Claimant, an Iranian corporation, requests outstanding payments plus interest from Defendant, a Latin American company, alleged to be due under the agreements between them. Considering that the parties did not choose any law, the arbitral tribunal decides that the law of Claimant's state, with which the contracts are most closely connected, shall apply.

Tribunal's reasoning on Claimant's claims

'Payment of interest

[Claimant] asks for the payment of interest on all sums claimed by it in its Request for Arbitration. [Claimant] contends that an interest has been stipulated by the parties, and alternatively, that it is entitled by law to receive some interest. [Defendant] replies that it never promised any interest and that the Iranian Constitution forbids such payment.

This issue was discussed at great length by the arbitrators. There were several proposals. One of them was to consider that [Claimant] was entitled to receive interest on all sums due, from the date they were to be paid. Another was to deny [Claimant] any right to interest. A third option was situated half-way. Failing any majority, despite the efforts of the three arbitrators, the sole Chairman's opinion was to prevail, per application of the ICC Rules. This opinion is as follows.

A. Contractual sources

Contracts [1], [2] and [3] contain no clause concerning interest. [4] contains a clause about interest and [Claimant] wants to extend it to the other contracts 'by analogy'.

In reality, the only valid argument is an argument a contrario. If the parties decided not to speak of interest in their first three contracts, and to mention it in the last one, they certainly had good reason. Anyhow, it is not the result of an omission, since on 3 June 1982 they agreed to extend [3] without mentioning interest, although they had already signed [4], which provides for interest.

[Claimant], however, contends that amounts overdue by [Defendant] under [1] and [2] were then so important that they agreed in February 1982 to indemnify [Claimant] by paying interest.

According to [Claimant], this agreement was confirmed by a telex sent from [Claimant] to [Defendant] on 8 March 1982 in the following terms:

As discussed between our product marketing and export . . . and yr rep . . . in yr delegation recent visit to Tehran we hav been instructed to apply interest for late payments starting from February 1982 onwards. Applicable interest rate will be as follows: London inter bank rate . . . plus 2.5 per cent. Ple confirm.

It is not possible to deduce from that telex the existence of an agreement between the parties with regard to payment of interest. Not only does that telex prove that before February 1982, there was no contractual obligation to pay interest, but it also indicates that the parties were still negotiating this issue. Reference is simply made in the message to a discussion and the only fact that representatives of [Claimant] had been instructed did not mean that [Defendant] had accepted it.

On the contrary, it results from the last words "Please confirm" that [Claimant] waited and needed [Defendant]'s acceptance.

None of the following telexes exchanged between them until January 1983 - when they suspended their relations - establish the existence of any agreement on that point.

As a matter of fact, the telexes of . . ., all from [Claimant], only indicate that [Claimant] tried constantly to obtain satisfaction with regard to interest, but without success, although itself offering to pay interest or threatening to suspend deliveries of [product].

Thus it can be said that discussions were never closed, no agreement was ever reached, while deliveries were made, principal due amount was paid - though with delays - and documents were furnished, despite absence of interest.

B. Legal sources

Iranian law, applicable to the contracts, is to be applied also to the principle and rate of interest legally due by either party, in absence of any contractual provision.

Article 43 of the new Iranian Constitution prohibits usury or "riba", and the Council of Guardians decided on 22 August 1983 that "obtaining late payment damages in accordance with Articles 712 and 719 of the Civil Procedure Code is, in the opinion of the majority of the Council, contrary to the principles of Sharia".

[Defendant] invokes especially that decision - since the Council of Guardians has the charge of interpreting the Constitution - as well as several decisions by Iranian courts, stating that claims for damages for late payment should be rejected as being contrary to Article 43 of the Constitution.

However, [Claimant] establishes the existence and avails itself of various other decisions which accepted the principle of interest, in particular:

A decision of the Council of Guardians dated 2 March 1983, concerning a loan of Bank Markazi, declaring not contrary to the principles of Sharia the payment to said bank of interest at 12%.

A similar decision of the same Council dated 29 April 1986 regarding a 1975 loan to a French enterprise.

A decision of the Supreme Court of Iran dated 28 June 1984 concerning Bank Tose'eh Keshavadzi, obligating a borrower to pay interest to that bank, per application of Articles 221 and 228 of the Iranian Civil Code, this not being contrary to Sharia.

Indeed, [Claimant] particularly invokes these last two decisions and [Defendant] admits they are still in force.

Article 228 authorizes the judges to "convict the debtor to pay compensation for losses incurred through delay in the payment of his debt . . . subject to the terms of Article 221", and Article 221 provides such compensation if it "is specified in the contract or is understood in the contract according to customary law".

At an international level, as in this case, the words "customary law" used by Article 221 of the Civil Code include international customs and usages, which include themselves the rule pacta sunt servanda as well as the obligation to pay damages to the other party, in case of infringement, in particular for late payment.

This is why the Council of Guardians accepted in 1983 payment of interest with regard to agreements with French organisations and this is also why interest on loans granted by Iran to foreign countries is included every year in the Iranian Budget Law.

Consequently, [Claimant] may not be barred from claiming interest.

C. Starting point

The Iranian Code of Civil Procedure provides in its Article 709 the possibility of filing "through the Department of Registration of Documents or the offices of the Courts", a legal notice, which may, failing any arrangement concerning interest, make it to run, per application of Article 721 of the Code.

There was no such legal notice in the instant case, but [Claimant] considers that its repeated telexes claiming interest constituted at least injunctions making interest to run.

It is difficult to share that opinion. On the one hand, those telexes were neither judicial nor extra-judicial, neither official nor authentic acts, and those simple telegraphic messages had neither the solemnity nor the firmness of true injunctions. They may not be considered as legal notices of the clear decision of [Claimant] not to accept any more delay and to have recourse to justice.

Alternatively, supposing [Claimant] had any right to interest prior to the Request for Arbitration, [Claimant] waived that right. Indeed, each time [Claimant] asked [Defendant] to pay interest, it accepted later on, the sole payment of the principal, without requiring any interest, or it accepted continuously to deliver new cargoes and to furnish the necessary documents without any reservation of the allegedly previously due interest.

There was a large degree of tolerance between [Claimant] and [Defendant] which is easy to understand and without which their business relations would have stopped.

In such circumstances, application should be made of Article 721 of the Iranian Code of Civil Procedure, mentioned hereinabove, whose actual validity is not contested and which reads:

In cases where there has been no arrangement in respect of damages for interest, if the relief is demanded by legal notice, the damages for interest shall be calculated as from the date of service thereof, otherwise it shall be calculated as from the date of instituting the suit.

It results from these provisions that interest must run in favour of [Claimant] from . . ., date upon which the arbitration proceedings commenced.

D. Rate of interest

Interest is supposed to compensate for the loss of returns on the principal that could have been invested by the party who has been deprived of its money.

As it has been decided (Iran-United States Claims Tribunal award no. 180-64.1, Sylvana/Iran):

In the absence of a contractually stipulated rate of interest, the Tribunal will decide a rate of interest based approximately on the amount that the successful claimant would have been in a position to have earned, if it had been paid in time and thus had the funds available to invest in a form of commercial investment in common use in its country.

In the present case, taking into consideration the circumstances, it is just and appropriate to fix the rate of interest for both parties' sums overdue at 9% per annum.

However, compound interest should not be granted, since Article 713 of the Iranian Civil Code of Procedure - whose validity is not contested - provides imperatively:

Damages resulting from damages cannot be claimed.'

Tribunal's reasoning on Defendant's counterclaims

'Interest

As well as [Claimant], [Defendant] is entitled to receive interest, per application of Article 228 of the Iranian Civil Code as compensation for losses incurred through the delay in payment of [Claimant]'s debts, and the rate of interest should be the same, the starting point being the date upon which [Defendant] filed its counterclaim . . .'