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Iran sues MoD firm over the Shah's tanks

Thirty-five years and one revolution later, the row over non-supply of military vehicles worth £650m rumbles to High Court

The Iranian government is taking a Ministry of Defence-owned company to the High Court to end a £400m row over British-made Chieftain tanks that has dragged on for 35 years.

At the centre of the dispute are hundreds of tanks paid for by Tehran but never delivered as a result of the 1979 Iranian revolution. The Shah of Iran had ordered 1,750 tanks and support vehicles for £650m from International Military Services (IMS) before he was toppled, whereupon the deal was cancelled. Only 185 were delivered and Iran has wanted its money back ever since. The International Chamber of Commerce sided with Tehran in an arbitration concluded in 2009.

The dispute was thought to have been settled in 2010, but has been further prolonged by bizarre negotiation tactics from Tehran, secretive meetings in Istanbul, and postponement of legal proceedings due to a change of judge.

IMS set aside hundreds of millions of pounds more than a decade ago in case international courts later ruled against the firm. In 2010, it was expected that IMS would transfer to an account holding Iranian assets more than £390m, which Tehran could not touch because of EU sanctions.

IMS was then to be wound down, but the MoD's shareholding of all but one of the firm's 20 million shares is still noted deep in the department's annual accounts. Ministers have refused to disclose details of what happened in the years in between.

However, The Independent on Sunday can reveal that Iran will again chase IMS for nearly £400m in the High Court this summer.

IMS directors, led by chairman and former senior MoD official Sir Roger Jackling, thought an agreement had been struck with the Iranians after the 2009 ruling and the company ceased any trading activities in February 2010. Iranian negotiators and IMS met in July 2010 and March 2011 to iron out the details of what was thought to be a final settlement. But the Iranians then went quiet.

A meeting with an Iranian justice minister took place in Istanbul early last year, and there have been what are described as "informal" talks in London. Iran tried to take IMS to the High Court last summer, but the British team was concerned that the judge's expertise was in property litigation rather than in sensitive international contractual battles. The case was delayed, but is due to begin later this year, much to the bemusement of British officials who feel "there is very little between" the two parties on what is owed and how monies can be offset and transferred.

MoD officials are still hopeful that a negotiated settlement could be completed before the latest legal action starts, but there is some speculation that Tehran's brokers would rather resolve the issue through a court ruling than appear to have compromised in any way.

In IMS's latest annual report, the board states: "Once all these issues have been resolved, the intention is to liquidate the company."

Alison Seabeck, shadow Defence minister, said: "It is unclear why the MoD didn't... try to clear the matter off its books [or why it] went for a deferment of the court case last year."

An MoD spokesman said: "No money will paid to Iran while EU sanctions remain in place. Settlement negotiations between International Military Services Ltd and the Iranian regime are ongoing and no agreement has yet been reached."