[05] Starett Housing Corp. v.

Iran Holtzmann (someone part ng Tribunal) nevertheless regarded the taking as being
2001 | EVEN IF jus cogens = State can claim immunity from civil suit | Wayne unlawful because Iran utterly ignored its international legal obligation under Article IV,
paragraph 2, of the Treaty to make ‘adequate provision...at or prior to the time of taking
for the determination and payment of just compensation.
PETITIONER: Starrett Housing Corporation, Starrett Systems, Inc., Starrett
Housing International, Inc.
DOCTRINE: the Tribunal does not dwell on whether the expropriation was Lawful or
RESPONDENTS: The Government of the Islamic Republic of Iran, Bank Omran, Bank
unlawful, because the Treaty requires an award of full value at the time of taking,
Mellat
including lost profits, when the taking is lawful, no less than when it is unlawful -
Note: I read the origs and copy-pasted the pamana digest. It was on point and really
although additional compensation may be awarded when an expropriating State acts in
good
violation of its international legal obligations.

Claimants Starrett and Bank Omran contracted to develop the ‘Zomorod’ residential
housing project in Tehran. Their agreement provided that Starrett would purchase FACTS:
certain tracts of land from or through the Bank, construct approximately 6000
apartment units on those tracts, and the sale of completed apartments to Iranian  Claimants in this case are Starrett Housing Corporation, Starrett
purchasers as condominiums. Starrett however claimed that their property interests in Systems, Inc., Starrett Housing International, Inc.
the Project had been unlawfully taken by the Government of Iran, as it had deprived  Starrett Housing Corporation (Starrett) (incorporated in the Federal
them of the effective use, control and benefits of their property by means of various Republic of Germany, which is a wholly-owned subsidiary of the
actions authorizing, approving and ratifying acts and conditions that prevented Starrett
Claimant Starrett Housing International, Inc., incorporated in the US)
from completing the Project.
and Bank Omran, an Iranian development bank, contracted to
develop the ‘Zomorod’ residential housing project in Tehran (The
These official measures included the appointment of a temporary manager of Shah
Goli by the Ministry of Housing appointed, pursuant to a decree of the Revolutionary Project).
Council called the “Bill for Appointing Temporary Manager or Managers for the  Their agreement provided that Starrett would purchase certain tracts
Supervision of Manufacturing, Industrial, Commercial, Agricultural and Service of land from or through the Bank, construct approximately 6000
Companies, either private or public”. Starrett is claiming for compensation for the apartment units on those tracts, and the sale of completed
expropriation of the "effective use, control and benefits of the Project". apartments to Iranian purchasers as condominiums.
o Starett owned 79.7% of a company incorporated under the
ISSUE: W/N the acts of the Government of Iran constituted at taking of Starrett’s
laws of Iran called the Shah Goli Apartment Company (Shah
property. – YES
Goli), which was especially established to carry out The
Project.
HELD:
THE APPOINTMENT OF A TEMORARY MANAGER IN ACCORADNACE WITH ITS o Further, Starrett also indirectly owned all of the equity in
PROVISIONS DEPRIVED THE SHAREHOLDERS OF THEIR RIGHT TO MANAGE SHAH Starrett Construction, which was contracted and entitled to
GOLI management fee from the proceeds from the sale of
As a result of these measures the Claimants could no longer exercise their rights to ‘Zomorod’ apartments.
manage Shah Goli and were deprived of their possibilities of effective use and control  Claimants contended that their property interests in the Project had
of it. The Tribunal does not dwell on whether the expropriation was lawful or unlawful, been unlawfully taken by the Government of Iran, as it had deprived
because the Treaty of Amity requires an award of full value either way. Judge
them of the effective use, control and benefits of their property by
 means of various actions authorizing, approving and ratifying acts  WoN the acts of the Government of Iran constituted at taking of
and conditions that prevented Starrett from completing the Project. Starrett’s property. – YES
 The Claimants highlighted the following acts and conditions:
(i) a reduction in the Project work force, including sub-contractors,
RATIO:
owing to conditions in Iran
(ii) strikes and shortages of materials THE APPOINTMENT OF A TEMORARY MANAGER IN ACCORADNACE WITH
(iii) the collapse of the banking system ITS PROVISIONS DEPRIVED THE SHAREHOLDERS OF THEIR RIGHT TO
(iv) changes in the control of Bank Omran MANAGE SHAH GOLI
(v) the freezing of Shah Goli’s bank accounts The Tribunal found there was a taking, without deciding whether the taking
(vi) harassment of Starrett personnel by armed Revolutionary Guards was lawful or unlawful.
(vii) various official measures by the Islamic Republic of Iran.
 These official measures included the appointment of a temporary The Tribunal concluded that the appointment of a Temporary Manager of the
manager of Shah Goli by the Ministry of Housing appointed, pursuant Project on 30 January 1980 amounted to a taking of Starrett’s property.
to a decree of the Revolutionary Council adopted on 14 July 1979, The succinct language of this act makes it clear that the appointment of a
called the “Bill for Appointing Temporary Manager or Managers for Temporary Manager in accordance with its provisions deprived thE
the Supervision of Manufacturing, Industrial, Commercial, shareholders of their right to manage Shah Goli. As a result of these
Agricultural and Service Companies, either private or public”. measures the Claimants could no longer exercise their rights to manage
 The Claimants presented alternative claims requesting: Shah Goli and were deprived of their possibilities of effective use and control
(i) compensation for the expropriation of the "effective use, control of it.
and benefits of the Project"
(ii) equitable remuneration "in consideration of all work performed" As the Tribunal has previously held, the Treaty of Amity, Economic Relations,
on the Project prior to the expropriation, in terms of the force and Consular Rights between the United States and of America and Iran is
majeure provisions of Basic Project Agreement entered into between 'clearly applicable' and thus a 'relevant source of law on which the Tribunal is
Shah Goli and Bank Omran (a respondent bank whose obligations justified in drawing'" the Tribunal does not dwell on whether the expropriation
the Government of Iran was alleged to succeed to) was lawful or unlawful, because the Treaty requires an award of full value at
(iii) recovery of all costs and loans, in accordance with the terms of the time of taking, including lost profits, when the taking is lawful, no less
both the Basic Project Agreement and a guarantee allegedly given to than when it is unlawful - although additional compensation may be awarded
the Starrett by Bank Omran, owing to the fact that "the acts of the when
Government of Iran constituted expropriation had rendered Starrett's an expropriating State acts in violation of its international legal obligations.
further performance impossible"
 The latter two contractual claims were, however, not pursued by the Under the Treaty, compensation for the expropriated property should be just
Claimants after the Tribunal had found, in the Interlocutory Award, and should represent the full equivalent of the property taken. Judge
that acts Holtzmann (someone part ng tribunal) nevertheless regarded the taking as
being unlawful: “had the Tribunal considered it necessary to address the
ISSUE: issue of the lawfulness of the expropriation, it would have had to have found
that, notwithstanding the underlying legislative action, the expropriation was additional costs of referring that would result if the matter was referred back
unlawful because Iran utterly ignored its international legal obligation under to the Expert for further calculation.
Article IV, paragraph 2, of the Treaty to make ‘adequate provision...at or prior
to the time of taking for the determination and payment of just The Tribunal awarded only simple interest. In the circumstances of the case
compensation. (it appeared that the Claimant had made back-to-back loans to finance the
Project on which it was paying compound interest), However, Judge
Compensation was awarded to Starrett in respect of its “indirect” interest in Holtzmann maintained that awarding simple interest was insufficient to
the Project, held through corporate entities incorporated in Iran (as well as make the Claimant “whole for the actual damage it suffered”.
the value of loans made to such entities. The standard of compensation
awarded was the full market value of Starrett’s interest in the Project, held to
be the amount a reasonable businessman would pay for Starrett’s rights in
the Project. This reasonable businessman was assumed to be an Iranian
businessman.

The compensation was implicitly based on a valuation of the housing

An Expert was consulted for the findings on valuation and the Tribunal
discussed in some detail the balance between reliance on the Expert’s report
and the need for the Tribunal to reach its own decisions on compensation.
The Tribunal endorsed the Expert’s use of the DCF method and indeed had
anticipated its use in the Expert’s terms of reference. Although the Tribunal
accepted, to a significant degree, the Expert’s findings on valuation and was
unstinting in its praise of the Expert’s evenhanded approach and careful
assumptions and calculations, it awarded significantly less compensation
than the Expert had calculated in his Report

It reduced compensation “by a global amount” without assigning precise

The Tribunal relied on its discretion to determine compensation equitably