Focus on Compensations for New Automotive Contracts

Khodrocar – Last series of sanctions lead to foreign car makers to leave Iran car market and thus tons of pressure were on shoulders of domestic car makers, especially IKCO as Peugeot’s partner in Iran. They were forced to make their foreign parties to pay compensations for leaving the car market all of a sudden.

The story turned into a hot subject of every new summits. The important question popped out then, sanctions made foreign parties to leave Iran car market against their will, so is it a proper excuse to make compensations for?

"All contracts are based on some low facts and in every contract sanctions are clearly referred to as Force Majeure circumstances so it is completely out of hands of all parties of a contract. For example there is no connection between sanctions enforced on Iran by US or UN with Peugeot. The brand was forced to leave Iran car market unwillingly, so why pay compensations? It is completely out of its hands therefore it is not basically legally prosecutable” Said Farbod Zave, automobile industry expert, referring to compensation conditions and terms.

"What companies do during sanctions is to settle previous debts or pay goodwill to show their tendency to keep going on with their partners. Goodwill has nothing to do with compensations or foreign investments. What Peugeot has done after sanctions with IKCO was all about goodwill and not the investments. Even if Iran opens up a prosecution case it is unlikely to win because global courts will consider sanctions as Force Majeure circumstances though wont vote for any compensations” Emphasized Zave. 

"What IKCO managers had in mind was legally impossible. Now Peugeot has left Iran and there is nothing IKCO can do about it. Anything that leads to increment in final price of the product is not considered as a technique to get around the sanctions. The best was to open the gates of the country to that the global brands to come in to invest and pick partners freely. But instead wrong politics in automotive industry made foreign automobile industry related brands to run away from this market.” Said the expert.

Khodrocar – Every contract is based on some preset rules and when it is talks about mammoth international contracts, terms are negotiated with even more care and obsession. Sanction is one important and effective factor in the final result of the contract. So it is better that parties negotiate the terms and set some better substitutes as Force Majeure compensations.

Khodrocar Journalist and Translator: Shahab Anisi