The lex causae for transfer of title in movable property. A gem of an award by the Iran-US claims tribunal, generally discussing choice of law in arbitration.

I am most grateful to Hans Baron van Houtte, my predecessor in the conflicts chair at Leuven, for alerting me to the partial award of the Iran-US claims tribunal of 10 March last (case No. A15 (II:A)). Hans is a former President of the tribunal, which was established by the ‘Algiers declarations’ following the 1979 Tehran hostage crisis.

The award (a mere 691 pages) and separate opinions can best be accessed here. In the 10 March award, the Tribunal discussed at length the issue of the applicable law for transfer of title in movable property. In doing so, however, it also gives scholars a most wonderful insight and expose on the private international law /choice of law process in arbitration.

The issue is relevant for under the Algiers Declarations, the US is obliged to transfer to Iran, ‘Iranian properties’ subject to the jurisdiction of the United States on 19 January 1981. Hence what exactly constitutes ‘Iranian properties’?

From p.67 (para 135) onwards of the main award, the Tribunal discusses the general process of choice of law in arbitration, referring to a wealth of scholarship on the issue, going back to the mixed arbitral tribunals of the early 20th century etc. For anyone interested in the issue, this is most compelling reading. Many greats of PIL are cited, including the late prof Francois Rigaux (pictured here at Leuven in 2010 with profs Weizuo Chen, Jacques Herbots, Marc Fallon, and myself).

The Tribunal’s conclusion on the issue is that under the ‘general principles of private international law’, the lex rei sitae of the movable governs the passing of title in movable property.

The Tribunal does not hide the further complexities of this rule, including of course the very determination of that situs, and the role of lex contractus.

Indeed for instance on p.272 ff (para 967 ff) the Award discusses one particular claim concerning a case where, under the default rule of the lex rei sitae —- here, the goods were manufactured by, and in the possession of, Zokor, which was situated in the State of Illinois, United States. The applicable lex rei sitae is therefore the law of Illinois  —-property is passed by delivery, and where, under the default rule of the lex contractus –– here arguably Iranian law –– title is already passed by the conclusion of the sales contract or as soon as the goods are manufactured.

At 973 the Tribunal notes the choice of law pro Iranian law, made by the parties, However, it holds ‘the situs was and remained, during all relevant points in time, Illinois. Consequently, according to the general principle of private international law, as identified earlier in this Partial Award, it was for Section 2-401(2) UCC in connection with other contract law of the situs to determine whether the parties had agreed to derogate from the fallback rule.’ (which the Tribunal found, they had not).

That is not entirely crystal clear, and indeed in his separate Opinion prof van Houtte, while generally happy with the Tribunal’s approach, points out some inadequacies:

At 13: ‘The Parties assumed for years that the determination of whether property was “Iranian” as between the seller and the buyer was a contractual issue between those parties governed, inter alia, by the proper law of the contract (lex contractus). It was only at the Hearing session on 9 October 2013 that – in response to a question from the bench – the Parties’ argumentation focused on the lex rei sitae; from that point on, the lex contractus was virtually no longer considered. (…) I regret that the contractual aspects of the transfer of property rights inter partes and the impact of the law of the contract thereupon were not further explored at the Hearing’.

at 15: ‘I observe that the Parties could also have further elaborated on the extent to which the legal situs necessarily coincides with the geographical location of assets in export sales or turn-key contracts.’

And at 18, specifically with respect to the Zokor case that I mention above, ‘One may wonder, de lege ferenda, whether in Claim G-111 (Zokor) it was necessary for the Tribunal to construe and apply its own “general principles of international private law”’ and whether it should not instead adopt the approach which Iranian courts would have applied. These would have had jurisdiction pre the 1979 agreement and the transfer of jurisdiction to the Tribunal, van Houtte argues, does not imply it should settle contractual disputes under different principles than the Iranian courts would have applied’.

A most, most interesting read.

Geert.

 

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