Housing, and other portions by other firms.

In a series of agreements between Starrett and Bank Omran, an Iranian development bank, entered into between 2 November 1974 and 18 October 1975, Starrett undertook to purchase parcels of land at Farahzad, to develop and construct on these parcels and to market condominium apartments, i.e., individual apartment units, the title to which would be conveyed to separate purchasers.

Starrett undertook to construct a total of 6000 apartment units in three phases of which only Phase I is at issue in this case. This Phase comprised 1600 such apartment units, grouped in eight, 26-storey buildings. This apartment complex-named "Zomorod" by the Claimants - also included swimming pools, tennis courts, and other amenities.

The first of the agreements regarding this project was entered into on 2. November 1974 by Starrett Housing and Bank Omran. To this agreement was annexed the text of another more detailed agreement (the "Basic Project Agreement"). The 2 November agreement obligated Starrett Housing to create a foreign subsidiary or affiliate to execute the Basic Project Agreement, the performance of which would be guaranteed by Starrett Housing.

Accordingly, Starrett Housing created a Swiss subsidiary, Starrett, S.A., which executed the Basic Project Agreement on 18 December 1974.

In view of certain requirements for foreign nationals to secure permits to own land and after consultations with officials of Bank Omran, Starrett S.A. on 18 October 1975 assigned the Basic Project Agreement to an Iranian subsidiary, Shah Goli Apartment Company ("Shah Goli"). That corporation then executed a supplementary agreement with Bank Omran. 115Pursuant to this supplementary agreement, Shah Goli and six other Iranian companies assumed all the rights and obligations of Starrett, S.A. under the Basic Project Agreement, with certain amendments. However, as far as these seven companies were concerned only Shah Goli seems to have been involved in the Zomorod Project.6 The supplementary agreement was also accompanied by a guarantee of performance executed by Starrett Housing on 16 October 1975 according to which Starrett Housing, Shah Goli and the six other Iranian companies jointly and severally guaranteed to Bank Omran their obligations under the Basic Project Agreement.

The Basic Project Agreement defines the "Project" as referring to the entire operations, the plans, the construction and the sale of apartments, or other types of construction subject to the approval of Bank Omran, to be carried out by Starrett on the two parcels of land at Farahzad. The term "Project" is hereinafter used in the same sense.

Starrett Housing owned 79.7% of Shah Goli through Starrett Systems, Inc., and Starrett Housing International, Inc., and through the latter's wholly-owned subsidiary, Starrett Housing GmbH, a company incorporated in the Federal Republic of Germany. Of the balance 20% was owned by Iranian nationals and 0.3% by others.

Starrett Housing also organized another Iranian corporation, Starrett Construction Company Iran ("Starrett Construction"), which was formed to perform certain management functions relating to the Project. Starrett Housing owned [through its wholly-owned subsidiary N + B Unternehmensberatung GmbH, a company incorporated in the Federal Republic of Germany] 100% of Starrett Construction. Under the terms of a separate agreement Starrett Construction received 11 3/4% of the cash proceeds from the sales of the apartments as a management fee. Starrett Housing intended that a part of its profit on the Project would be received through Starrett Construction's management fee.7

2. Based on the record before it, the Tribunal concluded in the Interlocutory Award that:

It has therefore been proved in the case that at least by the end of January 1980 the Government of Iran had interfered with the Claimants' property rights in the Project to an extent that rendered these rights so useless that they must be deemed to have been taken.8





I. Introduction

260. In the Interlocutory Award, the Tribunal found that the Government took the Claimants' property rights in Shah Goli and the Project, and that it owed the Claimants compensation for this expropriation. In approaching the present Award, the Tribunal must at the outset determine (i) the appropriate standard of compensation in the light of the applicable law, and (ii) the principles that will guide 195it in deciding upon the weight that it should give to the Expert's opinions.

1. The standard of compensation

261. As to the first question, the Tribunal finds that, pursuant to the Treaty of Amity between Iran and the United States,28 the Claimants are entitled to receive compensation which shall be "just" and "shall represent the full equivalent of the property taken"29 as of the date of taking. As the Tribunal has previously held, the Treaty is "clearly applicable" and thus a "relevant source of law on which the Tribunal is justified in drawing". Phelps Dodge Corp. v. Islamic Republic of Iran, Award No. 217-99-2, paras. 27-2830 (19 March 1986). See also Amoco International Finance Corporation v. Government of the Islamic Republic of Iran, Partial Award No. 310-56-3, paras. 88-10331 (14 July 1987).

262. In reaching the conclusion that the Treaty of Amity governs in this Case, the Tribunal is mindful that part of the property taken was owned by Starrett Housing GmbH, a company incorporated in the Federal Republic of Germany, which is a wholly-owned subsidiary of the Claimant Starrett Housing International, Inc., incorporated in the United States. Further, with respect to the claim relating to the Starrett Construction management fee, the Tribunal notes that Starrett Construction was a wholly-owned subsidiary of N&B Unternehmensberatung; a company incorporated in the Federal Republic of Germany, which was in turn wholly-owned by Starrett Housing International, Inc. The Treaty of Amity, by its express terms, governs not only "property" of nationals, i.e. property owned directly, but also "interests in property",32 a phrase sufficiently broad to include 196indirect ownership of property rights held through a subsidiary that is not a United States national.33

2. The weight to be given by the Tribunal to the Expert's opinions

263. A second question that the Tribunal must consider at this stage of the proceedings is the weight that it should give to the Expert's opinions in determining the value of the property that was taken.

264. Faced with complex accounting problems, the Tribunal was in this Case impelled by the same considerations that motivated the International Court of justice to appoint experts in the Corfu Channel Case: "to obtain any technical information that might guide it in the search for the truth".34 While in some expropriation cases tribunals do not consider it necessary to appoint valuation experts because there is sufficiently clear evidence on which to base a decision on compensation, there is also a long history of international tribunals appointing experts where they believe that advice on technical matters is needed. Thus, the Tribunal in this Case exercised its discretion in the same manner as the Permanent Court of International justice had done in the Chorzow Factory Case when it designated experts to ascertain "the estimated value of the undertaking . . . at the moment of taking possession by the Polish Government".35 Such use of experts is foreseen by Article 27, paragraph I, of the Tribunal Rules which empowers the Tribunal to "appoint one or more experts to report to it, in writing, on specific issues to be determined by the tribunal".36

265. In determining the weight to be given to the Expert's Report, the Tribunal must first consider his qualifications. It is noteworthy that no issue arose between the Parties on this point. While the Respondents contested a number of aspects of the Expert's investigation and Report, none of the Parties questioned his 197qualifications. The Tribunal, which had reviewed the Expert's background and experience before appointing him, finds that its initial impressions have been fully confirmed by the high professional quality and impartiality evident in his work.

266. No matter how well qualified an expert may be, however, it is fundamental that an arbitral tribunal cannot delegate to him the duty of deciding the case. Rather, the Expert's Report is simply one element to be considered and weighed by the Tribunal along with all of the other circumstances of the Case.37

267. The Tribunal has considered a number of factors in determining the weight to be given to the Report. First, the Tribunal has observed the painstaking procedures that the Expert followed. The Tribunal finds that the Expert's procedures were, on the whole, meticulous and comprehensive. These qualities have led to the substantial value of the Report. Although the specific steps that the Expert took are described in some detail in paras. 6-10, supra, it is worthwhile to recall his overall approach as described in his own words. He explained that his basic principle was to give "the Parties an opportunity to put forward their opinions within all crucial sectors of the valuation". To accomplish this, at various stages "of the valuation process both Parties have been given a fair opportunity of presenting their views". The Expert affirmed that he "has given careful consideration" to the suggestions of the Parties and has reflected in his Report those suggestions that he "found to be motivated on the basis of relevant and factual arguments". Where his opinions differed from the views of a Party he "sought to account for the Parties' opinions and motivations therefore as correctly as possible". He noted, particularly, that both Parties had access to "qualified advisors of different disciplines and fields of expertise" and that he "examined" their views and "attempted to clarify the reasons for the identified differences of opinion". He submitted a draft of his Report to the Parties and received and reflected their comments before submitting his Report to the Tribunal. The Tribunal finds that the written evidence in the record confirms that the Expert fully carried out the procedures that he described.38


268. The substantial weight that the Tribunal gives to the Report is also influenced by the thoroughness of the process by which the Expert sought to verify all information presented to him by the Parties. Members of his staff visited Tehran twice, and he and his staff visited New York once for inspections and auditing of records, a process which representatives of both Parties were invited to observe. He reviewed a huge amount of material which the Parties submitted to him, and held three meetings with them. The only data submitted to him by a Party that he did not consider is discussed above at paras. 139 and 249, and the Tribunal finds that he acted correctly in rejecting that material. Additionally, the Expert consulted other experts in specialized fields and carefully identified and reflected their views in his Report.

269. The material submitted by the Expert to the Tribunal is literally "weighty". It consists of 12 volumes, together with a descriptive transmittal letter summarizing his views. In this massive submission, the Expert set forth not only his conclusions but also cited the evidentiary support for them and described the positions of the Parties on each significant issue. He included full texts or quotations of relevant portions of the documents upon which he relied.39 His credibility is enhanced by his candor. Thus, where he drew inferences or made subjective judgments, he pointed them out and explained his reasons. Where he considered that he may have made a judicial interpretation, he identified the point and referred it to the Tribunal for final decision. Where he considered a matter beyond his terms of reference, he specifically called attention to it.

270. Moreover, the Tribunal had the opportunity to question the Expert and receive clarifications from him at the Hearing held pursuant to Article 27, paragraph 4, of the Tribunal Rules.40 At the same time, the Tribunal was able to test the Expert's views in the light of testimony of expert witnesses presented by the Respondents on various points at issue.

271. In considering its function vis-a-vis the Expert, the Tribunal 199has followed the same principles as were enunciated by the Franco-Italian Conciliation Commission:

It is certain that the opinion of the expert does not bind the Commission which must decide according to its own conviction. But taking account of the facts and evaluation techniques, there is no reason for the court not adopting as its own the conclusion of the expert, unless his argumentation is in contradiction with the facts of record, with the legal provisions or the rules of logic.

Heretiers de Sar Mgr. le Duc de Guise Case, Franco-Italian Conciliation Comm., Dec. No. 162 (20 November 1953), 13 R. Int'1 Arb. Awards 162, 168 (1963) (translation). See also I.V.E.M. Claim, Franco-Italian Conciliation Comm., 1955 Int'1 L. Rep. 875.

272. Commenting on this approach, the author of a leading treatise states:

It is submitted that these principles, so clearly expressed by the [Franco-Italian] Commission, are susceptible of application by any international tribunal, and further that it is desirable that they should be so applied. This is not to suggest that in practice they are not applied; indeed, the cases examined in this study indicate that this awareness of the relative functions of the experts and the court is common to all international tribunals. The decision [of the Franco-Italian Commission] is remarkable rather for the explicit statement of these principles than for any uniqueness in their application.

G. White, The Use of Experts by International Tribunals 143 (1965).

273. The Tribunal has followed these recognized principles in considering the Expert's Report. Thus, the Tribunal adopts as its own the conclusions of the Expert on matters within his area of expertise when it is satisfied that sufficient reasons have not been shown that the Expert's view is contrary to the evidence, the governing law, or common sense. On the other hand, the Tribunal does not hesitate to substitute its own judgment of what is reasonable with respect to matters that do not require expertise as to accounting or valuation methodology.

274. In this connection, it will be recalled that the Expert's valuation method based on the concept of fair market value requires, inter alia, determinations as to various forecasts that a hypothetical reasonable businessman who was a willing buyer of the Project would have made on 31 January 1980. See supra paras. 18, 27. By definition, 200such assessments by a reasonable businessman are the conclusions of a layman, albeit one who is likely to have had the advice of a technical expert - a position analogous to that of the Tribunal itself. Thus, for example, the hypothetical reasonable businessman would have to make forecasts on such matters as (i) how many apartments and parking spaces would be likely to be available for sale or resale, and (ii) whether it would, as a practical business matter, be possible in all sales to collect the additional amount provided by the escalation clause of the Apartment Purchase Agreements, as well as various utility charges. The answers to such questions are not to be found solely by accounting analysis or by the application of technical valuation methods. As to such matters, the Tribunal, like the hypothetical willing buyer, must make a reasonable forecast of future events. Judgments on such matters may well differ; and in this Case the Tribunal's judgment differs to some extent from that of the Expert on certain subjects. As more fully explained below, the Tribunal makes its own judgment of how a reasonable businessman would be likely to evaluate these matters, and this requires a downward adjustment of Rials 350 million in the Expert's assessment of the gross profit of Shah Goli. See infra paras. 337-42. Also, the Tribunal on the basis of its analysis of the evidence, makes certain adjustments with respect to particular loans and other matters. See infra paras. 337, 356-57.

275. In other respects, the Tribunal largely adopts the views of the Expert. In accepting various conclusions of the Expert, the Tribunal also approves the procedures he followed in reaching his conclusions, including his decisions not to accept certain documents. Further, the Tribunal notes that in reaching certain conclusions the Expert had to determine questions of a legal nature in order to proceed with the valuation. To the extent that the Tribunal approves conclusions of the Expert involving legal issues, it also approves, for the purpose of this Case, his provisional determinations of such legal issues.

3. The decisions to be made by the Tribunal

276. In determining the value of the property taken, the Tribunal will consider the different elements of the valuation. as defined by the Expert and described above in Section A. The Tribunal will discuss these elements in the same logical order in which they were addressed by the Expert and as they are summarized above, and assess their impact on the valuation. The Tribunal will then take up the special issues related to Starrett Construction, the loans, the counterclaims, and interest.


II. Decisions on the Expert's Valuation Concept and Methods

277. The Tribunal agrees with the Expert's valuation concept, . methods and approach. He set out to determine the fair market value of Shah Goli at the date of taking and to provide data that would be helpful to the Tribunal in determining the compensation to be awarded in this Case. He correctly defined fair market value as the price that a willing buyer would pay to a willing seller in circumstances in which each had good information, each desired to maximize his financial gain, and neither was under duress or threat. He appropriately assumed that the willing buyer was a reasonable businessman. In reaching its conclusion to adopt the Expert's approach in this respect, the Tribunal notes that neither Party was opposed to it. Indeed, the Respondent's expert, Coopers & Lybrand, also based its conclusions on the concept of the price that a reasonable businessman would pay for the Project on 31 January 1980.

278. For purposes of the valuation, the Expert assumed that the willing buyer would be an Iranian national. By doing so, the Expert eliminated conjecture as to varying degrees of risk that might be anticipated by buyers of different nationalities, which under conditions prevailing in Iran might vary depending on the nationality of the buyer. The Tribunal considers that this assumption is reasonable, and in making this finding notes that at the Hearing Mr. Chilvers, an expert witness presented by the Respondents, generally concurred with the Expert on this point.

279. As noted, the Expert made his valuation in three stages. First, he determined Shah Goli's adjusted book value on the date of taking. Then, recognizing that this book value does not represent fair market value, he determined the price a reasonable buyer would pay for the Project. To do this the Expert employed the DCF method, a well-known valuation technique based on discounted cash flow. See supra para. 32. The use of the DCF method had been foreseen in the Interlocutory Award, in which the Tribunal instructed the Expert to give his opinion "considering as he deems appropriate the discounted cash flow method of valuation".41 Finally, the Expert determined the Claimants' share of Shah Goli as of the valuation date.

280. The steps that the Expert took at each stage of his valuation are described in paras. 31-33, supra. The Tribunal finds that the methods employed by the Expert and the stages by which he made his valuation were logical and appropriate. In reaching this conclusion, 202the Tribunal notes that the Respondents did not in principle oppose the Expert's concept of fair market value or his approach to the stages of the valuation, although they disagreed with the way the Expert applied his method and, consequently, with the result he reached.

281. In a portion of the Report that the Respondents contest, the Expert referred to a number of governmental measures that, in his view, "possibly had a negative influence on Shah Goli". According to his valuation premises, the effects of such measures should not be taken into account in determining the value of property that has been taken. See supra paras. 22-25. The Tribunal considers it highly problematical that all the measures the Expert listed fall within the category of acts of taking or threats of taking, the effects of which must, under international law, be excluded in determining compensation for expropriated property. This issue is relevant in this Case, however, only with respect to the determination of future prices for apartments which were or became available for sale after 31 January 1980. As explained below, the Tribunal decides the question of future prices on the basis of the Expert's "main line" approach in which he, in essence, eliminated the effects of certain exceptional circumstances that he saw as temporarily depressing apartment prices, rather than upon the legal character of particular governmental acts that may have contributed to creating those circumstances. See infra paras. 313-19. Therefore, the Tribunal does not need to reach a decision concerning the legal character of any of the governmental acts referred to in the Report.






A. The Rate of Interest

The Final Award, without any explanation, finds it "reasonable" to grant interest at the rate of 8.5 percent. That is far below the rate needed to provide the "just compensation" mandated by the Treaty of Amity. In this Case, where the Respondents well knew that Starrett was borrowing from its banks in order to secure funds that were in turn lent to Shah Goli for the purposes of the Project, the proper rate would be equal to the rates Starrett was actually required to pay for the money. Starrett provided detailed, precise, and uncontroverted evidence from their banks showing the rates of interest charged by the banks. At all times the rates Starrett paid were above 8.5 percent, and, indeed, above the banks' prime lending rates. The Respondents' wrongful failure to compensate Starrett for the property rights taken from it has resulted in Starrett having to continue to pay such rates to its banks ever since the date of expropriation, for it has had no alternative except to continue to borrow these amounts from its banks during the more than seven long years since the expropriation. Under these circumstances, only an award of interest at the same rates Starrett had to pay its banks would make it whole for the damages it has suffered.

If the Tribunal does not award Starrett interest at the rates it paid its banks, then at the very least, it should award interest in accordance with the approach developed and applied by this Chamber since its award in Sylvania Technical Systems, Inc. v. Islamic Republic of Iran, Award No. 180-64-116 (27 June 1985). In that Case, the Tribunal stated:

This Chamber finds it in the interest of justice and fairness to develop and apply a consistent approach to the awarding of interest in cases before it . . . . In the absence of a contractually stipulated rate of interest, the Tribunal will derive a rate of interest based approximately on the amount


that the successful Claimant would have been paid in time and thus had the funds available to invest in a form of commercial investment in common use in its own country. Six-month certificates of deposit in the United States are such a form of interest for which average interest rates are available from an authoritative official source.

The Sylvania formula results in an interest rate of approximately 10.5 percent in this Case - and if it were applied the award would be more than $5 million greater than the Tribunal now grants.

The preponderant practice of this Tribunal when awarding interest in expropriation cases is to set a rate substantially greater than the 8.5 percent awarded here. The roster of cases is long and their message is clear: Dames and Moore17 - 10 percent; Tippetts, Abbett, McCarthy and Stratton18 - 12 percent; Phelps Dodge19 - 11.25 percent; Payne20 - 11.25 percent; American Bell International21 - 10 percent; Oil Field of Texas22 - 11.25 percent; Computer Sciences23 - 11.5 percent; Sola Tiles24 - 10.75 percent and Sedco25 - 10 percent.

There are only two exceptions to the Tribunals firmly established practice of granting more than 8.5 percent when awarding interest in expropriation cases. In one of the Tribunals earliest expropriation cases American International Group,26 decided in 1983, Chamber 3 awarded only 8.5 percent;27 but in every subsequent expropriation 251case Chamber 3, under two different chairmen, has awarded a higher rate of interest. American International Group involved the nationalization of an insurance company. It is, therefore, perhaps understandable that Chamber One, in the only other insurance case, INA,28 awarded 8.5 percent explaining that it did so because for consistency it "adopts the rate used by Chamber Three in a claim involving a parallel case of nationalization of an insurance company pursuant to the same law".29 In all seven expropriation cases since INA, however, every Chamber of the Tribunal has awarded more than 8.5 percent interest.

I find it hard to justify that Starrett should receive substantially less in interest than it would have received had it been awarded a rate of interest as high as in all other expropriation claims, except the two insurance nationalization cases. I find it particularly difficult to understand this conclusion because the Final Award nowhere refers to any reason for this result.

The Tribunal early in its history recognized that it should avoid inconsistent awards. Thus, Presidential Order No. 1, issued on 19 October 1981, provided that:

A Chamber may relinquish jurisdiction to the [Full] Tribunal at any time prior to the final award when the resolution of an issue might result in inconsistent decisions or awards by the Tribunal.

It is true that this provision is not mandatory on a Chamber. But I regret that in this Case, where the interest awarded is so grossly inconsistent with the rates awarded repeatedly in expropriation cases throughout the Tribunal, the Chamber has not exercised restraint and relinquished the matter to the Full Tribunal. I would prefer that we issue a Partial Award now including interest at 8.5 percent and relinquish to the Full Tribunal the question of whether additional interest should be granted to avoid inconsistent awards.

B. The Reasons for Awarding Compound Interest in this Case

I also believe that in the circumstances of this Case interest should be awarded on a compound basis. I reach this conclusion because that 252is necessary to make Starrett whole for the actual damage it suffered due to the Respondents' expropriation of its property rights. Awarding compound interest would also conform to the methods used by the Expert in his valuation, and would be consistent with international law.

To begin with, as noted above, only an award of interest on a compound basis can adequately compensate Starrett for the damages it suffered due to the Respondents' wrongful taking. Before the date of taking, the Respondents were fully aware that Starrett was borrowing money from its U.S. banks on a compound basis in order to finance the Project and provide loans to Shah Goli. Starrett, like most contractors, operated on the basis of back-to-back loans and a substantial line of credit with their banks. It is normal commercial practice that banks customarily charge compound interest to finance such credit facilities. On the date of taking, Starrett's outstanding indebtedness (including accrued interest) greatly exceeded the $41 million they eventually sought from the Respondents on the basis of the Expert's Report. Because it was deprived of the compensation it was entitled to from the Respondents, Starrett was forced to continue to borrow from its banks. In this respect, Starrett offered uncontested evidence that these banks charged it interest on a compound basis. Consequently, each dollar of actual interest costs in turn generated additional interest costs, and this compounding effect has burdened Starrett for many years with a heavy and growing indebtedness.

In this Case, the Tribunal is faced with the situation where the Respondents' wrongful acts have led to the direct and foreseeable consequence of forcing Starrett to borrow money on a compound basis. This fact is not disputed, nor is it disputed that the Respondents were completely aware of the serious situation in which they had placed Starrett. Thus, to make Starrett whole and to erase the consequences of the Respondents' wrongful acts, I would award Starrett interest on a compound basis.

An award of compound interest is also in conformity with the Expert's valuation methods. The Expert in several crucial respects employed compound interest in his valuation of the Project. Most significantly, the Expert determined the Project's fair market value using a discount rate (i.e., 28 percent) on a monthly compound basis, thereby reducing the value of the Project in the Starrett's hands. In addition, the Expert credited loans from Bank Omran to Shah Goli with compound interest, thereby increasing the liabilities of Shah Goli. The Expert also made his "alternative computation of interest" 253on loans from Starrett to Shah Goli on a compound basis. Thus, the Expert recognized, and adjusted his valuation in accordance with, the modern economic reality of compound interest. The Tribunal's failure to award Starrett interest on a compound basis therefore has the effect of reducing even further the compensation it has found Starrett entitled to on 31 January 1980.

Finally, an award of compound interest in this Case would be consistent with international law. The Tribunal has not yet squarely addressed the issue of compound interest. In R.J. Reynolds Tobacco Co. v. Government of the Islamic Republic of Iran, Award No. 145-35-3, p. 1930 (6 Aug. 1984), Chamber Three of the Tribunal found that there were no "special reasons" for departing from international precedents "which normally do not allow the awarding of compound interest". The Tribunal relied on a 1943 treatise31 for the proposition that the rule against compound interest was "settled". Whether or not such a rule existed before 1943, it is no longer appropriate or justifiable.

At the Hearing in this Case, Starrett's attorney read into the record a legal opinion of the noted scholar Professor F.H. Mann on the question of Starrett's entitlement to compound interest. Professor Mann, noting the precedents disallowing awards of compound interest, commented that the international law relating to compound interest:

has never been fully analyzed and is in fact far from clear. This is due to the relatively small number of cases in which the point was considered, to the fact that most of the cases . . . were decided many years ago when economic conditions and commercial practices were less developed, and to the absence of profound argument and discussion.

As Professor Mann recognized, times change and the law should not be oblivious to such change. Significantly, Professor Mann's study found no statement in any source of international law prohibiting awards of compound interest as such. To the contrary, some cases, most notably the recent Aminoil arbitration,32 have awarded compound interest. In Professor Mann's opinion, municipal and international law evidence a trend to award compound interest in circumstances, 254such as exist in this Case, where the injured party has incurred compound interest charges as the direct result of the wrongful acts of the other party. He stated that:

If, as the claimants allege, the non-payment of the compensation on the 31st January 1980 involved them in the payment of interest to banks, then it is a well known fact that it is their universal practice to charge compound interest with monthly or half-yearly, or possibly but rarely, yearly rates. Such liability would be a loss directly flowing from the non-payment of compensation. . . . [I]nterest and compound interest paid or not earned was a direct loss or expense to which the victim . . . [is] entitled.33

Modern economic reality, as well as equity, demand that injured parties who have themselves suffered actual compound interest charges be compensated on a compound basis in order to be made whole. International tribunals and respected commentators have come to recognize this principle; it is unfortunate that the Final Award does not.


1The following note, signed by Mr. Lagergren and Mr. Holtzmann, is appended to the Award: "Having fully participated in the deliberation of the Case and in the drafting of the Final Award, and having been informed of the time when the Final Award would be signed at the Tribunal, Mr. Ameli failed to sign".
2Statement of Ameli, see p. 255 below.
3Additional Statement by Judge Holtzmann concerning Judge Ameli's Refusal to Sign the Final Award, see p. 237 below. Concurring Opinion, see p. 237 below.
4Filed 14 August 1987.
5Interlocutory Award No. ITL 32-24-1 [4 IRAN-U.S. C.T.R. 122] of 19 December 1983 ("the Interlocutory Award").
6The Tribunal notes that the six other Iranian companies, which together with Shah Goli entered into the supplementary agreement with Bank Omran, have not been taken into consideration by the Expert in the valuation proceedings and are irrelevant to the present Case.
7Interlocutory Award, p. 3-5.
8Interlocutory Award, p. 53.
28Treaty of Amity, Economic Relations and Consular Rights between the United States of America and Iran, signed 15 August 1955, entered into force 16 June 1957, 284 U.N.T.S. 93.
29Id. art. IV, para. 2. Article IV, paragraph 2, of the Treaty provides: Property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party, in no case less than that required by international law. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.
3010 IRAN-U.S. C.T.R. 121 at 131.
3115 IRAN-U.S. C.T.R. 189 at 214.
32I.d. [See note 29 above.]
33Accord Amoco International Finance Corporation v. Government of the Islamic Republic of Iran, Partial Award No. 310-56-3, paras. 110-11 [15 IRAN-U.S. C.T.R. 189 at 221] (14 July 1987).
34Corfu Channel Case (U.K. v. Alb.), 1949 I.C.J. 4, 20.
35Chorzow Factory Case (Ger. v. Pol.), 1927 P.C.I.J. ser. A, No. 7 at 44 (Judgment of 25 May 1926).
36In accordance with this authority, other Chambers of this Tribunal also have appointed experts to report on technical questions. See, e.g., Harza v. Islamic Republic of Iran, Award No. 232-97-2 [11 IRAN-U.S. C.T.R. 76] (2 May 1986); Chas T. Main International, Inc. v. Khuzestan Water and Power Authority, Award No. 239-120-2 [11 IRAN-U.S. C.T.R. 259] (20 June 1986). See also Straus, The Practice of the Iran-U.S. Claims Tribunal in Receiving Evidence from Parties and from Experts, 3 J. Int'1 Arb. 57, 63-69 (1986).
37Article 26, paragraph 6, of the Tribunal Rules (taken verbatim from the UNCITRAL Arbitration Rules) provides that: The arbitral tribunal shall determine the admissibility, relevance, materiality and weight of the evidence offered. (emphasis added)
38Similar procedures in which an expert made "the results of his researches [ ] available in full both to the tribunal and to the parties, so that they have the opportunity to suggest differing inferences and conclusions from the data . . . [were] followed in the Corfu Channel Case . . . ". G. White, The Use of Experts by International Tribunals 179 (1965).
39The Report in this respect meets the standard enunciated by the International Court of justice in the Corfu Channel Case: The Experts shall not limit themselves to stating their findings; they will also, as far as possible, give the reasons for these findings in order to make their true significance apparent to the Court. Corfu Channel Case (U.K. v. Alb.), 1947-48 I.C.J. 124, 126-27 (Order of 17 December 1948).
40See supra para. 11 n.13.
41Interlocutory Award, p. 56.
168 IRAN-U.S. C.T.R. 298.
17Dames & Moore v. Islamic Republic of Iran, Award No. 97-54-3 (19 Dec. 1983), reprinted in 4 IRAN-U.S. C.T.R. 212.
18Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, Award No. 141-7-2 [6 IRAN-U.S. C.T.R. 219] (29 June 1984).
19Phelps Dodge Corp. v. Islamic Republic of Iran, Award No. 217-99-2 [10 IRAN-U.S. C.T.R: 121] (15 July 1986).
20Payne v. Government of Islamic Republic of Iran, Award No. 245-335-2 [12 IRAN-U.S. C.T.R. 3] (8 Aug. 1986).
21American Bell International, Inc. v. Islamic Republic of Iran, Award No. 255-48-3 [12 IRAN-U.S. C.T.R. 170] (19 Sept. 1986).
22Oil Field of Texas, Inc. v. Government of Islamic Republic of Iran, Award No. 258-43-1 [12 IRAN-U.S. C.T.R. 308] (8 Oct. 1986).
23Computer Sciences Corp. v. Government of Islamic Republic of Iran, Award No. 221-65-1 [10 IRAN-U.S. C.T.R. 269] (16 Apr. 1986).
24Sola Tiles, Inc. v. Government of Islamic Republic of Iran, Award No. 298-317-1 [14 IRAN-U.S. C.T.R. 223] (22 Apr. 1987).
25Sedco, Inc. v. National Iranian Oil Company, Award No. 309-129-3 [15 IRAN-U.S. C.T.R. 23] (7 July 1987).
26American International Group, Inc. v. Islamic Republic of Iran, Award No. 93-2-3 (19 Dec. 1983), reprinted in 4 IRAN-U.S. C.T.R. 96.
27Judge Mosk, however, in his Concurring Opinion objected that "interest awarded should be based on prevailing interest rates" and noted that he saw "no reason why the rate of interest in this case [8.5%] should be less than awarded by the Tribunal at the same time in another expropriation claim [10 percent in Dames & Moore, supra]". Concurring Opinion of Richard M. Mosk, American International Group, supra, at 18-19.
28INA Corp. v. Government of Islamic Republic of Iran, Award No. 184-161-1 [8 IRAN-U.S. C.T.R. 373] (13 Aug. 1985).
29Id. at 16 n.9 [n.13]. But see Concurring Opinion of Judge Holtzmann, INA, supra, at 17 (objecting that a "rate of only 8.5 percent is unreasonably low and ignores the policy . . . stated in our Award in Sylvania".). Also, American International Group gave no particular reason for the choice of 8.5 percent. Id. at 18.
307 IRAN-U.S. C.T.R. 181 at 191.
31M. Whiteman, 3 Damages in International Law 1997 (1943).
32Kuwait v. American Independent Oil Co. (Aminoil), reprinted in 21 Int'1 Leg. Mats. 976, 1042 (1982) (Reuter, Sultan, Fitzmaurice, arbs.).
33See also Mann, On Interest, Compound Interest, and Damages, 101 L.Q. Rev. 30 (1985); Wetter, Interest as an Element of Damages in the Arbitral Process, Int'l Fin. L. Rev., Dec. 1986, at 20.

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