Commentary on Barcelona Traction Case in regards to jurisdiction

and admissibility.
Term paper
Settlement of Disputes

Submitted to:
Anish Bastola

Submitted by:
Aakriti Bakhadyo
B.A.LLB 4th year (Green Zone)
Kathmandu School of Law
Purbanchal University
 Contents
Chapter 1: Introduction................................................................................................................2

1.1. Background:....................................................................................................................2

1.2. Fact of the case:...............................................................................................................3

Chapter 2: Analysis.......................................................................................................................4

Chapter 3: Conclusion...................................................................................................................5
 Chapter 1: Introduction
1.1. Background:
The International Court of Justice (ICJ) heard the Barcelona Traction Case, formally known as
the Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), in the 1970s. It
was a significant international law case.

The legal action was brought about by a sequence of incidents involving the Spanish
government's nationalization of the company's assets. A law permitting the expropriation of
foreign-owned businesses functioning in Spain was approved by the Spanish government in
1948. The assets of Barcelona Traction, Light and Power Company were taken by the Spanish
government in 1961 in accordance with this statute. Barcelona traction was a Belgian company
having a multinational presence. Meanwhile, it has operated a power network in Spain, has
Belgian shareholders and was incorporated and headquartered in Canada. Herein, the issue
revolved around a disagreement between the Kingdom of Spain and the Belgian business
Barcelona Traction.

This case involves various preliminary objections were put forward by Spain. The very first
objection was about on the spot notice about the case where Spain argued that it was misled
since there was a discontinuance for certain period while the second objection was regarding to
the jurisdiction of the Court. Since, both the objection was part of the merit of the case, the court
hence dismiss them. Likely, Spain also raised a question regarding to the right of a Belgium to
act regarding to the issue and about the doctrine of exhaust of local remedies i.e. whether a
Belgium government had sought for the local remedy or not.

Therefore, this case established a crucial concept of international law that underlined the gap
between individual rights and state obligations and clarified the bounds of diplomatic protection
provided by states on behalf of their citizens.

1.2. Fact of the case:

The Barcelona Traction case involves the disagreement between the Spain and Barcelona. Herein
Barcelona Traction was established to enhance Spain's energy system, but the Spanish Civil War
caused it to run into financial difficulties. After the civil war, Spanish government stopped
lending to the company and refused to transfer the foreign currency needed to repay the loan and
thus expropriated the assets of the traction company in order to recover loan and the company
was declared bankrupt by a court of Reus on February 12,1948. In 1961, the Belgian government
drop the case so as to enter the negotiation round but unfortunately negotiation round resulted no
outcome. As a result, on June 19, 1962, the Belgian government submitted a new application for
the compensation.

As mentioned above, in this case Spain had filed four preliminary objections. They are:

 Lack of Jurisdiction: Spain claimed that the International Court of Justice lacked the
authority to consider the case. Belgium has claimed its jurisdiction on the basis of Article
37 of ICJ Statutes and Article 17 of Spain Belgium Convention where Spain argued that
as per the convention signed by Spain and Belgium they accept the jurisdiction of PCIJ
and not ICJ. Therefore, ICJ lacks the jurisdiction to decide the case. Herein court
dismissed this objection stating that Article 37 was intended to prevent the dissolution of
the PCIJ from invalidating the Forum Clause.
 Non-exhaustion of local remedies: Spain argued that before taking the matter to the ICJ,
Belgium had not used all available local remedies. Spain claims that the shareholders of
Barcelona Traction did not exhaust all of their legal options in Spain to seek remedy for
their purported complaints. Thus, court dismissed it stating that Belgium had sought
negotiation as a local remedy.
 Abuse of process: Spain also argued that withdrawal of the case by Belgium
automatically leads to the wavier further proceeding. Therefore, there is no point to move
this case forward. Thus, court dismissed this objection stating that dispute settlement is
the major concern in any form of disagreement rather than continuance or discontinuance
of the case.
 Right to file a case or not: Herein, the fourth objection of the Spain was whether the
Belgian government has right to act (jus Standi) or not on behalf of the private
individuals

Belgium’s claim: Belgium brought the case before the International Court of Justice (ICJ) in
1962 on behalf of the Belgian shareholders arguing that Spain had violated international law by
not protecting the rights of Belgian shareholders. Belgium contended that the actions of the
Spanish government amounted to an expropriation of Belgian property.
Spain's position: Spain contended that because the issue centered on the private law relationship
between Barcelona Traction Light and power company and its shareholders, the case did not fall
under the ICJ's purview and the claim of Belgium is baseless and unacceptable. Spain insisted
that it had taken the required steps to defend the public interest rather than seizing Belgian
property.

Court’s Ruling: After reviewing all the required documents and the evidences presented before
the court, ICJ found that Belgium lacks the principle of jus standi and stated that Belgian
government did not have any right to bring the case on behalf of the private shared holders to ICJ
and hence dismissed the case. Additionally, court judged that Spain had not violated the rule of
international law rather the action taken by Spain was to protect the financial interest of their
own nation. Meanwhile, to make the policy for its ease are their right. Therefore, the case was
dismissed by ICJ.

Chapter 2: Analysis
The Barcelona Traction case brought before the ICJ herein raised a legal question regarding to
the jurisdiction where court raised the question in relation to the applicability of the international
law involving the private entity and the shareholders. Although the state has a responsibility to
defend its foreign investors and nationals while they are on its borders, it must first establish its
eligibility before bringing a claim for breach of the duties.

Similarly, disputes primarily involving the private interests \ shareholders do not constitute a
legal dispute between the states. Private entities are herein considered separate legal entity which
are separate from its shareholders. Meanwhile, disputes and damage caused in the company does
not means that the damage must be compensated to its shareholders directly. Thus, the
shareholders must seek the compensation form the company considered as a separated legal
entity rather than the state. Meanwhile, the case was essentially a shareholders’ disputes. So, it
must be resolved through domestic legal mechanism rather than by an international court. The
Barcelona Traction case established the possibility of foreign-owned firm owners receiving
diplomatic protection from their native country. It was recognized that the rights and interests of
shareholders might be harmed by the actions or inactions of a host state, in this case, Spain. This
acknowledgement underlines the possibility that shareholders may have a legitimate interest in
requesting their state's diplomatic protection when their rights are infringed upon by a foreign
authority. However, under international law there is absence of explicit right to diplomatic
protection of shareholders. Therefore, providing diplomatic protection to the shareholders will
hence leads to the disruption in international economic system.

Therefore, Barcelona Traction case highlighted the challenging task of striking a balance
between shareholders' interests and the larger national interests. The case acknowledged the right
of shareholders to request diplomatic protection, but it also considered the state's interests in
doing so. The International Court of Justice investigated whether Belgium was operating in good
faith and if its main motive was to protect its citizens or to further larger policy goals.

Chapter 3: Conclusion
In terms of jurisdiction, state accountability, and the diplomatic protection of shareholders, the
Barcelona Traction case is seen as an important turning point in international law. The
International Court of Justice (ICJ) heard a historic case that tackled difficult legal questions and
established crucial precedents that still influence international law today. Therefore, it clears out
the major legal question regarding to the ability of a state to bring the case in front of ICJ on
behalf of the private shareholders and put main focus on the right to make claims by those who
are actually affected. Herein, the case clarified the jurisdiction of the ICJ, asserting the court's
competence to adjudicate disputes involving private entities.

In the nutshell, the Barcelona Traction case has had a lasting impact on international law,
contributing to the development of legal principles related to jurisdiction, state responsibility,
and the diplomatic protection of shareholders. Therefore, as per the decision held by the court it
can be interpreted that any action taken by the state to protect their financial interest cannot be
considered to be the violation of the international law.