International Law

Iran Sues the U.S. in the ICJ – Preliminary Thoughts

By Elena Chachko
Saturday, June 18, 2016, 8:09 AM

On Tuesday, Iran initiated proceedings against the United States in the ICJ under the Treaty of Amity, Economic Relations, and Consular Rights, a bilateral treaty between the U.S. and Iran signed in 1955. According to the ICJ press release, Tehran claims that by subjecting the assets of Iran and Iranian State-owned entities, including the Central Bank of Iran (AKA Bank Markazi), to civil enforcement proceedings within its jurisdiction, the U.S. violated various provisions of the 1955 Treaty as well as international law norms governing State immunity from enforcement.

While the press release does not make clear which specific proceedings Iran was referring to in its application, the trigger for the filing appears to be the Supreme Court’s April decision in Bank Markazi v. Peterson (see Yishai Schwartz’s analysis here). The decision upheld a 2nd Circuit judgment ordering turnover of about $1.75 billion in Bank Markazi assets to families of victims of the 1983 Beirut barracks bombing. The funds were made available to the victims to satisfy previous judgments under the terrorism exception to the Foreign Sovereign Immunities Act, requiring Iran to pay damages to the victims’ families for its role in the attack.

Over at Opinio Juris, Julian Ku weighed in on the preliminary question whether the ICJ would accept jurisdiction to hear this case under the 1955 Treaty. (The U.S. withdrew from compulsory ICJ jurisdiction in 1986). He concludes that it probably will, under Article XXI.2 of the 1955 Treaty:

Any dispute between the High Contracting Parties as to the interpretation or application of the present Treaty, not satisfactorily adjusted by diplomacy, shall be submitted to the International Court of Justice, unless the High Contracting Parties agree to settlement by some other pacific means.

The ICJ accepted jurisdiction based on this provision once before after the U.S. withdrawal, in the Oil Platforms Case. It may well do so again. While we wait to see how the proceedings unfold, two additional aspects of the case are worth highlighting even at this early stage.

Applicability of the 1955 Treaty to Government Instrumentalities

The first issue that might arise in the context of the proceedings in the ICJ is whether key 1955 Treaty provisions Tehran relies on in its application apply to Bank Markazi or other Iranian government agencies and instrumentalities to begin with. This could prove consequential not only if the ICJ reaches the merits of the case down the road, but also, perhaps, for assessing whether the 1955 Treaty is even implicated in this case in order to answer the jurisdictional question.

Iran relies on Article IV of the 1955 Treaty, which is the central provision establishing mutual obligations regarding protection of property. The provision also incorporates international law more broadly. It provides:

1. Each High Contracting Party shall at all times accord fair and equitable treatment to nationals and companies of the other High Contracting Party, and to their property and enterprises; shall refrain from applying unreasonable or discriminatory measures that would impair their legally acquired rights and interests; and shall assure that their lawful contractual rights are afforded effective means of enforcement, in conformity with the applicable laws.

2. Property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party, in no case less than that required by international law. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation… (emphasis added).

Iran further cites the following provisions in its application: Article III.1 (establishing an obligation to recognize the “juridical status” of companies constituted under the laws of either state); Article III.2 (right of nationals and companies to free access to courts and administrative agencies); Article V.1 (guarantying certain property rights to nationals and companies); Article VII.1 (limiting the right of each party to impose restrictions on transfers of funds); and Article X.1 (“Between the territories of the two High Contracting Parties there shall be freedom of commerce and navigation”).

Judging by the U.S. Government’s position in the amicus brief filed in the framework of the Supreme Court proceedings in Peterson, the U.S. might argue that the key provisions cited by Iran, in particular Article IV of the 1955 Treaty, do not apply to the Central Bank of Iran or to other government instrumentalities. If that is the case, U.S. seizure and enforcement proceedings against the property of such entities do not implicate, let alone violate, the 1955 Treaty. Here are the excerpts from the brief explaining this position:

Petitioner [Bank Markazi] argues that Section 8772 [of the Iran Threat Reduction and Syria Human Rights Act of 2012, clarifying that the Bank Markazi assets at issue in Peterson are available to satisfy the judgments underlying the Peterson enforcement proceedings] violates Article IV.1 of the Treaty of Amity between the United States and Iran, which requires the parties to “accord fair and equitable treatment” to each other’s “nationals and companies.” Petitioner also argues in passing that the statute violates Article III.1 of the Treaty of Amity, which requires each state to “recognize[]” the “juridical status” of “[c]ompanies” of the other state. Contrary to petitioner’s argument, the Treaty is not implicated here because petitioner is not a “national” or “compan[y]” within the meaning of the Treaty.

Petitioner is not a “national” of Iran as that term is used in the Treaty. The context makes clear that the term includes only natural persons... Nor is petitioner a “compan[y]” within the meaning of the Treaty. The term “companies” is defined as “corporations, partnerships, companies and other associations, whether or not with limited liability and whether or not for pecuniary profit.” That definition—which does not include any reference to government agencies and instrumentalities—is not naturally read to include entities like petitioner. The central bank of Iran is an agency of the state that carries out sovereign functions...

Other provisions of the Treaty of Amity confirm that the term “companies” does not include entities like petitioner. Article XI.4 refers to “government agencies and instrumentalities” as distinct from “corporations” and “associations.” And when the Treaty of Amity refers to entities controlled or owned by the sovereign or to sovereign agencies or instrumentalities, it does so expressly…

(pp. 21-23; emphasis added, references omitted)

The Supreme Court did not address these arguments in the Peterson decision. In fact, it virtually ignored the Treaty of Amity altogether. Footnote 13 in Justice Ginsburg’s majority opinion only briefly mentions Bank Markazi’s argument that execution against its assets would violate U.S. treaty obligations to Iran, noting the District Court’s finding that “treaty provisions interposed no bar to enforcement of §8772 because… §8772 displaced ‘any’ inconsistent provision of law, treaty obligations included".

Whether the relevant 1955 Treaty provisions cover government agencies and instrumentalities like the Central Bank of Iran ultimately depends on how one interprets their language. As previously noted, the Treaty grants the ICJ jurisdiction over any dispute between the parties regarding its interpretation, and therefore the mere fact that the case presents questions of interpretation could suffice for the ICJ to accept jurisdiction. Still, if the ICJ is persuaded that, as the U.S. government maintained in Peterson, the majority of the violations Iran alluded to in its application do not implicate the 1955 Treaty, it might deny jurisdiction. Even if the ICJ accepts jurisdiction based on the provisions regarding commerce (X.1) or transfer of funds (VII.1), which are not limited to “companies” or “nationals”, it might take Article IV out of the mix. This would be important because Article IV “imports” international law into the Treaty, significantly expanding the scope of the applicable legal norms.

International Law Challenges to the U.S. Position

In the event that the ICJ eventually reaches the international law issues concerning State immunity through Article IV.2 of the 1955 Treaty, the U.S. will likely face an uphill battle. If the 2012 ICJ decision in Jurisdictional Immunities of the State (Germany v. Italy, Greece intervening) is any indication, Iran has a fairly strong case arguing that the U.S. violated the international law of State immunity from enforcement measures. First, as a general matter, in Jurisdictional Immunities the ICJ exhibited resistance to recognizing new exceptions to immunity from jurisdiction under customary international law, even for cases involving grave human rights violations, violations of the law of armed conflict or violations of jus cogens. The Court also observed that only the U.S. (at the time) recognized a terrorism exception to State immunity (para. 88). Turning to immunity from enforcement, the ICJ established that State immunity from post-judgment enforcement proceedings (or “measures of constraint”) is even broader than jurisdictional immunity: the Court made clear that “the immunity from enforcement enjoyed by States in regard to their property situated on foreign territory goes further than the jurisdictional immunity enjoyed by those same States before foreign courts” (para. 113).

Furthermore, in its analysis of Germany’s immunity from enforcement, the Court effectively relied on the relevant provisions of the 2004 UN Convention on Jurisdictional Immunities of States and Their Property (which the U.S. has not signed). This is interesting considering that the UN Convention has not yet entered into force, and that the Court stopped short of determining that its enforcement-related provisions reflect customary international law in their entirety (para. 117). Seeing as the UN Convention explicitly provides that central banks enjoy immunity from post-judgment enforcement measures (see Articles 19 and 21(1)(c)), the ICJ’s references to the Convention do not bode well for the U.S.

The U.S. might try to argue that Iran waived its immunity from enforcement measures in circumstances such as those present in Peterson, invoking Article XI.4 of the 1955 Treaty. Unlike the other provisions discussed above, Article XI.4, which is not mentioned in Iran’s application, expressly applies to government instrumentalities. It provides:

No enterprise of either High Contracting Party, including corporations, associations, and government agencies and instrumentalities, which is publicly owned or controlled shall, if it engages in commercial, industrial, shipping or other business activities within the territories of the other High Contracting Party, claim or enjoy, either for itself or for its property, immunity therein from taxation, suit, execution of judgment or other liability to which privately owned and controlled enterprises are subject therein (emphasis added).

This hypothetical reading of Article XI.4, however, is far from obvious. Does the fact that Article XI addresses competitive equality between private and publicly owned or controlled actors in a commercial context matter? Does simply holding assets in the U.S. constitute “business activity” for the purposes of the Article? Is being required to pay damages to victims of sovereign public acts a “liability to which privately owned and controlled enterprises are subject”?

Taking all the forgoing into account, it is difficult to see at this time how the U.S. could prevail without a strong international law argument justifying its actions outside the law of immunity. For instance, the U.S. might argue that the enforcement proceedings against Bank Markazi were a lawful countermeasure in response to Iran’s involvement in terrorist attacks against the U.S., in breach of its commitments under both the Treaty of Amity and other international law norms. Of course, an argument like that raises complex legal questions in its own right (see, for example, here).

For the time being, however, the U.S. government seems confident in its position. According to State Department spokesman John Kirbi, “[a]s we have said before, we believe that the United States has acted consistent with its obligations under international law”.