SPECIAL REPORT 37
2. Should the MOU be binding? To the extent that further due diligence is required including, for example, the employment of any local sub-contractors, it would be unwise, even in the current more relaxed sanctions regime tomake theMOU binding, in our view. This ismainly due to regulatory concern and the considerable practical difficulties in dealing with EU financial institutions where Iranian business is concerned. Theremay, of course, be other commercial considerations which are relevant in this context. COMMON L AW V CIVIL L AW: IMPLIC ATIONS FOR MOU s Under English law, aMOUwould not be considered as binding if it was expressed as such. Without a clear statement, however, there is a risk that theMOUmay be viewed as giving rise to legally binding obligations. Recent cases demonstrate the reluctance of the English court (and one would presume arbitration tribunals) to disregardMOUs as being “agreements to agree”. In the 2010 “Muller” case 1 the Supreme Court held that although “there was no formal contract, [the parties] did reach a legally binding agreement...” The Court held that the “moral of the story is to agree terms first and start work later.” Under other laws, particularly civil laws such as Swiss law, theMOUmay give rise to obligations even if it is expressed to be non-binding. This could arise, for example, by reason of the implied obligation to exercise “good faith”, the concept of whichmay prevent that party fromwithdrawing from the transactionwithout good reason. Accordingly, at theMOU stage, consideration needs to be given to the governing law to understand the precise nature of the obligations, if any. Iranian law recognises the choice of a foreign law where one party is non-Iranian and the contracts providing for foreign laware signed in the countrywhose law is to govern the contract. Under Iranian conflict of lawprinciples, the law governing the contract is the place of execution 2 . CHOICE OF ARBITRATION FORUM The choice of the arbitration forum is not, in our experience, straightforward. Iranians have endured over the last decade or more, arbitrations and court actions in jurisdictions that they would have preferred to avoid. As ever in these situations, the emphasis for the foreign investor should be on a forumwhich is acceptable even though it is not necessarily the natural or preferred forumof the investor. Iranian law recognises the right to arbitrate outside Iran and Iran has ratified the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. But there are limitations to the arbitration route. First, there is no clear track record of enforcement under the New York Convention. Second, enforcement will, of course, be subject to public policy issues. There are local arbitration fora in Iran, namely the Arbitration Center of Iran Chamber and the Tehran Regional Arbitration Center but, with a near decade of sanctions, there is limited recent experience. In addition, arbitration agreements involving public or state property need parliamentary approval whichwill be difficult to obtain. Given this uncertainty, the partiesmay wish to consider, in appropriate circumstances, how they can secure their obligations outside Iran.
HOW TO PROTECT YOUR INVESTMENT Foreign investment in Iranwould ordinarily benefit froma license from the Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI) in accordance with the Foreign Investment Promotion and Protection Act (FIPPA). This framework provides protection to foreign investors for non-commercial risk such as the right to repatriate profits and acts of expropriation by the government. Disputes under FIPPA are referred to the local courts unless the investor is based in a country withwhich Iran has a Bilateral Investment Treaty (BIT). In that event, the investor will have the option to refer any dispute against the State either to the local courts or to the arbitration forumprovided in the BIT. The UK currently has no BIT with Iran (though one is apparently under negotiation) so a dispute of a political risk nature would have to be determined before the local courts. There are currently over 50 BITs in force between Iran and various nations affording investors substantial protection. However, caution needs to be exercised in relation to these BITs. The term “investor” is generally expressed tomean those natural persons who, according to the law of the contracting state, are considered to be a national. Thismay have the effect of preventing BIT “forumshopping” where a company incorporated in a countrywhich does not have the benefit of a BIT seeks to incorporate a subsidiary in a BIT investment state as a vehicle for investment in Iran and thereby gain the benefit of the BIT. There is another limitation. BITs with Iran make clear that the scope of the treaty applies only to investments approved by the competent authority of the hosting state and in the case of Iran, the competent authority is OIETAI. That being the case, it is unlikely that the benefit of the BIT will inure for the benefit of any investor which has not obtained such consent, though obtaining the approval of OIETAI would also provide other benefits in terms of local support and as a bodywhichmay help in the resolution of disputes. Iran has its own idiosyncrasies in terms of legal requirements and its isolation for somany years has deprived it of experience fromwhich investors can gain comfort. Careful consideration needs to be given both to the choice of lawand themeans by which disputes are resolved and this needs to be done at an early stage before a MOU is signed. That said, it is undoubtedly true that Iran, described as the “last great frontier”, offers tremendous opportunities for foreign investors.
1 RTS Flexible Systems Limited vMolkerei AloisMuller Gmbh&Company KG (UK Production) [2010] UKSC 14 2 Article 968 of the Civil Code states that “obligations arising out of contracts are subject to the laws of the place of execution of the transaction except in cases where the parties to the contract are both foreign nationalsandhaveexplicitlyor impliedlydeclaredthetransactiontobesubjecttothe lawsofanothercountry”.
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