• Source of authority for refusing to grant interest

A dispute arose from contracts between an Iranian purchaser (Claimant) and a US supplier (Respondent). Claimant alleges that Respondent failed to fulfil its contractual obligations and claims damages plus compound interest. Respondent refutes these claims and counterclaims damages plus interest for harm it has suffered due, amongst other things, to the unjustified termination of the contracts.

'118. The Parties have amply discussed the issue of the interest to be applied to their respective claims.

[Claimant] requests the payment of interest on the sums claimed by it, especially on its claim of . . . relating to the restitution of the advance payment with respect to Contract . . .

119. Respondent replies that Iranian law, after the Islamic Revolution, does not permit the payment of interest . . . Respondent invokes in this regard Art. 43 and 49 of the Iranian Constitution of 1979 and the Opinion of the Council of Guardians of 1983 according to which "collection of damages resulting from late payment set forth in Art. 712 and 719 of the Civil Procedure Code was judged to be contrary to the principles of Sharia by the majority of the clergies of the Council of Guardians". Respondent adds that in case the Tribunal finds that interest is allowed in Iranian law, it "expects" that interest should be equally paid by Claimant in respect to the Counterclaim advanced by Respondent . . .

120. Claimant maintains its request for interest on the basis of the Legal Opinion of Prof. . . ., who argues that the payment of interest as compensation for delayed payment and arising from devaluation of a monetary unit is still allowed under Iranian law. Moreover, Claimant refers to another Opinion of the Council of Guardians of 1988, which provides that "receiving interest and damages for delay in payment from foreign governments, institutions, companies and persons, who, according to their own principles of faith, do not consider [interest] as being prohibited, is permitted under religious [Islamic] standards; therefore claiming [and] receiving such funds is not against the Constitution, and Principles 43 and 49 of the Constitution do not apply to this instance". Consequently, Claimant claims interest on the amounts due by Respondent, whereas, in its view, interest cannot be claimed on the sums eventually due by Claimant to Respondent.

121. Respondent considers that this interpretation of Iranian law is in contradiction with the fundamental principles of equality and non-discrimination contained in the Iranian 1979 Constitution, and should not be applied by this Tribunal. Respondent argues moreover that in its Award on the Preliminary Issues, the Tribunal had already decided not to apply a Council of Guardian's Opinion relating to the statute of limitations, which was similarly discriminatory against non-Iranians . . .

122. In deciding this issue, the Tribunal will refer to Iranian law, taking into account that both Parties request the application of such law to this issue, though somehow diverging on the interpretation of its principles and rules. In this regard, the Tribunal acknowledges the agreement of the Parties on the existence of a fundamental rule, established after the Islamic Revolution, prohibiting interest. This rules is embodied in Art. 43 and 49 of the 1979 Iranian Constitution, confirmed and clarified in the 1983 Opinion of the Council of Guardians.

Such basic rule is applied by the Tribunal to the amounts which the Parties will owe to each other by virtue of the present Award. However, the Tribunal does not consider itself bound by the 1988 Opinion of the Council of Guardians according to which Iranian entities are authorized to "receive interest and damages for delay in payment from foreign governments, institutions, companies and persons". The interpretation contained in the 1988 Opinion of the Council of Guardians is clearly discriminatory towards non-Iranian citizens, as they cannot claim such interest against Iranians in Iranian courts. Consequently, the Opinion appears to the Tribunal to be in contradiction with the fundamental principle of equality and non-discrimination contained in the Iranian Constitution of 1979. Art. 3 and 14 of the Constitution which embody this principle were referred to amply by the Parties in the first phase of this arbitration and by this Tribunal in its Award on the Preliminary Issues, refusing discrimination between Iranians and non-Iranians with regard to the statute of limitation. Furthermore, the 1988 Opinion appears to have been conceived in order to allow payment of interest in Iran by non-Iranians in favour of Iranians in cases in which payment of interest could be obtained abroad by these non-Iranians against Iranians. This special policy resulting in a discrimination against non-Iranians cannot be considered addressed to nor implementable by foreign and international arbitral organs and institutions, such as the present Arbitral Tribunal. Moreover, the application of the rules embodied in the 1988 Opinion, being discriminatory against foreign citizens, would be in contradiction with the general principles of international public order which this Tribunal is bound to respect and implement.'