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The D'Arcy Concession’s Nullification by Iran; Great Britain Takes the Case to the League of Nations

۸۸ years ago, on November ۲۷,۱۹۳۲, the Iranian government sent a letter to the residential director of the Anglo-Iranian Oil Company declaring it had annulled the D'Arcy Concession because it did not serve the Iranian interests and expedience and stressed a new contract had to be signed in this regard.
January 2021
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Gholam Ali Rajabi Yazdi

88 years ago, on November 27,1932, the Iranian government sent a letter to the residential director of the Anglo-Iranian Oil Company declaring it had annulled the D'Arcy Concession because it did not serve the Iranian interests and expedience and stressed a new contract had to be signed in this regard. Owing to the significance of this historic event, this paper probes the reasons behind Iran’s nullification of the concession, Britain suing Iran and the two countries negotiations at the League of Nations by references to the documents and the minutes of the meetings at the league of Nations.

Iran was among the first countries in the region to grant a British company within 40 years after the discovery of oil all prospecting, discovery and trade of the then unknown matter via the D'Arcy Concession by Mozaffar ad-Din Shah Qajar in 1901. Discovery of oil in Masjed Soleiman in 1908 was a turning point in the history of the region. After the establishment of the Anglo-Iranian Oil Company in 1909 and ratifying the contract by the British government with the Anglo-Iranian Oil Company and taking over 51% of the company shares and full supervising rights on the company, the relations between Iran and Britain entered a new phase.

Holding three rounds of negotiations from 1917 to 1932 between Iran and Britain including Nosrat a-Dowleh Firouz, Armitage Smith, and Adbolhossein Teymourtash , finally led to Reza Shah declaring nullification of the D'Arcy Concession in 1932, followed by the UK suing Iran at the League of Nations, and after the negotiations between Iran and the UK and under the guidance of the League of Nations a new contract was concluded between the two countries.

 For more information about the measures adopted by the Iranian government to present legal evidence to justify the step, also about the nullification process of the D'Arcy Concession and the British taking the case to the League of Nations’ secretariat to proceed with the case as per article 15 of the Covenant, the British –Iranian statements are presented in more detail as follows.

 1- Nullification of the D'Arcy Concession by Iran

On November 27,1932, the Iranian government sent a letter to the residential director of the Anglo-Iranian Oil Company declaring it had nullified the D'Arcy Concession because it did not serve the Iranian interests and expedience and stressed a new contract had to be signed in this regard. The reasons why Iran annulled the D'Arcy Concession include:

  • The concession trampled on Iran’s legitimate rights
  • Nonpayment of 16% of the profits and Iran’s supervising rights in expenditures
  • Not paying Iran’s legitimate rights during the second world war
  • Not paying taxes
  • Not fully utilizing Iran’s oil resources

According to document SH1308-13-16.39-284 of the Foreign Ministry’s Center for Documents and Archives, Iran’s reasons for annulling the D'Arcy Concession presented by the Iranian foreign ministry to the UK embassy in 1932 are as follows:

Trampling on Iran’s legitimate rights

The redacted writing presented by the foreign ministry hints at trampling on Iran’s legitimate rights as one of the main reasons for nullifying the D'Arcy Concession, and cites the following legal arguments as indicative of not observing Iran’s legitimate rights.

  1. The D'Arcy Concession has not been issued in compliance with the Iranian interests;
  2. The country’s legitimate rights have been trampled on by the grant;
  3. The concession has been achieved when in the time of granting such concessions, unfortunately, the interests of the country have not been observed;
  4. And the receivers of the concessions abused the ignorance of the issuers of the affairs;
  5. In addition, in obtaining the concessions, all means of duress and oppression have been used;
  6. As a result of the threats and coercion the issuers of the concessions did not have freedom to refrain from granting such concessions;

The Iranian foreign ministry sees the above mentioned arguments as clear reason for imposing the concession and adds “that his excellency and the UK government would acknowledge that the modern world does not give credit to the concessions such imposed and does not deem it binding. Regardless of the above faults, the behavior and practice of the company with the Iranian government does not comply with the very unconsented-to concession and the company has constantly defaulted on the Iranian government’s royalties as per that badly written invalid concession and trampled on the Iranian government’s rights.”

Nonpayment of 16% of the profits and Iran’s supervising rights in expenditures

Another legal argument that the Iranian foreign ministry refers to in cancelling the D'Arcy Concession is not paying the 16% of Iran’s profits. Iran’s writing in this regard resorts to the following cases.

  1. According to the D'Arcy Concession, the company has to pay 16% of the profits of the company and its subsidiary companies without exception. The logical result of this commitment is that the Iranian government has a right to supervise on expenditures that are reduced from the company profits before reaching net profits, also, it has the right to give its opinion in relation to indispensability and non-indispensability of the expenditures, otherwise, the Iranian Interests will be always at risk.
  2. Unfortunately, the oil company that has been infamous for its overspending has never been willing to pay Iran for its rights of supervising the company’s expenditures before paying the concession rights. Needless to say, that most of the irrelevant expenses made by the company have a full impact on the privilege and reduce the said profits to a ridiculous amount.
  3. In addition, the company has never so far submitted its and its subsidiary companies’ books to the Iranian government or its representatives in order for the Iranian government to make sure that it has achieved its real profits.

With the above legal arguments, the Iranian government concludes that “despite the text of the concession the company has failed to pay the Iranian royalties, and in cases has allocated large financial aids to its subsidiary companies, as a result, reducing substantially the Iranian profit; thus, the company has disagreed with the regulations inserted in the concession and imposed great loss on the Iranian government.”

   Not paying Iran’s legitimate rights during the second world war

The world war two subject and not paying Iran’s legitimate rights by the company is additional reason that is referred to by the foreign ministry for cancelling the D'Arcy Concession. In the writing written by the Iranian foreign ministry for cancelling the D'Arcy Concession that is referred to, there are hints at the subject: “one piece of proof that the South Oil Company does not comply with the D'Arcy Concession is that , despite increasing oil and oil-derivatives prices and on the rise need for them during the international war  and the Iranian oil being a crucial factor in the allies’ victory, as a result the Iranian oil sale at the world price bringing gargantuan profits for the company, the company failed to pay the Iranian royalties as per the express text of the concession, as a result, practically invalidating the concession. Although the Iranian government repeatedly tried to materialize its rights and settle previous accounts, unfortunately, the government’s steps did not result in something satisfactory.”

  Not paying taxes

Not paying taxes was one more legal argument that is referred to by Iran. According to the foreign ministry’s writing,” the company is entitled to none of the state exemptions on the state taxes, and despite the fact that taxes on revenues have been imposed in Iran since 1930 and while the company is obliged to comply with the Iranian laws, so far has failed to pay its taxes and defied the state regulations.”

  Not fully utilizing Iran’s oil resources

Limiting utilization to inside Iran and expanding the operations outside Iran by the company from the Iranian soil, despite the company’s commitment to utilize the Iranian oil resources, are among other reasons presented by the foreign ministry for cancellation of the D'Arcy Concession. the Iranian writing in this regard reads, “ Should we cite another example of the oil company’s indifference  to the Iranian interests , it is that, despite the fact that according to the D'Arcy Concession , the company is entitled to extract oil across Iran except for five provinces , and the existence of oil all over Iran is of no doubt , and the privilege of the company per se obliges the company to utilize it, but instead of focusing its entire potential on Iran and as a result via multiplying its utilization bring more profits for the Iranian government, the company, on the one hand, has limited its operations in Iran , and on the other hand, has widened its range of operations outside Iran.”

In the continuation of the writing, the Iranian government, pointing to its willingness to settle the rift, adds,” with all differences, the Iranian government places its relations on solid and worthy ground and is willing to settle the rifts, but unfortunately, all efforts of the Iranian government have led to no practical results. Even during the past summer, the Iranian government expressed willingness for the company to send its representative to Tehran to reach a decisive settlement, but the company failed to send its authorized representative.”

 2- UK makes a case to the league of nations' secretariat to examine the dispute according to the article 15 of the covenant

On December 14, 1932, the UK foreign ministry sent a writing to the head of the secretariat of the League of Nations stressing, “the Iranian monarchy has declared that it has cancelled the concession previously granted to the Anglo-Iranian company, which is a British company. For this, there has arisen a difference between the government and the British monarchy. Because the British monarchy contends the said rift could result in the relations being cut off, therefore, based on the order given by our respective government, I see myself honored to ask for the dispute to be examined as per the article 15 of the League of Nations’ Covenant.”

It is worthy to be noted that according to article 15, in case there arises a difference between the members of the League, and the odds are it might result in cutting ties and it is not referred to arbitration or judicial settlement, the members of the league agree to refer it to the council. On December 17, 1932, head of the Iranian delegation, Mr.Sepahbodi submitted the original copy of the telegraph text received from Iran as head of the secretariat to the League of Nations.

“… because the Iranian government has not yet received the contents of the British monarchy’s request submitted to the council, cannot yet comment on the grounds and ways the request was brought to the council to be proceeded… to date, this government has not yet taken any steps against the said company and does not intend to, thus, deeming it urgent is groundless.”

 The then head of the council, Mr. Sean Lester telegraphed to the Iranian and British foreign ministries a text, reading, “I am confident that in anticipation of the council examining the dispute, both countries will refrain from any steps or measures that exacerbate and intensify the situation.” Following this and at the January 24 meeting, by the proposal of the head of the council, Mr.Edward Bench was appointed as reporter of the case for needed negotiations to peacefully and justly settle the existing rift.

  3- Iranian and British Representatives’ Statements

The British representative’s statements

At the meeting on January 26, 1933, Sir John Simon, the representative of Britain, stated that the concession had been granted according to the relevant regulations and the concession had required Iran’s compliance to the highest degree with the concession; the former owner of the concession had legally transferred the concession to the Anglo-Iranian oil company and it had been a long time that the Iranian government had recognized the said company as owner of the concession. He also hinted at the expenditures made and risks taken by the company and says that after 7 years of costs and much effort , the extraction of commercial quantities of oil began in 1912. In 1913 and 1914 the first commercial profits were gained and from 1914 to 1919, the company paid 325 thousands of pounds to the Iranian government.

The Iranian representative’s statements

Mr.Davar, Iranian Secretary of justice, pointing to the British claim that people’s lives and properties had been risked, adds” that the Iranian government deems itself committed to protecting the alien people’s lives and properties inside Iran and never intends to violate its duty. In relation to the British claim that as a result of the November 27, 1932 letter (cancellation of the D'Arcy Concession) the lives and properties of people have been put to danger, it must be accepted that the said government shows a baseless illusion as a perpetrated wrong.”

He follows that, ” including the D'Arcy Concession as an intergovernmental contract is not imaginable” and stresses that “granting a concession to a private company in 1901 with the right of transfer to one or several trade company cannot be considered a contract between countries.” With regard to the claim to damages by armed units during the war period, the Iranian representative adds,” without naming any country, I have to remind you that all our neighbors spread their war into Iran and our impartiality was violated by , first, this same company and perhaps by the British government; therefore, the other warring countries trespassed our country and started forming armed units that cut the oil pipelines ; thus, how come the company expected the Iranian government to pay for the damages.”

  4- Conclusion at the February 3, 1933 Meeting

The council headed by the Italian representative and attended by Mr.Davar and Mr.Eiden concluded as follows:

“Both sides agree that the proceedings of the council be stalled until the next meeting of the council in May.”

The summary of the conclusion meeting is as follows:

  • By reserving rights of the two parties, both sides agree the company immediately start talks with the Iranian government.
  • Both sides agree, in case no result is gained from the negotiations, the case be broached again at the council ,without damaging the pleas of the parties.
  • The council will ask for evidence in relation to the case thereto sent and reserves its right to proceed with it.
  • Far-sightedness of both sides for refraining from steps that deteriorate the situation is appreciated.
  • The present report and the results of the reporter’s negotiations with both parties of the dispute obtained to arrange interim measures are adopted.

Mr.Eiden and Mr.Davar agree with the letter of approval proposed by the reporter.

  5- At the meeting, on May 26, 1933, Mr.Bench, the reporter, declared: “… on May 1, Mr.Foroughi, the Iranian foreign minister, informed the general secretary of the League of Nations that the negotiations between the Iranian government and the representative of the Anglo-Iranian oil company   in Tehran have led to a new concession and the related concession has been signed in Tehran on April 29, 1933. I have contacted both parties’ representatives and have ascertained that as a result of this new concession, the mentioned difference has been settled.

Although, at the same time that Britain sued Iran at the League of Nations, the negotiations between the representatives of Iran and Britain were ongoing and the process finally led to the conclusion of the 1933 agreement between the two countries, the eloquence and strength of the legal arguments presented by the Iranian delegation have remained engraved in the memory of the League of Nations.

 Gholamali Rajabi Yazdi, Senior Expert    

     (The opinions expressed are those of the authors and do not purport to reflect the opinions or views of the IPIS) 

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