|
[p6]
The Court,
composed as above,
delivers the following Judgment:
1. In 1958 the Belgian Government filed with the International Court of
Justice an Application against the Spanish Government seeking reparation for
damage allegedly caused to the Barcelona Traction, Light and Power Company,
Limited, on account of acts said to be contrary to international law
committed by organs of the Spanish State. After the filing of the Belgian
Memorial and the submission of preliminary objections by the Spanish
Government, the Belgian Government gave notice of discontinuance of the
proceedings, with a view to negotiations between the representatives of the
private interests concerned. The case was removed from the Court's General
List on 10 April 1961.
2. On 19 June 1962, the negotiations having failed, the Belgian Government
submitted to the Court a new Application, claiming reparation for the damage
allegedly sustained by Belgian nationals, shareholders in the Barcelona
Traction company, on account of acts said to be contrary to international
law committed in respect of the company by organs of the Spanish State. On
15 March 1963 the Spanish Government raised four preliminary objections to
the Belgian Application.
3. By its Judgment of 24 July 1964, the Court rejected the first two
preliminary objections. The first was to the effect that the
discontinuance, under Article 69, paragraph 2, of the Court's Rules, of
previous proceedings relative to the same events in Spain, disentitled the
Belgian Government from bringing the present proceedings. The second was to
the effect that even if this was not the case, the Court was not competent,
because the necessary jurisdictional basis requiring Spain to submit to the
jurisdiction of the Court did not exist. The Court joined the third and
fourth objections to the merits. The third was to the effect that the claim
is inadmissible because the Belgian Government lacks any jus standi to
intervene or make a judicial claim on behalf of Belgian interests in a
Canadian company, assuming that the Belgian character of such interests were
established, which is denied by the Spanish Government. The fourth was to
the effect that even if the Belgian Government has the necessary jus standi,
the claim still remains inadmissible because local remedies in respect of
the acts complained of were not exhausted.
4. Time-limits for the filing of the further pleadings were fixed or, at the
request of the Parties, extended by Orders of 28 July 1964, 11 June 1965, 12
January 1966, 23 November 1966, 12 April 1967, 15 September 1967 and 24 May
1968, in the last-mentioned of which the Court noted with regret that the
time-limits originally fixed by the Court for the filing of the pleadings
had not been observed, whereby the written proceedings had been considerably
prolonged. The written proceedings finally came to an end on 1 July 1968
with the filing of the Rejoinder of the Spanish Government. [p.7]
5. Pursuant to Article 31, paragraph 3, of the Statute, Mr. Willem Riphagen,
Professor of International Law at the Rotterdam School of Economics, and Mr.
Enrique C. Armand-Ugon, former President of the Supreme Court of Justice of
Uruguay and a former Member of the International Court of Justice, were
chosen by the Belgian and Spanish Governments respectively to sit as judges
ad hoc.
6. Pursuant to Article 44, paragraph 2, of the Rules of Court, the pleadings
and annexed documents were, after consultation of the Parties, made
available to the Governments of Chile, Peru and the United States of
America. Pursuant to paragraph 3 of the same Article, the pleadings and
annexed documents were, with the consent of the Parties, made accessible to
the public as from 10 April 1969.
7. At 64 public sittings held between 15 April and 22 July 1969 the Court
heard oral arguments and replies by Chevalier Devadder, Agent, Mr. Rolin,
co-Agent and Counsel, Mrs. Bastid, Mr. Van Ryn, Mr. Grégoire, Mr. Mann, Mr.
Virally, Mr. Lauterpacht, and Mr. Pattillo, Counsel, on behalf of the
Belgian Government and by Mr. Castro-Rial, Agent, Mr. Ago, Mr. Carreras Mr.
Gil-Robles, Mr. Guggenheim, Mr. Jimenez de Aréchaga, Mr. Malintoppi, Mr.
Reuter, Mr. Sureda, Mr. Uria, Sir Humphrey Waldock and Mr. Weil, Counsel or
Advocates, on behalf of the Spanish Government.
***
8. The Barcelona Traction, Light and Power Company, Limited, is a holding
company incorporated in 1911 in Toronto (Canada), where it has its head
office. For the purpose of creating and developing an electric power
production and distribution system in Catalonia (Spain), it formed a number
of operating, financing and concession-holding subsidiary companies. Three
of these companies, whose shares it owned wholly or almost wholly, were
incorporated under Canadian law and had their registered offices in Canada (Ebro
Irrigation and Power Company, Limited, Catalonian Land Company, Limited and
International Utilities Finance Corporation, Limited); the others were
incorporated under Spanish law and had their registered offices in Spain. At
the time of the outbreak of the Spanish Civil War the group, through its
operating subsidiaries, supplied the major part of Catalonia's electricity
requirements.
9. According to the Belgian Government, some years after the First World War
Barcelona Traction's share capital came to be very largely held by Belgian
nationals—natural or juristic persons—and a very high percentage of the
shares has since then continuously belonged to Belgian nationals,
particularly the Société Internationale d'Energie Hydro-Electrique (Sidro),
whose principal shareholder, the Société Financière de Transports et
d'Entreprises Industrielles (Sofina), is itself a company in which Belgian
interests are preponderant. The fact that large blocks of shares were for
certain periods transferred to American nominees, to [p.8]protect these
securities in the event of invasion of Belgian territory during the Second
World War, is not, according to the Belgian contention, of any relevance in
this connection, as it was Belgian nationals, particularly Sidro, who
continued to be the real owners. For a time the shares were vested in a
trustee, but the Belgian Government maintains that the trust terminated in
1946. The Spanish Government contends, on the contrary, that the Belgian
nationality of the shareholders is not proven and that the trustee or the
nominees must be regarded as the true shareholders in the case of the
shares concerned.
10. Barcelona Traction issued several series of bonds, some in pesetas but
principally in sterling. The issues were secured by trust deeds, with the
National Trust Company, Limited, of Toronto as trustee of the sterling
bonds, the security consisting essentially of a charge on bonds and shares
of Ebro and other subsidiaries and of a mortgage executed by Ebro in favour
of National Trust. The sterling bonds were serviced out of transfers to
Barcelona Traction effected by the subsidiary companies operating in Spain.
11. In 1936 the servicing of the Barcelona Traction bonds was suspended on
account of the Spanish civil war. In 1940 payment of interest on the peseta
bonds was resumed with the authorization of the Spanish exchange control
authorities (required because the debt was owed by a foreign company), but
authorization for the transfer of. the foreign currency necessary for the
servicing of the sterling bonds was refused and those interest payments were
never resumed.
12. In 1945 Barcelona Traction proposed a plan of compromise which provided
for the reimbursement of the sterling debt. When the Spanish authorities
refused to authorize the transfer of the necessary foreign currency, this
plan was twice modified. In its final form, the plan provided, inter alia,
for an advance redemption by Ebro of Barcelona Traction peseta bonds, for
which authorization was likewise required. Such authorization was refused by
the Spanish authorities. Later, when the Belgian Government complained of
the refusals to authorize foreign currency transfers, without which the
debts on the bonds could not be honoured, the Spanish Government stated that
the transfers could not be authorized unless it was shown that the foreign
currency was to be used to repay debts arising from the genuine importation
of foreign capital into Spain, and that this had not been established.
13. On 9 February 1948 three Spanish holders of recently acquired Barcelona
Traction sterling bonds petitioned the court of Reus (Province of Tarragona)
for a declaration adjudging the company bankrupt, on account of failure to
pay the interest on the bonds. The petition was admitted by an order of 10
February 1948 and a judgment declaring the company bankrupt was given on 12
February. This judgment included provisions appointing a commissioner in
bankruptcy and an interim [p.9] receiver and ordering the seizure of the
assets of Barcelona Traction, Ebro and Compañía Barcelonesa de Electricidad,
another subsidiary company.
14. The shares of Ebro and Barcelonesa had been deposited by Barcelona
Traction and Ebro with the National Trust company of Toronto as security for
their bond issues. All the Ebro and the Barcelonesa ordinary shares were
held outside Spain, and the possession taken of them was characterized as
"mediate and constructive civil possession", that is to say was not
accompanied by physical possession. Pursuant to the bankruptcy judgment the
commissioner in bankruptcy at once dismissed the principal management
personnel of the two companies and during the ensuing weeks the interim
receiver appointed Spanish directors and declared that the companies were
thus "normalized". Shortly after the bankruptcy judgment the petitioners
brought about the extension of the taking of possession and related measures
to the other subsidiary companies.
15. Proceedings in Spain to contest the bankruptcy judgment and the related
decisions were instituted by Barcelona Traction, National Trust, the
subsidiary companies and their directors or management personnel. However,
Barcelona Traction, which had not received a judicial notice of the
bankruptcy proceedings, and was not represented before the Reus court in
February, took no proceedings in the courts until 18 June 1948. In
particular it did not enter a plea of opposition against the bankruptcy
judgment within the time-limit of eight days from the date of publication of
the judgment laid down in Spanish legislation. On the grounds that the
notification and publication did not comply with the relevant legal
requirements, the Belgian Government contends that the eight-day time-limit
had never begun to run.
16. Motions contesting the jurisdiction of the Reus court and of the Spanish
courts as a whole, in particular by certain bondholders, had a suspensive
effect on the actions for redress; a decision on the question of
jurisdiction was in turn delayed by lengthy proceedings brought by the
Genora company, a creditor of Barcelona Traction, disputing Barcelona
Traction's right to be a party to the proceedings on the jurisdictional
issue. One of the motions contesting jurisdiction was not finally dismissed
by the Barcelona court of appeal until 1963, after the Belgian Application
had been filed with the International Court of Justice.
17. In June 1949, on an application by the Namel company, with the
intervention of the Genora company, the Barcelona court of appeal gave a
judgment making it possible for the meeting of creditors to be convened for
the election of the trustees in bankruptcy, by excluding the necessary
procedure from the suspensive effect of the motion contesting jurisdiction.
Trustees were then elected, and procured decisions that new shares of the
subsidiary companies should be created, cancelling the shares located
outside Spain (December 1949), and that the head offices of Ebro and
Catalonian Land should henceforth be at Barcelona and not [p.10]Toronto.
Finally in August 1951 the trustees obtained court authorization to sell
"the totality of the shares, with all the rights attaching to them,
representing the corporate capital" of the subsidiary companies, in the form
of the newly created share certificates. The sale took place by public
auction on 4 January 1952 on the basis of a set of General Conditions and
became effective on 17 June 1952. The purchaser was a newly formed company,
Fuerzas Eléctricas de Cataluña, S.A. (Fecsa), which thereupon acquired
complete control of the undertaking in Spain.
18. Proceedings before the court of Reus, various courts of Barcelona and
the Spanish Supreme Court, to contest the sale and the operations which
preceded or followed it, were taken by, among others, Barcelona Traction,
National Trust and the Belgian company Sidro as a shareholder in Barcelona
Traction, but without success. According to the Spanish Government, up to
the filing of the Belgian Application, 2,736 orders had been made in the
case and 494 judgments given by lower and 37 by higher courts. For the
purposes of this Judgment it is not necessary to go into these orders and
judgments.
19. After the bankruptcy declaration, representations were made to the
Spanish Government by the British, Canadian, United States and Belgian
Governments.
20. The British Government made representations to the Spanish Government on
23 February 1948 concerning the bankruptcy of Barcelona Traction and the
seizure of its assets as well as those of Ebro and Barcelonesa, stating its
interest in the situation of the bondholders resident in the United Kingdom.
It subsequently supported the representations made by the Canadian
Government.
21. The Canadian Government made representations to the Spanish Government
in a series of diplomatic notes, the first being dated 27 March 1948 and the
last 21 April 1952; in addition, approaches were made on a less official
level in July 1954 and March 1955. The Canadian Government first complained
of the denials of justice said to have been committed in Spain towards
Barcelona Traction, Ebro and National Trust, but it subsequently based its
complaints more particularly on conduct towards the Ebro company said to be
in breach of certain treaty provisions applicable between Spain and Canada.
The Spanish Government did not respond to a Canadian proposal for the
submission of the dispute to arbitration and the Canadian Government
subsequently confined itself, until the time when its interposition entirely
ceased, to endeavouring to promote a settlement by agreement between the
private groups concerned.
22. The United States Government made representations to the Spanish
Government on behalf of Barcelona Traction in a note of 22 July 1949, in
support of a note submitted by the Canadian Government the previous day. It
subsequently continued its interposition through the diplomatic channel and
by other means. Since references were made by the United States Government
in these representations to the presence of [p.11] American interests in
Barcelona Traction, the Spanish Government draws the conclusion that, in the
light of the customary practice of the United States Government to protect
only substantial American investments abroad, the existence must be
presumed of such large American interests as to rule out a preponderance of
Belgian interests. The Belgian Government considers that the United States
Government was motivated by a more general concern to secure equitable
treatment of foreign investments in Spain, and in this context cites, inter
alia, a note of 5 June 1967 from the United States Government.
23. The Spanish Government having stated in a note of 26 September 1949 that
Ebro had not furnished proof as to the origin and genuineness of the bond
debts, which justified the refusal of foreign currency transfers, the
Belgian and Canadian Governments considered proposing to the Spanish
Government the establishment of a tripartite committee to study the
question. Before this proposal was made, the Spanish Government suggested
in March 1950 the creation of a committee on which, in addition to Spain,
only Canada and the United Kingdom would be represented. This proposal was
accepted by the United Kingdom and Canadian Governments. The work of the
committee led to a joint statement of 11 June 1951 by the three Governments
to the effect, inter alia, that the attitude of the Spanish administration
in not authorizing the transfers of foreign currency was fully justified.
The Belgian Government protested against the fact that it had not been
invited to nominate an expert to take part in the enquiry, and reserved its
rights; in the proceedings before the Court it contended that the joint
statement of 1951, which was based on the work of the committee, could not
be set up against it, being res inter alios acta.
24. The Belgian Government made representations to the Spanish Government on
the same day as the Canadian Government, in a note of 27 March 1948. It
continued its diplomatic intervention until the rejection by the Spanish
Government of a Belgian proposal for submission to arbitration (end of
1951). After the admission of Spain to membership in the United Nations
(1955), which, as found by the Court in 1964, rendered operative again the
clause of compulsory jurisdiction contained in the 1927 Hispano-Belgian
Treaty of Conciliation, Judicial Settlement and Arbitration, the Belgian
Government attempted further representations. After the rejection of a
proposal for a special agreement, it decided to refer the dispute
unilaterally to this Court.
***
25. In the course of the written proceedings, the following submissions were
presented by the Parties: [p. 12]
On behalf of the Belgian Government, the Application:
"May it please the Court
1. to adjudge and declare that the measures, acts, decisions and omissions
of the organs of the Spanish State described in the present Application are
contrary to international law and that the Spanish State is under an
obligation towards Belgium to make reparation for the consequential damage
suffered by Belgian nationals, natural and juristic persons, shareholders in
Barcelona Traction;
2. to adjudge and declare that this reparation should, as far as possible,
annul all the consequences which these acts contrary to international law
have had for the said nationals, and that the Spanish State is therefore
under an obligation to secure, if possible, the annulment of the
adjudication in bankruptcy and of the judicial and other acts resulting
therefrom, obtaining for the injured Belgian nationals all the legal effects
which should result for them from this annulment; further, to determine the
amount of the compensation to be paid by the Spanish State to the Belgian
State by reason of all the incidental damage sustained by Belgian nationals
as a result of the acts complained of, including the deprivation of
enjoyment of rights and the expenses incurred in the defence of their
rights;
3. to adjudge and declare, in the event of the annulment of the
consequences of the acts complained of proving impossible, that the Spanish
State shall be under an obligation to pay to the Belgian State, by way of
compensation, a sum equivalent to 88 per cent of the net value of the
business on 12 February 1948; this compensation to be increased by an amount
corresponding to all the incidental damage suffered by the Belgian nationals
as the result of the acts complained of, including the deprivation of
enjoyment of rights and the expenses incurred in the defence of their
rights";
the Memorial:
"May it please the Court
I. to adjudge and declare that the measures, acts, decisions and omissions
of the organs of the Spanish State described in the present Memorial are
contrary to international law and that the Spanish State is under an
obligation towards Belgium to make reparation for the consequential damage
suffered by Belgian nationals, natural and juristic persons, shareholders in
Barcelona Traction;
II. to adjudge and declare that this reparation should, as far as possible,
annul all the consequences which these acts contrary to international law
have had for the said nationals, and that the Spanish State is therefore
under an obligation to secure, if possible, the annulment by administrative
means of the adjudication in bankruptcy and of the judicial and other acts
resulting therefrom, obtaining for the said injured Belgian nationals all
the legal effects which should result for them from this annulment; further,
to determine the amount of the compensation to be paid by the Spanish State
to the Belgian State by reason of all the incidental damage sustained by
Belgian nationals as a result of the acts complained of, including the
deprivation of enjoyment of rights and the expenses incurred in the defence
of their rights; [p.13]
III. to adjudge and declare, in the event of the annulment of the
consequences of the acts complained of proving impossible, that the Spanish
State shall be under an obligation to pay to the Belgian State, by way of
compensation, a sum equivalent to 88 per cent of the sum of $88,600,000
arrived at in paragraph 379 of the present Memorial, this compensation to be
increased by an amount corresponding to all the incidental damage suffered
by the said Belgian nationals as the result of the acts complained of,
including the deprivation of enjoyment of rights, the expenses incurred in
the defence of their rights and the equivalent in capital and interest of
the amount of Barcelona Traction bonds held by Belgian nationals and of
their other claims on the companies in the group which it was not possible
to recover owing to the acts complained of";
in the Reply:
"May it please the Court, rejecting any other submissions of the Spanish
State which are broader or to a contrary effect,
to adjuge and declare
(1) that the Application of the Belgian Government is admissible;
(2) that the Spanish State is responsible for the damage sustained by the
Belgian State in the person of its nationals, shareholders in Barcelona
Traction, as the result of the acts contrary to international law committed
by its organs, which led to the total spoliation of the Barcelona Traction
group;
(3) that the Spanish State is under an obligation to ensure reparation of
the said damage;
(4) that this damage can be assessed at U.S. $78,000,000, representing 88
per cent. of the net value, on 12 February 1948, of the property of which
the Barcelona Traction group was despoiled;
(5) that the Spanish State is, in addition, under an obligation to pay, as
an all-embracing payment to cover loss of enjoyment, compensatory interest
at the rate of 6 per cent. on the said sum of U.S. $78,000,000, from 12
February 1948 to the date of judgment;
(6) that the Spanish State must, in addition, pay a sum provisionally
assessed at U.S. $3,800,000 to cover the expenses incurred by the Belgian
nationals in defending their rights since 12 February 1948;
(7) that the Spanish State is also liable in the sum of £433,821
representing the amount, in principal and interest, on 4 January 1952, of
the Barcelona Traction sterling bonds held by the said nationals, as well as
in the sum of U.S. $1,623,127, representing a debt owed to one of the said
nationals by a subsidiary company of Barcelona Traction, this sum including
lump-sum compensation for loss of profits resulting from the premature
termination of a contract;
that there will be due on those sums interest at the rate of 6 per cent, per
annum, as from 4 January 1952 so far as concerns the sum of £433,821, and as
from 12 February 1948 so far as concerns the sum of U.S. $1,623,127; both up
to the date of judgment;
(8) that the Spanish State is also liable to pay interest, by way of
interest on a sum due and outstanding, at a rate to be determined by [p.14]
reference to the rates generally prevailing, on the amount of compensation
awarded, from the date of the Court's decision fixing such compensation up
to the date of payment;
(9) in the alternative to submissions (4) to (6) above, that the amount of
the compensation due to the Belgian State shall be established by means of
an expert enquiry to be ordered by the Court; and to place on record that
the Belgian Government reserves its right to submit in the course of the
proceedings such observations as it may deem advisable concerning the object
and methods of such measure of investigation;
(10) and, should the Court consider that it cannot, without an expert
enquiry, decide the final amount of the compensation due to the Belgian
State, have regard to the considerable magnitude of the damage caused and
make an immediate award of provisional compensation, on account of the
compensation to be determined after receiving the expert opinion, the amount
of such provisional compensation being left to the discretion of the Court."
On behalf of the Spanish Government, in the Counter-Memorial:
"May it please the Court to adjudge and declare
I. that the Belgian claim which, throughout the diplomatic correspondence
and in the first Application submitted to the Court, has always been a claim
with a view to the protection of the Barcelona Traction company, has not
changed its character in the second Application, whatever the apparent
modifications introduced into it;
that even if the true subject of the Belgian claim were, not the Barcelona
Traction company, but those whom the Belgian Government characterizes on
some occasions as 'Belgian shareholders' and on other occasions as 'Belgian
interests' in that company, and the damage allegedly sustained by those
'shareholders' or 'interests', it would still remain true that the Belgian
Government has not validly proved either that the shares of the company in
question belonged on the material dates to 'Belgian shareholders', or,
moreover, that there is in the end, in the case submitted to the Court, a
preponderance of genuine 'Belgian interests';
that even if the Belgian claim effectively had as its beneficiaries alleged
'shareholders' of Barcelona Traction who were 'Belgian', or yet again
alleged genuine 'Belgian interests' of the magnitude which is attributed to
them, the general principles of international law governing this matter,
confirmed by practice which knows of no exception, do not recognize that the
national State of shareholders or 'interests', whatever their number or
magnitude, may make a claim on their behalf in reliance on allegedly
unlawful damage sustained by the company, which possesses the nationality of
a third State;
that the Belgian Government therefore lacks jus standi in the present case;
II. that a rule of general international law, confirmed both by judicial
precedents and the teachings of publicists, and reiterated in Article 3 of
the Treaty of Conciliation, Judicial Settlement and Arbitration of 19 July
1927 between Spain and Belgium, requires that private persons [p.15]
allegedly injured by a measure contrary to international law should have
used and exhausted the remedies and means of redress provided by the
internal legal order before diplomatic, and above all judicial, protection
may be exercised on their behalf;
that the applicability of this rule to the present case has not been
disputed and that the prior requirement which it lays down has not been
satisfied;
III. that the organic machinery for financing the Barcelona Traction
undertaking, as conceived from its creation and constantly applied
thereafter, placed it in a permanent state of latent bankruptcy, and that
the constitutional structure of the group and the relationship between its
members were used as the instrument for manifold and ceaseless operations to
the detriment both of the interests of the creditors and of the economy and
law of Spain, the country in which the undertaking was to carry on all its
business;
that these same facts led, on the part of the undertaking, to an attitude
towards the Spanish authorities which could not but provoke a fully
justified refusal to give effect to the currency applications made to the
Spanish Government;
that the bankruptcy declaration of 12 February 1948, the natural outcome of
the conduct of the undertaking, and the bankruptcy proceedings which
ensued, were in all respects in conformity with the provisions of Spanish
legislation on the matter; and that moreover these provisions are comparable
with those of other statutory systems, in particular Bel-gian legislation
itself;
that the complaint of usurpation of jurisdiction is not well founded where
the bankruptcy of a foreign company is connected in any way with the
territorial jurisdiction of the State, that being certainly so in the
present case;
that the Spanish judicial authorities cannot be accused of either one or
more denials of justice in the proper sense of the term, Barcelona Traction
never having been denied access to the Spanish courts and the judicial
decisions on its applications and appeals never having suffered unjustified
or unreasonable delays; nor is it possible to detect in the conduct of the
Spanish authorities the elements of some breach of international law other
than a denial of justice;
that the claim for reparation, the very principle of which is disputed by
the Spanish Government, is moreover, having regard to the circumstances of
the case, an abuse of the right of diplomatic protection in connection with
which the Spanish Government waives none of its possible rights;
IV. that, therefore, the Belgian claim is dismissed as inadmissible or, if
not, as unfounded";
in the Rejoinder:
"May it please the Court to adjudge and declare
that the claim of the Belgian Government is declared inadmissible or, if
not, unfounded."
In the course of the oral proceedings, the following text was presented as
final submissions [p.16]
on behalf of the Belgian Government,
after the hearing of 9 July 1969:
"1. Whereas the Court stated on page 9 of its Judgment of 24 July 1964 that
'The Application of the Belgian Government of 19 June 1962 seeks reparation
for damage claimed to have been caused to a number of Belgian nationals,
said to be shareholders in the Barcelona Traction, Light and Power Company,
Limited, a company under Canadian law, by the conduct, alleged to have been
contrary to international law, of various organs of the Spanish State in
relation to that company and to other companies of its group';
Whereas it was therefore manifestly wrong of the Spanish Government, in the
submissions in the Counter-Memorial and in the oral arguments of its
counsel, to persist in the contention that the object of the Belgian claim
is to protect the Barcelona Traction company;
2. Whereas Barcelona Traction was adjudicated bankrupt in a judgment
rendered by the court of Reus, in Spain, on 12 February 1948;
3. Whereas that holding company was on that date in a perfectly sound
financial situation, as were its subsidiaries, Canadian or Spanish companies
having their business in Spain;
4. Whereas, however, the Spanish Civil War and the Second World War had,
from 1936 to 1944, prevented Barcelona Traction from being able to receive,
from its subsidiaries operating in Spain, the foreign currency necessary for
the service of the sterling loans issued by it for the financing of the
group's investments in Spain;
5. Whereas, in order to remedy this situation, those in control of
Barcelona Traction agreed with the bondholders in 1945, despite the
opposition of the March group, to a plan of compromise, which was approved
by the trustee and by the competent Canadian court; and whereas its
implementation was rendered impossible as a result of the opposition of the
Spanish exchange authorities, even though the method of financing finally
proposed no longer involved any sacrifice of foreign currency whatever for
the Spanish economy;
6. Whereas, using this situation as a pretext, the March group, which in the
meantime had made further considerable purchases of bonds, sought and
obtained the judgment adjudicating Barcelona Traction bankrupt;
7. Whereas the bankruptcy proceedings were conducted in such a manner as to
lead to the sale to the March group, which took place on 4 January 1952, of
all the assets of the bankrupt company, far exceeding in value its
liabilities, in consideration of the assumption by the purchaser itself of
solely the bonded debt, which, by new purchases, it had concentrated into
its own hands to the extent of approximately 85 per cent., while the cash
price paid to the trustees in bankruptcy, 10,000,000 pesetas— approximately
$250,000—, being insufficient to cover the bankruptcy costs, did not allow
them to pass anything to the bankrupt company or its shareholders, or even
to pay its unsecured creditors;
8. Whereas the accusations of fraud made by the Spanish Government against
the Barcelona Traction company and the allegation that that company was in a
permanent state of latent bankruptcy are devoid of all [p.17]relevance to
the case and, furthermore, are entirely unfounded;
9. Whereas the acts and omissions giving rise to the responsibility of the
Spanish Government are attributed by the Belgian Government to certain
administrative authorities, on the one hand,' and to certain judicial
authorities, on the other hand;
Whereas it is apparent when those acts and omissions are examined as a whole
that, apart from the defects proper to each, they converged towards one
common result, namely the diversion of the bankruptcy procedure from its
statutory purposes to the forced transfer, without compensation, of the
undertakings of the Barcelona Traction group to the benefit of a private
Spanish group, the March group;
I
Abuse of rights, arbitrary and discriminatory attitude of certain
adminiustrative authorities
Considering that the Spanish administrative authorities behaved in an
improper, arbitrary and discriminatory manner towards Barcelona Traction
and its shareholders, in that, with the purpose of facilitating the transfer
of control over the property of the Barcelona Traction group from Belgian
hands into the hands of a private Spanish group, they in particular—
(a) frustrated, in October and December 1946, the implementation of the
third method for financing the plan of compromise, by refusing to authorize
Ebro, a Canadian company with residence in Spain, to pay 64,000,000 pesetas
in the national currency to Spanish residents on behalf of Barcelona
Traction, a non-resident company, so that the latter might redeem its peseta
bonds circulating in Spain, despite the fact that Ebro continued
uninterruptedly to be granted periodical authorization to pay the interest
on those same bonds up to the time of the bankruptcy;
(b) on the other hand, accepted that Juan March, a Spanish citizen
manifestly resident in Spain, should purchase considerable quantities of
Barcelona Traction sterling bonds abroad;
(c) made improper use of an international enquiry, from which the Belgian
Government was excluded, by gravely distorting the purport of the
conclusions of the Committee of Experts, to whom they attributed the finding
of irregularities of all kinds such as to entail severe penalties for the
Barcelona Traction group, which enabled the trustees in bankruptcy, at
March's instigation, to bring about the premature sale at a ridiculously low
price of the assets of the Barcelona Traction group and their purchase by
the March group thanks to the granting of all the necessary exchange
authorizations;
II
Usurpation of jurisdiction
Considering that the Spanish courts, in agreeing to entertain the
bankruptcy of Barcelona Traction, a company under Canadian law with its
registered office in Toronto, having neither registered office nor commer
[p.18]cial establishment in Spain, nor possessing any property or carrying
on any business there, usurped a power of jurisdiction which was not theirs
in international law;
Considering that the territorial limits of acts of sovereignty were
patently disregarded in the measures of enforcement taken in respect of
property situated outside Spanish territory without the concurrence of the
competent foreign authorities;
Considering that there was, namely, conferred upon the bankruptcy
authorities, through the artificial device of mediate and constructive civil
possession, the power to exercise in Spain the rights attaching to the
shares located in Canada of several subsidiary and sub-subsidiary com-panies
on which, with the approval of the Spanish judicial authorities, they relied
for the purpose of replacing the directors of those companies, modifying
their terms of association, and cancelling their regularly issued shares and
replacing them with others which they had printed in Spain and delivered to
Fecsa at the time of the sale of the bankrupt company's property, without
there having been any effort to obtain possession of the real shares in a
regular way;
Considering that that disregard is the more flagrant in that three of the
subsidiaries were companies under Canadian law with their registered offices
in Canada and that the bankruptcy authorities purported, with the approval
of the Spanish judicial authorities, to transform two of them into Spanish
companies, whereas such alteration is not permitted by the law governing the
status of those companies;
III
Denials of justice Lato Sensu
Considering that a large number of decisions of the Spanish courts are
vitiated by gross and manifest error in the application of Spanish law, by
arbitrariness or discrimination, constituting in international law denials
of justice lato sensu;
Considering that in particular—
(1) The Spanish courts agreed to entertain the bankruptcy of Barcelona
Traction in flagrant breach of the applicable provisions of Spanish law,
which do not permit that a foreign debtor should be adjudged bankrupt if
that debtor does not have his domicile, or at least an establishment, in
Spanish territory;
(2) Those same courts adjudged Barcelona Traction bankrupt whereas that
company was neither in a state of insolvency nor in a state of final,
general and complete cessation of payments and had not ceased its payments
in Spain, this being a manifest breach of the applicable statutory
provisions of Spanish law, in particular Article 876 of the 1885 Commercial
Code;
(3) The judgment of 12 February 1948 failed to order the publication of the
bankruptcy by announcement in the place of domicile of the bankrupt, which
constitutes a flagrant breach of Article 1044 (5) of the 1829 Commercial
Code;
(4) The decisions failing to respect the separate estates of Barcelona
Traction's subsidiaries and sub-subsidiaries, in that they extended to their
property the attachment arising out of the bankruptcy of the parent [p.19]
company, and thus disregarded their distinct legal personalities, on the
sole ground that all their shares belonged to Barcelona Traction or one of
its subsidiaries, had no legal basis in Spanish law, were purely arbitrary
and in any event constitute a flagrant breach of Article 35 of the Civil
Code, Articles 116 and 174 of the 1885 Commercial Code (so far as the
Spanish companies are concerned) and Article 15 of the same Code (so far as
the Canadian companies are concerned), as well as of Article 1334 of the
Civil Procedure Code;
If the estates of the subsidiaries and sub-subsidiaries could have been
included in that of Barcelona Traction—quod non—, it would have been
necessary to apply to that company the special r!!!egime established by the
imperative provisions of Articles 930 et seq. of the 1885 Commercial Code
and the Acts of 9 April 1904 and 2 January 1915 for the event that
public-utility companies cease payment, and this was not done;
(5) The judicial decisions which conferred on the bankruptcy authorities the
fictitious possession (termed "mediate and constructive civil possession")
of the shares of certain subsidiary and sub-subsidiary companies have no
statutory basis in Spanish bankruptcy law and were purely arbitrary; they
comprise moreover a flagrant breach not only of the general principle
recognized in the Spanish as in the majority of other legal systems to the
effect that no person may exercise the rights embodied in negotiable
securities without having at his disposal the securities themselves but
also of Articles 1334 and 1351 of the Civil Procedure Code and Article 1046
of the 1829 Commercial Code, which require the bankruptcy authorities to
proceed to the material apprehension of the bankrupt's property;
(6) The bestowal on the commissioner by the bankruptcy judgment of power to
proceed to the dismissal, removal or appointment of members of the staff,
employees and management, of the companies all of whose shares belonged to
Barcelona Traction or one of its subsidiaries had no statutory basis in
Spanish law and constituted a gross violation of the statutory provisions
referred to under (4), first sub-paragraph, above and also of Article 1045
of the 1829 Commercial Code;
(7) The Spanish courts approved or tolerated the action of the trustees in
setting themselves up as a purported general meeting of the two Canadian
subsidiaries and in transforming them, in that capacity, into companies
under Spanish law, thus gravely disregarding the rule embodied in Article 15
of the 1885 Commercial Code to the effect that the status and internal
functioning of foreign companies shall be governed in Spain by the law under
which they were incorporated;
(8) The Spanish courts approved or tolerated the action of the trustees in
setting themselves up as purported general meetings and modifying, in that
capacity, the terms of association of the Ebro, Catalonian Land, Union
Eléctrica de Cataluña, Electricista Catalana, Barcelonesa and Saltos del
Segre companies, cancelling their shares and issuing new shares; they thus
committed a manifest breach of Article 15 of the 1885 Commercial Code (so
far as the two Canadian companies were concerned) and Articles 547 et seq.
of the same code, which authorize the issue of duplicates only in the
circumstances they specify; they also gravely disregarded the clauses of the
trust deeds concerning voting-rights, in [p.20]flagrant contempt of the
undisputed rule of Spanish law to the effect that acts performed and
agreements concluded validly by the bankrupt before the date of the
cessation of payments as determined in the judicial decisions shall retain
their effects and their binding force in respect of the bankruptcy
authorities (Articles 878 et seq. of the 1885 Commercial Code);
(9) The Spanish courts decided at one and the same time to ignore the
separate legal personalities of the subsidiary and sub-subsidiary companies
(so as to justify the attachment of their property in Spain and their
inclusion in the bankrupt estate) and implicitly but indubitably to
recognize those same personalities by the conferring of fictitious
possession of their shares on the bankruptcy authorities, thus giving
decisions which were vitiated by an obvious self-contradiction revealing
their arbitrary and discriminatory nature;
(10) The general meeting of creditors of 19 September 1949 convened for the
purpose of appointing the trustees was, with the approval of the Spanish
judicial authorities, held in flagrant breach of Articles 300 and 1342 of
the Civil Procedure Code, and 1044 (3), 1060, 1061 and 1063 of the 1829
Commercial Code, in that (a) it was not convened on cognizance of the list
of creditors; (b). when that list was prepared, it was not drawn up on the
basis of particulars from the balance-sheet or the books and documents of
the bankrupt company, which books and documents were not, as the Spanish
Government itself admits, in the possession of the commissioner on 8 October
1949, while the judicial authorities had not at any time sent letters
rogatory to Toronto, Canada, with the request that they be put at his
disposal ;
(11) By authorizing the sale of the property of the bankrupt company when
the adjudication in bankruptcy had not acquired irrevocability and while the
proceedings were suspended, the Spanish courts flagrantly violated Articles
919, 1167, 1319 and 1331 of the Civil Procedure Code and the general
principles of the right of defence;
In so far as that authorization was based on the allegedly perishable nature
of the property to be sold, it constituted a serious disregard of Article
1055 of the 1829 Commercial Code and Article 1354 of the Civil Procedure
Code, which articles allow the sale only of movable property which cannot be
kept without deteriorating or spoiling; even supposing that those provisions
could be applied in general to the property of Barcelona Traction, its
subsidiaries and sub-subsidiaries—quod non—, there would still have been a
gross and flagrant violation of them, inasmuch as that property as a whole
was obviously not in any imminent danger of serious depreciation ; indeed
thé only dangers advanced by the trustees, namely those arising out of the
threats' of prosecution contained in the Joint Statement, had not taken
shape, either by the day on which authorization to sell was requested or by
the day of the sale, in any proceedings or demand by the competent
authorities and did not ever materialize, except to an insignificant extent;
The only penalty which the undertakings eventually had to bear, 15 months
after the sale, was that relating to the currency offence, which had
occasioned an embargo for a much higher sum as early as April 1948;
(12) The authorization to sell and the sale, in so far as they related to
the shares of the subsidiary and sub-subsidiary companies without delivery
of the certificates, constituted a flagrant violation of Articles [p.21]
1461 and 1462 of the Spanish Civil Code, which require delivery of the thing
sold, seeing that the certificates delivered to the successful bidder had
not been properly issued and were consequently without legal value; if the
authorization to sell and the sale had applied, as the respondent Government
wrongly maintains, to the rights attaching to the shares and bonds or to the
bankrupt company's power of domination over its subsidiaries, those rights
ought to have been the subject of a joint valuation, on pain of flagrant
violation of Articles 1084 to 1089 of the 1829 Commercial Code and Article
1358 of the Civil Procedure Code: in any event, it was in flagrant violation
of these last-named provisions that the commissioner fixed an exaggeratedly
low reserve price on the basis of a unilateral expert opinion which, through
the effect of the General Conditions of Sale, allowed the March group to
acquire the auctioned property at that reserve price;
(13) By approving the General Conditions of Sale on the very day on which
they were submitted to them and then dismissing the proceedings instituted
to contest those conditions, the judicial authorities committed a flagrant
violation of numerous ordre public provisions of Spanish law; thus, in
particular, the General Conditions of Sale—
(a) provided for the payment of the bondholder creditors, an operation
which, under Article 1322 of the Civil Procedure Code, falls under the
fourth section of the bankruptcy, whereas that section was suspended as a
result of the effects attributed to the Boter motion contesting
jurisdiction, no exemption from that suspension having been applied for or
obtained in pursuance of the second paragraph of Article 114 of the Civil
Procedure Code;
(b) provided for the payment of the debts owing on the bonds before they had
been approved and ranked by a general meeting of the creditors on the
recommendation of the trustees, contrary to Articles 1101 to 1109 of the
1829 Commercial Code and to Articles 1266 to 1274, 1286 and 1378 of the
Civil Procedure Code;
(c) in disregard of Articles 1236, 1240, 1512 and 1513 of the Civil
Procedure Code, did not require the price to be lodged or deposited at the
Court's disposal;
(d) conferred on the trustees power to recognize, determine and declare
effective the rights attaching to the bonds, in disregard, on the one hand,
of Articles 1101 to 1109 of the 1829 Commercial Code and of Articles 1266 to
1274 of the Civil Procedure Code, which reserve such rights for the general
meeting of creditors under the supervision of the judge, and, on the other,
of Articles 1445 and 1449 of the Civil Code, which lay down that the
purchase price must be a definite sum and may not be left to the arbitrary
decision of one of the contracting parties;
(e) in disregard of Articles 1291 to 1294 of the Civil Procedure Code,
substituted the successful bidder for the trustees in respect of the payment
of the debts owing on the bonds, whilst, in violation of the general
principles applicable to novation, replacing the security for those debts,
consisting, pursuant to the trust deeds, of shares and bonds issued by the
subsidiary and sub-subsidiary companies, with the deposit of a certain sum
with a bank or with a mere banker's guarantee limited to three years; [p.22]
(f) delegated to a third party the function of paying certain debts, in
disregard of Articles 1291 and 1292 of the Civil Procedure Code, which
define the functions of the trustees in this field and do not allow of any
delegation;
(g) ordered the payment of the debts owing on the bonds in sterling, whereas
a forced execution may only be carried out in local currency and in the case
of bankruptcy the various operations which it includes require the
conversion of the debts into local currency on the day of the judgment
adjudicating bankruptcy, as is to be inferred from Articles 883 and 884 of
the 1885 Commercial Code;
IV
Denials of justice Stricto Sensu
Considering that in the course of the bankruptcy proceedings the rights of
the defence were seriously disregarded; that in particular—
(a) the Reus court, in adjudicating Barcelona Traction bankrupt on an ex
parte petition, inserted in its judgment provisions which went far beyond
finding the purported insolvency of or a general cessation of payments by
the bankrupt company, the only finding, in addition to one on the capacity
of the petitioners, that it was open to it to make in such proceedings;
This disregard of the rights of the defence was particularly flagrant in
respect of the subsidiary companies, whose property was ordered by the court
to be attached without their having been summonsed and without their having
been adjudicated bankrupt;
(b) the subsidiary companies that were thus directly affected by the
judgment of 12 February 1948 nevertheless had their applications to set
aside the order for attachment which concerned them rejected as inadmissible
on the grounds of lack of capacity;
(c) the pursuit of those remedies and the introduction of any other such
proceedings were also made impossible for the subsidiary companies by the
discontinuances effected each time by the solicitors appointed to replace
the original solicitors by the new boards of directors directly or
indirectly involved; these changes of solicitors and discontinuances were
effected by the new boards of directors by virtue of authority conferred
upon them by the interim receiver simultaneously with their appointment;
(d) the proceedings for relief brought by those in control of the subsidiary
companies who had been dismissed by the commissioner were likewise held
inadmissible by the Reus court when they sought to avail themselves of the
specific provisions of Article 1363 of the Civil Procedure Code, which
provide for proceedings to reverse decisions taken by the commissioner in
bankruptcy;
(e) there was discrimination on the part of the first special judge when he
refused to admit as a party to the bankruptcy the Canadian National Trust
Company, Limited, trustee for the bankrupt company's two sterling loans,
even though it relied upon the security of the mortgage which had been given
to it by Ebro, whereas at the same time he admitted to the proceedings the
Bondholders' Committee [p.23]appointed by Juan March, although National
Trust and the Committee derived their powers from the same trust deeds;
(f) the complaints against the General Conditions of Sale could be neither
amplified nor heard because the order which had approved the General
Conditions of Sale was deemed to be one of mere routine; Considering that
many years elapsed after the bankruptcy judgment and even after the ruinous
sale of the property of the Barcelona Traction group without either the
bankrupt company or those co-interested with it having had an opportunity to
be heard on the numerous complaints put forward against the bankruptcy
judgment and related decisions in the opposition of 18 June 1948 and in
various other applications for relief;
Considering that those delays were caused by the motion contesting
jurisdiction fraudulently lodged by a confederate of the petitioners in
bankruptcy and by incidental proceedings instituted by other men of straw of
the March group, which were, like the motion contesting jurisdiction,
regularly admitted by the various courts;
Considering that both general international law and the Spanish-Belgian
Treaty of 1927 regard such delays as equivalent to the denial of a hearing;
Considering that the manifest injustice resulting from the movement of the
proceedings towards the sale, whilst the actions contesting the bankruptcy
judgment and even the jurisdiction of the Spanish courts remained suspended,
was brought about by two judgments delivered by the same chamber of the
Barcelona court of appeal on the same day, 7 June 1949: in one of them it
confirmed the admission, with two effects, of the Boter appeal from the
judgment of the special judge rejecting his motion contesting jurisdiction,
whereas in the other it reduced the suspensive effect granted to that same
appeal by excluding from the suspension the calling of the general meeting
of creditors for the purpose of appointing the trustees in bankruptcy;
V
Damage and Reparation
Considering that the acts and omissions contrary to international law
attributed to the organs of the Spanish State had the effect of despoiling
the Barcelona Traction company of the whole of its property and of depriving
it of the very objects of its activity, and thus rendered it practically
defunct;
Considering that Belgian nationals, natural and juristic persons,
shareholders in Barcelona Traction, in which they occupied a majority and
controlling position, and in particular the Sidro company, the owner of more
than 75 per cent, of the registered capital, on this account suffered direct
and immediate injury to their interests and rights, which were voided of all
value and effectiveness;
Considering that the reparation due to the Belgian State from the Spanish
State, as a result of the internationally unlawful acts for which the latter
State is responsible, must be complete and must, so far as possible, reflect
the damage suffered by its nationals whose case the Belgian State has taken
up; and that, since restitutio in integrum is, in the circumstances [p.24]of
the case, practically and legally impossible, the reparation of the damage
suffered can only take place in the form of an all-embracing pecuniary
idemnity, in accordance with the provisions of the Spanish-Belgian Treaty of
1927 and with the rules of general international law;
Considering that in the instant case the amount of the indemnity must be
fixed by taking as a basis the net value of the Barcelona Traction company's
property at the time of its adjudication in bankruptcy, expressed in a
currency which has remained stable, namely the United States dollar;
Considering that the value of that property must be determined by the
replacement cost of the subsidiary and sub-subsidiary companies' plant for
the production and distribution of electricity at 12 February 1948, as that
cost was calculated by the Ebro company's engineers in 1946;
Considering that, according to those calculations, and after deduction for
depreciation through wear and tear, the value of the plant was at that date
U.S. $116,220,000; from this amount there must be deducted the principal of
Barcelona Traction's bonded debt and the interest that had fallen due
thereon, that is to say, U.S. $27,619,018, which leaves a net value of about
U.S. $88,600,000, this result being confirmed—
(1) by the study submitted on 5 February 1949 and on behalf of Ebro to the
Special Technical Office for the Regulation and Distribution of Electricity
(Catalonian region) (Belgian New Document No. 50);
(2) by capitalization of the 1947 profits;
(3) by the profits made by Fecsa in 1956—the first year after 1948 in which
the position of electricity companies was fully stabilized and the last year
before the changes made in the undertaking by Fecsa constituted an obstacle
to any useful comparison;
(4) by the reports of the experts consulted by the Belgian Government;
Considering that the compensation due to the Belgian Government must be
estimated, in the first place, at the percentage of such net value
corresponding to the participation of Belgian nationals in the capital of
the Barcelona Traction company, namely 88 per cent.;
Considering that on the critical dates of the bankruptcy judgment and the
filing of the Application, the capital of Barcelona Traction was represented
by 1,798,854 shares, partly bearer and partly registered; that on 12
February 1948 Sidro owned 1,012,688 registered shares and 349,905 bearer
shares; that other Belgian nationals owned 420 registered shares and at
least 244,832 bearer shares; that 1,607,845 shares, constituting 89.3 per
cent. of the company's capital, were thus on that date in. Belgian hands;
that on 14 June 1962 Sidro owned 1,354,514 registered shares and 31,228
bearer shares; that other Belgian nationals owned 2,388 registered shares
and at least 200,000 bearer shares; and that 1,588,130 shares, constituting
88 per cent. of the company's capital, were thus on that date in Belgian
hands;
Considering that the compensation claimed must in addition cover all
incidental damage suffered by the said Belgian nationals as a result of the
acts complained of, including the deprivation of enjoyment of rights, the
expenses incurred in the defence of their rights and the equivalent, in
capital and interest, of the amount of the Barcelona Traction bonds held by
Belgian nationals, and of their other claims on the companies in the
[p.25]group which it was not possible to recover owing to the acts
complained of;
Considering that the amount of such compensation, due to the Belgian State
on account of acts contrary to international law attributable to the Spanish
State, cannot be affected by the latter's purported charges against the
private persons involved, those charges furthermore not having formed the
subject of any counterclaim before the Court;
VI
Objection derived from the alleged lack of Jus Standi of the Belgian
Government
Considering that in its Judgment of 24 July 1964 the Court decided to join
to the merits the third preliminary objection raised by the Spanish
Government;
Considering that the respondent Government wrongly denies to the Belgian
Government jus standi in the present proceedings;
Considering that the object of the Belgian Government's Application of 14
June 1962 is reparation for the damage caused to a certain number of its
nationals, natural and juristic persons, in their capacity as shareholders
in the Barcelona Traction, Light and Power Company, Limited, by the conduct
contrary to international law of various organs of the Spanish State towards
that company and various other companies in its group;
Considering that the Belgian Government has established that 88 per cent. of
Barcelona Traction's capital was in Belgian hands on the critical dates of
12 February 1948 and 14 June 1962 and so remained continuously between those
dates, that a single Belgian company, Sidro, possessed more than 75 per
cent. of the shares; that the Belgian nationality of that company and the
effectiveness of its nationality have not been challenged by the Spanish
Government;
Considering that the fact that the Barcelona Traction registered shares
possessed by Sidro were registered in Canada in the name of American
nominees does not affect their Belgian character; that in this case, under
the applicable systems of statutory law, the nominee could exercise the
rights attaching to the shares entered in its name only as Sidro's agent;
Considering that the preponderence of Belgian interests in the Barcelona
Traction company was well known to the Spanish authorities at the different
periods in which the conduct complained of against them occurred, and has
been explicitly admitted by them on more than one occasion;
Considering that the diplomatic protection from which the company benefited
for a certain time on the part of its national Government ceased in 1952,
well before the filing of the Belgian Application, and has never
subsequently been resumed;
Considering that by depriving the organs appointed by the Barcelona Traction
shareholders under the company's terms of association of their power of
control in respect of its subsidiaries, which removed from the company the
very objects of its activities, and by depriving it of the whole of its
property, the acts and omissions contrary to international law attributed
to the Spanish authorities rendered the company practically defunct and
directly and immediately injured the rights and interests [p.26]attaching to
the legal situation of shareholder as it is recognized by international
law; that they thus caused serious damage to the company's Belgian
shareholders and voided the rights which they possessed in that capacity of
all useful content;
Considering that in the absence of reparation to the company for the damage
inflicted on it, from which they would have benefited at the same time as
itself, the Belgian shareholders of Barcelona Traction thus have separate
and independent rights and interests to assert; that they did in fact have
to take the initiative for and bear the cost of all the proceedings brought
through the company's organs to seek relief in the Spanish courts; that
Sidro and other Belgian shareholders, after the sale of Barcelona
Traction's property, themselves brought actions the dismissal of which is
complained of by the Belgian Government as constituting a denial of Justice;
Considering that under the general principles of international law in this
field the Belgian Government has jus standi to claim through international
judicial proceedings reparation for the damage thus caused to its nationals
by the internationally unlawful acts and omissions attributed to the Spanish
State;
VII
Objection of Non-Exhaustion of Local Remedies
Considering that no real difference has emerged between the Parties as to
the scope and significance of the rule of international law embodied in
Article 3 of the Treaty of Conciliation, Judicial Settlement and
Arbitration concluded between Spain and Belgium on 19 July 1927, which
makes resort to the procedures provided for in that Treaty dependant on the
prior use, until a judgment with final effect has been pronounced, of the
normal means of redress which are available and which offer genuine
possibilities of effectiveness within the limitation of a reasonable time;
Considering that in this case the Respondent itself estimates at 2,736 the
number of orders alone made in the case by the Spanish courts as of the date
of the Belgian Application;
Considering that in addition the pleadings refer to more than 30 decisions
by the Supreme Court;
Considering that it is not contended that the remedies as a whole of which
Barcelona Traction and its co-interested parties availed themselves and
which gave rise to those decisions were inadequate or were not pursued to
the point of exhaustion;
Considering that this circumstance suffices as a bar to the possibility of
the fourth objection being upheld as setting aside the Belgian claim;
Considering that the only complaints which could be set aside are those in
respect of which the Spanish Government proved failure to make use of means
of redress or the insufficiency of those used;
Considering that such proof has not been supplied;
1. With Respect to the Complaints Against the Acts of the Administrative
Authorities
Considering that the Spanish Government is wrong in contending that the
Belgian complaint concerning the decisions of October and [p.27] December
1946 referred to under I (a) above is not admissible on account of Barcelona
Traction's failure to exercise against them the remedies of appeal to higher
authority and contentious administrative proceedings;
Considering that the remedy of appeal to higher authority was inconceivable
in this case, being by definition an appeal which may be made from a
decision by one administrative authority to another hierarchically superior
authority namely the Minister, whereas the decisions complained of were
taken with the co-operation and approval of the Minister himself, and even
brought to the knowledge of those concerned by the Minister at the same time
as by the competent administrative authority;
Considering that it was likewise not possible to envisage contentious
administrative proceedings against a decision which patently did not fall
within the ambit of Article 1 of the Act of 22 June 1894, which recognizes
such a remedy only against administrative decisions emanating from
administrative authorities in the exercise of their regulated powers and
"infringing a right of an administrative character previously established in
favour of the applicant by an Act, a regulation or some other administrative
provision", which requirements were patently not satisfied in this case;
2. With Respect to the Complaint concerning the Reus Court's Lack of
Jurisdiction to Declare the Bankruptcy of Barcelona Traction
Considering that the Spanish Government is wrong in seeking to derive an
argument from the fact that Barcelona Traction and its co-interested parties
supposedly failed to challenge the jurisdiction of the Reus court by means
of a motion contesting its competence, and allowed the time-limit for
entering opposition to expire without having challenged that jurisdiction;
Considering that in fact a motion contesting jurisdiction is not at all the
same thing as a motion contesting competence ratione materiae and may
properly be presented cumulatively with the case on the merits;
Considering that the bankrupt company contested jurisdiction at the head of
the complaints set out in its opposition plea of 18 June 1948;
Considering that it complained again of lack of jurisdiction in its
application of 5 July 1948 for a declaration of nullity and in its pleading
of 3 September 1948 in which it confirmed its opposition to the bankruptcy
judgment;
Considering that National Trust submitted a formal motion contesting
jurisdiction in its application of 27 November 1948 for admission to the
bankruptcy proceedings;
Considering that Barcelona Traction, after having as early as 23 April 1949
entered an appearance in the proceedings concerning the Boter motion
contesting jurisdiction, formally declared its adherence to that motion by a
procedural document of 11 April 1953;
Considering that the question of jurisdiction being a matter of ordre
public, as is the question of competence ratione materiae, the complaint of
belatedness could not be upheld, even in the event of the expiry of the
allegedly applicable time-limit for entering a plea of opposition;
3. With Respect to the Complaints concerning the Bankruptcy Judgment and
Related Decisions
Considering that the Spanish Government is wrong in contending that the said
decisions were not attacked by adequate remedies pursued to [p.28] the point
of exhaustion or for a reasonable length of time;
Considering that in fact, as early as 16 February 1948, the bankruptcy
judgment was attacked by an application for its setting aside on the part of
the subsidiary companies, Ebro and Barcelonesa;
Considering that while those companies admittedly confined their
applications for redress to the parts of the judgment which gave them
grounds for complaint, the said remedies were nonetheless adequate and they
were brought to nought in circumstances which are themselves the subject of
a complaint which has been set out above;
Considering that, contrary to what is asserted by the Spanish Government,
the bankrupt company itself entered a plea of opposition to the judgment by
a procedural document of 18 June 1948, confirmed on 3 September 1948;
Considering that it is idle for the Spanish Government to criticize the
summary character of this procedural document, while the suspension decreed
by the special judge on account of the Boter motion contesting jurisdiction
prevented the party entering opposition from filing, pursuant to Article 326
of the Civil Procedure Code, the additional pleading developing its case;
Considering that likewise there can be no question of belatedness, since
only publication of the bankruptcy at the domicile of the bankrupt company
could have caused the time-limit for entering opposition to begin to run,
and no such publication took place;
Considering that the bankruptcy judgment and the related decisions were
moreover also attacked in the incidental application for a declaration of
nullity submitted by Barcelona Traction on 5 July 1948 and amplified on 31
July 1948;
4. With Respect to the Complaints concerning the Blocking of the Remedies
Considering that the various decisions which instituted and prolonged the
suspension of the first section of the bankruptcy proceedings were attacked
on various occasions by numerous proceedings taken by Barcelona Traction,
beginning with the incidental application for a declaration of nullity which
it submitted on 5 July 1948;
5. With Respect to the Complaint concerning the Dismissal of the Officers of
the Subsidiary Companies by Order of the Commissioner
Considering that this measure was also attacked by applications for its
setting aside on the part of the persons concerned, which were quite
improperly declared inadmissible; and that the proceedings seeking redress
against those decisions were adjourned until 1963;
6. With Respect to the Failure to Observe the No-Action Clause
Considering that this clause was explicitly referred to by National Trust in
its application of 27 November 1948 for admission to the proceedings;
7. With Respect to the Measures Preparatory to the Sale and the Sale
Considering that the other side, while implicitly admitting that adequate
proceedings were taken to attack the appointment of the trustees and the
authorization to sell, is wrong in contending that this was supposedly not
so in respect of—[p.29]
(1) The failure to draw up a list of creditors prior to the convening of the
meeting of creditors for the appointment of the trustees, whereas this
defect was complained of in the procedural document attacking the
appointment of the trustees and in the application that the sale be declared
null and void;
(2) Certain acts and omissions on the part of the trustees, whereas they
were referred to in the proceedings taken to attack the authorization to
sell and the decision approving the method of unilateral valuation of the
assets;
(3) The conditions of sale, whereas they were attacked by Barcelona Traction
in an application to set aside and on appeal, in the application of 27
December 1951 for a declaration of nullity containing a formal prayer that
the order approving the conditions of sale be declared null and void, and in
an application of 28 May 1955 (New Documents submitted by the Belgian
Government, 1969, No. 30); the same challenge was expressed by Sidro in its
action of 7 February 1953 (New Documents submitted by the Spanish
Government, 1969) and by two other Belgian shareholders of Barcelona
Traction, Mrs. Mathot and Mr. Duvi-vier, in their application of 26 May 1955
(New Documents submitted by the Belgian Government, 1969, No. 29);
8. With Respect to the Exceptional Remedies
Considering that the Spanish Government is wrong in raising as an objection
to the Belgian claim the allegation that Barcelona Traction did not make use
of certain exceptional remedies against the bankruptcy judgment, such as
application for revision, action for civil liability and criminal
proceedings against the judges, and application for a hearing by a party in
default;
Considering that the first of these remedies could patently not be
contemplated, not only on account of the nature of the bankruptcy judgment,
but also because until 1963 there was an opposition outstanding against that
Judgment and, superabundantly, because Barcelona Traction, its subsidiaries
and co-interested parties would not have been in a position to prove the
facts of subornation, violence or fraudulent machination which alone could
have entitled such proceedings to be taken;
Considering that the remedies of an action for civil liability and criminal
proceedings against the judges were not adequate, since they were not
capable of bringing about the annulment or setting aside of the decisions
constituting denials of justice;
Considering that similarly the remedy of application for a hearing accorded
by Spanish law to a party in default was patently in this case neither
available to Barcelona Traction nor adequate;
For These Reasons, and any others which have been adduced by the Belgian
Government in the course of the proceedings,
May it please the Court, rejecting any other submissions of the Spanish
State which are broader or to a contrary effect,
To uphold the claims of the Belgian Government expressed in the submissions
[in] the Reply."[p.30]
The following final submissions were presented
on behalf of the Spanish Government,
at the hearing of 22 July 1969:
"Considering that the Belgian Government has no jus standi in the present
case, either for the protection of the Canadian Barcelona Traction company
or for the protection of alleged Belgian 'shareholders' of that company;
Considering that the requirements of the exhaustion of local remedies rule
have not been satisfied either by the Barcelona Traction company or by its
alleged 'shareholders';
Considering that as no violation of an international rule binding on Spain
has been established, Spain has not incurred any responsibility vis-à-vis
the applicant State on any account; and that, in particular—
(a) Spain is not responsible for any usurpation of jurisdiction on account
of the action of its judicial organs;
(b) the Spanish judicial organs have not violated the rules of international
law requiring that foreigners be given access to the courts, that a decision
be given on their claims and that their proceedings for redress should not
be subjected to unjustified delays;
(c) there have been no acts of the Spanish judiciary capable of giving rise
to international responsibility on the part of Spain on account of the
content of judicial decisions; and
(d) there has not been on the part of the Spanish administrative
authorities any violation of an international obligation on account of
abuse of rights or discriminatory acts;
Considering that for these reasons, and any others expounded in the written
and oral proceedings, the Belgian claims must be deemed to be inadmissible
or unfounded;
The Spanish Government presents to the Court its final submissions:
May it please the Court to adjudge and declare that the Belgian
Government's claims are dismissed."
***
26. As has been indicated earlier, in opposition to the Belgian Application
the Spanish Government advanced four objections of a preliminary nature. In
its Judgment of 24 July 1964 the Court rejected the first and second of
these (see paragraph 3 above), and decided to join the third and fourth to
the merits. The latter were, briefly, to the effect that the Belgian
Government lacked capacity to submit any claim in respect of wrongs done to
a Canadian company, even if the shareholders were Belgian, and that local
remedies available in Spain had not been exhausted.
27. In the subsequent written and oral proceedings the Parties supplied the
Court with abundant material and information bearing both on the preliminary
objections not decided in 1964 and on the merits of the case. In this
connection the Court considers that reference should be made to the unusual
length of the present proceedings, which has been due to the [p.31] very
long time-limits requested by the Parties for the preparation of their
written pleadings and in addition to their repeated requests for an
extension of these limits. The Court did not find that it should refuse
these requests and thus impose limitations on the Parties in the preparation
and presentation of the arguments and evidence which they considered
necessary. It nonetheless remains convinced of the fact that it is in the
interest of the authority and proper functioning of international justice
for cases to be decided without unwarranted delay.
*
28. For the sake of clarity, the Court will briefly recapitulate the claim
and identify the entities concerned in it. The claim is presented on behalf
of natural and juristic persons, alleged to be Belgian nationals and
shareholders in the Barcelona Traction, Light and Power Company, Limited.
The submissions of the Belgian Government make it clear that the object of
its Application is reparation for damage allegedly caused to these persons
by the conduct, said to be contrary to international law, of various organs
of the Spanish State towards that company and various other companies in the
same group.
29. In the first of its submissions, more specifically in the
Counter-Memorial, the Spanish Government contends that the Belgian
Application of 1962 seeks, though disguisedly, the same object as the
Application of 1958, i.e., the protection of the Barcelona Traction company
as such, as a separate corporate entity, and that the claim should in
consequence be dismissed. However, in making its new Application, as it has
chosen to frame it, the Belgian Government was only exercising the freedom
of action of any State to formulate its claim in its own way. The Court is
therefore bound to examine the claim in accordance with the explicit content
imparted to it by the Belgian Government.
30. The States which the present case principally concerns are Belgium, the
national State of the alleged shareholders, Spain, the State whose organs
are alleged to have committed the unlawful acts complained of, and Canada,
the State under whose laws Barcelona Traction was incorporated and in whose
territory it has its registered office ("head office" in the terms of the
by-laws of Barcelona Traction).
31. Thus the Court has to deal with a series of problems arising out of a
triangular relationship involving the State whose nationals are shareholders
in a company incorporated under the laws of another State, in whose
territory it has its registered office; the State whose organs are alleged
to have committed against the company unlawful acts prejudicial to both it
and its shareholders; and the State under whose laws the company is
incorporated, and in whose territory it has its registered office.
*[p.32]
32. In these circumstances it is logical that the Court should first address
itself to what was originally presented as the subject-matter of the third
preliminary objection: namely the question of the right of Belgium to
exercise diplomatic protection of Belgian shareholders in a company which is
a juristic entity incorporated in Canada, the measures complained of having
been taken in relation not to any Belgian national but to the company
itself.
33. When a State admits into its territory foreign investments or foreign
nationals, whether natural or juristic persons, it is bound to extend to
them the protection of the law and assumes obligations concerning the
treatment to be afforded them. These obligations, however, are neither
absolute nor unqualified. In particular, an essential distinction should be
drawn between the obligations of a State towards the international
community as a whole, and those arising vis-a-vis another State in the field
of diplomatic protection. By their very nature the former are the concern of
all States. In view of the importance of the rights involved, all States can
be held to have a legal interest in their protection; they are obligations
erga omnes.
34. Such obligations derive, for example, in contemporary international
law, from the outlawing of acts of aggression, and of genocide, as also from
the principles and rules concerning the basic rights of the human person,
including protection from slavery and racial discrimination. Some of the
corresponding rights of protection have entered into the body of general
international law (Reservations to the Convention on the Prevention and
Punishment of the Crime of Genocide, Advisory Opinion, I.C.J. Reports 1951,
p. 23); others are conferred by international instruments of a universal or
quasi-universal character.
35. Obligations the performance of which is the subject of diplomatic
protection are not of the same category. It cannot be held, when one such
obligation in particular is in question, in a specific case, that all States
have a legal interest in its observance. In order to bring a claim in
respect of the breach of such an obligation, a State must first establish
its right to do so, for the rules on the subject rest on two suppositions:
"The first is that the defendant State has broken an obligation towards the
national State in respect of its nationals. The second is that only the
party to whom an international obligation is due can bring a claim in
respect of its breach." (Reparation for Injuries Suffered in the Service of
the United Nations, Advisory Opinion, I.C.J. Reports 1949, pp. 181-182.)
In the present case it is therefore essential to establish whether the
losses allegedly suffered by Belgian shareholders in Barcelona Traction were
the consequence of the violation of obligations of which they were the
beneficiaries. In other words: has a right of Belgium been violated on
account [p.33] of its nationals' having suffered infringement of their
rights as shareholders in a company not of Belgian nationality?
36. Thus it is the existence or absence of a right, belonging to Belgium and
recognized as such by international law, which is decisive for the problem
of Belgium's capacity.
"This right is necessarily limited to intervention [by a State] on behalf of
its own nationals because, in the absence of a special agreement, it is the
bond of nationality between the State and the individual which alone confers
upon the State the right of diplomatic protection, and it is as a part of
the function of diplomatic protection that the right to take up a claim and
to ensure respect for the rules of international law must be envisaged."
(Panevezys-Saldutiskis Railway, Judgment, 1939, P.C.I.J., Series A/B, No.
76, p. 16.)
It follows that the same question is determinant in respect of Spain's
responsibility towards Belgium. Responsibility is the necessary corollary of
a right. In the absence of any treaty on the subject between the Parties,
this essential issue has to be decided in the light of the general rules of
diplomatic protection.
*
37. In seeking to determine the law applicable to this case, the Court has
to bear in mind the continuous evolution of international law. Diplomatic
protection deals with a very sensitive area of international relations,
since the interest of a foreign State in the protection of its nationals
confronts the rights of the territorial sovereign, a fact of which the
general law on the subject has had to take cognizance in order to prevent
abuses and friction. From its origins closely linked with international
commerce, diplomatic protection has sustained a particular impact from the
growth of international economic relations, and at the same time from the
profound transformations which have taken place in the economic life of
nations. These latter changes have given birth to municipal institutions,
which have transcended frontiers and have begun to exercise considerable
influence on international relations. One of these phenomena which has a
particular bearing on the present case is the corporate entity.
38. In this field international law is called upon to recognize institutions
of municipal law that have an important and extensive role in the
international field. This does not necessarily imply drawing any analogy
between its own institutions and those of municipal law, nor does it amount
to making rules of international law dependent upon categories of municipal
law. All it means is that international law has had to recognize the
corporate entity as an institution created by States in a domain essentially
within their domestic jurisdiction. This in turn requires that, whenever
legal issues arise concerning the rights of States with regard to the treat
[p. 34] ment of companies and shareholders, as to which rights international
law has not established its own rules, it has to refer to the relevant rules
of municipal law. Consequently, in view of the relevance to the present case
of the rights of the corporate entity and its shareholders under municipal
law, the Court must devote attention to the nature and interrelation of
those rights.
*
39. Seen in historical perspective, the corporate personality represents a
development brought about by new and expanding requirements in the economic
field, an entity which in particular allows of operation in circumstances
which exceed the normal capacity of individuals. As such it has become a
powerful factor in the economic life of nations. Of this, municipal law has
had to take due account, whence the increasing volume of rules governing the
creation and operation of corporate entities, endowed with a specific
status. These entities have rights and obligations peculiar to themselves.
40. There is, however, no need to investigate the many different forms of
legal entity provided for by the municipal laws of States, because the Court
is concerned only with that exemplified by the company involved in the
present case: Barcelona Traction—a limited liability company whose capital
is represented by shares. There are, indeed, other associations, whatever
the name attached to them by municipal legal systems, that do not enjoy
independent corporate personality. The legal difference between the two
kinds of entity is that for the limited liability company it is the
overriding tie of legal personality which is determinant; for the other
associations, the continuing autonomy of the several members.
41. Municipal law determines the legal situation not only of such limited
liability companies but also of those persons who hold shares in them.
Separated from the company by numerous barriers, the shareholder cannot be
identified with it. The concept and structure of the company are founded on
and determined by a firm distinction between the separate entity of the
company and that of the shareholder, each with a distinct set of rights. The
separation of property rights as between company and shareholder is an
important manifestation of this distinction. So long as the company is in
existence the shareholder has no right to the corporate assets.
42. It is a basic characteristic of the corporate structure that the company
alone, through its directors or management acting in its name, can take
action in respect of matters that are of a corporate character. The
underlying justification for this is that, in seeking to serve its own best
interests, the company will serve those of the shareholder too. Ordinarily,
no individual shareholder can take legal steps, either in the[p.35] name of
the company or in his own name. If the shareholders disagree with the
decisions taken on behalf of the company they may, in accordance with its
articles or the relevant provisions of the law, change them or replace its
officers, or take such action as is provided by law. Thus to protect the
company against abuse by its management or the majority of shareholders,
several municipal legal systems have vested in shareholders (sometimes a
particular number is specified) the right to bring an action for the defence
of the company, and conferred upon the minority of shareholders certain
rights to guard against decisions affecting the rights of the company
vis-á-vis its management or controlling shareholders. Nonetheless the
shareholders' rights in relation to the company and its assets remain
limited, this being, moreover, a corollary of the limited nature of their
liability.
43. At this point the Court would recall that in forming a company, its
promoters are guided by all the various factors involved, the advantages and
disadvantages of which they take into account. So equally does a
shareholder, whether he is an original subscriber of capital or a subsequent
purchaser of the company's shares from another shareholder. He may be
seeking safety of investment, high dividends or capital appreciation— or a
combination of two or more of these. Whichever it is, it does not alter the
legal status of the corporate entity or affect the rights of the
shareholder. In any event he is bound to take account of the risk of reduced
dividends, capital depreciation or even loss, resulting from ordinary
commercial hazards or from prejudice caused to the company by illegal
treatment of some kind.
*
44. Notwithstanding the separate corporate personality, a wrong done to the
company frequently causes prejudice to its shareholders. But the mere fact
that damage is sustained by both company and shareholder does not imply that
both are entitled to claim compensation. Thus no legal conclusion can be
drawn from the fact that the same event caused damage simultaneously
affecting several natural or juristic persons. Creditors do not have any
right to claim compensation from a person who, by wronging their debtor,
causes them loss. In such cases, no doubt, the interests of the aggrieved
are affected, but not their rights. Thus whenever a shareholder's interests
are harmed by an act done to the company, it is to the latter that he must
look to institute appropriate action; for although two separate entities may
have suffered from the same wrong, it is only one entity whose rights have
been infringed.
45. However, it has been argued in the present case that a company
represents purely a means of achieving the economic purpose of its members,
namely the shareholders, while they themselves constitute in fact the
reality behind it. It has furthermore been repeatedly emphasized [p.36] that
there exists between a company and its shareholders a relationship
describable as a community of destiny. The alleged acts may have been
directed at the company and not the shareholders, but only in a formal
sense: in reality, company and shareholders are so closely interconnected
that prejudicial acts committed against the former necessarily wrong the
latter; hence any acts directed against a company can be conceived as
directed against its shareholders, because both can be considered in
substance, i.e., from the economic viewpoint, identical. Yet even if a
company is no more than a means for its shareholders to achieve their
economic purpose, so long as it is in esse it enjoys an independent
existence. Therefore the interests of the shareholders are both separable
and indeed separated from those of the company, so that the possibility of
their diverging cannot be denied.
46. It has also been contended that the measures complained of, although
taken with respect to Barcelona Traction and causing it direct damage,
constituted an unlawful act vis-à-vis Belgium, because they also, though
indirectly, caused damage to the Belgian shareholders in Barcelona
Traction. This again is merely a different way of presenting the distinction
between injury in respect of a right and injury to a simple interest. But,
as the Court has indicated, evidence that damage was suffered does not ipso
facto justify a diplomatic claim. Persons suffer damage or harm in most
varied circumstances. This in itself does not involve the obligation to make
reparation. Not a mere interest affected, but solely a right infringed
involves responsibility, so that an act directed against and infringing only
the company's rights does not involve responsibility towards the
shareholders, even if their interests are affected.
47. The situation is different if the act complained of is aimed at the
direct rights of the shareholder as such. It is well known that there are
rights which municipal law confers upon the latter distinct from those of
the company, including the right to any declared dividend, the right to
attend and vote at general meetings, the right to share in the residual
assets of the company on liquidation. Whenever one of his direct rights is
infringed, the shareholder has an independent right of action. On this there
is no disagreement between the Parties. But a distinction must be drawn
between a direct infringement of the shareholder's rights, and difficulties
or financial losses to which he may be exposed as the result of the
situation of the company.
48. The Belgian Government claims that shareholders of Belgian nationality
suffered damage in consequence of unlawful acts of the Spanish authorities
and, in particular, that the Barcelona Traction shares, though they did not
cease to exist, were emptied of all real economic content. It accordingly
contends that the shareholders had an [p.37] independent right to redress,
notwithstanding the fact that the acts complained of were directed against
the company as such. Thus the legal issue is reducible to the question of
whether it is legitimate to identify an attack on company rights, resulting
in damage to shareholders, with the violation of their direct rights.
49. The Court has noted from the Application, and from the reply given by
Counsel on 8 July 1969, that the Belgian Government did not base its claim
on an infringement of the direct rights of the shareholders. Thus it is not
open to the Court to go beyond the claim as formulated by the Belgian
Government and it will not pursue its examination of this point any further.
*
50. In turning now to the international legal aspects of the case, the Court
must, as already indicated, start from the fact that the present case
essentially involves factors derived from municipal law—the distinction and
the community between the company and the shareholder—which the Parties,
however widely their interpretations may differ, each take as the point of
departure of their reasoning. If the Court were to decide the case in
disregard of the relevant institutions of municipal law it would, without
justification, invite serious legal difficulties. It would lose touch with
reality, for there are no corresponding institutions of international law to
which the Court could resort. Thus the Court has, as indicated, not only to
take cognizance of municipal law but also to refer to it. It is to rules
generally accepted by municipal legal systems which recognize the limited
company whose capital is represented by shares, and not to the municipal law
of a particular State, that international law refers. In referring to such
rules, the Court cannot modify, still less deform them.
51. On the international plane, the Belgian Government has advanced the
proposition that it is inadmissible to deny the shareholders' national State
a right of diplomatic protection merely on the ground that another State
possesses a corresponding right in respect of the company itself. In strict
logic and law this formulation of the Belgian claim to jus standi assumes
the existence of the very right that requires demonstration. In fact the
Belgian Government has repeatedly stressed that there exists no rule of
international law which would deny the national State of the shareholders
the right of diplomatic protection for the purpose of seeking redress
pursuant to unlawful acts committed by another State against the company in
which they hold shares. This, by emphasizing the absence of any express
denial of the right, conversely implies the admission that there is no rule
of international law which expressly confers such a right on the
shareholders' national State.[p.38]
52. International law may not, in some fields, provide specific rules in
particular cases. In the concrete situation, the company against which
allegedly unlawful acts were directed is expressly vested with a right,
whereas no such right is specifically provided for the shareholder in
respect of those acts. Thus the position of the company rests on a positive
rule of both municipal and international law. As to the shareholder, while
he has certain rights expressly provided for him by municipal law as
referred to in paragraph 42 above, appeal can, in the circumstances of the
present case, only be made to the silence of international law. Such silence
scarcely admits of interpretation in favour of the shareholder.
53. It is quite true, as was recalled in the course of oral argument in the
present case, that concurrent claims are not excluded in the case of a
person who, having entered the service of an international organization and
retained his nationality, enjoys simultaneously the right to be protected by
his national State and the right to be protected by the organization to
which he belongs. This however is a case of one person in possession of two
separate bases of protection, each of which is valid (Reparation for
Injuries Suffered in the Service of the United Nations, Advisory Opinion,
I.C.J. Reports 1949, p. 185). There is no analogy between such a situation
and that of foreign shareholders in a company which has been the victim of a
violation of international law which has caused them damage.
54. Part of the Belgian argument is founded on an attempt to assimilate
interests to rights, relying on the use in many treaties and other
instruments of such expressions as property, rights and interests. This is
not, however, conclusive. Property is normally protected by law. Rights are
ex hypothesi protected by law, otherwise they would not be rights. According
to the Belgian Government, interests, although distinct from rights, are
also protected by the aforementioned conventional rules. The Court is of the
opinion that, for the purpose of interpreting the general rule of
international law concerning diplomatic protection, which is its task, it
has no need to determine the meaning of the term interests in the
conventional rules, in other words to determine whether by this term the
conventional rules refer to rights rather than simple interests.
*
55. The Court will now examine other grounds on which it is conceivable
that the submission by the Belgian Government of a claim on behalf of
shareholders in Barcelona Traction may be justified.
56. For the same reasons as before, the Court must here refer to municipal
law. Forms of incorporation and their legal personality have[p.39] sometimes
not been employed for the sole purposes they were originally intended to
serve; sometimes the corporate entity has been unable to protect the rights
of those who entrusted their financial resources to it; thus inevitably
there have arisen dangers of abuse, as in the case of many other
institutions of law. Here, then, as elsewhere, the law, confronted with
economic realities, has had to provide protective measures and remedies in
the interests of those within the corporate entity as well as of those
outside who have dealings with it: the law has recognized that the
independent existence of the legal entity cannot be treated as an absolute.
It is in this context that the process of "lifting the corporate veil" or
"disregarding the legal entity" has been found justified and equitable in
certain circumstances or for certain purposes. The wealth of practice
already accumulated on the subject in municipal law indicates that the veil
is lifted, for instance, to prevent the misuse of the privileges of legal
personality, as in certain cases of fraud or malfeasance, to protect third
persons such as a creditor or purchaser, or to prevent the evasion of legal
requirements or of obligations.
57. Hence the lifting of the veil is more frequently employed from without,
in the interest of those dealing with the corporate entity. However, it has
also been operated from within, in the interest of—among others—the
shareholders, but only in exceptional circumstances.
58. In accordance with the principle expounded above, the process of lifting
the veil, being an exceptional one admitted by municipal law in respect of
an institution of its own making, is equally admissible to play a similar
role in international law. It follows that on the international plane also
there may in principle be special circumstances which justify the lifting of
the veil in the interest of shareholders.
*
59. Before proceeding, however, to consider whether such circumstances
exist in the present case, it will be advisable to refer to two specific
cases involving encroachment upon the legal entity, instances of which have
been cited by the Parties. These are: first, the treatment of enemy and
allied property, during and after the First and Second World Wars, in peace
treaties and other international instruments; secondly, the treatment of
foreign property consequent upon the nationalizations carried out in recent
years by many States.
60. With regard to the first, enemy-property legislation was an instrument
of economic warfare, aimed at denying the enemy the advantages to be derived
from the anonymity and separate personality of corporations. Hence the
lifting of the veil was regarded as justified ex necessitate and was
extended to all entities which were tainted with enemy character, even the
nationals of the State enacting the legislation. The provisions of the peace
treaties had a very specific function: to protect allied property, and to
seize and pool enemy property with a view to covering reparation [p.40]
claims. Such provisions are basically different in their rationale from
those normally applicable.
61. Also distinct are the various arrangements made in respect of
compensation for the nationalization of foreign property. Their rationale
too, derived as it is from structural changes in a State's economy, differs
from that of any normally applicable provisions. Specific agreements have
been reached to meet specific situations, and the terms have varied from
case to case. Far from evidencing any norm as to the classes of
beneficiaries of compensation, such arrangements are sui generis and provide
no guide in the present case.
62. Nevertheless, during the course of the proceedings both Parties relied
on international instruments and judgments of international tribunals
concerning these two specific areas. It should be clear that the
developments in question have to be viewed as distinctive processes, arising
out of circumstances peculiar to the respective situations. To seek to draw
from them analogies or conclusions held to be valid in other fields is to
ignore their specific character as lex specialis and hence to court error.
63. The Parties have also relied on the general arbitral jurisprudence which
has accumulated in the last half-century. However, in most cases the
decisions cited rested upon the terms of instruments establishing the
jurisdiction of the tribunal or claims commission and determining what
rights might enjoy protection; they cannot therefore give rise to
generalization going beyond the special circumstances of each case. Other
decisions, allowing or disallowing claims by way of exception, are not, in
view of the particular facts concerned, directly relevant to the present
case.
*
64. The Court will now consider whether there might not be, in the present
case, other special circumstances for which the general rule might not take
effect. In this connection two particular situations must be studied: the
case of the company having ceased to exist and the case of the company's
national State lacking capacity to take action on its behalf.
65. As regards the first of these possibilities the Court observes that the
Parties have put forward conflicting interpretations of the present
situation of Barcelona Traction. There can, however, be no question but that
Barcelona Traction has lost all its assets in Spain, and was placed in
receivership in Canada, a receiver and manager having been appointed. It is
common ground that from the economic viewpoint the company has been entirely
paralyzed. It has been deprived of all its Spanish sources of income, and
the Belgian Government has asserted that the company [p.41] could no longer
find the funds for its legal defence, so that these had to be supplied by
the shareholders.
66. It cannot however, be contended that the corporate entity of the company
has ceased to exist, or that it has lost its capacity to take corporate
action. It was free to exercise such capacity in the Spanish courts and did
in fact do so. It has not become incapable in law of defending its own
rights and the interests of the shareholders. In particular, a precarious
financial situation cannot be equated with the demise of the corporate
entity, which is the hypothesis under consideration: the company's status
in law is alone relevant, and not its economic condition, nor even the
possibility of its being "practically defunct"—a description on which
argument has been based but which lacks all legal precision. Only in the
event of the legal demise of the company are the shareholders deprived of
the possibility of a remedy available through the company; it is only if
they became deprived of all such possibility that an independent right of
action for them and their government could arise.
67. In the present case, Barcelona Traction is in receivership in the
country of incorporation. Far from implying the demise of the entity or of
its rights, this much rather denotes that those rights are preserved for so
long as no liquidation has ensued. Though in receivership, the company
continues to exist. Moreover, it is a matter of public record that the
company's shares were quoted on the stock-market at a recent date.
68. The reason for the appointment in Canada not only of a receiver but also
of a manager was explained as follows:
"In the Barcelona Traction case it was obvious, in view of the Spanish
bankruptcy order of 12 February 1948, that the appointment of only a
receiver would be useless, as positive steps would have to be taken if any
assets seized in the bankruptcy in Spain were to be recovered." (Hearing of
2 July 1969.)
In brief, a manager was appointed in order to safeguard the company's
rights; he has been in a position directly or indirectly to uphold them.
Thus, even if the company is limited in its activity after being placed in
receivership, there can be no doubt that it has retained its legal capacity
and that the power to exercise it is vested in the manager appointed by the
Canadian courts. The Court is thus not confronted with the first hypothesis
contemplated in paragraph 64, and need not pronounce upon it.
*
69. The Court will now turn to the second possibility, that of the lack of
capacity of the company's national State to act on its behalf. The first
question which must be asked here is whether Canada—the third apex of [p.42]
the triangular relationship—is, in law, the national State of Barcelona
Traction.
70. In allocating corporate entities to States for purposes of diplomatic
protection, international law is based, but only to a limited extent, on an
analogy with the rules governing the nationality of individuals. The
traditional rule attributes the right of diplomatic protection of a
corporate entity to the State under the laws of which it is incorporated and
in whose territory it has its registered office. These two criteria have
been confirmed by long practice and by numerous international instruments.
This notwithstanding, further or different links are at times said to be
required in order that a right of diplomatic protection should exist.
Indeed, it has been the practice of some States to give a company
incorporated under their law diplomatic protection solely when it has its
seat (siege social) or management or centre of control in their territory,
or when a majority or a substantial proportion of the shares has been owned
by nationals of the State concerned. Only then, it has been held, does there
exist between the corporation and the State in question a genuine connection
of the kind familiar from other branches of international law. However, in
the particular field of the diplomatic protection of corporate entities, no
absolute test of the "genuine connection" has found general acceptance. Such
tests as have been applied are of a relative nature, and sometimes links
with one State have had to be weighed against those with another. In this
connection reference has been made to the Nottebohm case. In fact the
Parties made frequent reference to it in the course of the proceedings.
However, given both the legal and factual aspects of protection in the
present case the Court is of the opinion that there can be no analogy with
the issues raised or the decision given in that case.
71. In the present case, it is not disputed that the company was
incorporated in Canada and has its registered office in that country. The
incorporation of the company under the law of Canada was an act of free
choice. Not only did the founders of the company seek its incorporation
under Canadian law but it has remained under that law for a period of over
50 years. It has maintained in Canada its registered office, its accounts
and its share registers. Board meetings were held there for many years; it
has been listed in the records of the Canadian tax authorities. Thus a close
and permanent connection has been established, fortified by the passage of
over half a century. This connection is in no way weakened by the fact that
the company engaged from the very outset in commercial activities outside
Canada, for that was its declared object. Barcelona Traction's links with
Canada are thus manifold.
72. Furthermore, the Canadian nationality of the company has received
general recognition. Prior to the institution of proceedings before the
Court, three other governments apart from that of Canada (those of the
United Kingdom, the United States and Belgium) made representa-[p.43]
tions concerning the treatment accorded to Barcelona Traction by the Spanish
authorities. The United Kingdom Government intervened on behalf of
bondholders and of shareholders. Several representations were also made by
the United States Government, but not on behalf of the Barcelona Traction
company as such.
73. Both Governments acted at certain stages in close co-operation with the
Canadian Government. An agreement was reached in 1950 on the setting-up of
an independent committee of experts. While the Belgian and Canadian
Governments contemplated a committee composed of Belgian, Canadian and
Spanish members, the Spanish Government suggested a committee composed of
British, Canadian and Spanish members. This was agreed to by the Canadian
and United Kingdom Governments, and the task of the committee was, in
particular, to establish the monies imported into Spain by Barcelona
Traction or any of its subsidiaries, to determine and appraise the materials
and services brought into the country, to determine and appraise the amounts
withdrawn from Spain by Barcelona Traction or any of its subsidiaries, and
to compute the profits earned in Spain by Barcelona Traction or any of its
subsidiaries and the amounts susceptible of being withdrawn from the country
at 31 December 1949.
74. As to the Belgian Government, its earlier action was also undertaken in
close co-operation with the Canadian Government. The Belgian Government
admitted the Canadian character of the company in the course of the present
proceedings. It explicitly stated that Barcelona Traction was a company of
neither Spanish nor Belgian nationality but a Canadian company incorporated
in Canada. The Belgian Government has even conceded that it was not
concerned with the injury suffered by Barcelona Traction itself, since that
was Canada's affair.
75. The Canadian Government itself, which never appears to have doubted its
right to intervene on the company's behalf, exercised the protection of
Barcelona Traction by diplomatic representation for a number of years, in
particular by its note of 27 March 1948, in which it alleged that a denial
of justice had been committed in respect of the Barcelona Traction, Ebro and
National Trust companies, and requested that the bankruptcy judgment be
cancelled. It later invoked the Anglo-Spanish treaty of 1922 and the
agreement of 1924, which applied to Canada. Further Canadian notes were
addressed to the Spanish Government in 1950, 1951 and 1952. Further
approaches were made in 1954, and in 1955 the Canadian Government renewed
the expression of its deep interest in the affair of Barcelona Traction and
its Canadian subsidiaries.
76. In sum, the record shows that from 1948 onwards the Canadian Government
made to the Spanish Government numerous representations which cannot be
viewed otherwise than as the exercise of diplomatic [p.44] protection in
respect of the Barcelona Traction company. Therefore this was not a case
where diplomatic protection was refused or remained in the sphere of
fiction. It is also clear that over the whole period of its diplomatic
activity the Canadian Government proceeded in full knowledge of the Belgian
attitude and activity.
*
77. It is true that at a certain point the Canadian Government ceased to act
on behalf of Barcelona Traction, for reasons which have not been fully
revealed, though a statement made in a letter of 19 July 1955 by the
Canadian Secretary of State for External Affairs suggests that it felt the
matter should be settled by means of private negotiations. The Canadian
Government has nonetheless retained its capacity to exercise diplomatic
protection; no legal impediment has prevented it from doing so: no fact has
arisen to render this protection impossible. It has discontinued its action
of its own free will.
78. The Court would here observe that, within the limits prescribed by
international law, a State may exercise diplomatic protection by whatever
means and to whatever extent it thinks fit, for it is its own right that the
State is asserting. Should the natural or legal persons on whose behalf it
is acting consider that their rights are not adequately protected, they have
no remedy in international law. All they can do is to resort to municipal
law, if means are available, with a view to furthering their cause or
obtaining redress. The municipal legislator may lay upon the State an
obligation to protect its citizens abroad, and may also confer upon the
national a right to demand the performance of that obligation, and clothe
the right with corresponding sanctions. However, all these questions remain
within the province of municipal law and do not affect the position
internationally.
79. The State must be viewed as the sole judge to decide whether its
protection will be granted, to what extent it is granted, and when it will
cease. It retains in this respect a discretionary power the exercise of
which may be determined by considerations of a political or other nature,
unrelated to the particular case. Since the claim of the State is not
identical with that of the individual or corporate person whose cause is
espoused, the State enjoys complete freedom of action. Whatever the reasons
for any change of attitude, the fact cannot in itself constitute a
justification for the exercise of diplomatic protection by another
government, unless there is some independent and otherwise valid ground for
that.
80. This cannot be regarded as amounting to a situation where a violation of
law remains without remedy: in short, a legal vacuum.[p. 45]There is no
obligation upon the possessors of rights to exercise them. Sometimes no
remedy is sought, though rights are infringed. To equate this with the
creation of a vacuum would be to equate a right with an obligation.
81. The cessation by the Canadian Government of the diplomatic protection of
Barcelona Traction cannot, then, be interpreted to mean that there is no
remedy against the Spanish Government for the damage done by the allegedly
unlawful acts of the Spanish authorities. It is not a hypothetical right
which was vested in Canada, for there is no legal impediment preventing the
Canadian Government from protecting Barcelona Traction. Therefore there is
no substance in the argument that for the Belgian Government to bring a
claim before the Court represented the only possibility of obtaining redress
for the damage suffered by Barcelona Traction and, through it, by its
shareholders.
82. Nor can the Court agree with the view that the Canadian Government had
of necessity to interrupt the protection it was giving to Barcelona
Traction, and to refrain from pursuing it by means of other procedures,
solely because there existed no link of compulsory jurisdiction between
Spain and Canada. International judicial proceedings are but one of the
means available to States in pursuit of their right to exercise diplomatic
protection (Reparation for Injuries Suffered in the Service of the United
Nations, Advisory Opinion, I.C.J. Reports 1949, p. 178). The lack of a
jurisdictional link cannot be regarded either in this or in other fields of
international law as entailing the non-existence of a right.
83. The Canadian Government's right of protection in respect of the
Barcelona Traction company remains unaffected by the present proceedings.
The Spanish Government has never challenged the Canadian nationality of the
company, either in the diplomatic correspondence with the Canadian
Government or before the Court. Moreover it has unreservedly recognized
Canada as the national State of Barcelona Traction in both written pleadings
and oral statements made in the course of the present proceedings.
Consequently, the Court considers that the Spanish Government has not
questioned Canada's right to protect the company.
84. Though, having regard to the character of the case, the question of
Canada's right has not been before it, the Court has considered it necessary
to clarify this issue.
*
85. The Court will now examine the Belgian claim from a different point of
view, disregarding municipal law and relying on the rule that in inter-State
relations, whether claims are made on behalf of a State's national or on
behalf of the State itself, they are always the claims of the [p.46]
State. As the Permanent Court said,
"The question, therefore, whether the . . . dispute originates in an injury
to a private interest, which in point of fact is the case in many
international disputes, is irrelevant from this standpoint." (Mavrom-matis
Palestine Concessions, Judgment No. 2, 1924, P.C.I.J., Series A, No. 2, p.
12. See also Nottebohm, Second Phase, Judgment, I.C.J. Reports 1955, p. 24.)
86. Hence the Belgian Government would be entitled to bring a claim if it
could show that one of its rights had been infringed and that the acts
complained of involved the breach of an international obligation arising out
of a treaty or a generalrule of law. The opinion has been expressed that a
claim can accordingly be made when investments by a State's nationals abroad
are thus prejudicially affected, and that since such investments are part of
a State's national economic resources, any prejudice to them directly
involves the economic interest of the State.
87. Governments have been known to intervene in such circumstances not only
when their interests were affected, but also when they were threatened.
However, it must be stressed that this type of action is quite different
from and outside the field of diplomatic protection. When a State admits
into its territory foreign investments or foreign nationals it is, as
indicated in paragraph 33, bound to extend to them the protection of the
law. However, it does not thereby become an insurer of that part of another
State's wealth which these investments represent. Every investment of this
kind carries certain risks. The real question is whether a right has been
violated, which right could only be the right of the State to have its
nationals enjoy a certain treatment guaranteed by general international law,
in the absence of a treaty applicable to the particular case. On the other
hand it has been stressed that it must be proved that the investment
effectively belongs to a particular economy. This is, as it is admitted,
sometimes very difficult, in particular where complex undertakings are
involved. Thus the existing concrete test would be replaced by one which
might lead to a situation in which no diplomatic protection could be
exercised, with the consequence that an unlawful act by another State would
remain without remedy.
88. It follows from what has already been stated above that, where it is a
question of an unlawful act committed against a company representing
foreign capital, the general rule of international law authorizes the
national State of the company alone to make a claim.
89. Considering the important developments of the last half-century, the
growth of foreign investments and the expansion of the international
activities of corporations, in particular of holding companies, which are
[p.47] often multinational, and considering the way in which the economic
interests of States have proliferated, it may at first sight appear
surprising that the evolution of law has not gone further and that no
generally accepted rules in the matter have crystallized on the
international plane. Nevertheless, a more thorough examination of the facts
shows that the law on the subject has been formed in a period characterized
by an intense conflict of systems and interests. It is essentially bilateral
relations which have been concerned, relations in which the rights of both
the State exercising diplomatic protection and the State in respect of which
protection is sought have had to be safeguarded. Here as elsewhere, a body
of rules could only have developed with the consent of those concerned. The
difficulties encountered have been reflected in the evolution of the law on
the subject.
90. Thus, in the present state of the law, the protection of shareholders
requires that recourse be had to treaty stipulations or special agreements
directly concluded between the private investor and the State in which the
investment is placed. States ever more frequently provide for such
protection, in both bilateral and multilateral relations, either by means of
special instruments or within the framework of wider economic arrangements.
Indeed, whether in the form of multilateral or bilateral treaties between
States, or in that of agreements between States and companies, there has
since the Second World War been considerable development in the protection
of foreign investments. The instruments in question contain provisions as to
jurisdiction and procedure in case of disputes concerning the treatment of
investing companies by the States in which they invest capital. Sometimes
companies are themselves vested with a direct right to defend their
interests against States through prescribed procedures. No such instrument
is in force between the Parties to the present case.
91. With regard more particularly to human rights, to which reference has
already been made in paragraph 34 of this Judgment, it should be noted that
these also include protection against denial of justice. However, on the
universal level, the instruments which embody human rights do not confer on
States the capacity to protect the victims of infringements of such rights
irrespective of their nationality. It is therefore still on the regional
level that a solution to this problem has had to be sought; thus, within the
Council of Europe, of which Spain is not a member, the problem of
admissibility encountered by the claim in the present case has been resolved
by the European Convention on Human Rights, which entitles each State which
is a party to the Convention to lodge a complaint against any other
contracting State for violation of the Convention, irrespective of the
nationality of the victim.
*[p.48]
92. Since the general rule on the subject does not entitle the Belgian
Government to put forward a claim in this case, the question remains to be
considered whether nonetheless, as the Belgian Government has contended
during the proceedings, considerations of equity do not require that it be
held to possess a right of protection. It is quite true that it has been
maintained that, for reasons of equity, a State should be able, in certain
cases, to take up the protection of its nationals, shareholders in a company
which has been the victim of a violation of international law. Thus a theory
has been developed to the effect that the State of the shareholders has a
right of diplomatic protection when the State whose responsibility is
invoked is the national State of the company. Whatever the validity of this
theory may be, it is certainly not applicable to the present case, since
Spain is not the national State of Barcelona Traction.
93. On the other hand, the Court considers that, in the field of diplomatic
protection as in all other fields of international law, it is necessary that
the law be applied reasonably. It has been suggested that if in a given case
it is not possible to apply the general rule that the right of diplomatic
protection of a company belongs to its national State, considerations of
equity might call for the possibility of protection of the shareholders in
question by their own national State. This hypothesis does not correspond to
the circumstances of the present case.
94. In view, however, of the discretionary nature of diplomatic protection,
considerations of equity cannot require more than the possibility for some
protector State to intervene, whether it be the national State of the
company, by virtue of the general rule mentioned above, or, in a secondary
capacity, the national State of the shareholders who claim protection. In
this connection, account should also be taken of the practical effects of
deducing from considerations of equity any broader right of protection for
the national State of the shareholders. It must first of all be observed
that it would be difficult on an equitable basis to make distinctions
according to any quantitative test: it would seem that the owner of 1 per
cent. and the owner of 90 per cent. of the share-capital should have the
same possibility of enjoying the benefit of diplomatic protection. The
protector State may, of course, be disinclined to take up the case of the
single small shareholder, but it could scarcely be denied the right to do so
in the name of equitable considerations. In that field, protection by the
national State of the shareholders can hardly be graduated according to the
absolute or relative size of the shareholding involved.
95. The Belgian Government, it is true, has also contended that as high a
proportion as 88 per cent. of the shares in Barcelona Traction belonged to
natural or juristic persons of Belgian nationality, and it has used this as
an argument for the purpose not only of determining the amount of the
damages which it claims, but also of establishing its right of action on
behalf of the Belgian shareholders. Nevertheless, this does[p.49] not alter
the Belgian Government's position, as expounded in the course of the
proceedings, which implies, in the last analysis, that it might be
sufficient for one single share to belong to a national of a given State for
the latter to be entitled to exercise its diplomatic protection.
96. The Court considers that the adoption of the theory of diplomatic
protection of shareholders as such, by opening the door to competing
diplomatic claims, could create an atmosphere of confusion and insecurity
in international economic relations. The danger would be all the greater
inasmuch as the shares of companies whose activity is international are
widely scattered and frequently change hands. It might perhaps be claimed
that, if the right of protection belonging to the national States of the
shareholders were considered as only secondary to that of the national State
of the company, there would be less danger of difficulties of the kind
contemplated. However, the Court must state that the essence of a secondary
right is that it only comes into existence at the time when the original
right ceases to exist. As the right of protection vested in the national
State of the company cannot be regarded as extinguished because it is not
exercised, it is not possible to accept the proposition that in case of its
non-exercise the national States of the shareholders have a right of
protection secondary to that of the national State of the company.
Furthermore, study of factual situations in which this theory might
possibly be applied gives rise to the following observations.
97. The situations in which foreign shareholders in a company wish to have
recourse to diplomatic protection by their own national State may vary. It
may happen that the national State of the company simply refuses to grant it
its diplomatic protection, or that it begins to exercise it (as in the
present case) but does not pursue its action to the end. It may also happen
that the national State of the company and the State which has committed a
violation of international law with regard to the company arrive at a
settlement of the matter, by agreeing on compensation for the company, but
that the foreign shareholders find the compensation insufficient. Now, as a
matter of principle, it would be difficult to draw a distinction between
these three cases so far as the protection of foreign shareholders by their
national State is concerned, since in each case they may have suffered real
damage. Furthermore, the national State of the company is perfectly free to
decide how far it is appropriate for it to protect the company, and is not
bound to make public the reasons for its decision. To reconcile this
discretionary power of the company's national State with a right of
protection falling to the shareholders' national State would be particularly
difficult when the former State has concluded, with the State which has
contravened international law with regard to the company, an agreement
granting the company compensation which the foreign shareholders find
inadequate. If, after such a settlement, the national State of the foreign
shareholders could in its turn put forward [p.50] a claim based on the same
facts, this would be likely to introduce into the negotiation of this kind
of agreement a lack of security which would be contrary to the stability
which it is the object of international law to establish in international
relations.
98. It is quite true, as recalled in paragraph 53, that international law
recognizes parallel rights of protection in the case of a person in the
service of an international organization. Nor is the possibility excluded of
concurrent claims being made on behalf of persons having dual national-ity,
although in that case lack of a genuine link with one of the two States may
be set up against the exercise by that State of the right of protection. It
must be observed, however, that in these two types of situation the number
of possible protectors is necessarily very small, and their identity
normally not difficult to determine. In this respect such cases of dual
protection are markedly different from the claims to which recognition of a
general right of protection of foreign shareholders by their various
national States might give rise.
99. It should also be observed that the promoters of a company whose
operations will be international must take into account the fact that States
have, with regard to their nationals, a discretionary power to grant
diplomatic protection or to refuse it. When establishing a company in a
foreign country, its promoters are normally impelled by particular
considerations; it is often a question of tax or other advantages offered by
the host State. It does not seem to be in any way inequitable that the
advantages thus obtained should be balanced by the risks arising from the
fact that the protection of the company and hence of its shareholders is
thus entrusted to a State other than the national State of the
shareholders.
100. In the present case, it is clear from what has been said above that
Barcelona Traction was never reduced to a position of impotence such that it
could not have approached its national State, Canada, to ask for its
diplomatic protection, and that, as far as appeared to the Court, there was
nothing to prevent Canada from continuing to grant its diplomatic protection
to Barcelona Traction if it had considered that it should do so.
101. For the above reasons, the Court is not of the opinion that, in the
particular circumstances of the present case, jus standi is conferred on the
Belgian Government by considerations of equity.
*
102. In the course of the proceedings, the Parties have submitted a great
amount of documentary and other evidence intended to substantiate [p.51]
their respective submissions. Of this evidence the Court has taken
cognizance. It has been argued on one side that unlawful acts had been
com-mitted by the Spanish judicial and administrative authorities, and that
as a result of those acts Spain has incurred international responsibility.
On the other side it has been argued that the activities of Barcelona
Traction and its subsidiaries were conducted in violation of Spanish law and
caused damage to the Spanish economy. If both contentions were
substantiated, the truth of the latter would in no way provide justification
in respect of the former. The Court fully appreciates the importance of the
legal problems raised by the allegation, which is at the root of the Belgian
claim for reparation, concerning the denials of justice allegedly committed
by organs of the Spanish State. However, the possession by the Belgian
Government of a right of protection is a prerequisite for the examination of
these problems. Since no jus standi before the Court has been established,
it is not for the Court in its Judgment to pronounce upon any other aspect
of the case, on which it should take a decision only if the Belgian
Government had a right of protection in respect of its nationals,
shareholders in Barcelona Traction.
*****
103. Accordingly,
The Court
rejects the Belgian Government's claim by fifteen votes to one, twelve votes
of the majority being based on the reasons set out in the present Judgment.
Done in French and in English, the French text being authoritative, at the
Peace Palace, The Hague, this fifth day of February, one thousand nine
hundred and seventy, in three copies, one of which will be placed in the
Archives of the Court and the others transmitted to the Government of the
Kingdom of Belgium and to the Government of the Spanish State, respectively.
(Signed) J.L. Bustamante Y Rivero,
President.
(Signed) S. Aquarone,
Registrar.
[p.52]
Judge Petren and Judge Onyeama make the following Joint Declaration:
We agree with the operative provision and the reasoning of the Judgment
subject to the following declaration:
With regard to the nationality of Barcelona Traction, the Judgment refers to
the existence of opinions to the effect that the absence of a genuine
connection between a company and the State claiming the right of diplomatic
protection of the company might be set up against the exercise of such a
right. In this context the Judgment also mentions the decision in the
Nottebohm case to the effect that the absence of a genuine connecting link
between a State and a natural person who has acquired its nationality may be
set up against the exercise by that State of diplomatic protection of the
person concerned. The present Judgment then concludes that given the legal
and factual aspects of protection in the present case there can be no
analogy with the issues raised or the decision given in the Nottebohm case.
Now in the present case the Spanish Government has asserted and the Belgian
Government has not disputed that, Barcelona Traction having been
incorporated under Canadian law and having its registered office in Toronto,
it is of Canadian nationality and Canada is qualified to protect it.
Canada's right of protection being thus recognized by both Parties to the
proceedings, the first question which the Court has to answer within the
framework of the third preliminary objection is simply whether, alongside
the right of protection pertaining to the national State of a company,
another State may have a right of protection of the shareholders of the
company who are its nationals. This being so, the Court has not in this case
to consider the question whether the genuine connection principle is
applicable to the diplomatic protection of juristic persons, and, still
less, to speculate whether, if it is, valid objections could have been
raised against the exercise by Canada of diplomatic protection of Barcelona
Traction.
Judge Lachs makes the following Declaration:
I am in full agreement with the reasoning and conclusions of the Judgment,
but would wish to add the following observation:
The Court has found, in the light of the relevant elements of law and of
fact, that the Applicant, the Belgian Government, has no capacity in the
present case. At the same time it has stated that the Canadian Government's
right of protection in respect of the Barcelona Traction company has
remained unaffected by the proceedings now closed.[p.53]
I consider that the existence of this right is an essential premise of the
Court's reasoning, and that its importance is emphasized by the seriousness
of the claim and the particular nature of the unlawful acts with which it
charges certain authorities of the respondent State.
President Bustamante Y Rivero, Judges Sir Gerald Fitzmaurice, Tanaka,
Jessup, Morelli, Padilla Nervo, Gros and Ammoun append Separate Opinions to
the Judgment of the Court.
Judge ad hoc Riphagen appends a Dissenting Opinion to the Judgment of the
Court.
(Initialled) J. L. B.-R.
(Initialled) S. A.
[p.286]
Separate Opinion of Judge Ammoun
[Translation]
1. At the beginning of his separate opinion in the Corfu Channel case, Judge
A. Alvarez, alluding to the fundamental changes which have taken place in
every sphere of human activity in recent decades, and especially in
international affairs and international law, wrote:
"It is therefore necessary to consider what is the present state of that
law. We must examine it in connection with the questions raised by the
dispute submitted to the Court. That does not mean that this Court should
pronounce on all the legal issues which those questions connote; but it
seems desirable that one of the judges, at least, should examine them, and
that is the task I have set myself in this individual opinion." (I.C.J.
Reports 1949, p. 39.)
I subscribe to this statement, the more so since the legal questions raised
by the case which has been submitted to the Court cannot but feel the
effects of the great renovating movement in international law which is
evident in the relations between nations and in the activities of
inter-national institutions. The development which the modern world is
witnessing affects the very structures of international law—including the
concept of sovereignty—and even its main sources, namely treaties, custom
and the general principles of law recognized by the nations. More than one
concept, principle or legal norm of the older classical law has been called
into question anew since international co-operation has become common
practice, since law has become imbued with morality, and—a point of
particular importance—since a considerable number of States have acquired
independence and sovereignty, or have siezed them by main force, and have
entered into the world community of nations. Linked to this development,
which it will be necessary to touch upon, to this dynamism of the law which,
it has been said, is a continual creation, is the idea which must be formed
of the international responsibility of States, and its corollary, diplomatic
protection, upon which the Court is called upon to pronounce.
2. In order to make an exhaustive study of Belgium's jus standi in judicio
which had been the subject of a preliminary objection, it was recognized by
the Judgment of 24 July 1964 as indispensable to refer to certain points of
fact and of law relating to the merits of the case, al-though jus standi
does not thereby lose its character as an objection.
Belgium has however questioned whether, in view of the subject of the
[p.287]dispute between the Parties, which it contends deals only with the
conditions and limits of the international responsibility of a State
towards the foreign shareholders in a commercial holding company, it is
possible to speak of a preliminary objection on this point. In other words,
what is being debated as a preliminary issue is, it is said, international
responsibility, rather than diplomatic protection.
In order to reply to this question, it is sufficient to add to the arguments
appearing in the aforementioned Judgment that the right of diplomatic
protection, so far as it materializes in a legal action, is to be
distinguished from the substantive right which the applicant State claims to
have reestablished. The question thus involves the distinction between the
subject-matter of the action and the subject-matter of the right claimed, a
distinction about which legal writers are generally in agreement FN1. An
objection, considered in opposition to the setting in motion of a legal
action, should not be confused with a defence concerning the right at issue.
There would in fact be an internal contradiction in the fact of confusing
two different things in the concept of a claim, namely its admissibility and
its validity. Proof that an applicant has the status required to exercise
legal power, or that he has a right entitling him to bring the matter before
a court, may, as in the present case, involve raising questions which are
not unrelated to the merits, but it cannot have any influence on the nature
of the action, or the nature of the objection to the exercise thereof.
---------------------------------------------------------------------------------------------------------------------
FN1
Solus and Perrot, Droit judiciaire privé, Vol. I, pp. 94-107, and the
Italian and German writers on Continental law to whom they refer.
---------------------------------------------------------------------------------------------------------------------
At all events, the joinder of the objection to the merits justifies, so far
as this may be necessary, extending the present study beyond diplomatic
protection to include international responsibility.
3. That much having been said, the solution to the problem of jus standi,
which calls in question the principle of international responsibility and
the rules of diplomatic and judicial protection designed to give effect to
that principle, is clearly linked to the overall problem of the development
of modern international law in the face of recent transformations in
international life. This is a burning question of today, the more complex in
that it is conditioned by the essential needs of various peoples, ever since
nations have emerged from dependence with inter-ests which are manifold and
often difficult to reconcile among themselves or with those of the other
nations of the world. This problem must therefore not be lost sight of
throughout the present opinion.
***
The radical transformations which have occurred in economic affairs in the
last half-century, the constantly increasing expansion which has marked the
recent decades in a world undergoing rapid social and political development,
and the new problems to which these changes have given rise, call for a
corresponding development of juridical structures. The [p. 288] law, a rigid
conservative kind of law, cannot adapt the emerging reality to sacrosanct
rules rooted in the remote past. It must, on the contrary, adapt itself to
the imperious needs of an international society which is moving towards
universalism; it must adapt itself thereto in order to avoid confrontation
between peoples, and lest it lose its footing in the upward march of
progress towards better justice and the common aspiration towards the
ideals of prosperity and peace.
It is well known that the established lead taken by facts and events over
the law has had to be corrected more than once in the past FN2. In the
sphere of international law, the adaptation of law to factual situations,
rendered necessary by the political change which had world-wide
repercussions in the middle of this century, was largely accomplished by the
solemn enunciation of the principles and purposes of the United Nations. The
implementation of these has however been more effective within the political
organs of the world Organization than it has been in the domain of
international tribunals where problems have arisen on the legal level as a
result of the breach between law and social reality. Thus it is in the
interests of justice and of law that these problems should be approached
with a clear vision of the meaning of history and an overall picture of a
world from which no-one should henceforth be excluded, no matter how late he
has come on the scene.
---------------------------------------------------------------------------------------------------------------------
FN2
In Rome, by the intervention of the Praetor whose edict, idealistic in
outlook, supplemented the formalistic quiritary law, which had lagged behind
the development of the quasi-international structures of the Emipire; by the
blossoming of Moslem law, freed from all outgrown formalism and all illusory
symbolism, which set its seal on the basic transformation of legal concepts
in most of the countries under its sway; and nearer to our own day, in the
United Kingdom and those countries which adopted its law, with the
institution of equity which plays an important part in making up for the
insufficiencies of the common law; lastly, by the complete renewal of law in
the Socialist countries in order to keep pace with the advent of a new
ideology and a new way of life which have broken radically with the past.
---------------------------------------------------------------------------------------------------------------------
This situation could however not escape the foresight of the International
Court of Justice. Thus the Advisory Opinion which it delivered in 1949, in
connection with the reparation for injuries suffered in the service of the
United Nations, must be given its full significance; it stated that:
"Throughout its history, the development of international law has been
influenced by the requirements of international life FN3”.
---------------------------------------------------------------------------------------------------------------------
FN3
I.C.J. Reports 1949, p. 178.
---------------------------------------------------------------------------------------------------------------------
This observation is more topical than ever. International life is being
influenced by those States which have now rounded out the circle of the
community of nations, increasing the number thereof almost threefold.
International law cannot leave out of account the aspirations of the world
in which henceforth it has its existence, and it is significant that these
States are manifesting a certain amount of impatience tinged with
apprehension.
We shall see later what their attitude has been with regard to the rules
concerning the responsibility of States and diplomatic protection.[p.289]
4. The problems confronting the world, now that a large-scale political
emancipation of the dependent peoples has been carried out, are those
relating to the establishment of economic and social justice and to
development. According to one of the great African leaders, President L. S.
Senghor, "legal independence without economic independence is but a new form
of dependency, worse than the first because it is less obvious" FN4. The
Director-General of FAO recently warned the world about the dangers of a
world-wide famine in the next 24 to 28 years, unless production is
increased in the developing countries. And more recently the Symposium of
African archbishops and bishops, which was brought to a close on 1 August
1969 by the Sovereign Pontiff, roundly denounced the increase in the riches
of some through the exploitation of the poverty of others FN5.
---------------------------------------------------------------------------------------------------------------------
FN4
Extract from his address to the United Nations General Assembly in New York
on 31 October 1961 (Official documents of the General Assembly, Plenary
Meetings, Vol. II, p. 540).
See in this connection I. Brownlie, Principles of Public International Law,
1966, p. 485. He writes:
". . . The concept of self-determination has been applied in the different
context of economic self-determination."
G. I. Tunkin considers that:
". . . respect for State sovereignty finds itself compatible with . .. a de
facto dependence of the smaller States upon the bigger ones, since their
economic dependence means that their sovereignty is merely formal". (Droit
international public, published in co-operation with the Centre français de
la recherche scientifique, p. 237 [Translation by the Registry].)
FN5 Le Monde, 2 August 1969.
Reference may also be made to the conclusions of E. McWhinney who writes:
"It becomes clear that the development and completion of a viable system of
international ordre public in the last third of the century will depend to a
considerable extent upon the efforts made to bridge the gap in prosperity
that exists between on the one hand the countries of the Soviet bloc and the
West, and the Third World on the other" (Latin America, Africa and Asia).
Revue générale de droit international public, 1968, p. 341. [Translation by
the Registry]).
---------------------------------------------------------------------------------------------------------------------
This problem arises particularly in connection with the great economic,
commercial and financial undertakings which have multiplied and grown beyond
the confines of their respective countries in such a way as to necessitate a
parallel development of international law. International law should
certainly avoid trying to fit their action into outworn forms; it should
work to bring about a just protection of their interests in the bitter but
beneficient struggle of international competition FN6.
---------------------------------------------------------------------------------------------------------------------
FN6
Cf. what was said by Mr. Haroldo Valladão, the then President of the Session
of the Institut de droit international, referring to—
"the power of the international companies with investments in the developing
countries, [which] has given rise to a special treatment for such
investments". (Annuaire de l'Institut de droit international, 1967, II, p.
432 [Translation by the Registry].)
---------------------------------------------------------------------------------------------------------------------
On the other hand, the law should be no less concerned with the interests
of the countries to which those powerful undertakings and the companies
controlling them—trusts or holding companies of pyramidal structure—extend
their activities, thereby certainly rendering appreciable [p.290] service to
the economy of the host countries, but also exposing that weaker economy to
dangers which it ought to be spared. The States of the Third World showed
insight when they agreed to insert in the 1960 Declaration on the Grant of
Independence the provision:
"affirming that peoples may, for their own ends, freely dispose of their
natural wealth and resources without prejudice to any obligations arising
out of international economic co-operation, based upon the principle of
mutual benefit and international law". (UN Doc. A/4684, p. 66.)
One cannot help thinking, in this connection, of the large companies which
continue to undertake the exploitation of the natural resources of the less
developed countries, including their agricultural, timber and mineral
wealth, their oil production, and also their transport and other public or
municipal services. An equitable sharing of the profits is mandatory. The
anxieties of the countries whose resources are being exploited by means of
foreign technical and financial co-operation are deeply felt, as will be
seen below in connection with the application of diplomatic protection and
its possible extension, as in the present case, to new situations, with a
view to the increased protection of foreign interests.
The development of international law cannot therefore have as its sole or
principal object the protection of foreign nationals and of the
international economic activities of the industrialized Powers. It must set
itself an objective which is more comprehensive and more just, and a more
equitable and more humanitarian ideal, in which the material and intangible
interests of the weaker and deprived peoples are factors to be taken into
account.
***
5. In this connection, it is essential to stress the trends of
Latin-American law and that of Asia and Africa, and their undeniable
influence on the development of traditional international law.
It seems indeed that among the principles and norms which have sprung from
the regional law peculiar to Latin America are the norms and principles
whose aim is to protect countries in that part of the world against the more
powerful industrialized States of North America and Europe.
An Afro-Asian law also seems to be developing as a result of the same
preoccupations, springing from the same causes. In the field of the
responsibility of States and of diplomatic protection, the same points of
view have been adopted in the countries of the three continents, thus
initiating a form of co-operation which will not be of slight effect on the
renewal of law FN6a.[p.291]
---------------------------------------------------------------------------------------------------------------------
FN6a
This co-operation received an initial implementation, as regards the effect
of economic facts on international law, at the United Nations Conference on
Trade and Development held in Geneva in 1964, where 77 Latin American,
African and Asian States resolved to meet and negotiate through the
intermediary of common spokesmen.
---------------------------------------------------------------------------------------------------------------------
The first reaction to the rules of traditional law came however from the
countries of Latin America; witness the vehement speech made by Mr. Seijas,
a former Venezuelan minister, at the 1891 Session of the Institut de droit
international at Hamburg, which was no mere display of bad temper. Evidence
of this too is the appearance of the Calvo Clause, excluding recourse to
international adjudication in favour of internal remedies, on which the
jurists of Latin America have never compromised, because of their lack of
confidence in diplomatic protection as conceived by traditional law and the
practices of western nations. This reaction on the part of the Latin
American States would, moreover, explain their opposition from 1948 onwards
to the draft insurance guarantee agreement proposed by the United States,
providing for the exercise of diplomatic protection by that power without
local remedies having been exhausted FN7.
---------------------------------------------------------------------------------------------------------------------
FN7
Mexico had been forced to agree in the 1923 Convention with the United
States not to avail itself of the condition of the prior exhaustion of local
remedies.
See in this connection the relevant speeches to the Institut de droit
international by Mr. Haroldo Valladáao and Mr. Kamil Yasseen and by Mr.
Jiménez de Aréchaga, who rightly points to the discrimination which the
exclusion of prior recourse to local remedies would entail (Annuaire de
l'Institut de droit international, 1967, II pp. 431, 432, 435-436).
---------------------------------------------------------------------------------------------------------------------
This attitude on the part of the Hispanic States, which is shared by the
Afro-Asian States, is the more readily understandable if the extra-legal
forms and means to which diplomatic protection formerly had recourse are
borne in mind. It will be recalled that the claims of great States and their
nationals abroad often led, during the period preceding the renewal of the
law consequent upon two world wars and the creation of a means of
international adjudication, to acute conflicts and to acts of deliberate
violence going so far as armed intervention and permanent occupation FN8, or
to demonstrations of force FN9, against which the Drago doctrine, which was
endorsed by the Pan-American Conference of 1906 and has since become one of
the basic principles of Latin American international law, has, since 1926,
reacted not without success. Recourse to force, subject to an offer of
arbitration, was nevertheless tolerated by The Hague Peace Conference of
1907, which admitted intervention sub modo by virtue of the Porter
Convention, against which Convention Drago and his Latin American colleagues
vainly protested at the Conference. This was not the [p 292] least of the
contradictions which attended it, contradictions which bespeak the still
predominant influence of the colonialist era. Accordingly, one is entitled
to suspect certain arbitral decisions of having been agreed to or accepted
under duress, those decisions having been preceded by ultimata or menaces or
by a deployment of force more or less in the spirit of the said Conference,
which was struggling to free itself from a tyrannical tradition FN10.
---------------------------------------------------------------------------------------------------------------------
FN8
Occupation of China's western provinces—which brought on the Boxer
Rebellion of 1900, of Tunisia from 1881 to 1956, of Egypt from 1882 to 1954
and of Mexico from 1859 to 1866, the conquest of which took the form of the
installation of the ephemeral Mexican Empire (P. C. Jessup, A Modern Law of
Nations, p. 113).
FN9 Against more than one Latin American State: Argentina, Paraguay, Mexico,
Brazil, Cuba, Nicaragua, Colombia, Haiti, the Dominican Republic, Venezuela,
etc. The Ottoman Empire was also an example (referred to in footnote 64
below).
FN10 Of the 44 States which took part in the 1907 Conference, there were
only four Asian States and one African State.
---------------------------------------------------------------------------------------------------------------------
If the Drago doctrine has finally triumphed, and if the Porter Convention,
on the insistence of Mexico, expressing Latin American opinion at the
Chapultepec Conference in 1945, is now recognized as incompatible with the
terms of Article 103 of the United Nations Charter, it is nevertheless the
case that many decisions have not avoided all confusion between reparation
sticto sensu, as in private municipal law, and the "satisfaction" demanded
by powerful States, which gives reparation lato sensu the character of a
measure aimed at deterrence or punishment FN10a. This right to punish,
which is arrogated to themselves by certain States, and to which such
eminent writers as Bluntschli, Liszt and Fau-chille, as well as a 1927
resolution of the Institut de droit international have lent their authority,
seems to have been rejected by Anzilotti, who noted that in all forms of
reaction against the unlawful act there were present ". .. an element of
satisfaction and an element of reparation, the notion of punishment of the
unlawful act and that of reparation for the wrong suffered"FN11. Thus, the
opposition of Latin American or Afro-Asian jurists to the western conception
of responsibility and diplomatic protection is founded not only on memories
of a painful past, but also on serious apprehensions.
---------------------------------------------------------------------------------------------------------------------
FN10a See in this connection the report by Mr. Garcia Amador to the 13th
Session of the International Law Commission. (Yearbook of the I.L.C., 1961,
Vol. II, paras. 4 to 6, 17, 26, 53, 56, 75, 102, 140, 142 and 145.)
See also the dissenting opinion in the Corfu Channel case of Judge Azevedo,
who regarded measures of satisfaction as reminiscent of ultimata of a
"mediaeval" nature (I.C.J. Reports 1949, p. 114).
FN11 Cours de droit international [Translation by the Registry from] Fr.
trans. by G. Gidel, 1929, p. 522.
---------------------------------------------------------------------------------------------------------------------
The development of Latin American thought concerning diplomatic protection
and its limits must be particularly stressed in the present discussion, on
account of the influence which it can have on the development of that
institution. This thought is at present centred on the following aspects of
the problem:
A. The 20 States of South and Central America all reject the rule laid down
by Vatel and endorsed by the Permanent Court of International Justice,
according to which the right of diplomatic protection is "to ensure, in the
person of its subjects, respect for the rules of international law". They
hold it to be a fiction, which one of their most eminent jurists,[p. 293]
Garcia Robles, has described as "a product of Hegelian influence, resulting
from the expansionism of the nineteenth century"FN12. And all these States,
at inter-American conferences, in the writings of publicists, in the
positions adopted by governments, are united in their efforts for its
elimination, on the understanding that the individual's status as a subject
of the law is to be recognized, thus enabling him to seek legal redress
himself, and not under the cloak of his national StateFN12a. But before what
tribunal? Before an American regional tribunal. The resolution submitted to
the Inter-American Conference at Buenos Aires and adopted almost unanimously
reads: "American legal controversies should be decided by American judges .
. . and a correct understanding of acts pertaining to the Americas is more
readily to be obtained by Americans themselves".
--------------------------------------------------------------------------------------------------------------------- FN12
At the Third Session of the Inter-American Bar Association, Mr. Garcia
Robles won over to the Latin American cause Mr. F. R. Coudert, the North
American President of the Association, and all its members.
FN12a The status of the individual as a subject of the law, which has its
supporters outside America, was to a certain extent recognized in the 1926
award by the Mexican-American Commission in the North American Dredging
Company case.
---------------------------------------------------------------------------------------------------------------------
Since the same causes produce the same effects, the States of the
Organization of African Unity wrote into the Addis Ababa Charter the same
objective of the creation of a regional tribunal FN13.
--------------------------------------------------------------------------------------------------------------------- FN13
E. McWhinney has pointed out that—
"there has in the past been a notable reluctance on the part of numerous
States, and, in particular, of the new States, to accept the compulsory
jurisdiction of the International Court of Justice, because those States
have felt that the Court would apply the old rules, in the elaboration and
development of which they had not participated and a great number of which
they regarded as unreasonable or unjust" (op. cit., p. 331 [Translation by
the Registry]).
---------------------------------------------------------------------------------------------------------------------
The countries of Latin America have gone further still. In 1948 they
unanimously adopted a resolution at Bogota whereby they undertook not to
bring a claim before a court of international jurisdiction, not excluding
the International Court of JusticeFN13a.
--------------------------------------------------------------------------------------------------------------------- FN13a"The
High Contracting Parties bind themselves not to make diplomatic
representations in order to protect their nationals, or to refer a
controversy to a court of international jurisdiction for that purpose, when
the said nationals have had available the means to place their case before
competent domestic courts of the respective State." (Art. VII of the Pact of
Bogota, 1948.)
---------------------------------------------------------------------------------------------------------------------
B. The States of Latin America remain firmly attached to the Calvo Clause,
which they habitually insert in contracts entered into with foreign
undertakings. Their constitutions and laws generally make it compulsory.
Their doctrine with regard thereto, founded upon the two principles of
equality between States and non-intervention, was forcefully expressed by
Judge Guerrero, a former President of the Court, in the report which he
submitted on behalf of the Subcommittee set up by the Committee of Experts
of the League of Nations to study the responsibility of States. Several
non-American countries were not hostile to this point of view. China,
Holland and Finland were frankly favourable to it.[p294]
Finally, the United States, which had found in Borchard a vigorous defender
of the thesis that the individual cannot dispose of a right which, according
to Vatelian doctrine, is that of the State and not his own, allowed itself
to be won over, with the inauguration of the "good neighbour" policy of F.
D. Roosevelt, to the doctrine of its southern neighbours FN14.
--------------------------------------------------------------------------------------------------------------------- FN14
See also the important award in the North American Dredging Company case in
1926 between the United States and Mexico, which took a clear step in this
direction and has since become an authoritative precedent. The Calvo Clause
was unanimously upheld in order to dismiss the claim, notwithstanding the
provisions of the 1923 Treaty exonerating the claimant from having to
exhaust local remedies. The scope of the clause is, however, limited to the
individual's right and leaves untouched that of the State in the event of a
violation of international law.
---------------------------------------------------------------------------------------------------------------------
C. The Calvo clause, which on the other side of the Atlantic is regarded
merely as a compromise, was destined to prepare the way for the adoption of
the Calvo doctrine, which is aimed at nothing less than the abolition of
unilateral diplomatic protection in order to substitute for it a protection
exercised by the collectivity on the basis of human rights.
The path towards this unconcealed objective is certainly a long and arduous
one; its success seems bound up with the progress of mankind towards an
inter-American or international organization less removed than the United
Nations from the concept of the Super-State.
It was the more necessary to recall these features of American law in that
other States are treading the same path towards the limitation of diplomatic
protection. The States of Africa and of Asia, since they too have come to
participate in international life, share the same concerns,— as witness the
proceedings of the International Law Commission. At its Ninth Session in
1957, Mr. Padilla Nervo stated that:
"... the history of the institution of State responsibility was the history
of the obstacles placed in the way of the new Latin American
countries—obstacles to the defence of their . . . independence, to the
ownership and development of their resources, and to their social
integration".
And he added:
"With State responsibility . . . international rules were established, not
merely without reference to small States but against them FN15."
--------------------------------------------------------------------------------------------------------------------- FN15
Yearbook of the International Law Commission, 1957, Vol. I, p. 155.
---------------------------------------------------------------------------------------------------------------------
And Mr. El-Erian, of the United Arab Republic, stressed the twofold
consequence of the privileged condition accorded to nationals of Western
countries in their relations with the countries of Africa or Asia, which
on[p295] the one hand had led to the system of capitulations and on the
other afforded a pretext for intervention in the domestic affairs of States
FN16.
---------------------------------------------------------------------------------------------------------------------
FN16 Ibid., p. 161. See also S. Prakash Sinha, New Nations and the Law of
Nations, pp. 91-93 and 140.
---------------------------------------------------------------------------------------------------------------------
The similarity of the essential views and objectives of the States of the
three continents of America, Africa and Asia, and the action they are able
to take to develop a positive international law of world-wide ambit, will
tend to direct them toward a universalist concept of law and bring them back
to a system of international adjudication which will no longer be of an
exclusive nature but will, through its effective composition, meet the
wishes expressed in the United Nations Charter, which would have it
represent the main legal systems and principal forms of civilization of the
world.
It is in the light of these preliminary considerations that the connected
problem of diplomatic protection and the jus standi of the applicant State
should have been approached.
6. It is generally recognized that the attribution of nationality to a
company, or the recognition of its legal allegiance, on the basis of its
siege social or of the law of the place of formation or registration, confer
upon the national State of the company, by virtue of a rule of law
enshrined in jurisprudence and of a constant practice FN17, the right to
take action for the reparation of damage resulting, to the prejudice of the
company, from an international tort.
--------------------------------------------------------------------------------------------------------------------- FN17
This practice goes back to the beginning of the nineteenth century, when the
United Kingdom intervened with the Kingdom of the Two Sicilies on behalf of
19 companies, and it was endorsed by the Committee of Experts of the League
of Nations in 1927. With respect to the jurisprudence, in addition to a
number of arbitral awards at the turn of the century, see the
Panevezys-Saldutiskis Railway case, P.C.I.J., Series A/B, No. 76, p. 16.
---------------------------------------------------------------------------------------------------------------------
Is it, however, necessary in addition that there should exist between the
national State and the company a link of effectiveness, consisting of a
substantial participation in the company by national capital or of control
of the company's management? Since intervention by a State in favour of its
nationals is a discretionary act, the practice of States which take up a
case for their nationals only on this condition does not give rise to a
legal obligation. Furthermore, no less than a dozen arbitral awards reported
by Mr. J. de Hochepied FN18 have held that the nationality of the company
alone justified diplomatic intervention. As for those arbitral or judicial
decisions that might be cited in support of the concept of effectiveness or
connection (Canevaro, I'm Alone, Nottebohm cases), they do not amount to
precedents affording any analogy based upon essential factors with the
question of the nationality of companies in international law. It will be
observed in particular that the Nottebohm Judgment had to determine a
conflict of a particular kind, that of dual nationality. It was based upon
concrete facts peculiar to the situation of the former German citizen
Nottebohm and his endeavours to "substitute for his status as a national [p
296] of a belligerent State that of a national of a neutral State, with the
sole aim of thus coming within the protection of Liechtenstein"FN18a. Does
not this reasoning in the Judgment seem to fall into line with the practice
of the courts or of the administration, taking into account the motive for
the act, of ignoring changes of nationality effected for the purpose of
obtaining, for example, a divorce, or changes of religion or belief in order
to overcome an obstacle to a marriage or to an election, in a State where
seats in the elected chambers are distributed between members of the
country's various religions and beliefs.
--------------------------------------------------------------------------------------------------------------------- FN18
La protection diplomatique des sociétés et des actionnaires, pp. 95-101.
FN18a I.C.J. Reports 1955, p. 26.
---------------------------------------------------------------------------------------------------------------------
***
The right of protection of the company by its national State being the rule,
does this right leave room, in appropriate circumstances, for an action by
the national State of the shareholders?
This question relates, within the framework of the third preliminary
objection, to the basic legal condition governing the exercise of
international judicial protection, in other words, to the existence of a
rule of law which would, in the instant case, authorize recourse to a
judicial action. It is of a preliminary nature in relation to the fourth
preliminary objection, concerning the exhaustion of local remedies, as well
as to the other questions raised by the third objection, namely the
nationality of the claim and the connected question of the continuity of the
nationality and that of legal owners and nominees. It is in fact the legal
rule which, in appropriate cases, gives access to the Court. In the absence
of this rule, access to the judicial tribunal is denied the claimant, even
if his claim be absolutely justified from the point of view of such other
questions as might be raised at this preliminary stage of the proceedings.
Since, however, the Court has affirmed the preliminary character of the
question of the possible existence of the legal rule, could it embark upon
one or other of the subsidiary questions and yet manage to avoid, in the
rigour of would-be logical reasoning, disregarding its first decision and,
as it were, going back on itself? That decision had the unavoidable
consequence of putting an end to the proceedings, and it is not open to
anyone to restore it to life in order to embark upon a new discussion which
would not only be obiter dicta, but would be reasoning based upon an
hypothesis which the Court has already rejected, and which would introduce
an internal contradiction into the judgment.
This being my point of view on the problem, my separate opinion will deal
only with the legal question the solution of which has of itself, to my
mind, led to the rejection of Belgium's Application.
7. The question occasions no difficulty if the members of the company or
shareholders complain, ut singuli, of direct damage, as is generally the
case in municipal law; if, in other words, he is injured with respect to his
subjective interests, as distinct from those of the company: e.g., in
[p 297] the case of individual despoilment or discriminatory measures. He is
then in the position of any individual claiming the diplomatic or
jurisdictional protection of the State of which he is a national FN19.
---------------------------------------------------------------------------------------------------------------------
FN19 Cf. I. Brownlie, op. cit., p. 401.
---------------------------------------------------------------------------------------------------------------------
But what will be the position if the shareholder's claim relates to an
indirect injury resulting from a measure which affects the company as such?
The charges which may be expressed as denials of justice, abuse of right or
misuse of power are those which, according to Belgium, affected the company,
beginning with the refusal to allocate foreign currency and the bankruptcy
judgment. It is no longer a question of the corporate action to be exercised
on behalf of the company, but of proceedings limited to the right or legal
interest of the shareholder, to the extent that he is indirectly injured as
a result of a measure affecting the company.
***
Since the theory of the reality of the personality of companies has
generally been abandoned in favour of the theory of artificial or juridical
personality, it has seemed to certain writers that arbitral awards have
taken a line which, whilst rejecting this fiction to the extent that it is
absolute or excessive, has opened a fresh perspective which is in conformity
with the international character assumed by numerous companies. As between
the right and the fiction, which thus stand opposed to each other, which
must give way? Are we not faced with one of those cases where the adjustment
of law to the reality of human affairs and to the sense of justice must
carry the day?
There is no doubt that the personality attributed to the group of corporate
interests was so attributed with a view to giving to the elements contained
therein and bonded together thereby, common means of action and effective
protection. Accordingly, the moment that that protection proves
insufficient, or even harmful, in the field of international relationships,
should not legal personality give way, to the extent that this is necessary
and possible, in favour of a more realistic concept and one which is more in
accordance with the nature of things, that of corporate reality, in order to
leave individuals and capital appropriately revealed, in the interest of the
community and in their own interest?
Is there not ground for thinking that it is above all in the world of
fiction that value-judgments, applied to the law, should be based upon
teleological considerations? Jhering stated that: "The end in view is the
creator of all law." Let us also recall the proposition of Saleilles, put
forward half a century ago, and which is more mandatory than ever: "Nothing
is important", he wrote, "other than the object to be attained; often our
most learned constructions serve only to compromise the realization
thereof." Curiously enough, one of those learned constructions is the legal
fiction. A fiction is indeed "a representation which is contrary to the
truth". P. Roubier, to whom I owe this formula, recommends[p 298]"direct
enquiry as to what is the object of the legal rule which has thus been laid
down in this dissimulated form FN20".
--------------------------------------------------------------------------------------------------------------------- FN20
P. Roubier, Théeorie générale du droit, p. 116. [Translation by the
Registry.]
---------------------------------------------------------------------------------------------------------------------
It might therefore be considered that the fact of maintaining the fiction of
juristic personality contrary to the avowed interest of its component parts
would create a situation contrary to the object thereof.
And in fact, however stubborn the fiction of juristic personality may be, as
fictions generally are, the diplomatic practice of the creditor Powers and
of capital-exporting countries, as well as certain arbitral decisions, have
not, after the hesitation prior to the First World War, been slow in
accepting, though not without a certain amount of circumspection, the rule
which permits the interests of members or shareholders to be dissociated
from the abstract personality covering them and given independent
consideration—though only where, since the company has the nationality of
the respondent State, an action in the name of the company could naturally
not be brought against the latter except by local means of redress.
8. However, this arbitral jurisprudence, upon which international courts
have not yet had to pronounce, is neither unanimous nor decisive on all
points.
In the first place, we must leave out of consideration awards given ex aequo
et bono, which are not merely without relevance to the present case, but are
clearly out of place in this discussion. Thus, it should be recalled that
the Special Agreement between the United States and Chile in the Alsop case
empowered the arbitrator to decide in equity and as amiable compositeur. The
same was the case with the awards delivered on the basis of the 1923 General
Convention between the United States and Mexico, which empowered the
arbitral tribunals it set up to decide in accordance with justice and
equity, a customary expression for authorizing decisions ex aequo et bono.
Nor can account be taken of awards dealing with partnerships, since the
personality of the members is not absorbed into the corporate personality,
as the personality of the shareholders would be in the case of a joint-stock
company FN21; nor of awards dealing with companies described as "defunct",
or which were obligatorily judged according to the terms of the Special
Agreement FN22, nor, finally, of awards couched in uncertain or ambiguous
terms, nor of awards—in particular those given by heads of State FN23—where
the absence of reasons for the decision deprives such awards of any absolute
relevance.[p 299]
---------------------------------------------------------------------------------------------------------------------
FN21 Thus, there must be excluded from this discussion the opinion expressed
by Mr. Huber in the report of the Mohammed Ziat, Ben Kiran case, which
related to a partnership.
FN22 The awards in the Delagoa Bay Railway Company, Standard Oil, Pierce Oil
and Sun Oil cases.
FN23 The award of President Grover Cleveland of the United States in the
Cerruti case and the award of King George V of Great Britain in the Alsop
case
---------------------------------------------------------------------------------------------------------------------
The same should be the case for awards suspected of having been given under
the influence of other than juridical motives, or which were preceded by a
demonstration of power, or by threats on the part of a State which trusted
in the force of its arms at least as much as in the force of its rights
FN24.
--------------------------------------------------------------------------------------------------------------------- FN24
Supra, Section 5.
---------------------------------------------------------------------------------------------------------------------
***
In any case, arbitral precedents and diplomatic practice, supported by part
of Western legal writing, do not amount to, as has been said, "a coherent
body of doctrine", and consequently do not seem to constitute a custom to
the effect that diplomatic protection, and its judicial sequel, might cover
damage caused by the national State of a company to shareholders who were
aliens in relation to the company. Thus it appears that it is in treaty law
that the protection of foreign investments must be sought, whether it be a
question of companies which have been obliged to adopt the nationality of
the host country, or of nationalizations, "the scandal of the beginning of
the century", which followed one another at a rapid rate ever since the
First World War, on the part of almost all countries.
9. Be this first hypothesis as it may, namely that of the shareholders who
have suffered from the activities of the national State of the company, the
problem now to be approached is that of whether diplomatic protection of
shareholders is capable of being extended to the situation where the damge
is attributable to a third State, as in the present case.
It is of course necessary to exclude at the very outset the possibility of
the national State of the shareholders substituting itself for the national
State of the company for the defence of the latter, as Belgium claimed to do
in its Application filed on 23 September 1958. A bond of legal alle-giance
connecting the company to the protecting State is a sine qua non FN25, and
this does not exist in this case. The problem must be kept confined within
the field of protection of the shareholders themselves. International
jurisprudence could not adopt the diplomatic practice by which Belgium seems
first to have been inspired, which was that which has been tried more than
once by certain Powers, and which may not be unconnected with the outdated
theory of control: first by the United States in the Chilean Alsop Company,
in which the award was given in 1911; then by the same Government in the
Armes automatiques Lewis case, since from 1927 to 1933 Great Britain had
untiringly opposed the action of the United States, which was the national
State of the shareholders, acting for the protection of the company, which
had been formed under Belgian law; then again by Germany when in 1935 it
claimed the right to protect a Mexican company, and finally by France and
Great Britain in the [p 300] dispute concerning the nationalization of the
Suez Canal in 1956, when those two powers thought they could intervene, as
national States of the shareholders, in defence of a company whose original
regime attributed Egyptian nationality to it. In each of these cases, this
was to disregard the essential condition of the bond of nationality or
allegiance between the State intervening and the entity in whose name it was
intervening. The concept of effectiveness, which is not legally required for
attribution of nationality to a company, as a condition of diplomatic
protection, cannot operate either to transfer to the national State of the
shareholders the right of diplomatic protection of the company itself, which
right is an attribute of the company's national State. It has of course been
pointed out that it was with shareholders' representatives that the United
Arab Republic negotiated an agreement concerning the Egyptian Suez Canal
Company, as Mr. E. Lauterpacht reports. But those negotiations do not
involve recognition of the right to bring an action at law; they amount to
an ex gratia action, not implying any legal responsibility, as was the case
of the provisions of the Agreement of 8 September 1923 between the United
States and Mexico which set up the Special Claims Commission.
--------------------------------------------------------------------------------------------------------------------- FN25
Above Section 6 and note 17.
---------------------------------------------------------------------------------------------------------------------
Thus Belgium refrained, in its Application of 19 June 1962, from claiming to
protect the Barcelona Traction company, contrary to what it had done in its
first Application, already quoted, of 23 September 1958, and limited its
claim from then on to the protection of the shareholders of its own
nationality. Since this latter Application was deemed to have lapsed as a
result of its withdrawal by the applicant Government, and that Government
furthermore made no mention of it in its final submissions, the Court only
has to deal with the new Application, in-dependently of the earlier one.
This was the effect of the decision of the German-Mexican Commission when it
accepted the fresh submissions presented by Germany on behalf of German
shareholders, after the error which it had made by claiming the right to
protect the Mexican company itself FN26.
--------------------------------------------------------------------------------------------------------------------- FN26
A. Feller, The Mexican Claims Commission, 1935, p. 118.
---------------------------------------------------------------------------------------------------------------------
10. Since the right of the State to protect its nationals who have been
injured by acts, decisions, omissions or measures contrary to international
law, and imputable to another State, is undeniable, it would be useful to
seek to ascertain the nature or legal foundation thereof, in order to deduce
from it the legal consequences and the extent of its application raised by
the present case. The question upon which it would be useful to pronouce is
that of whether diplomatic protection derives from a general principle of
law recognized by the nations (Article 38, para. 1 (c), of the Court's
Statute) or from an international custom (para. 1 (b) of that Article).
The Judgment of the Permanent Court of International Justice of 1924 in the
Mavrommatis Palestine Concessions case FN27 does not seem to have [p 301]
taken any stand on this point, when it stated, with some emphasis, in an
axiomatic form that diplomatic protection "is an elementary principle of
international law". One cannot hazard a guess as to the sense in which the
expression "elementary principle" was taken, given as it is without any
other qualification. And when other judgments have referred to this
precedent, they do not seem to have been any more explicit. The terminology
of the two international Courts does not permit of there being attributed to
them, on this point, an opinion which they seem designedly to have kept in
petto, following a prudent practice which has already been remarked on FN28.
--------------------------------------------------------------------------------------------------------------------- FN27
P.C.I.J., Series A, No. 2, p. 12.
FN28 Separate opinion of the writer, I.C.J. Reports 1969, p. 138. See also
separate opinion of Judge Alvarez in the Fisheries case, I.C.J. Reports
1951, p. 148.
---------------------------------------------------------------------------------------------------------------------
It is true that a special tribunal, the Mixed Claims Commission (United
States and Germany), set up as a result of the First World War, decided in
more than one case—namely the Vinland, Standard Oil, Sun Oil and Pierce Oil
cases—that the intervention of the national State of the shareholders "is
based on a general principle which such State would have relied on even in
the absence of preliminary agreement". However, that Commission did not
explain whether it understood by "general principle" a general principle of
law recognized by the nations, or a principle drawn directly from the idea
of law. It is nonetheless the case that its jurisprudence, although approved
by some authors, though not many, has not been corroborated by other
jurisdictions. The opinions of legal writers are also divided. Nor was this
the first nor the only time that a rule of international law has been
considered by some to be a customary norm, and by others to be a general
principle of law recognized by the nations, and by others again to be a
principle drawn directly from the idea of law. The problem would obviously
not be resolved were one to content oneself with the observation that the
frontiers between these various concepts are still blurred or uncertain.
This is the case of the rule of exhaustion of local remedies, which is the
subject-matter of the fourth preliminary objection in the present case, and
which is based now on the one, now on the other, of the first two concepts
FN29. Furthermore, the principle of protection of human rights, which will
be referred to below, has been considered to be capable of constituting a
legal norm at one and the same time on the basis of the three principal
sources of international law, namely: international conventions,
international custom, and the general principles of law FN30.
--------------------------------------------------------------------------------------------------------------------- FN29
Cf. the report of Max Huber in the Mohammed Ziat, Ben Kiran case in 1924,
and the decision of the French-Mexican Claims Commission in the Pinson case,
of 18 October 1928.
FN30 Dissenting opinion of Judge Tanaka annexed to the Judgment of 18 July
1966, in the South West Africa cases, Second Phase, I.C.J. Reports 1966, p.
300.
---------------------------------------------------------------------------------------------------------------------
11. If my view is accepted, that diplomatic protection and the possible
right of the shareholder do not derive from a principle of international law
recognized by the nations, it remains to be considered whether the [p 302]
international-law custom, upon which diplomatic protection would then,
according to predominant opinion, be based, is called upon to extend to all
interests which have been injured, in the present case those of the
shareholders in a company attached to a third State.
Here we touch on the essence of the problem, the decisive, if not the only,
question being that relating to the state of the custom, as it emerges from
the conduct of the nations as a whole, and from their declared will.
To this end, it is necessary to re-examine treaty practice, international
jurisprudence, the practice of States, and the trend of legal writing, which
are the principal constitutive elements of custom.
I would observe, in addition, that the positions taken up by the delegates
of States in international organizations and conferences, and in particular
in the United Nations, naturally form part of State practice. It is true
that some of the great Powers, five or six of which legislated for the whole
world up to the beginning of the twentieth century, generally refuse
nowadays to admit that resolutions voted in the United Nations framework by
a majority of, or even by practical unanimity among, the member States, have
any obligatory effect. An attempt at San Francisco by the Philippines to
have conferred upon the Assembly, possibly with the concurrence of the
Security Council, power to lay down binding legal norms, was rejected.
Nonetheless a marked trend in legal writing is becoming apparent, reflecting
the new aspects of international life, which is in favour of attributing to
the resolutions, and in particular to the declarations of the United Nations
General Assembly, the status of at least a subsidiary source of
international law, to be added to the classic sources in Article 38 of the
Court's Statute FN 31.
--------------------------------------------------------------------------------------------------------------------- FN31
See the views to this effect of Messrs. Lachs, Mohammed Sami Abdelhamid,
Falk, Pechota, McWhinney, Asomoah.
---------------------------------------------------------------------------------------------------------------------
Certain writers, for their part, see in this an interpretation based upon an
argument drawn from the actual text of the Charter, strengthened by a
teleological interpretation of that international constitutional instrument,
which presupposes the existence of rights and liberties of man which "are
not only moral ones, [but].. . also have a legal character by the nature of
the subject-matter313 ". They add that such an interpretation should take
into account the functioning of the Charter in practice FN32. The General
Assembly itself adopts this point of view, as appears from its resolution of
11 December 1963, in which it "confirms the interpretation of free
self-determination which it gave in its resolution [p 303] of 1960 on the
grant of independence". This is also the case of the 1969 Vienna Convention
on the Law of Treaties, Article 31 of which provides that a treaty is to be
interpreted "in the light of its object and purpose" and that for purposes
of interpretation of a treaty, the context comprises "any subsequent
practice".
--------------------------------------------------------------------------------------------------------------------- FN31a
Dissenting opinion of Judge Tanaka, South West Africa cases, I.C.J. Reports
1966, pp. 289-290.
FN32 See to this effect the dissenting opinion of Judge Alvarez, Competence
of the General Assembly, I.C.J. Reports 1950, p. 21; that of Judge De
Visscher, International Status of South West Africa, I.C.J. Reports 1950,
pp. 189-190; G. I. Tunkin, op. cit., pp. 106 and 111, who quotes the
declaration of 14 December 1960 on the granting of independence as an
example of interpretation of the principles of the Charter
---------------------------------------------------------------------------------------------------------------------
Others again deduce the authority of the principles of the Charter from the
fact that they are, in their view, general principles of law in the sense of
Article 38, paragraph 1 (c), of the Court's Statute, linked at once with the
jus naturale of Roman law, and with world law, the common law of mankind
according to Jenks, or transnational law according to Jessup, a term which
has become standard in international law FN33.
--------------------------------------------------------------------------------------------------------------------- FN33
This view is developed in the dissenting opinion of Judge Tanaka annexed to
the Judgment of 18 July 1966 in the South West Africa cases (I.C.J. Reports
1966, pp. 292-296).
---------------------------------------------------------------------------------------------------------------------
In any case, to return to State practice as manifested within international
organizations and conferences, it cannot be denied, with regard to the
resolutions which emerge therefrom, or better, with regard to the votes
expressed therein in the name of States, that these amount to precedents
contributing to the formation of custom. It is as it were an established
fact of which legal writers take note FN34. What is more, those who hold the
views which have just been expressed do not hesitate to accept this concept
conjointly with their own views. It has also just been confirmed by Article
38 of the Convention on the Law of Treaties quoted above.
--------------------------------------------------------------------------------------------------------------------- FN34
This is what is observed by Professor Mohammed Sami Abdelhamid in the Revue
égyptienne de droit international, 1968, pp. 127-128 of the Arabic text.
See also R. Higgins in The Development of International Law through the
Political Organs of the United Nations, p. 5, who says :
"... the body of resolutions as a whole, taken as indications of a general
customary law, undoubtedly provides a rich source of evidence."
Mr. Sørensen too, in his course of lectures at the Hague Academy of
International Law, Recueil des cours 1960, p. 38, states as follows:
"If the international organization is made up of representatives of States,
it is clear that the positions taken up by such representatives may, in
principle, contribute to the formation of a custom. On this hypothesis, what
is involved is acts attributable to the States, acting through their
representatives, rather than acts attributable to the international
organization as such." [Translation by the Registry.]
---------------------------------------------------------------------------------------------------------------------
Policy does of course crop up under the veil of resolutions or declarations
in the United Nations Assembly. However, it will be conceded that to seek at
all costs to erect a partition between policy and law is calculated to bring
about this result which is contrary to reality: what is at stake is the
attempt to isolate the rule from its social origins, and to snap the link of
unity with its historic context. Policy, the policy of the great powers and
the colonialist powers, dominated classic traditional law; it cannot be
dissociated from law, today any more than yesterday; but it is a new policy,
one which does not escape the influence of the [p 304] great principles
which are destined to govern the relationships of modern nations. The 1969
Vienna Conference took this consideration fully into account when it adopted
numerous solutions to meet the suggestions included in individual opinions
and proposals by new members of the international community.
Thus, through an already lengthy practice of the United Nations, the concept
of jus cogens obtains a greater degree of effectiveness, by ratifying, as an
imperative norm of international law, the principles appearing in the
preamble to the Charter. From the domain of theory or legal writing, in
which some of these principles, and not the least important thereof, had as
it were remained confined, they are passing into the domain of objective
existence and practice FN35. Thus it was that U Thant could say, at the 1969
session of the Organization of African Unity, held at Addis Ababa in the
presence of 17 African Heads of State, that the United Nations "had widened
the concept of the right of self-determination and independence, so as to
cover the recognition of the lawfulness of the struggle carried on by such
nations for the exercise and enjoyment of that right in practice FN36 ". He
might have quoted in addition the principle of equality and that of
non-discrimination on racial grounds which follows therefrom, both of which
principles, like the right of self-determination, are imperative rules of
law FN37.
--------------------------------------------------------------------------------------------------------------------- FN35
See I. Brownlie, op. cit., pp. 483-486. For Mr. Brownlie, the following are
imperative rules of law: the right of self-determination, racial equality,
sovereignty of peoples over their natural resources, the Genocide
Convention, the prohibition of aggressive war, of the slave trade, piracy,
and all other crimes against humanity.
FN36 Le Figaro, 8 September 1969 [Translation by the Registry].
Cf. I. Brownlie, op. cit., pp. 417, 484 and 485, where one reads:
"Intervention against a liberation movement may be unlawful, and assistance
to the movement may be lawful."
Also R. A. Tuzmukhamedov, for whom the 1960 declaration of the United
Nations General Assembly concerning the granting of independence is a de
facto recognition of the movements for national liberation.
FN37 Racial equality is an imperative rule of law, particularly since the
adoption by the United Nations General Assembly of the declaration of 20
November 1963 on racial non-discrimination (Resolution 1904 (XVIII)).
See in particular Mr. J. Spiropoulos, who upheld this point of view (Sixth
Committee of the General Assembly, 7 December 1948).
---------------------------------------------------------------------------------------------------------------------
12. The documents of the greatest probative force in international treaty
law are, in the present case, the Peace Treaties, signed by the Allied
Powers and their associates with the Central Powers and their allies, in
1919 at Versailles, Saint-Germain, Neuilly and Trianon, in 1921 and 1922 at
Vienna and Budapest, in 1923 at Lausanne; and finally the agreements of 1922
and 1924 to which the United States were parties.
According to the provisions of these Treaties, shareholders who were
nationals of the allied countries, holding shares in companies of enemy
allegiance, had the right to reparations, without any distinction being made
between direct and indirect injury.[p 305]
A quarter of a century later, the provisions of these Treaties just quoted
were adopted in the Peace Treaties which brought to an end the war of
1939-1945, which were signed in 1947, as well as in the State Treaty signed
in 1955 with Austria.
What value as a customary law precedent may we attribute to these
provisions?
It is legitimate to consider that the inclusion of an obligatory clause in a
treaty indicates that that clause is not yet an integral part of positive
law. In particular, this is what may be deduced from the Judgment of this
Court in the Asylum case FN38. This reference does not of course relate to
multilateral treaties of which the particular objective, as regards the
majority of their provisions, is the codification of certain rules of
international law, such as the 1958 Geneva Convention on the High Seas, and
the Vienna Conventions of 1961 on Diplomatic Relations, of 1963 on Consular
Relations, and of 1969 on the Law of Treaties.
--------------------------------------------------------------------------------------------------------------------- FN38
I.C.J. Reports 1950, pp. 276-277.
---------------------------------------------------------------------------------------------------------------------
Conventions which do not contemplate the codification of existing rules can
nonetheless amount to elements of a nascent international custom, which is
what may be said with fair certainty of the Conventions which resulted from
the Hague Peace Conferences of 1897 and 1907, of the Treaty of London on
Maritime Law of 1909, of the Protocol of 1925 prohibiting the use of
asphyxiating gas FN39, and of the 1958 Geneva Convention on the Continental
Shelf FN40.
--------------------------------------------------------------------------------------------------------------------- FN39
The 1899, 1907 and 1909 Conventions, and the 1925 Protocol, were so little
declaratory of law that during two great world wars, and other comparatively
minor wars, and despite their clear prohibitive terms, they were no obstacle
to massive bombardments of open cities; deliberate "break up" of entire
populations, attempts at genocide before the term was invented; attacks on
merchant ships belonging to neutral countries as well as enemy countries,
which were sunk with all hands.
FN40 Judgment of this Court of 1969, and separate and dissenting opinions
annexed thereto.
---------------------------------------------------------------------------------------------------------------------
So far as the Peace Treaties more particularly are concerned, whether these
be bilateral or multilateral, they are not such as to amount ipso facto to
an element of custom. The clauses of these treaties, imposed upon the
defeated States, must be respected by virtue of the rule pacta sunt
servanda. But can the reasoning be pressed so far as to say that their
provisions reflect the consent of, or the genuine and effective acceptance
by, the defeated State, which acceptance or consent would, on this
hypothesis, give rise to the opinio juris?.
It will be observed first of all that the clauses concerning war reparations
only apply against one party, for the benefit of the party which imposed
them. Of course it could not be otherwise in a treaty marking the end of a
victorious war, even one which was waged for just cause. However, does this
mean that such clauses are elements of a legal custom governing the
relationships between free and sovereign States? In other words, can a
practice amount to a customary precedent if it does not show a [p 306]
conviction, a conviction of law, in the minds of the dominant parties, as
well as in the minds of the servient parties, to the effect that they have
each of them accepted the practice as a rule of law, the application whereof
they will not thereafter be able to evade?
13. When replying in the negative to this question, one should also observe,
it is true, that other treaties, quite unconnected with war or peace between
nations, were concluded during the inter-war period, which recognize the
same rights of the shareholders independently of the company. The object
thereof was to resolve claims arising from revolutions or riots, or from
nationalizations, which commenced in Latin America, and which were not long
in extending to the West, to Eastern Europe, and to the economically weak
countries or developing countries: agreements between Switzerland and
socialist States, agreements between various States and Latin American
States.
The multiplicity of these treaties, upon which the applicant State relies,
is as it were a double-edged weapon. The Applicant argues therefrom in
order to support its contention, and deduces, from the existence of this
treaty-practice, the appearance of a rule of international law.
However it is a question of bilateral treaties the effect of which-—apart
from the rights of the contracting parties—was only, at the most, to
contribute to the eventual formation of custom.
Must it not also be stressed, from a logical point of view, that treaties
are the less to be considered as declaratory law in that the States
concerned have recourse thereto despite the existence of earlier treaties
containing the same provisions? This would be the case, if this point of
view is accepted, for the successive treaties concluded, despite treaty
precedents, on the occasion of revolutions, riots or nationalizations, as
well as for the Peace Treaties of the two world wars, which reproduce
similar provisions. Consequently, the concept enunciated by all these
treaties would be of no less transitory a nature than the control theory,
established in the course of the two wars. In fact, it would appear to be
related thereto, if it is observed that the provisions appearing in the
Peace Treaties apply, as do those contained in laws and regulations setting
up the control test, to nationals of so-called enemy States.
It is true that a certain body of opinion sees no objection to deducing
lasting legal effects from the control theory. But what does that theory
amount to, if not to exceptional measures born of the circumstances of first
one and then a second war, which circumstances disappeared, reappeared, and
then again disappeared: in short, measures which are an integral part of
methods of economic warfare, or simply of warfare tout court. Is it the
characteristic mark of a legal norm to be as unstable as this, or rather to
be capable of taking up or laying down its life according to the demands of
ephemeral events? It could not even amount to a customary-law precedent,
unaccompanied as it is by the conditions of generality, continuity, or
constancy which are postulated for a con-[p 307] stitutive element of
custom. Thus recent agreements have specified that it is only by virtue of
the agreement itself that a company is considered to be a non-national of
the State to which it relates, because of the control exercised over it
FN41.
--------------------------------------------------------------------------------------------------------------------- FN41
Inter alia, the Agreement signed by Mauritania and the Société des mines de
Mauritanie, Article 50 of which provides: "The Company is considered, by
agreement, to be a non-national of the Muslim Republic of Mauritania,
because of the control exercised over it by foreign interests." [Translation
by the Registry.]
---------------------------------------------------------------------------------------------------------------------
14. One last category of treaties deserves examination: this is that of
agreements generally called treaties of friendship, establishment and
commerce.
A certain number of these treaties, subsequent to the Second World War,
touch on the problem, but from standpoints which are different from, and
sometimes opposite to each other. Provisions may be gleaned from these which
imply the right of protection of the national State of the shareholders. It
will however not fail to be noticed that the formulae which these treaties
use relate to very diverse concepts: that of majority interest or
substantial interest of nationals, that of direct or indirect control by the
shareholders, or mixed control; whereas provisions in no less recent
treaties do not provide for either of these concepts.
No uniform tradition has therefore become established which permits of some
of these bilateral treaty commitments being adopted as customary precedents.
In order to make an end of these treaties, I would observe that diplomatic
protection of the shareholders was apparently included in some of them
because of special political circumstances. The Treaty of 1955 between
France and Switzerland is, according to Mr. Vignes, to be explained by the
fact that Tunisia had not yet obtained political independence, and enjoyed
merely a regime of autonomy. Furthermore, the 1936 Treaty between France and
Germany had as its object the settlement of the thorny problem of the Saar.
Finally, the 1946 Treaty between the United States and the Philippines was
not unrelated to certain questions raised by the transitional period
following the independence of the latter country.
15. From the foregoing it appears that the number of States which have been
parties to one or the other of the treaties which have been in question, the
provisions of which can be taken into account, so far as consistent with
each other, is not such as to attain the degree of generality which is
constitutive of custom as provided for in Article 38, paragraph 1 (b), of
the Court's Statute. It must also be stressed that many States are in open
opposition to obligations resulting from imposed, or unequal treaties FN42,
or treaties concluded without their participation, [p 308]
before they were admitted into the international community FN 43. In
particular they are hostile to the extension of diplomatic protection other
than by way of agreement, and within the relationship of the contracting
States alone. And it is sufficiently well known for it to be unnecessary to
dwell on the point, what the consequences are, for the growth of a custom,
of opposition which is not thought to need to be so massive.
--------------------------------------------------------------------------------------------------------------------- FN42
As to unequal treaties to which the Asian and African States are opposed,
see the Asian-African Legal Consultative Committee, Eighth Session, Brief of
Documents, Vol. IV, pp. 471-472, as well as the proposal, mentioned
therein, of Burma, Czechoslovakia, India, Lebanon, Ghana, Madagascar, United
Arab Republic, Nigeria, Syria and Yugoslavia, to the effect that such
treaties should be considered as without validity.
FN43 The socialist view has been set out by Mr. G. I. Tunkin, who considers
that one must avoid imposing on the socialist States and the new States
certain norms which these States have never accepted and which are
unacceptable to them (op. cit., p. 88).
---------------------------------------------------------------------------------------------------------------------
16. What in fact were many of these norms, and what complaints did they give
rise to, and do still give rise to, so that one-half of the States of the
world dispute essential stipulations thereof, including the scope of
diplomatic protection?
It has become apparent that quite a number of States challenge the
legitimacy of certain trends of this protection, sometimes going so far as
to dispute the principle thereof FN44. This observation is of undeniable
importance in connection with the development of custom in this matter.
Consequently the advantage once again becomes apparent, in view of the
circumstances of the case, of re-examining in some detail the reasons for
this opposition, which cannot be dissociated from the problem of elaboration
of custom in general, and its application to the present case in particular.
--------------------------------------------------------------------------------------------------------------------- FN44
Supra, Section 5.
---------------------------------------------------------------------------------------------------------------------
Among the treaties which have been in question FN45, it is necessary to go
back to those which organized international society in the eighteenth and
nineteenth centuries, and at the beginning of the twentieth century. It is
well known that they were concluded at the instigation of certain great
Powers which were considered by the law of the time to be sufficiently
representative of the community of nations, or of its collective interests.
Moreover, the same was the case in customary law: certain customs of wide
scope became incorporated into positive law when in fact they were the work
of five or six Powers. This was certainly an exercise open to criticism, and
even to serious criticism. In addition, of the norms which had thus become
established, and which survived the recent fundamental transformations of
international society marked by the League of Nations Pact and the Charter
of the United Nations, taking into account the liberal interpretation
continually given to the latter instrument, some, as we have seen, are
disputed by the States which did not take part in their elaboration, and
which consider them to be contrary to their vital interests.
--------------------------------------------------------------------------------------------------------------------- FN45
Supra, Section 12.
---------------------------------------------------------------------------------------------------------------------
17. It will be recalled that the great European States of nationalist
tendencies withdrew their support for the universalist theory of the first
[p 309] internationalists, such as Vittoria and Suarez—that is, if they had
ever recognized it. Thus, Mably was able to enlarge on the notion of a
European public law, from the benefits of which other nations—free or
independent—had been excluded since the sixteenth century. A closed
community, as Sereni most conscientiously put it. The Treaty of Paris,
signed at the conclusion of the 1856 Conference, stated for the first time
in the history of international relations that one such nation, the Sublime
Porte, was "admitted to participate in the advantages of the Public Law ...
of Europe". This term was, however, to be displaced in subsequent treaties
entered into by Western countries, in 1885, in 1904, in 1921 and in the
Statute of the Permanent Court of International Justice by another no less
discriminatory term, that of "civilized nations". The Statute of the
International Court of Justice has adopted this last form of words, although
the Charter of the United Nations abandoned it in favour of the sovereign
equality of all the nations of the international community FN46. And N.
Politis, who wrote just after the First World War that "the law . . . must,
if it is to retain its value, be a faithful reflection of life, change with
it, model itself unceasingly upon it . . .", still limited the area of
application of this realistic conception of the relationship between life
and the law to Europe and to Europe's interests, just as he restricted
thereto the horizons of his penetrating study of international morality
FN47. Politis was nevertheless inspired throughout his book by the
Roman-Phoenician jurisconsult Ulpian, rightly regarding him as the founder
of international law on account of his remarkable contribution to the
development of jus gentium FN48, one of the ancient fields of development of
this law.
--------------------------------------------------------------------------------------------------------------------- FN46
Until just before the San Francisco Conference in 1945, the Atlantic Charter
of 1942 was regarded by most of its interpreters as intended for the use of
Western countries.
FN47 The Harvard Law School understood the need to delete the word
"civilized" from its revised draft concerning State responsibility. Sir
Gerald Fitzmaurice approved the deletion of this word, opting, however, for
a different form of words from that of the Harvard Draft (Yearbook of the
International Law Commission 1960, I, p. 270, para. 56). See in addition the
writer's separate opinion in I.C.J. Reports 1969, para. 33.
FN48 A third of Justinian's Digest is borrowed from the writings of Ulpian
(Encyclopaedia Britannica, s.v. "Ulpian").
---------------------------------------------------------------------------------------------------------------------
18. Moreover, in the imposing mass of legal norms which make up the modern
structure of international law, a number of rules have crept in which owe
their origins to duress or illegality; in particular those rules— often
enshrined in solemn treaties—justifying racial discrimination, slavery, and,
until the middle of the twentieth century, conquest, annexation and
colonization in all its forms: colonies of exploitation or of settlement,
suzerainty, protectorates, mandates or trusteeships FN49, the two latter
forms disguising, by means of a verbal fiction, a colonialist practice and
doctrine, the unlawfulness of which has been stigmatized at the United
Nations and condemned by that body. This attitude on the [p 310] part of the
World Organization has been reflected, at the judicial level, in the
proceedings on the Advisory Opinions of 1950, 1955 and 1956, requests for
which were made to the International Court of Justice with regard to
supervision of the implementation of the Mandate for Namibia.
--------------------------------------------------------------------------------------------------------------------- FN49
Dissenting opinion of Judge V. M. Koretsky in the South West Africa cases,
I.C.J. Reports 1966, pp. 239 ff.
---------------------------------------------------------------------------------------------------------------------
19. It thus becomes easier to understand the fears of a broad range of new
States in three continents, who dispute the legitimacy of certain rules of
international law, not only because they were adopted without them, but also
because they do not seem to them to correspond to their legitimate
interests, to their essential needs on emerging from the colonialist epoch,
nor, finally, to that ideal of justice and equity to which the
international community, to which they have at long last been admitted,
aspires. What the Third World wishes to substitute for certain legal norms
now in force are other norms profoundly imbued with the sense of natural
justice, morality and humane ideals FN50. It is, in short, a matter of a
change of course towards natural law as at present understood, which is
nothing other than the natural sense of justice FN51; a change of course
towards a high ideal which sometimes is not clearly to be discerned in
positive law, peculiarly preoccupied as it is with stability: the stability
of treaties and the stability of vested rights. Thus, for example the notion
of effectiveness—the usefulness of which in certain matters is not denied—
gives a too unqualified support to the preservation of a status quo ante the
unlawful origins of which are admitted when it is said: "time sometimes
effaces illegality, so that only effectiveness remains" FN52. And this is
relevant to the application of this notion to colonial acquisition, where we
see the principle of sovereignty give way to the presumption of the
so-called right of the first occupant FN53; so too with those treaties
already [p 311] described in Roman law as leonine, imposed rather than
concluded in a past era and capable of leaving much room for the
implementation of the rebus sic stantibus clause. In short, these countries
wish to take the heritage of the past only with beneficium inventarii: which
lends significance to Westlake's observation: "The geography of
international law has changed considerably." Nevertheless, although the old
law has been pruned of many sequelae of a past of inequality and domination,
in particular by the adoption of the principles of the San Francisco Charter
and of those of Bogota and Addis Ababa, those same principles are not yet
imposed without restriction or reservation, nor have any developed all their
potentialities. While tribute should be paid to the promoters of
declarations concerning great humane principles of a universal nature, from
the Wilson Declaration in 1917 with its memorable Point 4, the Atlantic
Charter of 1942 and the report of the Dumbarton Oaks Conference in 1944, up
to the United Nations Charter, it must be admitted that enthusiasm for the
principles proclaimed was not of long duration. There is a gap, which must
be filled, between theory and practice. Thus, among these principles there
is the right of self-determination—demanded for centuries by the nations
which successively acquired their independence in the two Americas,
beginning with the 13 Confederate States in North America, and in Central
and Eastern Europe; many times proclaimed since the First World War;
enshrined finally in the Charter of the United Nations FN54, added to and
clarified by the General Assembly's resolution of 16 December 1952 on the
right of self-determination and the historic Declaration by the Assembly on
14 December 1960 on the Granting of Independence to Colonial Countries and
Peoples, the consequences of which have not yet fully unfolded. The
international lawmaking nature of these declarations and resolutions cannot
be denied, having regard to the fact that they reflect well-nigh universal
public feeling FN55. They were, moreover, preceded by the similarly worded
Pact of Bogota adopted by the American States in 1948 and the resolutions of
the 1955 Bandung Conference, just as they were followed by the Addis Ababa
Charter of African Unity of 1963 FN56 and the resolutions of the Belgrade
Conference in 1961 and the Cairo Conference in 1964 of Non-Aligned
Countries, the latter comprising the majority of the Members of the United
Nations, and, finally, by the declaration of 21 December 1965 by the General
Assembly on the inadmissibility of intervention in the domestic affairs of
States and the protection of their independence and sovereignty.
Notwithstanding this, uninterrupted sequence of precedents [p 312] in the
life of nations, Western writers, with some few exceptions FN57, persist in
refusing to concede to this right—though referred to as a "droit" in the
French text of the Charter, and in the resolutions and declarations of the
General Assembly—the attributes of an imperative juridical norm. The
partisans of this doctrine seem to look back nostalgically to the era when
it was still possible with impunity, and without infringing "European public
law", to deny the right of self-determination to peoples seeking to free
themselves from the yoke of the States which had subjected and colonized
them. Against the defenders of the last bastions of traditional law, there
thus stand arrayed, once again, with the support of a Western minority, the
serried ranks of the jurists, thinkers and men of action of the Latin
American and Afro-Asian countries, as well as of the socialist countries.
For all of them self-determination is now definitely part of positive
international law. As is known, furthermore, a majority of States, through
their representatives at the 1969 Vienna Conference on the Law of Treaties,
pronounced in favour of a solution to the problem of jus cogens capable of
giving definitive sanction to the principles of the Charter, regarded by
them as imperative juridical norms FN58. It thus seemed appropriate that
those principles—not excepting those deriving originally from the spirit of
the American or French Revolutions—the religious inspiration of which is not
unknown, should be solemnly reaffirmed. They were so in the very heart of
Africa by the head of the Catholic church. Addressing himself to the peoples
of Africa and, beyond them, to the entire world, His Holiness Paul VI,
resuming a tradition, on 2 August 1969, in Kampala, before five Heads of
State, denounced racial discrimination, reaffirming the equality [p 313] of
peoples and the rights of each of them to a free and decent life FN59.
--------------------------------------------------------------------------------------------------------------------- FN50
See the writer's separate opinion previously referred to, section 33, bottom
of p. 134 and top of p. 135; section 35, bottom of p. 136; section 36, p.
137.
Was not Voltaire giving a definition of natural law when he said: "Morality
is in nature"?
FN51 Sisnett, Chief Justice of British Honduras and arbitrator in the
Shufeldt case, took the view that international law should be bound by
nothing but natural justice.
See too the separate opinion of Judge Carneiro in the Minquiers and Ecrehos
case, I.C.J. Reports 1953, p. 109.
FN52 The time factor, which has the attribute in private law of
consolidating existing situations under certain conditions which generally
do not exclude good faith, cannot purely and simply be transposed into
international law. It ought not to prevail over manifest rights, whether
those of indigenous peoples to their own territories, or those of the
community of mankind to res communis or res nullius, such as the high seas,
the sea-bed, the polar regions or outer space.
FN53 See the dissenting opinion of Judge H. Klaestad appended to the 1960
Judgment of this Court on the Right of Passage over Indian Territory case, a
judgment still influenced by the static view of law. India, basing itself on
the 1960 Declaration on the Granting of Independence to Colonial Countries
and Peoples, maintained before the Security Council that in terms of that
Declaration Portugal had lost all claim to sovereignty over Goa and,
consequently, all right to protest against the reoccupation of that
territory, which constituted an act of liberation, the Security Council
preserving a significant silence.
FN54 Article 1 read with Articles 55 and 56.
FN55 See Section 11 above.
FN56 It should be noted that the Addis Ababa Charter accepted the "purposes"
of the preamble to the San Francisco Charter as "principles" or rules of
imperative law, leaving no further room for doubt that they definitely
constitute jus cogens.
FN57 The whole problem was, however, already solved in an affirmative sense
in 1950 by one of the precursors of the new concept, who wrote: "It is
already the law, at least for Members of the United Nations, that respect
for human dignity and fundamental human right is obligatory." (P. C. Jessup,
A Modern Law of Nations, 1950, p. 91.)
Writing a few years later, Prof. G. I. Tunkin noted that: "The
representatives of the colonial powers, despite lip-service to this
principle, have done their utmost to pare it away to vanishing point, to
water it down and to reduce its emancipating tendency to nothing. Sometimes
they even deny its existence in international law." (Op. cit., p. 45
[Translation by the Registry].)
FN58 Such had been the opinion expressed in the report concerning State
responsibility submitted to the International Law Commission (Yearbook of
the International Law Commission 1957, Vol. II, pp. 113-114, paras. 2 to 7).
Furthermore, a joint proposal by Burma, Cameroon, Ghana, India, the Lebanon,
Madagascar, Syria, the United Arab Republic and Yugoslavia provided that
"Any treaty which is in conflict with the Charter of the United Nations
shall be invalid, and no State shall invoke or benefit from such treaties"
(Doc. UN A/AC. 125/L.35, para. 2). Article 64 of the 1969 Convention on the
Law of Treaties endorsed the principle of this proposal by providing: "If a
new peremptory norm of general international law emerges, any existing
treaty which is in conflict with that norm becomes void and terminates."
FN59 Le Monde, 3 August 1969.
---------------------------------------------------------------------------------------------------------------------
20. To conclude this necessary digression, it should be recalled that the
progress achieved in the effective application of the principles of the
Charter is to a large extent due to the contribution of the representatives
at the United Nations of the countries of the Third World, which have
espoused a reasonable interpretation of Article 2, paragraph 7, of the
Charter, concerning the reserved domain FN60.
--------------------------------------------------------------------------------------------------------------------- FN60
Cf. M. S. Rajan, United Nations and Domestic Jurisdiction, pp. 521-524.
---------------------------------------------------------------------------------------------------------------------
It is well known that the wording of that paragraph, despite the opposition
of Belgium, departed from the strictness of Article 15, paragraph 8, of the
Covenant of the League of Nations, and that it was given its present form on
the insistence of the United States, no doubt in order to take account of
that evolution in the law that was already perceptible to those attending
the San Francisco conference. A consensus was then reached that it was for
the organs of the United Nations themselves to interpret the provisions of
the Charter they applied. And the application of this new text was
subsequently to be adapted to the growing internationalization of the life
of the peoples of the world, involving a corresponding constant loss of
ground by the concept of absolute sovereignty FN61.
--------------------------------------------------------------------------------------------------------------------- FN61
See, among, other separate opinions of Judge A. Alvarez, all of which were
orientated towards what he regarded as the inevitable future, his dissenting
opinion appended to the Advisory Opinion on the Competence of the General
Assembly delivered in 1950 by the International Court of Justice, in which
he said:
"The psychology of peoples has undergone a great change; a new universal
international conscience is emerging, which calls for reforms in the life of
peoples. This circumstance, in conjunction with the crisis which classic
international law has been traversing for some time past, has opened the
way to a new international law." (I.CJ. Reports 1950, p. 12.)
---------------------------------------------------------------------------------------------------------------------
It is remarkable to note that the Permanent Court of International Justice
was so well aware of this that it stated in its Advisory Opinion in 1923
with regard to The Nationality Decrees Issued in Tunis and Morocco:
"The question whether a certain matter is or is not solely within the
jurisdiction of a State is an essentially relative question; it depends upon
the development of international relations." (P.C.I.J., Series B, No. 4, p.
24.)
But the same Court nevertheless continued faithful to a certain positivism
which culminated in the Judgment in 1927 in the Lotus case and constantly
influenced its subsequent Judgments. It stated in its Judgment in 1932 in
the case of The Free Zones of Upper Savoy and the District of Gex that "in
case of doubt a limitation of sovereignty must be construed restrictively
FN62".[p 314]
--------------------------------------------------------------------------------------------------------------------- FN62
P.C.I.J. Series A/B, No. 46, p. 167.
In his dissenting opinion in the Anglo-Iranian Oil Co. case, Judge Read, on
the other hand, adopted an approach that took into account the already
perceptible evolution in the concept of sovereignty. He wrote:
"The making of a declaration is an-exercise of State sovereignty, and not,
in any sense, a limitation. It should therefore be construed in such a
manner as to give effect to the intention of the State, as indicated by the
words used; and not by a restrictive interpretation, designed to frustrate
the invention of the State in exercising this sovereign power." (I.C.J.
Reports 1952, p. 143.)
---------------------------------------------------------------------------------------------------------------------
It is in this field in particular that the organs of the United Nations,
strengthened by the presence of the new countries yearning for a new law,
outstripping judicial bodies apparently still attached to tradition, have
blazed a trail towards renovation. The General Assembly and the Security
Council, when dealing with questions of concern to the international
community or touching upon the great principles of the Charter, have, after
long debates, session after session, finally overridden the objection based
on Article 2, paragraph 7, thanks to a reasonable and extensive
interpretation—express or tacit—of its words FN63. The road was long and
arduous between 1946, when Egypt was unsuccessful in obtaining a decision,
against the occupying Power, of the Security Council, and the 1960
Declaration on the Granting of Independence to Colonial Countries and
Peoples—a declaration upon which the peoples struggling for their liberation
have, not without success, since relied, and which the Security Council
decided to confirm by its resolution of 20 November 1965 endorsing Southern
Rhodesia's right to independence and its right to decide its own future.
--------------------------------------------------------------------------------------------------------------------- FN63
This was the case with respect to the demand of Tunisia and Morocco for
independence from 1951, that of Cyprus and of West Irian from 1954, of
Algeria from 1955, of Angola from 1960, of Rhodesia from 1961, and, finally,
in 1963, of all the countries occupied by Portugal. The same is the case
with respect to the human rights of persons of Indian origin in South Africa
since 1946, and with respect to apartheid since 1948.
It will be noticed, however, that those Powers which firmly opposed United
Nations intervention in the foregoing cases rejected the objection based on
Article 2, para. 7, in respect of interventions in Spain in 1946, in the
case of Greece v. Albania, Bulgaria and Yugoslavia in 1948, in
Czechoslovakia in 1948 and in Hungary in 1956. In this connection, Mr. B.
Rajan has stressed the fact that political considerations and the effects of
the cold war exercised an undesirable influence in these cases (United
Nations and Domestic Jurisdiction, pp. 177-178).
---------------------------------------------------------------------------------------------------------------------
***
It has been necessary to mention this long series of facts in order to
elucidate a new aspect of the evolution of international law in general and
of its two great sources in particular. That which has been admitted in
respect of treaties since the condemnation of the theory of representativity
and the increased efficacity of the principles of the Charter—thanks to the
ever less strict interpretation of Article 2, paragraph 7—, must probably be
admitted in respect of international custom and its application in the
present case. [p 315]
It is by taking into consideration the foregoing and the conclusions that
emerge therefrom that it will be seen to what extent the custom of
diplomatic protection is capable of receiving a sufficient number of
adherences to cover new hypotheses such as that which is now submitted for
the consideration of this Court.
21. After this indispensable excursion in to the argument raised by the new
aspects of the development of custom, and turning now to international
case-law, it will be seen that it provides but few precedents which support
the right of diplomatic protection in the case of shareholders who complain
of indirect injury.
International case-law is itself only an auxiliary source of law and does
not take the place of the principal sources, which are treaties and custom.
But, considered as an element of the latter, it seems that it does not in
the instant case fulfil the conditions necessary for it to be regarded as a
precedent establishing a custom.
In point of fact, those precedents which relate more or less directly to the
question under consideration have so far, it is hardly necessary to
reiterate, only been the work of arbitral tribunals. Judicial tribunals have
not been called upon to pronounce upon this matter until the present case.
Furthermore, arbitral tribunals, because of the cases submitted to them,
have up to the present considered only cases where action was brought in
favour of the members or shareholders of a company to which its own national
state had caused the damage. Decided cases thus do not, any more than does
treaty practice, assist the argument that diplomatic protection extends to
shareholders indirectly injured by a State other than the national State of
the company.
22. So far as concerns the practice of States, it cannot be denied that
numerous positions have been adopted which denote an intention to include
within the framework of diplomatic protection the claims of shareholders in
a company of a third nationality.
To what extent can the positions thus adopted contribute to the formation
of a custom?
In the first place, it is plain that such attitudes can only be counted as
precedents creating international custom if those who adopt them do not
depart therefrom after having relied thereon. Now, in the analysis of such
precedents, more than one State can be found against which there can be
levelled the criticism that it has adopted attitudes which are
self-contradictory, and thus deprived of any legal effect. The constancy of
French practice and, since the turn of the century, of that of the United
States, does not suffice to establish a custom supposed to be universal. And
this is still more so in that a practice only contributes to the for-mation
of a customary rule if, as has already been said, both the State which
avails itself thereof or seeks to impose it and the State which submits to
or undergoes it regard such practice as expressing a legal obligation which
neither may evade.
An expression of a State's will which is contested by the other party [p
316] remains an isolated act without effect. And how often the attitudes of
States have met with resistance from opposing parties! This happened, merely
by way of example, to France in the following cases: Société des quais,
docks et entrepôts de Constantinople FN64; Société Limanova; Société du
chemin de fer de Tirnovo; Compagnie royale des chemins de fer portugais;
Société lettone de chemins de fer; and, finally, various companies in
Mozambique. So too, the United States, in the following cases: Kunhardt;
Alsop; Ruden; Delagoa Bay Railway Company; Vacuum Oil Company of Hungary;
Romano-Americana and Tlahualilo. The United Kingdom in the cases already
referred to of the Delagoa Bay Railway Company and Tlahualilo, and in the
Mexican Eagle Co. case. Switzerland, in the cases of the Compañía Argentina
de Electricidad and of the Compañía Italo-Argentina de Electricidad. The
Netherlands in the Baasch and Römer case and in that of Mexican Eagle Co.
Finally, Italy in the Cane-varo and Cerutti cases.
--------------------------------------------------------------------------------------------------------------------- FN64
The opposition of the Sublime Porte was so firm that the French Government
threatened to seize the Customs of Mitylene, to administer them and to
retain the net revenue until complete satisfaction had been obtained
(Documents diplomatiques français, Second Series, Vol. I, Nos. 349, 364, 455
and 497, and also the statement by M. Delcassé, Minister for Foreign
Affairs, in the Chamber of Deputies on 4 November 1901).
---------------------------------------------------------------------------------------------------------------------
It is not without interest, moreover, to remark that opposition to such
diplomatic protection came, in almost 90 per cent. of the cases, from
developing countries.
23. It remains to be seen, with regard to the development of custom, what
are the current teachings in respect of the questions which arise.
The views there expressed do not consist solely of proposals de lege
ferenda. They often constitute a statement of the rules of positive law.
They are even sometimes one of the auxiliary factors in its formation, as,
following a centuries-old practice, Article 38, paragraph 1 (d), of the
Statute of the Court confirms. One cannot but refer in this regard to the
lasting influence on the development of international law of many of the
doctrines advanced in the past by Ulpian, and, in modern times, by Vittoria
and Suarez, by Bodin, Grotius, Vatel, Calvo, Anzilotti and Politis, to
mention only some of the best-known publicists.
I hasten to add that legal teaching is not represented solely by the
writings of the publicists. Such teaching is also expressed, as we know, in
the works of legal conferences and of institutions, institutes or
associations of international law. Nor must we neglect to seek such
teaching— and I would stress this—in the separate opinions of judges, to
which I have so frequently felt bound to refer. I must emphasize in the
first place that the authority of the precedents of the two international
courts derives, inter alia, from the very fact that their judgments include
the dissenting or separate opinions of their members. This is no paradox;
for, in order to assess the value of a judicial decision, it is necessary to
[p 317] be able to ascertain the extent to which it expresses the opinion of
the Court, and what objections judges no less qualified than those who
supported it were able to bring against it. Such would seem to be the case
with the judgments of the superior courts in the Anglo-American system,
where the value of dissenting opinions is not greatly outweighed by the
recognized authority of case-law. It is probably this which led Charles
Evans Hughes, a former judge of the Permanent Court and subsequently Chief
Justice of the United States, as Judge Jessup recalled in his well-reasoned
dissenting opinion appended to this Court's Judgment of 18 July 1966, to
say:
"A dissent in a court of last resort is an appeal to the brooding spirit of
the law, to the intelligence of a future day, when a later decision may
possibly correct the error into which the dissenting judge believes the
court to have been betrayed." (I.C.J. Reports 1966, p. 323.)
And do not the opinions of the judges of the two International Courts derive
increased authority from the fact that those judges were elected, according
to Article 9 of the Statute of both Courts, so as to assure "in the body as
a whole the representation of the main forms of civilization and of the
principal legal systems of the world"?
This authority is nothing other than that of particularly well-qualified
jurists and takes its place in the general context of legal teaching. Thus,
Mr. St. Korowicz, in a study of the opinion of the seven dissenting judges
in the Customs Regime between Germany and Austria case, places it under the
head of "the teachings of publicists", which are regarded in Article 38,
paragraph 1 (d), of the Statute of the Court as "subsidiary means for the
determination of rules of law".
And, it is hardly necessary to add, what authority as teaching must be
enjoyed by the concordant opinions of the dissenting judges when the
judgment has been delivered by an equally divided number of votes, thanks to
the President's casting vote—in other words, with all the respect due to it,
by a "technical or statutory" majority, as Judge Padilla Nervo emphasized in
his dissenting opinion appended to the aforementioned Judgment of 18 July
1966.
To come back to the question under discussion concerning the present
position of legal teachings regarding the formation of custom in connection
with the points raised in the present case, it goes without saying that the
teachings invoked must represent, if not a fairly general consensus, at
least a predominant current of opinion. Now, in the case of the diplomatic
protection of shareholders injured by a third State, teachings are strongly
divided, as are also, as to its legal basis, those writers who. admit such
protection, as has been observed FN65.
---------------------------------------------------------------------------------------------------------------------
FN65 See section 10 above.
---------------------------------------------------------------------------------------------------------------------
24. I would add, solely for the purposes of discussion, that if it were [p
318] possible to follow the opinion which sees in the diplomatic protection
of shareholders a departure from and a tempering of the rule of respect for
the juristic personality of a company, it would still be necessary to
enquire whether that exception to the rule could be extended by analogy to
the case with which we are concerned.
It is a well-known fact that where the company is of the nationality of the
respondent State, corporate action can only be brought against that State in
its domestic courts, international action on the claim of the company itself
against the State of which it possesses the nationality being ruled out.
There can be no assimilation, in the absence of specific provision to that
effect, to the law of the European Community. It is consequently the legal
impossibility of bringing an international action against the State of the
company's nationality that is said to have opened the way to suppletory
action by the shareholders indirectly injured, and to have made its exercise
lawful.
These circumstances are not present in the case of injury caused by a State
of a third nationality. For since the exercise of diplomatic protection is a
matter of unfettered competence, the absence of action by the national State
of the company is not the consequence of a legal obstacle and may be only
temporary. That State, e.g., Canada, enjoys in this connection a
discretionary power. There is consequently no ground for enquiring why it
refrained from seising the Court concurrently with Belgium, not whether its
abstention is final. Whatever its attitude may have been or may possibly be,
this does not affect the question whether or not the national State of the
shareholders enjoys the right to take up their claim on account of harm
which the company itself is alleged to have suffered. This question is a
purely legal one, on which the possible wishes of the company's national
State would not have any effect.
One should furthermore consider, from a practical point of view, the
consequences that the subsequent exercise by the national State of the
company of its manifest right as the latter's protecting State would
involve. If it decided to seise an international tribunal after the national
State of the shareholders had done so, it is not likely that it could in its
turn obtain compensation for the injury caused to the company, the
compensation that would be due to it having already been awarded to the
other State. Not only would the analogy not be logically justified, having
regard to the essential difference between the two hypotheses, but its
consequences would in addition run counter to the proper administration of
justice.
25. The exception which authorizes action by the national State of the
shareholders might, however, be extended to cases where the company has
ceased to exist. The impossibility of action on its behalf by its national
State is again present, though for a different reason, as it is in the case
where it has the nationality of the State to which the damage is attributed.
There would furthermore be no risk of a conflict between the compensation
that could be claimed, in respect of the same complaint, [p 319] by the
national State of the company and by that of the shareholders. The
shareholder's claim would then be justified by a right of his own since,
after payment of the shareholders and other creditors, the residue of the
company's assets goes directly to the shareholders.
These circumstances would not, however, apply in the present case. A
bankruptcy adjudication, like an order for judicial administration or for a
receivership, has not the immediate effect of putting an end to the life of
the company, at any rate in most legal systems, including those of the two
Parties to the case, Spain and Belgium. A bankruptcy judgment, whilst
involving immediate effects with respect to the dispossession of the
bankrupt and the administration of the company, the collation of debts owing
to and owed by the company, and the fact that such debts become immediately
payable, may nevertheless finally result in a composition, under the terms
of which the company, which has not ceased to exist, resumes the course of
its normal life.
Since Barcelona Traction's bankruptcy had no legal effects other than those
just mentioned, it consequently does not authorize an action ut singuli by
that company's shareholders.
26. The Applicant nevertheless maintains that Barcelona Traction ceased to
exist in consequence of certain measures taken by the Spanish judicial
authorities, which it describes as denials of justice, usurpation of
jurisdiction, abuse of right or misuse of power. The company is said to be
"practically defunct", to use the words employed in the arbitral award in
the Delagoa Bay Railway Company case and subsequently adopted in the El
Triunfo case. It is thus no longer a question of the legal effects of the
bankruptcy adjudication, but of an event pertaining to the merits, which can
be considered at this stage of the proceedings in consequence of the joinder
to the merits of the preliminary objection relating to jus standi.
It is first of all necessary to exclude these two precedents from the
discussion; for in both the Delagoa Bay Railway Company case and in the El
Triunfo case it was held that the company had ceased to exist in consequence
of the cancellation of the concession which constituted its object. This is
not so in the case of Barcelona Traction, the activities of which have not
ceased.
But if that company has not ceased to exist for lack of an object, can it
reasonably be alleged that the measures referred to have in fact resulted in
its disappearance? It does not seem so.
Those measures are said to be the following, in particular:
The declaration of the bankruptcy of a foreign company having no real
domicile in Spain, and the dismissal of proceedings to oppose the judgment
declaring the bankruptcy notwithstanding the fact that the time-limit
therefore had not yet expired; the extension of the effects of the
bankruptcy of the holding company to the subsidiary companies, in disregard
of their separate legal personalities, on the pretext of their unipersonal
nature; the attachment of the shares of the subsidiary [p 320] company Ebro
and the extension of that attachment to shares that were in a foreign
country, in violation of the sovereignty of that country and without regard
for the rights of the company holding the above-mentioned shares as
security; the powers conferred by the Reus judge on the bankruptcy
authorities for the purpose of dismissing the directors of the subsidiary
companies and appointing new ones: all these measures, according to the
Applicant, constituting a prelude to the realization of the objective in
view, which is alleged to have been the transfer at a derisory price to a
Spanish group, Fuerzas Eléctricas de Cataluña, of the shares belonging to
Barcelona Traction's shareholders. This transfer is alleged to have been
effected by the trustees in bankruptcy, who, constituting themselves a
general meeting of Ebro, are alleged to have decided:
(a) that the share register kept at Toronto should thenceforward be kept and
retained at Ebro's new corporate domicile, transferred from Toronto to
Barcelona;
(b) that the said company would recognize as shareholders only those
mentioned in the said share register created in June 1951:
(c) the creation of new shares in substitution for the former ones and their
entry in the register kept at Barcelona;
(d) the transfer by judicial decision of the new shares to the Spanish group
represented by Fuerzas Eléctricas de Cataluña.
If such were the measures of which the applicant State complains, effected
for the purposes of the said transfer, can it be alleged that they involved
the extinction of the Barcelona Traction company?
The forced transfer of shares, like a voluntary or amicable transfer, is by
no means something calculated to affect the company's existence. The shares
of a limited company, such as Barcelona Traction, whether such shares be
bearer or registered shares, are specifically designed by law to be
transferable during the company's life. A transfer of the litres which is
void or illegal may, as appropriate, give rise to judicial proceedings to
establish that the transfer was void or to have it set aside, but it cannot
have any effect on the existence of the company the shares of which have
passed into other hands.
Thus, Barcelona Traction was so far from being "practically defunct" that it
was able, without losing its juristic personality in consequence of the
bankruptcy adjudication, or of the other measures taken against it, to seek
and to obtain the diplomatic protection of Canada, of the United States, of
the United Kingdom and of Belgium, as well as the judicial protection of the
last-named country on the basis of its first Application, that of 1958.
27. In short, since the right claimed by the national State of the
shareholder, that of taking up his claim against a third country, does not
constitute an exception to a legal rule, the extension of which to a new
case is asked for, but such right can derive from the possible existence of
[p 321]
an international custom, it is to be concluded that the elements which
constitute the latter, to be drawn in various degrees from treaty or State
practice, from international decisions or from legal literature, are not of
such a nature as to lend support to this new case.
28. While it appears that diplomatic protection depends not on a general
principle of law recognized by nations but on international customary law,
it would nevertheless be permissible, in considering the possibility of
extending this protection to the shareholders of a company, to have recourse
to the analogy which the problem might present in the framework of the
relationships for which municipal law and international law make provision.
In doing so it would not be a matter of abstracting from municipal legal
systems a general principle of law, but of seeking, in accordance with the
rules of legal logic, to ascertain the consequences of those relationships
on the formation of custom in its various elements.
29. It should be noted at this stage of the discussion that the
applicability of categories of municipal law to international law raises
the important question of determining whether a State is only obliged to
grant aliens those rights which it guarantees to its own nationals or
whether it must ensure for them a minimum treatment in accordance with an
"international standard of justice", which may, in certain cases or in
certain countries, be more advantageous than that enjoyed by nationals
themselves FN66.
---------------------------------------------------------------------------------------------------------------------
FN66 As we know, there are those who also envisage the possibility of
granting mostfavoured-nation treatment, or merely fair compensation, or
equitable or reasonable treatment, or, finally, of adopting a compromise
solution based on the enjoyment of individual rights and guarantees
identical with those enjoyed by nationals and which must not "be less than
the 'fundamental human rights' recognized and defined in contemporary
instruments". (Yearbook of the International Law Commission, 1957, II, p.
113.)
---------------------------------------------------------------------------------------------------------------------
It is well known that in Latin American public international law, equality
of treatment is linked with the Latin American jurists' conception of the
responsibility of States and diplomatic protection. Those jurists, who
regard it as one of the pillars of their concept of international law,
argued in favour of it at the 1930 Hague Conference, basing it upon equality
between States and the need for their countries to protect themselves
against the interference of powers which were strong politically,
militarily and economically. Seventeen jurists of various nationalities
supported this doctrine. But the upholders of traditional law, who formed
the majority at the Conference, carried the day, and the failure of the
Latin American States only reinforces their attachment to their own
doctrine. Thus, at the 9th session of the International Law Commission, Mr.
Padilla Nervo came forward as its authorized spokesman, and concluded that
"[the] international rules [on the point] were based almost entirely on the
unequal relations between great Powers and small States"FN66a. [p 322]
--------------------------------------------------------------------------------------------------------------------- FN66a
Yearbook of the International Law Commission, 1957, I, p. 155.
---------------------------------------------------------------------------------------------------------------------
This was also the conception of the African and Asian countries. The Chinese
delegate to the 1930 Hague Conference was one of the leading spokesmen
therefor, following the jurists of Latin America. And at the same session of
the International Law Commission mentioned above, Mr. Matine-Daftary, of
Iran, supported "the . .. Latin American theory of the equality of nationals
and aliens"FN66b. Finally, the representatives of the States of Africa and
Asia who were called upon to participate in the legal conferences supported
the same conception.
--------------------------------------------------------------------------------------------------------------------- FN66b
Ibid., p. 160.
---------------------------------------------------------------------------------------------------------------------
***
The question is no doubt a fairly complex one. In principle, if a State is
bound only to establish equality between its nationals and aliens its
municipal law must be considered and its benefits extended to aliens. But it
should be noticed right away that the rights to be granted them on the basis
of equality are substantive rights. The solution would be quite different
with respect to jurisdictional rights, according to which every State is
bound to secure domestic judicial remedies to foreigners by adequate laws
and an adequate judicial structure in conformity with international
standards, failing which international proceedings would be possible.
Now this is indeed the solution that prevails in respect of substantive
rights, particularly from the view-point of new or economically handicapped
States. It rests upon the principle of the equality of nations proclaimed
in the Charter of the United Nations and upon the resolution adopted by the
General Assembly on 21 December 1952 concerning the right of peoples freely
to exploit their natural wealth and resourcesFN67.
--------------------------------------------------------------------------------------------------------------------- FN67
See S. Prakash Sinha, op. cit., pp. 94-96, and the speeches in the
International Law Commission by the representatives of India, Iran, the
United Arab Republic, Syria and Thailand referred to by him.
See too Article 12 of the draft principles concerning the treatment of
aliens drawn up by the Asian-African Legal Consultative Committee, quoted by
Doctor Mustafa Kamil Yasseen, in Annuaire français de droit international,
1964, p. 665.
---------------------------------------------------------------------------------------------------------------------
30. Mention of this solution leads one to wonder whether it is not
established, in the legal systems of the generality of nations, that a
shareholder—in addition to his own right of action for reparation for a
direct injury suffered ut singuli which damages his legally protected
interests— possesses a right of action which he can exercise in all
circumstances, concurrently with the organs of the company, in consequence
of an injury suffered by the latter that affects him only indirectly or in
mediate fashion.
Ought not international law, following the same reasoning as that just
invoked in the preceding section, to align itself on this point with the
generality of systems of municipal law, from which, in addition to the legal
institutions of the commercial-law system, there derive the concept of
juristic personality and the limits assigned thereto? It is true that those
[p 323] systems sometimes differ from one country to another. What would
however be both necessary and sufficient would be to prove the existence of
a common fund, as between these systems, of such essential rights, not
excluding those on which Belgium in particular can rely, namely:
(a) the right to address claims and applications to the authorities on
behalf of the company;
(b) the right to seek judicial or administrative remedies in substitution
for and in place of the company, or to defend proceedings brought against
it;
(c) the right to claim compensation on the grounds of a denial of justice or
an abuse of right suffered by the company.
Do these different rights appear among those constituting the common fund of
the generality of municipal legal systems? Or, on the contrary, do they go
beyond the rights generally assigned to the shareholder by those legal
systems—and, in particular, the legal systems of Canada, of Belgium and of
Spain—these being:
(a) the right to vote at general meetings, either in respect of decisions
affecting the company, or for the appointment of directors and the control
of their conduct of the company's affairs and, in appropriate cases, in
order to bring action against those same directors in consequence of
alleged wrongful conduct by them in the exercise of their powers;
(b) the right to dispose of the shares owned by them;
(c) the right to dividends and to a proportionate share in the assets in the
event of the company's liquidation;
(d) that of benefiting from any offers of shares, and of receiving
duplicates in the event of loss of their share certificates FN68.
--------------------------------------------------------------------------------------------------------------------- FN68
The decision of the Arbitral Commission in 1965 in the Brincard case
referred to most, if not all, of these rights. The new Lebanese Commercial
Code, Article 105, gives a more complete list, including in particular the
right to transfer the share.
---------------------------------------------------------------------------------------------------------------------
I am inclined to answer in the negative. Subject to one reservation,
however, which is that the company should not have been dissolved. This
reservation has already been dealt with FN69, and it does not apply in the
case of Barcelona Traction.
--------------------------------------------------------------------------------------------------------------------- FN69
Section 25 above.
---------------------------------------------------------------------------------------------------------------------
A further conclusion emerges from this discussion, which can be expressed
in interrogative form as follows: since the shareholder does not have,
according to local legislation, any possibility of taking action before the
courts in order to put forward rights which are peculiar to the company,
the objection of non-exhaustion of local remedies cannot be set up against
him. If he were nevertheless permitted to exercise such rights before an
international tribunal, would he not have been granted greater right than
the company itself? [p 324]
31. The Applicant nevertheless maintains that the specific legal nature of
rights and interests of the private parties who have suffered injury is of
no importance from the point of view of the right of protection by their
national State.
There is no doubt that in international proceedings the applicant State is
"asserting its own right". It is not intervening in favorem tertii. But is
it any less true that that right is "to ensure, in the person of its
subjects, respect for the rules of international law"? Both these phrases
are to be found in the oft-cited judgment of the Permanent Court of
International Justice in 1924 in the Mavrommatis case FN70. Is not this
tantamount to saying that the right of the applicant State is measured
according to the individual right violated and, consequently, subject to the
same conditions for its exercise?
---------------------------------------------------------------------------------------------------------------------
FN70 P.C.I.J., Series A, No. 2, p. 12.
---------------------------------------------------------------------------------------------------------------------
It is hardly necessary to add that the responsibility of a State is of
course not necessarily restricted to the hypothesis of an injury caused to
its nationals. But where an injury lies at the origin of such
responsibility, the individual injury cannot be without its effect on the
exercise of that responsibility.
32. Is it possible, in order to grant the national State of the shareholders
the right to institute judicial proceedings, to have recourse, as the
Applicant also argues, if not to a formal right, at least to the notion of
interest?
Belgium's charges against Spain, as set forth in the course of the oral
argument on the merits, are some of them classified by the Applicant as
denials of justice, the others as abuses of right. Abuse of right, like
denial of justice, is an international tort, contrary to the opinion which
the Spanish Government seems to espouse. This is enshrined in a general
principle of law which emerges from the legal systems of all nations FN71.
The Applicant further sees in certain of these manifestations a misuse of
power (détournement de pouvoir), of which international law should take
account, on the ground that the rights the abuse of which is condemned by
international case-law are, as in municipal administrative law, powers or
competences. This doctrine cannot but be endorsed. But does it follow that
in the international field the institution of abuse of right is aimed, as is
misuse of power in municipal law, at protecting a right or an objective
interest distinct from the right or subjective interest of the State
considered individually FN72? As complete as possible a study of the notion
of an interest is necessary for the solution of this question, and in order
to determine, in so doing, the respective fields in international law of the
two concepts of objective interest and subjective interest. [ p 325]
--------------------------------------------------------------------------------------------------------------------- FN71
See the writer's separate opinion previously referred to, para. 35, bottom
of p. 136.
FN72 Cf., the reference by Professor Rolin in his oral argument on 16 April
1969 to the course delivered by Professor Guggenheim in 1949 at the Academy
of International Law.
---------------------------------------------------------------------------------------------------------------------
33. In private law, the old adage is relied on: "no interest, no action",
though there is attributed to it a meaning somewhat different from that
which the institution of actiones legis gave to it in Roman quiritary law.
More correctly, it is asserted that "the interest is the measure of the
action". But whatever formula be invoked, this does not of course mean to
say that the fate of the action is so intimately bound up with the interest
of the plaintiff that it can be deduced therefrom that any interest is
capable of giving rise to an action. On the contrary, at the international
level as in municipal law, is it not the case that, in order for an action
to lie, the interest must, as Jhering puts it, be an interest protected by
the law, or, more correctly, as it has been put in the most recent decisions
under municipal law, a legally protected lawful interest?
Furthermore, if in private law the interest must, in principle, be direct
and personal, must it also be so in international law in order to authorize
a judicial action?
This would amount to saying that diplomatic protection is subject to two
conditions: that the claimant's interest be a legally protected lawful
interest and that, at the same time, it be direct and personal.
34. In order to answer these two questions and clear the way for a solution
of the case of shareholders, it seems that it is necessary to recall the
various actions to which a right or interest may give rise, namely:
(a) an individual action exercised on the basis of a subjective interest or
right;
(b) a corporate action, on behalf of a company endowed with juristic
personality, similarly exercised on the basis of a subjective interest or
right—that of the company itself;
(c) an action brought in defence of a collective or general interest, the
objective being to safeguard legality or the respect due to principles of an
international or humane nature, translated into imperative legal norms (jus
cogens).
This distinction has seemed to me essential for the purposes of this
discussion, in particular in order to avoid the confusion between
individual interest and general interest, to which the Respondent has
pointed, in the award in the El Triunfo case and in the judgment relating to
the Northern Cameroons.
***
It is generally recognized that the existence of a legally protected right
or interest is a condition for the exercise of any of the above actions. The
question is not open to doubt in private law, whether with respect to a
natural person or to a juristic person. It will consequently be agreed that
it would be paradoxical for international law, one of the functions of [p
326] which, when appropriate, is to make up, in the relations between
States, for the weaknesses of their municipal laws, to be able to give a
State which takes up the claim of its nationals access to international
tribunals on the ground of an interest which is not legally protected under
the lex fori. And by an undoubted analogy, a State which acts proprio motu
for the defence of a personal interest or of a collective interest, must
nevertheless prove the existence of a lawful interest which is legally
protected.
There is consequently an identity of views to be noticed on this point— that
of a legally protected lawful interest—between the national and the
international legal order, dealing respectively with the subjective and the
objective aspects of the notion of interest.
The question that remains to be discussed is thus that of proof that the
interest on which Belgium relies is a legally protected lawful interest. No
such proof can be produced in the present case since it is necessary to go
back to the lex fori, which does not afford legal protection to such an
interest.
35. Does the identity of views noticed above also exist so far as concerns
the necessity of a personal and direct interest?
Were it a question of the third action referred to above—that based on a
general interest, or an international or humane interest of an objective
nature—the fulfilment of this condition would not be demanded, as is clear
from the aforesaid Judgment of 21 December 1962 and the opinions of the
dissenting judges in the Judgment of 18 July 1966. That 1962 Judgment
constituted a definitive judgment, as was amply demonstrated by the
dissenting judges, and it might also be regarded as a judgment on a point of
principle, which lays down the concept of the general or collective
interest which justifies the action that a member State of an international
organization, such as in former times the League of Nations and today the
United Nations, may bring in defence of the purposes of that Organization
which concern its members, as a whole, whose interests are often one with
those of all mankind FN73. The principle which that Judgment enshrines,
which underlies many conventions, from Article 22 of the Treaty of
Versailles and the instruments of mandate, to the treaties concerning
minorities and the Convention on the Prevention and Punishment of Genocide,
and is expressly confirmed by the practice of the United Nations FN74, is
also to be found in the Advisory Opinion delivered by this Court in 1951
with regard to reservations to that Convention, when it stated: "the
contracting States do not have any interests of their own; they merely have,
one and all, a common interest FN75." Thus Judge Forster was able to protest
vigorously against the idea that "legal interest [p 327] can be
straight-jacketed into the narrow classical concept of the individual legal
interest of the applicant State FN76".
--------------------------------------------------------------------------------------------------------------------- FN73
In his dissenting opinion referred to above, Judge Forster rightly describes
as an abuse of power South Africa's actions contrary to the purpose of the
Mandate for South West Africa or Namibia. (I.C.J. Reports 1966, p. 481.)
FN74 See Section 20 above.
FN75 I.C.J. Reports 1951, p. 23.
FN76 Dissenting opinion annexed to the Judgment of 18 July 1966, cited
above, I.C.J. Reports 1966, p. 478.
---------------------------------------------------------------------------------------------------------------------
36. If, on the other hand, the applicant State is not acting to protect a
collective interest, but is complaining of an injury it has suffered as an
individual subject of law, it goes without saying that it will only have
access to an international tribunal to claim a subjective right on the basis
of a personal and direct interest.
To this hypothesis must be assimilated that where a State has taken up the
claim of a national, as this Court, following the Permanent Court of
International Justice, stated in its Judgment of 6 April 1955 in the
Nottebohm case, declaring:
"... by taking up the case of one of its subjects and by resorting to
diplomatic action or international judicial proceedings on his behalf, a
State is in reality asserting its own rights—its right to ensure, in the
person of its subjects, respect for the rules of international law FN77".
--------------------------------------------------------------------------------------------------------------------- FN77
I.C.J. Reports 1955, p. 24.
---------------------------------------------------------------------------------------------------------------------
In other words, it is on the basis of a subjective right or interest that
the State acts when taking up the claim of one of its nationals, even if
that national be a juristic person such as a commercial company. For the
corporate action of the latter is not in any way to be assimilated to the
action based on a collective interest. Whilst the company represents a
bundle of individual interests the State is nevertheless acting as an
individual subject of the law in taking up its case. Where, on the other
hand, it purposes to take up the defence of the general interests of the
international community or of humanity as a collectivity, it intervenes in
the capacity of a member of that community or of that collectivity.
37. It has been said that Belgium's action must be founded on a lawful
interest which is legally protected FN78, just like an action on behalf of
the collectivity. But, unlike the latter, it must be based on a personal and
direct interest.
--------------------------------------------------------------------------------------------------------------------- FN78
See Section 34 above.
---------------------------------------------------------------------------------------------------------------------
Neither of these conditions is met by Belgium's request for authorization
to extend judicial protection to the shareholders in Barcelona Traction.
According to the lex fori to which it is necessary to have reference in this
matter—i.e., the law of the commercial legal order—a shareholder in a
joint-stock company has, as we know, no personal and direct right of action
instead of and in place of the corporate action ut universi if the alleged
injury has been inflicted on the company as such. What interest might be
substituted for this purported right, if not the shareholder's interest in
having the undertaking run in such fashion as to ensure its prosperity, and
in the safeguarding of the economic value embodied in [p 328] the shares.
Does it follow that he would have the right to act on behalf of the company
where the latter has itself suffered damage or loss through unfortunate
management? Such is not the case in municipal law FN79, and it ought not to
be otherwise in international law. The interest of the shareholder and,
consequently, that of the State which takes up his claim, no matter how
personal and direct it may be, is nevertheless, as has just been seen, not
legally protected. The Permanent Court of International Justice has
endorsed this view FN80.
--------------------------------------------------------------------------------------------------------------------- FN79
See, to this effect, the writings of French publicists and French case-law,
where the bringing of judicial proceedings on account of the depreciation of
shares as a result of a diminution in the company's assets is only allowed
in the case of faute by the directors, as was emphasized in Section 27
above.
Cf. G. Ripert, Droit commercial, 5th edition, by R. Roblot, Vol. I, paras.
1327 and 1328; and Solus and Perrot, op. cit., para. 227, and the decisions
to which they refer.
And, in respect of Anglo-American law, E. Beckett, "Diplomatic Claims in
Respect of Injuries to Companies", published in Transactions of the Grotius
Society, Vol. XVII, pp. 192 and 193, who points to the exceptional case of
misconduct by directors as a rule to be found in the laws of most States.
Finally, so far as treaty-law is concerned, mention may be made of the
convention between the Malagasy Republic and the Ugine company, under which
the parties "will not regard as contrary to their mutual obligations any
reduction in activity resulting from chance technical breakdowns of a
serious nature or from the development of the general economic situation".
[Translation by the Registry.]
FN80 Judgment in the Oscar Chinn case, P.C.I.J., Series A/B, No. 63, p. 88:
"No enterprise—least of all a commercial or transport enterprise, the
success of which is dependent on the fluctuating level of prices and
rates—can escape from the chances and hazards resulting from general
economic conditions. Some industries may be able to make large profits
during a period of general prosperity, or else by taking advantage of a
treaty of commerce or of an alteration in customs duties; but they are also
exposed to the danger of ruin of extinction if circumstances change."
---------------------------------------------------------------------------------------------------------------------
38. Turning to the argument which postulates the cumulative use of the
corporate action and the individual action of the shareholders, which is
advanced by Belgium, I can only remark the lack of relevance of the examples
put forward to support it, namely that drawn from the Advisory Opinion of
this Court concerning Reparation for Injuries Suffered in the Service of the
United Nations, and that of a motor car or aeroplane accident. In the
instant case, both these examples encounter the objection raised by the
existence, in terms of municipal legislation, of the company's legal
personality, which covers the interests of the shareholders and ensures
their representation.
So far as the Advisory Opinion is concerned, it is true that a claim by the
International Organization for reparation for injuries constitutes no
obstacle to a claim by the State of which the United Nations official is a
national. It has been rightly said that a single action is capable of
involving international responsibility on the part of its author towards
various legal personae if it simultaneously injures their respective rights.
But the doctrine enunciated in the Advisory Opinion is essentially
different from the argument advanced by the Applicant concerning the [p
329] claim of a shareholder concurrently with that which a commercial
company might submit in respect of an injury of which it itself has
suffered the consequences. Any analogy is ruled out by an essential
difference between the two cases, resulting from the existence of the
juristic person-ality of the company, which personifies the interests of the
shareholders; so that the injury which it suffers is the very same one as
that of which the shareholders might complain.
Can it in point of fact be deduced from the consideration that two legal
personae, the United Nations and the national State of an official of that
organization, have simultaneously been affected by the injury which the
latter suffered, that, according to the meaning of the Advisory Opinion,
there was only one single head of damage? It would appear not. The same act
caused two distinct heads of damage, reparation for which can be cumulative,
as in the case of the accident already mentioned. It is however a single
injury which affects the company, which can only give rise to a single
reparation, which can be claimed either by the company, or by a partner or
shareholder under the conditions already dealt with.
Is there any need to add that Article 62 of the Court's Statute, which
provides for intervention, is irrelevant. What is in question in the present
case is not a rule of procedure, but the right of action on the basis of one
and the same internationally unlawful act.
39. At the end of this discussion, everything goes to show that the
diplomatic protection of shareholders injured by a third State does not
constitute an international custom that is unequivocally and unambiguously
demonstrated by the web of precedents which form the material element, and
definitively established by the conjunction of that element with the
psychological element of opinio juris.
This conclusion is reinforced by the opinion, already mentioned, held by a
multitude of States—new States and other, very numerous, developing
States—with regard to the application of diplomatic protection, the rules of
which are only accepted by them to the extent that they take account of
their state of underdevelopment, economic subordination and social and
cultural stagnation, in which the colonial powers left them and in which
they are in danger of remaining for a long time, in the face of Powers
strong in industry, know-how and culture.
This opinion was expressed at one and the same time by the representatives
of the States of the Third World in the General Assembly of the United
Nations (Sixth Committee), in the International Law Commission, in the
Asian-African Legal Consultative Committee, in the Institute of
International Law, and in the works of legal authors FN81. [p 330]
---------------------------------------------------------------------------------------------------------------------
FN81 S. Prakash Sinha, op. cit., pp. 92-94; and J. N. Hazard in American
Journal of International Law, Vol. 55, 1961, at p. 118, where he writes: ".
. . Some of the states where investment has long existed have come to relate
these investments in their minds with conditions now politically abhorred."
---------------------------------------------------------------------------------------------------------------------
Thus the Asian-African Legal Consultative Committee, when it met in 1966 in
Bangkok, stressed the importance of this problem by recalling the remarks of
a number of delegates to the Sixth Committee of the General Assembly in
1964, to the effect that—
"The rules relating to state responsibility and to the protection of foreign
investments, profoundly affected the situation of the new or economically
weak States and had been established, in part, contrary to their interests
FN82."
--------------------------------------------------------------------------------------------------------------------- FN82
Brief of Documents, Vol. IV, p. 269.
---------------------------------------------------------------------------------------------------------------------
As for the Institut de droit international, at its Nice session in 1967 it
had to study the problem of investment in developing countries. The jurists
of the Afro-Asian group who took part in the proceedings of that session
expressed the opinion of their group by replying in the negative to the
question whether "shareholders are entitled to ask for diplomatic protection
of their State in cases in which the company in which they have invested
cannot or will not ask for it itself, as against the developing country
FN83".
--------------------------------------------------------------------------------------------------------------------- FN83
Annuaire de l'Institut de droit international, 1967, I, pp. 464, 471, 519
and 526, with the opinions of India (Mr. Nagendra Singh), Iraq (Mr. Kami!
Yasseen) and Turkey (Mr. Nihat Erim).
The following observation of Professor Rolin at the same session of the
Institut should be noted :
"Thus what the Institut should aim at is not the protection of capital as
such, but it is bound to encourage investments for the benefit of developing
countries, by giving guarantees on both sides, both to those countries
themselves in order to avoid a form of economic neo-colonialism, which would
bring about their subjection to the rich countries, and in order to put
investors out of reach of certain risks" (ibid., p. 414 [Translation by the
Registry]).
---------------------------------------------------------------------------------------------------------------------
40. It seems definitively established that the precedents that can be prayed
in aid to support the attempt to extend diplomatic protection to
shareholders indirectly injured by a third State are manifestly
insufficient. It is of course clear from the explicit terms of Article 38,
paragraph 1 (b), of the Statute of the Court, that the practice from which
it is possible to deduce a general custom is that of the generality of
States and not of all of them; but we are far from even this, having regard
to the abstentions or opposition referred to above when analysing diplomatic
or treaty practice or discussing teachings FN84. It certainly does not
appear that the generality of States have already accepted such a custom. A
fortiori is this so if account be taken, as it should, of the massive
opposition of the new or developing States, which constitute the majority of
the members of the international community. A general custom, I am
persuaded, can henceforward no longer be received into international law
without taking strict account of the opinion or attitude of the States of
the Third World. FN84 [p 331]
--------------------------------------------------------------------------------------------------------------------- FN84
Supra, Sections 12 to 20, 22 and 23.
---------------------------------------------------------------------------------------------------------------------
41. Two other questions have been discussed:
A. That whether the national State of the shareholders may take action to
defend its national wealth, of which shares in companies form an element.
B. Whether it can do so in the sphere of the legal protection of the
interests which the State has in international trade.
In each of these cases, the State would enjoy a twofold right of action:
that resulting from the fiction, conceived by legal authors and accepted by
case-law, to the effect that the State which takes up the case of its
nationals exercises its own right; and that which would be attributed to it
inasmuch as it is protecting its national wealth or the interests of
international trade.
Does this twofold action postulate two heads of damage, for which the State
would present cumulative claims, or a single head of damage, for which the
State would be claiming reparation on a twofold ground?
Since shares in a company belonging to nationals are among the elements
making up the national wealth, the action of the State to protect the rights
of its nationals, and that aimed at the protection of the national wealth,
would be motivated by a single head of damage, affecting the same
subject-matter envisaged from two different standpoints, i.e., the part or
the whole.
On the basis of this observation, the State could not claim two different
heads of reparation, one for the injury caused to its nationals, the other
in favour of the nation—the body made up of those same nationals— whose
economy had been affected. It is a case for saying, as before FN85, that
cumulative actions which would grant, for one and the same injury, first one
and then another head of reparation, would be inconceivable.
--------------------------------------------------------------------------------------------------------------------- FN85
Supra, Section 38.
---------------------------------------------------------------------------------------------------------------------
Furthermore, this alleged right of action would give rise to the same
objections as mentioned above, concerning the alleged right of action in the
name of shareholders injured by a third State, namely the nonexistence of a
received rule of international law authorizing it.
The opposition of the new or developing States, whose determinant influence
on the development of international law and on the formation of its rules is
already well-known, would in addition be much stronger as to the admission
of a legal rule which would authorize the extension of diplomatic
protection, beyond the interests of shareholders who have suffered injury by
the act of a third State, to the interest of the general economy of the
national State of the latter, or to the interest it has in international
trade.
It is well-known that J. L. Brierly, without venturing so far as G. Scelle,
or as the Latin American jurists, was in favour of recognition, in certain
cases, of the international personality of the individual. He said that—
"The orthodox doctrine, by insisting that only States can have [p 332]
international rights or duties, leads one to think that injury caused to an
individual citizen in a foreign State is an injury caused to his own country
.. . and that mysterious, though powerful, abstraction, 'national honour' is
easily involved therein FN86."
--------------------------------------------------------------------------------------------------------------------- FN86
J. L. Brierly, Recueil des cours de l'Académie de droit international, 1928,
Vol. III, p. 531 [Translation by the Registry].
---------------------------------------------------------------------------------------------------------------------
And Mr. P. C. Jessup adopted Mr. Brierly's conclusion, observing that the
recognition of the rights of the individual would also tend to check "the
grave menace of the promotion by States of private economic interests with
which they identify national interests FN87". And indeed it seems that this
identification and the concept of national honour were in the background, if
they were not the governing motive, of the armed interventions which have
taken place in the course of history in Latin America, Africa and Asia.
--------------------------------------------------------------------------------------------------------------------- FN87
P. C. Jessup, A Modem Law of Nations, p. 99.
---------------------------------------------------------------------------------------------------------------------
Would not the menace be still more grave if the State, while supporting the
individual interests of its nationals, were to put forward their claim
cumulatively with that attributed to the nation for the defence of its
economic interests, or its general interests in international trade?
42. Failing a rule of positive law validating Belgium's jus standi, the
latter State turns to equity to seek therein a justification for its claim.
The applicant Party is mistaken in thinking that in the awards made in
application of the General Convention of 1923 between the United States and
Mexico, there may be discerned a reference to equity comparable to that
mentioned in the Judgment of this Court in 1969 concerning the North Sea
Continental Shelf. The Convention just referred to called upon the arbitral
tribunals which it set up to base themselves upon justice and equity. This
expression, justice and equity, which has appeared in numerous general and
special arbitration agreements, has always been considered to imply an
authorization to decide ex aequo et bono; whereas obviously the reference to
equity contained in the Judgment of the Court mentioned above should only be
understood, and this is explained in one of the separate opinions annexed
thereto FN88, as meaning equity praeter legem in the sense which Papinian,
the author of that expression, gave to it; in other words, not an
extra-judicial activity, as is the settlement of a dispute ex aequo et bono
according to the terms of Article 38, in fine, of the Court's Statute, with
a view to filling a social gap in law, but a subsidiary source of
international law taken, as a general principle of law, from paragraph 1 (c)
of that Article, appeal to which is made in order to remedy the
insufficiencies of international law and fill in its logical lacunae.
--------------------------------------------------------------------------------------------------------------------- FN88
See the writer's separate opinion, I.C.J. Reports 1969, para. 37, p. 139.
---------------------------------------------------------------------------------------------------------------------
If the study of the facts of the present case had shown a logical lacuna [p
333] in the law, the Court would have been called upon to remedy this in the
interest of justice. The solution would probably have been to have
recourse, as has just been stated, to equity praeter legem and a general
principle of law emerging from national legal systems. But the Court is not
faced with a logical lacuna in the law, since international legal systems do
not provide for a right granted, on the facts, to the shareholders to be
rendered licit. The lacuna which the argument of the applicant Party would
be calculated to fill would be no more than a social insufficiency, which
only a special agreement conferring jurisdiction ex aequo et bono, which
does not exist in the present case, could have remedied.
The system of Equity of the common-law countries has also been referred to
in the present case.
It goes without saying that there is no question of identifying Equity of
English origin with l'réquité or aequitas of Romano-Mediterranean origin.
But if a parallel may be drawn between these two institutions, as to their
respective effects, it is with equity contra legem or infra legem that it
may be drawn. In fact, it is said in Snell's Equity that equity may be
defined as a portion of natural justice FN89. This conception of Equity,
which really consists of a possible derogation from general law in a
particular case, has never been applied in international law. An
international court which conferred such jurisdiction upon itself would
appoint itself a legislator. Its decision would create an atmosphere of
uncertainty which would drive States away from a tribunal as to which they
could not foresee, with any degree of probability, what law would be applied
by it. Furthermore, who is better placed to judge of this than the British
Government, which wrote to the United States Government to the effect that:
"... No shareholder has any right to any item of property owned by the
company, for he has no legal or equitable interests therein . ..FN90." In
fact, Equity, like equity contra legem or infra legem, cannot serve as basis
for a judicial solution which is contrary to the rules of law which it seeks
to modify, unless it be by agreement of the parties to accept a decision ex
aequo et bono.
--------------------------------------------------------------------------------------------------------------------- FN89"It
is possible to define equity as a portion of natural justice ..." Snell's
Principles of Equity, 4th edition by R. E. Megarry and P. V. Baker, p. 9.
FN90 Note of 5 July 1928 concerning the Romano-Americana case, Hackworth,
Digest, V, p. 843.
---------------------------------------------------------------------------------------------------------------------
***
While I subscribe to the Court's Judgment, such are the supplementary
remarks which I have thought I should add to the grounds thereof.
(Signed) Fouad Ammoun.
[p 334]
Dissenting Opinion of Judge Riphagen
[Translation]
1. To my great regret I find myself unable to concur in the decision of the
Court, and I wish to avail myself of my right under Article 57 of the
Statute to state the reasons for my dissent.
2. In my opinion the legal reasoning followed by the Court fails to
appreciate the very nature of the rules of customary public international
law applicable in the instant case.
The Belgian State has asserted that the Spanish State is internationally
responsible for the treatment which the administrative and judicial
authorities of Spain afforded to a private non-Spanish company, the
Barcelona Traction, Light and Power Company, Limited. The Court has
recognized that:
"When a State admits into its territory foreign investments or foreign
nationals, whether natural or juristic persons, it is bound to extend to
them the protection of the law and assumes obligations concerning the
treatment to be afforded them." (Paragraph 33.)
Nevertheless, the Court has refused to examine whether the treatment
afforded to Barcelona Traction by the administrative and judicial
authorities of Spain was or was not in conformity with Spain's
international obligations, since:
". . . the possession by the Belgian Government of a right of protection is
a prerequisite for the examination of these problems. Since no jus standi
before the Court has been established . .." (paragraph 102).
In other words, Spain does indeed have international obligations with
respect to the treatment afforded to Barcelona Traction, but those
obligations are, it is said, not obligations towards Belgium.
Throughout its Judgment, the Court has in view the hypothesis that a greater
or lesser part of Barcelona Traction's shares was, during the whole of the
relevant period, in the hands of Belgian nationals, whether natural or
juristic persons. This hypothesis is contested; the question, which is not
dealt with in the Judgment, will be reverted to below.
On the basis of this hypothesis, and without drawing any distinction
according to the size and nature of this participation by Belgian natural or
juristic persons in the capital and management of the Barcelona Traction
Company, the outcome for the Court is that the Belgian [p 335] State has no
right at the international level capable of being infringed by the conduct
of the Spanish authorities towards the Barcelona Traction Company.
This conclusion is based solely on considerations concerning what the Court
calls (paragraph 38) the nature and interrelation of the rights of the
company and the rights of the shareholders under municipal law. It is by
examining rules of municipal law which are to a great extent common to those
legislative systems which recognize the institution of companies limited by
shares that the Court reaches the conclusion that, under municipal law, the
rights of the shareholders are not affected by measures taken against the
company. It follows, according to the Judgment, that the State of which the
shareholders in a company are nationals has also no right that might be
injured on the international plane by measures taken by another State
against the said company.
3. It is in making the rights and obligations of States under customary
public international law depend purely and simply on the rules of municipal
law concerning the rights and obligations of private persons in their
relations inter se, that the Judgment seems to me to fail to appreciate the
nature of the rules of customary international law, including the rules of
international law concerning the rights and obligations of States in the
field known as "the treatment of aliens".
It is, however, well established that international responsibility is a
responsibility of State to State, and that consequently, the conditions
under which the international responsibility of a State arises, as well as
the conditions under which another State is entitled to require reparation
for an injury caused to it, are in principle completely independent of the
content of the municipal law of the States in question.
"Diplomatic protection and protection by means of international judicial
proceedings constitute measures for the defence of the rights of the State.
As the Permanent Court of International Justice has said and has repeated,
'by taking up the case of one of its subjects and by resorting to diplomatic
action or international judicial proceedings on his behalf, a State is in
reality asserting its own rights— its right to ensure, in the person of its
subjects, respect for the rules of international law' (P.C.I.J., Series A,
No. 2, p. 12, and Series A/B, Nos. 20-21, p. 17)." (Nottebohm (Second
Phase), Judgment, I.C.J. Reports 1955, p. 24) [my italics].
"It is a principle of international law that the reparation of a wrong may
consist in an indemnity corresponding to the damage which the nationals of
the injured State have suffered as a result of the act which is contrary to
international law. This is even the most usual form of reparation; it is the
form selected by Germany in this case and the admissibility of it has not
been disputed. The reparation due by one State to another does not however
change its character by reason of the fact that it takes the form of an
indemnity for the [p 336] calculation of which the damage suffered by a
private person is taken as the measure. The rules of law governing the
reparation are the rules of international law in force between the two
States concerned, and not the law governing relations between the State
which has committed a wrongful act and the individual who has suffered
damage. Rights or interests of an individual the violation of which rights
causes damage are always in a different plane to rights belonging to a
State, which rights may also be infringed by the same act. The damage
suffered by an individual is never therefore identical in kind with that
which will be suffered by a State; it can only afford a convenient scale for
the calculation of the reparation due to the State." (Judgment No. 13 of
the P.C.I.J., Series A, No. 17, pp. 27-28) (my italics).
4. This complete separation between the rules of customary international
law concerning responsibility for the treatment of aliens, and the rules and
principles of municipal law, is much more than a mere legal construct
permitting of the substitution of legal relations between States for the
legal relations between the government and the private citizen or between
private citizens inter se.
It reflects a reality of international life: it determines the very content
of the rights and obligations of States on the international plane.
It is in fact indisputable that the State has a real interest in the
development of its international commerce, of which investment in foreign
undertakings and the establishment of undertakings in foreign countries
constitute manifestations. Thus, apart from countries which practise the
system of State trading, international economic relations are in general
heavily controlled by the public authorities. Furthermore, this
international commercial activity of a State necessarily affects the
economy, and thus the public interest, of the receiving State; it normally
also involves contacts with the municipal legal system and with the public
authorities of that State. It is thus genuinely a matter of ensuring a
proper balance between the interests of States, a traditional task of the
rules of public international law.
This task is fundamentally different from that laid upon the rules of
municipal law, and in particular municipal private law. The considerations
which determine the choice of a particular system of municipal private law
With respect to what the Court has called "the nature and interrelation" of
"the rights of the corporate entity and its shareholders" are completely
foreign to the problems which are the concern of the rules of public
international law relating to responsibility for the treatment of aliens.
5. It is true that international commercial activities are to a very large
extent carried on under municipal law forms (acquisition of ownership,
contracts, concessions, collection of rates and taxes). But it is not the
legal relationships of municipal law resulting therefrom—the relationships
between private persons inter se or between a public authority and a [p 337]
private person—-with which customary international law is concerned. The
latter does not tend in any way to unify the different municipal legal
orders, even partially or indirectly, into a common legal order applicable
to cases of diversity of citizenship.
The international responsibility of a State is not based upon rules of any
such common legal order; nor is the right of the State which asserts such
responsibility derived from the rights which a private person would obtain
under such a common legal order. The approach of the rules of customary
international law is completely different; they are concerned rather with
the activity, as such, of the persons carrying on the international
commerce of a State, on the one hand, and the public authorities of the
receiving State, on the other, as well as with the interrelation of those
activities. That is why international responsibility for the treatment of
aliens is essentially a responsibility for "denial of justice" lato sensu.
That is also why the State which relies upon such responsibility does not
represent the injured person but is asserting its own interest in that
person's activities in international commerce. That is why, finally, it is
indispensable, for the determination of the existence or inexistence of
international responsibility on the part of one State towards another State
in a specific case, to take into consideration all the activities, as a
whole, of the public authorities of the State whose responsibility has been
alleged, as well as all the injured private person's activities, as a whole,
in international commerce.
6. The notion of "international commerce" must not be given a purely
economic interpretation. In actual fact, customary international law
protects the interest which a State has in its international commerce
because international commerce in the broad sense of the term is of interest
to the entire international community. As Sohn and Baxter rightly remark in
their commentary on the Draft Convention on the International Responsibility
of States for Injuries to Aliens: "The law of State responsibility is
directed to the maintenance of freedom of communications and of movement
between nations."
On the same lines, customary international law recognizes—in particular
since the Second World War—respect for fundamental human freedoms as an
interest of the international community. In fact, even before and between
the two World Wars the idea of the protection of "human rights" by public
international law was never absent from international decisions concerning
the responsibility of States for the treatment of aliens. Here, as in the
protection of international commerce, it is not a matter of creating a
common legal order determining the legal relationships between the public
authorities and private persons or between private persons inter se, but of
"checking" the application of the municipal legal order in order to sanction
the unlawful use of force, arbitrary discrimination and usurpation of
jurisdiction, which violate a human being's "right to existence". Here, as
in the protection of inter [p 338] national commerce, the different methods
adopted by the municipal law of different countries are irrelevant to the
attainment of the objectives of the rules of customary international law.
7. At this point I must make a digression. The Judgment seems to be based on
the idea of a "reference" by the rules of international law to the rules of
municipal law. It is stated, in particular, in paragraph 38 of the Judgment
that "international law has had to recognize the corporate entity as an
institution created by States in a domain essentially within their domestic
jurisdiction. This in turn requires that, whenever legal issues arise
concerning the rights of States with regard to the treatment of companies
and shareholders, as to which rights international law has not established
its own rules, it has to refer to the relevant rules of municipal law". The
legislative technique of reference or renvoi from one rule of law to another
rule of law, or to the results of its application, is an operation well
known in legal science. So far as international law in particular is
concerned, this technique is of frequent application in the written rules of
law, i.e., in treaties. Thus, several treaties, when defining the
obligations of the Contracting Parties, contain a reference to the municipal
law of a specific State. This is, for example, the case with treaties
concerning conflict of laws and reciprocal judicial assistance, including
the recognition and execution of foreign judgments. But this kind of renvoi
is wholly unrelated to the situation with which the present case is
concerned.
In the first place, in the Barcelona Traction case it is a matter of
applying the rules of general customary international law. A renvoi by such
rules to the municipal law of a specific State would seem a priori to be
improbable. Furthermore, the present case does not concern the recognition
of, or the effect to be given to, the decisions, judicial and otherwise, of
the Spanish authorities, within the framework of the legal system of another
State. On the contrary, it is a matter of determining whether those
decisions constitute a denial of justice in the broad meaning of the term,
i.e., unlawful use of force, arbitrary discrimination, or a usurpation of
jurisdiction, amounting to infringement of the rights of another State. In
this domain there cannot be a "renvoi" to the rules of municipal law of the
State whose international responsibility is alleged, nor, moreover, to the
municipal law of any other State, nor to any "common rules" that might be
derived from a comparative law study of different national legislations.
8. The distinction of principle drawn by the present Judgment between—
(a) the obligations of a State "when [it] admits into its territory foreign
investments or foreign nationals, whether natural or juristic persons"
(paragraph 33), obligations "arising ... in the field of diplomatic
protection" (ibid.);[p 339]
(b) the obligations of a State resulting from "the outlawing of acts of
aggression" (paragraph 34);
(c) the obligations of a State resulting "from the principles and rules
concerning the basic rights of the human person" (paragraph 34); and
(d) the protection of the economic interests resulting from investments made
by a foreigner (paragraph 87);
seems very artificial and cannot in any case justify the essential legal
consequences which the Judgment attaches to this distinction.
In the first place, it seems impossible to make any distinction between
categories (a) and (d). The present Judgment even observes (paragraph 37),
and rightly, that the institution known as the diplomatic protection of
foreigners has "from its origins [been] closely linked with international
commerce". How then can it on the one hand recognize that "when a State
admits into its territory foreign investments . . . it . . . assumes
obligations concerning the treatment to be afforded them" (paragraph 33 of
the Judgment) and, on the other, deny to the State whose nationals have made
such investments all protection at the international level apart from
"treaty stipulations" (paragraph 90 of the Judgment)? It is true, as the
Court says (paragraph 87), that "when a State admits into its territory
foreign investments . . . it . . . does not thereby become an insurer of
that part of another State's wealth which those investments represent". No
one has ever employed such a formula to define the obligations of the
receiving State. It is in any event not the basis upon which Belgium bases
its claims against Spain in the present case! The problem of the extent of
the protection which the rules of international law give to the interest of
a State is one question, the determination of the State or States whose
interest is protected is another.
Nor is this all. In all the cases enumerated above, general public
international law protects the rights of States by imposing obligations on
other States, for the good reason that it is an essential interest of the
international community as a whole that such rights should be respected.
It is true, from the moral point of view, that it is difficult to compare
the gravity of an infringement of the territorial integrity and political
independence of a State with that of an infringement of the fundamental
freedoms of the human person, or with that of an injury to international
commerce lato sensu.
Nevertheless, from the legal point of view, in each of these three cases it
is a matter of State interests protected by the imposition of obligations on
other States. Obviously, the details of the protection are different in each
of the three cases, both with respect to the definition of the
in-fringements prohibited—i.e., the extent of the protection—and with
respect to the designation of the State or States entitled to apply, or
demand the application of, sanctions in the event of such conduct.[p 340]
It is to this latter context that the question of the jus standi of a State
relates.
The Judgment seems to draw a distinction between obligations of a State erga
omnes, obligations of a State which exist towards certain other States under
general international law, and obligations of a State which only exist
towards a State with which it has entered into "treaty stipulations". This
distinction can of course be drawn. But it is still difficult to hold that
this distinction would necessarily correspond to an a priori classification
in accordance with the nature of the interests protected by such
obligations, a classification which is already in itself a fairly doubtful
one.
In other words, it seems impossible to say a priori that the economic
interests of a State can be protected through obligations on other States
only by virtue of "treaty stipulations", just as it would obviously have
been incorrect to say that every State has jus standi in cases where the
territorial integrity or the political independence of another State is
infringed, otherwise than by armed attack, or in cases where the national of
another State is the victim of a violation of his individual freedoms.
9. No one denies, moreover, that a State's jus standi under the rules of
customary international law concerning the treatment of aliens depends on
the existence of a link between such State and the situation that has been
adversely affected in the case in question by the conduct of another State.
In this connection it should be noted that in those matters governed by
customary public international law it is a priori improbable that there will
be watertight divisions between the solutions adopted for the various
theoretically separate elements of which this legal rule is made up. It is
the interrelation between the conduct imputed to a State and the conduct
imputed to another State which is the subject of the rules of customary
international law, manifesting itself in the creation of "obligations" and
"rights" of States in their mutual relations. In these circumstances, it is
impossible, in particular, totally to disregard the nature and effect of
this interrelation in the actual case in question when determining the
"responsibility" of the one State and the "jus standi" of the other.
10. This is one more reason for not attaching too much importance to the
highly abstract and theoretical distinction between "rights" and "mere
interests" which seems to form the sole basis of the reasoning in the
Judgment.
This distinction is only meaningful within the framework of a concrete body
of known and undisputed rules of law.
When such a body of rules is under analysis, it can be observed, a
posteriori, that a failure to comply with an obligation may entail certain
injurious consequences for certain interests, without the possessor of those
interests being empowered by this body of rules of law to demand reparation
from the party which has failed to fulfil this obligation. The [p 341]
conclusion can then be drawn therefrom that the victim had indeed a "mere
interest" but not a "right" that was violated.
This is in fact the conclusion which the Judgment draws when analysing the
rules of municipal private law with respect to the legal situation of
shareholders with regard to acts directed against the company.
But in the case decided by the Judgment it is a matter neither of the
obligations of the Spanish authorities on the level of municipal law nor of
the legal opportunities which the shareholders might have of asserting that
responsibility, by asking for the cancellation of the measures taken, or for
compensation.
It concerns, on the contrary, quite another body of rules, namely the rules
of customary public international law concerning the obligations and the
rights of States in their mutual relations.
Now these two bodies of rules answer quite different requirements; their
objects and purposes are different; they have developed in different
contexts.
The body of rules of customary public international law concerning the
treatment of aliens draws its inspiration, as we have seen, from the
interest of the international community in respect for the fundamental
freedoms of the human person as well as in respect for the freedom of
international commerce.
It is in relation to these two principles that both the obligations and the
rights of States in their mutual relations fall to be determined. In the
instant case it is above all the second of these two principles that is
involved.
11. In order to be able to describe a concrete activity in international
commerce as forming part of the international commerce of a specific State,
it is obviously necessary that there be a link between that activity and
that State. That link can only be established through the medium of one or
more of three elements of the State: its nationals, its territory and its
government. Where the international commercial activity takes the form of a
natural person's establishing himself abroad, it is traditionally the
nationality of that natural person which determines the link between that
activity and a specific State. Furthermore, right from the beginning of the
development of international commerce it will be found that the State has
concerned itself with the treatment accorded by other States to "its"
products, i.e., products originating in its territory, as well as to "its"
ships, i.e., ships upon which its government has conferred the right to fly
the national flag. (Sometimes the various manifestations of international
commercial activity were not clearly distinguished. A typical example of
this is afforded by the treaties the interpretation of which was in question
in the Court's Judgment of 27 July 1952 (Rights of Nationals of the United
States of America in Morocco, Judgment, I.C.J. Reports 1952, p. 176.) Those
treaties, dating from the turn of the century, were aimed primarily at
preventing any differential treatment by a State of the nationals of the
other States parties to the said treaties. But the[p 342] Court did not
hesitate to interpret the treaties as also prohibiting any discrimination in
favour of the importation of goods coming from the territory of one of those
States (I.C.J. Reports 1952, pp. 183-186), thus recognizing that the
treaties in question had as their object the protection of all the
international commercial activities of each Contracting State.)
The techniques of international commerce have developed since then, in
particular with the entry on the scene of limited companies as a legal form
for the organization of private economic activities.
For purposes of the determination of the link between an international
commercial activity and a particular State, this development poses two
distinct problems, the one relating to the relationship between the activity
and a person, and the other relating to the relationship between that person
and a State.
In fact, in "classic" cases of diplomatic protection the interest of a State
in "its" international commerce merges with its interest in the welfare of
its nationals, natural persons, both in respect of their personal safety and
fundamental freedoms and in respect of their power to administer their
property and their right to draw profits therefrom.
The elements of "the undertaking" are thus united in one single indivisible
natural person, and that person's appurtenance to a specific State does not
normally pose any problems.
The employment of the legal form of the limited company (with its own legal
personality, in private municipal law) complicates the situation.
12. In the first place, it is hard to recognize that a limited company as
such can have personal safety or fundamental freedoms. (We may leave aside
the question of whether under municipal law the company as such might
complain of an infringement of the personal safety or fundamental freedoms
of the natural persons which "represent" it.) It is thus solely a matter of
the undertaking's "economic" interests: its activities and its property. Now
in reality the legal form of the limited company lends itself to fairly
varied kinds of organization of the economic interests of the undertaking.
There is the type of company in which legal personality corresponds to
economic independence of the undertaking; the administration of the
undertaking is in the hands of independent directors and the profits are in
principle appropriated to the undertaking itself, i.e., generally
re-invested (after the deduction, in suitable cases, of a certain
remuneration for the capital already invested). But there is also the type
of company which is in reality a form of organization for co-operation in
an undertaking by shareholders who not only furnish the capital but also
effectively administer the undertaking and draw the profits themselves.
Finally, there is a third type of company, in which the undertaking is
integrated into another more extensive undertaking, belonging to another
company which dominates it. Obviously these are types of companies
(corresponding to different types of [p 343] shareholders), and not
categories separated by water-tight divisions. Of course, the municipal
private law applicable to these three types of company is generally the
same. On the other hand, in the field of municipal tax law, several
countries recognize the fundamental difference between these three types by
affording them different treatment.
On the plane of customary international law, i.e., both in order to
determine what is affected by the conduct of a State towards a limited
company, and in order to determine the link between what is affected and
another State, it seems a priori necessary to take account of the reality of
the differences between these three types of companies. As has already been
pointed out, international law is concerned with the rights and obligations
of States in their mutual relations and not with the municipal law relations
between the company and other private persons, nor even with the municipal
law relations between the company, its shareholders and officers, and the
public authorities of a State.
The nature of rights, like that of obligations, is different in
international law, because such obligations and rights correspond to the
specific requirements of the international community. It is consequently not
possible to regard the company's legal personality under municipal law as an
exclusive touchstone.
One can neither regard the company as always being the only entity affected
by any measure whatsoever directed—on the plane of municipal law—against the
company, nor always equate the company, purely and simply, with a natural
person so far as concerns its "nationality", i.e., its link with a specific
State.
Both these matters are moreover recognized in international jurisprudence
and practice.
Of course this jurisprudence and practice are not uniform. On the one hand,
they are often inspired by ad hoc considerations; on the other, they do not
take sufficient account of the variety of cases that can arise.
Nevertheless, they do show a sufficient degree of recognition of the
inapplicabilty of the legal fiction of municipal private law on the plane of
public international law. The company's juristic personality is not by any
means the last word either on the obligations or on the rights of States in
the matter of the "treatment of aliens".
The Judgment recognizes this, moreover, when examining "... other grounds on
which it is conceivable that the submission by the Belgian Government of a
claim . . . may be justified" (paragraph 55). However, the Judgment seems to
persist in regarding such other grounds as the application of transposition
on to the plane of international law of the rules of municipal law
concerning the status of a company and its shareholders (paragraph 56).
It has already been explained above why this approach seems contrary to the
very nature and function of the rules of customary public international
law. It is not the rights and the obligations of the shareholders [p 344]
that are in issue in the present case, but the obligations and the rights of
States; it is not only a question of different legal personae but also of a
different subject-matter.
13. That is also why it does not seem justifiable to disregard as
irrelevant the international practice and jurisprudence which relate to
measures taken with respect to enemy property and nationalizations
(paragraphs 59 to 62 of the Judgment). On the contrary, these are two
phenomena at the international level which directly concern international
commerce as well as the links between an international commercial activity
and a specific State. The measures taken with regard to enemy property have
the twofold purpose of excluding enemy control of management from the
national economy, and of confiscating enemy property by way of reparations.
It is highly significant that in connection with this twofold objective the
distinct personality of the company does not constitute an obstacle to the
recognition of the true state of affairs. But how then can the link between
an activity, and private property, and a State be accepted when it is a
matter of measures to be taken against that State, and the existence of such
a link be disregarded, as a matter of principle, when it is a matter of the
rights of that State?
In the case of the nationalization of undertakings belonging to a company
it is obviously a question of measures of another nature. Nevertheless,
here again many international agreements concluded in order to resolve the
consequences of those measures recognize that such measures —which put an
end to an international commercial activity—do not affect only the State
whose "nationality" the company as a distinct person is deemed to possess.
In both cases—measures against enemy property and measures of
nationalization—it is a question of an interference—for different reasons
—with an international commercial activity taken as a whole; the object and
the purpose of such measures concern the undertaking as such, even though
they obviously affect the ownership of, and other rights over, individual
items of property.
14. It is from this point of view—an interference with the foreign
undertaking rather than with an isolated right belonging to a foreign
private person—that one must also consider the cases in which international
jurisprudence and practice have recognized a State other than the one under
whose municipal law the company was formed as having an interest which is
legally protected by the rules of international law. Such cases are in
particular those in which the company had gone into liquidation, or was
"practically defunct", in consequence of measures taken by the State whose
international responsibility was in question. Thus they were cases in which
the company had been forced to suspend or to cease its activities: in other
words, in which the undertaking as such was affected. Writers have sometimes
attempted to explain such cases by seeing in them an application of the
notion of municipal private law to the effect that on liquidation of a
company the shareholders take back their [p 345] share of the company's
property (see, for example, Reuter, Droit international public, 1958, p.
166).
But this explanation is unsatisfactory. On the level of municipal private
law, it is not the company's going into liquidation which causes a right to
arise for each shareholder, namely a right to a part of the company's
property: it is only at the end of the liquidation that any surplus there
may be is distributed among the shareholders. Furthermore, the liquidation
was always subsequent to the measures taken by the State which was held
responsible on the international plane, so that those measures could not
have infringed the rights of the shareholders on the municipal private law
plane.
These two arguments remain valid a fortiori in cases in which the company,
without having gone into liquidation, was "dormant", "practically defunct"
or "destroyed". The Judgment (paragraphs 64-68), while recognizing "special
circumstances for which the general rule" [i.e., the rule that only the
State under the municipal law of which the company was formed would have jus
standi] "might not take effect" (paragraph 64) admits the existence of a
special circumstance in the present context only where "the corporate entity
of the company has ceased to exist" and has "become incapable in law of
defending its own rights and the interests of the shareholders" (paragraph
66). In so doing, the Judgment consequently rejects any exception based upon
the company's going into liquidation or becoming entirely paralysed
(paragraph 65) on account of the measures with respect to which the
international responsibility of a State is asserted.
The Judgment thus once again makes the extent of the international
obligations and rights of States dependent on the rules of municipal private
law concerning the status of companies. The Judgment observes (paragraph 66)
that "only in the event of the legal demise of the company are the
shareholders deprived of the possibility of a remedy available through the
company". The Judgment does not explain how in such a case, after the legal
demise of the company, the action of a government other than "the company's
government" might be compatible with the rule of continuity! In reality, the
legally protected interest of such other State, and consequently also the
obligations towards it of the State which took the measures of which
complaint is made must exist on the international plane before and
independently of the company's demise on the plane of municipal law, a
demise which is but one of the possible subsequent consequences of those
measures.
15. The Judgment observes (paragraph 65) ". . . that from the economic
viewpoint the company [i.e., Barcelona Traction] has been entirely
paralyzed" and that it "has been deprived of all its Spanish sources of
income".
It is indisputable that the measures taken by the Spanish authorities
affected the undertaking as such. The essential point is thus the existence
or non-existence of a link between the undertaking and the Belgian State
sufficient for it to be considered on the international plane that the
inter [p 346] national commerce of the latter State is affected by those
measures. It is thus the second question referred to above which is raised
by the entry upon the scene of limited companies in international commerce:
that of the link between what is affected by the conduct of a State, and
another State. In this connection too it seems impossible to disregard the
difference between the three types of companies and shareholders referred
to above.
16. So far as concerns the international commerce of a State which takes
place through the medium of natural persons, it is undisputed, as the
Judgment recalls (paragraph 36), that in principle it is the bond of
nationality between the State and the individual which counts. There are,
however, exceptions to this general rule. On the one hand, as the Court
recalled in its Advisory Opinion of 11 April 1949 (I.C.J. Reports 1949, p.
181):
". . . there are important exceptions to the rule, for there are cases in
which protection may be exercised by a State on behalf of persons not having
its nationality".
These are, in particular, cases of "functional" protection (members of the
crew of a vessel flying the flag of the State; members of the armed forces
of a State; agent of the United Nations); the protection of the activity as
a whole, linked as such with a State, extends to persons who participate in
that whole, irrespective of their nationality.
On the other hand, the bond of nationality between the State and the
individual is not always sufficient. In the Nottebohm case the Court held
that Liechtenstein was not entitled to extend its protection to Nottebohm as
against Guatemala, on the basis of a negative answer to the question—
". . . whether the factual connection between Nottebohm and Liechtenstein in
the period preceding, contemporaneous with and following his naturalization
appears to be sufficiently close, so preponderant in relation to any
connection which may have existed between him and any other State, that it
is possible to regard the nationality conferred upon him as real and
effective . . ." (I.C.J. Reports 1955, p. 24).
Here again a "functional" approach may be observed. Mr. Notte-bohm's
naturalization not having in any way altered his activities as a whole (what
the Court calls his "manner of life", ibid., p. 26), Guatemala's alleged
injury to this "undertaking" was not regarded as affecting, on the
international plane, a legally protected interest of Liechtenstein.
17. A true bond of nationality, such as exists between a State and its
nationals who are natural persons, is obviously inconceivable for juristic
persons as such. In order to assimilate a limited company to a national who
is a natural person it is consequently necessary to have recourse to [p 347]
other connecting factors. In this connection, from an abstract point of
view, three courses are open:
(a) to take account of the nationality of the natural persons to whom the
company "belongs";
(b) to take account of the fact that juristic personality was "conferred" on
the company by the authorities of a particular State;
(c) to take account of the fact that the company, as an economic entity, is
"implanted" in the territory of a particular State.
In the practice of States, including treaties concluded between two or more
States, and in international jurisprudence, sometimes one and sometimes
another of these courses is adopted, or the connecting factors deriving from
two or all three of these approaches are combined or balanced against one
another.
18. This is explained by the fact that the three solutions correspond more
or less to the three different types of companies and shareholders. If, for
example, it is a matter of a company all of whose shares are held by two or
three natural persons, who have thus combined their capital in an
undertaking which they manage themselves, it seems quite natural to refer to
the well-known views expressed by Max Huber in his Report of 1 May 1925 in
the case concerning British Property in Spanish Morocco:
". . . the protection of individuals covers all their legitimate interests.
The fact that those interests happen to be more or less closely connected
with those of a corporate legal entity cannot ipso facto deprive them of the
protection which they would otherwise be given by virtue of belonging to a
protected person" (U.N.R.I.A.A., Vol. II, p. 661).
"International law which, in this field, draws its inspiration essentially
from the principles of equity, has not laid down any formal criterion for
the granting or refusing diplomatic protection to national interests linked
to interests belonging to persons of different nation-alities" (ibid., p.
729).
These considerations apply also in cases in which corporate personality has
been conferred on a company by the municipal law of the State whose
responsibility is asserted, even though the company has been implanted in
the territory of that State.
Moreover, the connecting factor under (b) above (the fact that the company
was granted juristic personality by the authorities of a particular State)
corresponds rather to the type of company whose undertaking is independent,
and whose shares are scattered among persons who have nothing to do with the
management of the undertaking, but simply receive such dividends as are
declared, or make profits by the purchase and sale of those shares on the
market.
In reality this connecting factor is, in a certain sense, comparable to the
[ p 348] link between a State and a ship to which that State has granted the
right to fly its national flag. It loses much of its meaning when the
incorporation of a company under the municipal law of a State is effected
without any active intervention by the public authorities of that State and
does not require the establishment of any real bond between the company and
the territory or nationals of that State.
Thus it is understandable that in State practice and in international
jurisprudence this connecting factor does not play a preponderant part
unless there are other links between the company and the State in which it
has been incorporated, as, for example, the fact that the administrative
control of the company is actually exercised in the territory of that State.
(In certain treaties even the nationality of the natural persons who manage
a company is a factor in determining the link between a State and that
company. According to information given by Foighel in Nationalization and
Compensation, 1963, p. 235, this is the case in a treaty, with an attached
aide-memoire, of 27 September 1948 between Switzerland and Yugoslavia.)
Finally, the connecting factor mentioned in (c) above (the fact that the
company, as an economic entity, has been implanted in the territory of a
particular State) reflects the recognition of the growing importance of the
economy—and therefore of its undertakings—for the very existence of the
State. From this point of view the State in whose territory a company has
been implanted is necessarily interested in the expansion of that company's
business abroad, whether through isolated activities, or through the
establishment of subsidiary companies, or through holdings in other
companies which it controls and whose business activity forms an integral
part of its own.
In sum, this connecting factor has its application most particularly in
cases involving the third type of shareholder and company mentioned above.
19. In the context of the application of the rules of customary
international law relating to responsibility as regards the treatment of
aliens, the relative importance of the three connecting factors should be
judged not only by taking into account the type of company and shareholders
in question in the given case, but also in relation to the nature of the
injury which the conduct complained of on the part of the State whose
responsibility is alleged is said to have done to the international
commercial activity. It is clear that in this respect injury to an isolated
piece of pro-perty belonging to a company cannot be put on the same plane as
an injury to the very personality of the company or an injury to the whole
of the activity of that company in the State whose responsibility is
alleged.
The present Judgment seems to deny the relevance, so far as the jus standi
of an applicant State is concerned, of the distinctions drawn above
concerning the nature of the injury, the type of company and shareholders
in question, and the nature and relative importance of the possible forms
of connection between a State and a company. Only the dis- [p 349] tinction
in private municipal law between the rights of a company and the direct
rights of the shareholder, as well as the separate corporate personality of
the company under the municipal law of the State in which it was
incorporated, are recognized as relevant in the Judgment. It is true that
the Judgment does—though without laying down the conditions under which a
given State, other than the one according to whose municipal law the
company was incorporated, may have jus standi—examine various "special
circumstances" and possible "grounds" which might lead to the
non-application of the simple and strict rule which it lays down. But in
point of fact those special circumstances and reasons are always expressed
by the Judgment in relation to the separate personality of the company under
municipal law. Thus the Judgment considers "the case of the company having
ceased to exist" (paragraphs 64-68) solely from the point of view of legal
existence under municipal law, without taking any account of the object of
the company, which is the under-taking.
The other possibility dealt with in the Judgment (paragraphs 69-84) is "that
of the lack of capacity of the company's national State to act on its
behalf".
Here again the Judgment reaches the conclusion that the creation of a
corporate entity by the municipal law of a particular State is alone
relevant, without however explaining how such a formality can of itself give
rise, on the plane of international law, to a legally protected interest of
that State in the business of the company.
The Judgment does of course mention (paragraph 71) certain other factors,
but in the first place those factors are partly formalities which
necessarily follow from the incorporation of the company in accordance with
the rules of the relevant private municipal law, and in the second place
they do not carry much weight in comparison with the relationship of the
company with other States. Furthermore, it appears from paragraph 70 of the
Judgment that the Court does not in any way consider them to be legally
relevant.
20. The reasoning followed in the Judgment logically leads to the theory
that a State whose nationals make investments abroad in the legal form of
the incorporation of a company according to the rules of the municipal law
of a foreign State, or in the form of holdings in the capital of such a
company, loses its interest in the treatment given to those investments.
This theory, based on the distinction between the "rights" of the company
and the "mere interests" of the shareholders, is necessarily applicable
also in cases where it is a question of the treatment given by the State
under whose municipal law the company was incorporated.
The reasoning set forth in paragraphs 85-90 of the Judgment does not admit
of any exception.
21. The following paragraphs of the Judgment do however seem to envisage the
possibility of appeal being made to "considerations of [p 350] equity" so as
to permit international law to "be applied reasonably". These considerations
seem to be that in the case of a foreign investment some foreign government
ought to exist which can exercise diplomatic protection. Such a
consideration seems, however, contrary to the very nature of the rules of
customary international law, according to which in exercising diplomatic
protection a State is asserting its own rights. There is thus no question of
finding some government or other which can act as the shareholder's "claims
agent".
Such a system would, moreover, not ensure any improvement in the
shareholder's position, having regard to the complete freedom of every
government to accede or to refuse the shareholder's request for protection,
as well as to pass on or not to pass on to him any compensation it may
receive.
If then international practice and jurisprudence admit action by the State
whose nationals have invested their capital in a company formed under the
municipal law of another State in the event of unlawful conduct by that
latter State, it is because they recognize the existence of a legally
protected interest of the first State in that company's activities, an
interest which is by no means destroyed by the formation of the company or
participation therein, and which also does not devolve upon the State where
the company was formed.
22. It follows from the foregoing that conduct by a State which, on the
plane of municipal law, affects a company's property, personality or
undertaking can, on the plane of international law, infringe a legally
protected interest of a State other than that under the municipal law of
which the company was incorporated. This also means that, in certain
circumstances, the same conduct by a State may affect the legally protected
interests of two or more States.
Such a legal situation is by no means excluded by the rules of
international law. It suffices in this connection to refer to the Advisory
Opinion of 11 April 1949 (Reparation for Injuries Suffered in the Service of
the United Nations, I.C.J. Reports 1949, p. 174).
The present Judgment (paragraphs 96 and 97) seems, however, to seek to
exclude the possibility of concurrent diplomatic claims on account of the
complications to which this gives rise.
In this connection it should be noticed, first that one must not exaggerate
the number of cases in which a company is truly international, in the sense
that connecting factors of equal importance exist with several States.
In a very great number of cases the three connecting factors mentioned above
connect the company with one State only. That is precisely why international
practice has generally accepted diplomatic protection on the part of the
State under whose municipal law the company was in-corporated.
Furthermore, concurrent claims, even though emanating from different [p 351]
States, always have the same object, that is to say, to prevent, bring to
and end, or have corrected by restitutio in integrum the unlawful acts of
another State.
It is only at the stage of monetary compensation in lieu of restitutio in
integrum that it is necessary to determine the amount to be paid to each
State. In its Advisory Opinion referred to above, the Court observed in this
connection:
"International tribunals are already familiar with the problem of a claim in
which two or more national States are interested, and they know how to
protect the defendant State in such a case." (I.C.J. Reports 1949, p. 186.)
Consequently it does not seem that the possibility of concurrent
claims—which, moreover, occurred at the diplomatic stage of the present
case—creates that "atmosphere of confusion and insecurity" to which
reference is made in paragraph 96 of the Judgment. If there are
com-plications they are not insurmountable; they are moreover the
consequence of the ever-increasing interdependence of States in the modern
world, a fact to which no international tribunal can close its eyes.
The same observation holds good for the complications that would result from
a settlement reached between the State responsible and one of the other
interested States (paragraph 97 of the Judgment). Such a settlement, like
any other treaty, could bind only those States which con-cluded it. In
international practice governments are well aware of how to accommodate
themselves to this legal rule! In any event, if the State under whose
municipal law a company was incorporated concluded a settlement with the
State responsible for an unlawful act towards that company, providing for a
set-off against the indemnity of any claims which the latter State might
have against the former, it would manifestly be unjust to regard such a
settlement of the affair as excluding a claim on account of the same
unlawful act on the part of a third State which had a legal interest in the
company's activities by virtue of other connecting factors.
The rule of res inter alios acta, and the rule that a State by taking up the
case of one of its nationals is asserting its own rights, both follow from
the very structure of customary public international law.
*
23. Barcelona Traction clearly belongs to the third type of company
described above, i.e., the type of company whose undertaking is integrated
into another undertaking, that of the Sidro company, the chief shareholder
in which is a further company, Sofina.
The links between Sidro and Sofina have not been made completely clear (it
appears that Sidro was also a shareholder in Sofina).
Nevertheless, throughout the relevant period, the connecting factors [p 352]
between both these companies and Belgium were such that it can hardly be
denied that a sufficient bond exists between the undertaking of these
companies and the Belgian State. It is true that the Parties to the dispute
disagree as to the precise percentages of Sofina shares that were held by
natural or juristic persons of various nationalities. But it does not appear
to be contested that Sofina always had a number of Belgian shareholders and
that the company's other shares were scattered among persons of various
nationalities. (One of the counsel for Spain spoke of ". . . American,
British, French, Dutch, Spanish, Swiss and other holdings" (hearing of 22
July 1969).) There is not sufficient evidence for it to be supposed that
Sidro and Sofina were companies whose undertaking was integrated into
another undertaking having links with a State other than Belgium, nor,
moreover, for it to be supposed that those companies belonged to the first
type, that of companies effectively run by their shareholders, natural
persons of a nationality other than Belgian. In these circumstances, the
connecting factors of the incorporation of these companies under Belgian
law, and their implantation within Belgian territory, are sufficient to
create the bond between these companies and Belgium which is necessary to
justify a legally protected interest on the part of the Belgian State in
Barcelona Traction's undertaking.
24. It has nevertheless been contended that this bond, an essential element
in which is Sidro's controlling holding in Barcelona Traction, acquired a
few years after the First World War, was broken by the fact that the
Barcelona Traction shares belonging to Sidro were the subject of certain
contracts entered into on the approach and at the outbreak of the Second
World War.
During that period, Sidro formed in the United States a company called
Securitas Ltd., as well as the partnership of Charles Gordon & Co. Contracts
were entered into between Sidro and Securitas and between Securitas and
Charles Gordon & Co. It is not disputed that Securitas Limited, as well as
the firm of Charles Gordon & Co., were in reality mere alter egos of
Sidro-Sofina, nor that the whole purpose of the operat-ation was precisely
to ensure that Sidro's effective share in the capital and management of
Barcelona Traction might continue despite the occupation of Belgian
territory by the German armed forces, and without being hampered by such
measures as the allied States might take in the context of their wartime
legislation with respect to property belonging to companies resident in
enemy-occupied territory. Nor is it disputed that this objective was in fact
attained. This type of operation is well known in those European countries
which were occupied by German forces during the Second World War, as well as
in Allied countries, such as the United States and Canada, where the
principal officers of companies in the European countries in question found
a refuge which enabled them to continue to run those companies' affairs. The
authorities of the Allied host-countries, moreover, generally afforded the
co-operation necessary [p 353] for the achievement of the operation's
purpose. In these circumstances, the events summarized above cannot be
regarded, on the plane of inter-national law, as having broken the bond
between the Belgian State and the Barcelona Traction undertaking. Once
again, this conclusion is independent of the relationships of municipal
private law.
It consequently applies both to the period during which Securitas acted as
custodian of the shares belonging to Sidro, and to the period during which
it was trustee. In both capacities Securitas was, in the words of Spanish
counsel, nothing but an "American version of Sidro". Securitas was formed,
and the trust relationship between Sidro and Securitas was created, in order
to escape the consequences of the occupation of Belgian territory. The
trust relationship came to an end after the war, just as, for that matter,
Securitas disappeared. The precise date of the end of this period does not
seem to be of crucial importance in the present context, since the trust
relationship was never intended to have and never had the effect of
transferring to someone else the position which Sidro occupied in Barcelona
Traction.
25. So far as concerns the registration of the Barcelona Traction shares
belonging to Sidro in the name of Charles Gordon & Co. (subsequently Newman
& Co.), it is sufficient to note that these two firms were never more than
nominees of Sidro and Securitas. Even on the level of the applicable
municipal private law, it is recognized that such nominees are no more than
agents for the true shareholders. On the international level, the fact that
a nominee is registered as a shareholder in the company's official register
is of no relevance to the question of who is affected by measures taken by a
State against the company.
26. It has been observed above that in the context of the application of the
rules of customary international law concerning international responsibility
for the treatment of aliens there are no water-tight divisions between the
legal problems raised by such application. In ascertaining whether in a
specific case the conduct of State A injures a legally protected interest
of State B, one cannot wholly separate the considerations relating to the
four elements of the question, namely: (1) the character of State A's
conduct; (2) the nature of the injury; (3) the nature of the interest
injured; and (4) the link between that interest and State B.
27. In this connection it is important to notice that in the present case it
is not only a question of an injury to property belonging to the company,
nor again of a limitation placed upon the free conduct of the company's
affairs by its principal officers, but of an injury to the undertaking as
such, which has passed in its entirety into the hands of a Spanish group.
One cannot ignore this fact in determining the jus standi of Belgium, whose
interest is founded on the very fact that the Barcelona Traction undertaking
is integrated into that of companies having important connecting factors
with that State.
28. Furthermore, the character of the conduct of the Spanish State of [p
354] which Belgium complains is also not unrelated to the question of
Belgium's jus standi. An essential element in the Belgian claim is its
contention that in the circumstances of the case the injury to the
undertaking was the result of Spanish measures which necessarily exceeded
the limits which international law imposes on the jurisdiction of any State.
The character of such conduct is such as to influence the determination of
the States entitled to demand reparation for the damage suffered by them in
consequence of such measures.
It is certainly not merely bilateral relations that are in issue in such a
case, since a State's obligation to keep within the limits of its
jurisdiction on the international plane is, without any doubt, an obligation
erga omnes.
So far as this aspect of the case is concerned, two observations are
relevant.
In the first place, it is indisputable that in the present case it is not a
matter of a nationalization of the electricity producing and distributing
undertakings in Spain.
It is not the Spanish legislative or executive authorities which have placed
Barcelona Traction's subsidiary companies' public utility undertaking in
the hands of the State; it is the Spanish judicial authorities which,
through a bankruptcy adjudication followed by a forced sale, have placed the
property of the parent company, Barcelona Traction, in the hands of other
private persons.
In the second place, it is also not a matter in the present case of a
judgment by a municipal court deciding a dispute between two private
persons, or ordering a simple measure of forced execution. It emerges
clearly from the facts that the bankruptcy petition and everything which
followed it had as their purpose and their effect the reorganization of the
Barcelona Traction undertaking in such a way that that undertaking passed
from the control of Barcelona Traction's Belgian shareholders into the
control of a group of Spanish persons who had for that purpose acquired a
number of bonds issued by that company.
This purpose was attained and this effect achieved by means of a threefold
operation, intended, as it were, to remove Barcelona Traction, its property
and its relations with its bondholders, into Spain. First, on the
non-payment of debts of the Barcelona Traction Company was based the taking
of possession of the property and the "normalization" of the subsidiary
companies in Spain (see paragraphs 13 and 14 of the Judgment). Secondly, new
share certificates in the subsidiary companies were created in Spain,
cancelling the certificates which belonged to Barcelona Traction and were
situated outside Spain, and it was decided that the head office of Ebro and
of Catalonian Land (two subsidiary companies of Barcelona Traction,
incorporated under Canadian law) should thenceforth be at Barcelona and no
longer at Toronto. (See paragraph 17 of the Judgment.) Thirdly, the
bankruptcy decree was [p 355] made on a petition by certain holders of
Barcelona Traction bonds on the grounds of the non-payment of interest (see
paragraph 13 of the Judgment). Now, Barcelona Traction, the parent company,
was a company incorporated and having its head office—under its byelaws—in
Canada. All its property, consisting essentially of shares in subsidiary
companies, was in Canada, deposited with National Trust of Toronto as
security for outstanding bonds. The bonds which were in question in the
bankruptcy proceedings were expressed in pounds sterling, and had from the
time of their issue been subject to a trust (containing a "no-action
clause") administered in Canada by National Trust, a company incorporated in
Canada. The non-payment of the interest on the said bonds had, moreover,
led to compromises being effected, before the petition in bankruptcy, and
under the supervision of the Canadian courts, between Barcelona Traction,
the trustee, and the general body of bondholders.
These circumstances, which are relevant to the limits on the jurisdiction
of the Spanish State, cannot be ignored when it comes to the question of
whether the Belgian State has jus standi in the present case, and this
essentially for two reasons. The rules of customary public international law
regarding international responsibility for the "treatment of aliens" have
developed precisely in consequence of the fact that the "aliens" in question
find themselves within the jurisdiction of another State; a fortiori then,
they give legal protection against measures which exceed the limits of the
jurisdiction of such a State. In addition, it must be recognized that in the
instant case the measures taken by the Spanish judicial authorities against
Barcelona Traction were only able to achieve their desired effect as a
result of the fact that Barcelona Traction's subsidiary companies possessed
important installations within Spanish territory. In these circumstances, it
seems obvious that account must also be taken of the fact that Barcelona
Traction itself is, as it were, only a "subsidiary company" of Sidro/Sofina,
companies which can be assimilated to Belgian nationals.
29. The limits which international law imposes on the jurisdiction of a
State are also relevant to another aspect of the case, namely the question
known as "the exhaustion of local remedies". Here again it appears to be
inadmissible to separate completely the different elements of the question
of the international responsibility of a State towards another State. The
Court, moreover, recognized this, it would seem, in its Judgment of 24 July
1964 on the preliminary objections raised by Spain. Everything which took
place within the Spanish municipal legal system, including the remedies
sought and those which were not sought, pertains to the facts relevant to
the weighing-up of Spain's obligations as well as of Belgium's rights.
The right of a State, on the international plane, to respect for its
international commerce implies an obligation on the part of its national by
whose interposition such international commerce is carried on to accept the
jurisdiction of the host State by making proper use of the [p 356] means for
defending his interests which the municipal legal system of that State
places at his disposal. Even then, it is necessary that such jurisdiction
should exist on the international plane! Here again the fundamental
difference emerges between the rights and obligations of the individual on
the plane of municipal law and the rights of the State on the international
plane.
Finally, the limits which international law imposes on the jurisdiction of
the State are also of vital importance for the context within which the
responsibility of the State for the acts of its judicial authorities should
be assessed. When it is a question of acts overstepping such limits, it is
the result of the act, rather than the intention, or the error of the court
in the application of the rules of its municipal law, which is to be taken
into account.
30. In its Judgment of 24 July 1964, the Court decided the questions
relating to its jurisdiction. From this point of view, there was
consequently nothing to prevent the Court's examining the merits of the
case, that is to say, the rights and obligations of the States parties to
the dispute by virtue of the rules of customary international law.
It is true that the legal notion of the conditions for the admissibility of
a claim also finds a place in the rules of law relating to the procedure
before an international tribunal. Nevertheless, an extensive application of
this notion has a tendency to reduce the efficacity of international
adjudication, as well as to confer on the norms of international law a
rigidity which is incompatible with their function in the community of
States.
The 1964 Judgment, which joined the preliminary objections relating to jus
standi and the exhaustion of local remedies to the merits, did so for
reasons which laid stress first on the legal ties between the questions
raised and the actual rights and obligations of States in the matter of the
treatment of foreigners, and secondly on the need to elucidate certain
questions of fact. Accordingly, the 1964 Judgment seems to be based on the
considerations set forth above.
The present Judgment, on the other hand, confines itself to rejecting the
Belgian Government's claim on the sole basis that "no jus standi before the
Court has been established" (paragraph 102 of the Judgment), a conclusion
which, in its turn, seems to be derived exclusively from legal
considerations regarding the distinct personality of companies in municipal
private law, all of which considerations might have been put forward in
1964.
I have in this dissenting opinion set forth the legal reasons which have led
me to the conclusion that the Court ought to examine and pronounce upon what
it calls the other aspects of the case, and in particular on the question of
whether or not the conduct of the Spanish authorities was unlawful.
Since, on the one hand, the Court, for the reasons stated in the Judgment,
has not wished to examine those questions of law, and, on the [p 357] other,
the questions of fact in dispute between the Parties to the case have not
been subjected to examination by the Court, it does not seem to me that a
dissenting opinion ought by itself to accomplish a task which, according to
that opinion itself, is incumbent on the Court.
(Signed) W. Riphagen.
[p 54]
Separate Opinion of President Bustamante Y Rivero
[Translation]
I subscribe to the reasons on which the Court has based its Judgment in the
Barcelona Traction case. Nevertheless, certain very special aspects of this
case have prompted me to certain additional reflections concerning the
question of the law applicable, and I feel it right that I should
communicate them as concerning matters of doctrine. I consider, moreover,
that the question of the exhaustion of local remedies, which was raised in
the fourth preliminary objection during the first phase of the proceedings,
could have been taken into consideration in the reasons for judgment and
mentioned in the Court's decision. I consequently propose to examine these
two points succinctly in the paragraphs which follow.
*
1. The Application in the present case stands on the principle of
international law which recognizes that each State has the power, subject
to certain conditions, to exercise diplomatic protection of its nationals
who, in a foreign country, have suffered an injury affecting their persons
or their rights in violation of international law. Relying on this
principle, the Belgian Government's Application, filed on 19 June 1962 in
behalf of certain Belgian nationals holding shares in Barcelona Traction,
treated of certain responsibilities which, according to the Applicant,
should be imputed to the Spanish Government. These responsibilities were
said to arise, on the one hand, from the bankruptcy adjudication made by the
Reus judge on 12 February 1948 against the holding company Barcelona
Traction, Light and Power Co., Limited, of Canadian nationality, which
carried on activities in Spain through the medium of various subsidiary
companies. They were said to relate, on the other hand, to the allegedly
improper treatment afforded this group of companies by the Spanish
administrative and judicial authorities before and after the bankruptcy
adjudication.
That Barcelona Traction has the character of a holding company has been
recognized by both Parties; it is established in particular by the documents
printed in Appendices 1 and 2 to Annex 22 and in Annex 23 of the Belgian
Memorial.
Accordingly, the Application gives rise to the necessity of investigating,
among other cardinal points, the question of whether the fact of Barcelona
Traction's being a holding company has any particular bearing on [p 55] the
conditions for the diplomatic protection of that company or even on the
extent of the responsibility of the respondent State. Such investigation
reveals an almost total absence of specific rules of general international
law or treaty law applicable to transnational holding companies and shows
why, in consequence, judges tend to encounter difficulty in ascertaining the
law applicable in each case and may even be forced to fall back on debatable
analogies drawn from municipal law or on private international law norms of
questionable relevance. A brief analysis of the way holding companies belie
the legally established mechanism of the limited company will doubtless
facilitate appreciation of the problem.
2. The institution of the limited company, which was destined to displace
the old partnership, was a creation of municipal law devised within the
purely national domain for the purpose of expanding the financial
potentialities and scope of activities of business associations. Each legal
system consequently laid down the rules governing the structure and working
of commercial companies within the national territory, but always with the
end in view of endowing them with the character of autonomous legal personae
distinct from the personae of their shareholders. At a certain moment,
however, world-wide economic expansion, under the twofold stimulus of
increasing needs and the abundance of investment capital, multiplied the
phenomena of financial interdependence between States, thereby revealing
that the purely national field of action of the classic commercial company
had become insufficient. The holding company then appeared, as a
manifestation of the new transnational character of the company. Thus it was
that the centre of gravity of commercial and stock-exchange business not
infrequently shifted from the field of private law into the international
domain.
Nevertheless, this practical evolution in contemporary economic life was not
matched on the legislative plane by the appearance of any new form of
juridical institution. In order to achieve it, the already familiar
appearance of the limited company was quite simply borrowed, though the
holding company introduced into that institution a heterogeneous element,
one contrary to its very nature, by denying a truly independent legal
personality to the subsidiary companies of the constituent group and placing
them entirely under the authority of the parent or chief company of the
group, the holder of all or a majority of their shares. In fact, this
situation arose without any visible alteration in the structure and
functioning of the subsidiary companies being perceptible from outside: what
unites the constituent group is generally only an invisible bond, a network
of hidden links consisting in the decisions of the central organs of
control, which "radiate" to the directors of the subsidiaries who are
charged with their implementation. It is a further advantage of this system
that the central entity of the holding company does not necessarily have to
be registered or be seen to carry on business in the country where the
capital is invested: all that is required is that the subsidiaries may ap-[p
56] pear there in the guise of independent legal entities. The result is a
certain possibility of evading responsibilities.
3. This de facto reality of the conduct of holding companies—which
represents the most usual case—does not, in my opinion, answer the normal
requirements of a de jure situation. The foregoing historical outline shows
that (for the reasons indicated) the concept of the holding company
corresponded to a unilateral intention or concern on the part of investors
who, engrossed with their own interests, relegated to the background the
legal situation of the subsidiary companies and the laws of the country of
investment. However, the diplomatic protection of foreigners doing business
in the territory of a given State must be regarded as establishing a
bilateral relationship in which a duality of reciprocal rights and
obligations comes into play: those of the protecting State in relation to
those of the State in which the investment was made. It is hard to see how
the terms of this relationship could be defined if no legal bond has first
been established between the holding company which forms the subject of
diplomatic protection and the State whose acts are the subject of
complaint. As soon as the holding company crosses a frontier and penetrates
the territory of another State, it is ipso facto transformed into an
institution of private international law, to ensure the equitable
functioning of which would require the formulation of principles and rules
defining the reciprocal interests of the subsidiary companies and the
central entity of the group, as well as the parent company's relations with
and duties towards the States in which the subsidiaries have their domicile
and in which they carry on their business. Any other system of organization
must run counter to the principles of the equality of juristic persons and
of a State's power of imperium over its territory. It is true that a few
legal norms may be found here and there on this subject, but, despite the
importance of the problem, it can be said that neither the legal systems of
States nor the law-making organs of the international community have yet
succeeded in grasping this elusive reality of holding companies so as to
bring it within the framework of a sufficiently explicit and precise body of
law. In municipal law, certain precautionary and, moreover, fairly sporadic
measures have been taken, such as obliging parent companies to submit
consolidated balance-sheets that summarize the individual balance-sheets of
the subsidiary companies. The exportation of earnings has also been made the
occasion for measures of control, so as to preclude the evasion of fiscal
requirements by those who do not fulfil the role of either investor or
taxpayer. Finally, certain legal systems require that foreign limited
companies be entered in the national commercial register before engaging in
activity within the territory of the State where the investment is made. But
none of these provisions has ever been more than partially effective, and
their sporadic nature stands in the way of any systemization. With the
advent of transnationality, the question of the law applicable involves
problems of a particularly thorny and controversial nature: for example,
that of the apportionment of jurisdictional[p 57] competence among the
States in whose territories the various companies of the group are
established. Other, still graver questions can be posed, moreover, and it
may be wondered, for example, whether a holding company neither registered
nor domiciled in the country of its operations can avail itself of the right
of diplomatic protection; and whether, in such a case, the principle of the
responsibility of the State charged with wrongdoing operates undiminished or
only for the benefit of certain subsidiaries. In short, the whole subject is
bedevilled, on the international plane, with the existence of gaps in the
law which it would be desirable to close either by way of treaties
(bilateral or multilateral agreements) or through the possible
emergence—hardly likely in the circumstances—of customary law.
4. Meanwhile, in the face of this reality, the only way to try and resolve
disputes resulting from the insufficient development of the law in its
present stage of evolution is to submit them to the appreciation of
municipal courts. But as the number of gaps in legislation increases, so
the task of the judge grows more difficult and more and more resembles a
work of legislation, something which is always dangerous and out of place on
his part. It is no doubt for this reason that in the present case the
Barcelona Traction bankruptcy proceedings in Spain have given rise to
numerous controversial episodes in which scathing criticism has been met
with apologetics of a questionable kind. Having regard to the orientation
the Court has given to the Judgment it is delivering, it is not possible to
broach the merits of the dispute in order to examine the charges relating to
the denial of justice of which Belgium complains; in my opinion, however,
this does not absolve the international judge of his obligation to lay
stress on the objective position of the question of prin-ciple, i.e., the
existing disparity between the development of certain phenomena in
international economics, such as the grouping of limited companies under
what are known as holding companies, and the evolution of the law
applicable. This evolution has lagged behind; and it is possible that the
legal lacunae which have in consequence made their appearance may hamper the
proper working of justice.
*
5. The preliminary question of the exhaustion of the remedies of Spanish
municipal law, though it was joined to the merits by the Judgment delivered
by the Court in 1964, did not on that account lose its character of being a
preliminary question. The relevant rule of international law in fact lays it
down that a claim based on the principle of the diplomatic protection of
foreign nationals is only amenable to decision if it is shown that the
remedies provided by municipal law have been exhausted. For this reason, I
think the Court might have included an examination of this question in its
Judgment, since, properly speaking, this matter merely complements the
other, concerning Belgium's jus standi. Even supposing [p 58] that that
State had proved its capacity to institute proceedings in behalf of the
shareholders in Barcelona Traction, the essential charges advanced in its
Application could only have been examined by the Court if the exhaustion of
local means of complaint had first been proved.
Due note must at all events be taken of the fact that, even though the
question of the various procedural remedies to be employed is closely bound
up with the merits of the Belgian claim, the Court has decided that, since
the Belgian Government has not been shown to have jus standi, it must
refrain from considering in the Judgment the merits of the dispute.
Nevertheless, while respecting this decision, it is still permissible, where
the exhaustion of local remedies rule is concerned, to reason, while drawing
the distinction which is essential in order to preclude, when the time comes
to decide the purely procedural problem, any obtrusion of elements implying
a decision on the merits.
6. The first question to consider in this connection is that of the
ascertainment of the persons obliged to exhaust local remedies in the
present case. In principle, this obligation lies upon those who put forward
a complaint on the grounds of damage allegedly caused in respect of their
rights or interests. In 1958 Belgium submitted a first Application in behalf
of Barcelona Traction; but after its discontinuance of proceedings in 1961
that same State filed a fresh Application in 1962, in behalf, this time, of
the company's shareholders. As from that moment, the burden of the
obligation to exhaust local remedies fell without any doubt on the
shareholders concerned. Nevertheless, in my opinion all the remedies sought
by the bankrupt company before the date of the second Application must, for
good legal reasons, be regarded as having been sought for the benefit of the
shareholders. The unlawful acts with which the Spanish judicial authorities
are charged are the same in both Applications. If the obligation to give the
Spanish courts an opportunity to rectify those acts —which is the underlying
intention of the rule—had already once been complied with by the injured
company, it seems clear that the seeking of those same remedies by the
claimants under the second Application would not still be necessary, indeed
would be impossible if the time-limits for doing so had lapsed with the
passing of time. In accordance with the logic of this reasoning, the
omissions of the bankrupt company during the first period are opposable to
the shareholders protected by the terms of the second Application.
7. My general impression is as follows: it is beyond doubt that, in the
course of the judicial proceedings which took place in Spain, Barcelona
Traction and other persons and entities which made common cause with it
availed themselves of a considerable number of remedies with a view to
having the decisions of the Spanish authorities which they considered unjust
reversed. It is no less true that, on the one hand, those interested parties
did not in all circumstances respect certain general principles which form
the essence of the rule of the exhaustion of local remedies, and that, on
the other, they neglected to seek certain available remedies or [p 59] did
not pursue to the very end other remedies which they had sought but which
they did not take as far as the highest court open to them, and, finally,
that certain natural or juristic persons who had sought various remedies had
in law no chance of succeeding since under Spanish law they were not
empowered to bring such actions. For example: as is well known, in
bankruptcy proceedings only the bankrupt and his creditors have jus standi
in judicio, yet persons who did not possess or did not claim these
capacities nevertheless sought certain remedies.
On another point, the law is clear that it is for the judge alone and not
for the interested party to decide whether a remedy provided by law must in
practice be sought or not. In order to be entitled to refrain from doing so,
it does not suffice for such a party to prejudge the result and to regard
success as improbable either because there are adverse precedents or
because the courts are presumed partial. It seems to me that the defence,
on the Belgian side, placed much reliance in certain circumstances on its
own judgment in evaluating the relevance or viability of certain remedies,
without leaving such decision to the courts, as ought to have been done.
8. Having recalled these questions of principle, I feel it worthwhile to
consider the chief remedies failure to seek which must, in my opinion, be
regarded as an omission for which the Belgian side would be responsible.
So far as administrative remedies are concerned, those that were omitted
concern in particular the decisions by which the Spanish Institute of
Foreign Exchange refused to grant currency that would have made it possible
to implement the various plans of compromise contemplated between Barcelona
Traction and its bondholders, and, more particularly, its refusal to approve
the last plan of compromise, which provided—at the cost of a considerable
loss—for the conversion into Spanish currency of certain bonds expressed in
foreign currency. The regulations then in force in Spain allowed private
parties to apply to the competent authorities for the necessary
authorizations: it is consequently evident, in accordance with
well-established principles relating to administrative hierarchies, that all
refusals of authorization of such a nature could form the subject of an
appeal to a higher authority. The refusals of the Spanish Institute of
Foreign Exchange ought consequently to have led to complaints by the
interested party to the Minister of Commerce, to whom the Institute was
directly responsible. Furthermore, this type of appeal, known as a
hierarchic appeal, is indispensable if it is desired that it should
subsequently be possible for a contentious-administrative appeal to be
admitted.
It has been alleged that no remedy is available against certain
administrative decisions if they fall within the discretionary power of the
authority which takes them, since that power, by virtue of its very nature,
excludes all possibility of their reversal. But the proceedings have shown
that precedents are to be found in Spanish administrative jurisprudence of
remedies sought and granted against decisions of this kind, [p 60] for a
discretionary power by no means implies an arbitrary one and only a higher
authority is able to discern whether a subordinate official has exceeded the
limits of a reasonable discretion and ventured into the unlawful domain of
arbitrariness or unjust discrimination.
So far as the remedy of a contentious-administrative appeal is concerned,
it can be said to constitute the culminating point of purely administrative
procedure. When appeals to the administrative authorities have been totally
exhausted, the way of contentious-administrative proceedings remains open
and has the advantage that this matter falls within the purview of the
Supreme Court. It is true that in order to have access to this new remedy it
would have been necessary in the present instance for the party concerned
first to appeal to the Minister against the decisions of the Spanish
Institute of Foreign Exchange, in order to obtain a decision from the
highest administrative authority, that is to say, an irrevocable decision.
This remedy was not sought; and it ought to have been, in particular, in
connection with the refusal to authorize the implementation of the last plan
of compromise, which provided for the payment of the bonds in pesetas, for
the subsidiary company Ebro maintained in relation thereto that it had been
the subject of unjust discrimination on the part of the administrative
authorities, when compared with other entities.
9. With respect to judicial remedies, I must refer in the first place to the
remedy of "opposition" to the bankruptcy judgment (auto de quiebra), for
which provision is made in Article 1028 of the Spanish Commercial Code and
in Article 1326 of the Code of Civil Procedure. The former article lays down
a time-limit of eight days as from the publication of the bankruptcy
judgment within which this remedy may be sought. On 17 March 1948, no plea
of opposition having been entered, the Reus judge gave a decision declaring
the bankruptcy judgment delivered with respect to Barcelona Traction on 12
February 1948 to be final and res judicata. The pleadings show that, by
extra-judicial means, this Toronto company had knowledge of the bankruptcy
adjudication in Spain two days after the Reus judgment was delivered; that
the newspapers of Toronto, of Montreal and of London published information
on this subject as from 14 February; that representatives of or shareholders
in the company made statements to the press in Toronto and Madrid during the
month of February alluding to the bankruptcy adjudication; that on 1 March
the president of the company, on behalf of the board of directors, addressed
to bondholders a circular letter concerning the bankruptcy adjudication; and
that the company on 9 March gave a power of attorney to enter judicial
appearance in Spain (see Annex 81 to the Preliminary Objections). There is
thus no doubt that from an extra-judicial or factual point of view Barcelona
Traction would have been in a position to take legal action and enter a plea
of opposition to the bankruptcy judgment well before the decision taken by
the Reus judge on 17 March. However, the bankruptcy proceedings gave rise to
a controversy between the Parties with respect to two points of law: the
non-notification of the judgment of 12 February to [p 61] the bankrupt at
its domicile in Toronto (Article 260 of the Code of Civil Procedure), and
the positive irregularity which, according to Belgium, characterized the
mode of publication of the said judgment, which took place only in Spain and
never at Toronto where the bankrupt company had its domicile. The Belgian
Government maintains that in these circumstances the legal time-limit for
making use of the remedy of "opposition" did not begin to run. In fact,
Barcelona Traction did not enter a plea of opposition to the bankruptcy
until June 1948. The Spanish Government takes the view that, since Barcelona
Traction's subsidiaries were domiciled and carried on their activities in
Spain, publication abroad was not warranted. The Court could only have
decided these disputed points by examining the relevant decisions of the
municipal courts which upheld the Spanish position, in order to establish
whether or not a denial of justice from the point of view of international
law can be imputed to them: which would have meant deciding the merits of
the case. Since such a pronouncement has been ruled out by the Judgment, I
must refrain from taking up a position on the question of whether the
Belgian side did or did not seek the local remedy of "opposition" to the
bankruptcy judgment in proper fashion and in good time.
10. The judicial order of 17 March 1948, which finally confirmed the effects
of the bankruptcy judgment of 12 February, was no doubt of a very serious
nature, for it opened the way for the sale of the bankrupt's property. The
remedies sought by the subsidiaries against this order were paralysed, in
accordance with the law, in consequence of the Boter declinatoria; it
consequently became necessary to seek a different sort of remedy in order to
avoid or postpone the sale. One of the few remedies capable of having this
effect was the remedy of revisión (Articles 1796 et seq. of the Code of
Civil Procedure). According to the law, this remedy may be sought if a
judgment which has become final was delivered "as a result of subornation,
violence or other fraudulent means" (paragraph 4 of the article referred
to). In this connection, the Application speaks of arbitrariness,
partiality, contempt for the principle of the equality of parties, and, in
short, of a "deliberate intention" on the part of certain Spanish judicial
authorities "of favouring" the personal "plans" of the enemies of Barcelona
Traction. These defects, in Belgium's opinion, go beyond mere negligence,
flagrant errors or imperfections in the law applicable. Referring more
specifically to the bankruptcy judgment pronounced by the Reus judge,
Belgium has spoken in the Reply of "flagrant connivance" between that judge
and the petitioners in bankruptcy (para-graph 26) and in oral argument of
the court's lack of scruples. It has thus unequivocally maintained that
there was dolus or fraud.
Belgium has raised various objections with regard to the appropriateness
and effectiveness of the remedy of revisión.
In the first place, it contends that under Spanish law revisión is only
available against a sentencia firme, i.e., against a judgment finally
pronouncing upon an action or claim, and that in Spanish terminology itself
[p 62] a bankruptcy judgment is only an auto, i.e., a decision which puts an
end not to the dispute, as a sentencia or judgment proper does, but only to
an incidental issue or partial aspect of the case.
This assertion might appear justified from a strictly terminological point
of view, but in fact bankruptcy proceedings have in substance a structure
all their own, which differs from that of ordinary proceedings with their
three classic stages of statement of claim and answer thereto, production of
evidence and judgment. In bankruptcy, the proceedings are divided into five
"sections", dealt with in separate "files" (Articles 1321 and 1322 of the
Code of Civil Procedure). The first section concerns the bankruptcy
judgment, ancillary provisions concerning its execution, and compositions;
the second deals with the administration of the bankruptcy; the third with
the retroactive effects of the bankruptcy; the fourth with the proving and
ranking of debts; and the fifth with the classification of the bankruptcy
and the discharge of the bankrupt. The subject-matter of each of these
sections, each with its separate file, is kept clearly distinct, and in each
of them independent decisions having the force of res judicata can be
delivered. In this sense, it is sound doctrine that a bankruptcy judgment
(auto) can be assimilated to a sentencia, in particular when that judgment
has become final (firme) by express judicial decision, either through no
plea of opposition to it having been entered or through such opposition's
having failed. It is consequently correct to say that in such a case the
fate or final direction of the action is settled. A bankruptcy judgment,
once it has become res judicata, automatically sets in motion all the
measures of execution which must carry the proceedings through to their
conclusion: liquidation of the assets, payment of the liabilities and
distribution of the surplus if any. The effects of such a judgment are those
of a true sentencia. Lastly (and this is decisive) an examination of Title
XIII, Book II, of the Code of Civil Procedure enables it to be seen that
Article 1330, with Article 755, gives the name of sentencia to the judge's
pronouncement deciding, after the presentation of evidence, the incidental
proceedings of opposition to the bankruptcy judgment. In terms of the law, a
decision which, in the absence of an entry of opposition, recognizes such
judgment to have the authority of res judicata, has exactly the same
character and weight as a sentencia (see Article 408).
It is consequently my belief that the remedy of revisión is available
against an auto adjudicating bankruptcy, since the latter possesses the
characteristics of a true sentencia. In any event, should any doubt have
remained, the rule of exhaustion required that the remedy be sought by the
interested party, for solely a judge can pronounce upon its admissibility.
Still other reservations have been expressed by Belgium with regard to the
possibility of relying on the ground for revisión to do with the employment
of fraudulent means in the proceedings. Although in the last stage of oral
argument counsel for Belgium attenuated noticeably the accusa-[p 63] tions
made in the pleadings against certain Spanish judicial authorities, there
was no formal withdrawal of them. Those accusations consequently stand and,
for the purposes of the rule of the exhaustion of local remedies, evidence
would have had to be supplied for it to be possible to establish whether the
proceedings were or were not vitiated by such irregularities. It was the
more indispensable in the present case in that proof of the facts alleged
would have had as its immediate consequence the annulment of the tainted
procedural acts: in other words, that very correction of the legal position
which is the object of the rule. It will consequently be seen how, from the
international point of view, the results of the remedy of revisión are of
capital importance when it subsequently comes to establishing the existence
or non-existence of the responsibility of the State.
The Belgian side nevertheless foresaw difficulty in obtaining tangible proof
of the accusations of dishonesty. But it always had at its disposal against
the authorities accused the prior remedy of proceedings to establish civil
liability (Code of Civil Procedure, Articles 903 et seq.), which would have
made it possible to establish whether criminal liability was involved or not
(Article 918 of the same Code). In the event of an affirmative answer, the
appropriateness of the remedy of revisión would have been beyond dispute. In
short, the omission of this remedy created a legal vacuity for which the
applicant Party must bear the responsibility. The rule of exhaustion was not
complied with.
11. It would also be possible to consider the case of other remedies that
were not sought, or which were sought improperly or out of time, by
Barcelona Traction, Sidro and Sofina, or other entities defending the
interests of the bankrupt company. In this connection an analysis might be
made of certain remedies aimed, for example, at challenging the jurisdiction
of the courts or calling in question certain aspects of the Conditions of
the judicial sale. It seems to me, moreover, to have been proved by the
pleadings and oral arguments that some of the remedies sought on behalf of
Barcelona Traction were not pursued to the end, that is to say, so far as
the obtaining of a final decision from the highest court. Others were only
exhausted after the commencement of the international proceedings in this
Court. I nevertheless do not consider it indispensable to enter into detail
in this connection: I would merely stress that the remedies I have just
examined were considered simply as examples, without there being any
intention of exhaustively enumerating them; since this question has in fact
been excluded from the Judgment, any more thorough study of its many aspects
would, indeed, serve no practical purpose. The essential point is that,
certain of the local remedies available not having been sought or duly
pursued to the end, the conditions for the continuation of diplomatic
protection by judicial means have not been satisfied.
(Signed) J.L. Bustamante Y Rivero.
[p 64]
Separate Opinion of Judge Sir Gerald Fitzmaurice
I
Introductory
1. Although (if with some reluctance) I agree and have voted with the
majority of the Court in finding the Belgian claim in this case to be
inadmissible, and broadly for the principal reason on which the Judgment is
based—namely that in respect of an injury done to a company, prima facie the
company's government alone can sustain an international claim—I have a
somewhat different attitude on various aspects of the matter, which I wish
to indicate. In particular (a) I would go considerably further than does
the Judgment in accepting limitations on the principle of the "hegemony" of
the company and its government;— furthermore (b), though I have felt bound
to vote as I have, I nevertheless hold it to be an unsatisfactory state of
the law that obliges the Court to refrain from pronouncing on the
substantive merits of the Belgian claim, on the basis of what is really—at
least in the actual circumstances of this case—somewhat of a technicality.
2. In addition, there are a number of particular matters, not dealt with or
only touched upon in the Judgment of the Court, which I should like to
comment on. Although these comments can only be in the nature of obiter
dicta, and cannot have the authority of a judgment, yet since specific
legislative action with direct binding effect is not at present possible in
the international legal field, judicial pronouncements of one kind or
another constitute the principal method by which the law can find some
concrete measure of clarification and development. I agree with the late
Judge Sir Hersch Lauterpacht FN1 that it is incumbent on international
tribunals to bear in mind this consideration, which places them in a
different position from domestic tribunals as regards dealing with—or at
least commenting on—points that lie outside the strict ratio decidendi of
the case.
--------------------------------------------------------------------------------------------------------------------- FN1
The necessary references and citations are given in the opening paragraphs
of the separate Opinion of my colleague Judge Jessup in the present case
(q.v.),—and I associate myself with the views he expresses in this
connection.
---------------------------------------------------------------------------------------------------------------------
*
[p 65]
3. In the next part (II) of this opinion (paragraphs 4-34) I propose to
indicate the criteria on the basis of which I have felt obliged to concur in
the main conclusion reached by the Court, but I shall do so in the light of
my view that certain of the considerations of law which compel that
conclusion prove, in the international field, to be unserviceable as soon as
they are applied to any situation which is out of the ordinary. In the
succeeding part (III—paragraphs 35 and 36), I state the conclusions which I
believe ought to be drawn from part II as to the place of equitable
considerations in the international legal field, and the growing need there
for a system of Equity. In the next two parts (IV and V) I propose, as
indicated supra in paragraph 2, to comment on a certain number of matters
(also of a more or less preliminary character) which, though not relevant to
the particular point on which the Court's decision turns, formed part of the
long series of questions debated by the Parties in the course of their
arguments, and which accounted, or could have accounted, for individual
rejections of the Belgian claim by certain Members of the Court. Part IV
(paragraphs 37-65) will deal with matters affecting the nationality of the
Barcelona Traction Company's shareholders, and Part V (paragraphs 66-83)
with certain other matters having a preliminary character,—viz. the question
of jurisdiction in bankruptcy, and a particular aspect of the local
remedies rule. Finally, in the concluding part (VI—paragraphs 84-90)—since
the subject has evidently given rise to some misunderstanding—I discuss the
philosophy of the joinder of preliminary objections to the merits. There is
finally a Postscript on the question of the length of the proceedings in
this and other cases, and certain related matters.
II
The Question of Belgium Locus Standi in Judicio FN2
--------------------------------------------------------------------------------------------------------------------- FN2
Although I now agree with my colleague Judge Morelli's view that the
question of Belgium's right to claim on behalf of the Barcelona Traction
Company's shareholders, in so far as Belgian, is really a question of
substance not of capacity (because the underlying issue is what rights do
the shareholders themselves have), it is convenient for immediate purposes
to treat the matter as one of Belgian Government standing.
---------------------------------------------------------------------------------------------------------------------
4. Although, as I have said, I reach the same final conclusion as in the
Judgment of the Court, my approach is different. In particular I do not base
myself as does the Judgment to some extent (vide its paragraphs 33-36), and
as figured fairly prominently in the arguments of the Parties, on any
consideration turning on the question of to whom, or to what entity, was the
obligation owed in this case, not to act in a manner [p 66] contrary to
international law. This does not seem to me to be the right question to ask
where the issue involved is not one of treaty or other particular
obligations, but of general international law obligations in the sphere of
the treatment of foreigners. If in the latter area a State, either directly
or through its agencies or authorities, acts illicitly, it stands in breach
of international law irrespective of whether any other State is qualified to
take the matter up. For instance if an individual were concerned, he might
be stateless. If in the present case there have been contraventions of
international law, they are in no way legitimized, nor do they become any
the less illicit, because Canada has not (or even possibly could not FN3)
pursue the matter, and because Belgium is held to possess no locus standi in
judicio for doing so. Nor is the question of the entity to which the
obligation is due helpful even for the purpose of identifying the party
entitled to claim, for such entity would itself previously need to be
identified, and the discussion would turn in a circle.
--------------------------------------------------------------------------------------------------------------------- FN3
i.e., if it were held that no "genuine link" existed between Canada and the
Barcelona Traction Company on the basis of the principle of the Nottebohm
case (vide infra, paragraphs 26-32).
---------------------------------------------------------------------------------------------------------------------
5. The material and only pertinent question is who or what entity, if, any
is entitled to claim in respect of damage accruing to shareholders in
consequence of illicit treatment of the company;—and in order to answer
this since the matter concerns a company and its shareholders—it is above
all necessary to have regard to the concept and structure of companies
according to the systems of their origin, which are systems of private or
domestic law,—and furthermore to insist on the principle that when private
law concepts are utilized, or private law institutions are dealt with in the
international legal field, they should not there be distorted or handled in
a manner not in conformity with their true character, as it exists under the
system or systems of their creation. But, although this is so, it is
scarcely less important to bear in mind that conditions in the international
field are sometimes very different from what they are in the domestic, and
that rules which these latter conditions fully justify may be less capable
of vindication if strictly applied when transposed onto the international
levelFN4. Neglect of this precaution may result in an opposite
distortion,—namely that qualifications or mitigations of the [p 67] rule,
provided for on the internal plane, may fail to be adequately reflected on
the international,—leading to a resulting situation of paradox, anomaly and
injustice.
--------------------------------------------------------------------------------------------------------------------- FN4
In this respect I fully associate myself with the views expressed by Lord
McNair in his South West Africa case (1950) Opinion when, speaking of the
United Nations Trusteeship System, he said (I.C.J. Reports 1950, at p. 148)
that private law institutions could not be imported into the international
field "lock, stock and barrel", just as they were, and that private law
rules could only serve as indications of principle and not as rigid
injunctions in the international domain. However, in the present case there
is no question of international law setting up a new international
institution analogous to the private law institution of the limited
liability company. The latter remains a purely private law creation, which
international law must take as it finds it. The complaint I am making in
this Opinion is that international law has indeed taken it as it has found
it over part of the ground, but not over the rest, thereby introducing an
unjustified distortion.
---------------------------------------------------------------------------------------------------------------------
6. This is what seems to have occurred in the field of the corporate entity
at the international level. Since the limited liability company with share
capital is exclusively a creation of private law, international law is
obviously bound in principle to deal with companies as they are,—that is to
say by recognizing and giving effect to their basic structure as it exists
according to the applicable private law concepts FN5. Fundamental to the
structure of the company is the ascription to it, qua corporate entity, of a
separate personality over and above that of its component parts, viz. the
shareholders, with resulting carefully drawn distinctions between the
sphere, functions and rights of the company as such, acting through its
management or board, and those of the shareholder. These distinctions must
obviously be maintained at the international level: indeed to do otherwise
would be completely to travesty the notion of a company as a corporate
entity. Thus it is that, just as in domestic courts no shareholder could
take proceedings in respect of a tort or breach of contract committed in
respect of the company, but only the latter could do so, through the action
of its management with whom the decision would lie—a decision which, broadly
speaking, the shareholder must accept,—so also if an illicit act injurious
to the company or infringing its rights takes place on the international
plane, it is not the government of the shareholder but, in principle, that
of the company alone, which can make an international claim or bring
international proceedings;—the decision whether to do so or not lying with
the latter government—a decision which again the foreign shareholder must
accept, in the sense that neither he nor his government can require (still
less compel) the company's government to take action.
--------------------------------------------------------------------------------------------------------------------- FN5
It is inevitable that these concepts should be referred to herein in very
broad and general terms. The details vary from country to country, and some
things may not be true or may need considerable qualification for certain
countries.
---------------------------------------------------------------------------------------------------------------------
7. In neither case does it make any difference that the wrong done to the
company recoils or "repercusses" onto the shareholder FN6, e.g., by [p 68]
causing the market value of his shares to fall or the profits of the company
to be diminished—whence lower dividends; or by causing difficulty as to
disposing of the shares—(for want of ready buyers),—for while the
shareholder has a legal right not to have his shares cancelled or
confiscated without compensation, he has no legal right that they shall
have, or be maintained at, any particular market value,—and while the
shareholder has a right to receive a dividend if a dividend is declared, he
has no right that it shall be declared, or (if declared) be for any
particular amount FN7,—and again, while he has a right freely to dispose of
his shares FN8, the law does not guarantee him either a buyer or a price.
--------------------------------------------------------------------------------------------------------------------- FN6
Suppose that by the tortious negligence of a third party the company's
warehouses are burned down,—the shareholder may indirectly be seriously
affected, but he can have no right of action: the property was not his but
the company's. It is the same if his interest is affected by the failure of
a third party to carry out a contract with the company, for he himself is
not a party to the contract. It is quite another matter if the act
complained of is directed against, or directly infringes, his specific
rights as a shareholder,—if for instance his right freely to dispose of his
shares were illicitly interfered with, or if resolutions duly passed at the
general meeting of shareholders were declared null and void, etc.
FN7 Except of course in the case of fixed interest securities of various
kinds.
FN8 As a general rule, that is. Under wartime or other emergency conditions,
owners of certain kinds of securities (e.g., those expressed in foreign
currency) might be required to dispose of them to, or only to, the
government or central bank.
---------------------------------------------------------------------------------------------------------------------
8. But at this point it becomes clear that something has gone wrong,— that
the analogy has broken down,—because certain qualifications or
modifications, it might be said mitigations, which, in the domestic field,
affect and as it were alleviate the situation just described, are not, in
the present state of the law, reflected, or not adequately so, in the
international domain;—for whereas at that level this situation is one
which, as the law now seems to stand, may leave the shareholder powerless to
protect his interests, this is not the case on the domestic plane, where the
principle of the "hegemony" of the company is accompanied by certain
balancing elements, acting as a counterweight, which are only up to a point
reflected in the present condition of international law— (vide infra,
paragraph 11 and the footnotes thereto).
*
9. In order to understand this matter, it is necessary to have regard to the
underlying rationale of the "hegemony principle". This resides in something
more than the purely juridical situation resulting from the separate legal
personality of the company, and the fact that, in the type of case now in
question, the rights infringed are those of the company, not of the
shareholder—though his pocket may be affected, actually or potentially—(vide
supra, paragraph 7 and footnote 6). Nor does it reside in the practical
considerations which, on the domestic plane, at least, must in all normal
circumstances rule out the possibility of separate and independent action by
shareholders in respect of the treatment of the company, as such, by third
parties.
10. The true rationale (outside but underlying the law) of denying to [p 69]
the shareholder the possibility of action in respect of infringements of
company rights is that, normally, he does not need this. The company will
act and, by so doing, will automatically protect not only its own interests
but those of the shareholders also. That is the assumption;— namely that the
company is both capable of acting and will do so unless there are cogent
reasons why, in the interests of the company and, hence, indirectly of the
shareholders, it should refrain FN9,—the decision involved being one of
policy, prima facie for the determination of the management. (It is
precisely here, however, that the beginnings of a profound difference
between the domestic and the international situations can be discerned, for
if and when a government declines or fails to intervene on behalf of a
company of its nationality detrimentally affected by illicit foreign action,
the reasons will be the government's not the company's FN10, and will
normally have nothing to do with the company's interests, which indeed are
likely to be adversely affected still further by the government's refusal or
failure, so that no contingent or long-term advantage, or avoidance of
disadvantage, will result, as might be expected if the decision were the
company's. The motivations involved are quite distinct. But all this is to
anticipate.)
--------------------------------------------------------------------------------------------------------------------- FN9
Because, e.g., too expensive, or likely to have undesirable repercussions,
to offend some powerful interest, interfere with some other objective,
involve some awkward revelation, etc.
FN10 These may, but just as probably may not, have to do with the actual
merits of the claim. For instance a government may well not wish to press a
private claim against another government with which it is conducting
difficult negotiations on a matter of overriding national importance. Many
other instances could be given.
---------------------------------------------------------------------------------------------------------------------
11. The assumption that the company will act, or will have good reasons for
not doing so—(reasons which will be in the eventual interests of the
shareholders also)—underlies equally the variously expressed axiom, on the
presumed truth of which so much of the applicable law is based—namely that
the fate of the shareholder is bound up with that of the company; that his
fortunes follow the latter's; that having elected to throw in his lot with
the company, he must abide by the consequences, be they good or bad, so long
as he maintains his connection with it, etc., etc. The idea has been well
expressed in a recent work FN11 as follows (my translation):—
"If, in principle, the shareholders must suffer the fate of the company,
this is because the corporate entity is a legal person capable by its
corporate action of protecting the interests which the shareholders have
entrusted to it . . . transferring to the corporate [p 70]entity a part of
their personality and rights, with the object of thereby obtaining a better
return and a more effective safeguard. But on that account, if such is the
justification for the indivisibility of the corporate entity, such is also
its limit."
---------------------------------------------------------------------------------------------------------------------
FN11 Paul De Visscher, "La Protection Diplomatique des Personnes Morales"—
(Diplomatic Protection of Corporate Entities)—Recueil [i.e., Collected
Courses] of the Hague Academy of International Law, 1961, Vol. I, at p. 465.
---------------------------------------------------------------------------------------------------------------------
The nature and extent of this limit on the international plane will be
considered later. In the domestic sphere it takes two main forms, the
external and the internal—the latter being action within the company itself
by means of its own processes and procedures (vide infra, paragraph 12). As
to the former, most developed systems of law contain provisions which have
been described in very general terms as being
"intended to protect the interests of shareholders if the company's officers
are considering their own interests rather than the interests of the
company, and also to protect the interests of minorities of shareholders"
FN12.
------------------------------------------------------------------------------------------------------------
FN12 Beckett, "Diplomatic Claims in Respect of Injuries to Companies",
Transactions of the Grotius Society, Vol. 17 (1932), at p. 193, footnote
(7), citing (and see also at p. 192) Dutch, English, French and German law.
Beckett also cites a passage from Halsbury's Laws of England. The same
passage as it figures in the later (1954) edition, after stating that
normally only the company not shareholders can sue third parties, continues
as follows:
"Where, however, the persons against whom relief is sought hold and control
the majority of the shares, and will not permit an action to be brought in
the company's name, shareholders complaining may bring an action in their
own names and on behalf of the others and they may do so also where the
effect of preventing them so suing would be to enable a company by an
ordinary resolution to ratify an improperly passed special resolution."
See also Mervyn Jones, "Claims on behalf of Nationals who are Shareholders
in Foreign Companies" in British Year Book of International Law, Vol. XXVI
(1949), at pp. 232-234, citing American, Austrian, Belgian, English, French,
Italian, Norwegian, Swedish and Swiss law.
See further as to German law in "La Personnalité Morale et ses Limites"—
(The Corporate Entity and its Limits), published by Pichon & Durand-Auzias
for the Institute of Comparative Law of the University of Paris in Librairie
Générale de Droit et de Jurisprudence, 1960, at pp. 43-44 (per Dr. Ulrich
Drobnig); and, in ibid., at p. 150, the following statement of Swiss law
(per Prof. J. M. Grossen—my translation): "There are fortunately other
[sanctions] which enable [the shareholders] to compel the corporate
entity—or more exactly its management—to change its attitude."
For analogous provisions of French law see paragraph 11 of my colleague
Judge Gros' separate Opinion.
------------------------------------------------------------------------------------------------------------
Such provisions of course differ from country to country but, without
attempting to particularize, their broad effect is either to enable
shareholders to bring an action in their own names against a third party,
in a variety of circumstances involving fraud, malfeasance, negligence or [p
71] other improper refusal or failure on the part of the management to act
for the protection of the company's interests, or else to enable
shareholders to bring proceedings against the management itself to compel
it so to act. In short, generally speaking, domestic law makes at least some
provision for the case where the basic assumption of action by the company,
rendering action by the shareholders unnecessary, ceases to hold good FN13.
--------------------------------------------------------------------------------------------------------------------- FN13
In addition to the passage from Halsbury's Laws of England cited in the
first paragraph of footnote 12 supra, the following sections from the same
work also indicate the position under English law (loc. cit., pp. 222-223,
omitting references to footnotes):
"458. Statutory right of members collectively. The members of a company
collectively have statutory rights, some of which are exercisable by a bare
majority, as, for instance, a resolution at the statutory meeting; others by
a particular majority, as in the case of a reconstruction; and others by a
minority, as in the case of a requisition for a meeting of shareholders, or
of an application to the Board of Trade to appoint an inspector to
investigate the company's affairs, or of an application by an oppressed
minority to the court for relief.
Statutory rights cannot be taken away or modified by any provisions of the
memorandum or articles [i.e., of the company]."
"461. Rights under the general law. The rights of a member under the general
law include his right... to restrain directors from acting ultra vires the
company or in excess of their own powers or acting unfairly to the members."
---------------------------------------------------------------------------------------------------------------------
12. The other type of possibility which private law affords to shareholders
(or at least to a majority of them; and often even to a minority) if
dissatisfied with the policies of the company—including therefore such a
thing as a failure to proceed against a third party in the protection of the
company's interests—is to take action on the internal plane within the
confines of the company itself, and through its normal procedures
(shareholders' meetings, voting of resolutions, etc.), directed to
influencing and if necessary changing, those policies or even, in the last
resort, modifying or changing the management itself. In certain
circumstances, reconstructions constitute another possibility.
*
13. The question that now has to be asked is how far these domestic law
limitations on the exclusive power of the management, allowing of
independent action by the shareholders, are reflected at the international
level, so as correspondingly to qualify the principle of the exclusive right
of the government of the company to intervene, and admitting the possibility
of intervention by that of the shareholders, even though the injury is to
the company as such, rather than to any independent stricto sensu
shareholding right. This question has to be asked because, if it is [p 72]
not right that international law should distort the structure of the company
(an essentially private law concept) by failing to give all due effect to
the logic of its separate personality, distinct from that of the
shareholders,—it is no less wrong, and an equal distortion, if international
law fails to give due effect to the limitations on this principle recognized
by the very system which, mutatis mutandis, it is sought to apply on the
international plane. In short, such application should be integral, not
partial. But is it?—or is it not rather the case that international law,
while purporting to base itself on, and to be guided by the relevant
features of municipal law, really does so only to a certain extent,
departing from it at precisely that point where, under municipal law the
management of the company can in certain circumstances be compelled by the
shareholders to act?
14. It seems that, actually, in only one category of situation is it more or
less definitely admitted that intervention by the government of foreign
shareholders is allowable, namely where the company concerned has the
nationality FN14 of the very State responsible for the acts or damage
complained of, and these, or the resulting circumstances, are such as to
render the company incapable de facto of protecting its interests and hence
those of the shareholders FN15. Clearly in this type of case no
intervention or claim on behalf of the company as such can, in the nature
of things, be possible at the international level, since the company has
local not foreign nationality, and since also the very authority to which
the company should be able to look for support or protection is itself the
author of the damage. Consequently, the normal rule of intervention only on
behalf of the company by the company's government becomes not so much
inapplicable as irrelevant or meaningless in the context. The efficacity of
the corporate entity and its capability of useful action has broken down,
and the shareholders become as it were substituted for the management to
protect the company's interests by any method legally open to them. If some
of them have foreign nationality, one such way is to invoke the intervention
of their government, and in the circumstances this must be regarded as
admissible. Thus the same [p 73] authority as was cited in paragraph 11
above continues (translation): FN16
". .. From this it necessarily results that if the rational justification
for the mechanism of the corporate entity is brought to a collapse by the
act of the very State whose law governs the status and allegiance of the
corporate entity, its personality is no longer anything but a fiction void
of all meaning, in which there can now be seen nothing but a bundle of
individual rights."
--------------------------------------------------------------------------------------------------------------------- FN14
For present purposes I am taking the nationality of a company to be that of
the country of incorporation, the laws of which govern the company's
constitution and functioning. However, vide infra paras. 33 and 34.
FN15 If the wrong done to the company, or breach of contract with it, comes
not from another private party but from the authorities of the country, it
is again in principle only the company which can take legal action, to the
extent that the local law allows the government to be sued. If however, as
happened for instance in the El Triunfo case (United Nations Reports of
International Arbitral Awards, Vol. XV, p. 464), the action taken against
the company by the authorities has the effect of completely paralyzing it,
then the shareholders can act and, if they are unable to obtain redress
locally, but have foreign nationality, can, according to the view here
discussed as being now more or less generally recognized, invoke the aid and
intervention of their government.
FN16 Loc. cit. in footnote 11 supra.
---------------------------------------------------------------------------------------------------------------------
15. Notwithstanding these cogent considerations of principle, the validity
of this exception to or limitation on the rule of non-intervention by the
government of the shareholders in respect of wrongs done to the company, is
contested on a variety of grounds. It is said for instance that this type of
intervention on behalf of foreign shareholders ought only to be permissible
where the company itself is also essentially foreign as to its management
and control, and the nature of the interests it covers, and where its local
nationality did not result from voluntary incorporation locally, but was
imposed on it by the government of the country or by a provision of its
local law as a condition of operating there, or of receiving a concession.
In such cases, it is said, the company's nationality is an artificial one
that does not correspond with the underlying realities, and for this reason
(but for this reason only) the local government should not be able to avail
itself of the obstacle of its nationality which it has designedly insisted
on interposing between itself and those realities— possibly for the express
purpose of preventing foreign intervention. Where however the local
nationality was deliberately assumed by the company as a matter of choice,
then, so it is said, there is no reason for making any such departure from
the basic rule of the company screen.
16. It is doubtless true that it is in the case of such "enforced" local
nationality that situations leading to foreign shareholders in the company
invoking the intervention of their government are most liable to arise.
Nevertheless, there does not seem to be any sufficient reason of principle
for drawing the distinction involved. The fact of local incorporation, but
with foreign shareholding, remains the same in both types of case, whatever
the motivations or processes that brought it about. Nor are the motivations
which lead foreign interests to seek or not seek local nationality always
easy to assess: they may be very mixed. Nor again is it always the case that
companies with a large foreign shareholding, and mainly controlled from
abroad, do not voluntarily obtain local incorporation: they often do, and
there may be sound business reasons for it. Yet they are just as liable in
practice to be regarded locally as [p 74] basically foreign, and to suffer
from action which may prevent them, as companies, from acting for
themselves.
17. Another objection to be urged was that in so far as the doctrine of a
right of intervention on behalf of foreign shareholders in a locally
incorporated company unable to act for itself, or rendered incapable of so
doing, may depend on a number of precedents deriving from cases decided by
international tribunals, it will be found on a careful examination of those
cases that the "company" that was concerned was usually more in the nature
of a firm, partnership, or other similar association of persons, than of a
true separate corporate entity distinct from those persons. Hence, it is
objected, in so far as the latter were admitted, to claim and their
governments to support their claims, they were acting in respect of damage
to specific stricto sensu rights of their own in the association concerned,
and not of the rights of the association as such. Where on the other hand,
so it is said, a corporate entity really was involved, the capacity to claim
on behalf of shareholders resulted from the express terms of the treaty,
convention or "compromis" submitting the case to the tribunal,—consequently
these cases cannot be cited as implying recognition of any general principle
of law allowing of such claims.
18. It may be true that the exact rationale of a number of the decisions
concerned is not very easy to determine precisely, and lends itself to much
controversy, as the course of the written and oral proceedings in both
phases of the present case have amply demonstrated. Any thorough
determination would however take up a disproportionate amount of space here:
nor is it necessary,—for the considerations of principle invoked in previous
paragraphs of this Opinion, based on domestic law analogies, are quite
sufficient in themselves to justify the doctrine of a right of intervention
on behalf of shareholders "substituted" for a moribund or incapable company
of local nationality, in order to protect its interests and their own.
19. It is my view therefore, that the legal position is correctly stated in
the following two paragraphs from the same source as was previously cited
FN17:
"In sum, in order to weigh the admissibility of the protection of
shareholders, it is necessary to adhere essentially to the idea of the
effectiveness of the corporate entity. It matters little whether, according
to internal law criteria, the corporal personality subsists or not. Even
where it does, an international tribunal can admit the [p 75] diplomatic
protection of shareholders from the moment when it finds as a fact that the
damage caused to the corporate entity has had the effect of paralysing or
sterilising the usefulness that the mechanism of corporate personality ought
normally to bring about for the benefit of the shareholders.
------------------------------------------------------------------------------------------------------------ FN17
Loc. cit. in footnote 11 supra, at p. 477.
------------------------------------------------------------------------------------------------------------
In that case, an international tribunal, not being bound by internal law
criteria, 'pierces the corporate veil', as it is said, [but] it would be
more accurate to say that it registers the absence of all effective
personality, of any effectual intermediary between the shareholders and the
rights infringed."
These two paragraphs moreover, even if only in general terms, almost exactly
describe the situation of the Barcelona Company which, though still
subsisting and formally in existence FN18 has, as to its functioning in
Spain, been entirely paralyzed and rendered incapable of further useful
action—a situation not only admitted but, for their own purposes,
considerably insisted upon by the Spanish side. The Company was indeed
crippled to the point where, deprived of all its Spanish assets and sources
of income, it could no longer find the funds for its legal defence, these
having to be supplied by the very same shareholders whose right to invoke
the diplomatic protection of their Government, Spain denies.
--------------------------------------------------------------------------------------------------------------------- FN18
I share the view expressed in the passage just cited that the formal keeping
alive of the company does not affect the realities of the matter. However,
the Belgian position would (ironically) have been stronger if the Spanish
events had resulted not merely in the "hispanicization" of the undertaking
in Spain, but in forcing the liquidation or winding up of Barcelona Traction
itself,—for it would then have been much more difficult to maintain, through
the fiction of the Company's continued existence, that only the Canadian
Government could claim.
---------------------------------------------------------------------------------------------------------------------
20. In consequence, had the Company been Spanish by incorporation, instead
of Canadian, I should have had no hesitation in holding that a claim by
Belgium on behalf of the Belgian shareholders in the Company was
admissible;—and it is indeed one of the ironies of this case (but not the
only one FN19) that the Belgian Government would have been in a much
stronger position as regards the admissibility of its claim had the Company
been Spanish rather than Canadian.
--------------------------------------------------------------------------------------------------------------------- FN19
See previous footnote. It may also be thought (see the separate Opinion of
my colleague Judge Gros, paragraph 12) that the Company would have fared
better through an open and avowed nationalisation or expropriation of its
Spanish undertaking, accompanied by the payment of adequate compensation,
than it did through the process of the bankruptcy. But this would have
depended on the nature and amount of the compensation.
---------------------------------------------------------------------------------------------------------------------
*[p 76]
21. Must the Canadian nationality of the Company then rule out the Belgian
claim? In the present state of the law it would seem that it must. In
connection with this conclusion, however, a number of points have to be
considered in order to show why, although it is correct on the basis of
extant law, this law itself, as it now stands, is in this respect
unsatisfactory.
22. The first of these points is that, as required by the logic of the
considerations indicated in paragraphs 5 to 13 supra, if on the domestic
plane there are circumstances in which some action is open to the
shareholders notwithstanding that it is prima facie the company's position,
rather than (directly) their own, that is in question,—then in
corresponding circumstances the government of the shareholders should, on
the international plane, be entitled to intervene and claim. One such case
has already been discussed supra in paragraphs 14-20: the company is defunct
or paralyzed and there can be no question of intervention or claim by its
government, for the latter is itself the tortfeasor government, if wrong
there has been. Similarly, if international law is to remain faithful to the
concept of the company and, in dealing with the latter on the international
plane, is to give due effect to its essential elements, then it must provide
for the case where the company's government— not being the tortfeasor
government (but also not being the government of the majority of the
shareholders)—for reasons of its own that have nothing to do with the
interests of the company (see supra paragraph 10) refuses or fails to
intervene, even though there may be a good, or apparently good case in law
for doing so, and the interests of the company require it. Just as on the
domestic plane an analogous failure or refusal on the part of the management
of the company would normally enable the shareholders to act, either (if the
element of dolus or culpa were present) by legal action against the
management, or against the tortfeasor or contract-breaking third party,—or
else through the internal processes of the company;—so also, on the
international plane, ought the inaction of the company's government enable
that of the shareholders to act— (and obviously there would be ways of
resolving the practical difficulties of the company's government
subsequently changing its mind—if the servants of the law cared to work them
out;—I think that in this respect paragraphs 94-98 of the Court's Judgment
make too much of this matter).
23. In fact, international law does not at present allow of this— except
possibly in the one case of the company's government being actually
disqualified at law from acting (as to which see infra, paragraphs 26-32).
The reasons for this insufficiency—for such it is—may be perfectly
understandable, but this does not alter the fact that international law is
in this respect an under-developed system as compared with private law, and
that it fails to provide the recourses necessary for protecting [p 77] on
the international plane the interests not merely of the shareholders but of
the company itself. What are these reasons? They are of course that a
government is not in the same position as a company and cannot be made
subject to the same constraints. The management of a company owes a duty,
not only to the company but to the shareholders, and is bound to act in the
best interests of the company, and hence of the shareholders, basing itself
on an informed and well-weighed estimate of what these are. A government is
under no such duty. It is perfectly free on policy grounds to ignore the
interests of the company or even to act in a manner it knows to be contrary
to these; and if it does this, there are no international means of recourse
against it, such as there would be against the management of a company so
acting on the internal plane. There is no means, internationally, of
proceeding against a government which refuses to intervene on behalf of, or
support, the claim of one of its nationals or national companies FN20,—nor
could such a refusal conceivably entail the breach of any general
international law obligation. Still less of course is there any means of
changing or replacing a government which refuses or fails to act as,
internally, the shareholders may be able to do as regards the company's
management.
--------------------------------------------------------------------------------------------------------------------- FN20
Theoretically, the internal law of the country concerned might provide a
means of recourse against the government in such circumstances: and
political action might be possible. But in neither case would the essential
point be affected.
---------------------------------------------------------------------------------------------------------------------
24. All this at present provides an excuse for saying, as the law now does,
that if the company's government does not act no other one can. Instead, it
should constitute a reason for coming to precisely the opposite conclusion.
An enlightened rule, while recognizing that the national government of the
company can never be required to intervene, and that its reasons for not
doing so cannot be questioned even though they may have nothing to do with
the merits of the claim, would simply provide that in such event the
government of the shareholders may do so FN21— particularly if, as is
frequently the case, it is just because the shareholding is mainly foreign
that the government of the company feels that no sufficient national
interest exists to warrant intervention on its own [p 78] part FN22. The
law's present attitude is based on predicating for the company's government
not merely a prima facie right (which would be understandable) but an
exclusive one (which is not). There is no reason of principle why, if the
law so wills, failure to utilize a right of action by the party prima facie
entitled to do so should not sanction its exercise by another party whose
material interest in the matter may actually be greater. Practical
difficulties there might be; but this is not a serious objection where no
inherent necessity of the law stands in the way. That such a situation of
primary and secondary (or latent) entitlement to act can work, if properly
regulated, seems to be indicated by the shareholders' possibilities of
action on the domestic plane, as earlier described.
--------------------------------------------------------------------------------------------------------------------- FN21
I am not greatly impressed by the point which comes up in several
connections that the Belgian position, with a big block of majority
shareholding, is peculiar, and that in other cases there might be foreign
shareholders of several nationalities and a consequent multiplicity of
claims. This would only go to the quantum of reparation recoverable by the
various governments,—and once the principle of claims on behalf of
shareholders had been admitted for such circumstances, it would not be
difficult to work out ways of avoiding a multiplicity of proceedings, which
is what would really matter.
FN22 This is or has been the settled policy of a number of governments. I am
not impressed by the argument that those who acquire shares in companies not
of their own nationality must be deemed to know that this risk exists. That
does not seem to me to affect the principle of the matter.
---------------------------------------------------------------------------------------------------------------------
*
25. International law must in consequence be regarded as deficient and
underdeveloped in this field because, while retaining the rule of the
"hegemony" of the company and its government, it fails to provide those
safeguards and alternatives which private law has instituted for preventing
the hegemony of the company's management leading to abuse. More exactly,
what the law enjoins, and the Judgment of the Court therefore inevitably
endorses (see its paragraphs 66-68, 77-83 and 93), is the by-passing of the
difficulty by a sort of "ostrich-act"—a hiding of the face in the sands of
the fiction that so long as it remains theoretically possible for the
company's government to act (and however little reality there may be about
this possibility), no other government can do so. Thus the law allows the
company's government eternally to dangle before the foreign shareholder the
carrot of a hypothetical protection that will never be exercised, and tells
the hungry fellow that he must be satisfied with this because, although he
will never be allowed to eat that carrot, it will always remain there to be
looked at FN23! International law has of course to accept the fact that
governments cannot[p 79] be compelled to act or be changed. But it does not
have to accept (and even positively decree) that nevertheless no other
government can ever act—that the carrot must be eternally dangled but never
eaten—the maiden ever pursued but never attained!—(see footnote 23 above).
--------------------------------------------------------------------------------------------------------------------- FN23
Or, like the nymph pursued by the ephebus, as depicted in the timeless
stasis of the attic vase that inspired the poet Keats' celebrated Ode on a
Grecian Urn (verse 2, lines 7-10):
"Bold Lover, never, never canst thou kiss,
Though winning near the goal—yet, do not grieve;
She cannot fade, though thou hast not thy bliss,
Forever wilt thou love, and she be fair!"
---------------------------------------------------------------------------------------------------------------------
***
The Nottebohm case
26. There remains however a quite different order of point, which is in my
view by far the most important to arise on the question of Belgian locus
standi, namely what the situation would be if Canada, instead of having
merely failed to pursue the case, were actually to be unable to do so
because of a legal disability created by international law itself,
disqualifying Canada from acting. It is one thing for the law to predicate,
on the basis of an exclusive right of action for one government, that even
in the event of its not being exercised, no other government may exercise
it. Such a position may be regrettable, for the reasons I have indicated,
but is at least tenable. What would be totally inadmissible would be for the
law simultaneously to confer a right, yet disqualify the indicated
government from exercising it in certain circumstances, and then, when these
arise and the disqualification operates, continue to maintain the rule of
exclusivity and the consequent incapacity of the governments of other
parties whose interest in the matter is undeniable. Implicitly the Judgment
takes the same view because an important part of it (see preceding
paragraph) rests on the basis that so long as it is possible for the
company's government to claim (whether it chooses to do so or not) the
shareholders are not, at least in law, deprived of all chance of protection.
27. These aspects are particularly important if consideration is given to
what the ground of Canada's possible disqualification would be, namely (on
the basis of certain previous decisions and other elements FN24) that there
was an absence of a sufficiently close link between the Canadian Government
and the Barcelona Company to give the former an actionable interest at law.
Moreover, a major factor would precisely be the absence of any Canadian
shareholding or share capital in the Company and the fact that most of it
was Belgian. In my view, a disqualification—[p 80] at least if it takes
place on those grounds—must in logic and in law ipso facto imply legal
capacity for the government of the shareholders whose non-Canadian status
has brought the disqualification about.
--------------------------------------------------------------------------------------------------------------------- FN24
In particular the decision of the Court in the Nottebohm case
(merits)—I.C.J. Reports 1955, p. 4 et seq.; and the Report of the Commission
of Arbitration in the "I'm Alone" case (U.N. Reports of International
Arbitral Awards, Vol. III, p. 1614). The same sort of questions also arise
over the use of flags of convenience; supposed head-offices that are no more
than an address and a letter-box; etc.
---------------------------------------------------------------------------------------------------------------------
28. Having regard to the importance of this issue and, consequently, of the
possible applicability to the situation of Canada of the Court's decision in
the Nottebohm case FN25, which obviously could affect the whole outcome of
this part of the case, I consider that it should not have been side-tracked
on the basis that neither of the Parties contested the existence of a
Canadian right of intervention and claim. In my view they should have been
asked, in the exercise of the Court's power to act proprio motu, to present
full argument on the matter; and the intervention of the Canadian
Government under Article 62 of the Court's Statute should have been sought,
in order that its views might be made known. If for various reasons, it
would not have been practicable to do this during the normal course of the
oral hearing, I consider that the Parties should have been recalled later
for the purpose, after such interval as might have been thought appropriate
for any necessary written exchanges on the subject. This was not done: yet
the Court's Judgment (see paragraph 70 and, generally, paragraphs 70-76) not
only touches on the matter, but gives the reasons why the Court did not
believe that it need consider the Nottebohm case, viz. that there was no
true analogy between the situation in that case and this one. At the same
time, the Court does in fact find affirmatively that there is a sufficient
link between Canada and the Barcelona Company to qualify Canada to sustain a
claim if it chooses to do so,—and the Court does so without going into the
counter arguments to be derived from the Nottebohm case. In these
circumstances, and without myself attempting to pronounce on the substance
of the matter, I feel obliged to indicate why the Nottebohm decision
unquestionably does have a bearing on this—one of the main issues dealt with
in the Judgment of the Court; and why indeed there is a strikingly close
analogy between the two cases, so that the principle of the Nottebohm
decision could well be regarded as very neatly applying to the situation
obtaining in the present case.
--------------------------------------------------------------------------------------------------------------------- FN25
See reference in footnote 24 above.
---------------------------------------------------------------------------------------------------------------------
29. In the Nottebohm case, in which Liechtenstein was claiming against
Guatemala, the three main grounds on which the Court found against
Liechtenstein's capacity to put forward the claim of Mr. Nottebohm were:
(i) that this Liechtenstein nationality—acquired by naturalization just
before the outbreak of war in 1939, he being then a German [p
81]national—was purely artificial, in the sense that he had no,t acted from
any real desire to identify himself with Liechtenstein and its fortunes, but
with the ulterior object of endeavouring to divest himself of enemy
character by acquiring neutral status;
(ii) that his true connection by residence, domicile and business interests
was Guatemalan; and
(iii) that it was precisely against Guatemala that the claim was being
brought.
In these circumstances the Court held that although Mr. Nottebohm was
undoubtedly of Liechtenstein nationality under the law of that State, such
nationality could not be regarded as entitling Liechtenstein to make a claim
on his behalf against GuatemalaFN26;—or in other words his claim was not
"opposable" to Guatemala at the instance of Liechtenstein, which meant that
Liechtenstein was in those particular circumstances disqualified.
--------------------------------------------------------------------------------------------------------------------- FN26
The Court was extremely careful to limit its finding to the case of a claim
against Guatemala. It did not postulate a general incapacity for
Liechtenstein to claim on behalf of Nottebohm—i.e., against some other
country. To have done so would have been virtually to relegate Nottebohm to
the category of a stateless person so far as international claims were
concerned.
---------------------------------------------------------------------------------------------------------------------
30. If these tests were now to be applied to the case of the Barcelona
Company, it could very cogently be contended that a similar, if not almost
identical pattern emerged: that the Company obtained Canadian incorporation
not in order to do business in Canada (on the contrary), but on account of
certain particular advantages, fiscal and other, that this might bring;—that
the Company's entire undertaking was in Spain where, through its
subsidiaries, it carried on its sole business, none being transacted
anywhere else;—and finally that it would be precisely against Spain that the
Canadian Government would be claiming if it decided to intervene. The
analogy is clearly striking,—and if to this is added the shareholding
situation in the Barcelona Company's case—namely that it was not Canadian,
thus rendering the link with Canada still weaker—it becomes manifest that
there was here something that required to be gone into,—all the more so if
it is correct to say that a finding of Canadian disqualification (if such
had been the outcome FN27) should automatically have entailed a recognition
of Belgian capacity to claim [p 82] on behalf of any person or entity who,
at the material times, was both of Belgian nationality and a shareholder in
the Barcelona Company.
--------------------------------------------------------------------------------------------------------------------- FN27
There are of course arguments contra,—but this only underlines the need for
a full consideration of the matter. It could be asked for instance whether
the Nottebohm case itself was rightly decided, exchanging as it does the
certainties of nationality for the uncertainties of less well-defined
criteria?—see Brownlie on the Flegenheimer case in The Principles ofPublic
International Law (Oxford, 1966) at p. 328 (case heard before the
Italo-United States Claims Commission, International Law Reports, 25
(1958—I), p. 91;—and see Brownlie's whole discussion of the Nottebohm
decision in loc. cit., pp. 334-347. It can also be queried whether that
decision is in any event properly applicable to corporate entities as well
as to individuals. These questions, and others, needed to be gone into.
--------------------------------------------------------------------------------------------------------------------
*
31. I have already indicated (paragraph 28 above) that the Court was not in
my opinion absolved from going into these very fundamental issues merely
because the Parties did not raise them, and did not for the purposes of
these particular proceedings challenge the ius standi of the Canadian
Government. It is true that in the Nottebohm case the Court relied to some
extent on the fact that Guatemala had never, admitted Liechtenstein's right
of intervention,—whereas it can be argued that Spain has admitted that of
Canada, and would now be precluded from denying it. This may be correct, but
the notion does not appear to be self-evidently well-founded. In the first
place it rests on mere Spanish non-objection to diplomatic representations
made by Canada on behalf of Barcelona Traction some 20 years ago,—whereas it
must be at least doubtful how far this could operate as a positive admission
of a Canadian right now to present a diplomatic claim on behalf of the
Company (if that occurred), in such a way as formally to preclude any
Spanish right of objection under this head. In this context, diplomatic
representations—which need not necessarily be based on or imply a claim of
right, but are often admitted or received in the absence of any such claim
or pretension to it—belong to a different order of international act from
the presentation of a formal claim before an international tribunal.
32. More important is the fact that, if any preclusion operated as a result
of past Spanish non-objection to Canadian intervention (as it quite possibly
might), it could only operate as against Spain in proceedings brought by
Canada against the former. It could not possibly operate against Belgium in
proceedings brought by the latter against Spain. In contrast to the case of
Belgium, Spanish non-objection was at least significant, for Spain at all
times had an interest in objecting to Canada's intervention, if there were
possible legal grounds for so doing. Belgium did not have any such interest;
on the contrary, the true interest of the Belgian shareholders at all times
lay in Canadian intervention on behalf of the Company: it is precisely the
lack of such intervention since about 1952 that has placed the Belgian
shareholders in the position in which [p 83] they now find themselves.
Consequently no inference adverse to Belgium can be drawn from the Belgian
non-objection to Canada's ius standi, for this could not be expected in the
circumstances, and was not called for in proceedings in which the Belgian
position essentially was (see paragraph 46 infra) that irrespective of any
Canadian right, Belgium had a right of claim. It was for the Court, acting
proprio motu, as it has the power to do, to go into this cardinal issue, the
silence of the Parties notwithstanding.
**
33. While on this part of the case, another question which in my opinion
needed to be considered was whether, in all the circumstances, the very
"nationality" of the Barcelona Company itself should not be held to be
Belgian rather than Canadian. There has, doctrinally, been much discussion
and controversy as to what is the correct test to apply in order to
determine the national status of corporate entities; and although the better
view is that (at least for public as opposed to private international law
and some other purposes) the correct test is that of the State of
incorporation, there is equally no doubt that different tests have been
applied for different purposes, and that an element of fluidity is still
present in this field FN28. This being so, it is surely a highly tenable
proposition that the very circumstances which might lead to the State of
incorporation being held to be disqualified from claiming,— because of the
absence of a "genuine link" due to the company's ownership and control and
main business interests being elsewhere,—might equally tend to suggest that
in such a case a different test of nationality should be applied FN29. There
are also certain other aspects of the matter considered in the opening
paragraphs of my colleague Judge Gros' separate Opinion which are highly
pertinent to the question of the national status of companies.
--------------------------------------------------------------------------------------------------------------------- FN28
See the discussions in Beckett, "Diplomatic Claims in respect of Injuries to
Companies", Transactions of the Grotius Society, Vol. 17 (1932), at pp.
180-188; Paul De Visscher in Hague Recueil, 1961, Vol. I, pp. 446-462; van
Hecke, "The Nationality of Companies Analysed" in Netherlands International
Law Review, 1961, Issue 3, pp. 223-239; and Ginther, "Nationality of
Corporations" in the Austrian Public International Law Review, 1966, Vol.
XVI 1-2, pp. 27-83.
FN29 Or else that the proper test of the right to claim internationally
should be that of where the real weight of interest lies. On this matter I
associate myself (de lege ferenda however) with much that is contained in
paragraphs 57-70 of my colleague Judge Jessup's Opinion.
---------------------------------------------------------------------------------------------------------------------
34. I am of course aware that there are difficulties about this view [p 84]
which would doubtless have been brought out had the matter been properly
argued. My purpose here is to indicate that this is what I think should have
occurred. The Parties should have been requested to present a full argument
on the subject. It was not enough, in my opinion, to proceed on the basis
that since neither Party had contested the Canadian nationality of the
Barcelona Company, and both had proceeded on the assumption that the Company
was Canadian, the Court was not called upon to speculate otherwise. Such an
attitude may be quite in order in domestic courts where, normally, appeals
or alternative procedures exist. It is not appropriate to international
proceedings in which, almost always, there are no possibilities of appeals
or other recourses. In this field the principle of caveat actor can be
carried too far, when the point involved is not at all merely incidental but
could be of major importance for the outcome of the case.
III
Equitable Consideration and Equity as a system
35. The general conclusion to be drawn from the considerations set out in
part II supra, is that in cases of this kind, the results to which a strict
view of the law leads—as it stands de lege lata—are not satisfactory. By
means of a partial application of domestic law principles connected with the
inherent structure of the corporate entity, necessary and correct so far as
it goes, but one-sided, international law may give rise to situations that
cannot, or at any rate do not occur in corresponding circumstances on the
domestic plane; or which, if they did, would certainly result in remedial
legislative action. By failing to take account of various other domestic law
principles directed to enabling the shareholders to act in certain kinds of
cases where the action of the company is unavailable or not forthcoming, or
to influence or change the management or its policy, or by taking account
of this situation only to a somewhat limited extent, the present state of
international law leads to the inadmissible consequence that important
interests may go wholly unprotected, and that what may possibly be grave
wrongs will, as a result not be susceptible even of investigation. As my
colleague Judge Jessup reminded me, it was stated in the award in the Cayuga
Indians case (U.N. Reports of International Arbitral Awards, Vol. VI, at p.
179) that:
"The same considerations of equity that have repeatedly been invoked by the
courts where strict regard to the personality of a corporation would lead to
inequitable results . . . may be invoked here. In such cases courts have not
hesitated to look behind the legal person and consider . . . who were the
real beneficiaries." [p 85]
This is consequently surely a situation that calls for the application of
the well-known dictum of President Huber in the much cited Ziat, Ben Kiran
case FN30, where what was involved was an entity of the nationality of the
defendant State—a type of case in which the idea of admitting foreign
intervention is really much more startling, conceptually, than it is in the
present type of case. Yet there is a resemblance, and Huber's dictum is
equally apt (my translation):
"International law which, in this field, draws its inspiration essentially
from the principles of equity, has not laid down any formal criterion for
granting or refusing diplomatic protection to national interests linked to
interests belonging to persons of different na-tionality."
---------------------------------------------------------------------------------------------------------------------
FN30 U.N. Reports of International Arbitral Awards, Vol. II, p. 729.
---------------------------------------------------------------------------------------------------------------------
In the present context the equitable considerations to which the Court
refers in paragraphs 92-101 of the Judgment, stress the need for a less
inelastic treatment of certain of the issues of admissibility involved.
36. The matter can however be put on a broader basis than that merely of the
requirements that may exist in this particular field. As an old authority
(Ménignhac) said in terms even more applicable today— "international law is
to be applied with equity". There have been a number of recent indications
of the need in the domain of international law, of a body of rules or
principles which can play the same sort of part internationally as the
English system of Equity does, or at least originally did, in the Common Law
countries that have adopted it. Deciding a case on the basis of rules of
equity, that are part of the general system of law applicable, is something
quite different from giving a decision ex aequo et bono, as was indicated by
the Court in paragraph 88 of its Judgment in the North Sea Continental
Shelfca.se (I.C.J. Reports 1969, at p. 48), when introducing the
considerations which led it to found its decision in part on equitable
considerations, as it might well have done in the present case also. Be that
as it may, I should like to take this opportunity of placing on record in a
volume of the Court's Reports a classic short statement of the way in which,
historically, the need for a system of Equity makes itself felt,—taken from
a standard work FN31 current in the country in which Equity as a juridical
system originated,—and in language moreover that might almost have been
devised for the case of international law:
"Equity is that body of rules or principles which form[s] an appendage or
gloss to the general rules of law. It represents the [p 86]attempt... of the
... legal system to meet a problem which confronts all legal systems
reaching a certain stage of development. To ensure the smooth running of
society it is necessary to formulate general, rules which work well enough
in the majority of cases. Sooner or later, however, cases arise in which, in
some unforeseen set of facts the general rules produce substantial
unfairness. When this occurs, justice requires either an amendment of the
rule or, if ... the rule is not freely changeable, a further rule or body of
rules to mitigate the severity of the rules of law."
--------------------------------------------------------------------------------------------------------------------- FN31
Snell's Principles of Equity, 26th edition by R. L. Megarry and F. W. Baker,
1966, pp. 5-6.
---------------------------------------------------------------------------------------------------------------------
It would be difficult to find words more apt to describe the sort of impasse
that arises in circumstances such as those of the present case, which a
system of Equity should be employed to resolve: and, as the author of the
passage cited points out subsequently, equity is not distinguishable from
law "because it seeks a different end, for both aim at justice But, it might
be added, they can achieve it only if they are allowed to complement one
another.
IV
Nationality of the Shareholders and Continuity of Shareholders
37. Since in this and the next part (V) of this Opinion, I shall be
discussing certain matters (described in the second half of paragraph 3
supra) which, having regard to the particular basis of the Judgment of the
Court, did not arise for decision by it, I should like to state what effect
I am intending to give to my observations concerning these matters.
Evidently it would be impossible to comment on them in total abstraction
from the facts and surrounding circumstances of the case itself. But
although I shall be expressing a judicial view on the points of law
involved, and possibly also on some points of fact, I do not wish to be
understood (even though I may use the language of it) as making any judicial
pronouncements or findings on them. These were matters which, although the
Court considered them, it did not need for the particular purposes of the
Judgment to go into fully. Had a more ample collegiate discussion taken
place I might have been led to form a different opinion on some points, and
therefore it is by way of analysis that I now give my views.
***
[p 87]
(A) Nationality of Shareholding Claims
38. The third preliminary objection, really had two aspects. The first,
namely whether, in the particular circumstances of this case, a claim is
sustainable at all on behalf of shareholders, whatever their nationality may
be, has been answered in the negative by the Judgment, and this accordingly
disposes of the whole claim. Had the answer been in the affirmative,
however, it would still have been necessary, before the third preliminary
objection could be dismissed and the claim be held to be admissible (so far
as this ground of objection was concerned), that its national character
should be established as being that of the claimant State. The two classic
dicta of the Permanent Court may be recalled:
"... it is the bond of nationality which alone confers upon the State the
right of diplomatic protection . . .FN32"
-----------------------------------------------------------------------------------------------------------
FN32 Panevezys-Saldutiskis Railway case (P.C.I.J., Series A/B, No. 76
(1939), at p. 16).
------------------------------------------------------------------------------------------------------------
and
"By taking up the case of one of its subjects and by resorting to diplomatic
action or international proceedings on his behalf, a State is in reality
asserting its own right, the right to ensure in the person of its subjects
respect for the rules of international law FN33."
------------------------------------------------------------------------------------------------------------ FN33
Mavrommatis Palestine Concessions case (P.C.I.J., Series A, No. 2 (1924), at
p. 12). The passage quoted was repeated in almost identical language in the
Panevezys decision, q.v., loc. cit.
------------------------------------------------------------------------------------------------------------
A true question of capacity as such is here involved FN34, for without the
"bond of nationality" and what it entails, the claimant State would lack the
necessary qualification for intervention and claim, since it could not then
be "taking up the case of one of its subjects", in whose person alone it
could be "asserting its own right... to ensure . . . respect for the rules
of international law".
--------------------------------------------------------------------------------------------------------------------- FN34
As was observed in footnote 2 supra (part I), the aspect of the third
preliminary objection dealt with in the Judgment of the Court is not really
one of the capacity of the claimant State, but of substance: have
shareholders any substantive rights at all where the injury is to the
company as such? But veritable questions of capacity and admissibility are
involved where the nationality, and the status as shareholders, of the
private parties concerned are in issue.
---------------------------------------------------------------------------------------------------------------------
39. In terms of the present case, this means establishing in respect of the
private parties concerned that, at all the material dates, and with the
necessary degree of continuity, they were both (a) Belgian and (b)
shareholders in the Barcelona Traction Company. Implied in this, there
figured in the present case such questions as (i) whether it sufficed for a
shareholder to be a company having Belgian nationality by incorpora-[p 88]
tion, or must it also be shown that the individual shareholding in that
company was equally Belgian, or at least predominantly so?—also (ii) whether
a beneficial owner of shares actually vested in nominees or trustees of
non-Belgian nationality, with whom pro tern lies the legal ownership, still
ranks as a "shareholder" while that situation continues; and, if not,
whether this does not entail such a break in the "ownership of the claim" as
to disqualify the private party concerned, and hence his government;—and
finally (iii) what are the material times at which the necessary
shareholding status and nationality must exist, and did the latter in fact
do so at these times? Clearly, however, the present discussion must be
confined only to those points that were of especial prominence in the case.
**
(1) Onus of proof, question of quantum, etc.
40. It was naturally maintained on the Spanish side that presumptions of
share-ownership, even if in themselves strong, do not suffice, and that
affirmative proof is required. This is doubtless true in principle, but
requires some qualification in the light of the particular circumstances.
There was never any real doubt about the existence over the years, and
probably since at least 1920, of a substantial Belgian shareholding, or at
least interest of some kind, in the Barcelona Company. What was
controversial was, rather, such matters as (a) was the interest concerned
strictly one of shareholding as such, or was it more a mere beneficial
interest in shares the legal ownership of which was vested in non-Belgian
hands?—(b) how big an interest was it,—did it amount to the 88 per cent,
claimed on the Belgian side?—(c) did it exist at the two crucial dates of
the original Spanish declaration in bankruptcy of the Barcelona Company,
and the date when proceedings were started before the Court,—and not merely
before or after each or either of these dates?
41. Much of the argument was rendered irrelevant by a failure to distinguish
clearly between whether, on the one hand, a basis of claim existed in
principle, and, on the other hand, what would be the quantum of damage or
reparation recoverable by the claimant State if such a basis did exist and
the claim was shown to be good. In theory, if it appeared that there was
even one single private party or entity which, at the material times, both
was a shareholder in the Company and had the nationality of the claimant
State, then that State would, in principle, be entitled to claim, since the
validity of the claim—its legal merits in itself—could not depend on the
size of it in terms of the numbers of shareholders, or of the financial
values involved. The latter could, in law, only affect the quantum [p 89] of
reparation or damages recoverable if the claim should be made good FN35.
This situation, while it does not exactly shift the burden of proof
entirely, does place it in a different light by suggesting that in some
circumstances, in claims of this kind, the defendant State could only
validly contest the standing of the claimant party if it could show that
there was no evidence of the existence of even one indubitable shareholder
of the latter's nationality, and no reasonable presumption of there being
any. This is just the sort of situation which arises where, as in the
present case, the claimant Party has, over a long period of years, possessed
what might be called a "historic interest" in a case, the existence of which
is and always has been a matter of common knowledge, constantly acted upon
by both parties, implicitly recognized, and scarcely contested, at least
formally, until international legal proceedings are started. In such
circumstances there is an almost irresistible inference that a substantial
body of private interests exists belonging to the State concerned. But as
will be seen in a moment (infra, paragraph 43) the matter does not in any
way depend on inferences or presumptions.
--------------------------------------------------------------------------------------------------------------------- FN35
Clearly the fact that in practice a government would not normally put
forward a claim in this class of case unless the interests involved were
substantial, has no relevance to the merits of the argument here stated.
---------------------------------------------------------------------------------------------------------------------
42. In the present case the attempt to maintain that the Belgian nationality
of the shares had not been established, took a particular form, which
involved not so much denying the existence—or proved existence— of any
Belgian shareholding at all,—as maintaining that the apparent, or
ostensible, Belgian shareholding did not have the requisite character. Here
it is material to note that the shares in the Barcelona Company fall into
three main categories,—the bearer shares; the registered (i.e., non-bearer)
shares standing in the names of various private persons and entities other
than a Belgian incorporated company known as Sidro FN36 for short; and
finally the shares registered in the name of this same Sidro, a company the
principal interest in which is owned by another Belgian registered and
incorporated company—Sofina FN37. Since this last category, which it will be
convenient to designate as the Sidro-(Sofina) interest, comprised not far
short of two-thirds of the entire issued share capital of the Barcelona
Company, and about five-eighths of the shares allegedly in Belgian
hands,—then, on the basis of the principle of the sufficiency of "even a
single shareholder", the only practical issue becomes that of deciding on
the character and status of the Sidro-(Sofina) holding;—whereas, the status
of the other shares—the bearer shares and the non-Sidro registered [p 90]
shares—would be a secondary matter which, except as to quantum of damage,
would become important only if the Sidro-(Sofina) holding could be shown to
lack the necessary status and character adequate in itself to sustain a
Belgian claim. It is therefore to this question that I shall now address
myself. It has two aspects, first what was and is the true national
character of Sidro-(Sofina)?—and secondly, was this entity at the material
dates the actual shareholder?
--------------------------------------------------------------------------------------------------------------------- FN36
Standing for "Société Internationale d'Energie Hydro-Electrique, S.A.".
FN37 Standing for "Société Financière de Transports et d'Entreprises
Industrielles, S.A."
---------------------------------------------------------------------------------------------------------------------
(2) Status of Sidro-(Sofina)
43. Even if it could not otherwise be established, Sidro-(Sofina's) original
ownership of over 1 million of the Barcelona registered shares (this block
was registered in the name of Sidro), constituting a more than majority
holding of the entire Barcelona share issue, is conclusively proved by the
fact that in 1939, in expectation of the outbreak of war, Sidro transferred
the entire block first to an American firm of brokers as nominees, then to
an American Trustee Company known as "Securitas Ltd." and, after the end of
the war, to another American nominee firm, by whom they were eventually
re-transferred to Sidro FN38. Since "nemo dare potest quod non habet", and
the. validity of these transfers has never been questioned—(indeed the
assumption of such validity was basic to the Spanish argument on this part
of the case)—it follows that Sidro-(Sofina) must, at least originally, have
been Barcelona shareholders. The allegation is, however, that by these
transfers Sidro-(Sofina), though retaining as a matter of law the beneficial
interest in the shares, divested themselves of the legal ownership—in fact
ceased to be the actual shareholders, so that thenceforth, and until the
eventual re-transfer to Sidro (which however is alleged to have come only
after the main critical date in the case FN39) the shareholding in the
Barcelona Company was non-Belgian so far as this block of shares was
concerned; and so no Belgian claim could now be based on them. This matter I
consider infra in paragraphs 48-59, and in the meantime turn to the first
question indicated at the end of paragraph 42 supra—that of the true
national character of Sidro-(Sofina).
---------------------------------------------------------------------------------------------------------------------
FN38 Thus it seems that during the "Securitas" period (as to which see
paragraphs 5559 infra) the nominees held for that Company, not
Sidro-(Sofina).
FN39 This was 12 February 1948, the date of the original declaration by a
Spanish court of the bankruptcy of the Barcelona Traction Company. There is
a certain difficulty as to the date at which the damage to the Company
occurred as it took several years to complete. However I agree with what
Judge Jessup says in paragraph 75 of his separate Opinion.
---------------------------------------------------------------------------------------------------------------------
*[p 91]
44. It was never at any time contended that Sidro and Sofina were other than
Belgian entities in the sense that they were companies incorporated under
Belgian law, having their registered head offices in Belgium, and therefore
that, according to the most generally received canons FN40, not disputed by
either Party, they were companies invested with Belgian nationality. The
objection advanced—a curious one to receive Spanish sponsorship—was that
although Sidro-(Sofina) were Belgian by incorporation, yet if the corporate
veil was lifted, it would be found that the shareholding interest in
Sidro-(Sofina) itself was largely non-Belgian. The relevance of this
contention was maintained as existing on two levels, one of these being that
it revealed as being quite unfounded the Belgian contention that the savings
of numerous humble Belgian individuals, channelled into the Barcelona
Company via Sidro-(Sofina), had been detrimentally affected by the Spanish
treatment of the Company,—for, so it was alleged on the Spanish side, the
ultimate interests in Sidro-(Sofina) were not Belgian, or at least it had
not been established that they were.
---------------------------------------------------------------------------------------------------------------------
FN40 See footnote 14 in part I, supra.
---------------------------------------------------------------------------------------------------------------------
45. I do not find it necessary to consider this particular aspect of the
matter since the Belgian contention that the savings of hundreds of small
Belgian shareholders were injuriously affected through their interest in
Sidro-(Sofina) goes largely to the moralities rather than the legalities of
the issue. The essential legal question is different—namely whether (the
Belgian status by incorporation of Sidro-(Sofina) itself, being established
and not contested)—there are nevertheless grounds upon which it can be
maintained that the corporate veil must be lifted in order to see what is
the character of the ultimate interests lying behind this veil. It would
certainly seem that whoever else can adopt such an attitude it cannot be
Spain,—that Spain is indeed precluded from doing so,—because it is precisely
Spain which, in relation to the Barcelona Traction Company maintains that
the Canadian nationality of the Company, by incorporation, is conclusive,
and that its corporate veil cannot be lifted in order to take account of the
non-Canadian shareholding lying behind it. Yet, paradoxically FN41,—that is
just what Spain has sought to maintain in relation to Sidro-(Sofina),—but
not Barcelona. On what basis does this attempt proceed?
---------------------------------------------------------------------------------------------------------------------
FN41 This, however, is only one of the many instances of "having it both
ways" in this most paradoxical of cases.
---------------------------------------------------------------------------------------------------------------------
46. The argument was that it was Belgium which was precluded from contesting
the lifting of the Sidro-(Sofina) veil, since it was precisely Belgium which
maintained, in relation to the Barcelona Company, that the veil must be
lifted in order to reveal the true Belgian interests underlying the
Company. But at this point it becomes clear that the rival positions, like
two mathematical negatives that make a positive, cancel each other out and
leave the objective question of the legitimacy, and [p92] occasions, of
lifting the veil still to be determined. Let it be assumed, notwithstanding,
that a purely "tu quoque" argument might have some validity on a sort of
preclusive basis. Accordingly, it is said, the Belgian case must concede
what it claims: just as it claims that the Canadian nationality of the
Barcelona Company is not conclusive, so must it also concede that the
ostensibly Belgian nationality of Sidro-(Sofina) is not conclusive as to
that entity's true character, which must in consequence be established by
reference to the underlying shareholding interests in it. This seems to me
to involve a misunderstanding of the Belgian position, which does not imply
any denial of the Canadian nationality of the Barcelona Company or the right
of the Company and its Government to claim, but merely asserts (failing such
a claim) a "parallel" right of Belgium also to claim on behalf of any
shareholders who are Belgian. If amongst these shareholders there are
companies of Belgian nationality by incorporation, then Belgium asserts a
right to claim on their behalf as Barcelona shareholders. According to this
"parallel right" position, what would have to be conceded by Belgium is
something quite different from what the Spanish argument maintains. Belgium
does not have to concede that, if it appears that most of the shareholding
in Sidro-(Sofina) itself is non-Belgian, then Belgium is disqualified from
claiming on behalf of Sidro-(Sofina) as an entity,—for she makes no such
assertion as regards Canada's right to claim on behalf of the Barcelona
Company, despite its non-Canadian shareholding. What Belgium would have to
concede, and presumably would have difficulty in conceding, is that if
Belgium refused to claim on behalf of Sidro-(Sofina)—it might be because of
non-Belgian interests in that entity, just as it may be that Canada does not
claim on behalf of Barcelona because of the non-Canadian interest—then it
would become legitimate, on the "parallel right" basis, for yet other
governments—those of the non-Belgian shareholders in Sidro-(Sofina)—to make
a claim on behalf of those shareholders, in the absence of any Belgian claim
on behalf of Sidro-(Sofina) as such. This is the true analogy, and only in
this sense, and in such circumstances, would Belgium's position over
Barcelona oblige her to concede a lifting of the veil of Sidro-(Sofina).
47. It is of course an entirely different question whether Belgium's
"parallel right" position is good in law. According to the Judgment of the
Court (which, de lege lata I agree), it is not. But within the four corners
of its premisses, the argument is entirely logical, and it operates to
absolve Belgium from the charge of inconsistency in asserting a right to
claim on [p 93] behalf of Sidro-(Sofina) as an entity of Belgian nationality
by incorporation, irrespective of its detailed composition. In consequence,
the result is the same whichever way the matter is looked at: namely if a
claim on behalf of shareholders is permissible at all, a Belgian claim on
behalf of Sidro-(Sofina) is permissible;—for according to the basic Spanish
position the veil of a company can never be lifted save in exceptional
circumstances not here admitted to exist,—while according to Belgium the
veil can be lifted if the company's government refuses to claim on its
behalf,— but Belgium, as the Government of Sidro-(Sofina), is not refusing
to claim on that entity's behalf, so here also there is no occasion to go
behind the corporate facade.
(3) Question of nominees, trustees, etc.
48. The second main challenge to the standing of Sidro-(Sofina) as owners of
the greater part of the Barcelona Traction shares, was based on objections,
not as to the Belgian national character of these entities but as to their
character qua Barcelona shareholders. Over certain periods, it was pointed
out, covering dates material to the validity of the Belgian claim, the
Sidro-(Sofina) shares were vested in nominees and/or trustees of American
nationality. The fact is admitted. The effect, according to the Spanish
argument, was that Sidro-(Sofina) while retaining the beneficial ownership,
or the beneficial interest, ceased to be the legal owners of the shares, or
rather, ceased to be the actual shareholders. Consequently, at the time when
the Belgian claim arose—that is to say at the date when the alleged injury
to the Barcelona Company was inflicted—the shareholders were not Belgian,
but American, and therefore the "bond of nationality" postulated by the
Permanent Court (supra, paragraph 38) as being necessary to found a right
to claim, did not exist so far as Belgium was concerned, at least on the
basis of this block of shares FN42.
--------------------------------------------------------------------------------------------------------------------- FN42 And
as regards all the other shares—i.e., the bearer shares and
non-Sidro-(Sofina) registered shares, the Spanish position was that their
alleged Belgian ownership rested on presumptions and had not been proved
---------------------------------------------------------------------------------------------------------------------
49. This Spanish contention is in part related to the "continuity" question:
the transfer of the shares to non-Belgian nominees or trustees caused a
break, covering a material date, in the Belgian ownership or status. In the
next section (B) below certain comments are made on the continuity
requirement for international claims, namely the requirement that the claim
must be "owned" by a national of the claimant State[p 94] both at the time
when the act complained of occurred, and continuously up to the date when an
international claim is put forward and proceedings are commenced—(and
indeed, strictly, according to one view, up to the date of judgment or
award). At this moment I shall only discuss what, in relation to a claim of
the present kind, is the correct effect to be attributed to the transfer of
shares to foreign nominees, or to foreign trustees, as the case may be. In
either case, does it deprive the transferor of his status as shareholder in
relation to the claim, and hence deprive his government of the right (if
right otherwise exists) to make the claim on his behalf?
50. It should be noted in the first place that from the Belgian standpoint
in the case—which was throughout that the realities must be looked to rather
than the form—the whole question of the nature of the interest acquired by
the American nominees or trustees was irrelevant, since in any event (and
this was common ground between the Parties) the beneficial ownership of or
interest in the shares remained with Sidro-(Sofina) and, according to the
Belgian contention, this was sufficient per se to found a Belgian claim.
However, it was also maintained on the Belgian side that in any event the
effect of the transfers was not to divest Sidro-(Sofina) of the status of
shareholder, and it is this aspect of the matter that I wish to consider
here.
*
51. I need not set out the facts concerning the vesting of the Sidro
registered shares in American nominees and in the trustee company "Securitas
Ltd.", except to say that the object was of course (in view of war and
probable enemy occupation) to avoid their falling into enemy hands. The
details of the various transactions are fully set out in paragraphs 90 et
seq. of Judge Jessup's separate Opinion,—and although I do not draw the same
conclusion as he does on the question of the effect of the "Securitas"
transaction, I can associate myself with his statement of the facts. I will
however start with the question of the effect of the nominee transactions.
(a) Nominees
52. The Spanish contention was that the effect of putting the shares into
the names of nominees was to vest in the latter the legal ownership, and
moreover that this result was not affected by the special juridical position
of a nominee, whereby his ownership is, in law, conditioned in various
ways—so that he cannot deal with the shares except by direction[p 95] of the
"real" owner; but equally, must do so upon such direction, etc. This, it was
said, did not alter the fact that it is the nominee who appears on the books
of the company as the registered owner of the shares, and therefore, if he
is thus the registered shareholder, how can someone else also be the
shareholder? Insistence that the real question at issue was not who "owned"
or was the "owner" of the shares, but who was, or was registered as, the
"shareholder", became increasingly prominent during the course of the oral
hearing; but I share Judge Jessup's view (paragraphs 99 et seq. of his
Opinion) that the distinction is unreal. If a nominee shareholder were in
truth "the shareholder", he would be entitled to exercise the normal rights
of a shareholder,—but in fact he is not so entitled: he is even, by law,
expressly forbidden from doing so. His is in fact merely a sort of
"twilight" status, according to which he is no more than a pipe-line through
which the supposedly merely beneficial owner continues to exercise all the
rights of legal ownership. In this context the following propositions of
Anglo-American-Canadian law (which is the system constitutive of the nominee
position), and which have not been disputed—have indeed been admitted on the
Spanish side—are pertinent:
(i) a shareholder can freely dispose of his shares: a nominee can do so only
with the consent of the beneficial owner (in effect his "principal")FN43 and
at his direction;
(ii) a shareholder can exercise his voting rights at General Meetings
according to his own views: a nominee is obliged to vote as directed by his
principal;
(iii) a shareholder has the right to receive any dividends that are
declared: a nominee must pass these on to the principal, who also pays the
tax on them;
(iv) shares held by a nominee, as nominee, do not figure in any statement of
his assets;
(v) the principal can direct the nominee to take any steps necessary for the
protection of the shares and, under some systems of law, can himself
initiate proceedings for that purpose;
(vi) the principal can at any time replace or eliminate the nominee, by
directing the latter to have the necessary changes made in the company's
register of shareholders (add to this that, in the case of the transfers
made by Sidro, no transfer fee was payable under the relevant law, because
no change of ownership was deemed to occur).[p96]
------------------------------------------------------------------------------------------------------------ FN43
There is not of course in the formal sense a relationship of principal and
agent, but the use here of the term "principal" is convenient and seems
justified by the realities of the situation.
------------------------------------------------------------------------------------------------------------
53. The only possible conclusion must be that even if, as was contended, the
matter is to be considered not on the basis of who "owns" the shares but of
who is the shareholder, the true shareholder throughout is the principal,
the nominee being shareholder in name only, i.e., as the very term "nominee"
implies, his shareholding is nominal only. He has no real control over the
shares, this remaining with the principal at whose direction the nominee is
bound to act. It follows that apart from disguising the identity of the
real owner (which is one of the main purposes of the nominee device), a
nominee is the shareholder only for the purpose of carrying out his
principal's directions,—so that what alters upon transfer to a nominee is
not the control over the shares, but the manner of its exercise. It is
little more than a question of mechanics. It equally follows that, if for
any purpose the nominee had to establish the existence of a "genuine link"
between himself and the shares—i.e., of something going beyond the bare fact
that the shares are registered in his name, he would, according to all the
cannons accepted in other fields as to what constitutes a genuine link, be
unable to do so.
54. Furthermore, the comparison sometimes made between the position of a
nominee and that of a trustee is quite illusory, but is for that reason
illuminating,—for a trustee has real rights over the trust property, which
he can assert even against the beneficiary of the trust. Subject to any
specific term of the trust, and of the general law of trusts, not only is
the trustee under no obligation to carry out the instructions or conform to
the directions of the cestui que trust (beneficiary): it is often his legal
duty not to, and to act in a manner quite different from what the latter
wants. The cestui que trust can take legal steps to compel the trustee to
conform to the terms of the trust but, within the scope of those terms, and
of the relevant provisions of trust law, the trustee is completely
independent, and free to act at his own discretion.
*
(b) "Securitas" Ltd.
55. This brings me to the question of the vesting of the Sidro-(Sofina)
shares in "Securitas" under the various trust deeds described in Judge
Jessup's Opinion. According to the logic of the view just expressed supra in
paragraph 54, I ought to hold (as he does) that the vesting in "Securitas"
did indeed transfer the legal ownership, Sidro-(Sofina) retaining merely the
beneficial interest; especially as the object of the whole transaction was
to put "Securitas" in a position of being legally [p 97] entitled to refuse
to comply with Sidro-(Sofina's) own instructions if they judged that these
were given under enemy pressure. Furthermore, as Judge Jessup points out, no
positive evidence (despite several requests for it) was produced to show
that the trust relationship was determined before the crucial date of 12
February 1948 (when the first step that led to the eviction of the Barcelona
Company from its Spanish interests was taken),—although it appears that the
relationship was duly determined only two or three months later when
(acting on a request from Sidro) "Securitas" sent the share certificates
that had been deposited with them to the New Jersey firm of nominees
henceforth holding for Sidro-(Sofina). On this basis therefore the shares
would, in the absence of the necessary evidence to the contrary, have to be
presumed still to have been American, not Belgian owned, at the crucial date
of 12 February 1948.
56. It seems to me however that, even if one accepts the view (which, for
reasons to be stated later, I do not) that the effect of the "Securitas"
transaction was to deprive Sidro-(Sofina) pro tem of the status of being a
Barcelona shareholder, a radical change came over the situation about, or
shortly after the middle of 1946, when the war in Europe had been over for
somewhat more than a year. Although the trust deeds entered into with
"Securitas" were, as Judge Jessup describes, never produced during the case,
they were preceded in time, or at least in operative effect, by something
that was produced, namely a "custodian" agreement between Sidro and
"Securitas" dated 6 September 1939 (the war having then broken out, but
Belgium not yet being involved), which figures as Appendix 2 to Annex 3 of
the Belgian Memorial in the case. It is absolutely clear from the terms of
this agreement that its object was merely to get the securities it covered
physically out of harm's way, and that it had no effect whatever on Sidro's
status as shareholder. This came later with the two Trust Deeds,—one also
dated 6 September 1939, but evidently with suspensive effect pending
Belgium's actual involvement in the war; and the other dated February 1940.
Because of its inherent probability, I see no reason to doubt the Belgian
affirmation that these Trust Deeds were not to become operative unless and
until the Brussels area should pass into enemy occupation, for only then
would the danger of enemy pressure to surrender or procure the surrender of
the shares arise. It is also I think unimportant that the modifications
effected in the first Trust Deed by the second have never been revealed. I
see no reason to doubt the Belgian assurance that they were technical in
character, intended to take account of certain contemporary Belgian war
legislation, which again seems to me inherently probable. But it does not
really matter, because for present purposes one is in any case "assuming the
worst", viz. that between them these two Deeds did transfer the legal
ownership of the shares to "Securitas", for the duration of the war so to
speak.[p 98]
57. This brings me to the third of the inherent probabilities affecting this
matter, namely that the Trust Deeds would (as Belgium asserts they did) have
contained a clause providing for the termination of the situation they
created, so soon as an agreed period after the end of the war had
elapsed,—for it is hardly credible that Sidro-(Sofina) would, even to avoid
enemy seizure, have signed away all future control over their shares without
some such guarantee of eventual retrocession. That there was such a clause,
and that it duly operated in the second half of 1946, seems to me indeed,
even apart from inherent probabilities, to be an inference that can
reasonably be drawn from the facts given in Judge Jessup's paragraph 92. The
result was the change in the situation to which I referred at the beginning
of paragraph 56 supra,—namely that "Securitas"—who in a letter of 14 April
1947 to Sidro described themselves as having from 31 December 1946 held the
shares "in custody for your account" (not the language of a Trustee)—now
reverted to their original status of being merely custodians, and
Sidro-(Sofina) reverted to being the legal owners and actual
shareholders—(that the shares were still in the name of nominees is
immaterial for the reasons given in paragraphs 52-54 supra). Accordingly, if
this view is correct, the shares were again Belgian owned on the crucial
date of 12 February 1948. There would have been a break in the continuity of
their status as such, from 1939-1946,. but as this occurred before the
earliest possible crucial date, it would not signify.
58. It has to be admitted that in the absence of the relevant instruments,
the foregoing conclusion can only be conjectural. But it is I believe a
reasonable conjecture, warranted by those facts that are known, and by the
probabilities involved. Of course the Trust Deeds would, if produced,
constitute what is known in Common Law parlance as the "best" evidence, and
unless they could be shown to have been lost or destroyed, it is unlikely
that a municipal court would admit secondary evidence of their contents.
International tribunals are not tied by such firm rules, however, many of
which are not appropriate to litigation between governments. It is by no
means in the nature of an inescapable inference that the reason why the
Deeds were not produced was because they contained material that would have
been prejudicial to the Belgian case. Documents drawn up in contemplation of
war, and in the situation which confronted countries such as Belgium at that
time, may well have contained provisons, or phraseology, which after the
lapse of nearly 30 years—or for other reasons—a government would be
reluctant to make public. In my opinion, weighing the whole matter up, and
having regard to what seems to be a very reasonable presumption as to what
[p 99] occurred, Belgium should be given the benefit of the doubt.
*
59. And this brings me to a point which I consider more important than any
yet mentioned on this particular matter. It is not in my opinion possible to
regard instruments drawn up in emergency circumstances, for the protection
of property in contemplation of war, and of a singularly predatory enemy (I
am of course speaking of the nazified Reich, not of Germany or Germans under
any normal circumstances) in the same light as instruments entered into at
other times and in the ordinary way of business. Certainly an international
tribunal should not do so. In my opinion such transactions in shares as
those now in question, whatever the effect that would be given to them in
municipal courts for internal or private law purposes, must, on the
international plane, be regarded as creating between the parties a
relationship of a special character, neither divesting the shares of their
pre-existing national character, nor debarring the transferor's government
from sustaining a claim in respect of them in subsequent international
proceedings. Outside of a mediaeval disputation, if ever there was a case
for having regard to the reality rather than the form, this is surely it.
***
(B) The "Continuity" of Claim Requirement
60. I do not propose to consider here whether it was in fact established
that there were Barcelona shares which were continuously in Belgian hands
FN44 up to at least the date when the present proceedings were commenced.
As Judge Jessup, who goes into the matter in some detail, says, the case
rests largely on a series of presumptions, even though it may be difficult
to believe that no shares at all were continuously Belgian held; and
according to the view propounded earlier (supra paragraph 41) even one such
share would, as far as the theory of the matter goes, suffice to constitute
a basis of claim. I want rather to comment on the continuity doctrine
itself.
--------------------------------------------------------------------------------------------------------------------- FN44
It is generally accepted that this requirement does not involve continuity
in the same individual person or entity, but only in successive persons or
entities of the same nationality.
---------------------------------------------------------------------------------------------------------------------
61. Clearly the "bond of nationality" between the claimant State and the
private party for whom the claim is brought (see supra, paragraph 38) must
be in existence at the time when the acts complained of occurred, or it
would not be possible for the claimant State to maintain that it had suf-[p
100] fered a violation of international law "in the person of its
national",— and although this doctrine has been called the "Vatellian
fiction", it nevertheless seems to constitute an indispensable foundation
for the right of international claim on behalf of private parties (unless
there is some alternative, e.g., functional, foundation—as when an
international organization claims in respect of a member of its staff). It
is however less clear why, as a matter of principle, if the private claimant
is duly a national of the claimant State at the date of the injury, he must
remain so, or the property concerned must do so, or the claim must not pass
into the hands of a national of another State, even after that date,—for the
wrong done to the State in the person of its national arises, and the
consequent right "to ensure . . . respect for the rules of international
law" accrues, at the moment of injury, so that, as was pleaded in the
Stevenson case FN45 (though unsuccessfully FN46), the claim then becomes
indelibly impressed ab initio with the national character concerned: in
short, the injury to the claimant State is not, so to speak, "de-inflicted"
by the fact that the individual claimant or company ceases to have its
nationality, or that the property involved passes into the hands of a
national of another State FN47;—and the position becomes even slightly
absurd when the continuity rule is interpreted as even excluding such
claims though they subsequently return to their nationality of origin after
a comparatively short interval, as might well be the case with, precisely,
shares.
--------------------------------------------------------------------------------------------------------------------- FN45
U.N. Reports of International Arbitral Awards, Vol. IX, p. 494.
FN46 But in this case the beneficiaries resulting from the change in the
nationality of the claim, not only had ex hypothesi a different nationality
from that of the original claimant, but had the nationality of the defendant
State—which, created a special situation. In other ways also the Umpire's
finding did not constitute an outright rejection of the "ab initio" thesis.
FN47 If value was received in respect of the transfer concerned, the
question might arise whether the "damage" had not been made good—but this is
another matter.
---------------------------------------------------------------------------------------------------------------------
62. In his dissenting opinion in the Panevezys case FN48, Judge van Eysinga
clearly thought that the continuity rule, though a reasonable stipulation to
be inserted by agreement in treaties about claims—(or to be read into them
in consequence of provisions limiting their application to persons having
the nationality of the claimant State at the treaty date)— was not a rule of
customary international law, in which sphere it could lead to unreasonable
results. Thus a rigid application of it, though justified where necessary to
prevent abuses FN49, should be eschewed where it would work injustice, and
this view has received support in recent writings contending for a more
eclectic application of the rule, so as not to "leave a [p 101] substantial
body of. . . rights without a practical remedy . . .FN50". A clear case of
this would be where the change in nationality was involuntary, e.g., because
of a re-alignment of State boundaries, or because the successor in title to
the affected property, e.g., under a will, happened to have a different
nationality from that of the original claimant or owner. Or again, why
should the fact that a former dependent territory attains independence and
becomes a separate State deprive whole categories of claimants in that State
of all possibility of redress? Such would however be the effect of the
continuity rule, for there would technically have been a change in the
claimant's nationality, and the former sovereign or protecting State could
no longer sustain the claim, while the new one also could not or, according
to the doctrines involved, should not be able to do so, because the private
claimant was not, at the time of the injury, its national,—or alternatively
because, since the latter State did not then exist as a separate State, it
could not itself, qua what it now is, have suffered any wrong in the person
of its national FN51 . (This was in fact more or less the situation that
arose in the Panevezys case. The matter ought of course to be provided for
by a rule of the law of State Succession, but it is somewhat doubtful
whether this is yet the case—see the detailed discussion in O'Connell,
State Succession in Municipal Law and International Law (Cambridge, 1967),
Vol. I, pp. 537-541).
--------------------------------------------------------------------------------------------------------------------- FN48
P.C.I.J., Series A/B, No. 76 (1939) at pp. 33-35.
FN49 For instance, if, as suggested by Judge van Eysinga, the object were to
found compulsory jurisdiction, where none would otherwise have existed, by
seeking out a State able to invoke a treaty clause to that effect.
FN50 O'Connell, International Law (Stevens-Oceana, 1965), Vol. II, p.
1120;—and Professor R. Y. Jennings in Hague Recueil (General Course of
1967), Vol. II, pp. 476477, citing Sinclair, British Year Book for 1950, at
p. 127 says, that Judge van Eysinga's view "is in accord with what Mr.
Sinclair has shown to be the history of the development of the rule of
nationality of claims: that it was evolved in the 19th century in the
context of the interpretation of treaties setting up claims commissions and
was a product of the ordinary rule that such treaties must be interpreted
strictly"—i.e., it was not really a rule of customary international law.
FN51 This last point is essentially the same as the one which arose in the
Cameroons case (I.C.J. Reports 1963) under the head of the "objection
ratione temporis" which I felt obliged to uphold de lege lata in my separate
Opinion, for the reasons given in Part V of it (I.C.J. Reports 1963, pp.
127-130). The particular point material in the present context is dealt with
in the first paragraph on p. 129 of the Volume. But I failed then to take
account of the possibility that the matter might be regarded as covered by
the law of State Succession, though this is still uncertain—see end of
paragraph 62 supra.
---------------------------------------------------------------------------------------------------------------------
63. In short, too rigid and sweeping an application of the continuity rule
can lead to situations in which important interests go unprotected,
claimants unsupported and injuries unredressed, not on account of [p 102]
anything relating to their merits, but because purely technical
considerations bring it about that no State is entitled to act FN52. This
situation is the less defensible at the present date in that what was always
regarded as the other main justification for the continuity rule (and even
sometimes thought to be its real fons et origo), namely the need to prevent
the abuses that would result if claims could be assigned for value to
nationals of powerful States whose governments would compel acceptance of
them by the defendant State, has largely lost its validity. Even powerful
States are not now in a position to act in this way: indeed, for reasons
that need not be gone into here, they are in these days at a positive
disadvantage in such matters.
--------------------------------------------------------------------------------------------------------------------- FN52
This would be a situation even worse than the present one regarding the
Barcelona Company, for that Company has a government which did formerly act,
could have continued to act, and still could in theory act : whereas
according to the continuity rule, it may result that no government can act.
---------------------------------------------------------------------------------------------------------------------
64. Nor can it plausibly be contended that, if the continuity rule were not
strictly applied, legal objections would arise because, if the claim were
successful, the damages or compensation would be payable to the claimant
State, although the private party concerned was no longer its national, or
the affected property no longer belonged to one of its nationals;—for on the
basis that the State is asserting its own right in making the claim, it is
always the position, and it is well recognized internationally, that any
compensation due is paid to the claimant State, and belongs to it, for use
at its discretion. This was implicit in the view expressed by the Permanent
Court in the Chorzów Factory case, when it said that the damage suffered by
the individual could "only afford a convenient scale for the calculation of
the reparation due to the State"—(my italics)FN53. If there are any fetters
on the State's discretion as to what it does with the com-pensation awarded,
they are imposed by the domestic law concerned. So far as international law
goes, the claimant State can use this compensation as it pleases: it can
keep it for itself (though this naturally is not normally done) or it can
pay it to the private party who was injured, whether (as it will usually be
the case) he is still its national, or has since become the national of
another State, or to the national owner of the affected property, or to a
foreign owner who may have bought it, or the claim, off the former, etc.
There is, internationally, neither legal nor practical difficulty here.
--------------------------------------------------------------------------------------------------------------------- FN53
P.C.I.J., Series A, No. 17 (1928), p. 28.
---------------------------------------------------------------------------------------------------------------------
65. If these considerations are applied here, the conclusion would be that,
provided Belgian shareholding existed on 12 February 1948, the[p 103]claim
then became once and for all indelibly impressed with Belgian national
character, and that any subsequent dealings in the shares were immaterial,
affecting only the quantum of the damages eventually payable if Belgium were
successful, or affecting only the identity of the actual persons or entities
whom the Belgian Government would eventually select to become the recipients
of a due share of any damages recovered.
V
Issues Connected with the Fourth Preliminary objection
66. The Judgment of the Court does not deal with the fourth preliminary
objection that had been advanced on the Spanish side and which, together
with the third, was joined to the merits by the Judgment which the Court
gave in the preliminary (1964) phase of the case—namely the question of the
exhaustion of local remedies. On the other hand, this question has had its
importance for certain Members of the Court, and it was always possible that
individual rejections of the Belgian claim might be based not on Belgium's
lack of ius standi but on the view that the Barcelona Company did not
adequately avail itself of the means of recourse open to it in the Spanish
courts. In these circumstances, without attempting to discuss the fourth
preliminary objection generally, I consider it legitimate to make certain
limited comments on one or two aspects of the matter to which I attach
special importance (and which are also of importance for the clarification
of the law—see paragraph 2 supra,— recalling however, as being equally, if
not even more applicable here, what I said in paragraph 37 above.
***
(1) The issue of jurisdiction
67. While the question of Spanish jurisdiction to conduct bankruptcy
proceedings in respect of Barcelona Traction, a Canadian company, is not
technically part of the fourth preliminary objection, which concerns the
exhaustion of local remedies, it is related to it in an important way, as
will be seen; and since it too has a certain preliminary character, it may
properly receive some consideration here.
68. It appears to me probable that, considered at the international level
FN54, the declaration of bankruptcy made in respect of the Barcelona [p 104]
Company did involve an excess of legitimate, or at least normal, Spanish
jurisdiction—internationally. This view is not of course based on the
non-Spanish nationality of the Company,—still less because of doubts (though
these certainly subsist) as to whether the Company did, in the proper sense
of these notions, carry on business in Spain, or own property or have a
domicile or seat there FN55. It is based on the nature of the alleged
default on which the petition in bankruptcy was based, and acceded to by the
court. The point may be illustrated by reference to Barcelona's subsidiary,
Ebro FN56, which, although equally a Canadian company, did undoubtedly carry
on business in Spain, owning property, occupying offices, etc., there.
Consequently, had it been Ebro that was bankrupted, and for non-payment of
commercial debts arising out of its local activities, no question of any
excess of jurisdiction could have arisen despite Ebro's Canadian
nationality—for such matters would have been legitimately of Spanish
concern. (It was indeed noticeable that it was expressly admitted on the
Belgian side that the bankrupting of Ebro (had that occurred) would have
been quite proper, jurisdictionally) But Barcelona was not bankrupted for
anything of that kind, as is clear from the bankruptcy judgment itself. It
was bankrupted exclusively for the non-payment of the interest on its
sterling bonds, issued outside Spain, and also held outside Spain except in
so far as certain private Spanish parties had recently acquired a few of
them, apparently for the express purpose of bringing the bankruptcy
proceedings. Yet in respect of these same bonds, issued under Canadian law,
all the necessary machinery for the guaranteeing and enforcement of the
obligation, through a well-known Canadian institution, the National Trust,
had been set up, and existed for utilization in Canada, where also, in the
last resort, the Company could have been made the subject of proceedings for
the appointment of a receiver.
---------------------------------------------------------------------------------------------------------------------
FN54 The question whether there was jurisdiction under Spanish law, in the
circumstances appertaining to the Barcelona Company, is irrelevant or
inconclusive for international purposes, since the very question at issue in
international proceedings is whether the jurisdiction which a State confers
upon its own courts, or otherwise assumes, is internationally valid.
FN55 Barcelona was a holding company, and a holding company is by definition
not an operating company. This has been brought out in several decided
cases, but is too often lost sight of.
FN56 Standing for "Ebro Irrigation and Power Co. Ltd."
---------------------------------------------------------------------------------------------------------------------
69. Clearly, if the real object had been to obtain payment of the arrears
of interest on the bonds, action would have been taken in Canada,— and not
merely would but should, for the step taken by the Spanish bankruptcy
petitioners was in clear breach of the important "no action" provisions of
both the trust deeds—(clauses 44 of the Prior Lien deed and 35 of the First
Mortgage deed—Annex 28 to the Memorial, Vol. I). These provisions were of
course conditions of the bond obligation, by [p 105] which the petitioners
automatically became bound on acquiring the bonds. They provided that no
proceedings to obtain payment should be taken by any bondholder until after
the (Canadian) Trustee had, upon a request to act, refused or neglected to
do so.
70. In these circumstances the primary jurisdiction was clearly Canadian,
and the Spanish courts should have declined jurisdiction,—at least in the
first instance and until the remedies available through the Canadian
National Trust had been invoked. It is true that, under present conditions,
international law does not impose hard and fast rules on States delimiting
spheres of national jurisdiction in such matters (and there are of course
others—for instance in the fields of shipping, "anti-trust" legislation,
etc.), but leaves to States a wide discretion in the matter. It does however
(a) postulate the existence of limits—though in any given case it may be for
the tribunal to indicate what these are for the purposes of that case; and
(b) involve for every State an obligation to exercise moderation and
restraint as to the extent of the jurisdiction assumed by its courts in
cases having a foreign element, and to avoid undue encroachment on a
jurisdiction more properly appertaining to, or more appropriately
exercisable by, another State.
*
71. These considerations apply equally, not only to the initial Spanish
assumption of jurisdiction in bankruptcy, but to various later stages of the
bankruptcy proceedings themselves, and in particular (as part of the process
of finally disposing of the Barcelona Company's Spanish under-taking) to the
purported cancellation of its shares in Ebro (a Canadian company)—these
being at the time under the control of the Canadian National Trust or of a
receiver appointed by the Canadian courts—and the "replacement" of these by
scrip issued in Spain, and subsequently sold to the new and specially formed
Spanish company, Fecsa FN57, without any reference to the competent Canadian
authorities or any action to procure the enforcement of these measures in
Canada, so that there (and everywhere outside Spain) the original scrip
remained and remains perfectly valid. The same observations apply to the
purported transfer of Ebro's Canadian share register, its Canadian
registered offices, and its very seat itself (also Canadian), to the city of
Barcelona,—in disregard of the fact that these things, which could not
physically be transferred without Ebro's consent or enforcement action in
Canada, remained where they were, and are still there today, not only in
actuality but in law, [p 106] seeing that Ebro is a Canadian company whose
status, seat and location of share register and registered offices are all
governed by Canadian law. In short what really took place appears to have
had the character of a disguised expropriation of the undertaking.
--------------------------------------------------------------------------------------------------------------------- FN57
Standing for "Fuerzas Eléctricas de Cataluña, S.A."
---------------------------------------------------------------------------------------------------------------------
72. If therefore it were necessary to reach a conclusion on this matter, it
could in my view only be in the sense that the whole bankruptcy proceedings
were, for excess of jurisdiction, internationally null and void ab initio,
and without effect on the international plane.
**
(2) Exhaustion of local remedies: the question of notification
73. The conclusion just indicated would also be of importance as regards the
question of exhausting local remedies, in so far as it might tend to suggest
that, strictly, this question did not arise at all,—for there should be no
necessity to exhaust such remedies in respect of proceedings which, for
excess of jurisdiction were, internationally, a nullity and void ab initio.
At least, in respect of the substance of the proceedings, there could be no
such obligation if—internationally—the proceedings were vitiated from the
start.
74. Be that as it may, there are other considerations which suggest that the
whole issue of the exhaustion of local remedies may be irrelevant in such
circumstances as those of the present case;—for if it is the fact (as to
which, vide infra) that the Barcelona Company was never, according to the
applicable international standards, properly notified of the original
bankruptcy declaration, so that, on the international plane, the bankruptcy
procedure never began to run against it, the correct conclusion might well
be that no obligation to exhaust local remedies could ever have been
generated;—in much the same way that (even if the case is not entirely on
the same plane) a person entitled to diplomatic immunity does not lose that
immunity through ignoring proceedings brought against him in the local
courts,—nor is it a condition of his government's right to complain that he
should have exhausted local means of recourse in the assertion or defence of
his immunity. Again, the possibility, and even probability, that the
management of the Company did de facto become aware of the proceedings, in
sufficient time to put in an opposition within the prescribed period, is
clearly irrelevant;—for if a certain kind of notification is required by
law, and this is not given, then any time-limits dependent on it simply do
not, as a matter of law, begin to run,—and once again the whole procedure is
vitiated and rendered void. [p 107]
75. In this connection a clear distinction must be drawn between proceedings
which, if invalid, are so ab initio, and proceedings the complaint as to
which concerns their outcome, e.g., that they resulted in a denial of
justice. As regards the latter kind of proceedings, it is evident that, in
principle at least, local remedies must be exhausted. The case is different,
at any rate as regards the substance of the issues involved, where the
alleged vice relates not to the outcome but to the very inception of the
proceedings.
76. In considering what kind and, so to speak, degree of notification is
legally requisite, it is clearly not sufficient, in cases involving a
foreign element, merely to apply domestic law standards, or to rely on, or
rest content with, the fact that the requirements of the local law concerned
were duly complied with,—if such was indeed the case. Internationally, it is
necessary to consider whether—objectively—in the case of a foreign company
having its seat and management abroad—a "notice" which takes the form of
nothing more than a simple press publication of the adjudication in
bankruptcy, suffices,—particularly if this publication is local only, and
not effected in the country of the company's management and seat. There is
here a direct connection with the question of excess of jurisdiction already
discussed above; and it is important to remember (see paragraph 68) that it
was not anything to do with the conduct of the Barcelona Company's Spanish
undertaking that was in question in the bankruptcy proceedings, or which
formed the basis of the bankruptcy adjudication, but a primarily
extra-Spanish matter, the servicing of the sterling bonds—which was directly
the concern of the Company in Canada, and of the bondholders' trustee, the
Canadian National Trust. The very fact that, as was expressly recognized in
relation to the Company's domicile, by the bankruptcy petition itself,
namely that "it [the Company] does not have [a domicile] in Spain, any more
than it has any specific commercial establishment there", must logically
lead to the conclusion that, on the international plane, a notification
effected in Canada, or by Canadian means of some kind, was called for. It is
difficult to see how the apparently admitted non-Spanish domicile of the
Company could possibly lead to the conclusion suggested in the bankruptcy
petition, and accepted by the judge, that in these circumstances it would be
"necessary to limit publication to the Official Bulletin of
Tarragona"—which the judge extended to the Official Bulletin of the
province of Barcelona, but no further.
77. I fully appreciate that Spanish law, like certain other historic and
highly developed legal systems, approaches the subject of bankruptcy mainly
from the standpoint of the creditors, and with the object above all or at
any rate in the first instance, of safeguarding their rights, and hence of
avoiding so far as possible any premature disposal, dispersal or
concealment of the debtor's assets, in such a way as to prejudice those
rights. I [p 108] therefore discount the natural reactions of a jurist
trained in the common-law school when confronted with a situation in which
a debtor can be declared bankrupt, or a company liquidated or wound-up, on
the basis of proceedings, of which no previous notice has been or will be
given, and at which the debtor is not represented or afforded an opportunity
to appear—and this although the declaration takes immediate effect, and that
effect involves for the bankrupt a complete loss of commercial status and of
legal capacity to act. I also accept the fact that according to the
philosophy of this point of view, only a very short interval is allowed in
which the bankruptcy can be challenged with a view to its cancellation and
the reversal of its effects.
78. But for these very reasons, it appears to me to be an essential
counterpart of the considerable stringency of such a system that, at the
very least, the debtor, having been declared bankrupt, should receive actual
notice—judicial notice—of the declaration of bankruptcy, and should do so in
a form which must ensure that it is brought directly to the attention of the
person or entity concerned FN58. Unless this is done, the process, viewed as
a whole, comes very near to constituting, if not a species of concealment,
at least a serious obstacle to the possibility of a timely challenge to the
bankruptcy;—so that a procedure already highly favourable to the creditor
interest, becomes loaded against that of the debtor to an extent difficult
to reconcile with the standards of the administration of justice required
by international law. More especially is this the case when the only period
within which the bankruptcy can be challenged is a period of eight days
running not from the date of notice but from that of the press publication
of the bankruptcy declaration itself, and failure to observe it apparently
has, thenceforth, a permanently preclusive effect.
--------------------------------------------------------------------------------------------------------------------- FN58
Under English law—to cite the system I am most familiar with—in the case of
the winding-up of a company on the basis of a petition, not only must the
existence of the petition be advertised (and not merely in the official
London Gazette but in one of the ordinary daily newspapers also) at least
seven clear days before the petition is due to be heard,—but, in addition,
notice of it must be served on the company at its registered head office,
equally before the hearing of the petition, at which of course the company
is entitled to be represented (Halsbury's Laws of England, loc. cit., in
notes 12 and 13 supra, pp. 544-549). In the case of foreign companies,
notice must no less be served, and, if this cannot be effected at an address
for service or place of business in England leave will be given to effect
service abroad (ibid., pp. 842-843).
---------------------------------------------------------------------------------------------------------------------
79. The pertinence and force of these considerations is of course greatly
increased where, as in the present case, a foreign element is
involved,—where the bankrupt is a foreign entity, with its seat and
management abroad, and where the occasion of the bankruptcy is not the local
commercial activities of that entity, but one affecting its (chiefly
non-local) bondholders. In such circumstances, mere publication in the local
press, and then not in the ordinary newspapers but in journals of a highly
specialized kind, normally little read except by persons having a [p 109]
particular reason to do so, can not be regarded as sufficient. It is in fact
doubtful whether press publication suffices at all, if it is the only
measure taken. But it should at least be effected not only in the local
press but also in that of the country or city where the bankrupt resides or
(if a company) has its seat;—and, although the point was never finally
resolved, there is some reason to think that this was in fact what Spanish
law itself really required.
80. However, in my opinion, in the circumstances of cases such as the
present one, even publication of the latter kind is hardly adequate.
Something in the nature of judicial notice is necessary and, as mentioned in
the statement of facts given in the early part of the Court's Judgment
(paragraph 15), no such notice was given at the time: indeed it was not
until 15 years later, in June 1963, that the Barcelona Company's
longstanding request for an official copy of the bankruptcy judgment was
acceded to. The reason given in that judgment for publication in the
official bulletins of Tarragona and Barcelona only, namely that the domicile
of the Company was "unknown", is difficult to reconcile with the fact that
the seat of the company was shown as "Head Office, 25 King Street West,
Toronto, Canada" on one of the most important documents which, together with
a translation into Spanish, was furnished to the bankruptcy judge by the
petitioners, as Nos. 3 and 3bis in the dossier of the case, namely the
report of the council of administration (Board of Directors) of the Company,
covering its balance sheet for 1946, the figures of which were cited in
support of the bankruptcy petition (Annexes to the Memorial, Vol. II, p.
258).
81. Even if Spanish law did not require action to be taken in Toronto in
such a case (see end of paragraph 79 above), it certainly in no way
prohibited this. Indeed, such action would have been entirely consistent
with the relevant provisions of that law, and it had been taken by the
Spanish courts in other cases, particularly the Moncayo and Niel-on-Rupel
cases, and was to be taken again in an analogous context in the Namel case a
year later by the actual judge who was then in charge of the Barcelona
bankruptcy. There existed at least three or four ways of doing this: by
publication in the Toronto newspapers; through the registered letter post,
with postal certificate of delivery; by personal service through a Spanish
consulate in Canada, if Canadian law so allowed; or in the last resort by
service effected through the Canadian authorities themselves.
82. It was contended that service or publication in Canada would have
constituted an internationally impermissible act of imperium carried out in
foreign territory. But in fact such acts take place every day, and
constitute indeed the usual ways in which persons resident or domiciled in
one country are formally apprised of proceedings affecting them, instituted
in another country. Local publication, or service by post, at least, [p 110]
can involve no act of imperium; and the other forms of service mentioned
above have the actual concurrence, general or specific, of the local
authorities. The Spanish cases cited in the preceding paragraph show that
the Spanish courts themselves, in other cases, made use of the method of
publication in foreign papers. The truth is that in the present case no
attempt to notify the Barcelona Company in Canada was made.
83. In my opinion this omission—and even if it could have been the result
only of inadvertence or oversight—was of such a character as to vitiate the
whole proceedings on the international plane, and to render them void or
inoperative ab initio. Relative to the Company, the proceedings were never
properly initiated at all. Consequently (recalling the observations made in
paragraph 75 above)—in the presence of a nullity, the question of exhausting
legal remedies did not arise.
VI
The philosophy of Joinder to the Merits
84. When, in the earlier (1964) phase of the present case, the Court joined
the third and fourth preliminary objections to the merits, it made a number
of observations both on the general philosophy of joinder as a judicial act,
and also as regards the particular reasons for effecting it on that occasion
(I.C.J. Reports 1964, pp. 41-46). On the present occasion the Court has not
thought it necessary to supplement these observations. But I believe there
are certain additional points that can usefully be made—except however as
regards the fourth preliminary objection, for it was always clear that this
objection, relating to the exhaustion of local remedies, was intimately
connected with the ultimate issues of substance involved by the claim, and
could not even be considered except in relation to these,—and so could not
be pronounced upon without in large measure prejudging the merits—a
situation that has generally been viewed as eminently calling for a joinder.
*
85. As regards the third preliminary objection, on which the Court's present
Judgment is mainly founded, the situation—though fully explained on pages
44-46 of the Report of the Court's earlier Judgment-was perhaps not so
obviously clear although, as was pointed out in that Judgment, matters
relating to the merits had been discussed in the written and oral
proceedings in that phase of the case, in connection with this objection. It
may therefore be desirable to point out that, apart from the doubt (see loc.
cit., pp. 44-45) whether the objection had an exclusively [P111] preliminary
character, and did not at least in part appertain to the merits, the Court
could not, without hearing the merits, regard itself as adequately informed
on what was evidently one of the key questions in the case,— namely whether,
in addition to the alleged infringements of the Barcelona, Traction
Company's rights, there had not also been infringements of the specific
rights, stricto sensu, of the shareholders, caused either by the same acts
as had affected the Company, or by separate acts affecting only shareholding
rights as such. It was indeed this very point which, inter alia, the Court
had in mind in the two following passages from its earlier Judgment, more
than once cited or referred to in the course of the oral pleadings in the
present phase of the case, but which appear to have been misunderstood to a
certain extent, namely (I.C.J. Reports 1964, p. 44):
"It can be asked whether international law recognizes for the shareholders
in a company a separate and independent right or interest in respect of
damage done to the company by a foreign government; and if so to what extent
and in what circumstances and, in particular, whether those circumstances
(if they exist) would include those of the present case"
and (ibid., p. 45):
"In short, the question of the jus standi of a government to protect the
interests of shareholders as such, is itself merely a reflection, or
consequence, of the antecedent question of what is the juridical situation
in respect of shareholding interests, as recognized by international law."
86. These observations no doubt indicated that there could be shareholding
interests recognized and protected by law, which therefore amounted to
rights, and that there might be circumstances in which an infringement of
the company's rights would also infringe the separate rights of the
shareholders. But what the Court said in no sense warranted the view that
prejudice caused to the shareholders through illicit damage done to the
company, necessarily and of itself gave the former a basis of claim which
their government could legitimately put forward on the international
plane—this being, broadly speaking, the proposition advanced on behalf of
Belgium.
87. This matter was not the only one in respect of which a hearing of the
merits was necessary in order to enable the Court to deal with the third
preliminary objection,—for in addition to the question of the legal status
of shareholders and the nature of their rights and interests, this objection
also involved that of the nationality of those concerned. It was contended
by Spain, not only that in principle no claim at all could be made on behalf
of shareholding interests in respect of damage caused, not [p 112] to those
interests as such, but to the company,—but also that, even if such a claim
could be made, these particular shareholding interests were not really
Belgian, or were not in Belgian hands at the material times. The Court felt
it necessary to hear the merits in order to ensure that it was sufficiently
informed as to the character and relative weight of the interests involved
in the Barcelona Traction Company and its affiliates: indeed it was not
until the merits were reached (even if then) that all the facts were fully
brought out regarding this matter; and it was in this context, rather than
that of the status of shareholders, that, according to one current of
opinion in the Court, the Belgian claim should be regarded as inadmissible.
*
88. There are other ways in which the implications of a joinder are liable
to be misunderstood—particularly if, as in the present case, the objection
is eventually upheld and the merits, though heard, are not pronounced upon.
There may be a tendency to assume that an international tribunal which
effects a joinder is already half-way to dismissing the objection and will
eventually do so and give a decision on the merits. Even if the present
case, and others before it, did not demonstrate the unwarranted nature of
such an assumption, this would result as a matter of principle from the fact
that if the assumption were correct, the whole process of joining
preliminary objections to the merits would be rendered meaningless—a mere
futile (and unjustified) postponement, not a genuine suspension, of judgment
on the objection.
89. Equally unjustified, as other cases show, is the opposite
assumption,—that a joinder indicates a favourable attitude to the objection
on the part of the tribunal concerned—a theory that only needs to be stated
for its implausibility to be manifest. There may indeed be cases in which,
on various grounds that seem good to it, a tribunal will hesitate to take,
at the preliminary stage of a case, a decision the effect of which would be
permanently to shut out, then and there, all possibility of a hearing and
decision on the merits. But, although the task of evaluating the factors
involved must be left to the tribunal concerned, adequate grounds for the
joinder must always exist,—for the process is one that can never be other
than a simple suspension of judgment on the objection, effected because the
tribunal, for one reason or another, considers that it cannot pronounce
upon it at that stage, consistently with giving their due weight to all the
various aspects of the case, and to holding the scales of justice even
between the parties. A joinder can never be interpreted as foreshadowing a
conclusion already half arrived at.
*[p113]
90. No less unwarranted would be any attempt to draw from the upholding of a
preliminary objection inferences as to what the attitude of the tribunal
was, or would have been, in regard to the substantive merits of the claim.
No such inferences—in whatever sense—could possibly be justified by reason
of the fact that, on the basis simply of a preliminary objection as such,
the tribunal holds the claim to be inadmissible.
*****
Postscriptum
I entirely approve of the initiative taken by the Court in paragraph 27 of
the Judgment (and for the first time in a judgmentFN *) of drawing
attention to the length of the proceedings in the present case,—so as to
indicate where the responsibility for this lies. If the parties in a
litigation before the Court think it necessary to take several years to
prepare and deliver their written and oral arguments, that is their
affair,—and, having myself formerly, on a number of occasions, been in the
same position, I can understand the reasons for it.
--------------------------------------------------------------------------------------------------------------------- FN*
A previous Order of the Court as to time-limits in the present proceedings
drew attention to the matter.
---------------------------------------------------------------------------------------------------------------------
Strong objection exists however when the blame for such delays is publicly
ascribed to the supposed dilatoriness or procrastination of the Court
itself,—in evident ignorance, or else heedlessness, of the true facts FN**.
--------------------------------------------------------------------------------------------------------------------- FN**
Some indication of the real facts will be found, for instance, in footnote
14 on p. 447 of a review article contributed by me to the Kansas Law Review,
Vol. 13, No. 3, March, 1965. Since this was written, periods requested by
the parties have grown to 4-5 years for the written proceedings, and 3-6
months for the oral hearing. See also for a much more complete statement,
Professor Leo Gross, "The Time Element in Contentious Proceedings in the
International Court of Justice", American Journal of International Law,
1969, Vol. 63, p. 74.
---------------------------------------------------------------------------------------------------------------------
Nor is this by any means the only way in which the Court has been
misrepresented in a manner detrimental to the dignity and good order of its
functioning as an independent judicial institution.
(Signed) G.G.Fitzmaurice
[p114]
Separate Opinion of Judge Tanaka
I
Although I subscribe to the Court's conclusion in dismissing the Belgian
claim that Spain violated an international obligation and incurred
responsibility vis-a-vis Belgium, I regret to have to say that my view
differs from that of the Court in its reasoning. The majority opinion
reached its conclusion by deciding the question of the jus standi of Belgium
in the negative, i.e., by upholding the third preliminary objection of the
Spanish Government, whereas my position would be to proceed to examine the
question of the merits after the third and fourth (non-exhaustion of local
remedies) preliminary objections. An examination of the merits, however,
leads to the same result as that reached by the majority opinion, namely the
dismissal of the Belgian claim.
Such preliminary remarks are made necessary in order to determine the scope
and limit of individual, separate or dissenting opinions. By reason of the
complexity of the instant case, we are confronted with a need to make
judges' rights, as provided by Article 57 of the Statute, clearer.
A question may arise as to whether judges' opinions should be limited to
those matters which have been dealt with in the majority opinion or whether
they are not subject to some limitation.
Here, I do not go deeper into the study of this question. I simply wish to
say that my view favours a liberal attitude which would not allow any
limitation to be imposed on judges' statements, other than considerations of
decency.
That this issue was taken up in some of the opinions of judges in the
Judgment of the South West Africa case (South West Africa, Second Phase,
Judgment, I.C.J. Reports 1966) is still vivid in our memory. So far as the
detail is concerned I should like to refer to a declaration of President Sir
Percy Spender (ibid., pp. 51 ff.) representing a restrictive theory and my
contrary view on this issue as stated in my opinion (ibid., pp. 262-263),
appended to that Judgment.
For the above-mentioned reason my following statement is not obliged to
remain within the framework of the majority opinion. I feel that I must
follow a logical process of my own which, according to my conscience, I
believe to be just. If the question of Belgium's jus standi is resolved in
the affirmative, the question of the exhaustion of local remedies will
remain to be examined. If given an affirmative answer, then the question on
the [p 115] merits, namely the denial of justice allegedly committed by the
Spanish authorities vis-a-vis the Barcelona Traction Company and its
subsidiaries should be taken up. This logical process cannot be interrupted
in the middle.
***
The Judgment of 24 July 1964 rejected the first and second preliminary
objections and joined the third and fourth preliminary objections to the
merits.
Considering that the joinder of these two preliminary objections would not
cause them to lose their preliminary character, we must first deal with
these objections before examining questions relating to the merits, though
bearing the latter in mind.
We shall begin with the third preliminary objection.
The object of the Belgian Government's Application of 14 June 1962 is
reparation for the damage allegedly caused to a certain number of its
nationals, including juridical persons, in their capacity as shareholders of
the Barcelona Traction Company, by the conduct, allegedly contrary to
international law, of various organs of the Spanish State toward that
company and various other companies in its group.
The Spanish Government, on the other hand, denies by the third preliminary
objection that the Belgian Government possesses jus standi either for the
protection of the Barcelona Traction Company of Canadian nationality
(Application filed on 23 September 1958) or for the protection of alleged
Belgian "shareholders" of that company (present case).
The third preliminary objection involves questions of both law and fact. The
question of law, which is a most important one in deciding this case, is
concerned with whether a State has a right to protect its nationals who are
shareholders in a company of a nationality other than that of the protecting
State. More concretely, the question may be formulated as follows: has the
Belgian Government jus standi to protect its nationals, namely Sidro and
others, who are shareholders in the Canadian Barcelona Traction Company?
Within the framework of diplomatic protection, the third preliminary
objection involves other issues concerning proteges, in particular the
question of the nationality of shareholders, their identification and the
question concerning the separation of legal and beneficial owner—which of
them is to be treated as the true shareholder from the viewpoint of
diplomatic protection?—in shareholding, which also involves a legal
question.
First, let us deal with the question concerning the diplomatic protection of
shareholders in a company of a nationality other than that of the
protecting State. Assuredly it constitutes a most fundamental question
underlying the third preliminary objection and is logically prior to other
ques-[p 116]tions, so that a decision on the former in the negative would
make a decision on the latter unnecessary. Therefore the question of
diplomatic protection of shareholders may be recognized as constituting the
core of the third preliminary objection.
Here, it is not necessary to emphasize the spirit of a universally
recognized rule of customary international law concerning every State's
right of diplomatic protection over its nationals abroad, that is, a right
to require that another State observe a certain standard of decent
treatment to aliens in its territory. The spirit of the institution of
diplomatic protection is clearly declared by a Judgment of the Permanent
Court of International Justice:
". . . in taking up the case of one of its nationals, by resorting to
diplomatic action or international judicial proceedings on his behalf, a
State is in reality asserting its own right, the right to ensure in the
person of its nationals respect for the rules of international law. This
right is necessarily limited to intervention on behalf of its own nationals
because, ... it is the bond of nationality between the State and the
individual which alone confers upon the State the right of diplomatic
protection, and it is as a part of the function of diplomatic protection
that the right to take up a claim and to ensure respect for the rules of
international law must be envisaged." (Panevezys-Saldutiskis Railway case,
P.C.I.J., Series A/B, No. 76, p. 16.)
Briefly, the idea of diplomatic protection does not seem to be a blind
extension of the sovereign power of a State to the territory of other
countries; the spirit of this institution signifies the collaboration of
the protecting State for the cause of the rule of law and justice.
Now, in the present case, we are confronted with concrete questions of
whether a national who is a shareholder in a company other than that of the
protecting State, is covered by diplomatic protection and whether the
interest involved in the shares is susceptible of being protected by the
national State of the shareholders. In other words, can the rule of
diplomatic protection be extended to a shareholder in a company of a
nationality which is not that of the protecting State, and to an interest
which is characterized by many corporative particularities? This is a
question of interpretation of customary international law regarding the
diplomatic protection of the nationals of a State.
To solve these questions, we shall start from the examination of the nature
and characteristics of a shareholder in a corporation (joint-stock company).
For that purpose we shall consider the concept of a corporation, legal
relations between a corporation and its shareholders, and more particularly
the legal significance of the juridical personality of a corporation. We
can easily understand the importance of the consideration of [p 117] this
last issue, if we see that many questions discussed in the course of the
proceedings on the preliminary objections and on the merits appear to be
centred round the question of the juridical personality of a corporation,
especially the question of whether in particular matters an interpretation
of the "piercing of the veil of the corporate personality" is to be admitted
or not.
***
We shall first make some observations on the characteristics of
corporations.
The corporation, which is a product par excellence of the capitalistic
economic system, possesses in many points remarkable characteristics
compared with other forms of commercial entities such as partnership and
limited partnership which are called in continental countries "société de
personnes" or "Personalgesellschaft", as distinguished from the
corporation, designated as "société de capitaux" or "Kapitalgesellschaft".
As these nomenclatures indicate, the partnership is an association which
presents itself as a combination of individuals who have personal
con-fidence in one another in moral as well as in economic aspects and who,
in many cases, as the name "société en nom collectif" indicates, are united
usually on the basis of a family tie, whereas the corporation is nothing
other than an aggregation of strangers, passers-by, who become united only
from an economic motive, namely the desire for possible increased dividends.
In a partnership the members of a partnership retain their own legal and
economic individuality. In internal relations, they are bound by a
contractual nexus (between the members qua individuals and between the
members and the partnership) and in external relations they have an
unlimited liability toward the creditors of the partnership. On the
contrary, in the case of a corporation, its members, the shareholders,
stand in no legal relationship either to one another or to outsiders, i.e.,
the creditors of the corporation. The shareholders, different in that from
partners whose entire personality and individuality is absorbed into the
business of the partnership, do not and cannot participate in the activities
of the corporation save by way of exercising their voting rights in the
general meeting. Even this kind of participation of the shareholders in the
corporate business is reduced to a minimum by the natural tendency to
indifference and "absenteeism" on the part of shareholders. Their only
obligation consists in the payment of a sum of money for the shares
subscribed by them and their only risk is the impossibility of
reimbursement of their invested sum in case of liquidation or bankruptcy of
the corporation.
Thus the legal position of shareholders lacks the individuality which is [p
118]found in the case of partners. It is characterized by its abstractness
and makes the existence of shareholders something passive.
The typical corporation, considered from the point of view of those
characteristics in which it differs from the partnership, is designated as a
"société anonyme". This term is used in contrast with the "société en nom
collectif". The anonymity relates of course to the corporation itself, but
we may assert that this character is derived from the anonymity of each
shareholder in the corporation. The anonymity can be said to be a
characteristic not only of a bearer share but of a registered share as well.
The anonymity of corporations as well as of shareholders makes possible and
facilitates the establishment among several corporations of dependent
relationships and concentrations of diverse kinds and degrees such as the
cartel, the "Interessengemeinschaft", "concerns", mergers (fusion), etc.
Particularly, it tends to produce at the national and international levels
the phenomenon of the mammoth pyramidal structure in which innumerable
enterprises, crowned by a controlling holding company at the top, are
affiliated with one another in links of parent-and-child relationships, by
means of holding, subsidiary and sub-subsidiary companies.
The concentration due to the aforesaid anonymity disregards national
frontiers and may cover many countries. In this way international
investments are facilitated. The case of the Barcelona Traction Company
offers an excellent example of the concentration of enterprises and
international investment.
The relationship existing among innumerable companies possessing separate
juridical personality is commonly called a "group".
The anonymity of shareholders manifests itself in the recent tendency to
separate power or management from the ownership by mechanisms such as life
insurance companies, pension trusts, and mutual funds, as pointed out by
Professor Adolf A. Berle Jr. (Power Without Property, 1959, pp. 160 ff.).
The separation of nominee and beneficial owner of shares, one of the issues
with which the third preliminary objection in the present case is concerned,
may be considered an example of the manifestation of this tendency.
Anonymity of shareholders and separation of control from ownership in
corporative life necessarily exercise a profound influence upon the
character of a corporation as a juridical entity. In contrast with the
partnership, where autonomy among members or contractual freedom largely
prevails and consequently the corporative regulation by the articles of
incorporation is limited to a minimum, matters concerning corporations are,
even in regard to their internal relations, minutely prescribed by jus
cogens in company law and a very narrow sphere is left to the autonomy of
the general meeting as the highest organ of the corporation. The degree of
the rule of law in commercial societies is in [p 119] inverse proportion to
the importance which law attaches to the individual member. In the
partnership it is minimal; in the corporation maximal.
From what has been stated above, we may conclude that the tie of the
juridical personality is, in the case of a corporation, far stronger than in
the case of a partnership. In a corporation juridical personality plays the
role of holding together incoherent individuals by a compact legal frame,
while in the case of a partnership, even under some legal systems
recognizing its juridical personality, the partners are directly liable to
creditors of the partnership in the event of its insolvency and accordingly
the function played by its juridical personality is extremely limited.
The above-mentioned characteristics of a corporation are very succinctly
indicated by the following description :
"Dans les sociétés de capitaux ... le lien de la société avec la personne de
ses membres est moins marqué; le concept de personnalité morale est donc
pour elles plus nécessaire. Les associés ne sont pas normalement
responsables des dettes de la société; l'actif social seul en répond. La
durée de la société ne dépend pas de la vie des associés, qui ne se
connaissent souvent pas, et ont réuni leurs capitaux, non leurs personnes;
les actions, qui représentent les parts sociales, sont, en principe,
librement négociables et ainsi appelées à changer continuellement de mains."
(Professeurs Henri et Léon Mazeaud et Conseiller Jean Mazeaud, Leçons de
droit civil, tome I, 3e éd., 1963, pp. 602, 603.)
If we recognize these observations as right, the natural conclusion
therefrom would be that the object of diplomatic protection in the case of a
corporation should be the corporation itself and not its shareholders.
From the viewpoint of emphasizing the significance of the juridical
personality of the corporation, it appears that it must be the company as
juridical person which is capable of enjoying the protection and not the
shareholders, since they are excluded from the protection by the screen of
juridical personality of the company.
The traditional doctrine on this matter has been based on the theory of the
juridical personality of a corporation, which holds that "a corporation is
a juridical person distinct from its members". J. Mervyn Jones stated :
"Assuming, therefore, that corporations may be nationals, it follows that
only the state of which they are nationals may intervene on their behalf,
and this notwithstanding the fact that most of the members may be nationals
of another state." ("Claims on behalf of nationals who are shareholders in
foreign companies", British Year Book of International Law, 1949, p. 227.)[p
120]
The argument of the Spanish Government which denies the right of diplomatic
protection of shareholders in favour of the national State of the Barcelona
Traction Company, namely Canada, is precisely based on the above-mentioned
theory of a juridical personality recognized as being distinct from its
members.
The Belgian Government on the contrary, wishes to advocate its position by
arguing from a fundamental theory concerning the juridical person. It
intends to defend its viewpoint on the strength of the doctrine of fiction,
which denies the real existence of the juridical person by reducing it to a
simple conglomeration of its constituent members and minimizing the
juridical person as being a mere legal technique that makes it possible for
plural individuals to own property or conclude a transaction.
In order to assert its view, the Belgian Government has repeatedly referred
to a figurative concept of "piercing the veil" of corporate personality. So
far as this slogan is concerned, however, it simply means that the
shareholders must be protected by their national State regardless of the
juridical personality of the corporation. It is a petitio principii and
nothing more.
The Belgian Government, basing itself on the fiction theory, insists that
the real existence of a corporation is its shareholders and that accordingly
the subject to be protected is not limited to the Barcelona Traction
Company, but includes its shareholders who are Belgian nationals.
The argument developed by the Spanish Government to deny the protection of
shareholders is, as indicated above, based on the role attributed to the
juridical personality of corporation.
The viewpoint of the Spanish Government is not in itself wrong. As we have
seen, in a corporation the role of the juridical personality is at a maximum
and that of shareholders is reduced to a minimum. Never can the shareholders
come in contact with a third person through the wall of the corporate
personality. This wall seems too solid to be penetrated. It appears that
diplomatic protection cannot reach to shareholders, consequently the
Spanish view on this point seems to be well founded.
In short, both Governments, the Belgian and the Spanish as well, appear to
base their respective positions on a theory of juridical personality: either
on the theory of fiction or on the realistic theory, either disregarding or
emphasizing the functional importance of juridical personality.
***
However, we must approach the issue in question from a different angle. The
question should be considered on quite another plane. What we have seen
above and what the Spanish Government has put forward are arguments
concerned with the juridical concept of corporation in the [p 121]
meaning of municipal law, private law and particularly commercial law, and
they deal with this concept only.
Law relating to corporations is concerned with matters of private law,
namely private interests, relationships between corporation, shareholders
and third parties. Company law in respect of incorporation, formation, ultra
vires, capital, its increase and reduction, organs, the rights and duties of
shareholders (particularly limited liability), the transfer of shares,
accounts, the issuing of bonds, dissolution, liquidation, etc., is above all
related to internal matters of corporations, or business transactions with
outsiders and belongs to the plane of municipal law. The principles
prevailing in these matters are directed, on the one hand, to the protection
of third parties, namely the creditors of a company, and on the other hand,
to the protection of the shareholders in the company itself. These
principles are not in themselves connected in any way with international
law. The protection of shareholders is intended to be guaranteed in
corporation law mainly by provisions concerning the limited liability of
shareholders, the maintenance of enterprises, the principle of publicity,
liability of corporate organs, etc. ; it belongs to an entirely different
plane of law the prevailing principle of which is quite extraneous to that
of diplomatic protection.
The Spanish concept of the impenetrability of a company's wall of juridical
personality is based on a principle of private law, and therefore it cannot
be applied to the question of diplomatic protection of shareholders.
Since the matter of diplomatic protection of shareholders belongs to an
entirely different plane, namely to the field of international law, the
juridical personality created from the necessity of the viewpoint of private
law or commercial law cannot be recognized as an obstacle for the protection
of shareholders on the plane of international law.
For this reason the fact that a corporation has juridical personality under
the law of a State does not necessarily justify diplomatic protection by
that State only.
This conclusion is based on recognition of the relativity of the validity of
each legal principle and concept.
Every branch of law, for example, private law, procedural law,
administrative law, fiscal law, private international law, law concerning
enemy character in wartime, etc., has its own purpose and accordingly, the
sphere which it governs is necessarily limited. Certain legal principles and
concepts may have a relative validity in the specific sphere to which they
belong. Each legal system or institution has its own objective; to attain
this objective, a system of norms, i.e., principles, rules and provisions,
is developed. The system is teleologically constructed. The meaning of the
norms and concepts included in it will be relative to the objective of the
system itself and limited by it, although the existence of [p 122] common
principles and concepts underlying diverse systems cannot be denied. To give
an example: we cannot help recognizing the difference between the legal
position of seller and purchaser and that of parties each playing a specific
role with regard to a bill of exchange, although both cases belong to the
law of obligations. We may cite another example, namely the difference
between the legal relationship governing a company and its shareholders and
that involved in an ordinary commercial trans-action.
What we want to emphasize is that each branch of law, each system and
institution, each provision belonging to it, possesses a specific character
from the viewpoint of its objective and is susceptible of or requires a
different interpretation. This phenomenon is what a distinguished
commercialist, Rudolf Müller-Erzbach more than 55 years ago ingeniously
pointed out in an article ("Relativität der Rechtsbegriffe und ihre
Begrenzung durch den Zweck des Gesetzes", Jherings Jahrbücher für die
Dogmatik des heutigen Römischen und Deutschen Privatrechts, Bd. 61, 1912,
ss. 343-384).
On the matters we are interested in, a concept such as nationality, which is
concerned with both municipal and international law, may have a different
content according to the objective of each branch of law and its
interpretation and application may be relative. Even if the nationality of
an individual is established by municipal law, it may not necessarily have
validity in international law. It is possible that one may not be entitled
to diplomatic protection from one's national State by reason of lack of
effectiveness, as the Nottebohm case indicates (I.C.J. Reports 1955, p. 23).
The fact that the effectiveness is questioned, implies that the concept of
nationality may vary in meaning according to whether it is interpreted by
municipal law or by international law.
The viewpoint mentioned above may be stressed further with regard to the
question of the nationality of a corporation in relation to its juridical
personality. To begin with, the concept of nationality as applied to a
physical person differs from that applied to a juridical person. In regard
to the latter, the relationship of allegiance originating from the natural
tie between physical persons and their national State may be lacking.
Furthermore, the meaning implied in the nationality of corporations may not
be identical according to different branches of law, for example, law
concerning the treatment of foreign corporations, conflict of laws,
diplomatic protection of nationals, law on enemy character, etc. (Prof. Paul
Reuter, Droit international public, 1958, pp. 164, 165.)
Hypothetically, a corporation obtains juridical personality by being
incorporated in a State under the law of that State and acquires the
nationality of that State, but the corporation may possess a foreign [p 123]
character in other respects: preponderance of foreign participation in the
capital stock, nationality of members of boards of directors, place of
control, place of business activities, etc. In such cases it may become
controversial whether the national State of the corporation can claim
diplomatic protection on its behalf solely because the corporation has its
nationality; in any event, the national State of the corporation, even if it
is entitled to diplomatic protection, may hesitate to exercise its right.
It is not without reason that Rabel renounced his attempt to seek a uniform
content for the concept of nationality of corporations and declared that
each rule should be interpreted separately (Ernst Rabel, The Conflict of
Laws, 1947, Vol. II, p. 21).
***
We may quote an example for the purpose of demonstrating the non-application
of a rule of municipal law to a matter of international law.
The so-called principle of equal treatment of shareholders, we believe, is
considered one of the most fundamental principles governing the law of
corporations. According to this principle, all shares in a corporation— or,
if several categories of shares exist, all shares in the same category— are,
from the viewpoint of the rights and duties incorporated in them, equal
(with the exception of quantative differences proportionate to the degree of
participation), and therefore shareholders are to be treated equally. This
principle is perhaps derived from the fact of anonymity or lack of
individuality where the position of shareholders is concerned, in contrast
with that of partners ; the idea may go back to canon law and, further, to
the Aristotelian notion of justifia distributiva.
The principle of equal treatment of shareholders, however important it may
be, nevertheless has its limitation. The limitation may come from municipal
law, but in any case it comes from outside commercial law. It may take the
form of a restriction of the rights of foreign shareholders in public law.
Or it may be based on international law where the latter recognizes the
protection of shareholders in a foreign company who are nationals of the
protecting State. Unequal treatment arising as the result of a discretionary
exercise of diplomatic protection cannot be avoided when there are
shareholders of different nationalities. A situation wherein some of the
shareholders enjoy effective protection and the rest do not is inevitable.
Whether such situation is desirable or not is a different matter.
What we meant above is that a principle such as equal treatment of
shareholders, being of municipal law character, is not ipso jure applicable
to matters belonging to the plane of international law, including matters
concerning diplomatic protection of shareholders. The shareholders who have
been excluded from diplomatic protection cannot protest against [p 124]
diplomatic protection of other shareholders by their respective national
States by referring to the principle of equal treatment of shareholders,
which is valid only in municipal law and not in the matter of international
law to which the rule of diplomatic protection belongs.
What has been said concerning the principle of the equality of shareholders
can be applied mutatis mutandis to the question of the juridical personality
of a corporation. Juridical personality is, as stated above, conferred on a
corporation primarily for the purposes of maintaining the enterprise, owning
property, concluding transactions with outsiders and limiting or denying the
liability of shareholders in regard to creditors of the company.
Accordingly, juridical personality possesses meaning only as a legal
technique to serve and guarantee the corporate existence in respect of
private and commercial law. Its validity is relative and therefore limited.
The Spanish Government conceives the juridical personality of a corporation
as an impenetrable wall lying between corporation and shareholders as far as
diplomatic protection is concerned, so that it can prevent protection of the
shareholders and monopolize it in favour of the corporation itself. In other
words, the framework of juridical personality should involve in itself the
susceptibility of diplomatic protection of the company and at the same time
the exclusion of shareholders from the protection. The question of
diplomatic protection could not be distin-guished from the conclusion of
ordinary transactions, where the corporation itself was represented and the
shareholders excluded.
Such a construction, however, would fall into the error of conceiving the
juridical personality of a corporation as an aim in itself, whereas it is
nothing but a means in the interest of its constituent members.
Professor (at that time Judge) Charles De Visscher said:
"L'intérêt de l'individu, l'intérêt de l'homme est toujours le but du droit
et sa fin suprême. Il en est ainsi alors même que la poursuite de cet
intérêt s'effectue sous le couvert du régime de la personnalité civile."
("De la protection diplomatique des actionnaires d'une société contre l'Etat
sous la législation duquel cette société s'est constituée": Revue de droit
international et de législation comparée, Vol. 61, 1934, p. 639.)
***
By what is set forth above, we have tried negatively to remove an important
obstacle to the recognition of diplomatic protection in favour of
shareholders. Next, we shall demonstrate positively the necessity and raison
d'être of protection of shareholders and establish the reason why the
shareholders should be protected independently of the company to which they
belong.
We shall solve the question of whether the shareholders' rights and
interests are included in the subject-matter of diplomatic protection [p
125] according to the universally recognized customary rule of international
law, the existence of which does not admit of any doubt; we are confronted
with the interpretation of this customary rule of international law, i.e.,
whether diplomatic protection covers the position, namely rights and
interests, of shareholders in a corporation or not.
Roughly speaking, international law places no qualification on "property",
"rights" and "interests", and consequently it seems that the position of
shareholders can be recognized as involving property, rights or interests,
and is able to be covered by diplomatic protection. Before we reach a
definite conclusion, however, we must examine the nature of the
shareholders' legal position and their rights and interests, because some
aspects of the legal position of shareholders have appeared to be an
obstacle to the recognition of its diplomatic protection and, therefore,
much discussion has taken place between both Parties concerning this issue.
Let us examine what are usually indicated as shareholders' rights in books
on corporation law of many countries: the right to dividends, the right to
surplus assets in case of liquidation, the right to vote in general
meetings, the right of minority shareholders to sue for the liability of
directors, the right to transfer shares, the right to request certificates,
etc.
Examining these so-called shareholders' rights we can distinguish two
categories of rights: the one includes those rights which are enjoyed by
shareholders themselves, namely the right to dividends, the right to surplus
assets and the right to transfer shares; and the other includes the right of
voting and all those rights the aim of which constitutes the common
interest of the corporation itself and not the individual interest of the
shareholders. Some German scholars of corporation law call the rights in the
first category eigennützige Rechte (rights for self-interest) and the rights
in the second category gemeinnützige Rechte (rights for common purpose). The
latter category constitutes rights of shareholders sensu lato; however they
are not exercised by them as shareholders but as an organ composing the
general meeting, and therefore this kind of right cannot be classified in a
category of rights of shareholders in sensu stricto. Of course a
preponderant shareholding in the general meeting would confer on the
shareholder right of control, but this so-called right cannot be said to be
a "right" in the proper sense, but mere "interest".
As to the rights of shareholders to request dividends or surplus assets, we
cannot deny them the nature of a right sensu stricto; nor do we hesitate to
classify shares in the categories of "property", "rights" or "interests"
which may be covered by diplomatic protection.
This conclusion, we consider, cannot be denied on the ground that the
realization of the right to dividends or surplus assets presupposes the [p
126] existence of profits or surplus assets on the balance sheet, and is
therefore conditioned by the future financial circumstances of the company.
It is true that the position of shareholders is, in this respect, more
uncertain than the position of creditors and bondholders, but a conditional
right cannot be excluded from diplomatic protection simply because it
involves uncertainty; nor can the fact that shareholders do not possess any
right as regards corporate property—its formal owner being the company
itself— be used to deny diplomatic protection.
In short, whatever construction may be put on the rights of shareholders
each constituent element of a share can be characterized as a "right" or
"interest". Furthermore, we can conceive rights and interests as a whole, as
a conglomeration of diverse rights, duties and interests. Perhaps we can
consider them as Mitgliedschaft or Mitgliedschaftsrecht, which is nothing
else but a kind of legal position possessed by a shareholder. That this
legal position can be and will be considered an object of diplomatic
protection, is easily understood by the fact that the legal position as a
whole, being incorporated in the share certificate, becomes negotiable as a
movable and quoted in stock-exchange operations.
In this context, we shall clarify the distinction between protection of
shareholders from the viewpoint of the material content of shares and
protection of shareholders as owners of the share certificates. What we are
concerned with is only the former case in which alleged wrongful acts
vis-à-vis the company are involved and consequently the intrinsic value of
shares is affected, while in the latter case the question of protection is
concerned with an owner or possessor of a particular share certificate as a
titre-valeur as in the case of rei vindicatio, where a share certificate has
been stolen or damaged; the latter case therefore, is not concerned with the
protection of shareholders which is what we are dealing with here.
In sum, the legal position of shareholders can itself be considered to be
the object of diplomatic protection by their national State. From the
viewpoint of diplomatic protection it does not matter whether this position
can be conceived as "property", "a right" or "interests". Even if it cannot
be recognized as property or a right, it constitutes "interest".
The share can be said to be a new type of property which is a product of
modern capitalism; although, unlike copyright, patents and trademarks, it
has its origin in municipal law, it has acquired a highly international
character owing to its anonymity and transferability. There is no other
movable property comparable with the share which is furnished with the
highest degree of negotiability through the mechanism, of international
exchange markets.[p 127]
Parallel with the development of international investment, the necessity of
its protection becomes acute. It will be recognized that absence of a
uniform law relative to companies and the highly imperfect state of private
international law on this matter increasingly require diplomatic protec-tion
of shareholders in a way that supplements the measures provided by municipal
law.
Briefly, we should approach the customary rule of diplomatic protection
from a teleological angle, namely from the spirit and purpose of diplomatic
protection, without being bound by municipal law and private law concepts,
recognizing its relative validity according to different fields and
institutions. The concept of juridical personality mainly governs private
law relationships. It cannot be made an obstacle to diplomatic protection of
shareholders. Concerning diplomatic protection, international law looks
into the substance of matters instead of the legal form or technique; it
pays more consideration to ascertaining where real interest exists,
disregarding legal concepts. International law in this respect is realistic
and therefore flexible.
Judge Wellington Koo in his separate opinion appended to the 1964 Judgment
concerning the third preliminary objection in the present case says:
"International law, being primarily based upon the general principles of law
and justice, is unfettered by technicalities and formalistic considerations
which are often given importance in municipal law ... It is the reality
which counts more than the appearance. It is the equitable interest which
matters rather than the legal interest. In other words it is the substance
which carried weight on the international plane rather than the form."
(Barcelona Traction, Light and Power Company, Limited, Preliminary
Objections, Judgment, I.C.J. Reports 1964, pp. 62 and 63.)
***
Even if the existence of an interest (in a broad sense) in diplomatic
protection is recognized, however, the State concerned would have the
discretion to exercise the power of diplomatic protection on certain
matters. Here, we must distinguish two questions: the one is whether
diplo-matic protection is, from the viewpoint of the nature of the object of
protection, legally possible or not; the other is whether, in a specific
case, intervention for the purpose of diplomatic protection by a State on
behalf of its national, is appropriate or not. The former question is of a
legal nature, to be distinguished from the latter which constitutes nothing
else but the political evaluation of the fact from various aspects (above
all, economic considerations). The two questions should not be confused.[p
128]
These two questions arise from the existence of the two kinds of interest
pertaining to the diplomatic protection of shareholders: one is the original
interest of shareholders which requires the protection of their national
State, the other is the interest which the national State of the
shareholders possesses and which may become a deciding factor in the
exercise of a discretionary power of intervention. These two interests must
not be confused either.
In this respect, we shall consider the meaning of the percentage of
participation of shareholders to be protected in the capital stock of a
company. This matter has been repeatedly discussed between the Parties in
the present case relative to the preponderance of percentage of Sidro's
participation in the capital stock of Barcelona Traction. It has been
claimed that this preponderance constitutes an essential condition for the
existence or exercise of the right of diplomatic protection of shareholders.
But we consider that the preponderance of percentage does not appear to
constitute a condition of diplomatic protection. It seems that the
percentage itself possesses no relevance to the legal possibility of
diplomatic protection. Even the holding of one share would
jusify—theoretically— the right of diplomatic protection. Whether this right
will be exercised or not, is a matter belonging to the discretion of the
national State. What is essential is the existence of an interest worthy of
protection by the shareholders' national State. In this sense the total
value of the shares to be protected should be considered objectively without
regard to the percentage which it occupies in the total capital stock. A
holding of 25 per cent. in a big company may be sufficient for the exercise
of diplomatic protection; contrariwise, a 99 per cent. holding in an
insignificant company may be excluded from the consideration of diplomatic
protection. Of course other factors may come into consideration. This is a
matter of political expediency, belonging to the discretion of the
protecting State, which presupposes the possibility of protection, and not a
matter of law which is concerned with the legal possibility of protection.
We presume that the discussion concerning the percentage of the
participation of Sidro in the capital stock of Barcelona Traction is
motivated by the idea of protection of the Barcelona Traction Company
itself, on which viewpoint the Belgian Application of 1958 stood.
Con-troversy around the percentage of participation, so far as the third
preliminary objection is concerned, may be understood as a residuum of the
viewpoint of protection of the company represented by the initial
Application; therefore, it seems that it is not relevant to the question
with which we are dealing now.
The question of whether a State is entitled to exercise a right of
diplomatic protection of a foreign corporation is entirely another matter.
It seems that it must be decided in the negative sense, by reason of the
fact that the corporation itself does not possess the nationality of the
protecting State. However, some State practice recognizes the protection of
a foreign corporation, if substantial interest in the corporation [p 129] is
owned by its nationals (see Edwin M. Borchard, The Diplomatic Protection of
Citizens Abroad, 1915, p. 622). This is not the case which we are now
considering. Here we are concerned with the issue of the protection of
shareholders and not the company itself. But much progress has been made
such that through protection of a foreign company the protection of
shareholders is attained. It is quite natural that, so long as the
standpoint of protection of a company itself is defended, the percentage of
the participation of the protected shareholders does come into
consideration. However, since we refuse to recognize an obstacle to
diplomatic protection in the juridical personality of a company and
attribute to shareholders an independent status which may be an object of
diplomatic protection, the fact of Sidro's holding a certain fairly large
percentage of the Barcelona Traction Company must be deemed to be one of the
factors to be taken into consideration in exercising diplomatic protection
but not one legally required as a condition for the right of protection.
***
It is true that the internationally wrongful acts allegedly committed by the
Spanish administrative or judicial State organs, such as refusal of the
transfer of foreign currency, the bankruptcy judgment of 12 February 1948,
etc., are directed to the Barcelona Traction Company, which possesses
Canadian nationality. Accordingly, the Spanish Government argues that only
Canada, the national State of the company, is entitled to exercise its
diplomatic protection. This argument is based on the municipal law concept
of the corporation on which we made observations above and according to
which only the corporate personality prevails regarding external matters.
According to this concept, since only the company could be the victim of a
wrongful act, the damage suffered by the shareholders should be indemnified
through the company indirectly. In short, only the national State of the
company would be entitled to exercise diplomatic protection and not the
national State of the shareholders.
It is also true that the national State of a company is entitled to take
measures of diplomatic protection on behalf of the company, assuming that
the bond of nationality is effective, and that the national State is
materially interested in the protection of the company. But there are many
cases where the nationality of the company is not effective, where the bond
between the national State of the company and the shareholders is lacking
and, accordingly, the national State is not inclined to exercise the right
of protection. There may exist another circumstance for the national State
of the company, such as the fact that between this State and the State
responsible for the wrongful acts a nexus of compulsory jurisdiction is
lacking; or the former State, for some political or other reasons may not
wish to pursue diplomatic protection against the latter[p 130]
State; or diplomatic protection by the former State might not bring a
satisfactory result, etc. Under these circumstances there remains no other
remedy than that the national State of the shareholders should take the
initiative for the purpose of the protection of its nationals. A vacuum with
respect to protection should not be tolerated: otherwise shareholders would
be left in an entirely helpless condition and the result would be injustice
and inequity which would be harmful for the healthy development of
international investment.
As one of the objections raised to the above-mentioned argument in favour of
diplomatic protection of a national State of shareholders, we may point out
the difficulty which would be produced by the cumulative existence or
competitive concurrence of rights of several States concerning the same
object of diplomatic protection. It follows that in the case of
multinational composition of capital, more than one national State of
shareholders might intervene on the condition that the jurisdictional basis
exists, either by the way of intervention as provided for in Articles 62 and
63 of the Statute or by special agreement or application (Article 40 of the
Statute). Each of those entitled to diplomatic protection would be able to
exercise its right of protection according to its discretion without
prejudicing the rights of protection of other States concerned.
Such competitive existence of rights of diplomatic protection of diverse
States appears an extraordinary phenomenon, but we consider that the same
kind of legal phenomenon can be found in contractual or delictual matters
where the same contract or wrongful act gives rise to a claim for
compensation by diverse persons concerned. In such a case, concurrent plural
claims may serve a common purpose; if one of them were exercised and
satisfied, the remaining rights would be extinguished, having attained their
purpose.
Accordingly, in the present case, there does not exist any contradiction
between, on the one hand, the right of diplomatic protection of the
Barcelona Traction Company by its national State, namely Canada and, on the
other hand, the right of diplomatic protection of its shareholders by their
national State, namely Belgium. The existence of the former right does not
exclude either the existence of the latter right or its exercise.
Since the two rights of diplomatic protection—that of Canda and that of
Belgium—co-exist in parallel but independently, it is not a necessity for
Belgium's right of diplomatic protection that Canada should finally waive
its right of protection in regard to the Barcelona Traction Company. Such a
fact is not relevant to the existence of the right of diplomatic protection
of Belgium in favour of its shareholders.
We cannot deny the possibility of a cumulative existence of rights of
diplomatic protection in the case of a company just as a natural person may
have dual nationality. If a claim of one State is realized, [p 131] the
claim of the other State will be extinguished to this extent by losing its
object. Accordingly, the defendant State cannot be compelled to pay the
damage twice over.
Of course, we recognize that the fear of complication which would be caused
by plural or multiple interventions of several governments has some
justification. But if we deny them, the legitimate interests of shareholders
might be left without protection by their national States. These phenomena
would represent some of the defects inherent in the present institution of
diplomatic protection, which might be related to the non-acceptability of
individuals to international tribunals. Practically complication and
confusion might be avoided to a considerable degree by negotiations and
"solutions inspired by goodwill and common sense ..." (Reparation for
Injuries Suffered in the Service of the United Nations, Advisory Opinion,
I.C.J. Reports 1949, p. 186) between the States concerned. Or it would be a
task of international legislative policy to provide means to guarantee the
protection of private investments and to find appropriate solutions in order
to overcome the difficulties arising from the multiple intervention of
several governments. We should not refuse the necessary remedies to protect
legitimate shareholders by conjecturing extreme cases.
It is true that there is no rule of international law which allows two kinds
of diplomatic protection to a company and its shareholders respectively,
but there is no rule of international law either which prohibits double
protection. It seems that a lacuna of law exists here; it must be filled by
an interpretation which emanates from the spirit of the institution of
diplomatic protection itself.
***
From what is stated above, we can conclude that whether Canada is entitled
to diplomatic protection of the Barcelona Traction Company as its national
State or whether the Canadian Government once wanted to intervene in the
dispute but finally gave up the original intention, is not legally relevant
to solve the question of the right of diplomatic protection of shareholders
by their national State. This right exists independently of the right of the
national State of the company. The history of the comparatively short-lived
Canadian intervention (1948-1952 or 1955), however, would prove the raison
d'étre of the right of diplomatic protection of shareholders by their
national State.
The above-mentioned protection of the shareholders themselves is based on
the concept which characterizes relationships between the company and its
members, namely the shareholders. Although an inde- [p 132]pendent juridical
personality is conferred on a company, this personality does not present
itself as an end, but simply as a means to achieve an economic purpose,
namely a maximum degree of pecuniary interest by a limited sum of
investment.
A company in the sociological sense belongs to the category of the
"Gesellschaft", and presents itself as a pure means to achieve the economic
purpose of its members, namely the shareholders; the shareholders constitute
the substance of its existence; they are the sovereign of the company like
the citizens in a democratic State. Who require, in the material sense,
diplomatic protection in the case of a company? No-one other than the
shareholders in the company, although in some cases the company itself, may
appear as a formal protege on the scene, having its cause espoused by its
national State. Therefore in a company, the shareholders, as being its real
substance, and the subject of interests, must be considered as the object of
diplomatic protection; not the company itself which has nothing but a Active
existence and can only play the role of a technique for the purpose of
protection of the shareholders who are the real owners of the corporate
property and enterprise.
From what has been said above, we can conclude that there exists between a
company and its shareholders a relationship of community of destiny which
has been repeatedly emphasized, particularly in the oral arguments by the
Belgian Government, in order to justify its right of diplomatic protection
on behalf of its shareholders in the present case. The alleged
internationally wrongful acts, it is true, are directed against the company
itself and not against the shareholders, but only in a formal sense; in
reality both are inseparably connected to each other in such a way that
prejudicial acts committed against a company necessarily produce an effect
detrimental to its shareholders by reduction of the sum of dividends or
surplus assets. In a company, we can recognize the existence of unity
between company and shareholders in the sense that profit and loss are in
the final instance attributed to the shareholders —of course under the
condition that the liability of each shareholder is limited to the sum of
shares which he has subscribed.
Therefore, the alleged internationally wrongful acts directed against a
company can be conceived as directed against its shareholders themselves,
because both can be considered, in substance, i.e., economically, identical.
Accordingly, one cannot deny to the national State of shareholders the right
of diplomatic protection of its nationals on the ground that another State
may possess or exercise the same right on behalf of the company itself.
Consequently, in the present case, the recognition of the right of
diplomatic protection of Canada, which is the national State of the
Barcelona Traction Company, does not exclude the same right of Belgium, the
national State of the shareholders of that company on their behalf; hence
Belgium may be entitled to exercise its original [p 133] right of protection
of her shareholders independently of the protection of the company itself by
Canada. Therefore, the Belgian Government cannot be regarded as substituting
the Canadian claim to the protection of the company.
It might be said in passing that by this assertion we do not go so far as to
maintain that the interest of the company coincides perfectly with the
totality of the shareholders' interests. We must recognize that originally a
company is no more than a means for its shareholders to achieve their
lucrative purpose; but so long as the company continues as a going concern
it would enjoy in some measure an independent existence free from the
arbitrary decision of the shareholders. So long as a company exists for a
considerable space of time and fulfils its corporate purpose it acquires an
objective existence (the idea of so-called "Unternehmen an sich" of Walther
Rathenau) which, owing to its important social role the shareholders would
not dare dissolve arbitrarily, even if it were legally possible, by the
prescribed majority vote. We know that many contemporary big and influential
corporations are extending their activities to fields of an educational,
scientific and philanthropic nature and are contributing to the solution of
social and cultural problems for the welfare of humanity (A. A. Berle, The
20th Century Capitalist Revolution, 1954, pp. 164, 188). Accordingly, even
in the case of a corporation created for the egoistic purposes of
shareholders, there may exist a common interest of the company distinct
from the individual interest of the shareholders, and therefore we cannot
deny the possibility of conflict between these two interests.
However, the possibility of common interest does not preclude the fact that
between the company and the shareholders a relationship of community
normally exists and wrongful acts done to and damage inflicted on the former
can be considered also as being directed against the latter.
We recognize that an adequate connection of cause and effect may exist
between the wrongful acts done to the company and the damage inflicted on
the shareholders, but we can explain this fact, as is mentioned above, by
the existence of a community of destiny or a substantial economic identity
between them.
***
From what has been stated above, we consider that we can demonstrate the
raison d'étre of the right of diplomatic protection by a State of its
nationals who are shareholders in a company of a nationality other than that
of the protecting State.
The Parties have argued by quoting international arbitral precedents, the
practice of States and the writings of authoritative publicists to defend
their standpoints. Although cases concerning the protection of shareholders
exactly analogous to the present case cannot be found, [p 134] international
practice and doctrine do not seem to deny the protection of shareholders by
their national State to which the company itself does not belong.
The Spanish Government admits the protection of shareholders by their
national State (1) where, following the general tendency of international
practice and doctrine, the company possesses the nationality of the State
responsible for the damage, and (2) where the foreign company has been
dissolved or is practically defunct. In these cases there exists the
circumstance that the protection of the shareholders by the national State
of the company cannot be expected, either factually or legally. This is why
in these cases the protection of shareholders directly by their national
State is justified. The question is whether these two instances are to be
considered as a manifestation of a more general principle in favour of the
protection of shareholders or as an exception to the main principle which
does not admit their protection.
The principle of customary international law concerning diplomatic
protection by the State of its nationals, however general and vague it may
be, does not prohibit the rights or the legal position of shareholders being
included in "property, rights and interests" as an object of protection.
This conclusion can be justified as a correct interpretation of customary
international law concerning diplomatic protection, particularly taking into
account the above-mentioned necessity of international investment in the
past as well as in the future. The nature of the interest of shareholders is
to be interpreted as a legitimate one worthy of protection by their national
State.
Next, customary international law does not prohibit protection of
shareholders by their national State even when the national State of the
company possesses the right of protection in respect of the latter.
The Spanish Government denies the right of protection of shareholders by
their national State. It admits diplomatic protection of shareholders only
in the two above-mentioned exceptional cases. Protection of shareholders
from this viewpoint is considered only as a substitute for the protection of
the company itself which has become impracticable through the circumstances
indicated above. From our viewpoint, the protection of the shareholders
possesses a meaning independently of the protection of the company itself.
Accordingly, it can exist regardless of circumstances which might make the
exercise of the right of protection of a company and the intervention of its
national government impossible or difficult. There does not appear to exist
in international law any restriction to the effect that the protection of
shareholders in a foreign company by their national State must be limited to
the above-mentioned two cases. The national State of shareholders, in the
present case Belgium, is entitled to protect them just as in the cases where
a company possesses the nationality of the responsible State, or a company
has been dissolved or is practically defunct.
In short, the contention of the Spanish Government is based on the [p 135]
municipal law concept of corporate personality and that of shareholders
which is its corollary. The two protections, we consider—protection of the
company and that of the shareholders—may co-exist and on equal terms; the
latter is not supplementary to the former.
For the foregoing reasons, we conclude that Belgium has an independent
right to protect the Belgian shareholders in Barcelona Traction in
conformity with the interpretation of customary international law
concerning the diplomatic protection of nationals.
II
So far we have been concerned with the question of the legal, that is to
say, the theoretical basis for the jus standi of the Belgian Government: the
question whether a State has a right to protect its nationals who are
shareholders in a company of a nationality other than that of the
protecting State. This question having been answered in the affirmative, we
must now consider some questions from the viewpoint of the identification
of individual shareholders with reference to the present case.
These questions are concerned of course with the existence of shareholders
who are entitled to receive diplomatic protection by their home State. Not
all so-called "shareholders", but only those who are qualified from the
functional and temporal viewpoint to receive protection. (It goes without
saying that proof of their status as shareholders must be furnished as a
matter of principle either by the register in the case of registered shares
or by possession in the case of bearer shares.)
From the viewpoint of functional differentiation a question arises when
shares are owned by two persons: the one, a nominee, whose name is entered
in the share register and who exercises rights as alter ego of the real
owner; the other, the beneficial owner, who enjoys rights as the real or
economic owner of the shares. By what criterion shall it be decided which of
those two is entitled as shareholder to be the object of protection : the
nominee or the beneficial owner?
In the present case, the register of the shareholders of the Barcelona
Traction Company kept by the National Trust Company of Toronto gives
successively as from 7 November 1939 the names of the Charles Gordon
Company, a partnership of New Jersey and Newman & Company, a partnership of
New York—the two are of American nationality— and does not give the name of
Sidro which is of Belgian nationality. It is contended by the Belgian
Government that a contractual nominee-beneficial-owner relationship exists
between the two American partnerships and Sidro. The purpose of the
establishment of such a relationship [p 136] seems to have been a wartime
necessity of German-occupied Belgium to protect Sidro's participation in the
capital and management of Barcelona Traction against an enemy power. Under
such relationships a question arises: which of the nationalities—American or
Belgian—prevails, in deciding the national character of Sidro's shares?
The Spanish Government denies the effect of the Belgian nationality of Sidro
by regarding the nominees, who are of American nationality, as the true
shareholders. We consider that the beneficial ownership, and, accordingly,
in the present case, Sidro's position as beneficial owner, must be the
criterion for deciding this question. The reason therefor is as follows:
diplomatic protection depends upon where the real interest resides; it is
not concerned with a legal mechanism of private law such as corporate
personality, nominee relationship, etc. As we have seen in another context,
just as the rule of diplomatic protection should disregard the legal veil of
the corporate personality of the company in favour of its real substance,
namely the shareholders, so it should disregard the legal veil of the
nominee in favour of the beneficial owner. The existence of a nominee
relationship does not exercise any influence upon the diplomatic protection
of shareholders. Sidro loses neither its shareholding in the Barcelona
Traction Company nor its Belgian nationality. It is quite unthinkable that
the conclusion of the nominee contract which was motivated by a wartime
necessity could exercise any influence upon the status of Sidro as a
shareholder of the Barcelona Traction Company.
In short, the fact that the two above-mentioned partnerships are of American
nationality has no relevance for the purpose of establishing the jus standi
of the Belgian Government. What is relevant for the jus standi of Belgium is
the fact that Sidro is the beneficial, that is to say, the real owner of
Barcelona Traction's shares in respect of which the American partnerships
are nominees.
***
Next, we shall consider the question of the existence of a bond of
nationality between the shareholders and the protecting State as a
condition of protection in the present case.
The object of the Belgian Government's Application of 14 June 1962 is
reparation for the damage allegedly caused to a certain number of its
nationals in their capacity as shareholders of the Barcelona Traction, Light
and Power Company. In the shareholders are included both natural and
juridical persons.
The contention of the Belgian Government concerning its jus standi is based
on the preponderance of the Belgian interest in the Barcelona Traction
Company. The preponderance of the Belgian interest is evident, the Belgian
Government argues, from the fact that the majority of the shareholders in
that company are of Belgian, nationality and that it [p 137] amounted to 88
per cent. of Barcelona Traction's capital stock. The most important
shareholder in the Barcelona Traction Company, according to the Belgian
Government, is admitted to be Sidro, S.A. (Société Internationale d'Energie
Hydro-Electrique), whose holding is said to amount to 75 per cent. of the
shares of the Belgian holding.
The preponderance of the Belgian participation in Barcelona Traction at the
time of its adjudication in bankruptcy is indicated by the Belgian
Government (Memorial, paragraphs 1-10) by the following figures:
Registered shares issued............ 1,080,446
Bearer shares issued ............. 718,408
Total shares issued.............. 1,798,854
Shares owned by Belgian nationals (minimum) . . 1,607,845
Shares not owned by Belgian nationals (maximum) 191,009
Belgian participation in the capital of Barcelona Traction at the date of
the adjudication in bankruptcy of that company therefore amounted to not
less than 89.3 per cent. of the capital issued.
Of this figure of 89.3 per cent., 75.75 per cent. belonged to Sidro, so that
13.55 per cent. at least of the capital of Barcelona Traction belonged to
other Belgian nationals.
The figures given above come from three main sources of information, namely
:
1. Information derived from the register of Barcelona Traction registered
shares.
A statement drawn up by the National Trust Company of Toronto, which keeps
the register of the shares of Barcelona Traction,
gives the following figures:
Total issued shares.............. 1,798,854
Registered shares............... 1,080,446
Registered shares owned by Sidro........ 1,012,688
Registered shares owned by shareholders other than
Sidro................... 67,758
1,080,446
The total number of registered shares in Belgian hands was 1,013,108 in
which 420 shares belonging to Belgian shareholders other than Sidro are
included.
The shares mentioned above as belonging to the Sidro Company had been
entered in the list of registered shares since 7 November 1939 in the name
of Charles Gordon & Company as nominee.[p 138]
2. Information derived from the accounts of Sidro.
The above information is confirmed and supplemented by the accounts of
Sidro, for the certificate drawn up by the firm of chartered accountants,
Deloitte, Plender, Giffiths & Co., dated 6 May 1959 shows that, as at 12
February 1948, Sidro owned 1,012,688 Barcelona Traction registered shares
and 349,905 bearer shares, i.e., in all 1,362,593 shares out of a total of
1,798,854 shares issued, which represented 75.75 per cent. of the capital of
the company.
3. Facts derived from the information gathered by the Institut
belgo-luxembourgeois du change (Belgo-Luxembourg Exchange Institute).
At the time of adjudication in bankruptcy of Barcelona Traction, this
company had issued 1,798,854 shares, of which at least 1,607,845 were owned
by Belgian nationals; that is to say, 1,362,593 shares owned by Sidro
(1,012,688 registered and 349,905 bearer shares), and at least 245,252
shares (420 registered and 244,832 bearer shares) owned by other Belgian
nationals.
Belgian participation amounted therefore to at least 89.3 per cent. of the
capital of the company.
Next, we shall see Belgian interests in Barcelona Traction at the time of
the institution of international proceedings (14 June 1962) (Memorial,
paras. 11-19). This is shown by the following figures:
Registered shares issued..........… 1,472,310
Bearer shares issued.............. 326,544
Total shares issued.............. 1,798,854
Shares owned by Belgian nationals....... 1,588,130
Shares not owned by Belgian nationals..... 210,724
Proof of the preponderance of Belgian participation at that date will be
given with the help of information furnished by:
1. The register of registered shares of Barcelona Traction. The statement
drawn up by the National Trust Company of Toronto gives the following facts
:
2.
Total issued shares.............. 1,798,854
Registered shares............... 1,472,310
Registered shares owned by Sidro ....... 1,354,514
Registered shares owned by shareholders other than
Sidro................... 117,796
Total .... 1,472,310 [p 139]
The total number of registered shares in Belgian hands was therefore
1,356,902 in which 2,388 shares belonging to Belgian shareholders other
than Sidro are included.
As to the registered shares owned by Sidro, the nominee this time was the
firm of Newman & Co., New York, which had succeeded Charles Gordon & Co.
2. Information derived from the accounts of Sidro.
A certificate drawn up by the firm of Deloitte, Plender, Griffiths & Co.,
dated 23 August 1962, shows that on 14 June 1962 Sidro owned 1,354,514
Barcelona Traction registered shares, and 31,228 bearer shares, that is to
say, a total of 1,385,742 shares out of 1,798,854 shares issued, which
represented 77 per cent. of the total capital of Barcelona Traction.
3. Information concerning bearer shares owned by Belgian nationals.
As at 1 April 1962 there were in circulation 326,554 Barcelona Traction
bearer shares of which 31,228 shares were owned by Sidro.
When the proceedings were instituted the number of Barcelona Traction shares
in circulation was 1,798,854 of which at least 1,588,130 were owned by
Belgian nationals. Of these 1,385,742 shares were owned by Sidro (1,354,514
registered and 31,228 bearer shares) and at least 202,388 (2,388 registered
and 200,000 bearer shares) were owned by other Belgian nationals.
From the facts given above, it can be concluded that more than 88 per cent.
of the Barcelona Traction shares were in Belgian hands both at the time of
the adjudication in bankruptcy of that company and at the time the present
proceedings were instituted.
This Belgian participation is made up as follows: 10 to 15 percent. of the
capital of Barcelona Traction is owned by the general public in Belgium,
whilst 75 to 77 per cent. of the capital is owned by Sidro, a company under
Belgian law.
The foregoing is the demonstration on the part of the Belgian Government
concerning the preponderance of the Belgian participation in the capital of
Barcelona Traction.
Are the figures of 88 per cent. of the Belgian participation and 75 per
cent. of Sidro's participation at a critical date in Barcelona Traction
correct? It depends on the reliability of information furnished by the
National Trust Company of Toronto, the firm of chartered accountants,
Deloitte, Plender, Griffiths & Company, and the Institut
belgo-luxem-bourgeois du change.
It is argued that these three main sources being on the Belgian side, one
cannot therefore expect unprejudiced information from them. But it is also
not just to deny absolutely their evidential value in such circumstances.
Each case should be valued according to its own merits. [p 140]
Particularly, the matter in question is that of degree. The figure for
Belgian participation may not be correct to the last digit. It may be 90 or
80 per cent. instead of 88 per cent. But one cannot deny the evidential
value of a statement simply because it may involve some minor incorrectness
or mistake. Whether the percentage is 80 or 10 per cent. the question of the
jus standi of the Belgian Government is entirely the same.
***
Next, we are confronted with the question as to whether Sidro can be said to
have Belgian character. It is quite a different question from that of
whether the 75 per cent. participation of Sidro in the Barcelona Traction's
capital stock really existed. It is concerned with the constitution of Sidro
as a corporate body which may include natural and juridical persons as its
constituent elements. In the case where a shareholder of Sidro is a company,
the Belgian character of Sidro might depend on the nationality of individual
shareholders of that company. If a shareholder of this latter company is a
company the same process should be repeated, and would go on ad infinitum.
Under such circumstances the national character of Sidro could only be
decided by the nationality of ultimate individual shareholders who were
natural persons.
The Spanish Government denies the Belgian character of Sidro by contending
that Sofina, the principal shareholder of Sidro, is very limited in its
Belgian holding. However, to establish the Belgian character of Sidro, which
is required for its protection, we need not go to such excessive lengths of
logical formalism.
The fact that Sidro is of Belgian nationality can be recognized without the
slightest doubt. This company was formed under Belgian law and it has its
seat (siege social) in Belgian territory, namely in Brussels. Its Belgian
nationality has never been denied by the Spanish Government. Sidro,
accordingly, is entitled to receive diplomatic protection from the Belgian
Government, being qualified therefor by the facts of its formation and seat.
These facts are sufficient to justify the connecting link between Sidro and
Belgium. Just as the Barcelona Traction Company can enjoy the diplomatic
protection of the Canadian Government by reason of similar factors, so Sidro
is entitled to receive diplomatic protection from the Belgian Government by
reason of its Belgian nationality.
It is possible that Sidro may be susceptible of two protections which are
compatible with each other: on the one hand, it might be protected
indirectly by the Canadian Government as a shareholder of a Canadian
company, Barcelona Traction, on the other hand, it might be protected
directly by the Belgian Government owing to its Belgian nationality. In this
latter respect Sidro is subject to Belgian protection as a shareholder of
Barcelona Traction, by virtue of having Belgian nationality and as a company
as such.[p 141]
In this context we must add a few words concerning a Judgment of the
International Court of Justice in the Nottebohm case (Second Phase, I.C.J.
Reports 1955, pp. 16, 17, 25, 26). This Judgment denied the extension of
the right of diplomatic protection of Liechtenstein to Mr. Nottebohm
vis-à-vis Guatemala on the ground that his nationality of Liechtenstein
lacked effectiveness. That Judgment was concerned with the effectiveness of
nationality of a natural person and not that of a company. That Judgment is
not germane to the present case, however, because here the nationality of
Sidro is undoubtedly established.
In short, the jus standi of the Belgian Government can be founded on the
Belgian nationality of Sidro, even if the Belgian nationality of the
majority of the shareholders ultimately cannot be proved.
The percentage of Sidro and other Belgian holdings in the whole capital
stock of the Barcelona Traction Company has no particular relevance for the
question of the jus standi of the Belgian Government, but it would become an
important factor for the assessment of damage allegedly incurred by Belgian
shareholders.
The question of continuity of nationality, that is, identification of
shareholders from the temporal viewpoint, can be decided in the
affirmative. Sidro's continued existence since 1923, covering the two
critical dates, is sufficient to prove this continuity.
As to the question of bearer shares, this does not seem relevant to a
decision concerning jus standi and continuity.
For the above-mentioned reasons the third preliminary objection raised by
the Spanish Government should be rejected.
We shall proceed to examine the fourth preliminary objection raised by the
Spanish Government against the Belgian Application.
III
In the fourth preliminary objection the Spanish Government holds that the
Belgian Application of 14 June 1962 is inadmissible by reason of the
non-exhaustion of local remedies by the Barcelona Traction Company and
those concerned, as required by international law.
The Spanish Government invokes not only the rule of customary international
law on local remedies, but Article 3 to the Treaty of Conciliation,
Judicial Settlement and Arbitration of 19 July 1927, which provides as
follows:
"In the case of a dispute the occasion of which, according to the municipal
law of one of the Parties, falls within the competence of the national
courts, such Party may require that the dispute shall not be submitted to
the procedure laid down in the present Treaty until a judgment with final
effect has been pronounced within a [p 142] reasonable time by the competent
judicial authority." [English text from League of Nations Treaty Series,
Vol. LXXX, pp. 28 ff. Note by the Registry.]
That the local remedies rule constitutes "a well-established rule of
customary international law" and that "the rule has been generally observed
in cases in which a State has adopted the cause of its national whose rights
are claimed to have been disregarded in another State in violation of
international law", is clearly declared by the International Court of
Justice (Interhandel, Judgment, I.C.J. Reports 1959, p. 27).
The International Court of Justice continues:
"Before resort may be had to an international court in such a situation, it
has been considered necessary that the State where the violation occurred
should have an opportunity to redress it by its own means, within the
framework of its own domestic legal system." (Ibid., p. 27.)
The provision of Article 3 of the said Treaty is nothing else but the
recapitulation of this already existing rule, the spirit and principle of
which are found amplified in the Court's decision and implemented in
conventions providing for the compulsory jurisdiction of international
tribunals.
Before examining the well-foundedness or otherwise of the fourth preliminary
objection, we must consider the relationship between two concepts, namely
exhaustion of local remedies in detail and denial of justice, which is
regarded as the main or central issue arising from the alleged
internationally wrongful acts imputed by the Belgian Government to the
Spanish authorities.
We cannot understand the position of the Court, which ordered the joinder of
the fourth preliminary objection to the merits, without considering the
relationship of the exhaustion of local remedies to denial of Justice.
The Court decided as follows:
"As regards the fourth Preliminary Objection, the foregoing considerations
apply a fortiori for the purpose of requiring it to be joined to the merits;
for this is not a case where the allegation of failure to exhaust local
remedies stands out as a clear-cut issue of a preliminary character that can
be determined on its own. It is inextricably interwoven with the issues of
denial of justice which constitute the major part of the merits. The
objection of the Respondent that local remedies were not exhausted is met
all along the line by the Applicant's contention that it was, inter alia,
precisely in the attempt to exhaust local remedies that the alleged denials
of justice were suffered." (Barcelona Traction, Light and Power Company
Limited, Preliminary Objections, Judgment, I.C.J. Reports 1964, p. 46.)[p
143]
Therefore, before deciding whether the fourth preliminary objection is to be
upheld or not, we shall make some observations on the complicated
relationship existing between the exhaustion of local remedies and the
denial of justice.
There can be no doubt that the local remedies rule possesses a procedural
character in that it requires the person who is to be protected by his
government to exhaust local remedies which are available to him in the State
concerned, before his government espouses the claim before an international
tribunal.
What is the raison d'être of this rule?
In the first place, the consecutive existence of two procedures—municipal
and international—would guarantee and promote the justness of a decision.
(It goes without saying that the procedure of an international tribunal is
not comparable to that of, for instance, the Cour de Cassation.)
Secondly, so long as local remedies are not exhausted, and some other
remedies remain, the condition is not fulfilled. The exhaustion means the
existence of a "judgment with final effect" or analogous circumstances. In
such situation recourse to international remedies will be justified.
Thirdly, this procedural rule appears to express a higher conception of
equilibrium or harmony between national and international requirements in
the world community. The intention of this rule is explained as follows by
Professor Charles De Visscher: "Il s'agit donc ici avant tout d'une règle de
procédure propre a réaliser un certain équilibre entre la souveraineté de
l'Etat recherché et, d'autre part, les exigences supérieures du droit
international ..." ("Le déni de justice en droit international", 52
Académie de droit international, Recueil des cours, 1935, II, p. 423), or,
as Judge Córdova said:
"The main reason for its existence lies in the indispensable necessity to
harmonize the international and the national jurisdictions— assuring in this
way the respect due to the sovereign jurisdiction of States—by which
nationals and foreigners have to abide and to the diplomatic protection of
the Governments to which only foreigners are entitled" (separate opinion,
Interhandel, Judgment, I.C.J. Reports 1959, p. 45).
The procedural requirement of the exhaustion of local remedies presupposes
the existence of a high degree of confidence by the claimant in the judicial
system and in its application, and this constitutes one of the fundamental
conditions to be fulfilled in the matter of the exhaustion of remedies in
the State concerned.
***[p 144]
Next, we shall consider the concept of denial of justice.
Although the exhaustion of local remedies belongs to the plane of procedural
law, denial of justice belongs to the plane of substantive law. In the
present case, the latter constitutes the fundamental concept applied to all
the allegedly internationally wrongful acts imputed by the Belgian
Government to the Spanish authorities. The former, on the contrary, is
nothing other than a condition for the obtaining of reparation for the
damage suffered by the Barcelona Traction Company's shareholders through
denial of justice.
We shall examine, in the first place, the concept of denial of justice, and
next the logical relationship between this latter and the local remedies
rule.
The term "denial of justice" in its loose sense means any international
delinquency towards an alien for which a State is liable to make
reparation. It denotes in its ordinary meaning an injury involving the
responsibility of the State committed by a court of justice. As far as acts
of a court which would involve the State in responsibility are concerned, a
very narrow interpretation practically does not admit the existence of a
denial where decisions of any kind given by a court are involved, but seeks
to limit the application of this institution to the case of the denial to
foreigners of access to the courts. This view would virtually mean by denial
the exclusion of foreigners from all actions instituted in courts of law;
therefore this concept cannot be accepted. Another more moderate and
generally approved view which can be considered as acceptable is that denial
of justice occurs in the case of such acts as—
"corruption, threats, unwarrantable delay, flagrant abuse of judicial
procedure, a judgment dictated by the executive, or so manifestly unjust
that no court which was both competent and honest could have given it, ...
But no merely erroneous or even unjust judgment of a court will constitute a
denial of justice, ...". (Brierly-Waldock, The Law of Nations, 6th ed.,
1963, p. 287; see also Sir Gerald Fitzmaurice, "The meaning of the term
'denial of justice' ", British Year Book of International Law, 1932, p. 93.)
***
Now we shall consider the logical relationship between the two concepts:
exhaustion of local remedies and denial of justice, and proceed to examine
the admissibility of the fourth preliminary objection.
As we have seen above, the exhaustion of local remedies is a condition of a
procedural nature, which is imposed on an individual whose interests his
national State wants to protect by international proceedings. But to be able
to fulfil this condition there must exist in the State concerned a judicial
situation such as to make the realization of exhaustion possible.
Consequently, we must recognize that some cases constitute exceptions [p
145] in regard to the application of the local remedies rule. Instances of
such cases are given in the following passage:
"La réclamation internationale n'est pas subordonnée à l'épuisement
préalable des recours quand ceux-ci sont absents, inadéquats ou a priori
inefficaces. Il en est ainsi quand l'organisation judiciaire de l'Etat ne
fournit aucune voie légalement organisée, quand les voies légales n'ouvrent
aux intéressés aucune perspective raisonnable de succès, ou enfin quand, au
cours même de la procédure, le plaideur étranger est victime de lenteurs ou
d'obstructions équivalant à un refus de statuer et qui l'autorisent à
abandonner une voie qui se révèle sans issue." (Charles De Visscher, op.
cit., pp. 423-424.)
Under these circumstances respect for and confidence in the sovereign
jurisdiction of States which, as indicated above, constitute the raison
d'être of the local remedies rule, do not exist. The rule does not seem to
require from those concerned a clearly futile and pointless activity, or a
repetition of what has been done in vain.
It is said that "a claimant cannot be required to exhaust justice in a State
when there is no justice to exhaust" (Charles De Visscher, op. cit., p.
424); and again "A claimant in a foreign State is not required to exhaust
justice in such State when there is no justice to exhaust". (Statement by
Mr. Fish, Secretary of State, quoted in Moore, International Law Digest,
Vol. VI, 1906, p. 677.) If a state of denial of justice prevails in the
country concerned, there can be no possibility of exhausting local remedies.
In the above-mentioned extreme cases, it is impossible for the interested
parties to comply with the condition concerning the exhaustion of local
remedies; accordingly this condition must be dispensed with for them.
We must limit the application of the local remedies rule to cases and
circumstances where its fulfilment is possible. Thus it may be said that
this rule is not of an absolute character in its application.
In the light of the above considerations, we shall examine whether the
exhaustion of local remedies can be required from the Belgian Government
and whether in the case of an affirmative answer it has been observed or
not.
It is clear that the claim put forward by the Belgian Government is based on
the alleged internationally wrongful acts imputed to the Spanish Government
and that these acts are characterized globally as a denial of justice.
According to the Belgian Application (paragraph 43) they—
"relate to a whole series of positive measures, acts or omissions which are
often contradictory, which overlap and are interrelated, and of which the
unlawful character from the point of view of the law of nations is seen
particularly in the final result to which they have led". [p 146]
The Belgian Government classifies these measures, acts and omissions into
administrative measures manifestly arbitrary or discriminatory, and conduct
on the part of the courts revealing a lack of impartiality, contempt for
the principle of the equality of parties before the court, and other defects
amounting to a denial of justice from the point of view of international
law. As to the conduct of the courts, the Belgian Government contends that
a large number of decisions of the Spanish courts are vitiated by gross and
manifest error in the application of Spanish law, arbitrariness or
discrimination in international law, denials of justice lato sensu.
Furthermore, the Belgian Government contends that in the course of the
bankruptcy proceedings the rights of the defence were seriously disregarded
(denials of justice stricto sensu). (Final submissions of the Government of
Belgium filed on 14 July 1969.)
In sum, the claim of the Belgian Government is based on the alleged denials
of justice, sensu stricto as well as sensu lato, committed by the Spanish
authorities in regard to the Barcelona Traction Company and others
concerned. In the circumstances of the present case, however, we cannot
recognize that so serious a situation of denial of justice has in general
prevailed that the interested party should be exempted from the obligation
to exhaust local remedies. But concerning this particular case it is
conceivable that, from the Applicant's viewpoint, the conten-tion of the
alleged denial of justice would imply the uselessness of the exhaustion of
local remedies.
If the facts of collusion and connivance of the Spanish courts or judges
with the March group really existed in dealing with the proceedings of the
Barcelona Traction bankruptcy case, as contended by the Belgian Government
in the written and oral pleadings, we can conclude with reason that, under
such circumstances, to expect a successful outcome of the exhaustion of
local remedies by those concerned would be simple nonsense.
The two concepts—exhaustion of local remedies and a denial of justice—are in
contradiction so far as the latter is meant in sensu stricto. The former is
based on a positive viewpoint, namely the expectation of the realization of
a certain result by the courts; the latter on a negative viewpoint, namely
its renouncement.
Hypothetically, if a denial of justice really existed, there would be
justification for believing that the local remedies rule would have become
useless to that extent, as in the case of lack of an appropriate legal and
judicial system and organization.
Briefly, in the concept of a denial of justice there seems to be inherent
the contradiction of denying the possibility of the fulfilment of the
exhaustion of local remedies. It seems that, in a case where the "original
wrong" consists in a denial of justice, the fulfilment of the exhaustion [p
147] of local remedies cannot be expected, unlike the case of other
internationally wrongful acts (for instance, murder, confiscation of
property, etc.) where independent fulfilment of the exhaustion rule can be
required.
If there is an element in the denial of justice which makes the fulfilment
of the exhaustion rule impossible, then the Belgian Government would be
dispensed to that extent from the observance of this rule. Despite the
contentions by the Belgian Government concerning alleged facts of a denial
of justice in the bankruptcy proceedings against the Barcelona Traction
Company, the Belgian Government does not insist that "there is no justice to
exhaust" in Spain and that Belgium should exceptionally be exempt from the
obligation to exhaust local remedies. The Belgian Government does not
contend that the Spanish judiciary as a whole is paralyzed and corrupt or
that the fulfilment of the exhaustion rule is impossible; its complaints are
concerned only with some of the judges and courts.
***
Now let us see whether the obligation of exhaustion of local remedies was
fulfilled by the Barcelona Traction Company and those concerned.
First, we must consider what kind of remedies should be exercised and to
what degree these remedies have been pursued. Owing to the highly
complicated structure and proceedings of this dispute, it is extremely
difficult to answer these questions. Everything depends on the circumstances
of the case and the issues and, in particular, on the effectiveness of the
available remedies (such as revision by the supreme court). Sometimes,
complication arises from a difference of interpretation of law between the
Parties. For instance, the Spanish Government insists that, as a result of
the Barcelona Traction Company's failure to observe the time-limit of eight
days for a plea of opposition to the Reus judgment of 12 February 1948, the
case became res judicata and, consequently, all actions of the Barcelona
Traction Company and its subsidiaries should be null and void. The Belgian
Government, on the contrary, basing itself on the nullity of the publication
in Spain of the judgment, argues that the time-limit of eight days did not
begin to run and therefore it did not expire. If the former argument is
right, the Barcelona Traction Company and its subsidiaries would lose the
means of redress by becoming unable to exhaust local remedies, the result of
which would be highly inequitable.
We are led to the conclusion that in the matter of the exhaustion of local
remedies the same spirit of flexibility should exist which, as indicated in
another context, prevails in matters of diplomatic protection in general. If
we interpreted the provision of Article 3 of the Treaty of Conciliation,[p
148] Judicial Settlement and Arbitration of 1927 and the customary
international rule on the matter of local remedies too strictly, possible
minor errors in the technical sense would cause those concerned to be
deprived of the benefit of diplomatic protection, particularly in such an
affair as the Barcelona Traction case the complexity and extensiveness of
which, from the substantive and procedural viewpoints, appear to be
extremely rare in the annals of judicial history.
The guiding principle for resolving the questions concerning exhaustion of
local remedies should be the spirit of diplomatic protection according to
which, in addition to a juristic, technical construction, practical
considerations led by common sense should prevail. The decision as to
whether legal measures offer any reasonable perspective of success or not,
should be flexible in accordance with the spirit of diplomatic protection.
Even if, for instance, institutionally an administrative or judicial remedy
exists whereby an appeal may be made to higher authority, this remedy may be
ignored without being detrimental to the right of diplomatic protection, if
such an appeal would be ineffective from the point of view of common sense.
From what has been said above, "exhaustion" can be seen to be a matter of
degree. Minor omissions should not be imputed to the negligence of those
concerned. It is sufficient that the main means of redress be taken into
consideration. The rule of exhaustion does not demand from those concerned
what is impossible or ineffective but only what is required by common sense,
namely "the diligence of a bonus paterfamilias".
***
Next, let us enumerate some of the main measures alleged to have been taken
by the Barcelona Traction Company and those concerned (according to the
final submissions filed on 14 July 1969 by the Government of Belgium,
Section VII).
(1) Concerning the Reus court's lack of jurisdiction to declare the
bankruptcy of Barcelona Traction:
opposition proceeding of 18 June 1948;
application of 5 July 1948 (for a declaration of nullity); its pleading of 3
September 1948;
a formal motion of National Trust in its application of 27 November 1948;
Barcelona Traction Company entered an appearance (23 April 1949) in the
proceedings concerning the Boter declinatoria; its formal adherence to that
declinatoria (11 April 1953).[p 149]
(2) Concerning the bankruptcy judgment and the related decisions:
application of 16 February 1948 on the part of the subsidiary companies,
Ebro and Barcelonesa to have the bankruptcy judgment set aside;
the bankrupt company itself entered opposition to the judgment by a
procedural document of 18 June 1948, confirmed on 3 September 1948;
incidental application for a declaration of nullity submitted by the
Barcelona Traction Company (5 July 1948).
(3) Concerning the blocking of the remedies:
numerous proceedings taken by the Barcelona Traction Company, beginning with
the incidental application for a declaration of nullity (5 July 1948).
(4) Concerning the failure to observe the no-action clause:
clause referred to by National Trust in its application for admission to the
proceedings (27 November 1948).
(5) Concerning the conditions of sale:
the conditions of sale were attacked by Barcelona Traction in an
application to set aside and on appeal, in an application of 27 December
1951 for a declaration of nullity containing a formal prayer that the order
approving the conditions of sale be declared null and void, and in an
application of 28 May 1955;
the same challenge was expressed by Sidro in its action of 7 February 1953
and by other Belgian shareholders of the Barcelona Traction Company in their
application of 26 May 1955.
These facts which have not been contested by the Spanish Government and
whose existence may be considered as being of judicial notice, prove that
the case was effectively pursued before the Spanish courts or judges and
that local remedies were exhausted as a condition for diplomatic protection
by the Belgian Government.
Whether local remedies have been exhausted or not must be decided from a
consideration of whether the most fundamental spirit of this institution has
been observed or not. Now, this spirit, as is indicated above, constitutes a
means of ensuring the respect and confidence due to the sovereign
jurisdiction of a State. The important point is that this spirit has been
respected.
The aim of the rule of exhaustion of local remedies is a practical one and
its application should therefore be elastic. Each situation, being
different, requires different treatment. We must beware of the danger to
which this rule is exposed because of its procedural and technical nature,
lest it make necessary diplomatic protection futile by an excessive raising
of the objection of non-exhaustion.
Moreover, the fact that in this case, which was pending for more than [p
150] 14 years, from 12 February 1948 (date of the bankruptcy judgment
against the Barcelona Traction Company by the Reus judge) to 14 June 1962
(date of the Application by the Belgian Government), 2,736 orders and 494
judgments by lower courts and 37 by higher courts had been delivered,
according to the Spanish Government. Even if these figures are not correct
in every detail, we can none the less recognize from them as a whole the
fact that the condition of exhaustion of local remedies was indeed satisfied
by the Barcelona Traction Company or its subsidiary companies. Accordingly,
the argument contrary thereto by the Spanish Government is unfounded.
Therefore, the fourth preliminary objection raised by the Spanish Government
must be rejected.
IV
The third and fourth preliminary objections having been decided in favour of
Belgium, we must now consider a basic question on the merits, namely whether
Spain is responsible for internationally wrongful acts allegedly committed
by Spain which constitute "a denial of justice".
First it must be made clear that the charge of a denial of justice imputed
to Spain by the Belgian Government does not denote a very narrow
interpretation, namely the denial to foreigners of access to the courts.
What the Belgian Government contends is not only not limited to a denial in
such a formal sense, but includes a denial of justice in a wider material
sense, in which, generally speaking, gross injustice, irregularities,
partiality, flagrant abuse of judicial powers, unwarranted delay, etc., are
included, as we indicated in another context.
The judgment of the Reus judge of 12 February 1948 declaring the bankruptcy
of Barcelona Traction, its consequences and the successive acts of the
Spanish courts constitute the main complaints of the Belgian Government. But
the complaints include acts not only of a judicial nature but also of an
administrative nature, since it is alleged that some acts and omissions of
the Spanish administrative authorities, particularly of the Institute of
Foreign Exchange, had caused the adjudication in bankruptcy of the Barcelona
Traction Company.
From the lengthy arguments in the written and oral proceedings, we can guess
the existence of antagonism between the two economic and financial groups:
the one, the Mr. Juan March group and the other, the Barcelona Traction
group. While the Belgian Government emphasizes the financial and political
ambition and the collusion with the Spanish administrative and juridical
authorities of the former group, the Spanish Government contends that there
was abuse of the pyramidal structure of the latter group and stresses the
tax evasion and financial irregularities [p 151] committed by that group,
such as the creation of fictitious debts and the sacrifice of creditors by
means of auto-contracts between Barcelona Traction and its subsidiaries.
The Spanish Government contends that the Barcelona Traction Company had
been constantly in a state of "latent bankruptcy" owing to its financial
methods detrimental to creditors and bondholders; the Belgian Government on
the contrary insists that the financial situation of Barce-lona Traction had
been normal or even prosperous except in the period of the Spanish Civil War
and the Second World War.
The Belgian Government also contends that individual judicial and
administrative measures which constitute separate subjects of complaint,
were combined into an integral whole to bring about the "hispanicization" of
a prosperous foreign enterprise. According to the Belgian Government, the
adjudication in bankruptcy of Barcelona Traction is nothing other than the
result of the machinations of Juan March in collusion with Spanish judicial
and administrative authorities. This is the reason why the Belgian
Government, alongside of individual complaints, advanced an overall
complaint which unites and integrates numerous separate complaints.
The main complaints put forward by the Belgian Government focus on the
irregularities allegedly committed by the Spanish courts in the bankruptcy
judgment and the judicial acts following this judgment. These alleged
irregularities are included in the concept of denial of justice lato sensu.
The usurpation of jurisdiction may come within denial of justice in this
sense.
The usurpation of jurisdiction by the Spanish courts is alleged on the
ground that Barcelona Traction was a company under Canadian law with its
company seat in Canada, having neither company seat nor commercial
establishment in Spain, nor possessing any property or carrying on any
business there.
Also, disregard for the territorial limits of acts of sovereignty is pointed
out in the measures of enforcement taken in respect of property situated
outside Spanish territory, without the concurrence of foreign authorities.
Furthermore, irregularities are said to have been committed by conferring
upon the bankruptcy authorities, through the device of "mediate and
constructive civil possession"—not physical possession—the power of
exercising in Spain the rights which attached to the shares located in
Canada of several subsidiary and sub-subsidiary companies and on which, with
the approval of the Spanish judicial authorities, they relied for the
purpose of replacing the directors of those companies, modifying their
articles of association, etc.
It is to be noted that Canada did not protest against the Spanish
Government's usurpation of Canadian jurisdiction which was alleged by the
Belgian Government.
As denials of justice lato sensu the Belgian Government complains that a
large number of decisions made by the Spanish courts are vitiated by [p 152]
gross and manifest error in the application of Spanish law, by
arbitrariness or discrimination, in particular:
(1) flagrant breach of the provisions of Spanish law which do not permit
that a foreign debtor should be adjudged bankrupt if that debtor does not
have his domicile, or at least an establishment, in Spanish territory;
(2) adjudication in bankruptcy when the company was not in a state of
insolvency, was not in a state of final, general and complete cessation of
payment either, and had not ceased its payments in Spain;
(3) the judgment of 12 February 1948 failed to order the publication of the
bankruptcy by announcement in the place of domicile of the bankrupt, which
constitutes a flagrant breach of Article 1044 (5) of the 1829 Commercial
Code;
(4) the decisions failing to respect the separate estates of Barcelona
Traction's subsidiaries and sub-subsidiaries, in that they extended to their
property the attachment arising out of the bankruptcy of the parent company,
and thus disregarded their distinct juridical per-sonalities;
(5) the judicial decisions which conferred on the bankruptcy authorities the
fictitious possession (termed "mediate and constructive civil possession")
of securities of certain subsidiary and sub-subsidiary companies have no
legal basis in Spanish bankruptcy law and were purely arbitrary.
(Final Submissions filed on 14 July 1969 by the Agent of the Belgian
Government, Section III.)
There are other items which are concerned with the alleged violation of the
provisions on bankruptcy and which include among others: the bestowal on the
commissioner of power to proceed to the dismissal, removal or appointment of
members of the staff, employees and management, of the companies all of
whose shares belonged to Barcelona Traction or one of its subsidiaries;
ignoring the separate legal personalities of the subsidiary and
sub-subsidiary companies in the matter of the attachment of their property
in Spain; irregularities concerning the convening of the general meeting of
creditors of 19 September 1949; violation of the provisions concerning the
sale of the property of the bankrupt company; authorization of the sale
based on the allegedly perishable nature of the property to be sold; in
violation of the legal provisions the commissioner fixed an exaggeratedly
low upset price on the basis of an expert's opinion submitted by one side
only; numerous irregularities in the General Conditions of Sale.
Next, the Belgian Government alleges that various denials of justice stricto
sensu (Final Submissions, Section IV) were committed by the Reus court in
the course of the bankruptcy proceedings, the Spanish [p 153] courts
disregarding the rights of the defence; in particular: insertion by the Reus
court in its judgment on an ex parte petition of provisions which went far
beyond finding the purported insolvency of or a general cessation of
payments by the bankrupt company (particularly in respect of the attachment
of the property of the subsidiary companies without their having been
summonsed and without their having been adjudicated bankrupt); the
applications for relief presented by subsidiary companies directly affected
by the judgment of 12 February 1948 were rejected as inadmissible on the
grounds of lack of jus standi; it was impossible to develop or argue the
complaints against the General Conditions of Sale because the order which
had approved the General Conditions of Sale was regarded as a matter of mere
routine.
The Belgian Government considers that "many years elapsed after the
bankruptcy judgment and even after the ruinous sale of the property of the
Barcelona Traction group without either the bankrupt company or those
co-interested with it having had an opportunity to be heard on the numerous
complaints put forward against the bankruptcy judgment and related decisions
in the opposition of 18 June 1948 and in various other applications for
relief". It continues that "those delays were caused by the motion to
decline jurisdiction fraudulently lodged by a confederate of the petitioners
in bankruptcy and by incidental proceedings instituted by other men of straw
of the March group . . .". Furthermore, it concludes: "that both general
international law and the Spanish-Belgian Treaty of 1927 regard such delays
as equivalent to the denial of a hearing".
***
From what we have seen above, we can recognize that the alleged ground for
complaint on the merits consists essentially of a denial of justice for
which the Belgian Government blamed the Spanish State. It is one of the
cases in which a State may incur responsibility through the act or omission
of any of its organs (legislative, administrative, or judicial). But whether
a State incurs responsibility or not depends on the concrete circumstances
of each case; in particular, the characteristics of the three kinds of State
activities—legislative, administrative and judicial—must be taken into
consideration. Mechanical, uniform treatment must be avoided.
The case before the Court is concerned mainly with the acts and omissions of
some judicial organs, particularly of the Spanish judges and courts, which,
the Belgian Government alleges, constitute denials of justice.
Whether the above-mentioned acts and omissions allegedly constituting
denials of justice would entail international responsibilities as
constituting infringements of international law, must of course be decided
from the nature of each act and omission in question; but we must consider
also [p 154] the characteristics of the judicial function of a State as a
whole and the judiciary in relation to the executive in particular.
One of the most important political and legal characteristics of a modern
State is the principle of judicial independence. The independence of the
judiciary in a formal sense means the guarantee of the position of judges,
and in a material sense it means that judges are not bound except by their
conscience.
Although judges possess the status of civil servants, they do not belong to
the ordinary hierarchy of government officials with superior-subordinate
relationships. They are not submitted to ordinary disciplinary rules, but to
rules sui generis.
As to the institutional independence of courts as a whole, differences exist
among various countries. In the first category of countries a system is
adopted whereby the highest court or the lower courts, or both, have
conferred upon them the power of judicial review, namely the power to pass
judgment on the constitutionality of laws, ordinances and official acts. In
these countries, as a corollary of this system, the independence of courts
and judges vis-à-vis the government is outstanding. But in other countries
where the whole body of courts and judges is under the authority of the
Minister of Justice who is a member of the Cabinet, this does not seem to
create much difference, so far as judicial independence is concerned, from
the former group of countries. What is required from judges by judicial
ethics does not differ in the two systems.
The judicial independence of courts and judges must be safeguarded not only
from other branches of the government, that is to say, the political and
administrative power, but also from any other external power, for instance,
political parties, trade unions, mass media and public opinion. Furthermore,
independence must be defended as against various courts and as between
judges. Courts of higher instance and judges of these courts do not function
as superiors exercising the power of supervision and control in the ordinary
sense of the term vis-à-vis courts of lower instance and their judges.
This is a particularity which distinguishes the judiciary from other
branches of government. This distinction, we consider, seems to be derived,
on the one hand, from consideration of the social significance of the
judiciary for the settlement of conflicts of vital interest as an impartial
third party and, on the other hand, from the extremely scientific and
technical nature of judicial questions, the solution of which requires the
most highly conscientious activities of specially educated and trained
experts. The independence of the judiciary, therefore, despite the
existence of differences in degree between various legal systems, may be
considered as a universally recognized principle in most of the municipal
and international legal systems of the world. It may be admitted to be a [p
155] "general principle of law recognized by civilized nations" (Article 38,
paragraph 1 (c), of the Statute).
The above-mentioned principle of judicial independence has important
repercussions in dealing with the question of the responsibility of States
for acts of their organs internally as well as internationally.
In the field of municipal law, we have, in the matter of responsibility of
States for acts of their judiciary, the following information furnished by
the Max-Planck Institute in Haftung des Staates für rechtswidriges Verhalten
seiner Organe, 1967. So far as the judiciary is concerned, it concludes:
"In the overwhelming majority of the legal systems investigated, the State
is not liable for the conduct of its judicial organs." (Op. cit., p. 773.)
In addition, it must be pointed out that those countries exceptionally
recognizing State responsibility limit its application to criminal matters
under specific circumstances (in particular, the compensation of innocent
persons who have been held in custody).
As to the international sphere, an analogous principle exists. Unlike
internationally injurious acts committed by administrative officials, a
State is, in principle, not responsible for those acts committed by judicial
functionaries (mainly judges) in their official capacity. The reason for
this is found in the fact that in modern civilized countries they are almost
entirely independent of their government.
We shall take into account the above-mentioned characteristics of the
judiciary to resolve the question of whether the Spanish State incurs
responsibility by reason of alleged internationally wrongful acts and
omissions of the Spanish courts and judges, because their activities
constitute the main grounds for the complaints which are presented as
charges of denials of justice.
The question may be whether the acts and omissions mentioned here (in the
final submissions) really constitute an international wrong for which the
Spanish State is responsible for reparation in respect of the damage.
If judicial organs function quite independently of the government, it may be
impossible for a State to incur responsibility by reason of any judicial act
or omission on the municipal as well as on the international plane. But, in
the case of some serious mistakes injudicial actions, a State is made
responsible, by special legislative measures, for the reparation of damage;
grave irregularities committed by the municipal judiciary may involve a
State's responsibility on the plane of international law.
In short, on the one hand, a State by reason of the independence of the [p
156] judiciary, in principle, is immune from responsibility concerning the
activities of judicial organs; this immunity, on the other hand, is not of
an absolute nature. In certain cases the State is responsible for the acts
and omissions of judicial organs, namely in cases where grave circumstances
exist. That is the reason why denial of justice is discussed by writers as a
matter involving a State's responsibility.
The concept of a denial of justice, understood in the proper sense, is that
of an injury committed by a court of justice involving the responsibility
of the State. A difference of views—narrower and broader
interpretations—exists concerning acts of this kind, as we have seen in
other contexts. The view which we consider as acceptable is the broader one,
which covers cases of denial of justice, such as "corruption, threats,
unwarrantable delay, flagrant abuse of judicial procedure, a judgment
dictated by the executive, or so manifestly unjust that no court which was
both competent and honest could have given it". But from the latter
viewpoint, as a principle, no erroneous or even unjust judgment of a court
will constitute a denial of justice.
Justification for this interpretation can be found in the independence of
the judiciary (Oppenheim-Lauterpacht, International Law, Vol. I, 8th ed.,
1955, p. 360). Brierly-Waldock says:
"It will be observed that even on the wider interpretation of the term
'denial of justice' which is here adopted, the misconduct must be extremely
gross. The justification of this strictness is that the independence of
courts is an accepted canon of decent government, and the law therefore does
not lightly hold a state responsible for their faults. It follows that an
allegation of a denial of justice is a serious step which states. . . are
reluctant to take-when a claim can be based on other grounds." (Op. cit., p.
287.)
***
Next, we shall consider the content and character of a denial of justice
allegedly committed by the Spanish judicial authorities.
It is to be noted that the various complaints raised by the Belgian
Government are mainly concerned with the interpretation of municipal law,
namely provisions of the Spanish commercial code and civil procedure code
in the matter of bankruptcy, and provisions of Spanish private international
law on the jurisdiction of Spanish Courts concerning bankruptcy. Questions
relating to these matters are of an extremely complicated and technical
nature: they are highly controversial and it is not easy to decide which
solution is right and which wrong. Even if one correct solution could be
reached, and if other contrary solutions could be decided to be wrong, we
cannot assert that incorrect decisions constitute in themselves a denial of
justice and involve international responsibility.
For instance, the attachment of the property of the subsidiary com-[p
157]panies by the Reus judge in disregard of their juridical personalities
and relying on the doctrine of "piercing the veil", even if it might be
deemed illegal, could not be recognized as a denial of justice. As a legal
question, this issue involves an element similar to the question of whether
the Belgian Government can base its jus standi for the purpose of the
diplomatic protection of Belgian shareholders on the doctrine of "piercing
the veil". The controversies concerning the alleged failure to order the
publication of the bankruptcy in the place of domicile of the bankrupt and
the validity of decisions failing to respect the separate estates of
Barcelona Traction's subsidiary and sub-subsidiary companies or conferring
on the bankruptcy authorities the fictitious possession (termed "mediate and
constructive civil possession") of securities of certain subsidiary and
sub-subsidiary companies, should be considered in themselves irrelevant to
the question of the existence of a denial of justice also.
These questions which are concerned with the interpretation of the positive
law of a State and which are of a technical nature, cannot in themselves
involve an important element which constitutes a denial of justice.
Questions of the kind mentioned above may constitute at least "erroneous or
unjust judgment" but cannot come within the scope of a charge of denial of
justice.
The same can be said concerning the validity of the bankruptcy judgment
from the viewpoint of the existence or non-existence of a cessation of
payments or a state of insolvency. Even if any error in fact-finding or in
the interpretation and application of provisions concerning bankruptcy
exists, it would not constitute in itself a denial of justice.
The question of valuation of the property of the Barcelona Traction Company
as a going concern is a very complicated matter; various methods are
conceivable, diverse proposals have been made and experts' opinions are
divided. It is difficult to conclude that one method is absolutely right
and the other wrong and, therefore, that a judge by adopting one alternative
instead of the other would commit a denial of justice.
Arguments developed on the question as to whether the rights incorporated
in negotiable securities may be exercised without possession of the
securities, in other words on the question of the temporal separability or
non-separability of right and instrument as regards the share may be
considered to have no relevance to the question of a denial of justice.
The innumerable controversies concerning the details of the bankruptcy
proceedings may also be considered as possessing no relevance from this
point of view.
In short, since these issues are of a technical nature, the possible error
committed by judges in their decisions cannot involve the responsibility of
a State. That the above-mentioned doctrine precludes such an error from
being a constituent element in a denial of justice as an internationally
wrongful act is not difficult to understand from the other viewpoints also.
The reason for this is that these issues are of a municipal law nature and
[p 158] therefore their interpretation does not belong to the realm of
international law. If an international tribunal were to take up these issues
and examine the regularity of the decisions of municipal courts, the
international tribunal would turn out to be a "cour de cassation", the
highest court in the municipal law system. An international tribunal, on the
contrary, belongs to quite a different order; it is called upon to deal with
international affairs, not municipal affairs. Now, as we have seen above,
the actions and omissions complained of by the Belgian Government, so far as
they are concerned with incorrectness of interpretation and application of
municipal law, cannot constitute a denial of justice. This means that in
itself the incorrectness of a judgment of a municipal court does not have an
international character.
A judgment of a municipal court which gives rise to the responsibility of a
State by a denial of justice does have an international character when, for
instance, a court, having occasion to apply some rule of international law,
gives an incorrect interpretation of that law or applies a rule of domestic
law which is itself contrary to international law (Brierly-Waldock, op.
cit., p. 287). Apart from such exceptionally serious cases, erroneous and
unjust decisions of a court, in general, must be excluded from the concept
of a denial of justice.
***
Now, excluding allegedly erroneous or unjust decisions of the Spanish
judiciary as constituent elements of a denial of justice, it remains to
examine whether behind the alleged errors and irregularities of the Spanish
judiciary some grave circumstances do not exist which may justify the charge
of a denial of justice. Conspicuous examples thereof would be "corruption,
threats, unwarrantable delay, flagrant abuse of judicial procedure, a
judgment dictated by the executive, or so manifestly unjust that no court
which was both competent and honest could have given it", which were quoted
above. We may sum up these circumstances under the single head of "bad
faith".
Two questions arise. Does the Belgian Government contend that there existed
such circumstances as bad faith in order to justify its complaints based on
a denial of justice? If this question is answered in the affirmative, has
the existence of aggravating facts been sufficiently proved?
Here we must be aware that we are confronted with questions belonging to a
dimension entirely different to the one which we have dealt with above: it
is not a municipal or legal-technical, but an international and moral
dimension. An ethical valuation of the conduct of national judicial organs
has been introduced. It is not the correctness or incorrectness of the
interpretation or application of the positive law of a country which is in
question, but the conduct of judicial organs as a whole which must be
evaluated from supra-positive, transnational viewpoints (Philip C. Jessup,
Transnational Law, 1956). We would say that we should consider the [p 159]
matter from the viewpoint of natural law which is supra-national and
universal. An ethical valuation such as a condemnation for bad faith, abuse
of powers or rights, etc., would become a connecting link between municipal
and international law and the two jurisdictions—municipal and
international—in respect of a denial of justice, and would cause the alleged
acts to involve responsibility on the plane of international law.
It is true that the Belgian Government maintains the existence of bad faith
in actions and omissions of the Spanish judiciary. However, most of its
arguments concentrate on pointing out the simple irregularities in each
measure. As stated above, this does not differ very much from controversies
concerning the interpretation and application of Spanish bankruptcy
law—matters which in themselves cannot justify the existence of bad faith on
the part of the Spanish judiciary.
Although the Belgian Government insists on the existence of bad faith on the
part of the Spanish judiciary and puts forward some evidence concerning the
personal relationship of Mr. Juan March and his group with some governmental
personalities, the use of henchmen in instituting and promoting bankruptcy
proceedings, etc., we remain unconvinced of the existence of bad faith on
the part of Spanish administrative and judicial authorities. What the
Belgian Government alleges for the purpose of evidencing the bad faith of
the Spanish judges concerned does not go very much beyond surrounding
circumstances; it does not rely on objective facts constituting collusion,
corruption, flagrant abuse of judicial procedure by the Spanish judiciary,
etc. If corruption of a judge were considered to have been committed, the
Barcelona Traction Company and its group should have had recourse to the
measure of revision and, if it was upheld, the fact of proving a denial of
justice in the present case could have been established.
Despite this, the Belgian Government did not choose this measure. Instead of
producing concrete objective facts to evidence the bad faith of the Spanish
authorities, the Belgian Government put forward an "overall complaint"
consisting of art agglomeration of circumstances which do not appear to be
relevant to the issue. The relying upon such an "overall complaint" would
mean in itself a weakness in the standpoint of the Belgian side, and it
would have no reinforcing or supplementing effect on the cause of the
latter.
We consider that aggravating facts, namely those of bad faith, have not been
sufficiently proved.
It is not an easy matter to prove the existence of bad faith, because it is
concerned with a matter belonging to the inner psychological process,
particularly in a case concerning a decision by a State organ.
Bad faith cannot be presumed.[p 160]
It is an extremely serious matter to make a charge of a denial of justice
vis-a-vis a State. It involves not only the imputation of a lower
international standard to the judiciary of the State concerned but a moral
condemnation of that judiciary. As a result, the allegation of a denial of
justice is considered to be a grave charge which States are not inclined to
make if some other formulation is possible.
In short, for the reasons indicated above, the Belgian allegation that Spain
violated an international obligation and incurred responsibility vis-à-vis
Belgium is without foundation. Therefore, the Belgian Government's claims
must be dismissed.
(Signed) Kotaro Tanaka.
[p 161]
Separate Opinion of Judge Jessup
1. I agree with the majority of the Court that the Belgian claim must be
dismissed, but since I reach that conclusion by different lines of
reasoning, I feel it is incumbent on me to explain what my reasons are.
2. I regret that the Court has not considered it appropriate to include in
its Judgment a wider range of legal considerations. For my part, I share the
view of the late Judge Sir Hersch Lauterpacht, "that there are compelling
considerations of international justice and of development of international
law which favour a full measure of exhaustiveness of judicial pronouncements
of international tribunals" (Lauterpacht, The Development of International
Law by the International Court, Revised Edition, 1958, Chapter 3, p. 37).
Sir Hersch went on to say (at p. 39):
"The administration of justice within the State can afford to rely on purely
formal and procedural grounds. It can also afford to disregard the
susceptibilities of either of the parties by ignoring such of its arguments
as are not indispensable to the decision. This cannot properly be done in
international relations, where the parties are sovereign States, upon whose
will the jurisdiction of the Court depends in the long run, and where it is
of importance that justice should not only be done but that it should also
appear to have been done."
3. Six months after he wrote the Preface to that important book, Judge
Lauterpacht put his preachment into practice in his separate opinion in the
Certain Norwegian Loans case, wherein he wrote (I.C.J. Reports 1957, p. 9 at
p. 36):
"In my opinion, a Party to proceedings before the Court is entitled to
expect that its Judgment shall give as accurate a picture as possible of
the basic aspects of the legal position adopted by that Party. Moreover, I
believe that it is in accordance with the true function of the Court to give
an answer to the two principal jurisdictional questions which have divided
the Parties over a long period of years and which are of considerable
interest for international law. There may be force and attraction in the
view that among a number of possible solutions a court of law ought to
select that which is most simple, most concise and most expeditious.
However, in my opinion such considerations are not, for this Court, the only
legitimate factor in the situation." [p 162]
4. In Interhandel (I.C.J. Reports 1959, p. 6), the Court had before it four
preliminary objections advanced by the United States. (One notes in passing
that Interhandel, like Barcelona Traction, was a case involving a holding
company and complicated corporate stock interests.) In its Judgment, the
Court found it appropriate to record its view on all four preliminary
objections. By nine votes to six, the Court upheld the third preliminary
objection to the effect that Switzerland had not exhausted the local
remedies available to it in the United States. Since the case was disposed
of on this ground, it could be argued that the Court should not have ruled
in its Judgment on the other three preliminary objections. However, the
Court held: by ten votes to five, that it rejected the first preliminary
objection; unanimously, that it rejected the second pre-liminary objection;
by ten votes to five, that it was not necessary to adjudicate on part (a) of
the fourth preliminary objection; by fourteen votes to one, that it rejected
part (b) of the fourth preliminary objection.
Judge Sir Percy Spender, in his separate opinion, and President Klaestad and
Judge Sir Hersch Lauterpacht in their dissenting opinions, felt it necessary
also to deal with part (a) of the fourth preliminary objection on which the
Court declined to rule, because that objection dealt with the important
issue of the self-serving or automatic reservation of the United States to
its declaration accepting the jurisdiction of the Court.
5. In the Arbitral Award Made by the King of Spain on 23 December 1906
(I.C.J. Reports 1960, p. 192), Judge Moreno Quintana in his declaration (p.
217) stated that while he was in agreement with the decision, he believed
that a number of "legal questions which are of particular concern . ..
should have been dealt with in the first place". He listed the questions
which he had in mind and on which the judgment failed to pronounce.
6. In the Temple of Preah Vihear case (I.C.J. Reports 1961, p. 17), the
Court in its Judgment said that the reasons it gave for upholding its
jurisdiction made it unnecessary to consider Cambodia's other basis for
asserting jurisdiction or Thailand's objection to that basis. In the joint
declaration of Judges Sir Gerald Fitzmaurice and Tanaka (pp. 36, 38), one
reads:
"As regards the second preliminary objection of Thailand— whilst we are
fully in agreement with the view expressed by Sir Hersch Lauterpacht in the
South West Africa—Voting Procedure case (I.C.J. Reports 1955, at pp. 90-93)
to the effect that the Court ought not to refrain from pronouncing on issues
that a party has argued as central to its case, merely on the ground that
these are not essential to the substantive decision of the Court—yet we feel
that this view is scarcely applicable to issues of jurisdiction (nor did Sir
Hersch imply otherwise). In the present case, Thailand's second [p
163]preliminary objection was of course fully argued by the Parties. But
once the Court, by rejecting the first preliminary objection, has found that
it has jurisdiction to go into the merits of the dispute . .. the matter is,
strictly, concluded, and a finding, whether for or against Thailand, on her
second preliminary objection, could add nothing material to the conclusion,
already arrived at, that the Court is competent."
7. In Barcelona Traction, Light and Power Company, Limited, Preliminary
Objections, I.C.J. Reports 1964, p. 4, Judge Tanaka in his separate opinion
said (at p. 65):
"The more important function of the Court as the principal judicial organ of
the United Nations is to be found not only in the settlement of concrete
disputes, but also in its reasoning, through which it may contribute to the
development of international law."
8. One of the great jurists of the Permanent Court of International Justice,
Judge Anzilotti, also shared the Lauterpacht philosophy of the nature of the
international judicial process, as is shown in his dissenting opinion in
Diversion of Water from the Meuse (P.C.I.J., Series A/B, No. 70, p. 4 at
45):
"The operative clause of the judgment merely rejects the submissions of the
principal claim and of the Counter-claim. In my opinion, in a suit the main
object of which was to obtain the interpretation of a treaty with reference
to certain concrete facts, and in which both the Applicant and the
Respondent presented submissions indicating, in regard to each point, the
interpretation which they respectively wished to see adopted by the Court,
the latter should not have confined itself to a mere rejection of the
submissions of the Applicant: it should also have expressed its opinion on
the submissions of the Respondent; and, in any case, it should have
declared what it considered to be the correct interpretation of the Treaty.
It is from the standpoint of this conception of the functions of the Court
in the present suit that the following observations have been drawn up."
9. The specific situations in each of the cases cited can be distinguished
from the situation in the instant case, but all of the quoted extracts are
pervaded by a certain "conception of the functions of the Court" which I
share but which the Court does not accept. Article 59 of the Statute indeed
provides: "The decision of the Court has no binding force except between the
parties and in respect of that particular case." But the influence of the
Court's decisions is wider than their binding force.
The instant case, however, presents its own particularity. In its decision
in 1964 the Court joined to the merits two of Spain's preliminary
objec-[p164]tions. Whatever the legal interpretation of the character of
those preliminary objections at this stage of the proceedings, it remains
true that the Belgian claim must be dismissed if either of the objections is
well founded. Since one of them is sustained by the Court (and on different
grounds in this opinion), it can be said that the Court would reach out too
far if it made a judicial finding on the basic question of the existence of
a denial of justice—an issue which it has decided Belgium has no right to
bring before the Court. Under these circumstances, I agree that it would be
excessive for a separate opinion to analyse and pass upon the voluminous
proceedings before the Spanish administrative and judicial authorities.
There are situations in which the logical must yield to the practical; this
is such a situation.
I associate myself with Judge Gros' allusion, in paragraph 28 of his
separate opinion, to the problem of the exhaustion of local remedies.
I would also observe that the procedural processes of the Court happily
facilitate an informal but nonetheless fruitful division of labour when some
judges feel obliged to file separate opinions. Having had the benefit of a
preview of the separate opinions of Judges Sir Gerald Fitzmaurice and Gros,
I feel content to leave to their opinions, and to other separate opinions as
well, the amplification of certain juridical considerations which I do not
treat, even as they have been willing to rely on some of my factual
summaries. In neither case does it necessarily follow that I or they reach
the same conclusions on each point of law or fact.
***
10. In adjudicating upon the Barcelona Traction case the Court must apply
rules from one of the most controversial branches of international law. The
subject of the responsibility of States for injuries to aliens (otherwise
referred to as the diplomatic protection of nationals), evokes in many
current writings recollections of political abuses in past eras.FN1. The
Court is not involved here in any conflict between great capital-exporting
States and States in course of development. Belgium and Spain are States
which, in those terms, belong in the same grouping. I do not agree with the
Spanish contention on 20 May 1969 that Belgium was merely trying to get the
Court to internationalize a private litigation, but it is true that
basically the conflict was between a powerful Spanish financial group and a
comparable non-Spanish group. This case cannot be said to evoke problems of
"neo-colonialism".
--------------------------------------------------------------------------------------------------------------------- FN1
The writer may be excused for mentioning that he described and deplored such
abuses, more than two decades ago: A Modern Law of Nations, 1947, Chapter V.
Happily, the days of "gun-boat diplomacy" are now lost in limbo.
---------------------------------------------------------------------------------------------------------------------
[p 165]
Moreover, the Court is not here in the least concerned with such provocative
problems as State sovereignty over natural resources or the rules applicable
to compensation in case of nationalizations or expropriations. Professor F.
V. García Amador, in his sixth report as Special Rapporteur of the
International Law Commission on State responsibility (Yearbook of the
International Law Commission, 1961, Vol. II, p. 2 at p. 46), set forth an
admirable attitude:
". . . his purpose was to take into account the profound changes which are
occurring in international law, in so far as they are capable of affecting
the traditional ideas and principles relating to responsibility. The only
reason why, in this endeavour, he rejected notions or opinions for which
acceptance is being sought in our time, is that he firmly believes that any
notion or opinion which postulates extreme positions—whatever may be the
underlying purpose or motive —is incompatible and irreconcilable with the
idea of securing the recognition and adequate legal protection of all the
legitimate interests involved. That has been the policy followed by the
Commission hitherto and no doubt will continue to be its policy in the
future."
11. The institution "of the right to give diplomatic protection to nationals
abroad was recognized in . . . the Vienna Convention on Diplomatic
Relations, 1961", as Mr. Gros (as he then was) reminded the sub-committee of
the International Law Commission (Yearbook of the International Law
Commission, 1963, Vol. II, p. 230). The institution of the right to give
diplomatic protection is surely not obsolete although new procedures are
emerging.
With reference to diplomatic protection of corporate interests, the
customary international law began to change in the latter half of the
nineteenth century FN1. As Jennings writes, in somewhat picturesque and
Kiplingesque language :
"It is small wonder that difficulties arise when 19th century precedents
about outrageous behaviour towards aliens residing in outlandish parts are
sought to be pressed into service to yield principles apposite to
sophisticated programmes of international investment." (121 Hague Recueil
1967, II, p. 473.)
--------------------------------------------------------------------------------------------------------------------- FN1
Paul De Visscher sees the change developing after the decision in the Ruden
case in 1870; 102 Hague Recueil 1961, II, at pp. 467-468.
---------------------------------------------------------------------------------------------------------------------
Since the critical date in this case is 1948, developments in the law [p
166] and procedures during the ensuing last two decades are not controlling.
12. Any court's application of a rule of law to a particular case, involves
an interpretation of the rule. Historical and logical and tele-ological
tools may be used by the judge, consciously or unconsciously. If the Court
in the instant case had decided to include more factors in its Judgment, it
could have clarified the traditional system in the light of clearer
understandings of business practices and forms of corporate organization, as
these were already well developed two decades ago when the events called
into question in this case transpired. Legal norms applicable to those
events should not be swept aside on the assumption that they have already
become mere cobwebs in the attics of legal history. Corporations today and
tomorrow may well utilize other methods of financing and controlling foreign
enterprises, and governments will have adapted or will adapt their own laws
and practices to meet the realities of the economic factors which affect the
general interests of the State. The "law of international economic
development" will mature. Thus joint business ventures, State guarantees of
foreign investment, the use of international organizations such as the IBRD
and UNDP, may in the course of time relegate the case of Barcelona Traction
to the status now occupied by Delagoa Bay—a precedent to be cited by
advocates if helpful to the pleading of a cause, but not a guiding element
in the life of the international business community.
Nevertheless, the Court has the duty to settle a specific dispute between
Belgium and Spain which arose out of Spain's exercising jurisdiction over a
complex of foreign corporate enterprises.
13. There is a trend in the direction of extending the jurisdictional power
of the State to deal with foreign enterprises which have contact with the
State's territorial domain; ". . . all that can be required of a State is
that it should not overstep the limits which international law places upon
its jurisdiction; within these limits, its title to exercise jurisdiction
rests in its sovereignty[FN1]. But what are the limits placed by
international law? Do the courts of the United States, for example, go too
far in applying its anti-trust laws to foreign enterprises, following the
statement of principle by Judge Hand in Alcoa [FN2]? But that principle is
accepted in at least six other countries [FN3]. Are the jurisdictional
limits on national jurisdiction exceeded in the cases dealing with product
liability of a [p 167]"giant octopus corporation" with multiple subsidiaries
abroad? Rules valid enough for inter-state conflicts within the
constitutional system of the United States, may be improper when placing a
burden on international commerce FN1. The Committee on International Law of
the Association of the Bar of the City of New York concluded that ". . .
the extension of the regulatory and penal provisions of the Securities
Ex-change Act of 1934 ... to foreign corporations which have neither listed
securities in the United States nor publicly offered securities within the
United States is a violation of international law FN2".
---------------------------------------------------------------------------------------------------------------------- [FN1]
Lotus, Judgment No. 9, 1927, P.C.I. J., Series A, No. 10, p. 19.
[FN2] 148 Fed. 2d 416 (1946). Cf. Jessup, Transnational Law, 1956, pp. 73
ff.
[FN3] Drachsler, "American Parent and Alien Subsidiary: International
Anti-trust Problems of the Multinational Corporation", Bulletin of the
Section of International
FN1 Mecsas, "Personal Jurisdiction over Foreign Corporations in Product
Liability Actions: Forum Non Conveniens and Due Process Limitations on In
Personam Jurisdiction over Foreign Corporations", 50 Cornell Law Quarterly,
p. 551 at p. 563 (1965). Cf. American Law Institute, Restatement of the Law,
Second,— Conflict of Laws, Title C (1967 ed.).
FN2 The Record of the Association, Vol. 21, No. 4, April 1966, p. 240 at p.
252.
---------------------------------------------------------------------------------------------------------------------
14. In States having different types of economic and financial problems,
international law has become increasingly permissive of actions involving
nationalizations. In place of what used to be denounced as illegal
expropriation, the issues now turn largely on the measure of compensation,
since even the famous General Assembly Resolution on Permanent Sovereignty
Over Natural Resources FN3, provides that compensation is due.
To whom, in such cases is compensation due? If in the anti-trust,
product-liability and other situations, the corporate veil is freely pierced
to assert the State's jurisdictional power, why should it not also be
pierced to determine the State's responsibility to the interests actually
injured by action damaging to a foreign enterprise? In the instant case,
Spain asserted its power to deal with Barcelona Traction's subsidiaries in
Spain, disregarding the Canadian nationality of Ebro and others. The
equitable balance of legal interests permits Belgium to pierce the veil of
the Canadian "charter of convenience" and to assert the real interests of
the shareholders—assuming of course that their continuous Belgian character
is established. In so far as there has been an increase in the permissible
limits of the exercise of State authority over foreign corporate
enterprises, there must be an accompanying realistic liberalisation of rules
identifying the State or States which may, in case of abuse, invoke the
right of diplomatic protection.
15. The legal rights which are vindicated through the international [p 168]
procedure of diplomatic protection, are not identical with rights derived
from the applicable municipal law; the rights are on different planes. There
are situations in which no right under municipal law exists because that law
does not provide or permit legal action to enforce the claim, but
international law does afford a remedy. The obvious cases are those where an
injury is inflicted by a State instrumentality or agent which is immune from
suit. If, for example, a naval vessel of State A negligently rams and sinks
a merchant vessel of State B, and the law of State A does not permit any
legal action against the State or its instrumentality, State B, on the
international plane, may press a claim for damages on behalf of the vessel
which possesses its nationality FN1. Of course if there are no local
remedies, the international rule for exhaustion of such remedies is not
applicable and a State may incur international liability for the very reason
that there is no local remedy FN2. Although statutes now provide in many
countries a cause of action for damages caused by the death of a person, no
such cause of action existed at common law. The subject was discussed by
Umpire Parker in the Lusitania cases ((1923) VII U.N.R.I.A.A., pp. 32, 34
ff.), in holding that international law and practice support the
presentation of claims of heirs and widows (where the nationality
requirements are met), irrespective of the question whether under the law of
the State charged with responsibility for wrongful death, the heir or widow
has a right to damages.
--------------------------------------------------------------------------------------------------------------------- FN1
Under the British-United States Claims Convention of 1853, the umpire
awarded damages to the owners of the British collier Confidence, which had
been run down by the United States frigate Constitution;III Moore,
International Arbitrations, 3063. Cf. The Lindisfarne, in the United
States-Great Britain Claims Commission under the 1910 Treaty, VI
U.N.R.I.A.A., 21.
FN2 So in Ruden's case and in Johnson's case, in the United States-Peruvian
Claims Commission 1870, awards were made to the claimants when a circular of
the Minister of Justice forbade the judges to receive suits of the type in
question. Moore, International Arbitrations, Vol. III, pp. 1653 and 1656.
---------------------------------------------------------------------------------------------------------------------
16. In connection with the instant case, the question arises from the
argument that there can be no international right to damages for
shareholders indirectly injured by damage to the company in which they hold
shares, since no such right is generally established in municipal law. Much
reliance is placed upon the proposition that under most systems of municipal
law, shareholders have no rights in or to the assets of the corporation
until after it is dissolved or wound up. Shareholders' suits are indeed
provided by law in the United States and somwhat less extensively in Great
Britain. In the United States "The derivative stockholder-plaintiff is not
only a nominal plaintiff, but at the same time a real [p 169] party in
interest. He sues not solely upon a corporate cause of action but also upon
his own cause of action". See Koessler, "The Stockholder's Suit: A
Comparative View", 46 Columbia Law Review 1946, pages 238 and 242. The
provisions for shareholder suits in the European countries seem to be
somewhat less favourable to the shareholder. But the trend in France is
toward more protection of shareholders, as Judge Gros points out in
paragraph 11 of his separate opinion.
17. Although the concept of corporate personality is a creature of municipal
law, none of the theories evolved in that frame of reference can be relied
on universally to explain the legal relations surrounding that "technical
legal device".
"Gierke's theory was based upon Germanic village communities, medieval
guilds and similar truly corporate entities. But such a theory hardly fits
the modern holding company. . . The result is that those who administer the
law, whether as judges, revenue authorities, or as administrators, in
civilian and common law systems alike [and I would add in the international
law system] have had to discard all known theories of corporate personality,
and to relativise the conception of juristic personality, respecting it for
some purposes FN[1], disregarding it for others, in accordance with the
nature of the problem before them." (Friedmann, Legal Theory, 5th ed. 1967,
pp. 522-523. See also p. 571.)
-----------------------------------------------------------------------------------------------------------
FN1 Thus, for example, where a corporation carries on a purely commercial
activity, international law does not "pierce the veil" to grant it the
sovereign immunity attaching to the State by which it is wholly owned and
managed; see Harvard Research in International Law, Report on Competence of
Courts in Regard to Foreign States, 1932, Art. 12, p. 641.
------------------------------------------------------------------------------------------------------------
I would paraphrase and adapt a dictum from a recent decision of the Supreme
Court of the United States in an anti-trust case: the International Court of
Justice in the instant case is "not bound by formal conceptions of"
corporation law. "We must look at the economic reality of the relevant
transactions" and identify "the overwhelmingly dominant feature" [FN2]. The
overwhelmingly dominant feature in the affairs of Barcelona Traction was not
the fact of incorporation in Canada, but the controlling influence [p 170]
of far-flung international financial interests manifested in the Sofina
grouping.
It may well be that the new structures of international enterprise will be
increasingly important FN1, but any glance at the world-wide picture today
shows that non-governmental corporations still have a major role to play
FN2. That is why so many new States, and the United Nations itself,
encourage the investment of private capital FN3.
---------------------------------------------------------------------------------------------------------------------
[FN2]
Mr. Justice Marshall delivering the opinion of the Court in United States v.
The Concentrated Phosphate Export Assn. Inc. et al., 89 S. Ct. p. 361 at pp.
366-367, 1968. Cf. the statement of a leading member of the New York Bar:
"To give any degree of reality to the treatment, in legal terms, of the
means for the settlement of international economic disputes, one must
examine the international community, its emerging organizations, its
dynamics, and relationships among its greatly expanded membership."
(Spofford, "Third Party Judgment and International Economic Transactions",
113 Hague Recueil 1964, III, pp. 121-123.)
FN1 See Friedmann et al., International Financial Aid, 1966; Kirdar, The
Structure of United Nations Economic Aid to Underdeveloped Countries, 1966.
FN2 See Friedmann, The Changing Structure of International Law, 1964, Chap.
14; Hyde, "Economic Development Agreements", 105 Hague Recueil 1962, I, p.
271.
FN3 Blough, "The Furtherance of Economic Development", International
Organization, 1965, Vol. XIX, p. 562, and especially, Dirk Stikker's report
to UNCTAD on "The Role of private enterprise in investment and promotion of
exports in developing countries" (1968), UN Doc. TD/35/Rev.l, and "Panel on
Foreign Investment in Developing Countries", Amsterdam, 16-20 February,
1969, E/4654, ST/ECA/117.
---------------------------------------------------------------------------------------------------------------------
***
The Right to Extend Diplomatic Protection to Corporate Enterprises
18. The decision of the Court, in this case, is based on the legal
conclusion that only Canada had a right to present a diplomatic claim on
behalf of Barcelona Traction which was a company of Canadian nationality. My
own conclusion is that, for reasons which I shall explain, Canada did not
have, in this case, a right to claim on behalf of Barcelona Traction. As a
matter of general international law, it is also my conclusion that a State,
under certain circumstances, has a right to present a diplomatic claim on
behalf of shareholders who are its nationals. As a matter of proof of fact,
I find that Belgium did not succeed in proving the Belgian nationality,
between the critical dates, of those natural and juristic persons on whose
behalf it sought to claim. The Belgian claim must therefore be rejected.
The Record of Actual Diplomatic Representations
19. If a State extends its diplomatic protection to a corporation to which
it has granted a "charter of convenience" while at the same time [p 171]
similar diplomatic assistance is being extended by another State whose
nationals hold 100 per cent, of the shares, the situation might be
considered analogous to cases of dual nationality of natural persons FN1.
In those cases, international jurisprudence supports the principle that
preference should be given to the "real and effective nationality", as was
held by this Court in the Nottebohm, Second Phase, Judgment (I.C.J. Reports
1955, pp. 4, 22), which will be discussed later in this opinion.
--------------------------------------------------------------------------------------------------------------------- FN1
The analogy may be drawn even though the nationality of shareholders is not
the test of the nationality of a corporation for purposes of international
law.
---------------------------------------------------------------------------------------------------------------------
If Canada could be considered the State of the "real and effective
nationality" of Barcelona Traction and if Canada assumed and maintained the
role of Barcelona Traction's diplomatic protector, such facts would militate
against the Belgian posture that Belgium was the State entitled to press the
claim. The arguments of the Parties followed some such theory; Counsel for
Spain called it an "essential point" and examined at length the record of
Canadian diplomatic activity in the case (20 June 1969). The lack or failure
of Canadian diplomatic protection is distinctly relevant to an analysis of
the so-called "exceptions" to the alleged general rule that only the State
of which the company has the nationality is entitled to claim on its behalf.
Such "exceptions" will be discussed later. The facts relative to the
positions as claimant Governments of Canada and Belgium—and of Great
Britain and the United States as well—must accordingly be taken into
account. The record throws light on the nature and extent of the several
national interests.
In the instant case, Spain was at one time confronted by diplomatic
representations of Great Britain, Canada, the United States and Belgium. But
at that stage of multiple diplomatic activity, specific claims for damages
were not being advanced; Spain was being asked to take steps to halt what
were considered to be destructive actions against Barcelona Traction.
Spain's replies in the early stages rested on the proposition that the
Government could not interfere with the normal functioning of the Spanish
courts.
Great Britain
20. The first British Note was dated 23 February 1948 and asserted an
interest due to the dismissal of high-ranking British officers in the
Barcelona Traction company and to the position of bondholders "resident in
the United Kingdom". (A.P.O. (1960), Vol. III, pp. 193 ff. for this and
subsequent demarches, except as otherwise noted.) In the next British Note,
of 27 March, there was support for the Canadian representations [p 172] "on
behalf of the United Kingdom bondholders". On 28 September 1951, the British
Note speaks on behalf of the protection of (unidentified) "shareholders and
bondholders". Thereafter, aside from correspondence about the failure of
Spain to reply to the British Notes and about the committee of experts and
its report in 1951, the British position seemed to be merely one of
supporting Canada. Throughout this period, Canada had no embassy in Madrid
and its notes were transmitted through the British Embassy. But the Receiver
and Manager of Barcelona Traction, in a memorandum submitted to the Supreme
Court of Ontario, on 24 December 1951, reported a conference with British
Treasury officials in London on the preceding 25 July, during which Mr.
Eggers, a representative of the Treasury, "stated that Great Britain had
taken no action independent of Canada. He insinuated that the British had
merely followed the Canadian lead which we know to be untrue". (Emphasis
supplied.) (Receivership Docs., Vol. 5, p. 772.) The basis for this last
conclusion is not clear.
Canada
21. The aid of the Canadian Government was originally requested by National
Trust, as trustee for certain Barcelona bond issues, which made
representations to the Canadian Government when it learned of the
developments in Spain following the bankruptcy judgment of 12 February 1948.
Counsel for National Trust informed the Supreme Court of Ontario that:
"The Government of Canada as a result of such representations made a
demarche to the Government of Spain through appropriate diplomatic channels
with regard to the matter . . . FN1" (Receivership Docs., Vol. 1, p. 16. A
memorandum in ibid., Vol. 4, p. 585, indicates that Barcelona Traction
joined National Trust in its representations.)
-----------------------------------------------------------------------------------------------------------
FN1 This statement was made by Counsel on 9 July 1948 in connection with
National Trust's application for the appointment of a receiver and manager,
an application which was granted by the Court on 15 July 1948.
------------------------------------------------------------------------------------------------------------
22. The first Canadian Note—like the first Belgian Note and the second
British Note—was dated 27 March 1948. (The Belgian Note will be cited later
to A.M., Vol. IV, Annex 250.) Canada made an official protest, alleging a
denial of justice to Barcelona Traction, Ebro and National Trust, because of
a lack of proper notice and an absence of jurisdiction under the principles
of private international law. Passing over some of the Canadian notes, one
finds that on 21 July 1949 a long [p 173] note of protest alleges
discrimination against Canadian interests and against "foreign investments
in Spain"; the emphasis is on Ebro, a Canadian corporation.
23. In February of 1950, there was close collaboration between the Canadian
and Belgian Governments; they proposed to urge the Spanish Government to
agree to the appointment of a committee of experts composed of
representatives of Spain, Canada and Belgium to study certain financial
aspects of the Barcelona case. The Governments of Great Britain and of the
United States were also consulted by Canada and it was planned that those
governments would support the démarche. Canadian drafts of the proposed note
to Spain were submitted to the three other Governments. Throughout, Canada
stressed its appreciation of the large financial interest of Belgian
nationals in Barcelona Traction. A text provisionally approved, stated that
the Governments of the United Kingdom and of the United States "are
interested in this matter as it relates to the security of foreign
investments generally". The phrasing of the quoted clause was suggested by
the United States. Before the final text could be co-ordinated with all the
four Governments, the Spanish Government took the initiative by a Note of 16
March 1950 to the British Embassy in Madrid, proposing a similar commission,
but composed of Spanish, Canadian and British representatives; Belgium was
omitted FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
The documentation is in A.R., Annexes 37 and 38. Mr. Heineman, the directing
personality of Barcelona Traction, on 24 February 1950, was apparently
confident that the Canadian Note was about to be delivered with the support
of the other three Governments; telegram Heineman to Brosens in Buenos
Aires, 24 February 1950, O. & S., New Docs. 1964, App. 8.
---------------------------------------------------------------------------------------------------------------------
24. There is some question whether the Canadian and British participation
in the Tripartite Committee of Experts in 1950-1951 should be considered as
an aspect of diplomatic protection. The Receiver and Manager on 16 November
1950 sent a memorandum to the Ontario Court informing him that the Canadian
Department of External Affairs had asked him to put up $20,000 to cover the
fees and expenses of Mr. Norman, the Canadian member of the Commission. The
Receiver and Manager asked for authority to pay that amount and said:
"It is my opinion that the intervention of the Government of Canada in this
matter has been of the utmost importance and that the continued support of
the Government of Canada is essential if the integrity of the portfolio held
by the plaintiff [National Trust] is to be restored and the properties
presently under seizure in Spain are to be recovered." (Receivership Docs.,
Vol. 4, p. 585.)[p 174]
In its pleading, Spain took the position, on 20 June 1969, that when the
Canadian and British members of the Committee joined in signing an Agreed
Minute which supported the Spanish contention that foreign exchange had been
denied to Barcelona Traction because the company refused to furnish the
information demanded by the Spanish authorities, this was an indication that
the Canadian Government was satisfied that there was no basis for
Barcelona's complaints. However, Mr. Glassco, the Receiver and Manager,
informed the Ontario Court through his memorandum of 24 December 1951 that
he had attended a conference in the Department of External Affairs in Ottawa
together with representatives of National Trust and Barcelona Traction. He
said they—
". . . were advised that the Canadian and British Governments had signed the
Agreed Minute in order to prevent the issuance of a much stronger unilateral
statement by the Spanish Government; that the statements in the Agreed
Minute with respect to foreign exchange had been agreed with a view to
saving the face of the Spanish Government as regards the non-provision of
foreign exchange to the subsidiaries of the defendant [Barcelona Traction]
in the past; and that the Canadian and British Governments hoped that the
atmosphere created by the Agreed Minute would be such that the private
interests concerned could work out a settlement of their differences in the
expectation that a suitable modus operandi for the future could be achieved
with the Spanish Government". (Ibid., Vol. 5, p. 756.)
25. The next Canadian Note of 26 July 1951 reflects a continuing Canadian
interest since it objects to the issuance of new share certificates of the
subsidiaries which "would be to render valueless the previously issued
shares". Ebro, National Trust and Barcelona Traction bondholders are
mentioned. The Canadian Note of 28 September 1951 stresses both Ebro and
Barcelona Traction and says Canada "feels bound to renew its representations
.. . for the protection of the interests of these companies". A long Note
of 22 December 1951 invokes Canadian rights under a treaty between the
United Kingdom and Spain concerning respect for corporate personality and
offers to arbitrate that issue. The Note reserves the "right to make any
claim under international law which may be open to it if the sale of the
assets takes place on the 4th January, 1952, since it is advised that this
would constitute a denial of justice". In this Note, Barcelona Traction,
Ebro, Catalonian Land, International Utilities and National Trust as trustee
for the bonds, are all mentioned. (A.C.M., Vol. VI, Annex 1, No. 28 FN1) [p
175]
---------------------------------------------------------------------------------------------------------------------
FN1 Consequent upon certain enquiries and observations from the Bench,
Belgium produced additional documentation in 1964 and in 1969: see e.g.,
Distr. 64/72 and 64/74 and 1969 New Docs. 42-45.
---------------------------------------------------------------------------------------------------------------------
26. On 12 February 1952, the Belgian Ambassador in Madrid reported a
conversation with the Spanish Minister for Foreign Affairs, Mr. Artajo, in
which the latter told him that the Spanish Consul in Ottawa had talked about
the Barcelona case with the Canadian Secretary of State for External Affairs
who said: (tr.) "The Canadian interests in this case are so small that it
interests us very little." Such a view does not seem to be quite in line
with the Canadian Note of 21 April 1952 which was produced as a new document
by Belgium in May 1964. The Note repeats the Canadian view of the
mistreatment of the companies in Spain, especially Ebro; invokes again the
treaty of 1922 and willingness to resort to arbitration ; but concludes
that no further exchange of Notes was apt to help reach a settlement and
that private negotiations might be the best way to a solution. In sending a
copy of this Note to the Belgian Ambassador in Ottawa, the Canadian
Government noted that it was much shorter than a draft which had previously
been shown to the Belgian Government— there was no use reiterating legal
arguments. (K. J. Burbridge to Vicomte du Parc, 7 May 1952.) It was not
until 10 May 1969 that Mr. Artajo, in a letter in reply to an enquiry from
the Spanish Agent in the Barcelona Traction case before this Court, flatly
denied the accuracy of the Belgian Ambassador's report. (Spanish New Docs.,
16 May 1969, Vol. III, p. 181.) The lapse of time in securing such a denial
was not explained.
27. Canada's further activity in the case was moderate. On 15 February
1955, Mr. Arthur Dean, American attorney for Sidro, suggested to Wilmers in
Brussels that it would be helpful if Canada would join in a demarche in
Madrid, although he doubted whether Canada could be convinced that they had
sufficient interest other than in the rights of the Canadian trustee for the
bonds. (O. & S., New Docs., 1964, App. 13.) Canada had by this time
established its own embassy in Madrid and it appears that the Canadian
Secretary of State for External Affairs had paid a personal call on the
Foreign Office in Madrid in connection with the Barcelona case in 1954
(A.C.M., Vol. VI, p. 109). On 21 March 1955 the Canadian Government had
commended Mr. Dean's visit, saying that Canada "continues, of course, to be
deeply interested in the affair of Barcelona Traction". (A.C.M., Chap. II,
Ann. 1, Doc. No. 30.) On 1 July 1955, Mr. Dean wrote at length to Mr.
Pearson, Canadian Secretary of State for External Affairs, reporting on his
visit in Madrid. He hoped Canadian Ambassador Pope would be instructed to
join in energetic representations [p 176] to Foreign Minister Artajo. (New
Docs., 1964.) Mr. Pearson replied on 19 July that Canada believed that the
best hope lay in private negotiations.
"The Canadian Government has not been prepared actually to intervene in this
matter or to make representations to the Spanish Government as to the
measures which ought to be taken toward a settlement."
The requested instructions to Ambassador Pope would not be sent. (Ibid.) In
1957, Belgium informed Canada that they intended to resort to the
International Court of Justice. The Canadian official merely expressed his
appreciation for the courtesy of keeping him informed. Belgium similarly
notified Ottawa in 1964 and 1965. (Belgian New Docs., Nos. 42 et seq.)
Finally, further questions from the Bench were conveyed by the Belgian
Ambassador in Ottawa on 23 June 1969, to the Canadian Secretary of State for
External Affairs, who replied on the following day that the correspondence
which had passed between the Canadian and Spanish Governments was in the
dossier before the Court and was self-explanatory.
"As was suggested in a communication of 21 April 1952, the Government of
Canada was of the opinion that there was little chance of settling this
dispute by means of additional diplomatic representations. The Government
of Canada has acted accordingly." (My trans., New Docs. Nos. 44-45.)
It is a fair conclusion that Canadian diplomatic protection of Barcelona
Traction ceased in April 1952.
United States
28. Apparently the first diplomatic demarche by the United States Government
on behalf of Barcelona Traction was a Note from the Charge in Madrid to
Foreign Minister Artajo on 22 July 1949. The Note stated that:
". . . the Government of the United States lends its support to and is in
concurrence with the Note of 21 July 1949, submitted to your Ministry by the
British Embassy on behalf of the Canadian Government, the Note in question
relating to the treatment which has been and is currently being accorded to
the Canadian company, Barcelona Traction, Light and Power Company Limited, a
company in which American citizens have interests ... The treatment which
had been accorded this company, in which [p 177] foreign capital is so
heavily invested, has had an adverse effect in foreign banking and
investment circles . . ." (A.P.O., 1960, Vol. III, p. 247.)
Attention has already been called to the co-operation of the United States
with Canada in February 1950, where American interests were described as
arising from "the security of foreign investments generally".
In June and July 1951, the United States Embassy requested complete copies
of the reports of the Spanish experts on the international tripartite
committee and "reiterates its deep interest in the issues involved in the
case of the Barcelona Traction Company . .." (ibid., pp. 249 and 251). It
seems that the United States Secretary of Commerce, when in Madrid in
October 1954, brought up with some officials of the Spanish Government the
possibility of that Government's intervention in the judicial proceedings;
he was told this was hardly possible. (Spanish New Docs., 1969, Vol. III, p.
174.)
29. In 1955, United States Ambassador John Lodge in Madrid lent his
assistance to Mr. Arthur Dean in connection with his efforts on behalf of
Sidro. An office memorandum of the Spanish Ministry of Foreign Affairs, 30
March 1955, recorded that Ambassador Lodge had phoned to support Mr. Dean's
request for an interview with Minister for Foreign Affairs Artajo.
"The United States Ambassador stressed the extraordinary interest —he
insisted that it be put that way—which the State Department attributes to a
rapid and satisfactory solution of that matter about which the aforesaid
Department continues to be concerned. He suggests the opportuneness of a
solution by direct negotiations between the parties." (Loc. cit.)
The interview was granted—the request having been supported by the Canadian
Embassy also—and Mr. Dean in writing to Mr. Artajo to express his thanks,
stated:
"Our inability to arrive at an appropriate settlement of this matter is
naturally a matter of very great concern to the management and shareholders
of Sofina, in which there is now a substantial American interest. . ."
(Spanish New Docs., 1969, Vol. III, p. 178.)
Mr. Dean informed Mr. Lester Pearson, the Canadian Secretary of State for
External Affairs, about his visits as already noted.
30. But despite the warmth of Ambassador Lodge's message to the Spanish
Foreign Office, it is clear that the interest of the United States was of a
general nature and that its support did not amount to diplomatic protection
of the Barcelona Traction company or of any identified [p 178]
shareholders in that company or in Sidro or in Sofina. In a cable of 15
February 1955, before the visits to Madrid which have just been described,
Mr. Dean advised Wilmers, President of Barcelona Traction and then in
Brussels, that he had—
". . . received request from our Department [sc. Department of State]
suggesting they have never considered operating company in question [sc.
Barcelona Traction] American and have treated this matter not as a
protection case but on more general grounds of principle regarding treatment
and encouragement of international investment and would appreciate extent to
which U.S. capital now participating in company". (O. & S., New Docs. 1964,
App. 13.)
It is not known what information was given to the State Department
concerning the extent of the United States capital participation at that
time FN1. It seems clear from the record that the placing of Barcelona
Traction shares in the names of American nominees did not require any
investment of United States capital. But Mr. Dean apparently represented
both Sidro and Sofina and on 1 February 1955 he informed the Spanish
Ambassador in Washington that Sofina was "the majority common shareholder"
in Barcelona Traction, and informed the Spanish Foreign Minister that there
was a "substantial American interest" in Sofina. (The letter to the
Ambassador is in the New Documents presented by Spain on 16 March 1964.)
--------------------------------------------------------------------------------------------------------------------- FN1
As indicated elsewhere, the evidence offered concerning certifications and
payments of coupons does not seem persuasive despite the argument of counsel
for Belgium on 8 July 1969 citing A.M., Vol. I, Annexes 18 and 20, pp. 133
and 142.
---------------------------------------------------------------------------------------------------------------------
31. There were references by Spain to Amitas, a Delaware corporation which
financed the National Trust receivership, as if it represented a United
States interest, but the real interest there seems to have been Belgian. The
Canadian Receiver and Manager of National Trust borrowed at least $980,000
from Amitas by selling to Amitas Receiver's 5 per cent. certificates. In his
request to the Ontario Court for authorization to borrow the first $100,000
on 25 August 1949, the Receiver and Manager referred to this—
"American Intercontinental Trade & Service Company (Amitas) Inc., a Delaware
corporation which is understood to be associated or affiliated with a
Belgian corporation which holds bonds and the majority of the outstanding
shares"
of Barcelona Traction. (Receivership Docs., Vol. 2, p. 273.) On 3 August he
had written to the Canadian Foreign Exchange Control Board about [p 179]the
anticipated dollar transaction, and made a more definite statement. He
stated that Amitas is—
"controlled, I believe wholly owned, by the Belgian interests, commonly
referred to as 'Sofina', who are the majority owners of the equity stock of
the Barcelona company and who also hold a substantial quantity of its
bonds".
He explains that if his receivership is successful, he will have plenty of
United States dollars to repay the loan but:
"Looking at the darkest side of the picture, should the portfolio prove
unsaleable, the position would simply be that Amitas would be unable to
collect anything upon the Receiver's certificates as there is no personal
liability attached thereto." (Ibid., p. 277. The last receiver's request to
the Court for authority to borrow, which is recorded in the Receivership
Documents filed with this Court by Spain, was on 19 March 1963; Vol. 8, p.
1356.)
This evidence supports the Belgian assertion that the Receiver was financed
by Sofina, but of course there were American interests in Sofina. The
Receiver in his numerous requests did not refer to nominees or to the trust
agreement of Sidro with Securitas which will be discussed later in this
opinion.
32. On 25 May 1967, the Belgian Embassy in Washington enquired of the United
States Department of State whether the first United States Note of 22 July
1949, concerning American interests in Barcelona Traction, had in mind
Americans interested as owners or beneficial owners of shares or whether it
included also American citizens acting as trustees or nominees for third
persons not having American nationality. The State Department's reply of 5
June 1967 stated that the 1949 Note was inspired by questions of principle
relative to the equitable treatment of foreign investments in order to
preserve the confidence of foreign investors in the security of their
investments in Spain. The interests of American citizens which were
mentioned in the 1949 Note, referred only to those who had rights of
property or beneficial ownership in the company. (Belgian New Doc. 5
presented 7 April 1969.)
Belgium
33. The first Belgian Note concerning the Barcelona Traction case is dated
27 March 1948 (A.M., Vol. IV, Annex 250). The Note stresses the importance
of Belgian interests in Barcelona Traction by asserting that Sidro owns more
than 70 per cent. of the shares of Barcelona Traction and other Belgian
individuals own enough to bring the total to 80 per [p 180] cent. In
addition, the Belgian State had 50,000 shares of Sidro received as a capital
tax, and 40 to 45 per cent. of the First Mortgage bonds of Barcelona
Traction were also held by Belgians. Like the British Government, the
Belgian Government notes that some of the higher ranks of the personnel of
the companies have been discharged, especially Mr. William Menschaert, a
Belgian national, President and sole legal representative of Ebro in Spain.
The proceedings in Spain are summarized and declared improper or illegal.
The note concludes with the statement that there has been a series of
denials of justice which cannot help but gravely injure legitimate Belgian
interests in the companies involved. The Spanish reply as usual indicated
that the Government could not interfere with the courts.
The next Belgian Note on 22 July 1949 touched on the refusal of foreign
exchange, reviewed the further steps in the Spanish proceedings and repeated
that the denial of justice continued to injure very important Belgian
interests (ibid., Annex 252). Spain sent a reasoned rebuttal on 26 September
1949 but did not challenge Belgium's right to speak for the Belgian
interests (ibid., Annex 253).
34. As already noted, in February 1950 Belgium was actively cooperating
with Canada on the project for establishing a tripartite committee of
experts. When this demarche was frustrated by the Spanish proposal, Belgium
vigorously objected to being left off the Committee of Experts. Belgium's
next diplomatic protest was on 13 July 1951 (ibid., Annex 254). Stress was
laid on the effect of the measures in Spain on the Belgian investors. It was
said that in equity, note should be taken of the interest of Barcelona
Traction in Ebro and of the interest of Sidro in Barcelona; the interest of
the Belgian investors in Sidro was given at 40 to 45 per cent., without
counting the participation of Sofina which was 35 per cent. After there had
been some conversations on the subject, the Belgian Note of 7 November 1951
again stressed their concern in the protection of very important Belgian
interests and enclosed a memorandum on Spanish law (ibid., Annex 256).
35. The Spanish reply of 14 November 1951 now insisted that diplomatic
intervention in the Barcelona Traction case was the exclusive function of
the Canadian and British Governments, whose representatives had been asked
to join in the expert committee to examine the question of the refusal of
foreign exchange (ibid., Annex 257). Belgium replied on 6 December,
discussing the merits of the matter and asserting that the importance of the
Belgian interests in the capital of Barcelona Traction justified Belgium
being represented on the Committee of Experts. On the same date, Belgium
proposed arbitration under the treaty of 19 July 1927; [p 181] the issue
would be the damage to Belgian interests caused by the bankruptcy of
Barcelona (ibid., Annex 258). The Spanish reply of 22 December 1951 argued
that Belgium had not complied with the 1927 treaty since it had not
presented a formal claim, had not proved the Belgian nationality of the
shareholders in a Canadian company, and had not shown that Belgian interests
had been injured by an illegal act on the part of Spain (ibid., Annex 259).
Belgium replied in rebuttal on 31 December 1951, and Spain countered on 3
January 1952 (ibid., Annexes 260 and 261). At this stage the issue
concerning the right of Belgium to interpose in connection with a Canadian
company, comes sharply into focus.
36. A Belgian Note of 21 March 1955, indicating the possibility of private
negotiations which were then in train, and mentioning the visits of Mr.
Dean, is not printed in the Annexes to the Belgian Memorial but as Annex 66,
Document No. 2, of the 1963 Preliminary Objections. Then, on 31 December
1956, Belgium sent a long Note summarizing the whole affair (A.M., Vol. IV,
Annex 262). On 16 May 1957, a further Belgian Note refers to certain
personal conversations of their Ambassador in Madrid and broaches the
possibility of a judicial settlement (ibid., Annex 263). The Spanish Note of
10 June 1957 and the Belgian Note of 8 July deal extensively with the
question of the right of Belgium to act in this case (ibid., Annexes 264 and
265). The last Note puts more stress on the 50,000 shares held by the
Belgian State and summarizes again the extent of the interests of Sidro. It
seems unnecessary to follow the ensuing correspondence which involves the
actual Application to this Court, the discontinuance and the new Application
of 1962.
37. It is hard to explain the apparent reluctance of the applicant
Government to place this entire record before the Court in a composite and
coherent form especially in view of their recent initiative in eliciting the
information from the Government of the United States as noted above. But the
conclusion emerges that although in 1948 the Canadian Government, like the
other three Governments involved, was disturbed by the judicial proceedings
which overtook Barcelona Traction in Spain, the chief Canadian interest was
in the securities of which National Trust was trustee and that when the
bonds were paid off after the assets were sold in Spain, Canadian interest
declined. This was the conclusion reached by counsel for Belgium in his
pleading in 1964. (Oral Proceedings, 13 May 1964.) It must be borne in mind
that the securities pledged under the Barcelona Traction Prior Lien and
First Mortgage bonds held by National Trust Co., Ltd., as trustee, included
bonds and shares of Ebro and of Catalonian Land Co., Ltd., and other
subsidiaries. Of Ebro, for example, there were some £11 million face value,
of bonds and some 300,000 shares of stock. (In another connection, it is
interesting that many of the shares had blank powers of attorney attached to
the certificates. [p 182]
See Receivership Documents, Vol. 1, p. 54.) But Canada apparently had no
deep abiding interest either in Canadian shareholdings in Barcelona
Traction, for they were not large, or in the company itself which (at least
after the payment of the bonds) was linked to Canada only by the "charter of
convenience" and the receivership proceedings FN1. The latter were not of a
nature to stimulate Canadian diplomatic action, although, under the
supervision of the Ontario court, the Receiver and Manager took an active
part in trying to promote a settlement through negotiations of the private
interests involved. (See Receivership Documents, Vol. 5, p. 774.) I do not
find it credible that Canada can be considered to be competing with Belgium
in diplomatic protection of the interests clustered around Barcelona
Traction.
--------------------------------------------------------------------------------------------------------------------- FN1
Belgian counsel's argument on 30 June 1969 about the "violation of Canadian
sovereignty" and interference with the functions of the receiver as a
Canadian "public authority" does not seem to reflect the actual thinking of
the Canadian Government.
---------------------------------------------------------------------------------------------------------------------
The interests of the United States and Great Britain were those of
governments of States which contain great financial capitals—New York and
London. Neither of them pressed claims on behalf of specific persons whether
natural or juristic. Both Governments have a general interest in the welfare
of international "banking and investment circles" which are closely linked
with their national economies.
Belgium remains the only identifiable claimant against Spain in connection
with the bankruptcy of the Barcelona Traction Company.
If, under international law, a State is not entitled to extend its
diplomatic protection to large shareholder interests of its nationals in
circumstances such as those in the instant case, none of the equity
interests in the Barcelona Traction enterprise would be entitled to
diplomatic pro-tection. I do not believe international law requires that
such a conclusion be reached.
***
38. There is no question that, under international law, a State has in
general a right to extend its diplomatic protection to a corporation which
has its nationality, or national character as it is more properly called.
The proposition raises two questions :
(1) What are the tests to determine the national character of a
corporation?
(2) Assuming the appropriate tests are met, must that national char [p
183]acter be "real and effective" as shown by the "link" between the
corporation and the State, just as, in the Nottebohm case, this Court
decided that a certain claim to nationality is not enough in all situations
to justify a State in extending its diplomatic protection to a natural
person?
39. There are two standard tests of the "nationality" of a corporation. The
place of incorporation is the test generally favoured in the legal systems
of the common law, while the siège social is more generally accepted in the
civil law systems. (See Kronstein, "The Nationality of International
Enterprises", 52 Columbia Law Review (1952), p. 983.) There is respectable
authority for requiring that both tests be met FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
There is ample coverage of the literature in the excellent study by Ginther,
op. cit., infra.
--------------------------------------------------------------------------------------------------------------------
It is not possible to speak of a single rule for all purposes. The tests
used in private international law have their own character, as well brought
out by Caflisch, "La nationalité des sociétés commerciales en droit
international privé", Annuaire suisse de droit international, Vol. XXIV,
1967, page 119.
Commercial treaties and claims conventions often contain their own
definitions of which companies shall be considered to have the nationality
of a State for purposes of the treaty. (Cf. Walker, "Provisions on
Companies in United States Commercial Treaties", 50 American Journal of
International Law, 1956, p. 373; Wilson, United States Commercial Treaties
and International Law, 1960; and, for a more comprehensive survey, Ginther,
"Nationality of Corporations", Österreichische Zeitschrift für Öffentliches
Recht, Vol. XVI, 1966, p. 28 at pp. 31-59.) The tests used for such purposes
may be quite different—even in the practice of the same State—from the tests
used for other purposes. For example, the "control" test was widely used to
determine the enemy character of property during war, but it is not
established in international law as a general test of the nationality of a
corporation FN2. On the other hand, control may constitute the essential
link which, when joined to nationality, gives the State the right to extend
diplomatic protection to the corporation. It is a familiar fact that the
laws of certain States provide favourable conditions for companies
incorporating therein, especially in relation to taxation. Canada is one
such State, Liechtenstein is another. In the United States, many companies
find it advantageous, for various reasons, to incorporate in Delaware or New
Jersey FN3. Charters secured for such reasons may be called "charters of
convenience".
--------------------------------------------------------------------------------------------------------------------- FN2
See the observations of the Permanent Court of International Justice on the
control test in Certain German Interests in Polish Upper Silesia (Series A,
No. 7, at p. 70).
FN3 Cf. Cahill, "Jurisdiction over Foreign Corporations and Individuals who
Carry on Business within the Territory", 30 Harvard Law Review, 1917, p.
676.
---------------------------------------------------------------------------------------------------------------------
40. The Judgment of the Court in Nottebohm, Second Phase, in 1955 [p
184](I.C.J. Reports 1955, p. 4), has been widely discussed in the subsequent
literature of international law, particularly with reference to the
so-called "link theory" by which the effectiveness of nationality may be
tested FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
The wide range of unfavourable comments is reflected in the text and
citations in Grossen, "Nationalité et protection diplomatique", Ius et Lex,
Festgabe zum 70. Geburtstag von Max Gutzwiller, 1959, p. 489. Brownlie,
Principles of Public International Law, 1966, has a full treatment at pp.
323 ff. His position is generally favourable to the Court's judgment.
---------------------------------------------------------------------------------------------------------------------
It has been argued that the doctrine is equally applicable in the case of
ships flying "flags of convenience" and in relation to the diplomatic
protection of corporations. I have maintained the view that it should apply
in both those situations FN2.
--------------------------------------------------------------------------------------------------------------------- FN2
Jessup, "The United Nations Conference on the Law of the Sea", 59 Columbia
Law Review, 1959, pp. 234, 256. Meyers, The Nationality of Ships, 1967,
fully covers the question of flags of convenience, and the applicability of
the rule to corporations is treated in Harris, "The Protection of Companies
in International Law in the Light of the Nottebohm Case", 18 International
and Comparative Law Quarterly, April 1969, p. 275.
---------------------------------------------------------------------------------------------------------------------
41. In the instant case the Parties did not debate the applicability of the
link principle to the Barcelona Traction Company, but they were certainly
aware of the question. The Spanish side stated:
". . . the Spanish Government never disputed the effective character of
Barcelona Traction's Canadian nationality, because a number of factors were
present which were sufficient proof of the existence of a real link between
the company and the economic life of Canada". (P.O., 1963, p. 190.)
Counsel for Belgium argued on 4 July 1969 that "if the Canadian Government
had been able to espouse in international judicial proceedings the cause of
Barcelona Traction, its action could have been challenged on the ground of
the lack of sufficient true Canadian interest". Counsel for Spain responded
directly to this remark on 21 July.
42. I am in full agreement with the proposition that the decisions of the
International Court of Justice should not be based upon a legal rule or
principle which has not been considered by the parties [FN3]—indeed, I
believe that the failure to heed that proposition is the only criticism
which can properly be directed at the Court's decision in Nottebohm. When,
however, both Parties have revealed a full awareness of the fact that the
"link" principle might be applied to test the national quality of Barcelona
Traction, the fact that they did not choose to develop their arguments on
the ground of legal principle, rather than of fact, cannot operate to
prevent the Court from dealing with the principle. Of course [p 185] the
question whether the link principle does apply to juristic persons is a
question of international law and jura novit curia. The implication in the
pleading of Belgian counsel just cited, intimated a conclusion that the link
principle does apply to juristic persons.
---------------------------------------------------------------------------------------------------------------------
[FN3]
The proposition has been admirably expounded in Carsten Smith, The Relation
Between Proceedings and Premises, a Study in International Law, 1962.
---------------------------------------------------------------------------------------------------------------------
It is indeed true that since Spain admitted that Canada had a right to
extend diplomatic protection to Barcelona Traction, it may be argued that
Spain is estopped to deny such a right although the elements of true
estoppel may be lacking and such estoppel could be claimed (if at all) by
Canada and not by Belgium. Aside from the fact that I believe the
jurisprudence of the Court has tended to rely too heavily on estoppel or
preclusion, the question posed here is in the first place a question of the
Court's finding a rule of law. The Court in its Judgment does not accept the
application of the link theory to juristic persons. Since I have reached the
conclusion that the existence of a link between a corporation holding a
"charter of convenience" and the State granting the charter, is the key to
the diplomatic protection of multinational corporate interests, I cannot
avoid the problems of law and fact on any such basis as the application of
the doctrine of estoppel in this particular case.
43. It has also been argued that the Court should not pass judgment on the
question whether there existed the necessary link between Canada and
Barcelona Traction without hearing argument on behalf of Canada. Canada
might have sought to intervene in the instant case under Article 62 of the
Statute, but it did not do so. It is said that after judgment is pronounced
in this case of Belgium v. Spain, Canada might find some jurisdictional
ground to found an application to institute a case of Canada v. Spain. It is
known that no such jurisdictional ground now exists. It seems quite unreal
to suppose that Spain would now agree with Canada upon a compromis
submitting to the Court a Canadian claim on behalf of Barcelona Traction,
thus exposing Spain to the new hazard of being required to pay some two
hundred millions of dollars of damages. But if the Court were properly
seised of an application by Canada, it would have to take cognizance of the
fact that following Article 59 of the Statute, "The decision of the Court
has no binding force except between the parties and in respect of that
particular case". Had the Court endorsed the application of the link
principle to juristic persons, in its present decision in Belgium v. Spain,
Canada could have argued against that conclusion in the hypothetical case of
Canada v. Spain, or might have relied on Spanish admissions that Canada was
entitled to protect the company. [p 186]
The "Link" Concept
44. It seems to be widely thought that the "link" concept in connection with
the nationality of claims, originated in the International Court of
Justice's Judgment in Nottebohm. I do not agree that in that instance the
Court created a new rule of law. Indeed the underlying principle was already
well established in connection with diplomatic claims on behalf of
corporations. To look for the link between a corporation and a State is
merely another example of what is now the familiar practice of "lifting the
veil". See, for example Cohn and Simitis "'Lifting the Veil' in the Company
Laws of the European Continent", 12 International and Comparative Law
Quarterly (1963), page 189; Drachsler in Report of the Section of
International and Comparative Law of the American Bar Association, July
1964, page 29. The practice of such States as the United States and
Switzerland had already given weight to the proposition that a corporation
would not be protected solely because it was incorporated in the State,
i.e., had the State's nationality; some other link was required and that
link usually was related to the ownership of shares. Such abstention, being
as it were "against interest", has special probative value FN1.
---------------------------------------------------------------------------------------------------------------------
FN1 State practice is noted infra, paras. 60 et seq.
---------------------------------------------------------------------------------------------------------------------
Three years after the decision in Nottebohm, the Italian-United States
Conciliation Commission, under the presidence of the late Professor Sauser
Hall, in the Flegenheimer case stated:
"The right of challenge of the international court, authorizing it to
determine whether, behind the nationality certificate or the acts of
naturalisation produced, the right to citizenship was regularly acquired, is
in conformity with the very broad rule of effectivity which dominates the
law of nationals entirely and allows the court to fulfill its legal function
and remove the inconveniences specified." (Emphasis supplied.) (53 American
Journal of International Law, 1959, p. 944.)
That the link concept represents a general principle of law and not merely
an ad hoc rule for the decision of a particular case, is indicated also by
its applicability to the test of the nationality of ships which fly "flags
of convenience". These maritime situations are comparable to the corporate
situations just discussed since they involve corporate decisions to register
their ships under the flags of States which offer special advantages in
connection with tax, labour and other laws.
45. The Judgment in Nottebohm, Second Phase, was pronounced on 6 April 1955.
At that time, the International Law Commission, which was preparing its
projects on the law of the sea, had not yet developed [p 187] the concept of
a "genuine link" as a requisite for the recognition of the nationality of a
ship. But the link theory was thereafter actively argued in the Commission
and at length in the Geneva Conference of 1958 on the Law of the Sea.
Article 5 of the Convention on the High Seas was adopted in the following
terms:
"Each State shall fix the conditions for the grant of its nationality to
ships, for the registration of ships in its territory, and for the right to
fly its flag. Ships have the nationality of the State whose flag they are
entitled to fly. There must exist a genuine link between the State and the
ship; in particular, the State must effectively exercise its jurisdiction
and control in administrative, technical and social matters over ships
flying its flag." (Emphasis supplied.)
46. In 1959, governments were submitting to the International Court of
Justice views on the Constitution of the Maritime Safety Committee of the
Inter-Governmental Maritime Consultative Organization case. The influence
of the link concept was apparent. (Meyers, The Nationality of Ships, 1967,
pp. 227 ff.) When the Court gave its Advisory Opinion on the above case in
1960, it clearly confined itself to a particular question of treaty
interpretation and declined to examine general customary law on "a genuine
link". (I.C.J. Reports 1960, p. 171.) It made a passing reference to Article
5 of the "unratified Geneva Convention on the High Seas". In his dissenting
opinion, Judge Moreno Quintana said that the provision in Article 5—
".. . by which international law establishes an obligation binding in
national law, constitutes at the present time the opinio juris gentium on
the matter". (Ibid., p. 178.)
The Nottebohm case itself was not discussed at length in connection with the
law of the sea in the International Law Commission but Dr. Garcia Amador,
Special Reporter for the International Law Commission on State
Responsibility, in his Sixth Report, noted that he had added a paragraph to
his earlier draft "in order to incorporate the rule laid down by the
International Court of Justice in the Nottebohm case". (Yearbook of the
International Law Commission, 1961, Vol. II, p. 53; see Article 23 of his
revised draft at p. 49.) Although the "link" concept was much discussed at
the Geneva Conference, only a few governments or delegates referred to the
Nottebohm case (Meyers, op. cit., pp. 269 ff.). Four States—Netherlands,
Norway, Liberia and the United Kingdom—in their pleadings in the
Constitution of the Maritime Safety Committee of the Inter-Governmental
Maritime Consultative Organization case made some reference to the Court's
statements in Nottebohm, Second Phase, about "unilateral acts" of States.
(I.C.J. Pleadings, pp. 357-359; 365-366; 374; [p 188] 404-405.) The
important point is that there was growing recognition of the rule that if a
State wishes to have its "unilateral acts" recognized and given effect by
other States, those acts must conform to the principles and rules of
international law. If a State confers its nationality on a person who has no
genuine link with it, another State may not need to recognize the person as
such national. Such nationality has been styled "a citizenship of
convenience" FN1. If a State purports to confer its nationality on ships by
allowing them to fly its flag, without assuring that they meet such tests as
management, ownership, jurisdiction and control, other States are not bound
to recognize the asserted nationality of the ship FN2. As a matter of
principle and logic—supported by State practice—a comparable rule is
applicable to corporations. A State may, by extending diplomatic protection
to a corporation, hold out that corporation as having its "nationality",
because the State had granted it its charter of incorporation. But if in
fact there is no "genuine link" between the corporation and the State in
question, the State to which diplomatic representations are made may, on
that ground reject them. Perhaps one makes here an analogy to stateless
persons but the stateless individual has nothing behind him and cannot be
protected until the present imperfect law of human rights is fully developed
FN3. On the other hand, the corporation which has a nominal connection with
a State of incorporation but whose shares are all owned by nationals of
another State in which latter State the actual management and control of the
company are carried on, has behind it the shareholders who represent the
real interest. No rule of law, no principle, forbids that latter State to
extend its diplomatic protection to those interests.
--------------------------------------------------------------------------------------------------------------------- FN1
Uebersee Finanz-Korporation A.G., Liestal, Switzerland, Plaintiff, Fritz von
Opel, Intervener-Plaintiff v. Herbert Brownell, Jr., Attorney General, et
al., 133 F. Supp. 615, 619 (1955), affd. 244 F. 2d 789 (1957). This case,
decided by the United States District Court, District of Columbia, in the
same year as the decision of the International Court of Justice in
Nottebohm, also involved a consideration of the validity of the
naturalization of a German in Liechtenstein during the Second World War. The
question was in part whether the intervener was an innocent stockholder in a
company vested by the Alien Property Custodian as enemy alien property. The
United States Court did not cite the Nottebohm case.
FN2 There are, however, situations in which national courts still find it
appropriate to recognize "the law of the flag"; see McCulloch v. Sociedad
Nacional de Marineros de Honduras, 83 S. Ct. (U.S.) 671 (1963).
EN3 And query whether the term "man" in "The Rights of Man" includes a
corporation!
The Court's decision in Nottebohm, Second Phase, has been criticized as
creating a new group of apatrides; see Bindschedler-Robert, "La protection
diplomatique des sociétés et des actionnaires", Revue de la Société des
juristes bernois, Vol. 100, 1964, p. 141.
---------------------------------------------------------------------------------------------------------------------
47. It is true that the Court in the Constitution of the Maritime Safety[p
189] Committee of the Inter-Governmental Maritime Consultative Organization
case, as a matter of treaty interpretation, and taking into account the
travaux préparatoires, stated that:
".. .it is unlikely that it was contemplated [in drafting the Convention
which established IMCO] that the test should be the nationality of
stock-holders and of others having beneficial interests in every merchant
ship; facts which would be difficult to catalogue, to ascertain and to
measure. To take into account the names and nationalities of the owners or
shareholders of shipping companies would . . . 'introduce an unnecessarily
complicated criterion'... On the other hand, the criterion of registered
tonnage is practical, certain and capable of easy application." (I.C.J.
Reports I960, p. 169.)
It would be unsound to transpose some of these words from their context,
where persuasive reasons are set out for the particular issue before the
Court, to support an argument that it is not practical to ascertain the
existence of preponderant, majority or substantial stock interests in
corporations. In particular it will be shown that in at least certain cases,
international law does not exclude the protection of shareholders on the
ground that it is difficult to identify them, e.g., in the case where
international law permits the protection of foreign shareholders in a
corporation which is the victim of unlawful destructive acts performed by
the State of incorporation. Nor can the rule which permits the protection of
shareholders in certain circumstances be discarded because company
management may sometimes find it inconvenient to reveal the exact position
in regard to the ultimate ownership of the shares.
48. One of the reasons for the rule on continuity of nationality of claims
is the avoidance of assignments of claims by nationals of a small State to
nationals of a powerful State. If a powerful State should seek to attract
corporations to incorporate under its laws so that it could claim them as
its nationals even though the corporations had no further connection with
that State, this Court should not "regard itself as bound by the unilateral
act" of that State. The same conclusion must be reached when less powerful
States attract the incorporation of companies or the registration of ships
by providing "charters of convenience" or "flags of convenience".
It has been noted that Canada is one of the States which attracts the
incorporation of companies through favourable tax laws, etc. Counsel for
Spain called attention to the fact that a corporation called the San Antonio
Land Company was incorporated in Toronto in the same year— 1911—as Barcelona
Traction by Mr. Pearson, "the promoter and first president of Barcelona
Traction". The identity of some of the personalities in the two companies,
as well as their London agents, was stressed. The [p 190] business of the
Land Company was carried on in Texas. Counsel quoted from the report of the
Special Master of the Federal District Court in New York FN1:
"It is perfectly clear that the Toronto office, the Board of Directors,
etc., was maintained only in pursuance of the requirements of the statutory
existence of the corporation under the laws of the Dominion of Canada. The
effective control of the affairs of the corporation plainly was lodged
elsewhere than in Toronto and followed the peregrinations of Dr. Pearson,
the master mind FN2." (Hearing of 27 May 1969.)
------------------------------------------------------------------------------------------------------------
FN1 The nature of the litigation in question is not relevant to the point
being discussed here.
FN2 The rebuttal of counsel for Belgium, on 27 June 1969, while correctly
pointing to some errors in the Spanish analysis of the San Antonio Land Co.
case, did not affect the point here under consideration.
-----------------------------------------------------------------------------------------------------------
49. The evidence shows that counsel for Spain was correct in asserting that
the situation in Barcelona Traction was parallel. Throughout, one finds that
the important decisions, the vital planning, was done by such persons as
Heineman, Wilmers, Speciael, Hubbard and Lawton, whose instructions issued
from Great Britain, the United States and Belgium and Spain itself, but
rarely if ever from Canada. The general meetings of shareholders held in
Toronto seem to have been pro forma affairs. It is true that in 1948 a
"Receiver and Manager" of Barcelona Traction was appointed in Canada and
operated out of Toronto, but since the operating companies in Spain had
passed into the control of the bankruptcy officials there, the Receiver and
Manager could merely try to encourage a settlement; he did not have the
power to make a settlement.
Counsel for Belgium, in the same pleading in which he rebutted some of the
Spanish contentions about the San Antonio Land Co. case, quoted from a
judgment of Mr. Justice Roxburgh in the English High Court of Justice, the
following passage which strongly confirms the fact that Barcelona Traction's
management was not centred in Toronto:
"Barcelona was a holding and not an operating Company. Sterling was its life
blood. It also borrowed pesetas but it had little interest in Canadian
dollars. London was its financial seat.... There were in Canada, so far as I
know, or rather so far as I have been told, nothing but a registered office
of undisclosed size with a staff of undisclosed dimensions, and share
registers." [p 191]
Counsel noted that on the final point the judge had not had discovery, but
counsel did not deny the truth of the judge's comment.
It is true that Roxburgh J. was dealing with a period of time anterior to
the bankruptcy proceedings in Spain, but I find nothing in the record to
suggest that there was later a material change whereby the principal power
centre of Barcelona Traction was located in Toronto FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
In the same court proceeding, the testimony of Mr. Hubbard, Chairman or
President of Barcelona Traction during several years, is not wholly clear.
He testified that all meetings of the Directors of the Company were held in
Canada; that he attended some but not all such meetings; that neither he nor
his predecessor or successor as President or Chairman was resident in
Canada; that Mr. Speciael, as President may have gone to Canada from New
York to attend some directors' meetings; it was not necessary for the
President or Chairman of the Board to preside over directors' meetings.
(According to the company law of Canada, it seems that the directors present
may elect a chairman of the meeting if neither the President nor
vice-president is present; Fraser and Stewart, Handbook on Canadian Company
Law, Fifth Ed. 1960, p. 134.) Mr. Hubbard indicated that some decisions were
made in London, with notice to the office in Toronto and that in other cases
"instructions came from Canada". Mr. Hubbard testified that "There was a
very strong Board in Canada" but of the directors listed as residing in
Canada (according to a list submitted to the Court in the same proceeding)
the only one appearing in the list of registered shareholders in 1948 (A.M.,
Ann. 2) held one share. (The records of the Court proceedings are in A.C.M.,
Vol. I, Annex 13, especially Document No. 6.) This was a Mr. Merry who is
listed as Secretary of the Company (but not a director) in 1918. (A.P.O.,
Ann. 22, Doc. No. 2. This is the only extract from minutes of directors'
meetings which lists those present, so far as I have been able to ascertain;
three directors were present.)
--------------------------------------------------------------------------------------------------------------------
***
50. There are three situations in which there is wide agreement that a State
may extend its diplomatic protection to shareholders who are its nationals,
although the company whose shares they hold has the nationality of another
State. These three situations are sometimes considered "exceptions" to a
general rule allowing protection of the corporation itself.
51. The first of these situations is where the corporation has been
incorporated in the State which inflicts the injury on it without legal
justification, and where the shareholders are of another nationality.
It is in such situations that one finds the widest agreement that a State
may extend diplomatic protection to shareholders who are its nationals
[FN2]. The rationale seems to be based largely on equitable considerations
and the result is so reasonable it has been accepted in State practice.
Judge Charles De Visscher says this result is required by "des
considérations impérieuses de justice". ("De la protection diplomatique des
actionnaires d'une société contre l'Etat sous la législation duquel cette
société s'est constituée", 61 Revue de droit international et de législation
comparée, 1934, p. 624.) By hypothesis, the respondent State has committed
an unlawful act from which injury results. The corporation itself cannot
seek redress and therefore the State whose nationals own the shares may
protect them ut singuli. The equities are particularly striking when the
respondent State admits foreign investment only on condition that the
investors form a corporation under its law. These points are clearly made by
Petrén, 109 Hague Recueil, 1963, II, pages 506 and 510.Petrén refers with
approval to the earlier lectures by Paul De Visscher, 102 Hague Recueil,
1961, I, page 399; see especially pages 478-479.
---------------------------------------------------------------------------------------------------------------------
[FN2]
The Respondent here shares in this agreement. Bindschedler-Robert (op. cit.,
p. 174), writing in 1964, considered that this view was being accepted in
international law. She cites the well-reasoned and well-documented study by
Kiss, "La protection diplomatique des actionnaires dans la jurisprudence et
la pratique internationale", in La personalité morale et ses limites (1960),
p. 179. Kiss indeed cites abundant authority for even broader rights to
protect shareholders; he refers to Borchard, Ch. De Visscher, Sibert,
Ralston, Fitzmaurice, Pinto, Paul De Visscher, Perry, Séfériades, Jones,
Guggenheim, Battagliani, Bindschedler, but query whether all these carry
their conclusion as far as does Kiss. See also in support of the broader
rule allowing protection of shareholders, Agrawala, "State Protection of
Shareholders' Interests in Foreign Corporations", The Solicitor's
Quarterly, 1962, p. 13; Nial, "Problems of Private International Law", 101
Hague Recueil, 1960, III, p. 259.
---------------------------------------------------------------------------------------------------------------------
Judge Wellington Koo, in his separate opinion in this Barcelona case in 1964
asserted emphatically:
". . . the original simple rule of protection of a company by its national
State has been found inadequate and State practice, treaty regulation and
international arbitral decisions have come to recognize the right of a
State to intervene on behalf of its nationals, shareholders of a company
which has been injured by the State of its own nationality, that is to say,
a State where it has been incorporated according to its laws and therefore
is regarded as having assumed its nationality" (I.C.J. Reports 1964, p. 58).
Judge Wellington Koo considered it immaterial whether this rule should or
should not be considered as an "exception".
52. It is curious that this "exception" should have been so widely accepted
since it ignores the traditional rule that a State is not guilty of a breach
of international law for injuring one of its own nationals. It rebuts also
the notion that an injury to a corporation is not a direct [p 193] injury to
the shareholders. Moreover, if the foreign shareholders may be protected in
such a situation, it is also necessary to choose one horn of a dilemma:
either one admits that the right of the shareholders existed at the moment
when the injury was done to the corporation, which means that the rights of
shareholders may be damaged by an injury to the corporation, or, if that
right came into existence subsequently, then one ignores the rule of
international law that a claim must be national in origin. Moreover, the
admission of this "exception" negates the argument, sometimes advanced
against the diplomatic protection of shareholders, to the effect that such
claims expose an accused State to a vast variety of claims on behalf of
persons of whose existence it was ignorant. Since customary practice has,
however, accepted this "exception", other arguments against protection of
shareholders are correspondingly weakened, especially since the doctrine in
question generally does not insist that the life of the corporation must
have been extinguished so that it could be said the shareholders had
acquired a direct right to the assets.
53. The second situation in which it is widely agreed that a State may claim
on behalf of its shareholders in a foreign corporation, is where the State
of incorporation has liquidated or wound up the corporation after the injury
was inflicted by some third State.
This situation differs from that just considered in that the respondent
State has committed its unlawful act (let us say total confiscation) against
a foreign corporation. Here some doctrine would say that ordinarily State A,
the State of incorporation, should be the one to extend diplomatic
protection. But by hypothesis the corporate life has been extinguished by
State A, so that—just as in the first situation—a claim can not be pressed
for the corporation. Brownlie states the situation as follows:
"Where the State under the law of which the company is incorporated
terminates the existence of the company in law, or other circumstances make
the company practically defunct, the shareholders remain as the interests
affected by government act: intervention on their behalf would seem to be
justified in such a case." (Brownlie, Principles of Public International
Law, 1966, p. 401.)
Here it may be said that after liquidation and payment of creditors, the
shareholders—under an applicable system of municipal law—have a property
interest in the assets and for that reason may be protected. But at the time
of the unlawful act ("confiscation") they did not have such a property
interest and therefore under the rule of continuity the claim did not have
in origin the appropriate nationality on that basis. [p 194]
54. But Brownlie equates the case of the termination of the existence of the
company with the case where it is "practically defunct". This is a term
which was used by the British Government in the Delagoa Bay case and used a
good deal by the Parties in their pleading in the instant case. Its exact
meaning is not clear but Barcelona Traction did have some life in Canada
even after the practical annihilation in Spain. From 1948 on it was under a
receivership, but the "appointment of a receiver and manager over the assets
and business of a company does not dissolve or annihilate the company . .
." (Kerr, On the Law and Practice as to Receivers, 13th ed. by Walton, 1963,
p. 232). As already noted, the Receiver and Manager of Barcelona Traction
concerned himself only with promoting negotiations for a settlement between
the private parties; none of the public utility enterprises in Spain were
under his direction or within his control; and he had to borrow the money
for his operations from an affiliate or subsidiary of the Belgian company,
Sidro.
It is true that after 1948 there was some trading in Barcelona Traction
shares on the Brussels Bourse (Verbatim Record for 7 July 1969), and
according to Moody's Manual of Investments, for years ranging from 1952 to
1967, there were sales in New York, Canada and London. No infor-mation is
available to make it possible to say whether the transactions were merely
speculative, but it may be noted that in 1961, when the first Belgian
application was withdrawn from this Court in expectation of a private
negotiated settlement, the quoted price was somewhat higher.
55. It is true that so far as Canadian law is concerned, the shareholders
had not yet acquired a direct right to the assets but since I do not base my
conclusion on this factor, I do not pursue it further.
56. I also find it unnecessary to consider in detail what is considered the
third "exception" where shareholders may admittedly be protected, namely
where the injury is inflicted directly on the shareholders and not
indirectly through damage to the company.
***
57. It is now possible to turn to the question which is crucial for the
instant case, namely whether the three situations just mentioned are the
only ones in which international law permits a State to extend diplomatic
protection to shareholders who are its nationals.
I find no evidence or reasoning which precludes such protection in other
situations, but the question can be answered only by analysing the
fundamental principles underlying the right of diplomatic protection. [p
195]
The Basic Principle of State "Interest"
58. In this opinion traditional language has been used, for example in
speaking of injuries to a corporation as such, but this is really a bit of
anthropomorphism since, as Sir Edward Coke remarked, corporations "have no
souls" (case of Sutton's Hospital, 10 Rep. 32) and as stated by more recent
jurists, the corporation "is not a thing. It is a method." (Douglas and
Shanks, "Insulation from Liability through Subsidiary Corporations", 39 Yale
Law Journal, 1929, pp. 193, 194.) That corporations have a nationality, is
a legal fiction FN1. In legal principle and practice, the situation is that
in relations with other States, a State is entitled to treat a corporation
as if it were one of its nationals, provided the corporation is connected
with it by certain links.
--------------------------------------------------------------------------------------------------------------------- FN1"Legal
fiction", according to Morris Cohen, "is the mask that progress must wear to
pass the faithful but blear-eyed watchers of our ancient legal treasures.
But though legal fictions are useful in thus mitigating or absorbing the
shock of innovation, they work havoc in the form of intellectual
confusion." Quoted in Transnational Law, p. 70.
---------------------------------------------------------------------------------------------------------------------
"Indeed, it is at least arguable that all cases of apparent protection of
corporations are in reality cases of protection of the shareholding interest
of nationals of the protecting State." (Clive Parry, "Some Considerations
upon the Protection of Individuals in International Law", 90 Hague Recueil,
1956, II, p. 657 at p. 704.)
It is customary also to speak about "claims of individuals" or "of natural
persons" and about "corporate claims" or "claims of corporations". Such
language is convenient, but it conceals the fact that in international
relations, the claims in question are always the claims of a State, not of a
natural or juristic person. A citizen has no right to diplomatic protection;
it is wholly within the discretion of the government whether it will or will
not extend its diplomatic protection.
59. A State takes up a claim against another State when it considers that
its own interests have been affected. As the Court said in Nottebohm, Second
Phase (p. 24) "Diplomatic protection and protection by means of
international judicial proceedings constitute measures for the defence of
the rights of the State". In Mavrommatis Palestine Concessions (P.C.I.J.,
Series A, No. 2, p. 12) the Court identified the State's "own rights" as
"its right to ensure in the person of its subject respect for the rules of
international law". Almost the identical words were repeated by the Court in
Panevezys-Saldutiskis Railway (P.C.I.J., Series A/B, No. 76, p. 16),
although in this latter case the Court went on to elaborate the importance
of "the bond of nationality". [p 196]
In explaining the basis for a State's right to give diplomatic protection,
the rather simplistic notion that a State was injured when an injury was
inflicted abroad upon the least of its nationals, has come to be superseded
by the realization of the national economic importance of foreign
invest-ments as State interests.
This is one reason why it is not now pertinent to stress the difference in
municipal law between private "rights" and "interests", as Judge Gros shows
so clearly in his separate opinion.
". .. States protect their corporations chiefly on the basis of the real
national interest and not, in fact, on the basis of nationality. In such a
situation, it seems necessary to allow the State of the nationality of these
shareholders to present their claims to the limit of their interest in the
corporation. ...
Since the protection of national interest in foreign corporations is based
on protecting an economic or pecuniary interest, it matters little whether
the party in whose behalf the protection is exercised is a shareholder or a
bondholder, or even if the national interest is held indirectly; e.g., if a
national corporation controls another corporation which holds bonds or
shares in a third corporation sustaining an injury." (Khalid A. Al-Shawi,
The Role of the Corporate Entity in International Law, 1957, pp. 55 and 59.)
"In three countries—Italy, Britain and France—all proposals for foreign
investment must clear government agencies before they can be carried out,
whether or not government sources of credit are used . . . The Government of
Japan, through the Ministry of Finance (and when required, through such
additional agencies as the Ministry of International Trade and Investment
and the Ministry of Agriculture), must approve all foreign investments . .
." (Friedmann and Kalmanoff, Joint International Business Ventures, 1961,
pp. 188 and 190.)
60. No survey of State practice can, strictly speaking, be comprehensive
and the practice of a single State may vary from time to time— perhaps
depending on whether it is in the position of plaintiff or defendant.
However, I am not seeking to marshal all the evidence necessary to establish
a rule of customary international law. Having indicated the underlying
principles and the bases of the international law regarding diplomatic
protection of nationals and national interests, I need only cite some
examples to show that these conclusions are not unsupported by State
practice and doctrine.
61. The primacy of the general economic interests of the State in protecting
private investments abroad, and the minimizing of any one es-[p 197]
sential test justifying diplomatic protection, are strikingly brought out in
the message of the Swiss Conseil federal of 29 October 1948 to the
As-semblée f!!!edérale, concerning the negotiation of agreements with
Yugoslavia on trade, payments, and a global settlement of Swiss claims for
nationalized property:
"Article 5 indicates what must be considered as Swiss assets, holdings or
claims. This question presents no difficulty when the assets belong to
natural persons; in that case the nationality of the owner or creditor
serves as the criterion. So far as corporate persons and companies are
concerned, the seat, which must be in Switzerland, has not been made the
only test, but the question is also raised as to whether there is a
substantial Swiss interest in the corporate person or company. In most cases
the substantial Swiss interest will be shown to exist when the effective
majority of the capital is in Swiss hands. If there is no such majority, it
is the minority exerting a decisive influence on the company which is to be
taken into account; this is particularly easy to discern when there is a
compact minority on one side and a scattered majority on the other. The
composition of the board of directors and senior management may also be a
determining factor when it belongs to them to shape the will of the
corporate person and decide on its behalf. Lastly, in certain cases the
creditors ought not to be overlooked either, for they too may exert a
certain influence on the undertaking. But it is always necessary to
consider the real circumstances and not trust in purely legal constructions,
whose sole aim may be to dissimulate the true facts." (Feuille fédérale de
la Confédération suisse, 100 année 1948, Vol. III, p. 672 at 686.
[Translation from French by the Registry.])
62. In its note of 20 April 1938 to the Mexican Government, in regard to the
case of Mexican Eagle Oil Company, a Mexican corporation, the British
Government said:
"But the fact remains that the majority of shareholders who are the ultimate
sufferers from the action of the Mexican Government are British, and the
undertaking in question is essentially a British interest.
For this reason alone His Majesty's Government have the right ... to protest
against an action which they regard as unjustified." (8 Whiteman Digest of
International Law, p. 1273.)
In a section of the British Digest of International Law, entitled
"Protection of British Interests in Foreign-Incorporated Companies", one
finds a number of passages in which the stress is on the British "interests"
rather than on the nationality of the company. (See Vol. 5, Part VI, pp. 535
ff.)
[p 198]
63. In regard to the practice of the United States, it has already been
noted that that Government maintains that it is entitled under
international law to protect substantial American shareholder-interests in
foreign corporations and that it declines to protect American companies in
which the substantial interest is alien-owned. Thus, in 1912, the Department
of State declined to make representations on behalf of an American company
in which Americans owned only $100 worth of shares out of a total of
$450,000. (V. Hackworth, Digest of International Law, p. 845.) In 1965, the
same Department informed an American embassy: ". . . the Government of the
United States has the right under principles of international law to
intervene or espouse a claim on behalf of nationals of the United States who
own a substantial interest in a corporation organized under the laws of...
[a foreign country]". (8 Whiteman Digest, p. 1272.)
The Restatement of Foreign Relations Law of the American Law Institute
(1965) in Section 173 provides that a State is liable for damage to alien
stockholder interests in a corporation of a third State if "a significant
portion of the stock" is alien-owned, the corporation fails to obtain
reparation, for reasons which the shareholders can not control, and the
corporation has not waived or settled its claim.
"In international law, as in the domestic law of the United States, there
has been a gradually increasing tendency to disregard the separate corporate
entity when necessary to avoid injustice. Originally the United States, like
Great Britain, refused to intervene on behalf of its national shareholders
in a foreign corporation . .. Since late in the 19th century, a number of
such claims have been presented to and allowed by international tribunals.
In most of these, the international responsibility of the State with respect
to the injury to the alien shareholder as such was not squarely presented as
a question of international law, since this point was settled by the terms
of the international agreement establishing the tribunal or by the compromis
under which the case was submitted to it. . . [citing Delagoa Bay]. However,
the practice of providing for such cases in international arbitration
agreements has apparently come to be regarded as a reflection of customary
international law, and it now seems to be recognized that, at least under
some circumstances, the State is responsible for the injury to alien
shareholders owning a significant interest in the injured corporation."
(Reporter's Notes to S. 172; cf. II, Hyde, p. 904.)
64. In the Hannevig case, Norway espoused against the United States, the
claim of Hannevig, a Norwegian national, on the ground that he had a [p 199]
substantial interest in certain American corporations alleged to have been
damaged by action of the United States Government. (The case is described in
32 American Journal of International Law, 1938, p. 142.) The United States
did not assert the American character of the corporations as a basis for
resisting the claim.
65. This section of the opinion may close with the words of Judge Huber in
the familiar Ziat, Ben Kiran claim:
"International law, which in this field, is in the main based on principles
of equity, has laid down no formal criterion for granting or refusing
diplomatic protection to national interests bound up with interests
belonging to persons of different nationalities." (8 Whiteman Digest, p.
1283.)
***
The Question of Double or Multiple Protection
66. Counsel for the Respondent made numerous statements to the effect that
diplomatic protection could never be extended by more than one State in any
one case. Such an argument is advanced against the possibility that more
than one large shareholding interest might be protected, it being alleged
that if the State of which the company has the nationality is the only State
entitled to extend diplomatic protection, impermissible double protection
would be avoided. That position is not correct since there are various
situations in which international law recognizes the right of more than one
State to interpose in connection with the same allegedly wrongful act.
67. In an ordinary case of dual nationality, both of those States of which
claimant is a national may extend protection although in case of conflict an
international tribunal may apply the doctrine of effective nationality. This
Court said in the Reparation for Injuries Suffered in the Service of the
United Nations case: "International Tribunals are already familiar with the
problem of a claim in which two or more national States are interested, and
they know how to protect the defendant State in such a case." (I.C.J.
Reports 1949, pp. 174, 186.) In that case, the Court was asked by the
General Assembly to consider, and it did consider, whether a claim might be
brought both by the State of which the injured person was a national and by
the United Nations. The Court said that "there is no rule of law . . . which
compels either the State or the Or-ganization to refrain from bringing an
international claim". The General Assembly thereafter recognized that two
claims might be presented, and authorized the Secretary-General to negotiate
agreements to reconcile action by the United Nations with the rights of the
State of which the victim was a national. (UN General Assembly Res. 365
(IV), 1 Dec. 1949, para. 2.) [p 200]
68. The situation is not so simple when one considers the condition of
artificial or juristic persons. International law has not developed a clear
rule of dual nationality for such entities although different criteria are
employed for determining nationality. Respondent indicated that a company
may have dual nationality because both criteria are acceptable (Preliminary
Objections, 1963, p. 191), but it insisted only one of the two States may
make a claim. Yet in cases which are now very common in the commercial life
of the world, the corporation may have various links with more than one
State—links just as real as those which may connect a natural person with
two different States whose nationality he possesses. International law
cannot be oblivious to these corporate links. As already indicated above,
they include the place of incorporation, the place of management, the place
of operation (probably including employment of labour and payment of taxes),
the nationality of the persons (natural or artificial) who exercise control,
whether through the board of directors and management, or through stock
interests, which not infrequently may exercise control even when a
relatively small minority.
69. I shall not go over all the cases but merely note the double or joint
diplomatic interposition in Delagoa, Mexican Eagle and Tlahualilo. (Cf. Paul
De Visscher, 102 Hague Recueil, 1961,1, pp. 477-478.) In the case of
Barcelona Traction, diplomatic representations, some perhaps only in the
nature of good offices, were made by Canada, the United Kingdom, United
States of America and Belgium.
In the case of two different but simultaneous justifiable diplomatic
interpositions regarding the same alleged wrongful act, the Respondent can
eliminate one claimant by showing that a full settlement had been reached
with the other. If, in this case, Spain made a settlement with Canada for
Barcelona Traction, the Belgian claim for the shareholders might be
considered moot.
70. With all respect to the Court, I must point out the irrational results
of applying a rule which would provide that only the State in which a
company is incorporated may extend diplomatic protection in case of damage
inflicted under circumstances in which the State inflicting the damage
incurs liability under international law, as illustrated by the organization
of the Iranian Oil Consortium. In September 1954 an agreement was concluded
between eight oil companies on the one side and, on the other side, the
Government of Iran and the Government-owned National Iranian Oil Company; it
was ratified by the Iranian Parliament. [p 201]
The agreement gives to the Consortium the exclusive rights in a defined area
for the production, refining and processing of crude oil and natural gas,
together with other facilities. The eight participating oil companies
include the former Anglo-Iranian Oil Company, now British Petroleum Company,
which participates to the extent of 40 per cent.; five American oil
companies also having 40 per cent.; the one Dutch company having 14 per
cent. and the French company having 6 per cent. To carry out the operations,
the Consortium caused to be incorporated in the Netherlands, two Dutch
companies, one a Producing company and the other a Refining company. All the
shares of the Dutch Producing company and of the Refining company are owned
by an English holding company, Iranian Oil Participants Limited, with
offices in London. The shares of the "Holding Company" are owned by the
members of the Consortium in the percentages indicated aboveFN1. The two
operating companies were incorporated in the Netherlands because of the
liberal provisions of its commercial code which permit the companies to have
their head offices and board of directors and management overseas, in this
case, in Iran. The code also permits "one-man" companies, which makes it
possible for all their shares to be held by the "Holding Company" in London.
Fortunately, the Iranian Oil Consortium agreement was so skilfully drawn in
a co-operative spirit, that one does not anticipate the likelihood of any
diplomatic claims, quite aside from the fact that the agreement includes
notable arrangements for arbitration of any disputes FN2. But should there
be any question in the future of representations by any government, it would
be absurd to maintain that the Netherlands Government would be the sole
government entitled to make such representations. Nor would it seem rational
to assign an exclusive role to the British Government on the ground that the
Holding Company was incorporated in Great Britain and has its office in
London. Perhaps a stronger link between the enterprise and Great Britain
would be the extent of British Government participation in holding shares in
British Petroleum.
--------------------------------------------------------------------------------------------------------------------- FN1
Actually, in 1955 nine independent American companies were admitted to
participate and each of the original American participating companies
surrendered 1 per cent. of their shareholdings to the new group. For the
purposes of this illustrative example, it is not necessary to explain
further the position of another British company, Iranian Oil Services Ltd.
This account of the organization of the companies is based upon "History and
Constitution of Iranian Oil Participants and Iranian Oil Services", a talk
by Mr. J. Addison, General Manager of Iranian Oil Participants Ltd. to Staff
Information Meeting, Tehran, 21 August 1961.
FN2 See "The Oil Agreement Between Iran and the International Oil
Consortium: The Law Controlling", by Abolbashar Farmanfarma, of the Tehran
Bar, in 34 Texas Law Review, 1955, p. 259.
---------------------------------------------------------------------------------------------------------------------
***[p 202]
71. The Court could logically have begun its analysis of the case by
examining the proof of the nationality of the physical or juristic persons
whom Belgium asserts the right to protect. If it found that such nationality
was not proved, the Belgian claim must be dismissed without regard to the
rule concerning the diplomatic protection of shareholders in a corporation
chartered in a third State.
72. The burden of proof was clearly on the Applicant to prove the Belgian
nationality of the shareholders on whose behalf Belgium claims. The Belgian
argument (7 May 1969) that Spain was estopped or precluded from contesting
the Belgian character of Sidro and Sofina, is not per-suasive.
The Continuity Rule
73. The two dates on which the nationality had to be proved, are determined
by the rule of continuity. As the term implies, the rule requires that the
nationality remain unchanged between those two dates. Sir Gerald Fitzmaurice
makes a forceful argument against any "too rigid and sweeping" application
of the continuity rule, but I believe his illustrative situation in
paragraph 62 of his separate opinion may be covered by another rule deriving
from the law of State succession, and on that basis would escape the
application of the continuity rule for international claims which I consider
to be generally binding—specialia generalibus derogant.
74. Although the phraseology varies, there is general agreement on the
principle that the claim must be national in origin, that is to say that the
person or persons alleged to have been injured must have had the
nationality of the claimant State on the date when the wrongful injury was
inflicted. One might well admit that there is a certain artificiality in the
whole notion since it rests basically on the Vatelian fiction, but I do not
think the Court can change a long established practice on this matter. (But
cf. 1932 Annuaire de l'Institut de droit international, Vol. 37, pp. 479
ff., and Jessup, A Modern Law of Nations, 1947, p. 116.)
75. There was a fleeting attempt by Belgium to identify the origin of the
claim as the refusal of foreign exchange, which indeed started the toboggan
down the slide in terms of the Belgian contentions. (See especially the
statement by counsel for Belgium on 18 April 1969: "Belgium rests its case
on the illegality in international law of Mr. Suanzes's rulings in October
and December 1946 and the circumstances surrounding them.")
This position was abandoned (it would have weakened the Belgian case in
terms of the continuity rule), and throughout much of the written pleadings
and oral argument it seems to have been taken for granted [p 203] that the
critical date, when the injury complained of was inflicted, was that of the
Reus decree declaring Barcelona Traction bankrupt, namely 12 February 1948
FN1. I think the Court is entitled to accept that date, at least to the
extent of saying that if the claim was not Belgian on that date, the claim
must be dismissed.
--------------------------------------------------------------------------------------------------------------------- FN1
In its final submissions on 15 July 1969 under heading VI, Belgium asserted:
"that the Belgian Government has established that 88 per cent. of Barcelona
Traction's capital was in Belgian hands on the critical dates of 12 February
1948 and 14 June 1962 and so remained continuously between those dates. . ."
(Emphasis supplied.) The same assertion was amplified under heading V.
---------------------------------------------------------------------------------------------------------------------
76. The terminal date under the continuity rule is more controversial.
Historically, many international claims have been settled through the
diplomatic channel and never were presented to an international tribunal. In
many mixed claims commissions, claims were heard long after the events
complained of because the commissions were established ad hoc after a
certain number of claims had accumulated. For a moderate example, the
British-American Mixed Claims Commissions established under a treaty
concluded in 1910, decided in 1920 a claim based on events which took place
in 1898. (VI, U.N.R.I.A.A., p. 42.) This diplomatic practice supported the
view that the nationality of the claim had to be proved up to the time when
it was espoused by the State. Thereafter, it was argued, the claim could be
regarded as statal and, for the purposes of the continuity rule, the status
of the individual on whose behalf the claim was made, became immaterial.
Now the first Belgian representation in regard to the bankruptcy proceedings
involving Barcelona Traction, was dated 27 March 1948 (A.M., Vol. IV, Annex
250). But in its Note of 22 December 1951 (ibid., Annex 259), Spain
maintained that Belgium had not then as yet made a formal claim. This was
denied by Belgium (Annex 260), which insisted that its diplomatic protest of
March 1948 should be considered a formal claim. In any event, at that period
Belgium seems to have claimed on behalf of the Barcelona Traction company
and not the Belgian shareholders.
77. However, when a case is brought before a permanent tribunal such as the
International Court of Justice, the date of the application takes the place
of the first diplomatic representation [FN2]. Counsel for Belgium on 4 July
1969 made a persuasive argument in favour of choosing that as the date
required by the continuity rule although I do not agree that the Court is
driven to making new law no matter what terminal date it selects. Counsel
for Spain on the other hand, insisted on 21 July 1969 that the critical
moment for the terminal date should be when the terms of the dispute were
clearly defined which could only be after the respondent State had
indicated its position. I find slight precedent for this view and see no
logic in it FN1. I therefore conclude that the terminal date for compliance
with the continuity rule is 19 June 1962, the date of the "new" Application.
---------------------------------------------------------------------------------------------------------------------- [FN2]
See Institut de droit international, Annuaire, 1965, Vol. II, p. 270
[FN1] Nevertheless, there is some support for the view that nationality must
be continuous to the date of the Court's judgment; see the convenient
summary in Ro!!!ed, "Bankruptcy and the Espousal of Private Claims under
International Law" in Legal Essays—A Tribute to Frede Castberg, 1963, pp.
307-309.
---------------------------------------------------------------------------------------------------------------------
Piercing the Veil of Sidro and Sofina
78. Belgium conceded that to prove the nationality of Sidro and Sofina it
should go, and had gone, beyond the simple facts of State of corporation
and séige social. It stated that in strict law it was not necessary to go
beyond that but—
"it has always admitted—basing itself on the constant practice of
States—that a government is only justified in taking up the claim of a
company [FN2] if the latter's nationality be real and effective. For this
reason, the Belgian Government has made a point, from its very first
pleadings, of showing that three-quarters of Sidro's shares belonged to
Belgian shareholders on the two crucial dates (1948 and 1962). On account of
the size of the participation in Sidro's capital of another Belgian company,
Sofina, the Belgian Government has taken a further step; it has shown that
on the same dates Belgian shareholders had an even larger holding in Sofina
than in Sidro." (Reply, Part III, Sec. 1013, p. 738.)
------------------------------------------------------------------------------------------------------------
[FN2] The "company" in question is Sidro as shareholder in Barcelona
Traction. Mr. Arthur Dean, in his letter of 1 February 1955 to the Spanish
Ambassador in Washington, stated that he represented "Sofina, the majority
common shareholder" in Barcelona Traction. [Footnote added.]
------------------------------------------------------------------------------------------------------------
In the next section Belgium states that it is not obliged to show that
Sidro's shares are, for the major part, Belgian owned but has nevertheless
done so particularly in Annex 133 to the Reply.
79. In the light of this statement in its written pleading, the Court is
justified in deciding whether Belgium succeeded in its attempt to prove the
nationality of the alleged Belgian shareholders in Sidro and Sofina, in
other words, to pierce the corporate veils of these two Belgian companies.
I repeat that share-ownership is not a test of corporate nationality [p 205]
in the broad sense, but, as Belgium states, a test of whether the
nationality is "real and effective". Belgium in effect thus accepts the
application to corporations of the Nottebohm link principle. But there are
other Belgian statements in the oral argument which seem to modify that
position and which object to the Spanish demand for proof of Belgian
shareholding in the two Belgian companies.
80. If, as I maintain, Canada was not legally competent to protect Barcelona
Traction because of the absence of a link (such absence being in part proved
by the extent of foreign shareholding) [FN1], then Belgium by the same token
would not be legally competent to protect Sidro unless the presence of a
link is established. This is the challenge which Belgium seems to have
accepted. Apparently Belgium was willing to have the link tested entirely by
the extent of shareholdings and not by other factors. This may be due to
inability to prove that the international controlling group was associated
with or operated out of Belgium. Here again there is an illustration of the
fact that the rule which permits claims to be submitted on behalf of
shareholders places a heavy burden of proof on the claimant State,
especially in the case of great international holding companies whose focus
of power can not easily be proved especially over a period of years. There
is added difficulty in time of war when many steps, some of them devious,
but quite justifiable, need to be taken to avoid enemy appropriation or
exploitation and also characterization as enemy by allied or friendly
States. As Berle has abundantly demonstrated, the centre or focus of power
is not necessarily to be identified by the location of the largest number of
shares [FN2]. Counsel for Belgium recognized this fact in stating, on 13 May
1969, that Sofina was, at one period, controlled by about 8 per cent. of the
shareholdings. The place of in-corporation, whence the promoters of an
enterprise secure a "charter of convenience", has lost its significance as
evidence of the real identification [p 206] of a holding company. Moreover,
the siege social in terms of an office, etc., can be merely a facade.
---------------------------------------------------------------------------------------------------------------------- [FN1]
In all the analyses of the nationality of shareholders, very little emphasis
is put on any Canadian holdings. On 1 April 1962, out of 1,798,854 issued
shares of Barcelona Traction 41,294 were held in Canada. The Canadian
shareholders included 57 individuals (of whom 20 held less than 5 shares
each) and 43 Canadian companies of which one, Houston & Co., held 30,225
shares. In the "U.S.A. Section", 11, not counting Newman & Co., held over
1,000 shares each. 15 shareholders holding a total of 2,387 shares, had
addresses in Belgium. Of these, 7 held only 1 share each; in at least some
of these cases they seem to have been simply qualifying shares (A.M., Annex
10).
[FN2] "... it is just possible that in talking the language of 'ownership'
in relation to the flow of national capital, we are talking the language of
history rather than the language of reality" (Berle, Power Without Property
(Eng. ed. 1960), p. 45).
This is true because, as Judge Tanaka has pointed out, anonymity brings
about the separation of management from the ownership. (Cf. Morphologie des
groupes financiers, Centre de recherche et d'information socio-politiques,
1962, pp. 9 and 60, and Meyssan, Les droits des actionnaires et des autres
porteurs de titres dans les sociétés anonymes, 1962, pp. 9-10.)
---------------------------------------------------------------------------------------------------------------------
81. There is, to be sure, a certain logic in taking the position that if
international law permits a State to protect a shareholder interest, the
State should be able to protect a single shareholder and would not have to
prove that a substantial percentage of the shares were held by its
nationals. This seems to be the Swiss practice but not that of the United
States and there is very little support in the doctrine for pushing logic to
such extremes. Nor does the claimant State in the instant case rely on any
such principle—quite the contrary. Law is constantly balancing conflicting
interests. The British-American Claims Commission, under the Presidency of
Henri Fromageot, in 1923 in the Eastern Extension case, declared that "the
function of jurisprudence is to resolve the conflict of opposing rights and
interests by applying ... the corollaries of general principles". (VI,
U.N.R.I.A.A., pp. 112, 114.) It is such reasoning which supports Dunn's
allocation of risk theory in the law of State responsibility. I have
elsewhere pointed out as a transnational illustration, the power of a single
shareholder to induce a great corporation to change its policies. But the
international protection of broad State interests of an economic and
financial character does not require permitting a State to protect, let us
say, a holder of just one of the hundreds of millions of shares of a company
like A.T. & T.
82. It must be realized how different in character are various
corporations. Holding companies like Barcelona Traction are very different
from, let us say, the Ford Motor Company or the Du Pont Company. In these
two examples, regardless of foreign holdings or interests of the companies,
and regardless of the number of their shares which may be held by foreign
interests, the location of plant, the employment of labour and the payment
of taxes are all factors, in addition to place of incorporation and of
policy making, identifying the companies as "American". Generalizations
clustered around the word "corporation" or "company" are therefore
dangerous.
83. If one looks at the link of management-brains, the citizenship of an
individual is not conclusive. If a "Nottebohm" were the sole managing and
controlling personality in a company, this would not prove that the company
was identified with Liechtenstein, for purposes of the application of rules
of international law. Nor is apparent residence conclusive; compare the
arguments of the Parties about the residence of Juan March at [p 207]
certain periods, and the challenges to evidence produced to prove
residence. From the point of view of explaining the reasons for diplomatic
protection, it may be significant that the controlling power group has, for
one reason or another, strong political influence with a certain
government. Spain's invocation of old press reports of scandalous
connections between Belgian Government officials and personalities connected
with Sidro or Sofina, suggested this element.
84. There are, of course, abundant precedents for protection of
bondholders—I refer to the holders of corporate bonds and not the holders
of government bonds which raise entirely different legal (and political)
problems, as Drago clearly showed. In the instant case, there was at certain
times, as already noted, stress by Great Britain and by Canada upon the
interests of bondholders. As a characterization of the claim as Belgian,
bondholding does not seem to be significant.
Proof by Presumptions
85. In the attempt by Belgium to prove that Sofina's shares were held by
Belgians, at least in large part, there is a very extended analysis of
Belgian wartime legislation. The subject is covered in greatest detail in
Annex 133 of the Reply and in counsel's pleading on 13 May 1969. In this
line of argument it is explained that under the legislation in question,
various rules were laid down concerning certifications and the declarations
of ownership of types of shares, whether held in Belgium or abroad. The
argument is to say the least devious and rests on a pyramid of
presumptions. In Annex 133 to the Reply at page 769, it is said that the
proof adduced "rests on presumptions, but presumptions represent a mode of
proof recognized by all legislative systems . . .". Yet counsel for Belgium
on 17 April wisely admonished the Court: "The Court will, I trust, here as
elsewhere, reject any attempt to substitute allegations for proof or
insinuations for fact." It must also be noted that Belgian counsel admitted
on 4 July 1969 that the certificates did not purport to establish continuity
of Belgian ownership. Moreover, there are facile transitions as from broad
categories such as "non-enemy", which included "allied", to the
particularity of "Belgian". I do not find the evidence at all convincing.
In the pleading of Belgian counsel in 1964, it was stated on 15 April that
there is a presumption "that when a company is established in a [p 208]
particular State and enjoys the national character of that State, the
company is also owned and controlled by shareholders of the same
nationality". By this token, the controlling shareholders of Barcelona
Traction would have been Canadian. Counsel offered a further presumption
that since the shares of Sidro and Sofina "are traded principally in the
Brussels stock market", Belgian nationals own the shares in those companies.
[Ibid., p. 14.] It was further suggested that if shareholders give an
address in Belgium, they must be presumed to be Belgians. [Ibid., pp. 9-10.]
86. The Belgian Memorial filed in 1959 after the first Application, was more
realistic in its appraisal of a submitted classification of ownership of
Barcelona Traction shares. The Memorial stated (at p. 19):
"It should be noted that the foregoing classification was, in almost all
cases, established on the basis of the place of residence of the person in
whose name the shares were registered at that time. Having regard to the
Anglo-Saxon custom of resorting to nominees who are merely custodians of the
securities, such a classification does not necessarily correspond to the
place of residence of the real owners of the securities. Sidro itself had
its Barcelona Traction shares registered in the name of an American nominee.
Furthermore, the place of residence may not correspond to the nationality of
the person concerned, but this is of no great importance in view of the
small number of shares considered as Belgian apart from those held by the
Sidro company."
On 13 May 1969, Belgian counsel presented a long detailed list of
presumptions, largely based on the time and place of declaration and
certification under the Belgian wartime legislation. The information does
not seem, as claimed by counsel, to be "both exact and consistent".
On 7 May counsel for Belgium had argued from certain reports of trading in
Barcelona Traction bearer shares on the bourse in both Paris and Brussels
during 1961-1962. (The reports are in A.R., Annexes 131 and 132.) In Paris
the shares were apparently unlisted and there was no record of the number of
shares bought and sold. In Brussels 44,264 shares were traded and counsel
remarked: "True it cannot be said that all the purchasers were necessarily
Belgian but the likelihood is that they were." [Emphasis supplied.]
87. The actual Belgian position seemed to fall back on that taken by counsel
on 7 May 1969 in the following statement:
"After all, and this is a point of some importance, it is not necessary for
the Government of Belgium to satisfy the Court regarding [p 209] the
identity and Belgian nationality of every individual shareholder whose
rights and interests underlie the Belgian claim. According to the doctrine
recognized by this Court and generally accepted by States, Belgium is
presenting a claim for injury done to the State of Belgium through wrongs
inflicted upon its nationals. The Court therefore, need do no more than
estimate in proximate terms the number of Belgian shareholders in Barcelona
Traction."
Although he argued that the evidence is enough for the Court to find that as
of 14 June 1962 "at least 200,000 bearer shares in Barcelona Traction were
owned by Belgians other than Sidro", it was actually left to the Court to
make an approximate estimate. All of these presentations and others not
noted here, do not suffice to discharge the burden of proof which rested on
the Applicant.
88. One cannot deny that it is far from easy to trace the ownership of
bearer shares. In the Certain German Interests in Polish Upper Silesia case,
the Polish Government argued that "no importance can be attached to the
possession of bearer securities, since it is impossible to ascertain in
whose hands they may be at a given moment". (P.C.I.J., Series A, No. 7, p.
67.) The Court did not find it necessary to pursue this point. In the
instant case, Belgium said that Spain was seeking to drive them with their
backs to the wall by demanding a probatio diabolica for identification of
holders of bearer shares. But Belgium insisted that in this instance it was
able to accomplish this almost impossible task. (Memorial, 1959, p. 17;
Reply, Part III, p. 156, and C.R. for 13 May 1969.) I am not convinced that
it succeeded FN1
--------------------------------------------------------------------------------------------------------------------- FN1
The Belgian State in 1946 or 1947 possessed 10,000 shares of Sofina and
50,000 shares of Sidro. The shares were acquired in payment of a capital
levy in 1946 but were apparently held by the State only briefly and probably
not after 31 December 1947. See A.O.S., Ann. 30, App. 3, pp. 368 and 381 and
Sub-App. 3, p. 388. It was in another context that Belgian counsel spoke, on
4 July 1969, of "the overall claim, here put forward by the Belgian
Government, in respect of the injury done to the Belgian State by the
unlawful acts for which Spain is responsible".
---------------------------------------------------------------------------------------------------------------------
Apparently 341,326 bearer shares were in the trust account with Securitas
(to be discussed later herein), after being deposited 31 December 1939
(O.S., p. 203). Then 8,525 more bearer shares were deposited by Sidro with
Securitas—7,925 on 12 December 1939 and 600 on 22 February 1940—while 2,075
bearer shares were, for some reason, left in Brussels. (Ibid., pp. 203-204.)
When on 19 April 1948, Sidro asked Securitas to send to Newman & Co. various
securities, it included in the lot to be sent 6,025 bearer shares and the
coupons of 341,326 bearer shares, but not the latter certificates
themselves. (App. 2 to Annex 11 of the Anexes to the Memorial.) In January
1952, Sidro converted the 341,326 bearer shares then in its [p 210]
possession to registered shares; they were registered in the name of Newman
& Co. (See ibid., Annexes 11 and 4.) I have not been able to establish that
none of these 341,326 bearer shares changed hands be-tween 12 February 1948
and January 1952.
It is alleged that 244,832 additional bearer shares were owned by other
Belgians in February 1948. (M., Sec. 10.) It was claimed that on 14 June
1962, 200,000 bearer shares were held by Belgians other than Sidro. (O.S.,
p. 206). I find no proof that these bearer shares were continuously
Belgian-owned (assuming the above allegations to be correct) between 1948
and 1962.
89. In reply to a question from the Bench concerning the possible effect on
continuity if shares were transferred during the period 1948-1962, counsel
for Belgium said, on 4 July 1969, that if shares were sold to other Belgians
and then repurchased by Sidro, "the continuity requirement would be
satisfied". But "if the shares had been sold to, and then repurchased from,
non-Belgian nationals, other than Spanish nationals, the requirement might
possibly not have been satisfied . . .". The Spanish side challenged this
statement, and properly so, because one does not see why this situation
would differ from counsel's third case. The third case he put was where the
shares had been sold to, and then repurchased from, Spanish nationals; here
he agreed the continuity requirement would not have been satisfied. Counsel
sought to justify his answer to his own second case by various quotations to
the effect that the continuity rule is artificial and should be re-examined.
But he merely says that Belgium "feels it right that the existence of this
body of critical opinion should be drawn to the attention of the Court". He
did not, however, deny the existence of the rule. When later he analysed his
evidence of Belgian holdings in 1948, he did not try to adduce proof that
the shares did not change hands between 1948 and 1962. It was in this
context that he rejected the Spanish suggestion that Belgium should prove in
regard to each shareholder that he was a Belgian and that he was a
shareholder during the critical period. Counsel said:
"It is a lengthy and expensive procedure to carry out the investigation
proposed by the Government of Spain. It is justifiable if there is something
to be distributed. [Sc. an award in this case.] It is not justifiable
otherwise."
He felt this was the more true because he considered that Belgium had proved
that there was at all material times Belgian ownership of at least 200,000
shares aside from the Sidro holdings. None the less, the statement is a
damaging admission of Belgium's inability to identify the [p 211]
shareholders it sought to protect. The exhaustive effort to trace the bearer
shares would hardly have been necessary if Belgium had been confident that
the Court would be convinced that Sidro was the real owner of the 1,012,688
registered Barcelona shares throughout the critical period since so large a
holding would presumably satisfy the demand that Sidro be identified with
Belgian interests. This may be another slight indication that Belgian
counsel were aware that they were, for one reason or another, not in a
position to prove when the Securitas trust arrangement terminated. (See
paragraph 96 below.)
***
Securitas as Trustee for Sidro
90. On 6 September 1939 Sidro concluded a "custodian" contract with
Securitas Ltd. which was a United States corporation formed under the laws
of Delaware. (P. 722 of the Chayes Opinion, A.R., Ann. 125; so stated also
in A.O.S., Ann. 11, p. 206. Other statements of fact here are taken from the
recital in Annex 3 of the Memorial unless otherwise stated.) It is said that
this contract was concluded "foreseeing the danger of war".. (The contract
is in A.M., Ann. 3, App. 2.) Such a custodian contract did not transfer the
"real ownership" which was vested in Sidro.
91. The recitals in Annex 3 of the Memorial do not mention the fact
(revealed later in A.O.S., Ann. 11, p. 207) that on the same date, 6
September 1939, Sidro made with Securitas a second contract which was a
trust agreement. It was further revealed that this trust agreement of 6
September 1939 was replaced by another trust agreement on 27 February 1940,
but it is said that the differences between the two trust agreements are
without relevance for this case! It is said that the second agreement merely
took advantage of some new Belgian war legislation. The texts of the trust
agreements have never been revealed throughout the pleadings. But the
existence of the trust agreement of 27 February is recorded in Annex 3, page
36, to the Memorial, where it is described as completing the measures for
protection during the war. It is said that this trust agreement was to
enter into force when the Brussels area was occupied by the enemy or when
any other critical situation developed threatening the normal operations of
Sidro. It is further recited that the period of the application of the trust
agreement was indicated by a "suspense period" which would cease six months
after the end of the critical period. Turning again to Annex 11 of the
Observations and Submissions, at pages 207 and 208, it is stated that when
one of the "Operative Events" occurred, [p 212] Securitas automatically
became a trustee of Sidro's property outside Belgium and especially of
341,326 bearer shares of Barcelona Traction. The 1,012,688 registered shares
were also already on deposit with Securitas and its possession was
transformed into "legal ownership" when Securitas became trustee FN1.
Securitas became the trustee in May 1940 (ibid., p. 209).
--------------------------------------------------------------------------------------------------------------------- FN1
Securitas held for Sidro many securities other than and in addition to those
of Barcelona Traction. For example, of Mexican Light & Power Co. 6 per cent.
cumulative income debenture stock, they held shares to par value of
$2,254,250, registered in the name of the Midland Bank of London as
nominees, and to the value of $I,958,000 registered in the name of the
Schroder Bank in London as nominees, the nominees in both instances holding
for the account of Charles Gordon & Co. (A.O.S., Ann. 14, p. 219).
---------------------------------------------------------------------------------------------------------------------
Curiously enough, Mr. Mockridge, Belgium's Canadian expert, refers to the
agreement of 6 September 1939 as the "trust agreement" under which Securitas
"became Trustee rather than Custodian". (A.R., Ann. 126, p. 8). On the other
hand, Professor Chayes, Belgium's American expert, bases the trust on the
agreement of 27 February 1940 and does not reveal a familiarity with the
earlier trust agreement of 6 September 1939.
92. Annex 17 to the Observations and Submissions is a certificate without
date signed by members of the committee named in application of clause 9 of
the trust deed of 27 February 1940, certifying, in conformity with clause 4
(III) of the trust deed, that the state of danger which threatened Sidro
(citing clause 3 of the trust deed) had ceased to exist on 14 February 1946
(p. 230). (I note that the Belgian Government had returned to Brussels on 8
September 1944 and Germany surrendered on 7 May 1945.) According to the
report of Securitas to Sidro dated 24 September 1946 (op. cit., Ann. 18, p.
231; photocopy in A.R., Ann. 123), the "suspense period" ended 14 August
1946, which was six months after the certified date of the end of the
danger; this is said to be according to Article 4 (III) of the trust deed.
Securitas reports an inventory of what they held in trust on that date. The
letter says they hold the securities subject to future instructions from
Sidro. There is no flat statement that they ceased at that moment to be
trustee although this is implied. A further letter of 17 April 1947 (A.M.,
Ann. 3, App. 8) encloses a statement of securities held for Sidro "in
custody for your account" as of 31 December 1946. It was not until 19 April
1948 that Sidro instructed Securitas to send the securities to Newman & Co.
On 3 May 1948 Securitas wrote that they had delivered the securities and
that this operation closed Sidro's deposit account with them (A.O.S., Anns.
19 and 20). The lists showed 1,012,688 shares registered in the name of
Charles Gordon & Co., and certificates (presumably of bearer shares?) 6,025.
On 7 June 1948, Newman & Co. wrote that the shares in the former [P 213]
group had been registered in their name and were in the Chase Safe Deposit
Co. in New York (ibid., Ann. 22).
93. Securitas was dissolved by legal action in Delaware, 16 September 1948
(ibid., Annex 25, p. 258). An affidavit by Duncan, Alley and Newman, all
directors or officers of Securitas, 30 October 1958, attesting this fact,
says they examined the books of Securitas and that it had held (in addition
to the registered shares) 341,326 bearer shares at Winchester House, London,
and 7,925 plus 600 bearer shares in Chase National Bank, New York. Further,
on 20 January 1947 Securitas "delivered" to Sidro 1,400 of these bearer
shares and on 25 February 1947, 1,100 of the same. On 16 January 1947, the
safe deposit box at Winchester House, with contents, was "assigned" to
Sofina. On 3 December 1947, in accordance with request of Sidro, the
341,326 bearer shares were credited by Sofina to Sidro's account (ibid.,
Annex 26).
94. Now title to bearer shares may be considered to pass by delivery of the
certificates, unless the transferee is a nominee or other depositary, for
the trustee. It is not clear to me from the documents whether Securitas, as
trustee, did actually divest itself of title to these bearer shares through
these transactions. It should be noted that the communications in question
were originally in English and the words quoted above—"delivered" and
"assigned"—are the actual terms used, which might or might not indicate
passage of title from the trustee. (See A.O.S., Ann. 25.)
95. It is a vital matter to know when the trust ceased to exist. Professor
Chayes, Belgium's American expert, clearly points out why this is so; he
says that during the German occupation of Belgium—
"... Securitas acted as trustee of the property. As such, Securitas held
legal title to the property and could manage the property in its own
discretion, without regard to any instructions from Sidro. Indeed, the whole
point of the arrangement was to free Securitas from the control of Sidro,
since during the German occupation, instructions might come from Belgium
with respect to the shares that were inimical to Sidro's true interests and
to the allied cause. Securitas was of course, bound to use its discretion
for the benefit of Sidro, the beneficiary under the trust instrument. The
trustee would be liable if it abused its discretion or used its position to
take advantage of Sidro. And it had to account to Sidro, ultimately, for
dividends and other profits. But subject to these general limitations, [P
214]as trustee during the war Securitas had full authority over the
property" (A.R., Ann. 125, p. 707)FN1
-----------------------------------------------------------------------------------------------------------
FN1 Securitas evidently was not a "passive trustee" in the sense described
by Judge Augustus Hand in the San Antonio Land and Irrigation Co. case to
which the Spanish side attached such importance. (New Documents, Vol. III,
p. 114.)
------------------------------------------------------------------------------------------------------------
Chayes concludes that the trust had been terminated by 12 February 1948, but
in proof of this statement he merely cites Annex 3 to the Memorial,
paragraph (g), where it is asserted that the trust ended on 14 August 1946.
It is apparent that he either never saw the trust deeds or was not at
liberty to disclose their exact terms.
96. Spain, in its Preliminary Objections in March 1963, pages 61-62,
remarked on the failure to produce the trust deeds. It also noted the
fragile character of the "proof" that the trust ended on 14 August 1946. It
noted other documentary omissions by Belgium, some of which at least were
later supplied—but the trust deeds were not supplied. The Belgian omission
is especially remarkable in Annex 11 to the Observations and Submissions,
page 208, where it discusses the two trust agreements of 6 September 1939
and 27 February 1940 and, as already noted, blandly remarks that the
differences between the two contracts are irrelevant for the purposes of
this case! The content of the trust agreements is described but the text is
not produced. In the Rejoinder (p. 951) Spain hammers the point that, with
all its documentation, Belgium has not produced the text of the trust
agreements, adding a footnote that it was again calling attention to this
abnormality. The Rejoinder cites the Chayes opinion along the lines noted
above. It makes the sound point that since the personalities acting for
Sidro, Securitas and Sofina are essentially the same, their assertions
supporting each other are equivalent to self-serving declarations which have
little probative value.
In his pleading on 7 May 1969, counsel for Belgium dealt with the question
of nominees but did not discuss the trust. On 4 July, he brushed aside the
trust issue which had again been raised by counsel for Spain on 18 June. Nor
do I find elsewhere in the Belgian oral arguments an attempt to meet the
Spanish criticism of the failure to produce the text of the trust
agreements.
In his final pleading of 21 July, counsel for Spain stressed the
non-production of the trust agreements, calling attention to the whole
record on this matter, ending with a reference to the opinion of Professor
Chayes. In particular he remarked that the only transfer of shares which
Securitas made was that of 3 May 1948 to Newman & Co.—two-and-a [p 215]
half months after the critical date of the declaration of bankruptcy. (This
is in accord with A.M., Ann. 11, App. 2).
97. I fully agree with Sir Gerald Fitzmaurice (in paragraph 58 of his
separate opinion) that this Court does not have any fully developed practice
on rules of evidence, but I believe that in the circumstances which have
been described it is proper to apply the common law rule which is to the
effect that if a party fails to produce on demand a relevant document which
is in its possession, there may be an inference that the document "if
brought, would have exposed facts unfavourable to the party .. ." FN1.
Although it is true, as Sir Gerald Fitzmaurice emphasizes, that one should
give due weight to the pressures engendered by the situation in the Second
World War, international law has long taken cognizance of practices designed
to thwart belligerents by concealing the truth; the history of the law of
neutral rights and duties, is full of examples. If disclosure of the text of
the trust deeds would have prejudiced some governmental interest, Belgium
could have pleaded this fact, as the United Kingdom successfully pleaded
"naval secrecy" in the Corfu Channel case, I.C.J. Reports 1949, pages 4, 32.
--------------------------------------------------------------------------------------------------------------------- FN1
Wigmore, Evidence, 3rd ed. 1940, Vol. 2, sees. 285 and 291. Wigmore traces
the rule back to the beginning of the seventeenth century.
---------------------------------------------------------------------------------------------------------------------
Article 48 of the Rules of Court concerning documents submitted after the
close of the written proceedings, requires consent of the other party or a
special decision of the Court; in this instance, the other party asked for
the production of the trust document. Nor was the Court strict in the
instant case about applying the rule—witness the fact that over 4,000 pages
of "new" documents were introduced by the two Parties during the oral
proceedings between 21 April and 8 July 1969.
98. The legal aspect of the trust situation which is important is the one
which distinguishes it from the nominee situation. As Chayes points out,
during the trust, Securitas had not only legal title but full control, even
though the beneficial title was in Sidro. Accordingly Belgian character of
the claim did not exist during the trust. But in the nominee situations, the
nominee is in the position of an agent and the legal title coincides with
the beneficial title in the principal even though he is not a registered
shareholder.
***[p 216]
The Status of "Nominees"
99. The requirements of linguistic simplicity necessitate the constant use
of the term "shareholder". The danger is that the reality behind the term
will be lost to sight through semantic insistence upon the term itself FN1.
To my mind, this defect faults the Spanish arguments concerning nominees.
The Spanish argument identifies in all situations, the real "shareholders"
with the names inscribed on the stock registers. See the Counter-Memorial,
Chapter VI, Sections 47 ff. and Rejoinder, Part III, Chapter II, especially
Subsection 2. The legal situation of nominees reveals the fallacy of this
approach, quite aside from the fact that the names of holders of bearer
shares do not appear on the register although they are certainly
"shareholders".
--------------------------------------------------------------------------------------------------------------------- FN1
On this point counsel for Belgium, speaking on 4 July 1969, was absolutely
correct: "The question is not who has the right to term himself
'shareholder' but, in Professor Ago's own words, 'who in the last resort has
a proper claim to the economic content of the ownership of a share'... so as
to enjoy the protection of international law."
---------------------------------------------------------------------------------------------------------------------
100. Under principles of private international law, the legal nature of the
right, title, or interest of nominees in whose names Barcelona Traction
shares were registered, must be determined by either New York or Canadian
law. Counsel for Belgium properly noted on 7 May 1969 that the principles
governing the choice of law are not unfamiliar to the Court in view of the
Permanent Court's decisions in the Serbian and Brazilian Loans cases,
P.C.I.J., Series A, Nos. 20 and 21. Since according to the unrebutted expert
opinions of Chayes and Mockridge there is no material difference between the
two legal systems in the matters here involved, they need not be analyzed
separately.
Annex 125 of the Reply is the opinion of Professor Chayes, and Annex 126 is
the opinion of Mr. Mockridge on the Canadian law. I think it is clear that
under both New York and Canadian law, the nominee does not have "real
title", is not the "real owner" and that the one for whom the nominee acts
has all the real elements of ownership [FN2]. The limitations on this
statement are only those which relate to the rights of the corporation, as
for example, its right to deal with the registered owner in the payment of
dividends, etc. As has been shown, where shares are held by a trustee under
a trust instrument, the same conclusion cannot be drawn. The distinction is
clear in both opinions although Mockridge lays more stress on cases where
there is a "bare trust". There can be situations in which the legal owner of
even 97 per cent. of the shares may own something [p 217] worthless because,
for example, of the beneficial interests of a usufruct under German law—but
this is not such a case. (Cf. the decision of the United States District
Court in the Uebersee case cited above, at p. 13 of that Court's opinion.)
---------------------------------------------------------------------------------------------------------------------- [FN2]
In opposition to the Belgian position on nominees, Spain invokes an opinion
from an eminent New York law firm—Davis, Polk, Wardwell, Sunderland &
Kiendl. (See C.M., Chap. VI, p. 675, and the text of the firm's letter of 28
February 1963 in Annex 65, Appendix 2, Preliminary Objections 1963). In my
view, this opinion does not controvert the essentials of the Chayes opinion.
---------------------------------------------------------------------------------------------------------------------
101. Chayes in his conclusion on page 722 (loc. cit.) says "I have the honor
to conclude that neither Securitas, Ltd., Charles Gordon & Company, Newman &
Company ever had any property interest in the Barcelona Traction shares,
except for the period of the German oc-cupation of Belgium during World War
II, when Securitas, Ltd., held them as Trustee". Mockridge (A.R., p. 732)
agrees with Chayes except he adds the period during which the shares were
vested in the Canadian Custodian of Enemy Property which period he says
terminated before the commencement of the bankruptcy proceedings. According
to the Observations and Submissions (p. 204), they were deblocked 29 April
1947; this fact is confirmed in the Reply, paragraph 994. When the shares
were first transferred to Charles Gordon & Co., there was attached (in
accordance with cabled instructions by Wilmers) a notice reading:
"We hereby certify that the within transfer does not involve a change of
ownership of the shares represented by the annexed certificates as it is
being made to Charles Gordon & Co. as nominee of our depositary therefore no
transfer tax is exigible." (A.M., Vol. I, Ann. 3, App. 5, p. 50.)
This was on 11 September 1939 and Chayes stresses that there was nothing
inconsistent with the Securitas arrangement in the fact that Sidro
transferred direct to Gordon & Co. (A.R., Vol. II, Ann. 125, p. 5). Chayes
states on the same page that Sidro listed the shares registered in Gordon's
name with the United States authorities before the United States entered the
war but there is no documentary record of this listing. But he says that
Sidro reported the trust agreement with Securitas and did not report Gordon
as holding any interest.
102. I find that it is of no legal consequence that the agents in whose
names the shares were registered were not listed publicly as professional
nominees. (So also in Canada; Mockridge, A.R., p. 729.) The practice of
registering shares in the names of nominees is very common in the United
States as Chayes shows (ibid., pp. 708-709). Although nominees were much
used in time of war to cloak the identity of the real owner, they are
generally used in the United States—where bearer shares are not issued—
simply to facilitate transactions in shares FN1. Somewhat comparably, when
shares are pledged with a bank as collateral for a loan, a stock power
endorsed in blank will be attached. [p 218]
--------------------------------------------------------------------------------------------------------------------- FN1
Under the name of "share warrants" bearer shares may be issued in Canada as
in England, but they are not extensively used; Schlesinger, Comparative Law,
2nd ed., 1960, p. 442
---------------------------------------------------------------------------------------------------------------------
103. Chayes noted (ibid., pp. 714 and 715) that unregistered owners of
shares may bring a shareholder's derivative suit, or under Delaware and New
York law, in case of voting against a merger, may demand an appraisal of
their shares and cash payment of the appraised value. In an appraisal case
the New York court said there was no justification for interpreting the word
"stockholder" in the statute as meaning "registered stockholder" (ibid., p.
720). Mockridge shows that Canadian courts interpreted the word
"shareholder" in agreements, as being broader than and not limited to
"registered shareholders" FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
Cf. Henn, Corporations, 1961, sec. 179: "Statutory references to
shareholders are not always clear as to whether they refer only to
shareholders of record or also to the beneficial owners of shares. A
substantial amount of stock is held by brokers in their own names (known as
'street names') in behalf of their customers."
---------------------------------------------------------------------------------------------------------------------
Mockridge (ibid., p. 730) indicates that shares registered in Charles Gordon
& Co.'s name were vested in Canada although Charles Gordon & Co. had United
States nationality, because Sidro as beneficial owner was "enemy" during the
German occupation. He does not mention Securitas in this context. In the
Observations and Submissions (p. 199), it is said that while the trust was
still in force, Sidro declared the Barcelona Traction shares under Belgian
law, although they were registered in the name of Charles Gordon & Co.
104. The jurisprudence of the Foreign Claims Settlement Commission of the
United States is of interest, notwithstanding the fact that this is a
national body, operating in accordance with its statutory terms of reference
and with the terms of agreements with various governments FN2. For example,
the Commission "denied recovery to a domestic [i.e., United States]
corporation with more than eighty per cent, of its stock registered in the
names of American citizens but beneficially owned by aliens. (Claim of
Westhold Corporation . . .)" (Foreign Claims Settlement Commission of the
United States, Decisions and Annotations, 1968, p. 20). Thus neither place
of incorporation nor majority of shares registered in the names of American
nominees, sufficed to make the claim "American".
--------------------------------------------------------------------------------------------------------------------- FN2
For the contrary Spanish view on the interest of this jurisprudence, see
C.M., Chap. VI, Section 55.
---------------------------------------------------------------------------------------------------------------------
In the Annotations one reads (at pp. 39-41):
"Beneficial interest.—Occasionally legal title is vested in one person while
the true owner is another. Normally such an arrange-[p 219]ment is
unnecessary; but as the Arndt decision indicates, a 'cloaking' of title was
sometimes imperative in view of the discriminatory measures that were
practiced during World War II. Applying settled rules of international law,
the Commission held that beneficial interest, as opposed to nominal or bare
legal title, was controlling in deciding the question of ownership.
[Emphasis supplied.]
A more common example of beneficial ownership is the case of an agent who
acquires title to property on behalf of his principal.. .
The technical, legal form in which title to property is held, and the legal
capacity to sue, constituting the so-called 'indicia of title,' must be
considered of secondary importance to the question whether the interest for
which espousal is sought is truly that of a United States national....
A claim concerned an interest in a family fund or 'syndicate', that owned
shares of stock in a Swiss corporation, which assertedly owned all the
outstanding shares of stock in a Yugoslav corporation. It was stated that
18,949 shares of stock held by the 'syndicate' in Switzerland had been
transferred to claimant in 1942, in recognition of her undivided fractional
interest in the family fund ... It appeared that the various record entries
of the transactions were designed merely to cloak the shares of stock with
ownership by a national of the United States, a device which was then
considered best calculated to safeguard the family interests. The Commission
held that on the date of loss claimant was not the owner of the 18,949
shares of stock, but was the beneficial owner of only a 5.29 % interest in
the family fund. (Claim of Antonia Hatvany, Docket No. Y-1063, Dec. No.
Y-910, Final Decision.)"
***
105. Belgium not having established the Belgian character of any substantial
number of shares throughout the critical period which the continuity rule
defines, might rely, and at times seemed to rely, on the Belgian nationality
of the group which shaped the will of the corporate person and dictated its
policies. This also may be a difficult task in the case of great holding
companies with many cross-holdings of shares, which cross-holdings, Belgium
stated, were permissible under Belgian law. The centre of power may be
deliberately concealed, not only in time of war, but for reasons of
avoidance of taxation or of the application of anti-trust laws, or
otherwise. The individuals who give instructions—for [p 220] example, in
this case, Mr. Heineman and Mr. Wilmers—may be acting for unidentified
financial interests, although I have no reason to suggest that this was
actually the case. Belgium in the Reply (Ann. 127, Vol. II) quotes from the
report of the Spanish members of the International Committee of Experts in
1950, passages attesting that Sidro controlled Barcelona Traction and that
Sofina controlled Sidro; and counsel stated on 13 May 1969 that at least in
a certain period, Sofina "était contrôlée par des filiales". The Spanish
arguments and Belgian explanations about the alleged "Belgianization" and
take-over bids in 1964 do not prove what the situation was on 19 June 1962.
But whatever is the alleged basis for the State interests which justify
protection, that basis must be proved just as much as if the justification
were to be found solely in the continued nationality of shareholders.
***
106. The influence of the Court's judgments is great, even though Article 59
of the Statute declares that the decision "has no binding force except
between the parties and in respect of that particular case". It may be said
that the new methods and institutions for foreign investments which have
been referred to earlier in this opinion, will overtake the possible
consequences of the rule which the Court now holds to be the law. But not
all of the older business practices have been abandoned and the managerial
community of the commercial world might have to meet the announced rule by
new devices. If, for example, it is agreed that when the company has been
wound up and has ceased to exist, the shareholders, now having a direct
right to the assets, may benefit from the diplomatic protection of the State
of which they are nationals, it would be quite feasible to secure the
cancellation of the "charter of convenience" which the corporation had
obtained. But surely no economic, social or political advantage would be
gained if in a situation like that in the instant case, the life of the
Barcelona Traction Company had to be officially ended in Canada so that the
principal shareholders, who are the real parties in interest, could be
protected diplomatically. And could it be reasonably argued in such
circumstances, that the United States would be the State entitled to extend
diplomatic protection because a majority of the shares were found to be
registered in the name of American nominees? One is entitled to test the
soundness of a principle by the consequences which would flow from its
application; the consequences here would clearly be undesirable. With
deference to the opinion of the Court, I cannot agree that international law
imposes such a solution of [p 221] the problem which the Barcelona Traction
case has laid before the International Court of Justice FN*.
--------------------------------------------------------------------------------------------------------------------- FN*
Since I have personally had occasion to correct misconceptions about the
"law's delays" as a feature of the procedure in the International Court of
Justice, I, like Sir Gerald Fitzmaurice, welcome the inclusion in this
Judgment of the Court of an indication of the fact that the fault lies with
governments of States and not with the Court or its Registry. The Court has
never been asked to treat a contested case or a request for an advisory
opinion by summary procedure, quite apart from the possible use of the
standing Chamber of Summary Procedure, but if the governments concerned
desired a prompt decision, the Court could meet their request.
---------------------------------------------------------------------------------------------------------------------
(Signed) Philip C. Jessup.
[p 222]
Separate Opinion of Judge Morelli
[Translation ]
I
Subject of the dispute and object of the claim
1. It will be advisable to begin by defining, on the one hand, the subject
of the dispute between the Belgian State and the Spanish State and, on the
other, the object of the claim submitted to the Court by Belgium in its
Application of 19 June 1962. This Application has been compared,
particularly from the Spanish side, with the other Application submitted by
Belgium on 23 September 1958, and the question has been raised as to whether
what is involved is the same claim or two different claims.
Having regard to the circumstances of the case, comparison of the two
Applications is useful only for the purpose of a precise determination of
the object of the claim submitted by the 1962 Application, the only one on
which the Court had to give a decision in the present Judgment. The
proceedings instituted by the 1958 Application having been closed pursuant
to the discontinuance, there was no litispendance obstacle to prevent
Belgium from again submitting the same claim to the Court. On the other hand
there can be no doubt that Belgium was completely free to refer a different
claim to the Court.
2. As regards the subject of the dispute between Belgium and Spain, that
dispute has from the outset been characterized, in the first place, by the
complaint put forward by Belgium on account of the measures taken by the
Spanish authorities in respect of Barcelona Traction and, in the second
place, by Belgium's claim to reparation of some kind for the damage
sustained as a result of those measures, regarded as contrary to
international law. Now these elements (and the resulting dispute) remained
unchanged even after the discontinuance, which did not affect the dispute in
any way. It may also be said that the subject of the dispute remained
unchanged, for that subject can only be the product of the component
elements of the dispute.
3. Is it possible, despite the continuance of the same dispute, to consider
that in its 1962 Application Belgium referred to the Court a claim having a
different object from that submitted to the Court in 1958? I am of the
opinion that this question must be answered in the negative.
When a State is said to be exercising, as against another State, diplomatic
protection of a particular person, to be protecting that person, to be [p
223] taking up his case, what is meant by these expressions is that a State
is exercising as against another State a right of its own conferred on it by
the international legal order, concerning a particular treatment due to the
person concerned. The national State of the person is entitled to demand
that that person be accorded the treatment required by the relevant rules of
international law and, should such treatment not be accorded, may claim
reparation in the form of either restitutio in integrum or compensation.
International reparation is always owed to the State and not to the private
person, even in the case of compensation and despite the fact that the
amount of compensation must be determined on the basis of the damage
suffered by the private person.
These very elementary notions explain quite simply why in the present case
the two claims successively referred to the Court by Belgium, that of 1958
and that of 1962, must be regarded as completely identical.
4. In the first as in the second Application Belgium asked the Court to
adjudge and declare that the Spanish State was under an obligation towards
Belgium to make a certain form of reparation for an alleged international
wrong. Naturally the international wrong, as such, could have been done by
the Spanish State only to the Belgian State and not to the injured persons.
The wrong complained of by Belgium is described in the same way in both
Applications: according to both it consists of the same conduct on the part
of the Spanish authorities. The principal claim for reparation as expressed
in both Applications has restitutio in integrum as its object and seeks the
annulment by the Spanish State of the measures complained of against it in
the same way in both Applications. As regards the alternative claim for
compensation, it is perfectly true that in the 1962 Application the amount
of compensation was reduced to 88 per cent. of Barcelona Traction's net
assets and that, in conformity with the new presentation of the case, the
justification for this alternative claim was changed, so that reference is
no longer made to the damage suffered by Barcelona Traction, but to the
damage suffered by the company's Belgian shareholders. However, neither the
reduction of the amount claimed nor the alteration of the argument in
support of the claim for compensation in any way changes the object of that
claim as to its substance.
5. Between the two claims there is identity not only of petitum but also of
causa petendi.
In this case the causa petendi is the allegedly unlawful character where
Belgium is concerned of a particular course of conduct on the part of the
Spanish authorities composed, according to both Applications, of the same
acts and omissions. Thus the identical nature of the causa petendi is not
affected by the fact that there is, as between the two Applications, a
difference in the way in which they set out to prove that a right of [p 224]
Belgium's was indeed infringed by the measures complained of. The fact that
in the first Application Belgium complained of the damage suffered, as a
result of those measures, by a company in which there was asserted to be a
preponderance of Belgian interests, whereas in the second Application
Belgium complained of the damage indirectly suffered as a result of the same
measures by Belgian nationals in their capacity as shareholders in the
company, is merely a change of argument which has nothing to do with the
object of the claim.
Whenever, as in the present case, there is a claim for reparation on account
of the breach, through a particular course of conduct, of the rules of
international law concerning the treatment of foreigners, the specifying of
such and such a person as the one in respect of whom diplomatic protection
is exercised is not a matter which is at all relevant to the object of the
claim, for the claim has no other object than the reparation sought by the
State for itself. This is so of course only if the description of the
allegedly unlawful conduct of the other State remains unchanged throughout,
otherwise there would be a change of claim because of a change in the causa
petendi.
Matters are otherwise when diplomatic protection is exercised not in the
form of a claim for reparation on account of a wrong asserted to have been
done but, on the contrary, in the form of a claim to a particular sort of
treatment due by the other State to a private person. In this case the
specifying of the private person in respect of whom diplomatic protection
is exercised is an integral part of the specification of the conduct which
the State exercising diplomatic protection calls for on the part of the
other State. Consequently, in the case of such a claim submitted in judicial
proceedings, the substitution of one protected person for another entails a
change in the object of the claim. In such a case there is indeed a change
of petitum.
6. The reasons why I am of the opinion that both claims submitted by Belgium
to the Court must be regarded as objectively identical are not the same as
those advanced by the Spanish Government in reaching the same conclusion.
The Spanish Government appears to start from the idea that in order to
determine the object of the claim (or of the case, as it sometimes puts it)
regard must be had to the identity of the protected person. In the argument
and submissions of the Counter-Memorial it reaches, by the use of a perhaps
elliptic form of words, the point of envisaging either the Barcelona
Traction Company or the Belgian shareholders as themselves constituting the
possible "objet" of the Belgian "claim". Thus in that pleading a case
involving company protection is contrasted with a case involving shareholder
protection.
Now if the idea is accepted that the protected person himself constitutes
the objet of the claim, or at least the decisive element for determining
the object of the claim, it would have to be inferred as a logical
conclusion that the claim submitted by Belgium in 1962 is different from
[p225] that submitted to the Court in 1958, because Belgium now states that
it is protecting not Barcelona Traction but its Belgian shareholders.
However, according to the Spanish Government, this conclusion must be
rejected, because, it alleges, Belgium sought in its 1962 Application to
disguise, under the appearance of a case concerning Belgian shareholders in
Barcelona Traction, a case which really concerns the company as such. This
is purported to be proved by, on the one hand, the complaints advanced
(relating to the measures taken by the Spanish authorities in respect of the
company) and, on the other, the form of reparation claimed (in the first
place restitutio in integrum of the undertaking).
7. I am of the opinion that, in submitting its new claim in the way it
considered most suitable, Belgium was only exercising a freedom which —as
the Court has observed in the Judgment—it undoubtedly possessed. The claim
had therefore to be examined and judged in accordance with the content which
Belgium had imparted to it. It would have been quite arbitrary, on the
pretext of bringing to light what was alleged to be hidden behind a
disguise, to substitute for the actual claim as formulated by Belgium a
different, purely hypothetical claim.
If, then, the 1962 claim is to be compared with that submitted to the Court
in 1958 (the only useful purpose to be served thereby, as already said,
being the better to define the content of the new claim), both claims must
be regarded as objectively identical. But the reason for this is not, as
alleged by the Spanish Government, that the new claim also concerns, despite
its outward appearance, diplomatic protection of the Barcelona Traction
Company as such, but rather that in both claims there is identity of petitum
(the reparation sought) and of causa petendi (the allegedly unlawful
conduct of the Spanish authorities).
This having been established, it must however be observed that as between
the two claims there is a difference in respect of the way in which Belgium
seeks to prove that the measures complained of constitute a wrong done by
Spain to Belgium. In its endeavour to prove this (and hence its right to
reparation) Belgium ceased relying on the contention of damage suffered by a
company in which there were allegedly preponderant Belgian interests and,
on the contrary, based its claim on the purported fact that the measures
complained of, although taken in respect of the company, indirectly injured
the Belgian shareholders in it. But this new argument could not be rejected
out of hand on the ground that it was only a means of disguising a different
claim. It was the actual argument put forward by Belgium in its 1962
Application which had to be considered on its own merits in order to judge
whether or not it was well-founded. [p 226]
II
The Order of the Questions
1. Belgium claims reparation from Spain for the measures taken by the
Spanish authorities in respect of Barcelona Traction, which are considered
by Belgium as internationally unlawful. The unlawfulness here concerned must
naturally be unlawfulness vis-à-vis Belgium resulting from the infringement
of a right pertaining to Belgium, or in other words from the breach by Spain
of an obligation it owed to Belgium. For the international rules concerning
the treatment of foreigners, although they are rules of general
international law and, as such, are binding on every State with regard to
every other State, take concrete form in the shape of bilateral legal
relationships, so that a State's obligation to accord the required treatment
to a particular person exists solely towards the national State of that
person and not towards other States.
In order to prove that it was indeed a right pertaining to Belgium which was
infringed by the measures complained of, the Belgian Government contends
that those measures, although taken in respect of a Canadian Company,
indirectly injured Belgian nationals as shareholders in the company. The
Spanish Government challenges this argument from several standpoints, thus
posing, inter alia, a problem as to Belgium's capacity.
2. It is necessary to be clear as to the sense in which it is possible in
this connection properly to speak of capacity; in particular because the
Parties have used terms which are open to misunderstanding: "qualité pour
agir" or "jus standi". These terms would appear to indicate a form of
procedural capacity relating to the right to apply to court. But that right
is not now in issue, since the 1964 Judgment upheld the Court's jurisdiction
in the present case and thereby Belgium's corresponding power to seise the
Court, that is to say, Belgium's power to institute proceedings.
At the present stage it is possible to speak of capacity only in the sense
of substantive and not procedural capacity, that is to say in the sense of
the vesting in one State rather than in another of the substantive right
invoked in the case. The hypothesis of the existence of a certain obligation
on the part of a given State (the respondent State) is assumed, and the
question is which State possesses the corresponding hypothetical right; in
particular whether or not that right pertains to the applicant State.
As I said in my dissenting opinion attached to the Judgment on the
Preliminary Objections (I.C.J. Reports 1964, pp. 1ll f), the question of
capacity, understood in this way, is one concerning a substantive right with
regard to the actual merits of the case. A judgment declaring that the
applicant State is devoid of capacity in respect of the right of diplo-[p
227] matic protection which it invokes is not a judgment declaring the claim
inadmissible, but one dismissing the claim on the merits. A judgment of this
kind has the effect of res judicata in the material sense.
3. In my dissenting opinion (pp. 112 ff.; see also pp. 98 ff.) I also
explained that the question of capacity, as a question concerning the
possession by the applicant State of the substantive right invoked by it as
the basis for its claim, does not have any preliminary character, in the
sense that there is no logical necessity to resolve the question of capacity
before going on to examine the other questions that likewise concern the
merits.
It follows that it rests with the judge to determine the most suitable
order, taking convenience and economy as his criteria. It is open to him to
begin with an examination of the question of capacity, assuming as a
hypothesis the existence of the obligation relied on as the basis for the
claim. But he may also find it simpler, without going into the question of
capacity at all, to find that the claim should be dismissed on the ground
that the obligation asserted by the Applicant is not one which exists on the
part of the Respondent vis-à-vis any State at all. For this it might be
sufficient to resolve a question of pure law, either by showing the
nonexistence of the legal rule invoked as the basis for the claim, or by
ascertaining its true content FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
See, in my separate opinion on the cases concerning South West Africa,
Second Phase, J.C.J. Reports 1966, pp. 65 f., the observations as to the
relationship between the question of capacity (standing) and that of the
existence of obligation, and as to the hypothetical nature of the former
question when raised before the obligation has been shown to exist.
---------------------------------------------------------------------------------------------------------------------
4. Now the Spanish Government opposes the Belgian claim by raising, among
others, questions which are undoubtedly questions of capacity. For it denies
the existence of major Belgian shareholdings in Barcelona Traction by
disputing the possibility of regarding certain persons, in respect of whom
Belgium claims to exercise diplomatic protection, as Belgian shareholders in
the company; and it does this from two different standpoints. In the first
place the Spanish Government denies that certain persons described by
Belgium as Belgian nationals can really be regarded and treated as Belgian.
In the second place the Spanish Government denies that certain persons
protected by Belgium can be regarded as shareholders in Barcelona Traction.
There is thus raised from two different standpoints a problem which is
undoubtedly one of capacity, relating as such to the direction of the
obligation assumed to exist on the part of Spain. In the first instance the
question is whether the right corresponding to the hypothetical obligation
pertains to Belgium or to some other State which must be considered to be
the national State of the person concerned. Similarly, in the second [p 228]
instance, the question is whether the right of diplomatic protection
pertains to Belgium or to some other State as the putative national State
of the real shareholder. In short, it is what is known as the nationality of
the claim which is the issue in both instances.
5. As will have been noted, all this assumes the existence with regard to
the treatment of Barcelona Traction of an obligation on the part of Spain
toward the national State or States of the shareholders. But the existence
of any such obligation is denied in another argument put forward by the
Spanish Government. That argument does not raise a problem of capacity at
all; it raises no problem concerning the nationality of the claim. It raises
on the contrary a problem concerning the very existence of the rule of law
invoked by Belgium as the basis for its claim; and it is possible to pose
this problem even if it is assumed that the protected persons really are
Barcelona Traction shareholders and also Belgian nationals.
It is not possible to maintain that this issue is none the less one
concerning the direction of the obligation (hence one of capacity in
relation to the corresponding right) on the ground that regard must also be
had to the right of diplomatic protection pertaining to Canada as the
national State of the company, and therefore seek to resolve the question of
whether it is not Canada rather than Belgium which has the capacity to claim
reparation. This is so because Canada's right is derived from a rule
different from that invoked by Belgium, the latter concerning not diplomatic
protection of the company as such, but diplomatic protection of the
shareholders in connection with measures taken in respect of the company. If
it is decided that no such rule exists, no problem of capacity arises at
all.
6. The point is that any question of capacity can only be raised in
relation to a rule of law which is either undisputed or assumed to exist.
The question is then as follows: which is the entity, as between the various
entities to which that rule is directed, on which, in the actual case, that
rule confers the right invoked? More particularly, is it in fact on the
Applicant that such a right is conferred? If the very existence of the rule
is negated, any possibility of raising a problem of capacity is excluded.
Consequently, to say that there is no rule which authorizes diplomatic
protection of shareholders on account of measures taken in respect of the
company is to exclude the existence of any obligation of Spain in this
connection, vis-a-vis any other States. Belgium's right is thereby denied,
not because such a right might hypothetically belong to a State other than
Belgium (in other words, not for lack of capacity on the part of Belgium),
but rather because no such right can be invoked by any State, since no rule
exists from which it could derive. [p 229]
On the other hand, the other question, that of the nationality of the claim,
does concern capacity. The possible existence is postulated of a rule
authorizing each State to exercise diplomatic protection of its nationals
holding shares in a company, in respect of the treatment given to the
company by another State; and the question is whether, on the basis of this
hypothetical rule, it is to Belgium that the right to protect certain
private persons would belong, on the ground of their being, according to
Belgium's assertion, both Belgian nationals and shareholders in Barcelona
Traction. Thus, as will be seen, a true problem of capacity is raised, the
problem, in other words, of the attribution of the right deriving from a
certain rule which is assumed to exist. A negative answer to this question
would also have brought about the dismissal of the Belgian claim on the
merits.
7. Nevertheless, the fact that this problem is one of capacity does not mean
that it ought to have been examined and settled in the affirmative before
the Court had any possibility of going on to examine the other problem, that
of the existence of an obligation owed by Spain to the national States of
the shareholders in Barcelona Traction with regard to the treatment of that
company. I said above that the problem of capacity also concerned the merits
and that there was, on that account, no logical necessity to solve it before
the others likewise concerning the merits. The order to be followed could
only be dictated by considerations of economy.
As it happens, the Court gave priority to examining the problem of pure
international law relative to the diplomatic protection of shareholders in a
company by their national State, in respect of measures taken vis-a-vis the
company. This choice appeared in itself the most apt; that it was so was
subsequently borne out by the result to which it led.
For, having settled that problem in the negative—having, in other words,
denied the existence, as regards the treatment accorded by a State to a
given company, of any obligation owed by that State to the national States
of the shareholders—, the Court was thereby enabled to leave aside any
problem of capacity, that is to say, the problem as to whether the persons
that Belgium claims to protect are or are not shareholders in the company
and at the same time Belgian nationals. In that way many very delicate
problems of fact and of municipal law, the solution of which was not
necessary for the disposal of the case, have been avoided.
8. And so the Court has been able to bestow a very simple logical structure
on its decision, which in substance consists in negating the major premise
of the syllogism or, in other words, in denying the existence of the rule
relied upon by Belgium. In this way the Court has given a final, concrete
solution to the fundamental problem at issue between the Parties, which lay
in the very question whether the rule of international law invoked by
Belgium existed or not. The negative answer to this question implies that
none of the national States of the shareholders, [p 230]
irrespective of the quantity of shares possessed by its nationals, could
exercise diplomatic protection. In consequence, the Belgian claim had to be
dismissed on that basis, even if it had been proved that the whole or nearly
the whole of the shares in Barcelona Traction were in the hands of Belgian
nationals.
If, on the other hand, the Court had begun by examining the problem of
capacity, its reasoning and the logical structure of its decision would have
been, at all events, much more complex. As I have already said, any question
of capacity can only be raised in relation to a given rule, which, if it is
disputed, as in the present case, must be supposed to exist for the purposes
of the argument. Thus the Court would have set out from the hypothesis that
a certain rule, constituting the major premise of the syllogism, existed;
assuming that premise to be true, the Court would have examined and settled
the various questions of fact which went to make up the minor premise (it
being borne in mind that, in the eyes of an international tribunal,
questions of municipal law also are questions of fact).
Now the problem of capacity raised in this hypothetical way would have had
to be settled either in the affirmative or in the negative.
In the first event, once the Court had decided that Belgium would have
capacity on the basis of a rule of law supposed for the sake of argument to
exist, it would have been obliged to examine and solve the problem as to
whether that rule really existed or not: that is to say, the very problem to
which the Court did in fact give priority and the negative solution of which
has been sufficient in itself to dispose of the case without there being any
need to tackle the highly complex question of capacity.
It was only in the event of replying in the negative to the question of
capacity that the Court could, on that basis, have dismissed the Belgian
claim without troubling to see whether the hypothesis on which it had been
based corresponded or not to the real state of affairs in international law.
But the hypothetical character of the reasoning would have appeared
somewhat strange. Faced with a very important problem of international law,
one basic to the respective arguments of the Parties, the Court would have
evaded the task of solving it because, instead of setting about that
problem, it had started from a mere hypothesis, that of the solution of the
same problem in the affirmative.
9. It must further be observed that the solution either way of a problem of
capacity is dependent on the particular rule in relation to which the
problem is raised. If for example the postulate consisted of a hypothetical
rule whereby each State had the right to protect its nationals holding
shares in a company, irrespective of the quantity of shares possessed by
those nationals, there would be no difficulty in the present case in finding
that Belgium had capacity, considering that Spain does not dispute the
existence in the hands of Belgian nationals of a certain number of shares in
Barcelona Traction, whether that number be large or small. The [p 231]
question of capacity would, on the other hand, appear very delicate if, in
accordance with the Belgian position, one were to posit the existence of a
different and, in a sense, more restricted rule, one bestowing a monopoly of
the diplomatic protection of the shareholders in a company affected by a
certain measure on the State whose nationals possessed the largest
proportion of the shares, or of a rule confining diplomatic protection to
the various States whose nationals possessed a substantial quantity of
shares.
Furthermore, the very usefulness of any preliminary, hypothetical solution
of the capacity problem depends on the choice of the assumed rule in
relation to which the problem is raised. It need only in this connection be
pointed out, for example, that an affirmative solution of the capacity
problem would be absolutely useless unless the rule whose existence was
assumed for the sake of argument coincided with a rule subsequently shown to
exist.
Ill
The problem of the diplomatic protection of shareholders
1. I shall now turn to the problem of whether a State has the right to
exercise diplomatic protection over those of its nationals who, as
shareholders in a company of a different nationality, have suffered damage
on account of measures taken with regard to the company by a foreign State.
To solve this problem correctly it is in my opinion necessary to begin with
a few very general observations on the rules of international law governing
the treatment of foreigners.
These rules are invariably concerned to ensure the protection of certain
interests proper to individuals or collective entities. These interests,
although contemplated by rules of international law, remain simple interests
for the purposes of the international legal order. For it would be contrary
to the present structure of the international community and of the
international legal order to consider that the latter might either bestow or
simply predicate rights upon individuals or upon any collective entities
other than those, such as States, which qualify as subjects of
inter-national law. It is only within the State legal order that the
interests of foreign nationals may acquire protection by means of the
attribution to the latter either of rights or of other personal legal
situations in their favour (faculties, legal powers or expectations).
However, the fact that this possibility is open to the legal order of the
State may in one way or another be taken into account in such rules of
international law as are framed with a view to imposing certain obligations
upon States in the treatment of foreigners.[p 232]
The rules of international law in this matter, although they all seek to
protect interests, as such, of individuals or collective entities, may
employ different means to attain their ends and refer in different ways to
the systems of municipal law.
2. In the first place there are rules of international law concerning the
treatment of foreigners which directly specify the interests they seek to
protect, regardless of the prevailing attitude of the municipal legal order
in that respect. The interests contemplated by the rules in this category
are always interests personal to individuals and never interests of
collective entities. Moreover, the rules in question always concern those
interests of individual foreign nationals which are of fundamental
importance, such as their interest in life or liberty, and never interests
of a purely economic nature.
In such cases the international rule refers to the legal order of the State
solely in the sense that it is addressed to the State with a view to laying
upon it an obligation to observe a given line of conduct in its own internal
legal order; which conduct may consist in conferring, within that legal
order, certain rights or other personal legal situations on foreign
nationals.
The international rules in this category are somewhat analogous to the rules
of international law concerning the protection of human rights. For the
latter rules also are concerned not with the protection of such rights as
may already have been conferred by the internal legal system but with the
actual predication, binding upon States, of rights within the municipal
order. While it is true that, in this context, it is to human "rights" that
reference is made as being the subject of the protection sought by the rule
of international law, the term is here employed in the sense of natural
rights. In this case also international law envisages the protection of
certain individual interests and not of rights already resulting from any
positive legal order.
3. Those international rules regarding the treatment of foreigners which
belong to the category I have just described may be contrasted, having
regard to their structure, with the rules in a second category. These have a
much wider area of applicability, because, on the one hand they concern not
only foreign individuals but also foreign collective, entities, while they
are, on the other hand, for that very reason, designed not to protect a
small number of interests of fundamental importance to the human person but
rather to protect other, more numerous interests which more often than not
possess a purely economic character.
Like the rules in the first category, those in the second are also intended
for the protection of interests, to which end they enjoin upon the States to
which they are directed a certain line of conduct which they place those
States under an obligation to observe in their municipal legal orders. But
[p 233] before referring in this way to the internal legal order, the
international rules of which I now speak refer to that same legal order for
the purpose of performing a preliminary task, that of determining what
interests are to be the subject of the protection envisaged. This is so in
that the international rule postulates a certain attitude on the part of
the State legal order, inasmuch as it has regard solely to interests which,
within that legal order, have already received some degree of protection
through the attribution of rights or other advantageous personal legal
situations (faculties, legal powers or expectations): an attitude on the
part of the State legal order which in itself is not obligatory in
international law.
It is on the hypothesis that this state of affairs has arisen in the
municipal legal order that the international rule lays upon the State the
obligation to observe a certain line of conduct with regard to the interests
in question : with regard, one might thenceforward say, to the rights
whereby the interests in question stand protected in the municipal legal
order. I should explain that it is only for the sake of brevity that in this
connection I speak of rights, because instead of a right some other
advantageous legal situation may be involved: a faculty, legal power or
expectation.
The conduct which international law renders incumbent upon a State with
regard to the rights which the same State confers on foreign nationals
within its own municipal order consists, in the first place, in the judicial
protection of those rights. Any State which, having attributed certain
rights to foreign nationals, prevents them from gaining access to the courts
for the purpose of asserting those rights is guilty, in international law,
of a denial of justice. In addition, international law lays upon a State,
within certain limits and on certain conditions, the obligation to respect,
in the conduct of its administrative or even legislative organs, the rights
which the municipal legal order of the same State confers on foreign
nationals. This is what is known as respecting the acquired rights of
foreigners.
As will be observed, the fact that the rules of international law in
question envisage solely such interests of foreigners as already constitute
rights in the municipal order is but the necessary consequence of the very
content of the obligations imposed by those rules; obligations which,
precisely, presuppose rights conferred on foreigners by the legal order of
the State in question.
Both the obligation to afford rights judicial protection and the obligation
to respect them apply, then, to rights as conferred by the municipal legal
order. This provides an indirect way of determining what interests the
international rule is intended to protect, given that this rule only
protects the interests of foreign individuals or foreign collective entities
if those interests already enjoy a certain degree of protection within the
municipal legal system. This means that the international rule refers to the
municipal legal order in that, to impose upon a State a particular [p 234]
obligation, it presupposes a certain freely adopted attitude on the part of
the legal order of that State.
4. There is nothing abnormal in this reference of an international rule to
the law of a given State. It is wholly untenable to object, as the Belgian
Government has done, that in this way the international responsibility of
the State is made to depend upon categories of municipal law, thus enabling
a State to set up the provisions of its own legal order as a means of
evading the international consequences of its acts. In reality, no
subordination of international responsibility, as such, to the provisions of
municipal law is involved; the point is rather that the very existence of
the international obligation depends on a state of affairs created in
municipal law, though this is so not by virtue of municipal law but, on the
contrary, by virtue of the international rule itself, which to that end
refers to the law of the State.
Nor is it possible to invoke against this, as has also been done, the
alleged basic principle of the supremacy of international law. Despite what
the Belgian Government has asserted to the contrary, this principle has
never been affirmed, as such, by the International Court and, so far as the
Permanent Court is concerned, it stands in clear contradiction to the idea,
by which that Court was always guided, of the separateness of international
and municipal law.
Quite another principle underlay the Permanent Court's statement to the
effect that municipal laws were simply facts from the standpoint of
international law (P.C.I.J., Series A, No. 7, p. 19). This was a reference
not to any supposed principle of the supremacy of international law but
rather to the exclusive character of the international legal order, as of
any non-derivative legal system. But this principle does not by any means
rule out the possibility that a rule of international law may refer to
municipal law in some way or another: for example, for the very purpose of
rendering an obligation laid upon a State subject to a certain point of fact
within the province of that State's municipal law. Very clear illustrations
of that possibility are to be found in treaties dealing with extradition or
with the recognition of foreign judgments.
5. In the present instance, the interests concerned are either interests of
collective entities, or more precisely companies, such as Barcelona Traction
and the companies holding shares in it, or interests of individuals, such
as the individual shareholders in Barcelona Traction. But, either way, we
are dealing with interests of a purely economic nature.
It follows that the international rules which may be invoked for the sake of
protecting those interests are exclusively rules entering into the second of
the two categories I have described. But, as has been seen, these rules
postulate that, if those same interests are to be protected, certain rights
must already have been bestowed by the municipal legal order. It is on the
hypothesis that the municipal order has adopted this attitude, op-[p 235]
tional in international law, that the international rule imposes certain
obligations on the State.
From the considerations I have set forth it needs must follow that, in terms
of general international law at least, a State is free even to deny
companies—or certain companies—legal personality. For it is only in respect
of individuals that the State is under an obligation in international law to
recognize personality, or in other words to confer a set of rights. The
rights in question are precisely those which the State, by virtue of the
rules of international law entering into the first category, has an
obligation to confer upon individuals so as to protect certain of their
interests which are fundamental in nature. It is only in the event that
certain rights and, consequently, legal personality are conferred on a
company within the municipal order that the State is bound by certain
international obligations with regard to the judicial protection of those
rights and respect for the same.
Where the municipal legal order denies a company legal personality, this
signifies that the municipal order in question considers the corporate
property as the subject-matter of rights pertaining to the members. In that
event it is in relation to these rights, freely conferred on the members by
the municipal order, that there is incumbent upon the State an
international obligation of protection and respect.
If, on the other hand, the municipal legal order allows the company legal
personality, it can but treat the members' rights accordingly. Consistently
with the attribution of the corporate property to the company, considered as
a juristic person, the members will in this case enjoy no more than limited
rights, the subject-matter of which will not be the corporate property.
Needless to say, in this case too, the rights accorded to the members,
whatever they may be, enjoy the international protection which is
appropriate to them.
In other words, there is on the one hand a set of rights conferred by the
municipal order on the company and, on the other hand, within the same legal
order, another, quite distinct set of rights conferred on the members. Each
set of rights is entitled to its own, distinct international protection.
As has been seen, both these protections afforded by the international legal
order presuppose a certain attitude on the part of municipal law, namely a
certain manner in which it deals with the rights of the company, on the one
hand, and those of the members on the other. In the present case, the State
legal order to be considered is the Spanish legal system, that is to say the
legal order of the State whose international obligations have to be
determined.
So far as the members of the company are concerned, to say that the
international legal order affords protection only to their rights, such as
recognized by the municipal order of the State whose international
obligation is in question, is not in any way to deny that the subject of
inter-national protection is, in the upshot, in this case as always,
interests.[p 236]
The reference to the legal order of the State and to the rights which it
confers constitutes merely the means whereby international law establishes
what interests it is concerned to protect. International law protects, by
laying certain obligations upon a State, solely such interests of the
members as already enjoy protection within the municipal legal order of that
State on account of the attribution to those members of rights or other
personal legal situations.
If that condition is not satisfied or if, in other words, what is at stake
is interests which do not, within the municipal order, constitute rights
conferred on the members, those interests are not subject to any specific
protection in international law. They may however be interests of the
members which coincide with interests of the company. In that event, if the
interests of the company are legally protected within the municipal order,
it is to these interests (constituting rights of the company) that the
international obligations apply.
6. The application to the present case of the principles I have just
mentioned does not occasion any difficulty.
There is no disagreement between the Parties with regard to the attitude of
the Spanish municipal order so far as concerns the way in which it deals
with the legal situation of a limited-liability company, on the one hand,
and the rights of its shareholders on the other. No-one denies that
Barcelona Traction, like any such company, enjoyed legal personality in the
legal order of Spain and that it had consequently to be regarded as the
owner of the rights over the corporate property. Accordingly, the
shareholders in Barcelona Traction were not recognized to possess any rights
over the corporate property; they enjoyed only those rights proper to
shareholders in a limited-liability company, such as the right to dividend
and certain rights relating to the conduct of the company's business.
However, Belgium does not complain of any damage that might have been
suffered by Barcelona Traction shareholders in respect of their own rights
as shareholders on account of the measures taken by the Spanish authorities.
On the contrary, Belgium complains of the fact that those measures, although
(or rather, precisely because) they were taken vis-a-vis the company, were
detrimental to the interests of the shareholders. But these were simple
interests, not interests constituting rights in the Spanish legal order.
It follows, in accordance with the principles I have stated, that, so far as
such shareholders' interests are concerned, Spain was under no obligation
in international law; which rules out any international responsibility on
the part of Spain for such damage as the measures taken by its authorities
may have caused to the interests of foreign shareholders. If simple
interests are (as they must be) disregarded, and only rights considered,
such as they arise out of the Spanish legal order, it is only to the rights
of the company that the measures of which complaint is made could have
caused harm. But damage caused in respect of the rights of Barcelona
Traction, a Canadian company, could, if internationally un-[p 237] lawful,
have constituted an international wrong only vis-a-vis Canada, not vis-à-vis
Belgium or any other State. In this connection it can properly be said that
it is the Canadian State alone which, on account of the nationality of the
injured private party, has capacity to claim reparation.
7. Mention must now be made of another way in which the Parties put the
question of whether the measures taken by the Spanish authorities were of an
unlawful nature vis-a-vis Belgium. In place of reference to the distinction
between rights and simple interests, a distinction was drawn between direct
damage and indirect damage, and it was asked whether the measures complained
of, although taken with respect to Barcelona Traction and, as such, causing
it direct damage, constituted an internationally unlawful act vis-a-vis
Belgium because they also, albeit indirectly, caused damage to the Belgian
shareholders in Barcelona Traction.
On the basis of what I have said with regard to the different attitudes
evinced by the international rules on the treatment of foreigners with
respect to simple interests on the one hand and rights on the other, I find
that the distinction between direct damage and indirect damage serves no
useful purpose.
For, to consider that very limited category of international rules on the
treatment of foreigners which is concerned to protect certain interests
independently of whether or not they constitute rights in the municipal
legal order, an injury to such an interest is, of itself, an internationally
unlawful act. No importance could be attached in this connection to the
relationship in which such an injury might stand towards an injury to
another interest, more especially in the sense of its having to be regarded
as the latter's indirect consequence.
Similarly, to consider the other category of international rules, concerned
to protect solely rights recognized by the municipal legal order, what
matters in a given instance is of course to establish whether or not there
was an injury in infringement of such a right. If this is not the case or
if, that is to say, there was only an injury to a simple interest, such
injury will not constitute an international wrong even if it stands in some
relationship to an injury in respect of a right which might, as such,
constitute an unlawful act vis-a-vis the national State of the injured
party.
It would appear, moreover, that the distinction between direct damage and
indirect damage is, in substance, merely a different way of stating the
distinction between injury in respect of a right and injury to a simple
interest. For, supposing a measure to have been taken with respect to a
private party who, as a result of that measure, has directly suffered
damage, if it be enquired, in a concrete case, who is the private party with
respect to whom the measure can be regarded as having been taken, the only
way of answering this question is to consider the legal effects of the
measure. A measure can only be regarded as having been taken with respect to
a particular party if it produces legal effects for that party; if, [p 238]
in other words, it involves the rights of that party. All that other parties
could suffer from such a measure would be consequences affecting their
simple interests. To term such consequences indirect is in fact merely an
imprecise way of describing the injury of a particular party's simple
interest, an injury standing in a certain relationship to the injury
suffered by another party in respect of his right.
8. From this I conclude that an international obligation on the part of
Spain with respect to the treatment of Barcelona Traction and, in
consequence, international responsibility on the part of Spain for any
breach of that obligation, could only be held to exist vis-à-vis Canada, the
company's national State. Neither an obligation nor responsibility on the
part of Spain could be held to exist vis-à-vis Belgium, or vis-à-vis any
other State of which Barcelona Traction shareholders might be nationals.
The absence of any responsibility on the part of Spain vis-à-vis Belgium in
respect of the measures taken by the Spanish authorities with regard to
Barcelona Traction is simply a consequence of the absence of any obligation
owed in this respect by Spain to Belgium; this, in its turn, results from
the fact that there is no rule of international law from which such an
obligation might be derived.
In sum, therefore, Belgium has no possibility of exercising diplomatic
protection with respect to the Belgian shareholders in Barcelona Traction,
since, as has already been said, a State which exercises diplomatic
protection with respect to one of its nationals is merely demanding for
such national the treatment required by the international rules governing
the matter or else claiming reparation for the violation of those rules.
9. No importance can be attached in this connection to the facts that the
Belgian shareholders in Barcelona Traction might have benefited indirectly,
so far as their own interests were concerned, from the exercise by Canada of
diplomatic protection of the company and that such protection was not
pursued.
We have seen that the interests of shareholders, as simple interests not
constituting rights within the municipal legal order, enjoy no protection
under the international rules governing the treatment of foreigners. This
obviously does not rule out the possibility that those interests might
benefit indirectly from the protection which those same rules afford the
company's interests in so far as these constitute rights under the municipal
legal order. It is therefore possible that the exercise of diplomatic
protection of the company by its national State may eventually lead,
through the retrieval of the interests of the company, to the indirect
retrieval of the shareholders' interests too.
But this in no way influences the attitude evinced toward the interests of
shareholders by the international rules governing the treatment of
foreigners. The mere possibility of an indirect protection of shareholders'
interests, in the sense indicated above, does not warrant any inference
[p 239] that whenever such indirect protection is lacking it must be
replaced by direct protection. There could be no question of such direct
protection unless a State owed an obligation and happened to have incurred
responsibility toward the national State of the shareholders. And I cannot
see where any basis for such an obligation or such responsibility is to be
found.
Actually the very idea of the diplomatic protection of shareholders by their
national State, it being conceived as a second line of protection that may
be brought into play if protection of the company by its own national State
should be lacking, is strictly bound up with a way of thinking that
misconceives the very basis of diplomatic protection in general, regarding
it not as a State's mere exercise of a right bestowed upon it by the rules
of international law concerning the treatment of foreigners, but rather as a
procedure entirely independent of the existence of a right.
Only by taking such a standpoint could it be possible, where the treatment
afforded a company is concerned, to envisage diplomatic protection of the
shareholders by their national State as a second line of protection, that is
to say as a protection subordinated to the condition that diplomatic
protection is not exercised, or not pursued, by the national State of the
company. This view, on the contrary, would be utterly inconceivable on the
correct premise that an act of diplomatic protection is simply the exercise
of an international right, and is consequently con-ditional on the existence
of such a right.
10. Neither is it possible, with a view to demonstrating the admissibility
of a second-line diplomatic protection of shareholders in the event that
diplomatic protection of the company is lacking, to rely on a supposed
analogy or rather parallel between that alleged second-line diplo-matic
protection and such possibility as may be afforded shareholders in municipal
law of taking action against the organs of the company, or in their stead,
should they remain inactive.
It is the very idea behind such reasoning which, in my opinion, is
unacceptable: the idea that international law must necessarily offer some
kind of protection to shareholders' interests. There is nothing necessary
about such protection; it exists only within the limits and on the
conditions which are fixed by international law itself. Furthermore the
requirements which municipal law is concerned to satisfy are not
necessarily requirements that ought also to be the concern of international
law.
Needless to say, if the municipal legal order does, in the event of the
inactivity of the organs of a company, confer certain rights on the
shareholders, those rights, like any other rights peculiar to shareholders,
will as such enjoy the protection which international law affords in general
to rights conferred on individuals by a municipal legal order.[p 240]
11. The lack, in a given case, of any exercise of diplomatic protection in
respect of the company might result from the actual impossibility, in that
case, of exercising such protection.
As an example of a case where it would be impossible for the national State
of the company to exercise diplomatic protection in its respect, the
hypothesis has been adduced of the company's being dissolved, or being in a
state of legal or simply material incapacity to act.
With regard to the extreme case, that of dissolution, this must naturally be
taken to mean a dissolution which took place after the measure complained
of, whether as a result or independently of that measure. For if the company
were already dissolved at the time when the measure complained of was
taken, it would obviously be impossible to speak of a measure taken with
regard to the company; one would on the contrary have to speak of a measure
taken directly with regard to the members of the company, which would ipso
facto authorize the national States of the members to exercise diplomatic
protection of them.
Furthermore the logic of the argument implies that the dissolution in
question must be an extinction which is effective from the standpoint of the
legal order of the company's national State. Such an extinction is not
necessarily the automatic consequence of an extinction occurring in the
legal order of the State that had taken the measure complained of.
Now it is quite obvious that if a company is dissolved from the standpoint
of the legal order of its national State, there is no possibility of its
applying to that State for diplomatic protection. However, the ability of
persons to request diplomatic protection of their national State is one
thing, and entirely depends on the internal legal system of the State in
question; but the exercise of diplomatic protection on the international
plane is quite another matter. Diplomatic protection, as the exercise of a
right arising out of the international legal order, belongs exclusively to
the State, which has entire discretion in its respect. A State is free not
to exercise diplomatic protection even if the national concerned requests
it. Conversely, a State may exercise diplomatic protection even if there is
no request from its national. It follows that the dissolution of a company
does not prevent its national State from exercising diplomatic protection in
its respect and that, consequently, the hypothesis envisaged cannot arise at
all.
12. On the other hand it must be recognized that diplomatic protection of a
company really may be impossible when there is no foreign State to exercise
it. This would be so in the case of a company which had the nationality of
the very State whose international obligation was in ques-tion.
Nevertheless, to say that in such a case the national States of the
shareholders are entitled to protect the latter's interests because there is
no possibility of their benefiting indirectly from any protection afforded
the company would be to make havoc with the system of international [p 241]
rules regarding the treatment of foreigners. It would, furthermore, be a
wholly illogical and arbitrary deduction.
For to envisage the possibility of indirect protection in certain
eventualities is tantamount to recognizing the absence, so far as
shareholders are concerned, of any direct protection on the part of
international law— to recognizing, in other words, that international law
does not consider the interests of shareholders, as simple interests, worthy
of its protection and that it consequently refrains from imposing upon a
State, in this connection, any obligations toward shareholders' national
States. This negative attitude on the part of international law cannot be
reversed on the ground that the interests of shareholders might, in other
circumstances, benefit from a purely indirect protection. Such artificial
and illogical reasoning would lead to the creation, for the interests of
shareholders, of a direct protection such as their national States might
take up: the very protection which is refused by international law.
13. A fortiori, the diplomatic protection of shareholders by their national
States must be ruled out where, as in the present case, the diplomatic
protection of the company by its national State is possible but, for some
reason or other, is not exercised or not pursued.
To my general remarks on the notion of a second line of diplomatic
protection for shareholders, and to those I have just made regarding the
hypothesis of the impossibility of the company's receiving diplomatic
protection, remarks which remain no less valid for the hypothesis now under
consideration, I would add certain other observations of specific
application to the latter.
According to this latter hypothesis, the possibility of a State's exercising
diplomatic protection of those shareholders in a company who are its
nationals would not be absolute, but contingent on a certain attitude which
a third State, i.e., the national State of the company, is free to adopt or
not: an attitude consisting either in refraining from exercising diplomatic
protection of the company or in not pursuing diplomatic protection once
exercised. It would not be easy to establish at what moment the requisite
condition might be regarded as fulfilled. In any event, there would be a
point in time before which the diplomatic protection of the shareholders
would not be admitted; as from that moment, on the other hand, the
possibility of exercising such protection would exist.
But any diplomatic protection presupposes that the State approached by the
protector owes an obligation or, it may be, has incurred a debt of
responsibility, because it is precisely such obligation or responsibility
that diplomatic protection relies on and asserts. Consequently, to say that
the national State of the shareholders cannot exercise diplomatic protection
for so long as it is not possible to affirm that the national State of the
company is refraining from exercising diplomatic protection of the [p 242]
latter amounts to excluding the existence, until then, of any obligation or
responsibility vis-à-vis the national State of the shareholders. It is only
later that such an obligation and, it may be, such responsibility (indeed
the very unlawfulness of the measure taken vis-à-vis the company) would
arise, necessarily with retroactive effect, owing to the conduct of a third
State, the national State of the company, in abstaining—for some motive the
appraisal of which would be a matter for its own discretion—from the
exercise of diplomatic protection in respect of the company.
Simply to propound such a theory is to expose its absurdity. Generally
speaking, it is hard to see how a State's non-exercise of its right could
have any influence on the possibility of exercising, let alone the very
existence of, another State's right. I have already pointed out that the
international rules governing the treatment of foreigners take concrete
shape in bilateral relationships. Now each of these relationships, between
clearly circumscribed subjects, is absolutely independent of any other
relationship which, though deriving from those same rules, might exist
between other, or partly other, subjects. Hence no such relationship could,
through its own existence or merely through its activation, exert any
influence on the very existence of another. Consequently, if the view be
taken that a State is not, vis-à-vis the national State of shareholders in a
limited company, under any obligation whatever concerning the treatment of
that company, it is impossible to see how such an obligation could arise
retroactively out of the fact that the national State of the company does
not, for whatever reason, exercise its own right.
(Signed) Gaetano Morelli
[p 243]
Separate Opinion of Judge Padilla Nervo
In its Judgment of 24 July 1964 the Court joined to the merits the third
preliminary objection raised by the Spanish Government to the Application
of Belgium.
The Court then stated that:
"the third objection involves a number of closely interwoven strands of
mixed law, fact and status, to a degree such that the Court could not
pronounce upon it at this stage in full confidence that it was in possession
of all the elements that might have a bearing on its decision" (I.C.J.
Reports 1964, p. 46).
In the present proceedings the Parties have dealt fully with questions of
merits, in the course of their written and oral pleadings.
The Spanish Government contests the Belgian Government's capacity to act,
its jus standi, its right to intervene on behalf of Belgian nationals
(natural or artificial persons) whom the Belgian Government claims to have
been injured by a breach of international law, for which liability is
attributed to the Spanish authorities.
The Belgian Government asserts that it is exercising protection exclusively
and directly on behalf of persons of Belgian nationality and contends that
the legal question which arises when examining its jus standi in the present
case is that of the diplomatic judicial protection, "not of foreign trading
companies, but of natural and artificial persons" who, having invested their
funds in the said companies, suffered losses as shareholders in these
companies, as a result of illegal actions committed against the companies.
The respondent Government contends that—
"international law does not recognize, in respect of injury caused by a
State to a foreign company, any diplomatic protection of shareholders
exercised by a State other than the national State of the company".
The applicant Government asserts its right to intervene on behalf of Belgian
nationals, shareholders in the company, and contends that such right is
conferred on it in respect of its nationals by the rules of international
law concerning the treatment of foreigners.
The real issue is whether international law recognizes for the shareholders
in a company "a separate and independent right or interest in respect of
damage done to the company by a foreign government".[p 244]
The Belgian Government, in its first submission, asked the Court to adjudge
and declare that the Spanish State is under an obligation towards Belgium to
make reparation for the damage caused to "Belgian nationals, individual or
legal persons, being shareholders of Barcelona Traction".
In the second submission, it asks that the Court will—
"adjudge and declare that this reparation should, as far as possible, annul
all the consequences which these acts, contrary to international law, have
had for the said nationals, and that the Spanish State is therefore under an
obligation to secure, if possible, the annulment by administrative means of
adjudication in bankruptcy and of the judicial and other acts resulting
therefrom, obtaining for the said injured Belgian nationals, all the legal
effects which should result from this annulment.. .". (Application filed 19
June 1962, second submission.)
What is then the real meaning and scope of the present Belgian claim? The
new Application presents as the object of Belgium's protection, not the
Canadian commercial company of Barcelona Traction but Belgian nationals who
are said to be shareholders of Barcelona Traction.
The Spanish Government disputes the Belgian Government's capacity to act—
"in view of the fact that the Barcelona Traction Company does not possess
Belgian nationality and that, in the case in point, it is not possible to
allow diplomatic action or international judicial proceedings on behalf of
the alleged Belgian shareholders of the company on account of the damage
which the company asserts it has suffered". (P.O., submissions on third
objection.)
I do concur in the view that, in the present case, diplomatic action or
international judicial proceedings on behalf of the shareholders in the
company on account of damage which the company alleges it has suffered,
could not be allowed.
It has not been proved that there exists a special customary rule which, by
derogation of the basic principles of international law with regard to the
status of aliens, would have helped the Belgian contention.
Nor has it been demonstrated that there exists an alleged general rule
establishing, in all circumstances, the lawfulness of the protection of
shareholders following damage caused to the company.
I believe it is right to say that international law does not recognize the
right of diplomatic protection of shareholders as such if their rights
stricto sensu have not been violated.
Nor does any rule of international law give support to the admissibility of
a double diplomatic protection, one for the corporation and another for the
shareholders in that corporation.[p 245]
To say that the corporation and the shareholders have parallel interests
does not make admissible a concurrent diplomatic intervention.
No State could be safe from the pressure and danger of a plurality of
diplomatic interventions by States protecting their nationals, shareholders
in a given corporation, if the right of diplomatic protection of
shareholders were recognized.
For the time being, the principle which recognizes the capacity of a State
to intervene, by way of diplomatic protection of a company of its own
nationality, has proved to be a fair and well-balanced safeguard or
insurance, both for the investor and for the State, where foreign companies
operate.
This regime, whose consequences are well known, has no surprises and
establishes a legal order which, so far, has proved to be generally adequate
and satisfactory.
There seems to be no fundamental reason or essential need to depart from it.
If a door is open to the intervention, by way of diplomatic protection of
shareholders, of a plurality of States—as many as could claim to have
shareholders of their nationality—a chaotic situation of the gravest
international consequences would, in time, develop.
Private investments, needed for economic development, will be encouraged if
the States receiving them are convinced that the national State of the
investor will not use the so-called right of diplomatic protection as a
pretext for political or economic pressure, dangerous to the sovereignty and
independence of weaker or less developed States, who cherish more their
national dignity than the speed of their development. In the relation
between the investor and the State where the investment takes place, a just
balance should be aimed at, for it is good for the international community
that capital which goes abroad in search of gain should not be a potential
threat to the essential values and dignity of States.
The lessons of history and past experience are, after all, the source of the
law and of judicial precedents and must have place and weight in the
conscience of the judge.
Mervyn Jones, in his work Claims on behalf of nationals who are
shareholders in foreign companies, makes the following historic remarks by
way of introduction:
"The era of foreign investment on a large scale reached its height during
the fifty years or so preceding the First World War, when British and
American capital poured into all parts of the world, financing railway and
harbour construction, exploitation of mineral deposits and innumerable other
projects in undeveloped countries. At the same time the institution of the
joint-stock company with limited liability (which was of recent growth) made
it possible for [p 246]small capitalists to invest their money in remote
countries for a better yield than was obtainable at home. There is little
doubt that, at first, those countries welcomed foreign capital, which was
badly needed, and were not strict as to conditions of investment. It was but
rarely, during these early days, that any necessity arose for diplomatic
intervention by foreign powers on behalf of their nationals. With the turn
of the nineteenth century, however, nationalist movements became directed
against 'economic exploitation' by the foreigner. These movements emphasized
economic, as well as political, sovereignty, and, as time went on, began to
interfere more and more with the projects of foreign capital. The decay of
liberal capitalism and laisser-faire, accompanied by the spread of socialist
doctrine throughout the world, caused governments everywhere to assume
greater control of the economic assets and resources of the nation: in
certain countries foreign capital came to be regarded as an emblem of
subordination, and not merely as a means of developing the country. Much,
of course, had happened to justify such an attitude; the extent to which
foreign capital held a grip on the economic life of many countries was
considerable. Against this background the revolutions of 1911-20 in Mexico
transformed the political and social outlook of the nation, as did the later
revolutions in central Europe after the First World War, and those in
eastern Europe after the Second. These revolutions were accompanied by
measures of expropriation, which inevitably raised the question of the
position under international law of individuals who had invested in
companies carrying on business in the countries concerned." (British Year
Book of International Law, 1949, p. 225.)
The history of the responsibility of States in respect to the treatment of
foreign nationals is the history of abuses, illegal interference in the
domestic jurisdiction of weaker States, unjust claims, threats and even
military aggression under the flag of exercising rights of protection, and
the imposing of sanctions in order to oblige a government to make the
reparations demanded.
Special agreements to establish arbitral tribunals were on many occasions
concluded under pressure, by political, economic or military threats.
The protecting States, in many instances, are more concerned with obtaining
financial settlements than with preserving principles. Against the pressure
of diplomatic protection, weaker States could do no more than to preserve
and defend a principle of international law, while giving way under the
guise of accepting friendly settlements, either giving the compensation
demanded or by establishing claims commissions which [p 247] had as a point
of departure the acceptance of responsibility for acts or omissions, where
the government was, neither in fact nor in law, really responsible.
In the written and in the oral pleadings the Applicant has made reference,
in support of his thesis, to arbitral decisions of claims commissions—among
others those between Mexico and the United States, 1923.
"These decisions do not necessarily give expression to rules of customary
international law, as. . . the Commissions were authorized to decide these
claims 'in accordance with principles of international law, justice and
equity' and, therefore, may have been influenced by other than strictly
legal considerations." (Schwarzenberger, International Law, Vol. I, p.
201.)
In the Special Claims Commission: Mexico-United States, established by the
convention of 10 September 1923, Article II states:
". . . each member of the Commission . . .shall make and subscribe a solemn
declaration stating that he will. .. examine and decide, according to the
best of his judgment and in accordance with the principles of justice and
equity, all claims presented for decision . . .". (Italics are mine.)
The second paragraph of the same Article II reads as follows:
"The Mexican Government desires that the claims shall be so decided because
Mexico wishes that her responsibility shall not be fixed according to the
generally accepted rules and principles of international law, but ex gratia
feels morally bound to make full indemnification and agrees, therefore. . ."
{U.N.R.I.A.A., Vol. IV, p. 780.)
Article VI of the same convention makes another exception to the accepted
general rules, when it states:
". . . the Mexican Government agrees that the Commission shall not disallow
or reject any claim by the application of the general principle of
international law that the legal remedies must be exhausted as a condition
precedent to the validity or allowance of any claim". (Ibid., p. 781.)
Some of the decisions of claims commissions invoked during the pleadings are
not, in my view, relevant precedents in respect to this case.
Now the evolution of international law has other horizons and its
progressive development is more promising, as Rosenne wrote:
"There is prevalent in the world today a widespread questioning of the
contemporary international law. This feeling is based on the [p 248] view
that for the greater part international law is the product of European
imperialism and colonialism and does not take sufficient account of the
completely changed pattern of international relations which now exists. . .
.
Careful scrutiny of the record of the Court may lead to the conclusion that
it has been remarkably perceptive of the changing currents of
internationalist thought. In this respect it has performed a major service
to the international community as a whole, because the need to bring
international law into line with present-day requirements and conditions is
real and urgent." (Rosenne, The Law and Practice of the International Court,
1965, Vol. I, pp. 17-18.)
The law, in all its aspects, the jurisprudence and the practice of States
change, as the world and the everyday requirements of international life
change, but those responsible for its progressive evolution should take care
that their decisions do, in the long run, contribute to the maintenance of
peace and security and to the betterment of the majority of mankind.
In considering the needs and the good of the international community in our
changing world, one must realize that there are more important aspects than
those concerned with economic interests and profit making; other legitimate
interests of a political and moral nature are at stake and should be
considered in judging the behaviour and operation of the complex
international scope of modern commercial enterprises.
It is not the shareholders in those huge corporations who are in need of
diplomatic protection; it is rather the poorer or weaker States, where the
investments take place, who need to be protected against encroachment by
powerful financial groups, or against unwarranted diplomatic pressure from
governments who appear to be always ready to back at any rate their national
shareholders, even when they are legally obliged to share the risk of their
corporation and follow its fate, or even in case of shareholders who are
not or have never been under the limited jurisdiction of the State of
residence accused of having violated in respect of them certain fundamental
rights concerning the treatment of foreigners. It can be said that, by the
mere fact of the existence of certain rules concerning the treatment of
foreigners, these have certain fundamental rights that the State of
residence cannot violate without incurring international responsibility;
but this is not the case of foreign shareholders as such, who may be
scattered all over the world and have never been or need not be residents of
the respondent State or under its jurisdiction.
In the case of the Rosa Gelbtrunk claim between Salvador and the United
States, the President of the arbitration commission expressed a [p 249] view
which may summarize the position of foreigners in a country where they are
resident. This view was expressed as follows:
"A citizen or subject of one nation who, in the pursuit of commercial
enterprise, carries on trade within the territory and under the protection
of the sovereignty of a nation other than his own, is to be considered as
having cast in his lot with the subjects or citizens of the State in which
he resides and carried on business." (Italics added.)
"In this case", Schwarzenberger remarks, "the rule was applied to the loss
of foreign property in the course of a civil war. The decision touches,
however, one aspect of a much wider problem: the existence of international
minimum standards, by which, regarding foreigners, territorial jurisdiction
is limited."
As the Permanent Court of International Justice said in the Lotus case in
1927 (P.C.I.J., Series A, No. 10, p. 19)—
"all that can be required of a State is that it should not overstep the
limits which international law places upon its jurisdiction; within these
limits, its title to exercise jurisdiction rests in its sovereignty".
The rules concerning the treatment of foreigners are a limitation of a
State's jurisdiction ratione personae. Schwarzenberger says in this respect:
"States generally exercise exclusive jurisdiction over their nationals
within their territory, concurrent jurisdiction over their nationals abroad,
and limited jurisdiction over, for example, individuals and groups within
their territory who are protected by international customary or treaty law."
(Italics added.)
"While, in principle, territorial sovereignty applies to nationals and
foreigners alike, the home State retains a concurrent jurisdiction over its
nationals abroad. .. . Furthermore, the unrestricted exercise of
territorial jurisdiction over foreigners on the part of the State of
residence may be limited by rules of international customary law or
treaties. If such exercise of territorial jurisdiction happens to come into
conflict with international law, the question turns into an issue between
the subjects of international law concerned. The home State is entitled to
demand respect for international limitations of territorial jurisdiction,
and the State of residence may have to answer for its interference 'with the
rights which each State may claim for its national in foreign territory'. As
the World Court laid down in the case of the Mavrommatis Palestine
Concessions (1924), 'it is an elementary principle of international law that
a State is entitled to protect its subjects, when injured by acts contrary
to [p 250] international law committed by another State, from whom they have
been unable to obtain satisfaction through the ordinary channels'."
(Schwarzenberger, International Law, Vol. I, pp. 189-190.)
Much has been said about the justification for not leaving the shareholders
in those enterprises without protection.
Perhaps modern international business practice has a tendency to be soft and
partial towards the powerful and the rich, but no rule of law could be built
on such flimsy bases.
Investors who go abroad in search of profits take a risk and go there for
better or for worse, not only for better. They should respect the
institutions and abide by the national laws of the country where they chose
to go.
***
The main preliminary question on the merits in the present proceedings is
that of the international diplomatic and legal protection of natural and
artificial persons who, having invested funds in foreign trading companies,
have suffered losses in their capacity as shareholders of those companies,
as a result of acts contrary to international law of which a State has been
guilty towards those companies.
This problem is of capital importance in the modern world, and preoccupies
the governments, economists and businessmen of numerous countries which are
anxious to ensure the security of investments made abroad. Jurists, for
their part, are actively concerned with it and are constantly examining it.
A necessary foundation of a valid international claim is that the national
of the plaintiff State would have been directly injured in his rights by an
act contrary to international law done by the State to whom the claim is
addressed.
It is indispensable that the protected person be himself the possessor of a
right which would entitle him to formulate a claim for damages in the
internal judicial order.
If a debtor of a foreign creditor is affected in his rights by an act which
violates international law, the national State of the foreign creditor is
not authorized, by that fact, to the diplomatic protection of such creditor.
This question has been submitted and decided in various instances by
arbitral tribunals in the sense that "creditors do not have legal bases to
plead for damages inflicted on their debtors".
In U.S.A. (W. C. Greenstreet, Receiver) v. United Mexican States, General
Claims Commission, it was held that the nationality of the creditors of an
insolvent corporation need not be shown, "the nationality [p 251] of the
creditors being just as immaterial as is that of the stockholders of an
insolvent company".
The case of Société civile des porteurs d'obligations du Crédit foncier
mexicain, before the French-Mexican Commission involved a claim on behalf of
the shareholders of a bank. The bank held mortgages on rural property and
damages were claimed because the security had been dam-aged by depredations
of revolutionary forces. The Commission held that only the owners of the
property might claim. (Feller, The Mexican Claims Commission, p. 122.)
Arbitral jurisprudence confirms the thesis that international law does not
authorize the protection of affected economic interests, but only of rights
really violated.
The following arguments were made by counsel for the applicant State:
"The problem of the diplomatic protection of the shareholders practically
only arises when the shareholders are of a different nationality from that
of the company. Indeed, an infringement of the interests and rights of the
company and of its shareholders might then in this case affect the rights
possessed by two or even several States, and might consequently give rise to
two or more rights to claim, in so far as the rules relating to the
treatment of foreigners have not been respected.. ..
Indeed, if one disregards the fact that the shareholders are foreigners, if
one admits that these foreign shareholders have no rights or interests
distinct and independent from those of the company, that they are totally
inseparable from the latter vis-a-vis the outside world, that they are
entirely covered by the veil of the juristic personality, one must then
conclude that, in this event too, the case is entirely outside the scope of
international law."
That line of argument leads up to saying that therefore:
"The national State of the shareholders cannot exercise any right conferred
on it in favour of its nationals by the rules of international law
concerning the treatment of foreigners." (Hearing of 9 May 1969.)
I disagree with the above statements; of course, any State can exercise such
rights in favour of its nationals abroad, but not because they happen to be
in possession of bearer shares, but because and only if they have been
injured in their own specific rights by the State of residence which has a
duty to respect the rights of foreigners under its jurisdiction, according
to the relevant rules of international law concerning the treatment of
foreigners. [p 252]
It is claimed by the Belgian side that the Spanish Government admitted
"that there were certain cases in which diplomatic protection of the
shareholders in the event of damage done to the company was allowed under
international law", and quotes the Spanish admission as saying that such
protection is allowed "solely in cases where the company possesses the
nationality of the State against which the claim is made, so that diplomatic
protection of the company as such is excluded".
The Spanish Government, in its Rejoinder, contends that in all the cases in
which the protection of the shareholders was admitted, the complaints
raised concerned damage done exclusively to the shareholders' "own rights",
that is to say not affecting the company itself.
In the present case, for Belgium to be able to intervene, it would thus be
necessary that there had been a violation of the rights of the Belgian
shareholders.
Such a violation is excluded, if what is complained of is steps which were
ostensibly directed against the company. It was admitted by the Applicant,
during the oral proceedings, that the Belgian claim did not include damage
resulting from an infringement of any of the recognized direct rights of a
shareholder as such.
International law goes no further than imposing on States certain
obligations towards other States, including the obligation to afford aliens
certain treatment, for example, to give them access to their courts and to
enable them to have their lawsuits impartially judged within reasonable time
limits and without discrimination.
A careful distinction should be drawn, contends the Spanish Government,
between two hypotheses which are mutually exclusive. Either there is a
wrongful injury to the rights of the shareholders, in which case diplomatic
protection of the latter is permissible and indeed is the only protection
permissible, or else there is a wrongful injury to the rights of the company
and only the company may be the subject of such protection. The contention
is that it is utterly impossible to escape from this option.
To this contention the Belgian answer was:
"The Spanish Government really wishes to demonstrate by this argument that
in cases of multiple claims, no one may bring action by relying on the right
of another party. But is it necessary to take this extraordinary detour to
reach a conclusion which nobody contests? Belgium is not concerned with the
injury suffered by Barcelona Traction itself—that would be Canada's
business; it is concerned with the damage suffered by its own nationals who
held shares in the company."
***
If the owner of the right or rights which have suffered injury is the
company and not the shareholder, it is beyond all doubt that the case is[p
253] one which falls entirely outside the sphere in which the diplomatic
protection of shareholders by their national State can be admissible, or
even conceivable. The Respondent in its Rejoinder states:
"The international society of today is certainly not asking for a further
reinforcement of the protection of certain capitalist groups already too
powerful and only too capable of securing support for themselves, a
reinforcement which would take the shape of the possibility of increased
pressure on the weaker nations." (Rejoinder, Part III, Chapter II, Section
II, para. 43.)
It adds:
"Contemporary international law tends to concern itself more with the need
to protect countries with a weak economy than to favour, as the Belgian
Government would wish, 'the financial needs of great modern undertakings'."
(Ibid.)
"Very many States insist, for very good reasons, that foreign capital must
be invested in national companies. This is the case, in particular, in many
countries in the course of development, but a certain number of highly
industrialized countries impose similar con-ditions either de facto or de
jure. What is more, foreign investors themselves frequently and
spontaneously chose this legal formula which may in their view offer certain
advantages."
***
There is a case to which the Belgian side ascribe importance. This is the
case of the American national, McPherson, who laid a claim before the
U.S.-Mexican Commission in 1923 against the Mexican Government, which had
refused to honour the postal money-orders which McPherson had bought through
an agent from illegal authorities and which the latter had issued in the
name of the agent. The decision in that case was delivered on the basis of
a convention which, in several essential aspects and by its very spirit,
manifestly derogated from general international law.
Which are the applicable principles of international law and what are the
consequences of their application to the present case?
What follows expresses my views on the matter:
International law lays upon every State in whose territory foreign natural
or juristic persons reside, remain, operate or even simply possess property,
an obligation towards the State of which such persons are nationals: the
obligation to afford them certain treatment. That treatment, which is
defined most usually and in greater detail by the rules of treaty law,
nevertheless has its minimum requirements laid down by cus-[p 254] tomary
international law. Those minimum requirements consist essentially in the
respect, within given limits and conditions, of certain rights of a personal
or corporate nature, and in the granting, at the same time, of the
possibility of making use, if necessary, of appropriate judicial or
administrative remedies.
Correlative with that obligation, the State of which such persons are
nationals has, at the international level, a right to require the State
which is bound by the obligation to act in conformity therewith, and it has
a right, if occasion arises, to submit a claim in proper form and through
accepted channels, should that obligation fail to be discharged. That is
precisely what is known as the exercising of diplomatic protection. It also
includes protection by means of recourse to international jurisdiction.
The rights attributed to a State by international legal rules concerning the
treatment of foreigners, on the one hand, and, on the other hand, the rights
granted to individuals by the rules of municipal law, are situated at
different legal levels.
The existence of the individual's right at the municipal level is the
condition whereby a State is authorized, at the international level, to
require that that right be not infringed. All that a State can require of
another State for its own nationals is the respect of those rights which are
accorded to them under the national legal system, as they are defined by
that legal system.
When the foreigner in question is a juristic person, the case is no
different, theoretically, from a case in which a natural person is
involved. All legal systems agree in considering joint-stock companies
(sociétés de capitaux) as independent legal entities. The latter represent
autonomous beings to which rights and obligations may be ascribed; they are,
in short, of themselves subjects in law.
International law, both customary and treaty law, recognizes precisely in
respect of the treatment of foreigners, the existence of companies as
entities which are separate from their members.
For juridical persons as for natural persons, "nationality" expresses a link
of legally belonging to a specific State. The requirement for juridical
persons as for natural persons, is that the existence of the link of legally
belonging to a specific country must, if it is to serve as a plea at the
inter-national level, be accompanied by that of a "real" link with the same
country. In general international law, a State is not entitled to require a
specific treatment for a person who has not its nationality and it can thus
not complain that such treatment has not been accorded to that person.
A State may present a claim on behalf of its national if it becomes apparent
that there has been a breach of a right belonging to the latter; but no
State may present a claim on behalf of a person of its nationality [p 255]
on the ground that there was failure to respect a right belonging to another
person, possessing another nationality.
The national State of the company can present a claim for the breach of a
right of the company as such; the national State of the shareholder can
present a claim for the breach of a right "stricto sensu" of the
shareholder as such. The fact that there are relationships and links
between different persons does not imply that they merge into a single
person.
A claim by a State under the head of diplomatic protection of a national who
is a shareholder of a commercial company is only admissible subject to a
two-fold condition: the applicant State must be able to claim violation of a
right of the shareholder as such; and it must be established that the State
which was the author of the alleged violation was under an international
obligation to the applicant State to ensure respect for the right in
question. The receivability of a claim under that head is ruled out if it
appears, firstly, that the right which is said to have been violated is a
right of the company and not of the shareholder, and, secondly, that the
international obligation to ensure respect for the said right was incumbent
on the respondent State in respect of the national State of the company and
not in respect of the national State of the shareholder.
It follows from the principles of international law that in order for a
State to be able to submit a claim in behalf of a national, it must be able
to claim that its national has suffered an infringement of his own rights by
a foreign State, and that rights have been infringed for which the latter
State was bound to ensure respect by virtue of an international obligation
binding on it in respect of the claimant State.
There is nothing to prevent a State's submitting a claim in behalf of a
national which relates to that national's position in his capacity as a
shareholder in a company; but, in such a case, it must prove that the person
in question has been injured in the rights conferred upon him himself
precisely on account of his capacity of being a shareholder: that he has
been injured in rights which are inherent in that capacity.
It is by no means sufficient that the claimant State rely upon an injury to
the rights of the company as such, for no State may submit a claim in behalf
of a person on the ground that there has been a failure to respect a right
which belongs to another person, whether such latter person be a natural or
a juristic person.
International law only authorizes a State to intervene by way of diplomatic
protection if such State relies upon a complaint which is its own complaint:
that is to say, if it complains of the infringement of a right of one of its
nationals, committed in violation of an international obligation which binds
to it the State which has committed the infringement.
If there has not been in the case at issue any infringement of any right of
a shareholder, that fact cannot be altered simply by referring to interests
as well as rights.[p 256]
The situation of the shareholder as defined by the various legal systems,
covers the rights which are defined in the decision on the Brincart case. No
system of positive law confers on a shareholder in a limited company other
subjective legal situations and, in particular, no system attributes to him
any legal interest in the property of the company, as has been expressly
acknowledged by both sides.
One cannot accept the transformation of a shareholder's hope for the
prosperity of the company into a right or a legal interest, nor any
possibility for a shareholder to claim that an infringement of the rights
of the company constitutes an infringement of his own legal situation.
The rules of international law concerning the responsibility of the State
regarding the treatment of foreigners would not make it possible to impute
to a State an internationally unlawful act even in a case where the said
State had only harmed an interest which was not protected by the municipal
legal system of that State.
There has not been established, in respect of the alleged Belgian
shareholders of Barcelona Traction, the existence of any juridical
situation whatsoever attaching to their status as shareholders which
suffered any internationally unlawful attack on the part of the Spanish
administrative or judicial authorities.
***
Barcelona Traction is said to have been a "practically defunct" company.
Shareholders are not entitled to take the place of the company in defending
the latter's own rights when it is these rights which have been affected,
for so long at least as the company has not yet been dissolved and
liquidated and the shareholders therefore have ho right to its property and
assets.
It is only when a company has been dissolved and consequently ceases to
exist as a separate legal entity that the shareholders take its place and
are entitled to receive the balance of its property, after the corporate
debt has been deducted. Thus it is only the "legal death" of the corporate
person that may give rise to new rights appertaining to the shareholders as
successors to the company.
In 1925 the United States claimed the right, as against the Government of
the United Kingdom, to intervene on behalf of American interests in a
non-American corporation (the Romano-Americana).
In the United Kingdom answer to the American contention, it was said: ". . .
it is not until a Company has ceased to have an active existence or has
gone into liquidation that the interest of its shareholders ceases to be
merely the right to share in the Company's profits and becomes
[p 257] a right to share in its actual surplus assets" (Hackworth, Digest of
International Law, Vol. V (1943), p. 843).
In the case of the Mexican Eagle, a company incorporated in Mexico, in which
the shareholdings were 70 per cent. British and Dutch, 25 per cent. French
and the remainder Swiss, Danish and other interests (as the shares were in
bearer form it was impossible to state the exact proportion of each national
interest), a dispute arose between the Mexican Government and the United
Kingdom Government regarding claims by British shareholders arising from
the expropriation of the properties of the Mexican Eagle Company.
The Mexican Government in a Note of 26 April 1938, maintained the view that
a shareholder was not a co-owner of the property of the undertaking but
"merely the possessor of a right in equity to represent a part of the liquid
assets at the moment of the dissolution or liquidation of the company".
It was not until the moment of dissolution that it was possible to establish
the damage and injuries sustained by shareholders as distinct from the
company (Mervyn Jones, British Year Book of International Law, 1949, p.
241).
On that occasion the Mexican Government stated: "Mexico cannot admit that
any State, on the pretext of protecting the interests of the shareholders of
a Mexican company, may deny the existence of the legal entity of companies
organised in Mexico in accordance with our laws."
I do not concur with the view that the national State of the shareholders
may exercise diplomatic protection when the act complained of was done by
the national State of the company, for this would be equivalent to admitting
that any State, on the pretext of protecting the interests of the
shareholders in a foreign company, may deny the existence of the legal
entity of companies organized in accordance with the laws of the national
State of such companies.
I have reservations about paragraph 92 of the Judgment. For the reasons
stated above I am of the opinion that the so-called theory to which the
paragraph refers does not have any validity. The fact that the Judgment
ends the paragraph with the sentence: " Whatever the validity of this theory
may be, it is certainly not applicable to the present case, since Spain is
not the national State of Barcelona Traction" should not be interpreted as
an admission that such "theory" might be applicable in other cases where the
State whose responsibility is invoked is the national State of the company.
This is a fundamental point in the field of intervention on behalf of
nationals who are shareholders in foreign companies of limited liability.
Regardless of the numerous cases of protection which took place in the
past—outside international law or contrary to it—by the use of economic,
political or military pressure, it is worth recalling that—also in the
past—[p 258] in other cases when a stand was taken within a legal point of
view and respect for the sovereignty of other States, there has been a
historical recognition of the separate entity of corporations of limited
liability, and the opinions given in such instances did stress the
independent existence of a company as juridical person.
For example, when the Government of the United States was approached in
1875 with a request that it should intervene on behalf of American
stockholders in Chilean corporations, it refused to do so. It adhered to the
view that a corporation formed under local law should have recourse to the
local courts and that although the good offices of the Government might with
propriety be exercised on behalf of American interests, there could be no
official intervention FN1 (Moore, Digest of International Law (1906), Vol.
VI, p. 644). The practice of the United Kingdom followed similar lines. Thus
Sir Robert Phillimore advised that the British Minister to Mexico should be
instructed to limit himself to "good offices" on behalf of a British
shareholder in a Mexican railway siezed by the Mexican Government and that
the British subject should be told that he must rely principally on local
remedies. Years later both Governments found reason to depart from this
practice.
--------------------------------------------------------------------------------------------------------------------- FN1
The Secretary of State of the United States in a dispatch to the (American)
Minister to Colombia, dated 27 April 1866, wrote as follows:
"It may well be that subjects of Great Britain, France and Russia are
stockholders in our national banks. Such persons may own all the shares
except a few necessary for the directors whom they select.
Is it to be thought that each of those Governments shall intervene when
their subjects consider the bank aggrieved by the operations of this
Government? If it were tolerated, suppose England were to agree to one mode
of adjustment, or one measure of damages, while France should insist upon
another, what end is conceivable to the complications that might ensue?
It is argued that there is no policy which requires us to encourage the
employment of American capital abroad by extending to it any protection
beyond what is due the strictest obligation. There is no wise policy in
enlarging the capacity of our citizens domiciled abroad for purposes of mere
pleasure, ease or profit to involve this Government in controversy with
foreign powers." (Loc. cit., pp. 645-646.)
---------------------------------------------------------------------------------------------------------------------
I therefore cannot accept that this situation—which is not the one before
the Court—should be considered as a limitation or exception to the strict
application of the rule of international law, according to which the
shareholders cannot be protected by their national State except in two
instances: (a) when the company has been liquidated, and (b) when a right of
the shareholder as such (right stricto sensu) has been violated by an
illicit act entailing international responsibility.
The scope and increasing activities of powerful international corporations
have had as their field of operation the exploitation of the natural [p 259]
resources of many countries in the process of development and have
controlled the functioning of many of their public services over which the
territorial States have come to be, notwithstanding their sovereignty, in a
subordinated position, and their right to demand compliance with the
prescription of their municipal law on the matter has in many cases been
challenged and put in jeopardy. Faced with the structure and practice of
capitalist society in regard to foreign investment, many countries have
imposed the requirement on foreign capital of taking the legal form
prescribed by local legislation. The exercise of the sovereignty of States
in this matter cannot be legally construed as a device to deprive the
even-tual shareholders in corporations of limited liability (sociétés
anonymes) of the diplomatic action of their national State. Nationalization
and expropriation, in accordance with the law on the matter, have been the
result of the essential need not to have public utilities and national
resources subordinated to the private interests of foreign corporations.
I am also of the opinion that neither is a limitation to the rule— according
to which it is the national State of the company who has the right of
protection—the fact that the protecting State does not exercise its right or
ceases to do it. The right of protection is a discretionary one and the
national State of the company is not under a duty to protect.
In respect to paragraph 93 I must make the following observations.
The paragraph begins with the consideration that "in the field of diplomatic
protection of shareholders as in all other fields ... it is necessary that
the law be applied reasonably".
The phrase immediately following refers to a suggestion which might be
interpreted as an example of reasonableness on the matter. The suggestion,
or hypothesis, is to the effect that, "if in a given case it is not possible
to apply the general rule" . . . then, "considerations of equity might call
for the possibility of protection of the shareholders in question by their
own national State". The last sentence in this paragraph states: "This
hypothesis does not correspond to the circumstances of the present case."
I am of the opinion that there is no need for the Judgment to include
reference to an irrelevant hypothesis. It is difficult to imagine a case in
which it would be impossible to apply the general rule that the right of
diplomatic protection of a company belongs to its national State.
It might be argued that in case the company is liquidated and therefore
ceases legally to exist its national State loses the subject of its right
and the general rule cannot be applied. In such eventuality the shareholders
can undertake the defence of their interest before the courts of the State
whose responsibility is invoked and exhaust the local legal remedies open to
them. If a denial of justice is claimed, then the national State of the
person whose rights are violated may intervene according to the rules
concerning the protection of foreigners, but in such hypothesis the State of
the shareholders exercises a right of its own (whether or not such right [p
260] is qualified as "secondary") and if so its action is not based on
"considerations of equity".
The whole Judgment is based on the ground that according to international
law the national State of the company, and only and exclusively it, has the
right of diplomatic and judicial protection of such company. Therefore it is
a contradiction of a legal nature to state even as an irrelevant hypothesis
that there might be a circumstance when that State which, by definition, has
the legal capacity to act could be legally or juridically incapacitated—the
State concerned is free to exercise its right or not but its abstention to
pursue an action does not affect its right to take it. It cannot lose its
legal capacity and a hypothesis based on the impossibility to apply the
general rule is a juridical contradiction and has no reasonable explanation
even as a whimsical hypothesis. It is also inconceivable that if Canada
does not exercise its discretionary right of protection then this fact gives
birth to the right of the shareholders' State.
***
Therefore on those hypothetical limitations it is not possible to build a
Belgian ius standi.
In respect of the attitude in this case of the national State of Barcelona
Traction, the Respondent describes as follows the three successive phases of
the Canadian Government's action, resulting from the examination of the
diplomatic correspondence and relevant documents:
"The first, going up to the time of the Tripartite Statement, was the phase
in which, misinformed by the interested parties, it accused Spain of having
violated obligations in general international law with regard to the
treatment of foreigners and, on that ground, requested the Spanish
Government to intervene with a view to the annulment of the acts of the
judicial authorities.
The second phase, which followed upon the Tripartite Statement and did not
last long, was characterized by the definite abandonment of that request and
of any allegation of a breach by Spain of obligations under general
international law. The Canadian Government, on the other hand, raised the
particular complaint that certain clauses of the treaties in force between
the two countries had been broken. It proposed the settlement of the
differences on that point by arbitration.
In the third phase, after expressing regret that the Spanish Government had
not accepted the proposal to submit the specific point about the treaties to
arbitration, the Canadian Government, which had meanwhile become better
acquainted with the facts, definitely [p 261] opted for endeavouring to get
the dispute settled on an amicable basis through direct negotiations between
the private parties concerned.
It is thus once again clearly confirmed that the famous exceptional
circumstances of 'the absence of protection by the national government of
the company', which the Belgian Government has relied on so often and in so
many forms in order to justify its claim to have jus standi in the case to
act under the head of the protection of the Belgian 'shareholders' in
Barcelona Traction, quite apart from the fact that even theoretically it
cannot constitute any valid justification, is not in fact by any means
present in the case."
***
In my view the right of diplomatic protection of shareholders in a company
of a nationality other than that of the protecting State, is not in
accordance with the principles of international law in force, i.e., the rule
of the diplomatic protection of companies by the State of which they are
nationals.
Nor is such protection recognized by any special customary rule in
international practice. The arbitral decisions rendered on the basis of
special bilateral conventions are not norm-creating, nor have constituted
the foundation of, or generated a rule of customary international law which
is now accepted as such by the opinio juris.
There are not, in the present case, exceptional circumstances justifying any
departure from the strict application of the general rule of international
law on the matter.
The right of diplomatic protection, like any other right, has to be
understood as a right which a particular State has against another
particular State. To which State does that right pertain in the present
case? Does it pertain to the Applicant? Is Spain under an international
obligation towards Belgium?
Has the respondent State committed a breach of an international obligation
owed to the applicant State by the measures taken in respect to Barcelona
Traction? Is the person affected by the measures of which Spain is accused
linked to the applicant State by a bond of nationality?
In my opinion all those questions ought to be answered in the negative and,
if so, the international liability alleged by the Applicant does not exist.
Towards the eventual and sporadic possessor of a bearer share there is not a
direct and immediate obligation from the State accused of having violated
the rights of a private foreign national (natural or juristic person) by an
unlawful act damaging the corporation (société anonyme) which has issued the
bearer shares.
The fact that theoretically there is not (or there need not be) continuity
[p 262] of ownership of a bearer share, the nationality of the eventual
possessor does not give to his State a right towards the Respondent, who is
not under an international obligation owed to every State which might have,
or has, at a given date, some nationals in the possession of bearer shares
in the corporation alleged to be injured by an illicit international act,
unless specific rights of the shareholders as such were violated.
It is not justifiable to create an ad hoc rule in disregard of existing and
generally accepted ones to fit a particular case which could and should be
decided by the application of the rules of general international law
governing the matter.
The claim in the present case and its characteristics are in the nature of a
request to go around or avoid the strict application of the relevant rules
of international law which "does not recognize, in respect of injury caused
by a State to a foriegn company, any diplomatic protection of shareholders
exercised by a State other than the national State of the company".
The shareholders in commercial limited liability companies (sociétés
anonymes) do not have a separate and independent right in respect to damage
done to the company by a foreign government.
The rules of international law concerning the treatment of foreigners are
not rightly invoked in respect of shareholders as such.
This question ought to be considered in relation to the protection of
citizens abroad and taking into account the jurisdiction of the State where
the foreigner resides.
The following concepts contained in Borchard's Diplomatic Protection of
Citizens Abroad are relevant in this respect:
"The bond of citizenship implies that the State watches over its citizens
abroad, and reserves the right to interpose actively in their behalf in an
appropriate case. Too severe an assertion of territorial control over them
by the State of residence will be met by the emergence of the protective
right of the national State, and the potential force of this phenomenon has
largely shaped the rights assumed by States over resident aliens."
"The principles of territorial jurisdiction and personal sovereignty are
mutually corrective forces. An excessive application of the territorial
principle is limited by the custom which grants foreign States certain
rights over their citizens abroad, sometimes merely the application of
foreign law by the local courts, sometimes, in acknowledgment of the
principle of protection, a certain amount of jurisdiction."[p 263]
"Each State in the international community is presumed to extend complete
protection to the life, liberty and property of all individuals within its
jurisdiction."
"Not every injury warrants immediate interposition by the State. In the
first place, reparation is demanded only for such injuries as the State in
its discretion deems a justification for diplomatic protection. Factors
which enter into consideration in determining the State's interposition are
the seriousness of the offence, the indignity to the nation, and the
political expediency of regarding the private injury as a public wrong to be
repaired by national action—in short, the interests of the people as a
whole, as against those of the citizen, receive first consideration before
State action is initiated."
"The individual has in fact sustained no injury in international law, until
the State of residence or its authorities have in some way connected
themselves with the original act or have declined to afford him legal means
of redress."
***
In the present case, it is not Belgium but Canada who is the one entitled to
protect its national, Barcelona Traction, in accordance with the existing
recognized rule of protection of a company only by its national State.
Regarding the question: ". . . whether international law recognizes the
right of a State to protect its nationals, natural or juristic persons, as
shareholders in a foreign company, for the damage they might have suffered
as a consequence of an internationally illicit act done to the company by a
third State", the answer, as a matter of law, should be in the negative.
As regards the facts and circumstances of the particular case, they do not
constitute a juridically valid ground to justify an exception to the
existing rule.
***
The shareholders of bearer shares in a société anonyme do not have
responsibility and they are unknown. If the alleged right of diplomatic and
judicial protection of shareholders in a société anonyme were recognized,
any State investor of capital abroad could buy, in the stock market, the
capacity to present claims in the name of its nationals to the territorial
State who admitted in its territory a foreign company whose nationality it
knew, and who was also aware that, according to the [p 264] existing and
accepted rules on the matter, the national States of the numerous and
unknown shareholders did not have, in international law, a right of
diplomatic protection independent from that of the national State of the
company.
Such recognition would be a derogation of the relevant principles of
international law and would entail unexpected complications and unnecessary
conflicts in modern commercial and financial international relations.
If the different States, whose nationals were shareholders in the same
corporation, were empowered to undertake, each one in his own right, acts of
diplomatic protection on behalf of their respective nationals, the admission
and operations of foreign commercial corporations of limited liability
(sociétés anonymes) would constitute a great risk to the territorial States
in need of investments who admit them.
Such recognition will create distrust, insecurity and unforeseen potential
danger of pressures from unforeseen quarters. It will, besides, hinder the
activities of modern commercial enterprises eager to invest capital abroad.
Mervyn Jones, in regard to the law on the subject, states:
"If a State of which the corporation is not a national could normally take
up a claim in respect of an injury to the corporation merely because there
are shareholders who are nationals of that State, and who have suffered
loss, the results would be just as chaotic on the international plane as
they would be under municipal law if any group of shareholders were allowed
to sue in any case where the company has sustained damage.
If a State could intervene without restriction on behalf of its individual
nationals who were shareholders in a foreign corporation, the position of
Governments whose national the corporation was and that of the State against
whom the claims were brought, would be rendered intolerable. It might well
be, in such circumstances, that the number of possible State claimants in
respect of an injury to one large company could comprise half the world.
Again, shareholders are not infrequently corporations themselves, and the
process of identifying individual shareholders might be prolonged ad
infinitum; such a process is in any case difficult in practice." ("Claims on
behalf of Nationals who are Shareholders in Foreign Companies", British Year
Book of International Law, 1949, pp. 234-235.)
***
The Court did not examine the merits regarding the fourth preliminary
objection. Nevertheless the written and oral pleadings did show that [p 265]
the local remedies in respect to the alleged wrongs and damages were not
exhausted.
There are no grounds to say that a miscarriage of justice took place or that
the bankruptcy was fictitious. There is no question that the bankruptcy
declaration was made in accordance with Spanish law on the subject.
There are no legal bases to state that Spain is responsible internationally
for the standard of its laws and for the quality of the justice
administered by its courts.
By which criterium is the Court to measure the standard of Spanish laws in
order to decide if it is high or low, good or bad? And by which test could
the Court make a finding regarding the quality of the justice administered?
Which principles of international law, recognized by all nations, give the
Court authority to pass judgment on those matters?
***
After careful consideration of the arguments from both sides contained in
their pleadings, I conclude that there is not convincing evidence of a
predominant Belgian interest in natural or juristic Belgian persons, having
the character of shareholders of Barcelona Traction at the critical dates,
even if it is admitted that those critical dates are 1948 and 1962. Namely
the date of the bankruptcy declaration and the date of the filing of the
present Application.
It has not been proved that the majority of shareholders in Barcelona
Traction had the Belgian nationality at the critical dates, nor that the
capital in the Belgian corporations alleged to be shareholders of Barcelona
Traction, was a capital invested or belonging to Belgian nationals or
necessarily linked to the national wealth of the Applicant.
The unfavourable impact on the wealth of a nation cannot be the legal
foundation of a claim when a State considers that its nationals have lost
money abroad, due to an act of the territorial State which is alleged to be
a breach of an international responsibility.
If the defence of the national wealth could be the legal foundation of the
State's own right to diplomatic or judicial intervention, the rules
concerning the treatment of foreigners would be, in fact, substituted by
vague and undefined concepts regarding non-existing duties of the
territorial State to guarantee against loss, the investment, by a person, of
money which the national State could, arbitrarily, claim was originally part
of its national wealth when the investor sent his money abroad.
The national wealth is affected, maybe, when any resident takes or [p 266]
sends his money abroad, rather than the moment he loses such money, or his
interests, dividends, or hopes of pecuniary gains from his investment.
If the defence of the national wealth would entail the right to intervene,
the violation of a duty towards a foreigner would not be the foundation of
the claim, but the so-called harm to the wealth of a State as an automatic
consequence of the pecuniary losses eventually suffered by its nationals
abroad. Such losses could be traced to events in the territorial State
regardless of its international responsibility, or the existence of any
legal duty towards the success of business enterprises, or speculative
ventures of foreign nationals.
***
I agree with the Judgment of the Court that the Belgian claim be dismissed.
(Signed) Luis Padilla Nervo
.
[p 267]
Separate Opinion of Judge Gros
[Translation ]
1. Although the force of res judicata does not extend to the reasoning of a
judgment, it is the practice of the Court, as of arbitral tribunals, to
stand by the reasoning set forth in previous decisions (cf. Judgment No. 10:
"The Court sees no reason to depart from a construction which clearly flows
from the previous judgments the reasoning of which it still regards as
sound"; P.C.I.J., Series A, No. 11, p. 18). Although I accept the operative
part of the present Judgment, my reasoning is entirely different.
Considering the importance of the case from the point of view of its
consequences on the law applicable to international economic relations, I
feel it my duty to set forth, as briefly as possible, the reasons which lead
me to accept only the operative part of the Court's decision.
2. The separation of fact and law is for the international judge merely a
working-method in the first stage of considering a case; but to judge is
always to apply a rule of law to particular facts. What has therefore to be
done is to ascertain, taking account solely of the facts of the case, what
rules of international law are applicable to the treatment given in Spain to
a limited company, Barcelona Traction, as from the decision rendered by the
Reus judge on 12 February 1948, according to the terms of the claim set
forth in the Application dated 19 June 1962 and in the final submissions of
the Belgian Government on 9 July 1969. "Each case must be considered on its
individual merits" (P.C.I.J., Series A, No. 7, p. 69).
3. If the question of the nationality of the claim is taken first, which is
the way the Court decided to proceed, the facts assume crucial importance
in the present case, and it was precisely the idea that the third and fourth
preliminary objections could not be decided without full knowledge of the
merits which served to justify the joinder effected by the Judgment of 24
July 1964 FN1. This was thrown into particular relief, as regards the third
objection, i.e., the very point on which the present Judgment is based, by
the observation which the President made on the Court's behalf in opening
the hearing of 13 March 1964.
--------------------------------------------------------------------------------------------------------------------- FN1
I share the views on this joinder expressed by Judge Sir Gerald Fitzmaurice
in paragraphs 84-90 of his separate opinion.
---------------------------------------------------------------------------------------------------------------------
What then are the facts of the case? Since Belgium is claiming to protect
Belgian nationals, it has to be verified that the persons in question [p
268] were Belgian at the time of the acts with which Spain is reproached and
were still Belgian at the moment when the Application was filed. Yet this
question of proof of the nationality of the claim has been left aside and
the Court has dealt in the first place and exclusively with Belgium's right
to institute proceedings in behalf of the shareholders in Barcelona
Traction. Though the Court, in the reasoning it chose to follow, dealt only
with this point of law, I shall also have to refer to the question of proof
of the nationality of the claim.
4. In seeking to ascertain what are the persons whose case Belgium has taken
up, one must first and foremost pay attention to a fundamental aspect of the
case from which it is evident that any general theory on the status of
limited companies fails to take account of the particular facts in the
present case and ignores the legal problem with which the Court is faced. In
protecting shareholders in the company, Belgium claims to be protecting a
moderate number of natural persons and certain companies that hold stock in
Barcelona Traction; i.e., an important investment on the part of the Belgian
economy. This is not a simple situation, as if it were a question of a
limited company whose capital was shared among a few hundred natural persons
the list of whose names was readily available (cf. on this point the role of
shareholders' protection associations, either national or ad hoc, in
particular in the Certain Norwegian Loans case, I. C.J. Pleadings, Vol. I,
p. 86). Barcelona Traction is a company heading 14 others in a group of its
own (see A.M., Vol. I, Ann. 24; the table shows the composition of the
Barcelona Traction group of companies as at 31 December 1947), while itself
forming part of a group which appears to be controlled by the Sofina company
and, judging by the Belgium-Luxembourg index in Who Owns Whom (Part I, B.E.
13), involves over 80 closely linked companies. One cannot simply ignore
this fact and argue as if the case concerned the diplomatic protection of an
ordinary limited company. The present case is a special one, firstly
because the principal shareholders in Barcelona Traction are companies and
secondly because Barcelona Traction itself is the holding company of a group
of 14 others which it controls either 100 per cent, (nine companies), or
nearly 100 per cent, (four) or 90 per cent. (one). These features have
several legal consequences for the question of diplomatic protection and for
that of the jurisdiction competent to pass judgment on the activities of the
group. The question that has been raised concerns the fate of a large
investment claimed to have been made by the Belgian economy in Spain, and it
is to this question that an answer must be given. When the times are such
that from 1954 to 1968 private investments of the order of 30,000 million
dollars were made, international law cannot ignore the phenomenon of
investment, and it can hardly be claimed that it did not exist in the
critical period of 1948-1952.
5. To facilitate this expose and simplify its presentation, one funda-[p
269]mental observation is called for with respect to the right of protection
in international law. When the Court defined such protection in the
Nottebohm case, it was in these terms:
"Diplomatic protection and protection by means of international judicial
proceedings constitute measures for the defence of the rights of the State.
As the Permanent Court of International Justice has said and has repeated,
'by taking up the case of one of its subjects and by resorting to diplomatic
action or international judicial proceedings on his behalf, a State is in
reality asserting its own rights—its right to ensure, in the person of its
subjects, respect for the rules of international law' . . ." (I.C.J. Reports
1955, p. 24.)
This classic formula is usually held to be an explanation of the role of the
State when acting on the international plane, in relation to the position of
the individual. This view of matters might well originally have been that
called for by the comity of nations as it appeared in the nineteenth century
and, already with evident attenuations, during the first third of the
twentieth century. But since then, and particularly at the present day, the
formula that in defending its nationals a State is asserting "its own
rights" at the international level has acquired a reality which goes further
than the procedural justification of its origin. Leaving aside the position
of the socialist States where the question of private investments cannot
arise and the security of public investments is obtained by other methods FN
1, and confining our consideration of the legal nature of international
judicial action to States with a liberal economic system, the economic world
today exhibits phenomena of State intervention in and responsibility for the
economic activity of the subject within the national territory or abroad
which are so frequent and thoroughgoing that the separation of the interest
of the individual from that of the State no longer corresponds to reality.
--------------------------------------------------------------------------------------------------------------------- FN1
See "Observations sur les méthodes de protection des intérêts privés à
l'étranger" in Mélanges Rolin, 1964, pp. 125-133.
---------------------------------------------------------------------------------------------------------------------
A few brief illustrations will suffice, since this situation is well known.
To remain in the field of limited companies, the scale on which many States
have acted to preserve the national character of such companies or regulate
the labour problem, the direct aid granted by the State to encourage
investment, and the system of State guarantees against the risks incurred in
foreign countries by domestic companies, are examples of the way in which
the State asserts its "own right" to control the growth of the national
economy, ranging over the whole of the activities of private undertakings,
the results of which enter into the gross national product. Thus when, in
consequence of a risk covered by an export-credit guarantee, a State
undertakes to make good to a domestic com-[p 270]pany any damage caused it
by another State within the latter's territory, it is a financial effort on
the part of the national community which enables this liability to be
assumed, through a solidarity based on the idea that certain exports are
necessary for the prosperity of the nation FN1. (Cf. likewise the United
States legislation providing for the protection of domestic industries
against "actual or potential" threats; the provisions prohibiting the
subsidiaries of American companies, wherever they may be, from trading with
certain countries when 50 per cent, or more of their capital belongs to
American shareholders; the Japanese law of 10 May 1950 authorizing foreign
investment "which contributes to a healthy and independent expansion of the
Japanese economy and to the improvement of the country's balance of payments
. . .".) The Luxembourg Agreement of 29 January 1966 between the six
member-States of the European Economic Community contains a recognition of
the national character of the "very important" economic interests of a State
(one of the signatories declared that no majority could force a member-State
to take measures which it regarded as contrary to its national interests).
It is clear from all these examples, which are merely illustrations of a
planned industrial society, that it is nowadays out of touch with the facts
of economics to represent the relations between private investors and the
State—whether that of the investor or the State where the investment is
made—as mere relations of municipal law. Private investment is no longer an
isolated operation but a factor in the national economic growth policy.
--------------------------------------------------------------------------------------------------------------------- FN1
See "A Note on Recent Developments and Problems of Export-Credit
Guarantees" in Economic Bulletin of U.N. Economic Commission for Europe,
Vol. 12, 1960, No. 2, pp. 51 ff.
---------------------------------------------------------------------------------------------------------------------
6. For the examination of the present case, however, there is no need to
expound the classic theory of planned economies: it will be sufficient to
recall the situation of the Parties at the material time, i.e., in
1948-1952. In a period when Belgium and Spain were endeavouring to restore
their economies, devastated by the world war or the civil war, a true
account of the economic facts shows that all their resources, like those of
other European States, were at that time mobilized for reconstruction;
imports, exports and transport were State-controlled. Any harm done to
essential elements of the national economy constituted, indeed, harm to the
efforts at reconstructing that economy. If, as has been maintained, the
Belgian investment in the Barcelona Traction undertaking in Spain was so
considerable, it formed an element on which the Belgian Government was
entitled to count in its plans for reconstruction (in its final
submission's the 1948 value is estimated at 116 million dollars). The
effects of two world wars on the foreign investments of nationals of the
belligerent States are well known: each time funds invested abroad have had
to be liquidated and repatriated. [p 271]
7. In respect of a period when the economic life of Belgium was ordered by
planning, it is an academic view of the facts that would construe them in
terms of the classic legal relationships which obtained between individuals
and limited companies in a world of liberal economics that had disappeared
by the advent of the world war.
If the economic situation of the Parties at the time of the dispute be taken
into account, the distinction between rights and interests upon which the
Judgment bases its explanation of the position of the shareholders does not
correspond to the facts of the case.
8. The position adopted by the Court is that an individual cannot, owing to
his legal status as a shareholder in municipal law, obtain, in international
law, the protection of his national State in cases of unlawful acts,
attributable to a foreign State, which result in material loss for the
company. I have indicated the reason why the problem before the Court is a
different one: because the relationship between the individual shareholder
and the company is inextricable from the phenomenon of overall investment.
However, even on the Judgment's own ground, the position does not strike me
as convincing.
In terms of the reasoning followed by the Court, the problem may be divided
into two: in the first place, is it the status of shareholder which makes
protection impossible or is it, in the second place, the nature of the
damage caused to the shareholder "through" the assets of the company?
In the present case, the shareholder has been treated in discussion as a
uniform abstract being. But there are in fact at least three categories of
shareholder: the small private investor, largely unfamiliar with the
detailed problems of investment and inclined to leave his investments
undisturbed FN1; the speculator, who buys for a quick resale; the
businessman or company that, as shareholders, control the activity of a
company in their own interest, at times with a proportionally small holding
(financial circles speak of 10 per cent.), either by means of their actual
presence in the organs running the company or the banks lending it vital
assistance or by the conclusion of agreements for technical or commercial
co-operation.
--------------------------------------------------------------------------------------------------------------------- FN1
It is in respect of this category of shareholder that one would tend to
concede, prima facie, a "continuity" in the ownership of Barcelona Traction
shares acquired before 1948, up to 1962. It is also in respect of these
individual shareholders that, despite the particular characteristics of the
holding company, the question might arise of whether direct rights have been
infringed, as the Judgment says in paragraph 47. However, the claim was not
concerned with this legal point.
---------------------------------------------------------------------------------------------------------------------
There is no essential difference between a shareholder in the first category
whose investment abroad is lost on account of an unlawful act attributable
to the foreign State, and the owner of a deposit of money or some other
property abroad which has disappeared for the same reason.
It therefore remains to be shown that the share is a form of property right
which, for reasons peculiar to the legal regime governing the rela-[p
272]tionships between a limited company and its shareholders, is not
protected. This is the reasoning followed by the Judgment, and I regret
that I am unable to accept it. For it is based on a conception of the role
of the Court, and of the relationship between international and municipal
law, which may be summarized as follows:
(a) an international court must fall back on concepts of municipal law when
seeking to define the legal relationships between the company and the
shareholder;
(b) municipal law does not comprise any right of action of the shareholder
in behalf of the company;
(c) since such right of action does not exist, the State of the shareholder
cannot invoke its right of protection for what is no more than an individual
financial interest.
9. The premise of this reasoning seems to me as unacceptable as its
conclusions: the renvoi to municipal law leads eventually, in the present
case, to the establishment of a superiority of municipal over international
law which is a veritable negation of the latter. It may happen, in certain
cases, that the only problem to be decided is that of whether a rule of
municipal law is in conformity with a treaty rule, and that it is necessary
for the purpose to interpret municipal law as it stands. But here we have a
different situation, one in which a denial of justice is alleged to have
been committed against foreign nationals, both the company itself and the
shareholders. To consider as a ground for exonerating a State from
international responsibility for an alleged denial of justice the fact that
its municipal law, or some systems of municipal law, do not feature a
shareholder's right of action is not admissible; any more than the absence
of municipal rules on the responsibility of the State for damage caused by
the legislature, administration or judiciary is taken into account by
international law.
10. In the present case, the rules of municipal law are nothing more than
facts in evidence, and they deserve the same attention as the other facts,
and the same rigour in their interpretation, but no more. The Court does not
have to apply the rules of municipal law, as a municipal court of last
instance would, to the relationships between the company and the
shareholder; it takes account of them as being facts for the purpose of its
appraisal of the legal situation laid before it by Parties and in order to
see whether that situation as a whole is in conformity with the rules of
international law or not. It is the latter rules which for an international
tribunal go to constitute the reasons of its decision. It is therefore not
enough to say that since a given municipal legal system creates a certain
legal relationship, an international tribunal is obliged, on account of
renvoi to municipal law, to accept that relationship as possessing the same
legal cogency. The international tribunal takes this legal relationship as
an established fact and tests it against the rules of international law.
This holds good in the present case for the [p 273] relationship between the
shareholder and the limited company, which we will examine further below.
11. First, an observation with regard to the limited scope of the Judgment.
If it is true that between 1948 and 1952, at the time of the acts complained
of whereby the investment in question changed hands from the viewpoint of
Hispano-Belgian relations the legal system of neither country contained any
provision generally enabling a shareholder to act in place or in behalf of a
limited company, that is not a generally accepted rule. Suffice it to refer
to the provisions of the French law of 24 July 1966, which institutes for a
minority of shareholders a mechanism enabling them to participate in
controlling the way a limited company is run, as well as an action for the
reparation of damage sustained by the company (Articles 226 and 245) FN1.
The result finally produced is that the position of the shareholder as
regards the exercise of diplomatic protection would depend in each case on
the existence of provisions of municipal law; if, in a given case of
investment abroad, one of the States in question allowed shareholders an
individual right of action, that would be sufficient to preclude basing on
the renvoi theory any finding that the State had no capacity.
--------------------------------------------------------------------------------------------------------------------- FN1
Likewise the Swedish company-law of 1944, revised in 1948, provides a right
of action for a 10 per cent. minority of shareholders (Art. 129); there are
similar provisions in Norwegian law (Art. 122 of the 1957 company-law) and
in Articles 122-124 of the corresponding law of the Federal Republic of
Germany.
---------------------------------------------------------------------------------------------------------------------
12. If the renvoi method is not applicable in the present case and if the
provisions of municipal law are merely factual data, the complaint that the
shareholders in a limited company were despoiled must be judged in terms of
the rules of international law applicable to foreign invest-ments in the
territory of a State, and it would appear that, as between two European
States such as Belgium and Spain, on the critical dates no less than at
present, a total loss of assets that results from acts described as unlawful
and is wholly unindemnified, which amounts to confiscation, constitutes a
grievance justifying a claim to establish international responsibility. The
protocol of 20 March 1952 to the European Convention on Human Rights
declares:
"Article I: Every natural or legal person is entitled to the peaceful
enjoyment of his possessions. No one shall be deprived of his possessions
except in the public interest and subject to the conditions provided for by
law and by the general principles of international law. . . ." (My italics.)
Although Spain is not a party to that convention, there can be no doubt but
that it accepts its content. The least that can be said is that here is a
general principle of law which loses none of its binding force through being
restated in the 1952 protocol; irrespective of any treaty provisions, it is
directly opposable to Spain. Investment consists of a decision to assign
assets to a productive activity; it does not, merely [p274] because it takes
place in a foreign country, thereby turn into a vulnerable form of property
subject to confiscation without redress, when it enjoys secure protection
from unlawful acts if carried out within the national territory. The
opponents in the present case are two States whose economic and legal
conceptions are the same; any reference to different legal systems is the
less acceptable that, generally speaking, they exclude resort to an
international court, with the result that their rules cannot be subjected
to the examination of such a tribunal. I would add that it is paradoxical,
to say the least, to invoke the protection of human rights in the name of
universality while at the same time excluding from it the protection of
property from unlawful acts in the name of a particular way of thinking
which contests that right.
One cannot but observe how an industrial undertaking which nobody ever
claimed to be Spanish before 1948 became Spanish, against the will of the
corporate organs of Barcelona Traction, as a result of acts characterized
as a denial of justice both overall and in detail. In fact the undertaking
is today incorporated into the economy of Spain by a sort of
"nationalization" which, if it was effected by a misuse of legal procedure,
constitutes a breach of international law as between the Parties. It is
clear that any nationalization of a regular kind would have been accompanied
by compensation. The fact that negotiations between the private groups
involved halted the first proceedings also shows that the Spanish private
group accepted in principle that some compensation should be provided. I
find it hard to see how it could be claimed that, as between the Parties, an
irregular confiscation would not be a breach of international law, on the
sole ground that in municipal law the shareholder, as such, would have no
direct remedy. That is really to displace the problem rather than solve it.
13. If the view that it is impossible to take international proceedings in
behalf of the shareholders in a limited company cannot be justified by a
renvoi of the question to a system of municipal law from which a
shareholder's right of action is absent, it remains to examine the second
reason advanced for finding that the State of which the shareholders are
nationals lacks capacity to institute proceedings.
It has been maintained that the shareholder cannot sustain direct damage:
the damage is always to the company; it is true that the shareholder's
personal finances might be adversely affected, but only "on the rebound".
Here we once again come up against the theory based on certain systems of
municipal law as they stood in the early stages of limited-company
legislation, explaining the latter by the idea that the shareholder confides
his investment to the company for better and for worse, and must accept all
the risks without having any right to the protection which the holder of a
bond enjoys. As applied to the small private investor, this theory is
incorrect in its economic justification, but it is even more incorrect as
regards the majority of large companies in the modern economic scene—and
this was already true in 1948. The [p 275]
shareholder no longer plays any useful part in controlling the management
of the company via general meetings, for "we observe that the board of
directors has entirely confiscated the power of the general meeting and
become to all intents omnipotent" (A. Tunc, in Travaux et conf!!!erences de
l'Université libre de Bruxelles, 1959, p. 11)FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
With regard to the United States, see J. K. Galbraith, The New Industrial
State, London, 1967, p. 403:
"For many years those who specialize on the problems of the corporation have
been much concerned with the way control in the large firm has been passing
without recourse from stockholders to the hired management. The latter, as
sufficiently noted in this study, selects itself and its successors as an
autonomous and self-perpetuating oligarchy."
Of course one must not forget the efforts made by certain countries to
remedy this situation by legislative means: cf. paragraph 11 above.
---------------------------------------------------------------------------------------------------------------------
The theory in question, therefore, bases the refusal of shareholder
protection on a reason which is today incorrect, because the "legal nature"
of the relationships between the company and the shareholder now has
scarcely anything in common with the legislative texts of the early
nineteenth century. It is inadmissible for the legal analysis to ignore the
economic facts; the shareholder-bondholder contrast is now meaningless if
the situation of the State in relation to the company be envisaged. The
various guarantees that the State gives the shareholders no less than the
company by its protecting interventions (advancing credit in the event that
an undertaking be threatened with closure) are the very negation of the
notion of risk. Investment is an instrument of general economic policy. But
the theory of the financial risk to be borne by the shareholder must be
ruled out for a reason deriving from the above-mentioned idea that the
situation created in international law by a confiscation characterized as
unlawful cannot be ignored on the sole ground that shareholders must accept
all the risks. That is to proceed as if the substantive issue had been
settled, for if there has been unlawful confiscation, there has been a
breach of international law. Foreigners are not, just because they are
shareholders, bound under international law to run the risk of seeing their
investments disappear as a result of unlawful acts. The shareholder's risk
is a financial one, not a risk of subjection to unlawful treatment.
14. The international-law situation which must be taken into account in the
present case is made up of a series of acts on the part of one State which
have been described as unlawful, and of their effects upon investments made
by the nationals of another State. To affirm that the shareholder is always
a speculator who must shoulder every risk, on the strength of an explanation
that no longer corresponds to prevailing corporation law, not only
constitutes, on the international plane, an irrelevant submission vis-á-vis
a State complaining that, via its nationals' investments, its general
economy has been damaged by an act described as unlawful, but also leaves
out of account the rule of international law which prohibits confiscation
without compensation FN2. [p 276]
--------------------------------------------------------------------------------------------------------------------- FN2
Modern bankruptcy law has evolved to no less an extent than corporation law,
so that the proceedings in the present case can be seen to have developed on
anachronistic lines. It is nowadays the tendency to rescue the enterprise
no matter what the faults committed by its officers and the penalties to
which they are liable. See M. Houin's account of the matter in Idées
nouvelles sur le droit de la faillite, 1969, pp. 122 ff. Suffice it to
observe that the judge chooses between the liquidation of the assets
(bankruptcy) and judicial settlement (composition) in accordance with an
economic yardstick: the chance of bringing the enterprise back to normal.
Furthermore, French legislation has set up special machinery for preventing
the failure of important undertakings whose disappearance would be likely to
result in grave perturbations for the national economy (Ordonnance of 23
September 1967).
---------------------------------------------------------------------------------------------------------------------
15. In the analysis based on municipal law, it is indeed stated that the
damage at all events is never "personal" and proper to the shareholder, but
solely damage sustained by the company; this makes it possible to maintain
that there has been no damage suffered by the shareholder, and therefore no
confiscation. Here again, even if the standpoint adopted is that of
municipal law, abstraction must not be driven too far: a limited company is
always an assemblage of persons who do not vanish with the attribution of a
corporate personality, the raison d'être of which is to facilitate the
running of the business. The shareholders form the company, and the Judgment
recognizes the possibility of action by the State of the shareholders when
the company has disappeared. In the present case the company has been
entirely deprived of the means for pursuing its corporate objects and, from
the point of view of the shareholders, this produces the same effects as a
disappearance of the company. The shade of differentiation is therefore a
matter of form or rather of formality. As from 1952 the corporate objects of
the Barcelona Traction group have been void of meaning FN1.
--------------------------------------------------------------------------------------------------------------------- FN1
The argument using the fact that Barcelona Traction shares have recently
been transacted to prove that the company is still active is unconvincing. A
few purchases or sales are enough to keep certain loan-stock, unpaid for
over half a century, quoted on some exchanges. When it is said that the
shareholder has the right to dispose of his share, this certainly means to
dispose of it under normal conditions, which—apart from a few speculations
on the outcome of the present case before the Court—is no longer true in
respect of Barcelona Traction.
---------------------------------------------------------------------------------------------------------------------
If a shareholder were to claim compensation for the loss of profits of a
company whose activities had come to an end, he would be demanding a kind of
"functional" protection, a guarantee of the right to trade abroad, which, if
it existed by virtue of a treaty or of general international law, could be
invoked only by the State in whose territory the company is incorporated and
to the economy of which it is linked. But when shareholders ask for
compensation for their investment and what it represented on the date of the
damage, on the ground that the company is no longer in a position to
continue its operations, the fact that this damage, by the totalling of the
damages sustained by all the shareholders, is also the damage done to the
company does not seem to be relevant, leaving aside the problems of
assessment and apportionment. The damage to the company is that it is
destroyed; the damage to the shareholders is that they are injured in
respect of their property through the destruction of the [p 277] investment;
the damage suffered by the State of the shareholders is that one component
element of the national economy has undergone spoliation. The cause of the
responsibility is in all cases the unlawful act of the State, and the action
for the protection of the shareholders cannot be described as an
intervention in the domestic affairs of that State, as has sometimes been
alleged, unless it is claimed that denial of justice does not come within
the purview of international law. The point that there should not be any
double reparation, on the one hand for the company and on the other for the
shareholders, denotes a very understandable concern for fair play.
Nevertheless, intellectually and juridically, the individualization of the
damage remains a possibility.
Finally, the Judgment's view which admits the possibility of action by the
State of the shareholders in the event of the disappearance of the company
is lacking in logic for, in such an eventuality, if the company's State had
started an action it could not be nonsuited through the disappearance of
the company. And even if such action had been instituted after the
disappearance of the company, it is difficult to see why the State of the
company should be unable to make a claim in respect of the unlawful act
which was the root cause of the disappearance. If then, in this case, both
States can act, does this not mean that the general rule conferring the
right of action on the State of the company is not an exclusive rule?
16. Let us now return to the argument of the financial risk that must be
borne by the shareholder: the shareholder is not injured in respect of his
"rights", but only in respect of an economic interest which is not legally
guaranteed and not entitled to diplomatic protection or recourse to
proceedings. If a partnership were involved, those very persons who refuse
the idea of protection of the shareholder admit that protection would be
possible, but we are told that, as a shareholder does not enjoy any right
over the company, he has merely an interest in its optimum functioning.
In the first place, this is again to erect definitions taken from certain
municipal systems of law into a rule of international law; this is
paradoxical in the present-day world, when two-thirds of the population
live outside the capitalist system and the legal rules to which the Parties
adhere. The principle asserted must therefore be demonstrated to form a
veritable rule for States with a liberal economic system, one accepted by
them as a rule of regional international law. Such is patently not the case,
as is shown by diplomatic practice and arbitration. Moreover, we must recall
the numerous agreements, which were concluded precisely in the period when
the dispute arose, by which minority holdings in companies were indemnified
at the request of the State of which the minority shareholders were
nationals (the agreement of 19 March 1948 between France and Poland, for
instance). In the conventions concluded by Switzerland with Hungary on 19
July 1950, with Romania on 3 August 1951 and with Bulgaria on 26 November
1954, compensation is granted even to the holders of single shares. It seems
to me impossible to dismiss these agree-[p 278] merits with a stroke of the
pen, in particular those of Switzerland, which are not peace settlements
imposed by a victorious State; it is not the habit of States to make each
other free gifts FN1 and the number of agreements for the compensation of
shareholders considered apart from the limited company does imply the
recognition of an obligation.
--------------------------------------------------------------------------------------------------------------------- FN1
In the Hammaken case (U.S.A./Mexico, Moore, International Arbitrations, Vol.
IV, p. 3471) the umpire rejected the argument by the agent of Mexico that a
sum of $100,000 allowed by Mexico on account of the cancellation of a
concession was only an ex gratia donation: "if the [Mexican Government] did
not think that the wrong had been done by the Mexican authorities, it would
not have agreed to grant compensation . . ."
In many cases the respondent State prefers to pay an indemnity rather than
to be declared responsible for the damage; hence the conventional reference
to payments "in equity", "without admitting any legal obligation", "without
reference to the question of liability" (cf. Moore, International Law
Digest, Vol. VI, in particular with regard to the lynching of Italians in
Colorado (p. 841) and at New Orleans, and the lynching of Chinese at Rock
Springs (p. 830)). But these forms of words do not remove the problem of the
imputation of international responsibility.
---------------------------------------------------------------------------------------------------------------------
17. In the current ethos the limited company is simply a means of investment
in the industrial economy. The State, now having scarcely any property of
its own FN2 , supervises and directs the activities which go to make up the
gross national product, by drawing up the economic policy of the nation. The
supervision requisite to make sure that the components of the national
economy are maintained in normal working conditions, and in particular to
prevent their disappearance as a result of decisions contrary to law,
constitutes one of the normal functions of the State, and takes the form of
anticipating, guiding and assisting at the time of the decision to make the
investment, and of protecting in case of need after the investment has been
made. Investments which have made possible the creation or the development
of an enterprise abroad are as essential to the national economy as
investments which are made within the national territory. The action of the
State for the purpose of protecting a component item of the national economy
is a natural feature of the economic society of which Belgium and Spain
formed part at the time when the dispute arose.
--------------------------------------------------------------------------------------------------------------------- FN2
When, in liberal economies, public bodies buy stock in companies and become
shareholders, are they to be deprived of the protection of the State? (The
Industrial Reorganisation Corporation in the United Kingdom ; the Institut
de développement industriel in France.)
---------------------------------------------------------------------------------------------------------------------
18. It would be a distortion of this argument to claim that it leads to the
recognition that, in all circumstances, every shareholder has the right to
secure the protection of his State in respect of any act which has
inflicted damage on the limited company itself. In the first place, the
present opinion has been directed towards showing that, while accepting for
the sake of argument the renvoi to systems of municipal law, the alleged
legal obstacles to the exercise of a right of protection of shareholders, as
such, were not insuperable even within this legal framework. It is not the
case that the legal characteristics of the bond between the shareholder and
the company do not permit the State to act; neither is it the case that the
[p 278] damage done to the company necessarily rules out the possibility of
there being a damage proper to the shareholder in respect of which the State
may intervene; neither, lastly, is it the case that the State of the
shareholders possesses no right of its own to seek to preserve the
component items of the national economy. In fact there are no legal
obstacles to such protection; there are only necessary dispositions,
precautions to be taken so as to reach a reasonable solution in each case.
In the second place, the view that investments may be defended by the State
whose national economy is adversely affected is subject to limitation by the
terms of that very definition. The investments in question must be connected
with the national economy (and therefore not an ephemeral transaction in
securities) and there must have been an unlawful act involving the
responsibility of a State. The only problem is that of deciding in each case
how to co-ordinate the protections possible, that of the company and that of
the shareholders.
19. To apply this reasoning more specifically to the case, there is a
complaint of denial of justice, the claim that an industrial undertaking was
made to change hands by procedures that are described as unlawful, and
therefore a problem of violation of international law. The substance of the
obligation invoked against the Spanish Government is the obligation to
respect the investments of Belgian nationals and to protect them from
unlawful acts: this is a general obligation incumbent upon States in the
conduct of their economic relations. The Belgian Government's capacity to
institute proceedings corresponds to the right possessed by every State to
secure the respect of that obligation, when the investments of its nationals
constitute an important part of the national economy. The foundation of a
rule of economic international law must abide by economic realities. The
company's link of bare nationality may not reflect any substantial economic
bond. As between the two criteria the judge must choose the one on the test
of which the law and the facts coincide: it is the State whose national
economy is in fact adversely affected that possesses the right to take legal
action.
***
20. In the present matter one must seek to ascertain what is reasonable both
on the legal plane and on the plane of economic realities. When a limited
company has been set up, it may be granted that the shareholder is, in
principle, defended by the company, subject to the remarks above as to the
three categories of shareholder and the special character of holding
companies.
Accordingly, the State which has the right to protect the Barcelona Traction
investment would be Canada, and that, according to the Judgment, is what
both Parties have admitted. But that is a proposition which must be
verified, just as any contention made by a State which brings an
international claim before a court must be verified, to make sure that it [p
280]really corresponds to the facts. The issue here relates to certain
investments which have suffered serious damage; who has been harmed? If any
property suffers damage, reparation should be sought by the State with which
the property is genuinely linked. Now, supposing that Canada had intervened
before the Court in order to be recognized as having an interest of a legal
nature, relying on Article 62 of the Statute, Spain would not have failed to
object that there were not in Barcelona Traction any substantial or genuine
Canadian interests. It is of course inevitable in complicated cases that
parties should commit self-contradictions, but it would be regrettable if
the Court were indirectly to recognize these as possessing significance.
There is indeed a major reason why no account should be taken of the
statements made by the Parties concerning the Canadian character of the
company. The example of the right to intervene provided for in Article 62 is
to the point: if Canada had intervened, even an agreement between the two
Parties by which Canada were recognized to have a legal interest as being
the national State of the company would not have dispensed the Court from
examining the question whether Canada really had a legal interest, for
Article 62 says that "It shall be for the Court to decide" whether an
intervention is justified, and it seems to me that, in the matter of
jurisdiction, the Court cannot content itself with taking note of an
agreement between the Parties concerning the existence of a legal interest
on the part of a third State which is absent from the proceedings. The legal
interest of Canada either exists or does not exist; it is not for third
States to create it, and the most they could have done would be to recognize
this legal interest so far as their positions in the present case were
concerned, without such recognition having for the Court any effect whatever
in regard to the obligation laid upon it by its Statute to verify its own
competence.
21. It is therefore an obiter dictum void of judicial significance to assert
at the present time the Canadian nationality of the Barcelona Traction
company. That Canada did in fact act at the diplomatic level for a certain
time, that it proposed arbitration, these are not reasons for recognizing
its right to institute proceedings; it is not enough to claim a right to be
recognized as possessing it. All litigants make claims and one is always the
loser, and, his claim having been dismissed, he finds that he did not have a
right. A holding company whose capital is apportioned among shareholders of
several nationalities and of which the object is to operate an industry
abroad cannot be governed by one system of municipal law in respect of all
the problems concerning it (cf. paragraph 29 below). And the question of
which municipal law is applicable to a specific problem is a matter for
international law. That is what underlies the problem of the "nationality"
of companies. The assertion by a State that it has jurisdiction over a
company is nothing but a claim so long as it has not been admitted by all
the States directly concerned in that situation or by an international
judicial decision.
22. It has not been established that Canada has capacity to institute [p
281] proceedings in behalf of Barcelona Traction, since that company was
Canadian in appearance only FN1 and since, in the economic sphere, the
protection of investments must conform to the reality of the connection. The
decision regarding Nottebohm, an individual, which tacitly left the case of
companies open, can be applied with even greater reason to companies, for
the connecting factor of economic interest, as between investments and the
State from which they really come, is essential, as has been stated above
FN2. It is even more true of investment via a limited company than of an
individual or a ship that it cannot be given consideration at the
international level unless the State which puts forward the claim has
suffered a damage to its national economy; when there are several States
with which a company has a genuine connection, a complication may arise,
but that is not the case of all limited companies engaged in activities
abroad and the Court is not called upon to deliver a judgment laying down
the law for the protection of limited companies in general.
--------------------------------------------------------------------------------------------------------------------- FN1
Notwithstanding the references in the Judgement in paragraph 71 to various
points of connection with Canada, I agree with the observations made by
Judge Jessup in paragraph 49 of his separate opinion (in particular the
footnote thereto). Those really in control of Barcelona Traction do not seem
to have featured any genuine connection with Toronto.
FN2 The distinction between seeking a genuine connection in favour of or
against a company is devoid of legal significance. No party is ever either
favoured or penalized by the law, because of the fundamental principle of
equality before the law. The purpose of seeking the reality behind
appearances is to discover the true legal situation underlying the forms
adopted. The bringing of truth to light is not inspired by any favourable or
unfavourable attitude towards one of the elements of the problem but by the
needs of the process of ascertaining the law.
---------------------------------------------------------------------------------------------------------------------
23. One final observation must be made concerning the attitude of Canada
ever since the proceedings were brought. If Canada had felt any interest in
the case it had means so to inform the Court, without having to intervene
and run the risk of judicial rejection of its intervention. In the Corfu
Channel case various documents were proposed to the Court by the Yugoslav
Government, which was not a party to nor intervening in the proceedings, and
they were finally submitted to the Court by the Albanian Government
following a decision taken by the Court on 10 December 1948 (I.C.J.
Pleadings, Vol. III, p. 190; see also the Judgment on that case, with regard
to this point: I.C.J. Reports 1949, p. 17). In the present case, any
Canadian document relating the course of diplomatic protection by Canada
and giving the exact views of the Canadian Government could have been
furnished to the Court by the same procedure. Yet, on the contrary, the
elliptical answer returned by the Canadian Government on 24 June 1969 to the
question put by Members of the Court did not supply any clarification (New
Documents Nos. 44 and 45 submitted by the Belgian Government). On this point
I would refer to paragraphs 19 ff. of the separate opinion of Judge Jessup.
24. Although the Court has rejected the possibility of considering any
analogy with the Nottebohm case, it seems to me that the Nottebohm [p 282]
Judgment does establish a relative standard and does not go further than the
rule already recalled: "each case must be considered on its individual
merits." Thus, even without any need to rely on that Judgment, the
particulars of the present case are such as to place in the forefront of the
matters which the Court should have investigated the problem of the real
provenance of the investments in question. The theory of the genuine
connection implies comparison between Canada, Belgium and Spain— and perhaps
other States—, and inquiry into the concentration of the undertaking in
Spain, the problem as to whether the real control lay with the organs of
Barcelona Traction or elsewhere, and the reality of the Belgian investment.
As the Court did not in fact consider these verifications to be necessary,
it is difficult to give any final opinion concerning the real connection of
Barcelona Traction with any national economy, but the documents in the case
do permit of a few conclusions.
25. The connection with the national economy of Canada is certainly not the
most conspicuous, for the undertaking has never appeared to constitute a
factor of production in that economy.
The connection of Barcelona Traction with the Spanish economy cannot be
disputed so far as the factor of the production of goods and services in
Spain is concerned. The company concentrated all its activities in Spain,
and its subsidiaries, Spanish companies all but three, were under its
absolute control, so that it may be considered that the Barcelona Traction
group as an integrated enterprise formed a component in the Spanish national
production. But although this aspect of the matter may have legal
consequences, more particularly in respect of certain problems of
jurisdiction, it has none Whatsoever for the purpose of ascertaining with
which State the foreign investments underlying the creation and development
of the enterprise are truly connected. It has not been established that
these investments were mainly Spanish. There is therefore, from the
standpoint of the law applicable to the investments, no genuine connection
with the Spanish economy.
26. The connection with the Belgian economy has been made the subject of
exhaustive commentary by Judge Sir Gerald Fitzmaurice and Judge Jessup. For
the sake of brevity, I will merely say that I do not feel proof has been
supplied that the investments in question belong to the Belgian economy in
the sense of the view propounded in this opinion.
In this case, proof has not been supplied in a manner satisfying for a court
that Barcelona Traction, in continuous fashion, predominantly—or even
substantially—represented an investment on the part of the Belgian economy.
While it was possible to furnish prima facie evidence that over certain
periods, in terms of origin of capital invested and of actual control of
industrial and financial operations, the Belgian economy was more involved
than others, the observations made by Judge Jessup in paragraphs 72-98 of
his opinion show that the same has not been proved true of the period after
1940, more particularly during part of the critical period. Neither was it
possible to demonstrate a predominant, constant and certain [p 283]
connection with the Belgian economy on the basis of an inspection of the
company-group of which Barcelona Traction forms part.
To claim the right to protect investments, the presumption that Belgian
interests existed is indeed not enough; what is needed is to prove a genuine
connection with the economy during a continuous period, thus enabling it to
be said that appurtenance to the State in which the company was incorporated
is not in line with economic realities. If it is possible to verify the
genuineness of the seat, that cannot be for the purpose of substituting one
presumption for another. In all cases of this kind, it is naturally
difficult to pinpoint effective appurtenance to a particular national
economy, but the fault does not lie in any inadequacy of legal rules: it
lies in the very features of a complex undertaking. Within the ramification
of companies in such a group it is perhaps possible at a given moment, and
with reference to a given operation, to determine with what national economy
that operation is connected; it is not certain that this will be possible
for the whole of the group's operations, especially not with regard to long
periods during which there will have been changes in stockholdings, control
and management. But each case raises its own particular problem and it would
not, conversely, be difficult to refer to company-groups which, despite
their complexity, are incontestably connected with a given national
economy.
27. There is therefore no reason to treat company-groups as stateless and
deprive them of all protection at the level of international law; it is not
unlawful either in municipal or in international law to set up such groups,
and the problems to which they give rise are in no way different from those
arising out of the commercial, financial or industrial operations carried
out by other corporations. The difficulty of determining the connecting
link creates a complication, not an incapacity. What is necessary is to
ascertain in each case whether the investment in question is, in fact,
connected with a particular national economy and whether the national
economic prosperity of the claimant State has been harmed by the unlawful
act which directly affected the company. When several economies are
affected, this produces a situation which is familiar in international law
and is resolved by the acknowledgment of an obligation to negotiate (cf. the
agreements nowadays concluded among several creditor States vis-à-vis a
debtor State).
That the connection should be genuine is a necessary condition for the
protection of a corporate person no less than for that of an individual, and
in its absence the link with the State is fictitious and does not confer
capacity to institute proceedings. Finding that proof of Barcelona
Traction's appurtenance to the Belgian economy has not been produced,
whether on account of the internal organization of the group or for other
reasons, I am obliged to conclude that the claim must be dismissed.
***
28. I would add that there is another ground on which I would consider the
dismissal of the claim justified, but as the Court has not dis-[p284]
cussed the matter I can do no more than allude to it. Within the limits of a
separate opinion on a point not settled by the Judgment and not deliberated,
I must needs be brief FN1. Nevertheless the matter is of sufficient interest
and priority to justify an outline of my reasoning.
--------------------------------------------------------------------------------------------------------------------- FN1
I consider that this point of principle remains governed by the observation
of President Huber in July 1926 (P.C.I.J., Series D, addendum to No. 2, p.
15) and the resolution adopted by the Permanent Court of International
Justice on 17 February 1928 (StaufFenberg, Statut et Réglement de la Cour
permanente de Justice internationale, p. 414). When a point of law has not
been retained, in application of Article 4 of the Resolution concerning the
Internal Judicial Practice, as one which should be decided by the Court, any
observations thereon that a judge may make are precluded from possessing the
character of judicial pronouncements.
---------------------------------------------------------------------------------------------------------------------
The fact that a State may invoke the right to protect its nationals who are
shareholders in a company does not exempt the company from the obligation of
exhausting the local remedies available for the rectification of the
situation complained about. Barcelona Traction ought to have entered a plea
of opposition to the judgment declaring bankruptcy within the legal
time-limit, and there are no reasonable grounds for deciding that the
company's failure to enter such opposition within the time-limit does not
form a bar to the institution of proceedings on the international level. As
Sir Hersch Lauterpacht wrote in Ms separate opinion on the Certain Norwegian
Loans case: "however contingent and theoretical these remedies may be, an
attempt ought to have been made to exhaust them" (I.C.J. Reports 1957, p.
39). As it happens, at the time when the Reus judge gave his decision, there
was nothing to justify the contention that the remedy of opposition was
merely theoretical. Generally speaking, in bankruptcy law the bankruptcy
judgment divests the bankrupt as soon as it is delivered and before any
publication; the rule is perhaps too rigorous but there are reasons for it
with which specialists in commercial law are familiar, and that effect was
at all events a feature of Spanish law in 1948 FN2. Even if it had been
intended to maintain that this rule was contrary to a general principle of
law, it was necessary to enter opposition to the judgment while expressing
the necessary reservations as to the lack of notification; this complaint
ought indeed to have been laid in the first instance before the local judge
so that he could rule upon it and, if need be, rectify the situation.
Whether it be Spanish law or international law that is considered to have
been violated, it is necessary to request the local courts to look into the
matter and allow them the opportunity of correcting any mistake.
--------------------------------------------------------------------------------------------------------------------- FN2
There is nowhere to be found in the different legislations of the same legal
system, at that time, any provisions concerning publication which are such
that they enable the existence to be deduced of a general principle of law
the infringement of which would ipso facto render the entire proceedings
null and void. And if it be held that failure to publish the judgment at the
bankrupt's place of domicile constitutes a breach of Article 1044 (5) of
the Spanish Commercial Code, then it is to the Spanish courts that complaint
must first be addressed in this regard.
---------------------------------------------------------------------------------------------------------------------
29. The necessity of entering a plea of opposition becomes still more
evident when it is observed how the concentration of the industrial
under-[p285] taking in Spain lends colour, prima facie to, the Spanish
assumption of jurisdiction, on considering the jurisdiction problem in
general and quite apart from the petition for bankruptcy on account of
failure to honour bonds.
The corporate purpose of the undertaking is to develop the hydro-electricity
industry in Spain, and the electric railway and tramway system in the city
and province of Barcelona (cf. Moody's Public Utility Manual, 1968, p.
2067). No area other than Spain is contemplated for hydroelectric
development, and in fact Barcelona Traction never undertook works in any
other country; its subsidiaries operated electricity production and
distribution systems in Barcelona, Catalonia "and the industrial cities of
Tarrasa, Tarragona, Reus" (sic) "and Tortosa" (ibid.: it should be noted
that these details are based on information supplied by the company; see the
paragraphs "Property Seized" and "Assets in Spain sold"). In these
circumstances, the absence of publication in Canada can be seen in a
particular light; furthermore, the considerations set forth in a number of
separate opinions concerning the genuineness or otherwise of the company's
headquarters in Toronto could have been adduced by the Spanish judge, who
could also have invoked the judicial precedents of certain States, where
foreign companies which have a branch, have carried on business, issued
bonds or entered into contracts within the national territory have been
adjudged bankrupt FN1. It should be noted that the courts of certain States
have declared bankruptcies for non-repayment of loans, when a businessman
has called on credit in their territory, though that is an exceptional
circumstance. The claim to possess a certain jurisdiction over the
activities of the Barcelona Traction group in Spain was consequently not, a
priori, illegitimate, though this does not imply the legitimacy of all the
measures for the execution of the bankruptcy, or of the actual petition made
to the Reus judge. But the state of the law concerning the bankruptcy of
foreign companies was not, at the time of the facts, such as to justify any
abandonment by the company of the remedies open to it.
--------------------------------------------------------------------------------------------------------------------- FN1
In several European legal systems a debtor can be declared bankrupt by the
courts of a country in which he carries on a secondary occupation or
possesses assets (Article 9 of the Italian, Article 2 of the Netherlands and
Article 238 of the Federal German laws concerned), or if he is in debt there
(French case-law). Some doubt is thrown on the character of Barcelona
Traction as a holding company by direct activities in Spain (cf. hearing of
14 July 1969).
---------------------------------------------------------------------------------------------------------------------
After the passage of many years and countless proceedings, it is not easy to
recover the standpoint of the time when the act complained of occurred, but
that is what has to be done in utter objectivity, and in that light it will
be seen that a plea of opposition to the declaration of bankruptcy ought to
have appeared to the company as an immediately available and practicable
remedy.
(Signed) Andre Gros. |
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