National Iranian Oil Company v Ashland Overseas Trading Ltd

• Jurisdiction: Bermuda
• Judgment Date: 16 July 1987
• Date: 16 July 1987
• Docket Number: Civil Jurisdiction 1985 No: 326
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Collett, J

Civil Jurisdiction 1985 No: 326

BETWEEN:-

National Iranian Oil Company (a company organised according to the laws of the Islamic Republic of Iran)

-and-

Ashland Overseas Trading Limited

-and-

Ashland Oil Inc.

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

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

Speed Seal Products Ltd v PaddingtonWLR [1985] 1 WLR 1327

Re Bellador Silk LtdUNK [1965] 1 All ER 667

Buttes Gas v HammerELR [1982] AC 888

C Czarnikow Ltd v RolimpexELR [1979] AC 351

Leon Corporation v Atlantic LinesUNK [1985] 2 Lloyds Rep. 470

Hanak v GreenELR [1958] 2 QB 9

Grace Shipping v Sharp & CoUNK [1987] 1 Lloyds Rep. 207

Spiliada Maritime Corp v Cansulex LtdUNK [1987] 1 Lloyds Rep. 1

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

MacShannon v Rockware Glass LtdELR [1978 AC 795

‘The Abidin Daver’UNK [1984] 1 Lloyds Rep. 339

Societe Nationale Industrielle Aerospatiale v Lee Kui Jak

Stay of proceedings — Appropriate forum — Forum conveniens — Conflict of laws — Non-payment of purchase price — Sale of goods contract and right of set-off — Collateral purpose for Bermuda proceedings — Sovereign immunity — Principle of judicial restraint — Probability of fair trial in foreign court

JUDGMENT

Collett, J.

By its summons dated 30th September, 1986 the First Defendant Ashland Overseas Trading Limited (AOTL) seeks an order of this Court in the exercise of its inherent jurisdiction to stay this action brought against it by the Plaintiff National Iranian Oil Company (NIOC) on a number of grounds there specified. A further summons taken out by the First Defendant Ashland Oil Inc (AOI) was disposed of at the hearing by way of a consent order made in terms of paragraph (a) of its summons dated 5th November 1986, whereby the origional order giving leave for service of the Notice of the Writ upon it out of the jurisdiction of this Court was set aside together with the consequent service. It follows that the order now applied for by AOTL will, if granted, have the effect of staying these proceedings altogether and indefinitely.

AOTL, a Bermuda incorporated exempted company trading in petroleum and petroleum products, is to all intents and purposes a wholly owned subsidiary of AOI, a corporation domiciled in Kentucky, U.S.A. which is a very substantial business entity also trading in such products and is the owner and operator of a large petroleum refinery in that state. NIOC is a corporation formed and existing under the laws of Iran, wholly owned by the Islamic Republic or Iran and charged, inter alia, with the exercise of the ownership right of the Iranian nation in the oil resources of that country and with operation of its oil and petrochemical industries.

Commercial relations between NIOC and the Ashland group ante date the Iranian revolution by some five years and NIOC became an important supplier in particular of light Iranian crude oil for the AOI refinery. The events of late 1978 and early 1979, which culminated in the deposition of the Shah and return of the Ayatollah Khomeni, interupted these relations which were then governed by two long term contracts: force majeur provisions were invoked by NIOC under Article VIII of both contracts on 1st November 1978. As a result of the revolution shortages of crude oil drove prices higher and Ashland was obliged to purchase in the spot oil market in order to keep its refinery active.

Negotiations were resumed between the parties early in 1979 with a view to restoring a long term commercial relationship. In March a meeting took place in Tehran attended by senior executives of both AOI and AOTL which resulted (inter alia) in the signing of a document dated 11th March 1979 entitled “Heads of Agreement” and purporting to regulate supplies during the period 1st April 1979 to 31st December 1981. It was concluded between NIOC represented by its General Manager Marketing for Export, Mr. Reza Azimi and “Ashland” represented by Mr. John Hall, Executive Vice-President of AOI and by Mr. Dougan the Manager of its London office. This was followed by an exchange of telex and by correspondence indicating a firm agreed intention for the parties to meet again for the purpose of drawing up a final contract. In the meantime in addition to the delivery of a spot cargo of oil which had been contracted for between the parties at the 11th March meeting in Tehran, another cargo was delivered in accordance with the terms of that Heads of Agreement, early in April 1979.

The legal effect, if any, of this document is and has been a matter of considerable contention between the parties. That is not a matter which can be resolved upon affidavit evidence at this stage: it is an issue for decision at a trial. Another such issue arises in connection with a formal contract which was drawn up and executed at a subsequent meeting in Tehran on 11th April 1979 together with a side letter bearing that same date. The formal contract is expressed to be entered into between NIOC and AOTL and to regulate supplies during the period 1st April 1979 to 31st December 1979 only. It specifies smaller quantitites of oil and a smaller percentage of the more desired light crude than the 3rd March 1979 Heads of Agreement, which the contemporaneous side letter stated should cease to be of effect as from 11th April 1979. AOI and AOTL have claimed that not only was the 11th March 1979 Heads of Agreement a valid and binding contract in itself but that it was unilaterally repudiated by NIOC at the April meeting, when as a result of economic duress the Ashland representatives were compelled to execute the side letter and to enter into the 11th April 1979 contract willy nilly so as to avoid a total dislocation of necessary oil supplies. These contentions are vigorously denied by NIOC who maintain that both the formal contract and the side letter were valid and effectual according to their terms.

Upon the basis that commercial relations between the parties were governed by the April contract up until 15th November 1979 further allegations are made against NIOC of short deliveries, excessive price increases and other unilateral non-observances of the contractual terms, all of which NIOC has denied. In November 1979, however, commercial relationships between the parties came to a further halt following the notorious hostage crisis which erupted with the storming of the U.S. embassy in Tehran on 4th November 1979. On 12th November 1979 the Iranian government prohibited further export of oil to the U.S.A. and on the same date President Carter issued a proclamation prohibiting the import of Iranian oil into that country. On 15th November 1979 NIOC sent a telex notifying Ashland that ‘in view of recent events we are not in a position to continue delivery of oil to you’. No further deliveries have been made since then.

As of that date a number of cargos of oil which had been delivered f.o.b. nominated ships at Iranian ports by NIOC both under the April long-term contract and under spot contracts with AOTL were unpaid for. The standard procedures for payment stipulated for by NIOC and incorporated into the April contract had called for the opening by AOTL of confirmed letters of credit for the agreed price of each such consignment with banks in New York city which could be drawn upon by NIOC upon presentation of specified documents relating to that consignment. A failure to present the correct documents within the contractual time limit led to the lapsing of the relevant letters of credit which had been duly established in respect of these consignments. That did not, of course, absolve the purchaser from its obligation to pay the price but it did prevent NIOC from recovering this from the Banks and obliged it instead to apply direct to Ashland for payment. The amount outstanding has been calculated at a total of U.S.$282,881,712.40 and this amount together with accrued interest is the basis of NIOC'S claim in the present action as well as in other proceedings which it has brought against AOI in the U.S. Federal District Court for the Southern District of Mississippi.

Neither AOI nor AOTL have disputed the amount or the substance of that claim but they have asserted that by reason of the allegations which have been already referred to arising out of the 11th March 1979 Heads of Agreement, the 11th April 1979 long term supply contract and related matters, they have a counterclaim sounding in damages which considerably exceeds the NIOC liquidated claims and which they are entitled to set off against the latter in extinguishment thereof. That contention was first advanced in a letter of 20th February 1980 which has been referred to at the hearing as ‘the set-off letter’. A considerable volume of litigation has ensued worldwide which must now be briefly reviewed before the issues are addressed in turn.

On 13th November 1980 AOTL filed suit in the U.S. District court for the Southern District of New York against NIOC claiming damages for alleged wrongful acts in connection with the 11th March 1979 Heads of Agreement and the 11th April 1979 long term contract. There is a dispute between the parties as to whether or not these proceedings were properly served upon NIOC, which does not require a resolution by this Court. It is common ground that, before NIOC was required to respond, the New York proceedings were suspended as a result of the promulgation of the Algiers Accords between the U.S.A. and Iran on 9th January 1981 and the issuence on 24th February 1981 of executive order 12294 by President Reagan to give effect to those Accords. That suit although still extant has remained in limbo even since, although it appears likely that it could now be revived if all the parties could agree to co-operate in its revival.

The Algiers Accords established an International Arbitral...