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On 18 January 1982 the Claimant ("Touche Ross"), a partnership organized under the laws of the State of New York, practicing accountancy, filed with the Tribunal a claim against the Respondent, the Islamic Republic of Iran, seeking payment of amounts allegedly due to it under Contract No. 115 ("the Contract") entered into between the Parties on 11 June 1977, for the provision of certain auditing services. The claim is, inter alia, for US $866,172 in respect of services rendered under the Contract prior to 25 June 1979. The Contract was cancelled by Touche Ross pursuant to its force majeure provisions on 17 July 1979. Touche Ross also claims costs of US $8,675 for attending a subsequent meeting between the Parties in Tehran.

On 2 November 1982 the Respondent filed a Statement of Defence and Counterclaim, in which it sought, inter alia, to recover contractual payments made to Touche Ross of US $1,177,886 on the grounds that the latter had improperly terminated the Contract. It also sought to recover social security liabilities.

In the course of the proceedings before the Tribunal, a schedule was laid down for the filing of evidence by the Parties. Touche Ross filed its evidence on the merits on 2 August 1983 and 6 October 1983, and evidence as to its United States nationality and standing on 15 September 1983. The Respondent did not file any evidence before the hearing, which took place on 19 October 1983.

At the hearing the Claimant sought, and was later granted, leave to amend the Statement of Claim to include a request for an order for 286 the release of a letter of credit opened to secure the good performance guarantee in the Contract.4

The Respondent requested a continuation of the hearingand an opportunity to submit further evidence, but this was denied at that stage of the proceedings. In an Order of 11 November 1983, however, the Tribunal authorized the filing of a Memorial summarizing the Respondent's arguments on the issue of jurisdiction arising out of the "choice of forum" clause in the Contract. The Respondent filed such a Memorial and the Claimant filed a Response. The Respondent also renewed its request for a further hearing.

In the same Order of 11 November 1983, the Tribunal directed the Claimant to file copies of certain monthly progress reports referred to in the Contract. In response to that Order, certain documents were filed by Touche Ross and commented on by the Respondent. On 12 June 1984 Touche Ross filed a "Reply" to the Respondent's comments. This document in turn was the subject, first, of an objection to its filing, and subsequently of a "Supplemental Brief" and evidence filed by the Respondent on 7 March 1985. On 18 June 1985 Touche Ross requested that the filing of this latter document be disallowed.

Proceedings against Touche Ross were commenced by the Iranian Ministry of Defence on 16 November 1982 in the General Court of Tehran seeking a declaration that the cancellation of the Contract was invalid, together with damages of one hundred million Rials. On 26 May 1983 Touche Ross filed a Motion with the Tribunal seeking interim measures of protection in the form of an Order for the dismissal or stay of the Tehran court proceedings.

Finding that the claim filed by the Ministry of Defence in Tehran appeared to be substantially the same as the counterclaim previously filed with the Tribunal by the Islamic Republic of Iran, and observing that the subject matter of the counterclaim was excluded by virtue of Article VII, paragraph 2 of the Claims Settlement Declaration from the jurisdiction of the courts of Iran from the date of.filing the counterclaim unless and until the Tribunal should decide that it had no jurisdiction over it, the Tribunal in its Interim Award No. ITM 287 22-480-1 of 13 June 19835 requested the Respondent "to take all appropriate measures to ensure that the proceedings before the General Court of Tehran be stayed . . . at least until 1 September 1983".

Having received further briefs from the Parties, the Tribunal rendered a second Interim Award, ITM 26-480-1, on 17 August 1983,6 renewing its request pending the Tribunal's final determination of Case No. 480. On 21 May 1984, the 19th District, General Court of Tehran, issued a judgment ruling that the termination of the Contract for force majeure in accordance with its terms could not be considered a breach or failure to perform, though it left open the possibility of a separate suit being brought on the Contract should the Ministry of Defence "believe that [Touche Ross] has misinterpreted and misused the contents of the Contract". An appeal against the judgment has been filed.

Touche Ross renewed its request for an Order for dismissal or stay of the Tehran action in a document filed on 12 June 1984.

The claim in this case arises out of a contract that was part of the so-called "IBEX" project, to modernize and expand the Iranian Air Force's electronic intelligence-gathering system. The Air Force hired a number of contractors to design and construct various aspects of the system, to provide training, and to help manage the project. Pursuant to Contract No. 115, concluded on 11 June 1977, Touche Ross was the Audit Advisory Contractor for the project.

Touche Ross's tasks under the Contract were set out in a Statement of Work appended to the Contract. It required Touche Ross, inter alia, to audit, examine, review and analyse the financial plans, records and procedures of the various other contractors under the IBEX project, and to issue reports on a monthly and quarterly basis. In conjunction with representatives of the Respondent, Touche Ross was also required to review invoices submitted by the other IBEX contractors and make recommendations as to payment, and to participate in developing recommendations regarding other aspects of the management of the program. Touche Ross was also to prepare IBEX Cost Principles and Procedures Manuals for each IBEX contractor, and to determine the contractors' compliance with the manuals; to 288 prepare and issue special reports related to contractors' financial matters; to evaluate contract change proposals; and within thirty days after the effective date of the Contract to prepare and submit a work plan and a financial plan including proposals for each contractor. Touche Ross was to provide an estimated 64,000 professional man hours over a period of 36 months, for an estimated total contract price of US $4,000,000 calculated on that number of hours worked. The Respondent was to issue payment certificates for works performed by Touche Ross, based on progress of work and against monthly invoices certified by the Respondent. Payment certificates were to be issued within four weeks of their receipt, if there was no objection. The invoices certified for payment were then to be presented to a bank where a letter of credit had been established.

With the exception of attendance at progress meetings, almost all Touche Ross's duties under the Contract were performed in the United States, using data and documentation supplied to them by the several IBEX contractors under review. Touche Ross alleges that it proceeded to perform its obligations under the Contract and continued to do so without interruption through September 1978. Monthly reports were submitted, it claims, and invoices paid. Thereafter, it contends, it became increasingly difficult to obtain instructions from the Government of Iran as to the work required. Touche Ross claims that by the beginning of 1979 further performance had become almost impossible owing to the disruption occasioned by the Revolution and the impossibility of identifying or contacting persons responsible for the Contract who could give instructions as to the work to be done.

On 10 April 1979 Touche Ross gave written notice pursuant to Article 6.2 of the Contract, invoking the force majeure provision on the ground that further performance was impossible. Under Article 6.2, the Parties were then to consult with each other to find ways to deal with the force majeure conditions. If no mutually acceptable solution were found within three months, either Party had the option of cancelling the Contract by giving written notice to the other. Touche Ross's notice referred to Article 6.3 of the Contract which provided that force majeure was not to be considered as either breach of contract or negligence.

On 17 July 1979 Touche Ross gave written notice of cancellation pursuant to the force majeure clause, no mutually acceptable resolution having been reached between the Parties. The amount Touche Ross alleges it was owed as at that date for services rendered under the 289 Contract to 25 June 1979 was $866,172. This has been broken down into two main invoices which were submitted at a meeting of the Parties in August 1979 and which replaced previously submitted monthly invoices: No. 4376, showing $777,597 unpaid through 10 February 1979, and No. 4375 showing $88,575 unpaid for the period from 11 February 1979 through 25 June 1979, the date work finally ceased. The remainder of the claim consists of $8,675 in respect of expenses incurred by two Touche Ross representatives in attending a meeting with officials from the Iranian Ministry of Defence in Tehran in August 1979. This was the subject of a separate invoice, No. 4905, rendered in January 1980 but unpaid. The Claimant also seeks interest on these amounts, and costs of the arbitration. There is no claim for lost profits.

The Respondent disputes the claim, both as to the Tribunal's jurisdiction and as to the merits.

Three issues as to jurisdiction are raised by the Ministry of Defence, which filed pleadings on behalf of the Islamic Republic of Iran. First, it argues that Touche Ross, as a partnership, does not have capital stock and is therefore not capable of falling within the definition of a "national" of the United States laid down in Article VII, paragraph 1 of the Claims Settlement Declaration.

Second, at the hearing, the Respondent also argued that the departure of partners from the firm interrupted the continuity of ownership required by Article VII, paragraph 2 of the Claims Settlement Declaration, or that it at least required a pro rata reduction of the claim.

The third argument is that the claim is excluded from the Tribunal's jurisdiction by virtue of Article II, paragraph 1 of the Claims Settlement Declaration, as being "within the sole jurisdiction of the competent Iranian courts". The forum selection clause in Contract No. 115 provides as follows:

8. Settlement of Differences

All differences and disputes which may arise between the two parties resulting from interpretation of the Articles of the Contract or the execution of the works which can not be settled in a friendly way, must be settled in accordance with the rules and laws of Iran via referring to the competent Iranian Courts.

Touche Ross denies that the jurisdictional provisions of the Claims Settlement Declaration require that an entity have issued capital stock 290 in order to be a Claimant, and it states that under the firm's partnership agreement the claim has been owned continuously by the partnership, not the individual partners, and departing partners take no interest in it. Touche Ross also denies that the forum selection clause bars the Tribunal's jurisdiction under the Claims Settlement Declaration.

As to the merits of the claim, the Respondent disputes that there is any evidence that any services were performed by Touche Ross after September 1978. It denies receiving, or at any rate approving, any invoices after that time, and does not accept the Claimant's contention that invoices must be deemed to have been approved for payment unless disapproval was actually notified within four weeks. It also denies receiving after that time the monthly progress reports required by the Contract.

The Respondent points out that Touche Ross admits that it has been fully paid for its services through September 1978 and that it has not made any further demands in that connection. Thus, the Respondent contends that there is no justification for the inclusion of $330,682 in Touche Ross's Invoice No. 015-8921 dated 26 February 1979 as an adjustment of the balance due for the period of 26 July 1977 to 25 December 19'78. Further there is no contractual basis for such a demand. In spite of the Claimant's having been fully paid for its services until October 1978, Touche Ross has made out new invoices for the, prior months, which action also lacks contractual foundation.

The Respondent declines, in particular, to accept that any work could have been done by Touche Ross after 10 February 1979, the date on which all work was deemed by the new Government of Iran to have stopped. This date was communicated retrospectively to the Claimant in a letter of 16 July 1979, which also included an invitation to attend negotiations in August of that year. The Contract was cancelled by Touche Ross unjustifiably, in the view of the Respondent, and without reference to the offer of discussions. It disputes the existence of circumstances giving rise to force majeure such as to warrant cancellation of the Contract, and claims, instead, that Touche Ross's action in abandoning the project constituted a breach of contract. It also contends that Touche Ross's agreement to participate in discussions invalidated its earlier invocation of force majeure.

The Respondent raises a counterclaim asserting that Touche Ross breached the Contract by improperly invoking force majeure and 291 cancelling the Contract. It seeks recovery of US $1,177,886 paid to Touche Ross on previously submitted invoices, plus interest. It seeks, in addition, an estimated amount of US $1,200,000 for damages and lost profits resulting from the Claimant's failure to discharge its obligations, together with interest and costs. It further seeks damages for losses incurred in connection with disruptions which it states occurred in the work of eighteen other contractors as a result of the Claimant's abandonment of the project, and in this connection the appointment of an expert is sought.

There is also a counterclaim for Rials 11,948,280 in respect of unpaid premiums due to the Social Security Organization in respect of the period from 11 June 1977 to 3 November 1981, including penalties for delayed payment.

Touche Ross denies liability on each counterclaim. It contends that work on the various IBEX contracts was disrupted by events surrounding the Revolution, and not by any action of Touche Ross. It denies any liability for social insurance premiums as almost all the work under the contract was performed, not in Iran, but in Los Angeles.