United States: Iran's World Court Case Against The United States May Impact Investment Arbitration

On June 14, 2016, the Islamic Republic of Iran sued the United States of America in the International Court of Justice (also known as the "World Court" or the "ICJ") in the Hague, alleging that the U.S. government had violated a decades-old treaty by allowing victims of terrorism and their families to enforce U.S. court judgments against assets owned by the Iranian government and companies it owned. The ICJ may seem to be an exotic and esoteric institution whose decisions are not enforceable in U.S. courts and whose workings are of interest mainly to diplomats and academics. And at first glance, a dispute between Iran and the United States in that court regarding terrorism and sovereign immunity might only reinforce that impression.

But this case may be different. The treaty terms at issue – and particularly the requirement that foreign companies receive "fair and equitable treatment" from the host government – are the same as those found in thousands of investment treaties signed by countries around the world. Those treaties allow companies to bring international arbitration claims to enforce their rights, and hundreds have done so, seeking and sometimes winning huge damage awards. If Iran's suit leads the ICJ, for the first time, to define the meaning of fair and equitable treatment under international law, its interpretation could be highly influential on future arbitrators, and it could affect both the rights of global companies and the outcomes of future disputes.

Investment Treaties

Over the past several decades, hundreds of countries have negotiated and signed over 3,000 investment treaties. An investment treaty typically requires that each country signing the treaty provide certain protections and standards of treatment to companies from the other treaty country that invest in the first country's territory. For example, under the U.S.-Turkey investment treaty, if a U.S. company builds a factory or sets up a subsidiary in Turkey, the Turkish government may not expropriate that factory or business without paying full compensation. If Turkey violates this requirement, the U.S. company can bring a claim for damages before an international arbitration tribunal, whose decision is binding and enforceable in nearly all jurisdictions around the world. Companies initiating such arbitrations have in some cases obtained awards of well over $1 billion.[1]

The vast majority of investment treaties also include a requirement that the host country provide "fair and equitable" treatment to an investing company. This rather vague language has been interpreted in different ways by many different arbitration tribunals. Some have found that it prohibits "arbitrary" or "discriminatory" conduct.[2] Others have said that it requires "transparency" and due process from the government.[3] And still others have held that it obligates the government to respect a company's "legitimate expectations" as to how its investment would be treated.[4] Because of the various ways it has been applied, and because most arbitrations that find governments liable do so – at least in part – under the fair and equitable treatment requirement, its meaning is highly important in defining the protections these treaties afford to global companies and in determining the outcomes of treaty arbitrations.

The Treaty of Amity 

Iran's new ICJ case is based largely on alleged violations of the Treaty of Amity, Economic Relations, and Consular Rights that the United States and Iran signed in 1955, during the reign of Shah Mohammad Reza Pahlavi. Although the U.S. severed diplomatic relations with Iran after the 1979 Iranian revolution and hostage crisis, the Treaty of Amity was never terminated, and in fact was the basis for prior cases that the United States and Iran brought against each other before the ICJ in 1980 and 1992, respectively.[5]

Like more recent investment treaties, the Treaty of Amity contains various provisions requiring that each country provide certain standards of treatment to citizens and companies of the other country. And notably, under Article IV of the treaty, the United States is required to provide "fair and equitable treatment" to Iranian companies doing business in U.S. territory – the same type of provision found in ordinary investment treaties. But because the Treaty of Amity does not allow aggrieved companies to bring claims in arbitration (or anywhere else), the only recourse for a claimed violation is for a company's government – here, Iran – to bring a case before the ICJ.

U.S. Sanctions and Civil Lawsuits Against Iran

The treaty violations Iran alleges concern a deluge of private civil lawsuits brought against the Iranian government and affiliated entities in U.S. courts, and the U.S. government's facilitation of those lawsuits. For years, victims of terrorist attacks (such as the 1984 bombing of U.S. Marine barracks in Beirut) and their families have brought lawsuits against Iran, its central bank and other Iranian government entities in U.S. federal courts, alleging that the Iranian government was complicit in the attacks and thus liable for the resulting pain, suffering and death. Iran has generally declined to appear and defend the cases, resulting in default judgments against it and its entities totaling billions of dollars.

Under both international law and U.S. law, a government and its "instrumentalities" (such as a central bank or a state-owned company) are ordinarily immune from suit in the courts of another country.[6] But over the past two decades, Congress has enacted various laws removing immunity from foreign governments involved in terrorist activity and allowing victims of those attacks to sue the governments and their instrumentalities and to enforce judgments against their assets held in the United States.  President Obama's Executive Order 13599, issued in 2012, aided this process further by freezing all Iranian assets within U.S. jurisdiction. 

More recently, in April 2016, the U.S. Supreme Court rejected Iran's constitutional challenge to a 2012 statute that specifically allowed a major judgment enforcement action against Iran's central bank to proceed. On June 6, a federal trial court in the case ordered that $1.7 billion of the bank's funds be turned over to plaintiffs.[8] Iran filed the ICJ case days later.

The International Court of Justice Case

Established in 1945, the ICJ is the primary judicial branch of the United Nations, tasked with resolving disputes between sovereign nations under public international law. Although the United Nations Charter authorizes the UN Security Council to enforce the ICJ's rulings, any of the Security Council's five permanent members (including the United States) can veto such enforcement. The ICJ's decisions are not enforceable in U.S. courts, and the U.S. is not even required to submit to the ICJ's jurisdiction in any given case. Nonetheless, the ICJ is widely considered the premier court of public international law, and its decisions are highly influential among scholars and practitioners as to the interpretation of international legal rules and principles.

Iran's complaint before the ICJ alleges that the United States, by enacting the sanctions statutes and executive order and enabling private plaintiffs to enforce judgments against the assets of Iran and its state-owned companies, has violated both customary international law and the Treaty of Amity. Among other treaty provisions allegedly violated, Iran argues that the U.S. lawsuits and the legislative and executive actions enabling them have denied Iran, its central bank and other companies "fair and equitable treatment" and "most constant protection and security" while subjecting them to "unreasonable and discriminatory measures." Iran asks that the court order the U.S. government to extend full legal immunity to Iranian assets and pay reparations.[9]

Implications for International Investment Arbitration

Although the purpose and primary impact of the new ICJ case may be political, its outcome could eventually affect the substance of international investment law and the outcomes of high-stakes investment treaty arbitrations brought by global companies over their offshore investments. Although the ICJ has previously confronted a claim of violations of the "fair and equitable treatment" requirement (indeed, in Iran's previous case against the United States under the Treaty of Amity) and one of its judges has commented on that standard in a separate opinion,[10] the full court has never expressly discussed what those terms mean and what exactly they require governments to do or not do.

In addition, the ICJ has never before addressed whether economic sanctions measures and national laws governing sovereign immunity are consistent with investment treaty requirements. While many investment treaties (including the Treaty of Amity) explicitly permit governments to take actions necessary to protect national security interests, not all do, and the issue has thus far not been extensively addressed by arbitral tribunals. Nor have either the ICJ or prior arbitration tribunals considered whether a country's restriction on sovereign immunity and permission of lawsuits and judgment enforcement against state-owned companies may violate an investment treaty. Although those issues are likely to arise far less often than claims of denial of fair and equitable treatment, they could be relevant to claims by state-owned companies – which have proven willing to use international arbitration to vindicate their rights[11] – or companies from countries (such as Russia) subject to sanctions. If Iran's claims were to succeed, such companies could be encouraged to bring similar claims through arbitration, claiming that economic sanctions or restrictions of sovereign immunity violated their rights.

If the ICJ ultimately does reach and decide those issues, its views are likely to influence the decisions of international arbitral tribunals. Those tribunals' awards have frequently cited the ICJ's decisions, and often even the individual opinions of its judges, as authority on points of international law.[12] In at least one case, a tribunal has cited a prior ICJ decision discussing a different treaty standard – the prohibition of "arbitrary" treatment – in interpreting the meaning of fair and equitable treatment.[13] In other cases, rulings and opinions in two prior ICJ cases concerning the United States and investment treatylike agreements (the Oil Platforms case between Iran and the United States and the ELSI case between the United States and Italy) have been repeatedly invoked by arbitrators as to certain recurring issues.[14] Moreover, a number of current or former ICJ judges have served as members of arbitral tribunals deciding disputes under investment treaties.


A unique court, an unusual cause of action and a politically charged case, to be sure. But because investment treaties and arbitration have made international law more directly relevant to global business, the workings of such international legal institutions can sometimes matter more to the private sector than many companies may think. And the legal issues Iran has raised in its new case may well make that lesson stick.


[1] See, e.g., Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award, April 4, 2016 (finding that Venezuela failed to accord a Canadian mining company fair and equitable treatment as required under the Canada-Venezuela bilateral investment treaty (among other treaty violations), and awarding the company $1.4 billion in damages).

[2] See Rumeli Telekom A.S. and Telsim Mobil v. Kazakhstan, ICSID Case No. ARB/05/16, Award, July 29, 2008, ¶ 609.

[3] See Bayindir Insaat Turizm Ticaret ve Sayani A.Ş. v. Pakistan, ICSID Case No. ARB/03/29, Award, August 27,

2009, ¶ 178.

[4] See Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, May 29, 2003, ¶ 154.

[5] See United States Diplomatic and Consular Staff in Tehran (United States v. Iran) [1980] I.C.J. Rep. 3; Case Concerning Oil Platforms (Iran v. United States) [1996] I.C.J. Rep. 803.

[6] See, e.g., Ian Brownlie, Principles of Public International Law 330-32 (5th ed. 1998) (discussing international law of sovereign immunity); 28 U.S.C. §§ 1604, 1609 (establishing default rule of sovereign immunity under U.S. law).

[7] See the relevant sections of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605A; the Terrorism Risk Insurance Act of 2002, 28 U.S.C. § 1610; and the Iran Threat Reduction and Syria Human Rights Act of 2012, 22 U.S.C. § 8772(b).

[8] Peterson, et al. v. Bank Markazi, 01-CV-2094 and 01-CV-2684 (D.D.C.), Order, June 6, 2016.

[9] See Proceedings instituted by the Islamic Republic of Iran against the United States of America on 14 June 2016, Application, available at http://www.icj-cij.org/docket/files/164/19038.pdf.

[10] See Oil Platforms, Separate Opinion of Judge Rosalyn Higgins, p. 858, at ¶ 39 ("The key terms 'fair and equitable treatment to nationals and companies' and 'unreasonable and discriminatory measures' are legal terms of art well known in the field of overseas investment protection").

[11] See Sinopec Serves $5.5 Billion Arbitration Notice to Repsol, Reuters, June 17, 2016, available at http://www.reuters.com/article/repsol-sinopec-corp-idUSL8N1990US (discussing $5.5 billion arbitration claim by Chinese state-owned oil company against Spanish oil company relating to joint venture); Ceskoslovenska Obschodni Banka, A.S. v. Slovak Republic, ICSID Case No. ARB/97/4 (investment treaty arbitration claim brought by state-owned bank); Hrvatska elektroprivreda d.d. v. Republic of Slovenia, ICSID Case No. ARB/05/2 (same, state-owned electricity company); CDC Group plc v. Seychelles, ICSID Case No. ARB/02/14 (same, state-owned investment company); Telenor Mobile Communications AS v. Hungary, ICSID Case No. ARB/04/15 (same, state-owned telecommunications company).

[12] See, e.g., Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, August 3, 2004, ¶¶ 94-102 (citing ICJ decisions in Anglo-Iranian Oil Co. (United Kingdom v. Iran) [1952] ICJ Rep. 93; Rights of the Nationals of the United States of America in Morocco (France v. United States) [1952] ICJ Rep. 176; and Ambatielos (Greece v. United Kingdom) [1953] ICJ Rep. 10, regarding the application of a most-favored-nation clause in an investment treaty).

[13] See Rumeli Telecom A.S. v. Kazakhstan, ICSID Case No. ARB/05/16, Award, July 29, 2008, ¶ 672 (citing Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment of July 20, 1989, 1989

ICJ Reports 15, ¶ 128)).

[14] See, e.g., Mondev v. United States, ICSID (Additional Facility) Case No. ARB(AF)/99/2, Award, October 11, 2002, ¶ 127 (citing ELSI decision); Saipem S.p.A. v. Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction, March 21, 2007, ¶ 85 (citing Oil Platforms, Separate Opinion of Judge Higgins at p. 851, ¶¶  16-17).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.