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  • Thejalakshmi Anil

Lost Ground: Why ICJ’s Oversight in Certain Iranian Assets Matter

This blog has been authored by Thejalakshmi Anil, 3rd year student at NALSAR, Hyderabad.


In 2016, Iran instituted a suit against the United States in the International Court of Justice alleging breach of the Treaty of Amity, Economic Relations and Consular Rights (hereinafter the ‘Treaty’). The dispute arose from U.S measures which allowed private litigants to bring suits against Iran, claiming damages for allegedly supporting terrorist acts and attaching seized Iranian assets to satisfy the judgements obtained in those actions. The ICJ’s decision on jurisdiction in 2019 effectively side stepped the issue of state immunity by upholding the preliminary objections raised by U.S. In this article, I have argued that the ICJ's decision not to exercise jurisdiction over the question of state immunity is erroneous, as the interpretation of the treaty provisions supports a strong inference of state immunity. Additionally, I contend that the interpretation of provisions should have been deliberated at the merits stage. By omitting to consider the issue, ICJ has let slip an opportunity to clarify pertinent issues surrounding state immunity.


Factual Background

Iran’s claims stem from several legislative, executive and judicial measures taken by the US. Firstly, US enacted a terrorism exception in its Foreign Sovereign Immunities Act, leading to suits being brought against Iran claiming damages for terrorist acts allegedly supported by Iran. Secondly, US enacted the Terrorism Risk Insurance Act of 2002 permitting the enforcement measures for these judgement. Thirdly, an executive order effectively froze the assets of the Iranian Government, including those held by the Central Bank of Iran (Bank Markani) and financial institutions under Iranian ownership or control. A subsequent legislation also allowed the attachment of Bank Markazi’s assets. This was challenged in Bank Markazi v. Peterson, but the US Supreme Court upheld the execution of approximately $1.75 billion worth of assets from the Central Bank of Iran to satisfy judgments in favor of terrorism victims. This led to the institution of suit with the ICJ by Iran grounding the Court’s jurisdiction on the compromissory clause of the Treaty of Amity (Article XX1).


State Immunity in the Treaty of Amity

For the purpose of jurisdiction, the court had to decide whether failure to accord immunities related to the interpretation or application of the Treaty Amity as provided under Article XXI(2). To allege a breach of the Treaty, Iran relies on four provisions - Articles III(2), IV(1) & (2), X (1), and XI (4).

Iran contested that denial of immunity contravenes Article III(2) which ensures parties’ access to courts of justice. The ICJ rejected this claim, drawing a distinction between rights that parties may assert and the possibility to access courts to assert those rights. According to the Court only the latter is protected under this provision and hence, a claim for State immunity does not stand. However, as Judge Kirill Gevorgian pointed out, this categorization is entirely artificial. The ICJ in Jurisdictional Immunities case has emphasized the procedural and preliminary nature of immunities (para 82, Judgement). This means that a claim for immunity protects a sovereign state not only from an adverse judgement but from being subjected to the trial process itself. By denying this protection which is accorded to states at the procedural stage, there is a breach of the protection to access courts of justice.

Similarly, the ICJ held that Articles IV(1) and (2) do not include an obligation to protect sovereign immunities of states under customary international law (CIL) by reasoning that these provisions refer to a minimum standard of protection similar to the standard typically required in investment treaties and not the law of state immunity. But this narrow interpretation once again defeats the purpose for which the provision was enacted – as Judge Momtaz noted, minimum protection in international law would be meaningless if it did not provide immunity for state entities carrying out acts jure imperii (sovereign activities).

Regarding “freedom of commerce” protected under Article X, the court concluded that considerations of immunity had a tenuous connection with the provision and did not fall within its scope. This interpretation is unsupported, considering the Court's previous determination of the provision in the judgment on preliminary objections in the Oil Platforms case. In Oil Platforms, any act impeding freedom of commerce was prohibited which included the destruction of Iranian oil platforms by the US (para 51). Applying the same reasoning, denying sovereign immunity to an institution like Bank Markazi, which plays a vital role in facilitating commercial transactions conducted by Iranian companies in the US, and seizing its assets would undoubtedly impede impact the freedom of commerce. Consequently, it is possible to infer an obligation to uphold state immunity in this context as well.


Article XI (4) and a contrario interpretation

Article XI(4) becomes especially interesting here because this provision, unlike others, expressly refers to immunity. Iran adopted an a contrario reading of this provision to infer an obligation to uphold state immunity for companies engaging in acts jure imperii since the provision only proscribed its application for state entities engaging in commercial activities. This is a method of interpretation which has been employed by both the ICJ and PCIJ whereby an inference is raised that if a provision explicitly covers one set of circumstances, it implies that other similar categories are excluded. According to J. Robinson, this can also lead to an inference that a comparable category is included.

The Court in this instance simply referred to the textual provision to hold that, an a contrario interpretation is “not supported by the text or context of the provision.” However, this conclusion is not supported by the general rule of treaty interpretation, as reflected in the Vienna convention on Law of Treaties, which states that interpretation must take into account any relevant rules of international law applicable in the relations between the parties. For instance, consider the ICJ’s judgment on merits in Oil Platforms, where it refused to sustain the argument that the provisions of the Treaty was to be interpreted in exclusion to general principles of International Law (para 41, Judgement). Or the trio of decisions by the European Court of Human Rights where the Court circumscribed the right of access to the courts enshrined in Article 6 by giving weight to the customary rule on State immunity.[i] Likewise, the interpretation of the provision requires recourse to the CIL on state immunity to determine whether the disputed acts are sovereign or commercial. By limiting the denial of immunity to only commercial activities, the Treaty effectively preserves the immunity of state enterprises engaged in acts considered jure imperii. Therefore, in the present situation there is a strong case for rule on immunities to be factored in while interpreting the provision.

This interpretation also aligns with the object and purpose of the Treaty. In the Oil Platforms case, the Court emphasized that the treaty's overarching objective was to foster friendly relations across all activities covered by the Treaty (para 52, preliminary objections). Therefore, in that judgment, the Court ruled that matters relating to use of force would not be excluded from the reach of the treaty. Similarly, disregarding the rules on sovereign immunity would obstruct the implementation of rights and obligations derived from the Treaty. This underscores the importance of upholding state immunity for the Treaty's effective realization, smooth operation, and fulfillment of its intended objectives.

The separate opinions rendered by three judges in this case also emphasized the link between the unimpeded functioning of Bank Markazi and the implementation of the Treaty.[ii] Bank Markazi plays a vital role in facilitating commercial transactions carried out by Iranian companies in the US, performing various functions directly related to commerce, which are protected by the provisions of the Treaty. Therefore, the attachment of Bank Markazi's assets acts as a hindrance to trade and disrupts economic relations. Consequently, it is essential to comply with the international obligations regarding immunity concerning central bank assets in order to uphold the rights and obligations enshrined in the treaty.


A question of merit?

While in the above section I argued that the sovereign immunity could be read into the provisions of the treaty, I will now argue that the treaty provisions should have ideally been examined at the merits stage. The Court at the jurisdictional stage is required to assess not whether the treaty applies to the disputed circumstance, but whether the applicant has an arguable contention to that respect.[iii] Therefore, the test is whether the claims warrant a conclusion that it is based on the treaty though it need not necessarily be the correct interpretation. This restraint with respect to the definitive interpretation of treaty provisions at the preliminary phase was also displayed in several past ICJ decisions.[iv] Hence, while substantively the treaty may or may not apply to a certain dispute, the Court may exercise jurisdiction to determine whether it does.

This argument is further supported by the phrasing of the compromissory clause of the Treaty which confer jurisdiction over “any dispute… as to the interpretation or application of the present Treaty.” Therefore, the jurisdiction conferred by the compromissory clause applies with respect to a provision, even if it creates no legal obligation, if there is a dispute between the parties as to whether or not it does. For instance, in Oil Platforms U.S. raised the objection that the Treaty did not cover questions related to the use of force. However, the Court maintained that the interpretation and application of the relevant article should be addressed at the merits stage.

Similarly, the present case concerns a dispute between the parties with respect to the interpretation and application of the provisions of the Treaty of Amity. Whether the provisions create a legal obligation to uphold sovereign immunity can only be ascertained if the court exercises jurisdiction to decide the said dispute. Therefore, this is a question which does not have an exclusively preliminary character and should have been dealt with at the merits stage of the proceedings.


Conclusion

State immunity is a contentious area where debates exist surrounding several questions. Consider the question of immunity from execution of central bank assets – while Article 21(1) of UNCSI expressly precludes attachment and makes property of central bank absolutely immune, there is still considerable debate on whether it has achieved the status of CIL due to inconsistent state practice.[v] Another contested area is with respect to a terrorist exception. A question that had been raised in the Jurisdictional Immunities case was whether violation of jus cogens norms could constitute an exception to State immunity. Had the case proceeded to merits stage, the ICJ would have had to look into the question of whether a ‘terrorism exception’ exists to State immunity. While scholars agree that such an exception was unlikely to hold water,[vi] the ICJ’s judgement on the issue would have lent much needed clarity.

[i]Al-Adsani v United Kingdom Application no 35763/97 123 ILR 24 (2001); Fogarty v United Kingdom Application no 37112/97) 123 ILR 54 (2001); McElhinney v Ireland Application no 31253/96 123 ILR 73 (2001). [ii] Certain Iranian Assets, supra note 4, ¶ 4 (separate opinion by Gevorgian J.); Certain Iranian Assets, supra note 4, ¶¶ 12-14 (separate opinion by Robinson J.); Certain Iranian Assets, supra note 4, ¶ 12 (separate opinion by Momtaz J.). [iii]Oil Platforms (Iran v. U.S.), Preliminary Objections, Judgment, 1996 I.C.J. Rep. 840 (Dec. 12) (separate opinion by Shahabudeen, J.). [iv]Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, I. C.J. Reports 1984, p. 428, para. 83; Ambatielos, Merits, Judgment, I.C.J. Reports 1953, p. 18; Interhandel, Judgment, I.C.J. Reports 1959, p. 24. [v] Ingrid Wuerth, Immunity from Execution of Central Bank Assets, in The Cambridge Handbook Of Immunities And International Law (Tom Ruys et al. eds., 2019) at 266. [vi]Victor Grandaubert, Is there a place for sovereign immunity in the fight against terrorism? The US Supreme Court says ‘no’ in Bank Markazi v. Peterson (May 19, 2016) available at: http://www.ejiltalk.org/is-there-a-place-for-sovereign-immunity-in-the-fight-against-terrorism-the-us-supreme-court-says-no-in-bank-markazi-v-peterson/ (accessed on 14 July 2023).

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