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Bilateral Investment Treaty Overview — Iran

Dr Ardeshir Atai

Signed BITs

History of BIT development

A1  The first European country with which Iran signed a treaty in the field of trade and commerce was Germany.

A2  In 1929, Iran and Germany signed three separate agreements called the Treaty of Amity, Treaty of Establishment, and Treaty of Commerce, Customs, and Navigation.

A4  The above treaty contains a preamble, 14 articles, and two protocols.

A5  Subsequently, the above treaty was terminated and replaced by a new investment treaty Iran/Germany BIT 2002 (entered into force 23 June 2005) (‘Iran/Germany BIT’).

A7  The Iran-US Treaty of Amity envisaged promotion and protection of trade and investment activities and strengthening of diplomatic relations between the two countries through non-aggression.

A8  Even though the two countries have no diplomatic relations, the Iran-US Treaty of Amity has managed to survive the political tension. This is mainly due to the fact that both countries have filed multiple lawsuits against each other in the International Court of Justice (‘ICJ’) for alleged violation of its provisions.

A9  Furthermore, the Iran-US Claims Tribunal had made repeated references to the provisions of the Iran-US Treaty of Amity in its judgments.

A10  The Iran-US Claim Tribunal was established in 1980 in The Hague, under the Algiers Accord to settle disputes between the two countries following the Islamic Revolution of 1978–79.

A11  The above mentioned ICJ rulings and the awards of the Iran-US Claim Tribunals indicate that the Iran-US Treaty of Amity remains in force and can be relied by the Contracting Parties to seek redress.

A12  The wealth of literature produced by the awards of the Iran-US Claims Tribunal has contributed to the development of international investment law.

A13  ICSID and other investment tribunals have relied on the case law of the Iran-US Claims Tribunal as an authoritative statement of international law.

A15  In 2015, Iran and the P5+1 Powers—China, France, the Russian Federation, the US, and the United Kingdom, plus Germany—reached an agreement called the Joint Comprehensive Plan of Action UN Doc S/2015/544, 14 July 2015 (‘JCPA’) according to which Iran agreed to restrict its nuclear activities in return for lifting of economic, financial and petroleum sanctions. The nuclear deal was a turning point in the history of Iran-US relations.

A16  For the first time since the Islamic Revolution of 1979 that ended the diplomatic relations between the two countries following the seizure of the US embassy, high level diplomats from both sides met to negotiate a final nuclear agreement.

A17  Iran signed its second investment treaty with Egypt in 1977—Iran/Egypt BIT 1977 (not yet entered into force).

A18  However the treaty was never enforced due to the severance of diplomatic relations between the two countries after the establishment of the Islamic Republic in 1979.

A19  Iran’s economy suffered damage during the eight year war (1980–88) with neighbouring Iraq, as a result of the imposition of international sanctions, and following the destruction of oil fields and refineries that were the life line of Iran’s economy.

A20  The new administrations pursued post-war reconstruction and economic development through adopting a series of economic reform programmes.

A21  As a starting point, the Iranian government negotiated and signed bilateral and regional investment treaties with neighbouring countries to encourage and attract foreign capital and machinery required for economic development.

A22  In 1995, Iran signed bilateral investment treaties with Armenia, Belarus, and Pakistan: Iran/Armenia BIT 1995 (entered into force 26 February 1997) (‘Iran/Armenia BIT’); Iran/Belarus BIT 1995 (entered into force 23 June 2000) (‘Iran/Belarus BIT’); Iran/Pakistan BIT 1995 (entered into force 27 June 1998).

Current BIT policy and trends

B1  Since implementation of the JCPA in January 2016, the Iranian government has actively promoted foreign investment through offering incentives and privileges to international companies.

B2  Iran has embarked on negotiation of BITs with countries from the African, Asian, European, and American continents and it has signed more than fifty BITs most of which are in force.

B3  The rising number of BITs is an indication of Iran’s willingness to implement legal reform and its commitment to the rule of law on the international level.

Main features of BIT programme

C1  Generally, Iranian BITs follow the same pattern and style as the Iranian Model BIT 2001.

C2  Iranian BITs guaranteed foreign investors substantive investment protection standards in accordance with the common denominators of international investment law as follows:

  • —  Fair treatment

  • —  National treatment

  • —  Most favoured nation treatment

  • —  Monetary transfers rights

  • —  Compensation for expropriation of investments

  • —  Observation of commitments

  • —  Access to international arbitration

C3  Iranian treaties offered substantive investment protections standards at the post-establishment stage.

C4  Foreign investors must obtain an investment license from the Organization for Investment, Economic and Technical Assistant of Iran (‘OIETAI’) to be able to enjoy benefits of BIT protection.

Analysis of BIT programme

D1  The majority of Iranian BITs contained 14 articles. The exceptions to this were the Iran/Japan BIT 2016 (entered into force 23 November 2016) (‘Iran/Japan BIT’) and Iran/Slovakia BIT 2016 (entered into force 15 January 2016) (‘Iran/Slovakia BIT’), which contained 21 and 24 articles respectively.

D2  Iranian treaties usually contained the following provisions:

  • —  Preamble

  • —  Definitions

  • —  Promotion of Investments

  • —  Admission of Investments

  • —  Protection of Investments

  • —  More Favourable Treatment Provisions

  • —  Expropriation and Compensation

  • —  Losses

  • —  Repatriation and Transfers

  • —  Subrogation

  • —  Observation of Commitments

  • —  Scope of the Agreement

  • —  Investor-state Dispute Settlement

  • —  Inter-state Arbitration

  • —  Entry into Force

  • —  Duration and Termination

Preamble

D3  Almost all Iranian treaties contained a Preamble, ie: Iran/Algeria BIT 2003 (entered into force 5 December 2005) (‘Iran/Ageria BIT’); Iran/Turkey BIT 1996 (entered into force 13 April 2005) (‘Iran/Turkey BIT’).

D4  The Preamble in investment treaties sets forth the objectives of the parties in signing the treaty including, for example:

  • •  To intensify economic cooperation to the mutual benefit of both states

  • •  To create and maintain favourable conditions for investments by investor

  • •  To promote and protect investments of investors

D5  The Preamble in the Iran/Azerbaijan BIT 1996 (entered into force 20 June 2002) (‘Iran/Azerbaijan BIT’) contained a broad introductory statement including reference to the agreement of the Contracting Parties regarding fair and equitable treatment of investment.

D6  The wording of the above preamble is inserted in the provisions dealing with substantive protection standards under the investment treaties.

Definitions

D7  The definitions clause in Iranian treaties defines the terms including investment and investor—individual and corporate—, territory, and investment return.

Investment

D8  The Iranian Model BIT 2001 defined the term investment as ‘every kind of property or asset’ and provided a list of assets that qualified as investment as follows:

  1. a)  movable and immovable property as well as rights related thereto;

  2. b)  shares or any kind of participation in companies;

  3. c)  money and/or receivables;

  4. d)  industrial and intellectual property rights such as patent, utility models, industrial designs, or models, trade marks and names, know-how, and good will; and

  5. e)  rights to search for, extract, or exploit natural resources.

D9  The majority of Iranian BITs contained a broad definition of investment, to include ‘every kind of asset’ or ‘any kind of asset’ followed by a non-exhaustive list of assets categories such as movable and immovable property, shares, money, intellectual property, and rights to exploit natural resources: Iran/Armenia BIT; Iran/Austria BIT 2001 (entered into force 11 July 2004) (‘Iran/Austria BIT’); Iran/Azerbaijan BIT.

D10  Although the majority of Iranian treaties did not cover financial assets, several treaties extended the treaty protection to bonds, loans and futures, options, and derivatives: Iran/Japan BIT; Iran/Slovakia BIT.

D11  Most Iranian treaties required that the investment comprise of assets invested in accordance with the laws and regulations of the host state: Iran/Azerbaijan BIT; Iran/Russian Federation BIT 2015 (entered into force 14 November 2016) (‘Iran Russian Federation BIT’).

D12  The Iran/Slovakia BIT required the investment to comply with the following criteria:

  1. a)  the investment was made and maintained in accordance with the laws of the Host State and in good faith;

  2. b)  the investment was directly owned or directly controlled by an investor;

  3. c)  the investment had the following characteristics—not applicable in the case of research and development non-profit organizations—:

    1. i.  the commitment of capital or other resources;

    2. ii.  the expectation of regularity of profit;

    3. iii.  the assumption of risk;

    4. iv.  a reasonable duration; and

    5. v.  an effective contribution to the Host State's economy;

  4. d)  in case of enterprise and research and development non-profit organizations there was a significant physical presence of the investment in the territory of Host State; and

  5. e)  the investor performed via its investment substantial business activities in the Host State or in the case of research and development non-profit organizations, substantial research and development activity.

D13  The Iran/Slovakia BIT excluded certain types of investments including:

  1. a)  goodwill or market share;

  2. b)  portfolio investment, which was 10% or less shareholding;

  3. c)  claims to money deriving solely from commercial contracts for the sale of goods or services to or from the territory of a Contracting Party to the territory of another country, or to a state enterprise;

  4. d)  futures, swaps, forwards, options, and other derivatives;

  5. e)  assets used for non-business purposes, other than assets of research and development non-profit organizations;

  6. f)  funds; and

  7. g)  the following loans and debt securities:

    1. i.  debt securities and loans with the original maturity of less than three years;

    2. ii.  a loan to or debt security issued by a financial institution, which was not treated as regulatory capital by the Contracting Party in whose territory the financial institution is located; and

    3. iii.  the extension of credit in connection with a commercial transaction, such as trade financing.

Individual investor

D14  The Iranian Model BIT 2001 defined individual investors as natural persons who, according to the laws of either Contracting Party, were considered to be its nationals and did not have the nationality of the host Contracting Party.

D15  A group of treaties provided that the nationality of an investor must be determined in accordance with the laws of Contracting Party and exclude dual nationals: these included the Iran/Russian Federation BIT; Iran/Uzbekistan BIT 2000 (entered into force 11 July 2004) (‘Iran/Uzbekistan BIT’).

D16  Some Iranian investment treaties provided that the nationality of the investor must be determined in accordance with laws of the host state but did not explicitly preclude claims by investors who hold dual nationality of the contracting states: Iran/Bahrain BIT 2002 (entered into force 12 October 2004) (‘Iran/Bahrain BIT’); Iran/Belarus BIT; Iran/Bosnia and Herzegovina BIT 1996 (entered into force 2 June 2009) (Iran/Bosnia and Herzegovina BIT’).

D17  The Iran/Slovakia BIT extended treaty protection to both nationals and permanent residences of the home state.

Corporate investors

D18  The Iranian Model BIT 2001 defined corporate investors as legal persons of either Contracting Party who were established under the laws of that Contracting Party and whose headquarters or their real economic activities were located in the territory of that Contracting Party.

D19  A group of treaties provided that the nationality of a corporate investor was determined in accordance with the laws of the state of incorporation whose seat/headquarters and real economic activities are located in the Contracting Party: Iran/Azerbaijan BIT; Iran/Finland BIT 2002 (entered into force 25 June 2004) (‘Iran/Finland BIT’).

D20  The Iran/Switzerland BIT 1998 (entered into force 1 January 2001) (‘Iran/Switzerland BIT’) provided that the term ‘investor’ included legal entities not established under the law of a contracting state but ‘effectively controlled’ by nationals of that Contracting Party.

D21  The Iran/Sweden BIT 2005 (entered into force 1 February 2008) (‘Iran/Sweden BIT’) stated that the definition of investor included any legal person not established under the law of the Contracting Party but in which nationals of that Contracting Party have majority ownership or majority voting rights.

D22  Therefore, companies registered in third countries could qualify as investors and be covered by the treaty provided that the nationals of the relevant Contracting Party exercised effective control and owned majority shares or voting rights in the legal entity.

Returns

D23  Almost all Iranian treaties defined the term ‘return’: Iran/Georgia BIT 1995 (entered into force 22 June 2005) (‘Iran/Georgia BIT’); Iran/Germany BIT. D24 The Iranian Model BIT 2001 defined the term ‘return’ as the amounts legally yielded by an investment including profit derived from investment, dividends, royalties, and fees.

Territory

D25  Almost all Iranian investment treaties defined the term ‘territory’: Iran/Kazakhstan BIT 1996 (entered into force 3 April 1999) (‘Iran/Kazakhstan BIT’).

D26  The Iranian Model BIT 2001 defined the term ‘territory’ as areas under the sovereignty or jurisdiction of either Contracting Party as the case may be including their maritime areas.

D27  The Iran/Azerbaijan BIT does not define the term ‘territory’.

Promotion of Investments

D28  The Iranian Model BIT 2001 stated that:

  1. 1.  Either Contracting Party should encourage its nationals to invest in the territory of the other contracting party.

  2. 2.  Either Contracting Party should, within the framework of its laws and regulations, create favourable conditions for attraction of investment of nationals of the other contracting party in its territory.

D29  Most Iranian treaties contained a promotion provision: Iran/Qatar BIT 1999 (entered into force 5 November 2001) (‘Iran/Qatar BIT’); Iran/Indonesia BIT 2005 (entered into force 28 march 2009) (‘Iran/Indonesia BIT’).

Admission of Investments

D30  The Iranian Model BIT 2001 stated that:

  1. 1.  Either Contracting Party should admit investments of natural and legal persons of the other Contracting Party in its territory in accordance with its laws and regulations.

  2. 2.  When an investment is admitted, either Contracting Party should, in accordance with its laws and regulations, grant all necessary permits for the realization of such an investment.

D31  The majority of Iranian investment treaties contained admission provisions: Iran/Croatia BIT 2000 (entered into force 20 July 2005) (‘Iran/Croatia BIT’); Iran/Cyprus BIT 2009 (entered into force 4 May 2012) (‘Iran/Cyprus BIT’).

D32  In some investment treaties, the admission of investment was covered under the promotion provision: Iran/Azerbaijan BIT; Iran/Malaysia BIT 2002 (entered into force 5 August 2006) (‘Iran/Malaysia BIT’).

D33  The Iran/Sweden BIT provided that the Contracting Parties subject to their laws and regulations should at all times favourably examine request for entry, residence, and work of investors and their top managerial and technical personnel and their immediate family: Iran/Sweden BIT.

D34  The Iran/Turkey BIT provided that the Contracting Parties, in accordance with their laws and regulations, should admit investment in their territory on a basis no less favourable than that accorded in similar situations to investments of investors of any third country.

D35  The above treaty extended the most favoured nation (‘MFN’) treatment at the admission stage of investments.

Protection of Investments

D36  The Iranian Model BIT 2001, provided that investments of natural and legal persons of either Contracting Party shall receive the Contracting Party’s full legal protection and fair treatment not less favourable than that accorded to investments of its investors, or to investments of investors of any third state who a were in comparable situation.

D37  A group of Iranian investment treaties combined the fair and equitable treatment (‘FET’) with full security and protection (‘FSP’), (MFN), and national treatment (‘NT’) standards: one of these was theIran/Turkey BIT.

D38  Some investment treaties linked the FET standard with MFN and NT standards: Iran/Azerbaijan BIT; Iran/Switzerland BIT.

D39  The Iran/Russian Federation BIT combined the FET obligation with MFN and NT and limited the scope of application of the provision to the management, maintenance, enjoyment, use, or disposal of investment.

D40  The Iran/Kuwait BIT 2006 (entered into force 14 March 2011) (‘Iran/Kuwait BIT’) provided that the investments of investors of Contracting Parties should receive at all times full security and protection and FET in accordance with the accepted principles of international law.

D41  The scope of application of FET standard in the above treaty encompassed the accepted principles of international law.

D42  The Iran/Japan BIT stated that the Contracting Party should grant investors full security and protection, and FET in accordance with the customary international law of minimum standard of treatment.

D43  The scope of application of the FET standard in the above treaty did not go beyond the international minimum treatment standard under customary international law.

D44  In some investment treaties the FET standard was autonomous without any reference to other general treatment standards: the Iran/France BIT 2003 (entered into force 12 November 2004) (‘Iran/France BIT’) stated that ‘Each contracting party shall accord ‘fair and equitable treatment’ to investments made by investors of other contracting party and shall ensure that effecting this treatment is not in practice stopped by the law’.

D45  Some Iranian BITs imposed an obligation on the Contracting Parties not to impair by arbitrary/unreasonable/unjustifiable and discriminatory measures the management, maintenance, use, enjoyment, or disposal of investment: Iran/Sweden BIT; Iran/Finland BIT; Iran/Greece BIT 2002 (entered into force 9 January 2009) (‘Iran/Greece BIT’); Iran/Italy BIT 1999 (entered into force 8 August 2003) (‘Iran/Italy BIT’).

D46  The Iran/Slovakia BIT stated that the breach of the obligation of FET could be found only where a measure or series of measures constituted:

  1. a)  Denial of justice in criminal, civil or administrative proceedings;

  2. b)  Fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings;

  3. c)  Manifest arbitrariness; or

  4. d)  Targeted discrimination on the grounds of nationality.

The same provision defined ‘full protection and security’ as the Contracting Party’s obligations relating to physical security of investors and investments.

D47  Therefore, the above mentioned treaty specifically defined the scope of application of the FET standard.

More Favourable Provisions

D48  The Iranian Model BIT 2001 provided that ‘notwithstanding the terms set forth in this Agreement, more favourable provisions which have been or may be agreed upon by either of the Contracting parties with an investor of the other Contracting Party are applicable.’

D49  The majority of Iranian treaties contained more favourable provisions: Iran/Kazakhstan BIT; Iran/Turkey BIT; Iran/Morocco BIT 2001 (entered into force 31 March 2003) (‘Iran/Morocco BIT’).

D50  A group of Iranian investment treaties excluded the provision of more favourable treatment to investors resulting from membership of a free trade area, custom union, regional economic organizations, and double taxation treaties: se, for example, Iran/Japan BIT; Iran/Russian Federation BIT.

Expropriation and Compensation

D51  The Iranian Model BIT 2001 stated that ‘investments of natural and legal persons of either Contracting Party shall not be nationalized, confiscated, expropriated or subjected to similar measures by the other Contracting Party except such measures are taken for public purposes, in accordance with due process of law, in a non-discriminatory manner, and ‘effective and appropriate’ compensation is envisaged. The amount of compensation shall be paid without delay.’

D52  The majority of Iranian BITs protected investments against direct, indirect, and similar measures to expropriation: Iran/Macedonia BIT 2000 (entered into force 10 July 2013) (‘Iran/Macadonia BIT’); Iran/Tajikistan BIT 1995 (entered into force 3 November 2004).

D53  The Iran/Slovakia BIT stated that the determination of whether a measure or series of measures of the Contracting Party constituted measures having equivalent effect to expropriation or nationalization required a case by case, fact based inquiry that considers:

  1. a)  the economic impact of the measure or series of measures, although the sole fact that a measure or series of measures of the Contracting Party had an adverse effect on the economic value of an investment did not establish that such measure or series of measures constitutes measures having equivalent effect to expropriation or nationalization;

  2. b)  the extent to which the measure or series of measures interfered with distinct, reasonable investment-backed expectations arising out of the Contracting Party’s prior binding explicit written commitment directly and specifically to the investor; and

  3. c)  the character of the measure or series of measures, including their nature, purpose, duration, and rationale.

D54  Some Iranian BITs required payment of compensation without referring to any standard of compensation: Iran/China BIT 2000 (entered into force 1 July 2005) (‘Iran/China BIT’); Iran/Germany BIT.

D55  The majority of Iranian treaties provided for full compensation based on the ‘market value’: Iran/Azerbaijan BIT, ‘actual market value’; Iran/Sudan BIT 1999 (entered into force 19 October 2001), ‘fair market value’; Iran/Austria BIT and the ‘genuine market value’; and Iran/Belarus BIT of the expropriated asset.

D56  Some Iranian BITs required payment of extra financial costs incurred by the aggrieved investor as the result of delay in payment of compensation: Iran/Bahrain BIT; Iran/China BIT.

D57  The majority of Iranian treaties provided that compensation had to be paid in a freely convertible and transferable currency: Iran/Austria BIT; Iran/Italy BIT.

D58  Some investment treaties provided for the review by a judicial authority or other competent authority: Iran/Austria BIT; Iran/Italy BIT; Iran/Japan BIT; Iran/Spain BIT 2002 (entered into force 13 July 2004) (‘Iran/Spain BIT’).

D59  Some treaties provided that disputes relating to expropriation should be subject to review by due process of law: Iran/Finland BIT; Iran/Germany BIT; Iran/Sweden BIT.

Losses

D60  The Iranian Model BIT 2001 stipulated that an ‘investor of either Contracting Party whose investments suffer losses due to war, any armed conflict, revolution or similar state of emergency in the territory of the other Contracting Party shall be accorded by the other Contracting Party treatment no less favourable than that accorded to its own investors or to investors of any third country.’

D61  Almost all Iranian investment treaties guaranteed MFN and NT standards in case the investor incured damages due to armed conflict, war, civil disturbances, or state of emergency: Iran/Cyprus BIT; Iran/Indonesia BIT.

D62  The Iran/Slovakia BIT explicitly required the host government to provide investor restitution or compensation which in either case should be prompt, appropriate, and effective, and pay without undue delay.

Repatriation and Transfers

D63  The Iranian Model BIT 2001 states that

  1. 1.  Each Contracting Party shall, in accordance with its laws and regulations, permit in good faith the following transfers related to investments referred to in this Agreement to be made freely and without delay out of its territory:

    1. a)  returns,

    2. b)  proceeds from the sale and/or liquidation of all or part of an investment,

    3. c)  royalties and fees related to transfer of technology agreement,

    4. d)  sums paid pursuant to Articles 6 and/or 7 of this Agreement,

    5. e)  loan instalments related to an investment provided that they are paid out of such investment activities,

    6. f)  monthly salaries and wages received by the employees of an investor who have obtained in the territory of the host Contracting Party, the corresponding work permits related to that investments,

    7. g)  payments arising from a decision of the authority referred to in Article 12 [investor-state dispute settlement]

  2. 2.  The above transfers shall be effected in a convertible currency and at the current rate of exchange in accordance with the exchange regulations prevailing on the date of transfer.

  3. 3.  The investor and the host Contracting Party may agree otherwise on the mechanism of repatriation or transfers referred to in this Article.

D64  The majority of Iranian treaties provided a non-exhaustive illustrative list of payments that were covered under the repatriation and transfer provision: Iran/Syria BIT 1998 (entered into force 16 November 2005) (‘Iran/Syria BIT’); Iran/Lebanon BIT 1997 (entered into force 14 May 2000) (‘Iran/Lebanon BIT’).

D65  Some Iranian BITs set forth exclusions to the transfer provision including satisfaction of financial or tax liabilities: Iran/Austria BIT; Iran/Germany BIT; Iran/Japan BIT.

D66  The majority of Iranian BITs guaranteee the transfer of funds in a freely convertible currency at the official rate of exchange on the date of transfer and without undue delay: for example, Iran/Korea, Republic of BIT 1998 (entered into force 31 March 2006) (‘Iran/Korea BIT’); Iran/Turkey BIT.

Subrogation

D67  The Iranian Model BIT 2001 provided that ‘if a Contracting Party or its designated agency, within the framework of a legal system, subrogates an investor pursuant to a payment made under an insurance or guarantee agreement against non-commercial risks:

  1. a)  such subrogation shall be recognized by the other Contracting party;

  2. b)  the subrogee shall not be entitled to exercise any rights other than the rights which the investor would have been entitled to exercise;

  3. c)  disputes between the subrogee and the host Contracting Party shall be settled accordance with Article 12 [investor-state dispute settlement] of this Agreement.’

D68  The majority of Iranian treaties contained a subrogation clause: Iran/Japan BIT; Iran/Korea BIT; Iran/Indonesia BIT.

Observation of Commitments

D69  The Iranian Model BIT 2001 stated that, ‘Either Contracting Party shall guarantee the observance of the commitments it has entered into with respect to investments of natural and legal persons of the other Contracting Party.’

D70  The majority of Iranian investment treaties contained an observation of commitments provision: Iran/Germany BIT; Iran/Lebanon BIT.

D71  Some Iranian BITs did not contain observation of commitments provisions: these include Iran/Cyprus BIT; Iran/Sweden BIT; Iran/Russian Federation BIT.

Scope of Agreement

D72  The Iranian Model BIT 2001 stated that ‘this Agreement shall apply to investments approved by competent authority of the host Contracting Party. The competent authority in the Islamic Republic of Iran is the Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI) or any other authority which will succeed to it’.

D73  Almost all Iranian BITs contained a requirement for admission and approval of investment in accordance with the laws and regulations of the host state: Iran/Algeria BIT; Iran/Bangladesh BIT 2001 (entered into force 5 December 2002).

D74  The Iranian Foreign Investment Promotion and Protection Act 2002 (Iran) (‘FIPPA’) set forth the rules and regulations concerning admission and treatment of foreign investment.

D75  Therefore, foreign investors should have registered their investments with the OIETAI in order to enjoy the benefits of the BIT protection including access to international arbitration.

D76  A group of treaties protected all existing investments including investment made prior to the entry into force of the treaty: Iran/Azerbaijan BIT; Iran/Korea BIT.

D77  Some investment treaties stated that the provisions of the treaty should not apply to disputes or claims that arose prior to entry into force of the treaty: Iran/Indonesia BIT; Iran/Japan BIT.

Investor-state Dispute Settlement (‘ISDS’)

D78  Almost all Iranian investment treaties contained a negotiation and consultation clause: Iran/Bosnia and Herzegovina BIT; Iran/Morocco BIT.

D79  Most Iranian BITs envisaged a cooling-off period of six months: Iran/Armenia BIT; Iran/Belarus BIT.

D80  A group of Iranian BITs contained fork in the road provisions in which the investor had a choice of host state courts or international arbitration, but not both. Once the investor instituted court proceedings, it lost the right to initiate arbitration and vice versa: Iran/Afghanistan BIT 2006 (entered into force 2 February 2008) (‘Iran/Afghanistan BIT’); Iran/Bahrain BIT; Iran/Greece BIT.

D81  A number of treaties contained a waiver clause which permitd the investor to initially file a lawsuit against the host government in the local courts and subsequently submit the claim to arbitration provided that it forgoed the right to invoke local remedies: Iran/Tunisia BIT 2001 (entered into force 27 February 2003) (‘Iran Tunisia BIT’); Iran/Serbia BIT 2003 (entered into force 7 July 2006) (‘Iran/Serbia BIT’).

D82  The Iranian Model BIT 2001 stated that ‘either party may refer investment disputes to the domestic courts or with due regard to their laws and regulations to three-member arbitration tribunal constituted under the UNCITRAL Arbitration Rules.’

D84  The treaties that provided for ICISD arbitration as a condition required both Contracting Parties to be members of the ICSID Convention.

D85  In some BITs, the investor had the choice to refer investment disputes to ICSID, International Chamber of Commerce (‘ICC’) tribunal in Paris, or an ad hoc arbitral tribunal established under the UNCITRAL Arbitration Rules (2010): Iran/Spain BIT; Iran/Sweden BIT.

D86  In some BITs, the parties had the option of selecting alternative arbitration rules or institutions in addition to the choice of ICSID, ICC, and ad hoc UNCITRAL tribunals: Iran/Austria BIT; Iran/Greece BIT; Iran/Malaysia BIT.

D87  A number of BITs offered investors multiple dispute resolution mechanisms including the Arbitration Institution of the Stockholm’s Chamber of Commerce, ICSID, ICC, and ad hoc UNCITRAL tribunal: Iran/Cyprus BIT.

D88  A group of BITs granted investors access to the domestic court of the host state, ad hoc tribunal, and ICSID, and specifed the Arbitration Rules of UNCITRAL as the applicable rules of procedure for conducting the arbitration proceedings: Iran/Korea BIT.

D89  Some treaties simply refered to institutional arbitration under the ICSID Arbitration Rules (2006) or ad hoc tribunal under the UNCITRAL Arbitration Rules 2010: Iran/Bulgaria BIT 1998 (entered into force 24 August 2003); Iran/Japan BIT; Iran/Russian Federation BIT.

D90  A group of treaties envisage dispute resolution procedure in accordance with the UNCITRAL Arbitration Rules: Iran/Lebanon BIT; Iran/Turkey BIT; Iran/Oman BIT 2001 (entered into force 8 April 2003).

D91  In some treaties the claimant could submit a claim to arbitration in accordance with the UNCITRAL Arbitration Rules or in case of agreement of the parties to any other arbitration institution or under any arbitration rules: Iran/Slovakia BIT.

D92  Some treaties made no reference to any specific arbitration procedures; therefore, the tribunal would determine the rules of procedure for conducting arbitration proceedings: Iran/Azerbaijan BIT; Iran/China BIT; Iran/South Africa BIT 1997 (entered into force 5 March 2002).

D93  Some BITs madke explicit reference to the power of the arbitral tribunal to determine the applicable arbitration rules: Iran/Qatar BIT.

D94  A number of treaties granted investors unequivocal and unconditional consent to refer disputes to arbitration: Iran/Austria BIT; Iran/Japan BIT; Iran/Korea BIT; Iran/Switzerland BIT.

D95  A group of BITs did not contain advance consent to arbitration; therefore, both parties agreed to submit claims to international arbitration: Iran/Bosnia and Herzegovina BIT; Iran/Macedonia BIT.

D96  Some BITs provided that the submission of investment disputes to arbitration must be in accordance with the laws and regulations of the host state: Iran/Georgia BIT; Iran/Kazakhstan BIT; Iran/Turkey BIT.

D97  According to Article 139 of the Constitution of the Islamic Republic of Iran (24 October 1979) as amended 28 July 1989 (Iran) (the ‘Constitution’), arbitration of disputes relating to government and public assets, and in cases where one party to the dispute is a foreign national, is subject to the approval of the Cabinet of Ministers and the Islamic Consultative Assembly.

D98  In light of the above, in case an investor instituted arbitration proceedings against the Iranian government for alleged violation of its treaty obligations, the above constitutional requirement must be observed unless the ISDS provision in the relevant treaty contained advance consent to arbitration.

Inter-state Arbitration

D99  The Iranian Model BIT 2001 stated that ‘all disputes arising between the Contracting Parties relating to the interpretation or application of this Agreement, in the first place, be settled amicably by consultation. In case of disagreement, either Contracting Parties may, subject to its laws and regulations, while sending a notice to the other Party, refer the case to an arbitral tribunal of three members consisting of two arbitrators appointed by the Contracting Parties and an umpire.’

D100  The majority of Iranian investment treaties required the Contracting Parties to settle disputes through consultation and negotiation in the first place try: Iran/Tunisia BIT; Iran/Uzbekistan BIT.

D101  Some treaties required the Contracting Parties to attempt to resolve disputes through diplomatic channels: Iran/Croatia BIT; Iran/Indonesia BIT; Iran/Spain BIT.

D102  Most Iranian treaties contained a cooling-off period of 12 months: Iran/Georgia BIT; Iran/Kazakhstan BIT.

D103  In case of disagreement, the Contracting Parties could refer the dispute to a three-member arbitration tribunal: Iran/Afghanistan BIT; Iran/Syria BIT.

D104  A group of treaties delegated the arbitral tribunal the power to choose the rules of procedure for conducting the arbitration proceedings and the place of the arbitration: Iran/Serbia BIT; Iran/Ukraine BIT 1996 (entered into force 5 July 2003); Iran/Venezuela BIT.

D105  Some treaties provided for arbitration of inter-state disputes in accordance with the UNCITRAL Arbitration Rules: Iran/Slovakia BIT; Iran/Bosnia and Herzegovina BIT.

D106  A group of BITs designated The Hague—Netherlands—as the place of arbitration: Iran/Bosnia and Herzegovina BIT; Iran/Qatar BIT.

Entry into Force

D107  The Iranian Model BIT 2001 stated that the treaty should be approved/ratified by the competent authorities of each Contracting Party in accordance with their laws and regulations.

D108  A group of treaties required the Contracting Parties to ratify the treaty in accordance with their laws and regulations: Iran/Turkey BIT; Iran/Uzbekistan BIT.

D109  Some treaties stated that the treaty should enter into force on the date on which the exchange of instrument of ratification was completed: Iran/Azerbaijan BIT; Iran/Kazakhstan BIT.

Duration and Termination

D110  A group of treaties stated that the terms of the treaty to be valid for five years, and continue thereafter unless terminated by the Contracting Parties through submission of notice one year prior to its expiry. In case of termination, the treaty would remain applicable to investments made prior to termination for a further five year period: Iran/Turkmenistan BIT 1996 (entered into force 29 April 2004).

D111  Some treaties specifed the terms of the treaty to be 10 years, and to continue thereafter unless terminated by the Contracting Parties through submission of notice one year prior to its expiry. In case of termination, the treaty would remain applicable to investments made prior to termination for a further 10 year period: Iran/Kyrgyzstan BIT 1996 (entered into force 27 June 2005); Iran/Malaysia 2002.

D112  Some treaties stated that the term of validity shall be 15 years, and continue thereafter unless terminated by the Contracting Parties through submission of a notice one year following its expiry. In case of termination, the treaty would remain applicable to investments made prior to termination for a further 15 year period: Iran/Sweden BIT.

D113  In a group of treaties the terms of validity were set for 20 years, and would continue thereafter unless terminated by the Contracting Parties through submission of notice one year prior to its expiry. In case of termination, the treaty would remain applicable to investments made prior to termination for a further 20 year period: Iran/Kuwait BIT.

Status of BITs in national law

According to Article 77 of Constitution, ‘all treaties, conventions, and international agreements must be approved by the Iranian parliament.’

Article 9 of the Civil Code of the Islamic Republic of Iran 23 May 1928 (Iran) stipulates that ‘provisions of treaties signed between the government of Iran and other governments in accordance with the Constitution shall have the force of law.’

From the above, it could be inferred that, once the Iranian government ratifies an investment treaty, it will become fully operational by virtue of the law, the provisions of which can be evoked by claimant investors to seek remedies.

Furthermore, the Iranian courts may rely on the substantive provisions of the treaty as source of law in determining rights of the foreign investor under the applicable treaty.

Further analysis

Country contact

  • The Organization for Investment, Economic and Technical Assistance of Iran
  • (OIETAI), Ministry of Economy and Financial Affairs
  • Deputy Minister and President: Mohammad Khazaei
  • Address: Davar Street, Sour Esrafil Street, Imam Khomeini Sq, Tehran, IR Iran
  • Post Code: 11365/4618
  • Tel: (+9821)33967043 - 33967770- 39902010-39902103
  • Fax: (+9821)33967073
  • Email: m.khazaee@investiniran.ir