164- Certain Iranian Assets (Iran vs USA)

164- Certain Iranian Assets (Islamic Republic of Iran vs United States of America)

On June 14th, 2016, the Islamic Republic of Iran filed an application instituting proceedings against the United States of America before the International Court of Justice (the ICJ or the Court) for alleged violation of the Treaty of Amity, Commerce and Consular Rights (the Treaty of Amity) signed on August 15th, 1955 by the two countries and entered into force in 1957.

However, the two countries ceased diplomatic relations in 1979 following an attack in Beirut in Lebanon that killed 241 people on the American side that the United States blamed on Iran, which the government in Tehran has always categorically rejected. Other attacks reportedly followed. In 1984, the United States designated Iran as a state sponsor of terrorism, (qualification still applicable to this day), with important legal consequences. Indeed, at the national level, the United States has set up an important legal arsenal: 

• The Foreign Services Immunities Act of 1996 (the 1996 FSIA) which deprives states on the list of state sponsors of terrorism immunities before US courts in cases regarding allegations of torture, extrajudicial execution, sabotage of aircraft, hostage-taking…. It also create an immunity from execution.
• The Terrorism Risk Insurance Act of 2002 (TRIA Act) which allows any successful party in a case regarding any of the matters listed above to obtain remedy on the terrorist party’s assets blocked by the U.S. government.
• In 2008 the FSIA Act was amended to expand the asset classes available to satisfy successful creditors by adding all assets of Iranian state-owned entities, whether or not blocked by the United States and regardless of the degree of control exercised by Iran.
• In 2012, an Executive Order No. 13599 (the Executive Order) froze all Iranian or Iranian-controlled assets as long as they are located in the territory of the United States or in the possession or control of any person of the United States. The United States has subjected the assets of Iran’s Markazi central bank to enforcement measures.

In this case, Iran asserts that the United States has put in place a number of measures that have had either for purpose or effect to impede the ability of Iran and Iranian companies to dispose of or enjoy their property and assets, both on Iranian territory and abroad, including on American soil. According to the applicant State, the US government, grounding its decisions on various articles of the legal arsenal we have presented, has granted and continues to grant claims for damages before US courts in violation of the principle of immunity from jurisdiction. At the time of the introduction of this application, Iran had already been ordered to pay damages totalling $56 billion. The United States have seized and plans to seize the blocked assets belonging to the Islamic Republic and certain companies with a legal personality separate from the Iranian state in certain banks located in different institutions around the world. These decisions according to Iran, would contradict the principle of immunity from jurisdiction, namely the prohibition of bringing an action against a sovereign State before the national courts of another State, are made possible by the American position that immunity from jurisdiction and the consequences thereof do not apply to States supporting terrorism, characterization applied to Iran by the United States.

The applicant State asserts that the American laws, the decisions already rendered, enforced or in the process of being rendered and the position of the United States Government are in violation of the Treaty of Amity signed between the two countries in 1955 and entered into force in 1957. This instrument provides, inter alia, that each of the two States recognizes the legal status of companies of capital or persons formally incorporated. Iran contends that the rights of Iranian companies and banks have been or are in the process of being abolished by the above-mentioned United States legislation. In addition, the Treaty of Amity specifies that each of the High Contracting Parties shall guarantee free access to justice and other administrative bodies in its territory to nationals and companies of the other Party in order to defend or assert its rights under conditions no less favourable than those granted to its own nationals or to those of any third country. Iran notes that by denying Markazi Bank and other institutions the immunity they might otherwise avail themselves of under international and U.S. law, as well as the right to take legal action to defend themselves, the U.S. Government is in breach of its obligations under the Treaty of Amity. The instrument also provides for protection, security, freedom of trade, non-discrimination and fair, equitable and non-arbitrary treatment of nationals of the parties, obligations not respected by the United States vis-à-vis Iran and Iranian companies.

The United States raised preliminary objections challenging the jurisdiction of the ICJ as well as the admissibility of the application. In its judgment of February 13th, 2019, the Court upheld a single preliminary objection by the respondent State and defined the parameters of its jurisdiction.

Judgment of 13-09-2022.pdf

The Court ruled on the merits of the case on March 30th, 2023. It first addressed the questions that had been reserved in the judgment concerning preliminary objections:

• As regards, first of all, to the question of sovereign immunities relied upon by Iran: the Court notes that it must first examine whether the Iranian bank Markazi can claim the status of a company within the meaning of the Treaty of Amity. In the light of the documents submitted and during the period under review, the Court notes that the acts are not sufficient to establish the commercial nature of the bank’s activities, which cannot therefore be characterized as a company within the meaning of the Treaty of Amity and consequently the Court does not recognize that it has jurisdiction to hear decisions taken in respect of these assets within the meaning of the Bilateral Agreement;
• Turning to the inadmissibility of the request, the USA alleged a failure to exhaust domestic remedies from the part of Iran: after examining the legislative provisions, the Court concludes that the Iranian companies had no effective remedy before the domestic courts which they allegedly failed to use. Since there is no reasonable opportunity to successfully assert their right before the United States courts, the objection of inadmissibility based on failure to exhaust local remedies cannot succeed.

After defining the parameters of its jurisdiction and examining the admissibility of the Application, the Court turned to the defences on the merits raised by the United States and based on:

• The doctrine of “clean hands” invoked by the United States: the Court indicates that it has never affirmed that this doctrine constitutes a general principle of law or forms part of customary international law. In any event, for this doctrine to apply, at least 2 conditions must be met, namely a fault or wrongful act committed by the applicant on the one hand and a link between the fault and the claims submitted by the applicant State on the other. In the Court’s view, this second criterion is not satisfied. The clean hands doctrine cannot therefore be accepted.
• Abuse of rights and particularly of the provisions of the Treaty of Amity: the Court concludes that the United States has not demonstrated the existence of such an abuse.
• The violation of the provisions of the Treaty of Amity concerning the production of arms or ammunition or the profit that a party could derive from them. This article may not be invoked by a party to justify general measures to confiscate the property of companies having their own distinct legal personality. The United States’ defence under this Article cannot be accepted.
• Measures that are necessary to protect the vital interests and security of the United States: the Court notes that it was for the United States to demonstrate that Executive Order 13599 met an objective of protecting the security and vital interests of the United States, which was not the case here. This plea cannot be upheld.

After rejecting the defences on the merits raised by the United States, the Court examined the alleged breaches of the obligations imposed on the United States under the Treaty of Amity which had resulted in judicial decisions which Iran opposed. The Court reiterates that it has no jurisdiction to examine the measures of Presidential Decree No. 13599, nor the Peterson case.

• Regarding the question of legal personality distinct from that of the Iranian state: Iran maintains that the United States willingly ignored the legal personality of Iranian companies and that this was not justified. The Court notes that in the present case, the rights of Iranian companies to sue, appear before court and defend themselves have not been impeded. There can therefore be no denial of justice. However, the question is whether disregarding the legal personality of those companies was justified in the present case. The Court answered in the negative, considering that the specific provisions of the TRIA and FSIA Laws and the specific provisions of the Decree were far too broad in view of the objective pursued. Therefore, the application of these measures by the US courts is unreasonable and has unduly infringed the rights of Iranian companies. In so doing, the United States has failed to fulfil its obligations under Article 4 § 1 of the Treaty of Amity. 
• Regarding the question of free access to US courts and administrative bodies: the Court notes that Iranian companies have had access to US courts and administrative bodies and that Iran has not proved that the US has violated Article 3 § 3 of the Treaty of Amity.
• On the issue of seizure of assets of Iranian companies: neither party disputes that the US has seized assets of Iranian companies to satisfy successful creditors that prevailed before the US courts. The disagreement lies on the qualification of these seizures insofar as Iran considers that it is an expropriation without compensation, which would constitute a violation of Article 4§2 of the Treaty of Amity. The United States refutes this characterization. The Court notes that in order to qualify as expropriation, there must be a specific element of wrongfulness (denial of justice, complete disregard of the law or application of manifestly abusive legislation). In so far as the Court considered that certain statutory provisions of the laws (sections 1610 paragraph 1 (g) FSIA and 201 (a) TRIA) were unreasonable, it follows that the application of these articles constituted an act of expropriation without compensation in violation of Article 4 § 2 of the Treaty of Amity. The same is not true for the implementation of E.O. 13599 because Iran has not substantiated its expropriation allegations.
• Regarding the obligation to ensure protection and security in the most consistent way: No property damage was reported. In the present case, the Court concludes that Iran has not satisfactorily established this plea.
• Regarding the question of the restriction on transfers of funds prohibited by Article 7 § 1 of the Treaty of Amity: the Court considers that this Article relates to change restrictions, which Iran has not demonstrated.
• On the question of freedom of trade and navigation protected by Article 10 § 1 of the Treaty of Amity: The Court considers that activities connected with the financial sector are within the purview of the article. But to be invoked, the trade in question must take place between the American and Iranian territories and it must have had an effective and direct obstacle between the 2 parties to the Treaty. For the Court, at the time when the United States took the measures challenged by Iran, there were still trade relations, however embryonic between the 2 countries. Executive Order 13599 constituted an effective and direct impediment to Iranian financial institutions and activities in the United States. The same applies to section 1610 (1) (g) FSIA and 502 (a) TRIA. the USA has therefore violated its obligations under Article 10 § 1 of the Treaty of Amity.

Iran has requested the Court to ask the USA to cease the internationally wrongful acts. The ICJ replied that the United States having denounced the Treaty of Amity on October 3rd, 2018, it cannot order such measures. Finally, on the issue of reparations, the Court affirmed that Iran was entitled to receive compensation, but reserved this point for a later phase of the procedure if the parties could not reach an agreement within 24 months.

Judgment of 30-03-2023.pdf

This summary is provided for informational purposes only, does not involve the responsibility of Dome and should in no way be used as a substitute for a careful reading of the judgment and order of the case.