Iran Awarded Interest on 1977 Defense Contract

(CN) - A defense contractor that owes Iran $2.8 million on a decades-old equipment deal must compound the award with fees and interest, a federal judge ruled.

Cubic Defense Systems had agreed in 1977 to sell and service an air combat maneuvering range to the Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran.

When the Iranian revolution disrupted those plans in 1979, both parties agreed to discontinue the contracts, and Cubic later sold the equipment to Canada.

Iran filed an arbitration claim against Cubic with the International Chamber of Commerce (ICC) in 1991, after the contractor failed to give a requested accounting. The ICC awarded Iran $2.8 million - plus 12 percent pre-award interest and half the arbitration costs - in 1997.

But as Cubic ignored Iran's payment demands, the defense ministry filed a petition with the U.S. District Court in San Diego seeking a confirmation of the award. Cubic argued that the ICC ignored the contract terms and denied the company a meaningful opportunity to present its case.

Not persuaded, the court confirmed the award in 1999.

The Ministry of Defense then sought a post-arbitration award, plus interest and attorneys' fees.

After the court refused, Iran brought an appeal to the 9th Circuit.

Cubic argued there that it would contradict public policy to side with Iran since Clinton-era sanctions prohibited transactions relating to technology. The contractor also noted that the State Department had added of Iran's defense ministry to a WMD blacklist in 2007, freezing all of Iran's property and interests in the United States.

In amicus briefs, both the State Department and the Treasury Department supported confirming the award.

They said that the earlier regulations permitted Cubic to pay the award and even harsher rules later provided for a license to deposit funds in Iran's name into a blocked account. The 9th Circuit confirmed the ICC decision in 2011, and asked the lower court to consider Iran's request for post-award interest and fees.

Prejudgment interest is not punitive, but Cubic "willfully failed to abide by the final arbitration award," Chief U.S. District Judge Barry Moskowitz ruled.

He set prejudgment interest at more than $316,000 and granted the ministry more than $131,000 in attorneys' fees.

Cubic failed to show that it should not be punished because Iran is a rogue state and a sponsor of terrorism. Moskowitz also dismissed claims that Cubic had credible grounds to challenge the ICC award.

"On appeal, when Cubic had a chance to vindicate its reasons for failing to honor its contractual obligation to abide by the arbitrator's ruling to pay [Iran] $2.8 million, Cubic abandoned its arguments that the arbitration proceedings were flawed, and instead changed its strategy to focus on new issues that were not related to the validity of the arbitration proceeding or the performance of the contracts," Moskowitz wrote. "Cubic's fluctuating position suggests an attempt to delay paying any money to the Ministry of Defense rather than the presence of a legal reason to ignore a valid arbitration award."

The judge continued: "In this motion, Cubic once again changes course. Cubic now argues that it was impossible to pay the arbitration award until it obtained a license from the Department of Treasury, therefore prejudgment interest should not accrue. This argument also lacks merit. ... The Ninth Circuit held that Cubic could have paid the arbitration award under a general license during certain time periods, and even the newer, stricter regulations allowed Cubic to obtain a specific license to deposit the funds into a blocked account. The U.S. Supreme Court interpreted the regulations in the same manner. Consequently, the regulations do not excuse Cubic retention of $2.8 million that the ICC ordered it to return to the Ministry of Defense."

Cubic had also argued that postjudgment interest should begin with his decision. Moskowitz instead awarded a daily rate of $42.99 beginning from the Aug. 10, 1999, confirmation of the ICC decision.

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