An Israeli-Iranian oil-related legal dispute that’s been raging for years faces even more delays after an arbitrator who was appointed to represent Israel in the matter resigned.
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Theodore Klein, a Paris lawyer who once headed the Crif, the Representative Council of French Jewish Institutions, and Mohsen Agha Hosseini, a retired Iranian judge who now lives in The Hague, are the arbitrators who heard the case of National Iranian Oil Co. against the State of Israel.
A few months ago Klein retired from the role due to his age — he will be 95 in June — and his resignation will further delay the process.
The case, which Israel has largely kept secret over the years, has been in Swiss and French legal forums for 19 years. It focuses on events dating to before Iran’s Islamic revolution of 1979.
Over the years the Iranian oil firm has filed three arbitration cases against Israel, directly against the state and against shell companies Israel controls.
Iran has been trying to force the appointment of an arbitrator on its behalf, and to force Israel to recognize the authority of both the arbitrator and the process.
Now, the Iranians may well have to restart many of these legal battles.
Friends to enemies
In 1968 Israel and Iran, then controlled by the shah, established a partnership to transport and sell Iranian oil via Israel to European customers. The project was a joint venture of the State of Israel and NIOC.
At the deal’s center was the construction of the Trans-Israel Pipeline from Eilat to Ashkelon, as well as two oil ports and storage facilities, and a fleet of tankers.
But after the Islamic revolution in Iran in 1979, the countries went from friends to enemies. Using a legal trick, Israel effectively nationalized the pipeline and continued to operate it. Iran then sued Israel in international arbitration to receive its share of the joint project.
In the main case, the so-called big arbitration, the Iranians claim that Israel expropriated its half-share of the project. Israel claims in its defense that Iran violated the agreement by refusing to supply Israel and the project with oil since the Islamic revolution.
Global Arbitration Review magazine estimates the damages in this larger arbitration case at $7 billion.
In two smaller arbitration proceedings NIOC demands that Israel pay for crude oil it received on credit just before the revolution and hasn’t paid for.
The damages in this case are estimated at $1 billion, reflecting a 1979 dollar value plus interest and other costs.
Israel has kept a very tight lid on information about the arbitration proceedings. All publication on the matter is subject to military censorship.
In November 2013 Prime Minister Benjamin Netanyahu signed an order that bans publication of information on the arbitration because it could harm Israel’s national security and foreign relations.
But while most of the proceedings have been kept secret, reports on legal sites in Europe and various French academic publications provide the identities of the two arbitrators and new details about the proceedings in Switzerland and France.
In 2001 a Paris court appointed Klein arbitrator on Israel’s behalf after Israel refused to appoint its own for the main case. At the time the Iranians claimed that Israel’s refusal damaged their right to pursue justice. The court agreed and appointed Klein.
Israel appealed the appointment when the arbitration, which is being held in Geneva, began. Klein and the arbitrator appointed for Iran, Agha Hosseini, rejected the appeal. This ruling was upheld two years ago by Switzerland’s Federal Supreme Court in Lausanne.
Klein was in the French Resistance during World War II and established a law office in Paris.
Among his clients were Baron Edmond de Rothschild, whom Klein met during their joint work in the French Jewish community; as well as leading French Jewish business people, the governments of a number of African countries, and Israeli companies.
Klein headed the Crif for 16 years and then continued with his public work on behalf of the Jewish community.
During the Second Intifada, in the early 2000s, Klein became worried about Israel’s treatment of the Palestinians and published an open letter to then Prime Minister Ariel Sharon on the matter.
Klein, an Israeli citizen who speaks fluent Hebrew, in a conversation with Haaretz defined himself as “free Jew.” He said he resigned as arbitrator in the case because of his age.
In one of his books, Klein wrote that nothing can undermine the State of Israel’s existence — except for the Israelis abandoning what was their strength throughout history, respect for law and justice for everyone.
Agha Hosseini, 70, has served as the arbitrator on Iran’s behalf through all the proceedings against Israel.
He was previously the Iranian national bank’s legal adviser. In 1986 he came to the Hague, where the joint Iran-U.S. Claims Tribunal sits and deals with the claims the two countries have against each other.
Agha Hosseini heads the Iranian legal center there. He served as a judge on the International Court of Justice in an Iranian claim against the U.S., and for the past 19 years he has served as a judge on the Iranian-U.S. Tribunal.
He retired in 2009, but has continued to live in The Hague. Agha Hosseini did not respond to email enquiries from Haaretz.
In international arbitration proceedings, each side appoints an arbitrator on its behalf, and a third person from a neutral country serves as chairman of the tribunal and usually casts the deciding vote.
In January 1989 NIOC appointed Agha Hosseini as its arbitrator in the case of the compensation for the unpaid crude oil.
Iran shell company filed claim
The Iranians used a shell company from Lichtenstein, Fimarco Anstalt, which filed the claim against Trans-Asiatic Oil Ltd., which was in charge of carrying and marketing the oil and was registered in Panama.
The Iranians did not appoint their own officials to the companies’ boards and asked Israeli and Jewish-European oil personnel to represent them.
Since international shipping companies refused to participate in the project, for fear of the Arab boycott, Trans-Asiatic leased a fleet of tankers, which numbered 23 when the partnership collapsed.
The arbitration claim disclosed part of the complicated businesses the two countries jointly ran in the 1970s. Trans-Asiatic transported the oil from Iran to Eilat. From there it was sent through the Eilat-Ashkelon Pipeline to Ashkelon and loaded on tankers for sale in Europe.
To strengthen secrecy, another joint Iran-Trans-Asiatic subsidiary was established and registered in Liechtenstein. This shell company actually sold the oil in Europe. NIOC provided three months of credit to its partners for the payments for the oil.
50 different debts
The Iranians, under the cover of Fimarco, claimed that the shell company amassed 50 different debts for the oil to NIOC and never paid.
They also claimed that Trans-Asiatic, which in practice is under Israeli control, also had practical control over the shell subsidiary and owes them the money.
Trans-Asiatic appointed former Israeli Justice Minister Haim Zadok as its representative in this arbitration, which started in 1994. After he died in 2002, Israel named attorney Avigdor Klagsbald to represent it. He continues in the post.
A person close to the arbitration says Zadok and Agha Hosseini had a friendly relationship and often ate together after the various legal proceedings, which were usually held in a lawyer’s office in Zurich.
During the first few years the two found it difficult to agree on the third arbitrator and the case reached the Swiss Supreme Court, which then made the decision on the identity of the third arbitrator.
In 1998 the arbitrators ruled against Israel and ordered Trans-Asiatic to pay the debts to the Iranians. This compensation appears not to have been paid and the arbitration has continued.
Attempt to settle
In the 1980s Israel and Iran made sporadic contact to try to pay the debts, dismantle the partnership in EAPC and close the matter. But no agreement was reached, and in 1994 the Iranians turned to another arbitration process to receive their share of the pipeline-company partnership.
This time they no longer hid behind shell companies and false identities but rather acted openly on behalf of the Islamic Republic. The Iranians again appointed Agha Hosseini as arbitrator and waited for Israel to appoint one as well.
But Israel refused to name an arbitrator and appealed the appointment of Agha Hosseini, claiming he was inappropriate for the role.
Israel said that Agha Hosseini’s serving as an arbitrator in the Trans-Asiatic case at the same time gave him access to inside information, which would provide the Iranian side with an unfair advantage in the arbitration.
Israel’s lawyers also based their claims on a mistake Agha Hosseini made on his resume, saying this proved he did not differentiate between the two arbitration proceedings.
French and Swiss courts rejected the Israeli objections and approved the continuation of the arbitration process. At the time Iran estimated its share of the EAPC partnership at $800 million.
The third arbitration proceeding also includes a claim for compensation for unpaid oil sold to Israel. But this time it’s against three Israeli fuel companies that received the oil in 1979 for use in the Israeli market. That oil was never paid for.
In 1991 Paz Oil, Sonol and Delek were named as parties in the arbitration, after they bought crude oil from NIOC through the Geneva-based Swiss shell company Société des Pétroles et des Transports Maritimes, known as Sopetrol.
Eight years later the arbitrators ruled that Israel must pay the debt to the Iranians, with interest. Israel ignored the payment orders delivered to Sopetrol in Geneva, and the arbitration has been moving through the courts there ever since.
In January 2014, Switzerland’s Federal Supreme Court ruled in NIOC’s favor. The Israeli companies were ordered to pay about $100 million, but Israel has made clear that it will not make any payment to an enemy country, as Iran is defined under Israeli law.
As reported in Haaretz, the money owed to Iran was deposited in a special Bank of Israel account under the supervision of the Finance Ministry’s accountant general.
These funds were later confiscated under the Trading with the Enemy Act, dating to the time of the British Mandate before Israel was founded, to prevent the Iranians from putting a lien on the money or other assets.
At the end of 2013 the account balance was about 1 billion shekels ($250 million).