'F 80 File 82/34 I APOC Concession' [‎1er] (20/436)

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
PERSIA. ^^OepCY~~l October 21, 1932.
I ^
CONFIDENTIAL. ^ S ection 1.
I
[e 5508/3880/34] mr-tr-ztl^j
^ Sir John Cadman to Foreign Office.-—(Received October 21.)
Sir, London, October 19, 1932.
A VERY difficult situation having been reached in respect to the relations-
between the Persian Government and the Anglo-Persian Oil Company, I consider
it necessary to acquaint you with the present position, and with the circumstances
which have led up to it.
2. The Foreign Office is already aware that, from the early days of the
company's existence as a commercial profit-earning concern, differences of opinion
arose between the company and the Persian Government with respect to the
interpretation of the phrase 16 per cent, of the annual net profits," which
defines the company's royalty obligations to the Persian Government under the
terms of the D'Arcy Concession.
3. That such differences should have arisen was not a matter for surprise,,
having regard, on the one hand, to the lack of more precise definition within the
body of the D'Arcy Concession Agreement, and, on the other, to the steady
expansion in all directions of the company's business relations and to the
inevitably increasing complexity of its financial and accounting arrangements.
4. It was mutually agreed, as far back as 1919, that such a state of affairs,
if allowed to continue, would become increasingly embarrassing to both parties
to the concession, and the Persian Government therefore deputed Mr. (now Sir)
Sydney Armitage-Smith—then their financial adviser—to proceed to England,
and, with the assistance of expert advisers, to negotiate a subsidiary agreement
with the company, which should regulate the royalty matters then in dispute, and
thereafter constitute a basis for the regulation and settlement of the annual
royalty payments.
5. Prolonged discussions took place in 1920 between Sir S. Armitage-Smith,
aided by Mr. (now Sir) William McLintock on the one hand, and the company'^
representatives on the other which eventually resulted in an agreement, since
known as the Armitage-Smith Agreement, being duly concluded and signed on
the 22nd December, 1920.
6. The memorandum attached to this letter gives the most relevant and
salient points of—
(a) Events leading up to, concurrent with, and immediately subsequent
to the negotiations.
{h) Powers entrusted to the negotiators.
{c) The agreement itself.
7. Since the agreement was signed and until a few years back, the agree
ment substantially served the purpose for which it had been designed. It must r
however, be admitted that the ever-increasing volume and ramifications of the
company's business since 1920 led to occasional differences of opinion between
the accounting advisers of the Persian Government and the company as to the
correct application of the terms of the agreement. These, however, were generally
settled by agreement, a relatively small number of disputed points being reserved
in the hope that they might all be disposed of en bloc by discussion and settle
ment between the Government and the company at a convenient and suitable time.
8. It is relevant to mention at this stage that in 1928, the view was expressed
by the Persian Imperial Commissioner (his Excellency Eissa Khan Fayz) that
the Armitage-Smith Agreement was invalid on the grounds that
{a) It had not received the sanction of the Majlis, and
{b) The Government representative had exceeded his powers.
Similar views have since been expressed by the Minister of Court (his--
Highness Teymourtache), but there has as yet been no formal denunciation, nor
any definite official statement by the Persian Government to any similar effect
[607 x—1] B