farhad emam Farhad Emam
Publish Date : 03/18/2016

Petroleum Disputes Arbitration Center (PDAC) in Iran

EXECUTIVE SUMMARY

Key terms

Petroleum disputes, arbitration, ACIC, Arbitration Rules, NIOC

Summary

According to Shana.ir on October 15, 2014:

Managing director of the National Iranian Oil Company (NIOC) Roknoddin Javadi has said that he thinks an independent arbitration and supervisory body should be established to oversee oil industry contracts…

Javadi noted that the tasks of the arbitration body should be defined clearly, adding oil industry should help the upgrading of contractual frameworks in the country through drafting a roadmap with an unbiased supervisory body at its core.

The questions to be raised in this Legal Report are:

1) What would be the best structure for a special arbitration center for oil and gas disputes?

2) Would it be necessary for the Parliament of Iran (the Majlis) to approve the Articles of Association of PDAC?

3) Is it advisable to establish PDAC as an independent affiliate of the Ministry of Petroleum?

4) What would be the positive and negative impacts of authorizing PDAC to handle both domestic and international arbitration cases?

5) What is the level of arbitrability of oil and gas disputes?

I. What is the proper structure for PDAC?

Since we have never had an arbitration center for petroleum disputes in Iran, it would be useful to study the structure of the Energy Arbitration Court (EVAB) of Hungary in order to emulate positive aspects of it. According to the website of evab.hu:

On 15 December 2008 the Hungarian Energy Office (HEO) established the Energy Arbitration Court (“Arbitration Court”) in accordance with the provisions of Act LXXI of 1994 on Arbitration, section 169 of Act LXXXVI of 2007 on Electricity and section 131 of Act XL of 2008 on Natural Gas Supply. The Arbitration Court is a legal entity, and its registered seat is in Budapest.

The first issue to consider is that whether PDAC also needs to be established under a specific law of the Iranian Parliament (the Majlis)? To compare the PDAC with the Arbitration Center of Iran Chamber (ACIC) in this respect, it is necessary to have a look at the legal basis of the ACIC which according to the website of arbitration.ir:

Arbitration Center of Iran Chamber (ACIC) was established in 3 February 2002 by virtue of a specific piece of law called "The Law on Articles of Association of ACIC" as approved by the parliament of Iran. ACIC is organized as an affiliate to the Iran Chamber of Commerce but enjoys independent legal personality. ACIC is the first Iranian independent arbitration institution established for the purpose of settlement of both domestic and international disputes through arbitration or conciliation.

Three more questions call for answer:

1) What happens when the Majlis approves Articles of Association of an arbitration center?

2) Is it advisable to establish PDAC as an affiliate to the Ministry of Petroleum without depriving it of enjoying “independent legal personality”?

3) Would it practically be useful to establish PDAC “for the purpose of settlement of both domestic and international disputes through arbitration or conciliation”?

II. Articles of Association of the PDAC and approval of the Majlis

Would it be advisable to make PDAC as similar as possible to the ACIC by copying its Articles of Association? It may be argued that the ACIC has been a successful arbitration entity during its 12 years of activity. If we accept that success must be emulated, it would be reasonable to make PDAC look like its successful predecessor. The counterargument is that the ACIC enjoys a comprehensive jurisdiction while PDAC must just focus on petroleum law disputes. Furthermore, due to its affiliation to the Chamber of Commerce of Iran, the ACIC has tried to assimilate itself to the ICC arbitration centers around the world. PDAC has nothing to do with the ICC and therefore it is not required to look like or to function like its international sister entities.

It is difficult to tend completely towards any of the above arguments. The more reasonable option, perhaps, is to start the drafting process with the ACIC Articles of Association and then to adapt the final draft to the needs and requirements of PDAC by taking stock of the experiences of similar entities around the world.

III. PDAC as an independent affiliate of the Ministry of Petroleum

Two interrelated issues need to be discussed here:

1) What is the real meaning of “independence” in the context of an arbitration center and/or arbitration process?

2) What would be the positive or negative implications of affiliation of the PDAC to the Ministry of Petroleum?

Independence of an arbitration center can be viewed first as “financial independence”. ACIC enjoys a reasonable degree of financial independence because the arbitration fees paid by the disputants and also the incomes of the Chamber of Iran are two main sources of the ACIC financial support. Another type of independence is “administrative independence”. This term means that the arbitration center must not receive “instructions” from any entity outside itself because such instructions normally are in favor of one of the disputants and against the interests of the other one. The third type of independence is “arbitrator’s independence”. Under this title we study the freedom of the arbitrator, not the arbitration center, from any interference in the decision-making process.

Returning back to the question of affiliation of the PDAC to the Ministry of Petroleum and based on the above explanations, it can be argued that if the affiliation reduces or endangers independence of the PDAC or its arbitrators in any possible way, then it would be advisable to avoid such affiliation.

IV. PDAC handling both domestic and international disputes

The ACIC handles both the domestic and international disputes of the disputants. Has it been a successful experience as far as handling both types of the disputes is concerned? Even if it has been, would it be advisable to combine two different capacities or functions in an arbitration center whose main objective is to handle international disputes?

As to the experience of the ACIC, it is appropriate to put the functions of the ACIC in the historic functions of the Iranian dispute settlement entities, including courts and arbitration centers. Almost 80 years ago, special courts were established to handle commercial disputes. Unfortunately, the experience was not a successful one. Instead of reviewing the experience in the light of the lessons learned from the short experience of commercial courts, the idea was completely put aside. Since then until establishment of the ACIC, the commercial disputes had to be handled by public courts that had general jurisdiction to cover all possible subjects simultaneously. Later, under the instructions received from the higher levels, some braches of the general courts were determined to handle technical commercial issues but they could not be called commercial courts because they lacked the required expertise, knowledge and management.

Establishing the ACIC was a positive step forward. It seems to us that the Ministry of Petroleum has learned few lessons from this positive experience. That is why the Ministry tries to establish its own arbitration center to avoid lodging cases before the courts. For the same reason, the Ministry prefers to take utmost advantage of its own arbitration center by expanding its jurisdiction to both domestic and international disputes.

V. Arbitrability of oil and gas disputes

The last issue to be analysed in this report is that whether oil and gas disputes are arbitrable or not. In other words, the question is that whether there is a legal barrier in the laws of Iran that stops public authorities, including the Ministry of Petroleum and its subsidiary or affiliated corporations, from referring oil and gas disputes to an arbitration tribunal.

The Administrative Justice Tribunal in its decision of the case number 90/376, 954 issued in 2012 stated that according to Article 139 of the Constitution of Iran: “The settlement of claims relating to public and state property or the referral thereof to arbitration is in every case dependent on the approval of the Council of Ministers, and the Assembly must be informed of these matters. In cases where one party to the dispute is a foreigner, as well as in important cases that are purely domestic, the approval of the Majlis must also be obtained.” Therefore, if before issuing an investment license in which an arbitration clause is inserted, the Iranian public entity has not obtained approval of the Parliament of Iran, the arbitration clause would be of no legal value and effect.

Briefly put, arbitrability of oil and gas disputes depends on obtaining approval of the Majlis before the Iranian public entity puts its signature on an arbitration agreement. 

 

GOOD TO KNOW

To learn more about the issues mentioned in this Legal Report, you may read the following texts on the website of www.lawiniran.com. If after reading this Legal Report and the following texts, you still have questions that call for detailed responses, you may send them to us by clicking on “Our Services” button on the website of www.lawiniran.com and following the procedure explained there.

RELEVANT LEGAL NEWS:

Law in Iran Legal News: Iran Petroleum Contract (IPC), Wednesday, September 30, 2015.

RELEVANT LEGAL REPORT:

Law in Iran Legal Report: Petroleum Contracts in Iran, Thursday, August 6, 2015.

RELEVANT BOOKLET:

Law in Iran Booklet No. 1: Petroleum Law of Iran, Thursday, August 6, 2015.

RELEVANT BOOK:

Farhad Emam and Dr. Behrooz Akhlaghi, ICLG - The International Comparative Legal Guide to: Oil and Gas Regulation 2015 (chapter on Iran), Global Legal Group Ltd., 2015, available at the following address: http://www.iclg.co.uk/practice-areas/oil-and-gas-regulation/oil-and-gas-regulation-2015/iran.

 

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