Judicial Expropriation

Abstract

This note analyses the part on expropriation of the judgment of the International Court of Justice (ICJ, or the Court) in the case Islamic Republic of Iran v United States of America (Certain Iranian Assets).2 The case arose from various legislative and judicial measures taken by the United States against Iran that allegedly resulted in the breach of the United States’ obligations under the Treaty of Amity, Economic Relations, and Consular Rights (1955) (the Treaty of Amity).3 The ICJ found by 11:4 votes that the United States had violated the obligation under Article IV(2) of the Treaty of Amity that property of nationals or companies of the Contracting Parties ‘shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation’. Four dissenting judges found that no taking had occurred. The Court found that no denial of justice had occurred. It stated that the Iranian entities had been able to contest the underlying measures, make submissions before US courts, lodge appeals and that there had been no ‘serious failure in the administration of justice amounting to a denial of justice’.4 The judgment raises two important questions in the context of an expropriation: what sort of illegality, if any, does it need to turn domestic court judgments implementing the amended US legislation into an expropriation and what is the role for regulatory powers in this context? The note commences with a review of the background of the dispute (Section II). It then addresses the judgment’s analysis (Section III) and proceeds to discuss two particular issues in the judgment in the context of expropriation, namely: expropriations involving domestic court judgments and regulatory powers (Section IV) before offering conclusions (Section V). The bilateral relationship between the United States and Iran has remained problematic ever since the 1979 Islamic Revolution. The United States considers Iran to be responsible for the 1983 bombing of the US military barracks in Beirut which led to the deaths of 241 US peacekeepers and injured many more and for supporting numerous terrorist acts against US nationals and the United States.5 In 1984, the United States declared Iran to be a ‘State sponsor of terrorism’ and inserted a ‘terrorism exception’ into its Foreign Sovereign Immunities Act (FSIA) in 1996.6 As a consequence, it was possible to successfully claim compensation for deaths and injuries resulting from terrorist acts sponsored by Iran or other States designated as ‘State sponsor of terrorism’.7 In 2002 the United States adopted section 201(a) of the Terrorism Risk Insurance Act (TRIA).8 This provision allows for the attachment of assets and execution of terrorism judgments for compensatory damages. This is possible against the assets of a State sponsor of terrorism and those of its agencies and instrumentalities, which have been blocked pursuant to a sanction regime. In 2008 the United States adopted section 1610(g) of the FSIA to enlarge the categories of assets that can be used for attachment and execution.9 In 2012, the US president issued Executive Order 13599. It blocked all assets of the government of Iran, including those of the Central Bank of Iran and of other Iranian financial institutions, where such assets were within United States territory or ‘within the possession or control of any United States person, including any foreign branch’.10 Furthermore, the United States adopted in 2012 the Iran Threat Reduction and Syria Human Rights Act. Section 502 of this act made assets of the Iranian Central Bank available for execution.11 As a consequence of these legislative and executive measures US courts have issued a number of default judgments and substantial damages judgments against the State of Iran and, in some cases, against Iranian State-owned entities. Further, the assets of Iran and of certain Iranian entities, including the Central Bank of Iran are subject to enforcement proceedings in various cases in the United States or abroad, or have already been distributed to judgment creditors.12 As a consequence, Iran sued the United States based on the compromissory clause in the 1955 Treaty of Amity. It alleged that among other provisions the United States had violated Article IV(2) which prohibits uncompensated expropriations. The United States only terminated the Treaty of Amity in October 2018 when the ICJ rendered its Order on Provisional Measures in the parallel 1955 Treaty of Amity case which is concerned with US sanctions.13 The United States objected to the jurisdiction of the ICJ and contested the unlawful expropriation claim on the ground that, inter alia, its actions were a legitimate exercise of its police powers. The United States invoked that they were aimed at providing victims of terrorist acts with the ability to obtain redress from the sponsors of those acts, including Iran.14 The United States’ jurisdictional objections were successful regarding the Iranian Central Bank. The ICJ decided that it does not qualify as ‘company’ under the Treaty of Amity. Therefore, a major part of the expropriation claim, namely the part concerning the assets of the Central Bank, was outside the jurisdiction of the ICJ.15 Concerning the rest, the Parties did not dispute that US courts had subjected the property and interests in property of Iranian companies to attachment and execution. Furthermore, there was agreement on the fact that such assets had been turned over or distributed to successful claimants in US court cases in which Iran was found liable. This happened without compensation for the affected Iranian companies.16 The ICJ’s analysis of the expropriation claim is brief (two pages). First, the ICJ states which assets are concerned.17 The United States objected against the inclusion of certain assets that were only distributed to the plaintiffs in US court cases after the termination of the Treaty of Amity.18 The ICJ decided that these funds could nevertheless be taken into consideration in the expropriation analysis since they were already affected by US court decisions pre-dating the termination of the Treaty of Amity.19 The Court declined to consider assets that Iran could not prove belonged to Iranian companies.20 It decided that it had to determine whether the attachment and execution of the property and interest in property constitute takings in violation of Article IV (2) of the Treaty of Amity.21 Pursuant to the second sentence of Article IV(2) of the 1955 Treaty of Amity: Property of nationals and companies of either High Contracting Party, including interests in property … shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. The ICJ stated that a judicial decision ordering the attachment and execution of property or interest in property does not per se constitute a taking or expropriation of that property. Two things are notable here: first, the Court equates takings and expropriations; second, the ICJ requires that an additional condition is fulfilled for a judicial decision so that it may amount to an expropriation, namely an element of illegality.22 The ICJ mentions two situations in which this will be the case: first a denial of justice, and second when a judicial organ applies ‘legislative or executive measures that infringe international law and thereby causes a deprivation of property’.23 The ICJ clarifies that it must examine the legislative, executive, and judicial acts adopted by the United States as a whole.24 It hereby differs from the suggested method of analysis proposed by the Unted States. The United States first explained why the Court should not consider the legislative and executive measures to be expropriatory25 and separately explained why the court decisions implementing these measures should not be an expropriation either.26 Concerning the requirements for a judicial expropriation, the ICJ did not rely on any case law or literature dealing with this issue. This was criticized by judge Bhandari in his declaration where he pointed out that the approach of the ICJ differed from a number of investment arbitration as as the case law of the Court of Human Rights The fact that the ICJ did not in its analysis on case law or literature have been by the approach of the in The United and to a number of investment arbitration in of the police powers concerning the of a judicial expropriation, the United States in its only states that of domestic courts in the role of and of should be separately from legislative and executive decisions not to a claim for The United States based this on State literature or case In its the United States only v and v of which are part of the of cases in which did not in the court proceedings as in dissenting criticized the of the judicial expropriation of the that the ICJ found a denial of justice nor a violation in the proceedings before US This was of the why against a violation of international law concerning the expropriation that it has to to the US measures as a the ICJ stated that the the of the of an to police powers in Article IV(2) of the Treaty of Amity. The Court that the to has been in international law and that exercise of certain regulatory powers by the government aimed at the of legitimate public is not or It for this to case from the the and investment The ICJ its on the police powers by out that powers in this are not the Court stated that it had already that the US measures and by US courts were measures in violation of the obligation under Article of the Treaty of Amity. Article of the Treaty of Amity in its second clause that High Contracting … shall from or measures that and interests nationals and companies of the other High Contracting the whether the US measures were and in breach of the the Court First, it decided that the in legislation were adopted for a public it found that there was an relationship between the and the it found the in to the Therefore, the Court decided by votes to that the United States has violated its obligations under Article of the Treaty of In the expropriation the pointed out that it had already that the legislative provisions adopted by the United States and by its courts were measures in violation of Article of the Treaty of on the the ICJ pointed out that is of the for a to be a regulatory and not an This of from the legislative provisions and judicial enforcement that the ICJ the for the exercise of regulatory powers had not been It found that the measures adopted by the United States to expropriation no compensation had been the Court found that the of the and the FSIA by US courts to takings without compensation in violation of Article IV(2) of the Treaty of to Executive Order the ICJ did not that an expropriation had since Iran had to the property or interests in property of Iranian companies that were Therefore, it found no breach of Article IV(2) of the Treaty in this in pointed out that that regulatory powers are not criticized the Court for not its only on to out the of a not compensation. stated that was not that the violation of Article of the Treaty of Amity to a violation of Article IV(2) of this criticized this of the Furthermore, at the regulatory to States by international courts and stated that it have been obligation to that the measures the that regulatory from In this was not in the case at and were of the that the US measures a of the regulatory powers for the of a legitimate public The United States to victims of terrorist with the to obtain to the ICJ found that a judicial decision ordering the attachment and execution of property or interest in property does not per se constitute a taking or expropriation of that property. This part of the judgment was among the This is in with the case law of investment which are in the of measures involving the as The has stated that in a dispute between concerning compensation provision of a judicial does not the under Article of the does not a to of property measures of the to measures from the or the a judicial decision into a judicial expropriation, the ICJ an element of It two a denial of justice or the by a judicial organ of ‘legislative or executive measures that infringe international law and thereby causes a deprivation of Furthermore, it decided that it must examine the legislative, executive and judicial acts adopted by the United States as a a denial of justice can turn a judicial act into an expropriation was dissenting was the fact that the court did not the to an of the judicial It adopted a of the of judicial expropriation when it decided that it must the for the judicial decision into consideration for the It out that its was not to the judicial The Court did so when it that a judicial act turn into an expropriation a judicial organ applies legislative or executive measures that infringe international if this causes a deprivation of Furthermore, it this part of the analysis by out that it had to examine the legislative, executive and judicial acts not separately as suggested by the United as a the on this judge Bhandari on this issue. criticized that the ICJ did not with the case law of investment the approach of investment to issues of judicial expropriation is by no This can already be by the used in the that judge Bhandari into to investment that domestic judicial decision must be by mentions denial of justice or other of international such as of or with In the he of investment The first that the domestic judicial decision must be by in the of a denial of justice or cases in this The second where he only a particular The which judge Bhandari to be a to a more In this context he The first concerned cases in which were at In v the found that a denial of justice had which led to a of a violation of Article In v the some element of or denial of In v the that for a judicial expropriation is unlawful by the court In v the of the decided that only a denial of justice could to a judicial In v the to in the dissenting only states that the claimants had alleged a of and of the court and that there was no for these Furthermore, the that judicial expropriations a did not this In the that the decisions of the Court did not have the of the of its investment and that no had occurred. In v the only case in second the element of and the The had alleged that a of assets amount to an The decided that the was a consequence of the default under the underlying The of cases in is from the cases so in of the cases in this the not in the of the v is such an In this the an expropriation claim in which the court of was The expropriation with the termination of an investment by the the decided to to the of the claimants and the from the actions were by courts and with the decision by court that the at a the found that was no that it of by the was not made with of Therefore, it decided that a expropriation had there was no on the part of the The from the acts of the executive and were only by the In this the did not a from the domestic court for the of an v case in the concerned a and its In the of a by a of a in the a president had to in the the of the over the with a of the first with and the to the and it to the courts the and that the agreement of the by was of these decisions and the found that the of in the an The did not between judicial and other of the State and the expropriation of the of any by the was of for the was that the the as of the after the by of the and to to the control to the v concerned the of the from it had the the of the was no The in its analysis concerning the of an expropriation to its on and It of a number of acts and that led to the decision of the that was by the The the State measures as act to It did not the of the acts of this act that it found to the the of a judicial expropriation the did not a denial of and did not discuss the of the court proceedings in the context of its expropriation in Bank v the decided that a denial of justice is not a for a judicial it found that decisions that the actions or of other of the State and which the of property or property can amount to The decided that the investment the actions of a number of among the High Court which for the of funds to a that did not have to these funds should have been used to a to the The the role of the High Court in this context when it stated that the had a judicial it is an amounting to failure of the actions and were only in a number of measures that the v is the only case in this where the expropriation was only by actions of the The found the acts of courts to be to international law and found that an expropriation had It found that a breach of the for the and of Foreign had The in pointed out that the courts had an of since the courts The of an can be in the case of a they jurisdiction to for with such … the for used by the courts and the in which the judge that to the an of In of these the in that the actions of the courts were to international and found that an expropriation had The in v which is not in the ICJ judgment or the dissenting for a It found that a court had an arbitration clause in a It that the to which it found to be a was not with the of the the decision of the Court of which it at all the cases so can a between those cases where only the actions and of a court the of an expropriation and where the acts of entities the in the first did in the court could be either in the domestic court proceedings or of international law when by the domestic when the of judicial takings judicial expropriation to those cases where the or of the deprivation in the of the judicial organ Therefore, to his the Iranian case not into the of judicial expropriations in which have to whether a domestic court a legitimate judicial decision or an does not that no expropriation has taken to those judicial expropriation only that it not be a judicial expropriation since it was not only by of the In this context it is important to note that the a number of investment adopted a of judicial expropriation in that it cases where a judicial organ applies ‘legislative or executive measures that infringe international law and thereby causes a deprivation of The is not whether an expropriation has taken whether it is a judicial Furthermore, it is that the Court decided that it must examine the legislative, executive, and judicial acts adopted by the United States as a This is in with those arbitration in which investment had to with cases in which the expropriation was not only by a domestic decision by a number of domestic to the In the Iranian the fact that the of legislative or executive measures the deprivation led to the whether the acts of the United States were by police powers. Concerning police the ICJ the by investment exercise of regulatory powers aimed at the of legitimate public investment it pointed out that there are to these powers. there was ground among the The with the fact that police powers are not did not with the of the The ICJ the case It did first, as an of a case that to the exercise of police powers as not to a compensation and, second, for the of as a of the exercise of It did not discuss and element of the for an exercise of police powers not to a the ICJ a and to its in the context of the and pointed out that it had already decided that the US measures in were only the case used as to whether regulatory measures are in a investment did of the investment that police they were not in the underlying and was in a to the ICJ is the v The between and of the Treaty of Amity, a expropriation without any to regulatory powers of The in this context on a number of It pointed out in this that States’ police powers that measures foreign without a compensation obligation have before investment arbitration been as part of international The cases those to by the The Court did not this international law the the Treaty of Amity has to be number of including the in this context that a police powers and its to under international law qualify as of international law in the between the in the of Article Therefore, have to into when the provisions of an investment such as the against uncompensated This the to in the public interest and to these against foreign without a to This is only for exercise of these a violation of international between a that is by the to and to exercise its police powers on the and an on the have on the of and The in v on a of cases and In to of the regulatory exercise must be and in with of international investment such as and the of and in measures on is to the The in v on of law and The considers that the to the of adopted in to the public not constitute a that the was taken in with and was to the to be The in v the It found that a of to an that purpose, it whether the measures by the were to the public they to The found that the is in It a number of to whether a is must be that is by for a legitimate public purpose, be for that in that no and not be in that its are by its In its whether the US measures were under Article of the Treaty of Amity the ICJ the whether the a legitimate public whether there an relationship between the and the whether the of the measures was in to the The ICJ decided that providing to victims of terrorism that have been damages can constitute such a It the second to be it decided that the of the is not in judgments in cases in which of of control any assets of the companies concerned were available for attachment and execution. This was so in a in which the entities could not in the cases, and it was in to in which the companies had not been The ICJ used a to the by in investment cases in its of a violation of the to which it in the context of its expropriation The Court did not the used by the in v and v in the context of its police powers This is to the case law of the in property cases in which the does not a of in the context of the into consideration whether there were available that the did not a number of investment and the in the context of expropriation cases, the ICJ a analysis in its when the of the In this the ICJ adopted as of review for its It in this context to its v judgment in which it had this in the context of the to The ICJ’s on in the analysis of the US measures and by US courts for the by the Court of violation of Article of the Treaty of Amity is a on of the that investment have when whether measures where or by the police powers of a State in the context of expropriation It is the of review that was in of the dealing with regulatory measures in the context of the requirements for the of the exercise of police powers are the of of to a The ICJ could have been on of the questions in investment namely the of regulatory expropriations from It could have a more under what legislative or executive measures are and to expropriations when by domestic the ICJ on its analysis in the for of the of the of a exercise of police powers. this does not that violation of the a of This is so since the element of substantial deprivation of the investment is a for an expropriation not for the violation of the Furthermore, there is no why the in the should from for a exercise of the police powers. The ICJ that in a in which an expropriation is by the of a legislative or executive by a domestic court the must be as a to the judicial control to acts of courts that are at the a denial of justice is a important of this This is in with the of investment which not between judicial and other of expropriations and with international Article of the on of States for of States judicial The to the is made for this between legislative, executive or judicial … whether they exercise executive, judicial or any other This allows for the fact that the of the of powers is not in any and that many exercise some of public powers of a legislative, executive or judicial to a for judicial acts is important since the of investment could in certain situations on of domestic it should not be whether a is part of the or part of the Furthermore, the that which is not and for a public will not be if it certain the approach adopted by a number of investment and is in with The of a including a analysis as a method to out whether the measures and are the approach taken by a number of investment and is in with the case law of the Furthermore, the that a of the of State-owned entities, of the of for of attachment or execution may to an expropriation is important for the on in situations of of a State with an investment