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CASE CONCERNING THE BARCELONA TRACTION, LIGHT ANDPOW R COMPANY, LIMITED SECOND PHASE)udgmentof 5

In its judgment in the second phase of tht: case concerningthe Barcelona Traction, Light and Rwer C ompany, Limited(New Application: 1962) (Belgium v SIpain), the Courtrejected Belgium s claim by fifteen votes tal one.

The claim, which was brought before the Court on 19June1962, arose out of the adjudication in bankruptcy in Spain ofBarcelona Traction, a company incorporat1:d in Canada. Itsobject was to seek reparation for damage alleged by Belgiumto have been sustained by Belgian nationals;, shareholders inthe company, as a result of acts said to be contrary to interna-tional law committed towards the company by organs of theSpanish State.The Court found that Belgium lacked us standi to exercisediplomatic protection of shareholders in a Canadian com-pany with respect to measures taken against that company inSpain.Judges Petdn and Onyeama appended a joint declarationto the Judgment; Judge Lachs appended a d~xlaration. resi-dent Bustamante y Rivero and Judges Sir Gerald Fitzmau-rice, Tanaka, Jessup, Morelli, Padilla hlervo, Gros andAmmoun appended Separate Opinions.Judgead hoc Riphagen appended a Dissenting Opinion.

Background of Events in the Case(paras. 8-24 of the Judgment)The Barcelona Traction, Light and Rwer Company, Lim-ited, was incorporated in 1911 inToronto (Chnada), where ithas its head office. For the purpose of creating and develop-ing an electric power production and distribution system inCatalonia (Spain) it formed a number of subsidiary compa-nies, of which some had their registered offices in Canadaand the others in Spain. In 1936 the subsidiary companiessupplied the major part of Catalonia s eltxtricity require-ments. According to the Belgian Governlr~ent, ome yearsafter the first world war Barcelona Traction s share capitalcame to be very largely held by Belgian nationals, but theSpanish Government contends that the Be1g:ian nationality ofthe shmeholders is not proven.Barcelona Traction issued several series onds, princi-pally in sterling. The sterling bonds were serviced out oftransfers to Barcelona Traction effected by the subsidiarycompanies operating in Spain. In 1936 the servicing of theBarcelona l k t i o n bonds was suspendedo account of theSpanish civil war. After that war the Spanish exchange con-trol authorities refused to authorize the transfer of the foreigncurrency necessary for the resumption of thf: servicing of thesterling bonds. Subsequently, when the Belgian Governmentcomplained of this, the Spanish Government stated that thetransfers could not be authorized unless it ,were shown thatthe foreign currency was to be used to repay debts arisingfrom the genuine importation of foreign capital into Spain,and that this had not been established.n 1948three Spanish holders of recently acquired Barce-lona liaction sterling bonds petitioned that court of Reus(Rovince of Tarragona) for a declaration adjiudging the com-pany bankrupt, on,accountof failure to pay tlhe interest on thebonds. On 12 February 1948 a judgment was given declaringthe company bankrupt and ordering the seizure of the assetsof Barcelona Traction and of two of its subsidiary compa-

nies. Pursuant to this judgment the principal managementpersonnel of the WIDompanies were dismissed and Spanishdirectors appointed. Shortly afterwards, these measureswere extended to the other subsidiary companies. Newshmes of the subsidiary companies were created, which weresold by public auctiion in 1952 to a newly-formed company,Fuerzas Electricas ~deCataluiia, S.A. (Fecsa), which there-upon acquired comlplete control of the undertaking in Spain.

Proceedings wens brought without success in the Spanishcourts by various c:ompanies or persons. According to theSpanish Government, 2,736 orders were made in the caseancl494 judgments given by lower and 37 by higher courtsbefore it was submitted to the International Court of Justice.The Court found that in 1948 Barcelona Traction, which hadnot receiveda judicial notice of the bankruptcy proceedings,and was not represe:nted before the Reus court, took no pro-ceedings in the Spanish courts until 18 June and thus did notenter a plea of opposition against the bankruptcy judgmentwithin the time-limit of eight days from the date of publica-tion of the judgment laid down in Spanish legislation. TheBelgian Governme:nt contends, however, that the notifica-tion and publication did not comply with the relevant legalrequirements and that the eight-day time-limit never began torun.

Representations were made to the Spanish Government bythe British, Canadian, United States and Belgian Govern-ments as from 19481 or 1949. The interposition of the Cana-dim Government ct:ased entirely in 1955.Proceedings before the International Court and the Natureof the Claim(paras. 1-7 and 2 6 31 of the Judgment)

The Belgian Government filed a first Application with theCourt against the Spanish Government in 1958. In 1961 itgave notice of discontinuance of the proceedings, with aview t negotiations between the representatives of the pri-vate interests conceimed, and the case was removed from theCourt s General List. The negotiations having failed, theBelgian Government on 19 June 1962 submittedt he Courta new Application. n 1963 the Spanish Government raisedfour preliminary objections t this Application. By its Judg-ment of 24 July 1964, the Court rejected the first and secondobjections and joined the third and fourtht he merits.In the subsequent:written and oral proceedings the Partiessupplied abundant material and information. The Courtobserved that the um~usual ength of the proceedings was due

t the very long time-limits requested by the Parties for thepreparation of their written pleadings and to their repeated.requests for an extension of those limits. The Court did notfind that it should refuse those requests, but it remained con-vinced that it was in the interest of the authority of interna-tional justice for caws to be decided without unwarranteddelay.The claim submitted to the Court had been presented onbehalf of natural and juristic persons, alleged t be Belgiannationals and shareholders in Barcelona Traction, a companyincorporated in Canada and having its head office there. Theobject of the Application was reparation for damage alleg-edly caused to thoser persons by the conduct, said to e con-

Summaries of Judgments, Advisory Opinions and Orders of the International Court of JusticeNot an official document

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tr ry to international law, of various organs of the SpanishState towards that company.The third preliminary objection of the Spanish Govern-ment, which had been joined to the merits, was to the effectthat the Belgian Governme.nt acked capacity to submit anyclaim in respect of wrongs done to a Canadialn company,even if the shareholders w8e:re Belgian. Th~e oruth prelimi-nary objection, which was :also joined to the merits, was tothe effect that local remedies available in Slpain lhad not beenexhausted.The case submitted to the Court principally concernedthree States, Belgium, Spain and Canada, and it was accord-ingly necessary to deal wit11 a series of problems arising outof this triangular relationship.

The Belgian Government's jus standi(paras. 32-101 of the Judgment

capacity to take action. As regards the first of these possibili-ties, the Court observed that whilst Barcelona Traction hadlost d l its assets in Spain and been placed in receivership inCanada, it could not be contended that the corporate entity ofthe company had ceased to exist or that it had lost its capacityto take corporate action. So far as the second possibility wasconcerned, it was not disputed that the company had beenincorporated in Canada and had its registered office in thatcountry, and its Canadian nationality had received generalrecognition. The Canadian Government had exercised theprotection of Barcelona 'Ifaction for a number of years. If at acertain point the Canadian Government ceased to act onbehalf of Barcelona 'Ifaction, it nonetheless retained itscapacity to do so, which the Spanish Government had notquestioned. Whatever the reasons for the Chadian Govern-ment's change of attitude, that fact could not constitute a jus-tification for the exercise of diplomatic prolection by anothergovernment.The Court first addressed itself to the qi~estisn, aised by It had been maintained that a State could make a claimthe third preliminary objection, which had beenjoined to the when investments by its nationals abroad, such investmentsmerits, of the right of Belgi~u~mo exercise diplomatic protec- being part of a national economic resources, weretion of Belgian shareholders in a compimy incorporated prejuolicially affected in violation of the lright of the statein Canada* he measures c.c)m~lainedf h;aving been taken itself to have its nationals enjoy a certain treatment. But, inin relation not to any Belgian national to the company thepresent state of affairs, such a right could only ~ s u l tromitself. a treaty or specid agreement. And no instrument of such a

The Court observed that ,when a State admitted into its ter- kind was in force between Belgium and Spain.rit0ry foreign in~e~fXIlent~X foreign nationals it Was bound ~t had also been maintained that, for reasons of equity,ato extend to them the protec1:ion of the law and assumed obli- state should be able, in certain cases, to take up the protec-gations concerning the trerltment to be afforded them. But tion of its nationals, in a company which hadsuch obligations were not absolute. In order to bring a claim been the victimofa violationof international awemecourtin respect of the breach of such an obligation, a State must consitlered that the adoption of the theory of diplomatic pro-first establish its right to do tro tection of shareholders as such would open thedoor to com-In the field of diplomatic protection, international law was peting claims on the part of different States, which could cre-in continuous evolution and was called ypon 1:o recognize ate an atmosphere of insecurity in international economicinstitutions of municipal law. In municipal law, the concept relations. In the particular circumstances of the pRsent case,of the company was foundled on a firm distinction between where the company's national State was able to act, the Courtthe rights of the company and those of the shareholder. Only was not of the opinion that jus standi was conferred on thethe company, which was endowed with legal personality, Belgian Government by considerations of equity.could take action in respect of matters that were of a corpo-rate character. A wrong done to the company frequently ~ ~ ~ ~ t ~ ~ ~caused prejudice to its sharmholders, but this did not imply ( p m . 102 103 ofthe Judgment)that both were entitled to claim compensation. Whenever ashareholder's interests were harmed by n act done to the Thc: Court took cognizance of the great amount of docu-company, it was to the latter that he had tc look to institute mentary and other evidence submitted by the Parties andappropriate action. An act infringing onl:y the company s fully appreciatedthe importance of the legal problems raisedrights did not involve responsibility towan the sharehold- by the allegation which was at the root of the Belgian claimers, even if their interests wt:re affected.In for the situ- and which concerned denials of justice allegedly committedation to be different, the act complained of must be aimed at by organs of the Spanish State. However, the possession bythe direct rights of the share'holder as such (which was not the the Belgian Government of a right of protection was a prereq-case here since the Belgian Government had itself admitted uisite for the examination of such problems. Since no justhat it had not based its clairr~ n an infringeiment of the direct standi before the Court had been established, it was not forrights of the shareholders). the Court to pronounce upon any other aspect of the case.International law had to refer to those rules generally Accordingly, the Court rejected the Belgian Govern-accepted by municipal legal systems. An injury to the share- ment's claim by 15 votes to 1.12 votes of the majority beingholder's interests resulting from an injuryto the rights of the based on the reasons set out above.company was insufficient t'c) found a claim. Where it was aquestion of an unlawful act committed against a company DECLARATIONSND SEPARATENDrepresenting foreign capital, the general rule of international DISSENTINGPINIONSlaw authorized the national State of the company alone toexercise diplomatic protection for the purpose of seeking Judge ad hoc Riphagen appended to the Judgment a Dis-redress. No rule of interndonal law expressly conferred senting Opinion in which he stated that he was unable to con-such a right on the sharehol~tler's ational State. cur in the Judgment as the legal reasoning followed by theThe Court considered winlether there mi&t not be, in the Court appeared to him to fail to appreciate the nature ofpresent case, special circulnstances for which the general the rubs of custo~aryublic international law applicable inrule might not take effect. Il'wo situations needed to be stud- th sentase.ied: (a) the case of the company having cerlsed to exist, and Among the fifteen members of the majority, three s u p(b) the case of the protecti~~gtate of the company lacking ported the operative provisions of the Judgment (rejecting

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the Belgian Government s claim) for diffei-ent reasons, andappended Separate Opinions to the Judgme:nt. Judge Tanakastated that the two preliminary objections oined to the meritsought to have been dismissed, but that the Belgian Govern-ment s allegation concerning denials of justice wasunfounded. Judge Jessup came to the concln~sionhat a State,under certain circumstances, had a right to present a diplo-matic claim on behalf of shareholders whowere its nationals,but that Belgium had not succeeded in proving the Belgiannationality, between the critical dates, of those natural andjuristic persons on whose behalf it had sought toclaim. JudgeGros held that it was the State whose national economy wasadversely affected that possessed the right to take action butthat proof of Barcelona Traction s appurtenance to the Bel-gian economy had not been produced.

Among the twelve members of the majority who sup-

ported the operative:provision of the Judgment on the basis ofthe reasoning set out in the Judgment (lack of jus sr ndi onthe part of the shareholders national State). President Busta-mante Rivero and Judges Sir Gerald Fitzmaurice, Morelli,Fadilla Nervo and Ammoun (Separate Opinions) and JudgesPetdn and Onyearna (joint declaration) and Judge Lachs(declaration) stated that nevertheless there were certain dif-ferences between their reasoning and that contained in theJudgment, or that there were certain observations which theywished to add.(Judge Sir Muharnrnad Zafrulla Khan had informed thePresident at the beginning of the Preliminary Objectionsstage that, having been consulted by one of the Parties con-cerning the case bsfore his election as a Member of theCourt, he considered that he ought not to participate in itsdecision.)