Elf Aquitaine Iran (France) v. National Iranian Oil Co. (Iran)

In 1966 the National Iranian Oil Company (NIOC) (defendant) entered an oil-exploration and oil-production agreement with two other parties, the French government agency Entreprise de Recherches et d’Activités Pétrolières (ERAP) and the French company Société Française de Pétroles d’Iran. The agreement included an arbitration clause stating that each party would appoint an arbitrator and the appointed arbitrators would select a third. If the parties or the arbitrators failed make a selection, the agreement stated that the president of the Denmark Supreme Court should appoint a sole arbitrator if a party failed to choose an arbitrator or a third arbitrator if the two arbitrators appointed by the parties were unable to agree. ERAP’s role under the agreement was to fund the project until NIOC was able to take over financing. The agreement stated that NIOC had to pay ERAP back if oil fields were discovered and oil production began, and it asserted that NIOC would sell crude oil to ERAP at a reduced price. The agreement included a provision stating that ERAP and its affiliate, Société Nationale des Pétroles de Aquitaine (SNPA), were permitted to transfer their interests and obligations arising from the agreement to subsidiary companies of ERAP or SNPA. ERAP’s interests were assigned in full to its subsidiary Elf Iran, and SNPA’s interests were assigned in full to Aquitaine Iran. Elf Iran and Aquitaine Iran merged to become Elf Aquitaine Iran (ELF) (plaintiff), which, because of the assigned interests, became party to the oil-exploration agreement. After the discovery of two oil fields and the commencement of oil production, NIOC refused to repay ELF for the initial funding and did not sell crude oil to ELF at a discounted price as agreed. Iran passed legislation for the review of oil agreements in 1980, which provided that any oil agreement found to be incompatible with other oil-industry laws would be held null and void. NIOC told ELF that the 1966 agreement was found null and void by an Iranian government committee under the new Iranian legislation. ELF initiated arbitration proceedings under the terms of the arbitration clause in the 1966 agreement. NIOC declined to appoint an arbitrator.