National Iranian Oil Company v Ashland Overseas Trading Ltd

CourtCourt of Appeal (Bermuda)
Judgment Date20 July 1998
Docket NumberCivil Jurisdiction 1987 No. 15
Date20 July 1998

In the Court of Appeal for Bermuda

In the Court of Appeal for Bermuda

In the Court of Appeal for Bermuda

H.L. daCosta

Sir Alastair Blair-Kerr, P.

Kenneth C. Henry, J.A.

Civil Jurisdiction 1987 No. 15

Civil Appeal No. 15 of 1987

Civil Appeal 15/87

National Iranian Oil Company (A company organized according to the laws of the Islamic Republic of Iran)


Ashland Overseas Trading Limited
National Iranian Oil Co.


Ashland Overseas Trading Ltd.
National Iranian Oil Co.


Ashland Overseas Trading Ltd.

Mr. Pollock Q.C. and Mr. Bell for the Appellants.

Mr. Crystal Q.C. and Mr. Hargun for the Respondents.

Mr. Pollock, Q.C. and Mr. Bell for Appellant

Mr. Crystal, Q.C. and Mr. Hargun for Respondent

Basma v WeekesELR [1950] AC 441

Bank of Tokyo Ltd v KaroonELR [1987] AC 45

deDampiere v deDampiereUNK [1987] 2 All ER 10

Spiliada Maritime Corp v Cansulex LtdELR [1987] AC 460

DuPont v AgnewUNK [1987] 2 Lloyds Rep. 585

Castaho v Brown & Root (UK) LtdELR [1981] AC 557

Sim v RobinowSC (1892) 19 R 665

European Asian Bank AG v Punjab and Sind BankUNK [1981] 2 Lloyds Rep. 651

The Abidin DaverELR [1984] AC 398

Coral IsisUNK [1986] 1 Lloyds Rep. 413

SNIAS v Lee Kul JakELR [1987] AC 872

The NordglintWLR [1988] 2 WLR 338

The Atlantic StarELR [1974] AC 436

Insurance Corporation of Ireland v StrombusUNK [1985] 2 Lloyds Rep. 138

Fordingbridge International Agencies Ltd v American Centennial Insurance Co 1986 Civil Appeal No. 15

Baronness Wenlock v River Dee CoELR (1883) 36 ChD 685

El du Pons de Nemours & Co v AgnewUNK [1987] 2 Lloyds Rep. 585

MacShannon v Rockware GlassELR [1978] AC 795

Muduroglu Ltd TC Ziraat BankasiELR [1986] QB 1225

Stroble v CaliforniaUNK 72 S Ct 599

Civil procedure — Conflict of laws — Forum non conveniens — Appeal by plaintiff against stay — Plaintiff also made same claim in Mississippi proceedings and claimed order compelling arbitration — Defendants brought counterclaim in New York — Whether one defendant acted as agent for the other — Plaintiff conceded that Ashland Oil Inc could not be a party to Bermuda proceedings — Ashland Oil Inc conceded that defendant had acted as agent for itself as a disclosed principal — Whether concessions played too great a part in judge's decision — Whether distinction between the two Ashland companies could be ignored — principles to be applied in deciding issue of forum non conveniens — Mississippi not an available forum having competent jurisdiction — Definition of “natural and appropriate” forum — Nature of a Bermuda exempt company — Effect of deep-seated hostility of Americans towards Iran — Fact that jurors tend to give effect to popular prejudice or bia


This is an appeal from an order made by Mr. Justice Collett by which he ordered a stay of the action brought by the Plaintiff he National Iranian Oil Company against the defendant, Ashland Overseas Trading Ltd. The grounds on which the learned judge ordered a stay were that the claims of The National Iranian Oil Company and the cross claims of Ashland Overseas Trading Ltd. could most conveniently be tried in the courts of Mississippi in the United States of America, and that therefore applying the doctrine of forum non conveniens it was right to order a stay of the proceedings brought in Bermuda.

The case is concerned with an international commercial dispute, the ramifications of which stretch back over a decade. Because of the issues raised by the parties, I must delineate the historical background in some detail.

The Parties

The National Iranian Oil Company (‘NIOC’) is a corporation formed and existing under the laws of Iran; it was created in 1951. It was formed for the purpose of owning and exploiting the oil resources of that country on behalf of the Iranian nation. As such it is a familiar phenomenon in today's world. Its shares are held by the state and the power to vote those shares at meetings of the company is vested in the holders for the time being of various ministerial officers of state. As a trading corporation it is attached to a government ministry, which is responsible for it and which exercises a large element of control over it.

Ashland Oil Inc. (‘AOI’) is an independent American Oil Company. It was incorporated in Kentucky, U.S.A. where it has its headquarters. It is the parent company of the Ashland Group of companies. The company is engaged in the business of refining crude oil within the U.S. and the sale of the resulting petroleum and petroleum products.

Ashland Overseas Trading Ltd. (‘AOTL’) and Ashland Bermuda Ltd. (‘ABL’) are two wholly owned subsidiaries of AOI. They were both incorporated in Bermuda in the early nineteen seventies, and enjoying the status of what is known as a Bermuda exempt company. The Ashland Group, although an important oil refiner, has no oil resources of its own; it was obliged to obtain its crude oil from third parties. The purpose and function of AOTL and ABL appear clearly from the early pleadings filed in proceedings that are now in progress in Mississippi. Both AOTL and ABL purchased crude oil under long term contracts and then resold to Ashland for use in Ashland's refineries in the United States (see Amended Answer and Counterclaim of Ashland Oil, Inc. para. 7 of Counterclaim filed December 20, 1985). Doubtless there were riscal and other advantages involved in such an arrangement.

The Background

On the 13th March 1977 a long term contract was signed by NIOC and ABL for the sale and purchase of Iranian light crude over the period April 1977 to December 1979. And in September 1977 AOTL entered into a similar long term contract for the supply of Iranian crude oil over the period October 1977 to September 1983. By October 1978 the Ashland Group was obtaining about one quarter of their supply of crude oil through the contracts with NIOC. All went smoothly at this stage however.

The year 1978 was a turbulent one for Iran; it was the year that ushered in the revolution. The characteristic features of that revolution are now notorious—political and social upheavals, violent protests against the Shah, culminating in a series of strikes and other industrial disruption in the oil fields and ports. Production in the Iranian oil industry was virtually paralysed. With output substantially down NIOC invoked the force majeure provisions contained in Article VIII of both contracts. This was on November 1, 1978.

The halcyon days had gone. In their wake came disruption and dislocation and a crisis in Iranian affairs. In January/February 1979 the Iranian situation deteriorated rapidly and Iran's main oil terminal at Kharg Island ceased to function.

On January 16, 1979 the troubled and tragic reign of Shah Mohammad Reza Pahlavi came to an end and he departed for Egypt. Within less than a month the Ayatollah Rouhollah Khomeini returned from exile in France and announced the setting up of a provisional government. The revolution was now well on its way. On the 14th February 1979 groups of Iranian revolutionaries made their first assault on the U.S. Embassy. But the seizure of the Embassy was short lived, as following the intervention of the Iranian authorities control of the Embassy was returned to the Ambassador.

By March 1979 production, although at a reduced level, had been re-established in the Iranian oil fields. NIOC was as anxious to resume supplying its former customers as the latter were to receive supplies. The Ashland Group was naturally anxious to regain its supplies. The cessation of supply from Iran late in 1978 had created a crisis and uncertainty in world markets for crude, with resulting shortages and consequent increase in prices.

Early in 1979 negotiations were resumed between the parties with a view to re-establishing their former long term commercial relationship. As a result on March 11, 1979 a meeting took place in Tehran between the Ashland Group and NIOC. A hand-written document dated 11th March 1979 entitled ‘Heads of Agreement’ and purporting to regulate supplies during the period of 1st April 1979 to 31st December 1981 was signed.

As the learned judge observed: ‘The legal effect, if any, of this document is and has been a matter of considerable contention between the parties.’ NIOC aver that the document was intended to do no more than record an agreement in principle, which required further negotiation and consideration before a binding long term agreement could be entered into, albeit pending such further negotiation ad hoc purchases could be agreed and made on the basis of the framework agreed in principle.

AOTL on the other hand, contend that the ‘Heads of Agreement’ document was intended to record a complete and binding long term contract for the supply of crude by NIOC to AOTL. The lack of detailed terms in the March document is explicable, according to AOTL, on the basis that the parties had contracted before on NIOC's standard terms and the parties intended that such standard terms would apply. According to AOTL all that remained to be done at a subsequent meeting was for the formal contract incorporating NIOC's standard terms to be typed and signed: put tersely, it would be a meeting to memorialize the contract. As the learned judge observed, this is not a matter which can be determined upon affidavit at this stage. It is an issue which must be canvassed at the trial.

On the 11th April 1979 another meeting between the Ashland Group and NIOC took place in Tehran. A formal contract together with a side letter was drawn up and executed. The contract is expressed to be entered into between NIOC and AOTL and to regulate supplies of crude spread over the next nine months. It specified smaller quantities of oil and a smaller percentage of the more desired light crude than the 11th March 1979 ‘Heads of...

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