Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran v. International Military Services Limited

At a glance

Parties

Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran (MODSAF) (appellant) v. International Military Services Limited (IMS) (respondent)

Case no.

A4/2019/2690; [2020] EWCA Civ 145

Court

England and Wales, Court of Appeal (Civil Division): Moylan LJ, Newey LJ, Males LJ

Underlying award(s)

ICC final awards of 2 May 2001 (the 7071 Award and the 9268 Award), place of arbitration The Hague; appeal from Phillips J, [2019] EWHC 1994 (Comm)

Treaty

None; Council Regulation (EU) No 267/2012 (Iran sanctions), article 38

Sector

Defence equipment supply (tanks and armoured recovery vehicles)

Outcome

Appeal dismissed (12 February 2020). Article 38 of the 2012 Regulation bars MODSAF from enforcing the interest component of the 7071 Award for the period since 24 June 2008.

Amount

Amount at stake on the appeal: over £20 million (interest since 2008). Liability under the 7071 Award: £127,651,823 plus interest from 1984 (after reduction from £140,599,570 by the Dutch Court of Appeal). Costs awards to MODSAF: US $6,255,404 (7071 Award) and US $3,127,701 (9268 Award).

The dispute

In the 1970s IMS, a company whose shares are held by the UK Ministry of Defence and Treasury, contracted to supply tanks and armoured recovery vehicles to what is now MODSAF. The contracts were terminated after the 1979 Iranian Revolution. In ICC arbitration IMS was ordered to pay MODSAF £140,599,570 with interest at LIBOR + 0.5% from 28 July 1984 until payment, later reduced to £127,651,823 by the Dutch courts. MODSAF applied in England to enforce the Awards under section 101 of the Arbitration Act 1996. IMS paid security into court. MODSAF was designated under the EU Iran sanctions regime on 24 June 2008, and the parties agree that IMS cannot lawfully pay it. The issue on appeal was whether the "no claims" provision in article 38 of Regulation 267/2012 bars MODSAF's right to interest for the sanctions period. MODSAF argued that an arbitration award is not a "contract or transaction", and that IMS's reading was disproportionate and breached the right to property and the principle of legal certainty.

Key holdings

1. The purpose of article 38 is to protect parties against claims brought against them because sanctions prevented them from performing a contract or transaction. The provision is meant to have permanent, confiscatory effect, following Shanning International v Lloyds TSB. ¶¶ 34–40
2. Contrary to Phillips J, an arbitration award is not itself a "contract or transaction" under article 1(d) of the 2012 Regulation. Article 1(c)(v) covers enforcement of awards and judgments because such a claim may form part of a claim under or in connection with a separate contract. ¶¶ 47–48
3. MODSAF's enforcement application is a claim in connection with the original 1970s supply contracts. Under article 38(2), performance counts as "affected" where the content of the claim results from the sanctions. Article 38 can apply to part of a claim: it bars only the interest increased by the sanctions, not the whole award. ¶¶ 49–53, 57
4. This reading is not disproportionate and does not unjustifiably interfere with the right to property. The difference made by article 29, which allows payment into a frozen account where one exists, has a rational basis. The Regulation is clear enough to meet the principle of legal certainty. ¶¶ 58–63
5. No reference to the CJEU: the answer was clear enough to make a reference inappropriate. ¶¶ 64–65
6. Males LJ, concurring, rejected IMS's alternative ground in its Respondent's Notice: that the contractual promise to perform the award (Article 24(2) of the 1988 ICC Rules) was the affected "contract". On that view interest would be barred on awards but not on judgments, a distinction the EU legislature cannot have intended. ¶¶ 69–81

Procedural history

1. 1990 and 1996MODSAF (1990) and IMS (1996) start ICC arbitrations.
2. 2 May 2001Final awards: the 7071 Award (IMS to pay £140,599,570 plus interest, and costs) and the 9268 Award (IMS's claim dismissed; IMS to pay costs of US $3,127,701).
3. 31 July 2001Morison J grants without-notice permission to enforce the Awards. IMS applies to set the orders aside.
4. 5 December 2002English proceedings stayed by consent pending the Dutch challenges. IMS pays £382,500,000 into court as security on 18 December 2002.
5. 21 December 2006Dutch Court of Appeal reduces liability under the 7071 Award to £127,651,823. The Supreme Court of the Netherlands dismisses the appeal on 24 April 2009.
6. 24 June 2008MODSAF is designated under the EU Iran sanctions regime.
7. 24 July 2019Phillips J holds that article 38 of the 2012 Regulation bars enforcement of the interest for the sanctions period.
8. 12 February 2020Court of Appeal dismisses MODSAF's appeal.

Tribunal, counsel and experts

For the claimant

Stephenson Harwood

For the respondent

Clifford Chance

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Keywords

• EU sanctions
• Iran
• Regulation 267/2012
• no claims provision
• article 38
• post-award interest
• enforcement
• New York Convention
• section 101 Arbitration Act 1996
• ICC arbitration
• contract or transaction
• proportionality
• right to property
• legal certainty
• Shanning
• CJEU reference
• defence contracts
• tanks

Summary generated with AI from the published documents — refer to the award for the authoritative text.