Legal Nature of Iran Petroleum Contracts in International and Iranian Law

Document Type : Original Article from Result of Thesis

Authors

1 PhD. Student of International Law Department , Qom Branch, Islamic Azad University, Qom, Iran.

2 Associate Prof. at International Law Department. Faculty Law, University Qom, Iran

Abstract

Some argue that Iran Petroleum Contracts (IPC) are buy-back (bai' motaqabel) agreements. However, considering the basic criteria of such agreements—including the absence of a concrete object, subject of the contract, and design/development at the time of contract conclusion—IPCs cannot be regarded as buy-back contracts. The main research questions are why IPCs cannot be categorized as one of the common legal contracts such as sale, barter, and reward (Ji’ala) and whether they must be defined within the scope of Iranian or international law.  The findings of this analytical and comparative study outlined three different views concerning the nature of IPCs: (1) administrative contracts governed by domestic laws of the employer, i.e., the government, (2) private contracts governed by Article 10 of the Iranian Civil Code, and finally, (3) contracts with international and transnational features. There are arguments made in favor of each view. In terms of Iranian laws, IPCs are marked with special features with similarities and differences in comparison to other contract types specified in the Iranian Civil Code such as sale, barter, reward, and lease, while they cannot be classified as either one of these.

Highlights

Introduction

Based on the single-clause article adopted on Jan. 8, 1980, after Iran's Islamic Revolution, all petroleum contracts inconsistent with the nationalization of the Iranian oil industry were rendered void. The legal framework for buy-back (bai' motaqabel) agreements was introduced in Note 29(H) of the First Development Plan Act (Jan. 31, 1990). These licenses were used for the first time on Feb. 1, 1993, and the Budget Law of 1994 authorized the National Iranian Oil Company to conclude buy-back contracts.

   

Research Method

The research used analytical and comparative methods to examine the nature of IPCs in terms of Iranian law and international law and resolve ambiguities inherent in this type of contract.

 

Governing Theories

  1. IPCs as International Contracts

According to this theory, some contracts have an international character depending on their nature and are therefore classified under international law, which replaces or supplements the national laws.

  1. IPCs as Petroleum Contracts

The next theory is that IPCs are governed by domestic laws but have a public nature. That is, if the details of the agreement with the foreign investor are not based on common contractual arrangements, then the rights and obligations of the parties are simply based on the state license granted to the foreign investor.

  1. IPCs as Private Contracts

This perspective was accepted in a lawsuit between British and Iranian oil companies. The court decision, as well as similar verdicts in other international cases, such as the Egyptian and Libyan arbitrations, contends that the petroleum contracts are private in nature and the employer, i.e., the government, has no supremacy over the other party.

 

 

  1. Sale

One of the integral features of a contract of sale is the issue of ownership. In buy-back contracts, the nature of ownership is not similar to that of sales contracts and is merely limited to certain obligations for the parties.

  1. Contract of Reward (Ji’ala)

Article 561 of the Iranian Civil Code asserts that "a ji’ala or contract of reward is defined as the engagement of a person to pay a known recompense in return for an act, whether the other party is specified or not". The difference between Ji’ala and lease for a known recompense is that in the latter specifying the recompense and the act is essential, whereas in the former the specificity of the actor is not essential.

  1. Lease

A contract of lease refers to an agreement with a specified recompense in return for a specified object of exchange. The jurists do not agree with the classification of contracts such as mineral exploitation as contracts of lease since the object of exchange is not clear. Accordingly, petroleum contracts of services and construction participation cannot be regarded as contracts of lease.

  1. Barter

In Iranian law, sale and barter are distinguished based on the agreement of the parties. When two products, services, etc. are exchanged without any concessions, it falls within the definition of a barter agreement. In contrast, if one product, service, etc. is considered the object of exchange and the other its exchange value, then it is a contract of sale.

  1. Innominate Contract

For determining the legal nature of new forms of agreement, they are first compared to common, traditional contract types such as sale, lease, reward, etc. In case there was no match, Article 10 of the Iranian Civil Code comes into play, which allows for more flexibility in contract types by stating that: "Private contracts shall be binding on those who have signed them, providing they are not contrary to the explicit provisions of a law."

  1. International Law

 Some jurists believe that IPCs are similar to international contracts, and so are governed by international law. Others argue that these contracts are governed by the legal system of the host country and so arbitrations must be based on its legal principles.

 

Conclusion

According to the research findings, IPCs are similar to legal documents such as sales and barter but are not exactly the same as any of them. These contracts are international, yet this feature does not force them to be internationalized. Rather, it is the host government that defends its national interests against the investing companies using its capacities. In case IPCs are considered domestic agreements, they enjoy both government involvement and governance features. Nevertheless, IPCs can also be considered international agreements which gives them a higher status than domestic agreements. They are not contracts of sale, since they involve the transfer of technology, which is different from the transfer of a concrete object. Another difference is that in contracts of sale, there is no necessity for the similarity of the purchase money and the goods, whereas an integral criterion in IPCs is the sales of the same products to the foreign investor.

Meanwhile, IPCs cannot be regarded as contracts of reward. They have unique features and the parties, obligations, and rights are clearly specified. This precludes the possibility of regarding them as contracts of reward, which essentially comprise an ordinary obligation. IPCs are also not barter agreements considering their difference from contractual agreements and exchanges.

Furthermore, IPCs create certain obligations for the parties without granting ownership rights to the other party.

Overall, it seems that the best solution for determining the legal nature of IPCs is provided by Article 10 of the Iranian Civil Code since the parties do not intend to enter into a nominate, specific contract. Rather, they only define certain rights and obligations for the parties, which is consistent with Article 10 of the Iranian Civil Code, the principle of freedom of contract, and also jurisprudential tenets.

Keywords

Main Subjects

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