Iran (Islamic Republic of) and Others v Socit Eurodif

JurisdictionFrance
CourtCourt of Cassation (France)
France, Court of Cassation (Civil Chamber).

(Ponsard, President and Rapporteur; Dontenwille, Advocate General)

Islamic Republic of Iran and Others
and
Socit Eurodif and Others

State immunity Attachment and execution Debt owed to foreign State France-Iran agreements for construction and financing of enriched uranium plant and nuclear reactors Loans made to French Atomic Energy Commission and other undertakings by Iran Repudiation of agreements by Iran Claim for compensation by French companies involved Whether companies entitled to attach funds representing loan repayments due to Iran Whether such funds to be regarded as allocated for commercial activity governed by private law Absence of express contractual stipulation concerning funds Whether municipal court entitled to seek to establish the allocation of the funds by all means at its disposal

Arbitration Procedure Competence ICC arbitration clause Whether pending arbitration excludes jurisdiction of municipal courts Interim relief Whether parties entitled to seek interim relief from municipal courts Application for conservatory attachment Whether constituting inadmissible interference in arbitral proceedings The law of France

Summary:The facts:In 1975 a framework was established for co-operation between France and Iran for the development, construction and operation of enriched uranium fuelled nuclear reactors in Iran. A special company, Eurodif, was established by the entities of four European States to facilitate the construction and exploitation of an enriched uranium production plant. One of the participant companies in Eurodif was Sofidif, a joint venture between the French and Iranian atomic energy authorities, the majority of whose capital was held by the French Atomic Energy Commission (AEC). Within the framework of this co-operation, Iran made loans to the French AEC and to Eurodif and it was also agreed that Sofidif would receive shareholders' advances to provide working capital.

In 1979 the Iranian Government and its agencies defaulted on various payments which should have been made under these arrangements, following a decision by the new Iranian regime not to proceed with the programme of development of nuclear energy decided upon by its predecessor. Eurodif claimed to be entitled to compensation for the loss suffered as a result of the cancellation of the programme and Sofidif claimed unpaid accounts due to it. On the basis of these claims the two companies applied for and obtained, from the President of the Tribunal de commerce of Paris, the conservatory attachment of sums provisionally fixed at nine billion francs, representing the debt owed to Iran by the French AEC and its guarantor, the French State, as a result of the loan made by Iran.

Iran and its agencies appealed against the attachment and the Court of Appeal of Paris held, in its judgment of 21 April 1982 (65 ILR 93), that the immunity from execution enjoyed by a foreign State was not absolute and could be excluded where the assets attached had been allocated for the performance of a purely commercial activity. It was not disputed that the loan made by Iran had been used to finance the construction of an enriched uranium plant. Nevertheless the funds available for repayment of the loan were protected by immunity from execution since, once returned, they would not be subject to any specific allocation and would constitute purely public funds of the Iranian State. The Court of Appeal therefore allowed the appeal and ordered the vacation of the attachment.

Eurodif and Sofidif appealed to the Court of Cassation, seeking the reinstatement of the attachment. The appeal was allowed and the judgment of the Court of Appeal of Paris was quashed. The Court of Cassation held, in its judgment of 14 March 1984 (77 ILR 513), that whilst foreign States enjoyed immunity from execution as a matter of principle, this immunity could nevertheless be set aside where the assets attached had been allocated for a commercial activity of a private law nature upon which the claim was based. In this case the debt attached had originated in the very funds which had been allocated for the nuclear energy production programme. It was therefore necessary to examine the nature of this activity before giving a ruling on the question of immunity from execution. Accordingly the case was remitted to the Court of Appeal of Versailles for further consideration.

The Court of Appeal of Versailles, in an unpublished judgment of 9 July 1986, applied the principles set out by the Court of Cassation in its judgment of 14 March 1984 and held that the debt attached had, in fact, been allocated for an activity governed by private law which had given rise to the claim of the attachment creditors. The attachment granted by the judge at first instance was therefore maintained. Iran and its agencies once again appealed to the Court of Cassation.

Held:The appeals were dismissed.

(1) The exercise by a municipal court of its power to grant a conservatory attachment pursuant to Article 48 of the Code of Civil Procedure, on the basis of a finding of the prima facie existence of a debt, did not involve an examination of the merits and therefore did not constitute improper intervention in a dispute subject to pending arbitration.

(2) Where funds subjected to attachment had been made available under a loan agreement and were allocated for a commercial activity governed by private law, upon which the claim was based, this prevented reliance upon immunity from execution even where that allocation had not been expressly stipulated in the contract between the parties. A municipal court was entitled to seek to establish such an allocation by all the means at its disposal and to take account of other agreements evidencing the purpose of the loan, to which the French and Iranian States were not strictly parties.

The following is the text of the judgment of the Court:

The Court joins the two appeals lodged against the same judgment

According to the findings of the judgment under appeal, an international agreement was concluded in 1974 between the Imperial Government of Iran and the French Government, providing for broad co-operation in the scientific, technical and industrial fields between the two States. In execution of that agreement, two further agreements were concluded on 23 February 1975 whereby the Iranian State undertook to lend one thousand million dollars to the Atomic Energy Commission (AEC), a loan whose repayment was guaranteed by the French State. By another agreement the Iranian Atomic Energy Organization (IAEO), an Iranian public undertaking, acting through a company (Sofidif) specially created for this purpose, was to participate in the activities of the company Eurodif, whose object was the construction and exploitation of the enriched uranium plant in Tricastin. The agreement also provided for the transfer of shares in Eurodif to Sofidif to ensure that the IAEO would control 10% of the capital of Eurodif and would have a corresponding entitlement in the same proportion to be supplied with enriched uranium [produced in the Tricastin plant].

In June 1979 the new Iranian Government notified its decision to abandon its nuclear programme and to cease acquiring enriched uranium. Several months earlier it had stopped notifying its service requirements for enriched uranium and had suspended payment of shareholders' advances and accounts which it owed as a customer.

Invoking the serious prejudice which this sudden repudiation of the contracts in mid-execution caused to them, Eurodif and Sofidif initiated the arbitral procedure provided for by the agreements and, in order to secure their rights, applied to the President of the Tribunal de commerce of Paris for the conservatory attachment, in the hands of the AEC and the French State, of sums owed by them to the Iranian State.

The affirmative judgment under appeal (9 July 1986), rendered by the Court of Appeal of Versailles to which the case had been remitted by the Court of Cassation, rejected the application for the vacation of the order of the President of the Tribunal de commerce authorizing the conservatory attachment, lodged by the Islamic Republic of Iran and the Iranian Organization for Investment and Economic and Technical Aid (IOIETA) which had replaced the IAEO. None of the grounds of appeal relied upon by the applicants challenges the first ground of the judgment of the Court of Appeal, which was taken from the judgment of the Court of Cassation which remitted the case to it. According to that ground, foreign States enjoy immunity from execution as a matter of principle. Nevertheless this immunity can be set aside where the assets attached have been allocated for an economic or commercial activity of a private law nature upon which the claim is based.

On the two parts of the first ground of appeal

[The Court considered and upheld the jurisdiction of the Tribunal de commerce and continued:]

On the two parts of the second ground of appeal

On the basis of the alleged violation of Section 48 of the Code of Civil Procedure and the alleged misconstruction of the arbitration agreement, the appellants contend that the only conservatory measures which may be ordered in the course of arbitration proceedings are those which do not require any kind of examination of the merits of the dispute by the court concerned. The appellants argue that this is not the case with regard to an application for a conservatory attachment pursuant...

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