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in Spain. The Belgian stockholders in Barcelona Traction lost money and wanted to sue in the International Court of Justice, but in the court Judge Fornier ruled on the side of Spain, holding that only the state in which the corporation was incorporated (Canada) can sue. The decision in Belgium v. Spain is important in public international law because it demonstrates the importance of protections of corporate nationality in nominal ("paper") terms over effective nationality (siège social) where the ownership effectively resides. Unless a principle of law permits a country to espouse a national's claim in the ICJ, there cannot be an espousal. The case is also important as it demonstrates how the concept of diplomatic protection under international law can apply equally to corporations as to individuals. It also expanded the notion of obligations owed erga omnes (in relation to everyone) in the international community. The Case - Expanded in Greater Detail Case Concerning Barcelona Traction, Light, and Power Company, Ltd. (Second Phase) International Court of Justice Reports, vol. 1970, p. 3(1970). Barcelona Traction, Light, and Power Company, Ltd. (Barcelona Traction) manufactured and supplied electricity in Spain. Although doing business in Spain, it was incorporated in Canada and maintained its headquarters in Toronto. The company issued corporate bonds to investors outside of Spain. During the Spanish Civil War (1936–1939), the government of Spain refused to allow Barcelona Traction to transfer currency from Spain to pay interest to the bondholders. The interest payments were never resumed. In 1948, several Spaniards purchased some of the bonds and then brought suit in a Spanish court asking it to declare Barcelona Traction bankrupt because it had failed to pay the interest on the bonds. The court did so and, following several motions and appeals, all of the assets in Spain belonging to the company were finally sold by public auction in 1952. The proceeds from the sale were distributed to creditors and only a very small sum was to be paid to shareholders. The shareholders then sought the assistance of their home states in seeking to obtain a larger settlement. Canada, among other states, complained to Spain of denials of justice and of the violation of certain treaties it alleged were applicable. Canada, however, eventually agreed that Spain had acted properly in denying Barcelona Traction the right to transfer currency abroad and later in declaring the company bankrupt. Belgium took an interest in the matter because Belgians owned 88 percent of the shares in Barcelona Traction. It disagreed that Spain had acted properly and after Spain became a member of the United Nations in 1955, Belgium filed a complaint before the International Court of Justice in 1958. The proceedings were
suspended and then discontinued while representatives of the private interests concerned carried on negotiations. When the negotiations failed, Belgium submitted a new application to the Court in 1962. Spain promptly objected that Belgium could not sponsor Barcelona Traction's or its shareholders' complaints because Barcelona Traction was a Canadian company. JUDGMENT OF THE COURT:... 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…. Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain); Second Phase Judgment of 5 February 1970 In its judgment in the second phase of the case concerning the Barcelona Traction, Light and Power Company, Limited (New Application: 1962) (Belgium v. Spain), the Court rejected Belgium's claim by fifteen votes to one. The claim, which was brought before the Court on 19 June 1962, arose out of the adjudication in bankruptcy in Spain of Barcelona Traction, a company incorporated in Canada. Its object was to seek reparation for damage alleged by Belgium to have been sustained by Belgian nationals, shareholders in the company, as a result of acts said to be contrary to international law committed towards the company by organs of the Spanish State. The Court found that Belgium lacked jus standi to exercise diplomatic protection of shareholders in a Canadian company with respect to measures taken against that company in Spain. Judges Petrén and Onyeama appended a joint declaration to the Judgment; Judge Lachs appended a declaration. President Bustamante y Rivero and Judges Sir Gerald Fitzmaurice, Tanka, Jessup, Morelli, Padilla Nervo, Gros and Ammoun appended Separate Opinions. Judge ad hoc Riphagen appended a Dissenting Opinion.
Background of Events in the Case
(paras. 8-24 of the Judgment) The Barcelona Traction, Light and Power Company, Limited, was 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 subsidiary companies, of which some had their registered offices in Canada and the others in Spain. In 1936 the subsidiary companies supplied the major part of Catalonia's electricity requirements. According to the Belgian Government, some years after the first world war Barcelona Traction share capital came to be very largely held by Belgian nationals, but the Spanish Government contends that the Belgian nationality of the shareholders is not proven. Barcelona Traction issued several series of bonds, principally in sterling. The sterling bonds were serviced out of transfers to Barcelona Traction effected by the subsidiary companies operating in Spain. In 1936 the servicing of the Barcelona Traction bonds was suspended on account of the Spanish civil war. After that war the Spanish exchange control authorities refused to authorize the transfer of the foreign currency
32-101 of the Judgment) The Court first addressed itself to the question. and was not represented before the Reus court. In order to bring a claim in respect of the breach of such an obligation. In 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. The Belgian Government's jus standi (paras. took no proceedings in the Spanish courts until 18 June and thus 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. the interest of the authority of international justice for cases to be decided without unwarranted delay. S. a company incorporated in Canada and having its head office there. In order for the situation to be different. Fuerzas Electricas de Cataluna. 1-7 and 26-31 of the Judgment) The Belgian Government filed a first Application with the Court against the Spanish Government in 1958. when the Belgian Government complained of this. of various organs of the Spanish State towards that company. a State must first establish its right to do so. of the right of Belgium to exercise diplomatic protection of Belgian shareholders in a company incorporated in Canada. even if their interests were affected. international law was in continuous evolution and was called upon to recognize institutions of municipal law. Spain and Canada.A. raised by the third preliminary objection. on account of failure to pay the interest on the bonds. A wrong done to the company frequently caused prejudice to its shareholders. But such obligations were not absolute. which was also joined to the merits. An act infringing only the company's rights did not involve responsibility towards the shareholders. The claim submitted to the Court had been presented on behalf of natural and juristic persons.necessary for the resumption of the servicing of the sterling bonds. but it remained convinced that it was in . and it was accordingly necessary to deal with a series of problems arising out of this triangular relationship. that the notification and publication did not comply with the relevant legal requirements and that the eight-day timelimit never began to run. with a view to negotiations between the representatives of the private interests concerned. In 1963 the Spanish Government raised four preliminary objections to this Application. these measures were extended to the other subsidiary companies. which thereupon acquired complete control of the undertaking in Spain. alleged to be Belgian nationals and shareholders in Barcelona Traction. but this did not imply that both were entitled to claim compensation. which had been joined to the merits. it was to the latter that he had to look to institute appropriate action. The Court observed that the unusual length of the proceedings was due to the very long time-limits requested by the Parties for the preparation of their written pleadings and to their repeated requests for an extension of chose limits. The Court did not find that it should refuse those requests. International law had to refer to those rules generally accepted by municipal legal systems. could take action in respect of matters that were of a corporate character. United States and Belgian Governments as from 1948 or 1949. however. (Fecsa). The Court observed that when a State admitted into its territory foreign investments or foreign nationals it was bound to extend to them the protection of the law and assumed obligations concerning the treatment to be afforded them.736 orders were made in the case and 494 judgments given by lower and 37 by higher courts before it was submitted to the International Court of Justice. and the case was removed from the Court's General List. Only the company. New shares of the subsidiary companies were created. Whenever a shareholder's interests were harmed by an act done to the company. Belgium. Where it was a question of an unlawful act committed against a company representing foreign capital. which had been joined to the merits. In the field of diplomatic protection. An injury to the shareholder's interests resulting from an injury to the rights of the company was insufficient to found a claim. which was endowed with legal personality. By its Judgment of 24 July 1964. In municipal law. Subsequently. the measures complained of having been taken in relation not to any Belgian national but to the company itself. The Belgian Government contends. the Spanish Government stated that the transfers could not be authorized unless it were 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. said to be contrary to international law. the act complained of must be aimed at the direct rights of the shareholder as such (which was not the case here since the Belgian Government had itself admitted that it had not based its claim on an infringement of the direct rights of the shareholders). which were sold by public auction in 1952 to a newly-formed company. which had not received a judicial notice of the bankruptcy proceedings. The Court found that in 1948 Barcelona Traction. Proceedings were brought without success in the Spanish courts by various companies or persons. In the subsequent written and oral proceedings the Parties supplied abundant material and information. In 1961 it gave notice of discontinuance of the proceedings. The interposition of the Canadian Government ceased entirely in 1955. the general rule of international law authorized the national State of the company alone to exercise diplomatic protection for the purpose of seeking redress. The negotiations having failed. The fourth preliminary objection. was 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. was to the effect that local remedies available in Spain had not been exhausted. Canadian. The object of the Application was reparation for damage allegedly caused to those persons by the conduct. the Court rejected the first and second objections and joined the third and fourth to the merits. No rule of Proceedings before the International Court and the Nature of the Claim (paras. Representations were made to the Spanish Government by the British. The case submitted to the Court principally concerned three States. Pursuant to this judgment the principal management personnel of the two companies were dismissed and Spanish directors appointed. the concept of the company was founded on a firm distinction between the rights of the company and those of the shareholder. On 12 February 1948 a judgment was given declaring the company bankrupt and ordering the seizure of the assets of Barcelona Traction and of two of its subsidiary companies. According to the Spanish Government. Shortly afterwards. the Belgian Government on 19 June 1962submitted to the Court a new Application. The third preliminary objection of the Spanish Government. 2.
and on July 12th. they abstained from doing so at the beginning of the 17th century and for 300 years. Negotiations had been entered into by the two Governments. they were pursued after the Decree was enacted. The breadth of the belt of Norwegian territorial sea is not an issue: the four-mile limit claimed by Norway has been acknowledged by the United Kingdom. it was not disputed that the company had been incorporated in Canada and had its registered office in that country. But in 1906 British vessels appeared again. it nonetheless retained its capacity to do so. J. such a right could only result from a treaty or special agreement. These have been exploited from time immemorial Iby the inhabitants of the mainland and of the islands: they derive their livelihood essentially from such fishing. For its part. shareholders in a company which had been the victim of a violation of international law. By a Decree of July 12th. The United Kingdom denies that they have been drawn in accordance with international law. . a State should be able. for reasons of equity.appended to the Judgment . special circumstances for which the general rule might not take effect. nor the lines themselves fixed by the said I)ecree. As a result of complaints from the King of Norway. the Court was not of the opinion that jus standi was conferred on the Belgian Government by considerations of equity. and it relies on principles which it regards as applicable to the present case. and it f d r e r relies on its own system of delimitation which it asserts 1:o be in every respect in The Court's Decision (paras. Two situations needed to be studied: (a) the case of the company having ceased to exist. the first finding is adopted by ten votes to two. So far as the second possibility was concerned. such investments being part of a State's national economic resources. E. the coast does not constitute. very broken by fjords and bays.Britain and Northern Ireland against Norway. The Court considered that the adoption of the theory of diplomatic protection of shareholders as such would open the door to competing claims on the part of different States.500 kilometres. the Court observed that whilst Barcelona Traction had lost all its assets in Spain and been placed in receivership in Canada. In the particular circumstances of the present case. Accordingly. 12 votes of the majority being based on the reasons set out above. Since no jus standibefore the Court had been established. are contrary to international law. it could not be contended that the corporate entity of the company had ceased to exist or that it had lost its capacity to take corporate action. in the present state of affairs. whilst not denying that rules do exist.Sir Arnold McNair and Mr. In past centuries British fisherman had made incursions in the waters near the Norwegian coast. and its Canadian nationality had received general recognition. that fact could not constitute a justification for the exercise of diplomatic protection by another government. The Judgment first specifies the subject of the dispute.21 declaration or an individual opinion stating the particular reasons for which they reached their conclusions.international law expressly conferred such a right on the shareholder's national State. and the second by eight votes to four. It had also been maintained that. called "baselines". its Judgment the Court found that neither the method employed for the deli mitation by the Decree. The lacal population became perturbed. It had been maintained that a State could make a claim when investments by its nationals abroad. Mountainous along its whole length. The coastal zone concerned in the dispute is of a distinctive configuration. and (b) the case of the protecting State of the company lacking capacity to take action. in the northern prln of the countly (north of the Arctic Circle) delimited the uwe in which the fisheries were reserved to its own nationals. two other Judges. became more and more frequent. (These lines. Three Judges-MM. The Court considered whether there might not be. 'me United Kingdom asked the Court to state whether this dt:limitation was lor wra not contrary to international law. The land configuration stretches out into the sea and what really constitutes the Norwegian coastline is the outer line of the land formations viewed as a whole. but without success. the possession by the Belgian Government of a right of protection was a prerequisite for the examination of such problems. it was not for the Court to pronounce upon any other aspect of the case. islets and reefs (certain of which form a continuous archipelago known as the skjaergaard. It was then that the United Kingdom Government instituted proceedings before the Court. dotted with countleris islands. These: were trawlers equipped with improved and powerful gear. which the Spanish Government had not questioned. as it does in practically all oth~er countries in the world a clear dividing line between land and sea. Its length as the crow flies exceeds 1. the Court rejected the Belgian Government's claim by 15 votes to 1. As regards the first of these possibilities. However. A considerable number of British trawlers were arrested and condemned in 1948 and 1949. Norway. 102 and 103 of the Judgment) The Court took cognizance of the great amount of documentary and other evidence submitted by the Parties and fully appreciated the importance of the legal problems raised by the allegation which was at the root of the Belgian claim and which concerned denials of justice allegedly committed by organs of the Spanish State. But. Along the coastal zone are situated shallow banks which are very rich in fish. which could create an atmosphere of insecurity in international economic relations. Incidents occurred. were prejudicially affected in violation of the right of the State itself to have its nationals enjoy a certain treatment. contends that those put fisrward by the United Kingdom are not applicable. Hackworth and Hsu Mo. Whatever the reasons for the Canadian Government's change of attitude. But the question is whether the lines laid down by the 1935 Decree for the purpose of delimiting the Norwegian fisheries zone have or have not been drawn in accordance with international law. 1935. In. the Norwegian Government had. and measures were taken by Norway with a view to specifying the limits within which fishing was prohibited to foreigners. The Fisheries Case was brought before the Court by the United Kingdom of Great . If at a certain point the Canadian Government ceased to act on behalf of Barcelona Traction. The Canadian Government had exercised the protection of Barcelona Traction for a number of years. Read-appended to the Judgment statements of their dissenting Opinions. are those from which the belt of the temtorial sea is reckoned). The situation which gave rise to the dispute and the facts which preceded the filing of the British Application are recalled in the Judgment. where the company's national State was able to act. 1935 the Norwegian Government delimited the Norwegian fisheries zone by Decree. And no instrument of such a kind was in force between Belgium and Spain. "rock rampart"). in certain cases. Alvalez. in the present case. to take up the protection of its nationals.
Norway puts forward the 1935 Decree as the application of a traditional system of delimitation in accordance with international law. Must there be a maximum length for straight lines. which was so well. viewed as a whole that calls for the method of straight baselines. the United Kingdom contends that certain of the base-lines adopted by the Decree are without justification from the point of view of the criteria stated above: i. others have adopted a different length: consequently the ten-mile rule has not acquired the authority of a general rule of international law. islets and reefs. confining itself to the Conclusions of the United Kingdom. finds that the 1935 delimitation does not violate international law. the Judgment concludes that the lines drawn are justified. Straight lines will be drawn across welldefined bays. consequently. and finally the conformity of that system with international law. as well as a number of subsequent texts (Decrees. furthermore. Drawn between appropriate points on this low-water mark.conformity with international law. it could not have been ignorant of the reiterated manifestations of Norwegian practice. Thus the Court. which inevitably lead to the conclusion that the relevant line is not that of the mainland. it cannot be dependent merely upon the will of the latter. has been established in the Norwegian system and consolidated by a constant and sufficiently long practice. In one case-that of Svaerholthavet-what is involved is indeed a basin having the character of a bay although it is divided into two large fjords. the Norwegian Government has relied upon an historic title clearly referable to the waters of Lopphavet: the exclusive privilege to fish and hunt whales granted in the 17th century to a Norwegian subject. Furthermore. In a third case. But the delimitation of sea areas has always an international aspect since it interests States other than the coastal State. and sea areas separating islands. should be left to the coastal State. the base-line must not depart to any appreciable extent from the general direction of the coast: certain waters are particularly closely linked to the land formations which dhide or sirround-them (an idea which should be libers~lly applied in the present case. but rather that of the "skjaergaard". the Judgment concludes that the method employed by the Decree of 1935 is not contrary to international law. as con tended by the United Kingdom. then the Norwegian system. The general t~sleration of the international community therefore shows that the Norwegian system was not regarded as contrary to international law. minor curvatures of the coastline. the ten-mile nile is inapplicable as against Norway inasmuch as she has always opposed its application to the Norwegian coast. Having examined the sectors thus criticised. international law takes into account the diversity of facts and concedes that the delimitation must be adapted to the special conditions obtaining in different regions. The parties agree as to this criterion. and that the base-lines fixed by the Decree are not contrary to international law either.t is contended that they do not respect the general direction of the coast and have not been drawn in a reasonable manner. concerned with maritime questions. The drawing of such lines does not constitute an exception to a rule: it iis this rugged coast. which it follows that these waters were regarded as exclusively falling within Norwegian sovereignty. neither in respect of bays nor the waters separating the islands of an archipelago.the divergence between the base-line and the land formations is not such that it is a distortion of the general direction of the Norwegian coast. The geographic realities described above. although the 1!J35 Decree did indeed conform to this method (one of the findings of the Court). In another case -that of Lopphavet . In its view. The application of this system encountered no opposition from other States. in view of the configuration of'the coast). In this connection certain basic considerations inherent in the nature of the territorial sea bring to light the following criteria which can provide guidance to Courts: since the temtorial sea is closely dependent upon the land domain. the base-line can only be determined by means of a geometric construction. This indeed is the criterion generally adopted in the practice of States. Reports. departing from the physical coastline to a reasonable extent. also lead to the rejection of the requirement that the base-line should always follow low-water mark. but they differ as to its application. Even the United Kingdom did not contest it for many years: it was only in 1933 that the United Kingdom made a formal and definite protest. diplomatic correspondence) show that the method of straight lines. which are local in character and of secondary importance. it may be necessary to have regard to certain economic interests peculiar to a region when their reality and importance are clearly evidenced by a long usage.that of the Vestfjord-the difference is negligible: the settlement of such questions. And yet. But.known. For these reasons. 'fie Judgment first examines the applicability of the principles put forward by the United Kingdom. thus giving a simpler form to the be!it of territorial waters. The Judgment notes that a Norwegian Decree of 1812. The first principle put forward by the United Kingdom is that the base-line must be low-water mark. imposed by geography. . except in the case of the closing line of internal waters to which the United Kingdom concedes that Norway has a historic title? Although certain States have adopted the ten-mile rule for the closing lines of bays.