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.

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 rights11 – 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.