International Military Sales Ltd

Philip Dunne Excerpts

Tuesday 11th March 2014 Westminster Hall

[The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne)]

It is a pleasure, Ms Dorries, to serve under your chairmanship at this later than anticipated hour; I am grateful to you for keeping Westminster Hall open. I thank my hon. Friend the Member for Wyre and Preston North (Mr Wallace) for securing this debate. It is important that we have this opportunity to put on the record the Government’s position on the subject that he has raised today.

I know that my hon. Friend, who is chairman of the all-party group on Iran, has taken a keen interest in this matter since he joined the House. It is entirely appropriate that he should have secured this debate . He has raised the issue of a dispute, and it is important to try to get a little clarity on the record as to the nature of that dispute. It relates to a number of contracts—not to a single contract—between the Iranian Ministry of Defence, which I shall refer to as MODSAF, and International Military Services Ltd, known as IMS. I am pleased to have this opportunity to outline the Government’s position regarding the dispute. As my hon. Friend has acknowledged, I am, of course, somewhat limited in what I can say, given pending litigation in the High Court between IMS and MODSAF. The UK Ministry of Defence itself is not a party to those proceedings.

I will make a number of key points in responding to this debate. First, I wish to make it clear that the Government would like the matter to be resolved as soon as practicably possible, which I think was the main challenge laid down by my hon. Friend. We share his determination in that respect, not least because, as he said, the dispute can be traced back to 1979 and the demise of the Shah’s regime in Iran. At that time, IMS, a company wholly owned by the MOD, had approximately 60 contracts to supply MODSAF with defence equipment and services. The change in regime in Iran saw the cancellation and termination of those contracts, resulting in a number of legal disputes.

The vast majority of the disputed contracts were settled on 22 October 1990, but four contracts were not. The two largest of those four contracts involved, as my hon. Friend said, the sale of more than 1,000 main battle tanks and armoured recovery vehicles. These contracts were referred to the International Chamber of Commerce for arbitration. The ICC ruled on 2 May 2001—more than 10 years later—in favour of MODSAF. By agreement between the parties, MODSAF agreed not to pursue payment of the awards until the outcome of a planned challenge to the awards by IMS. That was under the proviso that IMS paid, by way of security, a sum sufficient to meet the awards into the High Court. That payment was made in December 2002.

IMS subsequently challenged the ICC awards through the Dutch legal system, as the seat of the ICC arbitration, culminating in a final ruling on 24 April 2009 by the Dutch Supreme Court. The challenge by IMS was partially successful, in that the Dutch Supreme Court partially set the ICC awards aside.

The Government and IMS accept the ruling of the Dutch Supreme Court. However, there are legal issues that remain unresolved as to the precise amounts payable to MODSAF and crucially, as my hon. Friend said, as to how the sanctions regime that had been subsequently imposed impacts on the awards and the circumstances under which MODSAF is entitled to receive payment. These issues are subject to litigation, with a High Court hearing scheduled for June.

In addition, as I have already mentioned, there are other contracts under dispute. In relation to one of these, an infrastructure contract, the ICC tribunal ruled in favour of IMS on 28 January 2005. Prior to the Dutch Supreme Court ruling in 2009, international sanctions were imposed against the Iranian Government, in the context of their potential nuclear aspirations. In 2008, MODSAF itself was designated under the relevant sanctions regulations. Notwithstanding the recent sanctions relief included in the joint plan of action agreed with Iran, the bulk of the sanctions remain in place until a comprehensive settlement is reached on the nuclear programme. It would be inappropriate for the Government to comment any further on these issues, given the pending litigation.

However, the Government would like to see a final and appropriate resolution of these long-running disputes, and we hope that the recent progress in reaching an understanding on a variety of issues with the Iranian Government will facilitate that objective.

[Mr Wallace]

I am not referring specifically to this case. In general, given previous rulings, does the Minister not recognise that it is perfectly acceptable for a court to deal with the discharge of an obligation separately from how that obligation is then paid to an entity? They are not the same things.

[Mr Dunne]

My hon. Friend pre-empts the conclusions to my remarks, but I can confirm that we anticipate a resolution being possible, ideally without recourse to the High Court action in June. We would be happy to see the parties engage to reach a settlement on the outstanding issues before it gets to court. We think that can be done irrespective of the sanctions regime. Once a settlement has been reached to agree a final amount, the payment of that amount becomes a matter for the prevailing sanctions regime in place at that time. I agree that those are separate issues, but the ultimate payment cannot be made while the sanctions regime is in place.

I want to mention a couple of other factors that the House needs to be aware of. All the negotiations that have taken place on this matter have been conducted by employees of IMS on a confidential basis, in turn routinely channelled through legal representatives. Also, given the title of this debate, I should like to clarify the relationship between the Ministry of Defence and IMS. IMS is a wholly owned subsidiary of the Ministry of Defence; all but one of its 20 million shares are held by the Secretary of State for Defence and the other single share is held by the Treasury Solicitor. It is governed by the Companies Act, with accounts filed in Companies House. The company formally ceased trading in 2010 and now exists purely to resolve the disputes that I have already touched on.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

rose—

[Nadine Dorries (in the Chair)]

I am sorry, Ms Seabeck, but because you were not here at the beginning of the debate, it is not in order for you to intervene. [Interruption.]

[Mr Dunne]

I should have been happy to take the intervention. If the hon. Lady has a point, perhaps she can make it to me afterwards.

[Nadine Dorries (in the Chair)]

May I clarify that Ms Seabeck is not allowed to intervene in this half-hour debate because she is the Opposition spokesperson?

[Mr Dunne]

Thank you, Ms Dorries. We all learn something new every day.

IMS employs two part-time staff members and three directors. The position of the Ministry of Defence and the Treasury is that the company should be wound up once the final disputes have been settled. I think that that addresses a number of points raised by my hon. Friend.

My hon. Friend mentioned the incident that took place in January last year, in which three Iranian officials were detained and deported from Heathrow airport. The former Under-Secretary of State for Foreign and Commonwealth Affairs, my right hon. Friend the Member for North East Bedfordshire (Alistair Burt), wrote at the time to the UK legal representatives of those concerned, explaining that although it was not the intention of the Government to cause undue anxiety, since the attack on our embassy in Tehran in 2011, Iranian officials had not been allowed to visit the UK in their official capacity. The Government regret any distress caused to those involved. Following the softening of the sanctions regime, we think it would now be possible for Iranian officials to engage with IMS, either on neutral territory or, indeed, here again in the UK, if they were willing to return.

To sum up, the Government and IMS recognise and accept the rulings of the Dutch Supreme Court in this matter. A number of issues remain unresolved and are subject to potential litigation, but we hope that a final settlement can be agreed soon. The parties are not very far apart in financial terms, and we hope that they can come to a resolution without further recourse to the courts. I hope that I have explained the Government’s position on this matter.

Question put and agreed to.