'F 80 File 82/34 I APOC Concession' [‎219v] (383/436)

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5. Production of Persian oil on a commercial scale began in 1912, and,
since then, the Company has conducted extensive operations in Persia under the
concession. In accordance with article 10 of the concession, under which
the Persian Government was to receive (in addition to certain sums in cash and
shares, which have been duly paid), 16 per cent, on the annual net profits of any
■companies formed to work the concession, large sums have been paid to that
Government by the Company. The sums paid to the Persian Government up to
the 31st December, 1931, amount to over £11 million sterling^ 1 )
6. The concession contains no provision for its termination before the end
of the period of sixty years for which it was granted, except article 16, under
which the concession was to become null and void if, within two years from the
■date of the concession, no company had been formed in accordance with its terms
for the purpose of working it. The "First Exploitation Company" having
been duly formed, as stated above, within this period of two years, the provision
in question ceased to have effect as from the date on which that Company was
formed.
7. Under article 17 of the concession, any dispute or difference between
the parties thereto in respect of its interpretation or the rights or responsibilities
of one or the other of the parties therefrom resulting was to be submitted to the
decision of three arbitrators, one appointed by each party, and one selected by the
two arbitrators so appointed. The decision of the arbitrators, or of the third
-arbitrator in the event of the two arbitrators appointed by the parties failing to
agree, was to be final.
8. It is a matter of common knowledge that in the year 1914 His Majesty's
Government, with the object of ensuring the oil supplies of the British navy,
acquired a considerable interest in the Anglo-Persian Oil Company, which
interest they still retain. This statement is made for the sake of completeness;
His Majesty's Government are bringing the present dispute before the Council
not in the capacity of shareholders in the Company, but as the Government of a
State which has thought it necessary to take up the case of one of its nationals
whose interests have been injured by acts contrary to international law committed
hy another State.
9. While article 10 of the concession provided that there was to be paid
to the Persian Government annually a sum equal to 16 per cent, of the annual
net profits of any company or companies that might be formed in accordance
with the terms of the concession to operate the same, it did not. attempt to define
the basis on which the annual net profits of any such company were to be arrived
at in calculating the Persian Government's royalty. It is obvious that the
phrase '' net profits '' is open to various interpretations, and when, after some
fifteen years' work on the concession, profits were first derived from it, questions
soon arose between the Persian Government and the Company as to the manner in
which the " net profits " on which the Persian Government was to receive its
16 per cent, ought to be calculated. That such questions should have arisen was
not a matter for surprise, having regard, on the one hand, to the lack of 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.
10. After lengthy but unfruitful negotiations, the Persian Government
formally appointed, in August 1920, the late Sir Sydney Armitage-Smith—then
its financial adviser—as its representative to adjust finally all questions in dispute
between the Persian Government and the Company, either by an amicable
arrangement, or, if that were not possible, by arbitration. The Persian Govern
ment's representative was assisted in his negotiations by eminent firms of
chartered accountants and of lawyers in Great Britain.
11. A change of Ministry in Persia took place shortly after the appointment
of the Government's representative, and the new Ministry confirmed his authority
to continue negotiations with the Company.
( 1 ) The amounts (to the nearest thousand pounds) of the royalties actually paid by the Anglo-
Persian Oil Company to the Persian Government have been as follows; For the period 1913 to
1919, an aggregate sum of £1,326,000. For the years ending on the 31st March, 1920, £469,000;
1921, £585,000; 1922, £593,000; 1923, £533,000; 1924, £411,000; 1925, £831,000; 1928, :
£1,054,000; 1927, £1,400,000; 1923, £502,000. For the nine months ending the 31st December,
1928, £529,000. For the years ending the 31st December, 1929, £1,437,000; 1930, £1,288,000,
1931, £307,000.