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Kei Nakajima, Yohei Okada, Kento Nisugi, The sovereign function test out of thin air? The status of the central bank determined behind the scenes in Certain Iranian Assets, Journal of International Dispute Settlement, Volume 15, Issue 3, September 2024, Pages 474–485, https://doi.org/10.1093/jnlids/idae010
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Abstract
On 30 March 2023, the International Court of Justice rendered its judgment on the merits of the case concerning Certain Iranian Assets, in which the Iranian central bank was not characterized as a company within the meaning of the Treaty of Amity. In so concluding, the Court relied upon the test focusing on the central bank’s sovereign functions and the purposes of the transaction at stake. Debate surrounds the origin and sources of inspiration of the sovereign function test, insofar as the majority’s minimum reasoning leaves an impression that it arose from thin air. This article explores the origin and the sources of inspiration of the test, concluding that the Court’s judgment affords the reading that the test was inspired, albeit clandestinely, by rules and practice specifically dedicated to the characterization of central bank activities, located in areas such as the laws of State immunity or responsibility, by judicial cross-referencing.
I. INTRODUCTION
On 30 March 2023, the International Court of Justice (‘ICJ’ or ‘the Court’) rendered its judgment on the merits of the case concerning Certain Iranian Assets.1 The dispute arose out of the series of legislative and administrative measures adopted by the United States of America (‘US’ or ‘the United States’) designating Iran as one of the ‘State sponsors of terrorism’ whose immunities before US courts were removed and whose assets were blocked and made subject to execution to satisfy the pecuniary claims brought by victims and their heirs of the bombings allegedly committed or sponsored by Iran.2
While upholding several breaches by the United States of its obligations under the Treaty of Amity, Economic Relations, and Consular Rights of 1955 (‘Treaty of Amity’),3 the Court concluded that a large part of the claims by Iran fell outside its jurisdiction on the ground that Bank Markazi, Iran’s central bank, is not a ‘company’ within the meaning of the Treaty of Amity. In so concluding, the Court opined that Bank Markazi’s investment operations were ‘merely a way of exercising its sovereign function as a central bank, and not commercial activities performed by Bank Markazi’.4 As will be discussed later in Section IV, this conclusion is in sharp contrast to that of Bank Melli, an Iranian State-owned bank, insofar as its status as a ‘company’ under the Treaty was never questioned. According to the criteria established by the Court, in determining whether the Iranian central bank may be characterized as a ‘company’, a transaction or series of transactions carried out by that entity ‘must be placed in its context, taking particular account of any links that it may have with the exercise of a sovereign function’.5
The debate arose and still rages as to the origin and sources of inspiration of the sovereign function test, which, in the words of the Court, was ‘in the line of reasoning it adopted in its 2019 Judgment’6 on preliminary objections.7 A number of judges disagreed with the above account held by the majority and contended that the 2019 Judgment by no means elaborated on such criteria of giving prominence to the sovereign function of the entity concerned.8 Moreover, the majority of the Court appeared to be obsessed with isolating the test from criteria developed in other branches of international law when it held that ‘[t]he rules on sovereign immunities and those laid down by the Treaty of Amity concerning the treatment of “companies” are two distinct sets of rules’ and that the criteria of the attribution of the conduct of the central bank to its State for the purpose of invoking international responsibility ‘is a different question from the one now before the Court’.9 As a result, the majority’s reasoning leaves the impression that the sovereign function test came out of thin air.
In view of the foregoing, this article explores the ostensibly missing origin and the sources of inspiration of the sovereign function test applied by the Court. Here, the term ‘inspiration’ is borrowed from the usage of judges to denote the process of being influenced by solutions adopted in particular areas of law to find a solution in the case at hand.10 It includes judicial cross-referencing11 in the form of explicit citations as well as an implicit or clandestine reference to the source of inspiration because courts and tribunals do not necessarily need to cite each other to be influenced by each other.12 The challenges lie only in the practical difficulties in identifying the trace of inspiration in the absence of explicit citation. Still, this article does not intend to conduct a sociological analysis of judges’ decision-making processes that would require anthropological methods of taking first-person accounts. Rather, it aims to identify the most consistent and viable reading of the 2023 Judgment in anticipation of possible criticisms. Such an attempt is feasible since the Court occasionally but subtly alluded to its sources of inspiration, which can be traced back to the voluminous case docket of Certain Iranian Assets as pleaded by the parties. The suggested reading of the 2023 Judgment is that the sovereign function test was inspired, despite the ostensibly contrary indications in its reasoning, by rules and practice specifically dedicated to the characterization of the activities of central banks located in areas such as the laws of State immunity or responsibility. To that extent, Certain Iranian Assets may be seen to consolidate, to a limited extent, approaches to central banks under international law by drawing inspiration from those areas of law to provide a solution to the interpretation of a treaty of friendship and commerce.
After briefly identifying the issue at stake in the 2023 Judgment in Section II, Section III probes the origin and essence of the sovereign function test by comparing the texts of the 2019 and 2023 Judgments in light of the dissenting judges’ critical observations. Section IV explores the test’s sources of inspiration by delving into the rules and practices adopted in other branches of international law as invoked by the parties in their respective pleadings. Section V concludes.
II. THE STATUS OF BANK MARKAZI IN THE TREATY OF AMITY
In October 1983, a suicide bombing allegedly sponsored by Iran occurred in the US Marine Corps barracks in Beirut, Lebanon, in which 241 US service members were killed. Subsequently, the United States took various legislative and executive measures that enabled injured survivors and the family members of the victims to institute proceedings against Iran and certain Iranian entities before US courts. In addition to the series of legislation that removed immunities from jurisdiction and enforcement that might otherwise be available to Iran and Iranian entities, assets of the government of Iran and of Bank Markazi located within US territory were blocked and made subject to execution to satisfy debts under judgments against Iran.13 In 2016, the constitutionality of these measures was ultimately upheld by the US Supreme Court.14 By the end of 2019, 138 judgments had been rendered against Iran and Iranian entities, ordering them to pay a total of US$72 billion in compensation plus US$38 billion in punitive damages.15
Since the US measures complained of by Iran included those made against the central bank of Iran and its assets, one of the preliminary objections raised by the United States questioned whether Bank Markazi is a ‘company’ within the meaning of the Treaty of Amity and is thereby entitled to rights and protections under Articles III–V.16 In quantum terms, this question was overwhelmingly significant insofar as a single enforcement proceeding against Bank Markazi represented more than 98 per cent of the assets attached to be turned over to the plaintiffs.17 While far short of satisfying all the outstanding judgments indicated above, assets owned by Bank Markazi amounting to around US$1.895 billion, which had been blocked and seized by the series of executive and legislative measures, were eventually distributed to certain judgment creditors.18
The Court in its 2019 Judgment deferred determining the preliminary objection at hand to the merits stage on the grounds that it did not possess ‘all the facts necessary to determine whether Bank Markazi was carrying out, at the relevant time, activities of the nature of those which permit characterization as a “company” within the meaning of the Treaty of Amity’, the elements of which were ‘largely of a factual nature and are, moreover, closely linked to the merits of the case’.19 Since the United States maintained the same objection to jurisdiction and presented it in its final submissions at the end of the hearing on the merits,20 the Court was again asked to determine the status of the central bank of Iran under the Treaty of Amity.
III. BETWEEN NATURE AND FUNCTION: (DIS)CONTINUITY BETWEEN THE 2019 AND 2023 JUDGMENTS?
A. ‘Following the line of reasoning’ of the 2019 Judgment
Notwithstanding the deferral of the determination on the question at issue, the Court in its 2023 Judgment observed that the 2019 Judgment on preliminary objections ‘nevertheless contains, in its reasoning, a number of significant indications regarding the concept of “company”’.21 The Court recalled, inter alia, that ‘there is nothing to preclude, a priori, a single entity from engaging both in activities of a commercial nature (or, more broadly, business activities) and in sovereign activities’ and that ‘[i]n such a case … it is the nature of the activity actually carried out [that] determines the characterization of the entity engaged in it’.22 The Court thus observed that it was ‘following the line of reasoning it adopted in its 2019 Judgment’ before articulating the question it was asked:
whether the evidence presented to it … shows that Bank Markazi was carrying out, at the relevant time, activities which could be categorized as commercial and which would therefore permit the bank to be characterized as a ‘company’ within the meaning of the Treaty, regardless of whether or not those activities, should they be established, constituted its principal activities.23
At the merits stage, the only activities on which Iran relied to found the characterization of Bank Markazi as a ‘company’ consisted of the purchase of 22 security entitlements in dematerialized bonds held with Clearstream account at Citibank in New York.24 According to Iran, Bank Markazi purchased these security entitlements in bonds issued on the US financial market by foreign governments and international organizations during the years 2002–2007.25 The nominal value of these bonds was US$1.753 billion in total.26
The Court found that these operations were ‘not sufficient to establish that Bank Markazi was engaged, at the relevant time, in activities of a commercial character’ on the grounds that ‘the operations in question were carried out within the framework and for the purposes of Bank Markazi’s principal activity, from which they are inseparable’.27 The Court considered that these investment operations were ‘merely a way of exercising its sovereign function as a central bank, and not commercial activities performed by Bank Markazi “alongside [its] sovereign functions”’,28 which Iran had so conceded in the preliminary objections stage.29 Before reaching this conclusion, the Court emphasized that:
in establishing whether a given entity may be characterized as a ‘company’, consideration cannot be limited to a transaction—or series of transactions — ‘as such’, carried out by that entity. That transaction—or series of transactions—must be placed in its context, taking particular account of any links that it may have with the exercise of a sovereign function.30
B. Deconstructing the dissents
Five judges disagreed with the majority’s approach and conclusion. While they appended their declarations or opinions separately, their dissents on the issue at hand substantively overlap, taking the following line of reasoning: the majority in the 2023 Judgment departed from or even contradicted the 2019 Judgment insofar as it arguably introduced a new criterion of the function or purpose of the activity; the deferral of the determination of the objection to the Court’s jurisdiction in the 2019 Judgment to the subsequent stage was premised on the need for further information as to the nature of the activities carried out by Bank Markazi; only the nature of activities concerned should thus have been taken into account in the 2023 Judgment; since the purchase of security entitlements in dematerialized bonds were undoubtedly of a commercial nature, Bank Markazi should have been characterized as a ‘company’ within the meaning of the Treaty of Amity; accordingly, the Court should have upheld its jurisdiction to entertain claims regarding Bank Markazi.31 Each contention will be scrutinized in turn.
The majority conceded that the Court in the 2019 Judgment ‘merely indicated that the decisive question was whether Bank Markazi was carrying out, alongside its sovereign activities, other activities, of a commercial nature’,32 implying that no explicit reference was given to the relevance of Bank Markazi’s sovereign functions. From this omission the dissents discussed that ‘account should not be taken of any link that such activities may have with sovereign activity’33 and that ‘only the nature of the activity concerned should be taken into account’.34 By contrast, the majority emphasizes that such an omission does not mean ‘there was no need to take into account any link that they may have with a sovereign function’.35
The lack of reference to the sovereign functions test in the 2019 Judgment, read against the backdrop of the parties’ pleadings, accommodates the majority’s reading. In its preliminary objections, the United States extensively argued that an entity that exercises sovereign functions could not be considered a ‘company’ under the Treaty of Amity.36 For the United States, unlike the types of State-owned entities such as airlines competing in a marketplace against private companies undertaking the same activities, a State entity like a traditional central bank, which is entrusted with sovereign functions, acts as ‘the State as such’ and does not compete with, or operate on the same plane as, ordinary commercial enterprises.37 Iran, for its part, contended that neither the sovereign functions of the entity concerned nor the commercial nature of the activities engaged in could have relevance insofar as the word ‘companies’ in the Treaty of Amity has no qualification.38 Against this backdrop, what the 2019 Judgment rejected was the interpretation put forward by Iran only.39 By contrast, the Court took note of the US interpretation but fell short of deciding upon it definitively.40 Thus, the parties’ contentions as to the relevance of sovereign functions, even at face value, remained intact.
Read in context, the Court in 2019 acknowledged the parties’ converged view as to the sovereign functions of Bank Markazi. Paragraph 94 of the 2019 Judgment referred to the US contention focusing on the sovereign functions of Bank Markazi to draw the implication that the United States had not extensively discussed the nature of the bank’s activities. In fact, the United States argued that since both Iran and Bank Markazi had taken the view that the bank carries out sovereign functions only, no extensive fact-finding would be required.41 This was in line with Iran’s pleadings reproduced in the same paragraph, in which little attempt had been made to demonstrate that Bank Markazi engaged in activities of a commercial nature ‘alongside the sovereign functions which [Iran] concede[d]’.42 In other words, the 2019 Judgment, while upholding only the relevance of the nature of activities carried out by the bank based on its own treaty interpretation, implicitly acknowledged the convergence of the views of the parties as to Bank Markazi’s sovereign functions. This convergence arguably enabled the majority in the 2023 Judgment to explicitly affirm the relevance of the sovereign function criterion without further justification.43
As such, while the dissents’ reading that the deferral of determination on the objection to jurisdiction was motivated by the need for factual information as to the nature of the activities carried out by Bank Markazi44 is correct, it does not follow that the criterion of sovereign functions was rejected outright. Any res judicata effect that would preclude considerations of sovereign function45 cannot therefore be envisaged in the operative paragraphs of the 2019 Judgment, insofar as the relevance of sovereign functions remained intact, as discussed above.
Contrary to the dissents’ account,46 the majority’s approach does not make the quest for factual information as to the nature of Bank Markazi’s activities meaningless. This is because the affirmation in the 2023 Judgment of the sovereign function test has no effect of overriding the commercial nature criterion previously upheld. Put differently, in addition to the commercial nature of certain activities of Bank Markazi, its sovereign functions are also recognized as one of the elements relevant to the characterization of the bank as a ‘company’ within the meaning of the Treaty of Amity.
The question thus remains as to the relationship between the two criteria so identified. According to the 2023 Judgment, any transaction ‘must be placed in its context, taking particular account of any links that it may have with the exercise of a sovereign function’.47 In the case at hand, Bank Markazi’s purchase of 22 security entitlements in dematerialized bonds issued in the US financial market was not found to be of a commercial character because ‘the operations in question were carried out within the framework and for the purposes of Bank Markazi’s principal activity, from which they are inseparable’.48 Section IV explores the contours of the legal framework within which the existence of such a linkage is scrutinized by seeking the sources of inspiration.
IV. APPROACHES TO THE CHARACTERIZATION OF CENTRAL BANKS CROSS-REFERENCED
A. Sources of inspiration withheld
Notwithstanding its attempt to isolate the sovereign function test for the sake of the Treaty of Amity from issues involving other branches of international law, the majority of the Court occasionally alluded to its sources of inspiration, located in rules specifically elaborated on to govern and characterize the conduct of central banks in various contexts.
A trail glimpsed in paragraph 53 of the 2023 Judgment, wherein the Court acknowledged that Paushok v Mongolia,49 an investment arbitration case involving the central bank of the respondent State, ‘appears to be more similar to the present case’50 than a comparable case involving a State-owned commercial bank.51 The issue at stake—the attribution of the conduct of MongolBank, the central bank of Mongolia, to the respondent for the purposes of invoking the international responsibility of the State—was undoubtedly ‘a different question’ from the characterization of a company under the Treaty of Amity. Notwithstanding this, the Court alluded to that its sovereign function test had been inspired by the arbitral tribunal’s finding insofar as sovereign or public purposes were found to be relevant when the conduct of a central bank was to be dealt with:
MongolBank acted de jure imperii … when it exported GEM [ie Golden East-Mongolia, a company owned by the claimants]’s gold for refining and deposited it or its value in an unallocated account in England ‘with the purposes of increasing the country’s reserves.’ Those actions were de jure imperii and went beyond a mere contractual relationship.52
The notion that the sale by MongolBank of the gold deposited by GEM without the latter’s permission served the public purpose of increasing Mongolia’s state currency reserve came from the respondent’s own acknowledgement.53 This provided the arbitral tribunal with a firmer ground for its determination in the situation where the members of the tribunal had apparently held different views as to whether MongolBank was an organ of the State or not,54 a debate in line with the rule of attribution embodied in Article 4 of the International Law Commission (ILC)’s Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA).55 In contrast to the rule under Article 4 according to which the conduct of an organ of a State is attributable to that State regardless of the conduct’s sovereign or commercial character,56 the rule embodied in Article 5 affords the distinction between acta jure imperii and jure gestionis so as to determine that only conducts falling within the former category are attributable.57 The open and undefined language of Article 5,58 according to which the conduct of an entity which is not an organ of the State but which is empowered by the law of that State ‘to exercise elements of the governmental authority’ is attributable to that State, accommodates such a ‘functional test of attribution’59 specifically articulated for a particular category of entity. Insofar as the test dedicated to central banks was elaborated, Paushok stands regardless of arbitral jurisprudence concerning the attribution of the conduct of public or State-related agencies other than central banks, wherein arbitral tribunals focus narrowly on the relevant conduct or the nature of the transaction severed from its context or the functions of the agencies at stake.60
The approach adopted by Paushok looking at the purposes of conduct or transaction was, in turn, inspired by a related judicial decision rendered in the English proceedings involving GEM as the plaintiff and MongolBank as one of the defendants,61 notwithstanding that a different question of State immunity was dealt with. The Court of Appeal found that the exportation of gold by MongolBank was an exercise of sovereign authority on the ground that ‘the purpose of the transactions including the refining of the gold and the placing of a quantity of refined gold on the unallocated account of the bank was for the purposes of increasing Mongolia’s currency reserves’.62 Insofar as the conduct or transaction of a central bank was dealt with, judicial cross-referencing across different branches of international law among adjudicative bodies was hereby identified.63
The Court’s 2023 Judgment may be seen as expanding the above judicial cross-referencing to the context of a treaty of friendship and commerce, albeit clandestinely. As pleaded by one of the Parties,64 the case docket of Certain Iranian Assets contained AIG Capital Partners v Kazakhstan,65 a leading English case involving State immunity from enforcement wherein it was disputed whether assets forming part of Kazakhstan’s national fund were immune from enforcement under the State Immunity Act 1978.66 To affirm that the assets at issue were immune from the enforcement process, High Court Justice Aikens opined that ‘[t]he dealings of the securities accounts must … be set against the background of the purpose of the global custody agreement’ and that ‘[t]he aim of the exercise … was and is to enhance the national fund … i.e. to assist the sovereign actions’.67 No further explanation would be required to recall the sovereign function test as articulated by the Court: ‘transaction … must be placed in its context, taking particular account of any links that it may have with the exercise of a sovereign function’.68 The case docket also included judicial decisions in which jurisdictional immunities of central banks were upheld on the grounds of their sovereign functions to maintain the monetary position of their countries and to administer foreign exchange reserves.69 In this context, the Court’s emphasis that ‘it [wa]s not required to rule on the international law on immunities’70 could hardly imply that it had never been inspired by the aforementioned decisions involving the conduct of central banks and their immunities.
The isolation by the Court of the interpretation of the term ‘company’ under the Treaty of Amity from the rules of immunities may rather be explained by the practical consequences to be brought about by such cross-referencing: while the sovereign character of central bank activities beckons immunities from jurisdiction and enforcement before domestic courts,71 the same characterization strips away the treaty protection that might otherwise be available for a ‘company’. In theory, this is by no means paradoxical: providing treaty protection for central banks would be redundant insofar as these banks enjoy immunities from jurisdiction or enforcement at the domestic level. In practice, however, the Iranian central bank, whose immunities before US courts had been deprived, fell outside the scope of protection under the Treaty of Amity. The fact that this was due to ‘the statute sweep[ing] away the [Foreign Sovereign Immunities Act’s] provision setting forth a central bank immunity’72 could only reinforce the singularities of US legislative measures directed at a foreign entity exercising sovereign monetary functions. As such, the Court’s repeated emphasis that it was not required to ascertain whether Bank Markazi could claim immunities under customary international law73 is construed as an attempt to be without prejudice to such practical consequences, which went beyond the Court’s jurisdiction.74 Little or no bearing upon the source of inspiration for articulating the sovereign function test is identified.
B. Sources of inspiration set aside
Some dissenting judges disclosed their own sources of inspiration as to the test that should have been applicable to the Iranian central bank. In the discourse among the judges, however, these dissents were expressly set aside by the majority. This implies that the sources of inspiration as to the test appropriate to dispose of the present case were subject to discussion.
The crux of the dissents’ contention was that only the nature of the activities concerned should have been taken into account,75 so that sources giving primacy or exclusivity to the nature of conduct or transaction over its purpose were heavily relied upon. Such sources were found by judges76 in the law of State immunity according to which ‘reference should be made primarily to the nature of the contract or transaction’ in determining its commercial character,77 the approach also adopted by US legislation78 and case law79 under which the Peterson proceedings had been taking place. For Judge Salam, ‘the fact that immunities are not the subject of the dispute before the Court does not prevent the latter from drawing inspiration from State practice and the solutions adopted in this field’, and ‘[t]he very nature of the question posed called for this approach by analogy’.80
Judge Salam failed to explain why he drew inspiration only from the general rule of commercial activity exception in ignorance of the aforementioned State practice and solutions specifically dedicated to central banks, notwithstanding that the central bank of Iran had been the subject of debate. By adopting the test referencing sovereign functions or the purpose of the transaction at stake, the majority equally drew inspiration from the rules of immunity, but specifically from the one tailored to the conduct of central banks instead of the general rule.
A discourse among judges of a similar structure is observed in a different context. Československá Obchodní Banka, AS (CSOB) v The Slovak Republic,81 forming part of the case docket,82 provides guidance for a State-owned enterprise to qualify as ‘national’ within the meaning of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) which is entitled to institute arbitration proceedings under the auspices of ICSID.83 The issue at stake was certainly similar to the present one: the question of whether a governmental entity is afforded treaty protection as a ‘company’ under the Treaty of Amity.84 The CSOB tribunal, relying upon Aron Broches’ famous test according to which a State-owned entity is disqualified as ‘national’ when ‘it is acting as an agent for the government or is discharging an essentially governmental function’,85 opined—in a formalistic manner86—that ‘the focus must be on the nature of [the bank’s] activities and not their purpose’ before concluding that the bank’s ‘activities themselves were essentially commercial rather than governmental in nature’.87 For Judge Yusuf, CSOB was an appropriate source of inspiration insofar as he argued that Bank Markazi should have been characterized as a ‘company’ based on the undeniably commercial nature of the purchase of security entitlements.88
The majority succinctly dismissed this source of inspiration as of little relevance on the ground that ‘the tribunal had to respond to the question whether a commercial bank should be considered as a national of the State by which it is owned or merely as an agency of that State, for the purposes of the applicable convention’.89 In fact, the claimant in CSOB was a commercial bank90 and not a central bank of the Czech Republic. While the fact that the claimant’s share was largely owned by the Czech government91 prompted the application of the Broches test mentioned above, CSOB remained silent as to whether the same test should have been applicable had the claimant been a central bank. At the very least, Broches’ original discussion was directed at more contemporaneous forms of State-owned corporations engaging in private business activities92 than traditional central banks. The Court’s pronouncement that Paushok ‘appears to be more similar to the present case’93 than CSOB makes sense insofar as the status or category of banks was more relevant than the legal question at stake. Read in this context, Judge Yusuf failed to explain why CSOB could be a source of inspiration in the present case, notwithstanding that the characterization of a commercial bank’s activities rather than those of a central bank had been dealt with.
The narrowly encapsulated issue before the Court reinforces the above reading. The United States did not dispute Iranian State-owned banks other than Bank Markazi, most notably Bank Melli, were entitled to protection under the Treaty of Amity. The Court was asked to determine solely the coverage of the Treaty of Amity over the Iranian central bank and not Iranian State-owned entities in general.94 Without prejudice to the recent discussion95 and development96 revolving around the value of CSOB as arbitral jurisprudence, the 2023 Judgment succinctly but carefully distinguished CSOB from the case at hand in light of the status of Bank Markazi as a central bank.
V. CONCLUSION
This article has explored the origin and sources of inspiration of the sovereign function test articulated and applied by the Court to characterize the Iranian central bank for the purposes of the Treaty of Amity. The 2023 Judgment affords the reading that the test was inspired, albeit clandestinely, by rules and practice specifically dedicated to the characterization of the activities of central banks, located in areas such as the laws of State immunity or responsibility, as interpreted and applied by domestic courts and arbitral tribunals. The majority of the Court arguably drew inspiration from these sources to affirm the relevance of sovereign functions or the purpose of activities conducted by the central bank for the purposes of the Treaty of Amity. With this reading, the majority’s minimal reasoning may withstand the criticism of dissents, drawing their inspirations from different sources.
Difficulties in approaching central banks have long been perceived. This is because of the mixed character of transactions or accounts held by central banks, which calls for pragmatic solutions.97 More fundamentally, it is increasingly difficult to discern areas of inherently sovereign functions due to the privatization of sovereignty blurring or relativizing the distinction between the public and private spheres.98 Against this backdrop, Certain Iranian Assets may be seen to consolidate, albeit slightly, approaches to central banks figured out in several areas of international law: referencing the purpose of conduct or transaction in addition to its nature. Having said that, important questions remain open to discussion. Referencing the functions or purposes of central bank activities, which led the Court in Certain Iranian Assets to affirm the sovereign character of Bank Markazi’s activities, may or may not result in the same conclusion depending on other variables.99 Moreover, even the rationale for providing the test specifically dedicated to the activities of central banks is not devoid of uncertainty. Although the sovereign character of maintaining and increasing foreign currency reserves was referred to,100 the Court in the present case, deliberately or not, only mentioned Bank Markazi’s ‘role as central bank’101 without further specification. These are to be addressed further in future cases involving the characterization of central bank activities, in which inspiration may also be drawn from Certain Iranian Assets at that time.
Funding
Funding support for this article was provided by the Japan Society for the Promotion of Science JP20H01425.
Footnotes
Certain Iranian Assets (Islamic Republic of Iran v United States of America) (Judgment) [2023].
See Section II below.
Treaty of Amity, Economic Relations, and Consular Rights (signed 15 August 1955; entered into force 16 June 1957) 284 UNTS 93.
Certain Iranian Assets (Judgment) (n 1) para 50.
ibid, para 51.
ibid, para 47.
Certain Iranian Assets (Islamic Republic of Iran v United States of America) (Preliminary Objections) [2019] ICJ Rep 7.
See Section III below.
Certain Iranian Assets (Judgment) (n 1) paras 48, 53.
Certain Iranian Assets (Judgment) (n 1) Declaration of Judge Salam para 14; see also Declaration of Judge Bhandari para 8.
S Hamamoto, ‘Judicial Cross-Referencing’ in Max Planck Encyclopedia of International Procedural Law (last updated May 2022) <https://opil.ouplaw.com/display/10.1093/law-mpeipro/e2903.013.2903/law-mpeipro-e2903> accessed 9 November 2023.
CPR Romano, ‘Deciphering the Grammar of the International Jurisprudential Dialogue’ (2009) 41 NYU J Intl L & Polit 755, 784.
Certain Iranian Assets (Judgment) (n 1) paras 23–30.
Bank Markazi v Deborah Peterson et al, 136 S Ct 1310 [2016].
Certain Iranian Assets (Reply of Iran) Attachment 1, at 5.
Certain Iranian Assets (Preliminary Objections) (n 7) para 84.
Certain Iranian Assets (Verbatim Record, CR 2018/33) 14, para 18 (Lowe); (Verbatim Record, CR 2022/17) 23, para 21 (Bethlehem).
Peterson et al v Islamic Republic of Iran et al, 10 Civ 4518 (SDNY 2016).
Certain Iranian Assets (Preliminary Objections) (n 7) para 97.
Certain Iranian Assets (Verbatim Record, CR 2022/20) 59, para 14(2) (Visek).
Certain Iranian Assets (Judgment) (n 1) para 40.
ibid, para 44.
ibid, para 47.
ibid, paras 37, 49.
Certain Iranian Assets (Reply of Iran), paras 2.85–2.93, 3.23–3.26.
ibid, para 3.25.
Certain Iranian Assets (Judgment) (n 1) para 50.
ibid.
Certain Iranian Assets (Preliminary Objections) (n 7) para 94.
Certain Iranian Assets (Judgment) (n 1) para 51.
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Bennouna; Separate Opinion of Judge Yusuf; Separate Opinion of Judge Robinson paras 1–16; Declaration of Judge Salam; Separate Opinion of Judge ad hoc Momtaz paras 1–10.
Certain Iranian Assets (Judgment) (n 1) para 51.
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Robinson para 13.
Certain Iranian Assets (Judgment) (n 1) Declaration of Judge Salam para 12.
Certain Iranian Assets (Judgment) (n 1) para 51.
Certain Iranian Assets (Preliminary Objections of the United States of America) paras 9.1–9.20; (Verbatim Record, CR 2018/28) 23, para 32 (Visek).
Certain Iranian Assets (Preliminary Objections of the United States of America) (n 36) paras 9.2, 9.8, 9.19; (Verbatim Record, CR 2018/29) 42, 46, 48–50, paras 4, 16, 23–24, 27–28 (Childress).
Certain Iranian Assets (Verbatim Record, CR 2018/30) 63, para 24 (Thouvenin).
Certain Iranian Assets (Preliminary Objections) (n 7) 38, para 90.
ibid 39, para 94.
Certain Iranian Assets (Verbatim Record, CR 2018/29) 53, para 40 (Childress); CR 2019/32, at 42, para 36 (Childress).
Certain Iranian Assets (Preliminary Objections) (n 7) 39, para 94.
Certain Iranian Assets (Judgment) (n 1) para 51.
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Yusuf para 7; Separate Opinion of Judge ad hoc Momtaz para 8.
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Bennouna paras 3–4.
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Yusuf para 9; Separate Opinion of Judge Bennouna para 8.
Certain Iranian Assets (Judgment) (n 1) para 51.
ibid, para 50.
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011.
Certain Iranian Assets (Judgment) (n 1) para 53.
See Section IV.B. below for further details.
Paushok (n 49) para 592.
ibid, para 589.
ibid, paras 581–84.
Responsibility of States for Internationally Wrongful Acts, UN Doc A/RES/56/83, 12 December 2001, annex.
ILC, ‘Responsibility of States for Internationally Wrongful Acts. Text of the Draft Articles with Commentaries Thereto’, ILC Yearbook Vol II (2) (2001) (ARSIWA Commentary) 41, para 6 (‘It is irrelevant for the purposes of attribution that the conduct of a State organ may be classified as “commercial” or as acta iure gestionis’).
J Crawford, State Responsibility: The General Part (CUP 2013) 130; see eg Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7, Award, 13 November 2000, para 52.
See ARSIWA Commentary (n 56) 43, para 6.
Crawford (n 57) 127.
G Petrochilos, ‘Attribution: State Organs and Entities Exercising Elements of Governmental Authority’ in K Yannaca-Small (ed), Arbitration under International Investment Agreements: A Guide to the Key Issues (2nd edn, OUP 2018) 332, 353 (quoting Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13, Award, 6 November 2008, paras 169–70; Gustav FW Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24, Award, 18 June 2010, para 202). However, the context-insensitive approach is not always tenable. Y Okada, ‘Can Acta Jure Gestionis Be Attributable to the State? A Restrictive Doctrine of State Responsibility’ (2023) 34 EJIL 383, 408–13. Notably, arbitral tribunals have detached the conduct concerned from its context insofar as it is carried out (at least purportedly) within the framework of contractual relationships (see eg Bayindir Insaat Turizm Ticaret Ve Sanayi AŞ v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Award, 27 August 2009, para 461; Kristian Almås and Geir Almås v Republic of Poland, UNCITRAL, PCA Case No 2015-13, Award, 27 June 2016, paras 221–51; Staur Eindom AS, EBO Invest AS and Rox Holding AS v Republic of Latvia, ICSID Case No ARB/16/38, Award, 28 February 2020, para 343), which was not the case in Paushok (n 49) para 592 (‘Those actions … went beyond a mere contractual relationship’).
Paushok (n 49) paras 590–91.
KOO Golden East Mongolia v Bank of Nova Scotia and others [2007] EWCA Civ 1443 [40], [42].
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Nolte para 15 observes that the interpretation by the Court ‘conforms with practice’ regarding the protection of central banks’ holding and managing foreign currency reserves.
Certain Iranian Assets (Rejoinder of the United States of America) para 5.22.
AIG Capital Partners Inc and another v Republic of Kazakhstan (National Bank of Kazakhstan intervening) [2005] EWHC 2239 (Comm); Certain Iranian Assets (Rejoinder of the United States of America) Vol II, Annex 292.
Subsections (2)(b) and (4) of section 13 provide conjointly that ‘the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award … for its arrest, detention or sale’, except for ‘property which is for the time being in use or intended for use for commercial purposes’.
AIG (n 65) [92(2)] and [92(3)].
Certain Iranian Assets (Judgment) (n 1) para 51.
NV Exploitatie-Maatschappij Bengkalis v Bank Indonesia, Court of Appeal of Amsterdam, 23 October 1963 (1966) 13 Netherlands ILR 318, 322; Blagojevic v Bank of Japan, Court of Cassation of France, 19 May 1976, 65 ILR 63; Certain Iranian Assets (Rejoinder of the United States of America) (n 64) para 5.22 and Vol II, Annexes 293 and 294.
Certain Iranian Assets (Judgment) (n 1) para 48.
Referring to the purpose of conduct or transaction, which usually has the effect of vindicating its sovereign character, may result in an opposite conclusion if a stricter approach is taken. In a case involving financial assets managed by the central bank of Kazakhstan, the Swedish Supreme Court denied the bank’s immunity from enforcement on the ground that a ‘clear connection between the attached property and a qualified purpose of a sovereign nature [was] lacking’ notwithstanding the generally framed purpose of ensuring macroeconomic and budgetary stability. Ascom Group SA et al v The Republic of Kazakhstan and the National Bank of Kazakhstan, Ö 3828-20, Decision, 18 November 2021, paras 45–46.
Peterson et al v Islamic Republic of Iran et al, 10 Civ 4518 (KBF), WL 1155576 (SDNY 2013).
Certain Iranian Assets (Judgment) (n 1) para 48.
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Nolte para 15.
See Section III.B. above.
Certain Iranian Assets (Judgment) (n 1) Declaration of Judge Salam para 14; See also Separate Opinion of Judge ad hoc Momtaz paras 3–6.
art 2(2) of the United Nations Convention on Jurisdictional Immunities of States and Their Property, UN Doc A/RES/59/38, 2 December 2004 (it has not entered into force yet at the time of writing).
Foreign Sovereign Immunities Act (28 USC §1603(d)) provides: ‘The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose’.
Republic of Argentina v Weltover, 504 US 607, 614–617 (1992).
Certain Iranian Assets (Judgment) (n 1) Declaration of Judge Salam para 14.
Ceskoslovenska Obchodni Banka, AS v The Slovak Republic, ICSID Case No ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction, 24 May 1999. For a succinct review of this case, see P Šturma, ‘Decision on jurisdiction of the ICSID Tribunal in the case Československá obchodní banka v. Slovak Republic’ (2000) 60 ZaöRV 151.
Certain Iranian Assets (Reply of Iran) (n 25) para 3.11. Neither party had referred to this case at the preliminary objection phase. Giulio Alvaro Cortesi, ‘The Case of Certain Iranian Assets: The Standard for Joining Preliminary Objections to the Merits Revisited and the Treatment of State-Owned Enterprises before the International Court of Justice’ (2020) 25 ARIEL 219, 233.
Convention on the Settlement of Investment Disputes between States and Nationals of Other States (opened for signature 18 March 1965, entered into force 14 October 1966) 575 UNTS 159, art 25(1).
Certain Iranian Assets (Judgment) (n 1) Separate Opinion of Judge Yusuf para 11.
A Broches, ‘The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States’ (1972) 136 RCADI 331, 355.
P Blyschak, ‘State-Owned Enterprises and International Investment Treaties: When Are State Owned Entities and their Investments Protected?’ (2011) 6 JILIR 1, 33.
CSOB (n 81) para 20.
Certain Iranian Assets (Judgments) (n 1) Separate Opinion of Judge Yusuf paras 11 and 22.
Certain Iranian Assets (Judgment) (n 1) para 53.
CSOB (n 81) para 1.
ibid, para 18.
Broches (n 85) 354–55.
Certain Iranian Assets (Judgment) (n 1) para 53.
Certain Iranian Assets (Preliminary Objections of the United States of America) (n 36) paras 9.1–9.13. Insofar as the relevance of CSOB was denied, similar tests as articulated and applied by other dispute settlement bodies could have little or no bearing upon the present case either. The examples include a ‘governmental authority’ test formulated by the Appellate Body of the World Trade Organization (‘WTO’) to determine whether Chinese State-owned entities, including State-owned commercial banks, were ‘public bod[ies]’ within the meaning of art 1.1(a)(1) of the Agreement on Subsidies and Countervailing Measures. See United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R (adopted 11 March 2011), paras 317–19. As a matter of fact, neither Iran nor the United States relied on the WTO precedent.
Recent scholarly voices call for a more contextual analysis. See Blyschak (n 86) 30–31; C Beus, ‘Sovereign Wealth Funds in the ICSID: A New Approach to Standing’ (2014) 1 Indo J Intl & Comp L 543, 563; M Feldman, ‘State-Owned Enterprises as Claimants in International Investment Arbitration’ (2016) 31 ICSID Rev-FILJ 24, 34; D Sejko, ‘Sovereign Investors as ICSID Claimants: Lessons from the Drafting Documents and the Case Law’ (2023) 56 Vanderbilt J Transnatl L 853, 902.
Some tribunals no longer make references to CSOB and the underlying Broches test. Masdar Solar & Wind Cooperatief UA v Kingdom of Spain, ICSID Case No ARB/14/1, Award (16 May 2018), para 167; Landesbank Baden-Württemberg and others v Kingdom of Spain, ICSID Case No ARB/15/45, Decision on the Intra-EU Jurisdictional Objection (25 February 2019), para 112. For a critical assessment of these scholarly and practical developments, see K Nisugi, ‘Piercing the “National” Veil of State-Backed Investors in ICSID Arbitration: Beyond Broches Test and ARSIWA’ (2023) OSIPP Discussion Papers Series DP-2023-E-003, 1 <https://www.osipp.osaka-u.ac.jp/archives/DP/2023/DP2023E003.pdf> accessed 9 November 2023.
J Crawford, ‘International Law and Foreign Sovereign: Distinguishing Immune Transactions’ (1981) 54 BYBIL 75, 117–18.
F Mégret, ‘Are There “Inherently Sovereign Functions” in International Law?’ (2021) 115 AJIL 452, 452. The contention of the United States was that such trend ‘had nothing to do with State entities like central banks’. See Certain Iranian Assets (Verbatim Records, CR 2018/29) 48, 52–53, paras 23–24, 37–38 (Childress); (Verbatim Records CR 2018/32) 37, para 15 (Childress).
See the recent decision rendered by the Swedish Supreme Court (n 71) and the series of decisions in investment arbitration cases (n 60).
Certain Iranian Assets (Judgment) (n 1) para 39.
ibid, para 45.
