INTERNATIONAL COURT OF JUSTICE
PLEADINGS,ORAL ARGUMENTS,DOCUMENTS
CASE CONCERNING
ELETTRONICA SICULA S.P.A.
(ELSI)
(UNITED STATES OF AMERICAi'ITALY)
VOLUME III
Oral Arguments; Correspondence
COUR INTERNATIONALE DE JUSTICE
MÉMOIRES.PLAIDOIRIESET DOCUMENTS
AFFAIRE
DE L'ELETTRONICA SICULA S.P.A.
(ELSI)
(ÉTATS-UNIS D'AMÉRIQUE c. ITALIE)
VOLUME III
Procédure orale; correspondanceOralArguments - Plaidoiries
FIRSTPUBLIC SITTING OF THE CHAMBER ............ 4
STA~NT DY MR. SOFAÇR (UNITEDSTATES) .......... 12
Introduction and organization of the first round of oral pleadings of the
Applicant .................... 12
The nature of the dispute ...............
The claim of the United States, its admissihility and the principal
issues raised by the pleading.............
ARGUMEN OF MR. MATHESO(N UNITEDSTATES) .........
The facts of the case .................
Undisputed facts ...................
Factual material in the Respondent's wntten pleadings essentially irrele-
vant to the case ..................
Events which led up to the plauned liquidation of ELSI .....
Disputed facts ....................
The orderly liquidation plan ..............
The viability of the pla...............
The payment of creditors ..............
EVIDENC EF MR.ADAMS (WITNESS) .............
Examination of Mr. Adams by Mr. Sofaer ..........
ARGUMEN TF MR. MATHFSO(N UNITED STATES (conf.) ......
The requisition caused ELSI's hankmptcy ..........
Illegality of the requisition under Italian la........
The requisition prevented the orderly liquidation of ELSI...
The requisition forced ELSI to file a petition in bankruptcy..
The Respondent wanted ELSI for itself ..........
The Prefect unreasonably delayed in declaring the illegality of the
requisition ...................
The rental value awarded falls far short of the actual losses sustained
by the shareholders ................
Respondent has not established a single violation of Italian law by
Raytheon, Machlett or ELSI management ........
EVIDENCE OF MR.ADAMS (WITNESS conl.) ..........
Cross-examination of Mr. Adams by MI. Highet ........
Question put by Judge Schwebel to Mr. Adams ........
Questions put by the President to MI. Adams .........X ELETTRONICA SICULA
EVIDENC EF MR .CLARE (WITNESS) .............
Examination of Mr .Clare by Ms Chandler ..........
Question put by the President to Mr.Clare ..........
Cross-examination of Mr .Clare by Mr . Highet ........
Questions put by Judge Sir Robert Jennings to Mr. Clare .....
Question put by the President to Mr.Clare ..........
ARGUMEN OF PROFESOR BONELL(IUNITED STATES) ........
The right of ELSl's shareholders to liquidate ELSI'sassets under Italian
Iaw ......................
Respondent has demonstrated no violations of Italian law.....
The requisition caused the bankmptcy ...........
ARGUMEN of P~OFESOR FAZZALARI UNI^ STATES) .......
1.The 1948Treaty is not a basis for suit in ltalian court....
Decision No. 1455of 21 May 1973 ...........
Case No .107of 14lanuary 1976 ............
Decision No.2228 of 30 July 1960 ...........
Decision No .2579 of 6 December 1983117Febmary 1984 ...
The case of Talentiv. Presidenzadel Consiglio deiMinistri ...
Article 2043of the ltalian Civil Code and the distinction between
"diritto soggettivo" and "interesse legittim......
II.As shareholders. Raytheon and Machlett could not have sued nnder
ltalian law for actions taken against EL.........
III.The specific remedy of the appeal to the Prefect precludes other
remedies in Italian courts..............
ARGUMEN OF MR . MURPHY (UNITED STATES ..........
lurisdiction of the Court ................
Admissibility of the claim................
No requirement in international law that a State must exhaust local
remedies when il seeks a declaratory relief........
Non-application of the local remedies mle to a claim on behalf of
nationals based on violations of the 1948Treaty ......
Local remedieswere exhausted .............
The Respondent is estopped from making an objection based on the
local remedies rule ............. . .
Additional remedies identified by the Respondent are unavailable.
ARGUMEN OF PROFESSO GARDNER (UNITED STATES) .......
Post World War Il FCN Treaties .............
The United States-ltaly FCN Treaty generally .........
The s~ecificviolations of the United States-Italv FCN Treatv ...
Interference with management and control .........
Article III of the Treat...............
Article 1(a)of the Supplementary Agreement .......
Article VI1 of the Treaty ..............
Impairment of investment rights and interests........
Article 1 (b) of the Supplementary Agreement .......XII ELETTRONICA SICULA
Raytheon's legal expenses ..............
Expenses in connection with ELSl's forced bankruptcy and with
Raytheon's efforts 10recover compensation from the Respondent
Expenses in connection with the lawsuits brought against Raytheon
by ELSl's creditor hanks..............
III. The award of interest................
The award of interest at a commercially reasonahle rate, from the
date ofinjury to the date of payment .........
The award of interest on a compounded basis .......
IV. Summary of the compensation sought ..........
STATEMEN BTMR. MATHESO(N UNITED STATES) .........
Submissions ....................
QUESTION Pm BY JUDGESCH~EBEL .............
ARGUMEN OF MR.FERRARB I RAVO (ITALY) ..........
The Application as a unilateral initiative of the United State...
Jurisdiction of the Court and bilateral negotiations hetween the United
States and ltaly . . .............
Objection of Italy to the adm'issibilityof the claim for non-exhaustion
of local remedies ..................
The conditions of the infringement of an international obligation by
ltaly ......................
The Applicant has not proven the existence of any breach of an
international obligation...............
The interpretation of treaties authenticated in two or more lan-
guages ....................
The Applicant has not proven any internationally unlawful conduct
by ltalian authoritie................
The facts at the basis of alleged unlawful conduct of ltal...
The heading "Undisputed Facts" in the Argument of Mr. Matheson
The Applicant has not proven any damage to the plant .....
The Applicant has not proven any causal link between what actually
occurred and thealleged damage ............
The question of the burden of proof ............
The question of the existence of a "conspiracy" against ELSl ...
Organization of the first round of oral pleadings of the Respondent.
ARGUMEN OF PROFESSO GRAJA(ITALY) ............
A. The content of the local remedies rule and its applicability in the
present case ...................
The rule is well established in international l.......
The rule is applicable 10 claims made under the Treaty and the
Supplementary Agreement .............
The ltalian Government is not estopped from invoking the rule. .
Rebuttal of the argument of Mr. Murphy on the non-application of
the rule when a declaratory judgment is sought ...... Priority to be givento identification of issuesof lawand facts pertain-
ing to the merits before considering the application of the mle .
B . The remedies available to Raytheon ...........
Raytheon failed to challengeseveralmeasures taken dunng the bank-
mptcy proceedings ................
Rebuttal of the argument of Professor Fazzalan on unavailability 10
Raytheon of Article 2043of the Italian Civil Code .....
Nothat ltalian courts had an attitude of bias against Raytheonion
Diplomatic protection was given preference by Raytheon .... . .
C .The efects of the FCN Treaty in Italy ..........
Applicability of the 1948 Treaty and the 1951 Supplementary
Agreement by the ltalian courts ............
Rebuttal of the argument of Professor Faualari on the significance
of the case Talenriv.Presidenzadel Consigliodei Minisrri ...
D . Conclusion ...................
ARGUMENT OF PRO~R LIBONAT (IITALY)...........
Introduction ....................
ELSl's permanent economic and financial crisis ........
ELSl's collapse of 1967-1968 ...............
The lack of cash and the end of ELSI's operations .......
ELSI was no1 "a going concern" .............
The impossibility of negotiations for settlement with creditors ...
The dismissal of the workers ...............
The incongruence of the calculations based on book value and the
imnossibilitv of an orde. . liauidatio...........
The inaccuracy of the book values of ELSI mentioned by Mr .Lawrence
and in the affidavit of M.Schene ............
Additional argument against the possibility of an orderly liquidation .
Conclusions ....................
PLAIDOIRIE DE M .CARAMAZZ (TALIE) .........
1.Préambule .................
Objet de la plaidoirie ................
L'évolution de la positiondes Etats-Unis entre la réclamationde 1974
et la requêtedont la Chambre est saisie .........
2 .Le non-octroi des avantages et des encouragements aux investisse-
ments prévuspour le sud de l'Italie ...........
La doléance esttrop générale. vagueet non pertinente .....
L'irrecevabilitéde la prétention .............
L'absence de fondement de la prétention ..........
3 .La non-intervention de la force publique ..........
Date initiale et nature de l'occupation par les travailleu....
Devoirs des officierset des agents de police.........
4 .L'ordonnance de réquisition ..............
5 .La décision«tardive »du préfet .............XIV ELETTRONICA SICULA
6. Autre considérationsur l'épuisement des recours internes ....
7. Conclusions ...................
ARGUMEN OTFPnorrsson BONELL (ITALY) ...........
1. The impact of the requisition on the prospect of ELSl's "orderly"
liquidation....................
(a) ELSI's inahility to proceed with an "orderly" liquidation due to
its insolvency .................
(b) ELSI's duty to file for bankruptcy long before the requisition
took place .............. ...
(c) No causal connection between the requisition and ELSI'Sbank-
NptCy ...................
II. The bankruptcy proceedings and IRI's role in the acquisition of
ELSl's plant ...................
(a) IR1 never had any interest in acquinng ELSI and did sa very
reluctantlv onlv when it became anoarent that no one else was
willingtodhuyfhe hopelessly ohsoî&e and loss-making plant , 204
(b) The price paid for ELSI's plant was perfectly reasonable under
the circumitances ................... 208
QUESTION Pur BY J~GE SCHWEBEL ............. 211
PLAIDOIRIE DE M. CAPOT OR (ITALIE) ............ 214
Introduction .................... 214
Les règles d'interprétation des traitéscodifiéespar la convention de
Vienne du 23 mai 1969 ........... ... 214
La protection des investissements dans le systèmedu traitéde 1948 . . 215
Portéedu oréambuledu traitéde 1948 ........... 215
Nécessitéde distinguer les buts respectifs du traité de 1948 et de
l'accord complémentaire de1951 ............ 216
La protection d'actionnaires des Etats-Unis d'une société italien. .
La décisionde la Cour internationale de Justice dans l'affaire de la
BarcelonaTraction,Light and Power Company, Limited ....
La portée limitéede la protection des actionnaires dans le traité de
1948et l'accord de 1951 ...............
Les dispositions conventionnelles dont la violation est alléguéepar les
Etats-Unis ....................
L'article III, paragraphes 1et 2, du traite de 19.......
L'assujettissement des actionnaires de I'ELSIau droit italien. .
La non-imputabilité à l'Italie des conséquences de la faillitede
1'ELSI ....................
L'article V, paragraphe 2, du traité de 1948 et le paragraphe 1 du
protocole à ce traité ................
Article V,.par-.raobe 2, du traité: défautde concordance entre les
termes a taken» (texte anglaisei <<espropriatir(texte italien)
Article V, paragraphe 2. du trait;: inappiic~bilitéà une rcquisilion CONTENTS . TABLE DES MATIÈRES
Paragraphe 1du protocole: défaut deconcordance entre les termes
«interests» (texte anglais) et «diritlin (texte italien)..
Paragraphe I du protocole: limitation de ses effets.....
Respect par I'ltalie. en tout état de cause. des conditions poséespar
ces dispositions .................
L'article V. paragraphe3. du traitéde 1948 .........
Inapplicabilitéà une société italiennesise en territoire italien.
Observationssur l'occupation de l'usine etle retard mis par le préfet
à statuer sur le recours de I'ELSI...........
L'article VII. paragraphe 1. du traitéde 1948 ........
Défautde concordance entre les expressions «or interests therein»
(texte anglais) et «alin diritti reali» (texte italien).
Non-pertinence de la notion de ((propriétéindirecten .....
...
L'article premiea) et b) de l'accord complémentaire de1951
Le prétendu caractère«arbitraire» de la réquisition .....
La prétenduenature «discriminatoire» de la réquisition ....
La non-imputabilité à I'ltalie des actes des organes chargés dela
faillite et de ceux d'une sociétécontr8léepar I'IRI.....
L'inexistenced'un lien de causalitéentre la réquisition.la vente des
avoirs de I'ELSIet le prétendu préjudicedes Etats-Unis ...
L'ELSI commeseul sujet passif de la réquisition ......
Conclusion ....................
PLAIDOIR IE M .MONACO (ITALIE) .............
I. Prémisse .....................
2. Le caractère subsidiaire des demandesen réparation ......
3. Le manque de preuve du lien de causalitéentre le dommage allégué
et le prétendu faitillicitede'Etat ............
4. L'éventuelleréalisation dela valeur de I'ELSI par la liquidation sup-
posée ......................
5. Le prétendu recouvrement desfrais de justice et de procédure ...
6. La question des intérêts ...............
7. L'appréciationde la réparation sur le plan international ....
EVIDENC OF MR .HAYWAR(D EXPERT) ............
Statement of Mr .Hayward ...............
Introduction ...................
Analysis of exhibits showing that ELSl was overvalued by the Appli-
cant .....................
ELSl as a non-going concern Company ..........
Observations on the status of Mr .Hayward by:
Mr .Ferrari Bravo. the President and Mr .Matheson ......
Question put by ludge Schwebelto Mr .Hayward .......
Question put by the President to Mr . Hayward ........
Question put by Judge Schwebel to Mr .Hayward .......
Cross-examination of Mr . Hayward ............
No question put to Mr . Hayward by the United States delegationXVI ELETTRONICA SICULA
ARGUMEN OTFMR. HIGHFT(ITALY) . . . . . . . . . . . . .
Introduction: the failure of the Appl10asatisfy the burden of proof
and the burden of persuasio. . . . . . . . . . . . . .
ThApplicant's argumentation.a.y". .eo. . . . . . . . . . . in the
The difficulty for the Applicant 10 establish a continuous chain of
causation . . . . . . . . . . . . . . . . . . . .
Thconclusions of the Applicant to evidence the facts al the hasis of its
Defects in evidence: the minutes of the meeting held on 20 February
1968between President Carollo and Raytheon's top officer. .
Problem of late filing of document by the Applicant: the financial
statements of30Septemher 1967 . . . . . . . . . . . .
Observation on the necessity of the exhaustion of local rem. .es
Examples of reference by the Applicant to the "conspiracy" theory in
the written and oral pleadin. . . . . . . . . . . . .
The amalgamation by the Applicant of diiïerent types of entities,
organs and persons under the words "Italian Government. . .
The Applicant's dilemma: the lack of causation, the burden of proof
and the burden of persuasio. . . . . . . . . . . . . .
ELSl's real versus fictiveconditi.n. . . . . . . . . . .
No direct evidence of the critically relevant . . . . . . .
No necessarychain of causationand causality from the act or omission
to the alleged injur. . . . . . . . . . . . . . . .
Answers 10 thegrandeslignesof the Applicant's case. . . . . .
A hidden conspiracy or concerted course of action on the part of the
Italian Government . . . . . . . . . . . . . . . .
A conspiracy of omission10 fail to help ELSI. . . . . . .
A conspiracy of commission: to bankmpt, to requisition and10
split up ELSI . . . . . . . . . . . . . . . . .
The requisition as the cause of the bankmptcy of EL. . . . .
The impossibility to implement the planned "orderly liquidati.n"
Existenceof a hidden conspiracy to boycott the bankmptcy sales and
to prevent the buyers from bidding i. . . . . . . . . .
Existence of certain consequential losses which would not have oc-
The Applicant's elaims of rights and obligations under the Treaty and
the Supplementary Agreement . . . . . . . . . . . . .
Article III of the 1948Treaty and the interpretation of the words
"organize, control and manage". . . . . . . . . . .
Article V of the 1948Treatyt. .... . . . . . . . . . .. . .
Article 1of the 1951Supplementary Agreement . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . .
STATEMEN BYTMu. FERRARB IRAVO (ITALY) . . . . . . . . . .
Submissions . . . . . . . . . . . . . . . . . . . .
QUESTION PSUT BYJUDOES ODA AND SCKWEBE AND BY THE PREFIDENT .STATEMEN BYTTHE PRESIDEN(TSUBMISSIO O FA NEWDOCUMENT) . . .
REPLY OF MR. MATHEXIN (UNITED STATES ) . . . . . . . . . .
Introduction . . . . . . . . . . . . . . . . . . . .
No obligation for the Parties to prove some subjective assess.ents
Recall of the four specificactions of the Respondent constituting the
violations of the FCN Treaty. . . . . . . . . . . . .
No need for the Applicant to refer itself to a "conspiracy" theory or
to establish a "causal link" between the individual acts imputable
to the Respondent. . . . . . . . . . . . . . . . .
No need for the Applicant to base its case on the assumption that
ELSl was a profitable enterpri. . . . . . . . . . . .
No need for the Applicant to allegethat the failure of the Respondent
to provide Mezzogiorno benefits, or any other assistance to ELSI,
violated the 1948Treaty. . . . . . . . . . . . . . .
The case is based on specific treaty provisions, rather than on the
application of general customary international. . . . . .
The Applicant has provided the Chamber with al1the requisiteevidence
(documents, testimonies, finaucial expert. . . . . . . .
Organization of the Reply of the Applic. . . . ....
Rebuttal of the Respondent's assertions on the inadmissibility of the
Applicant's claim. . . . . . . . . . . . . . . . . .
(1) The local remediesmle would be applicable to a request of a State
for declaratory relie. . . . . . . . . . . . . . .
(2) The local remedies rule would be applicable to the 1948Tr.aty
(3) Some effective remedies under Italian law would not have been
exercised hy Raytheon and Machlett. . . . , . . . . .
(4) Remedies allegedly available under Italian law would have fully
addressed al1the claims brought before the Chambe. . . .
(5) Raytheon and Machlett would not have exercised al1reasonable
efforts to exhaust local remedie. . . . . . . . . . .
(6)The conduct of the Respondent would not have precluded it from
invoking the local remedies rule at pres. . . . . . . .
Conclusion: rejection of the Respondent's objec. . . . . . .
QUESTIOP NUT BY JUOGESCHWEBEL
REPLY OF MSCHANDLE (RNITEDSTATES) . . . . . . . . . . .
Introduction . . . . . . . . . . . . . . . . . . . .
The reality and viability of the planned orderly liquidation of ELSI
The context in which the decision to liquidate was ma. . . .
The commitment by Raytheon and Macklett to fund the orderly
liquidation . .................
The planned sale oi ELSI or ELSI's product lines as going businesses
Cathode ray tubes. . . . . . . . . . . . . . . . .
X-ray tubes . . . . . . . . . . . . . . . . . . .
Semiconductors . . . . . . . . . . . . . . . . .
Microwave tubes . . . . . . . . . . . . . . . . .
Surge arresters. . . . . . . . . . . . . . . . . The three possible ways to liquidate ELSl and the putting into motion
of the liquidation plan ...............
Answer tu a question put by Judge Schwehelduring the second public
sitting (13 February 1989) ..............
Conclusion ....................
The so-called obligation of ELSI. under Italian law. to be placed in10
bankmptcy prior to the requisition ............
No obligation to file apetition in bankruptcy. even if liabilities may
appear to exceed assets ...............
QUESTION PUT BY JWE SCHWEBE ALND THE PRESIDENT ......
STATEMEN BTMR .BISCONT (I NITED STATES ).........
Introduction of Mr .Bisconti by Ms Chandler .........
Statement by Mr .Bisconti ...............
The right of Raytheon and Machlett to proceed to an orderly liquida-
tion of ELSI's assets under Italian la..........
Observations on the status as witness of Mr. Bisconti for the first part
of his statement by Mr.Ferrari Bravo and the President ....
Statement hy Mr .Bisconti (cont.) .............
No obligation of ELSI. under Italian law. to file a petition in hank-
mptcy prior to the requisition.............
Article 5 of the Italian bankmptcy law..........
Articles 2447and 2448of the Italian Civil Code ......
The backing of ELSI hy Raytheon and Machlett ......
The book value as a correct evaluation of ELSI's assets....
Article 218 of the Italian bankruptcy law.........
Article 160 of the ltalian bankmptcy law .........
No violations of criminal law .............
The question of settlement with creditors.........
Question put hy Judge Sir Robert Jennings ..........
Questions put by Judge Schwebelto Mr .Bisconti .......
REPLY OF MSCHANDLE(R UNITED STATES( )conf.) ........
Rehuttal of the Respondent's argument that the requisition caused no
damage because ELSI would have gone bankrupt anyway ....
Observations on the evidence of Mr . Hayward on the question of
"insolvency" of ELSI ...............
Review of the financial state of ELSI urior to the reauisition: ELSI
orderly liquidation periodd.............. solvent through the
Rehuttal of assertions contained in D.Mercadante's report
Rehuttal of the Respondent's argument on the impossihilityto proceed
the workersly...................of the occupation of the plant by
The issue of compensation ............... The reimbursement of legal expenses ...........
The question of interest................
The issue of valuation as it appears in the evidence of .Hayward
and Mr .Lawrence .................
QmnoNs PUT BY JUDGES SCHWBEL AND ODA . .
STATEMEN BTMR . BISCONT (I NITEDSTATES )Conl.) .......
Cross-examination of Mr .Bisconti by Mr .Highet .......
EWDENC EF MR .LAWRENC (EXPERT) . .
Statement of Mr .Lawrence .....
Note 10 to the 1967financialstatements
The going concern values .....
The inventoriess ........
The accounts receivahle ......
The evidence of Mr .Hayward ...
REPLY OF MR .MATHESO(N UNITED STATES ...........
Some observations about the régimeof the 1948Treaty in general . .
The protection of investment as the primary objective or one of the
objectives of the Treaty...............
The propriety of attributing to the Respondent certain of the acts and
omissions on which the claim is based..........
Rebuttal of the Respondent's argument that its acts did not rise to
the levelof "interference with management and control" or "expro-
priation" or loss of "protection and security".......
Rebuttal of the Respondent's argument that its acts were directed
against ELSI. and not against Raytheon and Machlett ....
No need to "lift the corporate veil" under the pertinent 1948Treaty's
dispositions ..................
Rebuttal of the Respondent's arguments concerning the specificprovis-
ions of the Treaty..................
Management and control ...............
Articles III and VI1 of the 1948Treaty and Article 1 of the 1951
Supplementary Agreement .............
Impairment of investment rights .............
.....
Article 1 (b) of the 1951Supplementary Agreement
Taking of property .................
Article V. paragraph 2. of the 1948Treaty and paragraph 1 of the
Protocol ...................
Protection and security ................
ArticleV. paragraphs 1 and 3. of the 1948Treaty ......
Conclusion: overall summary of the case as it has emerged during the
oral proceedings ..................
Reaffirmation by the United States of its submissions......XX ELETTRONICA SICULA
STA~EMEN BYTMR. FERRARB IRAVO (ITALY) ..........
Organization of the second round of oral pleadings of the Respondent
REJOINDE ORFMR. HIGHE(T ITALY) .............
Observation on the evolution of the Applicant's argumentation ...
The abandonment of the "conspiracy theory" ........
The need of a chain of causation between the four alleged actions or
omissions on which the Applicant's caseis based .......
The occupation of the plant by the workers .........
The "unreasonable delay" in ruling on the appeal lodged against the
requisition ... ..............
The asserted "flaws in the bankruptcy process" ......
The assertedly unlawful requisition as the only "specificact" remaining
in the Applicant's case ...............
The burden of proof on the issue of the illegality of the requisitio. .
The "Raytheon hail-out" of ELSl .............
Importance given lately to this Applicant's argument during the oral
proceedings ...................
The lack of evidence of and publicity given to an alleged backing of
ELSl by Raytheon in the case of "orderly liquidation" ....
The facts of the case do no1 create a cause of action under the 1948
Treaty .....................
Conclusion: summary of arguments ............
RWOINDE of PROFESSO LRIBONAT (IITALY) ...........
The state of insolvency of ELSl long before 31 March 1968, and the
state of insolvency of ELSl in the admissions of its ownofficers . ,
Examination of the Coopers & Lybrand audit "Report on the financial
statements at September 30, 1967" ...........
Negligenceof the ELSl's directors in not immediately filinga petition
in bankruptcy ..................
The stow of the balance sheet extraoolated from the 31 March 1968 ~~
values. .....................
The tale of the orderly liquidation .............
The incoherencies in the Aoo..cant's assumotions when related Io the
facts ......................
The losses of ELSI .................
The origin of the glass used for cathode-ray tubes.......
The allegedconvertibility of the semi-conductor line from germanium
to silicon technology ................
The question of the royalties or expenses for technical consultancies
charged by Raytheon to ELSI .............
The remaining lack of evidence of an alleged hacking of ELSl by
Raytheon ....................
The non-pertinence of an alleged possible hacking of ELSI by Ray-
theon as for ELSl's state of insolvency in law .......
Conclusion ..................... 1. Préambule
2. Les avantares aux investissementsurévusDour le sud de I'ltalie
3. La non-iniervcntion de la force publique dans les Io~auxde I'ELSI
4 I.'inicrprctation de l'ordonnancede réquisj13olumicrcde13déci-
sion du préfet. . . . . . . . . . . . . . . . . . .
5. Le prétendu retarddu préfetpour statuer sur lerecours contre I'ordon-
nance de réquisitio. . . . . . . . . . . . . . . . .
6. Conclusion . . . . . . . . . . . . . . . . . . . .
RCponss i I'argumenilition de M. Mlihe,un relative i I'inlerprciaiion
du tiaiii de 1948cl dc I'~ILLOL~III~ICIIICII~LII951 . .
1.a place dc Inproiecilon des in\.cstisscmcntsdans le trailéde 1948
1:autonomie drs Jirposiiionj du traiic de 19. . . ...
1.auucsiion dc I'im~uiahiliici I'lialiedes actes de l'IR1et dc I'ELTEL
La portéede la réquisitionet de ses effet. . . . . . . . .
L'article III, paragraphe 2, du traitéde 19. . . . . . . . .
La confusion faite par le demandeur entre l'article III, paragraphe 2,
du traité de 1948et l'article premierde l'accord de .95. . .
L'article premierde l'accord de 195. . . . . . . . . . . .
L'abandon var le demandeur de son arg-ment relatif au caractère
prétendumeni~~dircrimina~~ircd~e~la mesure de rtquisition. .
Lz cdrdiiire pr2tcndunient arbiirÿirc de la mesure de rcquisiiion
Le fondement de l'ordonnance de requisiiion . . ....
1a CI~US sien conformitc dcs lois et r2plemcntr appliclihles>*d'une
partie inscnii I'article III, paragraphe 2. du irliiiéd. 1.48
L'article V, paragraphe 2, du traitéde 1.48. . . . . . . . .
La question du défaut de concordance entreles ter«etaken»(texte
anglais) et «espropriati» (texte ita. . . . . . . . . .
La question des droits que les actionnaires de I'ELSIpourraient tirer
de cette disposition. . . . . . . . . . . . . . . .
La question de l'application à I'ltalie des conditions poséespar cette
disposition . . . . . . . . . . . . . . . . . . .
L'article V, paragraphes 1et 3: du traitéde 1.48. . . . . . .
La séparationjuridique entre une sociétéanonyme et ses actionnaires
Conclusion
STATEMEN BYTTHE PRESIDEN(T COMMENT OF EACHPARTY ON THE REPLIES
TO QUEETION SUBMIITE DY THE OTHER) . . . . . . . . . . .
R~OINDER OF homn GIUA(ITALY) . . . . . . . . . . . .
Rehuttal of the Appliant's contention that the local remediesrule does
not apply in relation to claims under the 1948Treaty and the 1951
Supplementary Agreement . . . . . . . . . . . . . . .
Non-pertinence of Article XXVIof the 1948Treaty as for the applica-
hility of the rule. . . . . . . . . . . . . . . . .XXIl ELETTRONICA SICULA
Acceptance by the Applicant of the applicability of the mle when
suhmitting its 1974Memorandum ...........
The case submitted to the Chamher is one of diplomatic protection
The renewed Applicant's contention that it seeks a "declaration that
the FCN Treaty has been violated, as wellas reparation to itself for
violations of the Treaty" ............
The Respondent is not estopped from making an objection based on
the rule ........ ...........
The question of the "reasonahle andgood-faith effort" by a claimant
to exhaust local remedies ..............
Conclusion .....................
DÉCLARATIO DNM. FERRARB IRAVO (ITALIE) ..........
Remarques préalables .................
Observation sur la présentationpar l'Italie, avec son contre-mémoire,
des adocuments non numérotés» reproduisantla réclamation des
Etats-Unis de 1974 ................
Vigilance dont la Chambre doit faire montre dans l'utilisation des
traductions de textes o-ininaux en italien........
Résumesuccinct des thcscs dcveloppéespar le défendeur . . 379
Rcailirmation hy Itlily of ils submissio...... 381
CLOSING OF THE ORALF'ROCEEDMG S............ 383
READING OF THE JUDGMENT ................ 384
Documentssubmittedtu the Chamberafter the closureof the writtenproceed-
ings- Documents présentéa sla Chambre aprèsla clôhirede la procédure
ecnte. ...................... 385
Correspondence - Correspondance ............. 389 ORALARGUMENTS
MINUTES OF THE PUBLIC SITTINGS
held ar rhe Peace PalThe.Hague, on 2Novemb~r 1987.
Presidenr of the Chamber,President Nagendra Singh. presiding.
andfrom 13 February to 20 July 1989. Presidenr of the Chamber,
Presidenr Ruda.presiding
PLAIDOIRIES
PROCÈS-VERBAUX DES AUDIENCES PUBLIQUES
renuesau Palais de la PaiLa Haye, le 27 novembre 1987.
sousla présidencede M. Nagendra Singh, Présidenrerprésidentde la Clzambre.
et du 13février au 20juiller 1989.sous la préM.dRuda,e
Présidenter présidenla Chambre FlRST PUBLIC SITTING (27XI 87, 12noon)
Present:PresidenfNACENDRA SINGH, Presidenfof the Chamber;Judges ODA,
Aco, SCHWEBEL S,ir Robert JENNINCR;egisfraVALENCIA-OSPINA.
AIsopresenr:
For the Covernmenrof ihe UniredSraresof America:
Mr. Timothy F. Ramish, Counsellor, Embassy of the United States in the
Netherlands, DepulpAgenr.
For the Covernmenrof lraly
MI. Luigi Ferrari Bravo, Professor of International Law at the University of
Rome, Head of the Legal Service of the Ministry of Foreign Affas Agent;
Mr. Alherto Collela, Legal Service ofthe Ministry of Foreign Afiairs,
Mr. F. Ercolano, Counsellor, Emhassy of ltaly in the Netherlands. FIRST PUBLIC SIïTlNG OF THE CHAMBER
The PRESIDENT: Nearly six years ago a sitting was held to mark the first
occasion uoon which the International Court of Just~ ~ ~ ~ fo~med.~,t the reauest
of the pariLesio a dispuir,a<:hambsr 10 dçal with .Iparticular case. The initiative
on that oiïaqion had brrn takrn hy the Governmrnts of Canada and of the
Unitcd States of Amcric3and resultcd in 1984in the rcsolution of thcir lonesrand-
ing dispute over the Delimitaiionof the Maritime Boundaryin!he ~ulfobine
Alen. The Government of the United States has also instituted the present
proceedings, hy means of an Application' against the Republic of Italy, and in
concert with the ltalian Government has reauested the formation of a chamber
to deal with their dispute concerning an induitrial corporation, Elettronica Sicula
S.p.A., known acronymically as ELSI.
1am glad to note the presence of the Agent of Italy, MI. Ferrari Bravo, and
of the Deoutv-Aeent of the United States. Mr. Ramish.
You se; héforeyou, here upon the bench, the judges whom the Court, after
the views of the Parties had heen ascertaiued and couveyed to it, has elected to
constitute this Chamber. Since 1have the honour to be among those elected, it
falls to me automatically as President of the Court also to preside over the
Chamber, in accordance with the applicable Rule of Court.
In any event, in the six years dunng which Chambers formed for particular
cases have begun to operate within the Court, the practice has taken root of
having the President of the Court inaugurate the first public sitting of each such
Chamher, and introduce the President of that Chamber.
Today, owing to the Rule of Court to which 1have referred, 1find myself, as
it were, my own coPresident at this sitting and am not able to offer you the
variation of speaker from the bench which has hitherto been a feature of these
occasions. Nor can 1proceed to a ceremony which has graced the inauguration
of three other Chambers, namely the sweanng-in of a judge or judges ad hoc,or,
to use the language of the Statute, the making in open Court of their solemn
declaration. This is hecause every judge who will be sitting in this case would
have alreadv done so hv virtue of election from amone the 15 Members of the
Cuuri who'arz \erving'regular trrmî oi otlicr and ar;sitting Iikewi>e inoihrr
cases hriore the Cuuri Two of those judgrî are n.itional, of It3ly and the Cnited
States.
The present case is the first dealt with by the Court for 36 years in which
judges possessing the nationality of hoth the Parties joining issue were already
sitting upon the bench at the time of institution of proceedings. In consequence
of their presence, neither Party is entitled to choose a judge ad hoc,and so this,
the fourth Chamher to be formed under Article 26, paragraph 2, of the Statute,
and the fourth also to comprise fivejudges, is in fact the first to be entirely made
up of elected Members of the International Court of Justice.
It is time that 1should oresent to vou the four distineuished colleaeues who.
togcthcr uith niysclf, ma& up this chamber. Thcy arC~ud~c ~hi~cr; Oda. of
Japanese naiionality, who hrcame a Member of the Court thrre )cars aftrr myself,
in 1976; Judge Robsno Ago, of Italian nïiionality. a Membrr since 1979;Judge OPENING Of THE ORAL PROCEEDINGS 5
Stephen Schwebel,of United States nationality, a Member since 1981; and ludge
Sir Robert Jennings, of British nationality, a Member since 1982. It gives me
great pleasure to congratulate Judges Ago and Schwebel on each having last
week been elected by the Security Council and the General Assembly of the
United Nations, with a thumping majority, to serve a further nine-year term of
officeon the bench of the Court as from 6 February next year.
The present case has one feature which isquite distinctive, namely,itscombina-
tion of referenceto a Chamher with the fact of its having been brought hy means
of a unilateral Aoolication. Its Chamber oredecessors had al1been submitted bv
virtue of a Specii~Â~reement, so that neiiher party could be identifiedas plaintik
or defendant (or, 10 use the normal language of the Court, as Applicant~.r
Respondent).
It is not surprising that cases referred to Chambers tend to be the subject of
SpecialAgreements,sincea measure of CO-operationbetween the parties isalready
a requisite for the invocation of Article 26, paragraph 3,of the Statute, which
says that "cases shall be heard and determined by the chamber provided for in
this articleif the ~arties so reouest" '.After all. if a common view unon.~~at~ ~
request is al;eady achirvçd, ii1;natural, if the charactcr of the case so warrants.
that furiher points of concurrence chould emerge and result in the conclusion of
that particular form of treatv known as a Svecial Aareement for the submission
of a dispute to the International Court of justice. Ïrndeed,where there appears
no other basis for the Court's jurisdiction, such an Agreement is indispensable,
irrespective of whether or not a chamber is to be formed.
Nevertheless, the current case of ElerrronicoSicula S.P.A. (ELSI) has been
introduced hy Application, which also is a perfectly legitimate way to proceed in
the matter.
As is recounted in the Court's Order of 2 March 1987', constituting this
Chamber, the first step in the proceedings was taken by the United States of
America when, on 6 February this year, it filed an Application against the
Republic of ltaly in respect of a dispute concerning an ltalian Company said to
have been wholly owned by two United Statescorporations and whose plant and
related assets were said to have ken requisitioned hy the ltalian Government.
In the submission of the Applicant, that Government had in the circumstances
violated the bilateral Treaty of Fnendship, Commerce and Navigation which
ltaly and the United Stateshad concluded in 1948,as wellas a later supplement'
thereto, and, since ArticleXXVI of that Treaty provided for the jurisdiction of
the International Court of Justice, il was upon that Treaty, in the view of the
Applicant. that a referral to this Court could be based. 1 mav add that in
responding to the Application, of which a copy wss of course imkediately sent
to the Respondeni4, ihr Government of Iialy raised no objection io the jurisdic-
tion of the Court'. Iiis apparent thercfore thai this is not one of those cases in
which the conclusion of a special Agreement is necessary if only to provide a
basis of jurisdiction.
It will no1escape notice that this first public sitting in the case is taking place
wellafter the constitution of the Chamber. Had there been any cause to proceed
10 the induction of judges ad hoc, an earlier sitting would have been required,
but these questions did not anse here.
' Emiihasisadded. OPENING OF THE ORAL PROCEEDINGS 7
The present case opposes two States which are friends and longstanding allies.
But also among friends, differences of view mav occur which cannot he settled
bv diolomatic means. When this haooens. il isauhe natural that the twocountries.
,;hile continuing10 keep thcir ir;endship, go' belore an indepndcni auihorit);
like the WorlJ Couri in ordcr to hxvc their ditlercnîîs solved. This is noi feli as
an unfriendls act ~nd. in ihis soirit. wc welcomed the A~dlriion of the tiovern-
ment of the United States of Àmehca against ltaly as ihe most appropriate way
to bring the present dispute to an unchallengeable solution.
Of course, we are convinced that we are right and that the United States is
wrong, as far as the case is concemed, and the Court can be sure that we will
plead Our case 10 the best of our forces in order to gel victory. This is pari of
the rules of the game and we are sure that, on their part, the United States will
behave in the same way. And then, ai the end of the proceedings, the Court will
deliver ils judgment which, 1 am sure, will be faithfully implemented hy the
Parties, whatever ils content may be.
This is, in Our opinion, the correct way to make full use of the Court and we
think that the present case, because of the good relations which exist among the
litigating Parties asell as because of the circumstances on the basis of which il
was brought before the Court, shall be looked at in the future as an exainple of
correct implementation of the letter and the spirit of the Charter of the United
Nations whose Article 36. alas too often foreotten. States that "leeal dis~utes
~hould as 3 gencral rule be rzierred hy the p3>ies io ihc lntern3iiokl Ciiiri of
Jusiice". In al1international lord the Iialisn Go\,crnment has con,tanily strcwed
the imr>orianceof ihe funïiion of ihis Couri for ,irenetheninr ihc c~uscof oeace
and oÛrappearance here wants to be,also, a sign of t6e consktency ofour policy
in this regard.
Mr. President,dislinguished Judges, while thanking you and Their Excellencies
the Judees of the Chamber for vour kind attention 10 these few words. mav 1
express IO you 311ihe bcst wishesoimy Govcrnment for the u,ork )ou are stariing
toda) for the knefit of ihe Partlî~ but in the sule interesi of inierntii<inïl juiitce.
Tbe PRESIDENT: The Chamber is most appreciative of the observations
made on behalf of the Parties. In conclusion, 1would like to draw attention to
the fact that the oresent case orovides an excellent illustration of the verv wide
scope (nithe COUR c'sel<ixlind procedur31possihiliiies 1h3t.edlrrtd) rsfcrred
IO ihosc possibilitics. Bu1I ihould obser\,e ihai the subjeci-mïtier of ihc present
case is far removed from the themes of cases hitherto submitted to a Chamher.
In the three other Chamher cases. a houndarv d.sout. was oresented for reso-
lution, but now ue h;ii,ea case concerning ïlleged ,iol3iion of internstional lau,
in respect of industrial enterprises of the nstionality of the applicant Siaie. It is
?O ycars since the Court has hsd a case in ihis field Mcanwhile,ilh3s deali with
nunierous law-of.ihe-sea pruhlcni\ ar uell as boundary issues upon Isnd. and it
h3s de311wiih important qucsiions conccrning diplomatic inviolabilii) and ihe
non-use of force in inter-State relations, to mention only the contentious aspect
of the Court's iurisdiction.
Ii is gr~iifying io be :ible to plitsush diversity31 a moment when the rolc
of ihe Couri as an instrumçni for ihe pc3ccl'ulreioluiion ofdispute\is beconiing
even clearer, and when a serious reassessment of the potential of the ~nited
Nations and ils principal judicial organ is under way.
TheChamberrosear 12.20p.m. SECOND PUBLIC SlïTlNG (13 11 89, 10am.)
Present: President RUDA, Presidenf of the Chamber; Judges ODA, AGO,
SCHWEBEL Si,r Robert JENNINGSR ;egisrrar VALENCIA-OSPINA.
Alsopresent:
For rhe Governmenr ofrhe United Srares of America:
The Honorable Abraham D. Sofaer, Legal Adviser, Department of State,
Mr. Michael J. Matheson, De~..y Leza- Adviser, Depa.tment of State, asCo-
Agenu;
Mr. Timothy E. Ramish, Agent of the United States of America to the Iran-
United States Claims Tribunal, as DeputpAgenf;
Ms Melinda P. Chandler, Attorney/Adviser, Department of State,
Mr. Sean D. Mumhv. AttorneviAdviser. Denartment of State.
The Honorable ~;cha;d N. ~aidner, ~mhasiador to ltaly (1977-1981);Henry
L. .MosesProfessor of Law 3nd International Diplomacy, Columhia University;
Counscl io the Law Firm of Coudert Brothers, as Coun~elond Adtocofrc;
Mr. Giuseppe Bisconti, Studio Legale Bisconti, Rome,
Mr. Franco Bonelli, Professor of Law, Genoa University; Partner, Studio
Legale Bonelli,
Mr. Elio Faualari, Professor of Civil Procedure, Rome University; Partner,
Studio Legale Fazzalari,
Mr. Shabtai Rosenne, Member of the Israel Bar; Member of the lnstitute of
International Law; Honorary Member of the American Society of International
Law, asAdvisers.
For the Governmenrof Ifaly:
MI. Luigi Ferrari Bravo, Professor of International Law at the University of
Rome; Head of the Legal Service of the Ministry of Foreign Affairs, as Agent
and Coumel;
Mr. Riccardo Monaco, Professor Emeritus at the University of Rome, as Co-
Agent and Counsel;
Mr. Ignazio Caramazza, State Advocate; Secretary-General of the Avvocatura
Generale dello Stato, as Co-Agenrand Advocare;
Mr. Michael Joachim Bonell, Professor of Comparative Law at the University
of Rome,
Mr. Francesco Capotorti, Professor of International Law at the University of
Rome,
MI. Giorgio Gaja, Professor of International Law at the University of Flor-
ence,
Mr. Keith Highet, Member of the Bars of New York and the District of
Columbia,
Mr. Berardino Libonati, Professor of Commercial Law at the University of
Rome, asCowzseland Advocates; OPENlNC OF THE ORAL PROCEEDINCS
assisredby:
Mr. David Clark, LL.B. (Hons), Member of the Law Society of Scotland,
Mr. Alberto Colella, Assistant LegalAdviser tu the Ministry of Foreign Affairs,
Mr. Alan Derek Hayward, Fellow of the Institute of Chartered Accountants
in England and Wales,
Mr. Pier Giusto Jaeger. Professor of Commercial Law at the University of
Milan,
Mr. Attila Tanzi, Assistant Legal Adviser Io the Ministry of Foreign AkTairs,
Mr. Eric Wyler, Maître assistant of Public International Law at the Faculty
of Law of the University of Lausanne, as Advim. OPENING OF THE ORAL PROCEEDINGS II
Conference on the Law of Treaties. The proceedings in the case in which he had
been a~uointed iudae ad hochad onlv reached an earlv sta.e an- his friends and
colleagues will greitly regret that he was not to be given the opportunity of
demonstrating his great legal gifts in the capacity of an international judge.
May 1invite al1present to rise and observe one minute's silence inmemory of
the judges whom 1have mentioned.
The Chamber constituted to deal with the case concerning ElertronicaSicula
S.P.A. (ELSI) sits today to hear the oral arguments of the Parties in that case.
The proceedings were instituted on 6 February 1987hy an Application' filed
by the United States of Amenca alleging against Italy violations of the Treaty
of Fnendship, Commerce and Navigation signed by the two States on 2 February
1948 and the Supplementary Agreement to that Treaty2. The United States
requested that the case should he dealt with by a Chamber of the Court" and
that proposal was agreed to by the Government of Italy4. By an Order dated
2March 1987 the Court decidedto accede to the request of the two Governments
to form a special Chamber of fivejudges to deal with the case, and declared that
at an election held that day President Nagendra Singh, Judges Oda, Ago,
Schweheland Sir Robert Jennings, had heen elected to the Chamber. Time-limits
for pleadings werefixed6 and in due course the United States fileda Memorial',
Italy a Counter-Memorial, the United States a Reply and Italy a Rejoinders.
Following the death on II December 1988 of Judge Nagendra Singb, President
of the Chamher, the Court proceeded to fiIl the vacancy on the Chamber by
election in accordance with Article 17, paragraph 3,of the Rules of Court. At
that election, held on 20 Decemher 1988,my colleagues did me the honour of
electing me to fiIlthe vacant seat on the Chamber.
In accordance with Article 53,paragraph 2,of the Rules of Court the Chamber,
after ascertaining the viewsof the Parties, has decided that copies of the pleadings
and documents annexed shall be made accessible to the public with eflect from
the opening of the present oral proceedings.
1note the presence in Court of the Agents and counsel of the two Parties and
declare the oral proceedings in the case open. 1now give the floor to the Agent
of the United States, the Honorable Judge Abraham Sofaer.
' 1,pp. 3-40.
1,pp. 9-31 and 32-37.
' See Correspondence , o. 1, infra.
See Correspondence,No. 7, infra..
' I.C.J.Reports 1987,p. 3.
I.C.J.Reports 1987,pp. 3 and 185.
' Il, 3-360, 363-41and 417-509. STATEMEN'ï BY MR. SOFAER
CO-AGENT FOR THE GOVEKNMENT OF THE UNITED STATESOF AMERICA
MI. SOFAER:
INTRODUCTION
MI. President, distinguished Memhers of the Court. It is a great honour to
appear hefore this Court on behalf of the United States. We greatly appreciate
the Court's willingness to constitute a chamber of judges in this dispute. The
United States is pleased to be part of this signifi-anand positive - develop-
ment in international dispute resolution. The Parties are also particularly grateful
for the President'swillinenessto serveon this Chamber on short notice, following
the death of Judge ~a~&dra Singh.Judge Nagendra Singh was a prodigious and
exceptional scholar, a man of integrity and dedication. His death is a great loss
to us all.
With the permission of the President, the United States will present its case in
the following manner. 1 will make a hrief introductory statement descrihing the
nature of this dispute, the claim of the United States and the principal issues
raised by the pleadings. My Co-Agent, MI. Matheson, a Deputy Legal Adviser
at the Department of State, will present to the Court an overview of the undis-
puted facts and then explain certain areas where the facts are disputed. 1 will
then conduct the direct examination of MI. Charles Adams, and Ms Chandler
will conduct the examination of MI. John Clare. Professor Bonelli will then
address issues of ltalian hankruptcy law as applied to the facts of this case. MI.
Murphy willexplain to the Court the position of the United States regarding the
jurisdiction of the Court and the objection of the Respondent as to the admissihil-
ity of the claim. Professor Gardner, who served as United States Amhassador to
ltaly between 1977and 1981will relate the facts of this case to the violations of
the 1948 Treaty of Friendship, Commerce and Navigation hetween the United
States and Italy. MI. Ramish will discuss the issue of relief. MI. Lawrence will
provide expert testimony as to the valuation of the property hamed hy the
Respondent in this case. Finally, MI. Matheson will sum up our position.
Mr. President, the case now before this Court is most important. It concefns
an investment hy two companies of one country in a European country dunng
the post-Second World War era, a lime when rebuilding Europe was critical in
estahlishing a lasting global peace. It concerns measures taken against that
investment by the host country contrary to the provisions of a hilateral treaty.
Economic development and social progress are the common concern of the
whole international community. By estahlishing legal noms that encourage eco-
nomic prosperity and the well-king of al1nations, we help strengthen peaceful
relations and CO-operationglohally. Chapter IX of the Charter of the United
Nations acknowledges that the development of economic and social relations
creates the conditions of stability and well-heing necessary for friendly relations
among nations.
Of course, the public secto- government - plays a critical role in economjc
development evevhere. But the private sector also plays an important role in
economic development, primarily through overseas investment and international
trade. Without a reasonahle expectation of security, investors willbe lessinclined STATEMENT BY MR. SOFAER 13
to venture outside the favourahle environments of their own countries. Without
effective legal protection, investors will be less inclined to risk their capital, and
the cost of capital will be proportionately greater.
Thus, in pursuing this suit, the United States is not merely advancing the
private interest of one of its nationals. Rather, it is engaged in assuring the
conditions necessary to enahle citizens and governments of al1States to pursue
economic development in the most effectivemanner possible.
The United States and many other nations have worked hard to estahlish a
legal framework for trade and investment of capital hoth by United States
companies abroad and hy foreign companies in the United States. The corner-
stone of this legal framework has heen the commercial treaty. While commercial
treaties have heenpart of United States policy sincethe heginning ofthe American
Republic, they have played a major role in this century. In the dccadc following
the Second World War, the United States completed the negotiation of new
commercial treaties with 16 countries. Among the countries that entered into
treaties of Friendship, Commerce and Navigation with the United States at that
time were the Repuhlic of China, Denmark, the Federal Repuhlic of Germany,
Ireland, Japan, the Netherlands and Italy.
These new FCN treaties overhauled pre-existing commercial treaties. They
sought to improve and strengthen the protection of investments. Since interna-
tional investment in modern limes is predominantly hy corporate rather than hy
individual enterprise, the FCN treaties devised ways of providing adequately for
the protection of companies, not iust individuals. For the first time manv of these~~~
proieciions crtcndsd,not only 1; ihe <ipcrüiionsof ihc compïnics thekcl\cs in
the furcien country, but also to ilir opcrations of ihcir >ub,idi3rie, incorpor~ird
or chïricred undcr the Ia\\,soi tlic forcipn uuunirv. The ~hcnùmenal cconomic
growth in the world economy in the pos<war era is in no Smallpart attributable
to these types of commercial treaties.
The 1948FCN Treaty hetween the United Statesand Italy isespeciallynotable.
In the aftermath of the war, hoth countries saw great significance in normalizing
bilateral commercial relations. For the United States the FCN Treaty was the
first treaty of its kind negotiated with any European country following the war,
indeed the first since 1934.It encouraged United States investment and business
activities in Italy, hy assuring certain fundamental protections in the face of the
extensive involvement of the Italian Government in the private sector that had
existed during the Second World War, much of which remained intact in the
post-war era and thereafter.
For Iialy, this Trcai) uab onc cil'many stçps in the resumpiion of Italy'r
sustomar) posiiion in the Famil)of nations At ihc timc ihç Trcaty uar concludrd
lis pruirciions iicre prcdominantly applicÿblc io aciiviiicsoiUniicd Stiies ndtion-
ali and con1p3nicsin Iialy. Hui the proic~.iionsinvoli,cd srr granted u,iih almusi
complr[c resiprociiy. and tod~y Italian iicii\,itiesuithin the Uniied Stxics hençfir
exicnsi\cly irom the existence oi the Tre3iy. In Cdçi,al ihc prr\cnl time Iidli.in
invcrtmcnr in ihs IJniicd Siairs h:~sgroun 10 the point th~t the currrni flow oi
buch in\riimr.nt 10 the Uniied St~itcsaririrorimiitçs or cxcccds tliai of the Unitcd
States to Italy. Italy has prospered, likemany other countries in the world, due
predominantly to the ingenuity and industry of the Italian people. But the FCN
Treaty played ils part in facilitating capital investment in Italy and it now serves
and protects Italian entrepreneursoperating in the United States.
This case is the story of two United Statescorporations - Raytheon Company
and Machlett Laboratories - that invested heavily in the Meuogiorno region
of southem Italy. Their investment began in the form of minority ownership, but
then grew to 100per cent ownership of an Italian electronics Company, located14 ELETTRONICA SICULA
in Palermo, Sicily, named Elettronica Sicula S.p.A., commonly referred to as
"ELSI". Raytheon and Machlett tried to make ELSl financially self-sufficientby
investing large amounts of capital and expertise, but ELSl unfortunately never
became financially self-sufficient.Raytheon and Machlett tried to persuade the
Respondent to help by becoming a partner in ELSI, and by enforcing ltalian
laws favouring investments in southern Italy. The Respondent refused to do so.
In March 1968, Raytheon and Machlett reluctantly decided to put ELSl
through an orderly liquidation process, whereby - either as a whole or by
individual product lines - ELSI's plant and assets would be sold OF, thus
minimizing Raytheon's and Machlett's loss in their investment. As owners, these
United States companies had the right to end their business in the manner they
helieved was hest suited to obtain the highest possible return on their investment.
After careful study, they concluded that the best return would be obtained from
an orderly liquidation.
The Respondent, however, refused to allow Raytheon and Machlett to accom-
plish this orderly liquidation. On I April 1968,the Respondent requisitioned the
plant and assets of ELSI for an extendahle six-month period, apparently fearing
the nolitical and economic eflect of a liouidation. This act orevented Ravtheon
and'~achle1i from cxcrcising a fundam;n131 righi undcr the FCN ~rcafi,, ihai
of protcciing their cÿpiial ihrough ihc sale of thcir propcrly iniercsis. Morcovcr.
the reouisiiion olaccd FLSl in s oosiiion of no1bcinr able 10 Davils hilis as thcv
came due, unlésssubstantial fu&her investments wëre madéby Raytheon and
Machlett.
Raytheon and Machlett urged administrative officialsto rescind the requisition.
On 19 Avril 1968. however. President Carollo of Sicilv announced that the
rcquisiiio~ would be mniniïined indefiniicly unlcsr ~ÿyiheon abandoncd its
1iquid:iiionplan. Hc stiiild no! have becn clearcr in siating his aim ofdamlig~ng
EI.SI unless Ravthcon submittcd io his dcmand th31orrraiiuns continuc and ihe
liquidation he abandoned. President Carollo stated: '
"Nobody in ltaly shall purchase, that is to say IR1 shall not purchase
neither for a low nor for a highpnce, the Region shall not purchase, private
enterprise shall not purchase. Let me add that the Region and IR1 and
anybody else who has any possibility to influence the market will refuse in
the most ahsolute manner to favour any sale while the plant is closed."
The Respondent is clearly responsihle for the actions of its officials,which led to
the consequences President Carollo explicitly predicted.
ELSl appealed the Mayor's order to the Mayor's administrative superior, the
Prefect. But the Prefect failed to act. Meanwhile, no steps were taken by the
authorities in control of ELSl's plant and assets to continue ELSl's operations.
ELSl's assets and work-in-progress immediately hegan to deteriorate in value.
With debts coming due and no prospect of regaining custody of ELSl's plant
and assets. ELSl's ltalian counsel advised ELSl's Board of Directors that it
should iilc a pciiiion in bnnkrupisy. A petition in bankrupicy uas filcd, and on
7 May 1968ELSl u,as drchred hnkrupr.
Four auctions were held during the bankruptcy, but no bidders appeared, just
as President Carollo had threatened. The Resoondent in this case claims that this
facicsiablishcs thai ELSl had no value Rui 16s clnimil1befiisihe veryauihoriiies
ihat precludcd Rayihcon and Machleil from implemeniing 11splanncd Iiquidaiion
and thcrcniier cffeciivcls orc\,cntcd anv nicaninriul bids io be made. As ihc
evidence shows, before thefirst notice oiauction in bankruptcy, on II December
1968,ltaly had taken several steps to signal its determination to take over ELSI,
at a price of its own choosing. On 25 July 1968the ltalian Minister of Industry, STATEMENT BY MR. SOFAER 15
Commerce, and Crafts indicated in Parliament that the Government of Italy
would take over ELSI's plant. On 3 Novemher 1968 the Respondent issued a
press release that IRI-STET would take over ELSI. On 30 November 1968 a
"STET" sign was placed over the ELSI plant entrance. During Decemher 1968,
IR1 formed ELTEL for the express purpose of taking over ELSI.
While ELSl officiais received enquiries from prospective purchasers of its
oroduct lines and other assets. thev could do none of the normal thines that a
3cllcrdocs 10 bring dhout sdes rince the). Iackcd conirol oi the vcry üsseis being ~ ~
sold. And when noiicc of sdlc in hankrupicy \ras issucJ. ihc noii;: r~llcd simply
for ihe s11eoidl of ELSI'Süsset\. a romnicrci~11\~ unrenxhlc DroDosiiiuniiir aiiy
possible purchdser oihcr than IRI. 2nd camplctcly .II t3n~nîe iiih the nieihod
of s~lcwhiih ELSl and K:iyihcoii <illici.il.h.id pldnncd.
Given tbese preliminary arrangements, IRI'isuhsidiary ELTEL was able to
take its time in decidinr when to Durchase ELSI. II allowed three auctions to eo
hy, with the price droGing afteréach ended without a bid. Then, in the fouGh
auction, ELTEL bought ELSI's assets at a far lower price than could have been
obtained through an orderly liquidation.
When this deed had been done. and some 16months after ELSI had aooeaied
the requiriiiun ordcr. ihc Prcicct iounJ ihai ihc rcquisiiion -3 aficr illlillcgal.
t'\en ihcn the Respondcni rciused io pay iur the damqes ii hdd ciiiiscd. InstcaJ.
iinaid an cimouni dcrcrihrd h! ilic Itdlidn couris ar ihe rcntal \alut 01 EI.Sl's
olant fo~ a~si~-mo~ ~ ~ ~ ~d
We bclic\c thai x rei,icii.oi ihc evidçnce rei,ecilsihdt ihii is d .implc case The
rclc~antidcis and iliccontrulling Iaa,arc jirüightfuniard. and Iargcl) undihpuied.
I>itlerencesdo exisi bctuccn ihc P~rtie. . houe\cr. about a ieu. m:iicnal issues 01'
fact and concerning some aspects of the governinglaw. In accordance with Article
60 of the Rules of this Court, our oral presentation will be directed primarily to
the issues that still divide the Parties. and we will not reDeat the facts and
arguments contained in the written pleadings. Hence, the fict that we do not
addresssome of the Respondent's arguments should not be construed as implying
a waiver of our position as stated in our written pleadings.
The Respondent raisesan objection that the United States claim isinadmissible,
due to a failure by Raytheon and Machlett to exhaust local remedies. In its
pleadings the Respondent devotes considerable attention to proving the existence
of the local remedies rule, but fails to sustain its burden of showing that the rule
applies in tbis case and that remedies exist which werenot exhausted.
The claim in this case, which is hased on violations of a treaty between two
Governments should not be found inadmissible. The rights of the United States
under this treaty should be vindicated by the declaration of this Court that the
treatv was violated and that renaration is due. Indeed. Article XXVI of the FCN~ ~~-
~reaiy \rate, ih:it \ihcre dispuies cünnol bc sùtisliciorily ddjusrcd by diplomacy
ciiher pirt) ma) submit the dispute to ihir (:<iuril'orintcrprctation or appli~iiioii.
F\cn if rhc Iowl remcdics rulc is 3rinliwhlc IO ihir dis.iuie. the rulc ir ,aiisficd.
Raytheon and Machlett pursued al1ksonable methods of overturning the requi-
sition and mitigating the damage caused during the bankruptcy process. The
ltalian courts were provided several opportunities to order the Respondent to
pay compensation for ils acts once the requisition had been declared illegal by
the Prefect.
Left with no further remedy under Italian law, Raytheon and Machlett turned
to the United States Government. When the United States presented a claim to
the Respondent in 1974we asserted that al1local remedies had heen exhausted
and that the Respondent had violated its international obligations to the United
States. The Respondent answered this diplomatic note four years later. In its16 ELETTRONICA SICULA
response, as well as in subsequent diplomatic communications, the Respondent
argued that no violation of international law or Italian law had occurred, but it
never claimed until this action was commenced that other remedies existed and
should be pursued in ltalian courts. The Respondent should be precluded al this
point, on this record, from asserting that such remedies existed and should have
been pursued.
The governing law makes clear, moreover, that the Respondent denied to
Ravtheon and Machlett several nehts to which thev were entitled under the FCN
~r~ût~.Thcsc right, hwe heen c;rcfully idcntifiei in our uriticn plcadings and
include: the righi io manage and conirol ELSI; the right no1 IO have iheir legally
acuuired investmcnt intercsts in ELSl imv~ircd bvthe Reriundeiit: the richt io
rekive from the Respondent protection and secu;ity for their property; and the
right to prompt payrnent of jus1 and effective compensation for the wrongful
taking by the Respondent of interests in property.
The breach of these international obligations by the Respondent creates a duty
to make reparations to the United States. Reparation in this case should be
measured by the injury actually incurred by Raytheon and Machlett. Since ELSI
never hecame financially self-sufficient,we do not seek reparation in the form of
lost future profits of Raytheon and Machlett. Rather, we have assessed the value
of ELSI at the lime of the requisition, essentially according to its adjusted book
value, taking into account certain intangible values as well. On this basis, the
United States seeks reparation for injuries suffered by Raytheon and Machlett
with respect to loan guarantee payments, return of investment, open accounts,
and legalexpensesand costs. To aid the Court in the assessrnent of these damages
the United States will present an accounting expert to analyse the available
documentation and to present the methodology relied on in our computations.
The total amount of damages suffered by Raytheon and Machlett, which is
claimed by the United States, is US$l2,679,000. The Court is requested to order
. .ment to the United States in this amount. In addition. the United States
reoL ~ ~ ~~ ~ ~ ~~~~~~t award interest on this amount. at theaveraee annual rate
ofthe United States prime rate, compounded annuall; from the da& of the injury
to the date com~ensation is paid. For purposes of simplification, the United
States has in its Annexes calcu-latedinterest from the end of the calendar vear in
which the injury occurred.
In conclusiùn, I u,ould mcniiun thai a sound rc,oluiion uf the quesiions in this
case is no niorc imooriant io the nationals oi the United States ihan it is to the
nationals of the many nations now engaged in international investment under
the protection of FCN treaties or similar agreements. lnvestment outlays in the
United States by foreign beneficialowners have recently reached about $40billion
per year. Companies from countries in Europe, the Middle East and Asia are
investing heavily in the United States, often under the protection of FCN or
similar agreements. It is essential that nothing be done to imperil the stability
and integrity of the legal régime in whichal1these international investments are
made. In short. we are here. vour Honours. to orotect not onlv a United States
company and Unitcd Siates ;ntrresrs. but ihc ifiterests of 311iiiestors uho rciy
upon FCN ireaiici and similar agrccmcnts for protecrion.
This finibhcs rnv ooeiiine.remarks Follouinr uhai 1undcrstand is the Dractice
in this Court, duhng the course of Ouroral statements we shall no1 read al1our
detailed references and citations. These references and citations will he given to
the Registry and 1ask that they be included in the transcript of these proceedings
in full. 1 tmst that this will meet with the approval of the Court and will not
cause any inconvenience to the Respondent. ARGUMENT OF MR. MATHESON
CO-AGENT FOR THE MVERNMElFT OF THE UNiTW STATE OF AMERiCA
Mr. MATHESON:
FACTS
Thank you Mr. President, distinguished Members of the Court. It is myhonour
to present to you today the argument of the United States on the facts of the
case whichis before you.Although it may not be apparent from the Respondent's
written pleadings, the vast majority of the facts relevant to this case are not in
dispute. In a numher of instances wherethe Respondent does dispute a particular
fact asserted by the United States, it has yet to present documentary evidence of
its position. Finally, there exist a few categories of factual evidence which the
Respondent has placed on the record but which are irrelevant to the basicdispute
before the Court.
1will not attempt to repeat the material that appears in our written pleadings.
Rather, 1will begin by summarizing the more important facts which in our view
are not disputed. 1 will then deal briefly with certain facts asserted by the
Respondent which are essentially irrelevant to this case. Finally, 1will explore in
greater detail the two important questions of fact which are disputed.
To begin with,we believethat it would be useful for the Court to have before
it as complete an indication as possible as to which facts are not disputed. 1will
therefore~~resenta brief summarv of the more im~ortant facts which we believe
10 be in ibiscategory. If the ~és~ondentdisagries with any of these facts we
invite the Respondent to specify them and identify any documents belore the
Court which support its position. First, there is no dispute with respect to the
nationalitv of each of the Parties that ~lav a Dart in this oroceedine. Ravtheon
~om~an<(knou,n as "Rayihzon"), ~dchléil ~;ibor;itorics.'~ii (co0u.or~tcd
as ".Machleti"). and Rxyiheon Europe Intrrn~iional Comp~ii) (known as "Ray-
iheon Europe") are al1Cnitcd Siaies n~tion;ils Raytheon EuroDcisthe Eiiro~can
management subsidiary of Raytheon and iswholliowned by ~aytheon. le tir on-
ica Sicula S.P.A. (ELSI) (commonly known as "ELSI"), and Istituto per la
Ricostruzione Industriale (IRI) (often known as "IRI") are ltalian nationals.
ELSI was organized in May 1954 and was wholly owned by Raytheon and
Machlett; IR1 is a holding Companyowned by the Government of Italy.
The second area of undisputed fact lies in ELSl's financial performance. It is
undisputed that although Raytheon and Machlett provided financial,managerial,
and technical support for ELSI, ELSI never became financially self-sufficient.As
of 31 March 1968, ELSI's accumulated losses were at least 8.5 billion lire
(US$I3,680,000).
It is further undis~uted that ELSI's shareholders decided 10liauidate ELSl's
assets by means of an urdcrly liquidaiion undcr Iililiiinlaw. ~uring March 1968.
in accordance wiih its decision. ELSl ceased full-scale pr~duction. dismissed
cmployeesexsepi for approximaicly 130needed for wind-upoperdlions. and iook
steps to commence an~orderlyliqiidation of assets It is undisputed that the Respondent prevented the implementation of this plan
hy its requisition of ELSI's assets. On 1April 1968the Mayor of Palermo, acting
on behalf of the national govemment, issued an order, effective immediately,
requisitioning ELSl's plant and related tangible assets for "the duration of six
months, except as may be necessary to extend such period".
It is undisputed that the requisition was found to be illegal under ltalian law.
lmmediately following the requisition, ELSI representatives sent cahles ta the
Mayor and other ltalian authorities asking them ta revoke the requisition, but
receivedno response. On about 11April 1968,ELSI again petitioned the Mayor
of~ ~ ~~mo Io lift the reauisition order: the Mavor never resnonded. On 19Annl
1968.ELSI filcd 3 ii,iriidppcdl oiihç ;rquisiiion ordçr ta the Prcicit(iPalcr~o.
The I'reiçst rulcd on 22 .4upusi 1969ihrt the rcqui>iii<in\iùs illcgdl.The rulinp,
was issued approximately 16 months after the rëqiiisifion order- but only
short penod after ELSl's assets had heen purchased in bankruptcy hy the Re-
spondent.
It is undisputed that officials of the Italian Govemment made a series of
statements, beginning before the requisition, that evidenced its intention to pre-
vent the orderly liquidation and Io take over ELSI for itself. 1 will give you a
fewexamplesof these statements. On 31March 1968,the President of the Sicilian
region told ELSI's Managing Director that the Italian Prime Minister had said
that the Government of ltaly would requisition ELSl's plant in order to prevent
the liquidation. On 20 April 1968,following a meeting with Raytheon officials
in whichhe advocated additional investment in and continued operation of ELSI,
the President of the Sicilianregion delivered a memorandum ta Raytheon stating
that liquidation was impossible for the time being. That memorandum stated
that:
"nohody in ltaly shall purchase [ELSI]neither for a low nor for a high price,
the Region shall not purchase, private enterprises shall not purchase . . .
mhe Region and IR1 and anybody else who has any possibility to influence
the market will refuse in the most ahsolute manner to favour any sale while
the plant is closed."
On 25 July 1968,the Minister of Industry, Commerce and Crafts announced
the intention of the Government of Italy to take over ELSI's plant through one
of IRI's suhsidiaries. On 13November 1968,the Italian Government announced
that an IR1 suhsidiary, known as IRI-STET, would take over ELSI's plant. In
Decemher 1968,IR1formed a newsubsidiaw- Industria Elettronica Telecomun-
icazioni, S.P.A. (commonly known as "ELTEL") - to take over ELSl's plant
and assets.
It is undisputed that ELSi's bankruptcy petition was filed on 26 April 1968
and that ELSI was declared hankrupt on 7 May 1968.Most of the ensuing events
in the bankruptcy process are also undisputed. Although 1will no1helabour the
Court with a long diversion inIo the intricacies of the hankruptcy process, it is
important to notea fewkeyevents.Despite the Respondent's announced intention
to take over ELSI, neither IR1 nor ELTEL attended the first three bankruptcy
auctions. ELTEL acquired ELSI's assets in another manner.
A week after the second auction, ELTEL proposed to the Trustee that il be
allowed to lease and reopen the ELSI plant for an 18-month period at an annual
rental charge of 150million lire (US$240,000).The creditors' cornmittee, which
included Raytheon Europe, opposed the proposed lease, but it was approved by
the hankruptcy judge on the terms requested. Raytheon Europe's appeal of the
lease to the Civil and Criminal Tribunal was denied. In fact, the lease lasted less
than four months, since ELTEL acquired ELSI outright in July 1969.The total ARGUMENT OF MR. MATHESON 19
amount in rent collected by the bankruptcy judge was only 48 million lire
(US$77,000)(1, Memorial, Ann. 30, Attachment B of Schedule A).
In April 1969 ELTEL notified the bankruptcy court that it was willing to
purchase ELSl's plant and equipment, with the exception of certain supplies that
were not essential for the administration of the plant. ELTEL indicated that it
would bid at the third auction if it could bid 3.205 billion lire(US$5,128,000)
for the plant and equipment only. The bankruptcy judge did not alter the terms
of the third auction and ELTEL did not bid.
In May 1969ELTEL oîfered to purchase the plant, equipment and inventory
for 4 billion lire (US$6,400,000). On 9 June the bankruptcy judge ordered a
fourth auction and set a base price of 4 billion lire (US$6,400,000). Raytheon
Europe appealed this decision, but that appeal was denied.
On 12luly 1969the fourth auction was held; only EI,TEL attended. ELTEL
purchased ELSl's plantand remaining assets for 4.006 billion lire(US$6,409,600).
On 13July the Civil and Criminal Tribunal of Palermo approved the purchase
and assigned ELSI's remaining assets to ELTEL.
It is undisputed that the trustee in bankruptcy was granted only 114million
lire (US$171,000)in damages for the illegal requisition. On 22 November 1969
the trustee brought suit in the Court of Palermo on behdlf of ELSl's bankrupt
estate against the Minister of the lnterior of Italy and the Mayor of Palemo
for damages resulting from the requisition. The trustee sought damages of
2.395 billion lire (US$3,834,500) plus interest for the difference between the
book value of ELSl's fixed assets (plant and electronic equipment) on the date
of the bankruptcy and the evaluation made by a court-appointed appraiser at
the end of the requisition period on II October 1968, and also requested the
same for ELSl's inability to dispose of the plant and equipment during the
requisition period. The Court of Palermo denied the trustee's request (1,
Memorial, Ann. 79). The Court of Appeals reversed this decision and awarded
damages to the trustee, but it limited those damages to the rental value of
ELSl for the six-month period in the amount of 114million lire (US$171,000)
(1, Memorial, Ann. 81).
It is undisputed that, alter the sale of the remaining materials and collection
of receivables,a total of only 6.374 billion lire(US$IO,192,000)was realizedfrom
the sale of ELSl's assets in bankruptcy (1, Mernorial, Ann. 30, Attachment B of
ScheduleA). Because the proceeds from the sales in bankruptcy were insufficient
to pay al1of ELSI'sobligations, Rnytheon lost the full value of the open accounts
and was required to pay al1the guaranteed loans, at a total cos1to Raytheon of
more than 6.931 billion lire(US$II.I 13.600).
Finlillyiiis unrli.puicd thlit the ~niicJ ~iÿtcsmrdc eiciisi\cr.iToi<irccovcr
compensdtiùn for the Rc.pondent's ;i~.tionsthrough dipl,~m;iticih<inncls. On
7 tebruan 1974 the Cniied Siaies sent 3 dit>loniatis Noie Io the Kcs~ondcnt
seekingcompensation for its actions against ~aytheon and Macblett'ssui>sidiary.
The Respondent replied on 13 June 1978 that the claim was groundless. On
18 Apnl 1979 the United States sent another diplomatic Note questioning the
basis for the Respondent's position. The Respondent sent a letter to the United
States on 18 Apnl 1980 repeating that it was jundically impossible for the
Respondent to pay compensation for the claim. Finally in November 1985the
Parties agreed that the United States should file application with this Court to
initiate proceedings in this case.
This concludes my reviewof the most important undisputed facts. As 1stated
at the outset, if the Respondent takes the position that any of these facts is
disputed, the Respondent should indicate whicb specificfact it disagrees with,
and should refer to the documentiiry evidence before the Court which supports20 ELETTRONICA SICULA
its position. This process will narrow the dispute and assist the Parties and the
Court in focusing on the real issues in this case.
1will next deal brieflywith the considerahle amount of factual matenal in the
Respondent's written pleadings that is essentially irrelevant to this case. The
Respondent places great weight on ELSI'sasserted unprofitahility and the reasons
for this situation. The state of ELSI's profitahility is not disputed in this case,
nor is it relevant to this proceeding. Regardlessof the state of ELSI's profitability,
the Respondent wrongfully prevented ELSI's shareholders and creditors from
realizing the full value of the Company through the orderly liquidation of its
assets.
Nor are the reasons for ELSI'Sfinancial performance relevant. ELSI's geo-
graphic location, the mix of ELSI's product lines, and similar material to which
Respondent refers, are al1 essentially irrelevant to the basic issue before this
Court: whether the illegalrequisition and other actsand omissionshythe Respon-
dent constitute a violation of the FCN Treaty. While, the,United States has
provided complete responsesto Respondent's allegationsInthis regard - because
in our view the Respondent is wrong - the Court simply need not reach these
issues. Whatever the reason for ELSI's financial performance Raytheon and
Machlett were wrongfully deprived of the nght to liquidate ELSI's assets in an
orderly fashion.
Nonetheless, to give the Court an accurate picture of these matters, 1 would
like to review verybriefly the events which led up to the planned liquidation of
ELSI.
Beginning in 1967,when Raytheon decided that ELSI had to be made finan-
cially self-sufficient,they repeatedly met with Italian Govemment officialsand
offered a numher of proposals to avoid the necessity of a liquidation of ELSI.
These proposals are outlined in our pleadings (Memonal, 1, p. 48; Reply, II,
pp. 366-374)in some detail. The proposals had severalcommon elements: ELSI's
shareholders would upgrade ELSI's plant and production systems and improve
managerial techniques; new products and markets would be developed in order
to expand and diversify ELSI's business and make full use of its operating
capacity; an influential Italian partner would be found for ELSI; and the co-
operation of the Italian Govemment would be secured. Beginning inApril 1967
Raytheon provided 4 billion lire (1, Memorial, Ann. 15, para. 21) to ELSI in
recapitalization and guaranteed credit which it believed would be sufficient to
continue ELSl's operations for another 12months. By December 1967much of
ELSI'sfacilitiesand operations had been upgraded. Improved,quality, production
and scrap control systems were implemented. A worker training programme was
estahlished. Production facilities were restructured.
Raytheon also identified several new product lines into which ELSI could
expand. This included the government-dominated telecommunications pro-
ducts- includine telephone switchin-equ.-ment - which are the very products
that are now be& made by the govetnment-owned Company thai acquired
ELSl's assets in bankruptcy.
However, Raytheon was not successfulin finding an influential Italian partner
that could assistELSI in com~etinein Italian markets. An important aovemment-
hacked Italian partner woufd haie opened up new markeis and &ess to the
Italian business network and would have assured a rightful place in the future
of the Italian electronics industry which was dominated by government-backed ARGUMENT OF MR. MATHESON 21
One possibility ELSl and itîîtockholders cxplored waî parincrship uith IRI.
which had exicnsivecommercidl and hdnkinp intcrcsis and which dominaicd the
telecommunications. electronicsand eneineehne industries and markets in Italv.
In Tact.Raythcon had already success~ullyenirred into jusi such n psrinersh(p
with IR1and the privaic company FlAT in an elcclron~cscompîny on the Itülian
mainland. Rsvthcon also cx~lored a rclati<in5hiowiih ESPI. the Sicilianao\,ern-
mental entity.responsible for finding and promoting ~icilian developm&t. But
neither of these ltalian entities was interested.
Likewise, Raytheon was unable to secure the support of the ltalian Govern-
ment. The ltalian Government was a dominant customer, and through IR1 a
dominant supplier, inthe Italian electronicsindustries includingthe telecommuni-
cations industry. It was also dominant in related support industries, such as the
transportation system and the ltalian banking system. With government sup-
port - and with IR1 as an ltalianpariner - Raytheon and Machlett also hoped
to secure for ELSI the transportation and procurement benefits for investors in
the Mezzogiorno region that had been much publicized but never realized by
ELSI.
For nearly a year, between Febmary 1967and March 1968,Mr. Adams, MI.
Clare, and several senior Raytheon officialsheld some 70 meetings withcabinet-
level officials of the national Government, with officialsof the Sicilian region,
and with representatives of 1RI. They presented them with a central plan and
with numerous specific proposals for ltalian Government participation. These
proposals are fully described in the United States Memorial (1, Memorial,
Ann. 22).
However, neither the Italian Government nor IR1 accepted any of these pro-
posais to invest in or establish a commercial relationship with ELSI. Mr. Adams
and Mr. Clare expressly told ltalian governmental and industrial officials that
unless ELSl acquired an influential Italian partner and support from the ltalian
Government, the stockholderscouldnot justify contributions of additional capital
to ELSI, and ELSl would have to cease operations early in 1968.
By February 1968,the 4.5 million dollar recapitalization (1, Memorial, Ann.
13, Schedule A) that Raytheon had contributed to ELSl in 1967 was running
out. When neitheran ltalian partner nor ltalian Government support had materi-
alized, Raytheon and Machlett decided in March 1968to place ELSl in voluntary
liquidation at the highest possibleprice to obviate the need to make substantial
further capital contributions to ELSl and to minimize their losses. On 16March
1968, ELSI's Board of Directors voted to cease full-scale production and to
liquidate ELSI. On 18 March, ELSl's shareholders, Raytheon and Machlett,
voted to affirm this decision.
Thc national Goi.crnmcni, ihc regiunal goiernmcnt. IR1 and ESPl uerc al1
cxtcnded cvcryopportuniiy to krrq ELSl alite 2nd to kcep the uorkcrî employed
throuth normal and IauTuliiicsnl. The Re~iiondenichosc.houe\er. noi io pursue
theseopportunities and chose instead to take the extreme step of requisiiioning
the company in an unlawful manner and acquiring ELSl for itself under the
distress conditions of a bankruptcy sale.
Let me now turn to the central issues that are in dispute in this case: first,
whether Raytheon's plan for the orderly liquidation of ELSl was reasonably
calculated to maximize the proceeds of the sale of ELSl's assets, and to pay
ELSl's crediiors; and second, whether the unlawful requisition of ELSI'sassets
precluded an orderly liquidation of ELSl and caused its bankruptcy.22 ELETTRONICA SICULA
The United States has already submitted substantial documentas. evidence of
its views on these two disputed issues. Today and tomorrow, we will present
testimony by witnesses who had direct, personal knowledge of these events.
Specifically,Mr. Charles Adams and Mr.John Clare willtestify to relevant events
associated with the management of ELSI, the preparation of the orderly liquida-
tion plan and the eflect of the requisition on the orderly liquidation.
We willalso cal1on an eminent professor of ltalian bankmptcy law, Professor
Franco Bonelli, to explain in detail the content and eflect of ltalian law with
regard to these events.
The Orderly LiquidationPian
The first of the Iwo key disputed issues deals with the viability of the orderly
liquidation plan. As both Mr. Adams and Mr. Clare will attest, the plan was
reasonahly calculated to seIl ELSl as a live business in order to maximize the
sales proceeds. Moreover, the plan was reasonably calculated to pay al1of ELSI's
creditors.
In early 1968, Raytheon and Machlett had appointed Raytheon's Vice-
President, Joseph Oppenheim, to become ELSl's Chaiman. Mr. Oppenheim,
himself an electronics engineer, wasan expert on international sales and transac-
tions and was thus ideally qualified to plan and carry out the orderly liquidation.
To assis1 him, officiaisof the stockholders and ELSl were to be divided into
working groups to conduct the liquidation. One group was to CO-ordinatethe
entire plan; another was to deal with the banks and other creditors; another had
the responsibility to handle commitments to customers and to collect receivables;
and a final group would CO-ordinatethe sale of assets.
The corner-stone of the plan was to seIl ELSI or its product lines as going
businesses. At the end of March 1968,ELSl had orders in hand, work-in-process,
customer lists, and a list of experienced suppliers of raw materials and compo-
-~~~~~~.l1of wh~ ~~~~~ld have been transferred Io a huver as ro- - business lines.
In addition, ELSl and ils stockholders selected 130embloyees to maintain a light
assemblv operation to complete work-in-process and thereby maintain relation-
ships w?h customers. This combination gave reasonable assurance that the plan
would have been carried to a successfulconclusion.
Sale of ELSl as a going business also entailed sale of ELSI's substantial
intangible assets. ELSl or its product lines would be offered with an established
name and reputation, and with customer and supplier relationships intact. This
is known as "goodwill" and was a substantial, recoverahle element of ELSI's
assets. In addition, Raytheon and Machlett would supply necessary patent and
trademark licences to purchasers. They would also provide technical assistance
Io the new buyers of the ELSl lines, thereby backing ELSI's purchasers with
their own world-renowned expertise in the electronics field. This assured that
purchasers would, in turn, produce high-quality products. Inclusion of these
intangible assets in the ELSl package would obviously attract a wider range of
potential buyers and maximize ELSl's sales proceeds.
The experienced team which put together the liquidation plan planned to use
its knowledge of the electronics components industry to advertise ELSI world-
wide, Io seek out potential buyers, and 10match one or more of ELSl's product
lineswith each of these buyers. Mr. Oppenheim had world-wide connections with
potential buyers, and already had been in touch with Japanese and other firms
reeardine the ~ossiblesale of ELSl's vroduct lines. including-the work-in-process
a$ raw&ate;ials.
Sale to a Company or to a combination of companies in Italy, including IRI, ARGUMENT OF MR. MATHESON 23
was not to be overlooked. The Respondent's interest in ELSl is evidenced hy the
statements made hy the national Government hefore and after the requisition,
by the extraordinary steps it took to seize ELSl's assets through the requisition,
by its lease through IRI-STET, and by the eventual purchase in hankmptcy by
ELTEL. In sum, the sale of ELSI or its product lines as live businesses wasnot
only feasible, it was nearly a reality.
This bnngs meto the second aspect of the orderly liquidation plan: the payment
of creditors. Would the sale of ELSI's assets bave realized sufficientfunds to pay
ELSl's creditors? Again, the answer is yes. ELSI had three types of creditors:
small creditors; large secured and guaranteed creditors; and large unsecured,
unguaranteed creditors. Agreement with the plan was to he obtained with al1
three classes.
Pnor to the receipt of any proceeds from the liquidation, Raytheon planned
first to pay the debts owed the small creditors to minimize the administrative
effort during liquidation. Raytheon transferred 150 million lire to the First
National City Bank hranch in Milan to pay the small creditors in full (1, Memo-
rial, Ann. 17,para. 14).(1 should point out that this transfer was accomplished
without any difficultyunder United States foreign direct investment regulations.)
Raytheon would satisfy ELSI's debts with the remaining creditors from the sale
of ELSl's assets. Securedand preferred creditors would, of course, take pnonty.
To the extent that funds from the sale of the assets were insufficient to pay
guaranteed loans in full, Raytheon would be called upon to make up the
difference.
In the orderly liquidation, Raytheon and Machlett would have recçived the
value of ELSl's assets to be sold as going business lines -ai a pnce likely to be
greater than the book value of 17.05billion lire (US$27,200,000)(1, Memorial,
Ann. 13,Schedule Cl). Realization of book value would have been sufficientto
pay offELSi's liabilities of 16.66billion lire (US$26,656,000)(1,Memorial, Ann.
13, Schedule E) in full, including amounts owed by ELSI to Raytheon. This
would have left 391 million lire (US$625,600) (1, Memorial, Ann. 13, Schedule
E) wbichcould have heen distributed to Raytheon and Machlett as a recoupment
of a small portion of their total investment.
The liauidation team also orenared a worst-case scenario. Thev calculated that
35 an 3h;<ilutcminimuni, t:l~l'; 3sscis uould command no leis ;hail 10.8billion
Iirc (I.'SS17,?80.00UJil. hlcniori.il, Ann. 13.Schcdulc CI) This s,>-c3llçdquick-
sale value was not to he used to establish an offering price, but only to set the
lowest possible figure which could be used by Raytheon in its own interna1
corporate planning. It is not to be confused with the proceeds Raytheon would
actually have obtained had the orderly liquidation heen allowed to continue. The
quick-sale valueartificiallydiscounts ELSI'sassetsand does not take into account
the substantial intangible value of ELSI's product lines.
MI. Lawrence of Coopers and Lybrand willdiscuss the actual value of ELSl's
assets in more detail. Sufficeit to Sayfor now that even if Raytheon and Machlett
had realized only the quick-sale value of 10.8billion lire, the orderly liquidation
would stillhave proceeded successfully.Raytheon and Machlett could have paid
ELSI's preferred and secured creditors and al1 of ELSI's smaller, unsecured
creditors in full. Ravtheon would have honoured its euarantees to oav anv ., .
guaranteed creditor not Sullypaid from asset saleproceeds. The major unsecured,
unguaranteed creditor class would have heen paid on a pro rata hasis from the
funds realized from the sale of the assets.
It isimn.ss~ble~o ~ ~te oreciselvhow na.me,t of the remainine creditors would
h3~ pri>grcs,cJ. bcc:iujcihç ill<i.il rcquisition ürbitr:iril) icrrni~d~ç~ihc orderly
liquidation Onc possihilit) \!,la ihhtRciyihcon;andM;ichleit could h3i.c scttled24 ELETTRONICA SICULA
ELSI's credits with the laree unsecured. uneuaranteed bank creditors. It would
have bcen reïronahlc io ch;Xct th31thc uns&ured, unguzriintccd hink crcditorc
uould have rciilcd thcir cldinii ai approniiiiatsl) 30.50 pcr ccni of viiluc As
Profcssor Hi>nelliwill describe, in Ii.ilyili. iommoii knowlcdge ihat seillemeni
brings creditors prompt and subst.iniia1 pÿymcni as conirüsied to ihc Icsscr
Iimounts the srcditori arc Iikclyto realizc ihrough a court-supcniscd sïlc hank-
ruptcy. It is thus common practice in Italy for bank creditors to make such
settlements of their claims with failine comoanies.
Rayihcon and hliichlcrt fully intenicd to'dllow ;ilIïr~c unsrcured. ungii;irdn-
tccd credit<irbio particip~ic in ivhaic\sr prosecds would hai,e hccn rc:overcd
ironi ElSI's a\ici. A, hlr. Adünis will tell vou in 3 lew monicnis. Rayihcùn
and Machlett would have been willine to neeotiate a tvoe of revenue-sharine
plan with the crediiors Ii the sale if ELSI'S ai\ci, h;d genenltcd suHicie<
revenus io p~) oiTcrcdiii>rsai greîier [han SUper ccnr. Rayihcoii 2nd M;ichlcii
would have shared that revenue pro rata with the unsecured, unguaranteed
creditors.
Accordingly, if Raytheon and Machlett had recovered book value or more
from the sale of ELSI's assets, they would have heenwilling to negotiate an
arrangement under which al1creditors - includine themselves - would have
ken ;aid iii100pcr ceni <ii\.3luc notu,ithsranding Ynyprior scitlcment commit-
nicnts ior louer amounis. Crcditor ,eiilemenis nc\.er came to friiiiion, houçvcr,
because the illee31rcuuisiiion of the ELSI asscis inicrvenïd io ni~kc ihcir sale,
as well as settleient [rom sale proceeds, impossible.
The critical point, however, is that even assuming for the sake of argument
that ELSI's assets had recovered only 10.8 hillion lire,the quick-sale value, as
the Respondent suggests(Counter-Memonal, II, pp. 9-10; Rejoinder, II, pp. 477-
478), the orderly liquidation would still have been successful.And even assuming
that ELSl's assets had recovered onlythis quick-sale valueRaytheon and Mach-
lett would have been in a much more favourahle position financially than they
were followingthe salein bankruptcy. If the bank creditors with large, unsecured,
unguaranteed loans had settled their claims at 50 per cent of value or less, the
liquidation would have cost Raytheon no more than 3.79 hillion lire
(US$6,082,600)(1, Mernorial, Ann. 13, Schedule F).
Mr. President, it is Ourintention next to ask that Mr. Charles Adams be called
to testify.
The Chamberadiourned from 11.20a.m. to 11.42 a.m EVIDENCE OF MR. ADAMS
WIRIESS CALLED BY THE WYI!RNMENT OF THE UNITED STATE.5OF AMERICA
The PRESIDENT: 1 cal1 upon Mr. Charles Adams to make the solemn
declaration, the text of which 1assume you have been provided with.
Mr. ADAMS: 1 solemnly declare on my honour and conscience that 1 shall
speak the truth, the whole truth and nothing but the tmth.
Mr. SOFAER: Mr. Adams served in 1947 as Executive Vice-President of
Raytheon and in 1948becamePresident of Raytheon. In 1964he hecame Chair-
man of Raytheon's Board of Directors, a position he held until 1975. He still
serves as a Director of Raytheon and is Chairman of Raytheon's Finance Com-
mittee.
Mr. Adams was awarded the medal of commendation of the Order of Ment
of the Italian Republic for his advancement of the electronics industry in Italy.
Mr. Adams, could you tell us, Sir, the reasons for the Raytheon company's
investment in ELSI.
MI. ADAMS: Raytheon was interested in using ils technology to develop,
hooefullv. a ~rofitahleactivitv inItalv. Wehad the exoenence ofanothercomoanv
tiherc ive u,&r luint o~vners.~u~heruc,e had dr.vclop;d on the equipment si-c
ELSl wÿr iheconiponents part of the business.WCfelt ih~WC had thc technolog)
to succecd ln thls and thst oter a period of tinie ive wr'redoin6 romcthinp, bv
o~eratine. in Palermo. that was consistent with the ohiectivei of the ~tilian
~uternicnt in helping employmcnt and industnal dçtiviiy in the Meuogidrno
arca In our oun inicrcsls u,ehoped 10 dcielop a profitable busincs,; ue thoupht
we were consistent with the interests of the Govemment.
Mr. SOFAER: Were there any factorsthat made you feelthat your Company,
ELSI, would succeedor needed to succeed?
Mt. ADAMS: We felt, as we understood the conditions in Italy from our
expenence elsewhere, that we needed to have the help of the Government and
the Government's industrial activityarea. This was so important in developing,
broadenine our sales that we felt that we should have the heln. not onlv in
deve~o~ingmarkets, but that we should have the help of the subGdiesfor &ans-
portation for someof our oroducts and the so-called30Dercent law which would
mean that we would haie a certain fraction of the Sales of certain kinds of
products in this situation.
Mr. SOFAER: Had Raytheon trained any people 10operate the ELSI plant?
MI. ADAMS. Yes, WC used .4mrncan people to cnhsnse the technical training
of ihc uorkforce ai the ELSl plant. We also pro\,idrrl management people irom
time 10time 10hel~ in the orianization and develooment ofit as a business. So
it was both technccal training and management training that we provided -
management assistance.
Mr. SOFAER: Did Raytheon provide other assistance 10ELSI?
Mr. ADAMS: We did. Outside of our financial contributions to ELSI, we
went out of our way to provide additional sales. 1think perhaps a good example26 ELETTRONICA SICULA
of that was the effort that we made 10 provide for a components work for the
Nato Hawk system. 1 just take this as an example. In 1959 1 was in Pans
negotiating with fivenations a production programme forthe Hawk anti-aircraft
missile svstemfor Nato and the auestion came uo of who would make the tubes
thai uerr involvcd in ih~r- the mlignsirons. klystrons and orhcr tcchnical types
of tube.. I 5liidth31nc had onc licen,ee, and thlit wlisCLSI, and thai uc wanicd
to ree ihlii work donc ai EI.SI General Reyneirse. who uas ihc rcprcçeniaiive
of the five nations, said that we cannot put ihis whole programme in a position
where it depends on one small company in Palermo - that is a risk that 1cannot
accept. 1said, General, 1can assure you that ELSl can produce these tuhes, they
are state-of-the-art technology, verydifficultand, in order to back that up, 1will
assure you that for any tuhes that ELSl produces that do not meet the specifica-
lion and pass inspection we willsuhstitute for them tuhes made by the correspond-
ing power-tube division of the parent company in the United States. That was
accepted and ELSl did the work, and ils tubes passed every inspection; in fact
if anything, exceeded the quality of the tubes we made in the United States.
Mr. SOFAER: You mentioned that Raytheon had extended financial assistance
to ELSI. Could you tell us the extent of that assistance, if you know?
Mr. ADAMS: We made a capital investment of approximately USSI2 million
and an additional USS8 million in auaranteed loans for which we were resoon-
sihle- a total of approximately ~S$20 million
Mr. SOFAER: There came a time that Raytheon decided to end its investment
and to liquidate ELSI. Could you tell us the reasons for those decisions?
Mr. ADAMS. WChad mlidccvcry clFort IOiurn ELSI inio a profitablcaciiviiy.
WCdccided, in 1967. ihÿi uc would gitc thii one la51gdod try and ue ligrccd Io
oui uo anorhcr I:SS4.j million, the Ilist of the invciinieniihïi a,e put into 11.
Ànd durine that time we had some added manasement oeoole that we were able
to bring tobear on the problems there. We decided thai w&would go around to
al1 the government agencies, to IRI, to try to gel some help to give us added
business, to give us some business that had a consistency and stablity to offset
the ups and downs of some of the military work, such as Hawk. We found al
the end of that period, as we came into the spring of 1968,that it just did not
work. Wecould not get the help that we needed, wewere not able to have enough
volume of business to support the workforce there and, since we were not in the
business ofking what 1tbink you could cal1"permanent investors", if something
could not be turned to a profitable condition then it was the inclination of Our
Board to dispose of it. We could not continue to carry losses for an indefinite
period. So a decision was made that we should seIl ELSI, either as a whole or
by vanous product lines, the latter being the more probable approach to this. 1
think that we had every reason to believe that this would work. After all,
businesses are boueh- and sold around the world ktween one countrv and
anothcr, and u,iihin îounines; rume urgnnixaiion isolTcrcda hir pricc, ihçy mliy
disposc of lin aîiivity hccausc therc is anothcr org~ni7~iionthai13convinscd thai
thcv can do bciicr uiih 11.Thcreforc we fclt ihai we had rcîched ihe cnd ulihe
liné,Ourpatience had run out, we were a tired investor, if you will,and the time
we felt had corne to liquidate.
Mr. SOFAER: In your discussions with IR1 during that period did you make
any proposals to encourage IR1 to participate in ELSI?
.Mr ADAMS. WCdid. WChxd a meeiing wiih thc senior nianligement of IKI
and ue suggcstcd th31 thcy loin uith us in the ownership of t'l.SI ai thcv did EV~DENCE OF MR. ADAMS 27
with us in Selenia, where we had that kind of an arrangement, and the answer
was firmly no. They said that they couldn't make any plans; that they were
developing a plan for the electronics industry and that would take a year or so
to develop and they could do nothing in the meantime. Beyond that, they said
they had no money availahle. At this point we said, look, perhaps we can buy
some of your share in Selenia which will give you some money which you could
then put into ELSI. That was turned down flat too. So it was perfectly clear to
us that this was a total turn-down of our suggestions, neither would they join
with us in ihis business nor would they give us any help.
Ur. SOFAER So. Jii 1undcrsiiind you corrccily io SA) thai JJS~belore your
dccision ti,procecd u,iih in ordcrl) liquidaiion you uRércdiin oppuriiinity 10
ihe Iialilin Go\crnment's conimi.! .R1 10 r>~riici~~tcthrou-h moncwr\ in\r.,i-
ments in the ELSl operation?
Mr. ADAMS: That is correct.
Mr. SOFAER: And they turned you down?
Mr. ADAMS: That is correct.
MI. SOFAER: Did the balance of payments programme in the United States
play any role in bringing you to the decision Io choose an orderly liquidation?
Mr. ADAMS: No, it did not.
Mr. SOFAER: Could you explain why?
Mr.ADAMS: Well,an orderly liquidation would have provided us with assets
with whi~ ~ ~could oav otïour ohlieations there so that there wa~ ~o~ ~ed~for
the money to move fiok the ~nited5tates to Italy. There were mechanisms hi
whichwecould invest. And wedid invest the USS4.5million ofour las1investment
in that period of time and that United States Government balance of pÿyments
programme had no etïect at al1and our decision was not based on that.
Mr. SOFAER: Why did you believe,and your Companyhad believed, that the
orderly liquidation programme would be successful?
MI. ADAMS: We felt that there was great promise in each segment of the
business of ELSI. We hadn't been able to make it work but we felt that there
were others who would. We felt that there were companies that could add these
product lines to existing product lines; companies that were competitors of ours
that might do that, and there was also the possibility of salesoutlets that we had
that would like to add the production to their activities, and we found these
nroduct lines to have real oromise and therefore real value. The militarv maene-
iron Iinr. in ihc pouzr-iuh;~Iinc. wc>ulbc broughi hack up 10 3 high lei,fl sh~rtly
aftcr this by ille so.ca1lr.dHauk impri>vçmcntprogramme which ux5 an add-on
to the original Hawk proaramme that 1have s~okenon. There were other onaoine.
businesses there, we werëmaking tubes for c&mmercialmarine radars, for &am'-
ple, which was a growing business and we had introduced the technology of
microwave cooking down there ai that time. That became in the United States
a verv laree activitv. Our own suhsidiarv in the United States bv 1980had reached
the i,bluke of 50~,Ü0 un0iis a ycar. whih a1a value of 200doaars per uni! would
be somcihing IikcSI00 million Thi~-,as a Gcldin which soniebody u,hu uanicd
togo that way in the appliance business could have found very attractive because
Ravtheon oioneered microwave cookine. We held the orieinal ou .nts. and the
licencetha; would have gonc wirh thai lizc ofcrïd a rcslly quiir rxciiing opportu-
nity for prulii for somebody who wcni wiih thai The oiher Iincsuerç in Jifircnt28 ELETTRONICA SICULA
positions but we felt that there were companies that could be identified that
would be interested in each of these lines and that if we could go ahead with an
orderly liquidation that would do fine by us. We would get ennugh retum from
these vanous sales to meet our obligations and we had people out there with
experience in this kind of thing, who were familiar with the markets of Europe,
and whom we felt could do this very effectively.They reported back Io us in
turn, having looked into it, if they could do it effectively,and gave us reason
back at the Company headquarters in the United States to helievethat this plan
could indeed be carried out successfully.Jus1 one otber product line aspect of
this; we were making cathode-ray tubes for televisions there; they were black
and white. In the United States colour had come in and we helped ELSI to
provide some engineering staff that could have converted the black and white
line to a colour line, depending on which colour systems werechosen in Europe.
Actually, that was delayed a bit but we had staffed that activity so that it would
be attractive to a huyer.
MI. SOFAER: Now. do 1 ~ather correctlv then that vou are savine that
Kdythe<in,as 21result af 11scontrol of parents and i,anous other types ofr~vhno-
logv, \vas inaposition io exiend IO purchxers, cithcr oI'inJi\idual produst lines
or of the Companyin general, commitments to provide tbose purchasers witb the
opportunity to manufacture tbose products?
MI. ADAMS: Yes, the licencesand know-how agreements that went with each
product line would have been carried on. With each product line we had an
ongoing organization. We had suppliers, a network of suppliers that had been
developed, that could provide the high-quality materials that we needed for these
high-technology products. We bad sales organizations. We had customers in
place. Each of these businesses was a going business. And yet altogether they
weren't profitable in our hands but we felt that they were attractive to buyers
and that with the very productive workforce that we had down there, and the
ability to deal with thesedifficultproducts, that thesewerealmost unique opportu-
nities for a variety of buyers who could have appeared on the scene if we had
been able to deal with that.
MI. SOFAER: And do 1understand you correctly Io be saying that Raytheon
was in a position ta offer any particular buyer substantial sales that you were
expectingfrom the ImprovedHawk with Nato?
Mr. ADAMS: Yes, indeed we were. That lay just ahead and would have
enhanced the salesof the kinds of power-tubes tbat we had produced in consider-
able volume in the early 60s. That volume had dropped off as the production
was completed and the flow of tubes was only for spare parts and so on. But
witb the Improved Hawk there was a requirement for new equipment with new
tubes, and whoever bought in10 that business would have had that assured in
the years immediately ahead.
MI. SOFAER: Did Raytheon expect to make a large profit as a result of the
sale of ELSI or its lines?
MI. ADAMS: No, we didn't expect to make a large profit but we did hope to
and exnect in fact to liauidate at somethine like our book value. We felt that
book ;=lue was quite s&ure if we had beenallowed to go ahead and dispose of
these assets. This would have ended our losses and let us get out of the thing
with no write-off beyond what we'd already taken.
MI. SOFAER: Did you feel that the amount you could obtain in an orderly
liquidation would be sufficientto pay off ELSI's creditors? EVIDENCE OF MR. ADAMS 29
Mr. ADAMS: We did. We felt if we could have gone ahead with that the way
we wanted to, we could have paid off al1the creditors. If il didn't go quite as
well,if we took a sort of worst-case, a quick-salekind of solution, we could have
paid off the people that worked there. We could have paid off the small creditors
and we could have made a deal with the major creditors at the 40-50 per cent
minimum of what was owed to them so that we felt that, in the worst case, that
was where we would have come out.
Mr. SOFAER: So it was the business judgment of your company, yourself
included, that the hest interests of Raytheon and Machlett required you to end
your losses in ELSI hy selling in an organized, orderly liquidation of the ELSI
assets.
Mr. ADAMS: That was OUI conclusion.
MI. SOFAER: Why did you then put ELSI into bankruptcy at some point?
MI. ADAMS: We were forced to put ELSI into bankruptcy when the plant
was occupied when the requisition took place. At that point we were no longer
able to hring customers in to show them a going business, to showthem machinery
and equipment, let them talk to the people and get a detailed feel for the line.
We were blocked completely from doing that and as long as we could no longer
conduct the orderly liquidation that 1just tried to describe to you, wewere forced
by the requisition into bankruptcy. A course of action that we never considered
until the requisition took place.
MI. SOFAER: Sodid the stockholders of Raytheon and the Board of Directors
of Raytheon ever consider putting ELSI into bankruptcy hefore the requisition
had been implemented?
MI. ADAMS: No, we did not.
Mr. SOFAER: After the requisition you noted that you were unable to show
people the plant and discuss with them the assets of the company. Do you mean
to Saythat your company lost possession and control of the ELSI plant and its
physical assets?
Mr. ADAMS: Yes, that is exactly what took place, and when that took place
the values beean to decline because we could no longer maintain the machinery
-
in good oprrating conJiii<in, u.e could no longer uork out ihc con\,ersion ii
\rork-in-prcicesi inifinalproduct and gct ih;itoui, u,e rould no longcr deliver
IO our çusiomers the materi~l ihai they had ordcrcJ. ihai uc had finished or haJ
almost finished there. So that from that moment on - the requisition- we
completely lost control and were forced into an untenable position which again
put us into the bankruptcy condition.
Mr. SOFAER: Do you feel that that situation had an impact on the value of
the physical assets and the inventory and other aspects of ELSI?
MI. ADAMS: It certainly did. As I'vesaid, with the machinery not maintained,
equipment not properly taken care of, no proper house-keeping, and al1the rest
of it that goes with a going concern situation, even at less than a full-scale
operation, we could not preserve the values which we were anxious Io preserve.
Mr. SOFAER: On that basis would you conclude that any valuation set on
ELSl after the requisition had occurred and this process had continued would
necessarily lack the bases upon which you had made your judgments concerning
the orderly liquidation?30 ELBTTRONICA SICULA
Mr. ADAMS: Without question. The value that we could realize wae rapidly
disappearing and the situation months after the time when we were hi1 hy the
requisition was a period of declining value,nrealizable value from our point of
view.
Mr. SOFAER: Mr. President, that ends my questions of this witness. If the
Court has any questions at this time the Court would be, of course, free to ask
those questions. 1 have previously discussed with my distinguished colleague,
Professor Ferrari Bravo, the question of Italy's examining this witness and as
you know, your Honours, we have agreed to permit Italy to examine tomorrow,
if they wish to do so. But at this point 1would make the witness available for
either examination hy the Court or hy my distinguished colleagues in the ltalian
delegation.
The PRESIDENT: Well, 1 understand that the ltalian delegation will put
questions to the witness tomorrow moming. Now it seems to me appropnate for
the Judges that may want to put questions, 10 put questions after the ltalian
delegation have put their own questions to the witness. So 1beg Mr. Adams to
remain at the disposal of the Court.
Mr. SOFAER: Very well. Mr. Adams, you will please remain at the disposal
of the Court until tomorrow morning when the examination will continue. ARGUMENT OF MR. MATHESON (cont.)
CO-AGENT FOR THE WVERNMENT OF 'l'HUNITED STATESOF AMZRICA
Mr. MATHESON: A\ hlr Ailams kir nou icsiitir.J, ihc ordcrly Ilquid3iion
plan \ras commcrsi~lly viahle. ES1.I or ElSI'. produci Iincj a.i>~ldhi\c bscn
sold as going businessesand the sale of the assets was reasonably calculated to
pay off al1of ELSI's creditors. MI. Adams has testified that the requisition was
the soleevent that prevented the orderly liquidation and that the orderly liquida-
tion precipitated the bankruptcy of ELSI.
Tomorrow, with your indulgence, we willcal1Mr. John Clare to give further
testimony on these matters. In addition, Professor Franco Bonelli will establish
the shareholders' entitlement to an orderly liquidation under Italian law and he
will demonstrate that prior to the requisition ELSI's management was under no
obligation to place it in bankruptcy. He will also explain how the requisition
caused the hankruptcy as a matter of Italian law.
Thus, Raytheon and Machlett had developed a liquidation plan that was
financially sound and legally feasible. However, as they took the first step Io
implement the plan, the Respondent intervened. One event and one event alone
prevented the orderly liquidation: the unlawful requisition of ELSI's plant and
assets on 1 April 1968.
TheRequisifionCausedELSIS Bnnkruplcy
This brings me to the second issue which1mentioned at the outset: that the
requisition directly and proximately caused ELSI's bankmptcy. We will show
that the requisition in fact prevented the sale of ELSI's assets, that without
proceeds from the sale of ELSI's assets ELSI's shareholders could not settle
ELSl's debts with its creditors, and that hankrup-.y became, as a result, inevi-
table.
Again, 1would like to step back for a moment and refer to the circumstances
that led Io and directly followed the requisition. It was the Respondent's stated
intention to requisition ELSI's assets to prevent the orderly liquidation. On
27 March, the President of the Sicilian region, President Carollo, stated that the
Italian Government would seizeELSI'splant and related assetsifthe shareholders
persisted in liquidating ELSI. He stated "the plant would almost certainly be
requisitioned if ELSI sent out letters of dismissal to its employees" (1,Memorial,
Ann. 15,paras. 56-57and Exhibit F). But President Carollo still made no definite
commitment Io Raytheon and Machlett for the future of ELSI.
On 29 March the General Manager of the Ministry of Industry, Commerce
and Crafts, speakingfor the Prime Minister of Italy, told Mr. Clare that Raytheon
would incur the Prime Minister's"severe displeasure" if the plant wereclosed (1,
Memonal, paras. 58-59 and Exhibit G). Like President Carollo, however, he
would make no written commitment regarding any government assistance if
Raytheon and Machlett wereto keep the plant open.Without such a commitment
Raytheon and Machlett sent out letters of dismissal to ELSl's employees.
On 31 March the President of the Sicilian region reponed that the Pnme
Minister had indicated that an ESPI Companywould acquire ELSI's assets and
that the Government would requisition the plant in order to prevent the liquida-
tion (1,Memorial, Ann. 15,paras. 61-62 and Exhihit H).32 ELETTRONICA SlCULA
Consistent with his stated intention. on 1 A~ril 1968.the Mavor of Palermo.
acting as an officialof the central ~ovcrnment.'issued an order. éffectiveimmedi-
aicly, requisitioning ELSl's plant and rclated tangible assets for 3 priod of jix
months "excepl asmav be necessari to extend such ~eriod". On 2 Aoril, acting
upon legal advice, E~SI's management relinquished control of the company's
plant and assets.
Now it isnot disputed that the requisition was patently illegal under ltalian
law. When the Prefect ultimatelv mled. he found in unambieuous terms that the
requisiiion was illegal brcausc'it could no1 possibly hd\e-achievcd ils siaicd
purposes (1. Memorial. Ann 76). He swied .'theordrr i\destitute of an).juridical
c3use uhich ma\ iustifv iior makc iienforreüblc" II, p. 262).
Just how unliviful this requisition was can be seen fiom the plain language of
the relevant statutes. The requisition order was hased on two statutes that
bestowed extraordinary power on Italian administrative authorities to dispose of
private property for reasons of grave public necessity (1. Memonal, Ann. 34).
The first statute, enacted in 1865,is only a few lines long:
"When. because of erave ouhlic necessitv. the administrative authorities
must dispos<of privüte propcrty wiihoui dchy or, pcnding a court case fa
the ssme rcason. procccd io enforcc a mc3sure whose legalconsequcnccsare
the subieci of ihe disoute, the ndministnliive nuthoriiies will proceed by
means of a decree indi'catingthe reasons, without prejudice to the rights of
the parties." (1,p. 284.)
The second statute established the Mayor's authority to issue "emergency and
urgent orders of this character" 0, Memonal, Ann. 35). The statute States:
"The Mayor issuesemergencyand urgent orders in matters of civilworks,
local policeand health for reasons of public health and safety." (1,p. 285.)
The Mayor of Palermo, invoking both of these statutes, cited several bases for
requisitioning ELSI (1, Memonal, Ann. 33). Among the stated reasons for the
requisition were that ELSI's action "caused a wide and general movement of
solidarity of al1public opinion which has strongly stigmatized the action taken
considering that about 1,000families are suddenlv destituted", that "because of
the ,huid&n or ihe plant ;isenous damüge will ix caused io thc Districi", thst
"the local press isidking a gredt iniercst in the situaii<in2nd . ..i\ bcing \cry
cntisal ioward the auihoniies and is accusina them oiindifferencc Io this scrious
civicproblem" and that "there is a grave necessityand urgency to protect
the general economic public interest (already seriously compromised) and public
order" (1,p. 39).
The reasons otlered bv the Mavor for the resuisition are sianificant because
they are complciely at odds with.the conduct of ihc Ma)or ind other Iialian
auihonties followingthe requisition. I>espitChisst<itrmcntsçonserning the senoiis
sonsequences of 3 shutdown of the plant, ihc Mayor of Palrrmo look no effeciii,e
action; whatsoever to reopen, operate or maintain the plant. Further, Italian
authorities did nothing IO prevent ELSl's former employees from occupying the
plant grounds or to terminate that occupation. The Respondent's suggestion
(Rejoinder, II, p. 418) that the aim of the requisition was not to deprive the
shareholders of the ownenhio of the nlant but merelv to reeulat- ELSl's assets
does not square with the events that ~ctually occurrd.
It is also clear that the requisition prevented the orderly liquidation of ELSI.
As a result of the requisition; ELSI's owners and managemeni were, as a matter
of law, deprived of possession and contml of ELSl's assets and the nght 10
dispose of them. They could not use the plant in order to minimize growing ARGUMEKT OF MR. MATHESON 33
losses.They could no1complete work-in-process to finished products.They could
not seIl any or al1of ELSl's assets, including ELSI's inventory or its work-in-
process. Barred from physical accessto ELSI, it was impossible to invitepotential
huyers to view ELSI's facilities. Tbey could take no steps which would in any
way generate operating income to pay the inevitable bills that would come due.
At the same time, ELSl's relationships with its suppliers and customers were
terminated abmptly. ELSl's market position was qu&kly seized by its competi-
tors. Any possibility of selling ELSI's product lines as live businesses diminished
rapidly.
It is equally clear that the requisition forced ELSl 10 file a petition in bank-
mptcy. The Respondent made it clear to Raytheon and Machlett that the requisi-
tion would be indefinite. Faced witb no prospects of generating income to pay
ELSl's creditors, bankruptcy was inevitahle.
Notwithstanding the patent illegality under ltalian law of the requisition, the
Mayor and other ltalian governmental authorities did not revoke the requisition.
Initially, Raytheon and Machlett hoped tbat the requisition would be promptly
quashed and that they would he able to resume their plans for the orderly
liauidation of ELSI. Ravtheon and Machlett immediatelv cabled the Mavor Il.
~kniorial. Ann. 26, 9).rcqiicsting him IO rcscind the requisition, gui the
Ma)i>r never rcspondcrl. On 19April. ELSl nppcîled the Mayor's order 10 ihc
Prcfcci of Palermo il, .Mcmorial, Ann. 36) but thc Prefeci delivcd rulinr for 16
months. until after ÈLSI'S assets had ken sold ~o th~ ~esoondé.t.~ ~ ~ ~
AI the same iimc. ii became incrcasingly apparenl Io Rayihcon and Machlett
th31 the requisiiion u,ould Iasi indeliniicly. On 20 Apnl 1968.Prcsidcnt Crrollo
delivered a memorandum to Mr. O~wnheim. This memorandum is attacbed as
Annex 38 to the United States ~e&Ôrial and it clearly showed the Respondent's
intentions. The memorandum stated in part:
"On the premise that the intent of [Raytheon] is that of liquidating ELSI,
1 shall herein explain the reasons why it is absolutely impossible that this
cari take place for the time being.
(1) Nobody in ltaly shall purchase, that is to say IR1 shall not purchase
neither for a low nor for a high price, the Region shall not purchase, private
enterprise shall not purchase. Let me add that the Region and IR1 and
anybody else who has any possibility to influence the market will refuse in
the most absolute manner to favor any sale while the plant is closed.
...............................................................
(4) In the event that the plant shall be kept closed, waiting for Italian
buyers who willnever materialize, the requisition shall be maintained at least
until the courts will have resolved the case. Months shall go by." (1,p. 297.)
Following recelpi oithiç memorandum, 11was clear thîi ihc rrqulsition would
noi hc pron~pil) quashed and ihc ordcrly liquidaiion uould noi be resumcd In
ihis DoLturc.ELSl's counsrl adviwd ELSl Io filea ~ciition in hankruoirv. ELSl's
shareholders had been relying on the sale of ELSI'Sassets to gene;até revenue
to pay ELSI's creditors in an orderlymanner. The requisition, however, essentially
froze ELSl's assets and prevented their sale. It was obvious from President
Carollo's statements that this was exactlv its intended oumose. After the reauisi-
tion, creditor demands intensified substahtially. unahlé togenerate income, ELSI
was no longer able to remain suficiently liquid to pay its creditors and was
unable to make payments when due.
Had there been no reauisition. funds certainlv would have been made available
from ihc bubineîs 01the Company io meet pa&ent obligaiions Alternatively, if
the asseis were free. Rabtheon and Machlett could have e.xiended 3dditional34 ELETTRONICA SlCULA
funds to the company to allow il to meet foreseeable payment obligations with
the expectation of obtaining repayment from asset sales. However, under the
circumstances,it wasclear that this money wouldhe lost forever. In consideration
of its own shareholders, Raytheon and Machlett decided that they would not
advance funds to make this payment. Thus, on 26 April, ELSI's Board of
Directors voted to file a voluntary petition in hankruptcy, citing the requisition
which deprived the company of liquid assets as the principal cause (1, Memorial,
Ann. 43). ELSI was found bankrupt on 16May 1968(1, Memonal, Ann. 44).
1would liketo retum to a thought that weraised at the outset. The Respondent
clearlywanted ELSI for itselfyet was unwillingto participate in ELSI on a lawful
commercial basis. The Respondent's tactics continued following the requisition.
Despite renewed statements that the Respondent intended to acquire ELSI for
itself the Respondent did not promptly pay a market price for ELSI's assets.
Moreover, the Respondent's repeatedstatements that it wanted ELSI for itself
effectively deterred al1 other potential purchasers from the hankmptcy sales.
Altbough the trustee in bankruptcy receivedinquiries from parties interested in
purchasing ELSl's assets, these parties had no incentive and receivedno encour-
agement to pursue their interest. In addition, so long as the plant was occupied
hy former ELSI employees, il would have been difficult, if not impossible, for
the trustee to show the plant and assets to prospective purchasers. IR1 was thus
effectively insulated from having to compete for ELSl at a freely detemined
market price.
On 25 July 1968,the Ministry of Industry, Commerce and Crafts announced
to the Parliament that the Italian Government intended to take over ELSl's plant
through one of IRl's subsidiaries. He furtber indicated that Italy was considering
a generalcreditors' settlementoutside the bankruptcy process (1,Memonal, Ann.
46). On 13 Novemher 1968, the Government of Italy announced that an IR1
subsidiarv. calledTRI-STET.would take over ELSI. without a creditor settlement
(1,M:moria1. Ann 271.In Dcccnibsr IR1 fornied cincu subsidiliry in P~lermo -
Indu~irix Ele1ironic;iTeiccomunic~~i<)n(iknoirn coninionl) ;i\'kl.TEL3) - to
iakc oisr ELSI'Snlnni ~nd ~iiscirOne uould hatc thouchi ihlit iIicnïulv furmerl
company would have bid on ELSI at the first bankruptiy auction. But iidid not.
Subsequent events suggest that this too was part of a national government plan.
InApnl 1969the President ofthe Sicilianregion-President Carollo -explained
that ELTEL'sdecision not to bid was part of a national government plan dating
hack to October 1968.Under this plan IR1 would purchase ELSI for a sum of
4 billion lire. It was evenagreed that IR1 would be absent from al least the iirst
auction, and would participate only when the price was precisely4 billion lire (1,
Memonal, Ann. 59).
In fact, IR1did not appear al either the firstor the second hankruptcy auctions.
On 18 March 1969, a Sicilian newspaper reported that IR1 and the trustee in
bankruptcy agreed that IR1 would acquire ELSI's assels beginning with a lease
of the plant for 150 million lire followedby a negotiated purchase of the assets
(1, Memorial, Ann. 56). Interestingly, the Prefect, who had pending hefore him
Raytheon and Machlett's appeal of the requisition took an active part in the
negotiations of this leaseagreement. Conveniently for IRI, he continued to delay
mling thal the requisition was unlawful until after IR1 had completed ils
acquisition.
A week after the second auction, ELTEL puhlicly proposed that it he allowed
to lease the plant for an annual rental charge of 150million lire (US$240,000).
Although the creditors' committee expressed what the bankruptcy judge called
an "essentially negative" opinion of the proposed lease, the bankruptcy judge
agreed to the lease on the terms requested by ELTEL. Raytheon promptly ARGUMENT OF MR. MATNESON 35
appealed the lease to the Civil and Criminal Tribunal of Palermo, but the appeal
was rejected.
In April 1969ELTEL proposed to huy ELSl's work-in-processfor 105million
lire, which was only 48 percent of what it had been appraised by a court-
the same day as the third auction. In the spring of 1969 ELTEL submitted its
own appraisal of ELSl's plant and assets at a mere 2.4 billion lire.
Having acquired ELSl's work-in-process and having acquired control of
ELSI's plant through the lease, ELTEL's only remaining obstacle was the
purchase of ELSl's remainingassets. ELTEL then olïered to buy the remaining
plant, equipment and inventory for 4 billion lire (US$6,400,000). These items
were sold 10 ELTEL al the fourth bankruptcy auction for 4.006 billion lire
(US$6,409,600).
Raytheon Europe promptly appealed the sale of ELSl's assets to the Civil and
Criminal Court of Palenno, but its appeal was denied on 20 lune, thus removing
the last obstacle to ELTEL's acquisition of ELSl's assets. On 13July 1969,the
bankruptcy court approved the sale of ELSl's work-in-processat the price pro-
posed by ELTEL (1, Memorial, Ann. 74).
ELTEL's acquisition ofELSl was now complete, at a price vastlyless than the
IRi's subsidiary Italtel now uses ELSl's plant to manufacture telephone equip-r.
ment. Let me recall that telephone equipment was one of the new products
proposed hy ELSl in its 1967Report to Italian officials.
Following the requisition, five of ELSI's unsecuredbank creditors filed suit
against Raytheon to recoverthe unsecured, unguaranteed debts. Allofthejudicial
decisions at al1levelsof the Italian judiciary clcared Raytheon of any explicit or
implicit misconduct in its actions with respect to the bank loans for ELSI.
Now, as 1previously mentioned, ELSl appealed the Mayor's requisitionto the
Prefect of Palemo on 19 Apnl 1968.Although on 22 August 1969,the Prefect
found the requisition to be unlawful (1, Memorial, Ann. 76), il was a hollow
victory for Raytheon and Machlett. ELSI had long sincebeen declared hankrupt,
its plant and assets sold, and the Respondent's acquisitionof ELSl was complete.
Had the Prefect ruled promptly on the appeal, the damage could have been
averted. Instead, the Prefect delayed until a mere 40 days after the Respondent,
thTwo points should be made about the Prefect's ruling. First, the illegality of
the reauisition was Datent. Second. the Prefect unreasonablv delaved in declarin~
its illegality. The ~es~ondent neglected to mention in its whtten pleadin6
(Counter-Memorial. II, pp. 13-14;Rejoinder, II, pp. 426-428)that therequisitions
it cites were almost unifomly annulled or set aside.
Further. aooeals of these reauisitions to the Prefect were usuallv set aside
within dais- not months - within days of the requisition order. ~he Respon-
dent has submitted as Document 30 to the Counter-Memorial (II) a statement
that prior to 1971 the average administrative appeals took about one year to
decide. The Resnondent has not nrovided evidence for thi. ~r~nosition and Our
studyof the record indicatis that ihe ~es~ondentis incorrect. Virtually al1of the
requisition orders cited hy the Respondent were annulledinfar less tban one
vear. In Societe Terite<O name iust one. the Prefect annulled the requisition
order in three days. ln cases not cctedby the Respondent, the annulment penod
annulled in one day; the 1966requisition of "SCAC" was annulled in one day;was
the 1961requisition of "Borsalino" wasannulled in sixdays (1, Memonal, Ann.
26, para. 10).36 ELETTRONICA SICULA
Several of the reauisitions cited bv the Resoondent occurred after 1971and
therefore do not suiport the statement made ii~nnex 30. After 1971requisition
orders could altemately beappealed to a tribunaleamministrativeregionale,a
iudicialcourt. Aooeals to this iudicial court are bv their nature a more Ürotracted
judicial process ;id therefore are not relevant to ihe average time penod in which
prefects would nile.
Respondent also finds fault with Raytheon and Machlett for delay in filing a
motion requesting the Prefect to expedite his ruling with regard to the requisition.
Raytheon and Machlett did exercisethis nght under ltalian law. Doing so sooner,
bowever, would in no way have affected its position with regard to the dispute.
Raytheon and Machlett appealed the requisition to the Prefect on 19Apnl 1968.
The first opportunity Raytheon and Machlett would have had to request the
Prefect to expedite his decision would have heen 120days following the appeal,
i.e., in mid-August 1968.At this time, the sale of ELSI's product lines as viable
businesses was an imoossibilitv. Moreover. even if Ravtheon and Machlett had
requcstcd an çxpcdiicd dccisiunai an carlier point in timc. ihisdocs no1guarantee
ihat the Prcfeci would infaci have hccdcd the rcquest and isiued a ruling. Thu,,
ihc timinr of Kavthcon and Machleit's rcqucst for an exocditcd deciiion from
the ~refed is i&atenal to the dispute before the Court. '
Had the Prefect quashed the requisition within the typical time frame for
actions of this type, Raytheon and Machlett could have resumed the orderly
liquidation. If the Prefect had overturned the requisition shortly after the filing
of the oetition in bankruotcv. ESLSl could still have withdrawn the oetition.
~heirustee in bankniptcy brought suit on behalf of ELSI's hancruPt estate
based on the Prefect's rulina. The Court of Avwals of Palermo found that the
trustee was entitled to comoënsation. but onlvior the loss of use and oossession
of ELSI'Splani and asseis during the six-munth rcquisiiion pcriod. ~h;s deciiion
u,as upheld hy the Supremc Court of Appcals. Thc renial taluc auarded b)
Italian courts IOcomwnsïtc for the illccal rcauiiiiion f;illsfar shuri of thc3~1~31
losses sustained hy ihe shareholders as a Îesult of the Government's illegal
requisition. Indeed, on its face, the compensation awarded does not purport to
compensate for anything other than the six-month rental value.
Finally, 1would liketo respond to the Respondent's allegationsthat Raytheon,
Machlett, and ELSI officiaisacted in violation of Italian law. Respondent in this
case has levelledsenous accusations and has gone so far as to accuse the manage-
ment of these companies with reprebensible cnminal conduct. As Professor Bo-
nelliwill discuss. Resoondent has not established a singleviolation of Italian law
by Raythcon, ~achlei~, or ELSImanagement. ~roicssgr Bonelliwilldcmonsir~ic
thai F1.Sl.s shareholdcrs uerr cniiilcd io Iiquid~rcELSI'>a\scis as a mxitcr of
ltalian law. that onor tu ihc reauisiiiun EI.SI wïs under no oblie3ii<1n IO fils a
pciiiion in bankAptcy, thai ihe'requisiiion caubcd ELSl's hankrÜprcy,and that
in other respects Raytheon, Machlcti and EI.SI ni3nagrment wcrc in c<impli.incc
with Italian law.
Mr. President. 1now note that OUI intention in the order of the case was next
IOask .Mr.Bonelli IO makc an cxicnsivesiaicmcnr with rc\pect to ihc Iidlian Iaw
whi~.hpovcrns ihrsc mattcrs. 1nute ihat the iime probùhl) uill no1allow him io
get veri far into that statement if we hegin nowl Could I su--est that oerha~s
we can.begin with that statement tomorrow moming?
The PRESIDENT: Yes, we will begin with the statement of Professor Bouelli
tomorrow moming at 10o'clock.
The Chamberrose at 12.25p.m. THlRD PUBLIC SI'ITING (14 1189, 10a.m.)
Present: [Seesitting of 13II 89.1
EVIDENCE OF MR. ADAMS (cont.)
WITNES CALLED BY THE GOVERNMENT OF THE UNITED STATE SF AMERICA
The PKESII>EKr: 1undcrstand that thcrc isan agreement beiuecn the Pirties
IO cal1Ur. Adanis firsi this morningIObecross-exaniined by the Italian delega-
tion Thcrefore I cal1upon Mr. Adams to comc into the Grande Sallc de Justice
MI. FERRARI BRAVO: Mr. I'resident, with your permission 1would liketo
ask Mr. Keith Highet, counsel for the ltalian Government, to put some questions
to this witness.
MI. HIGHET: If 1may, Mr. Adams, 1would like to thank you most warmly
for your willingnessto remain at the disposition of the Court of course, and of
our delegation so that we could put our questions to you this morning.
First, if 1 may, let me ask you one or two background questions. 1 noticed
reading over the material again last night that you have been at Raytheon for
about 42 years almost, and 1would suggest that you probably have very little
question in your own mind that Raytheon is one of the finest companies in the
United States.
MI. ADAMS: Of course, 1have that view.
MI. HIGHET: And wouldn't it be true, MI. Adams, really, Io say that
Raytheon has accomplished over the years, certainly since World War II,many
things that have set it at the t-p in the first ran- of the high technology
companies in the world?
Mr. ADAMS: 1think that is a reasonahle statement.
Mr. HIGHET: Would you say also that there was a special quality about
Raytheon- a certain independence,flexibility,intelligentuseofhuman resources,
whatever it is- that there was a certain quality about Raytheon in the way it
handles business affairs and has done so over the years hoth in the United States
and abroad?
MI. ADAMS: We like to think that we have conducted ourselves correctly
and properly.
MI. HIGHET: That's excellent.That's what 1 thought. Again, it is a pleasure
to have you here.
As a general matter in Europe, in the mid-1960s or possibly in the 1950s
verging into the 1960s, how many real competitors did Raytheon have in the
electronics field in Europe, jus1 roughly?
MI. ADAMS: 1couldn't tell you, 1 am not familiar enough with them. The
principal fieldin whichwecompeted wasdoing work forthe various Governments38 ELETTRONICA SICULA
and that was our more important areas; the number of largecompanies 1couldn't
give you the precise number.
Mr. HIGHET: Let us say more than five or more than ten? 1 mean major
companies.
Mr. ADAMS: Oh, not more than ten.
Mr. HIGHET: So, Raytheon was in the lead both in the United States and in
Europe of electronics and high technology work at that lime as il is today?
MI. ADAMS: 1 think that is a fair statement.
Mr. HIGHET: Now if 1may turn, MI. President, to the question of the so-
called "orderly liquidation". Your testimony, Mr. Adams, yesterday included a
description of Lheeiïcçts of the requisition of 1Apnl 1968as you saw it.
1 will make, MI. President, if 1 may, references to the verbatim records in
context; this is to page 29supra.You stated that as "long as we could no longer
conduct the orderly liquidation that 1just tried to descnbe to you, wewere forced
by the requisition in10hankruptcy" - that is at page 29,supra. MI. Adams -
and you concluded by saying,"So that from that moment on - the requisition-
we completely lost control and were forced into an untenable position which
again put us into the bankruptcy condition" (ibid.).
Now, were you aware, Mr. Adams, that on 2 March 1968 ELSI's books of
accounts and accounting documents were moved to Milan?
MI. ADAMS: When you ask questions about the detailed schedule of what
happened in Italy you should refer it to the next witness,MI. Clare, who was on
the spot.
Mr. HIGHET: Thank you. All right, 1will make a note of that. And that will
take me right along. You will rememher of course, you werepresent al the Board
meeting of 16March 1968which washeld in Rome, which wasthe Board meeting
that determined from the point of view of ELSI's Board the decision to handle
the liquidation. Did you ever hear, or were you aware, that this Board meeting
or the decision taken at the Board meeting had any subsequent effect on the
employees of ELSI?
Mr. ADAMS: No, 1would no1comment on that.
MI. HIGHET: Were you generally aware of the occupations of the plant in
early 1968?
Mr. ADAMS: In early l968? At what time?
Mr. HIGHET: Say in March 1968,and possibly earlier, werethere any protest
meetings by the workers?
Mr. ADAMS: 1have no clear recollection of that.
Mr. HIGHET: Thank you. Now, tuming back to your testimony Mr. Adams,
yesterday, you said, and the reference is 10 page 29, supra, you said yesterday
that on the "worst-case" or "quick-sale" analysis, you could still have paid off
the people who worked at ELSI.
And you also said, at page 26,supra, in part of your general background, that
"we were not able to have enough volume of businessto support the workforce
there". Do you have any knowledge as to whether ELSI ever met the March
payroll?
MI. ADAMS: No. EVIDENCE Of MR. ADAMS 39
Mr. HIGHET: Do you rememher at any point learning that the Region of
Sicilypaid the workers from the month of March through August 1968?
MI. ADAMS: March through August, 1 can imagine that they might have
paid them from I April.
Mr. HIGHET: And you don't remember?
MI. ADAMS: Not after we were out of the picture.
MI. HIGHET: 1would liketo refer again to your testimony on page 26, supra,
and, if 1may, 1would like to quote it. You said:
"After all, businesses are bought and sold around the world between one
country and another, and within countries; some organization is offered a
fair price, they maydispose of an activity because there is another organi~a-
tion that is convinced that they can do better with it. Therefore we felt that
we had reached the end of the line, Our patience had run out, we were a
tired investor, if you will, and the time we felt had come to liquidate."
And you remember the meeting that you did attend in Rome in Fehruary,
20 Fehruary 1968, with MI. Clare and MI. Profumo and MI. Hillyer with
Mr. Carollo?
MI. ADAMS: Yes, that is the one of which we have a memorandum from
Mr. Hillyer.
MI. HIGHET: That is correct, sir. And he kept hand-wntten notes of that
meeting. In those hand-written notes, or minutes, it shows that you said, as a
quote given to you 1 think by your initials, "while we can continue [we being
Raytheon] to provide ELSI with management and technology wecannot provide
money, without which ELSI will shortly disappear". Do you remember that
generally? 1know it is a long time ago.
MI. ADAMS: 1see it in Hillyer'snotes.
MI. HIGHET: Good, excellent. It is also in the hand-wntten notes, but not
in the typed versions, that "the date of 8 March was stressed repeatedly as the
absolute limit for a shut-down due to a total financialcrisis". This doesn't appear
in either of the typescript notes but it does appear in the hand-written min-tes
this was MI. Hillyer'scharacterization of what the discussion was.He says in his
notes that this view was expressed "repeatedly". Do you have a recollection of
the view being expressed repeatedly that this was a total financial crisis?
MI. ADAMS: We are attempting to make it clear that this money, the last
money that we would put in. was going to run out somewhere along this period
of time. 8 March was picked as the date but it may have been later than that hy
a certain amount. We had emphasized, by repeating it, that the detemination of
our management was that we could not put more money into continuing ELSI
in operation, as the outlook was at that lime; and the emphasis was to make
that point.
MI. HIGHET: That is very understandable.
MI. ADAMS: That was a decision by MI. Phillips, the President, and myself
and had been referred to the Board of Raytheon.
MI. HIGHET: 1 see, because yesterday you did say, in the passage 1 quoted
a bit earlier, about when you realized you were a tired investor and stated that
"we felt we had to liquidate". Obviously that comment really should be seen inthe context of possibly a less than voluntary feeling - that possibly this feeling
that you had to liquidate was caused by circumstances. Would you think tbat
would be a fair characterization?
MI. ADAMS: Well if you run out of money with which to operate, the time
has then corne to do something, and the something was to liquidate, to seIl the
business in effect.
MI. HIGHET: Do you have any knowledge, MI. Adams, whetber Raytheon
or its agents could have sought to place the assets, the product lines, the plant,
in an executory manner even, by discussing it with the Mayor of Palenno or his
appointed manager in that period between 1 April and 26 April, when the
bankruptcy was voted?
Mr. ADAMS: 1 was not on the scene and the decisions as to how one would
proceed in a tactical sense - if 1 can use that expression as compared to a
strategic sense- which werethe major decisionsmade back in the headquarters
of the Company, were made there on the spot by people who wereaware of the
relationships with the Mayor and so on, which 1 was not. So there again, that
was beyond the reach of my responsibility.Wewerenot attempting to microman-
age this situation, if you will, from afar in the United States. We were dependent
on the very able people we had on the spot, who were headed by Mr. Clare, frorn
wbom you will hear later.
Mr. HIGHET: 1 understand that. Nonetheless, it certainly appears from the
record, does it not Mr. Adams, that there were an extraordinary volume and
intensity of meetings inthe first three months of 1968?1 think the figure 80 has
corne into the record. And for many of these meetings youmade some trips, did
you not?
MI. ADAMS: 1believe 1made only this one, which 1see in the record that 1
was present, recorded by Hillyer.
Mr. HIGHET: 1see. May 1ask you if you had an impression, either from on-
the-spot observation or from Lexington, when the real decision was made Io
liquidate? This relates to your testimony yesterday and also relates generally Io
your affidavit, but it is difficultto actually find out when the decision was made.
Part of MI. Clare'saffidavit seemsto imply that after the Seleniaswap acquisition
was turned down by IRI, which would have been roughly September 1967, it
seems to imply that that was the time that top management in Raytheon made
the decision to pull out.
MI. ADAMS: The clear decision that Raytheon management made was that
wewould put no more money in, and as we hegan Io approach the date at which
the money would run out - which couldn't be detennined with al1that degree
of precision - we hegan to consider what to do a1 that point. 1 can't put a
precise date on it without going hack Io a lot of records that 1haven't got with
me.
MI. HIGHET: In general, the decision not to put more money in, if it were
made in September or the fall of 1967 or even December, theoretically would
have left a two- to three- to four-month penod, would it not, in which senior
management, one way or another, could have seen Io the commencement, even
internally, of an orderly liquidation process?
MI. ADAMS: It was important for us to keep the operation running as
efficientlyand as effectivelyas we could up to the date where it was clear that EVIDENCE OF MR. ADAMS 41
the decision to liquidate could be implemented, and therefore the decision to do
that was kept very confidential so that the workforce would not fall apart and
get concerned, and that lower management people would keep on going. We felt
it was in the interests of ourselves, and probahly of everybody else- it would
do them no ham at least - that we keep the decision ta liquidate confidential
amongst Our own people until the moment came when we were prepared to go
ahead and do that.
Mr. HIGHET: Thank you Mr. Adams. Would you Saythat even if the decision
to liquidate were kept confidentially amongst the senior executivesor in the senior
echelons of Raytheon, was there any deal, do you rememher, in that period of
late 1967 or early 1968; do you recall at the moment whether any bids were
received or whether any indications of interest were received by competitors, by
fims who were not already in the business but possibly saw an opportunity?
Also do you remember anybody going out and trying to encourage this kind of
piecemeal disposition of ELSI?
MI. ADAMS: As 1said a moment aeo. vou cannot out the word out that you
are going ta liquidate before you arrive '2 that momknt. If the word isn'tout
that you are going to liquidate who is to know and who is to come and ask you
if you are intëresfed in selling?
Mr. HIGHET: But there were not any confidential discussions that you recall?
Mr. ADAMS: No, there were not.
Mr. HIGHET: Earlier this morning you confirmed my understanding of what
an excellentcompany Raytheon is. Now you talked yesterday about how ELSl's
product liner could have been sold off,and possibly ina very heneficialmanner-
or possibly even ELSI herself - yet, if Raytheon could not succeed in making
a successout of ELSI, what might have led you ta believethat anybody else, any
other company, could have made a go of il?
Mr. ADAMS: Over a period of time Raytheon itself, the parent company,
disposed of operations, some of them perhaps set up as subsidiary companies,
where we could not succeed and where there were buyers who felt there was real
value in adding this ta their activities, and we negotiated sales. So this is not an
unfamiliar course of action. We disposed of one very recently. If you look at the
American scene, at least, you see people disposing of activities to others. If you
are a very small player in a large scene and you haven't got a big enough place
to really he able to make it work, someone who is a larger player on the scene,
if you will, by adding that, may be adding some real value and productivity ta
their own operation. It's this sort of line of thought that led us to see what we
thought was a very promising outlook for disposing of these operations at ELSI.
MI. HIGHET: In your testimony yesterday (1 am referring to p. 26, supra),
you referred to your attempt to interest IR1 in joining with you in ELSl as it
had joined you in Selenia. 1found this difficult to understand, Mr. Adams, and
1wonder if you could help me. Why would IR1 have ken interested if ELSl was
in a state offinancial crisis?
Mr. ADAMS: IR1 was not unused to loss operations. 1think if you study the
activities of IR1 over a period of t,imeyou will see that they were supporting, in
their various divisions or operations or whatever, activities that were losing
monev. and thev were carried on for the benefit of the Republic of Italy, as 1
have Ynderstood il. It didn't seem to us out of order thatthey might take on
anotherone here, particularly since it was supposed to be helpful to the economic
situation in the Mezzogiorno42 ELETTRONICA SlCULA
Mr. HIGHET: One of the points that was made here (p. 27, supra) was that
you referred to the possihility of IR1 buying in and using cash, but hecause it
didn't have any cash it would use cash from the sale of Selenia to Raytheon, a
portion of Selenia. But if Raytheon had been offered to swap its interest in a
very profitable company for an interest in a very unprofitable company that was
also a competitor of the profitable company, would Raytheon have done the
same?
Mr. ADAMS: Let me get that straight. What is the profitable company that
you are referring to?
Mr. HIGHET: 1 would helieve Selenia.
Mr. ADAMS: Selenia was marginal.
Mr. HIGHET: Marginal, but it was not in a state of total financial collapse
as was ELSI.
Mr. ADAMS: Selenia, 1think would be fair to say, was better off financially
than ELSI.
Mr. HIGHET: Well, 1 see, you take my point. You said yesterday that Ray-
theon and ELSI could have offered licenceand know-how agreements to pros-
pective purchasers and you said that (p. 28, supra) "these were almost unique
opportunities for a variety of buyers who could have appeared on the scene if
we had been able to deal with that". Now these buyers could have beenanybody,
including your competitors?
Mr. ADAMS: Yes.
Mr. HIGHET: Subject,of course, to prohlems of anti-trustand other things-
but there would be no problem with licensing,making agreementswith companies
in Europe?
MI. ADAMS: Companies that were in Europe and were competitive with
ELSI is what 1am talking about, not necessarilycompetitors of Raytheon.
MI. HIGHET: But, as 1 remember, there was a lot of Raytheon know-how
and technology which essentiallyyon referred to as being capable of accompany-
ing any transfer of technology and licences. Would the royalties and expenses
and other costs for these elements have beensuhstantially on the same level as
they were to ELSl from Raytheon?
Mr. ADAMS: Wewould assume that wewould have receivedsomecontinuing
licensinr income from these activities in the hands of others. After all, we would
have hid some control over to whom we were selling as we dealt with this
situation. We did feel that to enhance the value of the activity that we were
selling, the opportunity to have some Raytheon continuing assistance to carry
on the technical deveio~ment of that activity and rive it real life, would be a
reasonable way to go. 1f;uecut offthe continu& licenceand so on, the operation
of that part of ELSI that we were dealing with, would have had a lesser value
to a prospective buyer.
MI. HIGHET: Mr. Adams, you indicated in your testimony (pp. 26-27,supra)
that "other companies could have heen interested in buying some or al1of ELSl's
product lines and plants", and 1 also remind you or refresh your recollection
about the Clare Report, the 1967report, the "Project for Financing and Reorgani-
zation of the Company", which as the Court will recallis Annex 22 to the United
States Memorial (1).And in your affidavit, which was Annex 9 to the Memorial, EVIDENCE OF MR. ADAMS 43
you then stated that you agreed with the conclusions of the Clare Report. You
still hold that opinion, 1take il?
Mr. ADAMS: 1haven't reviewed this.
Mr. HIGHET: You have no reason to have changed il?
Mr. ADAMS: No. Nol that 1am aware of.
Mr. HIGHET: Thank you. In page 40 of the Clare Report (Memonal, Ann.
22, 1, p.224), and it is probably the most concise part 1can refer to this point,
it says that for a promising expanding future for ELSI, Raytheon's own experts
had concluded in that report that it would be necessary: (1) to have additional
capital investment of 6 billion lire from the Italian State; (2) new product line;
and (3) financial help, which would be essentially the social benefits of the
transport costs and Mezzogiorno benefits in the training allowances.
The Report also stated that il is therefore necessary to make effectivethe laws
governing the financial help in these areas, from both the regional government
and the central Government, and to have them favourably interpreted. You
remember this?
Mr. ADAMS: In general.
Mr. HIGHET: In general. No, 1am not trying 10hold you to it ...in principle
you have the idea. That's at page 41 (Memorial, Ann. 22, 1,p. 224), of the Clare
Report, Mr. President. Now, your affidavit also summarized those requirements
at paragraphs 21 to 28, and you snid in your affidavit that ELSI had no choice
but to develop new product lines if it was to be self-sufficient.That's paragraph
26. You also said in paragraph 24 that if ELSl was going to be successfulit had
no choice but to obtain a major ltalian partner. And finally you commented -
you picked up the point from the Clare Report - in your paragraph 27, and
you said
"as a result of ltalian lawswhich required that shareholders snpply additional
canital or cease ooerations uoon the occurrence of soecified events. il was
evident that an infusion of Capital was necessary to'sustain ELSluntil it
received the benefits of having an ltalian partner, Mezzogiorno benefits, and
new ~roduct lines"
Now my question to you is this. Would the same problems not have confronted
any other purchaser of the plant or the product lines of ELSI?
Mr. ADAMS: Not necessarily, it depends on the nature of the other business
if one found another firm. For example, if il was interested in the X-ray tube line
it would be highly likely that they would have an associated activity to which
this was an incremental add-on and that that, added to their existing business,
would become economical and beprofitable. That would have put them in quite
a different position than we were in.
Mr. HIGHET: It really depended, in other words, on the facts and circum-
stances of the case and on the particular qualities of the prospective purchasers.
Mr. ADAMS: Yes, it would.
Mr. HIGHET: But the point 1 am trying to make, Mr. Adams, and 1 think
that 1feel us converging on this, is essentially that there would have had to have
been special characteristics for a potential purchaser of ELSi's product line and
plant, would there not?
Mr. ADAMS: It was a very wide spectrum of potential possihilities, depending
on the line. As 1 tried to make the point yesterday, it would be an add-on 1044 ELETTRONICA SICULA
anybody's business. But whether il could he a supplier who then had his own
source instead of huying from us, whether it could he a customer who would like
to add his own production, whether it could he a competitor, there was a very
hroad spectmm of people whom we felt could he interested in these various
activities.You mus1remember that the opportunity to explore this in detail would
have involved making il known that these activities were for sale, heing able to
hring these people in to show them the activity, to show them the product, to
discuss it in detail. But al1 that was not possible. It was never possible for us
because the moment between the time when it could he known that we were
going to do this, as 1tried to say earlier, and the moment that we could have
started to show them came the requisition which made this impossible.
Mr. HIGHET: Were there any discussions during the month of March when
the Board decision hdd been laken and when the senior mandgcmenl of ELSI
who, as 1 recall, had been spoken to hy Mr. Clare and the others? Do you
remember if there were any discussions with potential huyers at all?
Mr. ADAMS: No, there were none that 1was aware of.
Mr. HIGHET: Turning to a different point, Mr. Adams, you recall you were
then, of course, Chairman, you were still Chairman of the Finance Committee
and you have douhtless, as many of us do, a sharp and melancholy memory of
the Foreien Direct lnvestments Proeramme instituted hs President Johnson on
I ~ilnuary1968 As you re~.rll,ihïtprogrammc rrdlly hid a vcry Iimiting etTeci
fiwr couplr of yexs on Arnçncan business, particulnrly ihose driling uith iheir
wholls oi\,neJ or rnaiurits owned suhsidiancs in Wcstsrn Euro~e. Iiw~s~articu-
larly harsh on invesiments in Western Europe and Japan and il conta'ined al1
sorts of irritating and very costly provisions for certifying guarantees, additional
draw downs, additional horrowings for making investments, even as you will
recall. eoine so far as ~enalizi-e or at least limitine transfers on ooen account
whish hippen i<gu airiiss a ycar end accuuniing period. Now you said yesterda).
and ihat was ai p3ge 27, vupru. in response ton quesiion from Mr. SoCüer,thüi
the balance of payments programme which was hrand new at that time - you
rememher it was only three months old - did not play any role in hringing you
to the decision to choose an orderly liquidation?
Mr. ADAMS: No, it did not.
Mr. HIGHET: lndeed in the 1968 annual prospectus, which was filed with
your 1968 10-K with the SEC, in a footnote 1 think a comment said that the
plan, this is quoted in the Rejoinder, "the planned operations of Raytheon's
foreign suhsidiaries and affiliates are dependent to an unpredictable degree on
United States Government regulations on foreign investments" (II, p. 435, fn. 1).
And then later on, two or three years later, before the programme was finally
terminated, much to nohody's sadness, in your 10-K Raytheon acknowledged
the continuation of this payments programme might restrict Raytheon's "ahility
to develop its international operations" (ibid.). My question is this: even if the
OFDI programme might not have had a negative effect on the transactions
concerning ELSI in 1968,isn't il tme that it would necessanly have had to have
a negative effect on Raytheon had ELSl continued in operation?
Mr. ADAMS: Yes, but there was a decision not to go on, so we had no
prohlem. The decision had heen made that the amount of capital that we put in
was the end. Now if Raytheon had been in an expansionist mood, if we were
going to fund large activities al ELSI, or if wewere going to acquire other foreign
companies; if we were going to do things of this kind, then this exchange control EVlDENCE OF MR. ADAMS 45
might have been considered. However you mus1 remember that my memory of
events of 20 years agois perhaps not quite as precise as you have suggested that
it is, and with respect to the amounts of money involved with ELSI (for example,
if we had had to advance the money in order to pay off some of the smaller
creditors or do something of this kind, these were small amounts) and under the
lems of that regulation, as1 remember il, we would have had no difficultywith
OFDI so that the decision that we had made to no longer invest in ELSI was
not ixcause we no longer could move the money to invest in ELSI, but we made
it because wedidn't think that this was a promising place to put our shareholders'
funds.
MI. HIGHET: Now 1come to my last line of questioning, MI. President. The
impression has ken given and we will be commenting later of course, that there
has ken little if any public assistance, or State benefits, Io ELSI. 1am not saying
that you can answer this question, MI. Adams, but do you recall the public
assistance given by the ltalian State in the fonn of low interest loans in 1956-
1966? Do you remember very large loans?
MI. ADAMS: You are going back a long way.
MI. HIGHET: Welljus1 to refresh your recollection, because there was about
7 billion lire made in 1956Io 1966hy the regional agency, 1refer Io Annex II,
1, page 125, and Annex 22, 1, pages 220 and 221. Turning from that kind of
assistance Io the other kind which is the ltalian Government benefits, that were
more immediate, that were required to help ELSl succeed, Irefer to the testimony
you gave yesterday at pages 25-26,supra. This included the so-calledMezzogiorno
henefits which contained a preferential 30 per cent purchase requirement for
finished goods from the south of Italy. 1also refer to transportation subsidies.
Did anyhody ever suggest to you or anyother senior executivesof Raytheon that
ELSI had a right, a legal right to gel those benefits?
Mr. ADAMS: Well. 1 would nut it this wav. that we undersfood that a
legirlaiion exibted ihai said ihai ihesc bcnefiis u,ould he a\,ailnble to companies
opsrating in ihc Mezzogiorno area. WC thercforc assumcd thai ihcy uould indecd
becorne avai13hlr 10 US and the hcts oiihc ni3iicr wcrc ihnt ihev did noi. Iiis
my understanding, for example, in respect of the 30 per cent law, that we were
suffering from a very low volume of sales of X-ray tubes that were made in
Palemo in the Mezzogiorno when a1 the same lime X-ray tubes of that nature
were heing bought from Philips or other suppliers outside of Italy, so we thought
that was an unfortunate circumstance.
Mr. HIGHET: Do you rememher checking or having counsel check or having
somebody run il down as 10whether or no1those knefits were only for finished
products?
MI. ADAMS: 1don't rememher that. 1 believe that those benefits, 1am now
talking about the transportation benefit, 1think that it should have involved, as
1 remember, and my memory is not that precise of al1 of these events 20-odd
years ago, that the raw matenal coming Io the plant in Palemo, as exemplified
by cathode ray tubes, would have some transportation subsidy and then the
shipment of the finished oroduct would have some trans~ortation subsidv. In the
casî oTsaihodc ray iubc;. 2s 1think I said yesterday. the) were ber) hiavy and
vcry bulky and ihis 1swh3t gels you into a maximum iransportaiion cosi. They
iïkc a 131 room in whdtever vehiclcs, and ihcy were heavv ai the same lime
and they had to make a round trip if yourmarket was norther" or centralEurope,
as was the case. Mr. HIGHET: 1 understand that Mr. Adams. What 1 am really groping
towards is ifELSl thought that ELSI, or Raytheon thought that ELSI, had a
nght to claim these benefits, and the benefits were not obtained, what was done
to remedy that?
Mr. ADAMS: You would have to ask other witnesses or our other witness,
MI. Clare, who was there in Italy working on these prohlems.
MI. HIGHET: 1 see. Mr. President, 1have no further questions. Thank you,
MI. Adams.
Judge SCHWEBEL: Mr. President, I should like to ask MI. Adams the
following: would it not have made sense for ELSI to have remained in operation
and forits product lines or for the business as a whole to he sold while it was
operating? Wouldn't it have been easier to seIl the assets of a company which
was functioning than to seIlthe assets of a company whose operations had heen
suspended and placed in the hands of a caretaker force, and if so, why didn't
Raytheon pursue that option?
MI. ADAMS: It would have been possible only to do that at an earlier date
hefore the money ran out. We bad this sort of terminal date of Our operations
dependent on when our capital funds ran out and after that we couldn't operate.
So it was a difficult decision and we tned to keep it going up to that point. And
we felt that not in full operation but in a sort of caretaker status where we had
a small workforce which was not draining us with the full payroll, who could
maintain the machinery, who could convert some of the work-in-process into
finished product, but there could have been a penod of time like that where we
would have been at a very low level of operation where it would have heen
possible for us tobe in touch with potential buyers, to let ibe known that we
were selling and to let them see something which if not in full operation was at
least alive and well in the sense that everything was being taken care of, that
finished products had been moved out and sold, that our customers could he told
that we were searching for huyers who may continue to deliver to you or can
pick up deliveries at a later date. If we had been able to do something of that
kind, we could have taken advantage at least of some of the points that you have
suggested.
The PRESIDENT: 1will put a question to you, Sir. How much was the total
amount in American dollars that Raytheon invested in ELSI?
Mr. ADAMS: At that point 1think yesterday, as 1remember the figures that
1gave, there were 12million dollars in capital and 8million dollars ofguaranteed
loans, which in a sensewere another fom of capital because the guaranteed loans
we would have had to pay off anyhow. The reasons for the guaranteed loans as
part of the capital, if you want to look at it that way, Sir, is that we avoided
someof the foreign exchange nsks by borrowing money within the country where
we were operating. Twenty million dollars was the total.
The PRESIDENT: This 12million dollars.
MI. ADAMS: Twenty million dollars.
The PRESIDENT: No, 1mean the first 12that you put, this was for huying
shares or what? How does this 12million dollars operate?
MI. ADAMS: 1haven't got the schedule with me, MI. President.
The PRESIDENT: Roughly. EVIDENCE OF MR. ADAMS 47
Mr. ADAMS: We had an Italian partner earlier and the tirne came when more
financing was required and we arrived ai a certain moment where when the
additional money was put in, he did not want 10 put more money in, so we put
it in and eraduallv we arrived at the staee where we owned - Ravtheon and
Machlett logether-owned - 100 per ceG of the shares, as compakd to small
investments earlier.
The PRESIDEYT 1would Iikc IO put anoiher quesrion. You \aid )esterdsy,
on page 29, suaru, ihÿivou e~pectcd "WC could have vaid off the small crediiors
and ie could have made a deal with the major cieditors al 40-50 per cent
minimum of what was owed to them". 1suppose that the major creditors were
the hanks. Do you think that they would accepi 40-50 per cent of your credit?
Mr. ADAMS : Yes, we ail believe ihai. We had considerable discussion of
that, and as it was, they got nothing. If we had been able to seIl ai book value
they would have heen paid off completely. In the sort of worst case, which is not
what we expected to happen, but the worst case as we saw it, we felt that, and
there was some discussion with some of the banks that gave us real reason to
believethat, Mr. Clare, the later witness who was closer to this than 1was, could
confirm this point, butwe did have good reason to believe that hanks under that
set of circumstances based on experience of other banks in other similar circum-
stances, would have quite reasonably been expected to accept 50 per cent and
perhaps lower.
The PRESIDENT: Thank you very much, Mr. Adams, for your assistance. EVIDENCE OF MR. CLARE
WlTNESS CALLED BY THE WVERNMENT OF THE UNITEDSTATFSOF AMERlCA
The PRESIDENT: 1 understand now that the Amencan delegation is going
to cal1Mr. Clare.
Mr. MATHESON :Ycs.Mr. Prcsidcni,wewould IikcIo do ihat, and 1thsreforc
would askthai you invite Mr. Clare inio ihe roomIO tesiify and ihai Ms Mclinda
Chandler be invited 10question him.
Ms CHANDLER: In 1966, Mr. Clare hecame Vice-President of Raytheon
Company and General Manager of ils European management subsidiary, Ray-
theon Europe international Company. The principal objective of Raytheon
Europe was to furnish European companies which were majority owned or
cunirdled by Rayihcon for icchnicïl. managcnal and othcr as\isiancç neccssary
for ihem io becomestrong. profitable cntcrprires. In Fcbruary of 1967,Rayihcon
and Mashleii appoinied Mr Clare in he Chairman of EI.Sl's Hoard of Direciors
with the express instruction to make ELSI viable.
In this ca.aci,v Mr. Clare oersonallv oarticioated in numerous meetings with
ltalian Government officiaisin an at&ipt t~'~ursuade them to participate in
and support ELSI. Mr. Clare was also personally involved in the development
of the oÏderly liquidation plan.
In addition to his extensive management experience, Mr. Clare is an electrical
engineer. He has a Masters degree in electrical engineeringfrom the University
of Birmingham in the United Kingdom. He has worked for major telecommunica-
tions and electronics companies and in the United Kingdom's Ministry of
Aviation.
The PRESIDENT: Before you speak, Mr. Clare, could you please make the
solemn declaration.
Mr CLARE. 1solcmnly dcclare upon my honour and conscience ihat 1will
swak the truih. ihc u,holc truih and noihing hui ihe truth
The PRESIDENT: Thank you very much. You may proceed now.
Ms CHANDLER: Mr. Clare, would you pleasedescribe for the Court your
association with ELSl during late 1967and early 1968.
Mr. CLARE: In February 1967,1was appointed by Machlett and Raytheon
as Chairman of ELSI. 1 had with me Scopelliti and Hianchi, who were my
Controller and Legal Adviser in Raytheon Europe - they weremade Directors
of ELSI. We carried out initially a quite exhaustive analysis ofELSI's problems
and we produced a report in May 1967,outlining in great detail the problems
and possible solutions 10the problems.
These were four major issues: there was the question of finance; there was
debt of about 13billion lire and ELSI was paying nearly 1 billion lire a year to
the banks, of which something like a half, 1think, was going 10the IR1 banks.
Up to that point, you might Say that the only people who made profit out of
ELSl were the banks. So ELSl needed further financinr.
Then the wholemiddlemanagement systemsand manifacturing systems needed
upgrading. We put in about ten experts from Raytheon, who joined me there. EVIDENCE OF UR. CLARE 49
They were ail American/ltalian, who had al1 been born in Italy. We had a
Managing Director who was CO-ManagingDirector with Profumo, experts in
almost every function in the company and two European sales executives, one
covering microwave tubes and one coverinz semiconductors.
We dTdupgrade the systems; we got sign%cant improvement in manufacturing
efficiencyand 1will refer to that in a little more detail, line by line, when 1am
talking about the various lines.
There were, at that lime, about 200 people too many. There had ken a
reduction in sales of the Hawk tubes and one or two other things. Ifit had been
America, we would have gotten rid of 200 people right away. It was impossible
togel rid of anybody there. We, in fact, got rid of two people off the television
line; we had a strike for about three weeks on that line. So, eiiectively, the
workforce was static. So we needed new products which were not too bigbly
technical, because there were no1 many qualified engineers in Sicily, and we
outlined in the report a whole lis1of new products that were low technology and
could have ken gotten in very quickly if we could have made the 30 per cent
law work, of which 1am sure you have already heard, which is that government
agenciesare required to huy 30percent of what they buy from the Mezzogiorno,
if il is availahle 10be boueht there.
I1roductslookcd ai werrtypically low icçhnology. Firîi of 311.cîhlc forms in
tclcphone swiiching and motor cars: telerihune ju,itchinc is STET. uhich is agîin
theGovernment. Alfa Romeo is government-owned, O; was government-o&ed
until quite recently. In hoth of these, dozens of wires that have 10 connect
everything to everything, al1put together and bound up into a thing you can just
put into the telephone switching unit or a car - those are called cahle forms.
WC could have c-criainlyvcry raiidly have had 50 girls working oii that, hui WC
hîd no JO).from trying Io talk io STET and thc motor car company about thai
WCcoulJ have wound relays - thcse are thc things ihat go click, click. click in
the old telephone exchanges - that was a very simple thiig todo 10begin with
under specification from STET and then worked up to making al1the other bits
that go with the relays. With the 30 per cent law operating for the X-ray tubes,
we could have at least doubled or trebled the activity in that area. We would
move on from making these bits on telecommunications to sub-assemblies -
there were al1 sorts of sub-assemblies that could have been made under sub-
contract from STET. We did, in fact, talk Io STETabout this but they regarded
us with suspicion as potential competitors. They were, afterall, as was the motor
industry, a growth industry. It is still a growth industry, so there was plenty of
room for sub-contract work to be given to us without conflicting with their own
companies. We made it clear that we did no1intend to go into competition with
them in telephone switching. We had very little capability of doing that.
Then, on the semiconductor front, we could have sold high-voltage rectifiers
to the motor car industry for electronic ignition. In railway systems we could
have sold power rectifiers.There are a whole lis1of things like this, al1of which
related to government-owned activities that could have given us sub-contract
work and very quickly we could have employed those 200 people. But we had
no positive reply from anyhody.
We felt we needed a significant ltalian partner. 1 am sure you have already
heard that weshould have had transport cost help for Ourtelevisiontube business.
The cost of buying tubes inGermany and shipping them 10 Sicily and then
shipping them out again for export was extremely high. And there was the
30Dercent law, which we were assured should work. but il did not. So we felt we
wcic sort of bahes ïdrift a bit in the Itnlian politicslen~~ironmcn~and ue nezJed
a significant pariner thni could hclp us handlc this and also bring in ihcadditional50 ELETTRONICA SICULA
capital that was necessary to make the Companylook more sensible and not pay
a billion lire a year interest.
Ms CHANDLER: MI. Clare, with regard to this latter point, what steps did
you take to offerthe regional and national governments an opportunity to provide
ELSIwith this assistance or participation that you were seeking?
~ ~ ~-ARE: You ha~ ~al~eadv said that we had a laree numher of meetines.
O\-r a )e3r WC had ovcr 711mceiing\ uiih practicall) thcyniire Ilalilin c>tabli;h-
ment. The very first mzziing wxswith linistcr Anilreoiii, who u.3, thcn Minisicr
for I>efcn~t.and mcctine. with Mini.ters Colombo li~r Finance, Rumor. ivhn
was then head of the ~hhstian Democrat Party, a whole heap of Ministers. We
met with the management of IRI, with al1the banks, the Governor of the Bank
of Italy. In Sicily, we met with Onorevole La Loggia, who is the head of ESPI,
which is like IR1 in Sicily,and a lot of his people. We met with President Carollo
and with al1the union heads. We met with some of the commercial people such
as the head of Fiat. In fact, I cannot think of anyone who was anyone at al1in
the total establishment of political ltaly and Sicilythat we did not talk Io.
It started hy everybody heing extremely enthusiastic and wanting to help us.
There was an entity there which they thought was very valuahle. 1suppose the
only people who, right from the beginning, were very blank-faced about it al1
was IRI. We never eotueven one smile from them. But certainlv. the rest of the
Go\,ernment Mini\ters ihat wcmet i\,erçvcry hclpiul and nndc ~tatemciits;ibi>ui
ihr \,anoui as,isitnces wcshould he h3\ ing - .MinisterC'oli>mh~ said uc shi)uld
ha\? the trtnsport COII and itu,ould he rrrsnecd: ihe Ministcr 01' lndurtrv riid
the 30 per ceni law should apply and it will bë applied. But nothing happëned.
Towards the end of that year, in the latter quarter, the whole atmosphere hegan
to change. We made it clear Io everyhody as we talked to them - we gave
everyhody Our report, by the way; it was very widely circulated so that IR1 and
ESPI and every Minister we could think of had it Io read - that wewere putting
in this 4 billion lire, which was a last effort and that we thought it would las1
maybe a year or 15 months; that if we could not get things sorted out in that
time we would then have to let it go at that. We were not prepared to put in any
more money. That was made very clear to everybody. And if, in fact, we ran out
of money and were legally forced to stop then we would organize an orderly
liauidation.
As tinic progre\>erl,people Iikz La Loggia be~.ameless 2nd le.;>optiniistic and
st;iricd to ialk .ibour il hein$ nccch.3ry tu h3t.e IKI in as a third pari). and dl
thai Doini we bcc;imemore sloscly connected nith ihc Presidcnt of Sicily, Prcsi-
dent'~arol10; and he was ohviously extremely keen to keep the plant gaing and
to develop electronics in Sicily. We had a period when to begin with he was
effectivelysaying to us: I will see to it all, and it finished up with his saying: we
have go1 to get IR1 in. Then one night we met with him and I thought be was
saying: "1 have done it!" He, in fact, took us to his home and there were whiskies
issued al1round and we toasted each other and we thought il had heen settled.
The next day we found it had not.
So right al the end, whch was, 1 think, 29 March or around there, the last
night when 1 had heen told hy my legal man: you have now go1 to declare
redundancy - which we had already done a few days hefore - and we had to
send out notices to al1the people. About 9.30 that night, 1was called over to the
Ministry of Industry and the General Manager told me he was sorry that the
Minister was no1 there - although there seemed to he a lot of people on the
other end of the telephone - and he really said we cannot afford the political
chaos for you to close the plant. We do not want you Io close the plant. You EVIDENCE OF MU. CLARE 51
will upset the Prime Minister if ).ou do. We said we had waited a year to sec
what we could do, what deal can we do? The answer was effectivelynothing, just
do no1close the plant. Do not send out those notices. So we sent out the notices
and what was very peculiar was that the Italian staff in the officewould not touch
them. They seemed to be frightened of something and so, in fact,,Scopelliti and
Bianchi and 1personally inserted about 800 letters into envelopes and stamped
hem and took them round early in the morning and posted them off. That was
that. And then. two davs afterwards. Profumo. who was the Italian Manaeine - -
Dirccror iherc, nici wiih Carollo .ind told hini ihït ihc rcgion uas going iop~)
for the pçoplc uniil1 new compan) u.15icirmciland ihxi the Preiect would seix
the dsseis and thai eould bc ihïi.So 21ih.ii poini ihdi %vail.
Ms CHANDLER: At that point, what did you decide Io do?
Mr. CLAKE: YOUmean after the seizure of the assets or prior to the seizure
of the assets?
Ms CHANDLER: Prior to the seizure of the assets, what was your plan for
the treatment of ELSI's assets?
Mr. CLARE: Well, pnor to that, we had planned an orderly liquidation. We
had taken the decision we would not go hankrupt, 1 had that clearly from
Raytheon, and we set about organizing this orderly liquidation. We moved al1
the books of the company up Io Milan so that if we did have prohlems we could
at least control the books and control the debts that we owed and the debts that
people owed to us. We had moved quite a lot of inventory up there so that we
could seIl it from there if we had to. Our plan was to keep about 130 people
workin~-in the ~lant to work off the inventorv that existed there and finish
manuF~cturing the producis. IO krep niaking produci a\ nrxssùr) 1,)kesp our
cusionicr. happy .ind io XIIoff. iisn ordcrly iï.hion. the ï\sçis of the compùny
and \!c orcïnircd rm:ill ialk forccs to dedl uiih rxh Fùcei 01'the problçm. WC
had a sman task force. which 1was eoine to run. which would be concerned with
coni:icting poicniial pursh.iscrs. \ve"hùdUtal, force in &al iriih the 130people
in ihs conipïny and ;iniither small 1a.k forcc ICIsonidet the banks anil anothcr
small task force to contact our suppliers and we had named people for ;IIIthese
task forces. Later on when the plant had beenseized,1handed over to Oppenheim,
who was another Raytheon Vice-President, and he was going Io run these task
forces and the activity of the orderly liquidation. 1 was then moved to look at
the other nine or ten companies in Raytheon Europe, al1of whom needed some
attention.
Ms CHANI)I.FR. 411.C'liirc.i\.liai u,as the rolc oi Rayilicon in rhis' Wi~uld
Rxyiheon hatc heen \iilling in hack ihij plsn in any uïy?
Mr. CLARE: Well, Raytheon certainly was willing to hack it. They had
guaranteed to me that they would guarantee the cash flow necessary to make the
liquidation work. They were prepared to purchase the receivahles a1 face value
to provide money to do this and one of our plans was to pay off al1the small
creditors first if we were allowed to do so, so that we were left with only al1the
major hanks to deal with as the major creditors. Raytheon provided money and
we actually started Io pay off the small creditors but then the banks intewened
and said that they did not want that to happen as that was showing preference.
Any one of those smallcreditors could have forced the companyinto bankruptcy.
Our idea was, and we thought the hanks would agree with us, to get rid of al1
of those with only the hanks left to deal with and we could have an orderly
arrangement and an orderly liquidation and not have one of these small creditors EVIDENCE OF UR. CLARE 53
which enables you to produce products of high quality and controlled quality, is
what we cal1manufacturing know-how, and that also has a high value.
Within the set-up we also established various support groups. There was a
maintenance group, there was a small engineering manufacturing group to make
bits and pieceswerequired; these also had a value.Then theRaytheon connection
on its own was certainlv extremelv valuable. And if vou add al1these un. when
we have done sums, no<having jugt pulled figures ouiof the air, you easii; reacb
a figure of 4 billion lire plus. And that is real and valid. So that was ~-supporting
situation in considering-the situation of each of the product lines.
Now we take the television tube line. We helieved that could be sold as an
independent business because it was a separate entity. It was a hlack and white
tuhe line, originally set up under licence from America. 1think il was from GE
but 1 can't be certain of that, 1 can't remember. As we progressed and made
bigger tubes the question uîirriplosion, the tuhe going bang, was morc ofa worry.
We look another licence from America for a handing system that made it
implosion-proof. When we got there they were making about, of large tubes,
30,000to 35,000 tubes a month if they were lucky. There was a large amount of
scra...there was a lare- amount of bad inventorv. We cleared out al1 of the
intcntory, MC insiiiutcd.Irecl~ini sdcti<>nso ihdt thc Iubcs lh31 werc not good
çould bc reclairned b~ausc the hig glsjs bulb iras sonicthing Iikc 65 pcr cent oi
ihe CUSI oi the tuhc and hîd bccn importcd (rom Gcrman\ 31 creat i<istSo lie
reclaimed the bad ones and that gave us significant imp;ovement in yield. We
had already got 20 percent of the Italian market and we exported to Germany,
France and Holland, 1 think something like 40 per cent of the output was
exported. As a result of al1the improvements we put onto that line we increased
its manufacturing capacity to 50,000tubes a month and actually in Decemher of
1967,we manufactured and sold some 50,000 tubes.
That means that if wecould have kept going the salesvolume in that linecould
have gone up from 4 to 5 billion to over 6 billion per year. Now these transport
costs we talk about amounted to something like 6 to 8 percentage points of
margin for that line. Prices were very competitive and we were getting a standard
variable margin of about 30 percent. That additional 6 to 8 per cent on 6 billion
sales would have added in 4 to 5 hundred million lire of additional profit.
There was the possibility of colour TV raising its head and we tried to talk
with al1the people in Italy about what was going to happen. We estahlished the
colour laboratory there, at a cost of some quarter of a million dollars, so that
we could manufacture our own colour tubes. 1 had heen with ITT and 1 had
been looking al the prohlem of colour television and in my view one had to take
a licence from RCA and huild an RCA colour television tuhe line with an outout
of 4UO,OtJOtuhcs a yc:ir. Wcucre actually in nzgoii.ition. uith RCA :ih<iutlic~ncc
p<issibiliiics In Cact,1Ii~vcjuit checkcd dtitcs. 1ihouphi Iialy was Iatc and ihçy
ilid nui aerec on thcir culotir s\item until 1975.and 1bclicvç ihxt thc first cx~lour
transmisGon there was at the ënd of 1976,so that the hlack and white line had
a good IO-yearlife of potential sales and profit if handled properly.
If we could now turn to the X-ray tuhe line. These were made with technical
know-how from Machlett which was a Ravtheon comuanv. Machlett had X-rav
iiibc manui~cturing plants in Amcric- anriin ~wit~crlind: In Suitxrland it wA
a Company called C'omet.The tuhes heing mîdc in Palermo were modern high
technoloey tuhcs uhich at that time had whai was called rotatinr anodes. Where
the stream of electrons hit the anode, il rotated round. There wis no burnt spot
produced and there was no other manufacturer of those X-ray tubes in Italy and
we tried desperately to gel more replacement orders from the Italian medical
system, but it didn't work; if we could have got the 30 percent law to apply, we54 ELETTRONICA SICULA
could have douhled and trebled the sale of those tubes which were hinh-marrin-
products. The standard variable margin was about 70 per cent.
Also in modern telephone switching al that time there was being introduced
relays called reed relays wbich were glass envelopes with little metal contacts
inside. This required glass sealing, control of vacuum, clean metals and al1of the
technology of the X-ray line would have been applicable to these reed relays
which would have been another new product. But which we had to seIlto STET.
Now 1 am auite certain that if in the end we had not sold it to anvone else.
Cornet. ihc cohpiny in Su,ii7erl3nd, uould have iaken ihai Iine and i.ither lefi
it therc25an EEC rnïnuF~cturingsource \ihilc ihcy uerc in Et'fA or ihry uould
have just moved the line. Raytheon would have taken it because it was a very
good line.
In the microwave tube line - as you heard from MI. Adams, we were
manufacturing low-noise puwcr devicesfor the Hawk missile system. This was a
very special tube, low noise, very few people can make it. There are, in fact, Iwo
of these tubes in the missilesystem. One of them was smaller, we called it a local
oscillator. A few years hefore 1 had been responsible for most of the defence
missile systems in the United Kingdom. And one or Iwo offensive systems as
well. And we were developing systems similar to Hawk, 1tried to get one or two
English valve companies to manufacture these low-noise, low-power klystrons
and it was not possible. In the end we took a licencefrom Raytheon to manufac-
ture these tubes in the United Kingdom through the company Ferranti. And in
theircontract 1 ut a clause to the effectthat if thev chanaed the material of onlv
one washer, the'contract was void. And 1think th& indicales what high techni-
logy was involved in manufacturing those tubes. It required very high quality
control on the line, it required very high maintenance of the equipment and it
involved high technology al1the way down the line. And wewere making product
there which in many cases was tested to be better than the American product.
That same line also made power magnetrons, the power sources for big radars.
And you have heard, and Sll say a little more about it in a minute, about the
microwave ovens which Raytheon invented. There was a magnetron in the
microwave oven; in those days it was worth about 50 dollars, say 30,000 lire.
Amana had been acquired by Raytheon and as you know the sales of Amana
microwave ovens erewfrom 20.000 over a few vears to half a million. If we had
had that product &veloping in ÉLSI the microWaveline could have been making
those magnetrons. And if we had only made for Europe a tenth of what they
made in America, the magnetrons alone would bave salesof a billion lireor more
r~~ ,~~~~~
Then the microwave ovens. 1am sure Mr. Adams has already told you about
these. Raytheon invented it and developed it. It grew from 20.000 per annum to
half a miilion ver annum Ainana salesin ~merica. There were veri few exwrts
io Europe Th:) could ha\e hesnm:inuFdctursd in tlSl in the ~ECiisa ~uripedn
base Th-it uould h~\e hcen aicry good grouih prùdusl and ihe I~ccnsingpdtent
arrangements would have ohviously been made availahle by Raytheon.
On the semiconductor line, when we go1 there they were manufacturing old-
fashioned products. They weremaking germanium transistors. There were about
120 or 150 people on the line. We stopped manufacturing germanium devices.
Raytheon provided us with help from their semiconductor operation to gel rid
of the stock of germanium. We had a company in Zurich called Transistor A.G.
that was in silicon rectifiers and we began to put those two companies together
to transfer know-how fromTransistorA.G. to ELSIand webegan to manufacture
silicon rectifiers and high voltage stacks. These latter are rectifiers stacked up to
give high voltage rectification for use in television receivers.We had in mind that EVIDENCE OF MR. CLARE 55
we would regard ELSI as the EEC manufacturing source of these products,
whereas Transistor A.G. was in EFTA and we did provide a man who was the
European sales co-ordinator for these products in Europe totally.
And. of course. there were the oooor.un~tites to deveioo further hieher oouer r~
siliconrcctilicrs. partiçularly iiwc could h3\T made sales i;irhe Itïlian Railways.
Ifiihad no1hçcn po>iihle 10 scll the scmicoiiducior Iine,h;i\,inggottcn Transisior
AC. and t'I.SI uorkinr su clojcls. uc \\i>uld h3i.c idkcn that Iinc oursel\cs In
fact, after the seizure,bj arrangement with the liquidator we purchased some of
the equipment from the high voltage stack line and we look the man who was
mnning it and we moved him to Zurich and we ran a line of 50 girls very
profitably for many years.
We also had surge arrestors, which were little glass sealed things, which if
lightening strikes the telephone lines saves damage hitting the equipment. We
sold some of these but not many. But if we could have gotten STET to buy we
could have sold a lot more of them and we could have probably then exported
more. So, 1think, that is a review of the lines.
Ms CHANDLER: Mr. Clare, how would you have gone about findingpurchas-
en for these product lines and selling them either as a whole or as by product
~ ~
line?
Mr. CLARE: We thought of this in three possible steps. The first thing was
to try and seIl it as a total entity, the second thing was to try and seIlil as two
entities because the television tube plant was literally just half of the total plant
and quite separate. If that did not work then we would sel1them as separate
lines.
The obvious purchaser to try again for the whole assembly was IR1 and it
would have been possible for them to have taken it, for them, very cheaply. 1
mean if they had taken it then certainly the Sicilian organizations, the Region
itself and ESPI and IRFlS would have al1chiooed in and thev would have had
.ix billiim. sevcn hiIllon, lire withour an? iri>uhie. A Iïrge oi the b.ink debi
uerc IKI hïnks, 50. ihcy could haic kcpi ilic Jchi uith their b~nkh Thcy could
h:ivc p;iid huuk vxlue and wuuld onlv h3vc hÿd io put in qiiiic a mu11 amcrunt
of new capital. They were in a very &ong position to be able to make certain
that the transport cost subsidies would operate and that the 30 per cent law
wouldoperate. And,even today, 1find it incredible that that was not done instead
of what hauoened. Althounh there was much talk about the need to oreserve the
plant ïnd p;cicr\c ihc job'\ tif thc pcuplc. IR1 uas hcll hcnt un cltisin: II and
iiixking 11 hanArup1and dcsiroyinp 3 lot uf \+'hsiwas thcr~..
It uiiuld have probïbl? becn iIiRisult 1.1lind :ln\i~ncclsc uther ihïn IR1 irhu
would have bought the thing totally, but if we splii it into two there would have
been a number of potenfial purchasers. As soon as we announced our voluntary
liquidation, we began to get some enquiries immediately from al1over the place.
We had enquiries from lapan for the semiconductor line, and enquiries from
America. we had enauiries from Creece f-~~~~e t-levision line.
~e would have a&roached, aiid we planned to approach, Ourmajor competi-
tors. We also planned to a~uroach our maior distributors. Sometime later on 1
actually sold off, not in liâly, Iwo cornpinies that were in trouble, to major
distributors of ours who were using products of those companies. And if it came
to selling the individual lines, then, if we could not sel1the X-ray line and the
semiconductor line, Raytheon would certainly have taken these.
And as far as the microwave tube line is concerned. that would not have been ~ ~
3 qucstion of irlling. ihai \ruulJ hive bccn a qi.cstion uf hulding ;in auctiun .inJ
idking ihc highcst hiddcr >riththe maxim~rngoodiiill We hdd ihii higli tc-hnu-56 ELETTRONICA SICULA
logy there which existed nowhere else in Europe, except where we licensed it in
the United Kingdom. And there, 1am sure, we would have got a goodwill figure
over and above book value. Now, we had al1those plans set up, as 1 indicated
earlier, ta start this voluntary liquidation, but we had the assets seized and when
the assets are seized, there is nothing ta sell. Sa, at that point it stopped.
Ms CHANDLER: Mr. Clare, in your assessment, would the sale of ELSI's
assets have generated sufficientrevenue ta pay off ELSI's creditors?
MI. CLARE: Yes, 1have no doubtsabout it. Earlier in the year wehad cleaned
up the receivables, we had also cleaned up the inventory. In fact in 1966 and
1967,for a combination of cleaning up the inventory and writing offhad debts,
we wrote off two hillion lire. So on the balance sheet we were looking at, the
values that were there, were after having written off two billion lire, in fact a
little more than two billion lire, in priortwo years.We felt very strongly, and
with conviction, that the receivahles and the inventory were very good. In fact,
Raytheon had guaranteed the cash flow necessary for the voluntary liquidation
and thev were nre~ared Io Durchase the receivahles at face value. This left us
with ihf fixed isscis thai ue'had ro,cil We havc been through al1the lines and
their charactcnstics and ccriainly. coupling this with thc intangibles iihlch 1
talkcd aboui, I sm sure WC uould ha\e had no diflicultyin obtaining buok value.
Ms CHANDLER: MI. Clare, what is the book value of the Company,that is,
the value you expected to actually receive upon the sale of ELSl's assets? How
does this compare ta the quick-sale valuation that was prepared at the time of
the orderly liquidation?
MI. CLARE: As managers, we had responsibilities obviously to get as much
money as possible, and sa we were aiming for book value. But in talking ta
Raytheon and arranging for whatever money had ta be provided we had ta take
a very conservative view of what we thought we could do at the bottom end of
the scale. And this quick-sale book value was that figure. It also related ta what
we worked out as the sort of figure that we thought we could offer the major
creditors. We desperately wanted them to agree that we could pay off al1 the
small creditors sa that we had no possibility of any one of those raising the issue
of hankruptcy. And in talking something like 50 cents on the dollar, the big
banks are big boys. They know that if they do a deal with a voluntary liquidation
they get something; if they go into hankruptcy, they are likely ta get a lot less.
In fact, I believe,they finished up with lessthan I cent on the dollar.
But 1also felt verv stronelv that Ravtheon would suoDort and zuarantee the
50 per cent paymen<to thçhanks. So ;hi, was our apGoach. WcCould ialk 50
percent. WC could gel 3 gu~ranrcc(rom Raytheon IO pay olf al1thc smallîrcditors
and WC set uurscl\es a targct which u,c frluas not ea,v, but no1 dificult. io
meet. We would have triediII the time to have eotten book value and whatever
WC gai aho\,c the quick-sale !,aluc. thcn <il1thc Geditors would havc sharrd it
pro rÿid,that 1siillthe srediiors who had not ken paid off.
Ms CHANDLER: At this point the requisition of ELSI's assets intewened
and you were not able to proceed with your planned orderly liquidation. What
effect did the requisition have on the value and status of ELSl's assets at that
time?
Mr. CLARE: Well, there is a bit of simplelogic there. If you are trying to seIl
something and someone takes it away from you, you've got nothing left to sell.
That means there was no money to go into the orderly liquidation, no sales
proceeds, and it was necessary to have continual access to those assets in order EVIDENCE OF MR. CLARE 57
to preserve the value of the intangibles. Wewere keeping 130people in the plant.
Take for instance the customer base. If we had done il in an orderly way, we
would go to the customers, we would keep them supplied to some extent, at the
same time the comoetitors would eo to the customers and we would have to
lower our prices to kaintain sales Contact, but we would do that. But when we
lose control of those assets, then the competitors are there with the customers
and we are out - nothing we can do about il. If you take the question of
manufacturing efficiency and quality and the training of the people - they
disappear. It cos1 a fortune to train them, and they probahly would get jobs
digging ditches. We had a very careful and methodical maintenance schedule for
the equjpment hecause it was very necessary to do that, we had continuous
processes. In the continuous process, if you stop it it takes quite a long time to
start it again. If you stop it and let it sit for three months, it is like leaving a
house empty for three months, when you go back the gutter has fallen off, the
toilet does not work, and some bricks have fallen down - that happens on a
line like that.
So that the result of the seinire of the assets and the stopping of their use very
rapidly reduced their valuation. It reduced the intangibles because you lose your
customer base very quickly, you lose your supplier base no1 as quickly, but in a
pretty short time, the trained people disappear, the manufacturing efficiency
disappears, and the quality of the machinery, the maintenance of the machinery,
disintegrates very rapidly. So the effectof seizingit was that the value obviously
deteriorates very rapidly.
MsCHAN\'Dl.EK: Mr. PrcsiJcnt, ihisconcludr.s ourcxlimination of Mr. Cl~rc
He is nos ai,ailablc ior cross-c.~;imin3tionor lor questioni iron~the Court.
The PRESIDENT: Do the llalian delegation want to cross-examine now,
Professor Ferrari Bravo?
Professor FERRARI BRAVO: Your Honour, if it is possible, immediately
after the coffee break.
The PRESIDENT: We are going to have a break, and then we shall have the
c~o~~-examinat~ ~ ~ ~ ~. Cla-e~
But, before leaving, 1would like to put a question myself. How mucb do you
estimate what you cal1the quick-sale book value of ELSI?
Mr. CLARE: 1think we have the figure of 10.8million.
The PRESIDENT: How much?
Mr. CLARE: 10.8 billion lire.
The PRESIDENT: And in dollars, how much is it?
MI. CLARE: 1 don't do il exactly. 1 divide approximately hy 600 to gel a
figure, but 1mean that was not the exact figure at that time. So divide by about
600. Do you want me to do that?
The PRESIDENT: No, 1can dinde also!
TheChamberadjournedfrom 11.45o.m. to 12.00p.m.
MI. FERRARI BRAVO: Mr. President, 1 would like that, as in the case of
the previous witness, the cross-examination of MI. Clare he conducted hy MI.
Highet.58 ELETTRONICA SICULA
MI. HIGHET: Mr. Clare. 1am eoinz to trv to keeo mv auestions as cnso and
to the point as possible and of course l-kno~.~ou are'seeking to assis1the Court
and counsel and 1would prefer it if you would also make your answers as crisp
as possible.
1am referring ta the Clare Report, your 1967Report, and you remember that
in that, amongst many other things, there were at least three elements that you
then specifiedas being necessary ta make a success out of ELSl or an ELSI-like
creature. One was an additional capital investment, presumably from the Italian
State, of 6 billion lire. The second was new product lines, which you have
explained this morning, and the third was financial help, including Mezzogiorno
henefits, transportation subsidies and the like.
My question is: wouldn't any purchaser of ELSI, in whole or in part, have
had equally difficult problems confronting it or them?
MI. CLARE: We were honine that the nurchaser would be Italian. to beein
with. ~nltalian purchas~r~~~ul~ce~ainlyknow a lot more as to howto handle
the ltalian environment than we knew. If 1can go back, 1said we had boped to
seIl it totally and we would try IR1 again, etc.If there was someone who was
not Italian we would make it clear ta them that these problems existed and they
would be forewarned and be in a very strong position to negotiate much more
strongly than we did. I have aclually, in other circumstances, ken in a similar
situation where I have negotiated changes before 1took over whatever it was 1
was looking at.
Mr. HIGHET: But that would have required inany event a specialapplication,
a special kind of. . .
Mr. CLARE: 1do not know how special it was. There were laws that existed
that had not heen applied.
Mr. HIGHET: That leads me to my question about the Mezzogiorno benefits.
You said they were not being applied. Wereyou andthe senior Rayibeon, ELSI/
Raytheon Europe, management aware that you had a nght, that ELSl had a
right, to the benefits ofhese laws? If so, why didn't you do something about il?
Mr. CLARE: I personïlly had di%cussionswiih Minisicr Colombo. 1pcrsonally
had discussions u,iih Minisier Bo. I ~ersonally hlid discus~ionsu,iih the Minisier
for the Mezzoeiorno. All assured me that thélaws existed. we should have the
benefit of the;, and that it would be applied. 1do not know what else 1could
do.
Mr. HIGHET: What did you do? You had Dr. Bisconti as your counsel. What
did you or your counsel do when the laws were not applied?
Mr. CLARE: We used our own counsel, Bianchi. He went round vanous
officesin Rome asking questions.
Mr. HIGHET: Was there anv fonn of administrative relief under ltalian
procedurc u,hich )ou could have ;ought a rcnicdy ? If ihere \!as a right. ihzrc has
IO be a rcmedy IOcure the denia1oiihc right. Was this pur,ued!
Mr CLARE. Yes. Rilinchi uent around and camç bdck having talked ii)al1
ihc olficcsin Home. and said. 'Ii is niy uiew, and I wiIIgi\cit tu you in writing.
ihai lis of now vou should beable IO ilaim 300million lire" And uc put on Our
balance sheet 300 million lire.
Mr. HIGHET: But MI. Bianchi was not prepared 10 actually pay the 300
million lire. EVIDENCE OF MR. CLARE 59
Mr. CLARE: Why should he pay it? He worked for me.
Mr. HIGHET:Or undertake the performance of the Mezzogiorno benefit?
Mr. CLARE: There are lots or Funnythings happen in the Mezzogiorno. You
can walk around and seea lot of projects that have been started and not finished.
Mr. HIGHET: 1am really hearing that you have your counsel walking around
and asking why something isn't happening and then saying, well in my opinion
it will happen and Minister so-and-so has given us his assurance, and so-and-so,
and so-and-so. It still does not happen. Why don't you then do something about
it?
Mr. CLARE: 1do no1know what else 1could have done, unless 1went to the
Pope - and I'm no1 heing fiinny there. The Church are very influential.
Mr. HIGHET: But the Lateran Treaty might have . . However.
Mr. CLARE: Having heen to the Ministers 1really thought that was about as
far as1personally could go.
Mr. HIGHET: Good. Let me ask you a subsidiary question along this line.
What makes you think, or made you think, or might make you think, that the
Mezzogiorno benefits were applicable to non-finished goods?
Mr. CLARE: 1was told so by two Ministers concerned.
Mr. HIGHET: You were told so. Did you check 10 see whether they were
nght or wrong?
Mr. CLARE: No. If 1ask a Minister something and he tells me sornething 1
do not say 1do not believe you.
Mr. HIGHET: You mentioned - and this is a point of information- you
mentioned at the end of your testimony taking someone off the line after the
famous requisition and bankruptcy. No?
Mr. CLARE: No.
MI. HIGHET: Between the requisition and the bankruptcy?
Mr. CLARE: No. When we first went there 1said in the middle of the year
we look two people oK the television line whenwe were trying to improve it.
Mr. HIGHET: But you said you talked to a liquidator about this. 1just must
have misheard you.
Mr. CLARE: You have certainly misheard me.
Mr. HIGHET: OK, 1certainly did. Forgive me. Something 1did not mishear
was that you did Say very clearly, "as soon as we announced Our liquidation"
you got indications of intere-t you mentioned lapan, United States companies.
Am 1nght?
MI. CLARE: Yes.
Mr. HIGHET: When was this, roughly?
Mr. CLARE: From about the first week in April, roughly.
Mr. HIGHET: So, nght around the time of the requisition?
Mr. CLARE: Yes. Mr. HIGHET: When was the liquidation announced?
Mr. CLARE: The las1week in March.
Mr. HIGHET: The las1 week in March. When was il decided? September
1967?
Mr. CLARE: No. We put in this money. We made clear we were not going
to put in any more money. We therefore had to watch very carefully that we
staved lecal. as far as the balance sheet was concerned. and I had hoth Scooelliti
ani ~iaGhi waiching like hawks so ihat as the money was dirappcanng ~Ewcrc
no1getting into ün illegal position in ihe Italian siiuation, and in Scpicmbcr 1967
WC wcrc certainly a long way from beina insoli,cni. It was unly in 1968thai we
had a few unforiunate incidents whichmade thines disao~ear much more raoidlv
ihan mighi othcrwiac have happçncd. In carly 19%8I'al;&o was dccimaicd'uitb
an carthquakc and u,c had our girls afiewdrd, siiting thzre wiih a string and2
little weiihr working awav. and every lime the str-.g quivered they went outside.
But pale-mo was dëcimaied totally:
Mr. HIGHET: It was not an ideal time to announce an orderly liquidation.
Mr. CLARE: Il was after that we announced it and we did not oick the time.
The disdppearance of the funds. and in the siiddtion to which w; wcrc legall)
required io rcactWC had to lcgallyeither go for ordcrl) liquidation or bankruptcy
Mr. HIGHET: Could you have made the payroll, the first payroll in April? 1
do not think you could have. Do you think you wuld have?
Mr. CLARE: No, 1do not think so.
Mr. HIGHET: You had 22 million lire in the kitty, roughly, and the payroll
would have been at least 25 million lire for the first week, which is the week
before Easter week. So you were essentially, as we Sayin the United States, belly
up, from the point of the requisition.
Mr. CLARE: We were belly up jus1 hefore the requisition. That is why we
went into voluntary liquidation.
Mr. HIGHET: That's right. 1am not debating with you as with counsel, but
you also oointed out that one of the contingency plans for taking care of the
smaller cieditors was so that any one smalleÏ créditorcould no1 Lave done -
which had I been such a small creditor and had I not been paid in full 1would
have been sorely tempted 10 do - which is 10 throw ELSl in10 hankmptcy, so
1could al least gel a better bite of il and not be swamped hy the major creditors.
If this was true, wasELSl a going concern?
Mr. CLARE: 1do not see the connection.
Mr. HIGHET: Would you say that a going concern, it is not a legal question,
it isa practical question, would you definea Companyas a going concern capable
of an orderly liquidation when at any moment a small creditor could throw it
in10 hankmptcy?
Mr. CLARE: Recognizing that as a prohlem, Raytheon made cash available
and put it in a bank in Milan and I started to pay off the small creditors and 1
paid off 130-140small creditors and the bank stopped me doing il.
Mr. HIGHET: That's right. You also said this morning that Raytheon had
guaranteed cash to make the payroll for the reduced number of employees for
the period of voluntary or orderly liquidation that you contemplated. EVIDENCE OF MR. CLARE 61
Mr. CLARE: 1did say something a little more than that.
Mr. HIGHET: Yes, you did say something a bit more than that, but 1just
want to focus on this cash.
Mr. CLARE: Nol on that particular point, 1said they guaranteed me the cash
necessary ta control and execute an orderly liquidation.
Mr. HIGHET: That's right. Then you met, as 1 recollect, you met and it's
attached to your affidavit,one of those marvellous exhibits, and il's one of the
meetings, it'sthe sort of the ante-penultimate meeting withMI Carollo. 1believe
it was Friday, 9.30 at night, and there was a lot of back and forth, and there had
been meetings al1 that week. It was ohviously a very difficult time. It was in
Rome, and you were being heseiged,essentially: "For goodness sake, wait till
Monday, we'll have everybody in on top of this - the highest authorities are
verv concerned -": thev whizzed back and forth and then vou went hack to
yo;r hotel some liméaft& 12.30am. and called Lexington (lime differencewould
have been 6.30 or 6 in the afternoon) and you talked to Mr. Phillips, and he said
eo ahead and mail them -and that's when none of the girls would touch the
lcttcrs and you siuffed the envclopcs )ourseIf
Wahn'tthis irying to tell )ou sonieiliing! Didn't you knoii, and you had hcen
uarned, "warned" issDOOrword. it had bcensiÿtcd Io vou ina hcïicd disc~s,ion
1 presume, with a political figuré,a man of considerable enthusiasm and also
considerable responsibility and prominence in Sicily, who had stated ta you
"Look, if you do this it's goingto he a requisition". That had happened and that
is in one of the meetines.
What did you think at the time, Mr. Clare? Were you of the opinion that you
were assuming a risk? That you were in fact operating in a country which had
been subject to earthquakes, where the second biggestemployer in the region was
being put out of business? There were 800 employeesabout to be given the pink
slips and the girls wouldn't even fil1the envelopes themselves?Didn't you think
this was a management blunder?
Mr. CLARE: Certainly not. 1had spent goodness knows how many months
being made promise, after promise, after promise.
Mr. HIGHET: Of the same nature of the promises made that were recorded
in that las1week in March?
Mr. CLARE: If you look back at some other records, there's lots of promises
made. ESPI even to be instructed to put in 6 billion lire. Promise, promise,
promise. ELSI was to us an entity they could have picked up very simply and
mn and made it go and applied these laws. And we'd spent a year working with
half of il having nothing but promises. My feelingas 1walked out of that room
was that il was yet another ploy. 1felt it was a play that would hold usoff until
they had their elections and then would be hack to where we were. 1didn't think
there was any solidity in the proposal al all.
Mr. HIGHET: Did il occur to vou t,~~ if Ravtheon had indicated that thev
would have bccn prepircd ro guar.inrceci<shfor kcetingp~)roll ~ndoiher limiizh
purpows for the orderly liq~idaii~nin the initidl pcriod, thxt, undcr ihc circum.
Stanceswhichamear to us and to the Court. onlvtn hlack and white on DaDer
these are minui& of meetings that are held 20 years ago - wouldn't Go" have
thought, as a businessman, that it would have been a very prudent nsk to take
to extend the normal situation for jus1 one more week?
MI. CLARE: 1 had spent many months going through al1sorts of proposals.
They put 70 per cent, we put 30 per cent, we put 50 per cent, they put 50 per62 ELETTRONICA SICULA
cent, we do that, we do the other. If it was going to be something solid on tbeir
part 1 would have expected some little gesture, some tiny positive gesture that
said bere's 10 lire towards it, cash.
MI. HIGHET: And you didn't feel you got this?
Mr. CLARE: 1didn't feel 1got that.
MI. HIGHET: Thank you very much MI. Clare. Mr. President, 1 have no
further questions.
Judge Sir Robert JENNINGS: MI. Clare, 1want to ask, 1think a quite simple
question, about the liquidation. We heard from MI. Adams this morning that
the decision to liquidate bad been taken some time before the decision was
announced confidentially, and we heard from you that the plans for an orderly
liquidation were really quite elaborate, quite, quite elaborate.
Mr. CLARE: Yes.
Judge Sir Robert JENNINGS: You had spent a good deal of time in thinking
out the best possible ways ofdisposing of the assets.You had your teams arranged
and so on, that you told us about this morning. So there was, so to speak, a
programme for an orderly liquidation. Now, what 1would like you to tell me is
simplythis. Wasthe givingof noticesto the workforce immediately the liquidation
plan was ratified by the meeting of sharebolders, was that giving of notice a part
of the original orderly plan of liquidation, or was it a later reaction Io the failure
of negotiations with the ltalian authorities?
MI. CLARE: We had two things happening in parallel. One was that we were
watchine-.erv carefullv what was hap..ning-to the money, the cash flow in the
cùmpdny, :ind I h3d ni!. lauyer and m) coniroller irlling nie: u~ich 11,yùu knou.
11'sÿppro.i~hing ihe crliical point. WCcould sec irïndssr,ihat unle\* sunicihing
hïpr>enrd WC could sçç ttio monih5 ahead. WChnd a Board mcciing Io formdlly
note that wewererunning out of money and there had to be an orderly liquidation
and that we would not go into hankruptcy. On the famous "last night" when
they said "keep going", my advisers were telling me "unless you put money in
you can't legally keep going" and we had run out of money. In parallel with that
we had to think about what would happen when we did run out of money. We
decided to go through an orderly liquidation while we were still working away
and hoping and praying that President Carollo could bring off a successful
arraneement with the central Govemment. We bad to set about plannina our
ordrrly Iiquid;itio\<ithai conie thc Jay the plcini\but ue knew u'h31 WC.were
g<iingio do. WCJid iinï or IUO oihcr things. Whcn ihe personnel uerc on srrikc.
ws krpi nian;iAemeniin ilie plmi24 hours adav so uccould cal1on the i~ruh~fthri
to orotect thëolant. We had a rine of carobinieriaround the la nt24 hours a
da; and for sime time 1 and the Gber management had to wâlk through that
ring. It was very unpleasant. We had to plan for the liquidation in advance and
iniarallel withall the other activity.
Judge Sir Robert JENNINGS: Yes, 1understand that very well, but 1am still
unclear when the decision was taken Io give notice to the major part of the
workforce. Was Ibis a late development?
Mr. CLARE: The decision was taken at the Board meeting which said we've
got to go inIo voluntary liquidation and we willhave to give notice to the people.
Judge Sir Robert JENNINGS: That was in the first week of March, 7 March
was it? It wasat the Board meeting whereadecision was taken by the management
to go into liquidation? EVIDENCE OF MR. CLARE 63
Mr. CLARE: That's right, 17 March, 1believe.
Judge Sir Robert JENNINCS: But were your plans for an orderly liquidation
already in place?
Mr. CLARE: They weren't in place.No. We took certain actions 1tbink, and
1 would have to look hack at my notes to confim these dates, but things like
moving the books and the inventory 1think took place after the Board meeting.
I'm not sure of that but it was around that time, and then we were thinking,
when we had time to think, about the orderly liquidation and plan for that. We
were still putting a lot of effort and energy into trying to avert it by still having
meeting after meeting, after meeting with Carollo et al.
Judge Sir Robert JENNINGS: Thank you. If 1 could ask just one more
question to confirm an impression 1 had from what you were telling us this
morning, and you may say that 1 am wrong, but would 1 be right in thinking
that the viahility of ELSI as a company really depended almost entirely on getting
government contracts? Would that he right, or did you hope to he able to compete
in other markets? Because you told us this morning a lot about the products that
you could make, but the problem seemed to be that nobody was buying them.
Were you entirely dependent on the Government giving contracts, or did you
think that ELSI was able to compete in the general market?
Mr. CLARE: ELSI did compete for years in the general market, and we did
not rely on government contracts in the history of ELSl up to its closure. And,
in fact about two years hack we made break-even having paid 800 million, 1
think it was - 1shall have to check, but it is around that - lire interest.
Now, there was a change in product mix. We lost some demand for the
microwave low-noise tube for NATO, but which did huild up later, and in
America we would have solved the prohlem by firing 200 people, and stayed
commercial, stayed profitable - at least not in loss. Now it was a question of
timing. Because we could not fire those 200 people, an alternative was new
~roduct immediatelv. new nroduçt immediatelv of low technoloev. Aho~t~-,e
only plaie uc could gel ih.11in qu~iitiiy 1,)uppori tIic~ree\ir:i pcoplc \!a\ froni
ihr. g<i\crnnicni ùre.i\ u.hi~.h\(cri. c~i\crcd b). me ihoughr. the 30 per ccni l4ii..
II u.ccould h3t.e lircd ?UOorod~cti,)n ~co~lr.,and rc,iruciurcd ihe coninsin\. \ir
could have put in a lot oithese products ourselves; we could have inieed
relays ourselves. We could have put in microwave ovens; we could have put in
the microwave magnetron, but it was a question of timing. And al1the time we
would he trying to do that, we could be losing money paying 200 mouths that
were doing nothing. Not only doing nothing, but doing something negative,
because they were around the place heing in the way. So, it was a question of
timing and to get those products quickly it was IR1 and its satellites that could
have done it; and they could have done that if they had taken the company.
Now if we could have - 1 repeat myself - fired 200 production people or, if
need he 250 people, and just had the people we wanted with a restriictured
company for the products we had, we could have built it up ourselves.
The PRESIDENT: 1have another question. 1would like to ask the following:
you have just said that you would have had to fire 200 people. 1 imagine that
under Italian law you can fire them by paying compensation. It was not just that
you could not fire them?
Mr. CLARE: Well, in Italy there are laws and there is life, and the practical
matter is that effectivelyyou could not fire people no matter what you paid them.
We fired two and we had a strike. You had to deal no1 just with the laws butwith what the local unions would say and do. In fact, there is no way you could
get rid of 200 people, no matter what the law said.
The PRESIDENT: Any other questions? Well, 1 thank you very much, Mr.
Clare, for your assistance to the Court.
Mr. MATHESON: In the remainder of the time we have today we would like
to present to the Court the views of two eminent Italian legal experts on the
issues of Italian law which are presented hy this case.
The first of these two experts is Professor Franco Bonelli, who will address
questions of Italian law which havearisen with respectto orderly liquidation and
bankruptcy. Professor Bonelli is one of the leading commentators and practi-
tionersin this fieldofItalian law.He has, since 1976,heldthe Chair of Commercial
Law at the University of Genoa; he is also the author of numerous books and
articles in this area and has served on many international and Italian arbitral
panels. Therefore 1would ask the Court to invite Professor Bonelli to speak.the 100 per cent satisfaction of creditors", and not the 50 per cent settlement
envisaged by Raytheon and Machlett.
The Respondent's statement as it relates to Italian law is incomplete and, as
such, is wrong. Apparent inability to pay al1creditors at 100percent is no1 fatal
to a voluntary and orderly liquidation. Several alternatives are available to the
shareholders.
First, a liquidator may settle some major unsecnred debts, especially with large
creditor banks, or others, at a reasonable percentage. These settlements are botb
leeal and oracticable. Laree creditor hanks in Italv have everv incentive to settle
~'. -
thcw Jehts. An) r.iriona1creditor uould pr~icr 10 obi.iin3 rcdsonable pcrcc~alagc
of its crcdiis proniptl) in r liquidaiion. raiher than idkiiig the ri\k of receiving
Iiitle or ni~thinr.ûfiera Ionp de1.i) in hdnkruptcv Oicoursc, ii the scttlemcnt i\
guaranteed hy ;parent comiany, ihe incenti"; tisettle isevenstronger. Professor
Jaeger in bis opinion agrees that settlement 1scommon practice.
Professor Jaeger also correctly notes a second incentive that large creditors
have to settle their credits (II, Rejoinder, Doc. 32, para. 3). According to Italian
bankruptcy law, as Professor Jaeger underlines and is correct, the trustee in
bankruptcy is obligated to file suit to recover al1payments made to creditors in
the year preceding the declaration of bankruptcy. Therefore, banks and other
laree creditors in Italv have a considerable interest in settling at reasonable
pe;ccni;igcs (like 1U ur'50 per cent) timaiirnii.~ihc recovery on ïheir credii, and
io avoid hiiting paynientr the) ohtaincd in thc )c~r precedind the haiikruptcy
takrn awas hv a trusice in hÿnhr~r>tc).This is the firsi ~iliernativc: icitlcment
with largeinkcured creditors. . .
Second, if the settlements obtained are either not sufficient or if settlements
are not obtained for any reason, the shareholders have other alternatives. They
can advance funds to the company in the form of a capital contribution or
they can reduce or waive their own credits towards the company, and101 they
can postpone such credits until after al1 other creditors have been paid. In
Italy, shareholders frequently do one or any combination of these alternatives,
a~ ~~~~~ thev intervene with temDor.w loa.s to the comnanv in or.er .o
facilitate its lrderly liquidation.
What if al1these efforts fail? There is still an alternative. If, notwithstanding
the settlements with creditors and intervention by shareholders, the liabilities
of the company still exceed ils assets, the liquidatoi can propose to al1creditors
to proceed with their orderly liquidation by obtaining their consent to be paid
only a reasonable percentage of their credits. This special procedure is called
"private settlement" (in Italian we say concordatostragiudiziale) - out of the
court, it means. It is very similar to straight creditor settlement. The principal
difference is that a "private settlement" (concordaro stragiudiziale) involves
settlement with al1 creditors, while a straight creditor settlement involves
settlement with a limited number of creditors, usually the large creditors. The
"private settlement" approach has been widely studied and approved by Italian
commentators. 1refer the Court to Frascaroli Santi, II concordatostragiudiziale,
Padua, 1984; F. Ziccardi, "Concordato stragiudiziale", in Dizionariodel diritto
privato, Milan, 1981, page 345. 1 do not mix citations here but it is an
undisputed point.
Why would creditors agree to a private settlement? Again, the incentives are
the same. The result of an orderlv liauidation with settlement of creditors is
better than a liquidation through a 'trustee appointed by the court. Also,
creditors avoid the risk that a trustee in bankruptcy would try to recoup any
payments to creditors made within a year preceding the hankruptcy, as
mentioned above. ARGUMENT OF PROFESSOR BONELLI 67
If these alternatives fail, or if a company elects no1 to attempt a liquidation,
the company may resort Io the courts. A company may either make a petition
to the court for a judiciary settlement or file a petition for declaration of bank-
ruptcy. In a judicial settlement (in Italian concordatogiudiziale) the court mus1
assure itself that the company meets certain requirements for the procedure and
issues a i2 .ment to this effect. At the same lime the court aonoints a trus..e.
uh<iuliim~iclyi, rerponsiblc for ihr sîlc of ihc i.omp~ny'sxsrei.. Thç tinic pcriod
hciascn the pclilii>nto Ihcc<iurixnd ihc judgmcni is r~rhcr long: iin)\vhr.re from
3-4 monihs uo ro 2-3 vedrs Ir 15 3 lune ~criod oliiiiic I>urinc ihis tinic ncngid.
al1sales which are made are performedbji a liquidator appointid by shareholders
and with the support of the shareholders.
In conclusion, in the present case it appears that the sale of ELSI's assets
would have been sufficientto pay al1creditors in full,including the debts towards
the shareholders (on this point 1 refer to the statement of Coopers & Lybrand).
1 did no1 see the accountings, this is only what 1 read. However, this does not
matter. Even if il appeared that the sale of ELSI's assets would have been
insufficient to oa. .l1 liahilities. ELSI could have taken anv other alternatives
~\,.iillihlcto il undcr Ii~lilinlau tirsi. ~citlemciitswiih large dnjccured crcditors:
\econd. ii )uL.~ ~etilcnicnls \hould have pro\.cd injurticicnt. sharcholdcr> çubld
have made a capital contribution, and/or they could have reduced or waived their
own credits towards ELSI; third, ELSI could have proposed to al1creditors a
private settlement. This is a general overviewof what Italian law provides for in
these cases.
All these alternatives were both for creditors and for shareholders a better
course of action than a bankruptcy proceeding. The sale of assets in bankruptcy
occurs over a lengthy period of time. The trustee in hankruptcy is generally not
expert in the business or commerce of the company, does no1 have the support
of the shareholders (who can euarantee the huvers. technoloev and know-how).
and the trustee does'not haveihe same monetGy incentive trmaximize the saii
pnce as would the shareholders in an orderly liquidation. The trustee in bank-
iuptcy in ltaly is appointed by the court and normally is not a manager; he is
e~ ~ ~ ~ ~ ~ ~r,~ ~a~ ~~~ ~~~a~t. ~ ~ ~ ~ ~ ~ ~
A confirmation of what 1 have said cornes from the undisputed facts of this
case: ELSI's management and shareholders resolved to put ELSI in voluntary
liquidation, and théybegan negotiations with the large~bank creditors with a
view to settling their credits at 40-50 per cent. There is every reason to believe
that these negotiations would have been successful. But even if they had not,
Raytheon and Machlett could have explored any of the other alternatives 1have
described. This reasonable course of action, which as a matter of fact was chosen
hy ELSI, was frustrated because the Respondent's unlawful requisition inter-
vened. The second section of my statement is:
The Respondent argues that other provisions of Italian law would have pre-
vented the orderly liquidation and would have obligated the filing of a petition
~ ~ ~ ~ ~ ~-~-~~, ~ d~s~c~~~.
Firsi. I u,ill3dJrcss the Kcbpondcnt's~irgumcnt(Counier-Memoriiil, II, p. 21)
ihiii FISI vii>lliiedArticlc 2447 <II'hc Ii:ilian Civil Codc Articles 2447 :ind 2.248.
No. 4, of ihc Iialiiin Civil Ci)d< obligatc li Iiq..idaiion u.hcnç\cr ii comp.iny's
cüpii~l is dcplcic~ihclou s siiiiiiior) mininiiim - a case ofcornpulsory Iiquida-
iiùn During ihz rclc\,ani iimc-pcriod, [hi, siaiutor) minimum w3s 1million Iirc,
a very smafi amount. If the shareholders do not restore this minimum amount ARGUMENT OF PROFESSOR BONELLI 69
prohibition, they assume unlimited personal and joint liahility for the new
business so undertaken."
Moreover, Article 217, No. 4, refers to an insolvent company, that is, one
without any possihility of heing liquidated through an orderly liquidation. ELSI,
hy contrast, was capable of heing liquidated through an orderly liquidation by
any one of the alternatives 1meniioned earlier. Thus, Article 217, no matter how
interpreted, does not apply to ELSI at all.
1would like to make one final comment with respect to Article 217. If Article
217, No. 4, had ken applicable to ELSI (of which 1am of the firm belief that it
did not) the Public Prosecutor should have hegun criminal proceedings against
the Board of Directors. The Respondent had sufficientinformation to make such
a determination at the time, if it had been so inclined. Officiaisof Raytheon,
Machlett and ELSI had told the Respondent repeatedly that if they could no1
make ELSI financially self-sufficient they would liquidate the company. The
Respondent had the authority to hring cnminal charges. But, no1 only did the
Respondent not criminally prosecute the Board of Directors, on the contrary, it
urged ELSI to remain in operation. 1suggest that the Respondent itself did not
and does no1senously helieve that operation andior liquidation of the company
was a cnminal act under Italian law.
The third section of my statement is:
The Respondent also asserts that ELSI management was criminallyliableunder
Article 217. No. 3 11was soeakine before on Article 217. No. 4). which orevents
ihc Hoard oi irec ci o fom running an '.insol\cni" comprny with .'rccklchs
business in ordcr ii>dzlay thc hankrupicy". The unie rejsoning applies. t'irsi,
ELSl u3s noi ditin,ol\r.nt Companyand thcrcfore w3snot jubjcsi io Ariicle 217.
No. 3 Moreuver, ELSl's management and shlircholdcrs did no1coniinuc IO run
ihr.husinr.ss,sinccihcy \oisJ to liquidate ihr.compdny'sasscis and ihus rei'rained
from executing new business. It is the same Article 1 read a few moments ago.
Arain. il is relevant to note that al no time did the Public Prosecutor initiale
pr~>ccedingo sr c\çn an invesiigiiiioninto tLSI; indecd ihc Kcspondeni coniinucd
1,)cncouriigc ElSI's mandgçmcnt and shrrr.holdcrs IO kccp El.SI in operation.
ELSl's manaxemeni did no1 violiits Article 217, No 3.
The ~esooident seems to sueeest that ELSI'Smanaeement violated Article
218 of the italian Bankruptcy L&. This Article makes a crime for the Board
of Directors of an insolvent company to horrow money from a third party in
concealment of the insolvency. Again, the Respondent's reasoning is misplaced.
First, ELSI was not insolvent. Even if il was, however, the Directors did no1
conceal any aspect of ELSl's financial condition on ils balance sheets. Again, il
is noteworthy that the Public Prosecutor never initiated criminal proceedings
against the Board of Directors, even though the Respondent was apprised in
detail of ELSI's financial condition in 1967and 1968.
For the first time in ils Rejoinder, the Respondent accusesELSI's management
of having violated an additional article of the law, Article 2621 of the ltalian
Civil Code. In mv view Article 2621 is simolv.ir.elevant to the case at hand.
Aniclc 2621 makes ita criniin;il oKcnceiur proniotcri. rounders. managers and
direciori, gcncral managers. audiii)rs and Iiquid~iors uh.1, in reporis. b~lancc
sheets or other information concemina the affairs of a comoany, fraudulently
represent facts which do not correspond to the truth about rhèformation of thé
financial condition of the company or who conceal, wholly or in part, factsconcerning such condition.The same Articlealso punishesmanagers and directors
and general managers who, in the absence of or contrary to an approved balance
sheet, or on the hasis of a false balance sheet, in any way collect or pay profits
which are fictitious or which cannothe distributed. Having levied this allegation,
the Respondent has brought not a single piece of evidence that suggests that
anyone associated with ELSI presented false information concerning its linancial
condition or in any way collected or paid fictitious profits. On the contrary, 1
would suggest that Raytheon, Machlett and ELSI management were particularly
candid concerning ELSI's financial position and the steps necessary ta liquidate
the Company.
There are two short finalpoints 1shall mention hriefly.In its Counter-Memonal
the Respondent alleged that the delays in ELSI's hookkeeping violated Articles
216 and 217 of the Italian Bankniptcy Law (Counter-Mernorial, II, p. 8) and
that ELSl's management violated Article 2446of the Italian Civil Code by failing
to take appropnate action with regard to ELSI's share capital (Counter-
Illemarial, II, p. 7). The Respondent has not pursued these arguments in its
Rejoinder and for a good reason. As 1 stated in my statement (Reply, Ann. 1,
para. 7), any delays in ELSI's bookkeeping in early 1968 that were due to
earthquakes in Sicily or stnkes at the plant were merely bnef and unavoidahle
interruptions in ELSI's record-keeping and do not violate ltalian law. It was a
force majeur - earthquakes and stnkesat the plant. 1further affirmmy statement
(ibid., para. 6) that ELSI's management took al1appropnate steps to maintain
the appropnate ratio hetweencapital and losseswithin the time-period established
hy Italian law.
A final remark. Suppose that ELSI management had violated one of the many
articles 1 read, there are five or six articles, of the ltalian Civil Code and the
Italian Bankruotcv Law. what should have been the conseauences? These viola-
tions, or some 'ofihem, should have exposed the members of the Board of ELSI
to he criminally prosecuted (which did not occur, and this is a confirmation that
no violations were made). but none of these violations should have nrevented
ELSI from making or cohinuing the orderly liquidation of the c~m~a~~I .t was
a crime but not an impediment to the orderly liquidation.
THE REQUISITIO CAUSED THE BANKRUPTCY
The requisition made the orderly liquidation of ELSI's assets impossible. ELSl's
shareholders were depnved of the ahility to sel1ELSI's assets. Moreover, they
were prevented from operating the plant to finish work-in-process. Thus, ELSI
could neither proceed with the orderly liquidation nor generate funds with which
to meet future payrnents.
In sum, 1have demonstrated that Raytheon and Machlett were entitled under
Italian law to liquidate ELSi's assets and that orderly liquidation could occur
under several alternative plans, legal possihilities, even if ELSI's liahilities ap-
peared to exceed its assets (a point 1do not concede). It was only hy reason of
the Respondent's intervention with the requisition order that ELSl's shareholders
were deprived of an opportunity to complete any of these alternative plans. 1
have also estahlished that the Respondent has not documented a single violation
of Italian law by either Raytheon, Machlett or ELSI, or their officiaisand have
refuted the Resnondent's contention that ELSI should have filed a oetition in
hankruptcy priAr to ihc rcquisiiion Thc inc\itahle cunclurion, therc6rc, is thai
the unlawful requisition of ELSl's assets hy ihc Kcspondcni prcvcntcd ELSl irom
continuing the orderly liquidation and caused theamages that are now claimed
before this Court. ARGUMENT OF PROFESSOR BONELLI 71
Mr. MATHESON: Professor Elio Fazzalari will address the question of
whether other remedies were in fact available under Italian law to Raytheon,
which is something the Respondent has asserted in its pleadings. Professor Fazza-
lari is Professor of Civil Procedure at the University of Rome. He has chaired a
number of internationalarhitrations. He isthe author of a numberof publications
with respect to Italian civil procedure. 1 ask the Court to cal1upon Professor
Fazzalari. ARGUMENTOF PROFESSORFAZZALARI
ADVISER FOR THE GOVERNMENT OF TEE UNITED STATESOF AMERICA
Professor FAZZALARI: 1am here today 10 describe 10 the Court why Ray-
theon and Machlett, the shareholders of ELSI, could not bring successful suit
against the Government of ltaly in Italian courts for the injury al issue in this
case.
1wish ta make three points but 1 must apologize in advance for my English.
1 will speak as clearly as ~ossible.
1:irri; the ~es~ondent 'n this case has previously 3rgur.d ih3iUniied Siais5
ndtional cannot sussessfully sue in Iirlian courts againsi the Govcrnment of Iraly
on ihs büsii of the 1948Treaiy of Friendshili, Commcrce and Saviraiion. l'hc
reasoning of the Respondent in that case requires a true expianation of certain
principles of Italian law.
Second, Raytheon and Machlett could no1 have successfully sued in Italian
courts against the Government of Italy hased on the other remedies stated by
the Respondent in its pleadings hecause under ltalian law shareholders do not
have the legal authority to sue for actions taken against the Company in which
they have an interest.
Third, even if Raytheon and Machlett could have successfully sued as share-
holders in Italian courts against the Government of Italy, ELSI's successfulsuit
based on the specific remedy of an a- -al to the Prefect eliminates any other
remedies.
1will address each of these points separately.
1.THETREATY 1sNOT A BASIS FORSUIT IN ITALIAN COURTS
First, the treaty is not a basis for suit in Italian courts. In both the Counter-
Memorial (II, p. 28) and the Rejoinder (il, p. 452),the Respondent States that
Raytbeon and Machlett could have sued in Italian courts under Article 2043of
the Italian Civil Code based on the 1948 Treaty of Friendship, Commerce and
Navigation between the United States and Italy. This is incorrect.
When a treaty is signed by the Government of Italy, it must then be ratified
by the Italian Parliament through a simple order hefore it can enter into force.
The fact tbat a simple ratifying order or, as it is sometimes called, a simple
"implementing" order, is passed by the ltalian legislature is not sufficient hy
itself to allow suit in ltalian courts based on the treaty provisions. To allow
suit against the Government of ltaly for compensation, the treaty provisions
must either contain specific language allowing such suit or there must he
additional Italian legislation incorporating the treaty into Italian law with
greater specificity.
Both Parties agree that there is no additional Italian legislation other than the
ratifying or implementing order. Although the United States pointed out in the
Reply that ltalian practice has not found provisions such as that of the FCN
Treaty enforceable in Italian courts, the Respondent simply cites four cases in
the Rejoinder which support this point. Two of these cases involve the United
States-Italian FCN Treaty and two involve other treaties. 1will discuss each of
these decisions in turn ARGUMENT OF PROFESSOR FAZZALARI 73
Decision No. 1455of21 May 1973
On page 115(II) of ils Rejoinder the Respondent cites MinisterodelleFinanze
v. S.P.A. Manfattura Lane Marzorto, Decision No. 1455 of 21 May 1973 (II,
Rejoinder, Doc. 5). In this case an ltalian Companysued the Government of Italy
for imposing customs duties on goods higher than permitted by the Schedule
relevant to Article 2 (6) of the General Agreement on Tariffsand Trade (GATT).
The Suoreme Court of Cassasione. that is. the Italian Suoreme Court, therefore
hiid ro dctcrminc whcihcr Ariiclc 2 I6, uas li pari ui Iiiiliiin Iliw.
In the ResponJcni's pleadings, the Iiali'in Minisiry of tinlincc argued ihlii ihs
ariiclcs ofth< (;/\TT ai isiur in ihc sîsc did noi sontain sidndards thai uere
immediatelyenforceable by the citizens of the various States that had acceded to
the GATT. Instead, the Respondent itself argued that the GATT articles were
limited to assigning to nalional legislalors the task of adjusting their own legal
systems,by means of appropriate domestic standards, to the principlesestablished
in the treaty. The Respondent stated that the generic character of the clauses and
the complexity of their application in Italy meant that a simple implementing
order was insufficient. Rather, the Respondent argued that the legislator would
have to issue a specific standard or no subjective rights would come inIo being
for private individuals under the GAïT provisions.
The Supreme Court of Italy agreed that the existence of a legislative order
ratifying the GATT did no1 automatically make the GATT a part of ltalian law
which could be relied on by an individual. Rather the Court said:
"It is quite true that the implementing order, though necessary, is not
alwav,~a su~fic~ent means for the receotion of international treatv oro. .ions
in thcir iorni linJ substiincc inio the intcrn.il rystcni withoui an) furthcr
spcsific lcgislation For ihis piirposc, itis nccesrary thai ihc wmc .igrccnient
coniain soccificelcmentr from uhich com~letc riilcs may bc elicitcd It is not
c~ ~ ~ ~bl~ ~ ~t ~rovisions. the orecise content of which is no1 determined.
be inserted into Ihe legal s~stem.'
It is equally clear that when it is not possible to determine that content
solely througb the interpretativeinstruments,without legislation,such deter-
- - - ~ ~ ~ ~ ~ ~ ~ - ~ ~~~~--~--~ernreter. In such cases. the international
undertaking to comply, which is implicitly inherent in those provisions,
cannot he out into effectexcept through the ordinary procedure (that is, the
State, which has an international oblrgation to govem certain situations in
a given way makes specific provision for this purpose which are the only
legal source in the matter under consideration)." (Rejoinder, Doc. 5, II,
p. 487 [pp. 9-10].)
The Court went on to ask whether the treaty provision, though formally
integrated into the interna1 system, is simply a declaration of pnnciple. If so, il
onlv binds the two Governments to harmonize their laws, without anv immediate
relévanceto individuals, meaning that individuals could not claim hghts based
on the treaty actionable in courts.
The Court found Article II (b) to contain sufficient specificity. This is not
surprising since Article II (6) incorporates a specificscbeduleof products setting
forth specificlimits on the customs duties or charges that may be imposed on
those products. The Court found that since the content of the provision was
defined, it was therefore immediately applicable.
In Our case, however, the FCN Treaty provisions do not have comparable
specificity.Rather, they state general principles whichmay beenforceable immedi-
ately as a matter of international law - that is, they are binding on the two74 ELETTRONICA SICULA
States - but which are not capable of enforcement in Italian courts without
additional legislation.
Case No. 107 of14 January 1976
The other case is Case No. 107of 14 January 1976.On page 455 (II) of the
Rejoinder, the Respondent cites Ministereo del Tesorov. Mander BrothersLtd.,
DecisionNo. 107of 14lanuarv 1976(II. Reioinder. Doc. 4). In that case a citizen
of the United Nations sued the Govgrnkent of 1taiy for losses incurred in Italy
as a result of the Second World War.
The Supreme Court of ltaly found that Article 78, paragraph 4, of the 1947
Peace Treatv between Italv and the allies (49 UNTS 126) nrovided that the
Governmeniof ltaly was ibliged to indemnify "United ~Aiins nationals" for
lusses undergone as a result of wartime events in Italy. This specific obligation
was found to be immediately operative in Italian domestic law without the need
for a further standard-settine act of inteeration or ada~tation.
Thc Ci>uri3sdcsisii>n1sqiie undcrsi;;ndable unde; Ar~iclc78. pardgraph 9,
'Uniied Niilions n;iIion~lr";iredelincd as nationals of;in, of the Uniitd Nations
or individuals which were treated as the enemy under the laws in force in Italy
during the war. Thus the Treaty was clearly meant to have intemal eiïect since
some Italian nationals qualified as United Nations nationals. Further, Article 78,
paragraph 4, expresses a specificobligation of Italy to restore al1the legal rights
and interests in ltaly as of 10June 1940of these United Nations nationals, with
other specific provisions regarding compensation in lire for lost property at two-
thirds its value. Ohviously none of the United States-ltaly FCN provisions at
issue in this case contain similar specificity.
DecisionNo. 2228 of30 July 1960
Now 1come to the two cases involving the United States-Italy FCN Treaty.
The enforcement of the FCN Treaty in these cases was limited to provisions
containing a "most-favoured-nation" clause. The United States citizen drew
special protection not from the FCN Treaty itself, but from some parts of it in
conjunction with other treaties entered into by ltaly with third countries.
On page 28 (II) of the Counter-Memorial and page 454 (11)of the Rejoinder,
the Respondent cites TheDurst ManufacturingCo. v.BancaCommercialIraliana,
Decision No. 2228 of 30 July 1960 (11, Rejoinder, Doc. II). In this case the
United States-ltaly FCN Treaty was used in conjunction with Article 23 of the
Italian-French Convention of 12January 1955.Article 23 specificallyprovided
for an exemption from authentication for the notarial instruments executed in
the territories of the two States. This provision was then held applicable to a
United States national through application of the most-favoured-nation clause
of Article V, paragraph 4, of the FCN Treaty.
The first important point about this case is that Article V, paragraph 4, of the
FCN Treaty was not itself specificenough to provide a standard of enforcement.
The court noted in its opinion that no specificwaiveror exemption existed in the
FCN Treaty itself,and that "to render operative the most-favoured-nation clause"
reference must be made to the other treaty. The second important point is that
with the exception of Article V, paragraph 3, none of the United States-ltaly
FCN provisions argued in this case calls for a "most-favoured-nation" standard
or treatment. There is nowhere else to look to find the specificity necessaryfor
these provisions to be enforceable in Italian courts. The third important point is
that the Durst case did not involve a suit against the Government of Italy or a
suit involving the payment of compensation, and therefore cannot be considered This Article is the basic Italian statutory provision allowing suit for wrongful
wnduct. The Respondent wntends that the Treaty provisions wuld have pro-
vided a basis for detemining that the Respondent's conduct was wrongful (Re-
al1ltalian wurts and scholansput-hlis that suit hased on Article 2043 can only be
brought for damage 10 an individual's "subjective" right, known in ltalian as
"dirirroso....rivo". but not for damaee-to an individual's "leei-imate" interest.
known in ltalian as "inreresseIegirruno". Therefore. 1will attempt to explain to
you the distinction betwan "dtrirrosogg~rrivo" and "intererre 1e.qiirho".
In Ilaly, thc difierences between an individual's "subjective ri&&" and an
individual's "lcgitimate interests" was historically introduccd ai the end of the
las1century when the individual was first pemitted to challenge certain admin-
isrrativc acis of the oublic authonlies even when these acts did no1infrinee uoon
the persisting individual's rights. To avoid exposing the administrative auiho&ies
to claims for damages, as well as to avoid subjecting the authorities to the
jurisdiction of ordinary courts (which is the case for violations of "subjective
rights") the individual was instead granted a sort of "weaker" right, one hased
on the individual's interests in the compliance of public authorities with the law.
This interest is called an"interesselegirrimo" or "legitimate interest".
Today the following important consequence exists in ltalian law also for suits
against the government: a subjective right is enforceable in the ordinary civil
courts, while a legitimate interest is protected by administrative judges. Further
compensation is due only for damages resulting from injury to a "suhjective
right" under Article 2043 of the ltalian Civil Code, whereas damages resulting
from iniurv to a leeitimate interest are no1 indemnifiahle.
~owihén, whenone wi\he\ io sue the Government. docs hc determine uhethcr
someihing is a subjcciive nghi or a le&yiimaieintercst" In Italy,û "subjective
right" anses when a rule requires a suhject to do a certain performance and
specifies the suhject who is entitled to receive this performance: the latter is
qualified as the holder of a "suhjective right". As an example, if the Government
rents a building for offices,Article 1587,paragraph 2, of the ltalian Civil Code
requires that the Government, as a lessee, pay rent to the lessor who is, for this
purpose, the holder of a "subjective right" to the punctual payment of the rent.
If instead, the law calls upon a suhject (usually an organ of the Public Admin-
istration)a duty 10do some act, without fixingthe addressee of the performance,
the obligation is provided for benefit of the whole community. The individual,
who receives the benefit of that performance, is the holder of a "legitimate
interest" (that the law be respected hy the public authonties).
As an examole. when the law fixesin detail the rules that mus1be foilowed bv
government a;thoniies in conduciing competiiive examinations for puhlic ek-
ployment. these rules are made in the gencral inierest of the public An examina-
tion candidate is interested in the coriect administration of the examination hy
the ouhlic authorities and has. therefore. a "leeitimate interest" in ~t-~~~~~~~~~e
a candidate may challenge the'improper'admi~stration of an examination in an
administrative proceeding, but cannot hring suit successfully in the ordinary
courts. If successfulin a oroceedi-e before an administrative-iud-.. the candidate
cannot receive compensation for any alleged injury.
The inahility to hring suit under Article 2043 hased on a legitimate interest has
ken repeatedly confirmed in innumerahle decisions of the ltalian Supreme Court.
For instance. less than a vear aeo in Decision No 2579 of 25 March 1988. the
Supreme couri <ifIldy siaied tLi ihere is a basis under Article 2043iir a &hl
10damages only uhcn ihere has been prejudice Io suhjcctive nghts (Io configztro-
hilrra di un dirrrroal rirroro del donnosok, in pr<,srn:odr uno lcsronedi drrrrrr ARGUMENT OF PROFESSOR FAZZALARl 77
soggelriv Tie.Supreme Court of ltaly in Decision No. 435 of 21 January 1988
found that an ordinary judge did not have junsdiction to decide a suit seeking
compensation under Article 2043 for damage resulting from prejudice to legiti-
mate interests. The same conclusion was reached in other recent decisions of the
Supreme Court of Italy, such as Decision No.436 of 21 January 1988 and
Decision No. 1202of 5 Februarv 1988.
In my opinion, the provisio& of the 1948 FCN Treaty between the United
Statesand ltaly at issuein this casedo not provide for the individual a "subjective
rieht" enforceable in an ltalian court. These Treatv orovisions state onlv eeneral
&dards of protection without indicating that indibiduals are granted-ri&ts to
sue the Government of ltaly in ltalian courts based on violations of the Treaty.
Therefore it is impossible for an individual Io receive damages from an ltalian
court based on the Treaty. Even ifthe Treaty created a legitimate interest for the
individual, there would be no ability to claim damages based on that interest.
This is the first point; 1shall finish in a few minutes with the second and third
points.
II. As SHAREHOLDER RA,V~ON AND MACHLETC TOULD NOTHAVE SUED
UNDER ITALIAN LAW FOR ACTIONT SAKEN AGAlNST ELSI
My second point is that as shareholders, Raytheon and Machlett could not
have sued in Italian courts under ltalian law for actions taken against ELSI.
As is true of other legal systems, under ltalian law a shareholder in a Company
is not entitled to act in lace of the comoanv for orotection of the riehts and
interests of thai conip3ny'.In support ofth'is poinrefer ihe Court to ~trcatisc
cdited by Professi>rGiuscppc Auletta entitle1)irirroConr~~rcroolor "Commer-
cialLaw")..at .a-cs 104-105.This ireatise er~iain- as do manv others -- thai
the company serves as an independent juridicai personality, aitonomous and
distinct from the shareholders. From this indisputable principle, Professor
Auletta - as well as al1 other scholars- derive several consequences under
Italian law. Shareholderscannot individuallv decide matters concernine the com-
pany Togcther. in the organ of ihç compaay callcd ussmrhleo. sharehilders cïn
undcrtake imporiant decisions rcg;irding ihe Iifeof the Company,bui thcy do not
undertake manaeerial action. Law suits aeainst third parties for acts that harm
the company, e;en though the shareholaers' interesis are indirectly harmed,
cannot under ltalian law he undertaken by the shareholders themselves.
The autonomy of the company from its shareholders is even more apparent
when the comoanv eoes into bankruntcv. At that ooint. al1 the riehts of the
company are trînsferred IO the hankrupicy trustee, u,ho is the public officer
dcsigndtcd by the couri. u,ith pouers even more nuionomous than thosc oi thc
company's organs.
Therefore, in this case, had Raytheon and Machlett tried to sue in ltalian
courts claiming injury to themselves from the requisition and from other actions
taken by the Government of Italy, there is no question that they would bave
failed. Under ltalian law it was solely for ELSI to act against the measures taken
by the Italian authorities. When the bankruptcy occurred, the protection of
ELSl's rights transferred to the hankruptcy trustee, but not to the shareholders.
That is why only ELSI could appeal the Mayor's requisition order.
Both the opinion of Mr. Giuseppe Bisconti and Professor Antonio La Per-
gola - the former President of ihe ltalian Constitutional Court- are quite
accurate on this point. They both find that Raytheon and Machlett as sharehold-
ers had no remedies to exhaust in localcourts. Further, contrary to the Respon-
dent's statement on page 453 (II) of the Rejoioder, Professor La Pergola did no1 ARGUMENTOF PROFESSOR FAZZALARI 79
do not provide with sufficient specificity subjective rights 10be applied in favour
of an individual. Further, the specific remedy of appealing the requisition order
to the Prefect precludes other more general remedies for injury caused hy the
requisition order. Finally, the status of shareholders under Italian law is such
that the rights and the interests at issuein this casecould no1 serve as the basis
of a suit in ltalian courts for the acts committed by the Government of Italy.
This concludes my statement on the availability of remedies in ltalian courts
for Raytheon and Machlett. Thank you for your so kind attention.
The PRESIDENT: If the ltalian delegation do no1 object, I will ask the
American delegation to provide the opinion of the Attorney General of Rome
mentioned by Professor Fazzalari. If 1 understood him correctly, 1 assumethat
this is a new document that is not in a publication readily availahle in the official
languages of the Court.
Mr. FERRARI BRAVO: Mr. President, 1 did no1 catch exactly the niimber
and object of this decision but it seemsto me that the decision itself should be
considered as imvortant and its text ~rovided bv the American deleaation with
an aooroo~rat~~ ~~ ~~~-~on. What hasBeen mentioned is an ooinion Gnressed in
the course of the pleadings of the casewhich in itself is not authoritativeinltalian
law, the authority coming from the judgment itself. If the American delegation
wants to file the ooinion with the Couri. it is fine. but as the vrecedent isniven
by the judgment as such, the judgrnent'- which is much iore important -
should also be filed.
The PRESIDENT 1undcrsiand )Our position but the problem is no1exacily
this, the problem is ihai ihc Chïmber Cïccsrcfcrcncc io a ncu document which
hasnoi ken suhmiitcd bcforc Froni what 1undcrsiood from Profes5or Fazzalilri
uïs ihai rhe case hsd noi been dwided yet. In ihi, pdriicular cnsc the problem
is ihat ihir is a neu documcnt; docunicnts h~uc to ix suhmiitcd hefore ihc oral
hearings to the Court and therefore, in the caseof a new document, whatever its
nature. 1 need the aereement of both Parties. otherwise we will have to have a
sPec~ïl'hcaringon ihTsncw docunicnt. Therelore. 11the Italian dclcgaiion objccts
10 ihc iubmission of this opinion IIIihc Ariorncy Gcncral of Komc. He will hhve
to hcar hoih Pariics on this cnsc. Sù. the prùhlem is noi whsihcr u,hat Profcssor
Ferrari Rra\,o said ISfinal or not. the prohlem 15 ihat uc arc facing hcrc ilncw
Ji>cumcni noi having bccn mentioned icthe C<~urthel;~reihc hcarings.
.Mr MATIiESON Mr. Presidrni, ws \ioulJ hr. happy IO ;isccpi the proposal
of the Rcspondcnt. WC\!,III pro\,idc you wiih boih a cup) of the dcsisiun and
a copy of ihe brief2.
The PRESIDENT: There is agreement of al1Parties that we will receive this
document in one of the official languagesof the Court.
TheChamberrose ut 13.40p.m
' See CorrespondenceN , os.66and 73,infra.
See Correspondence , o.66, infra. ARGUMENTOF MR. MURPHY
COUNSEL FOR THE GOMRNMEN OF THE üNI7FD STATEï OF AMERICA
Mr. MURPHY: Mr. President, distinguished Members of the Court. 11is with
great honour that 1appear before this Court on behalf of the United States.
Mr. President, the jurisdiction of this Court is based on Article 36, paragraph
1.of this Court's Statute. which orovides the Court iurisdiction over al1matters
~pmally pro6,ided for in tredties'and conventions i;force Article XXVl <ifthe
1948 FCN Treaiy hetwen the United Stdtes and Italy $taici thdi dibpules as 10
the intemretation or the aoolication of the Treatv which are not ~Gisfactorilv
adjusied'by diplomacy sh$i be submitted to the Court. Unfortunately, oser
period of years our two Govcrnments werc unable Io rrsalve this dispute through
diplornatic means. Therefore, hy application of 6 February 1987the United States
suhmitted this disoute to the Court. In ils Counter-Memorial (II . .. on .ar- 26.
the Respondent a&epted the Court's jurisdiction.
In the Counter-Memonal (II), on page 27, the Respondent contends that the
claim in this case is inadmissible before the Court because local ltalian remedies
allegedlywere not exhausted by Raytheon and Machlett. This objection isentirely
unsubstantiated and should be dismissed hv the Court. Yesterdav Professor
Fauiilan indicated why. under Italian Irtw.no.further legal remedieséxist.Today
I willdiscuss this issue in relation to the inierprctation or application of the FCN
Treaty and international law generally.
As a matter of background to this issue, 1would like to draw attention to the
fact that the Respondent's ohjection wasjoined to the proceedings on the merits
of the Applicant's claim in accordance with Article 79, paragraph 8, of the Rules
of Court. In letters sent to the Court dated 16 November 1987', the Parties
agreed that the Respondent's ohjection - which was raised in the Counter-
Memorial - should he heard and determined within the framework of the merits.
In ils Order2 of 17Novemher 1987the Court noted the Parties' agreement.
Although the United States was able to respond to the objection in its Reply,
the Respondent continued in ils written comments on the objection - and,
indeed further developed the ohjection - in ils Rejoinder, thus preventing the
Applicant from fully responding to the objection in the wntten pleadings. There-
fore the United States is compelled to address the preliminary ohjection al this
stage in the proceedings, including the additional contentions advanced by the
Respondent in the Rejoinder.
The Respondent states in the Rejoinder that the United States has accepted
Italv's wsit~~~ ~ ~t the local remedies rule aoolies 10a claim made under a treatv
(~doiider, II, p. 450). In fact, the United States has no1 accepted this positio~
In this case the United States seeks two types of relief: first, a declaration hy this
' I.C.J.Reporund1987,p.s185.7 and 33, infra82 ELETTRONICA SICULA
Court that the Respondent has violated the Treaty of Friendship, Commerce and
Navigation between the United States and ltaly and, second, reparation for the
damiges arising out of those violations.
With respect to the first type of relief there is clearly no requirement in
international law that a State must exhaust local remedies before it can seek to
vindicate its own rights through declaratory relief. AsProfessor Meron states in
his seminal article:
"lllf the diolomatic neeotiations between the two States nrove unsuccess-
ful,'ind siaie' Bapplies io the Iniernîiional Court of ~ustiiecomplxining of
a breach of ceriain trcsiy obligations hy Staie A (as show hy 11sconduct
tou,xrds the iniured alicni and nskine orincinallv ior a declîrïiorv iudrment
based on the <nterpretatibn of the t&y, this would appear to be-a cise of
direct injury to which the rule of local remedies would no1 he applicable."
(Meron, "The Incidence of the Rule of the Exhaustion of Local Remedies",
35 BYBIL 83, 85 (1959).)
At a minimum, therefore, the United States claim for a declaration by this Court
that the Respondent has violated the FCN Treaty should not k dismissed on
the basis of the local remedies rule.
With respect to the second typeof reliefsought by the United States,histoncally
there has been some controversy over whether the local remediesrule applies to
a claim for compensation hy a State on hehalf of a national when the claim is
hased on a treaty violation. In the case of thisparticular treaty, there is no reason
to helieve that the parties intended such a rule to apply. The 1948 Economic
Cooperation Treaty ktween the United States and ltaly - which wasnegotiated
at the same time as the FCN Treaty at issue in this case - expressly includes
the local remedies rule in Article X (20 UNTS 43, 9 Bevans 306,TIAS 1789).In
the FCN Treatv there is no exoress inclusion of the local remedies rule. Instead.
undcr Ariiclr XXVI of the ~rixi~. both panics agreed thîi dispuics ktwcen the
parties as tu the interprctîiion or the application of ihr Treaty no1saiisFïetorily
adlusied bs di~lomxiv shall bc suhmitied io the Couri
it is weli known that there are some situations where the local remedies rule
docs not apply. For instance, the Respondent itself argued in ihc Phnrphoreç iii
.Uorni.i.ocase thai the rule docr nui apply uhcre the Respondeni Governmcni
has commitied an illceal act xi the berinnine of the underlving disoutc, or uhsre
there is a collaboration of different gover'ment branche; inpe&tration of a
wrong, such that the governmental character of the act would lead one to believe
that the interna1judicial process would not provide the desired redress (P.C.I.J.,
Series C. No. 84. oo. 443. 447-448).In this case. the initial reauisition of the
Respondent u,as déterminid by iis ;>un courts to be illegal 2nd 'the subsequeni
art, of various gotcrnmcni eniiiies resulted in the appropriaiion of ELSI'Splani
and assets by the Respondent.
In any event, the United States has not argued extensively the theoretical
underpinnings of the local remedies rule in this regard, because we helieve,
whether or not the local remediesrule is applicable in this case, that the rule is
clearly and demonstrably satisfied,and there is no need to dehate the exact scope
.~ ~~.~ ~ r r ~ ~ ~ ~~~-~~
The Respondent devotes considerahle spacein its written pleadings to proving
the existence of the local remedies mle. The United States, however, has never
contested the existence ofthe rule. Commentators and courts have oroooun.ed .
various procedural and subsiantive ressons for the local rcmediesrule.This Couri
kas sixicd thai the rulc ensures thxi a Respondent Siaic uill h3t.ethe opporiuniiy
io redress the alleçirdinjury wiihin the framea,ork of ils Iegal>).stem (/nrrrkin<lt~l ARGUMENT OF UR. MURPHY 83
case, I.C.J. Reports 1959, p. 27). Further, the rule helps to clarify the facts and
applicable domestic law prior to the consideration of a claim hy an international
tribunal. The rule helns io avoid excessiverecourseto international adiudication.
The rule helps dete&ine the existenceof an internationally wrongfulact.
Now there are three reasons why the local remediesrule is satisfied in this case.
First, Raytheon and Machlett exhausted al1 available and known remedies in
ltalian courts. on the basis of the best leeal advice available to Ra~,heon and
\lachlei[ irom It~lian çouncel. Secoiid, tic Kespoiidcni's idilurc io indicatc IO
the Uniicd Stlitcsihroughoui a period oililm,>si 14)cars oidiplomdiic corrcrpun-
dcnce th.ii the Kcsnondcnt hclicvcd furthcr Iiic:ilreinediesçxisied and zhould he
pursued, estops or'precludes the Respondent from raising such an objection at
this time. Third, it is the Respondent who mus1 establish that furlher local
remedies exist, but it cannot do so since the further remedies identified hy the
Resnondent are no1 in fact available to Ravtheon and Machlett. 1 will discuss
the krst two of these points. Yesterday you Gard Professor Fazzalari address the
third point in deprh and rherefore 1will only cover it hnefly.
Local RemediesWere Exhausted
All effective local remediesin 1t;ilycapable of rectifying the injury caused by
the Respondent werepursued and therefore the local remediesrule, if applicable,
is satisfied. As 1 go through Chesteps that were taken in Italy, 1 remind the
Court - as the Respondent does on page 27 (II) of its Counter-Mernorial -
that for purposes of considering this issue the Court should consider as correct
the facts as stated by the Applicant.
The requisition of ELSl by the Mayor of Palermo occurred on 1 April 1968.
At the direction of Raytheon, ELSl immediately sent cables to the Mayor and
other Italian legal authorities seeking a revocation of the order (1, Memorial,
Ann. 26, para. 9). No response was received.On 9 April ELSl formally pelitioned
the Mayor to lift the order arguing that the requisition was illegal and would
only delay the solution of the problem (1, Memonal, Ann. 26, para. 9). Again
there was no resoonse. Conseauentlv on 19 Anril 1968. ELSl aonealed the
requisition to the' Prefect of ~alermo, an official of the ltalian Gvernment
empowered 10 hear appeals ofdecisionsbylocalgovemmental officiais(Memorial,
1.o. 55. and Ann. 36Y.
As wr h3w alrcad; indic3icd. nhcn ihc Prcfcci Failrd litlict. ihere wlis Iiitle
choice hui to placc ELSl in hankrupic). Ra)ihcon and Mlichlcii rhcn pursucd
adminisiraiive and iudicialrcmrdie, ihrourh ihcir rcprcscniative on rhccrcdiior~'
committee and through the bankruptcy tristee. ~aytheon and Machlett directed
their representative on the creditors' committee to appeal decisions of the bank-
ruptcy judge, such as the decisions to lease the plant to ELTEL and to seIl the
plant, equipment, and supplies to ELTEL (Memorial, 1, p. 58). These appeals
were undertaken but were uniformly unsuccessful.
Only after ELTEL cornpleted ils acquisition of ELSl's assets did the Prefect
of Palermo reach his decision on the appeal of the requisition order (Memonal,
1,p. 64). The decision was rendered 16months after the appeal was filedand yet
40 days after ELTEL had completed itsacquisition of ELSI's assets. The Prefect
found that the requisition was illegal, mling that it could no1 possibly have
achieved ils stated purposes. Specificallythe Prefect ruled that: "the order is
destitute of anv iuridical cause which mav iustifv it or make it enforceable"
.
(Memonal, ~nn.?6, 1,p. 362).
The Mayor appealed the Prefect's Order to the Italian Council of State and
the President of Italy. His appeal was dismissed on the ground that he lackedstanding to appeal a decision of the Prefect, his administrative superior (1,
Memorial, Anns. 77 and 78). The Prefect's mling therefore stands as the final
decision of Italian authorities that the requisition was unlawful.
The Prefect'sdelay in ruling on ELSl'sappeal of the requisition wasapparently
unorecedented. As was mentioned in Our discussion of the facts. in other cases
in khich the 1865law had been invoked as a hasis for requisition of $dustrial
plants, the Prefect of the relevant jurisdiction quickly quashed the requisitions
(1, Memorial, Ann. 26, para. 10).
Based on the Prefect's decision,the trustee brought suit on behalf of ELSl's
bankmpt estate on 16June 1970 in the Court of Palermo against the Minister
of the Interior of ltaly and the Mayor of Palermo for damages to ELSl resulting
from the illegal requisition (i, Memorial, Ann. 78). The tmstee sought damages
of 2.395 billion lire plusinterest for the decrease in value of ELSl's plant and
electronic equipment during the requisition, and for ELSl's inabilityto dispose
of the plant and equipment during the requisition period (i, Memorial, Ann. 79).
On 2 Fehr~~r~~~ ~ ~ the Court of Palermo ruled ~hat~the~ ~ ~tee was not ~~
entitled to compénsatio" for the requisition (1, Memorial, Ann. 80). On appeal,
the Court of A~~eaisof Palermo found on 24 January 1974that the trustee was
entitled to at leait compensation from the Minister oithe lnterior for loss of use
and possessionof ELSi's plant and assetsduring the six-month requisition period.
Il therefore awarded, in efïect, a "rental" payment OFsome 114 million lire
(US$171,000),computed as half the annual rate of fiveper cent of the total value
of the assets (1, Memonal, Ann. 80). This decision was upheld on appeal by the
Italian Supreme Court on 26 April 1975(1, Memorial, Ann. 82). The amount of
thejudgment wasreceivedhy the trustee and, lesscosts and expenses,distrihuted
to ELSl's creditors (1, Memorial, Ann. 26). This decision, hy the highest court
in Italy, stands as the ultimate ltalian judicial determination regarding the com-
pensation due by the Respondent for ils acts against ELSI.
When the bankmptcy trustee initially lost his suit in 1969for compensation
on the hasis of the unlawful reauisition before theCourt of Palermo. Ravtheon
and Machlett considerrd whethir thcy themsel\~esa ,s shareholders of CLS Ii,uld
succçi~full)sue the Rcrpondcnt in Italian courts. Consequcntly, whilethe trustcc
was pursuing appeals of the lower court's decision,Raytheon sought the opinion
of ils ltalian counsel, Giuseppe Bisconti,an eminent lawyerexperiencedin ltalian
litigation.
Mr. Bisconti'sopinion, rendered in a letter dated 6 November 1971,states that
the sole remedy under ltalian law for appealing the requisition order was an
appeal to the Prefect, whichcould be taken only by ELSI, and once ELSl was
bankrupt, by the trustee. The shareholders could not take advantage of this
remedv. Further. once the Prefect declared the reauisition illeaal. onlv the
-. .
trustee - nui ELSl or its rharcholders - was capsbit 01. brinung suit agïinst
the Kespondîni for compensaiion. Xlr. Hisconiispeciricallyconsidered suit bascd
on Article 2033 of the Italisn Civil Code and concluded that rince under Italian
lawthe requisition wasdirectedagainst ELSl and not the shareholders,no remedy
existed other than suit hy the trustee. Mr. Bisconticoncluded that Raytheon and
Machlett had exhausted al1available local remedies.
Yet Raytheon and Machlett wanted to he absolutely sure that no further
remedies were available. Therefore Ravtheon also soueht the ouinion of an
cstecmcd Italian professor of Iaw, ~rofekor Antonio La Fergoba,then Professor
of Law at the University of Bologna and subsrquently Prrsidcnt of the Italian
Constitutional Couri Ile cna~~edin an extensive revirw oi both Italian Iawand
international law. In a IengtLybritten opinion, Professor La Pergola agreed that
the bankruptcy status of ELSl prevented any lurther actions by either ELSl or ARGUMENT OF MR. MURPHY 85
the shareholders He lissertcd that the actions of the Kespondeni con\titutcd 3
violation of the tCN Treaty and that an international claim could be brought
without further oursuit of l&al reinedies. The Resoondent inaccuratelv a,s~ ~s
that I'rofessor La Pergol3's opiniori only discu>~r~thc diplornatic protection of
forcign shareholderi in Itsli3n corporations. In faci. Prufcisor La Pergola licc<pis
the admisiihiliiv of an internaiional daim aftcr ha\,ine cstablished and exulïined
that the FCN Sreaty did not provide Raytheon recourse to any domestic'ltalian
remedy.
The Respondent itself first entered into evidence the Bisconti and La Pergola
opinions wiihout any objection as to their contents. The two opinions appear
attached 10the Counter-Memorial (II) al page 278' of Volume 1of the Unnum-
bered Documents. They are also Annexes 3 and 4 to the Reply (II, pp. 405-414).
Only in the Rejoinder does the Respondent object to the conclusions found in
these two opinions.
These two opinions persuaded Raytheon and Machlett that their only further
recourse was to ask for the assistance of the United States Government in au
eKort to settle this matter. 1would like10emohasize that in this case the United
States uaited a considerable arnount of tinie for internïl remedies to bc piirsued
before taking up this ilaim and rnaking appropriate repre\cniations t<the Italian
Ministw of Foreign AlTliirs.This is nui a cdse where once the inlury occurrcd
the inteiested Goiernment immediatelv soueht a Governrnent-1;-~ovemment
solution uithout any regard to the e.fi\irncc of local rcniedirs.
Through dl1 of thesc actions, the loc~l rcmeJit.s rule is s;itislied The Kcspon-
dent, through resort to ils highest courts, was provided the opportunity to redress
its unlawful acts within the framework of its own legal system. Rather than
provide sucb redress, the Respondent definitivelyindicated that it did no1intend
to provide further compensation to Raytheon and Machlett. Raytheon and
Machlett made everv reasonable effort to stoo or to overturn the actions of the
Respondent througi the legal mechanisms made available in ltalian courts to
shareholders. To be sure that further remedies werenot available, the opinion of
Ravtheon's re~ular ltalian counsel and. in addition the ouinion of another ltalian
lcgil expert. Wereohtained. A complcte record is nou,'kforc thii Cuurt. since
the Italian courir have passrd upon the hcts underlving this cli\e.The iniernlition-
allv wronri'ul acts of the Kesoondeiit arisina from the hreach of ils iniernûtionÿl
treaty obKgations are complète.Therefore the objection should be disrnissed
TheRespondenirs Esropped from Making thisOhjecrion
The second point on this issue isthat the Respondent is estopped or prccluded
from raising the exhauslion of local remedies at this lime. Throughout the
diplomatic negotiations about this claim, the Respondent never stated that Ray-
theon and Machlett, as shareholders of the bankrupt ELSI, should pursue further
remedies in ltalian courts. Even after the United States had explicitly asserted
that al1 remedies had been exhausted, the Respondent manifested no dis-
agreement.
On 7 February 1974 the United States sent Diplomatic Note No. 51 to the
Reswndent. This Diolomatic Note anmars as the first few oaees of Volume 3
of ihe ~ounter-~emorial (II), whi&' is also Volume 1 of' the Respondent's
Unnumbered Documents. In this Diplomatic Note, the United States advanced
a claim which it said was: ARGUMENT OF MR. MURPHY 87
When no response was received,the United States sent a letter dated 6 Decem-
ber 1979from our Ambassador to the Respondent's Ministry of Foreign Affairs.
At this ooint e~ ~ ~ ~were m---~~~ the United States to dace the disoute before
. ~, ~
three international experts who would make a recomme~dation.
The Respondent, by letter of 18April 1980,rejected this proposal on the basis
that payment of compensation to ELSI was not justified under the law. Again,
1must stress that the Respondent did not reject this effort at conciliation on the
basis that Raytheon and Machlett had failed to exhaust local remedies. Mr.
President, the 1978 ltalian Aide-Mémoire,the 1979 United States Diplomatic
Note and letter and the 1980 Italian letter were al1filed with the Court under
cover of our letter of 20 January 1989'.
Further communications between the two Governments related to finding an
acceptable dispute settlement mechanism, which was achieved in1986when the
Parties agreed that the United States should bring this case before the Court. 1
refer the Court to the statement issued by the United States on 7 October 1985
which reads as follows:
"The two governments have come to the conclusion that they are unable
to resolve the diplomatic claim of the United States on behalf of Raytheon
Comoanv and Machlett Laboratones. Inc.. throueh diolom-.ic neeotiation
or hihinà ;irhiiriilian 1hcrci.>rr.;thc Ilnitcd Stiitcs. in crinfsrmiiy'uith the
CS-Ii~lian Trciiy iiiI:ricnd,hip. Csiiimcrcc aiid Uavigatioii oi 13?X hds
dcicrmincd IO üpproÿcli the Iniernltion31 Ci>uriul Juçti~c(ICJ) nith .I\,leu
IO jubmitting thüi dipuic IO 3 .pc:131chdmhcr 3s proviilr.d h) ihc Court'>
Si3iuie ïnJ Rules of I'roccdure. ,uhjcii 13 iiiutually s3iijf:iiçior) rcsoliitiim
of implementing arrangements. ltaly concurs in the opinion that this is an
appropriate course of action." (Department ofState Bulletin,January 1986,
at p. 69.)
The Respondent also asks in footnote 5 of page 450 (II) of the Rejoinder
whether a State is under an obligation to recommend legal action against itself.
The answer to that question, in the context of the facts of this case is surely yes.
When one Government says to another Government that local remedies have
been exhausted, the second Government should state that further local remedies
do exist if that is what it really thinks.
The Respondent's failure to indicate to the United States that it believedsuch
local remedies existed, precludesor estops the Respondent from raising such an
objection now. Estoppel -a concept which goes by many names - is a general
principle of international law often referred to by the maxim nemoporesr contra
facta sua venire(no one can contradict his own acts). Judge Lauterpacht defined
estoppel in his treatise on The Developmentof InternationalLaw by the Interna-
tionalCourt (1962), at page 72, "as a general pnnciple of law which, oncemore,
is merelv an affirmation of the moral dutv to act in eood faith".
The prin~iplc,>iprcclu,ion or ejioppcl 1sihai sSi.Ircp:iri) Io ln intsrriiitionxl
Iiiipiion is boiind h) iis prci.iou33cts or ciititudc \ihen the) arc in ii>ntradiction
IO 11.claims in the liiia:itisn Thc iirimar, founrlaiiun of thir princiiilcis the rusd
faith that must prevGl in internaiional relations, since inconsistency of con-duc1
or opinion on the part of a State to the prejudice of another is incompatible with
good faith. 1 refer the Court to the case concerning the Templeof Preali Vihear,
I.C.J. Reports 1962, pages 39 and 42, and Judge Alfaro's concurring opinion. 1
would also bring to the Court's attention the Commentary in the 1966Interna-
' See CorrespondenceN , o.53, infitional Law Commission Yearbook,Volume II, page 239, applying this principle
~ ~~-~~~, ----~-~n~.
The Respondent has not demonstrated good faith in ils diplomatic negotiations
with the United States re~arding this claim. When the United States asserted that
local remedies had been ëxhau'ted, the Respondent simply replied, after a four-
year delay, that il considered the claim to be juridically groundless from the
interna1point of view. When the United States challenged this view, once again
the Respondent simply stated that there was no legal hasis for paying compensa-
tion. Our two Governments then spent years discussing the possihility of settling
this dispute through the instmmentabty of a third Party. Finally, once the Parties
agreed that the United States should bring this claim Io the Court for adjudica-
tion, then, and only then, did the Respondent raise in its written pleading the
argument that the United States application isinadmissible in that Raytheon and
Machlett bad not exhausted local remedies. Good faith would seem to require
that the Respondent should have objected where, in al1likelihood, ils silence gave
the appearance of consent (MacGibbon, "Estoppel in International Law",
7 ICLQ 468 (1958)).
In a series of cases, this Court has consistently recognized the principle of
estoppel or preclusion as a principle which prevents one State from acting incon-
sistently to the detriment of another. Inde&, in the Arbitral AwardMade by the
Kingof Spain on 23 December 1906 case, this Court held that Nicaragua, in part
due to its infonned and deliberate conduct in relation to the arbitration proceed-
ings,was precluded from contesting the validityof the Award, whichwas therefore
valid and binding upon Nicaragua. The Court stated:
"In the judgment of the Court, Nicaragua, by express declaration and by
conduct, recognizedthe Award as valid and it isno longer open to Nicaragua
10go back upon that recognition and to challengethe validity of the Award.
Nicaragua's failure to raise any question with regard to the validity of the
Award for severalyears after the fullterms of the Award had become known
to it further confirms the conclusion at which the Court has arrived." (Case
concerning the Arbitral Award Made by the King of Spain on 23 Deceniber
1906, I.C.J. Reports 1960, pp. 192and 213.)
This Court aljo applied thc doctnne in ihc Fisher!@\caw whcn the Uniicd
Kingdom ohjcctcd to Noruay's delimii;ition of lis North Sçÿ coastlinc. Thc Cc~uri
liraiz~i;iblishedthe c.xisicnccand clcnicnis of ihc Norwcrian delimitaiion sv,izni
and found "that this system was consistently applied bi Norwegian authorities
and that il encountered no opposition on the part of other States" (Fisheries
case, I.C.J. Reports 1951, pp. 116and 136-137).Further, whileGreat Britain was
coenizant of the svstem. it made no obiections. The Court noted that "in reswct
of; aiiuation whychcuuld unly he st;engihencd wiih ihc passiigc oi iimc.'thc
UniicJ Kingdom Go\ernmeni rclrainzd froni lormulating reservations" (ihid.,
p. 139).Therefore, the Court stated:
"The notoriety of the facts, the general toleration of the international
communitv. Great Britain's oosition in the North Sea. her own interest in
th.- quesrion, 3nd her prolongcd abrieniion u,ould in any c3se warrant
Norway's cnlorcemrni oi her systcm againsi the Uniicd Kingdom." (Ibid,
More recently. in ihccascconccrning ihe 7i.mplrof Preuh Vihear (1.C J. Reports
1962. p. 39). this Court found thai Thailand's inconsisieni action, over a period
of 50years precluded 115claim thai it had not acccpicd 3 map placing the tcmple
in que5tion in Cambodiÿn tcrntor). In hii concurnng opinion, Judgc Alfaro
dcscribed ai leiigth thc basis for thr Court'%dccision He wrotc: ARGUMENT OF MR. MURPHY 89
"The acts or attitude of a State previous to and in relation with rights in
dispute with another State may take the form of an express written
agreement, declaration, representation or recognition, or else that of a con-
duct which implies consent to or agreement with a determined factual or
juridical situation.
A State may also be bound by a passive or negative attitude in respect of
rights asserted by another State, which the former State later on claims to
have. Passiveness in front of given facts is the most general form of acquies-
cence or tacit consent. Failure of a State to assert its right when that right
is openly challenged hy another State can only mean ahandonment to that
right. Silence hy a State in the presence of facts contrary or prejudicial to
rights later on claimed by it before an international tribunal can only be
inïerpreted as tacit recognition given prior to the litigation. This interpreta-
lion obtains especially in the case of a contractual relationship directly and
exclusively affecting two States. Failure to protest in circumstances when
protest is necessary according to the general practice of States in order to
assert. to Dreserveor to safeeuard a rieht does likewisesimifv acauiescence
or iacii r&ogniiion: the ~ia; conccrnFd musi be Iield bar~ed.lrom claiming
beforï an iniernationül tribun31 the righis ir lailed tù üssert ur t<]prsscne
when they were openly challenged hy word or deed." (Case concerning the
Temple of Preah Vihear,I.C.J. Reports 1962,pp. 39, 40 (Judge Alfaro con-
curring).)
ludee Alfaro also noted that inconsistencv in conduct is esoeciallv inadmissible
wh& the dispute anses from bilateral treaty relations (ibid.;p. 42).
While these casescover widelydifferingfacts, there are certain common threads
mnnine throueh them. First. the act orconduct givine -ise t- the reclusi ionor
csiupGl c~ritGkeman) fornts, it niü) con,ist of a rcprcscnt~iion. ; dcclaraiirm,
or cvcn silence. Second. the act nlurt be clcar snd un;tmhiguous. Third, the act
must be voluntary, unconditional and authorized.
Let me now run through these threads as they apply to this case. First, what
was the act? In response to the United States presentation of its claim, the
Respondent remained silent for four years and then declared that the claim failed
essentially because of the shareholder status of Raytheon and Machlett. Even
though the United States specificallystated that local remedies were completed,
the Respondent made no effort to challenge or to contradict this statement.
Indeed, it even accepted it when the Respondent stated that "the facts may be
assumed as thev have heen DroDoundedbv the claimant". When the United States
Ctdlouedihis up dnJ prcbrei ii;cl3im fur;hcr the ResponJent agmn simpl) denicd
rliat therc ii3J lcgïl hasis fur ihc :laini. ScvunJ. ihrs3ciiras clcar Jnd un:inihigu-
ous. The diolumatic record in ihis SJSC shot\,s e~aclly wh~i the Respoiident said
and did noi Say.Third, the Respondent acted without any externd coercion to
behave as it did.
Thcre are other grounds on which the Respondent can be held accountahle for
its conduct, which relate to the principle of good faith in international relations,
especially in the interaction and in the performance of treaty obligations. In the
Nuclear Tests cases the Court found that France's unilateral statements had a
binding character and stated that binding unilateral decisions made "the State
. ..thenceforth leeallv,reau.red to fol~ ~ ~ ~ourse of conduct consistent with the
decldrdiion" (~u<?e<rrTests (Ari.ilruliu \, Franrr , 1C.J R~~ports1974. pp. 253,
267). The Court alw siatcd "a Siaie ma). choose io i3ke up a certain position in
relation io a vïriicular msiicr uilh ihe intention of king bound - the iniention
is to be ascértained by interpretation of the act" (ifid.). The Respondent's90 ELETTRON~CA SICULA
srütcnients 2nd acu<in\ u\cr the past 14 yran ccrtüiiily warrant ;ircüson~bls
intcrprrtatiun that it intrndcd tu bc bound by the rcsults of the diplumlitic
negotiations that brought Our Governments before this Court.
The Respondent's assertion that the United States claim is juridically ground-
less may also be construed as an admission that local remedies have been ex-
hausted. Professor Cheng writes:
'.[A]n;idmission Josi noi pcrcmptorilv prccludc ü part). irom ~iicrringthe
truth IIliasrûrhcr the cffcctof an tirzu,>iz~ieillri,nrinr~i.hich ir dircctcd
at a person's sense of consistency, Or what in logic is paradoxically called
the 'principle ofcontradiction'." (ChengGeneralPrinciplesof LawasApplied
by International Courts and Tribunals, pp. 147, 144-149 (1953); see also
Lauterpacht, Private Law Sources and Analogies of International Law,
pp. 267-269, 277-279(1927).)
AdditionalRemediesIdentilipdby theRespondenA t re Una>.oilable
Having dis.xsscd Iirst that local reniedie. werccxhaustsd and. vxond, thai the
Rç.pondcnt is preclurled irom dsscrting oth~.ru,isc.1now reach rn) third point:
\i,hcthsr furthcr rcmcdici idcntifiedhv thc Kcrpondcnt 3s a\;iilÿblc in Italian
courts to Raytheon and Machlett in fact existed:
It is the Respondent that has asserted procedurally that the claim is not
admissible because local remedies were not exhausted. It is for the Respondent
therefore to show that additional effectiveremedies were available to Ravtheon
~nd Machlett, cspcciüll) giirn the man!. steps taksn b" Rü!thzon 2nd ~ichlctt
and the judicidl dcci.ion, wirhin the Italian Isg~lsystsm (Fi\i,cett, "The Exhaus-
lion of Local RerncJics Substancd or Proccdurc'?'. 31 RYRII. 452 (1954)). As
was stated in the AmbatielosArbitration - a decision which the ~es~bndent has
repeatedly cited in its written pleadings:
"In order to contend successfully that the international proceedings are
inadmissible, the defendant State must prove the existence, in its system of
interna1law, of remedies which have not been used." (Ambatielos Arbirration
Award, 12 RIAA 119(Award of 6 March 1956),p. 27.)
Although the Respondent attempts to conjure up additional hypothetical reme-
dies, there can be little doubt that such remedies either were not available to
Raytheon and Machlett or that they would not have provided the remedies
sought in this case. For instance, the remedies identified by the Respondent in
footnote 1, pages 452-453 (11) of the Rejoinder, are not remedies that would
vindicate the shareholder rights or interests at issue in this case. As was stressed
in the Finnish Ships Arbirrarion(2 RIAA 1479 (1934)), the local remedies rule
applies only to available effective remedies.
The Respondent's objection as to admissibility is based in part on its position
that United States nationals can sue in Italian courts based on the provisions of
the FCN Treaty. This position is inconsistent with the Respondent's position
when United States nationals in fact do sue in Italian courts based on the FCN
Treaty. Professor Fazzalari discussed how the Respondent argued in the Talenti
case before the Court of Rome that the Treaty's provisions do not confer rights
on United States nationals any greater than those already existing under Italian
law. Yet before this Court, the Respondent states that such remedies, or such
rights, do exist.
As requested, Mr. President, copiesof the Respondent's finalbrief in the Court
of Rome case, as was the ultimate decision of the court, have now been provided
both to the Registry and to the Respondent. We have also provided a certified ARGUMENT OF MR. MURPHY 91
Eneuish translation of the auoted nart of the final brief. and ~rovided an Enelis-
ir;in,lliiiun ol'rhc c<~uri'.dccisio\ihich \ie \iiIIiavcieriitied 3, buon J, pui\iblc.
Thc uliiiii~icdccision of ihe coiiri inihc Tuli~tiri~~d w\i, rhat ihc plainiif had
noi soeiilicd ruilicicntl~ in his olcadines the uiil.~\r.ful3cis of the Co\crnment of
ltaly.'The important point, h&vever,7s that the Respondent look the position
before ils own local court that the Treaty provides no greater nghts or remedies
in Italian law than already existed. The United States would like United States
nationals to be able to sue in Italian courts to vindicate rights under the FCN
Treaty, but in this case Raytheon and Machlett reasonably relied on the advice
of distinguished Italian counsel, hased on the consistent practice of Italian courts,
that suits in Italian courts were no1possible. This advice is apparently consistent
with the Respondent's own pleadings in Italian courts.
Professor Fazzalari also discussed in some detail how Italian courts have
treated suits based on treaties in gencral and on tliis FCN Treaty. Further,
Professor Fazzalari showed why other remedies alleged hy the Respondent were
not available to Raytheon and Machlett. Both the status of Raytheon and
Machlett as shareholders and the successfulpursuit hy the hankruptcy trustee of
the specific remedy available for the unlawful requisition precludes any further
remedies.
For al1 these reasons, the United States requests the Court Io dismiss the
Respondent's objection as to the admissihility of the claim. This concludes my
remarks. ARGUMENT OF PROFESSOR GARDNER
COUNSEL FOR THE GOVERNMENTOF THE UNITED STATESOF AMERICA
Professor GARDNER: MI. President, distinguished Members of the Court,
my presentation will demonstrate how the Respondent's actions in this case
constitute violations of several provisions of the 1948 Treaty of Friendship,
Commerce and Navigation hetween the United States and ltaly (the "Treaty"),
and also its Protocol and Supplement. 1will begin with a very brief description
of the general purpose of the post-Second World War commercial treaties negoti-
ated by the United States - commonly known as "FCN treaties" - which
encourigc and protwt foreign in\,esimcn~<ina mutudl hasis. I will ihen iurn to
lidefailcd discussion oi ihc specifii protisions 01ihc 1948Treaiy. Protocol. and
Supplement i,iolaicd hy the Kc\pondent.
POST-SECON DORLD WARFCN TREATIES
Throueh-ut the historv of the United States. commercial treaties have o.av,d
a iignitic3ni rolin the conduit of our fùreign relations. The commcrcidl treaiies
that chdractcri7ed the iirsi 100)cars oi the Amcrirÿn Repuhlic delili primarily
rriih nli\,irdiion and cu.ioms. with the riehis of indi~idu~l~tr3\elli-e ahrodd.
and with &plornatic and consular relations.
In the penod following the Second World War, the United States negotiated
FCN treaties with 16countries, including the Repuhlic of China, Denmark, the
Federal Reouhlic of Germanv. .,an. Ireland. Janan. the Netherlands. and - of
course - Italy.This post-war penod was notable as a time for the encouragement
and protection of United States investment interests abroad. The reason is ohvi-
ous: the United States emerged after the war as the pnmary source of investment
capital at a time wheneconomic development around the world was hadly needed.
Conditions over the 40-year period since the end of the Second World War have
changed significantlyand the treaties anticipated that change. Accordingly, recip-
rocal ~rotections were aranted for foreien investment in the United States. So
when 1speak ùfprùtsct~ùii for Cniied ~titss naiiùnals snd cùrpùr~iiùns in Italy.
by and largc, thr. samc protections arc granted io Italian nationals and çorpora-
tions in the United States.
Therefore the primary object of these new FCN treaties was to improve and
strengthen the protection of foreign investment. Previous provisions relating to
commerce and navigation were retained, but a new emphasis was placed on the
establishment and protection of husinesses. Since international investment in
modern times is predominantly hy corporate rather than individual enterprise,
the new FCN treaties devisedways of providing adequately for the protection of
companies, not only of individuals. In fact, as Judge Sofaer mentioned on
Monday, for the first time many of these protections were extended not just to
the operations of the companies themselves in the foreign country, but also to
the operations of their suhsidianes chartered under the laws of the foreign -
countÏ.
Several new elements in these treaties show that they sought to protect the
investment of capital. A provision was developed requiring that expropriations,
should they occur, be implemented in a non-discnminatory manner. The usual
provisions regarding protection and security of property weregiven more definite ARGUMENT OF PROFESSOR GARDNER 93
content hv amnlifvine the conceot of "iust comnensation". To nrotect aeainst
, , ,- -
injunous go\,crnmeni31h3r:isrment short of cxpropristion, a gcneral injunciion
apainst "unrcasonïhle or discrimin;iton." impairmeni of inicrcsls wasdeveloped.
~he e-neral nrotection with resoect to enr--"ne in business activities was ex-
p-inded io covcr the right Io organife. control, and managc corportlions crî~tcd
or acquired. The provision5of thes< FCNs ditler. but ihey 311cssentially protide
protections for acquiring or establishing businessenterprises, for operating those
enterprises, and for receiving appropriate compensation when those enterprises
are interfered with or taken without due process of law.
These treaties contain other provisions not directly related 10investment, but
al1the nrovisions in these treaties are concerned with hosoitalitv to and eaualitv
for thekoreiper under the law. Aswas stated by Herman.~alkér, Jr., the ~nited
States representative (from the Office of the Assistant Secretary of State for
Economic Afiairs) who negotiated several of those treaties:
"ln a real sense, therefore, the FCN treaty as a whole is an invesimenr
treaty; not a mosaic which merelycontains discrete investment segments. II
regards and treats investment as a process inextricahly woven into the fabnc
of human afiairs generally; and its premise is that investment is inadequately
dealt with unless set in the total 'climate' in which it is to exist. . ."
(H. Walker, "Treaties for the Encouragement of Foreign Investment: Present
United States Practice", 5 Ainerican Journal of Comparalive Law, 1956,
p.244.)
Now one significantelement of these FCN treaties is the attention given to the
standard of treatment foreign nationals and corporations should receive. The
standard of treatment is not uniform for the treaty as a whole. Rather, the
standard of treatment vanes for each article of the treaty, and may even Vary
within the provisions of a particular article.
Many provisions contain a "national treatment" standard which calls for
equality of treatment as hetween the alien and the citizen of the country. The
national treatment standard allows an investor to carry on its chosen business
under conditions of non-discrimination, and to enjoy the same legal opportunity
to succeed and prosper as it allowed investors of the country.
Other provisions establish a "most-favoured-nation" standard of treatment
which aims to achieve for the investor equal treatment with aliens of a difierent
nationalitv. Still other orovisions simnlv exoress a "non-contineent" standard.
or "ibsohte" &s, wh'ichare self-containeh standards that donot vary based
on the treatment of others. Some mnke referenceto international lawas the point
of reference. Finallv. some orovisii-insorovide for reciorocitv of treatmeni; the
investor is entitle{Othe same treatmeRt in the foreigncouniry as that country's
nationals receive in the investor's country.
THE UNITED STATES-ITAF LCYN TREATY GENERALLY
Let me now turn to the background of the particular FCN Treaty at issue in
this dispute.
The United States and ltalv first entered into a Treatv of Commerce and
Natigation in 1871.which waiamended in 1913.This ~reai~ focuscd primarily
on navigation and on the nghts of n;iiionals, and wasterminalcd in 1937pursuani
10 a orotocol of denunciaiion sirned at Rome on 15I>ccember1936 Commercial
relations hetween ltaly and the-~nited States during the war era were governed
hy an exchange of notes of 16 December 1937.These notes were not renewed
after the end of the Second World War.94 ELeTTRONlCA SICULA
Hence, the United States and ltaly found themselves in the aftermath of the
Second World War without anv agre.d -nstrument aeneral-v gover.i-a their
commercial relations.
This prompted the United States and ltaly to set about negotiating a compre-
hensive leaal framework for the development of business and trade relations
between tlÏetwo countries. After several neeotiatine sessions in 1947.the United
Siaies and Iialy agrred to the text of a tr&t). and ihen b) the timr ihe tredty
u3s signed. tu tuo proiocolr. The firqiprotosol modifiescertîin ireat) provisions
and the second expands some of the provisions of the treaty with Ïespect to
foreign exchange.
The Treaty and Protocols, along with an exchange of notes, were signed by
the parties on2 February 1948.After ratification by both parties, the Treaty and
Protocols entered into force on 26 July 1949.The Preamble of the Treaty states
that the United States and the ltalian Republic are "desirous of strengthening
the bond of peace and the traditional lies of friendship between the two countries
and of promoting closer intercourse between their respective territories...".To
this end, the Treaty contains numerous specificand interrelated provisions for
the protection of foreign investors, reflecting a fundamental intention of the
parties to provide a framework which would foster a favourable climate for
investment.
Although theTreaty already provided extensiveprotection to foreigninvestors,
the twocountries negotiated and then signed,in 1951,a Supplement to the Treaty
to give added protection to investors. There was some delay in the ratification
of the Suoolement bv the Resoondent. but the Suool..ent entered into force on
2 Mïrïh 'l9hl ~oih-the p ru th colîsnd the Supplement consiiiute inisgral pîrts
of the lreïty and \hould hc iaken inio account when inrerpreiing the Trcaty
itself. For the purposes of this presentation, general references to the treaty are
meant to include its Protocols and Supplement.
The United States-Italy FCN Treaty consists of a Preamble and 27 Articles.
The most important new matter in this Treaty - as 1have indicated was true of
al1the oost-Second World War FCN treaties - is the treatment of comoanies.
Their >iaiusand acii\,ities3re gi\en neu proieciions Ariicle Iof the ~reat; states
ihai naiionals ufeithsr coniraciing part) shîll hc pcrmittsd io enter the ierritory
of the other party, and to exercisecertain rights and pnvileges, such as engaging
in commercial activitiesand owning buildings. Article II then moves beyond the
concept of the individual to that of "corporations" or companies, which then
appears throughout the remainder of the Treaty. Paragraph 3 of Article II grants
to companies the same rights as are granted to individuals in Article 1.Conse-
quently companies of one party are encouraged 10 enter in10 the territories of
the other party for purposes of carrying on their businesses.
Navigation matters in this Treaty appear only toward the end of the Treaty.
Diplomatic and consular rights are dropped completely and placed in separate
conventions. Instead, the first ten Articlesare largelyconcerned with the establish-
ment of nationals, corporations, and associations of each party in the territory
of the other party, and their protection once they have been established.
Perhaps il was best stated in the Report of the Majority in the ltalian Senate
of 28 May 1949:
"The first few articles. whichare also the most imoortant. euarantee for
citizens of the other and for the juridical perions, commercial com-
panies, organizations and associations established by them, the exercise of
commercial and non-commercial activitiesin the broadest sense. Full rights
are thus granted to carry on any activity; to acquire, own and manage ARGUMENT OF PROFESSOR GARDNER 95
movahle and real property; to organize, direct and control companies; to
hold office;to make and receive legacies; to protect patents and trademarks,
etc., with complete freedom to take legal action, and 10 enjoy protection
from undue interference, etc." (Counter-Mernorial. Doc. 7, 11,p. 100; see
also United States Memorial, Ann. 56, 1,p. 322,for an alternate translation.)
This, then was a primary focus of the United States-ltaly FCN Treaty, the
second of its kind in the post-war era. The Treaty provided hroad-based protec-
tions for the activities of foreign companies to encourage private investment and
development.
THE SPECIFIC VIOLATION O P THE UNITED STATES-ITAL FYCN TREATY
1corne now to the specific violations of the Treaty hy the Respondent. There
are four specificactsof the Resporident and its agents and officiais,which violated
the Respondent's legal obligations under the Treaty, the Protocol, and the Sup-
plement.
First, the Respondent violated its legal obligations when it unlawfully requisi-
tioned the ELSl plant on 1April 1968which denied the ELSI stockholders their
direct right to liquidate the ELSl assets in an orderly fashion. Second, the
Respondent violated ils obligatioirs when it allowed ELSl workers to occupy the
plant. Third, the Respondent violated ils obligations when it unreasonably de-
layed ruling on the lawfulness of the requisition for 16months until immediately
after the ELSl plant, equipment and work-in-process had al1heen acquired hy
ELTEL. Fourth and finally, the Respondent violated ils obligations when it
interfered with the ELSl bankruptcy proceedings, which allowedthe Respondent
to realize its previously expressed intention of acquiring ELSI for a price far less
than its fair market value.
1 will now explain how thosc four actions violated four primary obligations
which the Respondent undertook in the Treaty, Protocol and Supplement. These
obligations are:
1.The obligation to protect United States corporations from interference with
management and control of their enterprises in ltaly (Arts. III and VII of the
Treaty and Art. 1of the Supplement are the relevant provisions here).
2. The obligation to protect United States corporations from the impairment
of their investment rights and interests (Art. 1of the Supplement is the relevant
provision here).
3. The obligation to protect United States corporations frorn the wrongful
taking of their property and interests in property (Art. V' para. 2, of the Treaty
and para. 1of the Protocol are the relevant provisions here).
4. The obligation to provide United States corporations with the most constant
protection and security for their investments (Art. V, para. 1,of the Treaty is the
relevant provision here).
1 will discuss the violation of each obligation in turn hy reference to the
ordinary meaning of the relevant Treaty provisions within the context of the
Treaty as a whole, and in light of ils ohject and purpose. As 1 have noted, a
primary ohject and purpose of this Treaty is the promotion and protection of
foreign investment. Where helpful, I will refer to supplementary means of inter-
pretation - especially the ratification history of this Treaty in hoth coun-ries
for purposes of confirming the interpretation advanced by the United States. As
the Chamher is well aware, this approach conforms to Articles 31 and 32 of the
Vienna Convention on the Law of Treaties, which in this respect codifiesestab-
lished customary international law. The Members of the~C~ ~ -r mav wish to refer to the tex1of the Treatv as
I dircuss thesc various ~hc Treüiy is ap&nded as Aitachment j io
ihe Applicaiion to the Couri (1).as Annex I IO thc Memorial (11.and 3s Docu-
ment iio the Counter-~emonal (II). It isimnortant to note that the Treatv'soro-
visionsarc inicrrel3icd and. in somc'inrtance;, overlapping. ~onsc~ucni~y'wriain
acts of ihc Respondent \,iolatcd severül provisions of thc Treïiy \imuliancously.
Inferferencewifh Managenienfand Conrrol
Let us begin with the first Treaty violation, interference with management and
control. I shall be devotine a substantial oart of mv nresentation to this central
issue. The ~espondent's azions clearly inierfered &ti Raytheon and Machlett's
management and control of their wholly-owned subsidiary, ELSI. The specific
actions that caused this interference were.firstand foremost. the illeaalreauisition
of ELSl on 1 April 1968, followed hy the inordinate delay in oiertu&ing the
requisition in time to prevent ELSl's bankruptcy. These actions violated, singly
and collectively, Articles III and VI1 of the Treaty, and Article 1 of the Sup-
plement.
As has heen established, by early 1968, ELSl's financialcondition was such
that ELSl's shareholders, Raytheon and Machlett, began seriously considering
closing and liquidating ELSl to minimize their losses. Although ELSl had never
been a profitable enterprise, it had developed a very good reputation and ils
assetscould be expected to realizemuch greater amounts in an orderly liquidation
than in a bankruptcy process.
Under Italian law, as you have heard, shareholders are entitled to liquidate a
company's assets voluntarily, by their own resolution. Indeed, many shareholders
decide to do this - and are allowed to do this - every year in Italy. Under
Article 17of the bv-laws of ELSI, the riaht "of channina the leaal nature of the
Company. oi wind;ng up voluntsrily thecompany" ;as-rcservëd ee.lclu~i!clgio
shareholders ou,ningsharcs having an aggrcgaic valueof 90 percent of thc capital
of ELSI.
Raytheon and Machlett owned 100per cent of ELSI. Raytheon and Machlett
had the right and the responsibility to exercise one of their most fundamental
rights in managing and controlling ELSI - the right to liquidate ELSI. The
Respondent, on page 461 01) of the Rejoinder, accepts that Raytheon and
Machlett had this right. On 28 March 1968, having decided that the orderly
liquidation of ELSI's assets was prudent, Raytheon and Machlett decided to
exercise this right, and voted in accordance with ltalian law to proceed with the
plan for an orderly liquidation.
As we have demonstrated, that orderly liquidation never occurred. Instead, the
Respondent requisitioned ELSl's plant and equipment tn prevent the orderly
liquidation. This was not a mere "parentheses" in the lifeof ELSI as the Respon-
dent states on page 113(11)of the Counter-Memonal. It was a mortal hlow that
resulted in ELSl's bankmptcy. It was this illegal interference - and no1 the
subsequent bankruptcy - that prevented Raytheon and Machlett from proceed-
ing with their orderly liquidation of ELSI. By the terms of the requisition order,
ELSl's plant could not be sold during the requisition period. None of ELSl's
equipment could be sold during the requisition period. In-process inventories
could not be converted to finished products. Neither ELSl's goodsnor its other
assets could be sold. ELSl's relationshios with its suonliers and customers were
cut oKabruptly. The loss of ELSl's maikets immediaÎélydecreased the ability to
seIl ELSI's product lines together or separately. ELSI was thus prevented from
carrying out a managemenidecision reached by its controlling shareholders to ARGUMENT OF PROFESSOR GARDNER 97
close dbwn an unprofitableplant and to liquidate its assets to satisfy outstanding
debts. This requisition, later to be declared unlawful by the Prefect of Palerno
and recognized by the Respondent's own couns, was an outright interference
witb Raytheon and Macblett management and control of ELSI in violation of
t~ ~ -~~~~,and it~~-uonlement.
But this interleren&'did not stop with the requisition order ilself.The President
of the Sicilian region informed ELSl's Manaping Director of a plan by the
Resoondent to use the reauisition. not onlv toirevent the orderlv~liauidation.
but'to give the Kespon<ieni's ~iate-ownid cconglomerste - lstituio per la
Ricostrunone Industriale (IRI) -- ihe opportunily to acquire ELSl's asxts
Kdvtheon dnd hlachlett made cverv nossible eiTon to pet the reauisition o\,cr-
tumed. As was discussed earlier inobr presentation, Fables were sent to the
Mayor and other ltalian autborities.There was no response. On 9 Apnl a formal
petition was presented to the Mayor. Again there was no response. On 19Apnl
the Mayor's order was appealed to the Prefect of Palermo. The Prefect then
failed ~- ~--~~-~~---ecision until 16m~nth~ lat~ ~ ~ ~- 16months later - after the
damage of the requisition had run its course. This too plainly and obviously was
a direct interference with Raytheon and Machlett's right to manage and control
ELSI.
Now the Respondent statesthat the requisition was only "temporary" (Rejoin-
der, II, p. 462), as though this inakes it any less of an interference with the
management and control of ELSI. The fact is that the requisition lasted six full
months, a substantial time period when you are in the process of winding down
a business. There was every reason to expect that at the end of the six-month
period the requisition order would be extended, since on its face it provided for
an extension and the Respondent was not doing anything with ELSl to improve
the allegedly critical situation in Palerno. When President Carollo of Sicily
informed Raytheon orally and in writing that the requisition would be prolonged
indefinitely unless Raytheon abandoned its plan 10 wind up ELSI, it was clear
that Ravtheon and Machlett had comnletelv lost their abilitv to manaee and
control ÉLSI, living them only the option of piacing ELSl in bankruptcy.
Deprived of the income which the sale of ELSl's assets would have produced,
E~~l-was no longer able to meet its financial obligations when they came due.
Tbrough the ensuing bankruptcy process the Respondent's plan to take over
ELSl through its own State-owned conglomerate was brought to fruition.
This interference with management and control violated Articles III and VI1
of the Treaty, as well as Article 1of the Supplement. 1will discuss now how the
specificprovisions of each of these Articles was violated in turn.
The Chamberadjournedjrom 11.30o.m. ro 11.45a.m
Before the coffeebreak 1had indicated that 1wished Io discuss how the actions
of the Resoondent had violated four orimarv oblieations of the FCN Treatv.
The obligation to protect United %aies ~o;~orat~ons from interference wiih
management and control is the first point 1am discussing and wish to continue
that &fore 1go on to the remaining three points which have to do with, second,
the obligation to protect United Statescorporations from the impairnent of tbeir
investment nghts and interests, third, the obligation to protect United States
corporations from the wrongful taking of their property and interest in property,
and finallv. the oblieation to orotect United States coroorations with the most
con<tdni protection dnd securii) ri1iheir invemnents id. Mr President, 1wd~
on the point of expldining hou ihe actions of the Re3pondeni violated ihrtc98 ELETTRONICA SICULA
specific provisions of the FCN Treaty, Articles III, VI1 and Article 1 of the
Supplement. Let us begin with Article III of the Treaty if 1 may invite your
attention to that Article.
Article III of the Treaty
Artislr II1of this l're~tv, :&longwiih its countcrpdrts in uihcr F<:Ytreaiics, is
rcall) the hcart 01ihc Tre31). This Ariiilc 15ccntr~l itiihc basic Trc;iiy objecti\.c
oi nrovidinr rules of fair and cuuii3hle trcaiiiient in rn~iiicrhoi the c~tablishincnt
of 'andopeGtion of business enterprises in the territory of the other party.
Article III, paragraph 1, provides corporations the right, on a most-favoured-
nation basis, to organize and participate in corporations in the territory of the
other party through purchase, ownership, and sale of shares. Then the first
sentence of Article III, paragraph 2, States:
'.The n;iiional\, corporations and ;issoci.iiioni oicither High Coiitr~cting
P~rty .shirl/ rpt*r!?~irrcinl,conïormity iiith the :ippliçablc lais,\and reguld-
ticIn5\iiihin the tcrnioric, oi the i)thcr Hirh <:ontr.iciinr?P;irtIC<~railfii.-<~.
confroland manage corporationsand associations of s&h orher ~&h Con-
fracringPartyfor engagingincommercia/,manufacturing,processing, mining,
educational, philanthropie, religious and scientific activities." (Emphasis
added.)
Thus this sentenceconfcrs upon corporations of hoth p~rticsthe righi io organiie,
conirol, and mxnagc s~ch corporationi in ihc territor) of the othcr pïri) li~r
ene-- -e in commërcial and oiher activities in confornÏitv with aouli. .le laws
and regulations.
The second sentence of paragraph 2 of Article III extends the protections of
the first sentence. It orovides that those corporations that have been so organized
undçr the lans of théother pari) arc thems~l\escniiilcd io enpige in the a~tivitics
for \\hich ihcy ucre crelted or org~nizcd un icrms no Ic\s ia\ourablc than iho5e
accorded by that party to corporations controlled hy its own nationals.
Now two points are to be noted regarding Article III. First, contras. to
assertions repeatedly made by the Respondent about the Treaty, it can be seen
in this Article that the Treaty, by its terms, specificallyprotects the rights of
corporations incorporated under the laws of Italy against actions by the ltalian
Government. The fact that ELSI - a wholly-owned suhsidiary of United States
companies - was incorporated in Italy did not remove it from the protection of
this Treaty. The Treaty is crystal clear on this. Where the meaning of a treaty
nrovision is clear. such as here in Article III. there is no basis for nostulating an
intcrprcution thai ii3iIyconiradi:is the provtsion's clcar and orrlinar). iiicaning.
The second point is that the firsi wntcnce of Article III. prilgraph 2,cxpre,sc,
a treaty right-that is not qualified by a national treatment or most-favoured-
nation standard. Where this Treatv orovides for MFN or national treatment. it
says so explicitly. Where, as here: {hose provisions are not included, nor any
other standard such as reciprocity, then the provision is non-contingent - it is
absolute.
The clause "in conformity with the applicable laws and regulations" simply
requires that organization, management and control of the corporation be con-
ducted in accordance with local regulations. The Respondent apparently would
like to readinIo this sentence a national treatment standard, thereby allowing it
to interfere in Raytheon and Machlett's management and control so long as it
also interferes in the management and control of its own corporations. But the
typical national treatment clause as il appears throughout this treaty is quite ARGUMENT OF PROFESSOR GARDNER 99
different; it uses the wording "upon treatment no less favourable than", as can
he seen in the second sentence ofArticle III, paragraph 2.
Rather than impose a national treatment standard, the "in conformity" clause
requires Raytheon and Machlett to comply with localregulations regarding
organization, management and control of corporate entities. Therefore, the first
sentence of Article III, paragraph 2, provided Raytheon and Machlett the nght
ta control and manage ELSI, sa long as ELSI was organized, managed, and
controlled in accordance with local regulations. As was nofed by Herman
Walker - the man who played an important role in negotiating these FCN
treaties for the United States - the "in conformity" clause
"is framed in such a manner as to imply that il does not constitute a
reservation detracting from the treaty right; and such phraseology has been
omitied from subsequent treaties" (Walker, 50 AJIL, pp. 373, 384, n. 53
(1956)).
At al1times Raytheon and Machlett conducted their management and control
of ELSI in conformity with ltalian law, and therefore Article III provides a
guarantee that they "shall he permitted to organize and control ELSI. At no
time prior to or during the issuance of the requisition did the Respondent assert
that Raytheon and Machlett's management and control was not in conformity
with Italian law. The requisition did not create a new regulation that modified
the nehts of Ravth~o~ ~ ~ ~achlett to control a~d ma~aee ELSI. since the . ~
requtbyiionuah i;iund hy ihc hi&hc.*c i<iurtsof ihe ~c,~dndeG 10 hc unl~\ifiil
For the phrac "in conforinit) wiih applicshlc I.is .ind regul~ri<in\".io inodii)
ihc riehts oi K~vihçon and \l;iihlcti 10 ;tiiiirol dnd manarc CLSI, ii is not
enou& for an official of the Respondent ta assert that hè is acting under
imperative measures of Italian law, as the Respondent claims in its Rejoinder,
II, page 460. Especially wherethe Respondent's own courts find this is not the
case. Ifmere referenceto an ltalian lawsatisfiesthe obligation of the Respondent
under Article III, paragraph 2, well then clearly al1 acts of the Respondent
evisceratingthe rights of United Statescorporations to manage and control could
be excused in this way, thus rendering meaningless the protection of Article III,
paragraph 2. Article III, paragraph 2, should not be sa interpreted. Indeed it is
manifestly unreasonable to so interpret Article III, paragraph 2, since Italy's
highest court stated that the requisition was illegal.
The United States submits that the requisition of ELSI's plant and related
assets constituted an interference with Raytheon and Machlett's management
and control of ELSI. Since Raytheon and Machlett are incorporated in the
United States they are, obviously, United States corporations for purposes of
this Treaty. ELSl was an ltalian corporation engaged in manufacturing and
commerce. Raytheon and Machlett owned ELSI. The Respondent was thus
ohligated hy Article III, paragraph 2, not to interfere with Raytheon and Mach-
lett's management and control of ELSI. Yet that is exactlv what the Resoondent
Jid. lis rcquisiiion uas ximsd spccitic~lly JI prcvcniing Ka)ihcon Jnd Machlcii
froni idking sicps to liquiilate ELSl 2nd niinirni/c ihc l~sscs.
Thc Kcs~i)ndcntcl:iiiiisthai ihe ïhilii\, tu nianarc and coniral ELSI reniiiined
hecause ELSI could appeal the requisition order and could he placed in bank-
ruptcy; this claim is made in the Rejoinder, II, pages 461 and 463 to 464. Well,
this is a peculiar wayof honouring the ability ta control and manage a corpora-
tion. Havine-been subiected to ari unlawful reouisition. Ravtheon and Machlett
uere given the so-:3llcd opportunit). io :hallcngc ihc rcquisliion h) a prucos
thdt t,~,il,Ih months to curnplctc. Ai bills c;imc due, Raytheon and .V~chlcit
uere aIbogivcn the SJ-callcdoppciriuniiy to place ELSI in bankrupicy. 1hcsc ro-lm ELETTRONICA SICULA
called opportunities are far from providing Raytheon and Machlett with the
ahility to manage and control ELSI. That is because the Treaty protects the full
measure of Raytheon and Machlett's ahility to manage and control ELSI, includ-
ing the ability to dissolve ELSI.
The Respondent's other arguments regarding Article III are also manifestly
wrong. There can he no question that the Respondent's acts "affected control hy
the shareholders" over ELSI. While the requisition was technically directed
against ELSI's plant and equipment, il was undertaken precisely to prevent
ELSI's shareholders from exercising a fundamental right of management and
control. It is pure fiction to state that only ELSI's plant and equipment were
aiïected hy the unlawful requisition.
As a final note, the Respondent asserts, on page 459 (II) of the Rejoinder, that
the United States implicitly admits that rights under Article III, paragraph 1,
and Article II, paragraph 2, sentence 2, were not violated. By not discussing in
detail other provisions of Article III, or any other Article, the United States does
not admit anything. Raytheon and Machlett were not allowed to enjoy their
nghts and privileges with respect to their participation in ELSI. Nor was ELSI
permitted to exercisethe nghts and privilegesto which it was entitled. The United
States, however, focused in ils written pleadings on those provisions that most
clearly relate 10the unlawful actions of the Respondent.
Article I of the Supplement
1 now turn to Article 1of the Supplement, and I invite the Court's attention
to that provision because Article III of the Treaty isno1the only Article providing
protection against interference and control. Article1of the Supplement reinforces
and supplements this protection.
The Supplement to the Treaty, which appears at Attachment 1to the Applica-
tion (1) and as Annex 2 to the Memonal 0) and Document 2 to the Counter-
Memonal (II), consists of nine Articles that clarify or expand vanous provisions
of the main Treaty. As stated in ils Preamble, the purpose of the Supplement is
to give "added encouragement to investments of one country in useful under-
takings in the other country .. . hy amplification of the principles of equitable
treatment" set forth in the Treaty itself. The Report to the President hy the
ltalian Chamber of Deputies of 8 November 1958 leading to ratification of the
Supplement States:
"since 'foreign investment' today means, above all, investment from the
United States, we deemed il advisable to remove any obstacle to the inflow
of private American capital hy concluding a special agreement with the
United States Government . . .(Counter-Memorial, Doc. 9, II, p. 112).
Among the needs of American investors identified by the Chamher of Deputies
was, significantly, the need for "protection of the nghts of the American compa-
nies and individuals in the companies in which they invest" (Counter-Memorial,
Doc. 9, II, p. 112). The Rapporteur of the ltalian Senate on 19 July 196û also
spoke of "improving more and more the system of United Statescapital in ltaly
and of ltalian capitalin the United States" (Memorial, Ann. 4,1, p. 117;Counter-
Memorial. Doc. 14. II. D. 135).
The moit irnport~ntÂriiclr;n the Supplemcnt for this case ii ohviously Article
1,whichcontains additional protections for coroorationi. 1wiiuld eniohasize that
these are additional protections, because this Article is intended to supplement,
no1 replace, investment-onented provisions in the tex1 of the Treaty, which
themselves are already framed in very specificterms. ARGUMENT OF PROFESSOR GARDNER 101
Article 1 states that corporations of one party "shall no1 be subjected 10
artibrarv or discriminatorv measures . . .lol oreventine their effectivecontrol
and ma"agemcni of enierprises which they ha& been permiiied IO esiablish or
ncquire" in ihr ierritory of ihç oiher party. This provision complemenis and
strcngihens the guaraniees of nun-discnminatory ireaimeni and frecdom from
interference and conirol whiçh are coniained in Ariicle III of the Trelttv. The
lems of !hi%provision - "shall no1he subjwied" -are imperatiie and unquali-
fied. There is no reference to any national or most-favoured-nation standard of
treatment. nor to domestic law.
As we ha\e discussed. Raytheon and Machleii were periniiied IO acquire ELSI.
Rayiheon and Machleii ihen were suhjecteu IO measures by ihe Respondeni th31
resulicd in orevcniine. cffecti\c control and mlinaeemeni of ELSI. Since these
measures wéreboth arbitrary and discriminatory, the Respondent's actions also
violated Article 1 (a).
An arbitrary act is one that is characterized by the illegitimate exercise of
power or an abuse of discretion. Thus, arbitrary actions include those which are
not based on fair and adequate reasons - including sufficientlegaljustification -
but rather anse from the unreasonable or capricious exerciseof authority. In the
light of the object and purpose of this Treaty, the prohibition on arbitrary
measures constitutes a commitment of the res~ectiveGovernments no1 to iniure
ihe inverimcnrs and reliiied inieri,i\ i>ffiirçign invesiori hy ihc unreaionahle or
uncüir çxeriisc of govrrnmeni nuihority. authonry e~crciscd ii,iih no legiiimnie
basis
DiJ the requisition hüve n Icgiiimaiç haris? The Reîpundent claimr ihai iherr
wüs a puhliç rmergenzy and ihat ihe Mayor had the pou.er tu do uhat he did.
Yet Ravthcon and %Inchle11hnd civcn the Iialian auihiiriiies every o~portunilv
. ..
to takeiegitimate steps 10prevent ËLSI from closing, both by becominga partn&
in ELSI and by extending the Mezzogiorno benefits to which ELSI was entitled.
The Respondent declined to do so. Instead, the Respondent sought to force
Raytheon and Machlett themselves 10 keep ELSl open by the sheer exercise of
power. And when Raytheon and Machlett refused to do so, the Respondent
declared a so-called "public emergency" and look over ELSl by sheer power.
But after the requisition the Respondent did not keep the plant in operation. The
reauisition did not keeo emolovees on salarv. The reauisition did no1do anvthine.
IO d~~cviaterhis so-calied ..éni~rgcncy"~he Italiün Courts said ii ksi whcn the).
round ihür the requisi1ii)nwüs "dcsiituic of any jundical cause uhich may justif)
it or make it enfo~ceable". ~~ ~ ~
So. the reauisition was nreciselvthe sort of arbitrarv action which the Suoole-
meniprohibits. Its objecis and effect were to preve& Raytheon and ~aChlett
from protectinr their investment. The requisition had no sufficientor le,e,iti-ate
basis.-lt was aÏbitrarv.
Nol only were the ~.'spondcni's sciionsarbitrar). the) urre discriniinaior). Jr
well.The purpose of the requisiiion, as seen in ihe statemenrs of the Respondent's
own ullicial,. wüs IO buy timr fur IR1 io takr uvcr ihe plant. This was discnmina-
lion in favour of a go\,ernment-conirolled cnicrprise: the kind of discrimination
the Trcaiy proiecis against here. in Article 1of the Supplemeni. and elseu,here.
such as paragraph 2 of the Protocol.
Now the Resoondent denies that discrimination has occurred because there is
no evidence thal the requisition was directed against Raytheon and Machlett
because they were United States companies. Yet the meaning of "discrimination"
in international law goes much beyond simple discrimination against aliens. On
page 465 (ïi) of the Rejoinder the Respondent cites an article that describeshow
much more expansive the concept of "discrimination" truly is. The article is by102 ELETTRONICA SlCULA
McKean, entitled, "The Meaning of Discrimination in International and Munici-
pal Law" (44 British YearBook ofInternationalLaw, 1977(1970)).According to
Professor McKean, discrimination includes arhitrary, invidious, unjustified or
unfair distinctions. There is ample evidence in the words and deeds of the
Respondent'sofficialsthat this requisition, nght from the start, involvedan unfair
and unjustified effort to ohtain ELSI, not to avert a social crisis but simply for
use hy IRI. IRI's interests were directly contras. to Raytheon and Machlett's
and the Respondent intervened to advance its own commercial interests at the
latter's expense. This was an unfair and unjustified way of treating ELSI. This
was discriminatory as wellas arhitrary. This violated Article 1of the Supplement.
The correctness of the United States position is confirmed in the expansive
interpretation placed on the Supplement by our Governments when ratifying the
Supplement. The Report hy the Italian Chamher of Deputies to the President of
8 November 1958stated:
"The Agreement sets out, first of all, to han any discriminatory measures
that either country might adopt against the interests of citizens or legal
persons of the other contracting State, designedta restraintheir management
or real control of the companies for which they have ohtained the necessary
permission for their purchase or establishment . . ." (Counter-Memorial,
Doc. 9, 11,p. 113.)
The 1960Report of the Italian Senate speaks expansively of "measures aimed
at impeding management or control" (Counter-Memorial, Doc. 13, II, p. 132).
Now to argue, as the Respondent does, that the ability to appeal the requisition
and to declare ELSI hankmpt satisfies the expansive protection obviously envi-
sioned under the Supplement is manifestly unreasonahle.
Article VII
The las1pro\ision 1\\IIImcntion in regÿrd io the nixnligenient2nd cunrrol <>i
ELSI isArticle VI1oiihc Trcliiy :ind I in!iic the Couri's atiention icithat Ariicle
Pardgraph I oi Articlc VI1confcrs righii upon a cumpdny di ciihcr :onir~ctinz
party with respectto the acquiring, owning and disposing of immovahle property
or interests therein within the territory of the other contracting party. These rights
include of course essential rights inthe management and control of a company.
The protection in Article VII, paragraph 1, to acquire, own and dispose of
immovahle property or interests is govemed hy a complex standard of treatment,
which is fullv exolained in our written nleadines. Pnor to ~he ~rea~ ~ ~ ~ there wcre
iiian) lepal r>aticiii>n\ in the Lnited ~iatcr undcr ihc iaws oi the i,irious siüics
regdrding ihc holding by dliensof boih rra1and persondl properiy Conrcqucntl)
Article VII. warÿara~. 1.cst~blishcsa dirfereni rtsndird oi irîaimeni for It.ilian
companiesoper~ing in the United States than for United States cornPanies
operating in Italy. Paragraph 1, suhsection (a), allows Italian companies to
acquire, own and dispose of immovable property or interests in the United States
only as permitted by the laws and regulations of the various States.
Paragraph 1, suhsection (b), in contrast, grants to a United States company
the right to acquire, own and dispose of immovahle property or interests in Italy
on the same terms as are accorded Italian comoanies investine in the Un-ted~ ~~ ~
StMescompany's sraie oi incorporation The ltali'anRcpubliç is nui uhligated ro
accord to Lnitcd St;itcs compsniz> a silindard or ircdinicnt highcr th311the
ireaiment accorded to Iialilincorporations in ihc home siatss oiihc Ilnitcd Stliies
companies.
Most of the assets seizedby the Mayor of Palermo and suhsequently acquired ARGUMENT OF PROFESSOR GARDNER 103
hy the Respondent consisted ofELSl's manufactunng plant and other immovable
property. The refusal to allow Raytheon and Machlett to liquidate ELSI in April
of 1968,along with the extensive delay in overturning the requisition, prevented
the disposal of their interests in ELSl's immovahle property. The United States
Memonal (1,pp. 81-82) describes how similar treatment simply would not occur
in the relevant jurisdictions of the United States without payment of compen-
sation.
Now the Respondent attempts to narrow the scope of Article VI1by asserting
that it only protects the nght to dispose of immovahle property and absolute
"nghts" therein, which is more limited than "interests" therein. The Respondent's
intemretation of the Article VII. which is hased on the Italian text. simnlv doesn't
maki sense in either English O; Italian. The Respondent would have'& believe
that the drafters essentially ~rotected the right to dis~ose of such DroDertyand
then protected as well "righis therein". - ...
But such an interpretation is iiiternally inconsistent. Obviously the second
phrase - "or interests therein" - is meant Io do something more than the first
phrase - "immovahle property". Indeed, the phrases "immovable property or
interests therein" and beni immobilio altri diritti reali must provide expansive
protection, othenvise the clause would simply Say"immovahle property" or beni
immobili.It is also relevant that Article VII, paragraph 1 (b), was drafted and
negotiated in English. The final version of Article VII, paragraph 1 (b), was
oresented to the Resoondent in Enirlishbv the United States durine the Eleventh
~egotiatin~ ~eetingon 170ctohe; 1947:~he draft was accepted b; the Respon-
dent at the Twelfth Negotiating Meeting on 22 Octoher 1947, and only suhse-
quently translated into Italian. -
The Respondent asserts on page 463 (II) of the Rejoinder that Article VI1only
protects "absolute rights of a more limited nature". The Respondent argues that
the protection of Article VI1should belimited to Raytheon and Machlett's ability
to hold shares in ELSI, rather than to Raytheon and Machlett's interests in
ELSI's plant and assets. This claim is made in the Rejoinder, II, page 462. Yet
the requisition obliterated an essential right attached to the shares, the right to
decide to liquidate the immovable property of ELSl in such a way as to maximize
the payment of ELSl's debts.
Now a major ohject of this Treaty was to encourage investments, including
those through the acquisition of Italian companies. Article VI1clearly protects
the interests or rights that a shareholder has in the immovahle property of the
Company. A narrow reading of Article VII, as suggested by the Respondent,
defeats this important objective.
Memhers of the Court, that conipletes my discussion of the first main point
about interference with management and control and 1 turn now, with your
permission, to the second treaty violation.
Impairmentof InvestmentRights and Interests
The second obligation violated hy the Respondent was the obligation to protect
Ravtheon a~d~M~ ~lett's leeallvu , .ired investment riehts and interests. Bv
re~u~riiiùnin~E1.Sl.j plant ancla,jct, 2nd 1h;rr.h) prc\cnihr the orderly liquidy-
Iton, ihi, Rcspondçnt impnircd Rayiheon ;ind >lachlcti'~ invcrtmcnt righrs and
intere\t\. anJ thcrcfors \iolated Ariicle I ~b di the Sur. .lemcnt.The subscqucnt
sonduct of the Kejpondcnt in iailini: tiio\,ertLrn the rcquisition, until the Rerpon-
dent sould purch;isc ElSl .ilbargain priie,. also imp~ired R3)thcon and Ma~h-
lett's invesiment rights104 ELETTRONICA SICULA
Article 1 (b) of the Supplement provides broad protection against excessive
government interference in business activities, or other activities not specifically
covered hy the treaty.
If 1may invite your attention to Article 1 (6) of the Supplement it states that
corporations of one party
"shall not be subjected to arhitrary or discriminatory measures within the
territories of the other party] . . .impairing their other legally acquired
rights and interests in such entergrises or in the investments which they have
made, whether in the form of funds (loans, shares or otherwise), materials,
equipment, services,processes, patents, techniques or othenvise".
The language of this provision could not be written more broadly. It encom-
passes protection of al1 financial commitments made for the benefit of ELSI,
whether in the form of direct capital contributions, loans, loan guarantees, or
open accounts. It protects againsiany retroactive impairment of vësted rights so
long as the acquisition of such nghts was lawful, whether such rights were
protected by statute or by Treaty. Article 1states a self-contained, absolute rule
that incorporates neither a national treatment standard, nor a most-favoured-
nation standard.
As 1 note earlier, in my discussion of the management and control of ELSI,
the requisition of ELSI's assets was an arbitrary and discriminatory measure. In
addition, the failure of the Prefect to rule for 16 months on the appeal of the
Mayor's order was an arhitrary and discriminatory act, for it was well outside
the bounds of the typical time it takes to make such a decision. In fact, the
Prefect issued his decision 48 days after ELTEL purchased ELSl's assets at
bareain ric ces. ell hevond the time when the decision could do anv eo,d- In
ihc;nicr~rn thc'~ej~ondent niade siatements during ihe bankruptcy ihai di,cour-
dgcdpriv~iebiddcrs.The Rcrpondeni bo)a~ited ,orne i)Tihcbtnkrupicy ;iuciions,
instead workine out smcial arranee-ents for a Diecemealtakeovei diiectlv with
the hankr~~tcyauth~rities.
These acts severelyimpaired Raytheon and Machlett's legally acquired nghts
and interests in ELSI by making the closing of ELSI much more costly to
Raytheon and Machlett than it would have been had the Respondent not in-
tervened.
First, Raytheon and Machlett lost their entire capital contribution. Second,
Raytheon was required to pay some 5.8 billion lire - approximately 9.3 million
dollars at that time- to bank creditors of ELSl whose loans to ELSI had been
guaranteed hy Raytheon. Had Raytheon and Machlett been permitted to proceed
to an orderly liquidation, they would have realized sums out of which they could
have paid these guaranteed hank creditors. Third, Raytheon recovered nothing
on its own unsecured lines of credit to ELSl (known as its "open accounts"),
which totalled more than 1.3 billion lire, or about 1.83 million dollars. The
liquidation olan would have oermitted settlement of ELSI's uneuaranteed. un-
skured loilAsfor the full îrnhuni irhl1 vliluc uf the assets hïzbr.cn obi~/ned,
but under the blnkrupic) unsciurcd crcdiiurs recei\cd Ir.;.;ihtn I pcr ccni of
the amounts claimed.
Raytheon and Machlett's direct capital contribution to ELSI, Raytheon's
guarantees of loans made to ELSI by Italian banks, and Raytheon's open
accounts with ELSI, are al1investment rights and interests protected by Article 1
(b). Article 1 (b) protects anything provided by a United States investor to an
Italian corporation in which it invests "whether in the form of funds (loans,
shares or othenvise), materials, equipment, services,processes,patents, techniques
or otherwise". Both open accounts and guarantee payments are investments ARGUMENT OF PROFESSOR GARDNER 105
within this broad definition. This interpretation is confinned hy the Report of
the Italian Chamber of Deoulies Dresentedto the President on 8 November 1958.
In ihat rcpon the ~u~~le&entis iead to ban me3suresdcsigned to restrain nghts
or to prejudice the interests of these companies or invesiments in whïiever fom
they m3v be madc (Counier-Memonal. Doc 9, 11,p 113).
WrongfulTakirfgof Interesls in Properly
The third oblieation violated hv the Res~ondent concerns the wronaful takinr!
of interejts in pkperty wthoui ~ompensaiion The requisition and the dela) if
overturning the requisition not only interfersd wth Raytheon and Machlett's
manammeni and control of ELSI. not onlv irnvïired Raytheon and Machlrtt',
~e~alliacquired interests in ELSI, but also Ïesulied in whai can only be described
as the taking of the property.
The failure to pay promptly just and effectivecompensation for this taking is
a violation of Article V of the Treaty. and 1invite the Court's attention 10that
Article.
Now Article V as a whole is designed to provide e$seniial gu3rantecs for the
securiiyofproperiy interests and invesiments Parïgraph ? provides that property
of United States corporations within Italy "shall not be taken . . uithoui dur
procesçof Iaw and without the prompt payment of just and elrecti\e compens3-
lion". Corporations musi beable to wiihdraw this compensation from the terri-
tory of the Party wiihout interference and without any trïnsfer or remiltance 13~.
~hFsguarantee-is, of course, a vital element in promoting investment since this
century bas seen an unfortunate number of expropriations with litlle or no
compensation.
The obligation expressed in paragraph 2 is absolute. When read in conjunction
with paragraph 1 of the Protocol il unamhiguously protects the investment
interests of United States shareholders in ltalian companies whose property is
taken bv the Res~ondent. There is no clause linkinn the treatrnent of United
States shareholde;s to the tre3tment by the ~es~ondéntof 11sown nationals or
the nationals of third couniries
The concept of J "taking" in iriternational bw encompasses. in addition to
physical seizüre, a wide variety of whole or partial seqÜestrations and other
impaiments of interests in or uses of property. Indeed the Respondent itself, on
page 468 (II) of the Rejoinder, admits that a temporary requisition can constitute
an indirect taking according to the "vast amount of literature on the suhject in
English". The Respondent even cites with approval the Hague Academy lecture
of Professor Rosalyn Higgins in which she Statesthat "interference which signifi-
cantly deprives the owner of the use of his property amounts to a taking of that
property" (Higgins, "The Taking of Property by the State", Recueildes coursof
the Hague Academy of International Law (1982-III), p. 324).
It isextremelysignificanlthat paragraph I of the Protocol to theTreaty extends
Article V, paragraph 2, of the Treaty to "interests held directly or indirectly" by
corporations of either High Contracting Party "in property which is taken within
the territories of the other High Contracting Party". So, 1 invite the Court's
particular attention to paragraph 1of the Protocol. We submit that the purpose
of the term "indirectly" is to ensure that the ultimate beneficial owner receives
compensation pursuant to Article V, paragraph 2.
Thus Article V and the Protocol protect al1rights in property upon which it
is possible to place a monetary value, including not only rights ofownership but
rightsof possession,useand enjoyment.Thus the protection extends to leaseholds,
easements,contracts, franchises and other tangible and intangible property rights.That the rights of stockholders are included is confirmed by the discussion hefore
the Foreign Relations Committee of the United States Senate of 30 April 1948
(Counter-Memorial, Doc. 15,II, pp. 164-165).
The tem "prompt" in Article V does not necessarily mean instantaneous, but
the contracting party must diligently carry out orderly and non-dilatory pro-
cedures to ensure correct compensation as soon as possible. The phrase "just and
effective"callsfor a renderingof fullcompensation01 , ounter-Memorial,Doc. 16
Io. 8llMemorial. Ann. 86. 1.o. 397). and its meanine has been built uo throueh
jidihal decision;, arbitral aGards, i;eaty practice, and the writings of bublicis&.
As willbe discussed later with regard to the compensation due from the Respon-
dent, compensation should repreient the true and-proper worth of the property-
generally to place the Company in the same financial position as it was before
the taking.
In addition, paragraph 3 of Article V provides protection directly to an enter-
ri se located in one contractine oartv in which a cornoration of the other
Contracting party has a "substa&.l interest". The tem. "substantial interest"
depends in large part upon the circumstances of a given case, but includes at a
minimum whole or majority interests. This protection is governed hy either a
national treatment standard or an MFN standard. whicheveris more favourahle.
Again Inoie thai hcrc.contrdry to aiscriions made hy thc Rrrpt~ndent.isanother
cxamplc of uhzrc the Trealy protecis tlic rights of corpor;itions incorpor~icd
under the laws of one party agiinst actions by that sameparty.
In this case. Ra,theon and Machlett were the ultimate beneficial owners of
ELSI. ELSl's plant and tl.Sl's :isscis Iogcihcr, Raytheon anrl hlachlrti ciunrd
100pcr ceni of ELSI. Ucginningwith the iinlauful requisition. the RrspiinJzni
emhdrkcJ un a coursr <II<ictii.itvthat resultcd in thc ;icauisition of ihc bulk of
ELSI's assets for far less than market value. The ~es~ondent stripped Raytheon
and Machlett of their ability to dispose of ELSI's plant and assets promptly in
an orderly fashion, took over the plant, delayed providing a decision on the
legality of its actions, forced ELSI to go into hankruptcy since it could not pay
its bills, and then ohtained ELSI's assets in a piecemeal fashion during the
bankmptcy process for far lower than they were worth at the time of seizure by
the Respondent. While there are times when a Government must act to respond
to a national emergency, the Respondent's own courts acknowledged that the
requisition was not directed towards responding to or alleviating any such
emergency.
The Respondent characterizes its conduct in this case as an ephemeral exercise
of a police power (Rejoinder, II, p. 468), an ephemeral exerciseof a police power
rather than the deprivation of fundamental property rights. Nothing could be
further from the tmth. While the Respondent may not have issued an expropna-
tion decree, the Respondent's acts definitively ended Raytheon and Machlett's
ahility to use and dispose of assets which they owned through ELSI. This
constitutes a taking of property givingnse to the obligation to provide compensa-
tion. The Respondent cites an article on expropriation issues before the Iran-
United States Claims Tribunal (Rejoinder, II, p. 468, fn. 3), but it ignores the
salient conclusion of that same article, which reads:
"Several things have heen clearly established by the Tribunal. First, the
developingnations argument that there may he no dutyto provide compensa-
tion was clearly rejected in thesecases.When a taking has occurred,compen-
sation will he required. The cases also fail to lend any credence to the
argument that compensation should not be required because of American
economic or political imperialism. But in fact, the Respondent sees diiierences in meanings where there are none.
Certainly the Respondent did no1view Article V or the Protocol as providing a
narrow protection at the time the Treaty was ratified. The Report of the majority
in the Italian Chamber of Deputies of 17December 1948States:
"the principle of expropriation with guaranteed payment of 'fair compensa-
tion' normally embodied in Treaties of establishment (cf. for example the
Italo-Soviet Treaty of Trade and Navigation of 4 February 1924,Art. 6) has
beendevelopedtoa considerableextent in the newItaly-United StatesTreaty"
(Counter-Mernorial, Doc. 4, 11,p. 63).
And the discussion before the Foreign Relations Committee of the United States
Senate of 30 April 1948clearly shows that the passage of Article V was meant
to protect hroadly foreign pnvate investment
"in the face of the very ohvious trend in many parts of the world toward
nationalization of industry, extensionof public control over certain industries
and the participation of the State in industrial enterprises ..." (Counter-
Memorial, Doc. 15,11,pp. 164-1651,
The Respondent's effort to restrict the meauing of Article V simply does not
comoort with these statements. Indeed. the coucern exoressed hv the Minoritv in
the italian Senate, sent to the ~resident on 28 May 1949was ii fact that ~r<icle
V, paragraph 2, not only provides protection in accordance with the general
principles of international law but might even provide greater
(Counter-Memorial, Doc. 7, 11,p. 104).
But even if Article V is read as meaning that property "shall not be expropri-
ated" (the ltalian version) rather than that property "shall not he taken" (the
Enelish vers~-n) the r~s~lt is the same. Both versions encomoass the kind of
int&ference with property which rendered ~a~theon and ~achlett's interests
useless. Again, the fact that the requisition was for an extendable six-month
neriod does not make this anv less of an exnrooriation of interests in orooer...
gi!*cnihc faci thai the rcqui~i~iondrosc ELSI intù bankrupt~.)..
Likewisc.even ii ihc Protocùl reüdb ihai Article V is cxiended 10 "righis hcld
direcil, or inJircctl\" rÿiher than "interest$ hclddirccilv or indirccrlv". the re,uli
~e-in Fsthe same. Éoth~~ ~ases weredesiened -~ oroteci the investmënt of United
States corporations in Italy (and, of course, ltalian corporations in the United
States) through locally incorporated suhsidiaries, that is, even if the investment
was in an ltaiian (or United States) cornoration.
Now ai ihii uith your ~rmi;sion, I ihink 1 should süy a Ccwuùrds
about the Horrrlonu Trarlion c3rc (case con=-rning the Bar~.rlonuTrucri<in.Lf2h1
and Potvrr C~~mpani.L .imired.Judpmeni (Second Phase). I.C.J. Reporrs 1970). I
do this because'ltaiv invokes the Ëarcelo~u Tracrioncase in an atkmot to show
that international faw does not protect the interests of shareholders in their
corporations. Such a reading of Barcelona Traction is simply ina~p~opnate for
three reasons.
First, and foremost, the Barcelona Traction case was decided on the basis of
customary rules of law, it did not involve the interpretation of a treaty between
the parties. The Court in Barcelonanoted that the case would have heen decided
diiierently had the hreach of a treaty provision been involved. It declared in
paragraph 86 of its Judgment that:
"the BelaianGovernment would beentitled to brina a claim if it could show
that one-of its nghts had ken infringed and thacthe acts complained of
involvedthe hreach of an international obligation arising out of a treaty ..."
(I.C.J. Reports 1970, p. 46). ARGUMENT OF PROFESSOR GARDNER 109
Now the case before you is that very situation in which "the acts complained of
involved the breach of an international obligation arising out of a treaty" where
the Court in Barcelonadeclared that a different conclusion would be required.
Second, the Barcelona Tractioncase concerned what the Court called in para-
graph 31a "tnangular relationship" where there was one State whoseresponsibil-
ity for the wrongful taking of property was beinginvoked (Spain) and two States
(Belgium and Canada) which were potentially in a position to assert a right of
diplomatic protection arising out of that taking. The question at issue there was
the allocation of the right of diplomatic protection between those two potential
claimant States. The Court held that in this "tnangular" situation, as it put it,
it was the State in whichthe injured corporation was incorporated (Canada) that
had thejus standito bnng the claim, not the State of the shareholder's nationality
(Belgium). The Court noted, however, that the situation would be entirely
diîïerent in a bilateral situation where there was only one potential claimant State
and one State wbose responsihility was being invoked, which is the situation we
have in the case before you today. As the Court said in Barcelona Tractionin
paragraph 92:
"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 Companywhichhas heen the victimof a violation
of international law. Thus a theory has been developed to the effectthat the
State of the shareholders has a rie-t of diolomatic nrotection when the State
,i.ho,c reiponsibilit) isintokcd is 1hcnalional Sistc or ihc cornpan). What-
cver thc \,alidityr>lthiiihcon ma) be". ihc Court ~oiiiinucd. "11 isccrtiiinly
not 4~~iic~hlr ii> the ore5cni c:i>c.since Spain 15nul thc nliiionlil Siaie of
Barc&na Traction." (I.c.J. ~epoits 1970,-~.48.)
But in our case todav. we have exactlv that bilateral rather than "trianeular"
siiwtion uhich the pJs\agc 1havejus1ciicd cnvis3gcd: the Silii~whose rcsponsi-
hilii)ij beiriginioked. Ital), is rhr,Statc of the u~mpany. tLSI. and the Unitcd
Sraiz,. the State of the \h3rsholdcrs, i, ihc onlv State in a position IO aiszrt ihr
claim on their hehalf.
Now the third point about BarcelonaTractionis this: even under ils reasoning,
it is clear that customary international law provides a remedy for foreign share-
holders who are depnved of their direct nghts. In paragraphs 46 and 47 of its
Judgment the Court declared that:
"an act directed against and infringing only the company's rightsdoes not
involve responsibility towards the shareholders, even if their interests are
affected".
But then it adds significantly :
"The situation is different if the act complained of is aimed at the direct
nghts of the shareholder as such . . .Whenever one of his direct rights is
infnnged, the shareholder has an independent right of action." (I.C.J. Reports
1970,p. 36.)
Our case, as we have demonstrated, is that very situation where the direct nghts
of the shareholder have heen infringed. Becauseof the sequestration by the ltalian
authonties the ELSI shareholders were depnved of their direct nghts to manage
and control ELSI and liquidate it in an orderly fashion. The other nghts of
Raytheon and Machlett we are dealing with today - the nght not to have their
investment nghts and interests impaired, the right not to have their interests in
property taken without jus1 and effectivecompensation, and the nght, which 1110 ELETTRONICA SICULA
will discuss in a moment. to have the securitv of their interests in nrooertv
proiccicd - ih<iseucrc also the Jir~t righis uithc ELSl h.,reh<ilders ...
The lrcaiy bcforc us speeilicÿllypro\ idespruiçeti<insiiir Cnitcd Stnics niiiun-
als or companies in their ownership, management and control of ltalian corpora-
tions as wellas their investment nghts and interests.
On pages 467 and 470 (II) of its Rejoinder, the Respondent tries to plead ils
own internal laws to show that this is not an expropriation. Well clearly, the
Resoondent's internal laws cannot excuse violation of the Resnondent's interna-
iiun;il'lr:üi) coiiimitmcnts As \us stated in the Comntcni~r) 'IOArticle 3of ihc
Inicrnational Lam Coniiiiiscion Drÿit Articles on Siatr Re\pon,ibilii":
"a State cannot, by pleading that its conduct conforms to the provisions of
its internal laws, escape the characterization of that conduct as wrnngful by
international law il it constitutes a breach of an obligation imposed by
international law" (YearbookofInternationalLaw Commission,1973, Vol.II,
p. 184).
The ordinary meaning of the Treaty, in the light of its object and purpose, is
clear. There is no need to determine whether under Italian law shareholders can
hold rights only towards the Company and not the company's assets. We are
construing a Treaty here - a Treaty whose terms are clear in their ordinary
meaning. 1mus1note, however, that even under ltalian law an expropriation can
refer to the partial limitation of the rights of an owner (Sandulli, Manuale de
Diritto Amministrativo,para. 196(1984)).
Now the Respondent has made various references in its Rejoinder to United
States Supreme Court cases, caseson takings of property. But these cases simply
do not support the Respondent's position. One of the cases cited is UnitedStates
v. Pewee Coal Co. (341 US 114(1951)).The Supreme Court found, in that case,
that there had been a taking of property and that the United States Government
had Io nav comnensation. That. of course. isexactlv the tvoe of result the United
States &eks in ihis case today. ~here are ~mpnrtanidiffe~nces between that case
and the case hefore this Chamber, however. In the Peewee Coal case, the United
States Government ke~t the comoanv ooeratine durinr the takinr. Eventuallv
... - -
the comp;in)'s plant, zquipmcnl and ;issctsuzre returncd ln thtir rightïul otincrs.
Whilc ihc Rcspundeni quoicr ihs soncurring opinion. IIi&nure>rhc nm)srity
opinion \\,hich fouiid thai the United Si~~ics oisrnmeni ua. rc,~onsibls ior a11
the damages that resulted from its intervention.
In this case, the Respondent chose Io intervene in ELSI's fate; by failing to
operate the plant, hy failing In allow ELSl to meet its financial obligations, it
forced ELSI into bankruptcy. The Respondent in this case - like the United
States in the Pewee Coal case - should he held liable for al1the losses that its
actions caused.
Another case cited by the Respondent is YuungstonSheet & TubeCu.v. Sawyer
(343 US 580 (1952)). Now the Respondent is correct that the United States
Government seizedmnst of the steelmillsin the United Statesin 1952purportedly
tn avert a nation-wide strike (Rejoinder, II, p. 469). But what the Respondent
does no1point out is that the Supreme Court declared that the President's seizure
of the mills was unlawful under both the United States Constitution and United
States statutory laws, and affirmed an injunction preventing the seizure from
continuing. The mere assertion by the President of the United States that the
seizure was necessary to avert a national emergency wasfound by the Supreme
Court Io he totally insufficientto sustain his action when that action had no legal
basis. ARGUMENT OF PROFESSOR GARDNER 111
In the present case, the Respondent's acts were not an ephemeral interference
with property. This was not a valid exercise of a police power. The exercise of
this oower was found to be unlawful bv the Resoondent's own courts. No. this
wï, an ouiriphi iïking ;inioiinting tg> a uholcsalc expropriati,in (ifintcreiii in
property. Duc procc,i u.3~ not provirlrd idKaythcirnand Slaihlcti. J~srcompen-
sation uas no1 riroiidcd 1,) R;i\theon 2nd \lazhlcii :inJ ilic Pdilure io du <o
constitutes a vioiation of ~rticlév of the Treaty, as extended by paragraph 1of
the Protocol.
Failure fo Provide Proferfion and Secrirify
1turn. finïll!. to the rourih Trc.it! \iol;iiion, aiid ihi\ th<iailurc io protide
priitciiion 2nd sceurii) to propert!. Ths nnal i~hligaiion\iolatcd hy ihe Rc.pon-
rlciii- <rli.clishould br.cttd:iii from mu:h .>f ><h:ii I have :ilr;ri<l)Ji.~eiiz-l<
was the Respondent's obligation to provide constant protection and secunty for
Raytheon and Machlett's property under Article V of the Treaty. This violation
occurred when the Respondent allowed individuals to occupy ELSl's plant.
1 invite the Court to look at Article V, paragraph I, of the Treaty. That
orovides that United States coroorations shall receivein Italv "the most constant
prolectioii and ,c~.Urityfor thL1irpcrson~ dnd prspcriy. .id ~Iia11cnjo!. in this
rcspcci rhc rjllproicr.iii>n.ind ic;urir?. rcqi~~rchy iniern:itional Iaa" Arii~.lcV.
11:113~r.~~ 3. rirovidcs rhai I.'iiiicJ Siair.. s0rDor;iiion. rhall r:ccivc in lliil! ni,
iess iroiectio" and security than that accorded to Italian corporations and other
foreign corporations.
Once the requisition occurred, the Respondent had an obligation to protect
ELSl from its deletenous effects.The Respondent failed to do this in two ways:
first, by failing to provide an adequate method of overturning the requisition,
and second, hy failing to prevent trespass on to ELSl's property.
The delay in ruling on the challenge to the requisition order until after ELSI's
~lant. ea. .ment. and work-in-orocess had been acauired bv EL~,L was a denial
;if the lc\,oi pr\~ccdiirüllu\ti; accordcd h) iritcrn;lrionrllI J ~A, \ta> JI>CUSSC~
in our prcseniarion i~i'ihefï:rs. rionndll) ihc Icg.~lii!of ihc rcquiililon «.oulJ
h;ii,chcen rc\icu,cd h, ihs Prcfcet wiihiii n fsivJa\s aiisr the dïie the rulinc wa.
sought, which in thecase of ELSl was on 19 il 1968.Indeed, a delayof 16
months was absolutely unprecedented in ltaly (1,Memonal, Ann. 26, para. 10).
Had there been a speedydecision by the Prefect, the hankruptcy of ELSl declared
on 7 May could have been avoided. Since the voluntary petition in bankruptcy
was filedon 26 April 1968,had the requisition been rescinded withina fewdays,
or even a couple of weeks, the bankruptcy could have been avoided entirely.
Now, the occupation of the plant, which resulted in its deterioration and
impeded the trustee's effortsto dispose of it, occurred with the tacit approval of
govemment authorities. It discouraged potential buyers from inspecting ELSI's
plant and assets, and generally chilled the process of selling ELSI for its full
value. Therefore this action also constituted a denial of "constant protection and
security", thereby violatingArticleV, paragraphs 1and 3,of theTreaty regardless
of whether physical damage actually occurred from the occupation.
1 would like to conclude my remarks with one final point. The Respondent
has from the outset of this dispute taken the position that because ELSI was
incorporated in Italy, the actions taken by the Respondent that harmed ELSI
are not covered by this Treaty. The Respondent States on page 458 (11)of ils
Rejoinder:
"In viewof its nationality, therefore, ELSI was not eligiblefor protection
under the 1948 Treaty and 1951 Supplementary Agreement between ltaly112 ELETTRONICA SICULA
and the United States with reference to its activities in Italy and the events
concerning it which occurred in Italy."
The Respondent also, in hoth the Counter-Memonal (II, pp. 36-37) and the
Rejoinder (II, p. 458), cites SumifomoShoji America, Inc. v. Avagliano(457 US
176(1982)),and the United States Govemment hrief in that case for the proposi-
tion that FCN treaties do not protect companies incorporated in the host State.
With al1due respect, this statement is completely inaccurate. As 1have noted
in citing vanous provisions of the Treaty, notably ArticleIII, paragraph 2, second
sentence, ELSI, as an enterprise acquired hy United States corporations and in
which they had a substantial interest. was itselfprotected hy the Treaty. This was
recognized inmany of the legislativereports and debates concerning this Treaty.
For instance, the Rapporteur in the Italian Chamber of Deputies, during the
debate of 15 Decemher 1959, urged passage of the Supplement to help protect
United States investment, in its several forms, one of which is"setting up an
industrial plant in ltaly under the direct control of the American parent compa-
nies" (Counter-Memonal. Doc. II, II, p. 127).In a letter sent hy the United
States Secretary of Commerce to the Senate Foreign Relations Committee in
May 1952,the Secretary stated:
"As vou mav know, the Department of Commerce has recentlvbeen aivi-g -
spcciaixiieniion 13 the probicnis oi iaciliixting inuiually profiahle pni,liic
L'nitcdSUtej invcstmenis in forcign sountrics. The ci>ndiiions~nder which
foreignenterprises may be estahlished and operated in the vanous countries,
the oblieations which thev must assume. and the riehts of which thev can
feel asslred, are outstanding among these problems.-lt is therefore pa&icu-
larly gratifying that the modernized commercial treaties contain explicit
pr&isions on these questions. In Ouropinion, they go far toward creating-
so far as governmental agreements can - that much desired favourable
climate necessary to attract Amencan capital and technology." (II, Counter-
Memonal, Doc. 16[p. 4L]/Memorial, Ann. 86.1, pp. 43-438.)
Now, a word about this Sumiromocase. It is important that we be clear about
it. It dealt with a particular Article of the United States-Japan FCN Treaty -
companies, not locally incorporated subsidiaries, to employ personnel of their
the locally incorporated subsidiary, could not invoke this provision to avoid
compliance with the non-discrimination requirements of United States civilrights
legislation. This decision was grounded on the fact that Article VIII, paragraph
1.of the United States-lapan FCN Treaty did not contain a particular protection
for subsidiaries incorporated in the host State, just as its counterpart contained
in Article 1, paragraph 2 (c), of the United States-Italy FCN Treaty and Article
II of the Supplement do not contain such protections either. But the absence of
protection for a locally incorporated subsidiary in Article V11,paragraph 1, of
the United States-Japan FCN Treaty does not say anything about the existence
of such protections in other Articles of the United States-Japan Treaty, and
certainly says nothing about Articles of the United States-Italy FCN Treaty
where such protections are explicitlyprovided.
But even ifELSI is not urotected bv the Treatv. we are not dealing here with
a mattcr ..inicrnal" to ltal<. The 'lrenG protwis ~li~ihconand M~C~G ~ih'iS
and iniercsts in ELSI.direct and indirect, ihai u.crciniringed h) the action. idkcn
acdin3t tl.SI The Re,pondcni would likr io vicu ihis cdse ihrouph ihc prism of
jÜst Italian law, or through the prism of just customary internatconal law- its ARGUMENT OF PROFESSOR GARDNER 113
repeated references to the Barcelona Tracrion case show this. But, distinguished
Members of the Court. what we have in this case is a treatv: a treatv which bv
,
ils icrnis gii,csgreater proieciion io righis and iniercsis oi iorc.ignin\eçtors thln
i>asçordcd b) Iialian laiv or cu,tornary international Ixu. And il 1s by the
iiandard laid oui in ihc Trediy. and only . .ihdi siïndlird, ihai Itnly's reï[ii>riïi-
bility must be judged.
In conclusion, it is clear that the argument of the Respondent cornes down to
a "no-win" situation for foreign investors. According to the Respondent, the
rights and interests of forrign investon in locally incorporated subsidiaries are
not protected with respect ta actions against those suhsidiaries by the host
Government. And likewise, according to the Respondent, the rights and interests
of the locally incorporated subsidianes themselves are not protected. Well this is
absurd. By this logic, whenever foreign investment isconducted fhrough a locally
incorporated subsidiary - which was the characteristic fom of investment at
the time this Treaty was concluded and of course remains so today - the foreign
investor has virtually no protection under the Treaty. That interpretation is
contrarv to the ordinarv meanine of the orovisions of the Treatv. ~ ~t intemreta-
tion is contrary to tbe'object aid purp;>seof the Treaty. ~hat interpretaiion is
unsupported in the legislative history of the ratification of the Treaty. That
interoretation is unreasonable and must be reiected. Foreien investment in locallv
incoiporated suhsidiaries was protected in 1548and it islprotected today.
Mr. President, distinguished Members of the Court, in the two generations
since the Second World War, the world community has benefited from enormous
transnational flows of investment caoital. technoloev. an%~,.naeement skiuls.
Thcje Rowï hate bcen l'acililatcd 111pari. in ronsidsr.iblc pari, by 3 nciu.ork oi
intcrn~iionlilagrccnienti oiu hich thç Trc'it) hft~rc )ou ioda) 1%hui ùneex;iniplc.
Ii ihe nnrrou inicrprei;iiion> i,seried b, ihc Kcrpondcni wcrr IO bc ~cceoicJ hv
this Court, the vaiue of this network of treatiecwould be emasculated and the
secunty of international investments, so important to the welfare of nations,
would be gravely undermined. This is not just a matter of interest to the United
States. for todav. as Judee "ofaer oointed out in his ooenine .tatemunt. manv
oihcr couniries hase An interesi in ihc protection ifthcir in\,csimenis dbroad and
mdny oiher c,?unirics havc undcrtakcn hilaicrdl a#recmcnis si~iiilario the Tre~iy
we are construing today.
The Chamher rose ar 13.10p.m. FlFTH PUBLIC SlïTlNG (16 1189, 10am.)
Presenr: [Seesitting of 131189.1
ARGUMENT OF MR. RAMlSH
OEPUTY-AGENT FOR THE GOVERNhENT OF THE Uh'lTED STATESOF AMERICA
Mr. RAMISH: MI. President, distinguished Members of theCourt, il is with
great honour that 1 appear before the Court on behalf of the United States. 1
will address the relief reauested hv the United States. First. 1will deal with our
requcsÏf& a d~claration'b~the court ihat thc ~cs~ondcnt.'through ils ait: and
omissions. viol31rd the 1948Treaty of Fritndship, Conimcrce .tnd N3vigation,
and thc Suorilcmrnt thcrclo. Then I u.111turn to ihc cntitlcment of the Uniid
States to réparation for those violations. 1 will explain the method we have
proposed for calculating the appropnate levelof reparation, and in that connec-
lion will cal1 upon MI. Timothy Lawrence to provide expert testimony. And
finally, 1will address the issue of interest.
The United States respectfullyrequests that the Court adjudge and declare that
the Respondent, through the acts and omissions presented to the Court, violated
the various provisions of the 1948 FCN Treaty and Supplement that we have
invoked in Our Application and pleadings.
In the case concerning United Srares Diplomatic and Consular Sraff in Tehran,
this Court declared that Iran had violated its international obligations under
certain treaties, which included the 1955Treaty of Amity, Economic Relations
and Consular Rights (I.C.J. Reports 1980,p. 44). That Treaty is similar to the
Treaty before the Court in this case. As was stated in the Facrory ai Chorzow
case, the purpose of such a declaration is Io:
"ensure recognition of a situation at law, once and for al1and with binding
force as between the Parties; so that the legal position thus established
cannot again be called in question in so far as the legal eiïects ensuing
therefrom are concerned" (Interpretation of Judgments Nos. und 8 (Faciory
ar Chorzbw), 1927,Judgmenr No. II, P.C.I.J., Series A, No. 13,p. 20).
11.ENTITLEMEN OFTTHE UNITED STATE TSO REPARATION
In addition Io a declaration bv the Court. the United States is entitled to
rcparation ior thc iio13tionsof thé1948FCN Trcaty xnd Supplenicnt iommitted
by the Rerpondcnt The prinîiplc is firml! e\tdblished in inicrn~tiona1Idw thdi
a State that hreaches its international obligations, whether treaty or otherwise,
mus1make reoaration to the State iniured hv ils breach. The Resoondent does
not dispute this principlr- ai leiist~13citl~.'itiickno!iledge, thar'if the Court
finds thatIIbreiichcd the Trcdty,II muil makc full rsp~ration. ARGUMENT OF MR. RAMISH 115
In ihiscase, ihe rçpdrdiion ia IObc measured by ihe injur! suffcrcdby Rayihcon
and Mdchlcti. The Respondeni docs not senously dispute ihij çiiher, itmercly
observes that the iniu. .to a State's nationals is notstriclv identical with the
injury to ihe Siaic itsel- a proposition no one coniesis Iniern3iional arbiirdtors
and commentators concur rhiit. for con!,enicnce and cquity, ihc damages io an
injured national may be used as a guide in measuring reparation to an injured
State (see Memorial, 1, pp. 103-104). The financial losses to Raytheon and
Machlett constitute the very kind of injury the Treaty was designed to protect
against and are therefore an appropriate and equitable measure of reparation.
The financial losses to Raytheon and Machlett are also the only convenient
measure of reparation. And, indeed, the Respondent itself has not identifiedany
other measure.
Compensariofnor Al1Injuries Flowing from theRespondeni'sTreory Violalions
If. as the Parties agree. tlie Respoiidcni niusi pay conipens.Iiiun ior an) ireaiy
~ioliit~onth:it oscurrcd, oiwhat mii>tihrt rompenraiion ccinsi.1! The hcrorj, ur
Cht,r:<iticd,c pro\,ide, ihc classicanswer. which h;is been reaffirmedconslsicnily
by iniernational tribunals and commentators:
"reparation must, as far as possible, wipeout al1the consequences of the
illegalact and re-establish the situation which would, in al1probability, have
existed if that act had not been committed. Restitution in kind, or, if this is
not possible,payment of a sumcorresponding to the valuewhicha restitution
in kind would bear; the award, if need be, ofdamages for loss sustained
which would not he covered by restitution in kind or payment in place of
it- such are the principles which should serve to determine the amount of
compensation due for an act contrary to international law." (Faciory of
Ckorr6a,.Merirs, 1928, P.C.I.J., SeriesA, No. 17, p. 47.)
Once aeain. the Parties apnear to be in agreement on the basic principle, if not
~ ~ ~~-~
One %t ask, therefore: what lossesdid Raytheon and Machlett suffer al the
hands of the requisitionand in the bankrupt~y p~ ~ess?Their lossescan bequanti-
fiedas the oveiall diference betwecn their ~osition as it should have been absent
the Respondent's wrongful intervention, and their actual position as a result of
that intervention. Those lossesmay be said to fall into Iwo basic categories.
First, there are general financial losses associated with the loss of a small
anticipated return of investment in ELSI, the loss of open accounts, and the
payment of loan guarantees. These lossesreflectthe differencebetween the finan-
cial position Raytheon and Machlett would have been inhad they beenpermitted
to proceed with the orderly liquidation and the position in which they actually
found themselvesfollowingthe saleof ELSl'sassets by the trustee in bankruptcy.
Second, there are legal and related expenses. These include the legal expenses
forced on Raytheon by the bankruptcy and by the unfounded lawsuits of banks
controlled by the Respondent, as well as the costs incurred by Raytheon in
pursuing its claim against the Respondent.
I will deal with each of these items of loss separately, along with the Respon-
dent's objections 10 them. I turn first Io the general financial losses that Rowed
from the requisition and bankruptcy.
GeneralFinanciolLossesfromELSIS Requisirion andForcedBankruprcy
When a State deprives a foreign national of property or property rights in a
business enterprise, compensation should he based on the full value of the116 ELETTRONlCA SICULA
business.This includesnot only the valueof tangible assets, but also the intangible
valuesbound up with those assets - for example,goodwill, know-how and access
to oatents and technoloev. Tvnicallv. the value of the business takes in10account
the'company's future earnings pot&tial. However, as Judge Sofaer stated at the
outset of the proceedings, althougb ELSl was to be sold as a Iivebusiness, ELSl
was no1 gene;ating prifits at the lime of the requisition. Therefore, the United
States is making no claim to future profits.
The starting point for the computation of damages to Raytheon and Machlett
is to determine what amount ELSI, or its product lines if sold separately, would
have brought if sold on the open market in the course of the orderly liquidation
that was planned. The value of a business is market-based - it is sometimes
referred to as the enterprise's "fair market value". It represents the bargain a
willing seller and a willing buyer would strike, absent government coercion or
the threat of adverse and illegal government actions. As we have indicated, the
orderly liquidation team had a comprehensive plan to seIl ELSl or its product
lines as business units. Thus, the orderly liquidation would have realized the
market value of ELSl's physical assets as wellas the substantial value of ELSi's
intangible assets. The plan was to include, in the sales package, ELSI'scustomer
and supplier contacts, technical assistance, patents, trademarks, know-how, al1
backed by Raytheon's and Machlett's reputations as leaders in technology in the
wo~ ~ ~~~~~..~.~~~..industrv.
Because the ~es~ondeni prevented the orderly liquidation, we cannot know
preciselywhat this amount would have been.Therefore, we have to arrive at this
ialue based on the best information availahle. This isjustified as a matter of law,
so long as the valueisreasonable and based on evidenceand no1merespeculation.
In this case, we propose to measure the value of ELSl by ils book value.
The United States does not in neneral view book value as a fair measure of
the valueof an ongoingentcrpriw.ihe markei \,alueof ihc physicaland intangible
a\<ci.;of a going electronics Companymay he many timcr ihc hook valueoi ihe
company. Book value is in faci u.iJrl) rciccted as a suflicicni mcasurc of the
value of a business enterprise. lnternational trihunals have refused to employ
book value, because it fails to take adequate account of the elements of the
business 10be valued (see The Governmenrof ihe Srareof Kuu.aiiand rheAmeri-
can IndependenrOil Company(AMINOIL), XXI /LM, pp. 976, 1038-1039at
para. 165(1982)).
Commentators condemn book value for the same reason (see Clagett, "Just
Compensation in International Law: The Issues Before the Iran-US Claims
Tribunal", in IV The Vuluarionof NaiionulizedProperfy in Inlernaiional Law,
pp. 31, 49 (1987); McCosker, "Book Values in Nationalization Settlements", in
II The Valuariono/NarionalizedProperty in lnrernarionalLaw, pp. 36, 51(1973);
Weigeland Weston, "Valuation upon the Deprivation of Foreign Enterprise: A
Policy-Oriented Approach to the Problem of Compensation Under lnternational
Law", in 1 The Valuarionof NarionalizedProperryin lnrernarionalLaw, pp. 3,
16-17(1972)).
Wehave decidedto relv uDonhook value in this case. however.hecausereliance
on market valueas such isimpracticable. ~nternationaltribunals; whiledisfavour-
ing book value, have relied upon it or upon similar proxies in some limited
circumstances.
This has occurred. for examole. in cases in which a claimant has oro~o. .
hook value. In ihe ~cdcn c<isc'(~edi.o,Inc and Narional Irunia,~OiI Cumpany
PI al..10 Irun-US Cluin~rTr~hunalKeporr.i. pp. 180, 182(27 Mrrch I'>X6j)t,he
claimint soueht iis shxc of the liquidation ialue of a company. The award for
certain of thëcompany7s assets 100-kinto account the calcuiations of book value ARGUMENT OF MR. RAMISH 117
that had been put fonvard by the claimant. It maybe noted, too, that hook value
there wascalculated on the basis of the "current cos1accounting" method, which
allows the upward adjustment of asset values to reflect inflation (15 Iran-US
ClaimsTribunalReporrs, pp. 23, 103-115(2 July 1987)).
A number of awards have used a claimant's original investmentas a proxy for
the fair market value of property, when other measures were inappropriate. This
approach was adopted in the PhelpsDodge case (PhelpsDodge Corp. and rhe
Islamic Republic of Iran,10 Iran-L'S Claims TribunalReports, pp. 121, 132-133
(19 March 1986)). in which a market value based on projected earnings was
considered too uncertain in the circumstances. It was also adopled in the INA
case (INA Corp. and ihe Governmentof the Islamic Republicof Iran, 8 Iran-US
ClaimsTribunalReports, pp. 373, 380(13 August 1985)),in which the claimant's
investment was recent and the cost of determining fair market value by other
means would have been excessive.A similar approach was adopted in the Ben-
venutier Bonfanr case(Benvenutiet Bonfant v. People's Republic of rhe Congo,
XXI /LM, pp. 740, 759-760al paras. 4.73-4.79(1982)).
In the particular circumstances of this case, book value is the only practicahle
and therefore the onlv fair measure. First. ELSl was no1a orofitable enterorise.
ro ihc irïdiiional îorhuluiions ihai ui~uldrecognix fuiurc proiiis arc inapi>lica-
ble.Second, book ialuc issimply ihciliisc\t approilimation ofihe i,alueof EI.Sl's
plant and assets that we have. The events at issue occurred more than 20 years
ago. After 20 years, it would he exceedinglydifficultto reconstruct the value of
ELSl's product lines,spread as the) wereover markets that Varyby product line.
1emphasize once again that the adoption of a book value approach in this
case is called for bv soecialcircumstances. Nothinn in the auuroach of the United
States io this cai<should be construed IO suggc3iihai ihé'unitcd Siales would
vicwbook \due 2s necessarilyproper ln oihcr cam, espcciallywherç ihc property
to he valued is primarily of an income-generating kind.
In this case, book value represents a conservativeapproximation of the equiva-
lent value of ELSI's assets on the open market. The book value on ELSl's
financial statements as of 31 March 1968was 17.05 billionlire. In aggregaie, this
value reoresents a fair accountine of ELSl's assets.It was oreoared on a hasis
consisteAtwith the balance sheetif 30 September 1967.~hât balance sheet had
been audited by the internationally renowned accounting firm of Coopers &
Lybrand.
I will shortly he calling upon Timothy Lawrence, a member of Coopers &
Lybrand, to provide expert testimony explaining how book value in this case
fairly reflects the value of ELSI's assets. His testimony will refute statements by
Dr. Mercadante and adopted by the Respondent in its written pleadings suggest-
ing that book value did not fairly reflect ELSl's value. Before receiving his
testimony, however, 1would liketo focusthe attention of the Court on the figures
that make concrete the losses suffered by Raytheon and Machlett. For that
purpose, 1 would respectfully direct your attention to the chart appearing on
page 151(1)of the United States Memorial. (This isalso setouton a transparency
that we have provided for your convenience.)
Column I charts the basis for the United States claim for reparation in this
case. It starts from the conservative premise that ELSl's physical and intangible
assets were worth at least hook value. In fact, ELSl's assets may have recovered
more than hook value if the orderly liquidation had proceeded as planned.
However. as 1 have indicated. for the oumose of this claim the United States
bases its ;equest for reparation on hookvaiue. Thus, the top line of the ch-rt
"Proceeds for Distribution" - reflectsELSl's book value as of 31 March 1968,
an amount totalling 17,053.5million lire.118 ELETTRONICA SICULA
The other figuresthat appear in Column 1are taken from Schedule E attached
to the affidavit of Mr. Arthur Schene, fomerly the Vice President-Controller of
Raytheon. His affidavit appears as Annex 13 to our Memorial (1).As that
schedule and the chart make clear, if ELSI had been liquidated as planned and
if book value had heen recovered,preferred creditors would have heen paid first
in the amount of 1.036.8 million lire. Secured creditors would also have been
p;iid in full in the amount of 3,8195 million lire. Rdyiheun, in il.capciiy a,
unseiured irediior. wduld have ken paid in iull in ihr amount of 1,143 8 milliun
lire. The remaining unsecured credifors - these were the small creditors, the
banks with unguaranteed loans, and the banks with guaranteed loans - would
have been paid in full in the total amount of 10,292.4 million lire.Finally, 370
million lire would have heen paid to cover the estimated administration and
liauidation costs. Subtractine al1 of these Davments from 17.053.5million lire
whd have left Raytheon a:d Machlett wiih.391 million lire as a recovery of a
very small portion of their investment after paying al1creditors in full.
Now comnare the results of the nlanned liquidation with what actuallv ha^-
pened in hànkruptcy. Column 3, bhich is Ôu the far right side, depi& the
distribution of the proceeds in bankruptcy. In this case, the figures are taken
from Attachment B, Schedule A, to the affidavit of Mr. Dominic Nett, fomerly
the Controller of ELSI. His affidavit a..ears as Annex 30 to our Memorial (1).
The pro<red$rc~lizedin b~nkrupic). .ind ihcir disiribuiion. arc maiter, of rrsord
and drc no1dispiiie,i bv ihe Kcspondcnt.
Line 1 shows the proceeds actually recovered by the trustee in hankruptcy
from the sale of ELSI's assets to the Respondent's IR1 subsidiary, ELTEL - an
amount of 6,373.8 million lire. Preferredcreditors who filedclaims in hankruptcy
were paid in the amount of 1,961.7 million lire, whilethe secured creditors who
filed claims in hankruptcy were paid in the amount of 3,705.1 million lire. (1
would note that these figures are slightly different from those appeanng on the
chart; however,their total isthe same.)The administrative costs of the hankruptcy
proceeding were paid in an amount of 673.6 million lire. This left only 33.4
million lire available for payment on a pro rata basis to unsecured creditors. As
you can see, unsecured creditors recovered less than 1 per cent of their claims.
Raytheon itself lost the full value of its own unsecured loans - the so-called
"open accounts". This explains the zero figure on the line marked "Unsecured
Raytheon" as well as the figure of 1,143.8million lire whichappears on the line
marked "Open Accounts". In addition, hecause proceeds from the sale in bank-
ruptcy were insufficient to pay the guaranteed creditors in full, Raytheon paid
the guaranteed loans and interest out of its ownpocket in the amount of 5,787.6
million lire.That figure is derived from Schedule II of Mr. Schene's affidavit(1,
Memonal, Ann. 13).
Now, you may ask why Raytheon did not share in the pro rata payment to
unsecured creditors. The answer is an economic one, but has no legal relevance.
Because Raytheon determined that the expense of filing a claim in bankruptcy
would likelybe greater than any pay-out, Raytheon refrained from filinga claim
in hankruptcy. This is immatenal to the claim, however. As you see from
Column 1, Raytheon stood to recover the full value of its loans from the sale of
ELSl's assets in an orderly liquidation.
Having lost the open accounts and having paid the guaranteed loans, Raytheon
suffered actual losses totalling 6,931.4 million lire.Now contrast this with the
small return of 391million lirethat Raytheon and Machlett would have received
from sale at book value. The sum of these two figures is 7,322.4 million lire,
which in dollars translates to US$l1,739,200, and this represents the United
States claim for reparation for this category of injury. ARGUMENT OF MR. RAMISH 119
What u,chwe proposed -book talus isin thesecircumstances a reasonable
pror). and ihc only fur mrasurenient. for ELSl's villue. As \Ir Laurcnce u.111
crplain in some dciail -2nd I u,ould emph3.ji7cihis point hcre - ihr \alulition
ihat wa.*ordrrid hy ihe hÿiikruptcy court. which uc uill rckr IO a, ihc "Puglisi
valuation", supports the recovery of at least book value when one takes into
account the depreciation in the intervening period. The Puglisi valuation does
not even purport to value the suhstantial intangible value of ELSl's business.
Thus, in this case book value is a conservative - indeed, understated - value
of ELSI.
As MI. Lawrence will also explain, the valuation submitted by a member of
the IR1 group, which we will refer to as the "Siemens" valuation, does not reflect
the fair value of ELSl's assels. Indeed, not even the Respondent has seriously
argued that the Siemens value should be accepted by this Court. It values ELSl's
assets manymonths afler the requisilion. If whollyfails 10 value ELSl'sintangihle
assets. Moreover, itfails to value the X-ray, semiconductor. complexcomponents,
and other products. Finally, that valuation cannot be treated as objective. It was
prepared hy ELTEL's parent, Sieniens, as a basis for reducing further the mini-
mum bids established by the bankruptcy judge.
This brings us to the only other value on the record in this case, the quick-sale
value. In the course of planning the orderly liquidation, Raytheon management
instructed the liquidation tearn to prepare a worst-case scenario of the sale of
ELSl's assets. This worst-case sccnario was to be used for interna1 Raytheon
planning purposes only. It would allow Raytheon and Machlett to determine
whether orderly liquidation in the worst of circumstances was indeed feasible. It
was not meant Io form a basis upon which ELSI's assets would be offered, nor
did it attempt to predict the actual value that ELSl's assets would bring under
the liquidation plan. Obviously, the incentive was Io provide the parent -
Ravtheon - with as low a number as oo.sihle. Aeai"st this low number. the
;istual procrrds rc~o\~eredon the open market for FI.Sl's physical and int3ngihlc
asscis could bc treaied 3s reflcciinr:the succcsjïul eflorts of EI.SI personncl
Conseauentlv. the liauidation team nreoared an estimated minimum value of
ELSl's n;scts ~his valhc hai bccn ref:,rrid :dihy hoth Partics throughout thcir
writtcn pleadings as the 'quick.salc \;ilue0. 10 \tari. ihr Iiquidation tcarn arbitra.
111 siiigncd 3 !ero \,31ue IO ELSI'Sintangible asjets Scxt. the Iiuuidation team
ariificiany reduced the value of each cat&ory of ELSI's assets io reflect what
those assets might recover if put for quick-sale on the market. Using this
a~p~oach, the liquidation tcam established a quick-sale value of 10,838.8million
lire.
The liquidation team had every reason to expect that ELSI'S physical and
intangible assets would have recovered far more than quick-sale value given the
steps taken by Raytheon and Machlett to obtain the maximum possible value
for ELSl's assets. As vou will rec;ill. these steos included the sale of ELSl as a
business. thc altcrnati& ofT~.o ri~ïk uI' ELSI'S~SSC~S by producl linc. the aggrcs-
rive msrkcting of EI.Sl's produci linc>to potcntial purchascrs al1ovcr the uorld.
and the commitntcnt by Kavthcon and .V;ichlett 1,suririly,as riart of the ri:ickaee.
oatents. trademarks. téchnicalassistance and know-how. in ihe cont~xi ~f th%
;,un r~ihlishcd rcp"taiioni in lhc clectronics~nduri~. Thus. the quick-sale mlue
suh~tliniiallyundcrvalucs whai Raviheon and S1a~.hlittwould haw rcsot,cred for
ELSl had the orderly liquidation ken completed as planned.
The quick-sale value served as the basis of the request by the United States in
its diplomatic claim in 1974.However, this was by no means a concession ofthe
propriety of relying on quick-sale value in litigation. The diplomatic claim was
an attempt by the United States to achieve an amicable and rapid settlement of120 ELETTRONICA SICULA
the dispute with a good friend and ally, Italy. Indeed, the diplomatic note of the
United States dated 7 Fehruarv 1974made this clear. exoresslv .tati~,-~~~~~the ~~~ ~~ -~ ~
Ilniied St3res u3s prrpared itienter into nzgotiaii<lnsuith the Italian Cio\ern-
ment "wiih a vicw 1i1concluding an cipediiiou~ and equitablc sciilemcni oi the
clam ..." (Countcr-Alcmoridl. I!nnumhercd Diicument., II. p. 233).
As a scitlcnicnt cKort. the diplomaiic cldim rcprcscnti neithcr an cxprcsjion of
opinion th31 (uch 3rlific131reduct~onof value corrcsli~)nrl~io the internati<inaI
standard of com~ensation - it does not - nor an evaluation of the worth of
the claim. ~anifactors go into such settlements - including the recognition
that a small but certain recovery now may he more valuahle for a commercial
enterprise like Raytheon than a iarger recovery that may come much later, if at
all. The fact that a party may attempt to settle for a smaller sum early in the
process by no means vitiates its nght to full compensation later, when its offer
of settlement has been rejected. This principle is illustrated clearly in the judicial
system of the United States, in which the Federal Rules of Evidence preclude
reference to the lems of settlement offers made during negotiations (see Federal
Rules of Evidence, Rule 408).
Let us consider, however, for purposes of comparison, what would have heen
the result if the orderly liquidation had proceeded as planned and if Raytheon
and Machlett had recovered only 10,838.8 million lirefor ELSI. The numhers
show that even if no more than quick-sale valuehad been recovered, Raytheon
and Machlett would still have heen significantly hetter off than with the sale in
hankruptcy.
May 1 again respectfully invite you to turn your attention back to the chart.
In this case the middle column is the relevant one, and the figuresare taken from
Schedule F to MI. Schene's affidavit (1, Memonal, Ann. 13). The first line -
"Proceeds for Distribution" - shows the quick-sale value of ELSl's assets:
10,838.8 million lire. This amount would have heen sufficient to pay first al1
preferred creditors in the amount of 1,036.8 million lire - exactly as in Column
1. It would also have heen sufficientto pay al1secured creditors in full, in the
amount of 3,819.5 million lire - again exactly as in Column 1. The amount
would also have heen sufficientto pay the administrative and liquidation costs
of 370 million lire.
The remaining funds would have been usedto pay the claims of the unsecured
creditors. As 1indicated earlier, there werefour categories of unsecured creditors:
the smallcreditors, banks with unguaranteed loans, banks with guaranteed loans,
and Raytheon itself.
Raytheon and Machlett had planned to pay the small creditors' claimsin full
in the amount of 520.6 million lire.They had planned to settle the unguaranteed
hank loans at 50 per cent of value, which would havebeen 2,030.2 million lire.
This would have reducedthe funds available to 3,061.7 million lire, which would
then have been used to pay the banks with guaranteed loans and Raytheon itself
on a pro rata hasis at 44.66 per cent. (1would note in this connection that this
is the correct percentage, rather than the 42.89 per cent that appears in the
heading of Schedule F.) The hanks with guaranteed loans would have received
2,550.9 million lire.This amount, added to the amounts 1 have just mentioned
for the small creditors and the banks with unguaranteed loans, results in the
figure of 5,101.7 million lire, which is reflected in the chart. In the pro rata
distribution, Raytheon would have received 510.8 million lire,and again this is
the figure that is reflected in the chart.
The hottom portion of the chart shows the cost to Raytheon under this
scenario. Raytheon would have had to pay the balance of the guaranteed bank
loans and interest in the amount of 3,160.6 million lire. Raytheon would also EVIDENCE OF MR. LAWRENCE'
EXPERT CALLED BY ïHE GOVERNMEhT OF THE UNITED STATFSOF AMERICAI
The PRESIDENT: Would Mr. Lawrence please take the floor. Before giving
your statement you have to make a solemn declaration, according to Article 64
of the Rules of Court. You have been provided with the text.
Mr. LAWRENCE: 1solemnly declare upon my honour and conscience, that
1will speak the truth, the whole truth and nothing but the truth, and that my
statement will be in accordance with my sincere belief.
1. Mr. President, distinguished Members of the Court, 1have been asked to
explain to the Court whv 1 believe that if the management of ELSl had been
pekmitted to proceed with a well-managed and orderly disposal of ils assets and
business they could have realized at least the amount of 17 billion lire,at which
they were stdted in the company's books.
2. In considering the relevance of book values 10 the issues in this case it is
necessary to refer first to the way in which companies draw up their balance
sheets, and to the conventions that are used. A balance sheet is a summary of
the financial position of a company at the end of ils accounting penod and
summarizes the assets owned by a business, the liabilities owed by it, and the
shareholders' capital and reserves, the capital and reserves being equal to the
amount by which the assets exceed the liabilities.
3. The amounts at which the vanous assets aDoear in the balance sheet~ ~ ~ ~ ~-~~~~~ ~ ~ ~ ~
referred to as book value. These are the balances standing in the accounting
records of the company and are not necessarily the same as their current market
value. They are based on certain pnnciples and practices that are widely accepted
internationally. One of the fundamental accounting concepts is the concept of
prudence, which requires that losses in value should be recognized as soon as
they are anticipated but that profits should not be recognized until they are
realized. The effect of this is that book values will generally be no greater than
market value but mav be ,u~ ~ ~t~ ~lv~ ~ ~,~ ~ ~ ~ ~
4. For example, fixed assets such as land and buildings are normally recorded
at their cost to the Company at the time of ~urchase. The value of the land will
be retained at that amount but nrovision will be made for denreciation ~ -- of
buildings to reduce their book valie year by year over their expected useful life. --
The market value of the property may rise substantially above book value but
there is no accounting requirement 10 adjust the book value upwards, nor is
adjustment normal practice. It should also be appreciated that intangible assets
may have very substantial values that are not reflected in the company's books.
The benefit to a company of such matters as ils technolorical know-how. its
customer base and distribution channels. its market sharë. the training c~~~
technical compclencc oi ils rrorkforce, ils ;elsiionihipr with ils suppliers and 11s
neu product development and research activiiics represent a \ery great dillèrznse
between a new company just starting out with none of these advantages and an
' Mr. Lawrence made use of a numberof tables.whichweremadeavailable io the
Chamber and the UnitedStatesdelegalion and are reproducedat pp.429-431, infio. EVIDENCE OF MR. LAWRENCE 123
established Companywhich has them. These benefitshave a substantial value that
is no1included in the company's accounts.
5. Beforeproceeding to consider the question of value, Mr. President, 1should
refer first to certain criticisms of ELSI's accounting made in a report by Dr.
Giuseppe Mercadante which is amongst the papers before the Court. It is clear
that this report was prepared some six months after the ELSI plant had been
requisitioned. During this period no accounting records were maintained and
some of those that existed before may well have disappeared. It is extremely
difficult for any accountant to establish from a retrospective examination of
accounting records alone the exact nature and explanation of al1of the Company's
transactionsand the reasonableness of its exnenditure. Professional auditors bave
acccis io ihr..i<~..lunting(13ITxndIO rhr.miin:i$cmentoi the conipan) i\.hcnth~.y
c4rry udr rhr'lr;iudtt ;inJ .ire ahlc to ,ibi~iii ir~m rhcni important ,~ppl~rrlir~r3r"
inii~rmation2nd ~.\~l.in;iii~n,10 iid thcir undcrstxndinr!and rhcirahilits IOdrair
the right conclusio~s. Dr. Mercadante had no sucb access to those reiponsible
for the accounting and management of ELSI and he makes it clear that this
imposed substantial difficultieson his task.
6. Makine full allowance for those difficulties.1round Dr. Mercadante's reoort
~.onfuscJand lacking in ob~cztivity. He xpparr tu hl,c <ci.>utuith :>poriti\r.
intenti,~n 1.)dicrcrlit or bl;imc t.i.SI', inanagcmcnt dnd Ka)thcun and tu trcat
every matter which he did not understand as evidence of wrongdoing on their
part. Many of his conclusions are manifestly unjustified by the premises upon
which they are based. In general. his report does not aid the determination of
the value that should be placed on ELSI'sassets and 1willnot dwellon il further.
7. Turning then to the question of values, the evidence of value before the
Court includes three sources. First, there is the so-called "quick-sale" valuation
prepared by Raytheon personnel in March 1968.Next there is a valuatiou of
some, but not all, of ELSI's fixed assets, made by Siemens in May 1969 and,
finally, there are the book values of ELSI's assets.
8. Dealing first with the quick-sale valuation, the affidavit of Mr. Joseph
Scopelliti shows that the objective of the so-called "quick-sale" value wasto
prepare a very conservative plan reflecting the minimum prospects of recovery
of values which Ravtheon could be sure of. in order 10 ensure an orderlv
liquidation process. (1concluded that the absolute minimum figure for the
ceeds of the tangible assets was 10.8billion lire, the recovery of which couldbe
relied upon from a liquidation in any event. It look nothing into account for any
amounts which mieht -e receivedfor intaneible assets.
9. In my experience, il is quite nomal, when consideration is being given to
the liquidation or disposal of part of a group of companies for estimates to be
pre~ared of the ~ossibleoutcome. Such estimates arenormallv made on a verv
EauTiousor nedmistic basis. This is to ensure that the suhseouent outcomé ~ ~~ ~ ~ ~
should not b; disappointmcnt icithe management or IO the çriiitori \\ho mdy
have dgrccd ioa coursc O( action biwd un \ush estirnies Whcrc ihor makini:
such es%imatesare also 10be responsible for the realization of the assets, there 6a natural tendency 10underestimate the proceeds so that their subsequent efforts
will appear successful.
10. In mv view. the "ouick-sale" valuation is onlv of limited dire~ ~~ ~evance.
Ii mus1be ;ecugnired thai the intention uf ihow prEparing iiwas IO rsi~blirh an
crircmely cunierv~iivc "worstzase" ligure which would havekn considerÿbly
lower than the proceeds they expected 10realize in an actual orderly disposai of
ELSl's assets.
I1.1turn next to the Siemensappraisal. 1do not propose to discuss the Siemens
appraisal in any detail but 1 would draw the attention of the Court 10 three
points. The first is the fact that it did no1extend to al1the company's fixedassets
but omitted assets of a substautial value. The second is the date of the report. It
was produced shortly after the third auction which was held on 3 May 1969,
over a year after the requisition of ELSI's assets. In the intervening time those
assets mus1have deteriorated rapidly due, among other things, 10lack of mainte-
nance and possibly pilferage. My final observation is thal il was produced by the
majority shareholder in ELTEL, which was seeking to buy ELSl's assets at the
lowest possible price.It is clearly subjectively hasedand aimed at securing the
bankruptcy court's consent to a substantial reduction of the auction price. While
1would not cnticize Siemens for seeking 10ohtain the best possible bargain, 1
do no1 believe that their document can be regarded as a fair and objective
assessment of the situation when it was prepared and, still less, the situation as
il existed in March 1968.
12. This brings me 10the book values. With your permission, Mr. President,
1would now like to present to the Court, in the form of a chart', a summary of
the book values of ELSl at 31 March 1968. 1believe that the Court has copies
of the charts hefore it. The figuresshown in this chart are derived from Attach-
ment A 10the affidavitof Mr. Dominic Nett. a document which is alreadv before
the Court as Annex 30 to the United tat t Mesemorial (1). 1have prod;ced the
charts solelywith a viewto hringi.. together the key figuresin a way that 1hope
the Court will find convenient.
13 1 dndcrbidnd ihai the bdldnse rheri di 31 Miirch 1968u% drüwn up hy
those responiihle uithin tLSl using the qamcaccouniing principlcsand prasticrs
as had been iidopied li~rihc purposc of the auditrd balancc sheei ai 30 Sepiembcr
,,u,.
14.That balance sheet was audited by the Milan officeof Coopers & Lybrand
who, with minor exceptions to which reference was made in their audit report,
reported that the balance sheet was drawn up in accordance with generally
accepted accounting principles.
15. 1 propose to refer in turn to each of the main tangible assets in the 1968
balance sheet and 10explain to what extent it can be regarded as a reasonahle
reflectionof the amount realizahle in the conditions anolicable 10a well-olanned
and successfullyexecuted liquidation. I shall ihen refk Io the valucs ihii might
hai,e been obiained for the intsngihlr asseis of ihc business
'See CorrespondenceN , o.68,infra. EVIDENCE OF MR. LAWRENCE 125
16.The balance sheet is expressed in millionsof Italian lire and al1the figures
that 1shall refer to in what 1have to say are also expressed in millions ofItalian
lire.
17. 1turn first to the fixedassets of the Company.
18. The Court will see that the total book value of 5,764.4 was made up of
5.300.8in resoect of actual assets and 463.6 whichis descrihedas "taxed reserve".
fhi, Iaticr ahouni rcprcscnicd cxpcndiiurc uhich u,;isdiiüllo!ir.\l b? ihc Iialian
Revenue Auihoriiics ior iax purposcs. Tlic cornpan) had reinsiaicd iiin lis books
in i~rilerihar thev hi1~1J meei the Ii;ili;inle~dlreq~irïmcni thxi the hi~iiks\h~uld
be kept in line iith the tax position. It seemsclear that the taxed reservehad no
definite senarate realizable value and 1 have therefore excluded it and have used
-~r ~ ~ ~ ~-
the lower figureof 5,300.8as my starting point.
19. During the course of the hankruptcy proceedings of ELSI, the court
appointed Professor Mario Puglisi of the University of Palermo as a technical
consultant for the purpose of appraising the value of the fixed assets of ELSI,
with a view to determining the hase pnce to be set for the sale of its assets hy
auction. Professor Puglisi carried out his appraisal towards the end of September
1968,some six months after the plant had been requisitioned hy the Government
of Italy. His report describes his approach to the appraisal exerciseas follows:
"this report ... is designed to determine the current market value of ELSl
as a whole, if sold to a third party which intends to operate the facility
without suhstantiallv chaneine the nature of the ~roducts or mode of manu-
-.
I;i~.iurcAll v:iluüiion criieri3 :ipplied mu,[ therel;~rche seen in the Iighi 01
this concept." (II,(.'o~nter-Sleiiioridl.Ilnnumhered Do:unicnts, khihit III-
It appears from the Puglisi appraisal that he had accessto a physical inventory
of fixed assets and was able to consider item hy item the value of each of the
main assets in this category. His appraisal look in10 account the effects of
obsolescence and the physical condition of the assets. His approach appears to
~ ~ ~~ ~~ ~~ir~lv~,on~ ~tent with the assumvtion that the sale of the assets should
be achieved as part of a well-planned orderÎy disposal in whichal1the assets were
dis~osed of together to a single purchaser or as groups of assets disposed as a
senes of nackaees each com~risinr al1 the assets associated with a varticular
-
product or pro&ct group. -
21. It is my opinion that the Puglisi appraisal, which directly addressed the
question of realizahle market values (alheit at a date some six months after the
reauisition of ELSi's orovertv) vrovides an aovrovriat..hasi. for estimating the -
reilizable value of its fixe'dasse&.
22. The Puglisi appraisal concluded that the aggregate current value of ELSI's
land and buildings al Palermo was 1,716.9 whichis in excess of the book value
o-~ ~6~-5~ ~ ~71-~9~ was the value at the end of Seotember 1968. The value at
31 March 1968may have been somewhat higher, having regard to the deteriora-
tion of the fabric of the buildings followingtheir requisition when, 1understand,
the comoanv's normallv hieh .aintenancistandards lavsed
23 rhr. ;;,scis cr)\erçd b) ihe hciciing ~~~chincr~'~nilFquipmcni" in my
sumnidr) of fi.\cdassets ixlsoincludc furniturc. Iixt~resand a~toniobilcs and had
a book value oi4.154.2. Not a11of the asscis includcd drainsi ihis balancc shcçt
heading were considered hy Professor Puglisi. He placed a value on those that
were included in hisappraisal of 2,843.6. This may he a somewhat conservative126 ELETTRONICA SICULA
assessment since no less than 3,691 had been expended on new machinery and
equipment within the past fiveyears. His aggregatevaluation of the land, buildings
and other fixedassets was 4,560.5.
24. However, he did no1 consider any of the assets at the Rome and Milan
premises of ELSl nor the automobiles. Something clearly needs to be added to
the amount of his appraisal in respect of those assets.
25. It mus1 also be kept in mind that Professor Puglisi was considenng the
value al a time when the plant had been idle for six months, dunng which no
maintenance and repair work had heen carried out. Also, of course, al1of the
assets were six months older. These factors could, in my view,easily account for
a diiïerence of some 10 per cent hetween the value at 31 March 1968and the
value at the lime of the Puglisi appraisal.
26. 1would also mention that it isunclear whetherthe inventory of fixedassets
which Professor Puglisi used for the purpose of his appraisal included the items
of construction-in-process which are shown in the books at 184.1. If not, some
further addition should bemade for these.
27. If allowance is made for the fall in the value between 31 March 1968and
the time of the Puglisi valuation for the automobiles, for the assets in Rome and
Milan and for assets that mav have beenomitted fromthe inventorv. the amarent
eau between the am~ ~t o~ ihe Puglisi valuation -~ 4.,---5-, and ~ ~ ~- ~ - ~ ~ ~~~ ~
- A "
of 5,300.8can reasonablybe accounted for.
28. 1conclude that, to the extent of 5,300.8the book value ai 31 March 1968
is substantiallv corrohorated bv the Puelisi valuation and that il can orooerlv...
regarded as a.fair indication of the amount that would have been recovered in a
well-planned orderly disposal.
29. In considering the reasonableness of the belief that the amount of 5,300.8
was fullv realizable. 1 would invite the Court to hear in mind that ELSI had
incurred substantial expenditure in the years immediately preceding 31 March
1968in upgrading its plant and providing the equipment needed for the manufac-
ture of sophisticated electronic equipment. No less than 4,175.3 had been ex-
pended on property, plant and equipment during the five years ended 30 Sep-
tember 1967.This supports the view that much of ELSl's fixed assets comprise
modern up-to-date plant.
30. With allowancemade for the effectsof inflation and for Professor Puelisi's
finding that the land and buildings were worth some 750 more than their book
value, the prospects of realization of the total book value auuear to me to have
been very good.
31. The next main group of assets is the inventory of materials and work-in-
process whichhad a hook value at 31 March 1968of 6,534.6.
32. This amount included a taxed reserve, similarto that which 1 referred to
in respect of fixed assets, of 1,015and this figure should be eliminated as having
no recoverable value,so reducing the hook value to 5,519.6.
33. The accounting pnnciples upon which balance sheets are drawn up require
that a Company'sinventory of materials and work-in-process should be valued
at cost, unless their realizable value is lower than cost, in which case the book
value is required to be reduced to net realizable value.
34. A reduction amounting to 294.4 was made at 30 September 1967but the
corresponding adjustment may not have heenmade in arnving al the hook value
at 31 March 1968. EVIDENCE OF MR. LAWRENCE 127
35. 1have therefore assumed that a similar provision would have been required
at that date and have reduced the book value further to 5,225.2.
36. The book value of the inventoiy, under generally accepted accounting
principles, must be equal to or lower than ils realizahle valueon a going concern
basis. 1 believe that the book value as adiusted of 5.225.2 would have been
recoverable in the context of a well-planned and orderly disposal, in which the
inventory associated with each product group was disposed of as part of a
package together with the associated plant and machinery, to a purchaser who
would also obtain the henefitofthe established businessconnections with custom-
ers and suppliers.
37. 1 turn next to ELSl's accounts receivable, which appear in the balance
sheet at a total of 2,412.4.This aniount is made up as shown in this chart.
38. It will be seen that al 31 March 1968the amount receivahle from ELSl's
customers was 2,150.8. Against this a reserve of 80.6 had heen made for bad
debts. Mr. John Clare has testified that a thoroueh ouree of accounts receivahle
had been carned out in 1967.The provision of 85.6'establishedat that date was
arnved al after seeking positiveconfirmation from al1customers of amounts that
they owed, thoroughly investigating accounts that were not agreed and making
appropriate adjustments. MI. Clare has also told the Court that Raytheon would
have beenprepared to guarantee these accounts receivahle at their full face value.
On the basis of this information, I conclude that the net book value of 2,070.2
fairly represents the realizable value of these assets.
39. The amount of 106.0 was shown in the accounts as owing to ELSl by its
two suhsidiary companies in Zurich and Stockholm. These balances appear to
have heenregarded as recoverable at 30 September 1967notwithstanding the fact
that the subsidiaries had made losses which had the effectof reducing the value
of ELSi's investment in them. 1can see no reason why these balances should not
have been regarded as recoverahle in full in the context of an orderly liquidation.
40. 1have reviewedthe items makine L .the other accounts receivabletotalline-
236.2. irhich appcir. ior ilie nio,t I>ii)h6Iikel) to li;iie pro\.ed fully rcc.i\erd-
blebiii include\.,me .m311iiciii~for uhichrome aJjuiiiiiciit niight bcappriiprixic.
I Iiüic. thercforc. roundcd rliis fieiiredown Io 200 h, dcdusiinr! an :illt>ii.ofcc
36.2 for the amounts that mighi prove irrecoverabie, such ascertain pre-paid
expenses.
41. 1conclude that the book value of accounts receivahle, of 2,412.4, would
have heen realizable to the extent of 2,376.2.
42. Other assets included in the balance sheet of31 March 1968totalled 621.
This included a numher of smaller balances, cash and bank balances, notes
receivable, investments in subsidiary companies, accrued receivables and pre-
paymeuts as shown in this chart.
43. 1have carefully considered the items making up each of these headings and
have identifiedsome minor respects in whichadjustment appears appropriate in
considering what might have been realizable.
44. It appears that the two subsidianes would probably not have realizedany
significant amount and 1 have therefore eliminated their value. 1 have also
deducted an allowance of 71.3 for certain other minor amounts included within128 ELETTRONICA SICULA
these headinm that mieht not orove recoverable. includine oart of a claim for a
price adjustient on a Salecontract relating to klystrons.s
45. 1 conclude that these assets could he regarded as havin- a value of the
order of 430.5.
46. In addition to these amounts appeanng in the books, ELSI's outstanding
claims to grants under the Mezzogiorno legislation were expected to be met to
the extent of300.Nothing was included inthe balance sheet, pending agreement
with the administering authority, but it seems reasonahle to hring this amount
into consideration as a further recoverahle asset, and 1have therefore increased
the figure of430 to730.5.
47. Turning back to the chart showing the summary of the book values of
ELSl's assets at 31 March 1968, the final category that has to he considered is
the intangible assets of the Company.As the Court may appreciate, the value of
a company's intangibleassets is not normally fullv reflected in itsbalance sheet.
Somc book \duc ha). ix aitributcd io ccrtiin iicnis311 intangihlr characicr,
ihc cost of uliich is hcing carricd itiniard ini<>iuiurc ~c<<>untipcrii~ds,but
thesr di?noi icll ihc uholc iiory. ELSI's bnldncc rlicei included czrtdin hcadinaq
which contained items of this sort. such as studies in orocess. deferred costs of
production, improvements and re~r~anization.Such items totalled 1,721.1.While
no separable value could he attached to these items there was, in my opinion, a
real prospect that intangible assets would have realized a suhstaniialÏvalue in
connection with the sale of ELSI's businesses.
$8. The purchÿscr of d husincsi dors no1 acquirc simpl) 11.land. huililings.
nidchiner) dnd CqLipnicni,ils in\cntor) ~isilircs and maicrial. ïnd the nght io
colleciildchis li ;icquire.;alio the uholc of ihc bciicfiiofiii coniinuing busines>
connections aiid of ihe coit and mandgcmrnt crïori Jc\otcd 10 c~t:tbli\hingand
Jc\cloping ihr hurincis This is sonieiinics rcicrrcd io 3s ihç go~dtvill oi ihc
business. It is myopinion that there was a good prospect that a furchaser of any
or al1of those businesses would havebeen prepared to pay a substantial premium
over the value of the tangible assets for the benefit of this goodwill, particularly
if there wascompetition between more than one prospective purchaser to acquire
the husiness.
49. The particular features of ELSl's business connections that should have
commanded a substantial premium for goodwill werethe following.
50. It had a strong technical hase with great experience of the production
methods required for the manufacture of complex electronic products, such as
microwave tubes for the Hawk missile programme.
51. It had the benefit of well-establishedsources of supply.
52. It had a well-establishedcustomer base and a substantial market share in
ccr1:iinniarkcis, such 3s the Iinlian cdihode rd? tbhe markci oi iihichx\ Mr
Clarc has iesiified. ELSI hrld uimc?O per ceni.
53. It had a well-trained and technically competent workforce.
54. It had a strong technology base, which had been strengthened over the
recent past to form the hasis for new product development.
55.It had closeconnections with Raytheon, with that company'sgreat technical
strength and the prospect of future access to the results of Raytheon's research
and development activity. Its existing technology included microwave ovens,for
which there was an enormous potential market, as well as new and improved
Raytheon defence systems beingintroduced for production in Europe. EVtDENCE OF MR. LAWRENCE 129
56. And finally, there was the possibility that the acquiring Company might
obtain the benefit of past losses against its future tax liabilities.
57. In my opinion there was a good prospect that the benefit ofthese intangible
assets would have produced a premium of at least 3,500ahove the values attribu-
table to the tangible assets. And this would have had the efect of bringing the
total amount realizable to a figure somewhat higher than the total book value
appearing in ELSl's 1968balance sheet.
58. By way of summary, I would present to the Court this chart, which sets
out a com~arison of the book values shown in the chart produced earlier with
the realizable values that 1have arrived at in considering ëach separate category
in turn: out of the book value 5,764.4for the fixedassets, 1concluded with the
support of the Puglisiappraisal that some 5,300.8 wouldbe recoverahle, but that
the amount described as taxed reserveshould be eliminated.
-9.O~~~~~-t~e book value of 6.534.6for the inventoriesof materials and work-
in-procesr, I concluded that ihç iaxcd reserve 01'1.015should bc eliminated and
thîi a further pro\,ision should bc miidc Io reduce the realizablc value Io 5.2252
60. The accounts receivahle aooea..d to reauire onlv verv.minor.adiustment
to climinîic certain irreco\crable ;iccruals and'1 rcduced those from ?;41? 4 Io
2,376 2. The oihcr aireis of h2Lha\e ken adjusicd io climinaic ihe in\,esimenis
in the suhsidi3rs compïnies and some further small irresoverahle amouni< ihat
have ken increased by an estimated amount of 300 which wasexpected 10 be
recoverable from the authorities administering the Mezzogiorno legislalion.
61. Finally, in place ofcertain balance sheet categories of an intangible nature
totalling 1,721.1,1have concluded that a premium above the value attributahle
to the tangible assets could reasonably havebeen envisagedof the order of 3,500.
This would bring the total prospective recovery on a well-planned properly
conducted liquidation to a figure marginally higher from the book value which
the United States of America claims is the minimum amount that might have
been realized if the management of ELSl had heen permitted to carry out an
orderly disposal of its assets and iindertakings.
Mr. President, distinguished Members of the Court, that concludes my
evidence.
Mr. MATHESON: Mr. President, 1 have discussed with the Agent for the
Respondent the order of proceeding, and on the basis of that conversation 1
would suggest that we break now. When we resume, Mr. Lawrence would be
~va~l~ ~ ~fo~ auestions either bv the Resoondent or Members of the Court. after
which Mr. ~a'mishwould conclude ~ur'~resentation on this aspect of the case.
1will then ofer a final summary of the oral argument of the United States.
The PRESIDENT: Very well, we are going to proceed according 10 this
agreement of the Parties.
TheChamberadjournedjrom 11.20 ro 11.35am.
The PRESIDENT: 1cal1upon the ltalian delegation to examine Mr. Lawrence
as an expert, please.
Mr. FERRARI BRAVO: Mr. President, with your permission, Professor Bo-
nell will put some questions to the expert and after that 1 might have another
request to the Court.130 ELETTRONICA SICULA
Professor BONELL: 1shall be verybnef, 1promise you 1do not want to duly
postpone Ourdehate. Mr. Lawrence, are you familiar with Italian accounting?
MI. LAWRENCE: 1do not profess to he familiar with Italian accounting. 1
have some exoerience of Italian subsidiaries of British com~anies with which 1
have heen concerned.
Professor BONELL: 1see. Now, in your opinion, would a top manager of a
United States comDanv nonnallv he in a ~osition to read and fullv understand
an itaiian financiaj stitement?1 mean, drawn up by an Itaiian iompany, in
Italian, according to principles generallyadopted in that country?
MI. LAWRENCE: As 1 understand the position, the accounts of ELSl were
drawn up not only so as to comply with Italian law but also so as to comply
with the requirements of its parent company Raytheon. Therefore 1wauld expect
information to he availahle to the parent company management in a fom which
il could understand.
Professor BONELL: 1see.This leads now to my next question precisely.You,
earlier on this morning, told us that the last regular balance sheet of ELSI, the
one dated 30 September 1967, was audited or certified by your fim. 1s that
correct?
Mr. LAWRENCE: Yes.
Professor BONELL: On the hasis of that balance sheet then ELSl's manage-
ment extrapolated and prepared the balance sheet of 31 March 1968which you
did not certify. 1sthat correct?
Mr. LAWRENCE: We did not. My finn did not carry out an audit al March
1968.
Professor BONELL: Now could you tell us please how many kinds of audit
reports do there exist? 1understand that if an auditing firm certifiesor approves,
so to Say,a balance sheet il states "al1 right" without any further qualification
or it states "no, that is not al1 right" and does not therehy certify. 1s there
something in between? In other words, can it be that an auditing finn certifies a
balance sheetbut only under certain conditions, subject to certain qualifications?
1sthat correct?
MI. LAWRENCE: The word "certify" is one which auditors prefer not to use
because no audit report is a certificate of accuracy. It is a professional opinion
that the accounts give a fair presentation. An audit opinion can he expressed
with no qualification at al1 or it may he qualified in some respect, or it may
contain an observation that doesn't amount to a qualification of opinion but
which refersto a matter which the auditors feelsbould be brought to the attention
of the readers of those financial statements.
Professor BONELL: Thank you very much. Could you giveus an example of
such a qualification. 1 mean what kind, what sort of qualification could you
envisage and indicate to us here and now?
Mr. LAWRENCE: Well,if the auditors considered that, for example, the value
of the investment in the subsidiary companies which was carried in the books at
119million lirewasno1supported by their examination of the financialstatements
of those subsidiary companies, they might make a referenceto that in their audit
report.
Professor BONELL: 1see. You, several times inyour previous statement, refer
to the fact that your figures were basedon the assumption that the balance sheet EVIDENCE OF MR. LAWRENCE 131
related to a going concern. Could you imagine that the qualification added to an
audit report, or contained in an audit report, is made along thesc lines subject
to being and remaining a going concern?
Mr. LAWRENCE: Yes.
Professor BONELL: 1see. You told us that your Milan branch did the job. 1
mean they prepared the audit report?
Mr. LAWRENCE: Yes, that is right.
Professor BONELL: Have you seen the report?
Mr. LAWRENCE: Yes.
Professor BONELL: Very recently?
Mr. LAWRENCE: Yes.
Professor BONELL: 1see. Well, Mr. President, thank you very much. 1have
no furtber questions.
Mr. FERRARI BRAVO: Mr. President, it appears from the argument of
counsel this morning and from the statement of the expert that is essential for
the Court to bave beforeit the complete financial reports concerning ELSl as at
30 September 1967 from which the book value has been extrapolated. Those
reports were prepared by Coopers & Lybrand, the same firm to which today's
expert belongs and which was referred to this morning specificallyby Mr. Law-
rence. May 1ask the Courtto request, under Article 62of the Rules, the Applicant
Government to produce these reports as soon as possible. 1 understand that it
should not be difficultto find them by applying either to Raytheon or to Coopers
& Lybrand.
The PRESIDENT: 1think if there is no objection from my colleagues we are
going to require the American delcgation to provide the evidence that has been
requested by the delegation of Italg'.
Mr. MATHESON: We will be happy to do so.
' SeeCorrespondence,No.71, i@a. ARGUMENTOF MR. RAMISH front.)
DEPUTY-AGENT mR THE GOVERNMENTOF THE UNITED STATESOF AMERICA
Mr. RAMISH: Mr. President, before moving on to the other elements of the
~~r~~a~ ~~ the Un-ted~ ~ ~~s~claims. 1 would like to address a number of
contentions thai have been put foward by the Kcsp<indeni The Re\pondent
aiiempts tochir, auab ai a maiorelemeni of Raytheon's Jarnages from ihis portion
of theclaim - the ioss ~a~iheon incurred when it made good on its guarantee
of certain ELSl loans. The Respondent's arguments on this issue are difficult to
make out. However, the Respondent appears to suggest that the United States
is attempting to shift the burden of the guarantee payments 10 the Respon-
dent and that this is unfair. The plain and simple fact is that the payment of the
loan guarantees was an out-of-pocket cos1 that Raytheon would never have
incurred, but for the Respondent's wrongfulacts and omissions. Since those acts
and omissions caused this injury, the Respondent mus1 pay compensation that
will make the injured party whole. There can be no justification for any other
resull.
The Respondent raises another objection that the United States has already
addressed, but which bears repeating. The Respondent asserts that, whatever
wrong it may have committed, it did no1cause Raytheon's injuries.The Respon-
dent argues that ELSl's bankruptcy and the injuries that flowed [rom it resulted
solely from ELSI's poor financial condition and from Raytheon's unwillingness
to invest further funds. According to the Respondent, the requisition of ELSl's
assets, the delay in deciding the appeal against the requisition and the subsequent
manipulation of the bankruptcy proceedings al1 had nothing 10 do with Ray-
theon's iniurv. The onlv thine the Reswndent admits 10have caused isthe "tem-
porary u~a~ilability"'of E~SI'S asseis.
This is sophistry, pure and simple. The "temporary unavailability" of ELSl's
assets is oreciselvwhat caused - immediatelv. directlv and oredictahly - ELSI's
bankrupicy. E~SI had ialurible nssets, ihe ;e=sonnbje wuiih of u,hcchu,a\ lus1
because of the requisiiion. enacerhaied by ihr Respondeni's fooi-dragging during
the appeal and by the Respondent's manipulation of the bankmptcy.
To be sure. ELSl was in bad financial shaoe. No one has ever denied il. That
was precisely why Raytheon, after investini substantial sums in ELSI, finally
decided to liquidate it. No rule of law or equity required Raytheon to invest
additional funds in ELSI. In Raytheon's business judgment, it was better to
liquidate. The Respondent had no right to second-guess Raytheon's business
judgment and hinder ils execution, without compensating Raytheon for the
consequences.
The Respondent also asserts that no duty 10compensate can anse if the benefits
anticipated by the claimant, and destroyed by the Government, are too specula-
tive. However, the cases relied upon by the Respondent provide no support for
the unrealistically strict standard il asserts.
The Rudlof,,case (IX R. Ini'lArb. Awards. ... 244. 259) involved a claimant
who soughi compensation for Ib years of future income from a market-pliçç he
had no! yei built. In the dccision in the case, iuch income was Iahelled spwulaiivr
and it was emphasized that the claimant's enterprise was not an "established
business" - a sharp contrast from the present case, in which ELSl was an
established business and in which no future income is claimed. ARGUMI~NT OF MR. RAMISH 133
In Rire's case (IV J. B. Moore, History and Digesr ofthe International Arbitra-
lions to Whichthe UnitedStates Has Been a Party, p. 3248 (1898)), the claimant
sought the profits of the "business which he would havedone" during a period
of unlawful impnsonment.
However, the umpire found it "impossible Io say what the loss of profits may
have heen to claimant, if there were any, for he cannot find out whether claimant
pursued any distinct line of business". Again, the contras1 with the present case
could hardly be more evident.
In the case of Mora and Ararrgo (IV Moore, op. cir., pp. 3782-3783) the
claimants sought an indemnity for the wrongful stoppage of their firm's business
with Cuba during an embargo. The Tribunal found, without explanation, that
the firm's prospectiveearnings were very speculative in character. But it did not
deny compensation altogether, as the Respondent's out-of-context quotation
suggests. Instead, the Tribunal did what we are asking this Court to do: it
employed a reasonahle proxy to measure the loss - in that case, an award in
the nature ofinterest on the stated caoital of the firm.
Surely the Respondent cannot meai to suggest that any damages not proven
by having an actual contract of sale in hand are excluded. Under such a standard,
com~ensation for the fair value of a business could rarelv be awarded. The manv
case; awarding going concern value, calculated not as a certainty but accordin;
Io reasonahle methods of prediction and valuation, refute the narrow position
suggested hy the Respondent.
In any event, ELSI'santicipated liquidation value wasanything but speculative.
We have estahlished ELSI's value, and we have shown that it would have been
liquidated in an orderly manner, rather than being forced into hankruptcy, if it
had no1 been for the Res~ondent's wroneful intervention, That intervention
cau$cd Ka)theon 2nd ~ach'lett io Ii~c ihe eniirc rriurn on cûpitxl and iiIoi the
open iiccounis uith kLSI In addition. it resulicd in Rï)ihcon's haiing io pay
ELSI'Srwrïnteed dzhi5. As a result. a5WC ki\e shown, k~vtheon and M~chlett
suffered-a loss of US$l 1.739.200.
1nou iurn icithe rcm;iiningixicgorics of ihr Ilniid Stdtcs cldim Mû) 1rccïll
ihit ihcsc relaielu Kaytheon's Icgtxlcxpenses dnd interest.
Rayrheon'sLegal Expenses
Raytheon incurred three kinds of legal and related expenses as a result of the
Respondent's unlawful acts. It incurred such exoenses in connection with ELSl's
forcid hïnkruptcy, in i<inneciion nith ihc 1dirs;iis hri>ught3gûin\t Rayihcon b)
Gi~vcrnnient-c<inirolle crediior bcinksto rssovtr un ELSl'sdrhis: and insimncc-
tion with its efforts Io recover compensation from the Respondent. These were
al1predictable and foreseeable resulis of the requisition and Ïesulting bankruptcy,
and are therefore recoverable under international law.
The first and third of these categories are most straightforward, and 1will take
them up first. As we have detailed in Our Memonal (1) (Ann. 40, and Ann. 13,
Schedule K), Raytheon incurred legalexpensesof US$I 15,638in connection with
the hankmptcy. Those legal expenses were unavoidable costs associated with the
bankmptcy.
We have also detailed (1. Ann. 40. and Ann. 13. Schedule K) the US$57.?26
in legal and related expen;es that &ditheon incurred in pursuing'its claim against
the Respondent up to the time when this proceeding was commenced. The
precedents are clear that an injured party may recover costs sustained in pursuit
of a successfulinternational claim. The Respondent does not contest the law on
this point, so 1will simply refer the Court to the discussion of the relevant casesthat appears al 1, pages 109-110of our Memorial, and at II, pages 393-394 of
our R~ . ~,
R3)theon ÿI\i>incurrcd ter? subst.intial leglilexpensesin dcfending g;iin\t the
I;iuiuit\ hrourht hs the 1t:ili:inh~nks.AI rcilcctcd in ihc cli~rito wh~zhI reicrrcd
earlier. the uisecuÏed. uneuaranteed creditor banks received less than 1 Dercent
~~~-~~~~.. u
of the value of their loans to ELSl in the bankruptcy distribution. ~onse~uently,
five ltalian Govemment-controlled hanks brought suit against Raytheon for
payment of these unsecured, unguaranteed loans. The ltalian courts subsequently
dismissedal1of the lawsuits as groundless, but only after several years of litigation
and great expense to Raytheon.
The lawsuits were the direct and foreseeable result of the Respondent's requisi-
~ ~ ~~~ ELSI. In fact. the President of the Sicilian reeion had advised Raytheon,
even before the req"isition, that such suits would be brought. They woÜld not
have been brought - they would have been unnecessary - but for the Respon-
dent's requisition of ELSI. Had the orderly liquidation been completed as
planned, these banks would have been paid in full or would have settled their
debts with ELSI. However, the requisition prevented Raytheon and Machlett
from settling ELSl's debts with the creditor banks. Then, to compound the
problem, the diminished proceeds from the bankruptcy sale directly and proxi-
mately caused the banks to be paid a mere fraction of the value of their loans.
Although the bank suits were utterly unfounded - and were ultimately dismissed
as such - Raytheon's legal defence cos1US$766,936 (see 1, Memorial, Ann. 40,
and Ann. 13, Schedule K).
In arguing that the banks were reasonable in pursuing Raytheon, the
Respondent clinches the causal connection. If, as the Respondent argues, the
lawsuits against Raytheon were normal and reasonable responses to ELSl's
bankmptcy, then - as forecast hy President Carollo - they were the
predictable, foreseeable consequences of that hankruptcy, which was itself
caused by the Respondent. It is undisputed that international law requires
reparation for al1 injuries caused by an internationally wrongful act. Such
injuries can include expenses arising from third-party lawsuits. In the case of
Cerruri (II Moore, op. cit., p. 2117), Colombia seized the assets of the
claimant's firm, and thus destroyed his ability to liquidate the finn's dehts. The
arbitrator recognized that this could predictahly lead to suits by the firm's
creditors against the claimant. To make the claimant whole against al1 the
injuries flowing from the wrongful act, the arbitrator required Colombia to
guarantee the claimant against potential third-party suits, and to pay not only
al1judgments, but also the claimant's costs of defence.
The Respondent points out that the ltalian courts, in dismissing the bank suits,
awarded Raytheon costs. Although legalfeeswere included, the costs were limited
in accordance with ltalian law. The Respondent contends that the United States
must he content with this, and not seek Raytheon's actual legal expenses. But it
is well established that municipal law cannot control a State's international
obligations.
As the Italian-United States Conciliation Commission stated in the Wollemborg
case:
"one thing is certain: the Italian Government cannot avail itself, before an
international court,of its domestic law to avoid fulfillingan accepted interna-
tional obligation" (quoted in Commentary to Art. 4, Chap. 1of the Interna-
tional Law Commission's draft articles on State responsibility, II Yearbook
of the InternationalLaw Commission,1973, p. 186; see also Eagleton, The
Responsibilityof States in InternafionalLaw, pp. 12-13(1928)). ARGUMENT OF MR. RAMISH 135
International law requires that Raytheon be returned to the position in which
it would have beenabsent the Respondent's wrongful actsand omissions. This
requires compensation of Raytheon's actual legal expenses.
III. THEAWARD OF INTEREST
The final element of the claim 01'the United States against the Respondent is
for interest on the total amount of damages. including los1 value and legal
expenses, or US$12,679,000.lnterest is an essential component of fullcompensa-
tion. Its function is to redress one of the most significant injuries Rowingfrom
an illegal actio- delay in the paymenl of compensation. During such a delay,
the benefitsfrom the productive use of the claimant's property are diverted from
the claimant to the respondent. An award of interest merely rectifiesthis in-
equity - it is not a windfall to the claimant, nor is it a punishment of the
respondent.
The essential compensatory role played by interest is widely recognizedby the
commentators. As Professor Lillichobserves:
"lnterest as part of an award by an international arbitral tribunal, Le.,
'compensatory interest', is recognized bycustomary international law ...as
an element of damages inherenrin jus1compensation." (R. Lillich,"lnterest
in the Law of International Claims", EssaysNt Honor of VoirroSaorioand
ToivoSainio, pp. 51, 59 (1983)(italics added).)
The "inherent" compensatory role of interest is reflected by the practice of
international tribunals, which have routinely awarded it. As the Permanent Court
of Arbitration stated in the RussianIndemniry case:
"Legal interest allowed a creditor for a sum of money . . is the legal
compensation for the delinquency of a tardy debtor exactly as interest-
damages or interest allowed in the case of . .. the non-fulfillment of an
obligation, are compensation . . ."(The RussianIndemniry case (1912), 1
Hague Courr Reporrs ,p. 297, 313 (1916).)
The Permanent Court of International Justice approved and awarded interest
(see S.S. "Wintbledon",Judgmenrs.1923.P.C.I.J., SeriesA, No.1, p. 33;Facrory
of Chorzo~vM , erirs, 1928, P.C.I.J.. SeriesA, No. 17,p. 47). So have the vast
majority of other international tribunals. A brief discussion of some of the
prominent cases may be round at 1,pages 110-1II, ofour Memonal. A Chamber
of the Iran-United States Claims Tribunal has summed up the state of the law
in these terms:
"The first principle (that can bededuced from international practice] is
that under normal circumstances . . .interest is allocated on the amounts
awarded as damages in order to compensate for the delay with which the
payment to the successfulparty is made." (McCollough& Company,Inc. and
the Minisrry of Posr. Telegraph andTelephoneer al., II.Iran-US Cloims
TribunalReporrs, pp. 3, 29(22 April 1986).)
And more recently, the same body, sitting as the Full Tribunal confirmed that
"il iscusromary for arbitral tribunals to award interest as part of an award for
damages", and that the power to do so is "inherent" in the authority to decide
claims (The Islamic Republicof Irait and rhe UniredStoresof America. Rrquesr
for a Decisionof rheFull Tribunalon WherherrheClaimsSerrlementDeclararion
Empowersrhe Tribunalro Cranr Inft,resron Irs Awards,DecbionNo. 65-A19-FT,
p. 8 (30 September 1987)(italics added)).136 ELETTRONICA SICULA
The Respondent, in its Rejoinder (II, p. 479), makes the surpnsing assertion
that "international case-lawis virtually unanimous[ly] in refusing to acknowledge
a right to interest. ..". It should be clear from the foregoing discussion that the
Respondent's position in this regard is simply untenable. The Respondent cites
the Corfu Channel case as an instance in which interest was not awarded, but
this can hardly serve to establish any proposition at al1 on the suhject, since
interest was not requested in that case and the Court was very careful in applying
the principle of ne ultra pefifa.
The Awardof Inreresral a CommerciallyReasonobleRare.from rheDate of
Injury io rheDate of Paymeni
In order to provide full compensation, an award of interest mus1be at a rate
that will actually compensate a claimant for the loss of the use of his money. In
determining that rate, the Court should enquire: "[Wlhat could the claimant
reasonably have expectedhad he had the use of the property?YD. P. O'Connell,
2 InrernarionalLaw, p. 1213(1965).)
International tribunals have varied in their approaches to this question. But
over lime a clear consensus has emerged that interest mus1 be awarded al a
"commercially reasonahle" rate. The Court must, as in the S.S. "Wimbledon"
case, take account of "the present financial situation of the world", including
contemporary rates of interest (S.S. "Wimbledon': Judgmenls,1923, P.C.I.J.,
Series A, No. 1, p. 32).
In the discussion at pages 111-114 (1) of our Memorial, we show that a
"commercially reasonable" rate in the present case would be the average annual
onme rate in the United States durine the relevant period. The Respondent
appears 10concedethis point. In order toupdate the infhation in our pïeadings,
1 may add that for the last two calendar years the appropriate rates were 8.21
per cent and 9.32 per cent, respectively.
As to the period during which interest should run, under the generallyaccepted
mle interest accrues from the date of injury until the date of payment of the
award. Again, the Respondent does not quarrel with this general proposition,
and 1 refer the Court to the discussion that appears at page 114 (1) of our
Memorial. In this case, for the sake of simplicity, the United States respectfully
suggests that the Court calculate interest from the end of the calendar year in
which the injury occurred.
The Respondent does, however, quarrel with the application of this general
rule in the present case. According to the Respondent, the lapse of time hetween
Raytheon's injury and the presentation of the case to this Court should reduce,
perhaps even eliminate, an award of interest. This argument is wholly without
foundation.
As a matter of fact, the time between the injury and this claim's presentation
was anything but excessive,and the Respondent has in no way heen prejudiced.
The tmstee's suit for recovery of ELSl's loss of value due to the requisition was
resolved against the trustee only in 1973. In 1974 the United States formally
presented its diplomatic claim to the Respondent. Only some four years later did
the Respondent send a reply to the note, asserting that the claim on hehalf of
Ravtheon ~n~ ~ ~~~ ~t was eroundless. Thereafter. the Iwo Governments en-
gngcd in diplomatic cnmmunicütion over the clïim. up Io the iimc il u,as pllrced
heforc ihis Couri The Respondcni pruposcs to penalizc the Unitcd St~tsi l'or
aticmpiing o\cr lrrensonable prriod IOscitlç Rayihcon'sdaim amicühly. But thc
Rcspondsni can ciic no authority 3uggcstingihai ihc tirne speni in aitempiing 10
sctilc the ilaini mas exccssi\.cnr th313ny prcjudicc has rc.iulted. ARGUMENT OF MR. RAMISH 137
The controlling fact is thdt the Respondent has had the benefit of Raytheon's
and Machlett's property for al1of these years; in no way could it fairly he said
to be disadvantaged by having to restore that henefit now. The award of interest
does not punish here - interëst simply avoids a windfall to the Respondent, and
it provides full compensation to Raytheon and Machlett.
TheAward of Intereston a CompozrndedBasis
1 turn now to the question whether interest should be simple or compound.
The United States recognizes that arbitral tribunals histoncallv have not shown
much inclination to award compound interest. Indeed, the 1;an-United States
Claims Tribunal has not awarded compound interest. We suhmit, however, that
in this case compound interest is fullyjustified.
In preventing the sale of ELSI's assets in the orderly liquidation, the Respon-
dent effectivelydeprived Raytheon and Machlett from recovenng and using a
sum of money, money that would have ken invested by each Companythrough-
out the period. Depnved of this investment, Raytheon and Machlett were at the
same time depnved of al1of the fruits of this investment. Those fmits included
the interest or savings that accumulated over time, which themselves wouldhave
been put to work, eaming further interest or savings. In consequence, the repara-
lion due here should also include compound interest.
The underlying purpose of interest - to provide full compensation - makes
it further evident why in this case interest should he compounded. As Dr. Wetter
observes,
"the issue as to whether or not compound interest is permissihle as an
element of damages mus1 be resolved with referenceto the ultimate legal
rationale for awarding interest" (G. Wetter, "Interest as an Element of
Damages in the Arbitral Process", 5 InternationalFinancialLaw Review,
pp. 20, 22 (1986)).
Dr. Mann explains it forcefully:
"[lit is necessary... to take account of modern economic conditions. It
is a fact of universal experience that those who have a surnlus of funds
norm311!ini,csi ihrm tocam ~~impouridinterc3i
.On the oihcr hand.
many are sonipcllcrllu borrow l'rombanks and ihercforzmusi pa) compound
iniereji. This 3pplies. in pariicul~r. io hubinesspeiiple uhose(iii,funds art
frequently invesied in brick and mortar, machinery and equipment, and
whose working capital is obtained by way of loans or overdrafts from
banks. ...
If, in accordance with the usual formula, damages are intended to afford
restirutioin integrum(complete compensation for the wrong suffered) such
items of damage should not be excluded." (F. A. Mann, "Compound Interest
as an Item of Damage in International Law", 21 U.C. Davis Law Review
577, 585(1988).)
Similarly, in commenting on the issue of compound interest in the Starrett case
(Starrett HousingCorporationet al. and the Governmentof the IslamicRepublic
of Iranet al., Award No. 314-24-1 (14 August 1987), Concurring Opinion of
Judge Holtzmann, p. 24), Judge Holtzmann of the Iran-United States Claims
Tribunal ohserved that. whether or not a rule azainst comoound interest ~~~-~~--.
have existed in the past, "il is no longer approp;iate or jusiifiable. ... [~]imes
change and the law should not be oblivious to such change." Some arbitral
decisionshave, in fact,awarded compound interest and thesecases are instructive138 ELETTRONICA SICULA
(see, e.g., Affaire Fabiani(France and Venezuela) (1896), V. Moore, op. cit.,
p. 4878,summanzed in II1M. Whiteman, DamagesinInternarionalLaw,pp. 1785-
1788 (1943); Affaire des Chemins deFer Zeltweg-Wolfsburg et Unterdrauberg-
Woellan(Austria and Yugoslavia), 3 R. Inf'lArb. Awards,pp. 1795, 1808(1934);
Governmentof the State of Kuwait and the American IndependenO t il Company
(AMINOIL), XXI ILM, p. 976 (1982)).In this connection, 1would cal1to the
Court's attention particularly the Fabianicase. In Fabiani,the rationale offered
for awarding compound interest was preciselythat urged by Dr. Mann:
"The compounding of interest is authorized in the fieldof current accounts
and of similar operations since the legislator presumes that in commerce
money does not remain unproductive." (V. Moore, op. ci:., 4914 (trans-
lation).)
Even the case primarily relied upon by the Respondent, Great Britainv. Spain
(SpanishZoneof Morocco) (2 R. Int'lArb. Awards,pp. 615,650 (1924)),suggests
that compound interest may be awarded in appropriate circumstances. The cir-
cumstances suggestedthere are casesin whichthe goods that the damages awarded
are intended ta replace increaseby geometric rather than arithmetic progression.
As Dr. Mann observes, this analysis is compelling in the case of money claims,
for money invested at compound interest does "increase by geometric pro-
gression" (Mann, op. cit., p. 579).
As a final objection, the Respondent raisesthe spectre that an award of interest
could exceed the principal sum awarded. The Respondent apparently believes
that the incongruity and inequity of such a result is self-evident. In fact, that
result is entirely reasonable and realistic.
The Respondent should have compensated Raytheon and Machlett at the time
they sufferedtheir losses, but it did not. Since that time, the Respondent has in
effectenjoyedthe use of the monetary equivalent of their property, which should
have been naid over. Since that time, the Resuondent has avoided the cost of
that amount of money, which on the korld's fiianciai markets would have been
available at compound interest. Since that time, too, Raytheon and Machlett
have been deprived of that money, which theycould have investedat compound
interest (or could have used to avoid borrowing the equivalent sum at compound
interest). As Dr. Mann puts it:
"[Ilt is completely wrong to attach any significance to the fact that the
award of interest or compound interest may lead to the payment of a sum
exceeding the capital due from the wrongdoer. This may happen in many
casesas a result of the wrongdoer's delayingtactics or the court's work load.
But during that penod the wrongdoer has enjoyed the fruits of the money
withheld." (Mann, op. cit., p. 585.)
Indeed, the perverse result of the Respondent's reasoning is that the more the
wrongdoer delays, and thus aggravates its victim's injury, the safer it is from
havine to cure that iniurv comoletelv. It cannot be that international law would
more readily impose compound interest on a wrongdoer who promptly erases
the effectsof his illeaal act, than ou one who obstinately refuses to do so for a
protracted period. ~Üchreasoning offends both good sense and equity.
IV. SUMMARY OF TEE COMPENSATIS OONUGHT
It mav be heloful at this uoint to summarize the comoensation reauested bv
the ~niied ~tatés.As we have shown, Raytheon and ~aihlett's general financial
injury consists of the difference between the position they would have been in ARGUMENT OF MR. RAMISH 139
had they been pennitted to proceed with liquidation, and the position in which
they actually found themselvesas the result of the Respondent's unlawful inter-
vention. This diiïerence amounts to 7,322.4 million lire,or US$I 1,739,200.
Raytheon's legalexpensesare broken down as follows: US$I 15,638.35in legal
expenses in connection with the bankruptcy; US5766,936.77in legalexpenses in
connection with the successful defence against the lawsuits brought hy the Re-
spondent's Government-controlled banks; and US$57,226.38in legalexpensesin
connection with the pursuit of its claim against the Respondent up to the lime
when thisproceeding was commenced.
The total of these claims is US$12,679,000.
The United States resnectfullvurees the Court to award this amount. toeether
wiih interest ciilculaicil the UnitCdStatcs ai,erügr snnual prime rîte.'frCm ihr
dsie of ihr injury uniil ihe daic oTp;iyment. compoundcJ ünnuslly
This concludes my Dresentalion l'hank yiiu for vour aileniion and ai ihir iinic
MI. Matheson willpresent the closing staiement. . STATEMENT BY MR. MATHESON
CO-AGENT mR THE GOVERNMENTOF m UNITED STATESOF AMERICA
MI. MATHESON: It is now mv honour to conclude the oral nresentation of
the United States in this case. ~cof course reserve the right to kebut points of
fact and law made hy the Respondent in its oral presentation, through further
argument or, if necessary, testimony.
As we have noted, hilateral commercial treaties have heen of great importance
for many years in helping to structure economic relations. In the era following
the Second World War, the need to encourage and protect foreign investment
was critical to the reconstruction of the European economy. Consequently, in
1948the United States and Italy signed a Treaty of Friendship, Commerce and
Navigation. The principal objective of this Treaty and other FCN treaties that
followed was to develop an environment conducive to the flow of investment
capital.
As we have explained, the 1948Treaty protects investors in a variety of ways,
both as individuals and as corporate entities. The case before this Court -
involving an investment through establishment of a locally incorporated suh-
sidiary - is a good example of the investment practices which the Treaty
was specificallydesigned to prevent, as a means of encouraging foreign invest-
ment.
The facts of this case are no1 comolicated. To recaoitulate hrieflv. in 1956.
Raytheon invested in and hecame a &onty shareholder of ELSI, at'that timé
a relatively new Italian Company. By 1967, Raytheon and Machlett owned 100
percent of ELSI.
As you have heard, ELSI never hecame financially self-sufficient,in spite of
extensiveefforts and financial contributions by Raytheon. Raytheon made every
effort to give Italian authorities the opportunity to keep ELSl alive and ils
workers employed through normal and lawful means, but the Italian authorities
ultimately were not interested in doing so. Consequently, Raytheon and Machlett
decided to place ELSl through an orderly liquidation. We have shown that this
orderly liquidation plan had a high likelihood of success,for ELSl had a number
of successfuluroduct lines, with established customer and suonlier relation~hi~s~r~.
which u.crcsùpporied hy Kaytheon's patents, trrhnic~l assist~~ce2nd worldwidr
reputation. By sclling tLSl as a unit or b) iis individudl product Iines, ELSl's
credirurs cuuld ha\c becn saiislied and ElSI's shîrehuldcrs could have avoided
further losses.
This orderly liquidation, of course, never occurred. In April 1968, when the
Respondent discovered the steps Raytheon intended to pursue, the Respondent
requisitioned ELSl's plant and equipment. As a result, Raytheon was unable to
maintain the plant and equipment, to complete work-in-progress, to show the
plant and equipment to prospective buyers, or to sel1any of ELSl's assets.
ELSI unsuccessfnlly appealed to the Mayor of Palermo and other Italian
officiais10 set aside the requisition order. It promptly filed an appeal with the
Prefect of Palermo. The next day, the President of Sicily threatened that the
requisition would be maintained indefinitely unless Raytheon abandoned its
liquidation vlan. He made clear that the Government would ensure that in t~e~~ ~~--~
meantime nô potential huyers - whether public or private - would buy ELSI
or its assets.With debtscontinuing to comedue, and with no prospect of regaining STATBMENT BY MR. MATHESON 141
custody of ELSI'sassets and conducting an orderly liquidation in the near future,
ELSl's ltalian counsel advised the Board of Directors that, under the conditions
brought about by the Respondent, they were required to file a petition in bank-
ruptcy. A bankruptcy petition was accordingly filed and ELSI was declared
bankrupt.
In July 1968,the Government of ltaly made public ils intention to take over
ELSl's assets through a subsidiary of IRI. In December, IR1 formed a new
subsidiary, ELTEL, in order to implement this decision.
The bankruptcy judge scheduled three auctions, in January, March and May
of 1969,at which ELSl's plant and other assets were offeredas a single unit, al
a set minimum price. Despite the announced intention of the Government of
Italy to take over ELSI, ELTEL did not bid at these auctions. Nor were there
other bidders. The planned Governmcnt takcovcr of thc plant had heen puhlicized
and, by the time of the second auction, was well on the road to completion. The
terms of the auction, moreover, effectivelyexcluded those whom Raytheon had
earlier identified as the most likely purchasers - companies interested in buying
individual product lines.
ELTEL therefore was able to negotiate its own lems of sale with the bank-
mptcy authorities. As a first step, ELTEL leased the plant for nominal rental
and acquired the work-in-process al a bargain price. Once il was firmlyin control
of ELSl's assets, ELTEL then offered 10 purchase the plant and most of the
remaining tangible assets for substantially less than their fair market value. The
bankruptcy judge accepted this offer and ordered a fourth auction, al which the
minimum bid was set al the negotiated price. As a result, in July 1969,ELTEL
purchased ELSl's plant and equipment, and certain of iü other assets, al a price
well below ils real value.
In August 1969, 16 months after the requisition began but only shorlly after
ELTEL had acquired ELSl's assets, the Prefect of Palermo finally acted on the
Mayor's order of requisition. He annulled that order, finding that ilwas no1
justified by any legal grounds and, moreover, appeared 10have ken motivated
by improper considerations.
The law in this case is also not complicated. Indeed, the Respondent's steps
were precisely the type of action the FCN Treaty prohibits. Raytheon and
Machlett were stripped of their ahility to manage and control ELSI when the
Respondent prevented the exerciseof a fundamental shareholder nght: the nght
to dissolve ELSl and dispose of its assets in an orderly manner. As we have
demonstrated, interferencewith management and control violatesArticles III and
VI1of the Treaty and Article 1of the Supplement.
The Respondent's failure 10 overturn the requisition in a reasonahle period of
time further interfered with management and control, and ultimately resulted in
the impairment of the investment nghts of Raytheon and Machlett in violation
of Article 1of the Supplement.
The requisition was finally decllired unlawful under ltalian law, but only after
the Respondent's State-ownedenterprise had bought ELSI'splant and equipment
at hargain prices. The Respondent's refusal to pay jus1 and effectivecompensa-
tion for the taking of Raytheon and Machlett's property violated Article V, para-
graph 2, of the Treaty.
By allowing ELSI's plant to be occupied after the requisition and by failing to
overturn the requisition in a reasonable amount of time, the Respondent failed
in its obligation under Article V, paragraphs I and 3,to provide 10 Raytheon
~nd~M~ch~ ~ ~ ~ ~ ~st constant ~rotection and secuntv for their Drowrtv.
The Respondeni's defence is 6;ised on the clearly iRcorreci proposition ihat
the FCN TrîJiy protecis neiiher ihe righis and interesis of a foreign invcstor in142 ELETTRONICA SICULA
ils locally incorporated suhsidiary, nor the rights and interests of the subsidiary
itself. Essentially the Respondent concludes that the Treaty protects only the
foreign shareholder's right to hold in its hand piecesof paper proving ownership,
but not the foreign shareholder's rights and interests that make those pieces of
paper valuahle. The Respondent's interpretation is contrary to the ordinary
meaning of the Treaty's provisions, contrary to the ohject and purpose of the
Treaty, and contrary to the relevant supplementary rnaterials.
To vindicate their riehts and interests. Ravtheon and Machlett had oursued
cxcr) rcnicdy kn0u.n iGhcni IO prc\,cnt thcscaciions and IO niirigte the hamage
caustd b! thc Rc,pundcnt. Elloris ucre m3dc to o\crtLrn thc req.iisition Fiïoris
uerc made to ai,i>idthc b:inkruotc, and 11sdclcteriiiu~elkcts. Decistons <ifthe
bankruptcy judge were appealed, Such as the decisions to lease the plant to
ELTEL, and to seIl the plant, equipment and supplies to ELTEL.
When the Prefect of Palenno finally ruled that the requisition was unlawful,
the trustee of ELSl - who represented Raytheon and Machlett's interests as
creditors of ELSI - brought suit against the Respondent seeking damages for
the unlawful requisition. The Respondent appeared hefore the Court of Palermo
and rejected al1 the claims hrought against it. Indeed, the Mayor of Palermo
asserted that the claims were "inadmissible, unacceptable, unfounded, and reck-
less". When the Court of Palermo ruled in favour of the Respondent, the decision
was appealed to the highest court in Italy, which required the Respondent to pay
compensation, but only for the six-month "use" of the plant.
To he absolutelv sure that no further remedies were available under ltalian
Iaw, R4)ihc~in ruughi iuu 5cp3ratc kgal op~ti~onsfroni enilnent Ii.ili.in I:i\iycrs
\\ho nere Ieading elpcrts in ihcir field. Aftcr c.xtcnsivcscrutin). hoih of ihcni
opincJ th31 no such iurthcr rcmedirs exisied. We hate providcd ihe <:uurt uith
cxpcri opinion ihdt strongly 5upporis thtit conclu5i~n
Desptiç al1of ihese cirorts tu get thc Respondent IO rcnicdy iis iiijurics. the
Respondent now asserts that local remedies were not exhausted, and that this
renders the entire claim inadmissible. With al1 due respect, invoking the local
remedies rule in this case is improper and unfair, whatever the situation under
ltalian law. The United States does no1 concede that the local remedies nile is
applicable to violations of this FCN Treaty and, in any event, there is clearly
no requirement for suit in Italian courts prior to ohtaining a declaration from
this Court that the Treaty has been violated. Further, the Respondent was
provided every opportunity through ils domestic procedures to cancel the
requisition or to pay for the damage caused by il, but it refused to do so.
Consequently, the local remedies rule - even if it were applicable to this
case - has been satisfied.
As you have heard, when the United States filedits claim with the Respondent
on a diolomatic hasis in 1974.it exnresslv stated to the Res~ondent that further
loc;iI rAicdics did noi exiit l'hc ~Î\~oklcni ,impl) rcp~irdthat Kdyihe,>nand
Machlctt xcrr noi cniiilcd to d3n13gcsundcr Iiilliiin Iau Ilad thc Kcspondcni
bclic\cd th41 furthcr locdl rcmcdics cxistcd. it \iould hiivc dnd jhould have 30
stated. The failure to assert this objection estops or precludes the Respondent
from asserting the local remedies mle now.
Now havingestahlished that the FCN Treaty was violated and that the Respon-
dent's objection to the admissihility of the claim should be rejected, we request
the Court to provide appropriate relief. The United States seeks a declaration
that the Respondent, through its acts and omissions, violated several provisions
of the FCN Treaty. It is important that the Court pass on these issues, both to
resolve the present dispute and to provide guidance for commercial relations
between our two countries in years to come. STATEMENT BK MU. MATHESON 143
The United States also seeks reparation for the violations of the Treaty, which
may be measured by the total economic loss caused to Raytheon and Machlett.
We have demonstrated that if the management of ELSl had been permitted to
proceed with the orderly liquidation, they could have realized at least 17 billion
lire, the amount of assets stated in the company's books which, as you have seen
today, is a conservative estimate of the value of those assets. The trustee in
bankruptcy, however, ultimately receivedjus1 slightly more than 6.3 billion lire
for ELSl's assets. The planned liquidation, had it been allowed to occur, would
have generated sufficientfunds 10satisfy ELSI's outstanding Italian bank loans,
some of which had been guaranteed by Raytheon, and ELSI's debts to Raytheon
for eoods and services orovided on ouen accounts. It would also have orovided
a sgall return to ~a~theon and ~achlett on their investment in ~~~l.'~ccause
and recoverednone of its investment or what was owed to Raylheocion the open
accounts.
Thus, the actual losses of Raytheon and Machlett were significantly greater
than they would have been, had they been allowed to proceed with the orderly
liquidation. In addition, Raytheon incurred substantial expenses in the hank-
mptcy itself, in defending against the lawsuits brought by ltalian Government-
controlled banks, and in pursuing its claim for redress.
The United States has provided extensivedocumentation and expert testimony
to establish al1of these losses.As reparation for the violations of the FCN Treaty,
the United States seeks a total of US$12,679,000 plus inlerest compounded
annually.
Mr. President, distinguished Memhers of the Court, you have hefore you a
clear case in which treaty rights have been violated. You have the opportunity
to uphold the rule of law in the ared of economic relations, an area which is
essential to harmonious relations between States.
Therefore. on behalf of the Government of the United States. I resoectfullv
request that'the Court render a decision in favour of the United ~iates, declaring
that the FCN Treaty has heen violated and awarding repa~.tion in the full
amount sought.
The formal submissions of the United States are as follows:
"The United States requests that the objection of the Respondent be
dismissed and submits 10 the Court that it is entitled to a declaration and
judgment that:
(1) the Respondent violated the international legal obligations which it
undertook by the Treaty of Friendship, Commerce and Navigation be-
tween the two countries, and the Supplement thereto, and in particular,
violated Articles III, V and VI1 of the Treaty and Article 1 of the
Supplement ; and
(2) that, owing to these violations of the Treaty and Supplement, singly and
in combination, the United States is entitled to reparation in an amount
equal to the full amount of the damage sufered by Raytheon and
Machlett as a consequence, including their losseson investment, guaran-
teed loans. and onen accounts. the le-.l exoenses incurred bvRavtheon
in conneci;on with the bankruptcy. indefendingagainsi rclatfd li~;~aiion
and in pursuing 11sclaim,and iniercsi on such amounts computed ai the
United States prime rate l'rom th6 date uf loss io the date of. .vment
of the award. Comoounded on an annual hasis: and
(3) ihai Iial) a~Li>rdir;~l"should pal io the ~nit&i ta t hes amount of
CSS12,679,0iJOplus intcre>t."144 ELETTRONICA SICULA
Mr. President, this concludes the oral presentation of the claim of the United
States. We thank the Court for its consideration of our claim.
The PRESIDENT: 1 thank Mr. Matheson and the American delegation for
the assistance given to the Court.
Do any of the Judges want to put some questions al this stage? QUESTIONPUT BY JUDGE SCHWEBEL
Judge SCHWEBEL: 1 should like to put a question to the Co-Agent of the
United States.
It appears that the United States confines itself to allegations of violations of
the Treaty of Friendship, Commerce and Navigation and to what it maintains
Bows [rom those violations - the submissions we have just heard so indicate.
Earlier there were what 1 understood to be suggestions, perhaps no longer
maintained. of a kind of consoiracvamone certain officiaisof the Italian Govern-
ment and s~mpînies. notably IR^and diubii~iiir~ 01'IRI. io purchasc LLS1.s
assets atî i,erydepreciated priw. lriow the United States has poinied oui thit
was at the saiiie time the polisy of oîiicialq of the Iialian Governrnent ro keep
ELSl oneratine at al1 cosis. niovided at anv rate that the costs were met bv
~a~theon. ~h&United siaies' has also poi&ed out that among the principal
unsecured creditors of ELSl were banks controlled by IRI. Can those Iwo facts
be reconciled withanv kind of cons. .acv theon..if. in fact. that theorv is indeed
maintained?
The PRESIDENT: Mr. Matheson. vou do no1 have to reolv to this auestion
nghi now 1ihink thdi, perhaps, it \rould lx useful ~fyou iohd repl) bkore ihr
Iialian deleaation beains on Monday, in order to haveal1the elemcnis to proceed
Therefore. rn the coÜrseof romort-6~ and during the weekend. 1exoectthat the
~merican'dele~ation could reply to the questionput by ~ud~e~chiebel'
The Chamber rose or 12.35nm.
' SeeCorrespondence , o. 69. infra SIXTH PUBLIC SITTING (20 II 89, 10am.)
Presenr: [Seesitting of 13II 89.1
ARGUMENT OF MR. FERRARI BRAVO
AGENT FOR THE GOVERNMENTOF ITALY
Mr. FERRARI BRAVO: MI. President, distinguished Members of the Court.
It is for me a great honour and pleasure to appear before this glorious Court of
Justice as Aeent for the Italian Government. This is oerhaos one of the e-eatest
aspirations if an intcrn3iion31laaycr.
1 wuuld Iike ai rhc hcginning of m) statcnieiit 10 ihink ihc Mcmhsr. oi this
Chamhcr on hchall of ihc ItciliÿnGo\crnntcnt for h3,inr co-sentsd io iorm :i
part of it.
I would like in addition to thank President Ruda, whose high sense of the
sacred interests of international justice persuaded him to accept to preside over
this Chamber when, only a fewweeks before the hearing of these oral pleadings,
the former President Singh passed away unexpectedly.
And 1 wish, finally, to endorse the words expressed at the opening of these
oral pleadings first by President Ruda and then by the Agent for the United
States Government, the Honorable Judge Sofaer, touchingly recallingthe lifeand
work of President Singh, whose untimely death is so much regretted by us all.
The case you are called upon to decide arises from an Application (1) filed by
the Government of the United States.
This Applicdtionrcprcscnis a ~nil~terdliniii.irii,eon the part oithc Go\,crnnicni
of the Ilniied Siaies undcr Article XXVl of ihe Treaty if Frisnd\hip, Commcrcc
and Nniigation bci~ecn ths United State. iiiAmcricd 2nd Ilal\. siencd in Rome
Wetherefoie have *;keedlngs in whichthere is an Applicant, the Government
of the United States, and a Respondent, the Government of the Italian Republic.
These are not proceedings in whichthe two Parties appear jointly before the
Court on the basis of a special agreement or in any other way expressing their
common will to have this particular dispute settled by the Court. Nor would it
be accurate to describe Italy's acceptance of the jurisdiction of the Court as
resulting from the Counter-Memorial (II), as was suggested by counsel for the
Applicant (see p. 81, supra). The jurisdiction rests on the Treaty and on a
unilateral Application by the United States Government.
Before the Government of the United States of America filed its Application,
the Italian Government merely acknowledgedthat the Government of the United
States had expressed its desire to bring this case before the International Court
of Justice. As made clear in a press statement issued by the United States
Department of State, it was the United States Government that
"determined to a~oroach the International Court of Justice with a view to
>uhmitiing thai dAp~tc to 3 spscial shamher as providcd by the Court's
Statute and Kulcs of Proccdurc, suhjeci iu mutually cati\faci,>ryresoluiion
of implcmcntingagrccnients("14 Inr~~rnuri~~/n.ol01Murcr~uls. 1985,p 176). ARGUMENT OF UR. FERRARI BRAVO 147
ltaly look note of the intention expressedhy the United States Government.
The claim, therefore, remains only a United States claim, nor has any counter-
claim heen put fonvard. This is not a case in which the two Parties have
jointly requested the Court to settle points of fact or of law under dispute
hetween them.
In order to facilitate the course of international iustice. the ltalian Government
ûcceptcdrhc rcquest made h) the Governnieni ~l'the United Siatesl'or ihc disputc
tu be scrtlcd hy a sprcial ch;imher and no1 hy the full Court. Specific ;iccept;incr
in relation 10the cdserefers onlv 10 the iomno\itioii of the Couri. This does no1
affect the applicability to the piesent case of the provisions of the Statute and
the Rules of Procedure which are applicable when a case is hrought before the
Court hy means of a unilateral application.
That the International Court of Justice has iurisdiction in the oresent caseis
not diq~rcd 1ia1) did noi insisi ihûi the llnitéd Sidies shoulda; prov~dedfor
by Article XXVl of the Treîi). first hnng IO ihe ncgotiaiing rahlc al1 ihc basic
contentions relating to the infringement of treaty provisions.
Negotiations over the claim have heen spread over a long period. They have
resulted in the claim king hrouglit hefore the Court hy the Applicant. Some
alternative means of settlement were discussedhy the Parties, but talks over this
did not lead to anv conclusion. Certainlv. the orofound divergence of ooinion of
the Parties over ih; rncriis of ihis cI3im h1b.e&dc ncgoiiaiio~s ai iime~difliculi.
The Iiïlian Go\ernnient <ho%, as iiu,asperfccily entitlcd io do. noi to rcbpond
in uriiine 10the Iknrthv 1974Cl.iini and the encloieil Mcrnor3ndum of L3w and
several annexes. accusations that "ltlhe Resoondent has not demonstrated
guod ftd~ithin ils di~lomïi~ç ~&otiat~on;'wiih thC~nitcd Siates rcgarding this
clïim". as suggestcdhy counsel (p. 88, rupro) arc iotally oui of place The blame
for the lack ofsucccss for th? necotiations csn h3rdlv k out on the Resoondcnt
if only one considers thdi the ~<~licani kepi increasÏng the arnouni of lis claim
Houcier. a, the queqtion of how ncgoii.iiions wcre ionducied ha$ no1 heen ihe
suhiect of either the Apolication or the suhmissions, it may be oreferahle to leave
it aside. This attitude-corresoonds to the eeneral need for ~overnments to be
able to engagein sonfidenri~l'negoiiaiions uiih relative frrcdom I msy only add
ihai ihc Iialian Goiernmeni could well yivr its <iwnïccounl of the hisiory of the
negotiations.
The acknowledgement of thejurisdiction of the Court with regard to the claim
in accordance with Article XXVl of the 1948Treaty doesno1imply a recognition
that the claim is admissible. On the contrary, in its Counter-Mernorial the Italian
Government oresented an obiectiori conceining the failure hv Ravtheon and bv
hlachleti to c;h;iust the ovailahl10~11ren~edie; In order io s~mpliiythe proseei.
ings, the Pÿriies ïgreed undcr Articlc79. parayraph 8, of the Kules of Couri that
the obicction should he heïrd and detrrmined u,iihin the l'ramework of the rnenis.
This objection will be discussedhy counsel.
The ltalian Governrnent requests that the Court declares the Application
inadmissible for non-exhaustion of local remedies and has already made corre-
sponding suhmissions hoth in the Counter-Mernorial (il) and the Rejoinder (II).
This objection is an essential part of the case for the Respondent and will
accordingly he dealt with first in the course of the pleading.
1would like now to make a hrief outline of some key aspectsconcerning the
merits of the dispute.
One of theserelates io the way in which arguments put fonvard by the Parties
should be examined.
In the present proceedings the Government of the United Statesrequestedthe
Court to adjudge and declare that Italy infringed obligations under the Treaty ARGUMENT OF MR. FERRARI BRAVO 149
negotiations are held in the language that is most widely understandable by the
negotiators, but this in no way affects the equal status of the authentic texts.
And, if you go hack through the history of the Vienna Conference, the reason
why reference to travauxpréparatoires was put on the second rank is probably
just because of the situation of today's world.
Now, it is to he recalled that hoth the FCN Treaty and the Supplementary
Agreement had hoth English and Italian authentic texts. It is a matter of concem
for al1 the Contracting States to a multilingual treaty that the fact that the
proceedings are held in English and French should not result in more weight
heing given to the English and French texts as opposed to the texts written in
other languages.
Apart fromthe requisition of the ELSI plant ordered by the Mayor of Palermo,
which is not prohihited under the terms of the Treaty and the Supplementary
Agreement, the Govemment of the United States has not proven any relevant
factual circumstance from which one can legitimately infer any internationally
unlawful conduct by the ltalian authorities.
The Applicant made much of a statement which the President of the Sicilian
government made with regard to ELSI. This statement has heen distorted, as will
be shown by counsel.
1challenee the Govemment of the United States to show that no eovemur of ~ ~ ~ ~ ~ ~
a state of ihe American Union has ever, in similar circumstances, expressed
himself in such terms. It is quite obvious that the political leader of a regional
govemment should be concerned with the consequinces on employment of the
closing of an industrial plant that employs a large workforce! This is part of his
job. Furthermore, this kind of activity is carried out at the political level. Why
should MI. Carollo's words be taken any more seriously than those of the
Ministers that MI. Clare disparagingly referred to in his testimony?
The entire allegation of unlawful conduct on the part of Italy rests on three
major points:
1. the requisition of the ELSI plant, hut as has beenpointed out thiswas unlawful
only under municipal law, whilethe existence of an internationallv wronrful
act has bv no means heen ~roved bv the United States:
2. the words of the President Ôfthe siAlian region which ;llegedly terrorized the
Raytheon Company; and
3. the fact that IRI, which ultimatelv purchased the ELSI olant at the conclusion
of the affair, is a State-ownedholding Company.
This chain of arguments is pure fantasy and reveals a total ignorance of the
way a mixed economy system works in Italy, and in many other countries. In
these countries, except in the case of extraordinary circumstances, State-owned
companies operate in accordance with market principles, in the same way as
private companies do. Such exceptional circumstances arose when an IR1 com-
pany had to move in order to save 1,000jobs in the region that badly needed
them. These 1,000workers had beeii laid off without due notice in a ruthless
move that Ravtheon used arain in Beleium in the well-known Bad~er affair ito
which ihc hoik by ~lancpah. The ll<ri&r>Cùw, publishcd in ~evenier in IY?~,
which may hc round in the I.ibrary oi the Peacc Palau. referj). Wiih regard IO
ELSI, as from March 1968ihe salaries of the laid-otruorkers haJ io he wdid oui
of public funds provided by the Sicilian region, as did those for March i968.
Co-Agent for the Applicant, MI. Matheson, has dedicated a substantial section
of his opening pleading under the heading "Undisputed Facts" (p. 17, supra).
Witb respect, this presentation is a clear attempt to distort the truth of the Parties'
contentions. What Mr. Matheson presented was the Applicant's case - or theRaytheon story. Not only are most of the facts listed there controversial; but
their statement. nresentation and interoretation also diKer widelv.
One example hay be sufficient to iliustrate this. In the section on undisputed
facts Mr. Matheson said:
"The state of ELSl's nrofitabilitv is not disouted in this case. nor is it
rclcvant io ihis procccdiià ~r~srdlcss of ihc ;iaie of ELSI'Sprofiiabiliiy,
the Respondeni urongfully prcvenicd tl.Sl's sharcholders and creditors
frum redli7in- Chefull value of the sorn. .s ihrour- the orderls. .auidaiion
of its assets." (P. 2supra.)
Are these undisputed facts? Or is this not a restatement of the Applicant's
case? . .
The Respondent has clearly pointed out the fundamental importance to this
case of the fact that ELSl was no longer a going concern before the requisition
took place; the Respondent has also described as pure fiction the idea
of conducting a so-called orderly liquidation on the lines suggested by the
Applicant.
There is no proof of the existence of the facts alleged to be unlawful; further-
more. it has not been shown that thev were unlawful under international law and
that the ltalian State is responsible ?or them. The whole chain of facts making
up the alleged internationally wrongful act referred to above is lacking, as will
be demonstrated in due course by counsel.
No evidence has been produced to show that the requisition of the ELSl plant
caused any damage to the plant. No production line was destroyed or even
damaged. The buildings did no1 collapse, despite the contrary impression given
by the Applicant's presentation where it appears that on I April 1968perhaps a
second earthquake occurred in Palermo concentrating al1its force on the ELSl
plant. Moreover, there is no evidence in support of another crucial point: that
24 days after the requisition Raytheon had no option but to file a petition
for bankruptcy on behalf of ELSI, thus foregoing the "orderly liquidation" so
dear to the Applicant but which Raytheon had never even prepared, let alone
attempted to implement.
Absolutely no evidence has been produced in support of this and there are
well-founded indications, as we shall see, that Raytheon's true intention in the
penod immediately pnor to the requisition of the Palermo plant was quite
diKerent.
These points will be dealt with in the Italian defence in order to show clearly
that there is not the slightest connection between the situation in Palermo in
I April 1968and the damage Raytheon claims to have suKered.
But, while there is no proof of the causal link between the alleged facts and
the consequent alleged damage, there is even less proof of a link between what
actually occurred and the alleged damage.
The argument of the Applicant rests on the assumption that ELSl was a jewel
of a company. Nothing is further from the truth.
There is no evidence whatsoever that ELSl could be viewed in this way.
Indeed, ilwas a worthless company and Raytheon was perfectly well aware of
. ~
this.
When ELSl was ourchased bv IR1 from the bankruotcv estate. the onlv value
accruing io the laitérwas. ifa";,ihing. ihat of the land and build/ngs. thLrcst of
the company's aürls bcing almost valueless. No intangibles worth spedkinp of
exisied wiih rceard io the nlant. Technoloev-.as mainlv obsolcie and obiained
from ~a~theonat a high &ce. ARGUMENT OF MR. FERRARI BRAVO 151
In al1 probability, once the wbole matter has been brought into its correct
perspective, and one considers the use tbatLTEL could make of the product
lines- which had to be dismantled - one could hardly descnbe the purchase
al the fourth auction as a bargain.
There is thus no causal link ktween the actual facts and the real damage:
indeed, no real damage occurred.
If 1 have oointed to several salient asoects of the wide ranee ofuareuments
wbich will bédealt with further bym coileagues, it was to drak your attention
from the very outset to the importance in the present case of the problem of the
burden of oroof and that of oersuasion. This is a crucial matter because. in Our
opinion, the Applicant has fiiled to prove its claims or to give any con'vincing
evidence of the soundness of its argument.
In a proceeding of this kind, h which there is almost total disagreement
between the Parties over the facts. as as overthe interpretation of the relevant
Rules, the question of the burden of proof becomes a very important issue. In
this connection, the Court's jurispmdence is clear. The burden of proof regarding
the fact on which a claim is based lies with the party making the claim. This
jurisprudenceis embodied in a large number of precedents, including those cases
in which the Court has refused when the defendant failed to appear, to accept
without adequate evidence arguments concerning points of fact raised by the
applicant during the proceeding. The Court has repeatedly maintained that even
in those circumstances it is necessary, as far as possible, to ascertain that the
arguments put fonvard by the applicant are well founded.
To save lime 1 will simply make a general reference to the Judgment in the
case concerning Military and Parumilitary Acrivitiesin and againsi Nicaragua
(I.C.J. Reporrs1986,p. 14)and the case concerningUnitedSlaresDiplomnricand
ConsularSraff in Tehran(I.C.J. Reporrs1980, p. 3).
But it is important to recall more soecificallvthose orecedents reeardine cases
where both applicant and responden<were prbsent. ~hus, in the Coifu Channel
case (Ments), the Court said:
"Iiis clear [hiil knusilerlge of ihe minclaying ciibc.impuird io the
Albanian Govcrnmrni hy rcîson nicrcly of the Faciihaiiminetield discov-
ered in Albanian terntonal waters caused the exolosions of which the British
warships were the victims.It is true, as internaiional practice shows, that a
State on whose territory or in whose waters an act contrary to international
law has occurred, maybe called upon to give an explanation. It is also true
that that State cannot evade such a request by limiting itself to a reply that
is ignorant of the circumstances of the act and ofits authors. The State may,
up to a certain point,e bound to supply particulars of the use made by it
of the means of information and inquiry at ils disposal. But it c;tnnot be
concluded from the mere fact of the control exercised by a State over ils
territory and waters that that State necessarily knew, or ought to have
known, of any unlawful act perpetrated therein, nor yet that it necessarily
knew. or should have known. the autbors. This fact. bv itselfand aoart from
othercircumstances, neither involveprimafacie re~~onsibilitynor'shifts the
burden of proof." (I.C.J.Reporrs 1949,p. 18.)
Even when a matter has been submitted to the Court by special agreement
ktween the parties (the compromis) the Court has nevertheless subdivided the
burden of proof, relating it to the fact that one of the parties had alleged the
existence of specificcircumstances. The relative burden of proof lies with the
party making the claim. This is what results from the case of Minqtfieo and
Ecrehos where the Court stated that:152 ELETTRONICA SICULA
"Having regard ta the position of the Parties, bath claiming sovereignty
over the same terntory, and in view of the formulation of the task of the
Court in Article 1,and the terms of Article II, the Court is of opinion that
each Party has ta prove its alleged title and the facts upon which it relies."
(I.C.J. Reports 1953, p. 52.)
A similar line of thinking was followed in the Judgment on the Merits in the
Templeof Preah Vihearcase when the Court stated that:
"Bath Camhodia and Thailand hase their respective claims on a series of
facts and contentions which are asserted or put fonvard by one Party or the
other. The hurden of proof in respect of these will of course lie on the Party
asserting or putting them forward." (I.C.J. Reporrs 1962,p. 16.)
Similar principles have heen applied in arhitration awards. Reference may he
made to the Norweaian Shioowners case (1 Reoorls of International Arbitral
Awards, p. 332) and the ~eiis of Jean ~an~ier case (10~~e~orlsof Inrernational
Arbitral Awards,p. 77).
Theattempts by the Applicant to shift the hurden of proof are clearly unreason-
able. This anolies oarticularlv to MI. Matheson's statement that he would "ore-
sent a hricf ui'ihr.more iniportant ïacis" which the Appliidnt considers
undisputcd snd ihat ..[il( the Respondcni disagrces wiih an). of ihese facis we
invitc ihe Rripondcnt io swcil\ [hem and ideniil\ anv docunir.nis heii~rcihe
Court which support its position" (p. 17,supra). . .
The only evidence produced by the Applicant has came from Raytheon. The
two witnessesproduced in Court were the very people who planned and enecuted
the closine of ouerations. With reeard ta this tvoe of evidence 1 would like ta
recall whs was Stated hy this couryin the case co;cerning Military and Paramili-
rary Acriviriesin and against Nicaragua:
"In the general practice of courts, two forms of testimony which are
regarded as prima facie of superior credibility are, first the evidence of a
disinterested witness - one who is not a party ta the proceedings and stands
ta gain or lose nothing from its outcome - and secondly so much of the
evidence of a party as is against its own interest." (I.C.J. Reports 1986,
p. 43.)
1do consider it necessary, in this introductory part of our defence, to dwell al
length on these concepts. What is important is ta emphasize that if what 1have
said is applied ta the case in point the total lack of proof of the facts alleged in
the United States arguments should lead ta the rejection of the Applicant's case.
The answer given hy the United States on 17 Fehruary' to a question from
the bench contains unusual and far-reaching implications for the case of the
United States.
ln that answer the United States has formally rejected any argument or claim
"that the acts and omissions of the Resoondent that violated the Treatv amou,t ~ ~ ~ ~
ta a 'conspiracy"'. It has stated that ;t "has never argued and does not now
argue" that there was a conspir-cy. T~is change in the case of the United States
is quite dramatic.
As Avvocato Caramazza, Professor Bonell and Mr. Highet will point out in
the next several days, the United States pleadings - including their oral argu-
ments - are replete with suggestions that there existed what, in eiïect, was a
conspiracy among representatives of the Italian Govemment, local authonties,
' SeeCorrespondence, No. 69, infra. ARGUMENT OF MR. FERRARI BRAVO 153
representatives of IRI, the bankmptcy tmstee, and even (hy necessary implica-
tion) the judiciary. It is not possible to resile from this position now, merely by
saying so.
The United States answer of 17February, refemng to the word "conspiracy",
states that: "That characterization is not found in any of the written or oral
pleadings of the United States'." It adds "[ilt is the Respondent that describes
the United States claims as based upon a diabolical plot hatched hy the Italian
public authorities . . .(Rejoinder, p. 3 PI, p. 411)".
Now, it is true that we have so described the United States case. It is possible
to describe the case as something far less dramatic than a "diabolical plot";
however. 1have iust to cet the essential points across - and what is the essential
point? 1tis that,-with aïmost no exception, the case of the United States requires
there to be acontinuity of events,a causal and consequential relationship, hetween
one act of one Italian authority and the next.
In order to find Italy responsible as asserted in this case, the Court has to find
that there was indeed a unified plan. Whether one calls il "conspiracy", or a
"diabolical plot", or something more neutral such as "concerted action" - or
even, in the language of anti-trust lawyers, "conscious parallelism" - the point
remains the same.
It is tha- working backwards - the United States must connect the acquisi-
tion by ELTEL, and the absence of bidders at the auction, to the alleged delay
in review bv the Prefect of Palermo and the actions of the Italian judicial
authorities; and must in turn relate those back to the actions of the Mayor of
Palermo, and then again to the statements of President Carollo of the Sicilian
region, in order to make the claims that it is doing.
Nothing else,save a necessaryand sufficientline of mandatory cause and effect,
could connect these acts together. As Mr. Highet will point out at the close of
Ourpresentation, there is in fact a remarkahle absence of evidence in this case.
It is tberefore an intellectua. . imoossible challe-ge to the United States for it
to supply proofofa chain oiçausdtion. Thus. thc Uniicd Staics, unabls Io mrsi
this challenge. h;isdoubilc5s ,uhsiiiuieJ the implication and suggesiion ihlii thcrr
was concericd action for the elemcnt thai ii uould oihcn\ise have io prorc: thai
the events followed one another and were linked by causal necessityand inexora-
ble fate. And in order to do this, the United States must bear both the hurden
of proof and the burden of persuasion.
One might have thought that the contents of the United States response of 17
Fehruary are so startling that they should have been reflectedin a withdrawal of
al1or most of the United States claim. The difficultyin which the United States
now finds itself is indeed a painful dilemma.
Without assumine that the actions here were concerted, or conspiratorial, or
consciously pdrïllclronï clinnot conclude ihiiiiherc is an) rclaii<>n\hipbeiwcen
the act of the rna)or, ior evarnple. and the iiltiniatc s;ilc to tLTEL, unlcss one
lissumes furihcr ihxi therc is an uribroken Iine of wusïtion beiu,een ihem.
It should be noted, of course, that no claim as such is made by the United
States for many of these other incidents or events, save that they have formed
part of an assumed or implied secret concerted plan of action by the Italian
authorities.
Has the United States requested the Court for relief, for instance, based upon
the conduct of or publicity for the first bankmptcy auction, at which no one
appeared? No. Or the second, or the third? No. Has the United States specified
the claim for relief based on the actual sale to ELTEL? No.
' See Correspondence, No. 69,infra. Of cour? not. They are onlyjoined together by the implied premise that there
was somehow concerted action - if you will, a large-scale and subtle conspi-
racy - hy the Italian authorities against Raytheon. Therefore the case of the
United States begins to dissolve from the head down. It is in fact expenencing a
"disorderly liquidation".
One by one, the incidents complained of will "fall away", as long as the
Applicant concedes that they are unsupported by an assertion of concerted action
or conspiracy, and as long as they are not supported either by the clear unequivo-
cal establishment of a chain of causation.
As Professor Capotorti and MI. Highet willpoint out, the same thing happens
to the Treaty and the Supplement upon which the United States claim is based.
The provisions of those instruments can be discarded, one after the other, as
clearly inapplicable to the case in band, until we are left with only the barest
suggestion of a legaljustification for a claim against my Government.
1should now like to briefly illustrate the way in which the presentation of the
case for the Respondent has been organized. First, the objection that local
remedies have not been exhausted will be examined hy Professor Gaia this
moriiing.
And :ils0 this niorning Profcsror 1.ibunïti uill ihrn ill~siratc the foriuiies 2nd
prospects 01'ELSI 3s 3 ~ni~nuFdciureirn ihc clcctronisi field; in ihis iontet hr
i\.iIdcrnonirr3ie ih3t in rcalit) the iniestment in ELSl was lidis~sier n-ht l'rom
the start and only go1wone over the yean.
Tomorrow Avvocato Caramazza will examine the acts of the Italian authori-
ties which allegedly caused the bankruptcy of ELSI and the further damage to
the shareholders, such as the lack of the concession of Mezzogiorno incentives,
the failure to react to the workers' occupation of the ELSJ plant, and finally
the requisition. He will go into the details of its motivation and examine the
appeal which eventually led to the requisition being held unlawful under
munici~al law.
I'rofbssor Bonell will ihen ~wnsiderthe impact oi ihc requisiii<inon ELSI'Sso-
c~iied 'urdsrl)" Iiquid.iii<~n;and in this cùntext he uill illustnlte in plirliculïr
thai uhen Rdvihcon decided on ïLSl's "orderlv" liuuidation. FISI uas alreliilv
insolvent and'had been under a duty to file for bakkruptcy,'so that no causal
connection can be claimed to exist hetween the requisition and the bankruptcy.
He will also demonstrate that IR1 had no interest in the acquisition of ELSI's
plant and only did so when it became clear that there was no other way to prevent
the loss of 1,000jobs in an area of chronic unemployment; and further that the
price paid by IR1 in the end for ELSI's plant was totally reasonable given the
circumstances.
The problems relating to the interpretation of relevant provisions of the Treaty
and the Supplementary Agreement willthen he dealt with by Professor Capotorti.
He will show that the meaning of these provisions, while they also protect
investments to some extent, cannot be stretched to a point in which the host
State would not be in a position of being able to ascertain what are its obligations
in relation to property situated on its territory.
Then Professor Monaco will address some remarks on the pnnciples relating
to reparation.
Now in view of the material contained in the audited financials of ELSJ for
the fiscal year ended 30 September 1967, that was described hy Applicant on
17 Febmary as requested by the Court, and particularly in the context of the
testimony of MI. Lawrence on related subject-matters, we would also request
that MI. Hayward, listed as an advisor Io our delegation, be permitted to address
the Court on matters raised by this testimnny and these financial statements. ARGUMENT OF MR. FERRARI BRAVO 155
And finally, Mr. Highet will give a general summing up of the case, and will
consider the balance of the various arguments in the suhmissions of the Parties
and, in particular, the burden of proof.
And, at the end of al1this, 1 will read out the final submission of the Italian
Government. ARGUMENTOF PROFESSOR GAJA
COUNSELFOR TEE WVERNMENT OF ITALY
Professor GAJA: MI. President and Members of the Court. A student of
international law cannot fail to feel a sense of pnvilege and honour in being
calledupon to address the Court. 1 fully share this feeling today.1 shall divide
mv oleadina into three oarts. The first oart willdeal with the content of the local
rcmcdicsrule and ils x~licahiliiy in théprcstni cxsc.,Ihc sc~.ondpari uill dibtuss
the remcdicsl\ailable io Rayihcon 3nd Machleii. The last one \\IIIconbidcr thc
effectsof the FCN Treaty in ltaly
1. The local remedies rule is hardlv controversial. As the Court stated in the
Interhandelcase, "[tlhe rule that locahemedies must be exhausted before interna-
tional proceedings may be instituted is a well-estahlished rule of customary
international law . .." (I.C.J. Reporis1959,D. 27). In a more recent reDort to
the General Assembly, the ~nternational ~aw-comkission noted that .
". . the requirements that pnvate individuals directly aKectedhy measures
taken by an organ of the State in whichthey resideand carry on their activity
should exhaust the local remedies has always been a safeguard which the
countnes invested in have auo..ed aeainst a tendencv undulv to extend
obligaiionsconccrning ihc ircJtmeni oi'iorcignn3iural~nd juridic31pcrsons"
(Yc<irhoiA<i/rhcI~irt,rn<rl~on(oii Co~>rrnusrun 1, 77-II,Pari Tsio. 1p.49.
para. 56).
A well-known definition of the local remedies rule was given by the lnstitute
of International Law in 1956 at the session in Granada. This definition was
quotcd approi,ingl) in ihc Mrmorÿndum of Lnw.innc\cd by ihc Ilniicd Siatcs
<ici\.ernmtni io iis 1974claim on bchÿli OC Ra!thcon (Unnumhered Documcnis
a1iachr.dIO the C,iunicr.Mcn~orisl. IIpp. 263-265) ~\ccorrlinpto ihis delinilion,
"when a State claims that an injury to the person or property of one of its
nationals has heen committed in violation of international law, any diplo-
matic claim or claim before a judicial body vested in the State making the
claim by reason of such injury Io one of its nationals is irreceivable if the
interna1 le~al order of the State aeainst which the claim is made urovides
mrxns of Gdrcsc ai,xil;iblcto ihc iiurcd pcrson i~hichappexr to hcettcr.iii.e
and iufiçieni ro long as the normal usc of ihe>emeans of rcdress hai not
kcn cxhnurted" (46 AnnuuireJel'lnrririide droirinrcrnurti.nu1.956,p. 364).
According to the ltalian Government, this is precisely what occurs in the
present case: there weremeans of redressavailable to the allegedlyinjured person;
these means have not been used, let alone exhausted; therefore the claim is
irreceivable or, in another word, inadmissible.
2. The local remedies mle is certainly applicable to claims made hy a Con-
tracting State on hehalf of one of its nationals under the 1948Treaty of Fnend-
ship, Commerce and Navigation and the 1951Supplementary Agreement between
Italy and the United States. The present claim does not concem any direct injnry158 ELETTRONICA SICULA
together with the document - as a "confidential juridical memorandum" (the
letter was from the Secretary General of the Italian Ministry of Foreign AlTairs
to the United States Ambassador). It clearly in no way represented IGly's final
position on the case. Moreover, il only dealt with a few aspects of the claim,
which was described as unmentonous. The question of local remedies was not
discussed in the document. If this could be seen Io represent an estoppel or an
implicit waiver of the application of the local remedies rule, negotiations hetween
States over claims would be put under an unbearahle strain. If MI. Murphy's
argument were correct, the Italian Government would have been precluded from
raisin-.anv defence aeai-st a claim which had no1 heen referred to in the
contidcniial juridical memurandum. nur could ihc Applirant prcwnt an). irgu-
ment uhich uïi nui inioked in the 1'174cl~inlor e\,cn in conridcnti~l rcprçscnta-
tions made earlier on. It is anyway a fact, which can be supported by written
cvidcncc if the Aoolicant insists unon il. that the ltalian Govcrnment had made
il clcar to thc ~niicd States ~iovr;nment th:ii 3s 3 Rcspondcni it uould riiirr.the
~ihjcctionof non-e~hüusiion of local renicdic, injudi~.i~lpracccdings and th31no
estoppel had heen invoked hy the Applicant at that time.
4. When the 1974claim waspresented, an action hy Raytheon for compensation
of damages for the alleged injuries would have already been barred hy the five-
year limitation set hy Article 2947, paragraph 1, of the ltalian Civil Code -
incidentall,. five vears is a lon..r .eriod than that which is eenerallv ,r.vided
iiir in municipal s)sicnis for claims ag~inst ihc Sitiie or ~tatc~uthiiritics.
Thds, the ~tiiiudc takcn by ihc Iialian Ciovcrnmcnt in relpcct oithc 1974.hm
cannot in any way aiïect the issue of whether local remedies have been exhausted
or not. Moreover, no authority suggests that the respondent State is under an
obligation to prompt the use of available remedies. However, MI. Murphy
contended that "a State is under an obligation Io recornmend legal action against
itself" (o. 87. su.ra.. He will therefore no douht be horrified if 1 sueee-- that
cv:n in the h)pothctical CAS~ ihat the Italian <io\ernnicni h~dniijiakenly ;isrr.rtr.J
th~i no local rcnicdics cxi5ir.J. the non-cxh~u\tion oi locdl rcnicdics uould siill
noi k iu3iilied.Thcre i.no lcis auihorit, for ihis riro~osiiion than thc ii>ll~~u-n,:
in the Court's Judgment in the interhandi1 case:
"The Court does not consider it necessarv to dwell uoon the assertion of
ihc Su.is, Co\,crnmeni th~t .the I:nired ~tites itrclf h;;s iidniiitcd ih;it In-
icrhiindcl had c\hi~uiir.dihc rcmeJic. ~vail~hlein thc Uniicd States courir'
Il is truc ihat the rcrirc~rntatives of ihc Ciovcrnnicni of the Cnited Sidir.5
expressed this opinion on several occasions, in particular in the memorandum
annexed to the Note of the Secretary of State of January Ilth, 1957.This
opinion was based upon a view which has proved unfounded." (I.C.J.
Reports 1959,p. 27.)
As is well known, the United States Supreme Court had in the meantime granted
a writ ofcertioran. My point is that no relevance was then given to the attitude
taken by the United States Government with regard to the existence ofremedies.
5. Mr. Murphy iutroduced another argument with regard to the application of
the local remedies rule. He said: "there is clearly no requirement in international
law that a State must exhaust local remedies before it can seek to vindicate its
own rights through declaratory relief" (p. 82, supra). This argument is hard to
grasp. Could one really Say that submissions requesting payment of over 12
million dollars plus interest are in fact seeking declaratory relief? For the sake
of his argument, Mr. Murphy attempts Io split the claim for a declaration that
the Treaty has been violated from the claim for reparation. A similar attempt
had been made by the Swiss Government in the Interhandel case, but the Court ARGUMENT OF PROFESSOR GAIA 159
noted that "one interest, and one alone, that of Interhandel" had "induced the
SwissGovernment to institute international proceedings", and that this interest,
being the basis of the international claim, "should determine the scope of the
action brought befnre the Court by the SwissGovernment in its alternative form
as well as in ils principal form" (I.C.J. Reports 1959, p. 29). Thus, even if the
attempt to splitthe submissionswere insistedupon and eventuallybecamesuccess-
full, the local remedies rule would still be considered fully applicable.
6. The Parties agree that, in order to measure compliance with the local
remedies rule. the Aoolicant's contentions on the merits are decisive. Wereit
ncccssar). io cstablish ihc iruih with regarIO i-iucs of Iïu and Iaci pcrtaining
IO the merits bcforc con,idrring u,hcihcr local rcmcdics wcrc cxhausicd or noi,
thc local rcmcdicsrulc could hardly bc hcld3s providing3 bar to the adniissihilitv
of a daim. and the obie.~~o~ as io the non-&hauslion of local remedies could
netrcr k disposcd of in proceedings relating IO prcliminîry ob,ccti<ins.As was
siarcd b'. the arbtirat<~rin ihe F;nni,h Shc3re- in an au,ïrd whichthe Uniicd
States Irlcmorïndum of Lau of 1974dcscribed as "a landmark decision" (Un-
~ ~ ~~~ ~Documents attached to the Counter-Memorial. II. o. 265)- "everv
relevant contention, whether it is well-founded or not, biouiht fo<ard by thé
claimant Government in the international procedure, must under the local reme-
dies rule have been investigated and adjudicated upon by the highest competent
municipal court" (3 Reports of International Arbifral Awards, pp. 1503f.). In
otber words, for the sake of applying the local remedies rule, one mus1assume
that the Applicant's contentions are correct: for instance, in the present case,
that - contrary to the ltalian Government's argument - the requisition of the
ELSl plant made il impossible for Raytheon to liquidate ELSl's assets in a
profitable way and also that the requisition and the subsequent actions of the
ltalian authorities. uo to the sale of the ~lant. were taken hv them in order to
cause Rabthcon deir;nicni. From the poini of\icw oiihe appiicïtion of the I<~?al
rcmrdics rule. one uould ha\c io ;insuCrthe followingqucsiiuns. (0) Supposing
these allegations were truc, were there any judicial or other remedies available in
ltaly for secunng redress? (b) II there were any remedies, have they beenused?
B. THEREMEDIEA SVAIUBLE TO RAYTHEON
I. In considering whether Raytheon used the remedies which were available in
Italy, one has Io acknowledge that, as one of ELSl's creditors, Raytheon could
have challenged several measures taken dunng the bankruptcy proceedings: for
examde. the lease of the olant ta ELTEL. Aooeals could have been lodaed to a
higher court and subsequéntlyto the Court oi'kassation against decisioG by the
bankruptcy court. Raytheon did take an appeal against the decision of the
bankruptcy court conkrning the terms of the fourth sale, but did not take a
further aooeal to the Court of Cassation aeainst the iudement bv the Court of
Palcrmc~ 01 20Junc 1969,u hichconiirmcd th ?rms ofth; fourih ;ale IlyF~iling
to challenge iumc of ihc decisii>iisuf ihr.hînkruptcy cour1and by niit rcsorting
io the Couri oI Cassaiion in ihc maticr of ihc fourih sile. Rïvihson did no1
avail itself of the various opportunities available at least to mitigate the damages
asserted to result from the bankruptcy proceedings. A similar comment applies
to ELSl's previous failure to seekjudicial or administrative remedies withregard
to any Mezzogiorno benefits to which ELSI was allegedlyentitled (1 would like
to refer here Io the cross-examination of Mr. Clare by Mr. Highet, pp. 58-59,
supra).
A more radical remedy was available to Raytheon. Raytheon could have
hrought a claim against the ltalian State under Article 2043 of the ltalian CivilCode. This is a judicial remedy in which compensation is sought for wrongful
acts committed by the ltalian State or one or more of its officiaisThe provision
of the Civil Code has a wide scope. It reads as follows: "Any act committed
either wilfullyor through fault which causes wrongful damage to another person
implies that the wrongdoer is under an obligation to pay compensation for that
damage" (the Italian text is reproduced in Document 16to the Rejoinder).
The claim under Article 2043 could have been based on the same set of facts
which are alleged in the present proceedings; the same amount of damages could
have been claimed. The ltalian State's liabilityis unlimited. Moreover, the Italian
State's resources would certainly te adequate to meet any obligation to pay
compensation resulting from ajudgment. Needless 10Say,claims for compensa-
tion for wrongful damage are frequently brought against the Italian State; many
have been successful.
Itis a Pdciihai Rayiheon did not makc use ol ihis radical rcmedy. which would
have providrd sompletç redress - if the Appl~cant'iconteniions arc ï\iumed 11)
be correct, as is necessary whenapplying the local remediesrule.
2. Professor Fazzalari. now wearine his hat of adviser to the Aoolicant.
contended that Article 2043was of no ;vail 10 Raytheon (pp. 75-77,supia). ~he
argument, if 1 understand it correctly, partly rests on his assumption that the
~rëatv cannot be invoked in ltalian courts - .an incorrect assumution to which
1shafi come later. The other part of the argument is that Article'2043 does no1
apply whenan "obligation isprovided for[the?] benefitofthe wholecommunity";
he gave us as an example rules for "conducting competitive examinations for
public employment" (p. 76, supra). Now Raytheon was engaged in a competition
of a quite different kind! On a more serious note, one can say that Raytheon
complains of measures which specificallyaiiected its own rights and interests.
Violations of ifs nghts as shareholder are alleged. This clearly bnngs a claim for
comnensation within the scone of Article 2043.Sufficeto recall what was said in
theyudgment of the cour1 ofRome in the Talenricase. The text of this judgment
was supplied by the Applicant last week. The Court said (in the translation
supplied-by the-~pplicani):
"Now. accordine to the nnncinles ruline ltalian iuridical order. leaal action
for compensation Tordamages as per ~Gilian rësponsibility - &ch as the
action proposed by the plaintiff - postulates as necessary assumption the
performance, by the subjects bound 10 pay the compensation, of spific
intentional or unintentional actions that injure an interest of the pnvate
citizen and, as such. are the cause of unjust damage." (P. 424,infra (p. 31.)
The Talenti claim had ken made under Article 2043. The Court of Rome
rejected it buse it noted that the plaintiff had:
"in no way specified,in any of hispleadings, the individual and specificillicit
actscommitted byeach of the accused Authorities, limiting himselfto generic
complaints and <omplaining about equally vague persecÜtoryactioni 10his
detnment on part of the ltalian State" (ibid.).
This would no1have been Raytheon's case,if one assumes as one has to according
to the local remedies rule, that the Applicant's contentions are correct.
Little needs to he said about Professor Fazzalari's contention that "ELSl's
successfulsuit based on the specific remedyof an appeal to the Prefect eliminates
any other remedies" (p. 78, supra). Professor Favalan argued that no interim
measures of protection could have been granted by a judicial court against the
requisition (ibid.). But his argument can in no way lead to conclude that actions
for compensation are also barred. One only has to refer to the action brought ARGUMENT OF PROFESSOR GAIA 161
hy ELSI's receiver under Article 2043 requesting compensation from the ltalian
State: as is well known, the claim was admitted and the receiver was partly
successfulon the merits (secdecision by the Court of Cassation of 26April 1975,
1,Ann. 82 to the Memonal).
3. The fact that the receiver hrought a claim under the same Article 2043 of
the Civil Code, for compensation against the ltalian State, does no1 absolve
Raytheon of ils failure to avail itself of the radical remedy previously described.
First of all, the receiveronly complained of the unlawful character of the requisi-
lion decree, which afïected the ELSl plant and equipment for six months, and
claimed the related damages; he did not envisage the existence of any plot or
concerted action undertaken to Raytheon's detriment, nor could he have been
expected to bnng hefore the Court a set of facts similar to those later alleged hy
the Applicant. Secondly, the receiver could only act on behalf of ELSl in the
interest of al1 the creditors: any sum awarded would have had to have heen
distrihuted on an equal basis, first among the secured creditors and then among
the unsecured creditors. Anv neht stemmiue from the Treatv and the Suoolemen-
tary Agreement to ~aythéon'; benefit cild only have ken invoked'by the
individual creditor concerned: hy Raytheon. Moreover, if Raytheon suffered as
the result of an alleged plot or other wrongful act committed to the same
company's detriment, it stands to reason that compensation should accrue to
Raytheon only, and no1 to other ELSl creditors such as the banks.
4. Raytheon's failure in making use of availahle remedies can in no way he
justified hy an assumption that ltalian courts had an attitude of hias against
Raytheon. Quite to the contrary, when Raytheon was sued hy the ltalian hanks,
wbich had lent money 10 ELSI, on the hasis of Article 2362 of the Civil Code
which allows claims against a limited company's sole shareholder, the Court of
Cassation decided in Raytheon's favour, although Raytheon had more than
99 per cent of the shares and the other shareholder was one of Raytheon's fully
owned suhsidianes. In forming these judgments the Court of Cassation took a
formalistic line and went against a considerahle body of opinion (sec Counter-
Memonal, II, pp. 23 f. and Rejoinder, II, p. 438). It is worth noting that, in
settling a controversial issue concerning the shareholders' liahility, the ltalian
Court of Cassation decided against ltalian banks, including publicly-owned
hanks, and in favour of a United States Company,whose Italian suhsidiary had
horrowed large sums from these hanks and had no1paid them back. To be sure,
there is nothing unusual in this attitude of the Italian courts. However, the
attitude taken hv the Italian Court of Cassation when Ravtheon was sued clearlv
demonstrates th& remedies wereavailahle to Raytheon no1only in theory. EV&
the allegations of a plot which weremade hy the Applicant Government or the
concerted action, do no1 involve the judiciary except, to a limited extent, one
bankruptcy judge.
5. lnstead of seeking redress in Italy through the use of judicial process,
Raytheon put ils hopes in diplomatic intervention. This may he explained hy
Raytheon'scomparatively easyaccessto diplomatic protection. In the entire post-
war period, there are no instances of diplomatic protection heing exened hy the
United States Government against ltaly - or, for that matter, hy the ltalian
Government against the United States - wbich may in any way be likened 10
the claim out foward on behalf of Ravtheon.
~learl~,'with regard Io the prospec~sof diplornatic protection, the exirtencr of
locïl remedies aluüys presents itsçlf as an obstacle. asitalïects the admissibilily
of the claim.
As early as December 1971, Professor Antonio La Pergola, who had been
consulted hy Raytheon, expressecithe question put to him in the followingternis:162 ELETTRONICA SICULA
"The question posed to me is whether (given al1 the happenings and
circumstances surrounding Raytheon-ELSI S.P.A. of Palermo and in the
event that the United States Government intends to make a claim against
the Italian Government for unlawful acts against the US national share-
holders of the said company) the prerequisite of exhausting al1 availahle
local remedies can be considered as fulfilled and an international claim
advisahle." (II, Unnumbered Documents attached to the Counter-Memorial,
[p. 161]/Reply,Ann. 3, II, p. 405.)
CiivcnKayiheun', intention io rcdri IO diplumliiic protcctiginiiis undcrsi~nd-
able ihat Kiiyiheun \\,a$conicni wiih ihc posiii\c conclusion rcaihcd by thcir
consultant, although in his opinion no singleargument was devoted to the issue.
All the arguments in the 22 pages of the opinion (8 in the printed English
translation) deal1 wiih the diplomatic protection of shareholders: curiously,
writing in 1971,he quoted the Delagoa Bay award twice, but totally ignored the
Barcelona Traction Judgment. In any case, the opinion would appear to lend
support to Raytheon's attempt to move their claim to the international level,and
was thus certified' hy the United States Vice-Consulin Rome on the same day -
9 Decemher 1971 - on which it had been delivered in Bologna (see 11,Unnum-
bered Documents attached to the Counter-Memorial, [p. 173]/Reply,Ann. 3, 11,
p. 405.). The opinion was annexed to the 1974 claim presented by the United
States Government on hehalf of Raytheon and was later invoked in the Reply
(n, pp. 375.376).
The Chamberadjournedfrom 11.25 to 11.40o.m.
C. THE EFFECT OFS m FCN TREATY IN ITALY
1. In bnnging a claim for compensation for damages arising from the alleged
wroneful acts of Italian authorities. the 1948Treatv and the 1951Su~ulementarv
~greèment as interpreted by the United States dovernment would'have given
Raytheon an adequate legalhasis for establishing the wrongfulness of al1the acts
causing the damages.
All the contentions concernine.the Treatv and the Suo~lementarv Aereement
could have hcsn uscd hsforï 1isli;n court,. Oncc I3u\ cuniiining an ihpl~mcnting
ordcr ~i>rdind<; cSrei.uriuneof ihcTrcaty and ihc S~pplcmenur) Agreemsni had
bccn cnaitcd in 1i31? and tliisivs\ donc bebre boih icxis cntsrrd into lorcs
between the ~ontractine States - Italian courts would have aoolied al1 the
- r.
provisidnj in the Trclii) and ihç Supplcrncntxr!. Agrcciiieni.Truc, Italian courts
müy hold ihlii li Treaty pro\.ijion rdnnoi bc invt~kedh) iipart) IO iijudicidl
~roceedinr:if iiis rccdrdcd 3s a non->clf-c\ecuiin2-.roiision. Huiic\cr. Italilin
C~-~~~donot c~m~ ~ ~ ~ ~ ~ch a conclusion liLhtlv.
Whcnc\cr ihr Italian couris ha%,?:onsidzred~onc of ihr proi,isionsoithr 1948
Treaiy or ihr 1951Supplcmcntary Agrrcmcnt. the) have lipplicd II.Thc Court
uf Cîss3tion elive i\io dccisions on ~ro\,isions of thr 1re;itv. Thrir icxt is rc-
produced in 6ocuments II and 12 t6 the Rejoinder, II. hé influence of these
decisions as precedents both for the same Court and for lower courts is to be
acknowledged on the hasis of the attitude generally taken hy Italian courts. The
first decision was givenas early as 1960;the text was published both in the well-
known Rivista di Dirirto Internazionale(1961, p. 113)and in the widely read Il
Foro Iraliano(1961, Part 1, 304). Both decisions are referred to in the yearly ARGUMENT OF PROFESSOR GAIA 163
volumes Il Fora lialiano. Reperroriowhere they can he easily traced (1961, at
2991 and 323; 1984,at 3395 and 764).
Although these two decisions do not specificallyconcem the same provisions
of the Treaty as are invoked in the present proceedings, there is no reason why
Italian courts should have viewedthese provisions under a different light. Refer-
ence may be made to a more recent decision by the Court of Cassation, No. 4811
of 28 July 1986, ParzingerandNowak v. ProvinciaAuronomadi Bolzano (the tex1
was published in Rivista di Diritto InternazionalePrivato eProcessuale, 1987,
pp. 788H.;it willhe supplied together with an Englishtranslation to the Registrar
and the Agent for the Applicant'). This decision applies Article VI of the Treaty
of Friendship, Commerce and Navigation of 21 November 1957between Italy
and the Federal Republic of Germany, whichprovides foradequate compensation
in the case of expropriation, with wording that largely corresponds to that of
Article V of the 1948Treaty. The Court gave on the basis of the Treaty a larger
compensation than that was due to ordinary municipal rules.
The attitude of Italian courts, which is generallyin favour of the self-executing
character of treaty provisions, was recalled in the Rejoinder, II, pages 454-455.
It may be added that Italian courts strive to give effectto treaty provisions even
when they are not considered to be self-executing. Reference maybe made here
to what was written hy Mr. Waelbroeck in his book Traitésinternalionauxet
juridictionsinternesdanslespaysdu Marchécommun (1969, p. 187).He said:
"A certains points de vue, on peut mêmeconsidérerque la théorie ita1i.enne
de l'ordre d'exécutionassure une efficacitéplus complète aux traités, et
notamment à leurs dispositions 'non self-executing',que certains systèmes
prétendumentmonistes qui limitent l'applicahilité interneaux seules disposi-
tions stipulant directement au profit et à la charge des citoyens. En vertude
l'ordre d'exécution,le juge italien est renvoyéà l'ensemble du texte de
l'accord. et non aux seules disoositions directement..oolicables: il doit con-
sidérercomme émisesdans l'ordre interne toutes les normes nécessaires à
l'exécutiondu traité, dans la mesure où celui-ci impose des obligations à
I'Etat."
Thus, it may well he that a claim concerning compensation for wrongful
damage caused by State authorities does no1 in fact depend on the question
whether the treaty provisions, from which the existence of an injury is drawn,
are or are not self-executing.
No auestion of reciorocitv is raised bv Italian courts when thevdecide whether
a ircütj provisionmai, k inioked hy a pdriy to judicidl procccd;ng. Thc decision
Nii. 4811 oi 1986by thc Court of ('dssdtion, which \ixs quotcJ elirlirr, exprcisl)
mles out the relevance of the absence of recivrocity for the said purnose. in anv
case United States courts, when they haveconsidered some of the provisions in
the 1948Treaty, decided that these provisions are self-executing. Reference may
he made here to the decisions in the Matter of Colella and in the Matter of
Iannone, published in the collectioriAmericanInternationalLaw Cases, Vol. 10,
pp. 195f. and Vol. 14,pp. 449 &, respectively.A more general statement to the
eHectthat the Treaty of Friendship, Commerce and Navigation treaties are "self-
executing treaties" may be found in a decision by the United States Court of
Aooeals for the Fifth Circuit. which was more fullv a. .ed in the Counter-
~Lmorial, II, page 29, footnoie 1.
2. Professor Fazzalari attempted to destroy the value of the two decisions
referred to by the Respondent in which the Italian Supreme Court applied the
' No1reproduced; seeCorrespondence . o. 76, infro.161 ELETTRONICA SICULA
Treaty. His only argument appears to be that the Treaty provisions which were
aoolied contain a most-favoured-nation clause (pp. 74-75,supra).It is difficultto
&é why this element, to which no importance ias given bythe Supreme Court,
should affect the status of Treaty provisions as self-executingprovisions. In no
way did the Court of Cassation require, as Professor Fazzalan would have it,
"additional Italian legislation incorporating the Treaty into Italian law with
greater specificity" (p. 72, supra).
Reference could any way be made to a further decision hy the Court of
Cassation which applied Article VI of the Supplementary Agreement - a provi-
sion that does not contain a most-favoured-nation clause. The decision was given
on 27 Febrnary 1970in huis DreyfusCorporationv. OrianaSocietà dinavigazione
and was published in 6 Rivista di Diritto InternarionalePrivato e Processuale,
pp. 394 ff. (1970).
Unable to find any judicial decision in favour of their contention, Professor
Fazzalari (pp. 75-76, supra)and later MI. Murphy (pp. 90-91, supra) attributed
great weight to an opinion given by one of Rome's State attorneys in the Talenti
case. Although Professor Fazzalari spoke of "an expropriation of property in
violation of Article V of the FCN Treaty" (p. 75, supra), the State attorney
contended that no expropriation had taken place and that no specific measures
were alleged to have been taken against MI. Talenti's property, as he only
complained of town planning measures concerning the areas of Rome in which
his properties were located. The State attorney argued that the Treaty did not
confer any rights in this regard. In the passage which was quoted hy Professor
Fazzalari and which is not quite intelligible in the translation supplied by the
Applicant, the State attorney argued that the legal protection granted hy ltalian
law against town planning measures was not in fact enhanced by the Treaty.
There is no argument, either in the State attorney's opinion or in the Court of
Rome's iudement. to the effect that. had there heen an additional vrotection
undcr ih; l';raiy, ~hiscould not ha~c'ken invoked b) the inicrcstcd piri) heiore
the Court. Thc Court of Rome sirnplyrcjcctcd the clxirn litoi3lly unnicritoriou~
kl3d ihcrc bccn. a.;contended on bchall of thc Applisdni, an arpunicnt against
the self-e~ecutin~character of Treaty provisions inihe State attorney's ophion,
one would then have to take into account that the opinion of State attorneys,
including the one in the Talenticase are the result of the personal work of the
individual State attorney and are never published. True, State attorneys have
sometimes argued before Italian courts that provisions of treaties other than the
FCN Treaty are not self-executing. However, as examples in the Rejoinder (II,
pp. 454-455) show, Italian courts have not followed this line and have taken the
onnosite view. i.e.. that orovisions in the GATT and in the Peace Treatv with
ltaly arc scli-execuling.
From the poini of vicworintcrnliiionsl law. municipal courts are Siat~auihori-
tics no lcsi [han Siaie attorncvs arc Moreovcr. itwould he difficuli Io dcny ihat
when one considers whether ihe provision of a treaty may be invoked before a
court, it is the attitude of the courts that matters. As one would say it in French:
M. de la Palice enaurait dit autant.
3. Mr. President and Membersof the Court. the attitude of national courts in
favour of recognizing the self-executing character of treaty provisions deserves
encouragement as a matter of policy. For private parties the difference between
self-execÜtin~orovisions and non-self-execüting orovisions is often fundamental.
In the first &e, pnvate parties may invoke ri& and interests before national
courts and thus secure on their own initiative the enjoyment of the full protection
granted them hy the treaty -irrespectiveof the presence or absence of willingness
on the part of the national State to espouse a diplomatic claim on their hehalf. ARGUMENT OF PROFESSOR GAIA 165
When, on the contrary, a treaty provision is not self-executing,treaty obligations
cannot he enforced. as a nile, throunh national courts. Inevitahly, the respect of
international obligations, asbetweei States, becomes less certain.
Negotiations between States do no1 necessarily lead to the complete fulfilment
of treaty obligations. The result may be more limited than what is required, but
it may well also go beyond il, depending more on the circumstances that led the
Contracting States to a settlement than on the merits. There is no douht that it
is in theinterest of the complete application of treaty provisions which are there
to protect private parties, that those provisions should be considered, as far as
possible, self-executing.
D. CONCLUSION
When local remedies have not heen exhausted, a claim put fonvard on behalf
of the non-complying national must be declared inadmissible.
lnadmissibility does not necessarily imply that the claim may no longer be
espoused. For example, in the Interhandel case, when a writ of cerliorari was
granted to the SwissCompany, local remedies appeared to be still available. The
inadmissibility of the claim was intended to affect the claim only until a final
decision had been handed down bg the United Statescourts. On the contrary, in
the FinnishShips case and in theArnbaiielos case, the inadmissibility was perma-
nent, as the opportunities offered by the relevant municipal system, which had
not been used, were no longer available. This is an unavoidable result of the
application of the local remedies rule, which is not designed simply 10provide a
temporary bar 10 premature international claims. As the Court stated in the
Interhandel case, the purpose of the rule is rather that "the State where the
violation occurred should have an opportunity to redress it by its own means,
witbin the framework of ils own domestic legal system" (I.C.J. Reports 1959,
p. 27).
In civil matters, that opportunity depends on the party which has allegedly
been injured bnnging a claim to domestic courts. If the party does no1 put
fonvard any claim the State is in no position to redress the injury by ils own
means. within the framework of its own domestic leeal svstem. It is then reason-
able thai the inadmissibilit) shuuld not bc tcmporar).
This is whai hüs occurrcd in ihr.prcscnt casc Judicial rcmrdics exisird but
ucrc noi rcsoricd tu; the ~roviïions in ihc 1948Trediy and in the Supplcmcniarv
Aereement which are invoked bv the Aonlicant Govehnent were néverbroueht
tAhe attention of an ltalian ciurt by ihe party whose rights and interests wire
allegedly affected.Those remedies were available over a span of fiveyears, giving
ample opportunity for their use. However, they were ignored. As a result, the
claim put fonvard by the United States Government isinadmissible, and no1only
temporarily. Negotiations over the claim may continue, but the claim cannot be
put fonvard in law.
MI. President and Members of the Court, this concludes my pleading. ARGUMENT OF PROFESSOR LIBONATI 167
The successiveinterventions - hy La Centrale (an ltalian company with ils
head office in Milan) for 70 per cent and Raytheon for 30 per cent - did no!
improve the situation. ELSl continued stuhbornly to make only losses.Again in
the aforementioned Project we read that (a) "the technical and production . . .
costs were high", (b) "the creation of a wide and stable market was very costly,
both directlyand indirectly", (c) "Both in ltaly and abroad al1major customers
. . were reluctant to erant Ito ELSIl constructive confidence as lone as ELSl
appeared like a small Eompa'nywithno real technical strength behiid il" (see
p. 204 of the Project).
Soon aftenvards, faced with a greater intervention hy Raytheon, the Sicilian
company realized that (see pp. 205-206of the Project) (a) products for militas.
usage, if technically interesting, "cannot constitute a correct exclusiveoperating
basis",and {b) "the products for the consumer market . . such ascathode ray
tubes and semiconductors for radio and TV. etc.. . . ."cannot "be taken as a
hasis of. .. an industrial operation"; moreover, they had to suiïer "the heavy
costs incurred to deliver the product to the customer's factory".
After all,in the words of thecompany's American management the undertaking
was not and never had been competitive on the market, so that ELSI could not
continue as it always had done up until that point, to accumulate losses. And
the proposed reorganization, in the opinion of the American experts, required
no1 onlv a massive iniection of caoital hv the Italian State to the extent of
6 billion lire, but lu, chat "the Go,,crnmcnt subsidics \vil1be a\ailiible to cover
the addiiional trdnsport cosis, nat onlv for incoming material M LfIor thc export
of completcdgoods to other countnes" (WC p.215of ihe Project).and 16, thal in
the search f& new oroducts. these had io come "from-Government-owned
agencies in Italy", wiih the desired Government procurement order amounting
10some 5,000 million lire (seepp. 203-204and 222 of the Project).
3. ELSI's COLLAPS OF 1967.1968
In short, a desperate situation which saw ELSl by now completely out of the
market.
The fact is that right from the start ELSI could no1have been anything other
than an uncconomic enterprise.
The hulk of the production - cathode ray tubes and semiconductors - in
order to be profitable would have to have heen situated in the immediate vicinity
of the suppliers of the raw materials (particularly the glass tubes, which on the
contrary - as far as we learn from MI. Ravalico, mostsenior person responsihle
for the manufactunng group belonging to SIT-Siemens(see Doc. 14annexed to
the Rejoinder, II) - came al1the way from Russia) and of the customers for the
finished product, and there are no televisionmanufacturers in Sicily.
ELSl's products therefore - as we learn from O. J. Scott (The Story of
Raytheon, NewYork, 1974, p.3M)cost from the very outset 10percent more
than the competing products. They were unsaleahle right from the start, other
than with a great deal of luck.
As if that wasn'tenough, there wereproducts heing manufactured usingclearly
outmoded methods. Engineer Busacca, who was responsibleat ELSI for the
planning of the microwave tube sector up until his dismisal on 29 March 1968,
tells us for example (II, Doc. 44 to the Counter-Memorial) that:
- in the "semi-conductor line: the machinery was unserviceahleand idlehecause
il had been designedfor germanium technology, whichhad ken ohsolescent
for many years"168 ELETTRON~CA S~CULA
and that,
- in the "X-ray tube line: the machinery was veryold and the processing was
carried out at great risk to the operators".
Furthermore,
- the workforce exceeded the requirements; only by increasing production -
as we learn from the Raytheon management Project - or by changing
production - as Mr. Clare has declared before the Court - could the
structure thereby created ever hope to become profitable;
- the management was lacking; Raytheon, the new totalitarian shareholder,
kept the technicians who had previously been with the previous owners -
Professor Calosi and Engineer Profumo - who were only dismissed in 1967,
when it was too late, and when al1the president of Raytheon could do was
to let off steam with Calosi, telling him: "You have made a terrible mess of
thines" (~cot~. O'.~~~~~.,~.-6--,,
- ELS?was ~ndérca~italized,with hank dehts of over 13billion lire, givingrise
to an average interest charge of 1billion lireDerannum -as Mr. Clare has
admiiicd in-his iesiirnony - withoui souniing ihc iniercsi, on medium tem
loans, ihcrefore with an intolerable financial burden froni ihc very sian, and
cornpletcly lcihal for an undcrtakinp.w-ich produccd los,e>ai the rate of the
Sicilian company.
And there is still more.
ELSl always made only losses - 902 million in 1963,331 million in 1964,48
million in 1965, 859million at 30 September 1966, 2,681million at 30 September
1967, rising to 3,750 million at 31 March 1968 for new losses of 1,069 million
lire in the half year (1,Ann. 13, Schedule BI 10the United States Memorial) -
and was therefore in a permanent financial crisis.
ELSl was however still a worthwhile lemon, there to be squeezed by the
American parent company. As can be read in the technical consultancy docu-
ment of Dr. Giuseppe Mercadante, the expert appointed by the Tribunal of
Palermo 10draft a technical report on ELSl's pre-bankruptcy management for
the accounting periods from 1964to 1968,"among the various costs which have
raised some perplexity in the survey, we note the huge disbursements incurred
under the item Assisrancefo Raytheon company" (in spite of the fact that ELSI
was incurring losses); disbursements that must he added - as we again learn
from Dr. Mercadante - to the royalties paid to the American company, on top
of reimhursements for travel and accommodation out of al1 oronortions. et~r~ ~ ~.~~
(ar~und 340 million in 1968done) (see Technical Report of Dr. Mcrcadsnie,
Counier-Memonal, Doc 36, pp. 16-19 of the Iialian tex1 '. II, p. 209 01'the
Enplish irïnslaiion' And ïII this 10 mdintïin a deficicni ~roduction. eiven -
ana 1quoie again from Dr. Mcrcadanie'siechnical report (II: p. 209)-".;eturned
goods, rriurn by customer, the faulty goods" ihat aiïlicied CLSl's profit and loss
account.
Thus on to the uneconomic oroduction costs were added consoicuous outlavs
to the advantage of the parenicompany, which, if explaining ~a~theon's iris$-
tence in maintaining the ltalian subsidiary for ils own profit, also impose. under
a merely technical business profile,an even more negative consideration of the
Sicilianenterprise.
' Not reproduced.
'' See II, p. 202,footnote1. ARGUMENT OF PROFESSOR LlBONATl
4. Tm LACK OF CASH AND m END OF ELSi's OPERA~ONS
Let us talk a little about the figures.
The consistency of ELSI's accounting periods showing losses is in itself ap-
palling.
As if that was not enough, 902 million in 1963,331 million in 1964,48 million
in 1965,859 million at 30 Septemher 1966,2,681 million at 30 Septemher 1967,
nsing to 3,750 million at 31 March 1968(forgive me if 1repeat these incredihle
sums). In March 1967Raytheon had to cover lossesby pouring in over 4 billion
lire.
The deficit at 30 Septemher 1967 - as we read in the report of Coopers &
Lybrand' - "exceeded the total of the paid-up capital stock, capital reserve and
Stockholders suhscnption account hy an amount of 881.3 million"; and under
Articles 2447 and 2448 of the Italian Civil Code - as Coopers & Lyhrand
emphasizedin their note 10-the directors wereobliged "IOconvenea Stockhold-
ers' meeting forthwith to take measures either to cover the losses by providing
new capital or to put the company into liquidation".
The directors of ELSI did not do so. Months passed. And by March 1968
further losses of over 1.068billion lire had heen produced. The losses amounted
thus to 3.7 billion lire. But these figur-s heing those which appear from the
availahle documents - are still lacking.
There are certainly non-existent credits in ELSI's 1967accounts; for example,
for over 246 million lire with a certain Noya Alfred Enacktemer of Quickhorn,
West Germany (see II, p. 212 of Dr. Mercadante's technicalreport, Doc. 36 to
the Counter-Memorial).
There is certainlv an overvaluation of the stock of between 1.500 and 2.000
million lire (see II,ip. 211-212of Dr. Mercadante's technicalreport, Doc. 35 to
the Counter-Memonal).
There iscertainly a fictitiousincrease in sales, with values that wereleft illegally
as assets under the heading ClienrswilhCredifsDue(seeII, p. 212of the technical
report of Dr. Mercadante).
There are certainly accommodation papers for 1,200million lire (see ibid.).
The actual amount of ELSI's losses at the start of 1968was therefore - to
put it hnefly- ovenvhelming. Raytheon's managementwas however completely
aware of the situation, and this is sufficiently evident from the fact that on
21 Fehruary 1968,Mr. Adams, Mr. Clare, Mr. Hillyerand Mr. Profumo met with
the Honourahle Carollo, and on that occasion "Adams stressed that ELSI
cannot survive without immcdiate cash help, which Raytheon cannot provide".
8 March 1968was considered hy the management of the Amencan company
to he the last date of ELSi's survival, to the extent that "this date of 8 March
was stressed repeatedly as the ahsolute limit for a shutdown due to financial
crisis" (1quote from the handwntten minutes of the meeting, annexed as No. 19
to the Rejoinder, II, p. 497 [p. 61).
Mr. Clare even indicated a ~recise "time chart". In his ooinion there would
have ken (seeII, Doc. 19to théRejoinder): "on 26 to 29 ~egruary - inevitahle
hank cnsis; on 8 March - we run out of money and shut the plant".
This forecast did not prove to be exaggerated.
On 31 March 1968ELSI's cashamounted to a total of 21 million lire (see the
provisional balance sheet attached, 1, Attachment A to Ann. 30 to the "nited
States Memonal); but facing the company were 283million in short-term dehts
' SeeCorrespondenceN , o71.in/ro.170 ELETTRONICA SICULA
with suppliers, 12billion in debts with the banks, 1.2 billion in accommodation
. .ers which reauired to he honoured on maturitv, 800 million lire with Banca
Nazionale del ~ivoro maturine on 18 Avril for.lone~te~- loans (see II. Un-
numbered ~ocuients annexed &the ~~~;ter-~emorial, Exhibit III:~~,[p.'179]/
Mernorial, Ann. 43, 1, p. 311), and 100 million lire which, on average, was the
monthly requirement to pay the workforce (if not an even larger sum).
Thus, at the end of March ELSI could not even pay its workforce, and the
same is probably true of the telephone, electricity, etc. Furthermore, a few days
later, another mine would have exploded; the impossibility of meeting loan
repayments fallingdue, with the consequential dishonouring of issued bills. From
here we have the decision to close down, since the financial help requested did
not arrive.
"The business situation of the company has deteriorated to a point too critical
to be ignored, ELSl's President observedon 16March 1968(seeII, Unnumbered
Documents annexed to the Counter-Memorial, Exhibit 11-19,[p. 444]/Memorial,
Ann. 15, 1, pp. 176-177).Thus, the Board decided that cessation of production
willhe efected immediately,whilecessation of trading and dismissalof employees
will he elïected on 29 March 1968.
In actual fact, on 29 March 1968, at the wish of its directors, ELSI, over-
whelmed by the losses resulting from its inability to produce profitably, and by
the hopeless financial crisis that naturally followed, ceased to be a going concem
and became a dead and obsolete plant, fit - in order not to produce further
losses, since it never knew how to do anything else - only for sale on a break-
up hasis, almost ai "scrap" value.
5. ELSl WASNOT'IACOINGCONCERN"
These indisputable and proven facts, which result from documents, are impor-
tant, as far as we are concerned, in two contexts.
In the context of substance, it has ken demonstrated that ELSI was not a
going concern that was destroyed by the requisition ordered by the Mayor of
Palermo; the losses of ELSl began a long time hefore the order of the Mayor,
and even M. de La Palicewould admit that 29 March 1968,the day of the closure
of ELSl's plant, precedes I April 1968,the day of the requisition.
In the context of form. it has further heen shown that as far as concerns the
economic and financial disaster which arose, and the decision taken by ELSl's
directors, Italian law did not permit any sort of liquidation other than the
bankruptcy procedure.
The very nature of ceasing to be a going concern naturally brings with it a
depreciation in the business undertaking, which in this case, as we have already
seen, used obsolete production lines to produce goods which wereunable to find
a market. In such cases, the plant and machinery can only be sold as scrap, since
they are unable to produce profitably. In addition, in ELSl's case, theplant had
been formally closed at the wish of the directors and the shareholders, so that
absolutely nothing of any sort of businessworth could be olïered, the goodwill-
if there ever was any in a company which only ever produced losses(and we shall
comeback to this point later)- having been reducedto zero by the management's
decision.
Now, in lems of ltalian law - Article 5 of Royal Decree of 6 March 1942 -
"the entrepreneur who findshimself ina state of insolvencyisdeclared bankrupt",
and "the state of insolvency is manifested by defaults or other external facts
which would demonstrate that the debtor is no longer in a position to satisfy his
own obligations in a regular manner". In this case it is the debtor himself who ARGUMENT OF PROFESSOR LIBONATI 171
admitted 10 no longer king in a position to satisfy his own obligations in a
regular manner. In these circumstances, as Professor Jaeger points out in his
statement, "the Board of directors of ELSl should have filed a petition in
hankruptcy, or at least, request to the Palerrno Tribunal to he admitted 10
the procedure of judiciary settlement (concordato preventivo)" 01, Rejoinder,
Doc. 32).
Professor Bonell will return shortly to the particulars of ltalian law, and that
of other civil lawcountries, in the area of bankruptcy. Here we need merely note
that the "orderly liquidation" under the control of the management is thus a
convenient hypothesis which is now bandied about for reasons of convenience.
The reality is completely diferent. Perhaps in September 1967 - as suggested
hy Coopers & Lybrand - there could have been place for a liquidation. But al
March 1968,with six months of added losses, 1,069million lire in six months,
being "out of money" as admitted by 11sdirectors, ELSI was insolvent before
the requisition look place and should have ken declared bankmpt.
The fact that it was no longer a going concern, the mounting losses and the
obsolescenceof the plant and equipment,made it impossible in ltalian law, as in
the law of many other civil law systems, to conduct the liquidation other than
through the control of a receiver in hankruptcy nominated hy the Tribunal. Il
thus follows that the first theory of the United States Governrnent - that the
ltalian authorities prevented an orderly liquidation of ELSI - is completely
unrealistic.
6. THE IMPOSSIBIL~ OTFNEGOTIATIO NOR SE~EMENT
Mr. President, distinguished Memhers of the Court. All that 1have said up to
now is entirely confirmed by the testimonies of Mr. Adams and Mr. Clare, and
in the statements of professor Bonelli
Proîcssor Bonclli underlincd -and I belie\c th~i c\,eryiineuciuld agrce wiih
him - lh31uhen 3 compsny isinsolvcnt, itcan avoid b~nkrupl~yifihc sharehold-
ers put up new capital, or if it reaches an agreement with its creditors. The first
alternative ohviouslv cannot be taken into consideration in this case. since we
have clearly sccn thai Raytheon did noi wani, or w3sunlihlelu cunlinue covcring
EI.Sl's losses. Ihe iccond ~llrrn~iive requircs- according IO the schcmc dc-
scribed by Professor Bonelli - a compromise of some of the major unsecured
dehts, especially with the large creditors, or a "concordato stragiudiziale", which
means a settlement with al1creditors.
Now, in order to enter into an agreement, especially with al1of the creditors,
you require long and often tiring negotiations, which mus1logicallybegin before
the Companyfinds itself "out of nioney". The failure to pay a small supplier or
the employees wages is sufficient to upset the balance and destroy the whole
scheme. Exasperated employeesor irritated suppliers have every reason for going
10the judge and asking for the bankruptcy of the non-paying debtor.
However, in ELSl's case, Mr. Adams and Mr. Clare have confirmed that the
idea of the liquidation was deliberately kept quiet. MI. Clare has even admitted
that plans for an orderly liquidation "were not in place" when, at the end of
March, the management decided to go into liquidation (p. 63, supra). It thus
clearly followsthat no negotiations with the creditors bad heen begun up 10the
point where ELSl was "out of money", and at that point there was no longer
lime for negotiations, since ELSI - as Mr. Clare has confirmed - could no1
even pay "the firstpayroll in April" (in factit did not even pay March's wages,
as we shall see later).172 ELETTRONICA SICULA
ELSl thus found itself insolvent, and materially prevented by the lack of lime
from looking for alternatives. It is a typical example of bad management, but
this is no1 our prohlem. What is now relevant is that the directors, if they had
stuck 10 the law, should have gone 10the Tribunal and presented a petition for
bankruptcy, as the Respondent has stated on several occasions.
Mr. President. distineuished Members of the Court. 1do not think that I need
~. ~ ~ ~ ~ ~ ~
go any further on this ;oint, since the argument is confirmed in the passages of
the texts cited hy the Applicant and in the Applicant's defence.
7. THEDISMISSA OLFTH@ WORKERS
A further comment on Mr. Clare's statements.
As has already heen mentioned, the workforce of ELSI exceeded the
requirements.
Mr. Clare further specified that the search for new products - those which
according 10the Programme for Reorganization were to be ensured by the ltalian
State- was required "because ELSl wuld no1fire 200 people". "We got rid of
two people off the television line- Mr. Clare rememhers - "we had a strike
for about three weeks on the line".
Il is no1pleasant Io hear one speak- in 1989 - of workers as objects which
one can "fire". But this is not what hrings us back to the question. The fact is,
as far as we can see in the United States 1974claim (II, pp. 233-234[pp. 20-21]),
that in June 1967ELSl had already announced the dismissal of 300 employees:
but the Sicilian region came ta ELSI's help, and in the end 168 workers were
sent home, their wages king paid hy the region.
Thus, changes in the scale of ELSI's operations were possible, despite what
Mr. Clare has said.
It isjus1 that il was not possible in 1968,as it had not ken possible in 1967,
to resolve the company's problems, since ELSI's products would still never have
found a place in the market, and ELSl would have remained insolvent.
8. THE ~NCONGRUENCEOF THE CALCULATIOB NASSEDON BOOK VALUE AND THE
~MPOSSlBlLlTY OF AN ORDERLY LIQUIDATION
The insolvency of ELSl in March 1968 in itself closes the discussion on the
"orderlv liauidation" which wassuo~osedlvDreventedbv the Mavor of Palermo's
requisi6on'order. If ELSI was insolvent,.iis bankrupGy was ikevitable; if the
bankruptcy was inevitable, the hypothesis of an orderly liquidation could not
and cannot be put fonuard.
The Applicant now indeed clings strongly Io the idea that in an orderly
liquidation ELSI could have realized the book value of the assets. The reasons
for ils taking tbis stand are obnous.
1. If one keeps in mind, for instance, the more reasonable (but nevertheless
still utopian) quick-sale value, we have the admissiontout court of ELSI's in-
solvency, since the proceeds at this value would have ben sufficientto pay only
50 per cent of the dehts with the hanks; and we al1 know that anyone who
approaches a hank proposing to repay only 50 per cent faces most certainly an
exmution on his personal helongings a few days later.
But ifonehas rewurse to the book value, ELSI appears to balance its acwunts.
2. Furthermore the Applicant has been forced 10 use book value hy the fact
that there was no proof of an open market for the ELSl business. No proof bas
ken offered supporiing the fact that there werepotential huyers in the wings for
ail or part of the ELSI business(see Mr. Adams's testimony: p. 41, supra) any ARGUMENT OF PROFESSOR LlBONATl 173
more than there were buyers for the various products made by the difieren1
sections of ELSi's husiness. The sale of a husiness. iust like the sale of a oiece of
electronic equipment, requires a certain depth in thémarket. It requires a'willing
buyer. Without such a market there can he no sale of an enterprise as an entire
business or as seoarate oroduct lines. The husiness hecomes a collection of assets
to be realized piecemeai, and at greatly reduced pnces.
The book value has been presented to us however as a sensible and reliable
calculation.
Mr. President, it is not true.
1do feel il necessary, bcfore continuing with my submission, to apologize to
the Court if 1 mus1 dwell on matters which belong more to a commercial
arhitration bctween Raytheon and the Sicilian region, than 10 a case hefore this
highest of courts. But 1am forced to in order to reply to the singular approach
taken hy the Applicant, who has moved the discussion inIo most peculiar areas.
As 1 have said, it is just no1 true that the hook value approach is a fair and
reasonahle one.
The hook value shows the cos1of ourchase or of the oroduction of the assets.
rcduccd by dcprcciation due to thei; obsolcsccncc ~r.' Lawrence hïs providcd
expert testimony on the evaluation of ELSl's asscis according tu these principles.
Fven if WC acceot Mr. Lawrence's sutcmeni. the fiaures still do no1 balancç.
But before speaking of figures, il would seem iecessary, and useful, to stop for
a moment and 10 use our common sense. The opposition in such an important
case as the one now before the Court cannot corne out with hypothesis that has
no basis in reality.
(a) First, Mr. Lawrence has confirmed that his valuation is based on the
premise that ELSl was a going concern (see pp. 130-131, supra). But ELSl was
not a going concern. It was an insolvent company, an economic and financial
disaster, put into liquidation because it had mn out of money, and was not even
able to pay the wages of its employees (in fact, ELSl's workers' wages for the
month of March were paid hy the Sicilian region: see Regional Law No. 12,of
13Mav 1968.Document 37 attached to the Counter-Memonal. II). Incidentallv.
~r dams inhis tesiimony did no1seem io remembcr this fact (s& p. 39.supro:).
Now. if EI.SI was no! a goingconccrn, the book value becomes a ioially incon.
gruous point of reference. Thegoiiig concern basis presupposes the continuation
of the existinghusiness insome fonn or another. That isto say,either as a complete
business, or as business merged inIo another husiness, or as product linesassumed
by other persons or husiness. Earning streams are deemed 10continue.
When the company goes into liquidation, and ahove al1 when the company
has continually produced losses and is insolvent, the pnnciple of the book value
cannot he used. The concept of goingconcern impliesthat the threat of liquidation
is not hanging over the business; that the business can meet its liahilities as they
f~ ~ ~ ~ ~
Fur example. Siïtcment on Auditing Standards No. 59 i)f the Amcncaii Insti-
luit of Certiiiçd I'uhlic Accountanis puis among thç conditions and evenis which
may lead an auditor 10question an entity3sahilky 10continue as a going concern
for a reasonable period of time:
- recumng operating losses,
- working capital deficiencies,
- negative cash flows from operating activities,
- adverse key financial ratios,
- need to seek new sources of financing,
and this was exactly the situation that ELSl was in.174 ELETTRONICA SICULA
Since ELSI was no longer a going concern, the Applicant should therefore
have taken a completely differentapproach. But it did not do so. And it did not
do so because the consideration of the sale of a no-longer-going-concern, as a
whole or divided up, would have given completely different results which would
certainly have been far less to the liking of Raytheon. It would have destroyed
the idea of an orderly liquidation and it would have painted a picture of the tme
situation: that is, that ELSl was a disaster from both points of view, financial
and economic.
(b) What we have just heard is totally confimed if we go into further detail.
(1) Let us start with the fixed assets.
The first heading - land and buildings - expresses the acquisition cost of
land and the construction cost of the buildings.
But the buildinas in auestion were. to a larie extent. industrial sheds in which
ELSl carried out;is industrial Iciiviiies and ioi ciiy aparlrnenis which enjoy a
naiurnl increase in price. They Iosi al1value once the industrial ~ciiviiy of EI.SI
was detached.
Moreover, three Affidavits-of Mr. Ravalico, DocumentNo. 14to the Rejoin-
der, II; of MI. Cavalli, Document No. I to the Rejoinder, Il; of MI. Cammarata,
Document No. 13 to the Rejoinder, II - show that the buildings were hadly
designed and badly constructed from the beginning. And how then could the
figures which make up the book value be considered consistent with an offer of
sale, by a Company in liquidation, of such assets?
(2) Let us move on to the "machinery and equipment".
Mr. Clare recalled that "the television tube line - that could be sold as an
independent business because it was a separate entity" (p. 53, supra), and which
in itself made up "half of the plant" (p. 55, supra)- produced black and white
tubes. But in Italy in 1968colour television was already jus1 around the corner.
ELSI produced 23-inch tubes, completely unsaleable by this time (as we know
from MI. Ravalico's Affidavit). It was thus necessary Io find a purchaser willing
to invest in a useless plant, with a remaining life of only a few years. Moreover,
these were years in whichal1television producers would have tried to use up their
own existing supplies and would certainly no1 have heen running to ELSI to
purchase their products.
These, in addition, could not compete on the market because of their price.
Mr. Clare has underlined that the transport costs were very high and that only
the receipt of concessions, which werenot in any case due - as will he explained
later by Mr. Caramazza - would have enabled acceptable cost levels to be
reached.
And there is even more.
"The production lines" suhmits Mr. Ravalico in his Affidavit "were al1
old, broken down and obsolete. The semiconductor line(the most hankrupt),
the X-ray tube line, the microwave oven line, etc., which had heen of
inefficient production capacity ab origine, were al1 written off at once as
scrap. It was not that they were obsolescent as a result of having heen shut
down pending the bankruptcy proceedings. They were obsolescent due to
prior industnal and technical reasons." (Doc. 14annexed to the Rejoinder,
n, p. 491.)
The obsolescence and poor state of repair of ELSl's machinery and equipment
is, by the way, confimed by the figures.
As an entity with fully working machinery and equipment, it could have
produced articles that could have found a place in the market. Even if it had not
made a profit, it would at least have ended up without making a loss. ELSI, on ARGUMENT OF PROFESSOR LIBONATI 175
the other hand, not only made losses in 1967,but - and Io the extent of the
figures that we have already heard - in 1966,in 1965,in 1964and in 1963.To
even suppose that someone would be interested in paying book value for this
plant and equipment is complete madness.
(3) Let us now deal with the inventories. Half of the total vlant - we are
tol'd'byMr. Clare - was made up of the television tube line khich, however,
produced tubes for black and white televisions which - as said above - no
longer had a market at that time.
The stock certainly did not contain products used for military supply conlracts,
since these are produced according to specificorders and are not put into stock.
Thus the major part of the stock could not have heen made up of anything other
than unsaleahle items.
"The stocks werenot ableto cover eventhecost ofmanaging them", remembers
Mr. Ravalico in his Affidavit. "The stocks were full of unsaleable picture tubes,
above all, and old, wholly unusahle materials that were for the production lines
that were going to besold off as scrap." (Document 14annexed to the Rejoinder,
II,p. 492.)
Nulia quaestio, therefore, as to what was the book value. But rather who on
earth would have heen willing to pay the book value for such uselessstock?
(4) A few words on the "accounts receivable".
As is wellknown, client debts reccivableare calculated at the probable amount
of realization, under the dediiction of an amount for bad debts whichit is believed
will not be paid. The "Reserve for had debts" in ELSI's and Mr. Lawrence's
calculations amounts to 80.6 million lire.
Such a low reserve,equal to 3.7 per cent of the total debt figure, is irrational
in principle.
But there is one fact which enables us Io come at once to a conclusion. Mr.
Lawrence has contested the evaludtion criteria used by Dr. Mercadante. Mr.
Lawrence cannot, however, contest the facts ascertained by Dr. Mercadante.
Dr. Mercadante observes (see his Technical Report attached as Document
No. 36 to the Counter-Memorial, II, p. 212 of the English translation) that the
amount of foreign accounts receivable a1 the date of 31 March 1968,included
customers who had not received or had not even paid for the regularly invoiced
goods.
For instance, Dr. Mercadante States that the goods dispatched to a certain
Noya Alfred Enateckmer of Quickborn, West Gennany, were returned and
remained a1 the Customs. The extent of this debt, hy someone who would
obviously never pay, amounted to over 246 million lire.Therefore, only one case
of bad deht was equivalent to three times the reserve of bad debts considered by
Mr. Lawrence.
And in these circumstances who would trust the soudness of the book value
of the accounts receivable?
(5) In Mr. Lawrence's reports the figure of 300 million lire for Mezzogiorno
grants appears. At paragraph 46 of his statement (p. 128, supra),it is said that
"ELSI's outstanding claims to grants under the Mezzogiorno legislation were
expected to be met to the extent of 300. Nothing was included in the balance
sheet [Mr. Lawrence remembers] pending agreement with the administering au-
thority, but it seems reasonahle to bring this amount into consideration as a
further recoverable asset."
Now, as Mr. Caramazza will explain later, ELSI had no right whatsoever to
grants under the Mezzogiorno legislation, and had not even made an application
for them. Thus to speak of a book value of 300 million for claims under the
Mezzogiorno legislation issimply ridiculous. Eventhough the amount isrelativelysmall, the circumstances of its inclusion are indicative of how sincerethe Appli-
cant's approach is, and how seriously the book value thesis presented hy the
Applicant must be considered.
9. THE"NEGATI~GOODWILL I" ELSl
Mr. Lawrence stated (see p. 128,supra) that in his opinion "there was a good
prospect that a purchaser of any or al1of [ELSi's] businesses would have been
prepared 10pay a substantial premium over the value of the tangible assets for
the benefit of [the] goodwill".
Values attributed to a business which exceedthe book value of ils constituent
net assets are referred to as "goodwill". In ELSl's case, one has to think of the
goodwill related to out-of-market products, or to lines of production wbich
produces losses for years. The market sometimes is surprising. But honestly, it is
more sumrisine to hear that for a businessthat. even in the words of ils ma-.eers.
could noi go &, somebody was expected to iay a substantial premium.
The United Kingdom definition of goodwill speaks also of negative goodwill:
the amount round-when the value of the business is lower than the aggregate
value of ils net assets.
Perhaps the Applicant should have spoken, instead, of sucha negative goodwill.
But also to open a discussion on negative goodwill,you need a business. And as
we have seen, ELSl was not a business at ail. Il was only a set-up capable of
stuhbornly producing losses, an enterprise that nobody wanted (first ofal1Ray-
theon which, unable to find a purchaser, tried in every possible way to offload
the disastrous concern on to the ltalian public authorities). Again, the insistence
of the Applicant that "goodwill" mus1 be considered in this case, instead of
"negative goodwill"-or even "il1will" - is an absurdity. What goodwill could
possibly remain after Mr. Clare "fired" 800workers over the weekend?
Now, 1would liketo raise two las1points.
fol We have ben told that the book value as oresented bv the Aoolicant is a
consérvativeestimation. Mr. Lawrence has assimed that &e valie'of ELSi's
assets at 31 March 1968was 17,132.7billion lire.
Almost the same figure, 17,053, appears in Schedule BI, entitled "ELSl's
balance sheets per books", of Mr. Schene's Affidavit(1, p. 135)and shown 10
you last week. But we must now point out 10 the Court that these values are
wrong.
Following production of the Coopers & Lybrand audited report for the year
30 Septernher 1967,we now evennote that the Company's own Auditors did not
agree with the book value of the Companyas set forth in Mr. Schene'sAffidavit.
To assist the Court, we would point out that the total assets as at 30 September
1967.anoearine in Schedule BI of Mr. Schene's Affidavit.amounts to 17.956.In
the aud'iiedbarance shcct produced to the Coun Iÿst Thursday, the unadlusied
hook figuresalso amount to 17,956 Ilowevcr. the balance sheei included arnong
the 30 Se~tember 1967 financials nrc~arcd bv Coow-rs & Lvbrand indicstes.
under theBeadhg entitled "~om~Ay'i adjust&ents' a reducGon oF3,062, and
the revised total assets thus amounts to 14,803.
The 1967figures in Mr. Schene'sSchedule BI are therefore incorrect. A similar
error is to be found in the 31 March 1968assets fieures which. as the Court will
recall, have been found hy extrapolation from the30 ~eptember 1967figures.
(b) The Applicant has presented the book value thesis in order to sustain its
theory of an orderly liquidation ARGUMENT OF PROFESSOR LIBONATI 177
We know that ELSl could not pay the workers' wages for March 1968.In fact
these wageswere borne by the Sicilianregion, as were those of April, May, lune,
July, August and September 1968 (II, Docs. 37, 38 and 39 annexed to the
Counter-Memonal).
How on earth did ELSl imagine that il could proceed withan orderly liquida-
tion when it could not even pay its workers, and when itsent the dismissalletters
on Friday 31 March 1968,without any prior notice to either the workers or the
trade unions, as obliged by Italian law (Collective Agreement of 20 May 1965,
ratified by Law No. 604 of 1966?
Mr. President, distinauished Members of the Court. 1mus1aoolorize for the
lcngih of my suhmissi&. Facis alone are often boring HUIthe 'Rsspondent Tell
IInecessary in bring the discussion back inio 11sproper conrexi. The Respondent
has thus been able to demonstrate, with the suppo.. of the documents deposited
before the Court:
(i) thatELSI was not a going wncern, but rather an economic and financial
disaster;
(ii) that ELSl was no1 an industrial gem, but a structure capable of only
producing losses, and that to the order of billions of lire;
(iii) ihat ils plant and equipment wereno1al al1desirable, king obsolescentand
industrially invalid;
(iv) that the option of an "orderly liquidation" was not open to ELSI, since ils
accounts showed ils clear inability to pay ils debts;
(v) that ELSl's bankmptcy was no1a consequence of the Mayor of Palenno's
requisition order, since ELSl was already insolvent before this;
(vi) that ELSl's plant was not closed as a result of the requisition, sioce it had
been closed down - with cessation of oroduction and dismissal of the
workers - di the d~~isionof the director\ heiore ihc requisition look place,
(VIL)ihai 3n e\aluation of ELSI'Sasscis on a book valut bdsis is tolally oui oi
the question
Mr. President, this concludes my stalement on ELSl's economic and financial
situation in March 1968.
The Chamberrose al 12.55 p.m. SEVENTH PUBLIC SITING (21 II 89, 10am.)
Present: [Seesitting of 13 II 89.1
STATEMENT BY THE PRESIDENT
The PRESIDENT: Before giving the floor to the ltalian delegation, 1 have to
recall the provision of the Rules of Court regarding reference during the oral
proceedings to new documents. The matter has already arisen when the counsel
for the United States referred (in argument) to an opinion of the Attorney-
General of Rome on pages 75 and 79,supra.
At yesterday's hearing, counsel for Italy referred to a Treaty of Friendship,
Commerce and Navigation between the Italian Republic and the Federal Republic
of Germany, and to a decision of the Italian Court of Cassation dated 28 July
1986.These documents had not been produced before the Chamher in accordance
with Article 43 of the Statute and Article 56 of the Rules of Court. They cannot
be regarded as forming "part of a publication readily available" within the
meaning of paragraph 4 of that Article of the Rules; the Treaty with Germany
is no1published in, for example, the United Nations Treaty Series. No objection
was taken at the time hy the United States Agent, and the Agent of Italy has
now supplied a copy of the documents to the Registrar, with a translation into
English of the Court of Cassation decision and of an extract from the Treaty '.
The Registrar has in turn transmitted a copy to the Agent of the United States.
Unless the Agent of the United States wishes to make any objection, the
Chamber will treat these documents as regularly before il. 1 would however
request both Parties to respect the requirements of Article 56 of the Rules of
Court and not to refer to documents which have not been duly produced.
MI. MATHESON: MI. President 1 just wish to confirm that we have no
objection.
'Nol reproduced; seeCorrespondence , o. 76, infra. PLAIDOIRIE DE M. CARAMAZZA
COAGENT DU GOUVERNEMENT DE L'ITALE
1. PRÉAMBULE
M. CARAMAZZA: Monsieur le Président,Messieurs les juges, c'est untrès
grand honneur de plaider au nom du Gouvernement italien devant cette Cour
qui représentela plus haute instance dejusticedans la communautéinternationale.
Parmi les nombreux sujets de discussion de ce cas, celui qui m'a étéassigné
selori le plan de travaildu collègede défense italienconcerne certains actes et
comportements des autorités demon pays qui auraient été la causede la faillite
de I'ELSI et qui auraient causé despréjudices à ses actionnaires.
Ces actes et comportements sont les suivants:
- en premier lieu, le défautd'octroi à I'ELSI des avantages prévuspar les lois
spécialespour le sud de I'ltalie, le Mezzogiorno;
- en deuxième lieu, la non-intervention de la force publique pour empêcher
l'occupation de l'usine dePalenne par les travailleurs ou pour la libérerpar
la suite;
- troisièmement,la réquisitionde cette mêmeusine par le maire de Palerme; et
enfin
- le retard mis par le préfetde la mêmevilleà accueillir le recours hiérarchique
formépar I'ELSI contre l'ordonnance de réquisition.
La défensedu Gouvernement italien entend démontrer que le comportement
des autorités italiennes a été oleinenientIéeitimeouà tout le moins - là où les
nuioriiésitaliennes elles-intmrs cint.!dmis I'sxistcnîç d'un vicede Ikp~-.tCquc
cc comportement n'a nullemcni ri~ntrihué icauser lei conséquences~llégucespar
le demandeur; et, en tout cas, qu'il n'étaitoas oroore à justifier des aiiusations
auant à son caractère arbitrake.0~ discriminatoire.
Mais avant d'examiner séparémentces quatre doléances, permettez-moi de
faire une brèveallusion d'ordre général à I'un des nombreux aspects singuliers
de cette affaire, une affaireque ledemandeur.contrairementà l'habitude. construit
au fil des annéesde maniire à fonner des accusations de plus en graves,
formuléesen termes de plus en plus virulents.
Je me réfèrenotamment à la différencesurprenante qu'il y a entre le «claim»
de 1974et les alléeationsactuelles exooséesdans le mémoire.dans la réoliaueet
dans les plaidùirirs. Je FaisrcfcrençiiI'augmcniatiun singulicre des dommages.
intérttsqui étaientci3blis en 1974sur Is bas? du uquick s~leialuc», alors qu'ils
sont kvaluc, ~uiourd'hui en ionciioii d'une <<book\,alue* bien dur élevée (voir
duplique, II, p.418, note 1).Mais une autre observation est d'aheurs nécesiaire
en ce qui concerne plus particulièrenient lescomportements qui sont imputésaux
autoritésitaliennes.
Dans le «claim » de 1974. ces comoortements étaient dénoncésd'une facon.
dirais-je, neutre et, selon le deniande&. ils ataient ciiuse J3nj leur ensenible un
prejudice aux actionnaires dc I'ELSI doni le Gouvernrment italien 3Ur311dû
répondre parce que c'étaità lui que devaient être imputablestous les comporte-
ments oréiudiciables (voir contre-mémoire. (.Unn-~~~~~d Documents». II~~~- . .
p. 232-577:particulièrèment pl 248-250).
Dans leprésent différendl,edemandeur prétendpar contre que tous lescompor-
tements desautorités italiennes étaientle résultatd'une entente réalisà tous lesniveaux officiels concernéspour permettre à l'IR1 de racheter à bas prix un
«iovau technologi-.e)) au détrimentdes actionnaires titulaires du paquet d'ac-
tiois de I'ELSI.
II est bien évidentque ce changement de perspective est extrêmement graveel
radical: dans le cadre de I'illicéitéi,l suppose un do1 et non pas une faute; au
niveau du droit interne, il déterminele passage d'une responsabilitécivile à une
responsabilité pénale et,sur le plan de l'image, il transforme un gouvernement
«défaillant)>en un gouvernement «délinquant», prêtà exploiter les pouvoirs de
ses organes pour commettre de véritables volsau détrimentd'étrangers.
La défensedu Gouvernement italien prend acte avec grande satisfaclion de la
déclaration d'après laquelle la défensedes Etats-Unis prétend n'avoir jamais
entendu accuser les autorités italiennes d'avoir ourdi un complot criminel, «a
conspiracy,,, comme cela semblait pourtant résulter des défenses, aussibien
écrites qu'orales.Sans cette précision,la défensedu Gouvernement italien aurait
dû protester le plus énergiquement possiblecontre un tel exposé desfaits qui
aurait représenté uneoffense gratuite, dépourvue de tout élémentde preuve. Et
il faut d'ailleurs relever que si l'hypothèse d'une entente criminelle, d'une
« conspiracy », a disparu, la thésedu Gouvernement américain, commeM. Ferrari
Bravo l'a déjà souligné,se base toujours sur une connivence entre les autorités
italiennes qui auraient commis les faits en question.
Les défenses écrites etles plaidoiries américainessont formelles sur ce point:
je me bornerai à citer M. Gardner qui, dans son discours du 15 février(ci-dessus
p. 97), disait: ~Through the ensuing bankruptcy process the Respondent's plan
to take over ELSI through ils own State-owned conglomerate was brought to
fruition.)>
Quant aux autres orateurs, je dirai qu'aussi bien M. Matheson et M. Murphy
ont dit la même chosed'une façon plus ou moins explicite (Matheson, ci-dessus
p. 18,21, 23, 33 et 34-35; Murphy, ci-dessus p. 83; Gardner, ci-dessus p. 95, 97
et 104; Matheson, ci-dessus p. 140-141).
Que la thèsed'uneentente préalable persistedans l'espritde la Partie demande-
resse est d'ailleurs évident:c'est seulement dans la mesure où l'on affirme que
t~ ~ ~ ~ ~ ~tions Qu'onreoroche aux autontésitaliennes reuosent sur une entente
qu'on pcut soutenir le birn-I'ondédes prL:tenti<ins dc la l'artie dcmdndercs\e. A
dXaut, iln'y ïuraii qu'une ar'ncd'ç\éncmcntsmalencontreux qui ont Faitsuhir
des oertes à~uneentrëurise commerciale tout iuste comme l'aurait fait une baisse
ou ;ne hausse de l'or; du dollar, ou du pétr6le.
On peut citer à ce sujet la Mixed Claims Commission qui, dans I'affaireDix
Case entre les Etats-Unis et le Venezuela a affirmé:«International as well as
municipal law denies compensation for remote consequences in the absence of
evidence of deliberate intention to injure.)) (Reports of International Arbitral
Awards,vol. IX, p. 121.)
Tout en accueillant la déclaration faite par M. Mathuson dans sa lettre du
17 févrierdernier. ie dois donc insister sur le fait aue. entre 1974et 1987,il Y a
~ ~ ,
CU un changcmcnt de perspctii,e.
Cc chanpcmcni influeaussi d'une manierc radicale sur lc problèmede I'épuise-
ment des recours internes
2. LE NON~OI DES AVANTAGES ET DES ENCOURAGEMENTS
AUX INVESTlSSEMENTS PRÉVUSPOUR LE SUD DE L'[TALLE
Le requérant se plaint de les avoir demandés en vain. II se plaint d'avoir
demandéen vain les encouragements prévuspour les entreprises situéesdans le
Mevogiorno par leslois d'exception promulguéesen vue de favoriser le dévelop- PLAIDOIRIE DE M. CARAMAZZA 181
pement industriel du Sud, notamment les facilitéssur les tarifs des transports et
la réservede trente vour cent sur les fournitures destinées aux admini~~~~~~-~-~-~-~
publiques (cf. mémoire, 1, p. 48-49, et réplique,II, p. 366).
Cette allégationde la Partie demanderesse, comme d'ailleurs la pluvart de ses
allégations,est trop générale. vague,non mrtinente et de toute maiière la nréten-
iionqui cn dkiouk &ait irr~e;ablc ct dCp<>urvue Jc fondement.
1.a d2fcnse du Gouverncment iiïlicn cniend, hicn é\idcmmcni. rendre compte
de toutss cc, qualifications négaii\csen soulign;inl cc qui sui[.
1. La doléanceest trop générale,vague et non pertinente
Les avantages et les facilités en discussionsont réglementésdans un Etat de
droit tel que l'Italie par la loi et sont reconnus sur la base de demandes formelles
adressées auxautorités administratives compétentes qui doivent en constater le
f~~ ~~~--~--~
Dans la présente affaire, il ne résulte pas que I'ELSI ait présentéaucune
demande formelle. ni au'elle ait en"ae-aucune orocédure à ce suiet. ,~~
La d<icumcni3iionprescnik par Ic.dcmandeur iicc prupos esi ires signilic~iivc
ilen ressort sculcmcnt que Iddireilion de I'ELSI a soulcvé ;ipluriruri reprises,
à titre informel, au cours des entretiens avec diverses autontés italiennes, le
problème des avantages et des facilités, etce d'une manière tout à fait approxi-
mative.
Dans son «affidavit» du 17 avril 1987 (cf. 1, mémoire, annexe 9, par. 15),
M. Adams (président de Raytbeon) a affirmé:«nous croyions [sic!] que les
incitations à l'investissementfortement publiciséesoffertes par le Gouvernement
italien réduiraient les coûts et les difficultésdu marché». Son témoignage, rendu
devant la Cour, a confirmé cetteaffirmation (ci-dessus p. 45). M. Adams, à ce
sujet, a précisé qu'il n'avait pasd'id& plus précisessur la question parce que le
soin d'établir des détailsétait la tâche des fonctionnaires qui travaillaient sur
place, comme M. Clare.
Arthur Schene, le vice-présidentde Raytheon, dans son «affidavit»de la même
date (cf. 1,mémoire, annexe 13,par. 12),se réfère à «l'impossibilitéd'obtenir les
avantages qui étaientsupposés[sic!]revenir aux entreprises en activitédans le sud
de l'Italie».
Et enfin, M. Clare (nouveau président de I'ELSI) qui, chargéde l'affaire sur
place, étaitdans la meilleure situation pour se faire des idées précisess ,ouligne
dans son «affidavit» du 10janvier 1987 (cf. 1,mémoire, annexe 15, par. 19, 28
et 29) le fait que les représentants de I'ELSI avaient demandélesdits avantaees
dans toutes IeÜrsdiscussions, dans toutes leurs rencontres avec diverses autonfés
italiennes et, dit encore M. Clare: «I9ELSI n'a jamais reçu de facilitésdans les
transports, ni de commande de la part du gouv.rnement suivant la rèeledu trente
pourcent ». Au contraire,
«le ministre de la santé aadressé auxautoritésmédicalespériphériquesune
circulairedans laquelleil étaitprécisé que la loidu trente pour cent n'étaitpas
applicable aux fournitures de tubes à rayon X» (cf. 1,mémoire, annexe 15,
par. 41).
M. CIare toniours, dans sa lettre du 28 février 1968 adressée à M. Carollo
(contre-mkmoiri. «Unnumbercd Documeniia. vol. 1, II, p 299).a égalemcni
affirme quc I'ELSI avûii besoin d'«lin associr'qui nous uii6.[sic!]i ohtenir les
avanLîgcs revenant aux ~OCI~ICS du ilid dc l'Italia. IIexprini3it ainsi un avis trr's
singulier mais partagéde toute évidencepar les autres représentantsde la société
et on peut là faire référenceà un autre «affidavit», celui de M. Scopelliti (un182 ELETTRONICA SICULA
autre cadre de Raytheon et conseiller financier de I'ELSI) (cf. 1, mémoire,an-
nexe 17, par. 20), dans lequel celui-ci exprime sa conviction qu'il aurait été
r - - ~ ~ ~ ~ ~n~r lesdits avantageu et les facilitésavec l'aide d'un associé italien.
II ya donc la preuvç par les documcnis fourni, par la Pürtie dcmandercr?e.
et cïiie prr.u\c est conlirnice pür le timoign;ige de M. Clarc. qu'ducunc dcmünds
formzllr n's iamair Cieprcscntéc.IIest C\ ideni que des insunceb verb3les vagues.
de nature g&nérale,prisentées au cours d'entretiens et de discussions avec les
autorités les plus diverses relèventdu domaine des relations publiques, relèvent
du domaine des contacts préliminaires, mais ne sauraient jamais représenter le
fondement d'une demande en justice.
Permettez-moi, Monsieur le Président, d'ajouter ici qu'il est étonnant que la
direction qualifiéed'entreprises d'unesi grande envergure ait abordéavec un tel
manque d'informations, d'une manière si superficielle, un problème d'une telle
importance pour le budget de l'entreprise en difficultéet qu'elle l'ait fait en se
basant sur des vagues «ouï-dire», des opinions personnelles, des conversations
de couloir et sur l'aide d'amis «influents».
Si, comme il semble ressortir de ces réflexions,tel est le st9e d'action des
responsables des sociétés concernées,on ne saurait être surpris des résultats
obtenus et qui ont étéillustrés hierpar M. Libonati.
Nous avons d'ailleurs tous entendu les déclarations de M. Clare lors de son
contre-interrogatoire (ci-dessus p. 58-59) quand il a expliquéde quelles sources
il avait tiréla conclusion qu'ELSI avait droit aux facilités; de quelle façon ces
facilités avaientétédemandéeset quelle avait étéla réactionde l'ELSI au défaut
d'obtention de ces facilités.
Permettez-moi de dire, Monsieur le Président, Messieurslesjuges, que les idées
du managementRaytheon-ELSI en général etde M. Clare en particulier sont à
cet égard complètement fausses.
Pour savoir si on a droit ou non à une facilitéfiscale ou tarifaire dansun Etat
de droit, on ne s'adresse ni aux autorités politiques ni aux autorités religieuses,
on s'adresse à un conseillerjuridique ou à un avocat. Et si l'avis de ce dernier a
étépositif et si les facilitéssont refuséessur demande formelle, on ne recourt pas
au cabinet des ministres mais aux tribunaux. II y en avait à Berlin au temps de
FrédéricII le Grand, je vous assure qu'il y en a en Italie de nos jours.
2. L'irrecevabilitéde la prétention
Qui plus est, en dépit de l'absence de demandes formelles, il y a eu des
prises de position négatives très nettesde la part des autorités italiennes, telles
que la circulaire du ministre de la santé qu'on a déjà mentionnée,ou les
affirmationsdu ministre de l'industrie dans son discours qui a étésouvent cité
par la Partie demanderesse (cf. mémoire, annexe 46, 1, p. 316-317); le ministre
de l'industrie a expliqué devant la chambre des députésque les avantages
prévuspour le Midi ne concernaient que les produits finis et ne pouvaient pas
êtreaccordés auxcomposants et que, par conséquent, I'ELSI n'avait pas droit
à ces avantages.
Si Raytheon, ELSI,et leurs directions respectives étaienttellementconvaincues
que, malgré l'aviscontraire des autorités italiennes, les avantages et les facilites
demandés leur revenaient de droit, pourquoi n'ont-elles pas agi formellement
dans ce sens devant les autoritésjudiciaires compétentes? Les avantages et les
~~~-~~~~~~ ~t octrovés - ou ne le sont nas - d'aorèsla loi et non pas selon le
h<inpldisir ou I:hirnvcill3nce der auiorircs gou\zrnçmcniiile:. le reius oii le non-
ocir~~ide ces a\,aniagz\ peu\eni ttre dGnoncCsde~ant les ~utorit~~jurli~i3ircs
I.'iib,enx de cc recour, en justicz. comme le diiüit hier le profcs.eur Gap. PLAIDOIRIE DE M. CARAMAZZA 183
relèveaussi du non-épuisement des recours internes qui entraîne l'irrecevabilité
de la prétention actuelle.
3. L'absencedefondementde la prétention
Mêmedans la meilleure des hypothèses, la prétention serait de toute manière
sans fondement car,étant donnéle genre de production réaliséepar I'ELSI, celle-
ci ne pouvaitjouir à aucun titre dei avantages et des facilitésdemandés.
Comme le ministre de l'industrie l'avait dit, la condition préalablepour I'appli-
cation de la loi du trente pour cent et de celle sur la réduction des tarifs de
transport étaitau'il s'aisse de vroduits finis. c'est-à-dire de produits qui n'aient
pas hoin d'aciivitéssÜpplém6ntairesde montage ou d'as&mblage. je devrais
maintenant me livrer à une analyse des articles de loi d'où découle cette consé-
quence, mais puisque la Partie demanderesse n'a pas insistésur ce point, avec la
wrmission de la Cour. ie me nasserai de cet examen analytique....is il fieurera -
Sous forme de note dani les comptes rendus'.
II suffira de souligner que, puisque I'ELSI ne vendait pas de produits finis, la
législationinvoquée-nelui étaitpai applicable.
Le Gouvernement italien n'a donc causé aucun préjudice à L'ELSI: et c'est
plutôt I'ELSI qui exigeait du Gouvernement italien l'octroi d'avantages relevant
de l'assistance.
'1.a Parile ad\erse se plalnien rflrt. dclanun-applicaii~n 3 soli égardde I'~riicle
prernicrJe laluin'dl5 du 6 octohre1950.quisdnctionnaiiI'ublig~iiun pdur Icsadministra-
tion, Je I'lltade rkrver auv iiahllswmenis~ndusinclrritutr Jdnl le sud de I'lialieles
~~lourniiurc s. cmaiériel prkvurspsr IcJécrïi.loino 40 du 18l6vricrIV47Enpdni:ul!er.
3ur irrmcrde l'article16de h loino 717du 26juin 1965.en vigueur i Icpoquc ou Icilaits
w son1nroduiis. ICEadminirir~iion,dc 1'Etai;iur~icnJU rCsenerirenienourccni de lcuri
« fo"rniiures,&x entrepriseen activitédans lesud de I'Italie.
Dans lesystèmejuridique italien,lecontrat de fournitureest un contrat par Içquelune
partie (dans laprésenteaiïaiairel,'administration publique) achète d'umeanièrecontinue
des biens et des services à une autre partie, pour sa propre utilité el (dansle cas de
l'administration publiquep)our s'acquitter desesdevoirs de fonction.Cela signifieque le
matérieelnquestion pouvait être ached tanslamesure où ilétait utilisaeansl'immédiat
caractéristiquen'existaitévidemment pas en l'espèvoce,quelematénelproduit parl'ELS1,te
constituéde simples composantset non pas de produitsfinis,s'avéraitdépourvu detoute
utilité immédiate pour l'administration.
En ce qui concerne toujoursles facilités prévue psar notresystèmejuridique pourles
entreprisesen activitédans le sud de I'ltalie.la Partie advene a dénoncé aussi la non-
applicationà la sociétéELSId'autres normes qup i révoient es réductionsspécialesur les
tarifs detransport du matériel utilisé produit par l'entreprisen question.
Toutefois,cesnormes n'étaienp tasnon plusapplicablesau cas d'espke, pourles mèmes
raisons déjàexposées.
L'article15de la loino 717du 26 juin 1965et lesdkrets ministérields'application, tous
deux îdootés en date du 29 mars 1967, . ré v.yaienl'octroide facilitéss'ils'apissdit:
oi de matièresoremièresetaroduitssemi-ouvréd sestinésà êtreutilisésoaur laoroduction:
h. de rn~i2rlau;JI..'dn,tru.tiun. ouiillagcci iout Icmaternc;i>rdirrp<ur 13 re;onsiru;-
lion. la ir~n.lorm~ii<>nI'.c~ir.n~iur1.ntodcrniniion d Ciabli<.icmcnitn~Ju,irirls.
r du ir.insportdes produit, lin,, cdr.h<>rdscs icrriiairdu çuJ dc I'lt~lir
L'ELSIinvoquait plus récisémenlt'octroi deslacilitésviséesau point c) parce que,
comme ilest égalemenat&médans le mémoireI.èncombrementet le poidsdes produ~ts
rendaientlestarifsde transDontrèsélevis.
Tiwlrl,>l,.rummr 11rhulir.du libellde la normemémc .onappliidliunilrii suburdon.
nk d unc .>culiondition dk~sivc 3 ravoirque Icsproduiisdrraicni èirrfinis. sans qu'il
, ~ ~~~ -d-~ ~ ~ ~ ~ ~ -~~ ~cii\ii~~r..nlémentairedse moniae- ou J's,iembla~c. cc uut
n'étai1pas lecaspour ELSI SI:184 ELETTRONICA SICULA
Et d'ailleurs, la direction étaitpleinement consciente de cela, à tel point que
dans le fameux projet de redressement du mois de mai 1967 (cf. 1, mémoire,
annexe 22), les avantages et les facilitésdevant faire I'objet de la demande
concernaient non pas l'ancienne gamme de produits mais, alternativement, soit
des«produits nouveaux)) auxquels lesdispositions de faveur auraientétéIégitime-
ment applicables (cf. mémoire, annexe22, 1, p. 223), soit une ((interprétation
favorable de la loi» (cf. ibid., p. 224) - ce qui équivalait à une demande
inqualifiablede favoritisme. Autrement dit, la direction de Raytheon-ELSI savait
parfaitement que I'ELSI, vu la situation décrite plushaut, n'avait droit à aucun
des avantages prévuspour le sud de l'Italie.
A ce point-là, laisser-moi dire, Monsieur le Président et Messieurslesjuges de
la Cour, qu'il est vraimentétonnantque, dans cette phase orale, la partie deman-
deresse non seulement insiste encore sur la auestion des facilités. mais.bien dus.
tr:insforme cetic corre dsréxe le,ycu~ ouverts en une rCali12iinsn~i?rc. En iuii,
noui avuns entendu M. Ldirrcn~.cesiimer ii300 niillions dc Iircs la valeurde,
FacilitCsau'ELSI aurait di obicnir si.surioui. nous I'avoni cnrcndu inclurecette
sommedans la valeur comptable de la société. La chose est tellementénormeque
je vous demande la permission de citer la page du compte rendu; c'estla page 37
du compte rendu du 16 février1989(ci-dessusp. 128). Bien,Monsieur le Prési-
dent, je crois qu'évaluer unbilletdela loterie nationale à la valeur du premier prix
aurait plus de logique. Nous savons maintenant quel compte tenir d'une valeur
comptable estimée avecla rigueur ...scientifiqueque nous avons pu apprécier.
3. LANON-INTERVENTION DE LA FORCE PUBLIQUE
Ledemandeur prétendque lestravailleurs ont occupé I'usineaprèslaréquisirion,
avec le consentement tacite des autoritéslocales - aui ne se seraient nullement
efforcéesde prévenirou de faire cesser cette occupaiion, ou encore de protéger
de toute manière lesbiens de l'entreprise (cf. mémoire,1,p. 100et suiv.).
Cela constituerait un manquement à la protection que les autoritésitaliennes
auraient dû fournir «anrès la date de la réauisition et tout au moins iusau,à .
I'iniroducrion de l'instakccrn faillite>~(cf mé'nioirr,1,p. 1011n, oie 3)
Ni le mimoirc ni la répliq~cnc mentionnent e~prcsriment Icsiiornies de droit
interne vrétendument enfreintesvar les autoritésitaliennes et rien n'a étéaiouté
à ce suiet dans les vlaidoiries.
~ouiefois, la citationde certains articles du Code pénal italien (cf.1,mémoire,
annexe 95), articlesqui étaientdéiàcitésdans le eclaim » de 1974qui au contraire
s'attardait sur ce voint (contre-mémoire. «Unnumbered ~ocuments »..II..o. 244
et p. 315, pièce1Îl-2l),'laisse entendre que, d'aprèsle demandeur, les autorités
italiennes n'auraient pas empêché laperpétration on la continuation de faits
illicites et n'auraient Das noursuivi les coupables. Les faits illicites en question
seraient ceux prévuspar toute une séried'articles du code pénalitalien, savoir
les articles 509,633, 634, 614.Je ne vais pas ennuyer la Cour en les lisant ni tout
entiers ni seulement leurs titres, mais je résumerai endisant que s'il s'agit d'une
sériede délitsaue M.Gardner a aualifiésdans sa vlaidoine d'une facon univoaue.
cn utilirani le terme anglais de <<trcspassu,la dL'fciisedu Gouvernemeni iialicn
entcnd démontrerque les allégations dela Partic adverse sont erronées en Fdidlt
dépourvuesde fondement sous l'angledu droit interne
1.Dare iniliaieet naturede iOcnrpalionpar les lravaiiieurs
Contrairement à ce qu'il est dit par la Partie demanderesse qui se fonde sur
i'atïidavit de M. Merluzzo (cf. 1,mémoire, annexe 21),dont la véracitédoit être PLAIDOIRIE DE M. CARAMAZZA 185
contestée, I'occuparionpar les rravailleursa commencé avant la réquisition,el
,ré~ ~ ~ ~~le 13 mars1968. Cette circonstance a été établie irrévocablemen vtar
le jugement du tribunal de Palerme no670 du 1" avril 1973.confirniéen a&
et en cassation. Ce jugement affirme que ladite circonstance est prouvk spar la
documentation produTte par l'administration défenderesseetdont la correspon-
dance avec la réalité historiquen'a pas été contestéepar le demandeura (cf.
mémoire, annexe80, 1,p. 374; annexes 81-82).
II est donc presque superîlu de confronter la valeur respectivede deux preuves
si différentes:d'une part, la décisiond'un juge indépendantet impartial prise sur
les lieux, peu de temps après les faits, sur la base de preuves certaines (décision
d'ailleurs confirméepar de nombreux autres documents, tels que les affidavits de
-e-i~ ~~~ ~et de Ravallil: d'autre nart. l'«affidavit» d'un ancien emvlovéde
x~~~~
Raytheon-ELSI fait vingians après'les faits sur la base de souvenirs pérsinnels
qui n'étaient plus tellementfrais et dont on a toute raison de penser qu'ils sont
partiaux.
~~,~~~~~~~ de n.éciser enoutre aue I'occuoation étaitsvmbolique. . .ce qu'elle
a ét6menée&dn, un esprit de coll;iborïtion et qu'elle n'a iiullemcnt enirïvc ni
la production réduitede I'époque. quia étémaintenue, ni la prucédurçdç faillite.
Cela aussi eri rirouvéoar: <iiIJ.dCclsiondu tribunal déti mentionnéequi a exclu
que quelque préjudiceque & soit ait été causé par lesiravailleurs (cf.-mémoire,
annexe 80, 1, p. 375-376); b) les affidavits de MM. Bevilacqua et Maggio (II,
duplique, annexes 2-3) qui non seulement confirment que l'occupation a com-
mencé bienavant la réauisition. mais indiquent aussiqu'elleétait«ordonnée» et
v nience dans un esprit Je collabor;ition», comme le démontre égalementle fi111
~J'U~C partie de l'activitéa étépoursuivie:<régulicrcmentiiur terme, des contrats
en cours* i ie cite tcrtuellcrnent du deuxieme affidavit CI-dessus).
Mais il ;a quelque chose de plus qui prouve ce que je viens de dire et c'est
une source qui nous vient directement de I'ELSI. La défensedu Gouvernement
italien s'estsouvent ou presque toujours référéaeux piècesproduites par la Partie
adverse pour démontrer ses affirmations: dans ce cas également, fidèleà sa ligne
de conduite, elle souhaite évoquerl'une de ces pièces.
II s'agit en l'espècedu recours hiérarchique formépar I'ELSI contre l'ordon-
nance de réquisition,donc d'un document signépar le-.esponsable de I'ELSI et
par son avocat d'où il résulte que l'occupation de I'usine fut antérieure à la
réquisitionet que, de toute manière,elle fut symbolique, pacifiqueet menéedans
un~espritde collaboration.
~ ~ ~ ~e~ ~vas ennuver la Cour avec de loneues citations textuelles et ie me
bornerai donc'à lire d&x ou trois phrases de c& documents en renv~~ant;~our
ce qui est du passage entier, au procès-verbaldans lequel tout le contenu du texte
écriifigureraious forme de noie.
Voici donc ce qu'écrivaitELSl dans son recours hiérarchique:
«La vérité estque ... Icjour mémcou les Iicencicmcnts ont éténotifiés,
une délégationdu personnel s'est rendue àl'usine pour conféreravec certains
diriec3nts et est ensuite restéetoute la iournéedans l'enceinte de l'établis-
. . ... . .. ..
Les jours suivants, un petit groupe de travailleurs a errédans l'enceinte
de I'usinesans toutefois provoquer aucun incident. » '
'Le passagedansson intégralité est lesuivant:
«L'ordonnancedu maire, afindejustifierla mesuregrave prise à l'égard du requé-
rant, affirme que la fermeturedi: I'usine etl'envoides lettres delicenciementont Ce sont les déclarations d'ELS1: ex ore luo lejudico. Je dirai que cette descrip-
tion idyllique du climat qui régnait à I'ELSI fait penser plut6t au salon de la
marquise de Sévignéqu'à une lutte syndicale dans une entreprise industrielle, et
je me demande, dans cesconditions, quel besoin y aurait-il eu d'invoquer l'inter-
vention de la force publique. Mais revenons-en aux faits.
2. Devoirs des oficiers et des agents de police
IIfaui précirerqu'il esi c\,ident qu'aucun Clémentd'un fail illiciic pouriuivlible
J'otticc ne pourrait Ctrc relebédans ces cundiiion,.lii Aucune pldinie d'ailleurs
n'dvait Ci?JI:po<Ccpar l'El-SI ci, bien plus. lamais I'ELSI n'a demsnd; I'inierven-
tion de la force publique. . .
Pour prouver avec la précision voulue ma thèse, selon laquelle aucun des
articles du code pénal viséspar l'adversaire n'est applicable au cas, je devrais
examiner l'un aprèsl'autre tous les faits illicites mentionnés et,dans cette perspec-
tive, je devrais prier la Cour de ne tenir compte, à titre de référence,que des
textes de loi italiens joints au «claim» (contre-mémoire, «Unnumbered
Documents», II, p. 315,pièceIII-21), parce que lestextes de la loi pénale italienne
joints au mémoiresont imprécis,quelques-uns par défaut, car il y a des alinéas
qui ont étécoupés,d'autres par excès,parce qu'il y a des commentaires ou des
notes qui ont étérajoutés aux textes comme s'ils faisaient partie de l'article du
code pinal. En cas d'examen. il faudra donc se référeraux textes de la loi vénale
iialiennc qui son1en annexe ïu vclaim8, el non i ceux en anncxc au mcmoire.
Je crains iouiefoi~ qu'une iellc anal)se de chaque Jirposiiion de loi ne >'avérc
ennuyeuse et puisque, par ailleurs, mes adversaires n'ont pas insistésur ce point
dans leurs ~laidoiries. ie me bornerai. avec I'autorisation de la Cour.à renvover.
pour laditeanalyse, a; texte du compte rendu dema plaidoirie, où'I'analyse dé
tous les articles du code pénal italien estconduite dans une note'. Oralement, je
provoquéla «réactiondestravailleurset desorganisations syndicalesq,uis'esttraduite
par desgrèvessectorielleset générales.,,
Cette affirmationnecorrespond pas entièremenà lavéritéI.In'a paseu degrèves
sectoriellesu généralesn,i de violencescontre les personnes ouleschoses,ni une
occupation de l'urine par suite dicenciements.
La véritéestquele 30 mars 1968,c'est-à-direlejour mtmeoù leslicenciementsont
kt& notifiés,une délégation dpersonnels'estrendue à l'usinepour conféreravec
certains dirigeantset estensuite restéetoute la journéedans I'enceintede l'établis-
- ... ...
touteJois rovoqueroumn incident.edetravailleurserrédom l'enceintede l'usinesons
IIest Bonc tout àfait évidentque lesépisodes susmentionné ne constituent pas
l'état dnécessitérave requis pala loen tant queconditionet titre nécessaisour
prendre une ordonnance deréquisition.,,(Cf.mémoire annexe 36,1,p.289-290.)
«Arriele508
invarion et oenrporionarbitraired'er loiiotiom ngricolesou indurtrielles.Snbo-
tnge.- Quiconque envahit ou occupe J,ansle seulbut d'empécher ou de troubler
(c.p.614, 633, 634). obiendispose de l'équipement, destsocks,desappareilouaderui
l'outillage d'autrui destinésa production agricoleou industrielle,est pud'une
réclusiojusqu'àtrois anset d'une amendeminimumde deuxcentmillelires(1).
Quiconque endommageles bâtimentsaffectés à l'exploitation agricoou indus-
trielle,u tout autre bien parmi ceux indiquésdans la disposition précédentee,t
passibled'une réclusionde six mois à quatreans et d'une amende minimumd'un
millionde lires2).lorsquele faitneconstitue pasun délitplusgrave (=.p.510-512.
635) (3).»
Cette nome nepeut évidemmen ptasétrcappliquk icicarelleprévoiun do1spécifique- PLAIDOIRIE DE M. CARAMAZZA 187
voudrais résumer le problème en disant qu'aucune des hypothèses délictuelles évo-
quées n'est réaliséedans le cas d'espèce,à délaut ou d'éléments matérielsou d'elé-
ments psychologiques, ou encore parce que l'hypothèse concerne des faits illicites
poursuivables sur plainte (c'est cela le point le plus important) tels par exemple
que la violation de domicile qui correspond plus précisément,je crois, au «Ires-
passn de la cornmonlaw. Et aucune plainte n'a étédéposéepar I'ELSI à ce sujet.
En définitive et pour conclure sur ce point, l'occupation de l'usine par les
travailleurs a été:
à ravoir «le seul but d'emp"her ou de troubler l'exécution régulière detsravaux» qui
n'existe pan dans le cas d'espece.De plus. l'intention desoçcupantr étaitau contraire de
maintenir l'usineen activitéet de poursuivre ainsi le travail.
.. .... . ..
Intulcn cltr,,rrciiiitde hj!mr.,ni<- Qdi;on4~r sm~hii (2p ri371~rbiira.rc!iicn!
Ir, icrr4i:roiile*h.iiimcni. d ~ulrui.i.inipuhliis que pri%cr.diin JI Icau.;upcr ou
Jin iircrdn pri>filqusl;.inqu:. r..t puni. pdr pl.iintr.Jc Ir prr*.>nceI&c ic p I?J.
hZL>h.,) Junc ri:.iicioxi ~usqi deux du J'unr .<nicnncdc i!cux <:ntmille Iirrra
deux millions (1) (2).
Les peines sont appliquées conjointementet l'onprocède d'office,si le fait est
commis par plus de cinq personnes, dont unemanifestement armée,ou bien par plus
de dix personnes, mèmesans amer (cp 112(1) n. 1; 585 (2 et 3). 634, 649).»
Crcii coriiicar,i ri!in~ppllirh:r.dmr noirc :.,,.drI'~.i\crhsi.srhitr~irinicntii:aiqLc
zinch\piiih2\c prrti,~licr~ot1:icriirrn :c>in, qdr I'sdicur,toit ilri inuirnl Ju irr4:Icrc
.~n!ii&idiuuc Jr ,on iitiun Ce diiir,t r.i:lp;r Jci.n,tt~n p~ir~LCI~L'LqIu Ii~~U~JIIC
garder roi emploi.
II aurait fallude toute manièreque la personne liséeporte plainte parce que l'occupation
n'était certainementpar arméeet que la description de la situation faite par I'ELSIelle-
mtme, qui parle d'un «petit groupe*, laissesupposer que le nombre d'occupants étaitbien
inférieurà dix.
Troubleover violencedelapossersiande biensImmobiliers-.Quiconque, en dehors
des cas indiquésdanr l'articleprécidenttrouble par derviolencescontres des personnes
(c.p 581 (2))ou par der menaces(=.p.612)la posseüion pacifiquede biens immobiliers
par autrui (cp. 812(1et 2)).est puni d'une réclusionjusqàà deux anset d'une amende
de deux cent mille à sir cent mille lires (1) (2).
Le fait est considéré commeétant accompli avec violence ou avec des menaces
lorsqu'il est commis par plus de dix personnes (=.p. Il? (1)n. O.»
1 r\irirn<c J'J~ icl diiiest cx;lui pu !cr riruliais dei dtili~fin.ILtr~hun~let d: la
:i>urd'appel .lelilcrmc Jdn. lcr.pillcr iCS iRrrnr' qu'hln'r i cu ni \iurn:r. iirnrnicc
tic diiiil .'TISI .'omi:nl d aillcurcornnieon 1 a \u Jan\ ,dn rcvuur, rJ prclell
Violorionde domicile.- Quiconque s'introduit dans l'habitation d'autrui ou dans
tout autre lieude domicileprivé,ou danr leurs dépendances,contre la volantéexpresse
ou tacite de celuiqui est endroit de l'ivinceau bien quis'y introduit clandestinement
ou par nise,est pmi d'une réclusion jusqu'à troisans @.p.615) (1).
Cette mème peineest prévuepour quiconque reste dans les lieux susdits contre la
volonté expressede celui qui est endroit de l'ivincer, ou bieny reae clandestinement
au par ruse(2). Ce dilit est punissable par plai?te de la personne lésé(ec.p 120).
La peine va d'un à cinq ans (3). et l'on procede d'officst le fait est commisavec
violence sur des choses (c.p. 392 (2))ou contre des personnes (c.p. 581 (2)),ou bien
si lecou~able est manifestement armé.»
Ce délit n'entre pasnon plus en ligne de compte car on ne peut déduire aucune volonté
expresse ou tacite de l'ELS1contre l'occupation. Au contraire, l'absencede réactionfait
penser à un consentement éventuelde sa part.
Quoi qu'il en soit, vu que la circonstance aggravante viréeau dernier alinéa ne saurait
ètreprise en considérationdans ce cas,il s'agiencore une lois d'undilit poursuivable sur
plainte et, comme on sait, aucune plainte n'a étédéposéeàce sujet.188 ELETTRONICA SICULA
a. .acifiaue:
h, s)mbolique (un petit groupe);
accepiir ou du moiiis tolérée parI'ELSIqui n'ayamïisdemandéi'intcr\.ention
dr Ilforce nubliaue et n'a nullrmrnt iiuric nlainte3 ce suiei;
d) menéedan; un eiprit de collaboration;
e) elle n'a jamais causéaucun préjudice,aucun dommage à l'entreprise.
En ce qui concerne ladite occupation, aucun manquement au devoir de protec-
tion ne peut donc être imputéaux autoritésitaliennes.
C'ommr ilc\t bien connu de cette Cour. la dCienscdu Gouvernement italien a
réservé une placs importante icc wjet dans les drfenrrs L~riteici n'a nullement
I'intentiorid'ennu\er la Cour en rCpct3ntce qui a ete dcta elpose.
Le but noursuiii consiste à donner un ane.cu.aussi ;aste et aussi nrécisaue
pos,ible de la priiliquc sui\,ir pend.int la piriode concernCc par les ~utorités
italiennes dans des atïaires du genre de celle qui rsi actuellement exiiniinécpar
la Cour. Ceci pour démontrer que, bien quel'ordonnance de réquisitionétait
ill-ealeet avait donc été annuléee.llen'était cenendantni arbitraire. ni discrimina-
loire. ni propre6 causer aucun pr(lludicci l'FIS1 et i ses astiiinnaires
L'année1968 iircprisent2, comme on le sait, le point iulminlint d'une période
d'ariiïiion lonrue ci nroliinde. une ncnode \ecue par IOUICI lessociclésocciden-
tale;. Cette agcationAacommencéquelques année'sauparavant et s'est terminée
quelques années après. Etnous ne nous en souvenons que trop bien, car il
s'agissaitd'une situation de type prérévolutiounaire, diffusdans letemps et dans
i'espace.
II s'est sans doute agi là d'une grande crise de transformation èntre deux
époques:la crise du passage de la société industriellà la sociétépostindustrielle,
de I'Etat du bien-êtreà I'Etat oostmodeme.
Et une des valeurs modèIes.decette pararévolution, du moins en Italie, a été
le maintien des niveaux d'emploi et la sauvegarde des postes de travail: c'étaitlà
une prémisseque les autorités ne pouvaient pas ignorer lorsqu'elles devaient
prendre des mesures.
La révolutionqui avait déterminéle passage de I'Etat absolu à I'Etat libéral
avait mis l'accent sur la valeur statique de la propriété,alors que la révolution
sociale. aui a substituéle «Welfare Staten à l'Etat libéral.avait mis i'accent sur
sa \,lileurd)n3mique, dans le cadre de Iï gestion Jc I'cnirrpribc. Cettedernière
piirarr'\,uluiio3 mis au premier plan la \,xlcur insiituiionnells de I'entreprise,
considéréenon pas (ou non seulement) comme un complexe productif, mais
comme une communauté de travail, en privilégiantl'aspect «Gavailliste» par
rapport à l'aspect commercial et à l'aspect privéqui prévalaientrespectivement
-....
Ce n'est donc Dasun hasard si. pendant ces années,l'usagede l'instmment de
ka rCquisiiioncoiire la krmeture d'ét~blirsemcnt~induttnils et le licencirmcnt
des ouvriers. en visani Ùci)nwrver les niwaux d'emploi ci 6 sïuvcgarder l'ordre
publicéconomique, a >iiI'ordonniinccde r6qui>ition.I.'ordonnance de r~uui\ition
a donc éveillé l'intérêdte tous les maires italiens
Et ce n'est pas non plus un hasard si la doctrine la plus attentive a admis
I'existencedu pouvoir de réquisition etsi la jurisprudence l'a reconnu au maire
en cas d'urgence exceptionnelle.
II imnortemu. aux fins de la nrésenteaffaire. oue la iuris~mdence ait conclu
6 ce sujet que la me,ure de la rcquisiiion n'hait pas apte. concr6temeni. à
conserver les poster de irü%,ai. e que le Gouvernemcnt italien souhaitai! démon- PLAIDOIRIE DE M. CARAMAZZA 189
trer Darune analvse critiaue de tous lesorécédentsiurisnrudentiels conduite dans
la dlfense écrite c'étaitGe, à ~'é~o~ue~n'im~orte~~um eafire italien, quelle que
fût l'usine menacéede fermeture et quels que fussent sespropriétaires,nationaux
ou étrang-rs.aurait ag- exactement comme l'a faitle maire de Palerme le 1" avril
1968.
Comme il a Giéd:moniré. dc Florcncc 3 l'ise,dc Chieti ;iCienes, i Sondno, ;i
Rrindiii. i Ciniscllo Halsdmo,i Casdlmaggiorc, J Kicti, iout le long de la botte.
lcs maires iwliens. ad cours de Iiidéccnnie1965.1975.rérluisiiionnaicnttous les
étdblisscnicntjmenacésde fcmicture indépcndsmnicnt de I'industris concernce
(méc3nique,textile, pdpicr, sucre) ci indévndamrneni du propriCidirc, individu
ou sociétéanonyme,~italienou étranger.
Dans ces conditions. on ne saurait vraiment aualifier l'ordonnance de réauisi-
[ion de .<dixriniin~ioirc 8,Ni d'a111curd j'«arhitrairc>>.San?envahir pour :iutani
le,duiti.ziiioqui ,uiiidu icssoii dcs üuiics iniciiibrcrdc la delégaiionjc \oudnlis
exposer brièbcmcntdeu~considéraiionsqui excluent ladite qdaliiicaiion d'<tarbi-
La premièrea trait à uneexpérienceaméricainec,ellede la PeweeCoalCompany
(duplique, II, p. 428 et suiv.), citée aussidans la plaidoirie orale de M. Gard-
ner; et-qui prouve que, en cas d'urgence sociale,laréquisition temporaire d'ins-
tallations industrielles constitue une sorte de réaction physiologiquede notre
type de société organisép eour protéger, commel'a précisé la Cour suprême des
Etats-Unis, la sécuritéou le bien-être publics.II peut s'avérerque la décision soit
annuléepar la suite mais le fait est que ce type d'ordonnance est prise dans ces
circonstances.
Le comportement du maire de Palerme n'a donc pas représenté unabus
déraisonnable, commeleprétend laPartieadverse; ila par contre été parfaitement
conforme à la pratique courante de n'importe quel pays occidental industrielen
temps de crise.
La deuxièmeconsidération se réfèreaux raisons qui ont amenéle préfet à
annuler l'ordonnance du maire et. d'une manière olus g.néra-e, aux nrincines
sanciionnis par 14 jurlsprudcnre admini\trïii\e itdlienncen 1.1maiiere
En dépitdu fait que, dans le recours de I'CLSI,on contc\taii \ou\ de niimhreux
asnects ?existencemêmedu pouvoir du maire de nrendre l'ordonnance de réquisi-
ti8n attaquée,le préfeten a ieconnu l'existence (et toute lajurisprudence se range
dans cette direction). Le maire a un pouvoir dans lescas exceptionnels d'adopter
l'ordonnance de réquisitionaux termes de l'article 7 de la loi du 23 mars 1865,
annexe E. et de l'article 69du règlement des collectivitéslocales en Sicile.Noir
à ce sujet les décisions citéesdans le contre-mémoire etla duplique; on 'peut
ajouter la décisiondu conseil de justice administrative de la régionde la Sicile,
n" 155du 27juin 1978,publiéedans Il Consiglio di Stato, 1978,1, 1289.)
Le préfeta toutefois niéque ce pouvoir ait étéexercécorrectement car il a dit
que le but poursuivi - c'est-à-dire la gestion de l'entreprise- n'avait pas été
atteint. C'est là que se trouve le cŒur de la décisiond'annulation du préfet.
Le oréfetde Palerme. en accueillant le recours hiérarchiquede I'ELSI, a donc
aflirmC,pdr un pri,nostic iaii i posteriori, I'cxisicnccde I'usdgcincorrect d'un
pouvoir qui étaiten ianr que ici rccilnnu.
II\emhlc don^.Ci,idrnique wIï exclut tout cïrïcièrï arhiirtirc de I'ordonnancc
car on ne peut parler d'«arbitraire» que lorsqu'un acte administratif constitue
un abus, parce qu'il a été pris en l'absence absolue d'un pouvoir, et non pas
lorsqu'un pouvoir, dont personne ne met en doute l'existence,a été simplement
détourné.
II est enfin impossible de reconnaître l'existenced'un lien de causalitéentre la
réquisition et la faillite.190 ELETTRONICA SICULA
Ce point a été traitéhier par M. Libonati, ilsera traité, après moi,par M. Bonell
et il est donc suoerflu aue ie m'v attarde. Permettez-moi seulement de raoneler
que le problimchc l'cxi;te&e d';n lien de c3usalite enirc 13requisition ci13.l'ail-
Iiisù tic pose au juge iidicn p~r Ic ,yndic dc r~illiicJc I'ELSI qui a dr.mandC,
comme on Ic <ail, la cond3mn3tion du minisicre de 1'inir:riîur 2 la repdriiion
de5 prc~udiccscduscs par I'urdonnancc de rcquisitioii dc I'usinc
Lc tribunal dc Pdlcrrnc,dani 12 JL:~.i\i<nue l'on J J>j3 citée,3 precisé.
<<IIJI:c.iule de3 conditions d6crite3 ci-dessus que le rdtiachcmcnl de 13
~aillitcdeId \oci>icà la sur\.cn<inicdc 13 r~quisiii~iCSI dépourvude fondc.
ment. comme l'a soutenu à iuste titre l'administration défénderesse.vu aue
la sit"ation économique de~a~tbeon-~~~létaitdéjà gravement compromise , .
depuis des annéespar déclaration expresse de ses dirigeants. »
Et la cour d'appel pour sa part a déclaréque:
«La circonstance certaine de l'insolvabilité de la sociétéà une époque
immédiatementantérieure à l'intervention du maire suffit àexclure tout lien
de causalitéentre l'ordonnance de réquisition et la faillitede la sociétéd,ont
ledit étatd'insolvabilité est une causedéterminanteet suffisante. » (Article 5
de la loi en matière de faillite.)
Les deux décisions ont été, comme vousle savez, confirméespar la Cour
suprême de cassation (voir 1, mémoire, annexe82).
Or, la défensedu Gouvernement italien estime que la décision desjuges du
fond de Palerme soumise à l'examen de cette illustre Cour - bien que rendue à
la demande du syndic de faillite et non pas de Raytheon - revêtune valeur
incontestable pour deux raisons.
La première est que le juge national du fond a pour tâche en premier lieu
dëvaluer lesfaits sur la base des preuves.Et ceci sur les lieux et dans un délai
relativement brefaprès les événements en discussion.II se trouve donc dans les
meilleuresconditions pour une reconstitution fidèledes faits, vu qu'il estl'autorité
la plus compétente d'un point de vue professionnel et qu'il dispose de tout le
matérielprobatoire nécessaire.II s'ensuit que la reconstitution des faits effectuée
par le juge national du fond peut difficilement êtrecontestéeaprès une période
aussi longue, sur la base de simples conjectures et sur la base de souvenirs des
protagonistes des faits en question -qui sont loin d'être impartiaux.
La deuxième raison est qu'il faut exclure tout soupçon de partialité du juge
italien, mêmeau niveau subconscient, et qui aurait eu un effet défavorablepour
les actionnaires étrangers.
Cela parce que, dans leprocèsdevant lesjuges de Palerme, lesparties plaidantes
étaient,d'une part, le ministère de l'intérieur italienet, de l'autre, non pas les
sociétés américaines mais lafaillite de I'ELSI,c'est-à-dire la faillite d'une société
italienne, une sociétédonc ayantdes créanciersessentiellementitaliens (n'oublions
pas qu'en Italie, comme M. Bonell va l'illustrer par la suite, la mise en faillite
vise surtout à protéger les créanciers).
Quiconque a un minimum de connaissances de la pratique judiciaire italienne
sait que la magistrature ne fait preuve d'aucune indulgence à l'égarddu pouvoir
exécutif:elle connaît des affaires de ce dernier avec une rigueur inflexible, alors
qu'elletémoigned'une certaine ouverture - pour des raisons évidentesd'équité -
à l'égard des faillites,pour lesquelles la victoire dans un cas important équivaut
souvent à une possibilitéde récupération,surtout pour la masse des petits créan-
ciers chirographaires, qui sont des personnes normalement économiquement
faibles et donc sans défense,et dont le juge ressent la nécessitéde défendre les
intérêtsex oficio. PLAIDO~RIE DE M. CARAMAZZA 191
Et c'était exactementle cas dans l'affaire del'ELSI. où. le ieu des instances en
équité auraitpu éventuellement faire pencher la balance, pour lesjuges de Pa-
lerme, du côtédu failli et de ses petits créanciers italienset non pas du côté du
ministère de l'intérieur à l'égard duquel les juges ne nourrissiient - et ne
nourrissent - aucun sentiment particulier de sympathie.
5. LA DECISION <(TARDIVE)) DU PR~T
A l'époque des faits,l'ordonnancement juridique italien prévoyait, en tant que
première voie de recours offerte i l'administrécontre les actes administratifs, le
recours hiérarchiqueàl'autoritésupérieure.Cette voie de recours avait un carac-
tère nécessairecar ce n'était qu'après l'épuisemen dte la voie hiérarchique que
l'intéresséétait autoriséà s'adresser au juge administratif.
Une norme considéréed'ordre général, à savoir l'article 5 duRecueil des lois
municipales et provinciales 01, documents joints au contre-mémoire, no 20),
prévoyaitque, si le recours n'étaitpas décidédans un délaide cent vingt jours
qui suivait la date de sa présentation, le réclamant pouvait solliciter cette
décisionpar une instance notifiée à l'autorité supérieure requise. Soixantejours
après cette notification, le recours devait être considéré commé e tantdéfinitive-
ment rejeté.
La norme étaitlibelléede toute évidencepour permettre au citoyen d'exercer
les autres voies de recours, a savoir le recours au iuse administratif. mime en cas
d'inertie dc l'autoritéhir:r~rchiquementsupr:rieu~chfxis cçltc nomie a\xit aussi
une ,igniîir.atitin iniplicitrn:iirtout 3u1\i ;131re. i SIVJI~ I';\aI~~imn d'un
,patlum $~ltt,t~ril>Ji cent \ingi jours ;içci,ri2I'üut<iritisup6rieurc cn tant quc
i temos normal de réoonse» au recours biérarchiciue.
~a'déclaration du'ministre de l'intérieur que'la défensedu Gouvernement
italien a produite (II, documents joints au contre-mémoire, n" 30). explique en
outre que, dans la pratique courante, ce «temps de réponsen au recours hiérar-
chique étaiten moyenne d'un an. Peut-êtrecela ne répond-ilpas au critère de
justice idéaledans le meilleur des mondes possibles dont rêvaitCandide, mais
c'était la réalitde l'époque,et il n'y a donc eu aucun retard important, d'un
point de vue objectif et général,dans la décisiondu préfet quia été prise, comme
on le sait, seize mois après.
Je n'entends certes pas démentir par là l'avocat de I'ELSI, Me Bisconti, qui
affirme dans son ~affidavit)) que le temps de réponsepour les recours hiérar-
chiques particulièrement urgents était de l'ordre d'un mois, voire mêmedans
certains cas d'un jour. Je ne veux pas non plus mettre en doute les dires de
M. Matheson qui, dans sa plaidoirie, a traitéce sujet, en parlant d'un «temps
de réponseh de trois, de quatre, de cinq jours. Mais, bien sûr! Il est évident
que de telles décisions immédiatesont étéparfois prises! Mais quand, Monsieur
le Président, Messieurs de la Cour? Ces décisions immédiatesont été prises
seulement lorsqule 'urgenceparticulièrede la questionavaitété signalé et motivée
dune manièreadéauare.
La pr,itiquc.1cil hiçn C\idcni, est13cuiv3nic: puisque la 1.1ac~orilcun ddai
de crni \ingi Jours i I'.iuturiiCsupcricurc pour statuer sur Ic rccuuri. le bure-u
de l'autoritéqui reçoit le recours procèdeà une première instruction sommaire
oour voir s'il v a une instance d'ureence. S'il n'y a Dascette instance d'ureence
ou si la décisionn'est pas sollicitéepar d'autres voies, le bureau qui prépare le
recours se borne à fixer une échéance ultérieurepour l'étude etle traitement et
passe à un autre document qui est peut-êtreplus urgent.
Or il y a lieu d'observer à ce sujet que le recours hiérarchique de I'ELSI,
extrêmement long, extrêmement complexe, qui comprend jusqu'àseize pagesd'arguments juridiques savants, eh bien! ce recours ne contient pas une seule
phrase. pas un seul mot requérant une décision d'urgence et, encore moins,
évidemment,quoi que ce soit sur les motifs de cette urgencemystérieuse quele
nréfetaurait d~~deviner.
Le directeur général dela société,M. Guidi, qui a présentéle recours assisté
par l'avocat dela société,Mc Bisconti, a donc rédigéun long document, subdivisé
en cinq moyens de recours, mais iln'a pasjugébon de dire un seul mot pour
indiquer que la sociétéqu'il représentaitavait ce besoin pressant d'une décision
immédiate.
II ne résulted'ailleurs pas -et la Partie adversene I'a jamais affirme- que
cette urgenceait étéexposéeau préfet de Palermepar une lettre, un télégramme,
un coup de téléphone.Voyons! Ce «management» qui parlait tous les jours
avec les ministres et les présidentsde régionsn'avait sûrement pasde difficulté
à signaler au préfet de Palermel'urgence du recours. Alors, je crois que nous
devrions dire. avec les Romains: vi~ilonribusiuro succurunr.non viei/onribus
luru non SUCCU~U~/ Pour obtenir quelq-uechose ilfaut tout d'ahorJ le &mander
Mais qui plus est, I'ordonnance derequisition date, Moiisicur le Président,du
1" îvnl 1968 alor, uuc le recours hi~rarchiuue date du 19rivril 1968'
Comment &ut-on 'prétendre à une décisioi immédiate alorsqu'on a soi-même
attendu dix-huitjours pour présenterle recours? Et que l'on neparle pasd'autres
mesures immédiates adoptéespar I'ELSI car, ovanr le recours, I'ELSI s'était
bornée à envover un téléeramme deorotestation. le 9 avril 1968.un téléeramme
qui ne voulait bsolumeni rien dire. ét iprésen ïe;maire. le II avril~Sjbdune
demandede rivwaiion di. I'ordonnance. Cc ne sont pasde$« mesures» ad~~tces,
mais des initiatives totalement inutiles au ooint de vue iuridiaue et bonnes
seulement à gagner du temps.
Mais lessurprises,quand on lit la atime-table» de cesévénementsc,ontinuent.
La présentationde la requête de miseen faillite de I'ELSI datedu 26 avril 1968:
elle ne suit donc le recours hiérarch.aue.ue d'une semaine!
Cela signifie que le préfet de Palerme a sans doute pris connaissance de la
requête demiseenfaillite (qui, dansla situation, estdevenueévidemmentd'emblée
un fait notoire) avant mêmeque du recours hiérarchique car, faute de toute
indication soulignant son urgence. ilest probable (ou presquesûr,je dirais) que
son service du contentieux n'avait pas encore analyséen détail le recours en
question.
Et c'est à ce moment-là que le préfet de Palerme a mûri, à juste titre, la
conviction que I'ELSI n'était absolumentpas interessée à la décisiondu recours
et ilne l'a donc examinéque lorsque, une annéeaprès, le 9 juillet 1969,le syndic
de faillite a engagéla procédureprévuepar l'article 5 du Recueildes lois munici-
oaleset arovincialesen vue d'obtenir une décisionsuscentible d'êtreutilisé~.ar
ia suite dans le procèsen dommages-intéréts devantle thbunal de Palerme.
A la suite de cette mise en demeure, etdans les délaisprévuspar la loi, soit
auarante-trois iours aorès.le oréfeta statuésur le recours dela manière aue nous
connaissons.~;rmett&-moi de vouslireun passagede I'aatfida\it >Je M: Ravalli
(II, dwumcnis jointsà la duplique. no8).qui etai;iI'époquele prbict de Palerme.
IIparle de I'ordonnance de réquisition etildit:
«En géncral, les dispositions de ce genre simi sttaquCesimmédiîtcment
par l'entreprise titulaire du complexe réquiritionnc en préwntant un recours
hiérarchiqueau préfet. Ce que, à ma grande surprise, ks administrateurs de
Ravtheon-ELSI n'ont fait aue dix-neuf iours anrès.
Dc plus. à ma connaissance.I'act~vitcde production dc I'u\inc avait déjà
ces& depuis longtemps et le probleme qui tracassait les~dministratçurr était PLAIDOIRIE DE M. CARAMAZZA 193
plutôt d'obtenir de I'Etat des aides suffisantes pour surmonter la grave crise
économiquedans laquelle l'entreprise se trouvait depuis longtemps. Dans ce
but, la sociétRaytheon-ELSI avait, mêmeaprèsl'ordonnance de réquisition,
pris des contacts avec les autorités tant locales(régionet municipalité)que
centrales.
En me basant sur ce qui a été dit plushaut, j'ai eu le sentiment que le
recours contre la réquisition, de mêmeque la requêtede mise en faillite
présentée immédiatementaprès au tribunal de Palerme. représentaient plu-
tût des manŒuvres tactiques visant à influencer les autorités réticentesà
accueillir les demandes d'aides susmentionnées.
Ceci est confirmépar le fait que ni la société, i lesyndic de faillite, après
la déclarationde faillite, n'ont jugébon, aux fins de I'annulation de I'ordon-
nance du maire, d'introduire la procédurede sommation viséeà l'article 5
du Recueil de loir du 3 mars 1934 avant le 9 juillet 1969; de sorte que la
décision d'illégalitén'a pu être adoptée quele 22 aoiit 1969, à savoir bien
des mois après que la réquisitioneut cesséde produire ses effets.»
En conclusion, permettez-moi de dire que, si les administrateurs de I'ELSI
avaient voulu éviterà tout orix une décision immédiatedu oréfet.ils n'auraient
pli?agi auirement. Ils ont p;éscntéun recours tardivemeni (&Cs dix-hu~ijours);
ilsn'on! iign3ICaucune urgçnccau prcfçt. ni dans lecorps du recours. ni d'aucune
autre manièreet, immédiatementaprès avoir présentéle recours, ils ont présenté
une requêtede mise en faillite.
La vérité estque mêmeune décision très rapidedu préfet n'aurait pasévitéla
faillite de I'ELSI, surtout en considération de ce que la requête présentée à ce
suiet avait révéléau tribunal un étald'insolvabilitéextrémementarave. Cela de
toite manière ne pouvait donner lieu qu'à une déclaration defai~ite, comme le
mettront en évidence par la suite mes éminents collèguesde la défense,vu la
nature «officieuse» de la procédureen question.
Ouel retard wut-on donc reorocher au nréfetde Palerme? Peut-on soutenir
que. sila dkision avait éiépnse entre le 20 CIle 25avril (elle nc pouv~it pas Ctrc
prise avant, elle aurai1 été inutileaiprés).I'ELSI n'aurait pïs présentésa requêie
de mise en faillite?
Celte thCu.scmble risible parce qu'il es1évidentqu'une situaiion dksespérée de
JI:confiture, irllr que celle ou se trouvait I'ELSI. ne pouvait Cire rcrolue simplc-
ment en obtenant la libre disponibilitéd'un établissemeninon actif et de moindre
valeur et aussi Darceaue la Ïeauêtede mise en faillite étaitun acte oui aurait dû
?ire pris drpui;des mois, çomRie l'a dit M. Libonaii, comme le diri M. Boncll:
enlin parce que la faillitc clle-mcnie aurait pu 6trc déclïrke(el di étrcdL:clar&e)
d'office.
Admettons toutefois. hvoothèse absurde. ou'il v ait eu une relation entre le
moment de la décisiondupréfet et la faillite. je voudrais alors qu'on m'explique
pour quelle raison le préfet aurait dû statuer tambour battant sur un recours
dont le délaide décision prévupar la loi est de cent vingt jours et dont non
seulement aum des inréressés ne lui avait sirnalé I'urzence. mais~ ~ ~ ~dont le
retard avec lequel ils I'avaienrpréseniérévélaicrlairemeni un bienfaible inrérérde
leurparr. Cela aurait étéde la part du préfet vraiment unexcèsde zèleque M. de
Tallevrand n'aurait oas aoorouvé!
IIéstdonc évidenique;dans une telle siiu~tion, on ne saurait accuser le préfet
d'a\oir pris une décisiontardive ei leGouvernement italien d'avoir dénié lajustice
aux intéressés.
Une dernière considération. Monsieur le Président. Messieursde la Cour. si
vous me le permettez. Je voudrais effleurer à peine le sujet de I'épuisementdes recours internes. Ce
sujet ayant déjà été traitp éar M. Gaia, surtout en cequi concerne les normes du
traité;il seraii donc présomptueuxde ma part d'ajouter quoi que ce soit sur ce
point.
Permettez-moi seulement de faire une brève allusion aux voies de recours
pouvant êtreexercéesaux termes des normes générales dedroit interne italien
applicables au cas d'espèce selonle nouvel exposé desfaits: ce nouvel exposési
différent decelui du «claim» initial qu'on a déjàvu.
Comme je l'ai préciséd , ans le «claim» initial, la dénonciationdes comporte-
ments des autoritésitaliennes étaitfaite dans un contexte purement neutre, sans
aucune allégationd'un dessein unique - imputable aux autoritésitaliennes elles-
mêmes.
Dans ce cadre, le problèmede l'épuisement des recours internes aux termesdu
droit italien généralpouvait êtrerésumé comme suit:
«l'actionnaire a-1-ille droit de demander des dommages-intérëtsà l'autorité
publique qui a réquisitionnéles biens de la société en causant des préiudices
directs à ia societé mêmeet des préjudices indirects à l'actionnaire en
question? »
Voilà quelle était la question en droit généralselon le cadre proposé par le
«claim» de 1974.
Et eu ces termes-là la question a été posép ear Raytheon aux expertsjuridiques
qu'elle a consultés. Ces experts, commeon le sait, ont exclu dans leurs avis
I'h..othèseaue les actionnaires - vu la nature indirecte du oré.udAce subi -
n\aient Içdroii d'exercer une action cn indemnitéiunirc I'Etat iralicnaux icrmes
de\ rcglcs générales.Et nou5 somnics parfÿitemeni d'accord avcc içs avis. sous
rcserve. év~demmeniJ .ez inexactitudes $ixnslks dans les défensesCiriicset. bren
entend", sansque soit touchéle problèmedes droits qui dérivent directementdu
traité et dont M. Gaja a parlé. Mais cette question et l'avisque les experts
consultéspar Raytheon à l'époqueont donnése réfèrentà une hypothèsetout a
fait différentede celle aui est auiourd'hui rése enté Dearla Partie demanderesse.
Effectivement,comme nous l'avons vu,'dans le mémoire,dans la répliqueet
dans les plaidoiries, le maire de Palerme, le préfetde Palerme, ainsi que d'autres
officierspublics italiens sont accusésd'avoir abuséde leurs pouvoirs pour nuire
à Ravtheon. en tant au'actionnai~ ~ ~ I'ELSI.et oour.favor~ ~r l'IR1.en oemlet. ~ ~ ~ ~ ~
tani settehernière dc racheter à ha\ prix iin joyau iechnolugique
D'apres set erpocc ditTCrcnide, fair,, qui dcnieure inchangédans sa substxncc
en dépitde la déclarntionde \1. Mliiheson, les nciionnliires auraient subi non
seulement un préjudice indirect découlantdu préjudicedireci cnuk i la société.
mais aussi une aiieinie immCdi3ié.personnelle ct directe i leurs droits d'action-
naires, puisqu'ils auraient étévictimes en tan1que rels, en tant qu'actionnaires,
d'une entente entre lesfonctionnaires publics (voir à ce sujet surtout la plaidoirie
de M. Gardner, ci-dessusp. 109-110).Ilsauraient donc pu invoquer - indépendam-
ment de leur nationalité,mëme s'ils étaient des Italiens,et indépendammentde
tout traité d'amitié - l'article 2043 du code civil italien qui dit que «tout fait
dolosif ou fautif causant un o.,iudice iniusteà autrui obl~~e celui aui l'acommis ~ ~ ~
aux dommïgcs-intéri.tsi,. et demander, en vertu de cet article. la condlrmnation
du ministèrede l'intérieurau domniages-iniirCts (i condition évidemment de
prouver leurs accusations)
Qui plus est, si les autoritésitaliennes avaient agi de la sorte, comme l'affirme
le demandeur, les titulaires des services respectifs, mëme si l'entente n'étaitpas PLAIDOIRIE DE M. CARAMAZZA 195
en elle-mêmeun délit,mêmesi l'entente n'étaitpas en elle-mêmeune «cons-
pira~~»,auraient commis des faits illicitesen se rendant coupables personnelle-
ment tout du moins du délitd'abus innomméde fonction, prévupar I'article 323
du code pénal italien,qui dit:
«Tout officierpublic (c.p. 357) qui, en abusant des pouvoirs inhérentsà
sa fonction, commet, pour porter préjudiceà quelqu'un ou pour lui assurer
des avantages, un fait non prévuen tant que fait illicitepar une disposition
de loi particulière (c.p. 605-606),est puni d'une réclusionjusqu'à deux ans
ou d'une amende de cent mille à deux millions de lires (c.c. 2637).» (11,
documents joints à la duplique, no 17.)
IIressort trèsclairement de ce libelléaue I',.oothèseviséeoar la norme enel-be
parfaitement le comportement des autorités italiennes dénoncépar la Partie
demanderesse; en outre, I'article 185du code pénal italien prévoitque
B tout fait illicite ayant causéun préjudice patrimonialou non patrimonial
oblige le coupable et les personnes qui, aux termes des lois civiles,doivent
répondredu fait qu'il a commis, à réparerle préjudicecausé» (ibid.).
Dans la présenteaffaire, la personne qui aurait dû répondre du fait commis
par les coupables était évidemmentI'Etat (en la personne d'un de ses ministres),
cela va de soi et cela découle aussi de I'article28 de la constitution italienne.
Monsieur le Président,I'article 28 n'est pas parmi les documents qui ont été
produits, je m'en tiens donc àceque vous avezdit au commencementde la séance
et m'abstiens de le citer.
En définitive etpour conclure sur ce point, Raytheon aurait pu présenter des
dénonciations pénales et exercerune action civile dans la procédure pénale
suivante en se constituant partie civilecontre les personnes physiques accuséeset
contre le minis~ ~~~e l'intérieur. res.onsahlecivildans ce mime orocès.ou bien
SC horner i exercer direciemcni une action civileen domniagcs-iaiéréisLontre le
ministèrede I'iniér~eurc.omme d'ailleursd'autres sujets américainsI'ontfait dans
des circonstances analogues.
C'est le collègede défense américain quia eu l'amabilité d'évoquer l'un de ces
cas dans cette mêmephase orale etje voudrais y faire référenceI.I s'agissaitdans
ce cas d'un ressortissant américain qui a demandé d'importants dommages-
intérêtsà plusieurs ministères italiensen s'adressant au tribunal de Rome.
Ce ressortissant américain avait dénoncé un comportement arbitraire et discri-
minatoire de I'Etat italien contre lui et contre des sociétésde capitaux dont il
était actionnaire ou dans lesquellesil étaitintéresséde façon directe ou indirecte.
II avait invoquéla violation de I'article2043 du code civil italien et la violation
du traitéACN; voici un cas donc très proche.
Le tribunal de Rome, tout en déboutant le demandeur sur le fond, faute de
précisionde la demande et faute de preuves, a admis en principe la recevabilité
d'une telle demande.
Mêmesi l'affaireest maintenant l'objet d'un recours en appel, il semble utile
de la citer, car le tribunal de Roine a affirméd'une façon implicite mais très
claire- la piècea étéproduite par la Partie demanderesse - que, si des faits
spécifiquesavaient étéaffirméset prouvés,le demandeur aurait gagnéle procès.
II est donc évident que,si la plainte qui nous concerne avait été portée par
Raytheon àunjuge italien, elle aurÿit été jugée recevablesur la base d'indications
spécifiquesde comportements illiciteset fautifs de la part des autoritésitaliennes.
Si, en plus, Raytheon avait pu prouver la vérité de sesallégations,lesdommages-
intérêts demandéls ui auraient été accordés.196 ELETTRONICA SICULA
Puisque Raytbeon et Machlett n'ontjamais introduit cette action en dommages-
intérêtsi,ls n'ont pas satisfait pour ce qui concerne ce point à la condition de
l'épuisementdes voies internes et il est presque superflud'ajouter que lesobserva-
tions développées tout à I'heure représentent unecontestation supplémentairede
I'exception d'estoppel formuléepar la Partie adverse (réplique,II, p. 376-377),
puisque le mémoirede 1987représente un quidnovi par rapport au «claim» de
1974.
Une dernièreconsidération~our rénondreà une observation de M. Faualari
selon lequel une tcllc action cn justice aurait éiéimpossibleen raiwn du manque
dc preui,c awompagnant des accusaiions au.rsi graves contre Ici aulorités itii-
Iiennes.Formuler de te1lr.saccus~iions. ï dit M. Fïrralari. sans pouvoir lesDrou-
ver-car évidemment la oreuvede I'ententeest irr~~~s~ble- aurait étédaneéreux
les ad&nistrateurs'd'~~~l d'un point de vue pénal (ci-dessusp.78).
On aurait enviede se demander, avec une pointe d'amertume, pourquoi ce que
l'on ne doit pas faire devant un juge national à savoir lancerdes kcusations
si graves sans en avoir les preuves - devrait êtrepermis devant la suprême
instance internationale de justice.
Mais il me suffit de constater que M. Faualari estime impossible de prou-
ver aue le maire de Palerme. en reauisitionnant I'ELSI. a aei dans des buts diiïé-
rcnt\ Je ceux qui ont étr'exp~i~uésdanIs'ordonnance. et, pïus ginCralenlent.que
M. 1;~zuliri esiimc imposiiblc de prouver une entente entre les xuionte\ iia-
Iiennesqui auraient srm m isI'IRI dc rïchetcr9 bas ~rixlesinstlillïiions d'ELSI.
impossibl ee la prouver, Monsieur le Président,~ëssieurs lesjuges, parce que
cette entente n'a jamais existé.
Comme je l'ai préciséau début de ma plaidoirie, la tâche qui m'avait été
assignéeau sein du collègede défense italien consistaità vous parler:
1) des avintages prCi,uspiir la ICgiilaiionsur le Sud.
2) de l'intervention de la Forcepuhliqur ou du manque d'inter\cntion;
3) de la réquisitionde I'usine;
4) du retard du préfetde Palerme dans la décisiondu recours hiérarchique.
l'espère avoir démontré quele comportement des autorités italiennes a été
légitimeou, à tout le moins, là où une illégalitéa été commiseet reconnue par
les autoritésitaliennes mêmes,que ce comportement n'a nullement contribuéà
causer les conséquencesalléguéespar la Partie demanderesse; et, en tout cas,
qu'il n'était paspropre àjustifier des accusations quant à son caractèrearbitraire
ou discriminatoire.
L'audience,suspendue à II h 20, estrepriseà II h35198 ELETTRONICA SICULA
fcl the fact that Ravtheon. notwithstandinr! this dutv. waited until after the
requisition tofiléfor hankruptcy, cannoïnow he ised to establish any sort
of causal connection hetween the requisition and bankruptcy.
(a) ELSIS Inability to Proceed withan "Orderly"LiquidationDue fo Ifs
Insolvency
The decision to liquidate ELSI was formally taken on 16March 1968.
According ta the Applicant, Raytheon took this decision with a view to
beginning an "orderly", or, as it is elsewhere referred to, "voluntary" liquidation
of the company, in order to minimize its losses.
T-~~~~~ ~ar from the truth.
The decision to~liquidateELSI was hy no means a free choice. It was a matter
of ahsolute necessity, as was perfectly clear to, and admitted hy ELSl's manage-
ment itself, at the time.
In fact, on 7 March 1968 Raytheon formally notified ELSI that despite the
company's urgent need of additionalcapital, it was no longer willing to subscribe
to any further stock which might be issued hy the company or to guarantee any
additional loans which might be made hy others to ELSI.
This is stated in a letter from Mr. Adams, Raytheon's President, to Mr. Clare,
ELSI's new President (cf. II, Counter-Memorial, Unnumbered Documents, Ex-
hihit 111-13to the 1974 Claim). and confirmed hy both of them in their oral
testimonies before you last week.
ELSI, thus, knew perfectly well that it could no longer count on Raytheon for
even the slightest help, and since its coffers had dried up a long time earlier, the
only way to meet its obligations and immediate commitments was to start selling
...... . . . . ..
This h;id heen olunrlyüniiiipated, :ifter XIIby Mr Clare hiniself,ai the fanioui
mectine on ?(IFehruar, 1963\sith thc PreriJent oi th? Siciliün rcgionül go\.crn-
ment. ~r. Carollo
.Andn<ione othcr [han hlr Adarnr hiinsclfconfirmed bcforc us Iast ucck thdi
in Facithe time-chüri Jr~wii up on ihai ocrdiion by Mr. Clüre \ixs sorrcci, th31
1% IO sds. thai on 8 M:irch the moncv ut in10EI.SI wr, c\pcsted i<irun oui .inJ
that as-from this date the company.had to be sold off.
Further conclusive evidencethat the liquidation decided on hy ELSI's manage-
ment in March 1968 could not have been an "orderly" one, is given by the
company's disastrous balance sheet at that time.
The oustanding dehts were some 16 billion lire - is not that an astonishing
figure, by the way, if one considers that the company's share capital totalled a
mere 4 billion lire? - of these 16 billion lire, around 4 billion were due to the
nreferred creditors and 1I billion to unsecured creditors.
The Applicant uould Iikc us nou 1,)hclieve th31JII ihcsc crcdiiurs sould h3\c
kcn i~iirficd in full in vicu oi ihc fact thai the "b~ok value" of ihc cornpany's
assets amounted to some 17billion lire.
31) cullcnguc. Proiesror I.ihonati, h3s denionsiratcd thc toidl unsoundneis 01
s~ch a proposi1Ion. YOUwill thcreiorc iorgitc me il'l simply disregnrd 11for ihc
present purpose.
What remains is the company's own liquidation plan.
Yet, even supposing that everything had gone as foreseen in this plan, namely
that the sale of the assets had raised some 10 billion lire, after deducting the
preferred creditors, the remainder would only have been sufficientto pay 30 to
50 per cent of the unsecured dehts!
This heing so, it is patently evident that what is now presented as an "orderly" ARGUMENT OF PROFESSOR BONELL 199
or "voluntary" liquidation, decided on in order to avoid further losses, was in
reality a desperate attempt on the part of an insolvent company to avoid bank-
mptcy and to force the creditors into an amicable settlement.
Raytheon knew perfectly well that, in order to succeed in its plan, it had to
ohtain the aooroval of al1the creditors. If onlv one creditor had demanded to
be paid inimédiate~~ and in full, bankruptcy would have been unavoidable. And
this was why the liquidation plan provided for the full payment not only of the
preferred creditors,-but also of the mass of small crediioÏs: the idea was - as
candidly admitted by MI. Clare in his testimony last week "to get rid of al1of
those [small creditors] .. .and not have one of [them] coming along, [and] put
us into bankruptcy ..." (cf. pp. 51-52,supra).
The risk that sooner or later such a small disruptive creditor might in fact
appear and destroy thc illusory dream of an orderly liquidation, must have
represented a sort of nightmare for Raytheon.
Desoite its nrevious declaration that it would never DayELSI an extra lira, it
immcdidicl! ;;rr;inecd ihc irÿnsfcr oi 15Umillion lire 16 iilcn~c the morc unruly
small crcdiiors This uc arc told b) hlr Scopclliii.ciscnior ofici:il of ihc conip.in)
(ci. his A~liJavii~inne\r.Ji<rthc Memorilil <~ithcApplictnt, 1.Ann. 17).
On their part, the largecreditors, made up of sixbanks with outstanding claims
of some 9 billion lire, wereasked to accept a payment of only 30 to 50per cent.
According to the Applicant, Raytheon reasonably anticipated that the banks
would settle their claims at this rediiced level, as this would guarantee "prompt
and substantial payment, as compared with receiving little or nothing in bank-
~ptcy" (cf. Mernorial, 1, p. 524; but the same view is repeated in the Reply, II,
p. 368).
1shall discuss later whether ELSI's management was right or wrong in antici-
pating the banks' willingness to renounce more than half of their outstanding
claims.
What 1 want to bring to your attention at this point, Mr. President and
distinguished Members of the Court, is the following: hy openly admitting that,
once the decision was taken to liquidate ELSI, the banks had every reason to be
satisfied with a mere 30 to 50 per cent payment, the only alternative being the
company's hankruptcy with the prospect of receiving little or nothing out of it,
the Applicant itselfhad in effectahandoned the fiction of ELSl as a going concern
and had acknowledged that the company was insolvent already prior to the
requisition!
(h) ELSIS Duty to Fil for BunkruprcyLong Before the Requisition
ï3ok Place
Maybe one of the reasons why the Applicant insists that prior to the requisition
ELSI was entitled to proceed with an "orderly" liquidation liesin the fact that-
unconsciously perhaps - the Applicant argues in terms of the bankmptcy law
of the United States.
This is confirmed hy some of the passages of the oral testimony of both Mr.
Adams and Mr. Clare last week. 1refer in particular to their statements (supra,
pp. 29 and 51, respectively) which clearly show that Raytheon at that time
considered bankruptcy, and the so-called orderly liquidation as two functionally
equivalent solutions, between which the company was entirely frcc tu chuose.
This can be understood to a certain extent if one thinks in terms of the
bankruptcy law of the United States.
As is well-known, the main characteristic of that law has always heen that of
being "debtor-oriented". In other words, in the United States bankruptcy is200 ELETTRONICA SICULA
basically a means for the debtor, whether insolvent or not, to discharge his
previous debts and to resume his activity on a fresh footing.
This socalled "fresh start doctrine" has ken expressed in very clear terms by
the United States Supreme Court in the case Local LoanCo. v. Hunt, where it
is stated:
"One of the primary purposes of the Bankruptcy Act is to relieve the
honest debtor from the weight of oppressive indebtedness and permit him
to start afresh..." (292 US 234, 244).
As a consequence, a debtor may file for bankruptcy, even if he is solvent
("voluntary case": Sec. 3.01, Bankmptcy Act), whereas in cases of insolvency
the creditors may file a bankruptcy petition against the dehtor ("involuntary
case": Sec. 3.03, Bankmptcy Act) but tbere is no obligation for the debtor 10file
for bankruptcy himself.
The situation is quite the reverse in Italy, as it is also in almost al1 other
countries, at least those of civil law tradition, such as France, Germany, Spain,
-Lu.
Here bankruptcy continues to be a sort of sanction which befalls the insolvent
debtor. And even if the creditors have los1 their original nght to have him
imprisoned, there remains the obligation on the debtor to file for bankmptcy
himself as soon as he becomes insolvent.
Even more important: bankruptcy is seen as a means of protecting primarily
the interests of the creditors by rendering innocuous those who are unable to
correctly administer their assets and ensuring a prompt and equitable satisfaction
from the proceeds of the sale of the debtor's assets. As a result, bankruptcy, in
these countries, may be initiated on the initiative of the court, and the non-
observation of the duty of the insolvent debtor to file for his own bankruptcy
may even lead to the imposition of criminal sanctions. For citation of literature
on this subject, 1may refer to my written text where 1quote some of the most
recent comparative law studies on the subject (cf. J. H. Dalhuisen, Composirion
in Bankruprcy.A ComparariveSrudyof rhe Lawsof rheEEC Couniries.England
andrheUSA, Leiden, 1968,pp. 95 etseq.; D. A. Allen and U. Drobnig, "Secured
Credit in Commercial Insolvencies.A Comparative Analysis", in RabelsZeiisch-
rifr,Vol.44 (1980), pp. 615 er seq.;A. Flessner, SanierungundReorganisierung,
Tubingen, 1982,pp. 173 er seq.).
This being so, there can be no doubt at al1that ELSl- a Companywhich was
operating in ltaly according to ltalian law - was under a duty to file for
bankruptcy long before the requisition took place and certainly at the time when
Raytheon decided 10 proceed with the so-called "orderly" liquidation.
As a matter of fact, the insolvencyof ELSl at that lime cannot be denied. In
terms of Article 5, paragrapb 2, of the ltalian Bankruptcy Law, insolvency is
manifested by defaults or any otber fact which demonstrate that the debtor is no
longer in a position to fulfilhis obligations in a regular manner.
This wasclearly the situation in whichELSl found itself.Nothing demonstrates
this better than Raytheon's own admission,to be found in its 1974Claim, where
it is stated:
"At the end of the montb of March 1968,the situation relating to ELSI
was as follows: .. .ELSI bad run out of money and had no prospect of
receiving funds except from the sale of ils asseu ... Substantial payments
were due from ELSI, the maturities of which had not been extended."
(Counter-Memorial. Unnumbered Documents, II, p. 233 [pp. 35-36].) ARGUMENT OF PROFESSOR BONELL 201
According to the Applicant, these imminent payments could easily have been
met with the proceeds of the sale of ELSl's assets.
Yet, as a matter of facl, a Company which, in order Io meet its financial
obligations as they become due, is bound to start selling off its assets, is an
~ ~ ~ ~~ ~ ~ ~anv !
In the dcsper~icatiempi io demonttr;iic thc ionirary the Applicîni relie, upon
thc opinion of Professor Friincti Bi)nelli.I ha\e siudicd ii ter) sîrel'ully, but with
al1d"e respect to my colleague of the University of Genoa,his conclusions are
totally irrelevant.
First of all, in order to exclude the idea of ELSl's insolvency and demon-
strate its ahility to satisfy al1 its creditors, he simply bases himself on the
affirmations to this effect contained in the Applicant's Memorial. He openly
admits that he himself did not have the chance of checking ELSi's accounts
(cf. p. 67, supra).
Secondlv. the different kinds of settlement with al1 or part of the creditors,
indicated 6; him as alternat~ves~ ~ bankmotcv. hv no means affect the dutv of
the insolvent debtor to file for hankmptcy. In fact, they al1presuppose - how
couldn't they - the willingnesson the part of the creditors Io voluntarily accept
a pro rata payment. ~ithgut such an agreement, the debtor remains under the
duty to file for bankruptcy.
There was only one possihility for ELSI to avoid the duty of filing for bank-
mptcy and that would have been to formally request to be admitted - it is a
privilege according to ltalian law - to the procedure of judicial settlement
("concordaro prevenrivo") according to Articles IM) et seq. of the ltalian Bank-
mptcy Act.
Now, 1 can imagine the reasons why ELSl did not take such an initiative
either. By law the debtor must show the court that he has been keeping his
accounis in order and that he is able to satisfy al1his unsecured creditors with
at least 40 percent of their claims. I am afraid that for ELSl it would have been
extremelv difficult to meet both reauirements al the lime.
Yct, this is not an excuw for ~ajthcon having instead adopied the char~dc of
ihe so-called "orderly" liquidation, and waiicd for the provideni order of rsquisi-
[ion hvthe Miivor of Palcnno bsfore finalls tiling for bankru~tcv.
As [n many other legal systems, under ~ÏalianÏaw, such a negligent delay on
the part of an insolvent dehtor may amount to the criminal offence of so-called
"bancaroria semplice", bringing with it the sanction of up to Iwo years' imprison-
ment of its directors (cf. Art. 217, No. 4, of the ltalian Bankruptcy Act).
And while weare on the subject, the acceptance hy ELSl of further credit from
Raytheon in order to silence some of the small creditors comes very close to yet
another crime, that is to Say, that of the socalled abusive recourse to credit
("ricorso abusivoal crediro"), for which Article 218 of the same Bankmptcy Act
again provides for up to Iwo years' imprisonment. Not to mention the fact that
as from January 1968 we were told that ELSl's accounts were no longer kept
properly - an omission which too constitutes a criminal offence according to
.--.-a-. ..-rv ~,t~-~~
Butjust to complete the picture, even assuming for the sake of argument ELSl
was operating in Delaware. the home state of Raytheon, rather than in Italy, the
situation woÜld have been very much the same.
First of all, there is no doubt that at least as from March 1968, ELSI was
insolvent even in terms of the United States Bankmptcy Law. Indeed, Section 19
of the Bankmptcy Act, pnor Io the 1979 reform, reads as follows: "A person
shall be deemed insolvent ... whenever the aggregate of his property .. . shall
not at a fair valuation be sufficientin amount to pay his debts."202 ELETTRONICA SICULA
And we have seen that ELSI had itself, right from the beginning, announced
its inahility to pay the larger unsecured creditors more than 30 to 50 per cent
from the proceeds of the sale of its assets.
Yet the company would also have heen insolvent under the new criterion
introduced with the 1979reform, according to which insolvencyconsists in the
debtor generally not paying his debts as they hecome due (Sec. 303(h)). In this
respect, it is sufficientto recall once more the crude, but accurate, analysis of the
company's actual financial health made early in March by MI. Clare.
It is true that under United States law ELSl would not have been obliged 10
file for bankruptcy, notwithstanding ils insolvency.
The company would have been freeto choose between a voluntary bankruptcy
petition under Chapter 7 or a voluntary petition for reorganization under Chap-
ter II. In the first case its assets would have been liquidated immediately, while
in the second case ELSl would have heen able to continue its activity in the hope
of convincing its creditors to accept or, failing 10gel their approval, to have the
iudee im~ose uoon them the "olan of rehabilitation" Drovidina fo- the 50 Der
Ln; payment O? creditors or evénless.
This at least is the theory.
In practice, it is anything but certain that United States hanks, placed in the
same situation as the Italian banks vis-à-vis ELSI. would have waited oatientlv
as long as the latter did, instead of filing an invol"ntary hankruptcy peiition as
they were entitled 10do.
Moreover, in a reorganization procedure the confirmation of an advantageous
plan of rehabilitation depends Io a large extent on the actual capacity for recovery
of the insolvent company. ELSI could hardly be said to meet that requirement.
Or did not ELSl's management itself, in its own reorganization plan of 1967,
concludethat without heavy financial assistanceon the part of the ltalian Govern-
ment the company no longer had any future?
Perhaps when deciding to liquidate ELSl Raytheon's legal advisors had in
mind a special device provided for by the law of the state of Delaware for
insolvent corporations.
1 refer to Section 291 of the General Corporation Law of that state, which
gives the right not only to the creditors, but also to the individual shareholders
to ask for the liquidation, as il is called, of the company in order to have their
property rights adequately protected.
There is however a significant difference betweensuch a procedure and the so-
called "orderly" liquidation of ELSl as decided by Raytheon. Under Section 291
and followingof the Delaware Corporation Law the requested liquidation of the
company implies the appointment by the court of a receiver who takes over al1
the assets, thus depriving the company of their free disposal, while Raytheon
attempted to liquidate the insolvent company without any judicial supervision!
(c)No Causal ConnecrionberweenrheRequisilionand ELSIS Bankruprcy
After what has been said so far it should no1take me ver. lon- 10demonstrate
the cùmplete unsoundness of thc propobiiion uf the Applicani, according to uhich
iiu,~. ihr requirition ui ELSl's pldnt uhich forced thc rt1mp3ny io file for
bankruptcy three weeks later.
First, the action of the Mayor of Palermo had no elïect on the company's duty
to file for bankruptcy, since the company was already insolvent.
In addition, it is untrue that the requisition, hy preventing ELSI from liqui-
dating ils assets, made it impossible for the Company to reach an amicable
settlement with ils large unsecured creditors. ARGUMENT OF PROFESSOR BONELL 203
There is no evidence whatsoever that, pnor to the requisition, the banks were
willing to accept the proposal of a 30 to 50 per cent payment. After all, where
was this proposal? Did not MI. Clare himself tell us last week that when ELSI
formally took the decision to proceed with the liquidation, there was not yet any
definite plan of how this should be carried out? (Pp. 62-63, supra.)
Nor did the banks change their minds afterwards. On the contrary, onoe the
order of the Mayor became known, the banks did not react at all. They never
filed for ELSl's bankruptcy, as would have been their nght.
It clearly follows that the requisition had no effect on the hanks' attitude vis-
à-vis ELSI: to a certain extent it even contributed - why not - in encouraging
them to wait in the hope that sooner or later the company would be saved.
Finally, there is the argument that the requisition deprived ELSI of its assets.
In this respect it is important, first ofl, to recall that an insolvent debtor is
in any case precluded from freely disposing of its assets. This is hecause of the
absolute prohibition - provided for hy the bankruptcy law of al1countries and
in most of them even carrying criminal sanctions - of making preferential
payments to individual creditors. In other words, it was not the requisition that
froze ELSl's plant: the company's assets were already frozen by ils insolvency!
The Applicant has further failed to produce even the slightest evidence that
there were firms in Italy, or ahroad, that would have been willing to buy the
whole nlant or nart of it..but were in fact o.-~ented from doine soubecause of
the supewening requisition.
Nor can one object that the time between the decision to liquidate the company
and its requisition was too short to allow potential purchasers to formulate
sufficientlydefinite offers. The company was virtually already in liquidation from
the beginning ofthe year, its officeshaving beenalready transferred to aprovision-
ary seat in Milan, quite far away from Palenno, and its premises occupied by the
workers since the beginning of March.
If it was not possible to seIl al1 or part of the assets at the price set in the
company's "liquidation plan", this was certainly not the fault of the requisition
which took place on 1 April 1968, but was entirely due to the fact that even
hefore that date, and independently from the Mayor's intervention, nobody was
willing to huy these assets at these pnces from a company in such an economic
and financial mess!
To sum up:
(a) already before the requisition it was no longer possible for ELSl to dispose
freely of its assets,th from a strictly legal and from a factual viewpoint;
(b) neither before nor after the requisition did ELSl's major creditors request
il,h~nkruptcy iiuas ~a)thc&n itrcli uhich. aiicr msnths of plüy-~iciin@,
~ninicdiüiclylier ihc rcquisiiion suddenly fcliohliged itfilefur bankrupicy
In these circumstances there can be little doubt that in reality it was not the
reauisition of the Mayor of Palermo which caused ELSl's hankru~tcv. The . .
rei(uisition merely bsc~nieü preic~i uhich R~)thcon has uscd ;is 3 icapegoÿi for
ELSl's alrcddy existing in\oli.cnc)
II. THEBANKRUPTC PYROCEEDING ANSD IRI's ROLE IN THE ACQUISITIO ONf
ELSI's PLANT
According to the Applicant in its Memorial:
"Having requisitioned the plant and caused ELSl's hankruptcy, the Gov-
emment of Italy discouraged private bidders, hoycotted the auctions itself,204 ELETTRONICA SICULA
and worked out special arrangements for a piecemealtake-over directly with
the bankruptcy authorities." 0, p. 85.)
And this with the object "to secure ELSI's facilities for IRI, on the terms and
at the below-market pnce wbich IR1 desired".
With your permission 1shall try to demonstrate that once again the Applicant's
allegations are totally unfounded.
As a matter of fact, they lack any specificevidence, and, what is even worse
and more important, they rely wholly on two totally erroneous assumptions,
namely:
1. ihït IR1 aciulilly hüd an iniercsi in ihe ;icquisition of EI.Sl's pldnt. 2nd
2. ihat ihr.price vïid bs IKI ai the cnd ucisrn:iicri:ill~lcssihan ih:it uh1r.hcoiild
have bein reisonabiy expected to be paid by an? other purchaser under the
same circumstances.
(~, IRI NeverHad Anv Inreresfin Acauirin~ELSI andDid So Verv R~luctn,ilv
Only WhenIf BecorneApparenfth;: ~o-0ne Else Was Willing 10 Buy the
HopelesslyObsoleteand Loss-MakingPlant
As MI. Clare said: ''1suppose the only people who, right from the beginning
were very blank-faced about it al1was IRI" (p. 50, supra).
The irony of the situation is that the first one to urge IR1 to intervene in ELSl
was Raytheon itself. As early as spring 1967Raytheon, having become aware of
the senous crisis affecting its ltalian subsidiary, immediately came up with the
idea of loading off ELSI ont0 IRI.
The request was rejectedby IRI, for a very simple reason. According to the
reorganization plan drawn up at that time by the new ELSl management, the
company was expected to expand mainly in the telecommunications sector, i.e.,
a sector in whicbseveral IR1companies werealready operating. Why then should
IR1 have had the slightest interest in pouring money into an insolvent company
which, even in the case of recovery, would just have provided an unnecessary
duplication of its production?
Last week, in reply to a similar question put to him by our colleague, MI.
Highet, MI. Adams, significantlyenough, referred to the fact that "IR1 was not
unused to loss operations" (cf. p. 41, supra).
MI. Adams is nght. In particular in the years immediately after the end of
the war there have been instances where IR1 was forced to take over the
burden of unprofitable companies, in order to protect general interests such as
the maintenance of the production of vital matenals or the safeguarding of
employment.
Asa rule, however,IR1 - a publicenterprise with a distinct legalpersonality-
enjoys full managenal freedom and, by law, must act in accordance with the
principle of profitability. For the pertinent literature on this subject see among
others Corte di Carsazione, 14 December 1985, No. 6328, in Dir. fallimentore,
1986,11,p. 214; F. Roversi-Monaco, Gli enti digesfione, Milan, 1967,pp. 164
et seq.; M. T. Cirenei, Le impresepubbliche, Milan, 1983, pp. 227 el seq.;
F. Galgano, La socieràper azioni, Padua, 1988,pp. 455 et seq.).
The extent to which IR1 in fact sticks to these principles has onlyjust recently
beenclearlyconfirmedinthe choiceof a foreignpartner for STET, IRl's operating
company in the telecommunications sector. Indeed, if after a careful examination
of several prospective partners, the United States company AT&T has been
selected to the exclusion of a number of other important European groups like ARGUMENT OF PROFESSOR BONELL 205
Siemens or Ericsson, this is because IRI-STET based their choice entirely on
nurelv economic considerations. And this is onlv one examvle. Mavhe Professor
iibonati could tell us aboui oiher reccnt cases whcrr IR1 hÿs behîkd in cx3cily
ihr .ame mlinner Fxed with important strïiegic chnicc~.
In ELSI'scïsr. ihe Iialian Governmeni. ior s lon- timc did no1inierfere ai al1
with 1Rl's decision to stand back.
The situation changed after ELSl's decision to cease its activity.
ELSI's desperate financial straits clearly indicated that only a large-scaleinter-
vention could avoid collapse with the consequent loss of more than 1,000lobs.
Since the Sicilian region had immediately laid down as a condition that any
further financial help on its part would he dependent on IR1 participation in the
rescue operation, the central Government now felt obliged to do ils best in order
to convince IR1 tn tep in.
Surely, if the Italian Government had really intended to have IR1 buy up the
ELSl plant cheaply, the easiestway to do so would have been to reject Raytheon's
desoerate reauest for funds and to leave ELSl to eo into hankru~tcv.
listead théGovernment's behaviour was quitethe opposite. 'lt immediately
declared itself ready to come to ELSl's aid and to seek a solution acceptable to
al1concerned.
Isn't this a strange attitudefor someone trying to take property for the benefit
". .....
Nor could it be claimed that the first step in this direction was the requisition
of the plant, which is alleged to have caused ELSI's hankruptcy and al1 the
ensnin~ -v-nts~
First of all, because, as already demonstrated, it was not the requisition which
caused ELSl's bankruptcy, since the Companyhad already heen insolvent for a
lone time.
Gcondly. the rrquisition was obviourly lusi an emergenc). rneasure ilikcn for
the purpose oiavoiding possiblcdisorders due io the dismissalof ELSl'semploy-
ees by ihe company'smanagement on the previous day. When the requisition
was ordered, al1the parties concerned considered it little more than a temporary
measure.
Its immediate effect was just to calm the workers, since it gave them the
assurance that their dismissalswereno longereffectiveand that their wages would
continue to he paid hy the region. This was important for them.
At the same time, negotiations for the public rescue of ELSI went ahead
without interruption even afterwards, and ELSl itself - as we have just heard
from Avvocato Caramam - let 19days go by before lodging an appeal against
the Mayor's order.
How little the requisition worried ELSi's management al that lime has now
been confirmed - perhaps not intentionally but certainly very clear-y by Mr.
Clare himself. After having described al1 the preparations for the company's
liquidation made from the beginningof March onwards, he added, as if this were
the most natural thing in the world:
"Later on when the plant had heen seized 1handed over to Oppenheim,
who was another Raytheon Vice-President,and he was going to run .. .the
activity of the orderly liquidation. 1w... then moved Io look at the other
nine or ten companies in Raytheon Europe, al1 of whom needed some
attention." (P. 51supra.)
No sign,as you can sec,of desperation; on the contrary, confidencethat ELSl's
orderlvliquidation would basicallvao on. notwithstanding the temporary measure206 ELETTRONICA SICULA
1 do not want to bore you with a repetition of al1 the more than generous
proposais for a solution put fonvard by the Italian authorities, both before and
after the requisition.
1 would just like to mention two of them, which in my view are parti-
cularly significant in showing the diiïerent attitudes of the Iwo Parties
concerned.
On 29 March 1968,Le., after Raytheon's decision to liquidate ELSI, but still
before the requisition, the Italian authorities begged Raytheon to reopen the
plant and notto sendthe dismissallettersas announced. In return the Government
would pay wages and shoulder most of the operating losses, until such time as a
public company could open negotiations with ELSl for the purchase or lease of
its assets. Raytheon refused (cf.minutes of a meeting of 29 March 1968hetween
Carbone, Clare, Oppenheim and Scopelliti, Ann. 15, Exhihit G, to the Memo-
rial, 1).
The same proposal was renewed to Raytheon one month later but Raytheon
again refused. This timeits acceptance would haveentailed the immediate revoca-
tion of the requisition order- which the Mayor of Palermo had in the meantime
issued - as well as the pledge of the ltalian authorities that, once productive
activity would have heen resumed, by means of a special management company
to be set up together with the Sicilian region and IR1 "everyhody, includingthe
region andIRI, shall be ready Io help Raytheon and in the meantime to liquidate
ELSl through a useful sale in the shortest possible time" (cf. memorandum of
20April 1968from the President of the Sicilianregion, Ann. 38 of the Memorial,
1; see also the minutes of the meeting in Palermo on 19-20April 1968,Ann. 37
to the Memorial, 1).
In an attempt to justify the undue intransigence of Raytheon, the Applicant
now claims that by means of this proposal, "after having requisitioned ELSl's
plant ... ltalian authorities pressured Raytheon to reopen ELSI at Raytheon's
own ... expense" (cf Memorial, 1,p. 55).
Nothing, MI. President, is further from the truth! The establishment of the
new operation company would have required not the paying-up of any new
capital on the part of Raytheon, but merely Raytheon's willingnessIo cover 40
percent - 40 per cent! of the probable operating losses, while the remaining
60 percent would be covered by the region and IRI.
Thus, one thing is certain. The impossibility of reaching an agreement
between al1 the interested parties was no1 the fault of the Italian authorities,
but of Raytheon. Raytheon was perfectly aware that the Italian authorities
would do everything possible to avoid ELSI's activities ceasing overnight,
leaving more than 800 employees johless. Taking advantage of this fact, il
continued to act as if the ELSl disaster was none of ils business, and as if it
was the duty of the Italian authorities Io save the company and to satisfy the
creditors!
And this is the company which now complains that in ltaly a private investor
is not permitted to run his business without constant interference on the part of
the State!
Thc Applicani cornpl;iin\ of an rndless scrier of nieeiings beii\.ccn K~ytheon's
top managenieni and Iialian poliiician>, hoth in Pdlernio ;inclin Komc. Juring
which the Iaiicr - ihe Ii~lian ride diil n<~ih-nrhui eo ironi succi ~romiies
to hard-line threats.
tirsi question: who apprw~cheduhom for Cundr'?Furtheriiiore. hou do poliri-
cians 311 u\.cr ihc world reüct when Füccdwiih the Jilcmma of eiiher h;i\ing io
pump public money into a private enterpnse or losing 1,000jobs in an area of
high unemployment? ARGUMENT OF PROFESSOR BONELL 207
Seen within this context, even the much-quoted memorandum of 20Apnl 1968
by the President of the Sicilianregion, MI. Carollo, losesmuch of its importance.
Indeed, when he stated that:
"Nobody in Italy shall purchase, that is ... IR1 shall not purchase . ..
the Region shall not purchase, private enterpnses shall not purchase .. .the
Region and IR1 and anyhody else who has any possihility to influence the
market will refuse .. .to favour any sale while the plant is closed",
he pronounced, perhaps somewhat undiplomatically, something quite obvious:
namely, that as President of the Sicilian region he could not view favourably the
closure of ELSl's plant, and he therefore simply refused to assist Raytheon in
implementing its liquidation plan, as long as Raytheon was not willing to adopt
a generally acceptable solution.
But also the other announcement, repeatedly quoted by the Applicant last
week that "in the event that the plant shall be kept closed ... the requisition
shall be maintained at least until the courts will have resolved the case. Months
shall go hy" - even this announcement, MI. President, cannot he considered a
threat at all, but merely represents a forecast of the likely course of a dispute
initiated by an order of the Mayor of Palenno over which an appeal was
hanging.
Moreover, it should not be overlooked that what I have quoted here is the
English translation of MI. Carollo's memorandum as prepared hy the Applicant.
In this translation the word "shall" is used- "Nobody in Italy shall purchase";
"the requisition shall be maintained", etc., - a word which for lawyers and
judges has the universal ring of a command or of an imperative. But MI. Carollo
wrote in Italian; and in Italian he said "will", he did not say "shall"; hc used
the future indicative only - "Nessuno in Italian comprerà"; "La requisizione
sarà mantenuta". Thus, from the original version of the memorandum, it results
even more clearly that, in reality, MI. Carollo was simply predicting and not
threatening.
By the way, one further thing which the Applicant deliberately chose not to
mention: as it is often the case with predictions, MI. Carollo was proved wrong,
since the requisition was lifted at the expiry of its initial six-month tem, while
the appeal was still before the Prefect.
On 13November 1968, the 1tali;in Government publicly announced that IR1
was willing to acquire the ELSl plant.
According to the Applicant this represented undue interference with the on-
going hankmptcy proceedings, in su far as this announcement allegedly discour-
aged other possible hidders from competing at later auctions (cf. 1, Memonal,
Ann. 29, Exhibit 4A).
Yet another totally unfounded allegation.
The announcement in question was made when it was clear that there was no
other wav out and for the sole ournose of reassurine ouhlic oninion in Palenno.
understandably exasperated after honths of waiting'for a solution to
the ELSl crisis.
There was ahsolutely no danger of discouraging other potential buyers from
biddine for the olant.
~hei~~lica; himself merely states that there had been "a few enquiries . ..
from al1 over the place" for single production lines (cf. p. 55, supra), without
even heing able to indicate one single case, MI. President - one single case! -
where a potential buyerwas actually prevented by the requisition from concluding
a deal.208 ELETTRONICA SICULA
The same can be said for the other alleged interference with the bankruptcy
proceedings, i.e., the lease of the ELSl plant to ELTEL for 18 months at the
~~-~nni~~ -~ A-~~~ -.~9.
When, at the request of the receiver, the bankruptcy judge authorized the lease
to ELTEL, two auctions had alreadv been held without even one sinde-bidder
showing up.
Ohviously at that time both the receiver and the majority of the creditors saw
the hopelessness and danger of continuing to wait for the miracle of someone
coming along willing ta buy the plant. They therefore did not hesitate to take
the chance offered by ELTEL to lease the plant for the time be-ngal1the more
so since the expected rental of 150million lire was Farfrom peanuts!
In this respect 1can only express my great surprise in hearing last week the
creditors' committee(cf. p. 18,supra).that the proposed lease was opposed by the
The creditors' committee didapprove the proposal and only Raytheon thought
that the lease represented a poor bargain, making the sale of the plant to third
parties impossible.
Yet, as pointed out by the Tribunal of Palenno, the lease, far from making the
sale of the plant impossible, actually made it easier since ELTEL was under an
obligation to maintain the plant in perfect working order and to carry out al1the
repairs and replacements due to normal Wearand tear (cf. Memorial, Ann. 64,
-,y. .4.-,.
If the reasoning of the Tribunal was so unacceptable, why did Raytheon's
usually so extremelydiligentcounsel fail to appeal the decision? Wedo not know.
And what does the Applicant itself have to say as a senous criticism of the
reasoning of the Tribunal?
Nothing, 1am afraid.
(b) The Price Paidfor ELSIS Plant Was Perfeclly Reasonoble under the
Circumstances
Let us now deal with the argument that the Italian Government, after discour-
a-in.-private bidders and boycotting the auctions, took ELSI's plant at an
unfairly low price.
It is a matter of fact that three of the auctions called by the bankruptcy judge
between January and July 1969 were completely unattended, and only at the
fourth auction held on 12July 1969,did ELTEL make a hid which was accepted
in the absence of anv other hidders.
This is what hapiened notwithstanding the extensive publicity given to each
of the four auctions in both the national and the most important international
foreign press.
And in this respect, 1would like to bring to the Court's attention the fact that
the Applicant, in order not to compromise its allegations completely, once again
has felt it necessary to play with the documentation: photocopies of a number
of the newspaper advertisements, which were attached to the 1974Claim (cf. II,
Exhibit III-19), no longer appear among the documents annexed to the present
claim!
Yet the Applicant goes even furtber in its allegations, by accusing ELTEL of
boycotting the first three auctions and seeking to unduly push down the pnce
(cf. Memorial, 1,pp. 86 et seq., Reply, II, p. 372).
In this respect 1simply want to Saythat 1personally have never heard of any
auction in bankruptcy where the bidders, instead of trying to pay the lowest
possible pnce, rush off to the auction to pay the highest price, or in any case, ARGUMENT OF PROFESSOR BONELL 209
the first asking price! Why then should ELTEL have done so? All the more so,
since,as repeatedly stressed, it was certainly not for economic considerations that
it ultimately decided to purchase the ailing Company.
On 12July 1969,a1the fourth auction, ELSI's plant and equipment, together
with part of the supplies, were put up for sale at the starting price of 3,200and
800 million lire respectively.ELTEL was the only bidder, and the whole lot was
adjudicated Io it at the total price of 4,006 billion lire.
According Io the Applicant this was a ridiculously low price: the ltalian
Government is accused of having IR1 purchase the ELSI assets "without paying
a freely market-determined price" (cf. Memorial, 1,pp. 62-63).
MI. President, distinguished Mernbersof the Court, let us be realistic and keep
the world of fantasy at bay! By this stage - we were at the fourth auction, after
the first three had been unattended! - to suppose that the sale of the plant could
take place according Io a "freely rnarkecdetermiiied price" was totally out of the
question: the issue is therefore no1to see whether ELTEL had purchased at less
than a fair market price, but rather, whether the price paid could be considered
reasonable under the circumstances!
To this end the iirst thing, obviously, is to establish the value of the property
in question.
Now the Applicant refers to an alleged "book value" of 12 billion lire (cf.
Memorial, 1, p. 97), but this is a totally unreliable and unrealistic figure.
First of all, because of the general considerations put fonvard bymy colleague,
Professor Libonati, on the unreliability of ELSI's balance sheet on 31 March
1968.
Secondly. il rcicrs, dpdri irom ihc pl:int and cquipmsni, to 811 ihc supplie\
cxisiing xi lh31 lime - 1mcùn ai 31 Mdrch 196s - u,hilc ihc rupplics sciually
dcuuircd h, CLTFI. in 196'). 31 llic ductiun. WK vsrv I~miid. M3~~ of ihcm
had heen Geviously sold off by the receiver.
And not even al1of what was left was put up for auction: in fact, the package
offered did no1include - contrary to the request put fonvard by ELTEL before
the auction - any raw materials or finished products, nor the semi-finished
products for semiconductors. In other words, quite a substantial part of the
supplies which were still on the premises was no1purchased by ELTEL!
If we want to be serious, only two estimates of the value of the assets can be
taken into consideration.
Firstly, the "quick-sale" value, worked out hy ELSI's management itself.
Secondly, thejudicial evaluation carned out by Engineer Puglisi inOctober 1968.
If we take either of these two estimates as a reference, the value of the assets
actually purchased by ELTEL basically corresponds to the price adjudicated at
the auction.
Details of the prices set in the various auctions and the way in which the final
figures were arrived at can be found in Our Counter-Memonal (cf. II, pp. 19 er
seq.).
What 1do want to stress here and now is that the price paid hy ELTEL at the
hankruptcy auction was perfectly reasonable.
And it is certainly interesting to note that in its 1974Claim Raytheon itself
openly admitted that the price paid by ELTEL was only 300,orat the most 500,
million lire less than what it anticipated in ils own liquidation plan (cf. Claim,
Counter-Memorial. Unnumhered Documents, pp. 233-234 [p. 721).A modest
difference - 1dare say - considering that ELTEL was purchasing at a fourth
bankruptcy auction, after three auctions had been unattended!
Much less understandable - Io put it lightly- is the fact that the Applicant
now claims tbat ELTEL should have paid a much higher so-called "free market210 ELETTRONICA SICULA
pnce". By doing so, the Applicant completely ignores that (a) ELTELwas not
purchasing a going concern on the market, but the remains of a bankrupt
Company at a bankruptcy auction and (6) not even under tbese circumstances
was someone else willing to buy.
And these are hardly minor points, would you not agree?212 ELETTRONICA SICULA
Docs. 37, 38 and 39), providing the payment of the full salaries. This is what
actuall, ha..ened and these salaries were oaid until 15 Seotember. or October.
ds I hdi,c noiv heen told, 1968.I 3poIogi7e i.)r no1 ha\,ing ihew ligurcs prect.ely
heforc me I uas referring to ihc <ioicrnnicnt'~ propor~l - and 3s 3 miit1:r ui
Lct ihcre one h.is io go hack in timc. becliuscthe Siciliün Iau hiid noi set heen
pdised hy ihc Sicilidnregiiindlparl~anicnt io the iinic at whiihii lia3 juii hecn
announccd chat thc region u.ould aiiiong oiher ihings protide ior ihs pqmeni
of ihe jdlïrier. But 1think perhaps ihc niosi important point is thxi <Ic,/<i<.rthc
requisition of course put an end to - the employmeni contract was ended by
the Company with the dismissal letter, although they should have notified this
dismissal in good time, according to the current trade union agreement. They
have not done this. But from the point of view of the Company the termination
of the ern.lo.ment contracts was effectiveat that ooint toeether with the reuuisi-
tidn. hui ihii ir jus3 JLCIO coincidencc On ihc one hand ihis prc\enied ihai
ihc plant xssuch could immediately besuld olrand on the oiher haiid IIpcrmiiied
the Mayor of Palermo to cal1the workers back and to urge the regional govern-
ment to present a bill in order to have the workers paid.This is, as far as 1can
remember now, the procedure followed on that occasion and, as 1said before, it
then went on the basis of a special Regional Act until the fall of 1968.
TheChamberrose at 1p.m Présents: woir audience du 13Il 89.1
DECLARATIO DE M. FERRARI BRAVO
AGENT ET CONSEIL DU GOUVZRNEMENT DE L'ITALIE
M. FERRARI BRAVO: Nous voulons seulementcompléter la réponse donnée
hierà la question poséepar M. Schwebel', réponse donnépear M. Bonell'. Nous
avons transmis au Greffe et, je crois comprendre, aussi à la Partie américaine,
deux pages3 qui ne sont rien d'autre que la récapitulation de cette réponse avec
la mention de documents pertinents: ces documents étanttous déjà produits, il
n'y a aucun document nouveau. C'est tout ceque je voulais dire.
Le PRÉSIDENT: Merci Monsieur Ferrari Bravo. Nous avons reçu il y a
quelques minutes la réponse qui a été préparé paer la délégationde I'ltalie; le
Greffe transmettra ce que vous appelez un «complément» à la délégationamé-
ricaine.
~ p
'Voirci-dessusp. 211.
Voirci-dessusp. 211-212.
'Voirci-après, correspondannD,77. PLAIDOIRIE DE M. CAPOTORTI
CONSEIL DU GOUVERNEENT DE L'LTALIE
M. CAPOTORTI: Monsieur le Président, Messieursles juges, qu'il me soit
permis de commencer par des motstout àfait semblables a ceuxque mes collègues
ont employésavant moi. En effet,je désireàmon tour souligner quel prixj'attache
au fait d'intervenir dans ces débats. C'est la première foisque je plaide devant
votre Cour et j'en suis extrêmementhonoré.
Les collèguesqui ont eu, avant moi, l'honneur d'exposer à cette Cour les
~ ~ ~ ~ ~ ~ ~ ~ ~ie dans I'afaire relativeàla société Elettronica Sicula(ELSI) ont
traitéessentiellementdeux points. Toutd'abord, M. Gaja a donnéles ràisons pour
lesquelles le recours doit ètre considérécomme irrecevable; ensuite, MM. Libo-
nati, Caramazza et Bonell, ont analysé la manièredont les faits se sont réel-
lement déroulés,surtout dans la période cruciale desannées1967, 1968, 1969.Ma
tâche consiste maintenant à aborder le troisièmepoint de la défense italienne,à
savoir la discussion du fondement juridique des prétentions que les Etats-Unis
font valoir contre l'Italie.
II s'agit, comme la Cour le sait, de prétentions fondéessur sept dispositions
des accords d'établissementen vigueur entre les deux pays, à savoir le traité
d'amitié.de commerce et de navieation du 2 février1948et l'accord su~plémen. .
t-iire du26 sepiemhre 1951.11s'jgi1, plus pr6ci\imcnt, qiiiint au prrmier iraitr',
des .irticlcr III. pa~igrüphcs I ci 2, V, p~r~gr:iphes2 el 3. et VII. p~rag~iphe 1.
ainsi aue du pararra~he I du orotocole. Pour ce qui est de l'accord supplémen-
taire, il s3agit'uniquekent des ;èglescontenues dans son article premier.
Toutefois, avant d'interpréterces dispositions conventionnelles, il convient de
résoudreune auestion de méthode: celle des critèresd'interorétation à adouter.
Dans 13prr'icnie all.iirc. la Pariic adterse a d&clnrqu'elle partage noire con~iï.
iion quant i I'applicabiliiedes critérc,ctahliq par Id convention dc Vienne sur le
droit des irailésdu 23 mai 1969.en s.ii roisCmr 113<rtilcr,o~iicmeseciiiln. En cl~ei.
e.~~-~.t~u~ ~incioe de non-rétroactivitéetablia I'article 4 de la convention. la
,urisprudcncc iniernationale, rur la hase d'une norme couiumi6re iniernaiionalc
~CnCralemenireconnue. a amplement admi, que lesreglcsd'intcrprCtation accucil-
Les par ladite convention co;respondent aux ~rincigs de droii international en
V~VIIPIIT
II y a lieu de citer textuellement, une nouvelle fois,la règlegénérale d'interpré-
tation établieDar l'article 31 dc la convention de Vienne. Elledispose, au para-
graphe 1, qui: «Un traité doit étre interprété debonne foi sÜivant le sens
ordinaire à attribuer aux termes du traitédans leur contexte et à la lumièrede
son objet et de son but. » IIest en outre important de rappeler, dans cette affaire,
la disposition de l'article 33,paragraphe 1 :
« Lorsqu'un traitéa étéauthentifiéen deux ou plusieurs langues, son texte
fait foi dans chacune de ces langues, à moins que le traiténe dispose ou que
les parties ne conviennent qu'en cas de divergence un texte déterminérem-
portera. »
Le paragraphe 3 de ce mémearticle préciseque: «Les termes d'un traitésont présumésavoir le mêmesens dans les divers textes authentiques)), mais le para-
graphe 4 ajoute que:
«Sauf le cas où un texte déterminél'emporte conformément au para-
graphe 1,lorsque la comparaison des textes authentiques fait apparaitre une
différencede sens que l'application des articles 31 et 32 ne permet pas
d'éliminer,on adoptera le sens qui, compte tenu de l'objet et du but du
traité, conciliele mieux ces textes.»
L'article31, paragraphe 1,précité confirmedonc le principe bienconnu d'après
lequel un traitédoit être interprété de bonne foi, et attribue une valeur détermi-
nante a deux aspects de chaque traité: en premier lieu, le sens ordinaire des
termes dans leur contexte; en deuxième lieu, l'objet et le but du traité. Ceci
équivautàdire que la méthoderesruelleet la méthodejoncrionnellesont préférées
à toute autre méthodelorsqu'il s'agit d'interpréterun traité. D'autresméthodes
possibles - telles que celle axéesur la recherche de l'intention des parties, qui
ressort notamment des travaux préparatoires, et celle qui attache une grande
valeuràl'évaluationdescirconstances dans lesquelleschaque traité a été concl -u
sont destinéesàjouer un r6le secondaire. A cet égard,il y a lieu de rappeler que
le délégué des Etats-Unisa,u coiirs de la conférencede Vienne sur le droit des
traités, et précisémentà la séanceplénièredu 19 avril 1968, avait fortement
critiquéle caractère secondaire attribué par le projet de convention aux deux
moyens mentionnéspar l'article 32 du texte actuel. En effet, cet article qualifie
les travaux préparatoires, ainsi que les circonstances dans lesquelles un traité a
été stipulé d,e ((moyenscomplémentairesd'interprétation».Toutefois, la majorité
des déléeationsa na.taaé-t soutenu I'orientation choisie Darla Commission du
droit inkrnational, lors de la rédactionde son projet de base, à savoir que la
volonté desEtats contractants doit êtrereconstituée àparrir du re-rred'unrroiré
et que toute recherche sur le processus d'élaborationdu traitémême,ou sur la
situation historique qui a entraînésa stipulation, a une valeur complémentaireet
peut mime devenir superflue.
* *
C'estsur la base de cesconsidérationsque nous avons déclaréd ,ans lesdéfenses
écrites italiennes,que nous ne pouvions pas partager la thèseénoncéepar nos
adversaires auant à la orétendue((intention f~n~ ~entalea des oar~~er cont-~~~~~
tantes du traitéde 1948; cette inlention aurait éié de stimuler la créationd'un
cadre favorable aux investissements. Mercredidernier, M. Gardner a remis cette
thèse: il a oarléde la nrésencede nombreuses rèalessoécifioueset inierdéoen-
daniei i,i.uni13protectiondes in\cstisumcnis r'trangeridans Ir.Irait?Jc 1948.régle.s
qu~rctlctcr~icniI'inlcnlionfundariicniïlc des Psrlics d'établiruncadre zuiccptible
d'encourager un climat favorable aux investissements. Nous avons néanmoins
deux objections à opposer à ce propos. La première estque l'interprètedoit se
fonder sur les termes du traité, sansy superposer une prétendue«intention des
parties». La deuxièmeest que lorsque l'on considèrel'objet et le but du traité
de 1948.tels qu'ilsrésultentde son contexte. ilest im~ossibled'ignorer lamul~iuli-
ciri cl lai.urr;r<des obje~.tifspoiirsui\is.L3 pr~lcciion des in~~itirsemcnts&ut
CireconiiJérr'ctout 3u plus comnle 1 rn de ces oh~ectiis.etnon pur cot,i»icIcprin-
cipol.
En réalitél.e ré am bu dle traitéaffirmenue I'ltalieet lesEtats-Unis désiraient
promou\uir des rclations plus ctroitcc cnlrc lcurs terriloires rcipectiissu moyen
de dispositi<inscorrcspondïnl ;ILIaspiraiions spirituelles. culiurcllcs, économi-
ques et commercialesde leurs peuples. Aucunementionnésrfuite de Iusauvegardedesinvesrissemenls;c'estce qui distingue ce préambule deceux des traitésanalo-
gues conclus entre 1951et 1962entre les Etats-Unis d'une part et certains pays
de I'Europeoccidentalede l'autre (nous faisonsallusionàla Grèce,au Danemark,
à l'Allemagne,aux Pays-Bas, à la Belgiqueet au Luxembourg). Li vous trouvez
partout cette mention de la protection des investissementsdans le préambule.Le
fait est que, dans le texte du traitéde 1948entre les Etats-Unis et l'Italie, les
problèmes relatifs à l'établissementsont abordés selon une approche tradition-
nelle. II s'ensuit qu'aux ressortissants des deux parties et aux sociétésayant la
nationalitéde I'unede ces parties est garantie une série d'avantages relatifsà la
oossibilitéde s'établirsur le territoire de l'autre . .tie oour vexercer des activités
de nature commerciale, industrielle, professionnelle, culturelle, scientifique, reli-
gieuseou philanthropique. Cela signifieque I'obietet le but du traitéde 1948,de
mêmeque le contenu de son libené,sont bien Plus vastes que ceux d'un traité
visant uniquemçnt la protection des investisscmenlset sont sans doute beaucoup
plus vastes aussi que l'objet et le but de I'accord complémentairede 1951entre
ces mêmesparties.
Le demandeur a toujours invoqué d'une manière globale certains articlesdu
traitéde 1948et le premier article de l'accord complémentaire de1951comme si
roules ces disposirionsjaisaienr parrie d'un seul textOn ne saurait toutefois
né-li-erla différencede oortéeaui existe entre ces deux documents et surtout on
nc duit pÿs oubher quc les partie, contrirriantc\ on jugénkcssmrJe stipuler ..n
dcuxir:meaccord Iraiilnsitpris Icpremier, parcc que Ici in\cstis,emcnti n'r'ixient
pas suffisamment protégés parle premier traité.On a donc bien là la preuve que
l'obiectifnrincinal du traitéde 1948n'étaitoas la orotection des investissements.
D'aheur;, le pkambule de l'accord supplémenlair!cdéclare explicitementque les
principes énoncésen 1948devaient être élargis.Le demandeur a manifestéà
plusieürs reprises une tendance à interpréter les dispositions contenues dans le
traitéde 1948 à la lumière des critèrespouvant être déduitsde l'accord de 1951
lequel est indiqué commele supplémentdu premier. Nous estimons que cette
méthode esterronéeparce qu'elleporte à interpréterlesdispositions du traité par
ra..ort au but d'un accord successif. alors aue celui-ci a entendu aiouter de
nnu\clles rtglcs ci non pas modiiicr 1;s dispo!itions dc I'ïccord prr:ir:&nt dans
Ikurcnscmhle. On pcut dirc auss~que ladite méthodeunitic artificicllcmentdcux
accords distincts ci uu'cllc conrlu~tle demandeur d6formcr les r?sullats qu'on
obtient en interprétant le contexte du traité de 1948dans son unitéet dans sa
globalité.
Cette dernière observation prend toute sa valeur si I'on tient compte d'une
négligenceextrèmement significativequi ressort des défenses écritesdu deman-
deur. Nous savons que le présent recoursa pour objet le traitement qu'ont reçu
en Italie deux sociétésaméricaines quéitaientdevenuesactionnaires d'une société
italienne et avaient fini par prendre le contrOle de cette dernière. II est donc
indispensable d'attribuer sa juste valeur à la disposition du traitéde 1948dans
laquelle sont indiques les critères d'appartenance des sociétés et des associa-
tions à chaque partie contractante. II s'agit plus précisémentde l'article II,
paragraphe 2, qui, vous le savez, établit que les sociétés etles associations
constituéesou ore-nisées auxtermes des lois el des rèelementsen vieueur dans
Ici tcrntuire>dc chaque hdutc partie contractante scronïconsidér~esc~mmcr'tant
des sociétés ct des associationsdi, lu<lihuuv parrip <.i>nira<.raC.epenrldnt.
alors que le demandeur prend acte que I'investisiementdont il est question a été
effectuépar les sociétés américainesRaytheon et Macblett par l'achat d'actions PLAIDOIRIE DE M. CAPOTORTI 217
de la sociétéELSI, il laisse dans l'ombre le fait que cette sociétéappartient à
l'Italie. Le demandeur a en fait orélëréraisonner le olus souvent ~~mme si I'ELSI
était une sociétéaméricaine, commse i la présenced'intérêtasméricainsdominants
dans la gestion de cette sociétéentraînait son appartenance juridique aux Etats-
Unis. En réalité.il aurait dû reconnaître aue I'ELSI. aux termes du traité. était
une société italienne, malgré que tous ses actionnaires étaient des ressortissants
américains.
II n'y a pas de doute qu'en vertu des dispositions du traité, notamment de
l'article II, paragraphe 2, la nationalitéd'une sociétou d'une association consti-
tuée aux termes des lois en vigueur dans le territoire d'une partie contractante
peut êtredifférentede celledes associés. Etc'est bien à cepropos quenous avons
citéle précédent représenté par l'arrêt rendu en1982 par la Cour suprême des
Etats-Unis dans I'affaireSumiromo c.Avigliuno. Dans cette affaire, on mettait en
question la nationalité de la société Sumitomo, constituée selon la loi de I'Etat
de New York, mais contrôlée par des actionnaires japonais. La Cour suprême
s'est rapportéeà l'article XXII, paragraphe 3, du traité d'amitié,de commerce et
de navigation entre les Etats-Unis et le Japon, et en a déduit que Sumitomo,
constituée selon laloi de I'Etat de New York, étaitune sociétéaméricaine et non
japonaise. C'est tout à fait le point qui nous intéresse.
Dans I'affairequi est actuellement soumise à cette Cour, il n'y a pas de doute
que I'ELSIconstituée en Italie en conformité avecles lois italiennes quelques
annéesavant que les sociétés Raytheon et Machlettne décidentd'y participer -
avait la nationalitéitalienne à l'époquedes événementsdont il s'agit. II faut bien
mettre au clair ce point, afin de préciserla véritablequestionsoulevée pur la
présentefiire. Elle se pose précisément ences termes: vu que les sociétés
Raytheon et Machlett ont fini par devenir les seuls actionnaires de I'ELSI, dans
quelles limites et contre quels comportements de I'Etat italien avaient-elles titre
à êtreprotégéespar les Etats-Unis en vertu des accords de 1948et 1951?
II est notoire que les cas où les actionnaires étrangersd'une société, etnon pas
la sociétéelle-même.sont exoresséinentorotéeésà l'écheloninternational entrai-
nent I'exigencede « lever le boile socia;>(lq&~~rhecorporateveil). Cependant,
cette manière de procéder esttout à fait exceptionnelle: elle doit êtreiustifiéepar
des circonstances spéciales, comme cette Cour l'a précisédans sa décisionsur
la fameuse affaire de la Barcelonl~Traction (C.I.J. Recueil 1970, arrêt,p. 39,
par. 58). Malgréles objections expiiméespar M. Gardner à cet égard,il convient
de mettre en évidenceque cet arrêta eu le mérite de faire ressortir clairement la
distinction entre les droits d'une sociétécommerciale etceux de ses actionnaires.
Rappelons que la Cour a soulignéI'importdnce de cette distinction mêmesur le
plan du droit international, en reconnaisssant que ce droit se réfèreaux règles
pertinentes de droit interne ((chaque fois que seposent des questions juridiques
relatives aux droits des Etats qui concernent le traitement des sociétéset des
actionnaires)) (C.I.J.Recueil 1970, arrét,p. 34, par. 38). La Cour a ajouté:
«mêmesi la sociétén'est autre chose qu'un moyen pour les actionnaires de
poursuivre leurs propres fins économiques,elle n'en possède pas moins, tant
qu'elle subsiste, une existence indépendanten (C.I.J. Recueil 1970, orrér,
p. 36,par. 45).
Deux conséauences découlentde ces enseienements de la Cour. et il faut en
tenir rigoureusement compte dans la présent&affaire. D'une part,'la possibilité
que les actionnaires soient protégés indépendammentde la sociétéà laquelle ils
auvartiennent suonose que ies disoositions d'un traité surleauel ils fondent leurs
ric'lamations le j>érmetientd'uni manière explicite et clai;e. D'autre part, les
comportements de I'Etat local, contre lesquels les actionnaires demandent une218 ELETTRONICA SICULA
protection, doivent posséderla caractéristique d'avoir été«dirigés contre les
droits propres des actionnaires en tant que tels» (Barcrlona Traction, C.I.J.
Recueil 1970. arrér. o.36. var. 47). Ce n'est au'à ces deux conditions aue les
actionnaires de I'ELS -I;e;t-à-diré lessociété~ sa~theonet ~achlett -airaient
pu bénéficierde la protection de leur Etat national contre I'ltalie en invoquant
les traitésd'établissementen vigueur entre ces deux oavs. Par contre, là où les
trditéhde 1948et ds 1951n'attrikuent par d'une laCùne*presseet sansamhiguïté
des droit, subjectifs aux actionnaires smkricÿins d'une cosiétCiialienne - ou
bien aux soc1klC fili~l~~de nati0nalllc italienne -le hénéficede 13 riroicction des
Etats-Unis vis-à-vis de I'ltalie ne saurait vas être accorde.
Cela limite cvidemmcnt - ou conduit 6 n'admeiire que dans des limiies xswz
rrstrcinics - la pu~sihilitépour un actionnaire de tirer des droits suhjeciiis du
traitédi. 1948ou de I'acs~~rd \upplcmentairc dr 1951 D'après M. Gardner. cetir
tntcrprci~iion seiaii alihuidc (~i-dcrru 1).113) Toui au ciinir~ire. elle es1la seule
inicrprét:ition accvptahle [.a plup:iri des disposiiiuns du traite et dc l'accord
complémentairene font pasdedistinction entre le casd'une participationmajori-
taire et celui de la oarticioation d'une minorité. Si une orotection svécialedevait
Ciredoiince iiunes;iri>tc ~ialicniieen rairon de ILIpresencr.parmi sesaciiunnaircs.
Je ressùr1iss;iritsder Ftais.Unis. n'importc quelle s~ciéti iialiennc deiicndrjit
l'objet de ladite protection et cela parfois sans que les autorités italiennes le
sachent. IIsufit de considéreràcet ée-rdla raoiditéde la circulation desactions.
On pr.ui dire que 13plup3rt desiocictcs it;iIicnnesjouir~ieni d'une telle proteiiioii
sur lx hacedes ;iccords airi. le, Fi3ts-Unis. \'<iicc qui est absurde
La solution oroooséeDar le demandeur estd'autaniolus inacceotableau'il n'v
a pasderèglesde &oit iiaiien qui imposent aux investisseursétrangersla constitu'.
tion de sociétésaffiliéeslocales. Elles sont établiesen raison de l'intérêtécono-
mique et fiscal des investisseurs etpar leur libre choix.
M. Gardner nous a dit aue: «Foreien investment in locallv incoroorated
subsidiaries u.2,protc~.tedin i918 and ili;proiccted today. » lh;i.,En principe.
(in nc .aur31t contc.>tercette iifirntation.Mai\ on ne puLrrui pas en tira ans
rr:glegcnCralevi3:ini13protection dessociétcsit~licnncscn Ii.ilie par Ictruchement
de I:tpr<)te~tionprétendument.iccordée,mCmî :içei càÿrd. aux reasoriiss.intsdei
Etal\-Cni, qi11en sdient le, :i~~tionn;lires.
II nous semble opportun à présent d'analyserune par une les prétentions
avancéespar le demandeur contre I'Etat italien, qui est accusede ne pas s'être
acquitte de certaines obligations établiespar le traité de 1948et par raccord
complémentaire de 1951. Mêmesi ces prétentions ont parfois pour objet la
orétendueviolation simultanée deolusieurs disoositions. nous estimonsaue notre
dn~l!se doit Cireetlectukeau reg;i;d de chaque disposit;un; et ceci surioui parce
que la nianiéredont chaque articlea kiéconCuet redigk a uneimportsnce décisitc
lorsqu'il s'agit dr l'intcr~réter en vue d'kvaluer s'il donne lieu cteniuellcmentà
des droits subjectifs dei actionnaires. IIest superliu de répéterde quoi il est
question ici. C'est en fait du droit des actionnaires ainsi quedes sociétéslocales
affiliéesd'êtreprotégéspar les accords précités.Et à M. Gardner. qui nous a
revrochéd'avoir constamment méconnule droit des sociétés affiliéeistaliennes
d'ktre protégées par le traité(ci-dessusp.98), nous répondonsquenotre manière
de procéderconsisteplutôt à analyser la situation article par article; la protection
des sociétés affiliées italiennes est prévue par certains articles mais non par
d'autres. PLAIDOIRIE DE M. CAPOTORTI 219
Ledemandeur reproche tout d'abord au défendeurd'avoir enfreint l'article III,
paragraphes I et 2, du traité de 1948,par une ingérencedans la direction et le
contràle de I'ELSI.Ceci se serait produit àcause de: a) I'ordonnance de réquisi-
tion; b) le retard mis par le préfetde Palerme àse prononcer sur le recours formé
contre la réauisition: cJ l'occuoation de la fabrique de I'ELSI de la Dart des
travailleurs;2) I'orieitaiion donnéeà la procédure defaillite, qui aurait avantagé
I'Etat italien, ou plutôt I'ELTEL.
Les ooints im~ortants de l'article récité finurent à la vhrase finale du vara-
graphe' 1 et au paragraphe 2 tout eniier. Je ni veux pas Gousennuyer en citant
ce texte assez long et compliqué,mais la Cour le connaît; bien entendu, elle a
sous les yeux les articles des deux traités.
En substance. var l'effetde l'article 111.les sociétés italiennesdont font oartie
Jss soci2tei :imc'rirliinc\(ou qui ion1conir6lr;es pu cllesi onIdjucult;de remplir
Ir.\ioncti<>n,cil vue tlesqiiellei elle, oni eie ~oiisiituccsuu orgrniree\ cginitirme-
ment .,1.1101i~alicnnr..en i.?uisr;inidu trÿitciiicnl de I:Iii:iIdoplu, idvoriiv.
ainsi aue de lafacultéd'exerceren Italie leurs activités commerciales, industrielles,
philarhhropiq;es, religieuses, etc..enjouissant du traitement national. Quant aux
sociétés américaines,ellesont la faculté d'organiser, decontrôler et de diriger des
sociétésitaliennes en Italie, conformément à la loi italienne.
Selon le libellédes deux dispositions, la violation de l'article III du traitéde
1948 supposerait que I'Etat italien ait empêchéla sociétéELSI d'exercer ses
fonctions conformément aux lois italiennes, c'est-à-dire d'exercerses activités
commerciales et industrielles en se conformant à ces lois et, ce faisant, qu'il n'ait
pas respecté les standards de traitement prévus. La violation de l'article 111
supposerait, d'autre part, que l'Italie ait imposédes restrictions aux activités
normalement liéesà l'organisation, à l'institution du contrôle et à la prise de la
direction des sociétés auxquellesparticipent des actionnaires américains. Mais
l'Ela1italien n'a commis aucune violation de cegenre; et cedont la partie adverse
l'accuse (à tort, en tout cas), c'est de s'être ingérdéans la direction et dans le
contrôle de la sociétéELSI à un moment postérieur à l'époqueoù cette société
avait été organisée (et en effet notre adversaire ne reproche pas à l'Italie d'avoir
entravé l'organisation de I'ELSI).
Une telleaccusation suppose que la facultédediriger et de contrôler une société
soit détachée de la facultéde l'organiser et soit entendue comme l'équivalent
d'une garantie que la société puissecontinuer de gérer ses affaires sans être
aucunement perturbée.
Nous sommes tout à fait contraires à cette interprétation. A notre avis, I'ar-
ticle 111n'accorde pas une liberté totalede diriger ou de contrôler des sociétés
tellesque I'ELSIdans leur vie quotidienne; il ne prévoitpas une garantie absolue
contre toute ingérencedes autorités. M. Gardner a vu dans l'article III la source
d'une obligation de l'Italie de protéger les sociétésdes Etats-Unis de toute
interférencedans leur direction et dans leur contrôle. Nous repoussons ce point
de vue, qui ne correspond pas au texte de l'article III. L'ELSI a certainement
joui de la facultéd'exercerles fonctions en vue desquelles elleavait étéconstituée,
ainsi que de celle d'exercer ses activitéssur le territoire italien. A leur tour, les
actionnaires américains de I'ELSIont certainement joui de la facultéde l'organi-
ser, de la contrôler et de la diriger. 1,'exercicede cette facultén'a pas été empêché
par la réquisition temporairede l'usine. Bref, le libelléde l'article III n'étaiepas
la premièrecontestation élevée par le demandeur.
Pour s'enconvaincre, il suffitde comparer cet article avec l'article1de l'accord
su~olémentaire de 1951: seule cette dernière dis~osition interdit d'une facon
expiesse d'empêcherle contrôle effectifet l'administration des entreprises queles
ressortissants de chaque partie contractante ont eu l'autorisation d'acquérir,lorsque cet empèchementest le résultat demesuresarbitraires ou discriminatoires.
Cet aspect seratraitéplus loin. Pour l'instant, nous nous bornonsà signalerla ten-
tative de la part du demandeur de confondre l'articleIII du traitéavec l'article1
de l'accord supplémentaire,en dépitde la différencetextuelleentre ces règles,et
de la circonstance qu'ellesfigurent dans le cadre des deux contextes différents.
* *
II v a d'autres asnects de l'article III sur lesauels nous souhaitons attirer
l'attention de cette cour. Nous avons dit plus hait que le paragraphe 2 impose
le traitement national en faveur des sociétés italiennes contràlésar des sociétés
américaines, etque le traitement national est l'un des deux principes sur lesquels
se fonde le traitéde 1948,comme il ressort de son préambule(l'autre principe
étant celui du traitement du pays le plus favorise). Un traitement équivalent à
celui qui est accordéaux resssortissants comprend évidemmentle respect des
obligations imposéesà ces derniers. D'autre part, tant le paragraphe I que le
paragraphe 2, là où ils assurent aux sociétéscontràléespar des ressortissants ou
des sociétés de l'autre partiecontractante la faculté d'exercer leurs fonctions et
leurs activitéssur le territoire où elles ont été constituéesa,joutent la condition
«conformément aux lois et règlementsen vigueur)) (en vigueur, bien entendu,
dans ce territoire). II nous semble que cette formule confirme et renforce le
principe de l'assujettissement des sociétésprécitéeà la loilocale, dont découlent
non seulement des droits, mais aussi des devoirs.
Nous souhaitons nous attarder brièvementsur ce point. La circonstance princi-
pale sur laquelle ledemandeur fonde sescontestations consistedans I'ordonnance
de réquisitionprise par le maire de Palerme le 1" avril 1968.Cette ordonnance
dont M. Caramazza a parlé hier,a étéprise en effet aux termes de la loi no2248
du 20 mars 1865,annexe E, article 7. Le maire qui a décrété la réquisition était
dûment habilité à prendre une telle mesure puisque cette loi autorise les autorités
administratives àdisposer de la propriétéprivéeen cas de grave nécessitépublique
et d'urgence. La motivation de I'ordonnance de réquisitiona exposéles raisons
pour lesquelles cette mesure avait étéprise, à savoir: la réactionde l'opinion
publique àla décisionde I'ELSIde mettre finàsesactivités et delicencierpresque
un millier de salariés: les erèves décidées var les svndicats: le nréiudiceoour
l'économie sicilienne;1'intéÏê mtontré par la presse; ie risquede Îroibler 1'8rdre
public. En conclusion et vu que les facultés reconnuesà I'ELSI par l'article III,
paragraphes 1 et 2, étaientsoumises à la condition de la conforhité aux lois et
rcplcmcntj cn vigucur en Italie. CLYI aurilit suIliiexclure que Ir swiéiépuissc
Ctrec.~onCrce dc 1'3pplicaiionde mesurcsimphiivcs- tcllcsque la riquisiiio-
nuiori$éesen règlegéneralcpar la 101locale.
La Partie adversecomme& par déformerla portéede I'ordonnancede réquisi-
tion, en affirmant qu'elle avait une finalitébien différente de sonbut déclaré;
la finalitéde faire obstacle à la liquidation volontaire de I'ELSI. Quant à l'effet
de la réquisitiondans le temps, la Partie adverse se fonde sur la déclarationde
M. Carollo, le présidentde la régionsicilienne, pour accréditer la thèse qu'il
s'agissait d'une réquisitionsans limites de temps. Elle oublie de considérerque
I'ordonnance avait fixé une limitede six mois, susceptible d'êtreprolongéeau
ksoin et qu'il n'y a eu en réaliiéaucuneprolongarion. En outre la Partie adverse
objecte que la réquisitiona été ensuite déclaré ilelégaleet annulée parle préfet
de Palerme et que cette décision serait denature à exclure la conformitéde cette
mesure à la loi italienne.
II y a lieu de faire trois observations à ce sujet. En premier lieu, le préfetde
Palerme lui-même,dans la décision précités eur le recours de I'ELSI, a déclaré PLAIDOIRIE DE M. CAPOTORT1 221
que la compétencedu maire de disposer de la propriétéprivéeen vertu de la loi
no 2248 du 20 mars 1865(annexe E. art. 71ne n,uvai. nas êt.em~ ~ en doute.
En Jcuxitnic IICUI,Ie\t Cvidcn~que, jusqu'au m<irncnrou est surbcnue Iïd:.r'is~on
d'annul31iuii Ju ric l'ordonnance de r>quisition devait Cire coniiiicrr':
ci~nidrmc i la loi. Cntin. I'.iriiclcIII dit irait> ie ;irar~ntir aux iuci>~cscn
quesiion deux i.iculi2sd'agir,i c\~nJitidnqu'cllcr rerwcicnt Ici obligation\ irnp<r-
\Cc<piir la loi italienne (dont I'oblip3iionginCrale d,c sounictirç d d'é\cntucllc,
ordonnances de réquisition). Cet articleconfirme ainsi que lesdites sociétéssont
assujetties à la loi en vigueur dans le territoire italien; il ne traite pas le problème
de la validitéou non des actes pris par les autoritésadministratives locales.
En quoi consiste alors la pretendue violation, de la part de I'Etat italien, de
I'articleIII, paragraphes 1 et 2, du traitéde 1948?Nous pensons avoir démontré
aue ces disoositions n'entrainent nullement l'oblieation nour les autorités ita-
liennes de s'abstenir de toute ingérencedans le contrôle ei la gestion de I'ELSI:
leur contenu estdifférent.Permettez-moi de rappeler à ce propos que les disposi-
tions dont on peut déduire une protection indirecte dei actionnaires, vu~leur
nature exceptionnelle, doivent être interprétéea su senssrricr. D'autre part, vu
que la réquisitiona eu pour effet de rendre l'usine et les équipementsde I'ELSI
indisponibles pendant six mois, il semble évident qu'elle n'a pas mis fin aux
facultésgaranties par l'article III di1traité.
Quant au problèmede la mise en faillite, permettez-moi d'insister sur un point
qui est d'une grande importance. Le demandeur a présentéde nombreux effets
de la mise en faillite comme étant des effets de la réquisition; il a ainsi décrit
certains événements quise sont produits par suite de la procédure de faillite
(engagéeà sa demande et rendue inévitablepar la crise financière de I'ELSI),
comme étantimputables à I'Etat italien. La méthodesuivie par la Partie adverse
ressort de sa description de la manière dont l'Italie a prétendument enfreint
I'article III du traité de 1948: cette violation aurait consisté, nous I'avonsdit
maintes fois, dans l'ingérencede I'Etat italien dans la direction et le contrôle de
I'ELSI. En réalité,c'est la faillite en soi qui a privé I'ELSI définitivemendte la
direction et du contrôle de ses installations en les transférant au syndic.
Pour conclure le chapitre relatif à I'article III, nous réfutons la thèsedu
demandeur selon laquelle cette disposition comporterait un standard minimum
de orotection des investissements. selon le droit international eénéral.Nous
iomnici coniainïui que Icdroit iniernÿiiondi gCn>r.iln'assure Jucune pri~teciion
suppl2menuirc ;lux iniesiisseur~ psr rapporti celle qui eii accordcc par le dr<~ir
cun\intionncl ou mr le ilroii n.itional. dc ï~ii, I'ariiclc II1 prccitL!ne prctuii
aucune orotectionsuoolémentaire de ce eenre. A notre avis.la reelementation
prévueI;ar les accordS'd'établissementestentièrement indépendante de la régle-
mentation coutumière sur le traitement des investisseurs étrangers.
Une deuxièmecontestation que notre adversaire a formuléecontre I'ltalie se
fondesur I'articleV, paragraphe 2, du traitéde 1948; ce paragraphe est complété
par la disposition du point 1du protocole.
La Cour en connaît le texte; qu'il me soit donc permis de ne pas le citer.
Néanmoins, il y a lieu de faire observer qu'à l'expression du texte italien du
protocole : sieslenderanno ai diritrich(seront étenduesau droit que), correspond,
dans le texte anglais du protocole, la phrase222 ELETTRONICA SICULA
~shall extend io interesis hcld dircrtlg or indirecilg by nation~ls,corpordiions
and associations ofeiiher lliah Conirïctiny Party in ~)rooertvwhich is iaken
within the territories of the Gther High Cintraciing Pariy »..
En se basant sur l'ensemblede ces dispositions, la Partie adverse soutient que
lesautoritésitaliennes ont expropriéles biensde I'ELSIsans payer uneindemnité,
en violant I'article V, paragraphe 2, du traité,et le point I du protocole qui le
complète.
A notre avis, le problème principal dont on doit discuter à ce propos est le
suivant: est-il oossible ou imoossible d'inclure dans la notion d'exoro~riation la
r~quisitiondes biens de I'lil.SI tellequ'elletc dirretCc pïr lemairc dc Pslerme !
Celte question est lice 3 cclle de I'interprktation de I'lirticV. paragraphe 2.
du traité,et du ooint 1du orotocoie. vu notamment que le texte italien ne corres-
pond pas ici au texte anglais. II conviendra aussi d'analyser par la suite la qucs-
tion de l'indemnitéverséepar l'Italie pour la réquisition subie par la société
ELSI.
A titre préliminaire,et compte tenu de l'opinion exprimée mercredi dernierpar
M. Gardner, il nous parait très important de souligner un point: la défense
italienne est fermement convaincue qu'elle a le droit de se/onder sur le rexte
italiendes dispositions précitées.N'oublions pas qu'à I'article XXVll du traité
d'amitié, de commerce et de navigation entre l'Italie et les Etats-Unis il a été
préciséque le traitéa été faiten double exemplaire, dans les langues italienne et
anglaise, les deux étantégalementauthentiques. La mêmeformule apparaît sous
I'article IX du traité supplémentaire de 1951. D'autre part, au début de cette
plaidoirie, nous avons citéI'article 33 de la convention de Vienne en matière
d'interprétation des traités authentifiésdans deux langues. On se souviendra que
le principe devant être appliquéest que le traité «fait foi dans chacune de ces
langues» (art. 33, par. 1).Toutefois,
<<lorsquela comparaison de5 icrtcr auihcniiques faii appsrailrc une difi.
rence de sens que I'a~olicaiiondes ariiclcs 31et 32ne oermei pas d'éliminer.
on adoptera le.sens Gi, compte tenu de l'objet et dubut dutraité, concilie
le mieux ces textes».
M. Gardner nous a expliqué, mercredi dernier,que certaines dispositions du
traitéde 1948avaient étérédieée-et néeociéesen anelais et traduites en italien
pïr II suite (ci-Jcsius p. 103). 11a esi~niédonc que ce, circon,iün~.esautorisent
I'inierpréiex cunsidCrcr Ic tertr mglai coninie prédoniinant el décisifen cas iIc
doute: Cette thèse n'esl pas seulement surprenante, elle est étonnante, venant
d'un juriste de l'envergure de M. Gardner. Je viens de citer I'article 33 de la
convention de Vienne. Maisj'ajoute que, dèsl'époquede l'affairedes Concessions
Mavrommatisen Palestine- c'est-à-dire dèsle 30 aoGt 1924 - la Cour perma-
nente de Justice internationale avait mis au clair au'en nrésencede deux textes
d'égaleautorité, mais I'unsemblant avoir une port6e plu; étendueque l'autre, la
Cour même ale devoir d'adopter l'interprétation plus restrictive, qui peut se
concilier avec I'un et l'autre des textes en~question;~enefïet, dans ceite mesure,
l'interprétation plus restreinte correspond sans aucun doute à l'intention com-
mune des parties.
Cherchons maintenant à résoudre le problème principal du cas d'espèce. II
nous semble évidentque l'ordonnance du maire de Palerme, si elle est interprétée
de bonne foi, s'avère êtreune mesure ayant un effet différent des effets de
l'expropriation. Cette ordonnance décrétait«la réquisition avecefïet immédiat
et pour une duréede six mois, prolongeable au besoin)) de l'usineet des équipe-
ments de I'ELSI.Or l'effetd'une réquisitiontemporaire consiste dans l'attributionà l'autorité de l'usage des biens réquisitionnés,pour une périodedéterminée, et
non pas dansle transfert à cette mêmeautorité de la propriétéde cesbiens.
D'autre part, nous avonsdéjàeu l'occasion de faire observerque la disposition
sur laquellesefonde l'ordonnance de réquisitionest l'article7 de l'annexe E de la
loi no2248de 1865,qui autorise lesautoritésadministratives à disposersansdélai
de la propriétéprivéeen cas de grave nécessité publique; par contre, la loi qui
autorise I'expropriation à des fins d'utilité publique est, en Italie, la loi no 2359
du 25 juin 1865: une autre loi donc. Le libelléde l'ordonnance du maire de Pa-
lerme précitée ne peut étreinterprétéqu'à la lumière du système des sourcesdu
droit italien. Or, le principe selori lequel le respect ou la violation des règlesde
droit international ne saurait etre influencéDar l'état du droit interne de I'Etat
obligé- un principe que M Ciirdner .I Cl':~mabiliiéde nous riippcler (ci.dcs\us
p I Ili- n'a rien iifa~rc*\CC cetlc qucsli<)nd'inlcrprétaiion du tcxle d'un acic
intcrnc dc I'Eiat italien. L;i concliision csi donc uni\,oquc dans I'alïaire cn cause,
iln'. a .as eu une ex~. .riation des biens de la sociétéELSl
J'3joutc que. mémcsi notre raisonnement SCiondaii sur Id notian de .<taking
ofpropcrty.8 qui figure dans lc tc\ic anglai113 placedu icrmc icspropriïj!irincr,
une réquisition temporaire ne saurait étreidentifiée purementet simplement avec
le « taking of propertyn; il faut tout au moins qualifier cette notion. D'après
Rosalyn Higgins, qui s'est occupée spécifiquemend te ce sujet dansun cours qui
s'était tenu en 1982 à l'Académie de droit international de La Haye, les formes
de contrOle ternooraire exercéesnar les autoritéssur la oro~riétévrivéerelèvent
de Is noiiijn Jc'<<indircci taking;, (di.p~>r~esst~ntrcr;~,.hors ju'un iéritable
* txking 8~mpliqueun degréd'ingL:rcnccdans la propriéléqui c\çlut fondamenia-
lementSon retour au propriétaire.
M. Caramaua nous a raooeléhier aue la oratiaue américaineconnait bien le
ph6notiénedela deeonirOlc d'étahlisscmcnisindustriels. II nc nousiniércssc
pss de comparer les précédents de cctic pratique avcc 1'3llliirc cn cause. II nous
suAt Jc soulinncr uue I'hvnothé,e Je 13orisc de contr8lc d'r:i~blisscnicnis indus-
triels pour deTcaucesde ;&essité publi&e n'est pasdu tout inconnue aux Etats-
Unis.
De toute manière, la Cour me permettra de faire observer que les références
au thème du «taking of propertyn ne signifient pas que la défenseitalienne a
accepté,ou jugénormal, de se basersur le texte anglais du traité de 1948.11est
hors de doute pour nous qu'il faut tenir compte et du texte anglais et du texte
italien. Faceà une possibilitéde divergenceentre lesdeux textes,la seulesolution
que nous pouvons suggérerest celle qui est indiquée à l'article 33, paragraphe 4,
précitéde la convention de Vienrie, à savoir, l'adoption d'un senssusceptiblede
concilier les deux textes. Or,ilnous semble qu'une comparaison entre le terme
~espropriazionen et l'expression «taking of property ». qui figurent respective-
ment dans les deux versions de l'article V, paragraphe 2, du traité, doit aboutir
à la conclusion que le noyau commun aux deux terminologies est le concept de
privation définitive des biens. Point n'est besoin d'ajouter qu'une solution de ce
genre confirmerait la non-applicabilité de la disposition précitéeà la réquisition
temporaire dont ilest ici question.
I I *
Nous avons jusqu'ici laisséde c6téla question décisivede l'existence ou non
dedroits desocrionnaires encasd'expro~riation desbiensdeI'ELSI. La protection
assuréeDar l'articleV...arae-.~he 2. du traité seborneen soi àcouvrir les biens
dessociit2r dc chaquc pariic coniracianic sur Ic ierritoire dc l'autre. En princip.
les bicns de I'EI.SI. compte tenu dc la nstionaliic iialicnnc iIe cetic suciéiL:,nc224 ELETTRONICA SlCULA
jouissaient pas de la protection du traité à l'égard de mesures décidéep sar les
autoritésitaliennes. C'est ooursuoi I'alléaationselon laquelle la disoosition réc ci-
tk aurail eu pour eRci dcproiiger Icsdroits des actionkiirei amé;icaini nf pcui
étrciiayécque par le point I du proiocole annex; au iraité.Nous avons dcji \u
quz ac point >tend l'application des Ji\positions du p;ir.iyra-~c 2 de l'article V,
qui prévoientle d'une indemdté:
«aux droits aue des ressortissants ou des sociétés et associations de Vunedes
Hxuics P~riiescontractanies po\$Jeni directcmeni ou iiiilirccicmcni iur des
biens qui \ont enproprics a I'intïrieur des territoires Je l'autre H;iuic Psriic
Dans le texte anglais du protocole, les dispositions de l'article V, paragraphe 2,
s'étendent
« 10 interests held directly or indirectly by nationals,corporations and associ-
ations of either High Contracting Party in property which is taken within
the territories of the other High Contracting Party ».
C'estàcepropos que sepose de nouveau le problèmedu défautde concordance
entre les deux versions du traité: dans I'une, il est fait mention des droits
(a diritt»). dans I'autre des « interests »: dans I'une.des biens qui sont ex~ro~riés.
. .
ian, l'au& dc la apropert) which ii ldken *. roini n'zsi besoi n e répéter toutes
lesobscr\,ations qui ,in1déjàCtciiniplzmcnt développiessur 1.1 coniparai.x>nenire
13nolitln J'e~pronriiition et celledc <<takin~of pronerivu. IIrcsic iiïpprofondir
le .rohlème déla'd~ ~ére~cede~s~ns entre les droits'et ~e~ intérêts
Ir demandeur tend i considersr ccs deux icrmcs somme des synon)nic: il
~mblc donc dispos> i parler de <<indirectrighis 8,(le iexte dit «interests 38dcs
actionnaires siir les bicns de I'EI.SI. hlaij le Nit csi rurtoui uuc les ïciionnaires
ne sont titulaires de droits qu'à l'égardde la société et n'ontaucun droit sur les
biens de la société.Ceci est certain en droit italien, mais égalementen droit
international, dans la mesure où celui-ci accueille les notions fondamentales du
droit interne en matière de sociétésN . ous avons déjà ditque la valeur internatio-
nale de la distinction entre les droits d'une société etceux de ses actionnaires est
confirmée parl'arrètde cette Cour dans l'affairede la BorcelonaTrocrion(C.I.J.
Recueil 1970, p. 34, par. 41). On ne peut donc pas parler de droits indirects des
actionnaires sur les biens de la sociétéà laquelle ils appartiennent.
De plus, il faut relever qu'un autre problème se pose sur le plan de I'interpré-
talion. Le point I du protocole prévoit l'extension des«dispositions du para-
eraohe 2 de l'article V aui orévoient le oaiement d'une indemnité». Mais de
&~eiiesdispositions s'agi;-il éxactement? ie demandeur semble êtreconvaincu
qu'elles comprennent toutes les règles portant sur des conditions relatives à
l'ex~rooriation des biens. Nous avons toutefois de bonnes raisons de refuser une
interprétation aussi large. En réalité, l'articlV, paragraphe 2, prévoiten premier
lieu l'obligation de paiement d'une indemnitépour les biens expropriés, mais il
prévoit aussi, en deuxième lieu, en faveur de «ceux qui recevront une telle
indemnité». la faculté de retirer cette indemnitésans ineérences.en obtenant des
devises étrangèresdans la monnaie de I'autre partie co-ntractante. Evidemment,
ce sont des dispositions concernant le paiement d'une indemnité: elles sont
étenduesen vertu du point I du protocole.
11ressort donc de la lecture intégralede l'article V, paragraphe 2, ainsi que du
protocole, qu'en définitivecelui-ci ne peut pas êtreinterprété commela source
de prétendus droits indirects des actionnaires sur les biens de la sociétéà laquelle
ils appartiennent. Le protocole étenden fait le régime privilégié des indemnités
àtous lessujets - ressortissants, societéset associations de chaquepartie contrac- tante - qui possèdent mêmeindirectement des droits sur les biens expropriés
à l'intérieurdu territoire de l'autre partie contractante. Ces sujets peuvent com-
nrendre les titulaires de droits réels nartiels. tels aue l'usurruit~ ou bien les
zrcancicrs inunis Jc garsntics iellci que I'h)poihCque. Si l'on voulait inclure d:in,
cette mémecatégoriele, :iciionnxircs Jcs s~it2iL:s.il inuilril~tpeut-Etre prr:\rciI
droits que ces actionnaires sont en mesure d'avancer aorès,a li~uidation de la
sociétéen question. On ne peut cependant pas estimer 4u'en vertu du protocole
lesdroits attribués par l'articleparagraphe2, aux sociétésaméricaineséventuel-
lement expropriéesen Italie puissent êtreétendus aux actionnaires américainsdes
sociétés italiennes soumisesà leur contrôle. En d'autres termes, le point 1 du
protocole n'est pas l'une des règlesdestinées à lever, à titre exceptionnel, le voile
social de 12ELSL
Ce n'est qu'à titre incident que nous traiterons brièvement du problème des
conditions établiesoar I'article V..oar-.ranhe 2.du traitéoour aue les biens des
rosoriissdnis ci des ~0~1~1;~ el dsioiialltlns d'ilne pïrtic cuntm'~Iüntr~puissent
?ire e\propriCs a I'inttricur JJ ierritoire de I'diitrcpartie. ir;<iurpcnwns. cil enét,
avoir démontréque: a) il n'y a pas eu d'expropriation, mais une réquisition
temporaire; b) les biens réquisitionnésappartenaient à la société italienneELSI
et ne pouvaient donc pas étre«protégés»dans le cadre d'une réclamationdes
Etats-Unis contre I'Etat italienc) les sociétéRaytheon et Machlett n'ont jamais
étéles titulaires indirects d'un dn~it de propriété surles biens de I'ELSI. Cela
étant, et en admettant donc, à titre de simple hypothèse, que l'article V, para-
graphe 2, puisse êtreapplicable à l'affaire en cause, nous désirons précisertout
d'abord que la condition de la procédure conforme au droit (dueprocess of law)
a étéresoectee dans la réauisitiondes biens de I'ELSI.
En réalité,l'ordonnance de réquisition du maire de Palerme faisait mention
des nonnes juridiques sur lesquelleselle étaitfondéeet justifiait la prise de cette
mesure dans une motivation detaillée.Lesmesures postérieuresà la réquisition -
notamment la nomination despersonnes auxquelles l'usine a étéconfiée - étaient
également conformes au droit. Cette conformitéa été reconnueà l'occasion du
recours formécontre l'ordonnance précitéepar la société réquisitionnédeevant
le préfet de Palerme.
Quant à la condition du paiement rapide d'une indemnitéréelleet équitable,
il y a lieu de relever que, si elle n'a pas été entièrementremplie, c'est en raison
desévénementsquisesont produits après la réquisition.On sait quel'ordonnance
du maire de Palerme avait reconnu que I'ELSI avait droit à une indemnité.
Toutefois, avant que ne soit déterminéle montant de cette indemnité,I'ELSI a
fait recours au préfet de Palerme en alléguant l'illégitimitéde l'ordonnnnce en
question. L'acceptation dudit recours aurait nécessairement eu pour effet de
transformer le droit àl'indemnitéen droit à la réparation du préjudice causépar
la réquisition: c'est pourquoi la question de l'indemnitéest restéeen suspens
jusqu'à la décisiondu préfet. Après cette décisionl,e syndicde la faillitede I'ELSI
a citéle ministèrede l'intérieurdevant le tribunal de Palerme en demandant des
dommages-intérêtspour les préjudicessubis par I'ELSI. Un procès a donc été
engagéet son déroulement a connu des hauts et des bas. Enfin, par un arrêtde
la Cour de cassation du 26avril 1976,la demande en réparation pour lespréjudices
causésàI'ELSIpar l'occupation deson usine a étéaccueillieet le syndic de faillite
a perçu la somme liquidéeen sa faveur.
En conclusion, si les circonstances ont empêché que le paiement de l'indemnité
soit «rapide »,on ne peut nier qu'il a été«réelet équitable». En efiet, le montant226 ELETTRONICA SICULA
de l'indemnité a étééterminéparla Cour suprêmeaprèsunjugement en troisième
instance, ce qui a d'ailleurs permis au syndic d'exposer amplement les raisons de
I'ELSI, et aux juges de trois cours de les apprécier.Quant à la détermination du
montant de l'indemnité,le fait qu'elleait étécalculéesur la base de la rentabilité
des biens pour la périodede six mois coïncide avec le critère de calcul adopté
aux Etats-Unis dans l'affairePewee jugéepar la Cour suprêmele 30 avril 1951.
Une autre disposition du traitéde 1948que le demandeur accuseI'Italied'avoir
enfreinte est l'articleV,paragraphe3.Cette disposition garantit aux ressortissants
et aux sociétésde chacune des Hautes Parties contractantes sur les territoires de
l'autre, pourvu qu'elles seconforment aux lois et règlements en vigueur,la pro-
tection et la sécuritérelativement aux questions mentionnéesaux paragraphes I
et 2 du même article,dans une mesure égaleà la protection et à la sécurité
donnéesaux ressortissants et aux sociétésde n'importe quel pays tiers. Le para-
graphe 1,auquel on renvoie, traite des personnes accusées defaits illicitesou déte-
nues et disoose l'assimilation des Dersonnes aux sociétés en ceaui concerne les
hicnr. don~sculcmeni poiir la protésiiondes bien>:le p3r.igraphi iqui adéj"1c
:inülysC)irwtc ds I'cxprupri.itionder hiensdes rs.aortisssni. ciinsiqiir des ro:ic:ir:,
de chaaue oartie et du-oaiement des indemnités corresoondantes. La dernière
phrase du iarÿgrilphe 3<ieI'drticleV disp.>scenfin quc. Zan, toutcs les queciions
<oncernani lepasragc des cnirepriics de la proprict2 priiéla proprictc:puhlique.
:iinsi quc le pïssdge de icllss enireprises *us Ic conir6le puhlic. les entreprises
dans iesquelies les nationaux, les personnes juridiques ou les associations de
chaque partie ont un intérêrtemarquable jouiront, dans les territoires de l'autre
partie, d'un traitement fondé sur le standard national et sur le standard de la
nation la plus favorisée.
Les faits qui, de l'avis de notre adversaire, attestent la violation de l'article V,
paragraphe 3, furent l'occupation de l'usine de I'ELSI par les travailleurs et le
retard mis par le préfetà se prononcer sur le recours formé par I'ELSI contre
l'ordonnance de réauisition.De olus. selon les Etats-Unis. i'ordonnance en aues-
tion serait contraire'à l'obligati& de l'Italie d'assurer la protection et la sécurité
des biens des sociétésRaytheon et Machlett. En outre, M. Gardner, dans son
intervention de mercredi dernier, a considéréque la notion d'entreprise dans
laquelle des sociétés américaineosnt un intérêrtemarquable couvre la situation
d'une entreprise (telle que I'ELSI)dans laquelle lesAméricains ontune participa-
tion plus que majoritaire, totalitaire.
Or. l'obiection ~nncioale à l'a-gument soutenu sur ce noint oar la Partie
;idverreest simplc: I'articlr.V, paragrap3.j.I'exsepiiondr ra phrdsc conclusire.
vire les socictes ri associations an1iricainr.s en lialie, et non p3s le3 sociel6s et
associations italiennes en Italie. Mêmeen admettant, comme simple hypothèse,
que la protection et la sécuritéde I'ELSI ont étécompromises par les autorités
italiennes, la disposition précitéeserait inapplicable, vu qu'il s'agitde la protec-
tion et de la sécuritéd'une sociétéitalienne contre des autorités également ita-
liennes.
Pour surmonter cette diilicultc. le Jemandcurü affirmr:,dans a r?plique. que
<<I'ELSI ellc-mémcreprC~cntiiitle; hicns de Ra)the<in ct hlnchlcii en ltalic~A.
notre avis, un ne peut nullement parruer ridée qu'unc socic:tcsoli I'ohiei d'-n
droit de . .oriété~desactionnairis: laseule manière iuridiauement corÏecte de
JCcrirclerapport exisiünt cnire une sociCtCp3r actions ci se, xctionnaires consisie
i rcconnüiirc que ces derniers ont un droii de pariicipation dans la prcmicrc. en
ianr que proprieiaircs d'un ceriïin nomhrc d'actions Quanij.la phrabe finaledu PLAIDOIRIE DE M. CAPOTORTI 227
paragraphe 3 de I'article V, il sufit de relever que M. Gardner n'a pas soutenu
la coïncidence de l'hypothèse prévuepar la règle avecle cas d'espèce;en effet, le
passage d'une entreprise dans le domaine de la propriétépublique et sous le
contrôle public ne se réalisequ'à la suite d'une véritablenationalisation. En tout
cas, notre adversaire n'a pas affirméque I'ELSI ait étéexclue du bénéficedu
traitement de la nation la plus favorisée.Quant au traitement national, elle en
devait jouir sans doute, en tant que société italienne.
Permettez-moi enfin de faire deux observations sur certains faits que 1;tPartie
adverse affirme être incompatibles avec l'article V, paragraphe 3. En ce qui
concerne I'occupation de l'usine de I'ELSI par les travailleurs, mes collègues,et
en particulier M. Caramaua, on déjàrappeléqu'elle a eu lieu avant et non pas
avrès la réauisition: ce furent donc les administrateurs de I'ELSI. nommésnar
le vote de ~a~theon et Mîchlett i I'as,rniblr'ede\ actionnaires de12 societr:,hui
ont choisi la lignede conduite toleranle îcluçllemenl cnliqu2e par le demlindeur.
et c'estdu Failde leur dccirton qu'il n'apas Ci* demande i 13police d'intervenir
Quant au retard mis par le préfet à se prononcer sur le recours de I'ELSI, nous
ne voyons pas comment et avec quelle logique il puisse être rattachéau prétendu
manquement de I'ltalie à l'obligation d'assurer la protection et la sécurité des
sociétésRaytheon et Machlett. Est-ce que la garantie d'une justice rapide rentre
dans les notions de protection et de sécurité?De toutemanière,il suffitde répéter
qu'à notre avis l'occupation de l'usine, le retard mis par le préfetà se pronon-
cer sur le recours et l'ordonnance de réquisitionelle-même neconcernent que
la sociétéELSI, indépendamment de ses actionnaires américains,auxquels Var-
ticle V, paragraphe 3, ne confère pasde droits, dans le cas dont il s'agit.
Passons maintenant â I'autre critique avancéepar les Etats-Unis contre I'ltalie,
a savoir que celle-ciaurait enfreint I'articleVII, paragraphe 1,en s'ingérantdans
la gestion et le contrôle de I'ELSI.Avecla pmmissionde la Cour, je négligeraien-
core une foisde citer le textede la disposition invoquée, l'articVII, paragraphe 1,
parce que la Cour le connaît. Toutefois,je me permets de noter que, dans le texte
anglais de I'articleVII, paragraphe 1, figure l'expression (101 interests therein»
au lieu des termes (1altri diritti reali(d'autres droits réels)et ceci a donnélieu
àcertainesélucubrations de notre adversaire, qui semble toujours convaincu que
le texte anglais est le seul libellévalable de ce traité.
Dans l'affaireen cause, les droits réelsque Raytheon et Machlett avaientacquis
en Italie en tant que sociétésaméricaines et dont ils pouvaient disposer se
limitaient au droit de propriétésur les actions de la sociétéet sur de l'argent
liquide. II ne résulte pasque l'exercicede ce droit subjectif ait jamais étéentravé
par les autoritésitaliennes. Cependant, lorsque le demandeur se plaint de l'ingé-
rence de ces autoritésdans la gestion et dans le contrôle de la sociétéELSI, il est
évidentqu'il pense que la gestion et le contrôle de I'ELSI étaiententre les mains
des sociétés investisseuseest que I'ELSI luiappartenait, de sorte que ces sociétés
auraient titre à être protégéeasux termes de l'article VII, paragraphe 1.
On revient par là à l'idée,que j'ai déjàanalyséeet rejetée,qu'une société (une
sociétéitalienne dans le cas d'espke) puisse êtreconsidérée commeétant la
propriétéde ses actionnaires. Le demandeur ajoute à cette conception - qui, je
le répète,est juridiquement erronée - un autre argument qu'il prétend fonder
sur le texte anglais de I'articleVII, paragraphe 1,et plus précisémens tur I'expres-
sion aimmovable property or interests therein),. La faculté d'acquérirdes
«interests in immovable property >t comprendrait, selon l'interprétation donnée
par notre adversaire, le droit d'acquérir indirectement la propriétéde biensimmobiliers; et la société américaine Raytheon serait, avec Machlett,le titulaire
~ ~ ~ ~ro~t.,>e réoète.d'acauéririndirectement la nroor. .édes biens de I'ELSI.
ou, pour être des biénsimmobiliers de I'ELSI, sociétéaffiliée.
La Cour me oermettra de faire remarquer qu'un échafaudaged'arguments si
comnliaués nous oaraît franchement iiacce~table. La notion de «orooriété
indireitc,~ c,i tour i fait Ctriingcre3u droii italien, en toui cds. elle ne peut ser\ir
J dCcrirc1.1po%iri<id ne\ asiionn;iin,\ de ro~.icthCtr.ingL:rzspar rapport aux hiens
immobiliers d'.~ttcSOCIC~ ialiïnnc aui csi soumise 3 leur contriilr. II senibleraii
que le demandeur veut employer à ses fins la différenceentre la personnalité des
sociétésinvestisseusesetcelle des sociétéscontrôléesI.I y a lieu de faire observer
en outre que le texte italien du traité - là où il fait mention de «la faculté
-'~ ~.~~~r..d~~~o7séder ~ ~~ ~d~ ~oser de biens immobiliers ou d'autres droits
rtvls sur ICSterritoires de I'iiuirelliiult I'ciriiec<inirdctan), e.1 hcaucoup plu,
5131r.bien JZlimiil.ci rigoureux que Icts;te anglais. Pour consilicr le, deux iextej.
on doit donc interpréter le texte anglais en tenant compte de la catégorie des
droits réelsautres que le droit de propriétésur des biens immobiliers. Ceci amène
à ne prendre en considération que les prétendus droits réelsmineurs, tels que
l'usufruit ou l'hypothèque.
En définitive. l'article VII.naraeraohe 1. du traitéde 1948 n'étaie nullement
les allégations des~tats-UnCs'dans-laprésente affaire.En partant du fait que, si
l'on interprète l'articleVI1dans son ensemble, les paragraphes 1et 2 apparaissent
destinésa assurer la reconnaissance des droits réelset successoJaux sur les biens
immobiliers - alors aue les .arae..oh.s 3 et 4 de ce mêmearticle traitent de ces
iii6nici dr<iiir sur 1:s bien. niohilicrs - il est r:iidcnt q.ic IL,\hr,nr:ticiairci nc
pcii\cnr Cire que les personnes ph)siquei ci le. socir'iCsa)ünt 13 nationalité de
I'unr ou de I'iiuirepartie contriictanie ei qui se trou\<ni ,ur Ir tcrriloirc de I'autrr
p~riie. On doit Jonc ci~nsidr:rcrque 13 sii~ati(~ndes actionnaire. dz ws socic!ie,
echappe cntièremcni au champ J'appliwtion ile lx dipusilion prL:ciiCe
Nous avons parléjusqu'icides prétendues violationspar l'Italie des obligations
découlant du traité de 1948. 11nous reste maintenant à analvser deux autres
ronte,iations 3vdniCei par le dcnilindeur contre I'lt;ilic ,ur I:ihase d'une clausz
Je I'iixord iupplL:mentaircde 1951
L3 ilaust en uuesiion est I'liriicle1.qui se subdii,iae en dcux Doinis r, ri h,
Leur texte est compris dans notre documentation ainsi que dans celle alléguée
par notre adversaire. Je remarque que parmi les sociétés dechaque contractant
sont comprises bien évidemmentles sociétés américaines Raytheon etMachlett,
qui étaient protégéec sontre les mesures éventuellement prisesà leur égard-je
souligne: à leur égard- par les autoritésitaliennes, à condition qu'il s'agissede
mesures arbitraires ou discriminatoires ayant pour effet, aux termes du point u),
de les empêcher de dirigeret de gérereffectivement I'ELSI (une entreprise que
les deux sociétésavaient été autorisées à acquérir).Notre adversaire soutient que
la réquisition décrétép ear le maire de Palerme était une mesure qui avait les
caractéristiques indiquées ci-dessus:elle était arbitraire et discriminatoire. De
notre côté, M. Caramazza a expliqué hier pourquoi la réquisition n'étaitni
arbitraire ni discriminatoire. Pour évaluer l'allégationdu requérant il faut donc
analyser trois questions relatives à ladite réquisition: a-t-elle été arbitraire ou
discriminatoire? A-t-elle viséles sociétésRaytheon et Machlett? Les a-t-elle
emnêchéesde dirieer et de eérer -'ELSI? Nous avons déià réoondu e. nous.
continuons i rL:pondrï négai,venient i ces qucstioni; de itiuie rncinierc niius
faisons obvr\cr qu'une seulr rcponse ncgaiivï ruifirait pour rqerer les allcgaiiiin~ PLAIDOIRIE DE M. CAPOTORTI 229
du demandeur à cesujet. Pour ne pas répétertrop longuement lesconsidérations
déjàexposéesdans notre défense écrite, j'essaierai de résumer lesraisons de ces
réponses négatives.
En ce qui concerne le vrétendu caractère ((arbitraire)) de la réauisition. com-
mençons par dire que, d'après le demandeur, cecaractèreest démontré seul
fait que le préfetde Palermea déclarel'ordonnance du maire illégale parcequ'elle
ne correspondait pas à l'objectif déclaré(qui consistait à assureraux membresdu
~ersonneide I'ELSI la orotëction de leur em.loi.. Nous estimons var contre au'un
acte nc p.ut ahboluinent pasCirequ~lilic d'arbitraire uniqiiement piirce qu'il n'csi
par cnii<.rcmimtconiornic iiuh çondtiions éiablicspar lc droii inicrnc d'un Eiai. A
notre avis, un acte illégaldu point de vue d'un systèmejuridique interne peut ne
oasêtrearbitraire. etcesurtout sil'ov.ia.e estdifférente..~a-issantd'évaluerI'act~ ~ ~
en qucsii<>ndu point de \UC du droii iiitern:iiionÿlDans la prCrcnic .111ÿirc.n,>u+
\avons que Ic mairc de Palcrmc a rcquisitii>n!ie l'usine el 1outiliagc de I'EI.SI en
exerçaniun pouvoir quilui était reconnu par la loi italienne, et qu'il a motivé sa
décision d'une manière détaillée: ilne s'aeissait donc vas d'une mesuredéraison-
nahle, ciipncieuw ci dépour\,uedr toutc ~siilication.'
Si iellc~ a\aicni Cléles caracicri$iiques de celle mcsurr jc Ic répéie.si rllr
avait étédéraisonnable. ca~ricieuse et dévourvue de toute iustification - on
aurait pu la qualifier d'arbiiraire; cesqualifications sont en efiet liéàsla notion
d'arbitraire. Le responsable d'un acte arbitraire cnfreint toutes les règles en
commettant un acte qui n'est pas inclus dans lescatégories prévuespar le droit,
un acte concu uniouement comme un instrument oour oorter oréiudice a.sa. ~ ~ ~
\iciime ei pour I'opprirncr. Une aiiioriic :agitd'unc rnanihc arbitraire lorsqu'clle
bc place en dchors de toute réglciuridiquc: lorsqu'clle n'a aucun pouvoir q~'elle
puisse légalementprétendre Gercer. Au contraire, l'inobservation partielie des
règles auxquelles est soumise une catégoried'actes déterminéedonne lieu à un
acte illicite, mais non pas arbitraire. J'ajoute enfin que la prétendue nature
arbitraire de I'acte en question est contredite dans le cas d'espffe par le simple
fait ou'il était accom. u .var la ea&.ntie iudiciaire du droit italien consistant
dans lc droit de fiire rccour? ;iu prXci. Cr recours a Cléprcsent;: II a donnélieu
3 l'annulation dc I'acte Dans ics conditions. le dcitinatnirc clicciif de la rcquiri-
lion. c'cri-i-dire I'ELSI.Idi\posC a\ec wccci d'un mo)cn su\iepiible de rciiiédicr
a cc que 1'3~12avait originaircrncnt d'illégal.
En ce q~i concerne I:<prcicndue rxitiire <<disrimindtoirc $de la r;quis~li«n. 11
convient de rappeler tout d'abord quele sensacquis par le terme a discrimination »
dans l'usaee du droit international sefonde sur la notion d'une distinction iniuste
et préjudiciable baséesur des circonstances déterminéeset faite au détriment
d'une certaine catégoriepour en favoriser d'aulres. Dans le contexte des traités
d'amitié, de commerceei de navigation, qui se fondent le plus souvent sur le
orincine du traitement national. unediscrimination baséesur la nationalité renré-
SenteSansaucun doute un com~ortement que l'on doit combattre. Dans vatfaire
en cause, i'ordonnance de réquisition aurait étédiscriminatoire si elle avait été
ri sà I'"eardd'une sociétécontrôlée var des investisseursaméricainsen raison
de la nxiionalii6 ;iniericainc des s,~ci;tcs inrc~iis~euscs.Or, mi di~ii Cire touii
iaii exclu. ilans IcsdL:Ccnscsécritesprésentée pasr I'lialic il y a maints exemplcs
de rCquisitions ~usliliCesvar dc5 problCmcs dc protcciiun de l'emploi. 5 I'érird
d'enttenrises italiennes contrôlées-var des cadiiux italiens. -
une 'autrefaçon d'interpréter ~'ei~ression<;mesuresdisc"mina1oires » peut être
fondéesur la phrase finale de I'article premier de l'accord de 1951.On y confirme
l'eneaeementa ne Dasaeir d'une manière discriminatoire à l'égard des ressortis-
sant, et des sociétéiet a;sociations d'autres parties, mais on aGute: afin qu'elles
puissent obtenir, à desconditions normales, lescapitaux, lesprocédésde fiibrica-tion et lestcrhniqucs ncce\ssires pour lcur developpement konomiquc. IIest tout
i fait Cvidcni, J'aprCs ce langage. qu'il y aurait une mesure discriminatuire
concernant les conditions faitesaux entreoreneurs aui ont besoin de ca~itaux. de
proccdc\ de fabrication ou de tcchniqucs pour lcur <IC\eloppcmcnt ..ces condi-
tions Ciairnt snormalrs. Bref,au tr3itement nornial. donc au traitement 3ppliquC
généralement aux entreprisesengagéesdans un processus de développement,on
oppose un traitement anormal et donc discriminatoire. Ici même,l'idéede fond
consiste à garantir l'égalitde traitement, sur un plan «normal».
Le demandeur a affirmél'existence d'une discrimination dans ce qu'il estime
étre I'obiectif finalde l'ordonnance du maire de Palerme: réduire la valeur de
l'usineJc I'CI.SIci Ilivonser ainsi I'cntrepri\c qui a finalement ;icqui. cette uiinc.
.i sï\<>ir une enircprisc contrSlcc par I'IKI. Cctte aIlr:g.~tion.cn ruhstïncc. rc
rattache à la thèse fameuse du complot fomenté par les autorités italiennes, le
comnlot mis enŒuvreDarlemaire de Palerme. leoréïetde cette ville.lesoersonnes
chargéesde dirigerla procédure de faillite,àsavoi; lesyndicet lejuge commissaire,
dont la décisiona donné lieu à la vente de l'usine, et les responsables de I'IRI,
bien entendu. Ce complot aurait entrainél'adoption d'une ordonnance de réquisi-
tion discriminatoire du fait qu'elle avantageait injustement I'IRI. Nous avons
déjà fait observerque cette thèsedu comploi n'est que le fruit de l'imagination.
De plus, elle ne serait valable que si les actes des organes qui ont dirigé la
nrocédure de faillite et ceux d'une société contrôléeDar l'IR1 oouvaient ètre
considérés comme desactes de I'Etat italien, ce qui n'est absolumint pas le cas.
A ce propos, permettez-moi de relever que le demandeur n'a jamais expliqué,
et encore moins prouvé,sur la base de quelles normes du droit international les
actes des organes chargésde diriger la procédure de faillite etceux d'une société
contrôléepar l'IR1pourraient ètre imputésà I'Etat italien. La question relèvede
la responsabilitépour desprétendus actesillicitesde cet Etat. En effet,la condition
que l'acte puisseêtre attribuéà I'Etat (dis attributable to that Statev) figure,
dans le document élaboréen 1961par la Harvard Law School et relatif au projet
de convention en matière de responsabilité internationale des Etats pour les
préjudices causés à des étrangers, commeétant I'une des conditions essentielles
de la responsabilité (voir art. 1, par. 1, du projet). II convient de citer en outre
les articles du projet d'articles en matière de responsabilité desEtats, dont la
première partie a étéadoptée en première lecture par la Commission du droit
international en 1980. L'article II de ce texte exclut que l'on puisse considérer
comme un acte de I'Etat le comportement d'une personne ou de personnes qui
n'agissent pas pour le compte de I'Etat. A son tour, l'article 7, paragraphe 2,
admet que I'on puisseconsidérer comme un acte de I'Etat le comportement de
I'organe d'une institution ne faisant pas partie de la structure de I'Etat, mais à
condition que cet organe soit autorisé par le droit interne à exercer les pouvoirs
d'une autorité publique, et dans la mesure où il agit dans le cadre de l'exercice
de ces pouvoirs, relativement à l'affaire en cause. Cela étant, nous nous deman-
dons comment il est possible d'attribuer à I'Etat italien le comportement de
I'ELTEL, qui a acquis l'usine de I'ELSI à la suite d'une vente aux enchères
annoncéepar le syndic de la faillite.
D'autre part, nous nous demandons aussi comment on a pu affirmer, sans le
prouver, l'existenced'un lien de causalitéentre ledécretde réquisition temporaire,
la vente de l'usine de I'ELSI (dans le contexte de la faillite demandée par ses
administrateurs) et le préjudiceque les Etats-Unis prétendentavoir subi. Un autre
point fondamental de la théoriede la responsabilitéinternationale de I'Etat est
que le préjudicedoit êtreune conséquence directedu fait illicite. Dans l'affaire
en cause, ceci aurait dU êtreprouvé par le demandeur, mais cette preuve n'a
jamais étérapportée. PLAIDOIRIE DE M. CAPOTORTI 231
En ce qui concerne le sujet passif de la réquisition,il y a lieu de relever que ce
r6le a été jouépar I'ELSI, et non pas par les sociétésRaytheon et Machlett.
Autrement dit, aux termes de l'article premier de l'accord de 1951,ce sont «les
sociétéset associations» de chaque partie qui peuvent prétendreà la protection
contre la mesure arbitraire et discriminatoire orise a leur égardà -'intérieurdes
isrriioires de I'.iuire pdrtiz. Par contre, ddns 1.1presentc ;iKiirr.. I'iirdiinnance de
rrquiriiion qiis I'adi,cr\irc dit hrr. .irhitrdirc ei Jiscrir~iin~ioirr.ï Ci? prhe .i
I'é-ÿrdJr I:isociéiéEl SI Mkis I'ELSI r'tïiiiinc \irciCir:italieniic. cn ~rincirie,ci
non américaine.
Enfin, en ce qui concerne l'allégation selon laquelleI'ltalie aurait empêché les
sociétésRaytheon et Machlett de diriger et de gérer eflectivement I'ELSI, il y a
lieu de faire observer que le décretde réquisitiondont il s'agit n'a produit son
eflet, pendant six mois, que sur l'usine et l'outillage de I'ELSI.
En conclusion nous estimons avoir démontréqu'aucune des conditions dont
dépend l'applicabilité de l'article premier de l'accord supplémentaire n'a été
remplie dans la présente affaire. Cela étant, cette disposition ne saurait ètre
invoquée avecsuccèspar les Etats-llnis.
La conclusion susmentionnéevaut égalementpour la disposition du point b)
de l'article premier précité.Nous avons déjà eu l'occasion de dire que cette
disoosition interdit de oorter atteintc à «d'autres droits et intérêt» s des ressortis-
s;ints ei ilr.. siiciCiirde ch.iqiic piirii: c<intract;inte.Jan, le, cntrcprirej qu'il, ,>ni
acqui5es ci J;ins les inizsiisrenients qu'ils ont zfizciu?i joui Jirl~rcntrs iornies
d ou te fo istte interdiction ne vaut que dans la mesure où le préjudice estcausé
par des mesures arbitraires ou discriminatoires. Etant donné que nous avons
démontré quela réquisitiondont il s'agit neconstitue pas une mesure arbitraire
ou discriminatoire, il s'ensuit que mêmele point b) de l'article premier est
inapplicable.
Le demandeur a affirméque tous les droits et intérêts Ièséspar la mise en
faillite relèventde la disposition précitée.A ce propos, permettez-moi de répéter
une fois encore - en esoérant que le dicton reoetita iuvant est vrai - que le
orétendu lien de causalit: entre la réauisition etla failfite n'a jamais étéokouvé
~ ~ ~ ~~~~~~ .~~ ~ ~~~
par la Partie adverse et qu'en fait il n'existepas. Nous savons que la failliie a été
déterminéepar l'état d'insolvabilité de I'ELSIbien avant la réquisition. M. Bonell
a parlé longuement sur ce point hier. Quant a l'interdiction de porter atteinte
aux droits et intérêts des sociétésRaytheon et Machlett, il suffitd'ajouter que la
procédure defaillite, dont lesdeux sociétés ont demandél'ouverture, ne représente
certes pas une mesure àlaquelle ellesont étésoumises sur l'initiative des autorités
italiennes. Le fait que notre adversaire ait essayéfortement de ((démonisernces
autorités ne devrait pas avoir pour conséquence de mettre à leur charge toutes
les conséquencesdes erreurs de Raytheon.
L'audience, suspendue à 11 h 35. est reprise à 11 h 45 PLAIDOIRIEDE M. MONACO
COAGENT ET CONSEIL DU GOUVERNEMENTDE L'ITALIE
M. MONACO: Monsieur le Président et Messieursles juges, c'est un grand
honneur pour moi de plaider encore une fois devant cette Cour qui est la plus
éminentejuridiction internationale.
Jevoudrais tout d'abord déclarerqueje serai particuliirmeni brer,&tan1donné
que mes collèeuesde la défense italienneont déiàdémontré. maintes foiset sous
différentsaspects, le manque de fondement desdemandes avancéespar leGouver-
nement des Etats-Unis.
Selon moi, ce qui reste à exposer et peut-êtreà clarifier est donc tout ce qui
pourrait se rattacher au lien, d'ailleurs inexistant, entre les faits qui ont été déjà
exposésd'une façon très détaillée, etles demandes en réparation.
~a'délégationdu Gouvernement italien ne saurait discuter la question de la
réparation qu'à titre tout à fait subsidiaire.
En effet, ce n'est que si une violation du traitéest établieque la question de la
réparation se pose. Or l'Italie nie avec force l'existence de tout fait illicite qui
puisse lui être attribué.
De olus. les conclusions de la Partie demanderesse suoo..ent l'existenced'une
séncd'.iitc. illiciics,ccqu'on ne 5aur:iiiadnicitrc incmci titre Je purc h!poptheic.
Enlin. la Partic demanderesse refuse d'en\istger. mcmc ;ititrc suh.iJiaire.
I'hvootlicscQue\cul\ ccrt;iins actes seraient illicites: clle fonde olusi~ilcmandc
en-<éparatioLsur l'ensemble des prétendus faitsillicites.
L'un de cesprétendus faitsillicitesdont les conséquencesdommageablesnéces-
siteraient une réparation en vertu du droit international serait, par exemple, la
réquisitionde l'usine. 11est évidentaue l'effetdommageable suooos..rodui. Dar
cc seul hi1 sc dil~~rcncicqu~niii~ii~cincnt et qual~i:iii!enicnt des conwqucnccr
iloniinagcnhlcs qui r~ulicraicni dc tiiute la iéricd';icicsdunt iles[ qucsiion d;ins
les mémoireset plaidoiries du gouvernement demandeur.
Le refus de la Partie demanderesse de orendre en considération. à titre subsi-
diaire, l'hypothèseque seuls certains faits1 et non pas l'ensembledefaits qu'elle
allègue - auraient provoqué des conséquences dommageables met la Partie
défenderessedans une oosition difficilepour discuter de ladite hvoothèse.
Dans ces circonstances, une telle discussion ne manquerait.bas de susciter
l'impression que la thèse principale de la Partie défenderessen'est pas tout à fait
fondée et affaiblirait en conséquencesa position, alors mêmequ'elle demeure
ferme à nier la réalitéde tout acte illicite que la Partie demanderesse veut lui
~ ~~ ~ ~ ~ ~ ~
Je me bornerai donc à quelques remarques d'ordre généralsur la nécessitéde
prouver l'existenced'un lien étroit entreun prétendu fait illiciteet ses éventuelles
conséquences dommageables aux fins de l'obtention d'une réparation en droit
international. PLAIDOIRIE DE M. MONACO 233
3. LE MANQUE DE PREUVE DU LIEN DE CAUSALITÉENTRE LE DOMMAGEALLÉGUÉ
rn LE PRÉTENDUFAIT ILLICITE DE L'ETAT
C'est en effet un orincioe incontestable du droit international aue. Dou. que
I'Etai lLc ait droii'i Ia'rép;ir;iti3n. ilnç sullii pas qu'il cxtstc un préjudice
,uieeptiblc d'indemnisation et qui xer~ti~chcde quciquc maniérc 3 un acte iIIi~itc
de I'Eiat: ile\t rn outrc cncniicl dc démontrer I'e.;istcn~r.rl'ti~irrluriiindecatisr
à efler s&ïsarnmenr érroiie entre le prétendu acte qui constitue l'origine de
l'obligation d'indemniser et le préjudicelui-même.
La jurisprudence internationale exclut nettemen! l'obligation de verser une
indemnitépour un réjudicequi n'a pas été«prouve avoir étéune conséquence
réelleet inévitable))(affaireYuilleerShorrridge, dans Lapradelle et Politis,Recueil
desarbiiragesinrernarionuux ,ol. II, Paris, 1932,p: 78)de I'acte illicite,ou quand
cedernier «was notin legalcontemplation the proximatecause of sucha damage))
(affaireCabosLopez,Recueildessenrencea srbirrales,vol. IV,p. 20). Afind'appré-
cier d'une manière plus préciseles demandes des Etats-Unis et les caractères
propres de la présente affaire, il est utile de rappeler certains des motifs sur
lesquelsdes tribunaux internationaux sesont appuyéspour déciderqu'il n'y avait
pas de lien de causalitésuffisant entre le dommage alléguéet le fait illicite (ou
prétendument illicite)d'un Etat.
L'un de ces motifs consiste à dire que I'acte imputé à I'Etat, mémes'il a
contribuéàcréerune situation favorable à la survenance d'un fait illicite,ne peut
en être considéré comme la cause directe, parce que le fait dommageable en
question se serait produit de toute manièrepar l'effetd'autres circonstances qui
ne peuvent pas êtreimputées à I'Etat.
Dans l'affaire Rémy-Marrin(Recueildes tribunauxarbitraux mixfes, vol. IV,
p. 415), par exemple, le tribunal arbitral mixte franco-allemand a refusé
d'accorder des dommages-intérêtspour le manque à gagner d'une distillerie
francaise résultant de I'interruotion de ses activitésà la suite de sa saisie par
les aulorite.. aIlcm3ndcs pendant Ib gucrrc. parce que, mCmcsan, I'acic illégal
de 13 mise sous sr'quçs~rç.la disiillcrie dc toutc manière n'aurait pu funcii(~nnçr
à la suite de l'impossibilitéde se procurer, en temps de guerre, les raisins
fran~.i~~~ ~essairesà la fabrication de ses oroduits. Plus sienificative encore est
l'affaireCuillemor-Jacyuemin (Recrreildesienrencesarbirru&s, vol. XI11, p. 70),
dans laquelle une ressoriissante française a intentéune action en restitution de
deux appartements à Rome qu'elle avait louésà une sociétépublique italienne
et qui avaient étésaisis pendant la guerre. La commission de conciliation
franco-italienne a conclu que, puisque les loyers avaient étéfixésà un taux
légalà cette époque,même
«sans le séquestreet sans les mesures prises par le séquestrateur, Mm' Guille-
motJacauemin Ise serait trouvée.1vis-à-vis de ses deux locataires, exacte-
mcni &JASla ménicsiiuaiiun que~ccllcdont clle 5c (plaigniiill . Toul lien
de cauuliié i'aiuii donc dClauientrc le\ rcitnctions que IcGuuvcrnçmcni irtn:
Tais \.oulait volr leter51 les mcsurcs priscs par lc Ciouvcrnrm~ni ilal~cn a
i'égarddes deux appartements en tanique biens ennemis. ))
Dans certains cas. la raison oour laquelle le lien de causalitéentre le fait illicite
-~ ~'Ela1e~ le .ré*udiceca~s~ ~~n nariiculier a étéconsidérécomme troD ténu -
ce qui excluait l'obligation d'indemniser - a étéque le comportement de la
victime elle-même (ouune situation crééepar elle) l'avait exposéeaux effets de
I'acte illicite,lequel n'aurait entrainé aucun préjudicesans ce comportement ou
cette situation. A cet égard,on peul citer l'affairDameSimoneReverand(Recueil
des senrences arbirroles,vol. XIII, p. 276), relative à une maison qui avait été234 ELETTRONICA SICULA
vendue aux enchèresen Italie oendant la euerre. consécutivementa une sériede
mriurïs prCiïnJumcni illcgÿlespriws au déirimeni de la propriéiaire. quiciait
une ressortissanir franqaise,mesurer qui l'avaientempichhe de transiker cn Iialiï
les fonds nécessairesvour oaver lesintérêtséchusd'une hvoothèsue sur cette
maison. Puisque . . ..
SGIdsituation pCsuniairede Mm'Reicrand éraii.avani le IOjuin 1940,obcrée
à ICIpoint quc depuis mais 1939elle n'avaii pu acquitier leçarréragesde ha
dette hypothécaire)),
la commission de conciliation franco-italienne conclut que «l'on ne peut soutenir
dans ces conditions que c'est du fait de la guerre que l'intéressée s'es trtouvée
hors d'étatde payer les arréragesen question)).
Dans d'auves affaires, le refus d'accorder une indemnité a été déterminénon
seulement par «le lien trop lointain qui rattache la perte au fait générateur)),
mais aussi ((var le caractère trou aléaroire du bénéficeesvéré»(Laoradelle et
Poliiir,op 1 . p 284). Cette sjtuatiun s'est produite en'pdriic"lie; dans des
afidiresoii lepréjudicepour lcqucl unç indcmni1r'r:iaiidemandéedépendditd'une
perte de revenus qui présentait un caractère toutà fait aléatoire.
En d'autres termes. sous réservede toutes les différencesrésultantdes asoects
diversder ~fiircs dont il s'agit,lessentencesarbitrales internationales confirment
qu'en <iltuant ,ur I'ohligÿtiunde ripdrsr ci sur le moniant de I'indemnitcdue
ilFauitenir compte non seulementdu lienentre chauue fait illicite,mouté ;iI'Eiai
et chaque préjudicequi fait l'objet d'une demande in réparation, mais aussi de
l'incidenceque des circonstances ou des actesnon imputables à I'Etat défendeur
ont pu avoir sur la survenance du préjudice
Nous avons amplement démontréque la preuve du lien de causalitéallégué
Dar le demandeur n'a nullementétéaonorté.. De olus. il.fau, raooeler a... en . ,
raison de l'incidencepossibledecet aspectsur l'évaluation éventuelldeu préjudice,
ce prétendu lien de causalité semblese fonder surtout sur la simple hypothèse
selon laquelle Ravtheon aurait vu obtenir un résultatfinancier tout àfait différent
s'ilv avait eu uni liauidation ;éeulière.
ce ~ouvernement'des ~tats-~iis persisteàaffirmerque lescréanciersde I'ELSI
auraient été remboursés intégralemesnitcette vrocédureavait étévossible et sue
Ravtheon aurait évitéles réoercussionsdécoulant de la situatiin ruineuse.de
I'E~SI. Selon le demandeur.'toui cela aurait Lltepossible parce que cthad the
Rcrpondeni no1 interrercd with the Iiquid;ition. R3ytheon and Machleii uould
have recovercd the niarket balde of ELSI as 3 puinp concern in 1968~(r>plique.
II. .. 3931.
Cet argument semble dépourvude tout fondement, comme l'ont déjàmontré
très amplement mes collèguesMM. Bonell et Caramazza, d'autant plus qu'il
suuuose que la totalitéde la valeur cornotable de I'ELSIaurait étéréalisée dans
13 proc2d;re de liquidation, sa valcur comptable élan1considérée comme la plus
proche de \a i,aleur d'entreprise en acti\ité (ihfd. p 395). Cela esi diilicile 5
admettire aux fins de I'~valuati~indu prCiudiw sui aurait ci; çauhé ;iKastheon.
car en vertu du principe admis par la~jurisprud~ncede droit international, c'est
au demandeur qu'il incombe de prouver que
«soit en consuliant le cours ordinaire des choses. soit en s'aitachant aux
araire$ de la partie léséoeu aux dispositions prises par elle.ilest prohuhle - PLAIDOIRIE DE M. MONACO 235
non pas seulenzenrpossible - que celle-ci aurait réalisétel ou tel profit si le
fait illicite ne s'était pasproduit » (affaire Fabiani, Pasicrisie inrernafionole,
Berne, 1902,p. 365).
Cepend~nt. I'CvïntualitC de Ici rcalisitiun de la \,aleur cornpiahle wl<ilr de
I'ELSI pir 1.1Iiquid.iiion n'a pu qu'app;ir:iitre to2tLiitimprob~ble 2 I'Gpoquc,
raire iiiipoisiblr. du point dc \ur. Je Ra)ihcon clle-ménic,c.i1.1propre dircctiiin
de I'EI.SI asait cnviugc: une ialcur Jr.liquidation rapide ires inf2rieurr.i la
valcdr comptahie ci elle ;i\ait chershi, a\ec in.i\riince niais \ans suciiparicnir
i un accord atrc les prinrioau~ crenncicrs de I'ELSI sur la h.ised'un rcmhourse-
ment de cinquante oour cent seulement des sommesaui leur étaientdues
Comme nou, l'ai,ons dcji d?montrC. IJ\,critr:e*t que Ic scknario de la rcali,atit)n
de I'tl.SI comme une wentrcprise en acti\iii,, goi in^i'oticrrn, nc correspond
nullement a la réalité. Acet égard,on peut remarquer avec intérèt que
le mémoire considérait cette solution comme le scénario le olus ootimiste. la
r2pliquc la qualifie de seule posribiliié1.3 prcure que cclx ne'iurre$ond i
la réalit;. conirairement siix allégïiions du demandeur. rcsidc dans le Taii que,
dans 53 r?clamation de 1974. Rayihcon rrtcnaii une etim~tion de I'ELSI trcs
inférieure, c'est-à-dire reposantsui la valeur de «réalisation rapide)) (quick-sale
value). Sans parler du fait qu'une évaluation baséesur la «réalisation rapide*
est tout a fait hypothétique et ne reflète pas la valeur réelledes biens, le recours
à une telle estimation, dans la réclamation de 1974.exclut donc au.il .uisses'aa-r
d'un g<u,or\t cdse scenario .. iur purpose, of inicrnal surporatc planning hy
ELSl'r sharcholders ,>(replique. II. p. 3961,Lomme le soiiticnt le C>o~\.crnement
desEtai\-Unis II Iaui aussiesclurc qu'une telle é\~.ilutation.que le Guu\,crnenicnt
des Etats-Unis présentait comme «ia plus défavorable des'hypothèsess (worsr
case scenarioj, ait étéutilisée lors de la réclamation de 1974 seulement pour
entamer les négociations«in the spirit of compromisen (ibid.). Un tel esprit ne
transparaît pas dans la réclamation dont ils'agit.IIy a lieu d'ajouter que deux
évaluationsdifférentes,l'une faite par lesyndic de la faillite et I'auire par I'ELTEL
(celle-ci devant ètre considérécomme tout aussiobjective que cellede Raytheon),
aboutissent à deschiffres nettement inférieurs.
Le demandeur dit que l'évaluation fut faite sur une «going concern bÿsis~ et
nous savons qu'ils utilisent la(1book value basis» comme équivalence.
Mais ELSl n'était pas un ~going conCern». Ainsi, les évalutations du deman-
deur n'ont aucune signification. L'alternative à la «going concern basisn est la
«break up value basis »,utiliséenécessaimentlorsque lesélémentsde l'actif sont
vendus séparément.
Personnen'a rien dit àce sujet, mais ilest sûr que le produit d'une aliénation
séparée aurait étébien inférieur ail chiffre présentépar le demandeur.
Une ((break up value basisn est bien ce à quoi I'on a procédédans la faillite.
Ce n'est certes pas à la partie dkfcnderesse - qui nie i'existence de tout fait
illicite et rejette par conséquenttoute obligation de payer une indemnité pour le
orétenduoréiudice- au'il incombe de oroooser uneautre méthoded'évalutation.
Comme nous Pavons'déjà indiqué dans ie contre-mémoire (II, p. 47), l'Italie
formule sesobservations à titre tout a fait subsidiaireà seule fin de contrer les
~dubious contentions of law and the distortions of factsn contenues dans les
allé-ationsdu demandeur.
Munsicur le Prhident. \lejsieurs Icsjuges. \oua allezentendre ceriainr c~laircis-
sements,l'espc:re.de la délégaiionitaliçnne i I'L:@arde la que\iion doni j'ai parle
tout 3 l'heure. Et j'cn viens d'une Tacuntrk rapide aux deux dernicrs points de
mon exposé I.'un se réfcre:iu recoui,renicnt dcr frais de justice et de prockdure
ci I'auire csi rcldtd 13 quesllon icssc~sornpl~quéedes iniéri'ii.236 ELETTRONICA SICULA
5. LE PR~NDU RECOUVREMEN DES FRAIS DE JUSTlCE ET DE PROCÉDU~
Premièrement, outre les observations présentéed sans le contre-mémoireitalien
(II.o. 48). auelaues autres remaraues oeuvent êtreformuléesau suiet des frais
. . .. . . .
de justice et Je procidure \clon 13 prCscniation hite par ~ïythcon: Valgré les
afirniaiion\ du Gouverncmcnt des Etats-llnis. lesfrais Je justics et de proc2Jure
exposéspar la société à l'occasion des procèsintentéscontre elle en Italie par les
hanau.s~ ~~ ~cières~~ I'ELSI ne~~euven. êtreconsidéréesd . e toute manière.
coninie une conséqu~.ncc directe des <igissementsde ka Partie diiendcrcsss (rC-
plique. II,D. 3'13.394).11% risult:iicnt de I'insolvahilitc dc I'CLSI, dont seuleceitc
demière était resoonsable.avant mêmeles circonstancescontestées.Abstraction
tLitc de toutc évaluation sur les agissementsdu diiendcur. ceux-ci nc peuvent
avoir 612,aumaximum, que 13 cduseindirecte d'unccirconstancc rC\ult;tnt cxclusi-
vcmeni d'tins situation nropre i I'CLSI et crk2i: p:ir reitr alc.rnii-re Ceci nous
permet d'affirmer que c& diPenses,telles que la juridiction italienne les a fixées,
doivent êtreconsidéréescomme définitives et ne peuvent plus faire l'objet de
recours de la part du demandeur.
II y a lieu de souligner en outre que, contrairement aux allégationsdu deman-
d~~r. il ~ ~ ~are a~~ .es tribunaux internationaux établissent le montant du
rsmh<iurscnicntde<fra!~dejUsticeet de procédureekpos2spar le sujet lésé dans
I'cxacte me,urc indiquce par celui-ci En reglegcncrale, ils Ciablissentce montant
ensebasantsur le bon sens.selonunenratiiue orochedecelledestribunaux natio-
naux. Rappelons, i titre d'cxcmplc, q;c l'lr%n-'U~~laims ~nhunal n'a pa\ liquidé
ler fris dejurticc dans tau, Icssaset mfnic lorsqu'il l'a fait le niontant a été)ni>-
rieur àcelui exposepar ledemandeur. Cetteconclusion résultepar exempledu cas
Svlvania Technical Svsremsv. Iran. décisionno64du 27 iuin 1985:ceiu.e-entest
intireinnt ~3rie qui1 conucnt de n<imbrcusescon\idirationb ;i cc sujet. Fi de
mcme on peur \e référzr i un autre us, I'Oil tïcld u/ Tv.ra, i.lrun und Nuriunol
Iranrutt Oil Ci,, dé;i\idn no43 Ju 8 octobre 1986.CKI estd'autnnt plus niûniiete
iil'on considèreque, contrairement au casprésent,lesfrais dejustice et Je procé-
dure Ic pluszuuvent rcmhour3s sont ceux rclûtiis du\ procèsJ;ins lcsquel\ le p;irti-
sulicr. Ir'sr'Je nianiéreillicitc par I'Etat. a teni2 iüns susci, d'obtenir la répar3tion
du o.éi>diceauorèsdestribunaux de I'Etat enauestion. A ce...nos. il&ait inté-
rcirant de relire Ir.icxtc dc l'article 3613Cunie~rrion<inrlir, 1.0ii.i,/Slurc Rt,rpofr-
.siliilir,v/or I>,jurir, lu ,llir~n. lrt~t3eil Huriwd Dra/! ('on~e~irion,.prr'pareeconiiiic
nous Icsabont r>ürMhl. Sohnet Baxtcr. aue leJeniandcur lui-niènie ;iinscrédanr
la note 2, page-394,de la réplique01):' '
«a claimant shall be reimbursed for those expensesincurred by him in the
local and international prosecution of his claim which are reasonable in
amount and rheineurrenceof which wasnecessaryIo obtain reparation on the
international plane*.
IIFautcnlin souligner quç lesfrais dejuslice ont étéattnhucs pilr les tribunau1
iralicns i Rïythcon dans les procédureselles-ntèmcs,cela r.st important. Les
décisionsont donc établi des frais légauxde caractèrenomal, qui comprenaient
aussi les honoraires d'avocat calcu%s sur la base des tarifs en vieueur. Par
conséquent,tous autres frais dejustice éventuellement supportéspaF~aytheon
ne peuvent apparaître admissiblesdans les circonstances indiquées.
6.LA QWTION DB INTÉRÊTS
Ce n'est évidemment au'à titre encore nlus subsidiaire aue des remaraues
supplénieniaire.;s'impiisent sdr kaqucsiion de5 intéréts,dont I'impi>rtiince que
lui accorde1spartie dcmandcrcsse,\urtout s'agis,ant d'intCrfis composéi,confCre PLAIDOIRIE DE M. MONACO 237
à la réclamationune dimension que l'on peut qualifier d'astronomique en l'état
des choses.
La thèsede la partie demanderesse peut être résumé comme suit: des intérêts
sont dus à partir de la date où le fait dommageable s'est produit; bien plus, il
faudrait aussi prendre en compte, comme nous l'avons déjà dit, les intérêts
composés.
11faut aussi rappeler ceci: tout en défendantla thèseque des intérèts composés
sont dus, M. Ramish a eu l'amabilitéde dire:
B The United States recoenizes that arbitral tribunals historicallv have not
shown much inclination & award compound interest. 1ndeed;the Iran-
United States Claims Tribunal has no1 awarded compound interest. » (Ci-
dessus p. 137.)
II est dès lors surprenant que M. Ramish se soit au contraire acharné à
démontrerqu'en droit international contemporain il y a une obligation de payer
des intérêtsen tout état de cause, et à les faire courir à partir du jour où le
orétendufait dommaeeable se serait oroduit.
Pour Ctliyîrceitc irgumcntation dïnï sesdeux li\pects. hl. Rlimishtraite d'une
facon quelque peu ca\aliirc les pr2ccdentsjudiciliircs et arhitrdux
IIcite oîr cxcm~lçI'lifTle l~!brcdu VuucurWimbledon(C.P.J.I. .i.rrA,no 1.
p. 54)-'c'est la première décisionde la cour permanente de Justice internatio-
nale - sous le chapitre «The Award of lnterest ai Commercially Reasonable
Rate, from the Date of lnjury to the Date of Payment)). A cet égard,M. Ramish
dit: «The Court must, as in the .S.S. "Wimbledon" case, take account of "the
present financialsituation of the world, including contemporary rates of interest
(S.S. "Wimbledon", Judgmenrs, 1923, P.C.I.J., Series A, No. 1, p. 32).» (Ci-
dessus p. 136.)Mais voici la citation complètede la mêmephrase de l'arrêtque
je me permets de soumettre à l'attention de la Cour:
«Quant aux taux des intérêts, la our trouve acceptable dans la situation
financièreactuelle du monde, en tenant compte des conditions admises pour
les emprunts publics, les 6% demandés; ces intérêtsc , ependant, doivent
courir non pas à compter du jour de l'arrivéedu Wimbledonà l'entréedu
Canal de Kiel, suivant la récl~mationdes demandeurs, mais bien de la date
du présentarrêt,c'est-à-dire du moment où le montant de la somme due a
étéfixéet l'obligation de payer établie.))(C.P.J.I. sArno/. p. 32.)
M. Ramish cite également(ci-dessus p. 135)la phrase suivante d'une décision
de la troisième chambre du tribunal des réclamations Iran-Etats-Unis dans
l'affaireMcCollough(Iran-US Claims Tribunal Report, vol. I1, p. 29):
«The first principle is that under normal circumstances [and especially in
commercial cases]interest is allocated on the amounts awarded as damages
in order 10compensate forthe delay with whichthe payment 10the successful
party is made.»
On pourrait enfin, sans vouloir insister, rappeler que M. Ramish a enlevé les
mots «and especially in commercial cases))et mis à la place des petits points.
Dans la plaidoirie de M. Ramish (ci-dessus p. 135),la citation de la sentence
du mèmetribunal en l'affaire TheIslomicRepublicojlron est tout àfait incomplète
parce que le tribunal ne visaitque la question du pouvoir de prendre une décision
sur les intérêts.
Le tribunal a, d'autre part, refuséd'indiquer une règlegénéraleà propos des
intérêtest a conclu de la manièresuivante:238 ELETTRONICA SICULA
«The dciermination of the appliçïble principlcs of law in üny givcn case.
and con~cquentlythe qucitinn ofwhcther an au,ardof intcrcst isappropriatc,
mus1rcst with the Chamkr conwrncd. and the Tribun31 thcrcforc concludes
that the alternative reauest for the establishment of eeneral rules eovernine
the award of interest by the individual Chambersmu; be denied.»i~ea/e~';:
Lirigririon Reporrs,Iranian Claims, vol2, no 17,p. 9.)
Monsieur le Président, Messieurslesjuges, ilne convient pas, à mon avis, de
poursuivre cette analysede petites astuces,mais plut61 de revenir aux principes
de droit international en matière de réparation qui ont été développép sar la
doctrine et oar votre .uri.orudence.
Lï ~ÿrti~demïndcrcssc cn réüliic traite 13prércntcabirc commc une simpic
a~ïirc~ommerci~tc, icltc qu'cllc pourrait Ciresoumise 5 un iribunal arhitrxl enire
pïrticuliers ou entre Etïts CI p3riiculiers.IIiüut oluii>i. à mon avis. olüccr la
question des intérêts,comme~celle des conséquencesdommageable&,'dans le
contexte qui lui est propre: celui d'une aiTaireportée devant la Cour. Dans ce
cadre-ci, la réparation ne saurait étresansrapport avec la gravitéde la violation
de l'obligation internationale. De dus. la réoarationdoit ètre ..oréciéeen raison
descircon~tïnîcs ci donc tcnircompt du co~nportcmcntdc IJ Pdriic d6kndero.c.
ainsi que dc 13 l'üruc demündcrcsscci, dans Ics s~? dc protcçtion diplomatique
(ce n'est pas le cas ici), égalementde celui du ressortissant pour lequel cette
dernière orend fait et causeen I'esoèce.
C'est ;ne matière fort délicate, danslaquelle la jurisprudence de la Cour s'est
encore peu aventurée et ilserait probablement trop ~résomotueux.tout à fait
orésom~tueuxde ma oart, de faire quelques sueeèstions à ia Cour auant aux
. . --
princip;b à dégager~c'~réfc:rcm'en abstenir, d';iuiani queje partagc picincmrnt
Id thèsc,défcnducpar mon gou\,crncment. qu'aucune \iolaiion n'ï)ïnt r'icrom.
mise, iln'y a pas lieuà une quelconque réparation. EVIDENCE OF MR.HAYWARD
EXPERT CALLED BY TE GOVERNMeN OF ITALY
ThePRESIDENT: 1cal1upon Mr. Hayward. 1invite you to make the declara-
tion provided in the Rules of Court.
Mr. HAYWARD: 1solemnly declare upon my honour and conscience that 1
will speak the truth, the whole truth and nothing but the truth and that my
statement will be in accordance with my sincere belief.
The PUESIDENT: Thank you very much. You may now proceed.
Mr. HAYWARD: Mr. President and distinguished Members of the Court. It
is an unexpected honour for me, firstly, to have been named as an adviser to the
ltalian delegation and, secondly, to have been given the opportunity to address
this Court.
Mr. President, 1 should be pleased if you would allow me to set forth my
aualifications.
1am a practising member of the Instituie of Chartered Accountants in England
and Wales and also a member of the Paris Region of the French Ordre des
experts comptables et des comptables agréés.1 have also received an authority
10practise in the Netherlands from the Ministry of Economic Aiïairs.
1 am a partner in the Dutch firm of public accountants, KPMG Klynveld
Kraayenhof & Co., itself a member of the international partnership of Klynveld
Peat MaMiick Goerdeler.
1have spent the last 25years both in practice and in business on the continent
of Europe, in Belgium, Switzerland, France and now the Netherlands. 1 have
also, for a period of some four years, managed, as Directeur généraladjoint, a
group of publishing companies based in Switzerland. One of my responsibilities
at that time comprised the acquisition and disposal by sale or hy closure of a
number of group companies in Europe and in North America.
As the Italian Agent indicated on Monday, 1shall be addressing the Court on
matters ansing from the production, last Fnday, of the audited financial state-
ments of ELSL as at and for the year ended 30 September 1967. 1 shall
also comment on the valuation presented to this Court by Mr. Lawrence on
16 February.
In this short address 1do not intend 10 make use of the overhead projector
but 1 shall place before the Court five exhibits marked A through E' and to
which 1shall freauentlv refer. These exhihits. Mr. President. arein the blue folder
that you have in froni of you. The Court &il1note, and the index so indicates,
that al1but one of these exhihits are no more than copies of selectedinformation
previously placed hefore this Court by thepplican<
Exhibit A, which 1would ask the Court to refer to now, is a copy of the chart
appearing on 1, page 108,of the Memorial and which MI. Ramish set out on a
transparency last Thursday. As the Court will recall, Mr. Ramish stated:
"Column 1 charts the basis for the United States claim for reparation in this
case. It starts from the conservative premise thai ELSl's physical and intangible
assets were worth at least book value." (P. 11supra.)
' SeeCorrespondence.No. 78, infra240 ELETTRONICA SICULA
But, Mr. President, the 17,053.5million lire shown by Mr. Ramish (that is in
the top left-hand column of the exhibit) cannot represent book values of ELSl
at 31 March 1968.(This number hasheendrawnfrom ScheduleBI of Mr. Arthur
Schene'sAffidavit appeanng as Annex 13 to the Memonal (1,pp. 135-136)and
is to he round before you as Exhibit B.) The "total assets" of 17,053.5 million
lire was unadjusted for provisions and write-downs arising from the independent
audit of ELSl as of the 30 Septemher 1967balance sheetdate.
As you can seefrom the second from the far right column of Exhibit B, the
total assets of ELSl at 30 September 1967 were shown in the Affidavit as
amounting to 17,956.3million lire. In passing, 1should also like to refer you to
the intangible assetline caotioned "Deferred Char~es'' iust above the total assets
line and amounting to 1,6;3 million lire in hoth th; final two columns. 1shall be
returning to this number later.
Now, I request you to look at Exhibit C, the next exhibit, which is a copy of
the assets side of the ELSI balance sheet as at 30 Serilember 1967 audited hv
Coopers & Lyhrand. The balance sheethas three columns in the lire presentation
and the first column, entitled "Book Figures", indeed agrees with the 17,956.3
million lire reflected in Schedule BI to the Annex 13, which 1earlier presented
to you as Exhihit B.
However, the audited balance sheet on Exhibit C refers to "Company's
Adjustments" totalling 3,062.4 million lire resulting from an additional wnte-
down to the value attrihuted 10inventones of 1,309.4million lire, a wnte-down
of 100million lire 10the value attributed to investments and the complete wnte-
oiï of the intangible assetsof 1,653million lire as king of no value. 1must stress
that these adiustrnents were made and aereed bv Corn~dnv mananement
fullowing, no &~ubt. lengthy di<cusnonh with"ihc auiitorï. lndefd. the ~io~err
& Lybrand audit report conlirms thdithe adju\tments were madeby the C<impdny
in pre~arinp the balincc shcst. The auditurs ilio staie thai such adiustmcnis have
no;, ai thedate of their report, been recorded in the books for, essentially, tax
.--. . ... .
The true adjusted hook values after audit are thus 14,893.9 million lire and
not 17.956.3million lire as shown in Annex 13 - a reduction of 3,062.4 million
lire.
Accordingly, the hook values used by MI. Ramish for the purpose of the
Applicant's claim should, in my opinion, also be reduced at 31 March 1968 by
at least 3.062.4 million lire.
But this is not all. Coopers & Lybrand have qualified their audit report in
respectof an overstdtement in the reported inventory values of 453.3 million lire
and revenue expenditure incorrectly included in fixed assetsand thus overstating
this caotion bv-463.6 million lire.
Thex misst~temcnis toial 916 Y million lire and must be read in son)unctii>n
wiih tuo lurther maiters ovcr which the îuditurs hate expresscddouhts. Fintly.
n<i et idenceudi prcsenied 10 thcm justiiying favour~hlc price adjusiments. in-
cludcd as an assetof the Company. on the supply of klystrons Tor 251 6 million
lire and,sesondly. they werc unable to dctcrmine whether arnounts app-anng as
fixed assetsare fully representedby specific items of physical property.
As the audit report was dated 22 March 1968 1 believe it is appropriate
to consider these adjustments as also applying to the 31 March 1968 book
values.
In conclusion, therefore, the book value amount used by Mr. Ramish and
drawn from Mr. Schene's Affidavit appears 10 be incorrect and should be
reduced by 4,230.9 million lire to arrive at 12,822.9 million lire as explained in
ExhibitD. EVIDENCE OF MR. HAYWARD 241
4s the Cuurt h3s heiirdearlicr th15wcck.Mr. Prcsideni, the He>p\>ndentrejc;i\
the Applicant'r \,leu.th.11book taluc, even u hcn propcrly rcllcçiedai ihccurrc:ted
value ol'12.ti22.6milli.~nlire, ai 31 hlarch 1968, I, 3 fair c>ri>.xur the \,due of
ELSl as an ongoing enterprise. As the Court has heard, ihe 'ngoing enterprise
or going concern nature of ELSl was substantially compromised well before
31March 1968.Note 10to the audited financialstatements, before you as Exhibit
E, indicates that there is a shareholders deficit at 30 September 1967 of 881.3
million lire. Should this become "tifficially" the case (in inverted commas in the
text), that is to Say, should the adjustments made in arriving at this total of
accumulated losses he entered into the Com~anv's.boo.s of account. then the
Direciors uould harc km obliged Io ionicnc a .iockholder. meeting iorihuith
io iake me.isurc\ either to rec4ivr.rits losse, h) pro\,iding ne\! capii;il i~rtu place
the Company in liquidation.
1point out that this note was written by the Company and is attached to its
own accounts presented for audit.
If 1may depart from my prepared brief for a moment, 1think we need to go
back to 1967to consider the situation in 1967.Many companies in Italy, France,
and Spain at that time had two books of accounts. One was the official books
of account for fiscal monetary exchange reasons, and the other was the pro-
prietor's set of accounts which reflected the true economic substance of an
enterprise. It is my view that the audited balance sheet which waspresented to
Ravtheon is the eauivalent of the oroorietor's setof accounts in this context. and
does iruly rcprescnt rhc bubstançe ol'ihc econoniic enterprise.
The Conipdn? wdsnot a $ilin#soncern iii30Scptemkr l'Ki7and. xcordingly.
an ordcrl, Iiriuidaii<inu,ith dis~o~~lof ihc Curnn3nt'ç husiness :ind iissctj ai a
going concern was an impossibility. No additional capital funds were available
to it on the admission of Raytbeon. The Company was on the verge ofinsolvency
well before the requisition of the plant on I April 1968.
It is in this light, 1 helieve, that the Court must consider MI. Lawrence's
testimony of 16Febmary 1989.Mr. Lawrence has testifiedthat:
"It is my opinion that there was a good prospect that a purchaser of any
or al1of those [ELSI]businesses wouldhave been prepared to pay a substan-
tial premium over the value of the tangible assets for the benefit of this
goodwill, particularly if there was competition betweenmore th;m one pros-
pective purchaser to ayuire the business." (P. 128,supra.)
Mr. Lawrence has based his valuation on the potential sale as a going concern,
a sale between a willinr-.nver and a willine seller and indeed a sale in a market
of dcpth uhercby more ihan one l~r,ispccti;chuyer is to be li>und.I !ri>ulJnote
ihat the c,>nizpt of giling concern has bcen c<~nsirtentlymaintaincd hy the
Ap. .cÿnt and 1sreferrcd tu on Dagc jl (1)of the Cnitcd Siiites Memoriiil.
Now it is for this reason th2 MI. Lawrence has seen fit to eive a value of
3.500 million lire IO intangihlz as,eti uhcn his orvn tiriii .igrwJ with Company
mcinagemenithat no value, oihcr thiin ior li5idlrczisons,sould hc aitached 161
the inilinrihlc as\ci\ apwiirine in thc recordi <if El SI :it30 Sepiemhcr 1967.
~urther, a value of-$00 mifiion lire has also been attrihuted to Mezzogiorno
grants for which, as explained hy Mr. Caramazza in his suhmission of yesterday,
no justification has been given.
In mv ooinion. the valuation of Mr. Lawrence. based uDon the ~remise of
ELSl 4; J iiing conccrn. 15 unrc.il~\iiciindI, noi ,upporrei hy the undrrl)ing
c~cinoniicpo\ition of the C<imp~ny,ciihcr dt 30 Sepicniber 1967ur JI 31 \Iiirçh The PRESIDENT: Thank you. Do the Amencan delegation wish Io examine
the expert now?
Mr. FERRARI BRAVO: Mr. President, 1 regret to take the floor. Of course
Mr. Hayward willhe at the disposal of the Court and of the Amencan delegation
for al1questions they may wish to put but, in fact, Mr. Hayward did not speak
as an expert in the sense given to this word by the Rules of Procedure of this
Court. Certainly il was my fault if there was some misunderstanding, but Mr.
Hayward has been listed not as an expert but as an adviser, and ltaly asked for
permission for him to address the Court in the same capacity as Professor Bonelli
and Professor Fazzalari did las1week. They were also listed as advisers on hehalf
of the American delegation. So, forour part, the Italian delegation will not cross-
examine Mr. Hayward, but 1 repeat that MI. Hayward is ready to answer any
questions.
The PRESIDENT: 1accept the statement of Professor Ferrari Bravo, but Mr.
Hayward himself took the declaration as an expert. Therefore 1think that in this
case it would have helped for you to suhmit your objection hefore he took the
declaration.
Mr. FERRARI BRAVO: 1did no1want to interrupt you.
The PRESIDENT: But you have the rigbt to do so. 1myself understood that
under Article 64 of the Rules ofCourt Mr. Hayward had been declared an expert
of the Italian delegation; he therefore can he submitted Io cross-examination by
the American delegation, now, if they wish to. MI. Matheson.
Mr. MATHESON: Mr. President, 1have no desire to press the point with the
Resoondent's delegation. We will be oreoared to comment uDon the exoert
preientation whenwe make Ourrebuttis, and we may a1that time have furiher
questions, but for the time being 1 am not going to press whatever procedural
rights 1might have. Thank you.
The PRESIDENT: So that we can have an orderly discussion on this suhject,
1think it is better for you to put questions tomorrow. Othenvise you will have
to keep the expert from the Italian delegation here next week, when the expert
from the American delegation will not be here. Therefore, 1 am going to give
you the opportunity tomorrow morning to put questions to the expert from the
Italian delegation.
Judge SCHWEBEL: If 1 understood the expert correctly, he was submitting
that the Applicant's argument was hased on the concept of going concern value
and, in his opinion, ELSI was not a going concern - or if it was going it was
going down and not up, in essence.
1 haven't, of course, just now had a chance Io review the suhmissions of the
Applicant in this regard, but as 1recall the testimony and the written pleadings,
my impression is that the Applicant was arguing that this is a case, unlike the
generality of cases, where a "going concern" value was not the basis of damages
sought, but rather "book value" was, preciselybecause the fim was not making
a profit and had no prospects, apparently, of making a profit. Damages were
therefore claimed on the hasis of the sale value of the Company in terms of its
assets sold as a unit or by various lines. Now, is my understanding of what the
Applicant argued consistent with your remarks of a fewmoments ago on "going
concern" value, or not?
Mr. HAYWARD: Let me say first of al1that the Applicant - 1 am speaking
from memory as 1do not have the papers here with me - but in MI. Ramish's EVIDENCE OF MR. HAYWARD 243
addresshe mentioned that the hook value was a proxy for a going concern, that
there was no means in which a going concern value at this stage could he
attributed to a company of 1967.But the book value was to be sold in business
lines or as a business. The intangible assets, which is goodwill, attach to a
business, theydo not attach to asseis; so if any value isgiven to intangible assets,
then the business mus1have heen sold as a business.
Now, in the hook values of the Applicant there remains 1,659 million of
intangible assets in the balance sheet, which the auditors actually wrote off at
30 Septemher 1967.So, intangible assets, the sign of a going concern valuation
basis, are retained in the Applicant's book value basis.
The PRESIDENT: During you statement, if 1 understood you correctly, you
said that on 31 March 1968the company was on the verge of insolvency. Now
I was a very good student of mathematics when 1was in the secondary school,
but then 1followed law: therefore. 1have foreotten al1about mathematics. For
me, whal insolvc.ncyrncins isihat you h~\c ïhe assri.. 2nd )ou hdvc the dcbis.
and ihc debts ïrc morc than ihr ïsicii?
Mr. HAYWARD: Indeed, MI. President.
The PRESIDENT: 1 suppose that this is an accountant's idea - for you 1
think this is a crucial question - on 31 March 1968 the debts of ELSl were
above the assets of ELSI?
Mr. HAYWARD: Yes, Mr. President.
The PRESIDENT: Could you explain this in more detail, please.
Mr. HAYWARD: Indeed, with pleasure. The audiied accounts of ELSI, on
which Coopers & Lybrand issued their opinion on 22 March 1968,relate to the
year ended 30 September 1967. Those audited accounts show a shareholders'
deficit- speaking from memory - of 881 million lire, that is to say, that at
30September 1967the dehts exceededthe assets of thecompany from the audited
balance sheet.Now, we know that in the six months following 30 Septemher the
company made another 1,000milli«n loss. 1am not saying that their debts went
up by 1,000million, hecauseit may be that other money came in, but nonetheless
the company had not improved at March 1968over September 1967. But the
audited accounts produced a situation revealing a shareholders' deficit - the
debts exceeded the assets.
Judge SCHWEBEL: In pursuance of what the Presidentjus1said, are you then
amendine vour statement that ELSl was on the verge of bankru~tcv to sav that
it was bankrupt, or do you maintain your statemeni that it was.on.the veige of
bankruptcy?
Mr. HAYWARD: I have no1 used the term "hankruptcy", 1 have used the
term "insolvency"; 1 prefer that term. 1 think my statement was "on the verge
of insolvency well before 31 March" - 1 was talking in terms of the period
before 31 March. Yes, 1believethat the company, a131 March, was on the verge
of insolvency.
The PRESIDENT: But 1think that the point is this: was il insolvenl, or not?
Because it is one position to beon the verge of insolvency,and another to be
insolvent.
Mr. HAYWARD: lnsolvency is a situation - in French it is "cessation de
paiements" - where the companycannot pay ils liabililiesas they falldue. Now,
it can he that a supplier does not press for payment, enabling the company to244 ELETTRONICA SICULA
oav off other suooliers earlier and. therefore. the insolvencv situation. while
iechnically the cGpany is insolvent, may be $rolonged becaise of the b;siness
life of the company. Un état de cessation de paiements can exist, but until one
has gone to the court and actually declared that the Company is insolvent, the
company can still continue business- which 1think was the case of ELSI.
The Chamber rose at 12.50 p.m NlNTH PUBLIC SITTING (23 1189, 10am.)
Preseni: [Seesitting of 13II 89.1
ARGUMENT OF MR. HIGHET
COUNSBL OF THE GOVERNMENT OF ITALY
The PRESIDENT: According to what was decided yesterday, 1 cal1 Mr.
Hayward, who willbecross-examined by the American delegation. Mr. Hayward,
please.
Mr. MATHESON: MI. President, we have no questions to put to MI.
Hayward.
Mr. HIGHET: Mr. President and distinguished Members of the Court, it is
always a great professional honour for any international lawyer to be called upon
to address this highest of trihunals. And it is also a privilege, for which 1 am
particularly grateful, to be able to present the closing arguments of ltaly to this
Chamber in the first round of the ELSl case.
The Court has before it the arguments of both sides. Where do they stand?
The Court has heard repeatedly, and eiïectively, what are considered to be the
relevant facts. Applicant has stated them as being "disputed" and "undisputed",
but it should be clear by now that inany "facts" that are in dispute are not facts
at all, but are conclusions (e.g., pp. 17-18,supru).It is thus intellectually impos-
sible, and probably wholly unnecessary at this stage, to respond cogently to the
kind invitation of MI. Matheson to "indicate which soecific facts it disarrees
\rith. and . . [IO]rel'ct<iihc~docunienl.ir)evidcncc uhiih ssLppcirts 11,pi~~ii~on"
Thc Court hiis al,,, hc;ird cxicnsi!c drgumcnl, on \artou, points of lau
Now. ni) iob 10d3s. \Ir. Pre.>idcnt~inddiitineuishcd ,Mcmbersor th? Court.
is Io try 1; put it all.t'ogether for our side, and Ïo use advocacy to the extent 1
can to assist the Court in ils task of sorting through al1 these troublesome
questions of fact and law.
I would like to start, Mr. President, by discussing a particularly significant
aspect of this case.
It is one of the first espousal cases that has been before the Court in a very
long lime. It is a derivative case relating to nghts that - if they did exist -
initially belonged to Raytheon or, in minuscule proportion, to Raytheon's subsid-
iary Machlett Laboratories.
The factual harvest available to Applicant is therefore not of its own making.
It mav well be the case that Aoolicant's more extreme and tendentious character-
izatioÏnshave been quite naturiily based on the long-term frustrations and angers
of ils client and national, Raytheon.
Now, ltaly does not suggestthat Raytheon was not frustrated and disappointed
by what happened to ELSI. That frustration is not even worth discussing further,
however, unless it stems from a real denial of a right or privilege by the Italian246 ELETTRONICA SICULA
authorities. It is also no1 worth discussing unlessthat denial can be proven hy
direct evidenceand unless the burdens of proof and of persuasion can he satisfied.
That is not the case before you. The case now before the Court is based, to a
wholly unacceptable degree, on circumstantial evidence, unfounded inference,
and innuendo.
Applicant bas not satisfied the burden of proof in any normal sense of the
expression. Nor bas it carried the hurden of persuasion. For Applicant, Mr.
President. must demonstrate that there is no other reasonable. and rational.
c~plan;ition for whai has hcîallcn ils clicnt R3)theon. Thc übiencc of unly une
Iink pcrmanenily separaies the dct or omission - a>,uming ih3i one did cxisi -
from the injuria or damage.
There are therefore two elements that must be satisfied inal1cases, particularly
in unilateral cases brought by application. They are the burden of proof and its
sister the burden of persuasion.
Firsr,however, it is appropriate to review the recent development in the case
that occurred over the weekend, that is related intimately to the issues of proof
and persuasion. It is the "conspiracy" questions.
Applicant may try to deny it, but the basic case advanced by il in these
proceedings is clearly hased on the inarticulate major premise that there was a
"conspiracy", or a form of concerted action, amongst the officials,various offi-
cials, any officialsof the ltalian Government. The case implies, butdoes not state
or prove, that this concerted action existed at least hetween 1967and 1969.
And it implies, MI. President, but again does no1 state or prove, that this
concerted action involved IR1 officials,the officialscharged with administering
the Mezzogiorno programme for the regional government (including the trans-
portation benefits); that it involved the regional officialsof Sicily;that it involved
the Mayor of Palemo and the Prefect.
The caseimplies,but does no1state or prove, that this concerted action involved
the bankru~tcv trustee. the banks. and the officialsconcerned with anv one of
the four auCtiin sales. It implies,but it does no1state or prove, that this concerted
action might also have involved thejudicial authorities of Italy on various levels.
As our Agent has pointed out in his o~eningaddress on Monday, the existence
of a plan oc concertëd action or consp~racy isso essential to the United States
case that it is hard to imagine Applicant seriously denying that it relies on it-
as it did in its answer of 17February.
Now the Agent also oointed out, Mr. President, that this answer has ~iaced
Applicant onthe horns of an uncornfortable dilemma. Either ~~~licaRtwas
seekingto assert State responsibility against Italy becauseof this concerted action,
or il was not.
It bas now denied assertine a consoiracv and that means - semanticallv and
Icyall> - ihdi it alio dcnicsranrl mu.1 den?.. ihc cqui\.alcni. ihat of dclihcraie
and con~.ertcdaction A claim th21 11311an oficials cngügcd in a delihcraic and
ronccrted course of aciion. as en\isaacd bs the Ilnitcd States ciisc, is substaniialls
no diiïerent from a claim that they ënga&d in a conspiracy.
This 1 hope will emerge with clarity, MF. President, in a few minutes when 1
touch on the things that have been said in this case by the Applicant about the
ltalian motives and ~lans.
Applicant has thGefore conceded that it can no longer rely on establishing
that connection of will or purpose that might link the Mayor of Palermo to the ARGUMENT OF MR. HIGHET 247
President of the Sicilian Region to the trustee in bankruptcy, Io IRI, to ELTEL,
and so forth and so on.
Yet how elsecan one link their actions or omissions so as to form a composite
whole. so that the end result of thcir asserted actions or omissionscan be.in law.
aitnbutablc to the Itali3n Go\crnmeni?
That 1sthe dilcmma The only othcr way in which ihesc actions ur omissions
can be linkcdone io the ncai is bv a disci~linedand coacnt chrin of causütion --
that is the only other way - a ihain that admit~ofno rupture - not for an
instant, no rupture, not a single link can be missing - and a chain that will
satisfy the traditional and respected requirements of the international law of State
responsibility for injuries to aliens.
These requirements, of course, are well known to the Court and I will no1
dwell on them any further,other than to Saythat when one here applies even the
most rudimentary test to find a necessary and sufficient chain of causation,
Applicant's casefalls apart instantaneously.
This is hecause there is no evidence in the record Io support the connection of
one link to another in the chain. One incident - Say,the requisition - cannot
be linked to anothcr incident - Say, the lease to ELTEL, the litigation on the
guaranteed loans, the bankruptcy auctions - unless a relation of cause and effect
is asserted, proved, argued and established.
And, Mr. President, this mus1 be by a preponderance of the evidence. One
need go no further than to Saythat there issimplyno evidenceof theseconnections
before the Court, far lessa preponderance of evidence.Now il is no1for Respon-
dent to deny that which has not heen plainly asserted, and certainly il is not for
us to contradict that which has not ken supported by a factual assertion. It is
like disproving a negative, it is like shooting in the dark.
1 used the words "factual assertion". It is, as ever, essential to distinguish
between the assertions of fact and the conclusions to be drawn from those
assertions. What Applicant has done here is, unhappily for Applicant, to claim
the benefit of the latter without doing the work required by the former.
First, it has put an impressionistic, or descriptive, case. This was based on the
claims of its client and national Raytheon. This case is largely comprised of
conclusions of fact and of coursc also the related conclusions of law. But the
conclusions of fact are stated first, without the supporting facts required to
establish them.
And they are then in iurn, as the plcadings move along, rcferred to as if they
had heen established. Such is the case, for example, with the conclusions that
President Carollo's statements were somehow transmuted into actions, into State
action. Proof? There is none.
The same is true of the conclusion that there was a "boycott" of one, two,
three different public auction sales. Proof? None exists in the record. The same
is true of the conclusion that ELSl could othenvise have sold off some or part
of its product linesor finished products or inventory or goods in process in time,
in time for what, to make the 800 million lirebank loan repayment to Banca
Nazionale del Lavoro falling due on 18 Apnl, so as Io avoid the guillotine of
bankruptcy. This was pointed out by Professor Libonati on Monday (p. 169,
supra). Proof that it could have done so? None.
The same is true of the conclusion that, but for the stubborn and untoward
interference of the ltalian authorities, there could have been an orderly sale of
the various elements of ELSl in weeks following the "finng" of 800workers on
24 hours' notice. Proof? Wedo no1even have to ask.
'l'hi~cabeisdificult lt ci~ntains.throughoui. Iikea dark threüd running through
3 bol1oflighier-colourcd sloth. a silent major prcmise ihat Iislian public ol1icialiwere acting in concert to bankrupt ELSI, to deprive Raytheon of its subsidiary,
to acquire it for itself at a fraction of ils fair market value.
Now Applicant has rejected the notion that il ever asserted there to be a
"conspiracy". Perbaps now Applicant will come back and say that al1they are
denying is that there was sort of a "quasi-criminal conspiracy", whatever that
may be in international law- and 1for one do no1 purport to know.
They will doubtless say, Mr. President, that the facts speak for themselves, in
establishing that there were actions and omissionson the part of ltalian authorities
sufficient Io comprise, taken separately and together, a violation of Raytheon's
rights under the Treaty and the Agreement.
And this would merely be a variation on the statement in their 17 Fehruary
communication, that
"[tlhe relief sought in thicase is based on the acts and omissions of the
Res~ondent's agents and officials at the federal and local levels (includine
IRI~, wiihouta& allegaiionrhai iheseoficiols wereworkingin cinspiracy'
(italics added'.
Yet, Mr. President, with no such "allegalion", with no case made that these
officialswere acting in concert, where is Applicant's case? What is heing com-
plained of? The individual acts? That is no1the way the pleadings read, and that
is not the way the submissions read.
1mean, how serious was the unconscious reliance of Applicant's case on this
point? It is worth making, and 1 apologize but 1 fear it must be done, a quick
iour d'horizon of the pleadings, written and oral, just in ordIO see how deeply
this point underlies Applicant's case.t is like a great white shark gliding, unseen
and unheard, beneath the calm waters of a bay.
In the very introduction in the Memorial -al 1, page 43 - it was stated:
"the Government of ltaly requisitioned ELSi's plant and related assets, in
order 10prevent the liquidation and tofacilitatethat acquisition of ELSl's
assets by Italy'scommercial conglomerate lstituto perla Ricostruzione Indu-
striale ('IRI')" (italics added).
At 1, page 63 of the Memorial, il was written that:
"[tlhe Government of ltaly rhusachievedils objective of acquiring ELSI's
plant and other assets without paying or otherwise co-operating with ELSl's
shareholders . . . and without paying a freely market-determined price"
(italics added).
Later on, it was said that(1,p. 80).
"The declaration of a public emergency in this case was a meredevice; if
the closing of the plant was an 'emergency',it was an emergencyofltalyS
owncreation .. .the planned closing was not a bonafde public emergency,
nor was the requisition abonafde public response." (Italics added.)
It goes on to Say,
"The purposeofthe requisitionappears IOhavebeentocreatetheappearance
of action, whileallowingiimefor IR1 IO srepin IO take over the plant . . .
IR1 wasdevelopingplans to expand inIo this area, but was not ready to do
so." (Italics added.)
A little bit further on in the Memorial (1,p85),
' Sce Correspondence.No. 69.infra.250 ELETTRONICA SICULA
bility of an "orderly liquidation", in the case of a Companythat was expected to
shortly "disappear"?
Most of the evidence,such as it is, in this case has been produced by Applicant.
And in fact il was produced by Raytheon and, as the Court can see, some of it
has been tampered with. How reliable is the rest of il? 1do not know.
Moreover, how forthcoming is il? It took a request, only a fewdays ago, under
Article 62 of the Rules 10 obtain discovery of critically important financial
statements of 30 September 1967, financials that Mr. Hayward and Professor
Libonati have been so interested in. Now those were not filed voluntarilv with
Applicant's pleadings, although one might have expected that they would have
been considered rather important, in the interests of justice and the amicable
resolution of a matter of this kind.
In reverse, then, this is proof positive of the inherent value of the traditional
rule that local remediesmust be exhausted. Because,il-they are not exhausted or
no1even seriouslyattempted - as is the case in the present procecdings - the
result will be or may be something very much like this case before the Court
today - a half-digested,conclusory, ill-established,impressionisticseriesof com-
plaints without factualjustification, based solidly on a conspiracy theory that has
al1the earmarks of a corporate grudge fight, and none of the signs of careful and
critical juridical review.
In Ourjudgment the point conceming the hidden agenda, or conspiracy, or
concerted action, is a critically important one for the outcome of this case.And
this point must be made clearly and unambiguously: in fact so clearly that
Applicant will never be able to wriggleaway from the horns of the dilemma that
ilhas brought upon itself.
It mus1be made so clearly that the Court can, without regret, simply dismiss
this entire proceeding as ill-consideredand unjustified. The point, MI. President,
goes far beyond the issue, really,of whether or not there was a so-called "conspi-
racy". 11goes really to the integrity of Applicant's case.
1quote these passages here not merely 10make il painfully clear perhaps that
Auplicant's case reallv did deuend on an unoroved assumotion of concerted
action. They are quotëd here to illustrate to théCourt directiy: first how deeply
this matter has infected the entire case of Applicant, and second how it is in fact
impossible for Applicant to purge ils case ofthese unprovcn assumptions.
At 1,page 87 of the Memorial, MI. President, il was stated that:
"the Government of Italy skillfully took advantageof ifs own commanding
positionand ils initial wrongful requisition to acquire ELSl'splant and assets
at a reduced pricefor the use of their own commercial enterprise. . . Having
caused the bankruptcy, the Government of ltaly further shupedils results,
to the detriment of Raytheon and Machlett and the benefit of IRI." (Italics
added.)
At 1,page 89, the Memorial said
"With the requisition, Italy" - this is important- "embarkedona course
of octivityaimedat acquiring the bulk of ELSIS assersfor a public enterprise
ut lessthanfair marketvalue." (Italics added.)
And again (1,pp. 106-107)
"As shown above, a principal objeci of the requisition was to prevent
Raytheon and Machlett from disposing of ELSl's assets. The Govemment
of ltaly wantedto acquirethe assetsifselfand was not prepared to pay for
them as of 1 April 1968.The requisition met the immediate political need
of responding Io the local outcry against the plant's closing, whitegivingthe ARGUMENT OF MR. HIOHET 251
Governmentof ltaly theopportunityfo plan irsacquisitionslrategy." (Italics
added.)
Finally, at 1, page 109, concerning the litigation against Raytheon for the
payment of ELSI's guaranteed dehts, the Memonal said:
"The evidenceindicates, moreover, that these suits werenot only a foresee-
able consequence of the Government's actions, but part of its plan to shft
the costsof ils actions [viz., the bank suits]to Raytheon." (Italics added.)
In the Reply, one finds the same assertions of conspiracy and concerted action,
a hidden global agenda on the part of the Italian Government. Thus at II,
pages 384-385:
"the Rapundeiit was completely unresponsivc to Raytheon and Machlett's
efforts to stahilire ELSI financially,precipitaringtheconditions which led to
the 'social unrest"' (italics added).
No, 1do not rnake this up. This sentence actually says that Italy deliberately
did no1 intervene to help out ELSI, in the periods hefore those last days, and
that ltaly therefore precipitated ELSl's financial crisis! That is what it says. And
the Reply also says that:
'Thc reiilpr<rpo\rojrhe r,~yu~<iti< ,,.ij noiiciircni 'social unrcsi'. huiri>
ilri,><otirnilojK1 SI'!plutir ,~qi<ip»i.~,rri<il,,.l'rot>II,ri~htjid<h<iri~/iold-
er, . . . 'l'hpurposc ir;iscirhiirar)" (/hi, p./.8.5,itcilicadded )
It would have been. The deep dependence of Applicant's case on the hidden
premise of concerted action did no1 end with the wntten pleadings. As my
colleague Avvocato Caramaua pointed out to the Court on Tuesday morning,
the recent oral statements of Applicant's counsel were loaded with implications
and innuendoes to just the same effect.
In order to corndete this exercise. 1would like to touch on a few of the less
gr:i:ious eraniplcs The! arc possibl) Ikir overt ih;in ihe nian! c~amples I h:iw
luhtciicd fr,>rnthe vriiien pleadings. hcc~u.c probabl) 11ir iiiorc dilliculi to simd
up and say these things than it is to write them.
The Deputy-Agent. MI. Matheson, alluded - in his catalogue of "undisputed
facts" - to an "intention" on the part of the ltalian Government, ostensibly
evidenced by statements beginning before the requisition, "ro rakeoverELSIfor
ilself" (p. 18,supra; italics added).
Later on, on that same morning of the first day, Mr. Matheson said that
"The Respondent clearly wanted ELSI for itself yet was unwilling to
participate in ELSl on a lawful commercial basis. The Respondenr's tactics
continued following the requisition." (P. 34, supra; italics added.)
On the same page, he said that "Subsequent events [subsequent to the first
bankruptcy auction] suggest that this too was part of a nationalgovernmenrplan."
(Italics added.)
Even Professor Gardner was no1 immune from imputing a base and sinister
plan to the Respondent.
He stated that
"Through the ensuing bankruptcy process the Respondent's plan to take
over ELSI throughils State-ownedconglorneratewas brought tofruition."
(P. 97,supra; italics added.) MI. President, what are we to make of al1this? As 1have just noted, one of
the things that it brings out is the wisdom of requiring the exhaustion of local
remedies in espousal cases.
And. this is oarticularlv true 1 would sav in commercial esnousal cases. such
3s this une Here complrx T,ictrare readil) >u\ccptihleof di~tortion. or incompleie
rcsollection. the persondl III-fcclingiof corporrte otficcrs can readily be vented
in the conslruction of a corporate response, hostile to the host country, but
which, in a court of law, must be tested against the measure of ohjectivity.
The best way to test it is to require proof of the Companythat claims to have
been injured. This the United States has not done of Raytheon or, if it has, it
has not produced the fruits of that enquiry in this Court. For there is no evidence
of any conspiracy, of any concerted or parallel action.
AITthat the Court has to deal with here is the recitation of a series of events,
joined with assumptions and innuendoes. They are set forth descriptively and
impressionistically. They are repeated over and over and over again until they
somehow magically acquire the specificgravity of actual facts.
There is an interesting analogy to the hidden conspiracy. That is the unjustified
and silent amalgamation of ail things and persons ltalian into one enonnous
entit,, known as "the ltalian Government".
Mayors, officials, trustees, prefects, business executives, regional presidents,
central governmental officials, bank officers, lawyers, counsel, judges, potential
hidders at auctions. officialsconductine auctions - al1of these. and manv more.
arc magicdlly honiogenixù inio 3 uiiif<irmgioup of "ltrlian Govcrnmrni rcpre-
,cniiiiii,cs". sii thsi anyth~ngr~idor Jonc by an? tii iheni c~ii,by viriue of th31
homogeni;.dtion, bz riinbutcd no1 mercl! Io the ltalian Go\,crnment hut 3lso tu
each Gher.
There is a similar assimilation process at work on institutions: IRI, ELTEL,
ITALTEL, the region of Sicily, the city of Palermo, the hankruptcy courts, the
banks, the regular court, the national Government by its ministries, individual
ministries, al1the ministries, and so forth.
For some of these entities, of course, MI. President, there is fulljustification
for an attribution to the Italian Government. But that is not true for al1of them
nor it is true in such an indiscriminate manner.
What about IRI? What about the banks? What about ELTEL? Why, why
must we assume, without any proof, that whatever they say or do is official
governmental action?
The common denominator is of course nationality. This common attnbute
seems to inhibit careful thought, and arrest cogent analysis. And at the end of
the day, hecause ofthe "ltalian" nationality of these people and these institutions,
are we somehow to accept, without more, that it is appropriate that they can al1
be assimilated one to another?
And are we also to accept, without factual evidence, that just because the
actors are al1 of Italian nationalitv and iust because the acts and omissions
complained ~Ioccurred in Iial). ihere is therefore ruiiie conieni 10 the indriicu-
Iatcd msji)r preniisc thdt thcrc !vasan <icii\.cand hidJen conspiracy by the Italian
Gci\.crnmcnt. or a coni.crted scriri of rriian bs it i>iliri;ilIO undo El.SI from
Ravtheon and take it over for itself? We sub&t no?
TO iurn back now io the other horn of Applicani'i dilemma: ihc as~eriionthdt
ihcrc is3 I~ck of causaiion an inadequdtc causal nrxus - bctween one aci
and anothcr This is rcallv another wav tif dc>cribinr .iIaik ofcvidencc. Ir is the
same as saying that the burden of proof has not ben successfully carried hy
Applicant. If Applicant cannot prove that A caused B and C and that B and C ARGUMENT OF MR. HIGHET 253
are related to D, it has neither produced enough evidence nor carried its burden
of proof in that context.
In al1 orobability it did not carry the hurden of oersuasion very well either:
this eleeint sister or the olainer burden of oroofente& the court-room onlv when
there isca~yationalchoice to he made by the tribunal %cerning the weighing of
evidence that has been introduced and that would othenvise appear to have been
adeauatelv oroven
Y&,théburden of persuasion is not carried if, despite wbatever evidence tbere
may have been, an Applicant cannot establish and maintain a sufficient causal
connection, or nexus, between the international wrong and the international
injury.
First, the burden of proof
The facts to be proven in this case include facts relative to state of mind -
such as the attitude of Raytheon's management on 20 February 1968 or later
about whether ELSl could possibly be viewed as a "going concern". Thçy also
relate to factual conclusions - such as the conclusion to be drawn from that
state of mind as to whether ELSI was in fact a "going concern".
Applicant's case, Mr. President, must be objectively and realistically seen as
crossing a "bright line" of proof. Their case must be made hy a preponderance
of the evidence.
Yet verv few - if anv - of the ooints criticallv relevant to the case of the
Uniicd Siaic\ hx\c :,ci-all) bccn 3upporicd hy an) siidence. and ceri~inl) no1
Jircci c\,iJence. Swi onc niighi h:ivc hoped ihdt ihc ~nsupporied poinii ivould
hdi,e \Iorrlvlirlr'rdiia, - rdiher Iikc,thc Chcvhirc ut in ihc trcc - bui 11 noitz
appears th& they need.a little encouragement to disappear.
Tben we have the burden of persuasion. Even if al1the facts are as stated hy
Respondent - 1say facts, not conclusions - there still remains another "bright
line" on the terrain of the litigatioii. Applicant must also cross over that one to
succeed.
And the hard conclusion then is that unless Applicant can carry the twin
burdens of proof and persuasion; can win every single point important to ils
case; and can establish the necessary causal link between each one: then Appli-
cant's cause of action does not hold water, and the case must be thrown out.
Now it is a commonplace that this is an advantage for Respondent. But perhaps,
Mr. President, it is only the melancholy advantage that accompanies the pleasure
of being sued.
Each of the propositions that comprise the chain of progression from early
1968 through the final bankruptcy settlement and adjudication of third party
debts in 1969 must form an unbroken line. Each part depends on every other.
No part can be independent. The sequence must be intact.
Now, there is no way that the United States submissions can prevail unless
they can prove the concerted action of which they complain, or unless al1these
"acts and omissions of the Respondent's agents and officiaisat the federal and
local levels (including IRI)" are somehow otherwise connected hy proof and by
reasoning.
But what is interesting is not just whether Applicant can escape the pilfall or
the dilemma of its answer of 17 February. The more important thing is that
Applicant cannot escape the underlying logic of the point. Most of its claims for
the responsibility of ltaly under the Treaty and Agreement fall away, unless italso asserts, and proves, that Italy did something that can be connected into a
unified whole.
Applicant must prove that Italy did a series of things - a march of events
joined by an inexorable and ineluctable chain of necessarycause and effect. But
that argument requires pronf of each step in the chain, just as much as any
assertion of concerted action requires a similar proof.
And unless it can be proved that the Italian Government pdrticipated, in such
a manner as to attract responsibility in international law, in a silent or hidden
conspiracy underlying the asserted boycott, for example - or unless it can be
convincingly argued that the bankmptcy of ELSl was solely or even principally
due 10the requisition, and not necessitated by its terrible financial condition -
then the chain of causation is broken, the logical imperalives of the case have
evaporated, and Applicant's causeof action will have gone the same way.
On this analysis, there are three main problems with the case of the United
States. Mr. President, the first problem is that the company descnbed in the
pleadings of the United States is an entirely diiïerent company from ELSI.
11was a diiïerent company, one that could perhaps have been known as
"Raytheon Italia", that had mn on the rocks and shoals of commercial difficulties
in 1968, but as to which il was still entirely possible to cnnduct an "orderly
liquidation". But this was not ELSI. This was not Elcttronica Sicula. It would
have been a wholly different entity - a sort of heroic version of ELSI.
It would have had to have been a company that had not made the consistent
losses descrihed on Monday by Professor Libonati. It would have had to have
been a company that would not give its employees pink slips ina disorderly
manner, or without proper notice. It would have had to he a company, one
would think, as 10which the senior officersof the shareholder had already hegun
to obtain some concrete resultsin a search for buyers of product linesor divisions,
in an orderly liquidation. Having regard to the consistent record of losses, one
would have thought chatit would have heen a company as to whichsome decision
of orderly liquidation would have been made a lot earlier - years earlier maybe,
say even in 1965!
What did we learn from the testimony of MI. Adams and Mr. Clare. Well, a
number of things, but in this context first, that it was very clear indeed that
Raytheon had decided not to put a penny more into ELSl perhaps as early as
the laie summer or early fall of 1967(pp. 40, 60, supra). We learned that the
top officeron the spot did not think that they could make the next payroll (p.
60, supra). We also learned that the same officerconceded that ELSI was "belly
up jus1 beforc the rcquisition" (p. 60, supra). We learn that hc said that "lt
was impossible to gel rid of anybody there" (p. 49, supra), and that even to
get "rid of two people off the television line" caused a three-week strike (pp.
49, 63, supra).
Nonetheless we also note that this same officer,hecause of the "very peculiar"
thing "that the ltalian staff in the officewould not touch them . . .personally
inserted about 800letters in10envelopesand stamped them and look them round
early in the morning and posted them off (p. 31, supra). Now it wasan imaginary
workforce, an illusory workforce, that could he dismissed in this way without,
obviously, severe repercussions. For, if the dismissal of two workers can cause a
strike of three weeks, howmany weeks would be caused by dismissalof 800?
The heroic or imaginary ELSI, however, wasa company that could withstand
these pressures. It perhaps was a company where these other "curious" things
had not occurred. In addition, the heroic ELSl was an entity that was perfectly
capable, in Applicant's view, of heing sold to a willing buyer at current market
values -of realizing a fair sale price. ARGUMENT OF MR. HIGHET 255
The imaginary company had good products, good customers and good work-
in-process. The real ELSl had none of these. The imaginary company had
sufficientfunds to meet the next few payrolls, at least. It surely could have met-
or would have had to have made provision to meet - the April deht amortization
payment 1referred to. The real ELSI could do neither.
Thus the real ELSl had to dismiss 80 per cent of its workforce, like it or not,
no matter what the risk. It had to shut down and close its doors. It could not
go on while the Raytheon executives, Mr. Clare and Mr. Oppenheim, sewed up
the last details on the spin-off proposal with Company X and Company Y,
international firms eager to acquire portions of ELSl's product lines and its
considerable goodwill. It could no1 continue in existence while the sale and
disposition of plant, inventory, finished goods and work-in-process was heing
hrought to a conclusion to ltalian or French or German purchasers.
That wouldhave been an "orderly liquidation", wouldn't il'But tbat was not
ELSI. That was no1 the situation here. The losses of the real ELSI had hecome
completely crushing. The real ELSI was "doomed" by excessive interest and
royalty payments. Its business was not flourishing - not even standing still. As
Professor Libonati said, it could make only losses. It is sad to say, and it is sad
to deal with a record of failure, but the real ELSl was a total disaster. The
workers had occupied the plant, otfand on, for weeks.There were wildcat strikes.
The production lines had been stopped. The books and financial records had
been moved from Palermo. No officialbusiness was heingconducted in corporate
headquarters - meetings were being held in Rome.
This was the real ELSI. It was a company in disarray - in flight. The real
ELSI was a rout. The heroic ELSl was an utterly difierent animal, and, indeed,
like the unicorn, it is one that sadly never existed.
The second problem with Applicant's case is that there is in fact no direct
evidence of any of the cntically relevant facts. Compared to most cases that have
been resolved by the Court in the past, the evidence in this present case is not
only highly charged with assumprion and innuendo, it is also circumstantial in
the extreme.
In order to cape with the inconizenience of a lack of direct evidcnce, an
interesting pleading technique has heen developed by the United Statcs. It is
proof hy pleading, rather than pleading by proof: it is a repetitive technique,
almost of incantation.
The United States ~leadinzs somewhat irritatinelv as-.me that claims and
~uggcsiiiinsi3n bc ~(~nsidcredcstab.i,hed. or pri>\cn. if the) ire repwtrJ fre-
.luvnil" or \chcriicnil! enoii-h ;ind thcn ililiey rciZr hi~kriards rd uli:it ii:is
aid carlier. )CI nonc ciitliisi\pr,>vr'Jhy .in\ direct e\idcncc 11ndsiich .iprt>of
is as fundamental to this case as-the Court wiil,of course, remember as a question
would have been, in CorfuChann<ila,s to whether mine damage to the Saumurez
and Volagehad in fact occurred.
Reference is made to Applicant's case as if il had been proven, four-square, in
law. It is a critical flaw. It is a reverse petirio principii. It is not merely hegging
the question; it is begging the case (Italian Rejoinder, II, pp. 445-446).
A singleexample - consider the opening pages of the United States Memorial
(in Part 1)once again. In the third paragraph il was stated that:
"On 1April 1968 . . the <;overnment of ltaly requisitioned ELSI's plant
and related assets, in order to prevent the liquidarionand to facilitate the
acquisitionof ELSI's assets />yltaly's commercialconglumerate .. . [IRI]."
(1,p. 43; italics added.)
That is what il says; that is how the document opcns. ARGUMENT OF MR. HICHET 257
characterization Io he ai.en to the requisition of the plant by the Mayor of
Palenno.
Indeed, it is remarkable how highly the Applicant's case is coloured by in-
nuendo and unjustifiable characterization. A fine small example is the rigid, deli-
berate repetition of the impassioned and undiplomatic comments hy President
Carollo in his memorandum of 20 Apnl 1968 0, United States Memorial, Ann.
38). and the mistranslation of the future indicative in10 the English imperative
"shall", the point made on Tuesday by my colleague Professor Bonell.
We were, of course, gratified to note that Professor Gardner confinned our
analysis of the word "shall"; in his discussion of Article 1of the Supplement he
stated that "[tlhe lems of this provision - 'shall not he subjected' - are
imperative and unqualified (p. 101, supra)".
Another example is that il is in eiïect asserted that unnamed ltalian authorities
secretly conspired to cause purchasers no1Io appear a1the auction sale. This has
not a fragment - no1 a fragment - of evidence to support it. Quite to the
contrary: the bankruptcy sales were widely and publicly advertised al1 over
Europe. The notices are in evidence,and were filed al least with the 1974Claim.
Professor Bonell noted this point on Tuesday (p. 208, supra).
Now, does Applicant no1have to prove something more, in order Io estahlish
a "conspiracy" or a "boycott" - a deliberate boycott - of auction proceedings,
than merely asserting that no purchaser showed up and that there must therefore
have been a boycott? Of course it does.
If an auction is taking place, and if the ultimate huyer does not go to the
auction hall on the first day, did he "boycott" the auction? And if he"hoycotted"
it, and if no one else showed up, can we conclude that he also caused everyone
else to "boycott" it? In fact, anybody who did no1 show up at the auction, no
matter who they were, theoretically would have "boycotted" the auction. Now,
in neither instance is there evidence of any kind, and this point jus1 does not
make sense.
And you cannot answer questions of this sort, MI. President, by stringing
together, as Applicant'spleadings have done, a seriesof unsupported innuendoes,
conclusions and repetitive inferencesof mixed fact and law, instead of presenting
some hard, clear evidence that certain things were in fact so, and that certain
thinrs in fact were done.
~;cn rhen rhç) wùuld hair io Iirikedcle~rly,and un;imh,guously.ro ihrTrc~t).
It is similÿrto the burilcn oiproof Iiaiuld bcc;illedthe burdcn <~iinierpreiaiion.
II ir not ;i~ccpidhlefor :irgi\ereign Siaie to be hcld resrionsiblc li~r \iol3ri-g
international law and treaty obligations on any other hasi:.
Third: the third problem, Mr. President: there is no necessary chain of causa-
tion and causality from the act or omission Io the injury claimed to have heen
suflered.
It is a commonplace that there has to be a causal connection hetwcen the
asserled act or omission and the injury suKered.This is tme of course in intema-
tional litigation as much as it is in municipal law. Now, if there is an intervening
cause - and if the injury is not a necessaryconsequence of the act or omission -
you cannot find responsibility. It isn't there. And the ltalian Rejoinder (II, pp.
473-476) has set forth the principles and authorities and Professor Monaco
yesterday reminded us of the law on this snhject.
One of the key links in the chain - here, in this case- is the actual condition,
as the Court is wellaware, of ELSI on the eve of the shutdown. If you can prove
that ELSI was in disastrous shape on 21 March 1968 - and 1think it difficult
to hold that it could have been in any other condition - then that seems to go
to the issue of making the value lessattractive, and the possibility of an "orderlyliquidation" hopelessly remote. 21 March, 29 March, any of those dates hefore
the dismissal notices were sent, will suffice. Was it able to be liquidated in an
orderly manner? Now, the pleadings, of course, are replete with evidence ad-
vanced hy ltaly that ELSl was grossly overburdened by deht, undercapitalized,
and was even then at a severe shareholders' deficit.
This evidence has never ken rehutted. Why? Because it is not rebuttable.
Neither side can deny that ELSI was a real money-loser. In the words of Mt.
Adams, it was shortly going to "disappear" unless it could be shored up by a
further injection of working capital. (Seethe handwritten minutes of the meeting
of 20 February 1968.)It was "brlly upjust before the requisition", according to
Mr. Clare (p. 60, supra). And far from being a going concern, ELSI had already
gone - in a familiar American expression, sad to say, it was a "goner". The
requisition could not have made much of a difference - if any.
Where then is the causal link hetween the requisition and the bankruptcy?
What is the key point? 1s it not that the financial condition of ELSI was the
thing that made it necessary for the Board of Directors to vote bankruptcy? It
was not the Mayor's requisition.
If the company had been healthy and a "going concern", and the Mayor
requisitioned il, why would there be a need to declare bankruptcy? As ltaly
pointed out in its Rejoinder (II, p. 434), ELSI had in effect acknowledged that
it was unable to pay ils debts, "as is clear from the fact that it was intended to
satisfy unsecured creditors' claims to the extent of only 50 pet cent". Now if
ELSI had been able to pay ils debts, why could no1 Raytheon (and Machlett,
for its 1percent) just have taken their lumps and endured for one month or two
months? Sort it out? Why not? Could it have been that there was no realistic
hope whatever that the oiïer of 50 cents on the dollar to the senior creditors
would be acceptable? Could il have been that the situation was already too far
eone?
'lhc Iiii;uerii ob\io~sly ihc enicrprisc wa, no longi'r 1 goinl: conxrn, obvi.
oiisl! itcould noi ssriou.l) i>iTer~n)thing niorc ihan !Clccnis 011 the dollïr for
the \ri amouni of cornor:iic uorkinr? cï~il.il oblirïii<~ns il had; :ind i~h\iouslv
it was insolvent and technically bankGpt - couldnot pay anything. ~ver~thing
was coming due in a matter of days, jus1 before the requisition.
It is useful here, Mr. President, to apply a form of what we in the United
States like to refer to as a "but for" test. Would X have ha~oene.. but for Y?
lias ,\pplic~ni su,txinr.J ihc hurdrn oi prooi ihat. hur Jur ihe rcquisiiion. ïLSI
wtiuld no1 ha\c gone inio bïnkruptsy: would hx\,î hccn an attrdctivc t.trgci ior
an assets purchise; and could have been liquidated in an orderly manuer at
current market values? No: Applicant has not! And yet unless Applicant can
satisfy the "but for" test - right then and there - it loses the case. You cannot
murder a dead man. ELSI was already a dead company.
Then how is the "but for" test to be met? By making sure, obviously, that the
chain of causation is impeccable. And yet here there is no objective realistic
connection between whatever the Mayor of Palermo did or didn't do, or whatever
the courts did or didn't do, and the ultimate damages asserted to have heen
suffered hy Raytheon.
Mr. President, the banks would have sued anyway. The guarantees would have
heen called anyway. There would have heen serious prohlems with finding
purchasers anyway. All of this would have happened anyway, whether or not
there ever was a requisition. Unless someone can produce a miracle.
This is a corollary perhaps of the old device in logical philosophy called
"Occam's Razor": that one should seekthe simplest explanation, the least compli-
cated explanation for things. And the simplest answer to what befell Raytheon ARGUMENT OF MU. HIGHET 259
and ELSI is that they suffered severe business reverses as a consequence of bad
planning and management, inefficientcommunications and insensitive handling
of the local situation. This is a business tragedy such as is frequently seen. Itis
not unusual. But it does no1 mean it is actionable.
If one cuts this case with Occam's Razor, one gets the same result that one
does with the "but for" test. And it underscores the need for satisfyingthe burden
of proof. Now if Applicant wishes us to helieve that there is a more complex
explanation for what befell Raytheon and ELSI, in order to invoke Italy's
responsibility under the Treaty and Supplement, surely it is for Applicant to
prove by a preponderance of the evidence that Occam's Razor should not be
used to cut off ils argument.
And stated another way: why should a respondent in a case brought by
application have to prove that something did not happen, when the applicant
has not been able to establish that it did? 1s it for ltaly to disprove something
which, although not proved by the United States - and although no1supported
by factual evidence - is merely stated as a conclusion by the United States? 1s
it for ltaly to prove that the requisilion did nor bnng about the bankruptcy, or
that hankruptcy did nor cause the losses suffered?
No, to the contrary, MI. President. It is the job of the United States to prove,
by a preponderance of persuasive evidence, that the requisition necessarily did
cause the bankruptcy, and that the bankruptcy necessarily in turn did cause the
losses.
It has, very simply, not done itsjob. It cannot be satisfied with merelyasserting
something. Even repeatedly. It must prove it, and it must carry the burden nght
across the bnght line of proof and persuasion - and carry that burden al1the
way down the field,and establish its affirmativecase against ltaly by a convincing
preponderance of reasonable evidence.
The reason for this is that the consequences to Italy of a negative finding of
responsibility in this case would be grave and senous. The United States has 10
do more than just state a claim: it must prove it by a convincing preponderance
of the evidence - just the same way that Italy, were she suing the United States
under the Treaty, would have to do.
The Chamber adjournedfrom 11.10 ro 11.30 o.m.
MI. President, Members of theCourt, just before the colïee break 1had pointed
out that the United States has to do more than iust state a claim. It must prove
the claim by a convincing preponderance of the-evidence just as Italy, wekeshe
suing the United States under the Treaty, would have had to have done.
1now would like to turn to five main assertions of mixed fact and law upon
which the case of the United States depends. They are the grand lignes of
Applicant's case.
Thefrsr - 1 have of course said it repeatedly and it is one that the United
States can neither escape nor avoid - is that there was a hidden conspiracy or
concerted course of action on the part of the ltalian Government.
But this has two parts. The frsi part is a conspirocy of omission. It is, in
substance, that the ltalian Governnient and its various dependencies deliberately
failed to help ELSI.
The secondpart, the second leg, is a conspiracy of commission:to bankrupt, to
requisition, to split upELSI.
Let us dealfirsr with the sins of omission. Amongst other things, it has been
suggested in the written pleadings and certainly orally that the Mezzojr,'iorno
henefitsthat should have belonged to ELSI were not forthcoming and particularly260 ELETTRONICA SICULA
that the preferential purchasing arrangements with State agencies were not con-
cluded, that incentives and other henefits were no1 granted, that regional and
national authorities had been of no assistance. (See for example United States
Memonal, 1, pp. 46, 48-50; Adams affidavit (Ann. 9 to the United States
Memorial) at para. 28; Scheneaffidavit(Ann. 13to the United States Memonal)
at para. 12; and Clare affidavit (Ann. 15 to the United States Memorial) al
paras. 21-42; United States Reply, iï, pp. 365-366; and see (contra) Italian
Reioinder. II. DO.442-443.1And these statements are ~roduced in essence to
conveyihe mes;&e ihai so&how Italyand ils i,arioushomoàcnizcd dcpcnrlcncies
hclp-d or had suhsiantial p3rt in placing t:I.SI in [hç diflisulries iriwliisli ihr
iound herself hv Mdwh 1968ünrl seria~nlvcven bs 3U Sc~iernber IYO7.
Bu~ n0~here.i~ it clearlv,s~ ~~ ~ ~at thire was inv d, , whatever on the oart
df any authonty io gisc any oiihosc hcnefit\. And I nicdn thai dut). under 1i31i~n
niunicipal Iaw, .Irluiy under the Treaty Ni> duiy, nonz. Ncithcr Mr Adams nor
Mr Clarc uus ahlc 10 sdv lh31 thcv wcrc ccriain that Raviheoii and El.SI had
an unqualified right to aiy of thoséhenefits.
Now my colleague Avvocato Caramazza has explained these benefits to the
Court, and quite honestly why they were really not available to Raytheon and
ELSI. And aeain neither Mr. Adams nor Mr. Clare was able to testifv that
Raytheon or ËLSI had eliectively followed up, had done something, to pursue,
to pin down, to make a detemination to ohtain the rights, if any they had, that
they might have assumed to he in existence.
Now it may have displeased Raytheon that such benefits were no1available. 1
am sure it would have displeased Raytheon to find out that what il had heen
told hy its lawyers and ils advisers could not bear fruit but, MI. President, this
does not create a cause of action for Raytheon or ELSI. It does not justify a
claim hy the United States under the Treaty or othewise.
There is not a single shred of evidence that 1 am aware of in this case that
there was any henefit or purchasing allowance, Mezzogiorno henefit, transporta-
tion suhsidv or othenvise. as to which ELSI was clearlv entitled or Ravtheon
entitled thG was requested and denied. There is no evideice. It is a leilmoiif,this
point, it is a bass counterpoint, to the main case. You hear it in the background
ihroughout these pleadings as you read them and as you listen to counsel. It
helps to lay the groundwork for the "conspiracy" theory. It sets the tone. But
the point - such as it is- sadly is discredited by the uncontrovertable evidence.
One other point will prove this result. In the 1967ELSl reorganization plan,
the Clare Report, which you will recall MI. President, the Raytheon officiais
suggestedthat this should be a modification of the Mezzogiorno programme and
regulations in order to permit ELSl to claim thereunder and to henefit thereby
(United States Memonal, Ann. 22, 1, p. 224). Well, common sense requires this
to be in effect a black-and-white admission that ELSI was not othewise entitled
to any of these benefits.
1 should add in this context that, as part of this leitmotif, Raytheon and
Applicant appear 10 studiously avoid refernng to the fact that ltalian public
authorities indeed gave a huge amount of assistance to ELSI over the years. This
does not really come out of the case. 1am refernng here to 7 billion lire in low-
interest loans made over the decade from 1956to 1966,that Mr. Adams did not
secm to recall even when 1asked him about them al page 45, supra.
And there is more importantly, the acts of commission, the secondleg of this
first point: the alleged conspiracy to bankrupt and split up ELSI. Now 1 have
said, and it is true that this is not proved hy evidence hefore this Court, that
there is neither proof nor persuasion and every component of this theory just
evaporates when you look at it carefully. ARGUMENT OF MR. HIGHET 261
Mr. President, upon rereading the famous 20 April memorandum, the "shall
and will" memorandum, that was cited verbatim I believe once by Mr. Sofaer,
two or three limes by Mr. Matheson on the opening day. 1sthat memorÿndum
reallyas threatening as the United States would have it be? Can it not also really
reasonably be interpreted in a diiïerent way? It is an impassioned statement, an
emotional prediction, as to what the consequences would be.Not just a threat.
Wellindeed il is not inconsistent, such an analysis, with what was said when,
on Wednesday27March, President Carollo had warned the Raytheon negotiating
team
"that if we proceeded [that is Raytheon], if we proceeded withsending out
of the letters of dismissal. then the olant would almost certainiv be reaui-
sitioned; that he [Carollo] was prepared to pay the people for i% moiths
whilc the liquidation of the Company was sorted out; and that the Region
and the unions, together with the Central Government would then prepare
for the liquidation of ELSI, with subsequent rebuilding" (Exhibit F to the
Clare affidavit, United States Memorial, Ann. 15, 1, p. 164).
What was wrong with that?
Was it then prudential, or realistic, for Raytheon to conclude that "this was
nowhere near a definiteenough oiïer for Raytheon, Lexington, to accept (ibid.)",
having regard to the fact that the alternative to what the kind of thing that
President Carollo was suggesting here was what? It was complete disaster. That
was the only alternative.
Moreover, had Raytheon not in facthad "fair warning"? What did they expect
to happen whendismissal noticesweresent to about 800out of a 1,000employees
over one weekend, in a year of great unrest, serious economic trouble, serious
unemployment in ltaly and the region and when their own senior officersknew
perfectly well. as came out of Mr. Clare's testimony, that the discharge of only
Iwo workers had tied up the television line with three weeks' worth of strikes
(see Mr. Clare's testimony, p. 49, supra)? What else did they expect? But that is
not government action. It is assumption of a risk. It is a very deliberate refusal
to take into account the realities of the situation.
On Friday nighi (29 Marzh) - 1poini oui ihît I chccked ihc c~lcnder and ii
cornes oui IO bc a Fndîy nighi - the lasi rcîl mcciing of the Raythecin teîm
and the local oficials siaricd ai 9.30 p.m.and iimong oihcr ihings. Mr Carbone
"commented that at this hour of the night we [that is to Say, the Raytheon
team] would have to take the word of the Prime Minister of ltaly as we
could not expect him to put someihing in writing within the next hour or
so . .."(Exhibit G to the Clare affidavit, United States Memorial, Ann. 15,
1,p. 181).
Of course. How could you expect a Prime Minister to put something in writing
a19.30 p.m. on a Friday night? But this was not good enough for the Raytheon
people. Extensive proposais were m;ide - and 1invite the Court to go back and
look at preciselythose Minutes in the exhibits - but again the Raytheon people
balked. Mr. Clare "emphasized the danger of losing markets, losing people" -
he proceeded to lose them by himself, didn't he? -
"and the need to eitheropen thc plant on full production as soon as possible
or shut it. Any concept of an ii~terimsolulion was really doomed to failure
for those reasons" (ibid.).
This is like one of those children's puzzles where it is said: "What is wrong
with this picture?'What is wrong with this? Why is it that he does not seem to262 ELETTRONICA SICULA
see that he is doomed to failure anyway? They couldn't even meet a payroll, as
MI. Clare conceded on cross-examination. Yet, only two days earlier, the same
negotiating team had been explicitly warned by Mr. Carollo that "the plant
would almost certainly be requisitioned if they shut it down.
To be fair, however, and looking again at the flurry of last-minute meetings -
26, 27, 29 March (Carollo, Carollo and Carbone) (Exhibits F, G and H to the
Clare affidavit, United States Memorial, 1,Ann. 15) - it is worth looking hack
over them. What is the overall impression that you get frorn these documents?
1s it not that the local, regional, and national authorities of Italy were al1
sincerely and deeply concerned about ELSi's terminal fiscal crisis, what would
hao..n to the workers. what would haooen to..he Reeion? Of -ourse that is
true. It comes nght out of the paper.
Does it not appear that al1these officials, these homogenized representatives
of the ltalian Government, that they weredoinp their best to try .o pe. something
toeether. as best as thev could. 10-salvaee a disaster. an imoendine disaster -
<,>meihinguliich ;ippe.ircJ io thcm tu bc right arounJ ihc curncr tind io promisc
no good i<-inyhod) in\,ol\e,I' How does ii look Iikea conspiracy IO IzurrELSI'?
hrlicr I relid ihai ri~ss3ecIO th? Court. hefurc ihc break, uhere it u;is said in
one of the wntten pleadkgs that the requisition was trumped up and that the
Italian Government had indeed caused this crisis, caused this financial crisis, hy
not stepping in and intervening.
Why - this is becoming, as you see, MI. President, increasingly difficult to
understand - why were Raytheon's executives - in the American expression -
so "hard-nosed". Why couldn't a little flexihility be shown? 1asked Mr. Clare:
he said no, the decision had been made. Mr. Adams testified very clearly that
the decision had heen made back in September 1967 that they were no1 going
to invest any more money. But why did Raytheon's negotiating team
continue stubbornly to assume the risk at this time? And now to he represented
by their Government and to pretend, or to demonstrate, that they are shocked
by the consequences - that they must have known perfectly well would have
happened. 1 am no1 talking about a plot that they would have known about.
1 am talking about the simple human consequences of what they did in
Palermo.
In fact we know, thanks to MI. Adam's and MI. Clare's testimony, that
Raytheon had made the decision to cash out long,long hefore the end of March -
unless something wonderful turned up, like Mr. Micawber. There was no possible
"give" on Raytheon and ELSI's part. There was no way in which they could
have moved a singlecentimetre toward the middle of the table in discussions with
Carollo and others.
We can see, Mr. President, - by looking hack - that, if anything, this made
things irretrievahly worse.
Why was it necessary, MI. President and Members of the Court, for the
Raytheon and ELSI officialsto proceed in such a seeminglyprecipitate manner?
The mailing of the letters of dismissal a1 3 in the morning or whatever it was -
the hurry to end it al1 - seems almost spiteful, with hindsight, trying Io read
between the lines. Consider how long it must have taken for two or three tired
senior executives themselvesto stuff 800 envelopes. How long do you think that
took them at 2in the morning, or whatever it was, whilethe local ELSI employees
glared at them?
It is as if Raytheon and ELSl had wished to make it very clear indeed to the
local and national authorities that this was somehow their mess, for which they
too were responsible, and if they were not going Io help Raytheon and ELSI get
out of it, well then the devil take the hindmost. 1t almost comes out of reading ARGUMENT OF MR. HIGHET 263
merelythe documents, and il isconfinned, 1think, without question, by the direct
and cross-examination testimony al least of MI. Clare.
This kind of conduct or rigidity raises the suspicion - and it could raise the
suspicion certainly - of yet another unspoken and unmentioned influence on
the situation: something that we deduce or infer is there, but we do no1 really
know is there, like the orbit of a dark star, the companion of Sirius. Something,
for example, like whatever the efiects would have been of that very restrictive
investment programme of the United States Govemment that went into eîTectin
January 1968,that 1have mentioned - or something, perhaps, more along the
lines of a secret agenda on the part of Raytheon that we do no1 know about.
There must have been something there to explain this. There really must have
been.
Could it have been a plan to push the local authorities to the absolute brink;
to disregard theirwarnings; to turn down requests for delay; to request everything
in writing late on a Friday night, when you know you could no1 gel il - al1of
this, perhaps, with the knowledge that if you did no1 obtain those written
undertakings that they were trying to pressure the State authorities into, they
would in a curious way be "sheltered" hy something like a requisition that they
were told would orohablv. or almost certainlv. haooen?
A requisition kghl aliiw Raytheon to gei&' {Lehook for the lime being in
a situation that was a complete disaster anyway - that they had no1 been able
to work out. The company was "belly up. ~here was not enough money to
make the next payroll, unless they essentially fired four out of fiveof the workers.
There was nothing in fact that Raytheon and ELSI could do, given Raytheon's
unbending decision to wash ils hands of ELSl's operations and to make no
f~~t~ ~ ~ ~ ~-~~~~~~~~-v Italv and the Italian local and reeional authorities. and
perhaps IRI, could perhaps "bail them out". -
But ifthey were no1hailed out, and since they had made no progress whatever
in arranging the sale of whole or part of ELSI's business on the famous "going
concern" basis in the oft-repeated "orderly liquidation", weren't they really
stuck? They were in a hole. They were painted into a corner. Look al il this way:
1. ELSI had been steadily doing nothing except lose money for years; it had
never made any money;
2. Raytheon had long since made the decision no1 to put more money into
ELSI;
3. Wenow know that ELSl was al a state of shareholders' caoital deficit durine
the period we are worrying about; -
4. Raytheon had tried, unsuccessfully, although seemingly even not very effi-
ciently, to arrange for a huyer for al1or part of ELSI;
5. Few purchasers hought ELSI's products - that is the problem, that is one
of the reasons why the company did not make money -and so even fewer
purchasers might be expected to want to buy the product lines;
6. Raytheon and ELSl had tried unsuccessfully to arrange for IR1 or the
regional authorities to step in - there was no obligation for them under the
Treaty to do so;
7. ELSl had "run out of cash";
8. It could not even make the next deht repayment coming due in Apnl;
9. The labour tensions were such that it ohviously should have been - il mus1
have been - thoroughly well anticipated that these mass dismissals would
simply cause an horrendous plant-wide strike, sit-ins, and goodness knows
what else, and yet . ..
10. Mr. Clare mailed the dismissal notices and shut the plant.264 ELETTRONICA SICULA
The only conclusion that really can be drawn from this sad sequence is that
this whole aiïair is at least 99 per cent Raytheon's and ELSl's own doing.
Raytheon made the decision no1to put in more money. Raytheon was unable
to seIloff al1or part of the plant, even though it had known forjîve or six yeors
that ELSl was a loser. The Clare report came out in 1967.They circulated il -
as we learned in testimony - widely. They still were unable to sel1the plant.
Raytheon and ELSI could, or would not make a deal with IR1 or the regional
authorities for a bail-out, because of ils policy against additional cash exposure,
cash investment, by the mother Company.
Raytheon and ELSI, MI. President, knew the risks full well - that, if they
dismissed 800 people and shut the plant, it would probably be the end of the
road for the wholeenterprise:that iswhat had to he the fact. How could anybody,
even only listeningto the evidencebefore the Court, sensiblyconclude otherwise?
The situation was a disaster.
The conclusion could only be that Raytheon and ELSl were forced, by their
own economic planning, in10 that decision and that il was they who, in fact,
pushed the button that led ineluctably to the bankruptcy they voted on three
weeks later.
The requisition by the Mayor of Palermo was a disruption, to be sure, but in
the face of al1the evidence il was a relatively minor one. The plant was already
in terrible shape. The real disruption was caused by Raytheon and ELSI. It was
the decision of Raytheon and ELSl to "fire" 800 employees without notice, in
the middle of the night, that was one of the things that jus1 obviously was to
bring about this whole catastrophe - or, more properly, since il already was a
catastrophe, that accelerated the conclusion of this sad business tragedy.
It really was Raytheon that caused the bankruptcy, no1the Mayor of Palermo.
This is true, for two reasons:
First,it was Raytheon and ELSI's actions that inevitahly triggeredthe requisi-
lion as to which Raytheon and ELSI had already been amply, and no1necessarily
maliciously, or even threateningly, forewarned. Wasn't il obvions what would
happen - as night follows day?
Second, Raytheon and ELSl would have beenstaring bankruptcy in the face
in any event, even if the workforce had peacefully gone off to "get jobs digging
ditches", in MI. Clare's poignant phrase (p. 57, supra).
They would haveken bankmpt, as Professor Libonati made plain on Monday,
for the simple reason that they had debts coming due - even forgetting about
the payroll - and they had no more cash to speak of and Raytheon was no1
going to add any.
800 million lire wasdue to Banca Nazionale del Lavoro on 18 April (see II,
Unnumbered Documents Submitted by ltaly annexed to the Counter-Memonal,
Exhibit 111-16,[p. 179]/Memorial,Ann. 43, p. 311), plus even reduced payrolls,
and as MI. Clare had agreed that ELSI was going in10the month of April with
no more than approximately 22 million lire in the kitty, what other conclusion
can you come to?
Now comes the Mayor of Palermo and requisitions the plant on 1 Apnl,
after Mr. Clare has stuffed his envelopes and mailed his notices.This introduces
a new element. It creates an escape hatch, a distraction, from the business failure
that Raytheon had in fact created and maintained for a number of consecutive
years.
Thus Raytheon in 1968had nothing ta "lose". In this sense, il had already
ken lost. Either some real help might appear, in writing, over the weekend, that
could have ken acceptable to Lexington, or Raytheon would be taken off the266 ELETTRONICA SICULA
The first case was hrought about hy the complaint hy the trustee in bankruptcy
against the Minister of the Interior and the Mayor of Palermo'; the second was
the 1973Judgment of the Court of Palenno' on that question; the third was the
1974 Judgment of the Court of Appeal of Palermo, reversing the lower court
decree3; and the last was the 1975Judgment of the Court of Cassation4. And 1
invite the Court's attention agaiu to these decisions.
None of the proceedings has heen challenged, as such, by the United States.
No allegation has been made that the judges of these courts were part of the
conspiracy against ELSI and Raytheon. Applicant has not overtly made that
claim, and has surely produced no shred of evidence that could support such an
inference.
Of particular importance, Mr. President, is the Judgment of the Court of
Palermo (supplemented by the decision of the Court of Appeal of Palermo). Now
that judgment specificallydealt with a number of the very issues that are before
the Court here today (these are dealt with in the United States Memorial, Ann. 80,
1, pp. 374.379, and they are worth a fresh reading in the light of these oral
proceedings. The Court said, very simply:
"It is clear from these conditions that the connection hetween the com-
pany's hankmptcy and the takeover is unfounded, as the defendant admin-
istration correctly maintained, since Raytheon-ELSI's economic situation
had already been seriously compromised, as its own management explicitly
admitted."
And the Court continued, Mr. President:
"the precise definitions ahove show that the hankruptcy was due to other,
much more relevant causes and not to the takeover which had no such
effect" (ibid, p. 375).
The Court of Appeal of Palermo agreed, and it pointed out specifically in
regard to the causation issue that:
"The fact that the Company was insolvent during the time immediately
prior to the Mayor's intervention - in connection with which we may recall
the many and noisy demonstrations which this gave rise ta, as we are
reminded hv the Court - lthat factl is sufficientto rule out anv causal link
hciuccn ihc rub,cqucni rcqui<iiioningordcr and ihs 2ompün)'i hankrupicy
and ihai the comprnl's st.ite of in.ol\eiiz) u.:i,deciri\c and ,ullicieni wuic
r 11sur " (I.'nitcd Staic, Mernorial. Ann. 81, 1.p. 382 )
Mr. President, as well as the three decisions in the case hrought against the
Minister of the Interior and the Mayor of Palermo, extending from 1973to 1975,
there were three more proceedings (including a decision hy the President of
Ital~)~. There is also a court decision approving the lease to ELTEL6 and a
' Cornplaintdated 16June 1970(1, UnitedStatesMernorial,Ann.79).
Judgment of 2February1973 (1,UnitedStatesMernorial,Ann. 80).
' 24January 1974 (1,UnitedStates Mernorial,Ann. 81).
26 Aprtl 1975(1,UnitedStatesMernorial,Ann. 82).
' Theseincludethe Judgment ofthe Prefectof Palermoof 22August1969 (1,United
StatesMernorial,Ann. 76); the appealto the Councilof State of that decisionin turn
theRepublicof lfalydisrnissingthe appealof that decisionby the Mayorof Palenno,ontof
22April 1972(ibid A.nn.78).
DecreeoftheCiviland CriminalTribunalofPalenno of9 May 1969(1U ,nitedStates
Mernorial,Ann. 64). ARGUMENT OF MR. HIGHET 267
judicial confirmation of the approval of ELTEL's offer Io purchase the remaining
nhvsicsl a~~ ~ ~ ~ ~
If thesçjudicial processes arc excluded from the conspirdcy theory, Ihcyconfaln
the only real evidence kforç [hi.;Couri on the ISFUC of the caus~l relationship
between the requisition and the bankruptcy.
What then happens to the chain of causation? To the burdens of proof and
persuasion? The question, 1submit, Mr. President, answers itself.
*
The rhird grande ligne of Applicant's case is that the bankruptcy that then
occurred made an "orderly liquidation" impossible.
The short answer is that it would have heen impossible anyway. The idea of
an "orderly liquidation" is legend. It is pure Iàntasy. The Kejoinder of ltaly
described it unarguably (11,pp. 431-432):
"the overall picture was as follows: the Company had a chronic deficit; /ts
production lines were shut down; its workforce was occupying the plant; its
management had practically disappeared (II, p. 432).
What more needs to he said?
How can anybody say, with a straight face, that this hopelessly disorganized
business disaster was a "going concern", or that these assets could somehow he
sold oiTat "current market value"? Yes indeed. or at book value with increments
Cor goodwill" The idea is trapaally ndiculous.
Yet 311 that is necescary for 1t31) to Jsmon,irate to the Court is thxi there arc
serious di/licr<lricwith the r>ropusitiuns.Ws do not hai,c to prote thxi they re~lly
are as absurd and far-fetchedas they really are. It is not ÏIaly that is sing the
United States in this case. The burden, Mr. President, is on the other side.
Now there is a related point: that there was a harmful delay in appealing and
lifting the requisition. But what unequivocal evidence of this exists? Where has
the burden ended and what is the chain of causation there?
As the Court of Appeals of Palermo pointed out, the requisition order, rnore-
over, was only addressed Io ELSI's plant and equipment, not to al1of its assets
(Italian Rejoinder, II, p. 432). The pleadings of the United States - and most
specificallythe affidavit of Dr. Bisconti (1,United States Memorial, Ann. 26) -
seem to imply that the requisition was universal and of eternal duration. Well it
was not. The requisition expired in accordance with its terms by the end of
Septemher 1968.
Moreover, we know that ELSl's books had been removed 10 Milan a month
earlier (Nett affidavit, United States Memorial, Ann. 30,1, p. 250).We know that
the production line was to he shut down by ELSl's own Board, that it had only
ken partially operative before, and that workers had beenin and out of occupying
the plant for some weeks.
The requisition or requisition decree was obviously protective. The evidence
~ ~bi~ ~ ~ ~indicate as much. But it is certain that the burden has not been
carried, Mr. President, as to the contrary proposition. And the United States
must bear this burden, it mus1discharge this burden and convince the Court that
it was not obviously protective
'Appeal of the 7 June 1969order of the BankruptcyJudge of the ELTEL oEer Io
purchase ELSl's remaining physicaalssefs,filedon 9 June and rejectedan 20 June 1969.
See Biscontiaffidavit,1,UnitedStates Memorial, Ann .6, para.24. (Erhibif 38 of"The
Claim"; seelfalianCounter-Mernorial II, pp.19-20.)268 ELETTRONICA SICULA
Even the Merluuo affidavitannexed to the United States Memonal (1,Ann. 21)
fails to convince the reader.
The fourth grandeligne is that there was a hidden conspiracy to boycott the
hankruptcy sales and to prevent the huyers from bidding in.
Once again, it becomes repetitive to Saythis, but there are elements in this case
which are fearsomely repetitive. The evidence supporting this is quite literally,
non-existent. There is not a shred of factual justification, not a shred to justify
this claim. Now, Mr. President, the charge is even harder to entertain when it is
recalled that there was widespread advertising of the hankruptcy sales in the
international financial press.
If an international firm - say a hypothetical major European or Japanese
electronics firm - reading the financial press, wished to huy ELSl's product line
or plant, or inventory, or work-in-process or the whole thing or what-have-you:
and if Italian enterpnses were staying away and "hoycotting" the bankruptcy
sales, why couldn't the international firms then have henefited from a lack of
bidding competition?
Why wouldn't they have taken advantage of an alleged "boycott" - of the
absence of other bidders? The point does not even make common sense. Merely
to say that ELTEL or IR1 affiliates did not show up - it is tme they did not
show up - is not to conclude that there was a "boycott". It means that they
were not interested in buying at a knockdown price for that particular auction,
or wished the pnce to go further down, or were not interested in huying the
particular mix of assets that were then being oKered for sale.
In addition, the point begs the question as to whether there existed a duty to
huy anything, or to pay anything. Where is tbis duty? What obligation does the
Government of Italy have? Or IR1 or ELTEL; were they ohliged to come in and
hid at a high price? Was ELTEL obligated, under some Byzantine theory of
international responsibility, to pay more than it "had" to? If so, how much?
We were reassured, of course, to hear Mr. Lawrence, Applicant's expert,
support this point when he stated that he "would not criticize Siemens for
seeking to ohtain the hest possible hargain" in relationship to an appraisal (p.
124,supra).
*
Thefrfrh, andlast,grandeligne is the assertion that certain consequential losses
would no1 have occurred butfor the requisition and the resulting hank~ptcy.
Mr. President. these include the non-oavment of debts bv ELSI to RavIheon:
the rcquiremcnt rhat R3)thsùn ~~t~sfy il;&;iriinieei of t.l.~l's indchtc~néss;and
ihr Faciihai in "unlounded" deri\ÿiive suit was hroughi hy iivc"Goisrnmeni-
~.onirollcJ" hmks in relation io the unguaranteed loans to EI.SI and the pi>siiiun
of Ravtheon as a leonine shareholder.
In &ch and cwry one of ihese suhordin~ts claini5 ihe United Stÿics has fiillen
far short of cdrrying thc hurdcn of proof. It has nùt cvcn irarned it across the
half-way line. There is no evidence to connect these secondary, contingent losses
-
to any italian Government action whatever.
Let us deal first with the denvative suit by the Italian banks. What is so
outrageous about a suit of this type against a dominant shareholder? One notes
perhaps with cunosity the ubiquity in the United States pleadings of constant
references to Machlett Laboratones as if it were a suhstantial enterprise - one ARGUMENT OF MR. HIGHET 269
that had to be named at al1times as if it were a CO-jointventurer. You know,
when 1 first saw the written pleadings 1 really thought that the case involved
Raytheon and a giant and little-known electronics firm that had always been very
puhlicity-shy. It then emerged that Machlett is only a tiny Connecticut Company,
100percent owned by Raytheon, and that in turn it owned less than 1 per cent
of ELSI.
Well..whv is it inao..oor,ate for ltalian banks. in order to recover their hir
losse, ;igai&i a sole sh3reholdr.r. a1leail io try to kck i<cstdhlish ihxi ~a~theon
was in subsiïnce. :ilihough pcrhdps no1ln form. clliiirely the 100per sent uuner
of ELSl? Slurco\,er. the terv iasi thai tho loçi ihe Ici\suits riroxes ihc kiirness
of the process. It i'squite conceivahle however that they &ht in fact have
prevailed.
Now the non-payrnent of debts by ELSl and thc calling of the guarantees were
consequences as much of the financial disaster - "the total financial crisis" -
of ELSI, as they were of anything else. (This is true both of the guaranteed debt
and the non-guaranteed debt.)
And to hold, or 10imply, that it was ltaly that was responsible for Raytheon
having to perform guarantees on its failed subsidiary's indebtedness is only
possible if there is no reasonable douht that, if Italy had not intervened in any
way, such gu.rantees would not have been required to be performed for other
reasons.
Was there any prospect that ELSI, with its unhroken stringof loss years, could
ever have paid these loans off? How? Especially how, given Raytheon's an-
nounced decision not to bring the capital up 10 the legal requirement, or not Io
invest more money? Was not the only prospect, Mr. President, for paying them
off that ELSl would he split up, carved up and sold piecemeal, or that perhaps
some kind of commercial miracle might have occurred? But there was no realistic
orosoect of reoavine those loans: how could there be with consistent losses? II
is9implc. We are ihercfore ialking ïhoui ï compan) ih3i w;isincapable of meeiine:
ils ohlig~tions in ihe ordinïry course of business In lusi dnother t\i<sieeks the
guillotine uould have dri>~wil b.I.SIuds in Faci compati? tk~t iould noi pay
zs~ ~ ~ ~ ~ ~ thev came die and had to be out uo.on th. abclion block Io meet
its working capital loans.
On this series of unassailable premises, one can see that the guaranteed loans
would have had 10have been called in any event, unless Raytheon had succeeded,
mi~o~- ~~-~~~.u.in findinz a buver for al1or oart of ELSI. bv the end of March
or in the first'week or tLo of ~$1.
But, because Raytheon decided to dismiss the workers and "shut the plant"
over the weekend of 29, 30, 31,it made practically impossible - and not merely
improbable - the likelihood of finding such a buyer in the first few weeks in
April. Unless Raytheon could have done so, by the time the instalment and the
guaranteed loans became due, quite without regard to anything else, they would
have to have declared hankruotcv .it. no helri. eve. .osmetic. from the local
authorities.
Finally, in order for Applicant to have us take its proposition seriously, it
really does have to show that there was, or could have been, one or more buyers
or bidders in the wings, who could have, or would have, purchased something
IO stave of the hankruptcy or the performance of the guarantees and the re-
payment of the loans if the Mayor had not intervened.
There is no such showing, Mr. President. There is in fact no showing at all. 1
invite the Applicant to produce any evidence or even a description of any such
possibility. One imagines that if there had been any, we would certainly have
heard about il before today. In short, there was none. And if there was none, then we go right back to the same sequence of events:
that Raytheon and ELSl made the decision to fire 800 workers, and close the
plant, that Raytheon and ELSl precipitated the obvious situation prevailing in
Palermo in 1968.
The United States must not only meet these points of logic, and deduction and
common sense. It mus1do more. Il must produce evidence: facts, events, records,
incidents, occurrences, correspondence, messages,telexes,cables, minutes. It must
tell us that ELSl in fact did bave a realistic chance of surviving the shutdown
and disasters that would surely have hefallen it when the workers go1 the word
on Monday morning.
Mr Prcsideni. u,hcre ihe Factualcase of the United Siaies sull'ersIO a shocking
degree. from an almost roial nbscncc ofdirect ci~idence,and relieson circumsian-
iial niaitcr, conclurions. and innuendo: the Ica-l case of the Uniicd States also
sufiers a nearlv analoeous disabilitv.
Ihe claim\ if righi;3nd obligations undcr ihc Trcaiy and the Supplsmeni are
jiisi noi siis1:i~n;ibleYci ihr. IJniieJ Si.iir...i.s.,,ihat they arc in niuch the
same wav that il savs that certain thinas haooened and that. because of the
circumstances, the chamber should then-draw'certain conclusions. Yet the legal
assertions come off no more strongly or better than the factual ones.
A quick glance back at these instruments will first inform the interested reader
that ELSl itselfwas of course not broadly covered, being verymuch of an Italian
corporation. ELSl's shareholders were protected but only in a limited and con-
trolled way.
Professor Capotorti set forth yesterday Ourcarefully measured and non-heroic
interpretation of the Treatyand the Supplement. The United States LegalAdviser
and Professor Gardner have both told the Court that they are concerned about
the elïects of the Court's interpretation of the Treaty instruments in this case on
the other FCN treaties to which the United States is a party (pp. 16, 113, supra).
On Ourside, we would liketo reassure them. The interprctation of the Treaty
and the Supplement that they are urging upon the Court is wrong: it is a
misintervretation. So the elïect of a findinn bv the Court consistent with the
Iialian ~osition on thcse insirunicnis \riIihcn..ihcy uill Joubiles, br. happy ici
learn, .uppirri the integriiy and sogcncy ol'ihosc aprccnicnis, rarhcr ihan diirupi-
ing them hy heroic interpretations.
An example is the over-broad use of Article III of the Treaty by the United
States. Professor Gardner has sought to make a major point out of Article 111.
1 note the verbatim record of last Wednesday, pages 98 to 100, supra. He went
so Faras 10say that "Article III. .. is really the heart of the Treaty", and devoted
no less than six pages of argument to this point. Now, 1 know that Professor
Capotorti has most ably presented the ltalian case on the Treaty, but as an
American lawyer, 1cannot resist pointing out a few things, Mr. President.
Article III, as anv United States business or coroorate lawver with anv exoeri-
cncc will confirm. is specificallyaimcd ai meazurc; thai niigl;i oihcrwiséprÊvcni
the recognition of foreign corporati<ins; or ihrir cxerclsc of the funciions for
which ihcy wcrccrcatcd. or thcir organi7ation h) the nationais of ihc oihcr Siatc,
it is designed to orevent action thaï would oreient service on or election to the
boards Of directk of these companies by non-nationals - disqualifying them
in other words; or restrict ownership by non-nationals to, say, less than 50 per
cent of the equity or voting stock of those companies. ARGUMENT OF MR. HIGHET 271
It provides also for recognition of corporate enterprises formed under the laws
of the other party; it also permits direct branch operations, as opposed to
subsidiary operations, under the Iaws of the host country; and finally, il pemits
corporations controlled by nationals of the other to engage in a specificlaundry
lis1of activities as mentioned. It is a perfectly routine provision.
These provisions are technical, they are permissive, they are regulatory. They
do not concern the ongoing operations of corporations - they jus1 do no1 -
save in the specific context of being able, possessing the legal power, protected
under the Treaty, to engage in the types of activity specified, or to maintain a
corporate identity - things like that. 11is a heroic distortion of such provisions
to assume that they concern the ongoing governance of corporate afairs in al1
other resnects. And this is mv,n.int.
Profcjsor tinrdncr and ihe Applicant ~itrihutc rnagical qu~litics to thc uordi
"orgsnile. cùnirol and manage" in Article III. pdrïgraph 2 They hïi,e hecome
a sort of 'universal sol\,ent" in Applic~nt'scr>r ProCcs~orGardner uuuld haie
them apply to anything that is doiië to affect the affairs of a corporation, to any
interference with the eiïectivc management and control. 1s that whai the Treaty
says? By no means.
As usual, Lewis Carroll got ii right:
"'When 1 use a word', Humpty Dumpty said, in rather a scornful tone, 'it
meansjust what 1 chuoseit to mean - neither more nor less"' (Carroll,
Throughthe Looking Class, IR96(1965 ed.), p. 94 (italics added).)
But you cannot make words mean what you want them Io mean.
Just because Article III of the Treaty uses the words "organize. control and
manage" does not mean that we can use them out of turn, out of their normal
context, by tacking on a concept such as "&ciive", or "continuous".
With respect, Mr. President, the artificiality of Professor Gardner's interpreta-
lion cannot avoid popping out between the lines. 1 refer to page 99, supra, of
his compte rendu, where he said that
"(al1 al1 times Raytheon and Machlett conducted their management and
control of ELSl in conformity with ltalian law, and therefore Article III
provides a guarantee lhat ihey 'shall be permitted' to organize and control
ELSI".
Leaving aside the touchy issue as to how Machlett, of ail companies, could
exercise either management or control - 1 was much taken by the idea of
Ra~,heo~ ~conducting" its "manaeemen- and control". How does one conduct
minligement? Ilou, does oiir ct,nducrcontrol?
Ii uould be doing ProCcs\orGardner. I think, a \eri,ice. IO restore his rcdding
of the Tr~.xt\ Io 11,iorrcel DroDOrllOn~ .ind Io lirnil ihe nieaninr uCAriicle III
to the subjecis that it was clearly'intended to cover, and no1apply as a universal
solvent for al1business problems and operations, howsoever described.
They can be picked up, where and as relevant, by the other provisions of the
Treaty and the Supplement that Professor Capotorti has ably analysed for the
Court. It may well be that this Treaty is anacbronistic, and should be updated
and revised. But one thing is clear: in an old-fashioned way, Article III does not
say more than what companies can do, or what shareholders and directors can
be or do, and that corporations and branches should be cognizable and valid,
under the laws of each party. II is no1 an operational provision. It is no1 a code
of conduct for multinationals and their hosts.
The question might arise as Io why such excellent lawyers could so easily
mistake the meaning of Article III. The answer is quite clear. 11is because they272 ELETTRONICA SICULA
are no1 comfortable with the limitations on the provisions of Article 1 of the
Supplement. That Article provides that:
"n~iionals and corporations of either [partyl . shall no1 k suhjcctcd io
arhiirÿry or discriminatory mensurcs . rcsulting particularly in fii, prevçnt-
ing iheir etTecti\ccuntrol and mansgemrni of enierpriscs which ihcy ha1.c
been permitted to establish or acquirë . . [etc.]".
There it is! There we find that prevention of "effectivecontrol and management"
is mentioned. It is directly mentioned. This is where it belongs, not in Article III
of the Treaty.
A question for the Applicant: ifArticle III means what Professor Gardner said
it means, why did ltaly and the United States need to sign Article 1 of the
Supplementary Agreement or oll? It would not bc rcquired. Article III would
already have covered the field. Indeed, covered it without any pesky or irritating
need to allege.and prove that the measures taken were "arbitrary or discrimi-
natory".
It was Professor Gardner who put Applicant's motivation in10 a triumphant
nutshell when he said, at page 98, supra, that part of Article III "expresses a
treaty right that is not qualified hy a national treatment or most-favoured-nation
standard . . the orovision is non-contineent- - il is absolute".
Il\r:is thereforéio escape ihc straiijackei of the arbiirary 3nd dlscrlni~nntor)
st~ndiirds of Ariiclc I of the Supplem~ni ihat uur upp<>nentshaie so clcterl)
iailorcd 3 rihollv ncw suit oiit of ihc old cloih of Ariicle III.The riroblem is that
it does not fit.
Similar conccrn can arbc conccrning Article Vll of ihe Trcaty.Thosc provisions
reÿlly wem, quiie clearly, quiie oh\iou~lv. to hc limiicd aa;iin IO a facultaiivc
contéxt:to make sure th& 'I'reatvnationaishave the rieht. the nower "to acouire.
. ~ ~ ~ ~ ~ .~~~~.
own and dispose" of real prope;ty or of personal proierty on Treaty terms.
It concerns a power of acquisition and disposition to convey title to real and
personal property - powers that we al1 know that years ago (and sometimes
even today) are denied to non-nationals. But this emerges from a straightfonvard
reading of the Article. The Article bas nothing to do with ELSI.
Turning to Article V, and from legal interpretation to faclual support: when
one recalls the numerous ltalian legal proceedings that 1mentioned 20 minutes
ago, how can you possibly employ Article V? How can il be said that there is
anything approaching a denial of justice of any kind, leaving aside the local
remedies rule? And if such were alleged, why werethe ltalian courtswrong? This
bas never been even suggested or discussed. What hearings were truncated, or
denied? It is not stated. Why is a protective order, such as the requisition, not
to be treated as what it purports to be - "protection and security" for ELSI?
It is not stated. 1sthere not ai least a nresumntion of leeitimacv and eood faith?
Thcrc rhould bc a burden Io ovsrcom; thdi presumptio~ And.ihc birdcn ijno1
on Rcspondcni. ilis on Applic~nt.
Now, ifso,has Applicant reallyovercome the presumption, carried that burden,
other than by merely labelling the requisition as a bad thing, or saying that it
was in bad faith or not in good faith? No, it has not. When one turns to the
prohibition against takings without prompt adequate and effectivecompensation
in the Treaty, and reflectson the factual background presented to the Court here,
how has the United States nroved that ltal~ ~-~~,~ ~ ~k ~ ~,~ ~ ~"~ ~
Where is the evidence oithe degree to which (if al all) ELTEL and ltaly are
supposed to be oneand the same? Why are riricespaid by maior public com~anies
atbankruptcy sales to be measured as if they were~om~ensaiion~bya government
for expropriated property? We are not told. ARGUMENT OF MR. HIGHET 273
In addition, the Supplemental Agreement requires not merely that an action
be found to be arbitrary and discriminatory. It also requires that an action to
interfere with the effective control or management of enterprises, or to impair
legal rights and interests, not be an application of the laws of Italy and the
enforcement of those laws.
I<oii, ihis clause <ii ihc Supplcnicni docs no1 mcan. and cïnnoi mc'in, as a
m3ttr.rot's<immi>n.cn\c. that nationals of ciihzr Pari) arc iree IO enjo) unlimitcd
ir~~domsand Iiberiie? of sll kin<l, in c;ich othcr's tcrriiories. Thr ciiiiirol and
management of enterprises does not mean an absolute licence to conduct an
enterprise without regard to corporate laws, bankruptcy laws, and the laws and
nghts of creditors generally.
Why was this litigation started? One does not know.
From the point of view of Respondent, one would not wish to conceive of a
situation where the Government of Italy would he held internationally liahle for
insufficientlyspecificacts or omissions that were neither arbitrarynor discrimina-
tory, that are unsupported by evidence, other than themost conjectural or vague,
and that are not connected with the claimed damaaes bv a di-,ct chain of
cauution th ha\ noi ken inicrrupicd. or 3iïccicd. hy oiher evcnt, or hy the
incxor3bility orihc Iliw, ur comnicrcidl Jisïsicrs.
The Pdci ihrt ELSl aas just %ch a ii~mmcrcidldis~sicr 2nd ihai R~yrheon
was ~ngered and deeply unh~ppy uirh 115 demi,e, dos, nul melin ihïi Kayiheon
ha, ;iclaini$1113wihri san hc validly c\pou>cd b) thc Uniitd Si~icr. The Iau i~i
Siaic rcsponsihiliiy is niit ihc sanie 2s frcc busincss insuranW. The lors in ihij
case, to ~a~theo", does not create a remedy under a treaty, just hecause it
happened abroad. Injuria non curut legem.
Far less should it create international responsihility where that has not been
established by reasonable or persiiasive evidence of any kind, and has not been
,us~i~ ~~~~, ~~-al anal~~~s sufficientt~ me~ ~the minimum standardsof an interna-
tional legal claim or cause of action.
It might be, Mr. President, that this evidence could have been brought out in
local proceedings undertaken by Raytheon to safeguard its rights under the
Treaty and the Supplement. It would surely have heen the case that the facts
there would have been winnowed through and filtered by courts or judicial
authorities closer to the scene than The Hague and closer in time to the events
than 20 vears later. This would verv likelvhave oresented the Chamher - if that
wcrc ne;c:c\rary wiih a bciicr re&d oide,clopcd facis on whiih io uork, dnd
II would mohi Iikely h~\.cmïdc the uork of ihc C'uurrin ihis case muih c:i%icr
Thi, cï,c. Mr. Prcsidcni. is ihus a1mo.i s phvsic:ilrcprescntiition al the impor-
tance and value of the locai remediesrule. sÜreiyit does no1prevent al1unmeÏito-
rious or unfounded cases from being espoused by States. But at least il can
prevent some of them.
If the Legal Adviser of the United States is reallv concerned. as he savs he is,
about the eïffectof the Court's decision on existing ~riendship, cornmirce and
Navigation treaties, then surely one of the most important things that the Court
can do to resoond to his concern might be to reinforce the im~ortance of the
~ ~ ~~~~~~~~~~~--~e in esoousal cases sich as this one. and throwthe case out
It protects international tnbunals, such as this Chamber, from having ta sort
through claims and assertions that should have been proved and tried elsewhere,
or discarded. It protects Governments from the premhure insistenceof influential
citizens, like Raytheon, that their claims against foreign sovereigns must beespoused and brought to international justice. And it might even help those
Govemments to resist the more extreme allegations of fact and conclusory state-
ments that those nationals might, in their anger at the treatment they believe to
have received, urge upon their Foreignoffices.
Most important: at the end of the day, the local remedies rule helps us al1
avoid the kind of untoward and uncornfortahle situation such as that presented
by this case. Here the Government of a friend and ally is impelled to assert,
before this bighest of courts, that another friendly Government has indulged in
some mysterious and complex conspiracy and course of action that has hamed
ils nationals, but without producing one single element of objective proof or
direct evidence in support.
It is in part in order to prevent this kind of inequity, or emharrassment, that
the local remedies mle exists. The Court should apply it here, Mr. President, or
at the very least should dismiss Applicant's case against ltaly as being totally
unfounded in fact, and wholly unsupported in law. STATEMENT BY MR. FERRARI BRAVO
AGENT FOR THE GOVERNMENTOF ITALY
Mr. FERRARI BRAVO: Mr. President, distinguished Members of the Court,
it is ,v.orivileee. oleasure and honour to read out the final submissions for the
Government oTfiaiy.
The Italian Government makes the following submissions:
"May il please the Court,
A. To adjudge and declare that the Application filcd on 6 Fcbruary 1987
by the United StatesGovernment is inadmissible because local remedieshave
not been exhausted.
B. If not, Io adjudge and declare:
(1) that Article III of the Treaty of Friendship, Commerce and Navigation
of2 February 1948has not been violated;
(2) that Article V, paragraphs I and3, of the Treaty has no1 been violated;
(3) that Article V, paragraph 2, of the Treaty, and the related provisions of
the Protocol to the Treaty, have not been violated;
(4) that Article VI1 of the Treaty has not been violated;
(5) that Article 1 of the Supplementary Agreement of 26 September 1951
has not been violated; and
(6) that no other Article of the Treaty or the Supplementary Agreement has
been violated.
C. On a subsidiary and alternative basis only: Io adjudge and declare tbat,
even if there had been a violation of obligations under the Treaty or the
Supplementary Agreement, such violationcaused no injury for which the
payment of any indemnity would be justified.
And, accordingly, to dismiss the claim." QUESTIONS PUT BY JUDGES OUA, SCHWEBEL AND THE PRESIDENT 277
"under the influence of the pressure created by, and of the remarks made
by the local press; and therefore we have Io hold that the Mayor, in order
to gel out of the above and show the intent of the Public Administration to
intervene in one way or another, issued the order of requisition as a measure
mainly directed !Oemphasize his intent to face the problem in any way".
This holdine of the Prefect a.o.ars to mean that the Mavor issued the order not
for defsnriblc juridical rcasons hiit asa w~y of shou,ing the puhlic that he uas
doing surnrthing. whether that soinething was Is~ful or rensihlc or not hr issucd
thc ordcr "tu \how the intent of the Public Adminlrtrrition to intervcnc in onr
iiuy or anurher", the order was issuedas 3 measurc "mainly" dirccted tu "empha-
sizc his iiitent" to face the problem"ln un). ,>.OI.N.ow my question i, this. is a
measure taken by a public authority "to intervene in one way or another" with
a view not towards resolving a problem -and the Prefect held that the order
could no1resolvethe problem - but in order to appease press and public criticism
or win public favour "in any way" an arbitrary measure'?
4. In view of the fact that the Prefect round that the requisition by the Mayor
of Palermo of ELSl's factory was "destitute of any juridical cause which may
justify il or make it enforceable", and undertaken in order to permit the Mayor
to show "the intent of the Public Administration to intervene in one way or
another". can il be maintained that the reauisition nevertheless was. inthe words
of i\rticlc III uithc Trcdty, 'in conformity uith thc ~ppliablc Iaiis dnJ rcgul3-
tii~n>"ui l131)?C;xndn action u.liich is takcn 'uithuut luridical .xurc" in order
"to show the intent . . to intervenc in one way or another" be an action not
merely under colour of the law but "in conformity with the applicable laws and
regulations"? If not, and if the position of the Respondent is that these holdings
of the Prefect were in error, why was not an appeal taken from them? If no
aooeal was ooen or was taken. does not that establish that the reauisition was
not in conionnit) u,ith the ;ippliuhle Ilus and rcguldtions of lt;il'?
5 ltal) h3s statcd in 11splr'ading, 2nd oril argument th;it certain oi ELSl's
dctions iir indctioiis iii:idc ils Ro:ird of Dirrrtors crimin;illy Ii~blc Ii this is so,
whv is il that no criminal actions were oursued aeainst them'?
i. Volume 1 of the Unnumbered ~ocuments submitted hy ltaly with its
Counter-Memorial (II) reproduces a translation of the dismissal letter sent by
ELSl to its employees. That letter states:
"You will be paid an indemnity in substitution of notice equal to the
amount of your remuneration for the period of the notice you are not given.
Such period will be counted for the purpose of calculating your severance
benefits, and, if such be the case, for the purpose of any other payments
owing to you, al1in accordance with the laws and agreements in force."
In view of the terms of this letter, is there ground for complaining of lack of
noticeL?
7. The written supplement of the Respondent to the oral reply to my question
of 21 February states that, "The requisition kept the factory open". Open 10do
what? Was work performed in the factory, by whom, and with what results, in
the period in which the factory was requisilioned? In this regard, it may be
recalled that thePrefect's decision of 20 November 1969holds that it was "the
fact that the activity of the company" was not "resumed", that the plant was
"not working" and that il was occupied by the dismissed employees' .
' See Correspondence N,o. 85,infra. The PRESIDENT: 1 would like to put two questions to both Parties, as a
Judge of the Court.
1want to ask a question about Italian law in regard to a situation described
in the Report of Coopers & Lybrand to Raytheon-ELSI, of 22 March 1968.
In that Report, Coopers & Lybrand, who were Raytheon's own auditors,
stated, of the position at 30 September 1967:
"10. The adjusted accumulated losses at 30 September 1967exceeded the
total of the oaid .oao.tal stock. caoital reserve and Stockholders' subscno-
lion ascouni hy an arnount of dblj million lire Should this hcciirnc .offi-
.'ially'the ca,c (c.g.. ,hould the adj~simentr mxde in 2rriving a1this tolal of
accumulated losses be entered in the company's books of account), under
Articles 2447 and 2448 of the Italian Civil Code the directors would be
obligcd IOcontene a Siockholders'nieeting forihwiih IOi~kenieasurç. ciihrr
io covcr tne I,islrr hy provioinp neu capital or io put the cornpan) inio
liquidation."
1. My question is this: if it was decided not to provide new capital but to put
the como.nv . into liauidation. would it be oossible. in Italian law. to conduct the
liquidaiion uithout hecorning h~nkrupt in lait, and, if si), under precisely whai
c<inditioncco~ld bankruptcy he chusavotded '?
2. For ihç iiJrDuse oidetcmiinine whciher the rca~ircrnçnis oi Iulian Iüu as
to the impact oilosses on the capcal of the company were satisfied, was the
management of ELSI entitled, as a matter of Italian law or of sound accounting
practice, to base itself on the book values in the September 1967 balance sheet
(first column) so long as the adjustments (second column) had not been made in
the company's books, or was it obliged for that purpose either to make those
adjustments forthwith in the company's books or to use the adjusted figures
(third column) to deterrnine the company's financial and legal position1?
We have put several questions to the Parties. 1 think they could have an
opportunity to reply to them in the second round of pleadings.
The Chamber roseal 1p.m
'See Correspondence , as. 81and 85, in/ro. TENTH PUBLIC SITTING (27 11 89, 10am.)
Present: [Seesitting of 13II 89.1
STATEMENT BYTHE PRESIDENT
The PRESIDENT: The Chamber received, a few minutes ago, a letter' from
the Co-Agent of the United States by which, pursuant toArticle 56 nfthe Rules
of Court, the United States submits a document2, a list of customers and the
respective amounts due as of 22 April 1968; this afternoon MI. Lawrence will
make some reference durine the hearines 10 this document. 1 understand that
this document has been transmitted to t<e Italian delegation, and therefore 1will
ask this afternoon, at the heginning of the sitting, whether the ltalian delegation
has any objection to the submissioi of this document
' Not reproduced.ce ,a. 80, infr'l. REPLVOF MR. MATHESON
CO-AGENT FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA
Mr. MATHESON: Mr. President, distinguished Memhers of the Court: 1now
have the honour to bcgin the rehuttal of the United States in this oral proceeding.
Las1 week the Respondent presented a vigorous - and sometimes colour-
ful - defence of its position in this case. Among other things, members of
the Respondent's team ohserved that vanous arguments of the United States
were "pure fantasy" (p. 267, supra) and "complete madness" (p. 175, supro),
and likened our logic to that of certain eharacters from Lcwis Carroll (p. 271,
supra). Before these proceedings have come to an end, the Respondent will no
douht raise further concerns about our sanity. Nonetheless, we will do Our best
today to lay before the Court the primary reasons why the case we have
presented is, on the contrary, correct and sensible, and - if anything -
consemative in its request for relief.
It is essential at the outset to he very clear as to what the claim of the United
States is hased upon and what it is no1 hased upon. The Respondent has
repeatedly asserted that the United States must prove - and the Court must
decide - issues whichdo not fom the hasis of the United States case and which
the Court has no need 10 rule upon.
In the pleadings and oral arguments in this case, both sides have included
subjectiveassessments of the reasons why vanous events occurred and themotiva-
~ ~ns of the oersons and the entities involved. For examole. the Res~ondent has
commented it lenglh on the alleged motivations of the offic~aisof ~a~theon and
the United States Covernment, usually in unfavourahle terms. This, of course,
does not mean that either Party is ohliged to prove such assessments or that its
case is somehow Rawed by the failure to do so. What is required is that each
Party prove the elements upon which it hases its case.
To avoid any doubt as to what the United States is asserting as the basis for
its claim, 1invite the Court to recall the four specificactions of the Respondent
which Professor Gardner listed in his oral statement as constituting the violations
of the FCN Treaty alleged hy the United States in this case (p. 95, supra).
They are: first, the unlawful requisition of ELSl's plant and assets; second,
allowing ELSl's workers to occupy the plant; third, the unreasonahle delay
in ruling on the lawfulness of the requisition; and fourth, the flaws in the bank-
ruptcy process which resulted in the acquisition of ELSl's assets for less than fair
value.
These acts and omissions - and nothing else - are, and always have heen,
the hasis for the United States claim before this Court. As we have shown, these
specificacts and omissions constitute violations of the Treaty in andof themselves,
without the need to estahlish that they formed part of a "conspiracy", a "diaholi-
cal plot" or any other form of "connivance" -and here 1quote words used by
the Respondent, and not hy the United States.
These acts and omissions were hv diiierent officiaisand entities of the Italian
Govcrnment ai the national and loial Ie\els. Each ofihese aîis and <imissions ir
ihrreforc 3iiribuiable io ihe Respondent under the Treaiy. as WC shall demon-
striiic ai greaier lcngih ai a later point in our rebulial. This 1s[rue wheihcr or
not these-various ac?s or omissions were part of a concerted plan or any other
form of CO-ordinatedactivity. REPLY OF MR. MATHESON 28 1
The sensitivity of the Respondent to the inferences whichmight reasonably be
drawn from these facts is understandable, but the case of the United States is
hased on the facts and not upon such inferences.
These acts and omissions constituted Treaiy violations - for which the Re-
snondent is liable - whether or no1 the ltalian Government entities involved
(new of each oiher's ïciions. and whriher or not they u,ercïciing in concert or
ai cross purposes Although Ihe Rcspondcnt asseris oihenv~se(p. 246, nipro), the
ohliaïiions of ihe Parlies under ihc Treïtv arc clc~rlv iiino u;iv limited Io cases
where there is some conspiracy or collusion between-the authonties of the State
in question.
The Respondent objects to our use of the lems "Government of Italy" or
"the Respondent" in refernng to these various officiaisand entities, but these
references are perfectly appropriate. The use of these lems is no1 a disguised
allegation of a grand conspiracy, but an affirmation that eaçh of tliese acts is
legally attributable to the Respondent.
Similarly, the Respondent has iirgued that none of these individual acts can
he considered as violating the Treaty in and of itself, but only in comhination
and only whenit isestablished that they are al1lied together in a so-called "causal
lin!? (pp. 246-247, supru). This is most certainly not the case.
For example, the requisition alone violated a number of provisions of the
Treaty, as we have shown, and this is true regardless ofwhether or not the other
acts and omissions complained of by the United States were also violations of
the Treaty. The case of the United States in no way depends on proving that
these actions constitute a sequenu: of events bound together hy a common plot
or causal chain, however often the Respondent may insist that this is so.
Likewise, the case of the United States is not based on the sssumption that
ELSI was a orofilable enteronse which was ex~ected.o ~ ~ ~ ~ indefinitelv as a ,
money-makiig husiness in ihc~n~ironment in whiih iifound iiself in 1967and
1968 On ihe conirary - lusi lo resiaie ihe ohvious - EI.Sl's sharcholders fulls
intended to liauidatétheomoanv. and it was the action of ltalian authoritiei
tbat prevented'them from doi& this in an orderly fashion.
The question, therefore, is not whether ELSl had suiïered losses - obviously
it had - nor whether it would at some point ceasefunctioning as a fullyoperating
enterprise - obviously it would, given the fact that the ltalian Government was
unwilling to provide an environment in which it could compete effectively.
The real question is whether, under the circumstances, Raytheon and Machlett
had the ahility and the nght under the Treaty to place ELSI through an orderly
liquidation, as they had planned to do. At a later point in this rehuttal, we will
reviewin detail the measures that were being taken, and would have ken taken,
hy Raytheon and Machlett to ensure that such a liquidation would take place,
including their intention to provide the financial support necessary to avoid any
insolvency problems during the liquidation.
Similarly, the case of the United States is not based on the allegation that the
failureof the Respondent to provide Mezzogiorno benefits,or any other assistance
to ELSI, violated the Treaty, allhough as Mr. Lawrence has sbown (p. 128,
supra) il is reasonable to take account of ELSl's expectation of receiving such
benefits - for which it had applied - in determining ELSI's value, particularly
in liaht of Article V of the Suoolement to the Treatv.
11;s in~portïni ihsi ue foc;;in ihii proseeding ln ihr acis 3nd omissions on
uhirh ihr United Siaies aciually hises 11scssc. raiher than ihosr.ihai the Respon-
drnt would prrfer to talk about. Onlv in ihis manner uill ilbe ntissiblc 10 see
clearly what'elements mus1be established to justify the reparations sought, and
what elements are, on the other hand, essentially irrelevant.282 ELETTRONICA SICULA
1 would also note that the case presented to this Court is based on specific
treaty provisions, rather than on the application of general customary interna-
tional law. For example, questions about interference with management and
controlof enterprises, about expropriation and compensation, and about exhaus-
lion of local remedies, al1arise in this case in the context of specific provisions
of the FCN Treaty, and do no1 require decisions about customary international
law in general.
Now the Respondent has argued that the United States has failed to produce
the necessary evidence ofils claimsand has instead relied on unfounded assertion
and innuendo (p. 246, supra). It is quite true that the United States has no1
attempted 10 introduce evidence to prove matters which do not fom the basis
of its case, such as those matters which 1havejust referred 10.However, we have
provided the Court with an ample body of evidence to support the assertions
~no-~~hich our~ ~ ~ ~ ~s ~ ~ ~~-~.
We have provided the Court with every available document that we have
thounht 10k si~nificantand relevant to this case. Documents have neither heen
altered nor hiddën, notwithstanding the Respondent's suggestion to the contrary
(p. 249, supra). Where an interest has ken expressed by the Court or the
Respondent in any other document, even during the course of these oral proceed-
inrs. we have immediatelv oroduced it. A mass of detailed affidavitshave been
submitted as Annexes to.tie Memonai (I), and few of the statements in those
affidavits were challenged hy comparable evidence in the Respondent's written
suhmissions.
Wehave brought before the Court the individuals who werepersonally involved
in the events of this case more than 20 years ago. They have testified from their
personal knowledge of these events and their expert understanding of the circum-
stances. From time to lime the Respondent has suggested that their testimony is
inherently unreliable hecause of their association with Raytheon. With al1due
respect, this criticism is grossly unfair to these individuals, each of whom has a
long-standing reputation for tmth and integrity.
This is no1a case of reliance on self-servine oronouncements which cannot be
prokd or chall~nged by ihis Court. Our w,tksres have suhmitted ihemselvcs to
qucstioning h) the Respondciit and by ihc Cour!, su ihat iheir knowlcdgc,
comoeience and credibilitv could beohsenvd 2nd iesied firsi-hand We ini,ite the
coukt to judge for itself,.on the basis of what it has seen, whether it has any
doubts about their competence or credibility. The Respondent has no1heen able,
or has not seen fit, to rebut the testimony of these witnesses with comparable
first-hand testimony of ils own. The Respondent is the party which bas instead
relied on unsubstantiated assertions in this case.
We have also brought before the Court a leading expen in valuation who, '
together with his supporting team, had laid out in the clearest manner possible
the essential facts about ELSl's accounts and the value of ils assets. He too has
ken subject to questioning by the Respondent and hy the Court to probe his
expertise and his conclusions.
In the course of Our rebuttal presentation today, we will review each of the
elements upon which Our case rests and refer to the evidence we have provided
in support of each element. No doubt the Respondent will continue to make
general assertions about the alleged lack of proof in the United States case. We
invite the Court to judge for itself whether we have failed to substantiate any of
the elements of Ourcase.
Durward Sandifer, in his book EvidenceBeforeInrernarionalTribunals, states
as follows: REPLY OF MR. MATHESON 283
". ..[uhe International Court of Justice has heen spanng with ils pronounce-
ments concerning the burden of proof, as well as eclectic in its approach to
the suhject. In other words, the Court appears to be more concerned with
'estahlishing the facts' and 'assessing the weight of the evidence produced
insofar as is necessary for the determination of the concrete issue which it
finds to be the one on which il has to decide'. Consequently, as Rosenne
puts it, 'there is little to be found in the way of rules of evidence and a
striking feature of the jurisprudence is the ability of the Court frequently to
base its decisions on undisputed facts, and in reducing voluminous evidence
to manageable proportions'." (P. 34.)
Given the volume of undisouted facts. of testimonv bv w. .esses and exoerts, of
:1iiid3\lii and oihcr doziimcnts proilu~.cdin [hi, pr<icccrling.wr hs\.e no douht
ihlii thc Coiiri u.11hciicsniple b:i,ii for;a.S;iniliTi,rpui\ir r~i.<hlishingiliz I:icl~
and assessine -he weieht of evidence on the concrete issues il has to decide in
this case.
In our rchurtil prrscnixticin tods), wr'uill iocus on ihc irnporimi niiiiicrs thai
rciiinin ai issue 1u,illbcgin u,ith cibricf rc\icii,<IIhe R~.p<inJcnt'\ohjccti<>non
the riuc\riiin ol'idmi~~ihilitv.Sli <:hlindlcr iiillihcn rciicu the c\idcn~c ih:it h:is
beefi presented to this Court on the ability of ELSI to carry out an orderly
liquidation in the absence of the requisition, as wellas the evidence of the damage
that it suffered because of the Respondent's actions.
We will then cal1upon Mr. Giiiseppe Bisconti, who is counsel to Raytheon
and an eminent practitioner in ltalian commercial and bankruptcy law, to review
ELSl's ability under Italian law to carry out such a liquidation under the specific
circumstances of this case. We will also cal1 upon Mr. Timothy Lawrence of
Coopers & Lybrand to respond to certain questions raised last week hy the
Respondent's expert on accountancy concerning the valuation of ELSI. Finally,
1will conclude Our rebuttal with a review of the Respondent's arguments on the
violations of the FCN Treaty.
1will now turn to the Respondent's objection that this claim is inadmissible
because local remedies have no1 been exhausted. In Our view, the Court could
only accept the Respondent's objection if il were prepared to decide every one
of the following points in the Respondent's favour:
- Jirsr, that the local remedies rule is applicable, under general international
law. to the reauest of a State for a declaration that its right- under a treaty
h;itc bccn viollited. and l'orrepar3iion 3s 3 result.
- .ser.i,ndt,hiiihc locjl rcnicdicsrulc is applicahlc to this p<irtiiulartrclit). givcn
its language and ils object and purpose;
- third,that there were in fact effective remedies under Italian law which were
not exercised hy Raytheon and Machlett;
- fourth, that Raytheon and Machlett did not exercise al1reasonable efforts to
exhaust local remedies;
- fifrh, that any remedies allegedly available under ltalian law fully addressed
al1of the claims of the United States in the present case; and finally
- sixth,that the conduct of the Respondent does not, under the circumstances,
preclude it from invoking the local remedies rule now.
To prevail on the question of admissibility of the United States claim, the
Resoondent mus1establish each one of these noints. We submit that the Respon-
deni has established none of them. 1 will ad&ss each of these points in tum284 ELETTRONICA SICULA
Firsr,has the Respondent demonstrated that the local remedies rule annlies.
as a matter of general international law, 10the request of a State under a'6eaty
for a declaration that ils rights have been violated, and for reparation as a result?
In Our view, the answer is no.
The local remedies rule is a rule of customary international law developed in
the context of the espousal by a State of the claim of one of its nationals. The
Respondent repeatedly asserts that the present case is simply a matter of diplo-
matic protection of United States nationals or "espousal", and that it "does not
concern any direct injury allegedly caused 10 the United States" (pp. 246, 156-
157, supra.
This is simply incorrect. The claim of the United States is based exclusivelyon
the violations of a treaty and the rights and obligations of the States that are
party to il. That is how the United States claim kfore the Court has always been
formulated, from the first letter 10the Kegistrar presenting the application to al1
the subsequent stages of the case. The case was occasioned hy damage to particu-
lar United States nationals. but the claim kfore this Court is an assertion of
hroader righis 2nd inicresis of thc Uniicd Siaics undcr the Treaiy. The IJniicJ
Siaiçç ,eck$ 3 deçlîr~iion thai the Trcaty kas hwn \iiilaicJ. ihu, \indic:iiing ils
ou,n riphis ïnd inicrcrts and clilr~f,ing ihc ohliraii<ins of the I'ariic,. 3s ii,cll8s
seekini renaration for these narticulaÏviolation<
~he-~eipondent cites the kmbarielosArbiirarion for the proposition that the
local remedies rule applies even in a case where a State brings a claim based on
its rights under a treaty. But in that cas- which arose under an old treaty that
did not contain a compromissory clause - the agreement of the parties establish-
ing the Arbitral Commission specificallycalled upon the Commission to decide
the local remedies issue (AmbarielosArbiirafion, 12 RIAA, p. 88). Thus the
Commission did not have to decide whether the rule would apply as a matter of
law to a dispute under a treaty, let alone a treaty which contained a compro-
missory clause, as the FCN Treaty does.
A more relevant aspect of the Ambarielos case is the judgment of this Court
which prompted Greece and the United Kingdom to submit to arbitration the
question of whether local remedies had in fact ken exhausted (Ambarielos,
Merits, Judgmeni,I.C.J. Reporrs1953). Despite the argument by the United
Kingdom that local remedies had not been exhausted, this Court found that it
did no1 have to pass on that issue when interpreting the treaty in question.
Likewise, in theFinnishShips Arbitration, the Arbitrator found that the local
remedies issue only applied to the principal claim of Finland - a claim under
customary international law, and not to the alternative claim of Finland - a
claim based on a bilateral agreement (Claim of FinnichShipowners,3 RIAA,
p. 1490).
As we noted in Our onenina -ound of oral nresentations. there is clearlv no
rcquircmcni in intcrnaiionlil Iau ih8t a S13tcmusi cihausi local rîmerlic.. kforc
iican s~vkIo vindiclitc11sown righis ihrough drslar<tiorv relief.Thc Kc5pondcni
apparently nowargues that the local remediesrule nonetheless applies to a request
for such a declaration if the State is also seekine reoaration.
The Respondent cites the Inrerhandel case fgr t6e proposition that it is not
possible, in considering the application of the local remedies nile, to split oiï the
request for a declaration from the request for reparation, if the ireaty violation
is based essentially on injury tu a national (pp. 158-159, supra). This is not a
correct reading of the Inrerhandel case.
In that case there was no request for a declaration that a treaty had been
violated. The Swiss Government pnmarily sought the return to its national,
Interhandel, of assets frozen in the United States pursuant to United States law REPLY OF MR. MATHESON 285
dunng the Second World War (Infc.rhandelJ ,udgmenr,I.C.J. Reports 1959,p. 9),
and in the alternative sought to implement a decision of the Swiss Authority of
Review based on the 1946Washington Accord. The Court concluded that while
tbis alternative part of the Swissclaimallegedlyinvolvedan international decision,
it was still directed at the restitution of assets to Interhandel. It is in this context
ihiii the Cuuri Coiindthai ..one inierest. ;ind one inicrcst alone.thdi of Intcrhan-
del" uas ihe b;isijfor Su.iiierl~nd'scl~im(ihid.,p. 29).
In the r>rc.enir.:ic. thc United Siaie, bccks;idc~lxrÿitun thai ihe FCN Trelii)
has beeniiolated. aswell as reoaration to itself for violations of the Treatv. The
United States ex~licitlyrecog&ed this distinction in the Interhandelproceédings
when the United States agent stated that the Swissclaims:
"are not merely requests for declaratory judgments seeking declarations that
treaty provisions have been violated; rather, Switzerland, espousing the case
of Interhandel. its national. seeks soecific relief for the benefit of Interhan-
del". (I.C.J. ~eading~.lnr~rh<rndei,'~ .19; see also Chorzbw Facrorycase,
P.C.I.J., Series A, No. 6, p. 20.)
It is also important to note that the critical element in the Interhandelcase was
the fact that a United States court was actually considering the lnterhandel claim
at the time the case was before this Court (Interhandel,Judgment,I.C.J. Reporrs
1959, p. 27). Obviously, there are no Italian court proceedings pending in the
current case, and the relevance of the lnterhandelcase is accordingly minimal.
We must conclude, therefore, that the Respondent has failed to show that the
local remedies rule is applicable to claims of the type involved in this case -
that is, claims by a State under a treaty seeking declaratory relief as well as
reparation to vindicate its own treaty nghts and interests.
Second, has the Respondent demonstrated that the local remedies rule is
applicable to this specificTreaty? Again, the answer is no.
As we pointed out in Our initial argument, there is no reason whatsoever to
believe that the Parties intended such a result. The FCN Treaty expressly states
that any dispute as to the interpretation or application of the Treaty, which is
not satisfactorily adjusted by diplomacy, shall be submirredto this Court. The
ordinary meaning of this Article is clear, and its object and purpose is obvious:
it is intended to orovide an unfrustratable international mechanism for the
resolution of disp;tes under this Treaty. We are aware of no indication in the
negotiation and ratification history of the Treaty that the Parties expected the
local remedies rule to a~olv to dis~utes referred to the Court. Rather~it appears
that Article XXVI was co&ideredAan "unreserved" reference to the ou ri..
A further indication of this is the fact that Article X of the 1948 Economic
Co-operation Treaty between the United States and Italy, which was negotiated
at the same time and by the same parties as the FCN Treaty, expressly requires
the exhaustion of local remedies. Had the United States and Italy wanted such
a rule to apply to the FCN Treaty, surely they would also have included it in
the FCN Treaty, which of course they did not.
Further, most of the provisions of the FCN Treaty at issue in this caseconcern
specificobligations of conduct - such as the duty not to interfere in the manage-
ment and control by United States companies of enterprises in ltaly- which do
not provide latitude for the Respondent to correct violations through decisions
of its local courts. This approach has been adopted by the International Law
Commission in its work on State Responsibility (see Yeorbookof rheInrernrriional
Law Commission,1977.11,Part Two, 1,p. 50, para. 58).
Consequently, whether or not the local remedies rule applies in general to State
claims under a treaty, it is not applicable in this case to this Treaty.286 ELETTRONICA SICULA
Third,has the Respondent demonstrated that there were in fact remediesunder
Italian law that were not exhausted by Raytheon and Machlett? In our view, it
has not.
The Respondent's primary contention is that this claim is inadmissible because
Raytheon and Machlett could have sued in Italian courts based on Article 2043
of the Italian CivilCode. The Respondent asserts that the acts of the Government
that allegedly affected the rights and interests of Raytheon and Machlett as
shareholders come within the scope of this Article (p. 160,supra).
To sumo.. this. the Resoondent cites the Talenli decision hv the Court of
R~me Th31 c:ise. hour.ver.'did noi in\,olve shiircholder nghia 31 dl. Professor
tiizzalciri descnhed in dei311to ihis Courr why bh.irïh<)ldsrswould noi bc able
IO suc under Iiÿlian Ixu for thc riehts and inter:,i. ai i>.ue in ihis casIDD 77-
78, supra), a position wbich is in accordance with the opinions rendered Gy'both
Mr. Bisconti and Mr. La Pergola in 1971.
But even if the shareholders could sue in Italian courts for actions such as
those at issuein this case. Professor Fazzalari exolained whv ltalian courts would
niit virw ihcse provisions of ihc FCN Trc~ty as sulfisieiiil) spccificto prinide ci
ji3nd;lrd ior an individual to hringa chim for &amag.r agaiiist the Go\,ernment
of ltaly (pp. 72-77,supra).
1will onlv add to Professor Fazzalari's comments bv notine that the decision
of the cou& of Rome in the Talenti case does not staie - a; is implied by the
Respondent - that an action may he hrought under Article 2043 on the basis
of conduct by the Government of Italy contrary to the provisions of the FCN
Treaty. The court simply found that the plaintiff failed to specify any wrongful
acts committed hy the Government of Italy in that specificcase.
As we have noted, the State Attorney of Rome in that case took the position
that the FCN Treatv n,ovided no additional orotection ahove and bevond that
:ilr:-id) in existence uiidIt~li-irIJ~ The Rcslxindent tries to Jounplay thi, hy
stciiingth.11the Siaie Attorney's brie( is "the reiulrciithc persunal work of ihe
individu;il St31cattorney" and ih"ne\er puhlished" (p 164, rupro) hut the F-ici
remaini ihat u,hrn IJniied Staier citi7cnshdve iucd in Iialiantoms under Article
2U43 and thr. FC'I Trr3iy. olficidlsof the 1taIi;inGi~vcrnmsnt h-iveürgueJ th.11
the Tre3t) cannoi provide anv xddçd protection Surel) the Respundcnt cannot
have this-both wais.
A critical issue in considering whether further local remedies were available to
Raytheon and Machlett is the effectof the suit brought by the bankruptcy trustee.
The Respondent argues that the trustee suit differedmaterially from a suit that
could have been brought by Raytheon and Machlett as shareholders (pp. 160-
161,supra). This argument does not hold up under careful examination.
The trustee's suitin Italian courts was based on the argument that the unlawful
reauisition of I Avril 1968ohlie-d ELSI to eo -nto bankru~tcv. nr..ented even
the truste: froni taking pos\cirion ol'thc plrni and cquiptiicnt through 31)Srptrm-
hïr 196X.3ndthereh! causcd substantial damagc to ELSI The trustcc aI\u ïrgued
thüt the Preiest of Pÿlrrmo u3s laie in deciJinc rhe apnçal lilrd hv ELSI. and
asked the court to order the Government of 1ialy to pay damage; due to the
illegal occupation of the plant and equipment. The trustee identified those dam-
ages as the considerable decrease in the value of ELSl's plant and equipment
caused by these various actions (1,Memorial, Ann. 79).
The trustee's suit was pursued right up to the Supreme Court of Italy. Except
for the award of a minimal amount of compensation - essentially for the six-
month "use" of the plant - the court considered and rejected al1of these claims.
It held that there was no causal connection between the requisition and the
subsequent bankruptcy, that damages could not be claimed with respect to the REPLY OF MR. MATHESON 287
bankruptcy, and that the actual value of the plant and equipment on the date of
the requisitioning order could not be reliably established (Memorial, Ann. 81, 1,
pp. 382-384).
Now there are some differences hetween the claim before this Court and the
claim hroueht bv the trustee. It is clear. however, that the substantive core of the
t~o~c~ ~ ~ ~ ~ ~~~ ~iallv the same. ~oth identifv the unlawful reauisition as the
c3u.c olihc \ubscqucni b~nkrupis) Hoth asjeri ihdt significani damagr2 flowrd
from the rcauisiiion duc 10 the inahiliiy io h<iwsecs. IO the phni anil cyuipmeni
and the faihre of the Prefect to rule on the aonea..
1 he Kc~pondcni. hou,e\cr, conicnds ihai dcspiic this dssision oi the highe.i
souri in Iialy. a lo\irr Itslixn court mighi iinJ in a Ihicr pr,>ieedingby Ka!theon
and Machleil rhat the reuui*iiii>niiidc;iiis: ilic b;inkrur>t~.v hnJ thai au;iniiCishle
damages can be awarded in favour of ELSI's shareholders, even though they
could nui he awarded to ELSl's creditors. In our view, it is wholly unreasonable
to require that such repetitive and purposeless actions he brought, particularly
where the substantive issues at point have already been decided by the highest
national court (seePanevezys-SalduriskisRailway,Judgmenr,1939,P.C.I.J., Series
AlB. No. 76,p. 19).This is especiallyso sincesome of the veryrights and interests
of Raytheon and Machlett protected hy this Treaty are the same creditor nghts
that were litigated in the Italian courts.
Ironically, the Respondent argued last week that this Court should place great
weight on these ltalian court cases, precisely because they directly addressed al1
the relevant issues before this Court (pp. 266-267,supra).Yet the Respondent at
the same time finds the cases so different that it would bar the United States
from pursuing this case because Raytheon and Machlett did not attempt to re-
litigate the matter in ltalian courts.
Thecorrect analysis of the matter is, of course, quite the opposite: the decisions
of even the highest national court of a Contracting Party cannot in any way
prejudge the decision of this Court under the Treaty; but the fact that such
decisions have been rendered precludes the objection that local remedies have
not been exhausted.
li.r<rihh3s ihe Respondcni dernoiistr3icd ihdi ihc remediesallegcdly ~vailxble
under 11;11131Idw could pr~vidr dn etlriii~e rcmed) I;>rXIIiiiihc cl;iini, brought
under the Treaty in the present case? We believe ithas not.
The local remedies rule certainly does not bar an action before this Court
where the local remedies allegedly available could not effectivelyaddress al1the
claims hrought before this Court, nor provide the relief sought from this Court
(see Claim of FinnishShi~owners.:3RIAA. o. 1498). No conceivable suits bv
K~i~iheonxnk Mhchleii in Iidl!:in cdurts couid rcsuli in ihç rclieisuughi hy th;
Uniicd Sidici in thii procccding- 3 decl3r3ii~inciiihir (:o~ri as io the inicrpreta-
lion oiihi, Trraiy. hinding undcr intern.iiiun;il la\\ un hoth Pilrtie,. ucll 3s 3
dc~.i\ii,nrc2:irding ihc p:i)nieni of rcp.ir;iiion tu thc Uniicd Siairr Ijr viol:ili<>n\
oiihe'l rc.ii). 'IhcrcCore,ihe clliimhri>ughihy ihc L1niicdStalcs beiorr.iliir Couri
is simply not amenable to suit in Italian courts.
Even if it were assumed that the claim before this Court is somehow solely a
claim for damages hy Raytheon and Machlett, most of the unexhausted "reme-
dies" conjured up by the Respondent could not effectively deal with the claims
set forth in this case. For instance, further appeals of the decisions of the
bankruptcy judge would not have resulted in any decision by Italian courts
regarding many of the claims in this proceeding, such as interference with the
management and control of ELSI, impainnent of the investment rights of Ray-
tbeon and Machlett, the taking of lheir property, or protection and security for
their property.288 ELETTRONICA SICULA
Fflh, has the Respondent demonstrated that Raytheon and Machlett did not
exercisereasonable efforts Io exhaust existing local remedies? Wethink it certainly
has not demonstrated this.
AsJudge Lauterpacht stated in the NorwegianLoans case,the rule only requires
exhaustion of effectivelocal remediesthat are available "as a matter of reasonable
possibility" (Norwegian Loans, I.C.J. Reporrs 1957, p. 39). The primary reason
for the rule - as the Respondent noted - is to provide the respondent State
with an opportunity to redress the injury within the framework of its own legal
system.
In this case, the requisition was appealed, the key decisions in the bankruptcy
proceedings were appealed, and suit was brought in ltalian courts against the
Respondent based on the Prefect'sruling that the requisition was unlawful. Hence
the Respondent was provided ample opportunity to redress the injury within the
ltalian legal system. When none of these actions provided adequatc rclicf, Ray-
theon sougbt the advice of two eminent ltalian legal experts, who advised them
that no further remedies were available under the ltalian legal system. Nothing
more could reasonably have been demanded of these companies under the circum-
stances.
The local remedies rule is a flexible rule, suhject to various exceptions, and
policy has a significant part to play in determining the scope of the rule (lenks,
The Prospects of Internarional Adjudicario (1964), p. 530). The Respondent's
arguments in this case would create a rigid rule under which a claimant must
exhaust al1conceivable avenues of redress and al1conceivable issuesof fact and
Iaw. Such ï rigid NICu,ould hc unrcïlistic. pïriicularly in Iighi of ihc complcxiiy
of modcrn adminisirativc and Icgïl sysiemi. Il uould elkciively prcclude rcsori
IO this Couri or orhcr inicrnïiional iribunals in mosi c;iscs whcre disnuies ansr
among States.
We believe the rule only requires that a reasonable and good-faith effort be
made to exhaust local remedies after diligent consultation with qualified local
counsel. And this is most certainly the case in this proceeding.
Sixth, and finally, has the Respondent demonstrated that its conduct did not,
under the circumstances, preclude il from asserting the local remedies rule now?
In Our view, this is certainly no1 the case.
We have shown that the Respondent's conduct - right up to the time that a
decision was taken to bring this case before the Court - caused the United States
justifiably to believethat no further remedies wereavailable(pp. 85-87,supra). In
1974the United States presented this claim 10the Respondent, explicitly asserting
that the only legal remedy available to Raytheon and Machlett in ltalian courts
had been taken. For 11years the United States then pursued extensive discussions
with the Respondent, first in an effort 10obtain reparation for the United States
directly and then in an effort to agree on some appropriate means of international
adjudication, and al1of this without any assertion by the Respondent that further
recourse by Raytheon and Machlett under ltalian law was possible.
Only when a decision was taken to hring the claim hefore this Court, did the
Respondent ohject that local remedieshad not been exhausted. If, as the Respon-
dent now asserts, any diplomatic claim by a State based on injury to one of its
nationals is "irreceivable" hy another State if local remedies have not been
exhausted (p. 156, supra), then the Respondent should have so stated in 1974
and not caused the extensive diplomatic efforts to place the claim hefore an
international fomm. We have shown that under international law the Respon-
dent's conduct prccludes or estops the Respondent from now asserting that
further local remedies existed simply 10 avoid consideration of the claim by this
Court (pp. 87-90,supra). REPLY OF MR. MATHESON 289
The Respondent has advanced severallines of argument in an attempt to rebut
this conclusion. The Respondent argues that in the 1974 diplomatic note the
United States did no1suggest there had heen a waiver or estoppel (p. 157,supra).
Of course we did not do so, but this is hardly relevant to the estoppel argument,
which ishased on the Respondent's conduct after 1974.
The Respondent also argues that the ltalian Aide-Mémoireof 1978"clearly in
no way represented Italy's final position on the case" and "dealt with only a few
aspects of the claim, which wasdescrikd as unmeritorious" (p. 158,supra). This
is the first time we have heard this. A careful reading of the Aide-Mémoire
indicates that this response was indeed a final response by the Respondent to the
validitv of the United States claim. and was made on the basis that there had
ken no injury to Raytheon and ~achlett. In any event, the Respondent had
repeated opportunities to alert the lJnited States to this objection over the years
after the clSm was first presented, but declined to do so.
The Res~ondent further areues that the nosition of the United States would
mean ihai :<nygo\ernmcni uhich Fils io rnakc an) argiinieni during ihc course
of diplomaiis discussionsuould hr . eld io h~\e ulii\rilii ihid This. of course,
is not our contention.
What we contend is that a State may not listensilentlyto good-faith assertions
that al1remedies that are available in its courts have been exhausted, and then
engage in a long diplomatic process to find alternative means of resolving !he
dispute - a process made necessary by the asserted absence of local remedies,
and then finallyallege,aRer proceedingshave heen instituted with ils concurrence,
that the dispute cannot be adjudicated because there really were unexhausted
local remedies in the first place.
The Respondent suggests that ils conduct after the submission of the United
States claim in 1974is irrelevant because a five-yearltalian statute of limitations
had already barred suit by Raytheon under Article 2043. This appears to be
incorrect as a factual matter, since the acts complained of by the United States
were not just the 1968requisition but subsequent acts such as the delay by the
Prefect until 1969in revoking the requisition, and the outcome of the bankruptcy
process which did no1close until years later. Further, the damages alleged by the
United States continued into the earlv 1970s - such as the cos1 incurred bv
Raytheon and Machlett in defending suits by ltalian banks - while the suits by
the trustee that resulted in a minimal payment by the Respondent also continued
into the early 1970s.
But more important, this argument in no way disposes of the reliance of the
United States on the Respondent's conduct, suhsequent to 1974 nght up until
the dispute was brought before this Court. The United States negotiated with the
Respondent, reasonably and in good faith, on the assumption that there was no
l~ ~ ~re~ ~ ~ ~ ~~-~~ and that recourse to this Court and other international
tribunals was not barred.
Finally, the Respondent finds relevance in a mistaken assertion by the United
States to Switzerland in the Inrerhandel case that Interhandel's United States
court case had failed (p. 158,supra). Again, the Respondent has no1considered
closelyenough the facts of that case. When the SwissGovernment in 1948asked
for the release of Interhandel's assets in the United States, the United States
immediatelytold the SwissGovernment in two diplomatic notes of the very same
year that redress for such a claim could he pursued under the United States
Trading with the Enemy Act (I.C.J. Plendings,Inrerhandel,p. 25 (SwissNote of
4 May 1948),p. 27 (United States Note of 26 July 1948),p. 35 (United States
Note of 12 October 1948)).This is exactly the type of response that reasonably
can he expected by a govemment if it believes localremedies exist. It was al thispoint in the diplomatic negotiations between the United States and Switzerland
that the litigation by Interhandel in United Statescourts began.
Mr. President, the failure of the Respondent to estahlish al1of the six points 1
have consideredtoday must lead to a rejectionof the Respondent's objection. Even
if the local remediesmle were applicable in this case,the letter and purpose of the
mle was satisfied.Invocation of the rule to deny access to the Court in this case
would be a victory of formalism. We therefore respectfullysuhmit that the Court
should reject this objection.
MI. President, this concludes the segment of our rebuttal on admissibility,and
I therefore now request that you givethe floor to Ms Chandler, who willdeal with
the evidence before this Court on the ability of ELSI to carry out an orderly
liquidation. QUESTIONPU1'BY JUDGESCHWEBEL
Judge SCHWEBEL: Mr. Presideiit, on the subject of local rernedies: may 1ask
a question of the United States Agent at this juncture? In the process of the
exhaustion of local remedies, did ELSl rely on the Treaty and Supplement al any
point? If not, why not? And, in so far as this is within the knowledge of the
Aoolicant. did the trustee in bankruotcv. in his leaal actions, invoke the Treatv
an'i ~u~~lernent?If, as far as can beascékained,the Treaty and Supplement werë
not invoked before ltalian jurisdictions, what follows, if anything?
Mr. MATHESON: Mr. President, 1know the answers to those questions but,
if1might, 1 would prefer to answer them thisaftemoonL, after wehave thoroughly
looked at the recoid.
The PRESIDENT: Of course yoii can answer in the aftemoon if you wish REPLYOF MS CHANDLER
COUNSELFOR THE GOYW<NMENT OF THE UNITED STATESOF AMERlCA
Ms CHANDLER: Mr. President, distinguished Members of the Court. The
Respondent has not presented any real disagreement on the basic sequence of
facts in this case: that Raytheon and Machlett attempted to commencean orderly
liquidation of ELSi's assets, that the illegal requisition prevented the execution
of the liquidation plan, and that ELSl suhsequently was placed in10bankmptcy.
The essenceof the Respondent's argumentreallygoesto a diîïerent issue: whether
the hankmptcy and ensuing financial damages were caused hy the acts and
omissions of the Respondent, or were the inevitable consequences of ELSI's
financial situation.
The Respondent's contentions on this point can besummarized into three lines
of argument. The Respondent asserts: first, that there was no realistic plan for
the orderly liquidation of assets; second, that ELSI should have been placed in
hankruptcy at some point prior 10 the requisition; and third, that even if the
requisition did prevent the orderly liquidation, ELSI would have gone bankrupt
anyway.
The United States does not contest the general principle that there mus1he a
sufficientnexus between the unlawful act and the iniurv for comoensation to he
payable (see Memorial, 1, p. 106).We submit, how&e< that the'positions urged
upon this Court hy the Respondent fall very wide of the mark, for the simple
reason that we have orovided ahundant evidence of the causal relationshi~
between the acts and omissions of the Respondent and the injuries suffered bi.
Raytheon and Machlett in this case. I shall address each of the Respondent's
three basic contentions in turn.
The Respondent disparages the orderly liquidation plan as "pure fantasy"
(p. 267,supra).As the record amply demonstrates, there was an orderly liquida-
tion plan and the orderly liquidation plan would have worked. To appreciate the
dvnamics of the orderlv liauidation olan. one mus1consider the context in which
the dccirion to liquidaie il;c company was rnadr.
In 1967 Ra)ihcon and Machlcti rewpiializcd and rtfinanced ELSl wiih
4 billion lire of ncw caniial and euaranteed loans. and simulianeousls made the
decision that no additional capitaÏ woulbe provided without some reitructunng
of the company to ensure its viahility.This decision left severallegitimate options.
First, they could have negotiated a partnership with an ltalian company that
would aid in the erowth of sales and ioinilv Drovide the additional financial
resources needed. Second, they could haGedeGeiopeda plan for operating profit-
ahly by permanently reducing the number of employees and cutting hack on
other operating costs, with reduced new financing requirements being provided
hy Raytheon.
For a year, Raytheon and Machlett vigorously pursued the first option -a
partnership with an ltalian company - with officiaisof the national and regional
governrnents, including IRI. They sought an ltalian partner and ltalian Govern-
ment backing (including Mezzogiorno benefits), and an expansion of ELSl's
product hase. Neither the regional nor national Governments - nor ESPI nor
IR1 - were willing to participate in ELSI. To correct one of the Respondent's
many factual inaccuracies in this case, ELSl management did pursue every
possibility for securing the Mezzogiorno henefits they had long heen promised. REPLY OF MS CHANDLER 293
ELSl's counsel did submit, and was preparing to resubmit, a claim for 300million
lire in benefits (1, Memonal, Ann. 17, Exhihit A).
From exnerience. Ravtheon and Machlett were convinced that the second
option - large-\cale ernpl,))cz reductionsinihe uork1i)ric 2nd opcraring custs -
iould noi he iniplcnicnied in ihc exi\ting environmeni. Che Kr.spondeni has
suggested that the excess workforce could have heen paid by the Sicilian govem-
ment. This did not present a long-term solution to the prohlem. In 1967, after
discussions with the President of Sicilyand with the unions about the surplus of
the 200 workers, the Sicilian region provided a 90-day training and wage subsidy
programme. Training was given in the construction of electronic suh-assemblies
in anticipation of new sub-contract work. At the end of the year, the suh-contract
work had not matenalized, thus these programmes did not solve the problem of
the excess workforce and therefore did not afford EI.Sl long-tem relief.
The fact that Ravtheon could not make ELSl successful does not mean that
ï purchaser oI'~~~1iioi~ldh;iic h:id ihcsüme problems. 11rhould bc remernhered
th31 any purchaser rrould hd\,c hrid the opportunity to structure ihc purcha,cd
businesi in an optimum fashion, starting f;om scratch. The purchaser would use
only the direct labour in supporting overheads necessary. If the purchased busi-
ness was being merged into a purchaser's existing business, then significant
overhead savings could well be possible. These choices for optimization were not
available to Ravtheon in the then-existine environment at ELSI.
Thc only acc;piahlc aliernativc thüi rcmained \sas the orderly liquidation oi
ELSl's acseis. Kdviheon and Machlcti fomiul~ied speciti~p . lan iuihs encsuiioii
of ihe Iiuuidaiion. To euariintec ihc r>lan',\uccesr Ravtheon and Machlcit made
the cornmitment to baEk the plan bo'thfinancially and technically. It was clearly
understood that timely financial assistance would he required from Raytheon.
Raytheon, the principal owner, was a major publicly held United States corpora-
tion with amole financial resources. It also had a res~onsibilitv to its shareholders
to handi tce aafairs of ELSI in a &&mer that did not adversely affect the
shareholders' interests. Raytheon therefore would provide whatever was needed
in money and manpower io execute the orderly liquidation successfully. They
also had an economic incentive to fund the liquidation. It is without question
that a financially backed, company-controlled sale or liquidation avoids the
suhstantial losses that would othenvise occur in bankruptcy.
1will return to this financial commitment at various times over the course of
the next several minutes, because it isan essential element of the liquidation plan
and an element completely ignored by the Respondent.
The cornmitment hy Raytheon and Machlett in 1968 to fund the orderly
liquidation is not inconsistent with its decision a year earlier no: to invest
further in ELSl without certain restructunng. The decision to fund the liquida-
tion reflected the fim helief that sale of ELSI's assets in an orderly liquidation
would recover the maximum amount possible. Moreover, funds provided to
ELSI during the orderly liquidation would likely be recovered after payment of
al1creditors.
The successof the orderlv lisuidation vlan was further assured bv the commit-
ment of high-level managériai and technical expertise that Rayiheon lent to
implement the plan.
As a large multinational Company, Raytheon has had considerahle experience
in selline - at book value or better - subsidiarv comoanies. divisions. and
product~ines,some of which had consistently recoried loises. ~his was possible
because of the important intangible assets which went with these operations
because of ~a~theon's w~rldwidere~utation and its accesstosupenor t&hnology
and networks of customers and suppliers. REPLY OF MS CHANDLER 295
The Respoiidcnt clpresses only iaguc and concluçor). douhi.; 35 IO ihc ililcni
ELSl's prodiict Iincs. bïi oKcrs no doiunicnicd e\idcncc of ihc salcÿbility oi
ELSI a;a whole or bv oruduci line. 1mLsi, ihcrcforc. bricfl, rciic!~the ciidcncr
on the record with respect to ELSi's product lines.
Cathode ru)'tubes. First, the cathode ray tube line, that is, the television tube
line. Mr. Clare delivered powerful testimony with regard to the saleability of the
cathode ray tube line. With its up-to-date technology, this line, started under
licence from an American company, constituted more than one-half of al1 of
ELSI's sales. ELSI was using licensed, up-to-date technology to produce implo-
sion-proof tubes. The Respondent itself recognizes in its Counter-Memorial
(and 1refer to the Respondent's Document 44) that the quality of the television
tiibes was "qiiite good" (Counter-Memorial, Doc. 44, II, p. 230).
In the two years preceding the requisition, ELSI cleared out a large amount
of bad inventorv and imoroved vie,d hv estahlishine a reclaim section to rework
flawed tubes. ~he manufkcturing oiitpui was impro;ed by the industrial engineer-
ing provided by the experts sent from Lexington. As a result of al1 of the
imÏpÏovementsinstituted-by the ELSI management team, production and sales
increased from a prior level of 30.000-35,000 tubes per month to 50,000 tubes
per month in Decemher of 1967.These qualities earned ELSI a substantial share
of the market in both southern and northern Eurone. ELSI's oicture tubes
account Tor .iiull 20 pcr ccni oi the Italian markciA0 ber cint of ~LSI'Soutput
\!sr exp<~rted itcouiiirics çuih as Cicrni;tn), trancc ,ind 1loll;ind (p 53,iupro,
I bh<iuldrioint iiuihdiELSI bourht no glass tubes from Russw as uss ;isscrtcd
bv the Resbondent (D. 167. su,ra ,:bes were ourchased onlv from Germanv
~nd t'rince'- anoiher of the Kcspondcni'\ mm:, inïciurdiics.'
The fuiurc for thcsc products ~3s excellent. 'lhcrcuïs d subsianiial rn;irkci in
Eurooc for hllick anJ white iclcvision tubes, both for orimnal and rcrilaienicni
tube; Colour television transmission in ltaly did uot even start until'about the
end of 1976,so the black and white line had a good IO-yearlife of potential sales
and profit (p. 53, supra).
ELSI. however. had taken steos to position itself for the advent of colour
ielevisionin ihc Europcdn nidrkci. IISI csi:ihlishcd acolour telrvision Ishorïi<)ry
in Palernio ai a cciriol':iqLïrtsr o3 niillioiidollars. EI.SI ni;in.igcnicnt, ihrough
Ka\ihcon. h:id ;ilrc;ids hcaun ncc~itiïiions uiih R<',\ uiih rceï-d io a liccncs
fo~colou~ television tubes iibid.):
The television tube line could easily have been sold as a part of ELSI as a
whole, or as an independent business. The line was housed in a separate building,
which renresented nearlv half of the total ~lant.
X-ril)v;uhrsSecond. Ac X-rd) tuhz line.'~-rd) iubes wcrc made wiih ic~hnicdl
knou-how froni M3chlctt Iabordtorics I'hc iubc5. mïdc in I'alcrmo. wcrc miid-
rrn, curreni icchnolugy lubcs. As \Ir Cl'ircdcs;rih:d. EI.SI uds thc onl\ mdriu-
facturer in ltaly of X-iay tubes.
There was also a market in telephone switching equipment to which the
technology in the X-ray tube line could be applied. In telephone switching
ea. .ment OCthat era. items known as reed relavs were being in-roduced. Their
ni;inufi~ciiircrcquircJ glas5 <calin<,c<~ntr<i0l1the \3:uain insidc. and conirol oî
clcan niciiils for ihc coniliris. 'lhc tcchnol<igyand knciw-liou in the ELSI X-r3)
tube Iinr uould h3tc heen idsalli. suiicd for ihc oroduction of rccd rc1..~(.. 54.
supra).
ELSl management was confident that the X-ray tube line was a readily saleable
line. If for any reason it was not, however, Mr. Clare has testified that a Swiss
Company, Comet, majority owned hy Machlett, would have purchased the line.296 ELETTRONICA SICULA
Raytheon would have made certain that this purchase was effected.Comet would
have either left the line in Sicilyas an EEC manufacturing source or moved the
line to another location (p. 54, supra).
Citing a brief and conclusory affidavit in its Counter-Memorial, Respondent's
only allegation with respect to the X-ray line in its oral pleadings is that "the
machinery was very old and the processing was carried out at great risk to its
operators". Respondent selectivelyedits the conclusion in this same affidavit that
the X-ray tubes manufactured by ELSl were "quite good" (Counter-Memorial,
Doc. 44, II, p. 230). Finally, in its oral pleading, Respondent made no response
to MI. Clare's compelling testimony concerning the technology of the line and
the quality of the products and its prospects for sale.
Semiconductors It has not been disputed that prior to 1967the semiconductor
line was manufacturing germanium transistors wbich had become obsolete. Mr.
Clare and his management team stopped the germanium manufacture and sold
offthe inventory of raw material and product with the help of Raytheon Semicon-
ductors.
Raytheon's wholly-owned subsidiary, Transistor A.G. (TAC) in Zurich, imple-
mented a similar transition from germanium to silicon. After the transition, TAG
developed new silicon products - rectifiers, high voltage stacks, and controlled
rectifiers- al1of which had a strong and growing market.
The know-how for these new products was being transferred to ELSI, which
bçgan io manufiicturc silicon rh-tifiers 2nd hiph v;ilidgc stacks. R~)thr.i>nand
M;i~hlctiintcndcd ELSl IO become the EEC>i>urccfiir thcic praJuct\. uiih TAC;
a, the EFTA sourcc A t.uropcan salcs cxecutiie, pro\idcd bs Rakihcon, \cricd
both companies. . .
TAC grew strongly and profitably based on these new products and for many
years has taken 50 per cent of the German market in these product areas, in
direct competition with Siemens, AEG and BBC. Because of the close working
relationship between TAG and ELSI, it can be stated with certainty that if a
purchaser could not have heen found for the semiconductor line, TAG would
have taken it over.
The Respondent's only specificassertion with respect to the semiconductor line
is that it utilized germanium technology which had been obsolescent for many
years (p. 167, supra). The Respondent's assertion completely ignores Mr. Clare's
specifictestimony that he and his management team had converted the line from
manufacturing germanium products to manufactunng silicon products many
months prior to the requisition (p. 54, supra).
Microwave tubes. In its oral pleadings, the Respondent made no mention of
the microwave tube line whatsoever. ELSI was manufacturing high technology,
low-noise power devices for the Hawk missile svstem. As hoth MI. Adams and
MI. Clareiestified, the quality of these tubes wa; unmatched worldwide and was
hacked hy Raytheon licence and know-how (pp. 27-28, 54, supra). This line also
produced magnetron tubes. the power souriis for bir radaks. and thev could
have ~roduced the maenetron tubéused in microwave oiens. As'ho~~--- -~--~-~
and MI. Clare testified;microwave ovens, based on the commercial, technological
and mannfacturing know-how of the wholly-owned Raytheon subsidiarv. Amana.
would have provided a gold-mine of business for anyPurchaser of théline.
Surge arresrers. Mr. Clare also testified to the viability of the small surge
arrester line, which the Respondent again did not even mention in its oral
statement. This was a highly profitable linecapable of supporting significant new
sales into the STET-P7T area. Thus. there is substantial docume-.ed . ~-.~~..
on the record, product lineby productline, that demonstratesthe unique qualities
of each that made them readily saleahle. REPLY OF MS CHANDLER 297
The Respondent declared in its oral presentation that the orderly liquid-
ation plan was sheer fiction - or a "legend" to use the Respondent's own
words (p. 267, supro). 1 would hardly refer to the record before this Court
as fiction or legend. The team designated to seIl the assets in liquidation
identified three possible alternatives. The first possihility - and the first step
the management team would pursue - was to seIl ELSl as a total entity. The
most ohvious purchaser for ELSI as a whole was an IR1 Company.The second
alternative was to sel1the television tube plant and the other product lines as
two separate businesses. The third likely scenario was sale of the individual
product lines.
The liauidation team olanned 10aouroach ELSl'smaior competitors and major
diitribiiibrs for cach p;oduci Iinc.~hey would also t&get coipünicr sccking io
add to their own production and companies thüt mighl reck Ioexpilndor divcrsify
their product lines.
After the decision of the shareholders on 28 March 1968,the liquidation plan
was put in10motion. Dismi\~I notices urre =nt to the cmployeesand ~a~ihcon
iransferrcd 150 million lirc to start the psyment of srnall crediturs. The managc-
ment workine.rrouris assemhled io implement the liquidation preparcd to contact
potential purcriase;s with the aim of locking in cimmitrnenis from purchasers
within two to three months.
The Respondent expressesscepticismasIo whycontacts with potential purchas-
ers had not yet been made (p. 203, supra). As previously stated, Raytheon and
Machlett delayed the orderly liquidation for as long as possible to give the
negotiations with the Respondent the maximum chance of success. There is no
evidence of specificcontacts with purchasers only because the Respondent's
unlawful requisition intervened oiily three days after Raytheon and Machlett
voted Io proceed with the orderly liquidation. The Respondent cannot now
exploit the unavailability of specific contacts, as it effectively prevented such
contacts from being made with the intervening requisition. However, evenafter
the requisition, Raytheon received unsolicited inquiries from companies in the
United Slates, Japan and Greece (II, Counter-Memorial, Unnumbered Docu-
ments 11-24to 11-28;p. 55, supra). Inquiries such as these and those made directly
to the bdnkruptcy trustee - which came in even without the efforts Raytheon
had planned Io make - underscore the immediate marketability and saleability
of ELSl's product lines.
Judge Schwehel has asked whether it would have made sense for Raytheon
~ ~ ~~~~~ett to have sold ELSl a1 an earlier ooint in lime (o. 46, .su.ra). The
answer, in an economic sense, is yes. The reasoh Raytheon an'dMachlett waited
as long as they did to commence the orderly liquidation was to allow the
Resoondent everv nossihilitv to become involved in ELSl and therehy avert the
ordérlyliquidatik It was only when no concrete agreement had materialized,
and the 4 billion lireinvestment was nearly depleted,that they reluctantly decided
to proceed with the orderly liquidation.
John Clare acceoted Mr. Hiehet's statement that the comoanv at this ooint
w&"belly-up". ~his does not Lean that ELSI was bankrupi oréven insohent
under ltalian law, but merely that the pnor year investment was nearly gone and
the tirne had come when a liquidationwas necessary.
Thus, there was a specificplan for a liquidation, financially backed by Ray-
theon, that was destined to recovermaximum valuefor ELSl's assets.Mr. Adams
and Mr. Clare have both testified that in their businessjudgment in the orderly
liquidation that was planned, ELSI'sassets would have brought at least the value
shown for those assets on ELSl's books. Mr. Lawrence has also provided
you with his expert opinion that sale of ELSl's assets would have recovered298 ELETTRONICA SICULA
17,132.7 billion lire. This amount would have been sufficient to discharge al1
of ELSl's obligations, including Raytheon's current accounts with ELSI.
The Respondent has presented a second calculation of ELSI's value which,on
examination is surprisingly similar to ours. Mr. Lawrence will deal with these
calculations in detail this afternoon. 1 would only note at this point that the
Respondent makes virtuallv no reference to the iudicial valuation of the fixed
a,,it, in the bmkrupicy prucecding - Mr ~u~li!i's\3ludtion
The reiurd i'urtherJemunsirdtcs ihdt iiior rny rcd\on ihc r~leof ELSl's asjets
h3d not rcali~edsulticicni l'und. io .il1crcrliiors in iuII. \e\,crdl dltcrn.iiives
were availahle to Raytheon and ~ichlett - alternatives which could never be
implemented hecause Respondent's precipitous and unlawful requisition in-
tervened.
This hrings me to the second of the three central issues which continue to
seDarate the Parties: whether ELSI was oblieated as a matter of ltalian law to
he pl3ccd intù b3nkrdplc) 31 sonle point prsr 10 the rcquisition. As ~rofcssor
Bonelli has demiinsirsicd in \omr dctail. dnd as Mr Bi.conii uill cunlirm in a
mumeni. n,i priiviiion of Italian Iaw iihl-rdtcrl t:I.Sii)lilc for hankr. .cv XIdnv
point prior 6 the requisition.
The Respondent asserts that when a company faces great losses or even
financial disaster, the consequence is that Italian lawdoes not permit any sort of
liquidation other than the bankruptcy procedure. Professor Bonelli has demon-
strated the contrary: that under Italian law a company may proceed with an
orderly liquidation under one of several procedures under Italian law - and is
not ohligated to file apetition in hankruptcy - even if ils liahilities may appear
to exceed its assets. One possihility was that Raytheon and Machlett could have
deferred their own credits to ELSI. Another possibility was that Raytheon and
Machlett could have settled some or al1of ELSI's debts. For example, Raytheon
and Machlett were committed to oavin.,off.the small creditors and the secured ~~
loans in full. ncgotiating the scitlerncnt ofothcr unsccured loans. and pa)ing the
hxlancc of the gudr~niccrllu~n, Proles,ur RuneIlihd, dcmonstrdicd ihÿt in Iirly
setilcmcnis wiih ireditors arc not onlv lcmllv ~osjihlc. but dcsir~hls. Crcditùrs
in Italy and elsewhere have an economic iicéntive to settle their credits in a
negotiated settlement, rather than accept little or nothing in a protracted hank-
ruptcy proceeding. In addition, creditors typically agree to settle their credits in
light of the reauirement that a hankru~. . trustee cancel al1o. .ents which were
mide u,iihin 8ne year of the dccl;iraiion of bankruptcy (p. 66. suprir).
Willingncrs of ihc unsecured. unguarantscd creditor hanks iù setile is furihrr
c\idcnccd by e\ents that trans~ircd in the lall oi 1968.u.hen ihc Italian Govcrn-
ment actively pursued negotiaied settlements with thehanks as part of ils efforts
to acquire ELSI's assets.All but one of the seven creditor hanks agreed to accept
30 to 40 per cent of their unsecured claims. One bank decided that it would
acceot 50 Dercent (Memonal. 1.D.5...The.e neeotiations were never comoleted
hesa'uir oc ihc dcs,sion h) the ltalian ~o\crnm~nt IO purchiiss F1.Sl.s iisiets in
ihr hankrupicy proccss (ibiJ,
Thc Kcipondcnt docs not iskc issue uith Professor I3onelli'sdstniled stniemcnt
of Italian iaw, and announces instead that il is "irrelevant" (p. 201, supra).
Curiously, the Respondent then devotes most of its argument to United States
hankruptcy law. ELSI, however, was governed by Italian law, not United States
law, and United States law is therefore completely irrelevant to the proceedings
before this Court. MI. President, 1 will therefore ask Mr. Bisconti to discuss
ELSI's rights and obligations under Italian law. QUESTIONS PUT BY JUDGE SCHWEBEL AND THE PRESIDENT
Judge SCHWEBEL: 1should like to ask you, as counsel, the following: il was
stated that ELSI had in fact applied for Mezzogiorno benefits. Can the Applicant
provide documentary support for this statement?
Another question, of a more general kind, is this: could the Applicant tell the
Court, or supply 10the Court, figures on the total sales and profits of Raytheon
and its subsidiaries worldwide for the years 1967and 1968?And in that regard
it would be helpful, if it is feasihle, to indicate where among the electronic
manufacturers of the world in those years Raytheon ranked.
The PRESIDENT: 1would also like 10 put two questions.
In the course of the pleading of the ltalian delegation, they have maintained
that Raytheon charged ELSl for the patents, licences, and technical assistance
given; and they say that ELSl had to pay a lot of money to Raytheon for this
assistance. In your statement, Ms Chandler, you said that Raytheon had decided,
in the liquidation, to provide these licences, these patents and this technical
assistance to the new buyer of the whole business or the buyer of the product
lines. My question is: was Raytheon going to charge the new buyers the same
amount as they had previously charged ELSI?
The second question is the following, on another matter. 1wanted to put this
question hefore but it went out of iny mind. On 28 March dismissal letters were
sent to some 800 workers, if 1 remember correctly. How much was the amount
of money, in ltalian lire, that ELSI would have had to pay, according to the
labour law of Italy, for the dismissal ofhese workers? Thank you very much.
You do not need to reply now.
Ms CHANDLER: Mr. President, Judge Schwebel: we will look into these
questions and provide you with Our answers'.
The Chomberadjourn~dfrom 11.30 a.m. 1011.45o.m.
' SeeCorrespondence ,o.81, infra. STATEMENTBY MR. BISCONTI
ADVISER mR THE wm~m OF THE UNITED STATESOF AMERICA
Ms CHANDLER: Mr. President, injus1 one moment 1would like to ask Mr.
Bisconti to discuss ELSl's rirhts and obli~ations under ltalian law. Mr. Bisconti
willdemonstrate the shareho~ders'cntitle&nt to place ELSl inorderly liquidation
3s a matier uf ltalidn law, hç will respond io ihe Rcspondrnt's stdtçments uith
regard to ltalian bankmptcy law, and he will demonstrate the legality and
feasibilitv of creditor settlements in Italv. Mr. Bisconti is the senior nartner in
the law firni oistudio Irgale Iiixonti w~ihofficcs in Konic. Milan. iohdon. and
New York He 1sa mcmhcr i~fthe Italian Bar Associaiion. an Honorar) 8Mrmber
of the Anicrican HarAssociation, and a Fellow of the Amcrican HdrFoundation.
In Seplember 1988,in Buenos Aires, Mr. Bisconti waselected the Vice-President
of the International Bar Association. Mr. Bisconti was counsel to Raytheon
during the orderly liquidation plan, the intervening requisition, and the ensuing
bankruptcy. He is therefore thoroughly familiar with ltalian law as il relates
specifically to the plan to liquidate ELSl's assets, with the intervening illegal
requisition, and with the decision to place ELSl in bankruptcy.
Mr. BISCONTI: Mr. President and distineuished Members of the Court. it is
- ~~ ~ ~ ~ ~ ~ ~~ ~ ~ ~ .~ ~~-
a distinct honour and prinlege for me to appear before the International Court
of Justice in this case on behalf of the App.~cant. the Government of the United
States.
1have been asked to address the question whether the stockholders of ELSl
could have legally carried out an orderly liquidation of the ELSl assets at the
end of March 1968.1 have also been asked 10respond to arguments raised by
the Respondent that ELSI was obligated under ltalian law to file a petition in
bankruptcy prior to the requisition.
With regard to the first of these two issues, there can be no question that
Raytheon and Machlett, as stockholders in ELSI, had a right under ltalian law
10 proceed withan orderly liquidation of assets for whatever reason they deemed
....
As counsel to the stockholders and to ELSl's Board of Directors at the time,
il was my responsibility to see that there be an orderly liquidation of ELSl in
full compliance with the law. One of the most important factors in the pre-
requisition period, which assured the efïectivity of the orderly liquidation and
made bankruptcy an unthinkable event, was the fact that ELSl had the backing
of its stockholders. As Mr. Clare has testified and as 1 know from my own
personal knowledge in the aforementioned capacity as counsel, the stockholders
had guaranteed the cash flow necessary to make the orderly liquidation work.
This should be distineuished from makine more f-nds available to ELSl for
continucd oprrdtions. The record will 5howthai ELSl's parent corporations had
stated in esrly 1967.and had repeated to the Respondent throughout the rcmain-
der of 1967and theedrlv part of 1968. thdt thev wouldnot fund ELSl'sonerdtions
beyond the penod suchoperations could be iarned by the 4 billion lire'thc) had
investedin 1967 As the record willshow. the siockholdcrs had alrcady transfcrred
funds for the purpose of paying off the small creditors. It makes no sense to
speak of a subsidLaryof fina-nciallystable parent corporations in the same way
one speaks of an entirely independent corporation. As long as the parents back302 ELETTRONICA SICULA
was unable to pay. Even Respondent's own expert, MI. Hayward, is incapable
of stating that ELSI was in fact insolvent and concedes that ELSI was merely
on the "verge of insolvency". From this ensues the conclusion that pnor the
requisition, Article 217 of the Italian Bankruptcy Law was totally inapplicable
to ELSI.
Rcipundcni alsu .i\sïrir thai ELSl mas hankrupt by virtuc of Ariiclcs 2447
.ind 244 ofthe ItalianCivil Code. Iii. rruc [hot ELSl uuuld h~\e bcenconsidcred
dissolved as a matter of law if its capital were depleted helow the statutory
minimum amount. At the relevant time the statutory minimum was 1million lire.
As the United States Memonal demonstrates, ELSI's capital, as reflected in the
statutory accounts prepared in accordance with ltalian law, even after taking into
account losses, was always well above the statutory minimum. 1should also note
that Respondent takes no issue with Professor Bonelli's conclusion that ELSI
was uiider rio obligation to file a petilion in bankrupiçy under Article 2446 of
the Italian Civil Code.
Resoondent further auenes whether a1some ooint durine the olanned linuid~- ~~
tion E~SI nould h.iw bccn obligaicd io tilc ;ipciiiion in hiinj<rup;cs~ndsr Iixlim
tau,, pnritsul.?rlyaiih regxd io ihc sW mtllion lire p;iymeni to HanclidelI.aioro
in laie A~nl of 1968.The anhrrcr 1.no. Ravihem and hl3chlcii h~d made ihc
cornmitment to support fully an orderly liguidation, including the payment of
small creditors and any other notes and bills that came due during the period
before proceeds from the sale of ELSl's assets could he ohtained. With this
hacking, ELSI would not have had any obligation to filea petition in hankruptcy.
Respondent makes much of its conclusion that ELSI's liabilities in March of
1968exceeded its assets. 1do not agree with Respondent's conclusion. Raytheon,
Machlett and ELSI's Board of Directors - and 1as their counsel - had every
confidence that ELSl's assets could he sold for book value and al1creditors in
any event of the course of an orderly liquidation would have been paid in full.
Professor Bonell declares in his statement that ELSI nearly committed a crime
of so-called abusive recourse to credit under Article 218 of the Italian Bankruptcy
Law hy accepting the stockholders' financial backing in order to satisfy small
creditors. 1 greatly respect Professor Bonell and have read with great interest
several of his writings and books, noting in particular the tboroughness of his
documentation in the footnotes. 1 am utterly surprised that Professor Bonell
refers to Article 218 in such an incomplete manner. Article 218 punishes as a
crime the fact of an "entrepreneur exercising a commercial activity who has
recourse or continues to have recourse to credit concealing his economic situa-
tion" (my translation).
One need not he a scholar in bankruptcy or criminal law to conclude that there
is no recourse to credit in accepting a contribution from stockholders who are
fully aware of the company's financial conditions.
1 am equally surprised that Professor Bonell - to whom 1 wish ta express
again my high esteem and respect - refers in a significantly incomplete manner
to Article 160 of the Italian Bankruptcy Law. Under said Article, as one of the
alternative conditions to be admitted Io the procedure of judicial settlement, the
debtor mus1 show the court that he cau offer serious guarantees - "real" or
"personal" - that he is able to satisfy the unsecured creditors with at least 40
percent of their claims, wirhinsix monthsfrom the homologation of the settlement
or, in the case of a more extended period, that such guarantees cover interest at
the legal rate for the excesspenod. Having the hacking of the stockholders, ELSI
could have easilv satisfied the conditions of Article 160.
As to the repeated allegations hy Respondent that ELSI or its directors had
violated provisions of the criminal law, 1beg leave of this highest Court to state STATEMEKT BY MU. B~SCONTI 303
most emphatically that by filinga petition in bankruptcy ELSI not only opened
ils books to the court, but suhmitted to the court's scrutiny al1ils activity as it
may have been relevant. An excerpt of the judgment declanng the bankmptcy
must be sent hy the court to the public prosecutor to enable him to exercise a
cnminal action under Articles 17and 238of the Bankruptcy Law. Under Article
33of the Bankruotcv Law. thecurator is reauired to submit 10the court a reoort
corering also the;e~onsibility of the dcbtor'in the hankrupicy undcr \hl:crirninal
laus Had the court had any doubi iiboui possihlc brcachcs of the criminal law
bv ELSl's direciors. or hiid the curaior in hiinkrupio had any doubls as 10 ihc
directors' responsibility under the criminal provisions of the lialian Bankruptcy
Law, these would have been reflected incriminal charges against ELSl's directors.
No such charges were ever made.
Moreover, during 17 years of ertenuating litigation brought in ltaly by the
banks against Raytheon and Machlett, the behaviour of the stockholders and of
ELSl's Board were under the eyes of the ltalian courts. Not only no criminal
charges were ever made or intimated, but Raytheon and Machlett were fully
vindicated by the Italian courts.
But let us assume for one moment that Respondent was correct. As Professor
Bonelli has demonstrated - and 1fullyagree - under ltalian law a company is
entilled to proceed with an orderly liquidation of ils assets even if ils liabilities
may appear to be greater than its assets. Professor Bonelli described several
alternatives available to a company in this position. One very real possibility
available 10 ELSI was settlement with creditors, either by private or judicial
settlements. As Professor Bonellicorrectly concluded, anyone of thesealternatives
would have placed ELSI and ils creditors in a far more favourable position than
did the sale of ELSl's assets in bankruptcy.
Both Professor Bonelli and Professor Jaener (two leadina experts in Italian
çommcrcial and hankrupicy Iiiu,)tigrcc thai-crç~iiors in ltdy have suhsiantial
cconomic incentiics in \ctilc thcir crcdits in an ordcrly liquidaiion raiher than
rcccitc Iiitlcor noihinc:ina protrücicd bankrupicy procesr Il 1sa nolurious I;icl,
and it kas been my ecperience as a practising~lawyer,that creditors in Italy are
willing to settle credits for much less than face value.
It is critical to note that Professor Bonell did not dispute any of the
alternatives descnhed by Professor Bonelli, nor did he dispute the pnnciple
~t~t~ ~bv Professor Bonelli and Resoondent's own counsel. Professor Jaeeer.
that creditors have substantial economic incentives to settle their debts. ~rofeisor
Bonell's argument in this regard is that "there is no evidence whatsoever that,
prior to thérequisition, thebanks were willing to accept the proposal of a 30
to 50 per cent payment". Respondent has no1 presented any credible evidence
why ELSl's creditors would no1 have been willing Io settle their loans. There is
no evidence of bank negotiations at the time of the requisition hecause at the
time the stockholders were fully confident that ELSl's assets would have
recovered book value, and there was no need at the lime 10 star1 any sucb
negotiations. What the stockholders and ELSl's Board were seeking at the lime
was an understanding with the hanks on the manner and timing of an orderly
liquidation. Bank settlements would have remained as a very viable alternative
for ELSI, but only an alternative.
However, the requisition of ELSl's assets prevented any of the alternatives
described by Professor Bonelli from becoming reality. The requisition prevented
ELSl from proceeding witb an orderly sale of assets, prevented ELSI from
completing work in process, and even prevented ELSI, had il so chosen, from
proceeding with creditor settlements. If Respondent does not find satisfactory
documentation of creditor settlements on the record of this case, il is precisely304 ELETTRONICA SICULA
because Respondent's illegal requisition of ELSi's assets made any legitimate
alternative impossible.
The PRESIDENT: As 1said hefore, we interpret the first part of your state-
ment, Mr. Bisconti, as expressing things that you know as a lawyer for the firm,
and facts that you know as a lawyer for the fim: therefore, as you know, the
ltalian delegation has asked that you be treated as a witness. 1have decided to
consider you, if the American delegation does not ohject, as a witness as regards
the first part of your statement. Therefore 1have to ask you to take the solemn
declaration under Article 64 of the Statute. Could you put it in the past tense
please.
Ur. HISCONTI I rvlcmnly declarr, Mr. Prssident, upon my honour and con-
science, thai I ha\e spokcn the truih, ihc wholc iruth and noihing bui ihc iruih.
The PRESIDENT: Thank you very much, Mr. Bisconti. Does the ltalian
delegation wish to put some questions now - only on the part of the statement
relating to facts?
Mr. FERRARI BRAVO: Ilis dilficulIO consul1a big deleg~lion. I 3m sorry.
Mr Prcsidcni. but I ihink pcrhüps ihis xTicrnoon, il'iisconvenieni to the Coun.
The PRESIDENT: You can do soat the beginning of the afternoon, but Judge
Sir Robert Jennings would like to put a question to you now, Mr. Bisconti.
Judge Sir Robert JENNINGS: 1have a simple question of fact - 1am not
sure whether il is addressed to Professor Bisconti or to the United States delega-
lion; probahly the United States delegation will decide how the question should
be answered and when. It is simply this: did ELSI succeed in selling any of its
assets in pursuance of the orderly liquidation hefore the requisition intervened in
the process, or, indeed, did it manage to sel1any of its assets after the requisition,
and hefore the hankmptcy?
The PRESIDENT: If you want to reply in the afternoon, Mr. Matheson, you
may '.Judge Schwebel, do you wish to put a question to Mr. Bisconti?
Judge SCHWEBEL: Did 1 understand Mr. Bisconti to say that ELSl's plan
to pay off small creditors in full was lawful under Italian law, and that there was
no merit to the contention that such payment would have heen an unlawful
ore~ ~ence? That is mv first ouestion.
Uy second iiihis. ~under~iood Mr. Bixonti io maintain thxi ihr faci thai an
inst3lmeni on a bank loan w3sduc in Iïic Aunl oi~ornc 800 million Iirc, I klicvr
the figure was, did not of itself indicate that hankruptcy at that juncture was
inevitahle, because the stockholders of ELSI were prepared to meet such a loan
if doing so was pursuant to a sale of assets which would have realized, by the
proceeds of the sale, funds which presumably would have repaid the stockholders
for advancing funds to meet the loan payment. Now 1 had earlier understood,
from argument of the Applicant, that the stockholders had transferred a sum of
money sufficientto pay small creditors. Had any steps been taken by the stock-
holders which evidenced the further intention of the stockholders to act in the
fashion 1havejus1referred to with respect to the loan payment due in late April?
The PRESIDENT: You may reply, Mr. Bisconti.
Mr. BISCONTI: If 1may, Mr. President, 1will reply in the early afternoon'.
' SeeCorrespondenceN , o. 81,infra REPLY OF MS CHANDLER (cont.)
COUNSELFOR THE WVERNMENT OF THE UNITEDSTATESOF AMERICA
Ms CHANDLER: Mr. President, the Respondent's final line of argument is
that even if the requisition did prevent the orderly liquidation, the requisition
caused no damage because ELSI would have gone bankrupt anyway. As Mr.
Bisconti has shown, ELSI would not have filed the petition in hankruptcy had
the Respondent no1 illegally requisitioned ELSl's asxts. The Respondent does
not dispute that the requisition prevented the sale of ELSI's assets, that the
requisition prevented ELSl from resuming limited operations, and that the requi-
sition efiectively prevented settlement with creditors. In this posture orderly
liquidation was simply out of the question. Without cash availahle 10 meet bills
as they came due, the only practical alternative open to ELSl was bankruptcy.
The requisition harred ELSI from closing the plant in an orderly liquidation.
~~ ~ ~~~-~~~-~-ition the onlv, ,v to disoose of ELSl's assets was throueh th-
protracted hankruptcy process.
The Respondent, by contrast, argues that ELSl was insolvent or al least on
the "verge of insolvencv". In considerinr this contention il is worth bearina in
mind at ïhc outsct the t&tiniony th31~v~s~~cscntcd Isstumk by the RespondGt's
accountingcxpert. .Mr Ila)w3rd. The issuesraised hy .MI.Haywurd will he deïlt
with by Mr. L~wrcnccthis aftcrnoon, but 31this point 1wichtu focur the Court's
attention on one significant point.
In response to questions, Mr. Hayward stated that he believed ELSl was "on
the verge of insolvency" on 31 March 1968.He went on 10explain that he meant
that ELSl was on the verge of a situation where il could not pay ils liahilities as
they would fall due. But he made clear that even this would not prevent ELSI
from continuing to do business. As Mr. Hayward put it, "until one has gone to
the court and actually declared that the company is insolvent, rhecompanycan
sfillcontinue busines s whichI thinkwasthecaseof ELSI" (p. 244,supra,italics
added).
As we have shown, the "business" that would be proceeded - if the requisition
had not intervened - was the business of the orderly liquidation, which ELSl
was actively planning in March of 1968. That liquidation would have worked;
Raytheon stood behind it and would have made certain that it worked. The
liquidation would have realized for ELSl an amount at least equal to the book
value of ELSi's assets.
The Respondent has made much of the prediction by John Clare, in a meeting
with ltalian officiais, that ELSi's funds would run out in early March. This
statement reflected the depletion of the 4 billion lire investment from the prior
year. It cannot be concluded that funds were not availahle from Raytheon 10
successfully complete the orderly liquidation.
ELSI was not insolvent. At the time of the requisition, ELSl had paid every
singlebill that had come due, including the March 1968payroll. The Respondent
asserts (p. 149, supra) that the salaries of the ELSl workers were paid by the
Sicilian region in March 1968becaux ELSl could not make its March payroll.
This is simply wrong. The Respondent's camplaint concerning notice and pay-
ment given to the worker's in March of 1968is entirely unfounded.
And, ELSI would have remained fully solvent through the orderly liquidation
period. During the liquidation period, ELSl would have generated funds of its306 ELETTRONICA SICULA
own by establishing an aggressiveprogramme to collect the 2,400 million lire in
accounts receivable and the 400 million lire in notes and accrued receivables.
They uould haie dlso sold the fin~shcdgood, of 1.8UOmill~onIirc io cxi5iing
~u,tomcrbdnd oihcr, Thcsc procccds \rould h~\c bccn used io pay ihc following
- wages and benefits of 30 million lire per month for the 130retained workers;
- severance pay of 510 million lire to terminated employees;
- 283 million lire in accounts payable to those otber than Raytheon;
- 1,000million lire of otber accrued liabilities; and
- al1current but greatly reduced operating expenses (including telephone bills,
utility bills, and the like).
Durina this oeriod thev would have neeotiated with the creditor banks for
extension of giaranteed debt and for new arrangements on unguaranteed debt.
Al1interest charges, however, would have been paid on time.
Most important of all: if, for any reason, the collections were insufficient to
meet the case requirements during the period, funds would have been provided
by Raytheon. In addition, al1salaries and expenses of the Raytheon personnel
handling the liquidation would have been paid by Raytheon.
Raytheon's commitment to advance al1funds needed to provide the necessary
liquidity for the orderly liquidationhad been shown in the affidavitsof Mr. Clare,
MI. Schene and Mr. Scopelliti (1, Memorial, Ann. 13, para. 14; Ann. 15, para.
53; Ann. 17, para. 14; II, Reply, p. 15) and in these oral proceedings (p. 51,
supra).This verycritical aspect of the orderly liquidation plan has beencompletely
overlooked by the Respondent both in its written pleadings and in its oral
statements last week.
In arguing that ELSl was insolvent and would have gone into bankruptcy in
any event, the Respondent has also suggested that ELSI was being exploited by
Raytheon - squeezed like a lemon, to use the Respondent's phrase. It is diiïicult
to see the relevance of this argument because even if it were true, Raytheon and
Machlett were still entitled under ltalian law to liquidate ELSI's assets. The
Respondent's accusations, however,cannot pass without comment.
The Respondent repeatedly asserted that ELSI always made only losses, and
twice set forth the figures - year by year, from 1963 to 1968 (pp. 168-169,
su~ra). ELSl's losses as such have never been in disoute. That was exactlv whv
~a~theon ultimately determined to liquidate the cimpany. But in considerinl:
ELSI's financial situation it is important for the Court to have a picture that is
complete and accurate. For that purpose, the figurescited by the ~ës~ondent are
ill-suited, for they do not tell the whole story.
The loss figures that have been cited are drawn from Schedule B3 of the
affidavitof MI. Arthur Schene,which is contained in Annex 13of OurMemorial
(1). Those figures represented net loss. A close examination of that schedule
reveals, however, that ELSI actually generated an operating profit in 1964, 1965
and 1966.The net losses resulted only after the interest expenseswere taken into
account.
The substantial interest expenses,which are reflectedin the scheduleand which
tumed profits into losses, resulted from a deliberate choice made by Raytheon
with respectto the financingof the Company.Specifically,Raytheon had to decide
whether to finance ELSI with large amounts of equity, which would have required
borrowing in the United States, or whether to finance it primarily with secured
and guaranteed bank debt in Italy. Raytheon chose the latter approach, for two
very good reasons. First, interest rates were not significantly diferent; in fact,
certain interest rates in Italy were lower. Second, the approach chosen avoided
the impact of foreignexchange rate adjustments on Raytheon's incomestatement. REPLY OF MS CHANDLER 307
In deciding to finance ELSI with Italian debt rather than equity, Raytheon was
following a worldwide practice common among companies with foreign in-
vestments.
Moreover, ELSl's apparentlypoorer financialposition in 1967actually reflected
very legitimate steps taken by ELSI management to take a more conservative
view of ELSl's assets. These included:
- a 100per cent screening of al1customer accounts receivable which resulted in
the deletion from the books on 30 September 1967of 600 million lire of sales
which had been erroneously recorded in pnor years;
- a review of al1 inventory which made certain, for example, that old style
cathode ray tubes and germanium semi-conductors were valued at minimum
recoverable value or no value;
- finally, starting in 1963,a full annual charge for depreciation was recorded on
al1fixed assets.
In viewof the continually increasingconservatism resulting in the out-of-period
adjustments referred to above, the average annual operating loss may reflect a
more accurate summation of ELSI's operating performance during that five-year
penod.
In any event, the operating loss in the fiscal year ended 30 September 1967is
totally distorted and gives the erroneous illusion of significantly increasing losses
towards the end of ELSl's operations.
Moreover, there were other factors unrelated to ELSI'smanagement and assets
which distorted the final six-month oenod of ELSl's financial life. There were
ihe series oîe~rihquakc uhich de~i~iated Palermo These edrihqu~kes pollukd
ihc i\,aicr ,uppl) and rÿurcd an cpidcmic of .pinal rneningitis.1hcrc occurrences.
whiçh arc cùmnion kndi\,lcdge. disrupicd FI.Sl's oper~iions during ihis pcriod
and tenipor~rily inircaszd iis losse,. In addition. no neu pri)ductc hiid been found
in rc-cmplo) ihe u,,~rkerswho weie enrolled in the training programme. Thcir
lay-off caused a senes of random, unannounced walkouts of employees further
disrupting operations and temporarily increasing ELSI's product costs. All of
these disruptions were temporary and one-time occurrences and should not be
interpreted as having any permanent deletenous effect on the value of ELSl
assets.
The Respondent's glibcharacterization of ELSI as a lemon is thus unfounded
in fact and cannot withstand a genuine analysis of the events that transpired in
the year before the requisition.
To evidence its position that Raytheon and Machlett were "squeezing" - or
exploiting- ELSI, the Respondent reliesexclusivelyon the so-called Mercadante
report. The data in the report of Dr. Mercadante is replete with errors and
statistical distortions. 1willlimit myremarks today to three of themoreillustrative
issues mentioned in the Mercadante report: royalties, management fees, and
technical consultancy fees.
From 1960through 1967,royalty rates averaged less than 3 per cent of sales,
but almost none of the rovaltv navments that accmed were actuallv ever naid.
Exhihii C io MI. l)ciichc;.s afl;&\ii. uhich is cuniaincd ïi ~nnc; 14 oi our
Mcmor131 (1j,shour cledrl) ihai a toial oî almùsiUSS5Uii.OO in ro)alties- ihc
vsst bulk - rcmainrd unpaid on tl March 1968 This amount u3s includcd in
the "open accounts" fhat Raytheon never recovered because of the bankruptcy.
Next management fees. Dunng the period after 1962 ELSI was assessed by
Raytheon a normal management fee, to cover costs, that averaged about I per
cent of sales. But again, most of these fees were accrued but never paid. MI.
Deitcheis exhibit shows management fees for Raytheon and Raytheon Service308 ELETTRONICA SICULA
Company totalling US$521,753 - again the vas1bulk - remaining unpaid on
31 March 1968.Together with the other open accounts, they were los1as a result
of the hankruptcy.
The expenses for technical consultancies, to which Dr. Mercadante also re-
ferred, represented reimbursement of out-of-pocket costs for the services of
Ravtheon's technicalsnecialistswho worked on ELSl's oroblems. The storv here
is cxlicil! the janir.As Mr Deilcher's exhibit revcals. most of ihc "spec~<ilisi's
billings" - linamount of CSS143.763 - rcrnaincd uiipaid on 31 Slarch 1968.
'rhc) werc newr rccci\ed by Rayihcon. Thus. ro suecesi thai ELSl \r3s a lemon
thaf was being squeezed by Raytheon is to preG a picture that is wholly
distorted.
One final point. The Respondent contends that an orderly liquidation was
impossible because the workers "had been in and out of occupying the plant for
some weeks" (p. 267, supra). Contrary to the Respondent's assertion, the judg-
ment of the Court of Palermo does no1 establish that the occupation began on
13 March 1968and continued through to the date of the requisition. Rather il
is after the reauisition that the local ~olicedid nothine to orevent ELSl's former
-.
emplo).ws from occupjing ihc plînt.'~he Respondcnt ilselfgivesgrclii wcight lo
a Jocumcnt that sisiei ihat the requisitlon bcglinon I April (pp. 185.186,.supra).
WCwilldiscuss the lce~larguments sci forth by ihr Rcs~ondent in our dixussion
of the Treaty seetion: At rhis point, I will simply no& the Respondent cannot
plead the various provisions of its interna1 law to contravene ils Treaty obliga-
tions. Tbus, despite al1of the Respondent's attempts to portray ELSl as a poor
subsidiary hilked by its greedy parents, nothing could be further from the truth.
ELSl's financial picture was improving substantially and ELSl or ils product
lines would have been a positive additional asset to many potential buyers.
Backed by ample Raytheon financial resources there is nothing 10 suggest that
ELSl was or would become insolvent at any point during the orderly liquida-
tion.
1 would like now to turn to the issue ol compensation. As we have demon-
strated. the Respondent should make reparation for al1 of the financial losses
flowing from ils wrongful acts and omissions, including the illegal requisition.
These losses include the loss of Raytheon and Machlett's financial investment,
the loss of Raytheon's open accounts, the payments hy Raytheon of the guaran-
teed loans. and oavments bv Ravlheon of various leeal and related exwnses. Of
course, evin if &;court wére 1; find that the requi^;itionwere not thécause of
the bankruptcy, a position with whichwefirmlydisagree, Raytheon and Machlett
suffercd direct and substantial losses arisinn from Cheother acts and omissions
bv the Resoondent. -
'1will address the key issue of valuation shortly. Before 1do, however, 1would
like to focus brieiiy on two other aspects of compensation raised by the Respon-
dent las1week: reimbursement of leeal exoensesand interest
The Respondent has contested oir inciusion of legal and related expenses in
the claim for compensation. As we have shown, however. the legalcosts that we
claim in this casearose as a direct and foreseeable conseauenceof the unlawful
acts and omissions bv the Reso~~rent. None of these exGnses wou~d~hav~ ~een
necessary if EL SI-^ been permitted to proceed with ihe orderly liquidation;
the proceeds of the liquidation would have been sufficientto DayELSi's creditors
in &II. These expe&s became inencable, however, once the ~es~ondent inter-
vened with the requisition, which predictably drove ELSI in10hankruptcy (case
of Cerruii. summarized in Moore, Arbirrarions, Vol. 2, pp. 2121 er seq. (Govem-
ment of Colombia required to pay litigation costs incurred by Cerruti indefending
against creditor actions)). REPLY OF MS CHANDLER 309
The Respondent's reference to the practice of the Iran-United States Claims
Tribunal on the issue of costs is heside the point. Costs awarded by the Tnbunal
are those related to the arbitration proceedings, and in awarding such costs the
Tribunal operates within the framework of its own rules (see especially Art. 38
of the Tnbunal Rules). In this case, hy contrast, the United States seeks no
comoensation for the costs of the oroceedines hefore this Court. The exoenses
for khich i5.edo scck c~m~nsation'arc ;ilrlpenscs for which rcparation \h<iuld
he made in rw,,rdancc with fundamenial prinsiplcr uiintcrnational IJW \Vcha\,c
proven that the Resuondent has enaaeed in wrongful acts and omissions which
gave rise to those expenses. As the permanent Court stated in the Chorzow
Faczorycase, the reparation which is due "must, as far as possible, wipe out al1
the consequences of the illegal act and re-establish the situation which would, in
al1 prohability, have existed if that act had not been committed (Chorzbw
Facrory.Merits, P.C.I.J., SeriesA, No. 17,p. 47 (1928)). lt is on the basis of that
principle that Raytheon and Machlett should he reimbursed for the legal and
related expenses we have described.
Let me turn h~i~ ~~ to the auestion of interest. In that connection. onlv one
contenti oonhe ~cspondcni meriisîiicniion. The Rcspondcni ciicd ihc lvtkzhl<,-
</<incase (S.S. "Il';tr,>ihledun"IJ.C.I.J,Svrict A. &'o. l(lY23)) iiir the propusiii6in
ihai an auürd <iiiniercsi shnuld accrue from thr ddtt of judgmcnt. This dot\
nut. hoiic\cr. rcprcwnt ihc gcncral rulc in ihc prc,ciit rirtc of ihc I~IUProlcssor
Lillich. while noiing ionir. excsptiiins, si:iics the pcncral practicz in ihc iolli>u.ing
"Interest generally has been held to commence on the date of taking in
expropriation claims, and on the date of wrongful interference or non-
performance (when the respondent State is a party) in contract claims . . .
International arbitral tribunals allowing interest . . . generally assess it
from the date the claim arose, Le., the date property is taken, contracts
breached, or other deprivafions occur." (Lillich, "Interest in the Law of
International Claims", Essays in Honor of Voitto Saario and ToivoSainto.
51, 55-56 (1983).)
In this case, interest should accrue, on a compound basis, from the date of
the injury until the date of payment of the award. This is what is required Io
compensate fully for the loss of use of the funds that should have been paid to
Raytheon and Machlett many years ago.
1turn, finally, to the issue of valuation. While the Respondent has argued that
the requisition caused no loss, it has not contested the basic methodology we
have proposed for the calculation of damages. The Respondent has produced its
own accounting expert, MI. Hayward, who has provided the Court with an
al~ ~ ~ ~ ~ ~al~ ~ ~ ~ ~SI. Mr. Havward drew the Court's attention to ELSl's
financial statements of 30 ~e~tember1967, andhe noted certain adjustments
reflectedin those statements. He concluded that the book value we had proposed
was incorrect and that the book value should properly be reflectedat a coriected
figure of 12,822.6million lire.
The chief difference between MF.Hayward's figure of 12.8billion lire and Mr.
Lawrence's figure of 17 billion lire is the amount of 3.5 billion lire attributed hy
Mr. Lawrence IO the intangible value of ELSI's assets that could have been
realized in an orderly liquidation. MI. Lawrence will discuss this matter further,
but for present purposes the point 1wish to stress for the Court is the fact that
the gap between Mr. Hayward aiid MI. Lawrence is remarkably narrow. Even
the Respondent's own accounting expert has made clear in his testimony his view310 ELETTRONICA SICULA
that the figure of 12.8billion lire represented the real substance of ELSl as an
econornic enterprise. Mr. Hayward's words ment quotation.
"Many companies in Italy, France, and Spain at that time had Iwo books
of accounts. One was the official books of account for fiscal monetarv
c.~rhïnge rensons, and the other wÿi the pruprictor's set of account5 which
rellcrted the true cconomic substance of 3n entrrprise. Ir rs mi. i.!rhar rhe
audiied huluncehcet iwhichnus prerenr~rlru Xii)rhzoni~rhezqurvalr~irof rhe
proprietorrs set of accounts in this confext, anddoes truly reiresent thesub-
stance of the economicenrerprise." (P. 241, supra, italics added.)
Wepresented to theCourt last weeka detailed explanation of the compensation
we have claimed in this case. In order to ascertain the general financial losses
suffered hy Raytheon and Machlett, we compared the position they would have
been in had they been permitted 10proceed with the orderly liquidation with the
position in which they actually found themselves as a result of the requisition
and hankmptcy. In financial terms, the difference between those Iwo positions
amounted to 7.322.4 million lire. or US$11.739,200.and that is the fiaure that
reprebents the United Staies claim for reparatton for this caiegory ofhjury It
\riIlbe rçrüllcd ihat wcalso considered what the los,es of Raytheon and hlachleti
would haveken ifonly ihe "quick.s3le value" of ELSI'sasscts hïd been reali7ed
in an ordçrly liquidation. In that ca'e, wc showrd that Rayzhcon and Mïchlett
uould siill have been betier OITa, s comp~rcd with whî~sctually happend in the
hnnkruptcy. by a margin of 3,137.d millionIire.or ljSS5,031.000
~ven if~wewere to acceot Mr. Havward's DroDosedvalue - which we do
not - Raytheon and \~ach~eitwould.ha\,e &cd ~uhstantially hetter than they
did as a rcsult oi the sale in hankruptc?. If the Court will hcar with me for one
bricimonicnt. 1willsummzri7ethe distribution oi funds bnsedon Mr. Hayward'\
hvoothesis. Recoverv of 12.822.6 million lire wouldhave been sufficieni10oav
ai~'~reierredcrcdito;s in the amount of 1.0368 milIlon Iire It irould have bec;
sullicientIO pdy ïIIsccured creditors in full, in the dmount of 3,815 million Iire
The amount would also have been sufficient to pay the administrative and
liquidation costs of 370 million lire.
The funds remaining would then have heen used to pay the claims of the
unsecured creditors. As we have indicated previously, Raytheon and Machlett
had olanned to oav the small creditors' claimsin full in the amount of 520.6
million lire.~hicwbuld have left balances due the other unsecured creditors of
10,915.6millionlirc and available funds of 7,075.7million lire whichwould have
permitted a pro rata distribution of 64.82 per cent to the remaining creditors.
The banks with unguaranteed loans would have received 2,632 million lire,the
guaranteed bank loaus 3,702.5 million lire,and Raytheon itself 741.4 million lire.
Under this scenario, Raytheon would have had to pay the balance of the guaran-
teed bank loans and interest in the amount of 2.009.2 million lire. Ravtheon
would also havc hüd 10 writr ORthe uncollccted hal;ince of 402 4 million~lirc<if
iis awounts rcu~ivablc.AI1of ihis wriuld have resulted in a cos1tu Raytheon of
2.411.6 million lire.Thus. even if ihe liauidütiun had hrought in iinly the huok
value orooosed hv the ~esoondent's 6wn accountine e6ert. Raitheon and
~achl.&&ould stil have hien significantlybitter off than they werein the actual
bankm~tcy - indeed, by a margin of 4,519.8 million lire,or US%7,173,000.Of
course,-~r. Hayward's propose8,value should be rejected because ilmakes no
provision whatsoever for the very real value of ELSI's intangible assets.
The Court now has before it, and must decide between, two figures supplied
hy the Respondent's accounting expert and our own valuation expert, with the
principal differencebetween them relating to the value of ELSl's intangible assets. REPLY OF MS CHANDLER 311
It is in this light that we invite the Court this afternoon to consider the testimony
to be provided by MI. Lawrence. Mr. President, this concludes my statement.
Our remaining presentation will last over an hour, so1suggest that this may be
an appropriate time for a break.
MI. MATHESON: MI. President, as Ms Chandler said, our presentations for
this afternoon will take something over an hour. Perhaps in light of the number
of questions we have heen giventhis morning, would it be possible to do either
of two things? Either to begin this afternoon's sessiona little later than 3 o'clock,
say at 4 o'clock, or else to provide the answers to the questions in writing
tomorrow morning - whichever the Court prefers.
The PRESIDENT: 1think that it would he better if we hegin at 4 o'clock this
afternoon.
MI. FERRARI BRAVO: Mr. President, just to facilitate the proceedings 1
shall not wait till the afternoon to say that we have no objection to the document
introduced this morning by the United States. We have just a cunosity. As this
document is a list of clients without heading, perhaps the Applicant would tell
the Court what is its source?Where does it corne from? QUESTIONS PUT BYJUDGESSCHWEBEL AND ODA
Judge SCHWEHEL I should likc io put this qucslion foliowing upon hls
Chandler's argument: is itthe contention of the Unitrd Siatcs thai sincc EI.SI
aciually operaied at a profit- bu1for ils ublipsiion, io pay loans10 il- buyers
ould have hccn round for EI-SI or Ilir irs pr<irluciIincs sincc ihcy could haie
bccn purchssed frccof ihis debi burdcn, a burdcn to bc lifted by sciilemcnt wiih
the banks and by piiymcni by EI.Sl's siockhold~~rson ihobc loiins pcnding
sritlcmcni - is thaA correct forniulation of what thc Ilnitcd Si3tes isconiending
on this point '?
Judge ODA: As 1 wanted to ask the United States Agent a question quite
similarto whatJudge Schwebelaskedearly in this morning'ssessionin connection
with the exhaustion of local remedies, 1would like Io add just a supplemenlary
question to the United States Agent for clarification. The question iswhether the
attorney of Raytheon-ELSI deliberately made no reference to the FCN Treaty
bcfore the District Court of Palenno in 1969.the Court of ADoealSof Palermo
in 1973and the Supreme Court of Appeals i'n1974,in the b&ef that the FCN
Treaty, as a non-self-executing treaty, need no1 be mentioned or relied upon
before the ltalian domestic courts; or, on the contrary, was he simply unaware
that international law, or more particularly the FCN Treaty, might be relevant'.
The PRESIDENT: So, this afternoon we are going to begin at 4 o'clock and
willstart with the cross-examination of Mr. Bisconti by the Italian delegation on
the facts that have been put fonvard by him at the beginning of his statement
this morning. Then we shall pro& with Mr. Lawrence, as an expert, and then
1understand that Mr. Maiheson is going Io close the American presenlaiion.
The Chamber rosear 12.50p.m
' SeeCorrespondence , o.81, irfre. ELEVENTH PUBLIC SITTING (27 II 89.4 p.m.)
Present: [Seesitting of 13 II 89.1
STATEMENTBYMR. BISCONTI (conf.)
ADVISER FOR THE WVERNMENT OF lTE UNITW STATESOF AMERICA
The PRESIDENT: 1s the Italiari delegation ready Io cross-examine Mt. Bis-
conti on his statement of fact from this morning?
MI. FERRARI BRAVO: Yes, MI. President. We are ready and the cross-
examination, which 1 hope will not last very long, will he conducted by Mr.
Highet, assisted by MI. Lihonati.
The PRESIDENT: 1want to stress again that the cross-examination will have
to be on the points of fact.
Mr. BISCONTI: Mr. President and distineuished Members of the Court: mav
1 ask for your permission to make a statgent? It is a statement of principles
and 1consider it very important - indeed essential.
As an individual lawyer, as an active member of the organized Bar, as past
Chaiman of the Committee of I'rofessional Ethics of the International Bar
Association, 1 have a rooted conviction that it is not appropnate, it is no1
desirable - and should be avoided - that lawyers be witnesses in proceedings
affecting, directly or indirectly, their clients' interests. For this reason, had the
Applicant asked me to he a witnesshere -even though 1may possess knowledge
of facts which might be considered useful to Applicant's case - I would not
have agreed to do so.
1have today submitted to this Court a statement regarding certain aspects of
Italian law. Therein 1stated knowledge of certain facts on my part that formed
the basis in part - but an essential part - of the opinion 1expressed today and
of the ooinion 1 exoressed to the shareholders of ELSI in March 1968. These
statemeits of fact did not purport Io be - neither directly nor surreptitiously -
evidence, in any sense of the word. However, wifhout these facts being stated,
the opinions 1 gave would not be understandable or supportable. A lawyer's
ooinion cannot be given in a vacuum.
In n\er 35)cars of praciice Ih.1~ heliçved.and coniinue io believeprofoundly
and uiihoui qu~lilis~tion. in the independence of the Iawyer and <ifthe Icgal
profession. Independence in al1its aspects is the essence of the legal profession.
lndeoendence is the onlv true iu>tification ~f~the co~t~nuine existence of the leeal
profession. Pnvilege -d ~JU>~T'S pnvilege and not onl) the clienl'5pnvilcge
is one facci of the hwyer's independensr. The rules oiconduci ih;ii apply to me
as a memher of ihc Italian Bar a11oIv IO nie wherever I am. This I helicvc is a
widely-recognized pnnciple and ii ;Lalso reflected in the draft Code of Ethics
that the CCBE has recently adopted. A lawyer should not waive, and should not
lightly waive his pnvilege. He has an obligation to the public no1 to do so.
1respectfully suhmit that Respondent, in asking that 1be heard as a witness,
did not take into due account the rules of the Italian Bar. 1respectfully submit STATEMENT BY MR. BlSCONTl 315
My first question is: would you say that this testimony can be read to mean
that without the backing of Raytheon there could have been no such assurance?
Mr. BISCONTI: MI. President, may 1 respectfully submit that counsel is
asking me not to testify on fact, but to express a judgment, in the way that the
question is formulated. 1will state the facts as known to me.
The person in charge of the liquidation of ELSI in the penod was MI. Joseph
Oppenheim - the late Joseph Oppenheim - a Vice-President of Raytheon
Company and who had heen elected to be Chairman of ELSI. 1had, from some
lime in March 1968 or Apnl, over several months - in that critical period-
daily contacts with MI. Joseph Oppenheim. MI. Joseph Oppenheim was reporting
directly to MI. Thomas Phillips. More than once 1 was on the telephone, with
Mr. Joseph Oppenheim, to Mr. Thomas Phillips - then President of Raytheon
Company. Mr. Joseph Oppenheiin (we were discussing plans for an orderly
liquidation) had relayed to me, and assured me, that Raytheon would give the
hackin-. be behind with funds and other assistance. - let me use the exoression
"u," - in c3rr)ing oui the plùn oidn orderl) liquidation.
This sidiement h) hfr Oppenheim iviihout qualiticliriuns I do nui hïlic\,c
lawyers must make acts of faith, especially when they are asked to take the
responsibility of advising clients in a difficult situation.heard the statement
from MI. Phillips himself, at the time and after the sad events of the requisition
and so on. On 16 May 1968,in this very city, 1met with MI. Thomas Phillips
to discuss the situation as it had develooed and at that meetine MI. Phillios.. .
c~prïssing great regret and ,orro\v and perhïpi evsn ragr ai \vh.ii Ii;idhap~nïd,
rïconfirmed \thxi hï had told hlr. Oppcnhcini. uh~t I had hcard. ihat Rïythïon
would have given al1necessary financial support in order to enable us ta carry
out an orderly liquidation.
MI. HIGHET: MI. President, if 1may, 1would like to put the question again,
1 asked you, Awocato Bisconti. I'ou testified this morning, you said with the
hacking of Raytheon and Machlett, ELSI was assured of the funds and the cash
flow. My question can be answered yes or no. Would you say that this testimony
means that witbout that backing there could have heen no such assurance?
MI. BISCONTI: That hacking was an essential part of our liquidation plan.
MI. HIGHET: So you would agree that without that type of assurance, that
you referred to in your statement this morning, ELSI could not definitivelyplan
on paying her debts.
MI. BISCONTI: 1am sorry 1cannot make that statement, we areentenng the
range of the world of hypotheses. 1would have to make any numher of possible
hypotheses.
Mr. HIGHET: Avvocato Bisconti, your statementthis morning was that, with
the backing of Raytheon and Machlett, ELSI was assured of the "funds and . . .
whatever mighr have been needed to effect an orderly liquidation", and surely
this is in the future conditional, and this is therefore a hypothesis. My question
to you is limited to the scope, type, tenor and qualification of your testimony.
My question is: Would it be fair to say that without this backing ELSI would
have had a difficult time, if not an impossible time, paying its debts?
MI. BISCONTI: 1 am savine that 1 believe 1 am exoressine a iu-,ment a-d
no1testifying as to a fact. ELSIO~nny Company,as 1have said in my statement,
would have had a difficult time without this hackin.. In fact it isin wnti-g there.
MI. HIGHET: All right, let me carry you further, if 1 may, Mr. President.
This morning you also testified that (p. 300, supra) "as 1 know from my own316 ELETTRONICA SICULA
personal knouledgc . the siockholdcn had guaraniced the cash flow necessary
io m~kethe orderly liquidation work". Would you agree, Avvocaio Hisconii.ihat
ihis resiimony is io thc cîïccr ihai, withour ihc guaranicc of surh c~sh fbyw
the shareholders, that orderly liquidation wouldnot work?
Mr. BISCONTI: Without this assurance or guarantee, however you wish to
cal1il, by the stockholders, that orderly liquidation would havebeen very difficult.
Mr. HIGHET: Very well Th~nk you. Lei meiurn if I may. Mr. Presidcni, Io
my second Iinc oi questions. 1rcferred earlie10 your statrmenis this morning
of 3 "~u3rilnicc". a "hacking", an "assurancc".3 "comn~iimcnt" and a "hack-
ing", and 1gave ihe citation Now, Avvocato Bisconti,are you aware or do you
know, today, or did you know, whether any of these ideas: guarantees, backing,
assurance or cornmitment were expressed? How were these ideas expressed?
Mr. BISCONTI: They were expressed 10us.
MI. HIGHET: May 1ask you who us was?
Mr. BISCONTI: 1 am goiug on to, if 1 may, since 1 am speaking about
knowledgegiventu me by Mr. Oppenheim and by Mr. Thomas Phillips,President
of the Raytheon Company.
Mr. HIGHET: Do you know if these ideas, and I am using the word "ideas"
to avoid having to repeat this every lime, Mr. President, were these ideascommu-
nicated to anyone outside the group you have jus1 mentioned? Including, of
course, Mr. Adams and his senior Raytheon officials.
MI. BISCONTI: 1 would have to assume that at a very high level in the
company these commitments/assurances wereequally known, 1do not know how
far down the line, but 1would assume that il was perhaps limited a1 a certain
level of the company.
Mr. HIGHET: Would you say-do you have any knowledgeas ta whether-
these ideas were communicated to the ltalian national Government pnor to
31 March 1968?
Mr. BISCONTI: 1have no knowledge of that.
MI. HIGHET: Do you think that they were?
Mr. BISCONTI: 1 don't know, 1 have no knowledge, I don't know even of
the circumstances in which they might have ken communicated since, as 1read
in the record the ongoing discussionswith the ltalian Government werenot keyed
on how to eîïect a liquidation of ELSI, but how 10find another solution to make
ELSI a viable company or enterpnse maintaining employment.
Mr. HIGHET: But the assurance of which 1believeyou agreed with me a few
minutes ago, the assurance of the backing of Raytheon and ELSI, but for which
an orderly liquidation would be at least difficult 10conceive oi, tbat assurance
was not conveyed to anybody before 1 Apnl or 31 March in the regional
government? Do you know if it was?
Mr. BISCONTI: 1don't know.
Mr. HIGHET: Do you think il was?
MI. BISCONTI: 1repeat 1sec no reason why. 1had a meeting, 1believe, on
30 March, with the representative of the regional government, called by the
regional government on the assurance that now they would join Raytheon and STATEMENT BY MR. BlSCONTl 317
ELSI and so on, 1remember wewereaskedto gothere ta finalizethe shareholders'
agreement and other agreements; the context of that meeting, which lasted until
late that evening, was not liquidation. It was not liquidation at all.
MI. HIGHET: It was not liquidation?
MI. BISCONTI: It was whether there was a possihility to proceed in another
direction. Certainly there was no reason to speak about liquidation.
Mr. HIGHET: So there would have been no discussion that you recollect at
that time or at any other meeting shortly before that, with the local authorities,
the Mayor of Palermo's office, the regional authorities, the national authorities
or any authorities of the Italian Government that Raytheon and Machlett would
stand behind ELSl in the case of an orderly liquidation?
Mr. BISCONTI: 1 have no knowledge of any such thing. May 1 add, on 1
April 1participated at a meeting with the ltalian creditor banks at Banca Nazio-
nale del Lavoro at which we started outlining ta them Our plans for an orderly
liquidation, including the proposed payment ta smallcreditors and howwewould
go about this and so on. That would have ken the aooronriate olace to talk
about this, and we would have, had we not been told ihat Geryafiernoon, and
we heard it as a rumour dunng that meeting, that the Mayor of Palermo had
requisitioned ELSI's plant.
Mr. HIGHET: It was a fewdays before that, was it not - it was the preceding
Friday - that to your recollection the dismissal notices were in fact mailed, or
early Saturday morning, is that correct?
MI. BISCONTI: It was some days hefore, 1do not remember the exact date.
MI. HIGHET: The third line of questioning, MI. President. This lies into your
testimony this morning. In your affidavit which wassuhmitted as Annex 26 to
the United States Memorial O), the affidavitof 11Decemher 1986,let me refresh
your recollection.You stated that "heginning in the Spnng of 19681was involved
with ELSI on behalf of Raytheon on a more or lessdaily basis". And inparagraph
4 at 1,page 236, of that affidavit, you indicated that "heginning in March 1968",
you had been consulted hy Raytheon officialsregarding the possible liquidation
of ELSI. And you added
"1 was advised at that time that ELSI's shareholders had made a business
.ud-ent that, unless thev foiind an ltalian Dartner or made other satisfac-
tory arrangements for ELSI'Sfuture, they Gere not prepared to infuse any
more capital into the company".
One more reference ta refresh your recollection hefore 1put my questions. In
the affidavit of Mr. Adams, which was Annex 9 to the Memorial, paragraph 32,
1,page 122,MI. Adams stated that "we could not justify ta our stockholders the
investment of additional funds in ELSI". And, under cross-examination on
14February, MI. Adams also testified
"The clear decision that Raytheon management made was that we would
put no more money in, and as we hegan to approach the date at which the
money would run out . . we hegan to consider what to do . . ." (P.40,
supra.)
In your testimony this morning, you indicated that the guarantee of "cash
flow necessary ta make the orderly liquidation work" should he "distinguished
from making more funds available to ELSl for continued operations" (p. 300,318 ELETTRONICA SICULA
supra). How would that distinction have been made clear, Avvocato Bisconti?
The distinction between the guarantee of "cash flow necessary to make orderly
liquidation work" from "making more funds available to ELSI for continued
operations"? You drew the distinction, 1just wish you would explain it a bit
more.
Mr. BISCONTI: 1respectfully submit that the distinction is clear in the words
that were used, and thepurpose of one would have beento continuetheoperations
of ELSI regardless ofthe form; the more normal form is to infuse equity, capital,
itcan be otbenvise. The purpose of the funds, the backing, or whatever, that we
had been assured we would have from Raytheon was for the purpose of having
a liquidation of the company, of not feeling the pressure in lime - in the
method - of liquidation. 1 respectfully submit that the purpose of one or the
other are so clearly separahle that. ..
Mr. HIGHET: Du you bclici,cthït ihis quiic obvioui cparation -or ;iclcar
wp~r3iion - was also ohviuus io pcrsons outsidt Rayihcon, sa). mçmbcrs of
the recional aovcrnmeni. the lucal auihontici, ihc Mavor oi P~lcrmii,the labour
force,?he laGour unions?
Mr. BISCONTI: 1do not know and 1do no1see any reason why they should
even consider the difference or whether the matter should be known to them, or
be of any interest to them.
MI. HIGHET: One last question. 1refer to Exhibit B, to Annex 15, which is
John Clare's affidavit. It is the Exhibit to that, and some Minutes of a meeting
amongst Messrs. Adams, Clare, Hillyer and Profumo and the Honorable
Vincenzo Carollo, on 21 February 1968.The typewritten version records, and 1
would liketo read two sentences to refresh your recollection of the documentary
record, the following:
"C. F. A. [MI. Adams] stated that while our interests do coincide with
those of the Region, as a private company we do have obligations to Our
stockholders. While wecan continue Io provide ELSI with management and
technology, he, [that is,MI. Adams] reaffirmed the Raytheon intention of
no1 investing further money in Raytheon ELSI." (Memonal, Ann. 15, 1,
p. 164.)
Would you thnk, Avvocato Bisconti, that this might have conveyed the impres-
sion to Mr. Carollo that Raytheon was not going to invest any more money in
ELSI?
Mr. BISCONTI: 1 should conclude from hearing the text that you
have courteously read to me, counsel, that this should have made clear to the
Honorable Carollo that Raytheon was no1 going to invest any money,
capital funds, however one may wish to cal1 them, to continue the operations
of ELSI.
Mr. HIGHET: But, refcrring Io your words this morning, Awocato Bisconti,
would you be surprised to be told that Mr. Carollo would have concluded that
Raytheon would stillhave guaranteed the cash flow necessaryto make the orderly
liquidation work?
MI. BISCONTI: 1am not in a position to express any such judgment, guess,
or whatever; I'm sorry.
Mr. HIGHET: Thank you very much. Mr. President, we have no further
questions of the witness. STATEMENT BY MR. BISCONTI 319
The PRESIDENT: Thank you very much, gentlemen, to both of you. 1 now
cal1ou Mr. Lawrence. Mr. Matheson, do you wish to take the floor?
MI. MATHESON: That is correct. Mr. Lawrence is returning and 1 believe
he bas already made the declaration as an expert. EVIDENCE OF MR. LAWRENCE
EXPERTCALLED BY THE GOVERNMENTOFTHEUNITEDSTATESOF AMERICA
Mr. LAWRENCE: Mr. President, distinguished Members of the Court. The
question was raised by the Agent for ltaly concerning the listing of customer
accounts receivable at 22 April 1968, which was placed before the Court this
morning. This document has been taken from Raytheon's files. It was prepared
under the direction of Mr. Dominic A. Nett (then Controller of ELSI), who had
responsibility for the company's accounting records up to the time of the bank-
ruptcy.
At 1, page 250, of Mr. Nett's affidavit (Ann. 30 to the Memorial) he states
that, together with Raytheon and ELSl personnel, he performed "shipping,
billing. collection, and payment functions" until 24 April 1968.
1. It has ken suggested by the Respondent that Note 10 to the financial
~ ~ ~ ~~ts~ ~ ELSI made UD to 30 Seotember 1967 imolies that ELSl should
hate ken placed in bÿnkmpicy bcfore ihe iime whrn iispl~nt wa\ requis~iioned
hy the Respondeni. In my view. ihii is incorrect. Page 3 of the 1967lin3nci31
siaiemenis sh<iu,sihrm columns of fieurcs in Iialian lire siih the riahi.hand
column converted into United States dGllars.The first of the lire colu6ns is the
book valueas it appears in the officialaccounts of ELSl drawn up in accordance
wilh ltalian legal requirements. The middle column shows the adjustments that
were required to k made to bring the figures in the officialbooks into line with
United States generally accepted accounting pnnciples, whicb was the basis
required by Raytheon. The adjusted figures are shown in the final lirecolumn.
2. It was perfectly normal experience for clients of Coopers & Lybrand Italy,
which weresubsidiaries of foreign holding companies, to prepare balance sheets
summarized in this way. The lnstitute of Chartered Accountants in England and
Waleshas published a book entitled EuropeanFinancialReporting- Itolywhich
was written by my partner Mr. M. 1. Stillwell, in conjunction with the ltalian
firm of Coopers & Lybrand. This book is, of course, in the public domain. It
records that
"the officialaccounts of an Italian company must be prepared and submitted
in comvliance witb tax rerulations. It is thcrefore common in the case of
ltalian"subsidiaries of UZ groups for such accounts to diiïer from the
accounts prepared for submission to the parent company in compliance with
the group accounting policies." (P. 40, para. 9.)
The same would, of course, be tme for subsidiaries of United States groups.
3. Whether the capital of an Italian company fell below the legal minimum
provided by Articles 2447and 2448 of the ltalian Civil Code was a matter to be
determined by reference to the official accounts of the company drawn up in
accordance with ltalian legal requirements. Those officialaccounts showed that
ELSI, at 30 September 1967,still had stockholders' equityof 1,318.7million lire
and a taxed reserveof 862.4 million lire which,under ltalian law, was a legally
distributable reserv(ibid.,p. 91, para. 69). EVlDENCE OF MR. LAWRENCE 321
4. United States generally accepted accounting principles and the auiounting
oolicies of Ravtheon reauired orovisions to be made on a more orudent basis
ihïn wïs cithe; required bride iialiün law or permissihle for ltalian'tax purposcs.
I have rzviewed with Mr. Siillwcll the composition of the items in the column
headed '.Company's ad~ustments" Hc has confirmed thai ihese were XIIiypical
of the type of ad~usimeniihat was made for iicms that the Iialian tax authoriiies
irc~ied as no1dedusiible for iax purpuses. Sucli items wers ihercfore retained in
ihc oflisi;il Italian accounin ai a value hiaher thdn would have bcen appropnale
in accounts prepared under United ~tatës generally accepted acco~n2in~.~rin-
ciples. This is consistent with my own experience of the ltalian subsidiaries of
United Kingdom companies with which 1have been concerned.
5. Note 10 carried no implication that the provisions of Articles 2447and 2448
of the ltalian Civil Code were aoolicable al 30 Senlember 1967. It merelv drew
aiiention Io a siiuaiion ihat mieht'anw ai some lime in the fuiurc. If the ahdiiors
hüd bcen of the vicw thai those provisions were of immediate applicaiion, ihe
note would have made this clear.
COINGCONCERN VALUES
6. When counsel for the Resoondent cross-examined me after mv orevious
evidence in ihis case he said. in iniroducing a querti<in.ihat I had seberal iimes
referred to thc fïct thar ni).figureswere hased on the asïumption ihai ihe balance
sheet related to a going concern. This was simply no1 true, as reference to the
transcnpt will show. He went on t« put to me a hypothetical question in which
he asked me whether 1could imagine a qualification in an audit report relating
to a company's king and remaining a going concern. 1 would like to make it
clear that. in answerine this auestion in the affirmative. 1was dealine onlv with
the hypoihesis ihat had been pui io me, withoui reference IO the speGic c;rcum-
siances of this case. In addressing valuaiion, the issue is noi wheiher ELSl was
a aoinp.concern on 31 March 1968.on 30 Seotember 1967.or on anv oiher date.
aGd mi rvidencc relie^on no such premix ihc IFSUC IS10deiermi& what value
could have bcen realiu-d upon a disposa1of FI.Sl's assets, andihït is exacily the
exercise that1 carried out for the purpose of my evidence. If a company is in
liquidation, it does not follow that its book values are irrecoverable, nor does it
follow that il cannot be disposed of as one or more businesses.
FIXEDASSETS
7. In considering the fixed assets of the company, 1 relied not only on the
evidence of Raytheon officialswho were familiar with the operations of ELSI at
the relevant time but also upon the independent appraisal of Professor Puglisi,
carried out on the instructions of the curator inankmptcy. 1would remind the
Court that this appraisal was carried out after the plant had becn closed for
nearly six months and that even then he regarded it as appropriate to consider
"the current market value of ELSI as a whole, if sold to a third party which
intends to operate the facility without substantially changing the nature of the
products or mode of manufacture" (Unnumbered Documents submitled by Italy,
II, p. 353[p. 911).Clearly Professor Puglisi would not have adopted such a basis
if he had not reearded it as realistic. Professor Puelisi's aooraisal took into
account the ciTecc or obsolescence and the physical condition'of the assets. The
evidencewt oui in ihe affidat'iisof Mr. C~valli.Mr. Ravaliconnd Mr. Cammernta
isaulie insonsisteni with the viewsarrived a1bv Profeswr Pualisi.The diferences
miy to some extent be attributable to the factihat their affidivits were produced322 ELETTRONICA SICULA
some 20 years later whereas Professor Puglisi'sappraisal is a contemporaneous
document.
8. Allowine for differences between the r~~ition at 31 March 1968 and the
lime of ~rofessor Puglisi's appraisal, that appraisal substantially suppo~ls the
recoverability ofbook valuea131March 1968.His viewsof the valuesattributable
to the fixedassets are consistent with the evidence regarding the substantial
expenditure on new fixedassets in the previous few years (Memorial, Ann. 13,1,
p. 131).
INVENTORIES
9. Turning to the company's inventories,my evidence has ken that the book
value of inventories could reasonably have ken expected 10 be recoverable on
the footing that, in an orderly liquidation, it would have been possible 10dispose
of ELSI's business either as a single operation or as a senes of product lines to
purchasers who would continue to manufacture the company's products. This is
a similar assumption to that made by Professor Puglisiin valuing the fixedassets
and its reasonableness is confirmed by the evidence of Mr. Clare (pp. 51-56,
supra). Clearly a forced sale in bankniptcy of the inventories of a Company that
has been closed for over 16 months must produce a very low value for that
company's inventories, a value far lower than would be obtained in a properly
conducted liquidation.
ACC~UNTR SECEIVABLE
10. The net book value of accounts receivable wasclearly regarded hy Coopers
& Lybrand, Milan, as recoverahle a1 30 September 1967 notwithstanding the
apparently low levelof the bad debt provision. Mr. Clare's evidence shows that
the reason why that provision was so low was that a major exercise had been
carried out to write off bad debts in the previous two years, leaving inthe books
only those that were regarded as good (p. 56, supra). Professor Libonati has
referred to the suggestion in Dr. Mercadante's report that a debt of 246 million
lire due from Noya Alfred Enateckmer was irrecoverahle (p. 175,supra). 1have
seen a document, a copy of which has now been made availahle to the Court
and to the Respondent, listing the accounts receivable from customers on
22 April 1968,just before ELSI was placed in10bankmptcy. This lis1includes, in
the middle of the second page, a balance described as "Neye Alfred Enatechnik"
from which an amount of 11.5million lire is shown as due. There is no other
balancc rhat k~rr any rçscmblance io the namc rclcrrcd io hy Dr. Mercadante
It iherefore apprdrs to me thai hç was mistaken in suggcsiing ihat a balance of
246 m~llionlire fornied Dari of ELSl'scustomer accounis reccivablc
II. 1would also remhd the Court of the evidence given by Mr. Clare to the
effect that Raytheon were so confident of the value of the accounts receivable
that they would have been prepared to guarantee the full book value of them
(p. 51, supra). It may also be worth noting that even the quick-sale value, which
was a deliberately pessimistic assessment of what might have been achieved in
the planned liquidation, shows that the full value of accounts receivable from
customers was expected IObe recovered.
12. Mr. Hayward presented Io the Court las1week a summary of the adjust-
ments which he considered needed to be made to the book value al 31 March EVIDENCE OF MR. LAWRENCE 323
1968tu drnve al the figure ol 12.822 h millidn lire whirh. in hi\ \iew, rcprewnted
the substance of the economic cnterpnsc Most of ihese adjusiments ucre 3150
made bv me for the numose of mv evidence inarrivina at the realizable value of
the tan&tble~ssetsuhich I put at i3.632.7 niillion lireihere arc three exceptions
to ihi, One ir an adjuiimcnl hy Mr. Hïyward hr an amount of 453.3 millii~n
lire which wasan additional provision against the value of inventories regarded
bv the auditors as necessarv to comolv . .h United States eenerallv acceoted
accounting principles. This rciiecicd a ditference oi vicu bctwccn ihc compÿny
and iti ïuditors about net rcali7~ble\aluc I understand that, in prcparing itr
accounts. EI.SI calculatcd the Drovisionneccssarv Io rcducc the book \.nluc IO
net realizable value bv considekne each ~roduct erou~ se~aratelv. In eHecttbe
question that they we;e serking ti~~nsuer'wils..~iÏl th; inientory hthis product
group. taken as a whole. reÿlizcai Icdsiils aggrrgatç book value?' The auditors
on the oiher hand considercd îÿch jevÿrdie Iinein the in\cntuw otcach produil
group and considered the question "~ill this item, considered on its owa realize
at least ils book value?"
13. Whilst I believe the question considered by the auditors to be a normal
aooroach in calculatine such orovisions for the nurooses of United States een-
e;311yacccpted accounGngpri~ciplei, IIundouhiedly'does hïir the elTeciihaïthe
net tigurc arnbcd ai aitcr dciluciing those provisiuns uill bc loi\.cr than the nci
realizable value of the inventow taken as a whole. 1conclude that such a further
adjustment is inappropriate in considering whether the net book value of ELSl's
inventones at 31 March 1968,taken as a whole, could be realized.
14. The secondadjustment made by Mr. Hayward with an amount significantly
different from that made by me refers to a pnce adjustment of 251.6 million lire
on the sale of klystrons. The auditors said that they had been unable to see
evidenceof an agreement which had been reached betweenELSl and the relevant
military authonties. This is not to Say that no such agreement was reached but
merely records the difficulty of evidencing it at the lime of the audit. To make
some allowance for the possibility that this item might not be fully recoverable,
1rounded the book value of 251.6 million liredown to 200 million lire.
15. The third main difference between my evidenceand that of Mr. Hayward
in relation to tangible assets concerns my inclusion of 300million lire in respect
ofgrants expectedto be receivedunder the Mezzogiorno legislation.My inclusion
of this amount is consistent with the evidence submitted on behalf of the
A~olicant.
.16. The principal difirence betueen me and Mr. Hayuard in Our asscssmcnt
of what mipht havc becn recu\,ernble suncerns the expectaiion that an amouni
or ar lcd\t 3.500million lire could he rccovcrcd in resrrct of intangible assets. I
have oointed out in mvnreviousstatement that thecombanv'sfinancTalstatements
included various intangible balances totalling 1,721.i milion lire to which no
specificseparable value could be attributed. Mr. Hayward has interpreted the
adiustment made Io eliminate the book value of intaneible balances iÏnorder to
comply with United States generally accepicd accouniing principlcs as implling
thai no i,aluecould bcaiiached io ELSI', iiiiangibleassers This docs not follou
The accounting treatment of intangible assets isentirely irrelevant to a determina-
tion of their realizable value.
17. It was of course inevitable after the plant had been closed for 16 months
that the actual sale concluded bu the Curator in bankruptcy could obtain no
value for the company's intangibie assets. The actual outcomeof the bankruptcy
could hardly have been worse. Enormous damage must have been done to the
realizable values by the eHectsof the requisition of the plant, leaving ils assets
idle for 16 months, subject to detenoration, depreciation and pilferage. This324 ELETTRONICA SICULA
resulted in the dissioation of the value of the intaneible assets that made uo the
goodwill of the business. including itscustomer connectionsitisupplier rel~tion-
ships. 11smarket share and its manulacluring knou-hiiu,. On the haris of the
evidence of Ravtheon's officiaiswho u,ere familiar with ELSl's onerations and
activities at thé lime. it is mv view that an orderl, l~~.~dation'i~ ~hich the
business wï$ sold 3san entity or as a number of pruduçt lines to purchasers who
would obtain the benefit of its intangible asbels wüsrealistic cxwtatiun and I
confirm the evidence that 1gave in my previous statement that 1would expect a
value of at least3,50 m0illion lire to be achievable.
18. The achievement of the values that 1have arrived at relies on the premise
that there would have been an orderly liquidation. In approaching the valuation
on this basis 1have in mind the evidence before the Court that Raytheon would
have supported ELSl to enable an orderly liquidation to be achieved. This
expectation was entirely consistent with my own expenence.
19.During my 35years in the accounting profession, 1have had considerable
exoerience of international -.ouos of comoanies. includine manv erouos con-
trolled by United States parent çompïnies '1have known many oi ;ho\e'groups
I~quidateor dispuse of overras operations (rom which they wished to withdraw,
but in al1of my expenence 1havinever known any of them to allow an overseas
subsidiary to go inIo bankruptcy unless it was forced down that route hy external
factors ioially beyond ils control.
20. My firm has extensive experience inthe administration of receiverships and
liquidations and it is invariably the preferred method of maximizing the values
realized in such administrations that the business of a Company should be sold
as a complele operation or, failing that, as a number of self-contained operations.
The breaking up of a business and the sale of ils assets hy public auction is a
las1 resort and will almost inevitably produce the worst possible result. Mr.
President, dislinguished Members of the Court, that concludes my evidence.
The PRESIDENT: Does the ltalian delegation want to examine the expert
now?
Mr. FERRARI BRAVO: Mr. President, first of al1 1 should note that the
interestine statement iust delivered hv Mr. Lawrence seems to me to have eone
Farbeyon; uhat one ;s expied t<ili;ten to from an expert witncïs, somç sort of
"plaidoyer". But anyway he hïs oiTered testimony this aftçrnoon relating to
the inte~retïtion of the30 Se~tember 1967nudited financiïl stïtcmenis of FI.SI.
and in particular Note 10th&eto. This again, this testimony or statement, went
much beyond the direct testimony ofered by the same Mr. Lawrence in the first
round.
Now. 1think we reeretfullv feel that we should be aforded the oooortunitv to
sonsider Mr. ~awren&'s evidencctoday with our finan~.iïladviser, M;. llayward.
who was not prexni ioday in Court as he is oui of town, actually in Pans This
1snot becaua of lack of rcsrrct to the Couri, but for the simple reason ihat we
had no notice that Mr. ~awrence would be called for furthe; testimonv todav.
until this morning when Mr. Hayward had already left The Hague. SO'I wouid
be prepared to notify the Registry by noon on Wednesday whether we might find
il neceisarv to cal1~r. ~awrën&foÏ cross-examination on Thursdav: but we are
not in a now to put any question to the expert
The PRESIDENT: So, the Agent of ltaly wants Io consul1his financial expert
before examining Mr. Lawrence. As you know, the Court is very flexibleabout
the procedure and tberefore if in this case, you can have the advice before
Thunday, that will help the Court very much. Therefore 1relieve Mr. Lawrence EVIDENCE OF MR. LAWRENCE 325
for today, but he will have to be at the disposal of the Court for a meeting, in
pnnciple on Thursday, to be cross-examined.
411.MATHESON I underiiïnd ihïi ii aiIlbc Jitficult (or MI. 1.ïu~renceIo
somc h3ck on Thursdÿy. Iwould like ii~mlikethe followingsuggcsiion: obviously
the Jchaie hers is nui beiur.cn \lr L.ïwrenre and çounsel for Reipondeni. but
between Mr. Lawrence and Mr. Hayward, the two experts on these issues. May
1 suggest that if there are points in Mc. Lawrence's statement that they wish to
rebut, theysimply ask MI. Hayward to appear, as we have done in our rebuttal.
In this resoect 1must sav that 1have to disarree with what has iust been said by
the ~~ent'to the ~es~ondent; what MI. ~awrence had to say &as in rebuttal of
what had been said by MI. Hayward. That is the function of this statement and
it was perfectly proFr.
The PRESIDENT: 1dun'r follow the purpose of yonr intervention.
MI. MATHESON: It was to say that it would be difficult for Mr. Lawrence
to appear on Thursday, but perhaps the same function could be served by MI.
Hayward appearing on Respondent's behalf to make whatever points they wish
to rebut about MI. Lawrence's presentation today.
The PRESIDENT: 1 see. In these circumstances 1 think that the best thing
would he, after this sitting, to get in touch with the two Agents and then to settle
when the two experts can he before the Court, in order to gke the hest assistance
to the Court. So, after this sitting, the Registrar will meet with the Iwo Agents,
and then we willwork out a schedule which permits the two experts to be before
the Court at the same lime, in order to help us. Are you in agreement?
MI. MATHESON: 1 think we first need to know whether il is necessary to
have the experts present simultaneously. I believe Respondent is going to study
what MI. Lawrence has said and then we can perhaps discuss that question.
The PRESIDENT: Well 1 think for the Court it would be a very good
opportunity to have both experts before il, so therefore after the sitting there will
be a meeting of the two Agents wirh the Registrar to work on this point.
Mr. MATHESON: 1would liketo mention first that we have prepared written
answers to al1the questions which we have ken asked by the Court, and they
are ready for submission. They are a thick stack, so il may be that the Court
would accept the written submission in lieu of reading them al1out, but of course
we are quite prepared to answer ariy questions that Members of the Court may
have about our answers.
The PRESIDENT: MI. Matheson. vou have the n&t to submit yonr replies
in wnting, andb) cloing ri>)ou h3tt saved ihe ~ourt'<iime. We williscepi your
repliec in wnting. Thcy uill Lxiransmiiird io the othcr Party. REPLY OF MR. MATHESON
CO-AGENT FOR THE GOVERNMENT OF THE UNITED STATESOF AMERICA
MI. MATHESON: 1come now to the question of the violations of the FCN
Treaty alleged hy the United States. In a few moments 1 will deal with the
arguments made hy Respondent last week concerning the specific provisions of
the Treaty. Before doing that, however, it seems useful to make a few points
concerning what Respondent has said about the Treaty régime ingeneral.
First, the Respondent objects to our assertion that the primary object of the
post-war FCN treaties was to improvt. and strengthen the protection of foreign
investment (p. 92, supra) and notes that various types of other provisions exist
in these treaties. Whether the protection of investment is the primary objective
or only one of the objectives of these treaties, it is still clear that the provisions
of the 1948Treaty which deal with the ownership rights of foreign companies in
enterprises and property must be interpreted in the light of this objective. 1
helieve, in fact, that the two Parties share a community of interest on this point.
This obiective of the 1948Treatv to Drotect investment is not diminished. as
ihe ~cs~indcnt irom iimc to iinic ;ugg;jis, hy the faci ihat ihc Pariirs higncd a
S~pplcmsni IO the 1948 Trcnty in 1951.The prc~nihlc of the Supplcmcnt i~s~lf
states that the parties are:
"desirous of giving added encouragement to investments of the one country
in useful undertakings in the other country, and heing cognizant of the
contribution which may he made towards this end hy amplification of the
principles of equitahle treatment set forth in the Treaty".
In other words, the Parties clearly saw the Supplement as adding to and amplify-
ing the fundamental protections for investments already contained in the 1948
Treaty, and not as creating a new régimefor protection of investment where
before there was nothing. In any event, there is no doubt that the objective of
protecting investment is a central purpose of the Supplement, which constitutes
an integral part of the Treaty (Supplement, Art. IX).
Second,the Respondent questions the propriety of attributing to the Respon-
dent certain of the acts and omissions on which the claim of the United States
is based. The Respondent has not and cannot deny tbat the acts of the Mayor
of Palermo. the Prefect of Palermo. the local nolice and ils Government Ministers
are al1attrjhutable to the ~es~ondent. ~ikewise, the actions of the Bankruptcy
Judge, a public official exercisine ~ublic functions under the sanction of Italian
lawrare dearlv actions attributabiè to the Resnondent under estahlished rules of
Staie responsihiliis. rhc Cniied Siaics Jocs nhi lillcgc. .isthe Rcsp,inJcni iccnis
io supgcsi, ihdi ihc Iiciinns of poienii.iI purch~iicrsof CLSl aswi5 in dcclining IO
attend the bankruptcy auctions are attributahle as such to the Respondent.
Rather. we attrihute to the Resnond~ ~ ~~~ ~ctions of ~ ~ ltalian authorities and
in~irumeniIiliticswhich h3d the ctrcci of aiscouraging the prticip~i~on ol'<>ihcr
hidJcrs, and rhis includrj the actions orrlic b~nkruptq iuihoriiier in sirueluring
. . -
the auctions.
Moreover, the actions of IR1 and its subsidiary ELTEL are also attributable
to the Respondent, since IR1is not only owned and controlled by the Respondent
but is an arm and agent of the Respondent. A basic criterion for attributing
conduct of a State-owned enterprise to the State is whether that enterprise serves REPLY OF MR. MATHESON 327
State purposes, thus becoming a part of the State's apparatus (G. A. Christenson,
"The Doctrine of Attribution in State Responsihility", Inrernarional Law of Srare
Responsibilityfor Injuries to Aliens, p. 333 (R. Lillich, ed., 1983)).As we have
shown, this was clearly the case ulth respect to the actions of IR1 and ELTEL
in acauirine the ~lant and assets of ELSI.
7h&i1,th; ~rspondeni argJei generally ih~iiis azis did no1risc io ihc lci,clof
"interierencc ii,iih man.igrmcnt and ccinirol" or "cxproprwiion" or lojs of "pro-
icciion and rccuriiy" (pp. 219, ???, 227. supro). Yei the acis of rcqui,iiion~ng
ihc plcinilind ihcn noi oieriurning ihlii requisiiion in a rsiison<iblciimc sinppcd
Rliyihcon and Mliçhlcit of thcir abiliiy i« place ELSl ihr<iughan orrlcrly Iiquida-
lion, .irighi io uhich rhey uere entitled under ihe Trzaiy. The occupation of the
plant preiented any chance of showing the plant and assets to prospective huyers.
The flaws in the bankruptcy proceedings ultimately resulted in acquisition of
ELSI by the Respondent for well below what it was worth. Thcse acts were not
mere ephemeral exercises of police power, as Respondent suggests; they were
senous and irreversible int~sions into the essential nghts and interests of Ray-
theon and Machlett in the control and disposition of ELSI. It is not enough for
the Respondent to state that the requisition was "only for six months"; given
the circumstances surrounding ELSl as of 1April 1968,the effectof the requisition
was immediate and definitive.
Fourrh, the Respondent argues generally that these acts were directed against
ELSI. an ltalian corporation, and not against Raytheon and Machlett. The
Respondent maintains that only in limited ircumstances, where specificlanguage
allows one to "lift the corporate veil", should these acts he considered to have
heen taken against Raytheon and Machlett (p. 217, supra).
This argument is incorrect and, at best, it is one of form over substance. The
true effect of these acts struck at nghts of United States nationals specifically
protected hy the Treaty; the ability to manage and control companies and
enterpnses, the ability to dispose of property, the right to receive compensation
in the event of a taking of property, and the protection and secunty of that
property. These are rights granted directly by the Treaty to Raytheon and
Machlett, and are not merely the denvative claims of shareholders to nghts
granted to ELSI. Therefore, there is no need to "lift the corporate veil" as the
Respondent claims.
More generally, the Respondent argues that there isin effecta general presump-
tion in international law against protection of the foreign shareholders of locally
incorporated enterprises and that there is therefore a pfesumption against inter-
preting specifictreaty provisions to provide such protections (pp. 217-218,supra).
Whatever the merits of this argument with respect to international law generally,
it is certainly incorrect with respect to the interpretation of a treaty which is
designed specificallyto provide protection for foreign investments.
As with al1treaties, each specific provision must be interpreted in accordance
with the ordinary meaning of its terms, in their context and in light of the treaty's
object and purpose, and recourse inay be had to supplementary means of inter-
pretation to confirm this meaning. In the case of the FCN Treaty, there is no
basis whatsoever forany presumption that foreign shareholders are not protected
by the particular provisions at issue in this case. On the contrary, as we have
shown, the Treaty language and its ratification history clearly show a positive
intention to protect the interests of foreign shareholders in locally incorporated
subsidianes. As Professor Gardner explained, one of the major features and
purposes of this new Treaty was to protect foreign investment through local
enterprises which had become a major vehiclefor foreign investment (pp. 92, 98,
supra).328 ELETTRONICA SlCULA
Let me turn now to the specific provisions of the Treaty which the United
States allegesto have been violated.
MANAGEMENT AND CONTROL
Firsr, the United States alleges that the Respondent violated its obligations
under Articles III and VI1of the 1948Treaty and Article 1of the Supplement to
protect United States corporations from interference with management and con-
trol of their enterpnses in Italy. The specificacts and omissions that caused these
violations werethe requisition of ELSI on I April 1968and the delay in overturn-
ing that requisition. There is no dispute that these acts and omissions occurred:
the order of requisition by the Mayor of Palemo on 1April 1968is on file with
the Court and its authenticity is not challenged; this is also the case with respect
to BLSI's petition of IL April to the Mayor OC Palermo to lift the requisition,
ELSi's formal appeal of the requisition order to the Prefect of Palermo on
19April, and the mling of the Prefect on 22 August 1969.Accordingly, there is
no issueas to whether the factsupon wbich the United States basesthis allegation
have been estahlished. The question is only whether these facts constitute a
violation of the Treaty.
Let me stress this point, in light of the arguments made repeatedly by the
Respondent last week. The requisition constituted, in and of itself, a violation of
the above-mentioned provisions of the Treaty. And this is the case regardless of
whether or not there was any collusion between various entities of the Italian
Government to produce this result, and regardless of whether there was any
causal chain between the requisition and any of the other acts or omissions which
the United States alleges to he Treaty violations. The same is true with respect
to the suhsequent delay in overturning the requisition, which constituted a sepa-
rate violation.
Further, this violation of the Treaty occurred when the requisition order was
issued on 1 Apnl 1968, regardless of the financial state of ELSI at that point.
We have shown that ELSl was no1 insolvent or hankrupt as of that date, and
had no obligation to file in hankmptcy.
But even if one were to take a ditTerent view of ltalian law, the Italian
authorities, which were fully aware of ELSI's financial circumstances, had taken
no action whatsoever to institute bankmptcy proceedings. Therefore, Raytheon
and Machlett enjoyed full nghts of management and control as of 1April 1968
under Italian lawand under the Treaty. It is only the requisition wbich ohliterated
the exerciseof those rights.
In his oral presentation, Professor Gardner explained at some length why the
Respondent's actions constituted violations of the Treaty. To summarize his
explanation very hriefly, these actions violated the requirement of Article III,
paragraph 2, of the 1948Treaty that nationals and corporations of either party
be permitted to organize, control and manage corporations of the other party to
engage incommercial, manufacturing and other activities. These actions violated
the requirement ofArticle I of the Supplement that the nationals and corporations
of either party not be suhjected within the territory of the other party to arbitrary
or discriminatory measures, resulting particularly in preventing their effective
control and management of enterprises which they have been permitted to estab-
lish or acquire.
These actions also violated the requirement in Article VII, paragraph 1 (a),
of the 1948Treaty that the nationals and corporations ofeither party be permitted
to acquire, own and dispose of immovable property or interests therein in the
territory of the other party.actions in the Supplement, it is hard to see what content that provision could
have.
Finally, the Respondent argues that the requisition was not arbitrary because
there was a nght of appeal under Italian law, and the action could not he
considered arbitrary until officiallypronounced as such under Italian law (p. 229,
supra). This line of argument is clearlv incorrect and contrarv to the whole
purpo,c of ihc pro\isioR. Article I 15 r phhihition on ccrt'iin acr;oos, noi simpl)
a requirr'nir'nifor procedurdl revicu. Fiirthcr, such an inierprctation w<>uld mcan
that there would be no Treaty constraints on arbitrary action so long as a
theoretical rieht of ultimate a..eal existed. The current case illustra~ ~ ~~ ~ ~ ~~ ~ ~ ~
inadequacy oi such ;in approach - ihc nghir oi xppul i>fferctlby 1tali.in lais
rcsulted in a 16-monih uaiiing pcnorl heii)rr 1 deci\ion u.3, rcaslicd. by nhich
iimc ELSl had long sincr'bccn iurced inio hiinkru~ic~a. .the nhole ourou,e . .
the Treaty protectizns had been defeated.
Next, the United States alleges that these same actions violated the separate
requirement in Article 1 (b) of the Supplement that corporations of one party
not be suhjected to arbitrary or discriminatory measures within the territ& if
ihc othcr püriy \%hichimp3Ïr legdlly acquir:d-righis and inrercst? in enierp;ise,
tvhich ihcy have hccn permitied ro csiüblish or acquirc. This proiisi.in ii quiic
hrwdJ. in thai the icxi dciincs such invcsimcnt, a, Iùnd, (lo:in,. shcircsor oiher-
wise),materials, equipment, services,processes,patents, techniques, or otherwise.
The Respondent advances the same argument that 1havejust rehutted regard-
ing Article 1 (a) of the Supplement and repeats that the acts of the Respondent
were not arbitrary or discriminatory (p. 231, supra). For the reasons 1have just
stated, this argument is simply untenable.
TAKING OF PROPERTY
Next, the United States allegesthat the requisition and the delay in overtuming
it constitute violations of the Treaty provisions against the taking of property
interests without just compensation. Again, to summarize brieflyProfessor Gard-
ner'smore lengthy argument (pp. 105-111, supra), these actions violate the provi-
sion of Article V, paragraph 2, of the 1948 Treaty that the property of
corporations of either party not be taken without the prompt payment of just
and effective compensation. They also violate the requirements of paragraph 1
of the Protocol that the provisions of Article V, paragraph 2, providing for the
payment of compensation, shall extend to interests held directly or indirectly by
corporations of either party in property which is taken within the territory of the
other party.
The application of these provisions to this case is clear. The requisition of
ELSI's plant and assets was an unreasonable interference in their disposal and a
taking of property. The failure to overturn the requisition and the acquisition of
ELSl through the flawed bankruptcy proceedings allowed the Respondent to
acquire ELSI at far less than ELSI's true value.
Now, the Respondent grasps at allegeddiflerencesin the meaning of the English
and Italian texts of Article V, paragraph 2, and the Protocol to deny that a
Treaty violation occurred. Article 33, paragraph 4, of the Vienna Convention
states that where there is a difference in meaning between authentic texts which
is not resolved by Articles 31 and 32, the meaning which best reconcilesthe texts,
having regard to the object and purpose of the treaty, shall be adopted. Where REPLY OF MR. MATHESON 331
we disagree is in the Respondent's conclusion that a significant difference in
meanine actuallv exists between these texts. and that such a difference must be
resolved in accord~nçe wiih the inore resinciive ol'the Iwo iexih.
In hct. as Professi)r Gardner dernonsiraicd (pp. 105-108,supra). there is no
rr~l dilïerence bsiueen the Enalish and Iinlian \er\ions. A çareful rei,ieu.of these
terms, in light of their object and purpose, results in the interpretation that they
protect property from any unreasonable interference in its use, whether this be
characterized as a "direct taking", "indirect taking" or "expropriation".
Notwithstanding the Respondent's creative argument, to the contrary (p. 225,
supra), the Protocol clearly relates back to the entirety of Article V, paragraph
2, and was devised to extend Article V, paragraph 2, to exactly the type of rights
or interests at issue in this case (Mernorial. 1. o. 89). If there remains anv
smbiguity in melining. Article 32 of the Vienni ~onvrnt;on çalls for rcfercncr. IO
supplemcntary melins of inierprctaiion. which the United Siites has show sup-
poris our inierpreution. whether ihis 15considered 2s LI"funciional inicrpreia-
iion" or an interoretation hased on the intention of the Parties (o. 215. su~ra).
The Rrspondent continues to $cc significancr in the l~ctb~t the requisition of
ELSl's plant and assets 3llegedly would not bc considered a iaking of properi)
or an expropriation under ltalian law. The question, however, is not one of
ltalian law. but whether under the terms of this Treatv a takine or exorooriation
~~ ~~ ~ ~
has occurréd.The United States in ils pleadings (~ekorial, 1,;~. 89:~~.p. 105,
supra) has ~rovided ample evidence that under international law the acts and
omissions 8f the Respondent in this case constitute a taking or expropriation of
property.
PROTECTION AND SECUR~TY
Finally, the United States alleges that the Respondent violated the Treaty
provisions on protection and security by tolerating the occupation of ELSl's
plant. Specifically,the Respondent's inaction violated the requirement of Article
V, paragraphs 1 and 3, of the 1948 Treaty that corporations of either party
receive the most constant protection and security for their property required hy
international law. The Respondent argues that a company cannot be the object
of a property right of ils shareholders (p. 227, supra). This would come as quite
a shock to shareholders around the world - particularly those with 100percent
ownership in a company. This is an untenable proposition, and cannot reflect
the intention of the Parties who specifically intended to protect the rights of
f~re~ " ~ ~ r ~ ~ ~their local subsidiaries.
The fact of the occupation is no1disputed and is established in the affidavit of
ELSl's Director of Planning O, Memorial, Ann. 21). Once again, the failure to
orovide orotection aeainst This occu~ation constitutes a violation of the dut7
bwed byihe authorities of the ResponAent,whether or not there wasany collusio~
between Italian authorities at various levels, and whether or not there was any
causal chain connecting it to other acts and omissions complained of by the
United States.
The Respondent asserts, however. that the occupation actually began prior to
the requisition, and points to an ltalian court's statement that some workers had
occupied the plant premises for a couple of days in mid-March (pp. 185-186,
supra). The Respondent apparently asserts that by not calling upon the local
police for assistance, ELSI acquiesced in the occupation of the plant.
In fact, prior to the requisition of the plant, the local Carabinieri were called
in, they did keep order, they did not permit the workers to occupy the plant
premises (1, Memorial, Ann. 21, para. 20). During this period, there were some REPLY OF MR. MATHESON 333
examples of how this process works as a sensible and normal adjustment of
business relationships in such a situation. This would in turn have allowed the
areatest ~ossible satisfaction of al1 of ELSl's creditors - accordine to Our
~.ilculationsof ELSl's v~iluc.100per ceni, and cicn Iiccording IO ihr ia~.ulIiiii>n~
of the Rcspondeni's crpcri, 100per icnt iciihc sciurcd and prcferrcd irediiora
and as much as 65 per cent to the unsecured creditors - which is a perfectly
normal result in such liquidation circumstances.
The Respondent has asserted that ELSl should have been placed inbankruptcy
long before the requisition, and would shortly have fallen in10bankruptcy in any
event. We have shown in considerable detail that this is simply not the case.
There was no requirement under ltalian law that ELSl be placed in hankruptcy
under the circumstances prevailing before the requisition, or under the circum-
stances that would have prevailedhad the requisition no1heen ordered. Contrary
to the Respondent's assertions, ELSl was making payment of ils obligations as
thev came due. and would have continued to do so b~t~for the reauisition.
Now,lei us compare ihis siiuaiion wiih whai aciuslly ocsurred üs ü result of
thc Kcspondeni's actions. The requisiiion sol\.ed none of the problcms of ELSl
or iis Iislian rrediiors or the local communiiv. IIdid no1sa\,c ELSI- ii uuicklv
dc\iroycd II lis produci Iines and assîts couid no longer k irdnsferred 18othir
buycrs who would mIikeproducti\e use of thçm Produciion was noi resumçd ai
the plant and the workforce was not rehired.
The interests of the creditors were devastated. The Italian small creditors were
not paid promptly, as had been planned by Raytheon. They and the unsecured
creditors received essentially nothing, instead of the substantial or full recovery
they would bave received under the liquidation plan. The ltalian Government
acquired ELSl's plant through ELTEL almost a year later, but even there it was
a ghost of ils former self hy that lime.
And al1 of this is without reference to the losses suKered hy Raytheon and
Machlett as a result of the liquidation, which we have estahlished in detail. These
losses included the loss of recovery of a portion of their investment in ELSI.
They included the necessity of paying in full loans to ELSl that had been
guaranteed by Raytheon, or which would othenvise have been satisfied from the
sale of ELSI's product lines and other assets al their true value. They included
the non-payment to Raytheon of debts due to it from ELSl which would have
come [rom the proceeds of these sales. They included the expenses of Raytheon
in connection with the bankruptcy, the defence against lawsuits by ELSl's credi-
tors, and the presentation of the claim 10the Respondent. They included the real
and substantial cost of the loss of use of these sums during the intervening
decades, represented hy compound interest from the date of the Respondent's
actions.
The Respondent has characterized these events as an attempt by Raytheon to
drain ELSl of al1 it could extract, to dump ELSl's problems on the ltalian
Government and the Palermo community, and to wash ils hands of the whole
atTair.With al1due respect, this explanatinn simply makes no sense.
Pnor to the requisition, as we have shown, Raytheon was not making money
on ELSl's operations - il was losing money. It had advanced 4 billion lire to
sustain ELSI's operations for the year pnor to the liquidation. It had already
arranged to pay ELSI's small creditors. It had made tïrm commitments to pay
ELSl's workforce and 10 provide any assistance necessary 10meet other ohliga-
tions as they came due. Far from hleeding ELSI, it was continuing to expend
money on ELSl's behalf.
Why was Raytheon doing this? Preciselyhecause il knew that its losses - and
the losses of al1the other parties involved - would be far greater under bank-334 ELETTRONICA SICULA
mptcy than under orderly liquidation. It had a very strong financial incentive
to sustain the liquidation process and to avoid a simple collapse into bank-
ruptcy.
Under these circumstances, what sensedoes it make to conclude that Raytheon
was iust tr,inu to find a convenient excuse for dum~in. E-SI into the la^of the
Respondent, and chose the requisition order as the convenient excuse? Raytheon
paid a heavv pnce for the requisition, and so did al1 of those who had done
business with ËLSI. It was far from a welcome event or a convenient scapegoat.
Let us look carefully again at the precise legal case which the United States
has brought before this Court. We have alleged that certain specificactions and
omissions of ltalian authorities violated the Treaty. Each act or omission alleged
isa senarate and indenendent violation. In no caseis itan element of the violation
lha1 Iiïliïn auihoriiics xnJ cntiticr ri sdnuus lc\cls cotispircd IO producc ihc
rc,uli. In ni>crie 1.il<inelrmcni of thc \iol~iion ihai iilof thejc c\cni, u.ere
linked one to another in a singlecausal chain.
For example, let us look at the requisition order. It clearly interfered in a
fundamental way with the management and control of ELSl by Raytheon and
Machlett, and also with their nghts and interests in ELSI. In fact, it totally
obliterated their ability to dispose of ELSI and to direct its operations during
the critical period in the spring of 1968.
The requisition was plainly unlawful under Italian law - this is not disputed.
It was also, by any reasonable definition of the tenn, arhitrary. As the Italian
authorities soecificallvheld.the reauisition had no lawfuliustificationwhatsoever.
no purposc oihcr ihiin to mitigütc local politisxl pres\urs. How can such 3n
dciion hc icnncd 3nyihiiig oiher thnii ;irbitr~rv"rhercfore. ihe requi\ition order
$!,a,nlainlv r violxtiun 01'Ariiclcs III and VI1 of the IY4XTrîaiv and Ariicle I
of thé~up~lement.
The same is true of the failure to overturn the order until long after its fatal
results had occurred. It is not necessary to impute or prove any particular
motivation to the Italian authorities charged with processingand deciding on the
appeal of the requisition. The plain fact is that the 16-month delay prolonged
the eiïect of the requisition well past the time at which ELSl was forced into
bankruptcy, past the time at which its product lines and assets might have been
profitahly sold, and even past the time at which ELTEL acquired the plant and
assets for far less than their true value. As we have shown, this period of delay
was completely unreasonable under the circumstances, and wholly out of line
with the comparable practice of ltalian authorities in similar cases.
We have also shown that the requisition and subsequent sale of ELSl's assets
to ELTEL through the hankruptcy process constituted a taking of the property
of its shareholders without the prompt payment of jus1 and effectivecompensa-
tion. And this was in la in violation of Article V of the 1948Treatv. We have
demonstrated in considerable detail that the amounts realized in the i>ankruptcy
process fellfar shortof the real value of ELSl's assets - and this is true whether
one accepts the calculations of our valuation expert or the Respondent's accoun-
tancy expert. As we have shown, this occurred (among other reasons) because
the terms of the bankruptcy sale excluded sales ofproduct lines - which were
hy far the rnost attractive possihilities to potential huyers, and hecause it had
already puhliclybeen announced by ltalian authoritiesthat ELTEL would acquire
the plant. Under these circumstances none of the buyers to whom Raytheon
might have sold ELSl's assets had any reason whatsoever to appear at the
auctions.
The terms of the xu~iion\. the announccmrni <IIthe (ioiernmcnt's iiiicni IO
i;ikc oi,cr EI.SI, ihc credriun of ELTEL faorihis purposç, ELTEL's possession of REPLY OF MR.MATHeSON 335
ELSl's plant at the time of the auctions, the amount rcalized in the final sale in
hankruptcy - these are al1facts, welldocumented in the record and not disputed.
They estahlish a violation of the Treaty. No allegations or proof of conspiracy
or causal chains are necessary in any way.
Now, the Respondent insists that, even if al1this were truc, the claim of the
United States is inadmissible before this Court because of an alleeed failure 10
rxhau5t local remcdirs. WChave shown that. for the Kcspondent ta;suc;ccd with
this objection. itmuit dcmonsir~tc e~chone of a scrtcs~Tpropojitioni coticcrning
the Isw and the circumstances of ihi, casc The Kcs~ondeni has F~ilcdto demon-
strate any of them. II has not demonstrated that the local remedies rule should
apply in this case atall. It has failed to show why the extensiveefforts undertaken
before ltalian administrative and judicial authorities to find appropriate relief
were not sufficient. It has in particular not explained why any funher actions
were necessary after the highesl courts of ltaly had specifically rejected precisely
the same contentions that form the core of the present dispute.
The Respondent has failed to demonstrate why it is proper for it to maintain
this objection now, after many years of remaining quiet in the face ofthe assertion
by the United States that local remedies had been exhausted and that recourse
to international settlement was therefore necessary. The Respondent's objection
would be a triumph of formalism. It would be a denial of the recourse 10 this
Court which the Parties had specificallyagreed to in the Treaty, al1in the name
of exhausting local remedies whichcould never have provided an adequate means
for the United States to vindicate the full scope of its rights and interests under
the Treaty.
The Respondent suggested in its final presentation last week that the United
States had brought this dispute to the Court because of pressure hrought to bear
by a large and influential national, iiotwithstanding the alleged inadequacy of ils
case. Mr. President, and disiinguished Members of the Court, I can give you
personal assurance that this was most certainly not the case.
Of course, we wanted to vindicate the rights ofour nationals and we certainly
thought that these particular nationals had not been fairly or lawfully treated.
But in deciding 10 bring this matter hefore this Court, we were focusing on
broader interests of the United States. We were concerned about the integrity
and eiïectiveness of the protections for foreign investment contained in this and
other FCN treaties. and we wanted to be certain that no orecedents ~~~~~~-t fo~
inadequate interprétation and application of these protec~ons. We believed that
a judgment of this Court would he hy far the stronnest reaffirmation of these
~rovisions. Above all. we wanted to demonstrate in a visible and concrete wav
"ur continuing commitmeni to the critical rolc of this Court in the ~J~IJ~IC~IIO"
of legal dispuics bctwecn States
In short. ihc Unitcd Sidies comcs hefurc vuu on its own hchïlf. in the ho~e
that this case can be an imnortant steo-ai idifficult time~ ~ ~~ ~ ~ ~a~cement
of the cause of peaceful seitlement of international problems. We ask you to take
and decide the merits of this case. We ask you to nive .he Parties a iust result as
you best see it.
Mr. President, and Memhers of the Court, 1confirm the final submissions of
the United States in this case as they were stated in Ourinitial oral presentations,
and as they have heen submitted in writing today '.And I know that 1speak for
al1of the memhers of the United States team when 1say that we thank you al1
for the honour of appearing before you, for your consideration of Our case and
'See Correspondence,No. 83,infra336 ELETTRONICA SICULA
for your kindnessto al1of us. MI. President, this concludesthe presentation of
the United States inhese proceedings.
The PRESIDENT: On hehalf of the ChamberI thank you very much for the
assistancereceived from theAmericandelegation.
TheChamber rosear 5.50p.m. TWELFTH PUBLIC SITTING (2 11189, 10am.)
Presenr: [Seesitting of 13 1891
STATEMENTBY MR. FERRARI BRAVO
AGENT FOR THE GOVERNMENT OF ITALY
The PRESIDENT: 1have receiveda few minutes ago a letter from the Agent
of Italy' with the written replies to the questions put by Memhers of the Court.
1 understand that the Registrar has transmitted a copy of these replies to the
United States delegation. One of the replies has annexed to it some new docu-
ments. 1 would ask the Agent of the United States if possible tu read these
documents and then tu let me know at the beginning of this afternoon's session
if he has any objection to the production of these documents.
Mr. FERRARI BRAVO: Mr. President, distinguished Membersof the Court,
we come now to the end of Our pleading and it is the turn of ltaly to rebut the
other Party's argument. Our rebuital will he structured as follows: first, Mr.
Highet will describe the changes in direction that have occurred in Applicant's
case including the abandonment of the theory of conspiracy, the assertion of a
fragmented case and the emergence of the bail-out commitment by Raytheon.
Then, Professor Libonati will illustrate the fortunes and prospects of ELSl as a
manufacturer in the electronics field and Mr. Caramaua will return to the acts
of the ltalian authonties~which allegedly cau&d the bankruptcy of ELSI. The
United States' contentions on the intemretation of the relevant international
instruments will then be rebutted bv ~rofessor Canotorti. followed hv Professor
Gqn on ihe prohlern of prior erha"siion ul lordl'remcdic~ And. fin&. I shnll
rnakc \orne rcmarks of 3 more gcnerdl naiurc and, of course. 1shlill preseniii>
the Court the final submissions of the ltalian Government
' Sec Correspondence.No. 85.in/ro. REJOINDEROF MR. HIGHET
COUNSEL FOR THE GOVERNMENT OF ITALY
MI. HIGHET: Mr. President, Memhers of the Court, oral proceedings under
the Rules are, as you of course know, supposed to he "directed to the issues that
still divide the parties" (Rules of Court, Art. 60, para. 1). One hopes that this
process will help the Parties to streamline and to refine their cases, to make the
job of the Court somewhat easier.
But in these proceedings, inthis case, there really has not heen a "streamlininy"
of Applicant's case. It has heen radically altered since the beginning of the oral
proceedings themselves.And there has no1been a refinement of Applicant's case,
there has heen a significant abandonment of major portions of that case since
Resnondent's first round ofareuments onlv two and a half weeksaeo. In addition,
t\io'\rholly nea. lines oi~r~ukcni h3,c &en in\ented and introducc~ in ,\ppli-
cant's cloiing arguments. II ha( heen a \,Cr).interebting thrm \reck,.
Ii15 31~ n~t~cc.~blcM. r. I're.iJr.nt, thai ihc siihniis~ion oi thc United Si:ites
have also suffered a sea-change. They no longer specify - even generally - the
acts and omissions thar could give rise to the violations asserted in their para-
graph 1.
Now. it is no exaaeeration then that A~plicant's case has suffered a drastic
. ..
revisiim 'fhe ctinspir3:y itieory h3a heen dr<;ppcJ. or snid tu hiive heen droppcd.
Caiis:itiun or logicnl nexus is dismis>edoui oi hand. The cl31mcdinjuries theni-
iel\.er. in this arc. h3vc ken rïuordzd ro thai thcv are smaller qepliratccompd-
nents rather than a unified whole. And now the ~"bmissions have also followed
suit. They have heen altered to seek evanescent declaratory relief and almost as
if it were to avoid using the words "Raytheon and Machlett" lest attention be
drawn to their possible failure to pursue local remedies.
The part of Applicant's case, Mr. President, that has been wholly jettisoned
from the proceedings is of course the "conspiracy" theory. However, this was
certainly a major component up until the beginning of the second round of
pleadings, when it met a sudden and premature demise.
In my pleading to the Court on 23 Fehruary 1 took considerable pains to
illustrate this element of Applicant's case and devoted, as you will remember, no
fewer than 6 pages of argument to citing chapter and verse throughout the
r~~~~~~~~-~f where the consni.acv.,,he concerted action. occurred in ADDi..ant's
pleadings (pp. 247-252,supra).
But Applicant in the rebuttal arguments has not really dealt with this point at
al1(see pp. 280-281, supra). Applicant willjust not admit that its previous case
against Italy was really based, il really was hased, on a series of interlocking acts
by Italian Government officiaisacting in concert (see,e.g., Ms Chandler at p. 305).
It was clearly and emphatically described this way, as a "series of concerted
actions", in the Memorial (1, p. 85; see p. 249, supra; emphasis added) - as a
"nationalgovernmentplan" hy my friend, Mr. Matheson, in the first round (p. 34,
supra; see also p. 251, supra; emphasis added) - or as "the Respondent's plan
to take over ELSl through ils State-owned conglomerate", by Professor Richard
Gardner (p. 97, supra; see also p. 251, supra; emphasis added).
Now 1 am - 1 reassure the Court - not going to go through Applicant's
written and oral pleadings again. The record speaks for itself. But it is very REJOINDER OF MR. HIGHET 339
important to keep this inmind, because it colours the approach that reallyshould
be taken to Applicant's case - and also to its suhmissions.
Now the remaining case has shrunk in size and it has also bnn split up into
little bits. Now we predicted this quite accurately, lasr week (p. 248supra). We
said this was going ta happen and Io and behold it has. The complaint of the
United States in thiscase isnow shrunken, it hasshrunkdown to onlyfour actions,
or incidents, and that we are asked io consider each one of these separately and
as if unrelated to the others.
And they were set forth by Mr. Matheson on Monday as follows:
"Thev are: first. the unlawful reauisition of ELSl's lan nt and assets:
recond,~;illou,ingELSl'i workers to o&upy the plant; third: the unreason;ible
drlay in ruling on the lav,rulnos ulihc requiiiiion; ~ndfuurih, the t1îu.sin
the hïnkrui>to proccss whirh rrsiili~~in ihe :rcqiii.;ii~onof EI.Sl's a>sr.lsfor
less than fair value." (P. 280.supra.)
True, Professor Gardner also listed these four specificacts (p. 95,supra).Yet
even he was unable to avoid linking two, at least two, out of the four "specific
acts" cited, the asserted "unreasonable delay" and interference with the bank-
mptcy proceedings, to the strong suggestion of an overall composite plan of
which at least those two components, the delay and the interference, formed
composite parts (pp. 96-97, supro). He was quite naturally impelled by the logic
of the United States case, and this was in their first round, Mr. President. when
he said: "Through the ensuingbankrupicyprocessihe Respondenr'p slan 10rake
over ELSI rhrouahifs own Srare-ownedconalomerarewasbruuahrIo fru"tion."
(P. 97,supra; emphasis added.) It is a plan.
In hiscrescendo of the conclusion of hisargument in the first round, Professor
Gardner put the whole picture together for us. And he also, in my submission,
gave the whole show away, when he connccted the "specific acrs" as follows:
"Beginning withthe unlawful requisition, the Respondent embarkedona
courseof acriviryrhoi resulredin rheocquisirionof thebulk of ELSI's assers
for far lessrhanmarket value. The Respondent strippedRayiheonandMach-
lerrof their ability to dispose of ELSI's plant and assets promptly in an
orderly fashion, look over ihe planr, delayed providinga decision on the
legality of its actionforced ELSI ro go inro bonkruprcy since il could not
pay its bills, and thenobrainedELSIS assersin a piecemeal fashion during
the bankruptcy process for far lower than they were worth al the lime of
seizure by the Respondent." (P. 106, supra; emphasis added.)
Now in Tact,what Professor Gardner was doing was not really stating four
"specific acts" as separate issues or separate injuries; he was engaged in hreaking
them down as separate components of an alleged conspiracy to relate each one
analytically to one section or another of the United States case or of the Treaty
or Supplement (see,e.g., pp. 95-100, supra).
Moreover, Applicant has also apparently not undersrood the whole issue which
supports or underlies the other horn of the dilemma that 1mentioned in the first
round.
That dilemma stillbesetsApplicant's caseand it wasnot resolvedhy its rehuttal
this Mondav. Las1week 1said that A~~licanthas now "conceded that it can no
longer relyon establishing that conne'ciionof will or purpose" sufficientto link
the disparate actors and elements in the case together, and 1then added:
"Thor isrhedilemma.Theonlyorher way in whichtheseacrionsoromissions
canbelinkedoneto thenexi iuby o disciplinedandcugenrchainof cousation
. .one that admits of no rupture . . one that willsatisfy thetraditional and340 ELETTRONICA SICULA
respected requirements of the international law of State responsibility."
(P. 247,supra; emphasis added.)
MI. President, this dilemma is still - unhappily for Applicant - alive and
well, and ils horns are very sharp indeed (pp. 89-90,247 and 252-253, supra).
It is a commonplace that an action or omission must be connected to the
damage asserted for there to be an injury in international law (seep. 247, supra).
Yet Applicant brushes this aside, as if il were merely descriptive, or superiiuous.
It states that it "is most certainly not the case" that these acts mus1 be "tied
together in a so-called 'causal link"' (p. 281, supra),and Applicant also stated
(quite categorically too) that:
"The case of the United States in no way dependson proving fhar rhese
actionsconstiturea sequenceof evenrsboundtogerherby a commonplot or
causal chai", howçver often the Respondent may insist that this is JO."
(ibid.;emphasis added.)
Which isjust what we are doing nght now.
Yet the case that Italy has had to answer, from the filing of the Memorial
through Applicant's second round of pleading, that is the case that was in
existencefrom 15May 1987until27 February 1989(almost 21months) has really
depended overtly on the idea, expressed and implied, of a conspiracy or unified
action. And once one removes that, once one takes it out of the picture - either
by abandonment or refusal to admit that it ever existed - how then are the
various incidents in the scenario before the Court going to be linked? As our
Agent stated last week:
"Has the United States requested the Court for relief. . .based upon the
conduct of or publicity for the first bankruptcy auction . . .[olr the second,
or the third? No. Has the United States specifiedthe claim for relief based
on the actual sale to ELTEL? No." (P. 153, supra.)
In fact, the Court mus1 simply throw out at least three of the four alleged
"specific acts" or "actions" as soon as they are considered "in and of themselves".
For example, MI. President: the occupation of the plant by the workers - the
second alleged "specificact" - has no damage related to il when it is taken by
itself.It has to be linked to somethine else.One must be able to orove convincinelv
that, as a direct result of the occuiation by the workers, ~a~theon/~~~l \;as
unable toshoparound, for example,toobtain interested purchasers in an "orderly
liquidation".
Now, if Applicant is talking about the occupation by workers before I April,
then it has to prove preciselywhat the effectswere on the increasing discomfiture
of ELSI. And we would suggest that even if some proof existed - and there is
not a shred of evidence in the record - ELSl's long-standing financial problems
still dwarfed any occupation by the workers. One would also like to ask the
Applicant what was done about the occupation. Who did what, Io whom, and
who said what, to whom, when and how is il recorded? We do not know. Mr.
President, one cannot establish or base a serious international claim just by
stating the problem, which is what Applicant has done.
If one is talking about occupation by workers after 1 April, then of course
there are similar questions 10 be asked. There is no exact evidence of any sort as
to what the result of that occupation was. More cntically, there is no evidence
as to what the necessary effect was of the occupation taken as a "case" in itself.
Was it discouragement of buyers? Was il pilferage? Was il damage? What in fact
was it? Applicant has not said. But il must be specified,at least to a minimum
levelof proficiency, to stand on its own as an international claim under a trealy. The third "specific act" is the "unreasonahle delay" in ruling - and that is
really in the same category. If the requisition was lawful, the delay - even if
inconvenient or even if unreasonahle - was hamless. And if the requisition was
unlawful, then unless Applicant can carry the burden of proof that there was
direct and substantive consequences to the delay, there still is no injuria.The
"delay" is, by its very nature, such a conjectural element, in this case, that it can
hardly support the burden of proof. The direct and substantive conscquences
have not heen convincingly proven - far less specificallyindicaled.
And the same is true, Mr. President, of the fourth "specific act": the asserted
"flaws in the bankruptcy process". These are only actionahle, one would think,
if one could prove that they werereally attributahle to an oficial ltalian act. And
moreover, one mus1 prove concretely that the results of the hankruptcy sales
were poor, or were in fact inferior 10 what would have ken the result under an
"orderly liquidation".
The only "specific act" that really remains then is the first: the assertedly
unlawful requisition. But in order to prove that this is a violation of the Treaty
or Supplement,Applicant has again to prove that, butfor this requisition, damage
would not have occurred to Raytheon and Machlett. Othenvise, this would bea
case of injuria sinedamnum. And this might well comport with Applicant's new
theory that it is now seeking a "declaratory judgment", but it does not comport
with much else in the las1two years of these proceedings.
The requisition also raises some other difficulties when it is dealt with al1by
itself, particularly in the context of Article 1of the Supplement. It would hchove
Applicant, or il would have behoved Applicant, to have provcd, and here again
by a preponderanceoJconrincingevidence, that the Mayor of Palermo and the
other local officiaiwere either really seekingto injure ELSI and ils shareholders
Raytheon and Machlett, or were acting with sucha recklessdisregard for 111e
consequences w.ith such a high degree of negligence, that the equivalent of
unlawful intent can be attrihuted to them under normal standards of interpreta-
tion. They have either go1 to try to hurt ELSl and its shareholders or they are
so negligent and disregardful of the consequences that Italy could be held liable.
And Respondent says thal this kas not heen done or shown. The evidence is al1
over the place. One inference can be drawn one way; another in another.
But this is a case brought hy application, and Applicant therefore still has
the hurden of proof and the burden of persuasion. The result is that, if a judge
cannot make up his mind whether there really was such an intent or not, then
the henefit of the douht must, in law, be given to the defendant, to the
Respondent, hecause the plaintiff has not proved his case by a preponderance
of evidence.
If there are reasonahle or suhstantial doubts - or even bcttcr. if there is
confusion or a total lack of clarity in the situation -itis too bad but the burden
still has not heen carried.
Now if Applicant denies both the conspiracy and the need to link and follow
cause and effect, then it really has nothing left but independent fragments of a
case, and these do not comprise an answerable claim upon which relief may be
granted.
This is what our Agent meant last week, MI. President, when he stated that
"the case of the United States hegins to dissolve at its far end". Three out of
four "specific acts" have dissolved before our eyes.As to the lastremaining "act"
or "action" - the requisition- it is nevertheless essentialthat Applicant sustain
the hurden of proof on this issue and not leave it more or less in equipoise. To
have it not resolved clearly one way or tho ether must mean a victory for the
Respondent on that point.342 ELETTRONICA SICULA
1 should stress, of course, Mr. President, that Applicancannofavoid the logical
imwratives of ils dilemma. In hisclosinr arruments on Mondav, Mr. Matheson
slipped right back into the natural reAex of accepting the inierconnection of
"separate acts". He said ihat:
"rheucrs~frrquisitio~im.g the plant and rhrnno1owrrurning ihat requisilion
in3 reïsonable tinie rripprd Ruyrheonand .\luchl6.rruf ihcir iihilirsriplace
ELSl fhrounhanorderlv~l~auidario .n..The occu~ationof the olaniorevented
an,"~hance-ojshowin~'ih~~lanrand assetsro~ospertive bu&s the flaws
in the bankruptcy proceedings ulrimatelyresultedin acquisilionof ELSl by
the Respondent for wellhelow what it was worth." (P. 327, supra; emphasis
added.)
There was precious little recognition, il seems, in Applicant's arguments on
Monday of the probletii of satisfying the hurdens of proof and persuasion (see
pp. 151, 154and 252-254, supra). It is particularly important that the burden of
proof on the illegalilyof rherequisiriohe established hy a preponderance of the
evidence, and not merely left,as 1have just said, in a state of equipoise.
Yet Applicant has virtually nothing to say on this vital issue.Instead, only a
relatively bland paragraph from Sandifer was read aloud and the subject was
quickly abandoned, with the invitation to the Court "tojudgefor itselfwhether
we have failed to substantiate any of the elements of Our case" (p. 282. supra;
emphasis added) -an invitation that Respondent would warmly support. Only
il isApplicanl.and no1 Respondenr that has the burden of proof on each of these
issues. And, as I have just said, Applicant seems to he somewhat unconcerned
about where that burden has come to rest.
A wholly new case has also emerged, orat least a good part of a new case. It
can be referred to for convenience as the new idea of the "Raytheon bail-out"
of ELSI.
This idea is that Raytheon had always been committed 10 keep ELSl out of
bankruotcv. and the hands of its creditors, until the end of the so-called"orderlv
liquidaiion" and, to this end, that ~a~theon had made a "commitment to advance
al1 funds needed to provide the necessary liquidity for the orderly liquida-
tion . . .".
Applicant in ils closing arguments stated that "[tlhis very critical aspect of
the orderly liquidation plan has heen complerely overlooke dy Respondenr .. ."
(p. 306, supra; emphasis added). Wellit was easily overlooked. It was mentioned
in one unqualified statement in the Schene affidavit(written 20 years later) to
the effect that "Rav.heo~ ~ also indicated that it would furnis~ ~ ~ additional
moneys necessary to maintain the requisite cash flowfor an orderly liquidation"
(1,Memorial, Ann. 15. para. 53, as cited on p. 306, supra; em~hasis added).
And it was only reaily mentioned in the-written ;leadin& one other iime,
squarely, in one passage of the Reply, to the effect that "Raytheon also made
the commitment to advance any funds to provide the necessary liquidity for the
orderly liquidation" (II, p. 367). ButIo whom was this "commitment" made? It
is not said. By whar was it evidenced? We do no1 know. When did il happen?
We are not sure.
Avvocato Bisconti in his direct evidence, Monday, referred to a "guarantee";
as you will recall, he referred to a "backing", he referred to "assurance", IOa
"commitment", and then once again to a "backing" (pp. 300,301 and 302, supra;
see also p. 314, supra). And yet he was unable to inform the Court how or
whether those "ideas" had cver been communicated to anyone outside the top
echelons of Raytheon executives(p. 316, supra).
There is no evidence in the record, other than self-serving statemenis, that REJOINDER OF MR. HIGHET 343
Raytheon was prepared or willing to make payments to anyone that it was not
strictly and tightly legally obligated to make. In the words of Mr. Adams: "we
do have obligations to our stockholders" (Memonal, Ann. 15,1,p. 173).Indeed,
Raytheon has always strongly maintained before the ltalian courts, in the non-
guaranteed loans cases, that it had no obligation whatever to ELSl's creditors
unless it had actually executed a legally binding guarantee or provided other
legally sufficientsecunty.
This new fact - in Applicant's words, that Raytheon had the "intention to
provide the financial support necessary to avoid any insolvency problems dunng
the liquidation" (p. 281, supra) - is now produced as the keystone of a rational
and orderly liquidation proceeding. Great stress is suddenly laid on it. Yet it was
only mentioned once in testimony in Applicant's first round, when MI. Clare
said (consistent, by the way, with the Schene affidavit) that Raytheon "had
guaranteedro me that rheywouldyuuruntrr the cash flow necessary to made thc
liquidation work" (p. 51, supra; emphasis added).
Raytheon or Applicant now cornes and says that Raytheon would have paid
ELSl's indebtedness throughout the procedure of "orderly liquidation". The idea
of the bail-out suddenly shows up al1 over the place. Now described as an
"essential elemen of the liquidation plan" (p. 293, supra; emphasis added); as a
series of "possibilities" by which Raytheon and Machlett could have benefited
ELSI (p. 298, supra); and as a "cornmitment" (p. 302, suprao )r as a "backing"
(ibid.).
The Applicant's Deputy-Agent in his summing-up went so far as to state that:
". . . Raytheonhad already made thefinancial commitmentsnecessary to
ensure that ELSl's obligations would be paid as they came due, including
thepayroll of the workforcearidthefull amountsowedto rhesmallcredirors
and the secured andpreferred<:reditors" (p. 332,supra; emphasis added)
"[Raytheon] . . had madefirm commitmentsto pay ELSl's workforceand
to provideany assistancn eecessaryto meet other obligations as they came
due . . ."(p. 333, supra; emphasis added).
MT.President, the specific references are in my written pleading.
In answer to questions from you, MI. President, Applicant also stated that if
the reserve for the workforce "proved inadequate . . . Raytheon wouldhave
increasedirsfundingof the liquidation programme fo take careof any shorflall".
And similarlv2 An..icant stated that "Ravtheon and Machlett ... wereconimitted
t#.pri,r,d,»l<uifii.i.virji<n<cizrr:iry (or tLSl to iiieeiii.<1hlig3iioniduring ihr.
ordcrly Iiquid~iiiin". iind ih:"Ka! ihîon anil hlachlcti ,i.c,.~otir~~iirririupp/y
tnr tr<2i.r,rAli,nih10 :ic:oni~li\h ihz urderl, liuuirlaiion \\ilhou1 the ncce*,ii) 01
. .
pkcing fin bankruptcyA.
A new case has therefore blossomed during the oral proceedings. It has sud-
denly sprung up like a mushroom from almost complete ohscurity. Whydid we
nor really hear aboutthis before? The two or three references to the "bail-out
proposal" were meagre and ambiguous: at best, they seemed to be no more
than self-serving statements. Above all, we cannot lind any contemporaneous
e\ idence.
Appliuni musi have rcali~cd full \icll il141its cl;iim .-mnoi succecd unles, il
:onvinr.v. ilie Couri 01ihis '.bail-oui proposiil", icirihe jiniple rcartiii iiiha.
non hcconii guiic clcar \ili;terrihlc iin.inïi31>h~pcFI.SI rully in ïvcn
in worse shaG than we had believed when the oral proceedings hegan. Perhaps344 ELETTRONICA SICULA
it was the discovery of the 30 September 1967 financial statements that did it.
They certainly have showed us a lot.
But it was only after thesefinancial statements were produce dnd only after
Respondenthad spoken inCourt - Professor Libonati had addressed them -
that the "bail-out proposal" assumed its present prominence and its position of
glory. And now it can be described repeatedly as being a "guarantee", a "backing"
or an "assurance"; it is now a "commitment", an "essentialelement of the
liquidation plan".
Whatproof is thereof it? MI. President,1 do not wish to belabour this point,
but it is worth noting. The only proof of the so-called commitment, or the "bail-
out proposal", is in the asseverations of interested parties and in the statements
of counsel. That is no1 much proof, Mr. President. There never is a single
indication of where this "commitment", "backing", or "guarantee" was ex-
prcsscd, where itwas recorded, and how. There is no indication that it ever got
out heyond the inner circles of high Raytheon management. That is to say, until
it becomes essential Io assert it in these proceedings, because of the other things
that have occurred in these proceedings.
Now it isa matter of giving weight to the evidence.and 1do not have to quote
Professor Sandifer to acknowledge that the Court will, at the end of the day,
know exactly what weight ta give to these statements, and to what end.
Moreover.it cannotbe supportedin thiscase by"commonsense"alone. It is of
course true that it would have made sense for Raytheon to have such a policy -
obviously it would have. It is also true that it would surely accompany any bona
$de effort to work things out and effectan orderly liquidation. But this conclusion
assumes that, at the veryleast, Raytheon had no1made a dreadful mess of things;
it assumes that Raytheon would suddenly have started to get il nght, instead of
wrong; and it assumes that Raytheon was always acting openly and in a spint
of genuine CO-operation.
Now Respondent does not stand here today before this Court and say that
this was not the case. What we do sav is that if the Court is --.nr to rive the
Applic;ini iliz hcncf01.ihc douht oii ihis poini. ilien surcl) ihr Court mur1iilso
givc ihc Rcipiindeni ihc bcnctit of the douhi on an opposits point ihe ho~i~>jr<kr
or justification for the requisition.
Yet we are surely denied the benefit of the doubt. Indeed, Applicant has even
hinted that Respondent had even "precipitat[ed] the conditionsthat led to the
'socialunrest'"that would have justified the requisition (Reply, II, pp. 384-385).
It has stated that "the planned closing was not bonafde public emergency, nor
was the requisition a bonajide public response" (Memonal, 1, p. 80).Even as
recently as intsclosingarguments, Applicant has also stated that "The requisition
order had . ..nopurposeuther than ta mitigate local political pressures." (P.334,
supra: emphasis added.)
Mr. President, this statement is untrue on its face: the requisition order had
at least two other perfectly serious and genuine motives, as the Court knows full
well. It is an understatement to suggest that it does seem to be a denial of the
benefit of the douht to Resoondent. on its motives and its intentions. in this
critically important area. -.
Yet it seems only fair to Respondent that if Applicant's "bail-out proposal" is
ta be taken senouslv and eiven wei-.t bv the Court. at the vew end of these oral
proceedings. ihen equi\;ilcni ncighi shu~ld bc gitrn io Rc\pi~ndcni'i as,criions
ahoui ihr rcquisition. T/I<.:is\eriions h2b.cbccn matic since ihc Memori:il, ihsy
ha\e hrrn rer>i.itcilloud, ihev have hccn rciic~iedconsistcnily and oiicn. Wiihin
the four corners of thistigat;onthere shoufd bean equality of credibility between
the Parties. And there should, at least, be equipoise. REJOlNDliR OF MR. HIGHET 345
MI. President, if there was indeedsucha "bail-out proposal", why wasn't it
communicated or leastIo theItalianpublicauthorities, inrimeroavertthe incidents
of the requisitionandits afrermath?
Raytheon may well have had an intention of continued support for ELSI, but
it never communicated it to anybody. Raytheon certainly did not convey the idea
to the key people il was dealing with: ELSI's workers or employees, to the
unsecured~c~ ~ ~ ~s. to the b~ ~ ~~~ndeed. inthe critical davs in March. R,vth,on
gave precisely the opposite impression to the local and national officials con-
cerned. And this emerged .n Monday in the cross-examination of Avvocato
Bisconti.
There is not a single piece of evidence of which we are aware to the contrary.
This, MI. President, is an important point that 1cannot stress too highly today.
In fact, it was always just the reverse. In the 1974Claim, for example, which
is in evidence. it was stated thac "in vicw of ELSI'Seiiornious losses of the oast.
Raytheoii and Mashleii iound itimporv>hl< r,iiiivr~i~ddirinnilul»iuu»r> in ELSI"
(1974Cldim. p 15; Ilnnumbercd I>iicumentsSubmitied b!. Iraly, II. pp. - -.235
[p. 211;emphasis added).
Later it stated that "consistent with ils earlier announced position, Raytheon
was norpreparedto provideanyfurther financial supportIo ELSI either by way
ofcapital, loans, advances o,r guarantees"(1974Claim, p. 35; Unnumhered Docu-
ments Submitted hy Italy, II, pp. 233-234 [p. 471; emphasis added). The 1974
Claim also rejected the possibility that "Raytheon would have to shoulder al1of
theresponsibilityfor ELSi's debts including interest"(1974Claim, p. 41 ;Unnum-
bered Documents Submitted hy Italy, II, pp. 233-234 [p. 471;emphasis added).
At the famous meeting with MI. Carollo on 20 February 1968 - which we
will al1recall- MI. Adams opened the meeting by saying that Raytheon "will
not put up any more cash", and then he said to MI. Carollo that "Raytheon
cannoturosidc . . immediarecashhelu". and finallv he said that "While we cm
continue io pro\,ide ElSl uiih m;in:igcmcnr and iechniil<ig), ur <i,tz~ipri,i,ril<,
,>ii>n<,i,.iihitui which FISI u.111 slioril) iliüppear" (Minules <ifiiieeiing (1974
iersionl: I1nnuniberr.d D<~cunientsSiibmitied b\ . li.i.\II...O. 295-Yb: emrihiisii
added).'This is what he said.
In MI. Adams's written communication to MI. Carollo on the following day,
he stated very clearly that "Raytheon Company will not undertaketo supply
furtherfinancialcon/ributions to ELSI" (Unnumbered Documents Submitted bv
'ltaly, li, p. 297; emphasis added).
Avvocato Bisconti, on Monday on cross-examination, confirmed the clear
imoression that MI. Adams must have eiven to MI. Carollo, when he said that
"this should have made clear to the on or ab lerollo that Raytheon was not
going toinvestany money,capitalfunds, however one may wishto cal1them, to
continue the operations of ELSI" (p. 318, supra; emphasis added). Where does
this leave us, Mr. President?
The impressionwas obviously givento al1outside Raytheon's immediate corpo-
rate family that Raytheon was cutling off ELSI. " Werun out of moneyandshut
theplant", in the terse phrase used by Mr. Clare's time-table (Minutes, Unnum-
hered Documents Submitted hy Italy, II, p. 295). Raytheon and Applicant would
now have us believe - they would have the Court helieve - that there would
have been some fonn of "firm conimitment" to pay ELSI's workers during the
liquidation period. Yet the fact is the opposite: the regional Sicilian authorities
were stuck with the bill, first, witb the March payroll that had no1been mct, and
then with the payrolls for the next six months.
The willingness of Raytheon aiid Machlett to stand behind ELSl may he
convenient for the pleading of the case by Applicant, but in the context of whatactually happened, it really is a will-0'-the-wisp.Now you see it: now you don't.
We see it now, or think that we do, but nobody outside the charmed circle of
senior Raytheon people seemed to see it in 1968.
Does it not therefore seem - 20 years later - that the Mayor of Palermo
might have been genuinely concerned that Raytheon was really cutting out and
letting ELSI turn in the wind? OJcourse irdoes. And even though he might have
been mistaken, or even though he might have been ill-informed, the Mayor of
Palermo and thus Italy herself did not necessarily act in badfairh or in such a
manner as to constitute an "arbitrary" or even "discriminatory" act under the
Supplement.
And a second, related, point emerges: does not this al1go a long way to show
that Raytheon's executives probably managed to bungle the entire situation in
March and Apnl of 1968?Dealing with an extremely sensitivecontext involving
human welfnrc,involving public concerii in a generally high stress economic and
political context, surely there is an element of contributory negligence here. Now
I have used before the expression "assumption of the tisk" (in the cross-
examination of John Clare, p. 61, supra). At least it certainly levels out the
equities in this situation to an equipoise.
In situations where a treaty violation is asserted, and the facts are buried in
two decades of contrarv memories. surelv there has to be. Mr. President. an
aii3loguc oiihe ;ipplis~i;on of..s.pit;ible ~inciplcs" siiiicll-kn<iii,nro ihi..Court
in othcr s<inici;is!llerc the Co~rt muit al>ul~okat ihc "rclc\.iini circumrlanccs",
in order to determine whether a line of strict equidistance between the positions
of the Applicant and the Respondent would not produce an equitable result in
this particular case.
Rather than seeking to prove tbat Italy violated a treaty commitment, the case
should now be put in its true perspective and viewed as one where misrakesmay
have beenvery well made on al1 sides, but where those mistakes fall short of
creating a cause of action under the Treaty. In short, the ELSl case is a history
of a complicated business disaster for which there is no clear remedy in interna-
tional l~ ~
Once AppIic.int had conîs,lcd th;it ihsrc ir no "con>pir:i:v." or thsi the iruiil
end OC iij cdsc is no1conncctcd 10 rhc hack end by 3 \iniil.ir chxin of wus:ilion,
\Ir. Pre.ideiit, ihe ciitirr.\tructurc collapjcs. Thcrc is no "case" Itit. Wh31is Iclt
is ihe *:id .inJ coiifiiscrl hijiory oi n1i~r.dmoti\cs, b<idiudgmcnt. in;idrquïrc
commtini:nii<in. coniplex misunJcr>i;inding~,uiiCorlun~tesiairmcnts. fdilurcs of
agreement, adverse circumstances, poor business acumen, errors in planning, and
,~~-~ nl~~ ~-~d luc~~ ~
It is a contemporary business tragedy, a commercial disaster. But it is not
actionahle under the Treatv of Friendship, Commerce and Navigation anv more
than events stemming from the ~ctober-1987 stock market collapse, or adverse
currency fluctuations, or general business disasters are by themselves actionable.
ELSI was indeed a business tragedy - Respondent does not deny that. But it
was not a plot. It was not a coherent whole. Applicant concedes that. We say it.
And Applicant cannot succeed in this Court by resiling from ils initial case and
then seeking to qualify separate and individual components. It is like pointing to
a pile of lumber, or separate planks, and saying that it is the same thing as a
house.
Why did it not occur to Raytheon's executivesthat if tbey kept this information
about what has now become the "bail-out proposal" to themselves, and if they
failedto communicate it to anyone in the local O; regional or national government,
then the impression they were giving was one that could be guaranteed to
stimulate the worst impressions as to their intentions? 1invite you, Mr. President REJOINIIER OF MR. HIGHET 347
and Members of the Court, to go hack through the Annexes to Mr. Clare's
affidavit (No. 15)to the United States Memonal with this point in mind.
1sit fair, now, in the last hours of its case, for Applicant to assert vehemently
that Raytheon "had modefirm commirmenrsto pay ELSl's workforce and to
provide any assistance necessary to meet other obligations as they came due"
(o. 333. suera)? These commitments were not known to the Italian Government
it the tirné,they were never really mentioned in the pleadings and affidavits, they
are not supported by evidence: not hy a letter, communication, contract,
agreement, writing, telex, cahle, memorandum or any other document whatever
communicated to anybody anywliere in the world outside Raytheon, or even
outside of a small circle within Raytheon.
These "commitments" were never communicated 10 the Court other than hy
pleading. Where is there any first-hand evidence of their existence? Why should
Applicant, goaded perhaps by the financial disclosures las1week, now he able to
turn around at the las1 minute and say, "Well, we never gave anyone cause ln
requisition the plant. It was arbiirary, and even in had faith. There was no
justification whatever. Why, we at Raytheon had undertaken to pay everything
until the orderly liquidation came to a successfulend", as indeed il would have.
Now, it is not as easy as al1that. 11is no1as rational, it is no1as crystal-clear
as that. The plain fact of the matter, Mr. President, is that this situation would
he entirely different if the "commitment" had been expressed in some manner
capable of verification today, and particularly so if it had been meaningfully
communicated outside Raytheon before the requisition. It is really a matter of
common sense. It iurns out that what was communicated was a very different
message indeed, and it was communicated in 800 separate envelopes.
In short, it is reasonahle to conclude that Raytheon and Machlett brought the
disasters on themselves: no1merely by bad management of ELSI in the preceding
years; not merely hy creating a horrendous deficit situation; and not merely hy
close and hard dealing with the concerned ltalian authorities right up to the las1
minute. Raytheon did al1of those things.
As a result, Rayrheon irselfruptured the chain of cause and effect. Raytheon
irselfwas a contributing factor. But for the actions of Rayrheon irselfwe cannol
Say that the tragedy of ELSl would ever have occurred. But for the positions
taken by Rayrheon irselfwe cannot say that the Mayor of Palermo would have
ordered the reauisition.
Raytheon itielf was at least then sufficiently entangled in the chain of cause
and effectsoas to shift the hurden of proof in this case hack where it belongs-
to the esoousine Government. to the United States.
Thc ~b~li~inli h.15nui siistainc<lth:it hurdsii.
The Couri CJnthcrcforc. in uur ,ubmi,sion. no1pcrmit lii~lIo be found Iidhlc
fur violatine3 1rC31\.. hen A~riiic~nihxs hilcd Io shou ihai it uasnot RGiirhroti
irselfthat h>d a criiical influ&ce on the matters underlying these procee&ngs.
By bringing this affair down on its own head, like Samson in the temple,
Raytheon may have achieved a kind of fame. 11certainly did acquire the ahility
to request its Government to press a claim that it then perceived as being its
own, and that it would not othenvise have had.
But in the course of so doing, Raytheon and, with respect, Applicant itself,
have neglected the first principles of international litigation. They have advanced
a case without the requisite proof - one that must, at the very least, remain in
a state of unconvincing balance. 11follows that it must, at the very least, he
decided in Respondent's favour. REJOINDER OF PROFESSOR LIBONATI
COUNSEL FOR THE GOVERNMENT OF ITALY
Professor LIBONATI: Mr. President. distin~uishe- Members of the Court. mv
inicrvcniion will relate IO four mdjor points in ihc asceriainmcni of ihc t'acii
connecicd wiih ihc ELSl cilu. The subm~siionh3s ken preparïd incolhhoration
wiih Pri>FïssorBoncll 2nd wiih our linancial üd\~scr. Mr ll:i)\iard.
1. These points are:
(i) the state of insolvency of ELSl long before 31 March 1968,and the state of
insolvency of ELSl in the admissions of ils own officers;
(ii) the story of extrapolation of the 31 March 1968values;
(iii) the tale of the ordinary liquidation;
(iv) the incoherences in the Applicant's assumptions when related to the facts.
2. First point.
ELSl suhmitted ils accounts to Coopers & Lybrand for audit as a necessary
procedure for Coopers & Lybrand's examination of Raytheon's group accounts.
We must assume that Coopers & Lybrand raised a whole senes of potential
adjustments, some of which were accepted by the ELSl management, and others
which werenot.
A. The adjustments posted hy ELSI - see second column on page 3 of the
Coopers & Lybrand Report (p. 432, infro) - hrought 2,200million lire in further
losses. The audited loss for the year ended 30 September 1967, amounted thus
to 4,882.8 million lire, resulting in a shareholders' deficit (with capital, reserves,
etc., already lost) of 881million. ELSI was therefore insolvent.
In this connection il mus~-~e-oointed out~al o~ce - and 1shall return to this
matter later - that Italian commercial law requires that the officialaccounts of
ltalian companies submitted to shareholders and other parties should be preuared
with "chiareua" and "orecisione". claritv and exactneis. Moreover a fundamen-
ta1 concept of Italian accounting - seeihe criteria of evaluation estahlished in
Article 2425 of the ltalian Civil Code - is "prudence". Accordingly, the adjust-
ments made by Coopers & Lybrand in following the accounting policy of Ray-
theon should also have heen reflected in the official accounts of the company,
and neither ltalian law nor ltalian tax regulations would have prevented this
"prudent" basis of accounting, contrary to what one would helieve from MI.
Lawrence in his testimonv of Mondav.
Accordingly, the sharekolders shoild either have reconstituted the capital, or
the company, as a result of the undisputed deficit, should have been declared
bankrupi.
The Italian Civil Code, which deals with the rules applicable to companies with
a share capital, imposes a minimum capital for such companies (socirti per
arionij, formerly 1million lire, presently 200 million lire. As soon as the capital
of a company has failen below this minimum as a result of losses,ils shareholders
must either reconstitute the capital or mus1put the company in10 liquidation (1
recall in this respect the observations of the Respondent in its reply to President
Ruda's first question (p. 455, infra)).
For the shareholders to h-~e~ ~tled to decide to iiauidate. however. thecomoanv
must still be solvent - i.e., not in a shareholders' deficit atuation. ibis is to say,
a company which has shareholders' equitybelow the legalminimum, is a company REJOINDER OF PROFESSOR LIBONATl 349
which mus1 be recapitalized or put into liquidation, but which, since il is still
solvent, is not required to file for bankruptcy.
When, however, the total losses of the company exceed the total capital and
reserves, then there is a stockholders' deficit and the company has no means of
meeting its obligations in a regular manner. The company is "insolvent" and, in
terms of Article 5 of the Bankruptcy law, must be declared bankrupt.
According to the audited 30 September 1967 financials, ELSI was in deficit
and insolvent. It should thus have been declared bankrupt, sinceils shareholders
did not decide to reconstitute the capital.
Italian courts have repeatedly decidedthat there is no support for the opinion
according to which insolvency and bankruptcy of a businessman cannot be
de~la~e~ ~f the failure has not been shown bv non-oavment of liahilities. On the
COI~I~~T)..the ~ituati<~noiin,ol\encv rub$i,tr dnd <.inhc dcclarcd b) ihr.Tribunal
c\tn ifihrre h:i\ hccn nd suspciisi<inin p1)menta oi:imuunls duc. This is rx:icily
ELSl's case.
B. According to Coopers & Lybrand the losseswere howevergreater than the
oues expressed in the Company's adjusted accounts (column 3), and the Com-
pany's deficit was much greater than 881 million (an amount already sufficient
to make ELSl insolvent and obliged to file a petition for its bankruptcy).
Thiscan be seenclearly inthe Report deposited with the Court by the Applicant
on Friday, 17February 1989.The auditors in fact observed that:
- the inventories were overvalued (see Coopers & Lybrand
Report, p. 2, sub. 2) by L. 453,300,000
- the fixedassets stated in the balance sheet included revenue
expenditure disallowed by the Italian revenue authorities,
therefore an amount not related to fixedassets.Thus, it was
necessary to subtract L. 463,600,000
resulting in a total of major lossesof L. 916,900,000
ELSl'r I,)\sr.\xt30 Scpicnibsr l'JO7iiçrc thu,. ax,>rding io ilic niidii,ir,. 'llh.9
million lire greÿier ihln whdi wa\ ,taiçd in the adjusicd aisouni.
The i.itlllo\s hr ihr.\car cndcd 30Seriiemher 1967re.ill) aniùuriicd i<i5.799.3
million lire.
This means that - in the opinion of Coopers & Lybrand - the ELSl stock-
holders' deficit,al 30 September 1967,amounted to 1,798.2million lire.And, on
31 March 1968the deficit had inci-easedby a further 1,068.7 million lire.
Further, the auditors also expressed an inability to satisfy themselveson the
value attributed to price adjustments on the supply of klystrons in the amount
of 251.6 million lire(see note 2, point (a)). ELSI's lossess were thus probably
even higher than 5,799.3 million lire and ELSl's deficit was even higher than
1,798.2million lire: ELSI's insolvency was evensurer.
3. But - Mr. Lawrence tells us, as noted earlier in my submission - we
cannot make reference to the adjusted accounts. The adjusted accounts were
drawn up according to American accounting criteria. In ltaly one would adopt
different criteria, on a less prudent basis.
According to Mr. Lawrence there are two truths. One, the real and prudent
one. which is told to the American oarent comoanv: and another. ohviouslv
basid onan incompleteevaluation of the facts, &od io'rthe creditorsand ltaliai
authorities. However, Article 2423,paragraph 2,ofthe Italian CivilCode States -
as 1have said earlier - that
"the balance sheet and the profit and loss account mus1 demonstrate
clearly and accurately ('conchiarezza e precisione']the company's position350 ELETTRONICA SICULA
with regard to its assets and liabilities and the profits made or losses
sustained".
The Italian courts have repeatedly applied, in decisions conceming balance
sheet presentation, the principle of "truth" as a principle of public order. The
Italian courts have further held that every evaluation must be made with "pru-
dence": the very concept that is followed in the adjusted accounts of ELSl
presented to the shareholders for their group accounting purposes. Further, al1
of the adjustments proposed in column 2 of the audited accounts should have
been reflected in the "official" accounts. ltalian law indeed requires that the
adjustments should be booked in order that the "official" accounts expressclearly
and accurately the financial position of the company.
There is no doubt, therefore, that ELSI, as an ltalian company, had to tell the
truth, Le., the "real" truth, to its ltalian creditors as well. Any prudent director
would have noticed at once that the values sueeested bv Coooers & Lvbrand
çorrcspiindcd u,iih ihc iruc po,ition. and ihai 6) no1 imkcdiaicly prr.rcniing a
pciiiion in h~nkruptcy ELSl's cctinumic and hnxncial diÿricr would only haie
ken aggra\arcd, as indccd itWJS The dircciors kncu Torcramplc ihai:
- ELSl's accumulated operating cash flow deficit from I October 1962through
31 March 1968amounted to a negative position of 14,309.7 million lire (see
Arthur Schene'sAffidavit,Ann. 13to the Memorial, 1);
- The directors knew that ELSl's product line contribution was negative for the
year ended 30 September 1967 by 976.3 million lire (audited accounts as at
30 Seplember 1967):
- Thc directors kneu.th;it liLSl's currcnl Iinbiliiicsc~cccdcdils currcni asscis ai
30Scpicmbcr 1967 hy 1,400.?million lire.sciurding Io ihr "prudeni" account-
iny of Coopsrr 8: Lyhrand. Thir mcani thai io riay. . ïIIthe curreni Iiahilities
further funds were nieded.
One cannot therefore imagine for a moment that the legal minimum provided
by Articles2447and 2448of the Italian CivilCode wasa matter to be determined
by reference to the officialaccounts of ELSI, which we know did not present a
true and fair view of the financial position. And it strains belief to aRrm that a
state of insolvency well known to the parent company, well known to the
directors, had 10 be concealed from creditors, from the ltalian authorities, and
indeed from every other authority.
4. The consequence is very simple,and it is of the utmost importance in this
case.
If ELSl was in a state of insolvencyon 30 September 1967;if ELSl's staie of
insolvencywas aggravated, as we know is sure, on 31 March 1968;then there is
absolutely no point in discussing the eiïects of the order of requisition of 1April
1968,on the later bankruptcy.
Il siands to reason that the order of requisition of I April 1968cannot be the
cause of the situation that already existed for many months.
5. Now 1come to my second point, the "very curious case of the balance sheet
extrapolated from a balance sheet of six months before".
Mr. Lawrence (seep. 130,supro)has accepted that ELSl's management extra-
polated and prepared the halance sheet of 31 March 1968,using the balance sheei
of 30 Septembcr 1967,as a premise. Mr. Lawrence has also stated that his firm
did not carry out an audit in March 1968.
The procedure followed was most peculiar.
"The balance sheet at 31 March 1968,was prepared on a basis consistent
with the valuations in the Coopers & Lybrand audit report of 30 September REJOINDER OF PROFESSOR LIBONATI 351
1967,using actual ELSI accoiinting records through 31 December 1967and
a conservative extrapolation ti)31 March 1968."(SeeMI. Schene's Affidavit,
Ann. 13to the Memorial, 1,p. 133.)
This means
- that there were no accounting records for ELSI for three months, from
1January 1968to 31 March 1968;
- and that the balance sheet was prepared on hypotheses and estimates which
did not respect the concept of "prudency".
It also means that no account was taken of the audited adjustments included
in the audited financials at 30 Septemher 1967.
Mr. Lawrence'sconclusions are based on the assumption that (p. 324, supra)
"The achieveinent of the values tliat 1have arrived al relies on the premise that
there would havebeen an orderly liquidation."
This hasis requires lime to find a willing huyer or huyers for the husiness or
the business lines.
The fact
- that ELSl had los18,451.5 million lireover the years;
- that ELSl's product line contrihiition was negative inthe sole year 196710the
tune of 976.3 millionlire;
- that in the six months ended 31 March 1968ELSI lost 1,068.7million lire;
- that ELSI had "fired" - as MI. Clare says - 800 workmen on 31 March
1968;
- that ELSI had closed the plant;
- that ELSI was not a continuing business, neither in an operational nor in a
financial context;
al1 this appears to have no effect whatsoever on the unwavering, but totally
unsupported, convictions of the Applicant.
6. But there is more.
There has been a dehate about a valuation on a going concern hasis or a
valuation on some other basis.
Mr. Lawrence in his testimony of Monday (p. 321, supra) stated clearly that
in addressing the question of valuation the issue was not whether ELSl was a
going concern on 31 March 1968,on 30 Septemher 1967,or on any other date,
and that his evidence relied on no such premise.
However, if we look to Mr. Lawrence'searlier testimony of 16February 1989
(p. 128,supra) weknow clearly that his valuation was hased on the saleof ELSI's
husiness, and for that reason, according to Mr. Lawrence, there was "a real
prospect that intangible assets would have realized a suhstantial value".
MI. Lawrence also explains that the goodwill of the husiness included the
henefit of the continuine husiness connections. and indeed we understand that
due to the well-trainedand technically competent workforce (which had been
dismissed on 31 March) and the strong technical hase (despite the huge losses
accumulated over the years) there weréparticular features-which shoÜld have
commanded a suhstantial premium for goodwill.
Moreover, in discussing the fixed assets, MI. Lawrence recalls the appraisal
carried out bv Mr. Puelisi, ao~ointed hv the Tribunal of Palermo as a technical
consultant tithe hank;uptci MI. Lawrence says that in his opinion "the Puglisi
appraisal . . .provides an appropriate hasis for estimating the realizahle value of
ils fixed assets" (p. 125,supra).
MI. Puglisi describes hisapproach to the appraisal exerciseas follows:352 ELETTRONICA SICULA
"This report . . .is designed to determine the current market value of
ELSl as a whole; if sold to a third party which intends to operate the facility
without substantiallychanging the nature of its products or mode of manu-
facture. All valuation criteria applied mus1therefore be seen in the light of
this concept." (Unnumbered Documents, enclosure 111-41,11,pp. 353-355
[P. 911.)
Therefore, MI. Puglisiconsidered ELSl's facilitiesas a goingconcern. This can
also be seen from what Mr. Puglisi says in connection with the critena for the
appraisal of machines and equipment
"The consultant furthcr maintains that, in viewof the intended purpose
of this survey, the appraisal of the machines, equipment and tools must also
take into account that the said equipment and machines are for use in
production lines, in testing and quality control." (Ibid., [pp. 91-92].)
1still quote from the ap..aisal of Mr. Pugli.i:
"ln CACIth . e rriïle wluc auuld cume out difirrni if thr equipment wuuld
h! si)ldto third pdrties notas aeomplete s)strm but indi\idu3lly. as ssparate
componenti without funetianïl interrrelïtion." (Ihid., [p. 921.)
The conclusion is that Mr. Lawrence has assumed that the assets of ELSl
could be disposed of on a going concern hasis, and on such premise - whatever
he says - he bas taken his valuation and, indeed, given value to goodwill.
But that was not the situation of ELSI.
No names of prospective buyers have ken presented by the Applicant. Mr.
Adams admitted to recalling no confidential discussions with prospective buyers
(p. 41, supra). The plant was closed. The workmen were dismissed.There is thus
no real support for the contentions of Mr. Lawrence. And the Respondent does
not need to say more.
7. Let us move on to my third point.
The Applicant is adamant on the idea of an orderly liquidation. "As the record
amplydemonstrates, there wasan orderly liquidation plan and the orderly liquida-
tion plan would have worked." (P. 292,supra.) "Raytheon and Machlett formu-
lated a specific plan for the execution of the liquidation." (P. 293, supra.)
Mr. President, it is not true.
The Applicant should read the witnesses'depositions with greater attention.
Mr. Clare - (see p. 63, supra) - clearly stated that plans for an orderly
liquidation "were not in place" at the time of the Board meeting at which it was
decided to liquidate ELSI, i.e., 18March 1968.
And this, Mr. President, is obvious.
In Italy, as in many other countries, volunlary liquidation follows a specific
procedure. It must be decided on by an extraordinary shareholders' meeting; it
mus1be carned out through a special organ, the "liquidatore", appointed by the
shareholders or if they fail to do so, by the Tribunal (seeArt. 2450, ltalian Civil
Code). In the case of ELSI, there was a Board meeting on 18 March 1968,and
a shareholders' meetingon 28 March 1968, but no "liquidation" was decided,
and no "liquidatore" was appointed.
Thus, it is obvious that the "fantastic" orderly liquidation is based on an
equally "illusory" liquidation plan.
What is significant is that in the minutes of the Board meeting and of the
shareholders' meeting the word "liquidation" ("liquidazione") never appears.
The Board simply decided that "production will bc discontinued immediately",
and "commercial activities and employment contracts will be terminated on
29 March 1968" (Ann. 31 to the Memorial, 1).The shareholders simply decided REJOINOER OF PROFESSOR LlBONATl 353
that "the company cease operations", and that the Board of Directors - no1
the "liquidatore" - was empowered:
"to make contacts with the banks and ~nnci~al creditors of the comDanv
IO rcaih ïn agrccmcni on ihc proccdur~~sto ix fullowrd to dispose oi thé
conipany's asscts in an urdcrly mïnner and at ihcir highcst rcïliwblc value
in the inicrcsts ol'all creditors" (Ann. 32 io thc 4lcmonï1, 1)
Thus production was to bediscontinued; commercial activity and employments
contracts were to be terminated. The comoanv was to cease ooerations.
But this means that in the Directors' and shareholders' opinion the business
ceased to be an operating entity, aiid became a collection of assets to he realized
piecemeal. At the hest price of course; but in a manner that does no1 need a
plan, and is carried out on a daily basis and, most importantly, requinng the
understanding (to the extent of some 50 percent of their outstanding debts) of
the creditors.
The Respondent has already shown that the option of an orderly liquidation
was not ooen to ELSI. since its accounts exoressed its clear inahilitv to oav ils
.~ ~ , .,
dcbt, .rhe'~cs~ond~ntnou cmphasilcc thst Lhcn the queiiion ~3s diicusscd hy
FLSI. no Iiquiddtion plan \ras in pidie. no "liquid.iiorc" u.ii :~pp,iintcd,and the
uurd "liuuid;izionc" ~"liuuidation"i !vasnot cicn uscd. Th~s. thc urdcrh liuuidÿ-
tion is reky a legend,'as6phismcreated when no liquidation, neither su<sta~tially
nor formally, could in fact take place.
8. Let us go on to my fourth and last point.
The Respondent is still awaiting for the Applicant to provide some sort of
coherent evidence that ELSl was still in a state of solvencyon 31 March 1968.
ELSl had lost billions of lire over the years, was out of money and could pay
neither its creditors nor iis workmen. Therefore. when the Aoolicant states that
ELSI was a technologicaljewel, it cannot senously pretend <;base al1its argu-
ments on siatements made by representatives of the very company seeking dam-
ages, statements which are moreovcr contradictory and incongruous.
The Resoondent has h~ ~ve~ indicated. ad abundantiam. numerous circum-
stïnccs dcnionstr~ting ihc real situation of ~1.~1The ~~~lic;inth<rstricd Io rcply
io ihc Rcspondcnt's demonsiratiiinc of the Facisbut in a vers incllhiive way. A
few examples will be sufficient10demonstrate this.
A. The premise is that ELSI had becn losing billions for years.
1do not want to repeat the fantastic figures of ELSl's losses throughout the
sixties.
1 would like to recall only that the accumulated operating cash flow deficit
from 1 Octoher 1962through 31 March 1968amounted to a negative position
of 14,309.7 million lire, thisenormous amount of funds having heing swallowed
in the disastrous trading operations of ELSl (see Mr. Schene'sAffidavil, Ann.
13to the Me~o~ial~ ~ ~ ~ ~
1would liketo re&ïitoo that for the year ended 30Septemher 1967the product
line contribution of ELSl was nerative for 976.3 million lireand could thus not
cover the general manufacturing marketing and administrative expenses and
financialcosts (seeaudited accounts as at 30Septemher 1967).This is insolvency.
Any reasonahle person must thus conclude that the product lines of the
insolvent ELSl cannot be considered to be of any great value.
The Applicant affirms, however, that "ELSl's product lines utilized topof-
the-line technology, that they enjoyed solid markets throughout Europe", etc.
(p 294, rupru).
What nobody undcrstnnds isuhysuch a icchnoliigicaljcwclcould only produce
losscs. But where is thc evidcncc for thc Applicmi's affirm3tion' Only the words354 ELETTRONICA SICULA
of Raytheon's officers.All other opinions - for example, those expressed in the
Affidavit of Mr. Ravalico and of MI. Busacca (see Docs. 14to the Rejoinder, II,
and 44 to the Counter-Memorial. II) - must of course be ignored.
It is a very simple and comfortable way of arguing, MI. President. Unfavour-
able evidence is simply disregarded.
But there is the admission of ELSl's own management made hefore litigation
began, and therefore not open to suspicion. In my first pleadings, 1stressed the
Project for the financing and reorganization of the company (see Ann. 22 to the
Memorial, I), because it is a document drafted prior to ELSI's final disaster and
the.start of litigation.
In that Project we read that "the present range of products are beginning to
come under significant market pressures" (Ann. 22 to the Memorial, 1, p. 214).
"Without additional help heing provided both from Raytheon and from
ltalian Government agencies .. .the annual sales turnover of the present
product ranges cannot do anything but decrease. This is particularly so in
the case of the cathode ray tubes line where the advent of colour television
in a few years' time will have a very significant etTectindeed." (Ibid.)
The words are polite; but the meaning is sure. ELSl was out of the market.
The Applicant now speaks about colour television laboratories in Palermo
(p. 295, supra). But also on this matter the Project is strict. "lt would certainly
be quite uneconomic to try to extend this line and create a colour tube facility
in Palermo" (Ann. 22 to the Memorial, 1,p. 214).
The project was presented by ELSl in May 1967. The words are chose of
ELSl's officers. Do we need any more proof of the fact that the Applicant's
efforts to attach a high value for ELSl's ohsolete products are useless?
B. With the permission of the Court, 1 would like to make one more obser-
vation.
The Respondent noted that the famigerate cathode ray tubes were made with
glass hrought from Russia. The Respondent has quoted the Affidavit of MI.
Ravalico. The Applicant says that this is no1 true. In it's opinion the "tubes"
were hought in Germany or France (p. 295, supra). Whether MI. Ravalico's
"glass" is the same as the tubesjust referred to is not a question of interest. No
evidence has been, however, provided by the Applicant to clanfy this point.
MI. President, it is perhaps inaccurate - as the Applicant has contested
(ibid.) - to quote an affidavit; but it is certainly inaccurate to quote nothing.
Moreover, the ahove-mentioned Project for financing and reorganization
stresses the need for financial help for transport costs (Ann. 22 to the Memonal,
1,p. 224). Evidently, regardless of its place of ongin the total raw material cost
was uneconomic to the Sicilian company. ELSl's own officershave admitted the
same.
C. Things do no1 appear diîïerent if we discuss semiconductors, the product
line of ELSI second in importance. The Applicant suhmits that a certain TAG
of Zunch implemented a profitable transition from germanium technology to
silicon technology. Therefore - the Applicant argues - the semiconductor line
of ELSl was excellent because it could be converted from germanium to silicon
technology.
Unfortunately, TAG of Zunch is not ELSI of Palermo, and nobody can deduce
successfor an economic disaster like ELSl from events connected to a company
situated in oneof the nchest and industnally strongest areas in Europe. Moreover,
ai the moment of the dismissal of the workmen - 28 March 1968 - there was
"only an attempt in progress to produce silicon diodes" (see the Affidavit of REJOINDER OF PROFESSOR LlBONATl 355
Engineer Busacca,who was al the head of ELSl's microwave tube design depart-
ment until 29 March 1968(Doc. 44 to the Counter-Memorial, II).
This forecast of ha~w results was still onlv a dream.
Thc conilusion ii chai th< Apph:dnt hasn&i ,uh,iiintiated :ln! oi il\.\\sunip-
ii.>nsih.ii ElSI', Iinir<ilhusine,s hlJ i V~IL C1 Ic~siequsl ici~~ir~p0i:iir.dbook
ta1ur.sai 31 M3rch l9hX Su vÿlidiirgumcni ha, been put foru,arJ. Lu r.\idenïe.
no document, no figures have been fioduced. Once again only theories, only a
castle built on sand. The sole value that can be surely attributed to ELSI is the
one arising from piecemeal disposal of its assets through its regularly appointed
Receiver inthe bankruptcy.
The Chambera+urnedfrom 11.30 a.m. ta 11.45o.m.
9. One last small point.
According to the Applicant it is not possible to complain about royÿlties or
expenses for technical consultancies charged hy Raytheon to ELSI, because on
31 March 1968there was in ELSI's accounts an unpaid amount of US$521,653
for royalties, and an unpaid amount of US$143,763for consultancies.
The position assumed hy the Applicant is curious. The Exhibit C to MI.
Deitcher's Aiîidavit (Ann. 14 to the Memorial, 1) talks of US$1,273,653.49in
accounts receivable due from ELSl to Raytheon. Not such a small amount.
This amount was shown in ELSI'Sfinancials as a debt. Raytheon therefore
wanted to be paid that amount, and the Applicant asks now for damages which
include that same amount. What is the Respondent meant to say? That it is not
ELSI but the Respondent itself that Raytheon considers a lemon to be squeezed?
10. The Respondent does not think il necessary to Say any more about the
industrial, economic and financial situation of ELSI. The Applicant can repeat
yet again that "the Respondent has no1 presented any real disagreement on the
basic sequence of facts in this case" (p. 292, supra). Really, 1do not know what
more the Respondent must say in order to disagree. But 1want to point out here
that it is not only the Respondent, but the facts themselves that speak in dis-
agreement with the Applicant.
The Applicant knows it, and has recognized ils error on the question of the
solvency or insolvency of ELSI. It is true, he says, ELSl was unable to pay ils
debts; but nobody had to worry. There was Raytheon standing behind the scene
committed to backing its suhsidiary, assuring it of the necessary funds for an
orderly liquidation. All the discussions on bankruptcy are therefore useless; the
Applicant has produced no objeci.ionsto Professor Bonnell'sarguments.
1must apologize to the Court, as mus1many others.
- For the past 21 years nohody has understood that Raytheon was committed
to auything.
- ELSl's creditors did not understand this commitment.
- ltalian judges did not consider the commitment of Raytheon to pay anything.
- The ltalian banks never saw Raytheon ofïering money.
- After 21 years we learn that when Mr. Adams was saying that Raytheon was
not willing to put any more money into ELSI, he did not really mean this.
- When Mr. Clare said that ELSl was out of money, he did not mean it.
- What is curious, is that we have had to wait 21 years,
- more than 15years of litigation,
- one Claim,
- one Memorial,
- one Counter-Memorial,
- one Reply,- one Rejoinder,
- two weeks of oral pleadings,
- in order to learn of it.
MI. Highet has already stressed the incongruence of the case.
1 want only 10 recall how Raytheon appears and disappears, how Raytheon
savs it is readv to out or not out monev in ELSI. how theoarent comoanv~seems
tibe ready 1; imilement its'parental 'dutiesdebending on the circu&st~ncesof
the moment.
1want to further point out that the thesis of Raytheon's backing has come out
only after the production of the Coopers & Lybrand report, kept secret until two
weeks ago, which report put an end, once and for all, to the question of ELSl's
insolvency. Mr. Highet has already stressed this point, but 1 want to stress it
again, because of ils importance.
It is convenient, however, to examine one point of bankruptcy law.
We know that ELSl was in a state of insolvency. The Applicant suggests that
Raytheon was ready to back ELSl's orderly liquidation, to financially sustain its
subsidiary. Raytheon's commitment, however, is based only on words; there is
no documentas. proof: moreover, there isno document givinglegal rom to this
obligation of Raytheon to financially sustain ELSI.
ELSl's state of insolvencv. in law. is thus in no wav modified. 1do not wish
to disiu\> whcthcr or noi what the Appliçant now wyr kas dny grounds. I meïn
thdi the ,upposcd commitmçnt of Raythson, habing no lcgalsfict, leiivesELSl
in exactlv the same vosilion as before: out of money, not capable of vavin..its -
debts in a regular manner - regular manner in law,-not in iords.
According to Italian bankruptcy law and to many other legal systems, the
actual situation, in law, of the debtor must be taken into account in order to
decide whether it isinsolvent or not. The supposed commitment, with no binding
force, that the Applicant now says was taken by Raytheon years ago, has thus
no significance. It is a rhetorical way intended to distort the truth. And in any
case, ELSl still had to be declared bankrupt.
1 must aooloeize to the Court. but figures cannot be discussed in the over-
simplewayihatAPplicant would iike.where there isa loss, there is a loss. Where
there is insolvency, there is insolvency. And bankmptcy mus1be declared when
there is insolvency.
May 1recall one last time the figures, the principal figures, expressed in these
oral pleadings?
Audited losses of ELSl for the year ended 30 Sep-
tember 1967amount 10 4,882.8 million lire
- almost 5 billion
ELSI's adjusted audited shareholders' deficit at
30 September 1967 881 million lire
- million lire of 1967, ofcourse -
ELSl's losses according to the adjusted accounts
and audit qualifications at 30 September 1967 5,799.3million lire
- almost 6 billion -
ELSI's deficit according to the adjusted accounts
at 30 September 1967 1,798.2million lire
ELSl's losses throughout the sixlies 8,451.5million lire
ELSi's accumulated cash flowdeficit from I Oc-
tober 1962through to 31 March 1968 14,309.7million lire REJOINDER OF PROFESSOR LIBONATI 357
The Respondent is convinced that these facts, that now are tmly undisputed,
demonstrate:
- that ELSIwas in a state of insolvency long before 31 March 1968;
- that no orderly liquidation was open to ELSI,and that no orderly liquidation
was decided on, or prepared by ELSIat the time;
- that no causal relationship can be estahlished hetween the order of requisition
issued by the Mayor of Palermo and the hankruptcy of ELSIrequested hy its
management. DUPLIQUE DE M. CARAMAZZA
COAGENT DU GOUVERNEMENTDE L'ITALIE
1. PRÉAMBULE
M. CARAMAZZA: Monsieur le Président, Messieursles juges, laissez-moi
tout d'abord avouer que je suis en quelque sorte embarrassé par la technique
adoptée par la partie demanderesse au cours de sa contre-plaidoirie.
J'avais toujours pensé qu'un des principesfondamentaux de notre culture
juridique en tant que règle de droit naturel était le principe contradictoire:
I'audiarureet alfern pars des Romains, le «fair hearingn de lcommon lnw.
Un principe qui devrait se traduire, d'un point de vue procédural, par une
sorte de dialogue entre la partie demanderesse et la partie défenderesse, qui
répondent,àtour de rOle,aux observations, déductions etcritiques de l'adversaire.
Je m'attendais donc, en ce qui concerne les aspects du différend qui m'ontété
confiés,à ce que la contre-plaidoirie de mes adversaires eût tenu compte des
observations que j'avais eu l'honneur de présenter à ce sujet à cette Cour la
semaine dernière, tout comme j'avais cherché, en présentant ma plaidoirie,a
prendre en juste considération toutes les observations faites par mes adversaires
au cours de leur première intervention.
Jamais attente ne fut plus vaine!
Aussi bien M. Matheson que Mm'Chandler et M. Lawrence ont cru bon de
se passer de tout commentaire sur mes thèseset ont repris, dans la deuxième
phase de la discussion, une fois de plus, les mêmesmots (on pourrait dire à la
virgule près) qui avaient été énoncédans le mémoire, répété dsans la réplique et
réitérédsans la première plaidoine.
Est-ce que mes confrères de la partie adverse ont pensépouvoir adopter, aux
fins de la logiquejuridique, la règleissue du calcul algébrique, selon laquelle une
erreur répétée deux fois (ouun nombre de fois multiple de deux) devient vérité?
Franchement, je ne le crois pas.
Est-ce que mes considérations étaient tellement convaincantes qu'aucune ré-
ponse ne pouvait être donnée? Jedevrais alors renoncer tout simplement à ma
contre-plaidoirie. Mais ce serait vraiment présomptueux de ma part de penser
une chose pareille.
Je dois donc conclure, aprèsune nécessaireautocritique, que je n'avais pas été
assez clair dans mon exposépour mériter une réponse.
Je m'en excuseet j'essaierai donc, d'une façon aussi brève que possible, de
mieux m'expliquer aujourd'hui sur les quatre points qui m'ont été confiés, à
savoir les avantages pour le Sud, la protection de l'usine par la force publique,
l'ordonnance de réquisitionet le délaidans la décisiondu recours hiérarchique.
2. LES AVANTAGESPOUR LE SUD
J'avais affirmé.lors de maoremièreolaidoirie. aue la doléance.àce suiet. était
générale,vague et non pertiiente, et qu'aucune'preuve n'avait étéofferie Sur la
présentation d'instances formellesetde demandes aux autoritésiudiciairescompé-
icnics
'Itiuapprenons maintcnlini par ktpliidairie de \lm' Chsndlcr ei pr la réponse
csriic i une queriion posécpar M Schwchcl. qiic. conimc II rr'rulicJ'unc noic DUPLIQUE DE M. CARAMAZZA 359
en bas de .aee d'un des documents annexésàun affidavit de M. Sconelliti. r.dieé-
le luavril 1987,quelqu'un - on ne sait pas qui, on ne sait pas quand - avait
présentéune protestation -on ne sait pas à quelle autorit- pour réclamer les
avantages dont on parle. On ne précisepas exactement lesquels. Mais cela va de
soi! 11est encore a~~ ~médans la mêmenote en ~a~ de naee au'un ineénieuret
un expert comptable étaient, à l'époque,en train de travailler pour présenter une
nouvelle réclamation.Seul le cielsait pourquoi un ingénieuret un expert comp-
table et non pas un avocat!
En tout cas l'annexe à I'affidavit,après avoir donné toutes ces précisions,va
jusqu'à indiquer le montant de la réclamation: de 100à 300 millions de lires.
Nous sommes vraiment en plein royaume de l'à-peu-près.
Evidemment il s'aeit là de auelaue chose aue mêmele nlus aénereux des
iipiimisies ne pourrliit ,dInaiS coiisidcrcr comme une \3leur sürt "Et. cn cfl>i.
M. '>r(>pciliic iient p:is compte de ses chilfrc. dans son (.\alu~iioiic~iiiiiiil
a soin de le préciser.
Mais on se trouve sans doute en présenced'un excèsde prudence, d'un inanque
impardonnable de confiance dans la chance!
Heureusement, au cours dc ce procès,M. Lawrence a pu apporter un remède
à cette erreur du munugcmenr américainde I'ELSI et, puisque la valeur de cette
réclamation fantomatique étaitestiméeentre 100 et 300 millions, avec toute la
prudence et la pondération que sa profession exige, il a choisi le chiffre le plus
haut - 300 millions - et a inclus cette somme dans la valeur comptable de la
société.
Voilà la mesure pour apprécierles critèresdont M. Lawrence s'est servi pour
donner son avis sur la valeur de I'ELSI et que M. Libonati a déjàsoulignée.
IIs'agit là d'un papier de tournesol sur lequelje me permets d'attirer l'attention
de la Cour, sans pour autant me livrer à tout autre commentaire.
3. LA NON-INTERVENTION De LA FORCE PUBLIQUE
Nous avions préciséque l'occupation de I'usine par les travailleurs avait été:
1) antérieureà la réquisition;
2) pacifique;
3) symbolique;
4) toléréepar I'ELSI;
5) menéedans un esprit de collaboration;
6) conduite sans causer aucun préjudiceà I'usine(ci-dessus p. 184-188)
Nous en avions fourni les preuves appropriées, à savoir les arrêtsdu tribunal
et de la cour d'appel de Palerme, et nous avions énoncéquelles étaientles raisons
spécifiquespour lesquelles cesdeux arrêts constituaientune preuve privilégiéeI.I
y avait encore les affidavitsde MM. Bevilacqua et Maggio et le recourshiérur-
chiouede 1'ELSI a~i..en faisant une référence soécifiaueà la nériodesuivant la
rcqui~iii~in.csquiss;iit uiicdc~rription id!lliquc koquant I':irmo\phi:red'un don
Iittcr~irc ou Cu11club anglai. pluiùt que ccllc d'une umc r:iiagcc par une luiie
syndicale acharnée,comme on~voudrit aujourd'hui nous la présenter.
Chers confrères américains,soiivenez-vous de ce qu'écrivaitI'ELSI dans son
recours hiérarchique du 19 avril 1968: ((lesjours suivants [le 30 mars] un petit
groupe de travailleurs a errédans l'enceinte de l'usine sans toutefois provoquer
aucun incident »!
Nous 3ffirmioni donc cntrc autre^que. dans cctte siiuati<)niln'y a!,;iii Iiiu
aucun? intervention de 13 iorcc pilbliquc. Eh bien. aue nous a-t-on réoondu lundidernier?
Rien. R;C; de rien. M. ~atheson et Mm' Chandler ont continué,comme si de
rien n'était,à répéterles mêmeschoses. Que l'occupation avait commencéaprès
la réauisition.au'elle avait emnéchétout accèsà l'usine. etc.. etc. Choses aui ont
été prouvées êtreaussi loin de la véritéque possible, et qui sont en tout cas
démentiespar les déclarations de I'ELSIelle-même.
Pas un mot donc, pas un seul mot pour contredire nos arguments.
Que dire, Monsieur le Président? Encoreune fois, permettez-moi de me passer
de tout commentaire.
Avant de traiter ce sujet, je dois présenter,au préalable,des excuses a la Cour.
Ces excuses ont trait à un certain mélanee-ineuistique auquel. . vais devoir
rccounr conccrnani l'anglaisci lefrancais. Cela n'a ricn i voir a\cc le<Ikanglais ,,
tellemeni i la mode parmi la jcunesrz fran(.aise. m~isplui6i avec la C~IIIIIIOlobv
et le droit administratif.
Je m'explique mieux. Encore une fois, mes éminents confrèresde la Partie
demanderesse continuent à ignorer nos arguments, relatifs cette fois à l'illégalité
de l'ordonnance de réquisition.
Mais, à ce sujet, je crois qu'il y a un malentendu vraiment profond dû à la
différenceentre le systèmede commonlawet le systèmede civillaw, une différence
qui est particulièrement sensiblelorsqu'il faut aborder les récifs périlledu droit
administratif. Je m'efforcerai donc d'illustrer encore une fois le noint de vue du
Gou\erncmeni italien sous cet angle particulier. Nos adversaires'atlirmcnt que Ir
cardctcre arbitraire de l'ordonnance de réquisiiiondécoulcraiide la décisionJu
prcfct, dans Iaquellcon lit que rthe oiher isdcsiituie ofany ~uridicalsauw u,hich
mav iustifv it or make il enforceable». Je dois dire tout de-&te aue cette ohrase
est-une trks mauvaise traduction de la phrase italienne: «man& pertanio, ne1
prowedimento, genericamente, la causa giuridica che possa giustificarlo e ren-
derlo operante»,-qui pourrait êtreplus exactement traduite par «l'ordonnance,
d'un point de vue généralm , anque d'un fondement juridique suffisantqui puisse
la soutenir et la rendre effective».
De plus, il faut lire cette phrase dans le contexte général dela décisiondu
préfet:in civileest nisi tata legeperspecta consiliorevelrespondere. SiI'on procède
de cette manière, si on lit la phrase dans le contexte général,on constate qu'en
dépit du fait que dans le recours I'ELSI contestait sous de nombreux aspects
l'existence mêmedu pouvoir du maire de prendre l'ordonnance de réquisition
attaquée, le prifeeren a reconnu l'existence,affirmant aussi l'existencedes condi-
tions préalablespour I'exercicedu pouvoir. C'est-à-dire la grave nécessitépublique
et l'urgence (cf. réponses écrites aux questionsposéespar la Cour et qui ont
été déposée ce matin ').
Le préfeta toutefois niéque ce pouvoir ait étéexercécorrectement, car il a
jugéque le but poursuivi - a savoir la continuation des activitésde l'usine -
n'avait pas étéatteint.
Le préfetde Palerme, en accueillant le recours hiérarchiquede I'ELSIa donc
affirmé,à travers un pronostic fait à posteriori, l'existence de l'usage incorrect
d'un pouvoir qui était, en tant que tel, reconnu. Pour cette raison il a annulé
l'ordonnance de réquisition.
' Voirci-après, correspondancen,a85. DUPLIQUE DE M. CARAMAZZA 361
Tout cela semble être traduit par nos adversaires, si je comprends quelque
chose à la common law - et je préciseque je me hase essentiellement pour ce
point-là sur le fameux livre de Wade, AdministrativeLaw- tout cela -disais-
ie-semble êtretraduitDarnos adversaires nar un «auashine-for an unreasonahle
use of discretionary power of an act that was challenged as ultra viresby means
of an apvlication for judicial review». Car, dans la commonlaw, seul un acte
ultra viresou affectévar «an error on the face of the record» peut êtreannulé;
comme le disait lord Reid: «if a tribunal has jurisdiction to go right, it has
jurisdiction to go wrong. Neither an error in fact nor an error in law will destroy
its iurisdictionn IR. v. Governorof Brixton Prison ex p. Annuals .19681..C.,
p. 534).
Or la raison pour laquelle l'acte dont il est question, c'est-à-dire l'ordonnance
du maire, a étéannulé,à savoir une erreur de prévision, esttraduite par nos
adversaires. en termes de commonlaw. ..ar «le mauvais exercice d'un pouvoir
discrétionnaire». Mauvais exercice qui d'ailleurs ne conduit en comm& law à
l'annulation de l'acte que lorsqu'il est tellement grave qu'il rendcelui-ci «un-
reasonable» ou «arbitrary ».
Infact, as lord Diplockstares:
«not every mistaken exercise of judgment is unreaûonable [for] the very
concept of administrative discretion involvesa right to choose hetween more
than one possible course of action upon which there is room for reasonahle
people to hold differing opinions as to which is to he preferreda (W. W. R.
Wade, AdministrativeLaw, Oxford, 1982,p. 364).
En traduisant cette histoire de recours hiérarchique survenuedans un système
de civillawen termesde commonlaw, nos adversaires arriventdonc àlaconclusion
que l'ordonnance du maire était «ultra vires,hecause unreasonahle and therefore
arbitraryn. S'il en était différemment,semblent-ils dire, 11n'y aurait pas eu
d'annulation.
Li voili. Monsieur le Prcsidcni. OU CSI I'crrcur iond;imenr;ilc.
1.2sculccho,~ cx~cic,dani roui c-la, i'eir que le recour. h~Cr~rchiquçau pri'fci
doit êtreconsidéré dans cecas olutôt comme une «a~pl. .tionfor iudicialreview»
que comme un appel - «an appealn - (voilà une autre erreur de traduction).
La preuve en est que le préfet,en décidantle cas, ne s'estpas posél'alternative
«right or wrong?)) Mais l'alternative «lawful-unlawful?» (H. W. R. Wade,
précité, p.35).
Mais il faut penser qu'à la différencedes systèmesde commonlaw dans les
sytèmesde civil law,tels que le français et l'italien, la «judicial review» peut se
conclure avec l'annulation de l'acte administratif mêmesi l'acte est intra vires,à
cause d'une erreur de droit ou de fait. Et cela même sli'erreur n'estpas évidente,
ou n'est pas non the face of the record B.
Bien plus, dans le système français comme dans le système italien, un acte
administratif neut être annulé nourun mauvais exercice du ouv voirdiscrétion-
naire mZmes'ils'3g11d'~n n13u\,ms C~S~SICC 3biolumcni r~ironnilblc. Lc miluv~is
e\crci~cdu pouv,>irdiscr:ti<~nna~rc ne doit pa>ilçvïnir .~nreasonahlcn pour quc
1'3nnulaiion DUii5C s'cnsui\,rc Volli13 difkrencc cnrrc lei yirCmc\ cl voilà CL'
qui a causéle quiproquo.
Nous nous trouvons, dans le cas de l'ordonnance du maire de Palerme, exacte-
ment dans cette situation-ci: l'ordonnance était intra virescar le maire etait
compétent, commele préfetl'a très clairement dit. Lesconditions préalablespour
l'exercicedu pouvoir existaient, comme le préfetl'a également dit. Maisle maire
a commis une erreur de fait en évaluantmal les perspectives de succèsde son
initiative.362 ELETTRONICA SICULA
En commonlaw, ce genre d'erreur n'aurait jamais pu conduire à l'annulation
de la décisiondu maire car les simples erreurs d'appréciationdans l'exerciced'un
oouvoir discrétionnairene rendraient iamais un acte nul ou annulable. Leserreurs
d'appréciation dans l'exercice d'un pouvoir discrétionnaire, en common law,
rendent nul ou annulable un acte seulement quand elles sont tellement graves
au'elles rendent l'acteunreasonable.arbirrarv
Si cela est vrai, alors l'équationde la défenderesse«annulation à la suite
d'un recours en excèsde pouvoir = quashingof an acf asbeing ultra virebecause
of abuse of discrerionarvDowern est erronée. Est également erronéeI'équation
corollaire «annulation = 'arbitrariness ».
En conclusion, l'ordonnance du maire n'était nullementarbitraire, quoiqu'elle
ait été annulée, eltes exemules que M. Matheson a donnés lundi dernier m'aide-
ront à le orouver.
M. ~aîhçaon a parlé de pouvoirs administratifs, telsque pouvoir d'arrestation,
pouvoir de déportation, pouvoir d'imposition, qui pourraient êtreexercéspour
des raisons politiques.
Dans ce cas-là, a-t-il plaidé, est-il soutenable que, puisque les autoritésont le
pouvoir en question, son exercicene seraitjamais <arbitraire» même s'irleposait
sur des motifs politiques? C'est à cela, a-t-il dit, que conduirait la thèse du
Gouvernement italien (ci-dessusp. 329). Et voilà l'erreur, Monsieur le Président.
Voilà encore une fois une confusion de langagesjuridiques.
Dans les exemples de M. Matheson, il y aurait non pas un excèsde pouvoir
pour mauvais usage du pouvoir discrétionnaire, mais un débordemend t epouvoir.
Et si le maire de Palerme avait adonté I'ordonnance non vas nour les raisons
énoncéesdans l'acte mais pour nuire 2 Raytheon et ~acbleit ~u'~ourdonner les
avantages à I'IRI, dans ce cas-là, lui aussi, aurait commis un débordement de
pouvoir, et bien siir I'acte administratif serarbitraire.
Mais dans le cas d'es.. à moins aue les Etats-Unis ne veuillent revenir à la
ihCscde la i,i>uspiriw,iln').3 aucun dkh<)rdernr.nt II y a iuui simplemcni une
crrcur d'rppr2iiaiion <I;insI'cxcrciced'un piru\,i>iriIi~criiionii~ircrcscinnu.cc qui
cri hien loin ilc Droduir: un dcir arhirrairc. Celx dcco~le ir2r cldirr.mcni ~l'unc
lecture de toutes ies piècesconcernéesetsurtout de la lecture de la pièceen langue
italienne car, comme je l'ai dit, la traduction est erronée. Mais M. Capotorti
parlera encore de I'nrbitrarinescet après-midi etje ne veuxpas insister davantage.
Encore une fois, permettez-moi de le dire, mes adversaires ont fait la sourde
oreille. Comment peut-on, disais-je la semaine passée,prétendre à une décision
tambour battant quand, toute autre considération mise à part:
1) la partie plaidante n'indique dans son recours aucun caractère d'urgence, ne
souligne d'aucune façon le besoin d'une décision immédiatealors que la loi
accorde à l'autorité saisie centvingt jours pour décider;
2) la partie plaidante fait preuve d'un total manque d'intérêten présentant le
recours dix-neuf jours après et en déposantimmédiatementaprès une requête
de mise en faillite.
I'aurais été très intéress'entendre de la voix mêmede Me Bisconti les raisons
pour Iciqucllç.;.en iani qii'a\,ocatcl ionscillrr juridique dc I'EI.SIci dc Ra) ihron.
IIavüit jiigc bon de priparer un rr.L.uurshicrsrchiqus cn C;n\ani jiisqu'i seix
pages remplies de doctnne juridique, mais sans insérerune seule phrase, sans
insérer unseul mot pour souligner que la décisionétaiturgente pour I'ELSI. DUPLIQUE DE M. CARAMAZZA 363
\lalhzurcu~ement. 11ne nou, .irien dit i ce ,ujet. ci lesrcgle, ,triaes du contre-
intcrrutr;itoirc nous d;.ienJ~ient de lui puser des qucsriuns sur ce point
Fn tuut cas reste le Cditque M \I.ithc~61n a icnorc tui~lemcni le ~rublçme el
a continué, imperturbable,-à parler du retard Te la décision du pr'efet comme
d'un fait undisputed.
Monsieur le Président,si vous me permettez la boutade, j'ai l'impression que
si à la dace du Gouvernement italien comme oartie défenderessese trouvait ici
un .i;ironomc Jc nie; coiiip:iiri<>tcs. Cdlilie. accuG d'inipiitti. mcme apris Ir
iimoign.tge ,Ir'Ccipcrni~.enieiidu comme eipcrt. .M. Zldthciun continucrdii .idir:
que le soleil tourne autour de la terre et qu'il \'dgii li d'un * undi;piited lact .B.
Monsieur le Président,je crois queje dois m'arrêter là pour ne pas abuserde
votre patience et pour ne pas soustraire encore du temps à mes confrères de la
défenseitalienne.
Jc.nie bornerai ilunc, quani du^ puints que jc n'ai p.is eu Ic iempr d'c\r>quer.
.if.tire Ln rcni,,>.iI'cip<i,i quej';ii eu l'honneur de ~oiisfidire II seniainederni2re.
Pcrnicitcr-moi ~culenieni Je vou\ dire quc. p1:ii.ic.rdetant cette Cour iiCti Ir
plus grand des privilèges qu'un avocat puisse se souhaiter, surtout si, comme
dans mon cas, ilne s'agit pas d'un spécialistede droit international. DUPLIQUE DE M. CAPOTORïï
CONSEILDU GOUVERNEMENTDE L'ITALIE
M. CAPOTORTI: Je reviens, si vous le permettez, au sujet de l'interprétation
des accords d'établissementen vigueur entre les Etats-Unis et l'Italie, pour ré-
pondre aux affirmations faites lundi dernier par M. Matheson, coagent des Etats-
Unis. Mon intention est de limiter cette réponse à l'essentiel; en tout cas, je
voudrais bien traiter d'abord quelques problèmesd'ordre général quisontcontro-
versés.
A propos des objectifs poursuivis par le traitéde 1948, M. Matheson vous a
dit que les dispositions concernant le droit de propriété des sociétés étrangères
sur lesentreorises et sur lesbiens doivent êtreinterorétéesàla lumièrede I'obiectif
de I:proicciiun de. in~csi~sscnicnts.in.iepcnd3mment dc la qucition dc id\uir si
:ette proiccti,~nconriituc le but primaire ,iu seulsiiicnt l'un des but, du trliité:II
cause: Cette alternative n'aurait donc pas beaucoup d'importance. Nous restons,
par contre, convaincus que, s'agissant d'interpréter chaque traité danssonen-
semble, selon une méthode qui s'applique à toutes ses règles,le fait de qualifier
le traitéde 1948d'accord de protection des investissements plutôt que d'accord
d'établissementa sa relevance. C'est M. Matheson, lui-même,qui en donne la
preuve lorsqu'il critique la thèse d'une ((présomption contraire à la protection
des actionnaires étrangersde sociétéslocales)): en effet, dit-il, une telle thèse est
certainement inexacte quand il s'agit d'interpréter untraité ((which is designed
soecificallvto orovide orotection for foreien investments ». Voicidonc une consé-
quence imporiante prétend tirer deFencadrement du traitéde 1948dans la
catégorie destraitésvisant spécifiquementla protection des investissements.
EÏIréalité,ce que nous avions dit, c'était seulement qu'onne saurait présumer
l'existence dedroits subjectifsdes actionnaires là où des clauses conventionnelles
confèrentdes droits aux sociétésN . ous restons de cet avis, qui se fonde d'ailleurs
sur la lettre et sur l'esprit de l'arrêt BarcelonaTraction. Par conséquent, selon
nous. la reconnaissanc~ ~ ~ ~ ~io~naires de droits subiectifs ne saurait dériver
que de règles ad hoc.
Toujours àpropos de la structuredes articles, par lesquelslessociétésRaytheon
et Machlett nrétendent êtreoroté. .s.notre adversaire nous reoroche d'avoir.
d'unc niani&rcgCnérale.3\.3nsc I'oh~cctinnque ce, dispusiiionc c,>nccrnent de,
3:tes dirige5cnnire I'ELSI(ci donc conrrc une sociciéitalienne) ci non pas ~.nntre
ses actionnaires américains. Cela est inexact: par exemple, nous n'avions pas
exprimé d'objectionsde ce genre à I'égardde l'article III du traité, ou de l'article
premier de l'accord supplémentairede 1951.
Nous avons par contre mis en évidencele fait que I'article VI1du traité ne se
réfèrequ'aux personnes physiques et aux sociétésayant la nationalité de I'une
des o.rties contractan~ ~ ~ ~ ~ ~ ~ ~rouvent sur le territoire de l'autre. sans
s'étendreaux actionnaires de ces sociétésni aux sociétés localesqui sont leurs
filiales (ci-dessus. 228). Bref, nous avons étéfidèlesà notre critère de base, à
savoir que la structure de chaque article exige d'êtreinterprétée en respectantsa
singularité, sans qu'on puisse opérer de généralisationsur la protection des
actionnaires.
A propos des faits imputables à l'Etat italien, je suis franchement surpris de
constater que les actes de I'IRI etceux de la sociétéELTEL - qui a un rapport
d'affiliation avec I'IRI - sont encore compris dans la catégorie des faitsimpn- DUPLIQUE DE M. CAPOTORII 365
tables à l'Etat italien, avec la justification lapidaire que «IR1 is not only owned
and controlled b~ the Resoondent but it is an am and aeen- of the Resnon,ent ».
On 3ur;iii pu crpr:rcr qu'un dchüi scricux \'cng;igc. au sujet dc I'impuiation des
3ciC~3ccompI1spilr des SUJCl> ;iutr:s que les kt;iti. dlins Ir ciidrcdc la rCflcmcnta-
110nintcrnliiionalc concern;#nt Id reirioniiibilitc'do Ei;iis En ell;.r. nous iivitins
mentionné le texte des articles élabiréssoit par la Harvard School, soit par la
Commission du droit international des Nations Unies (ci-dessus p. 230). Mais
M. Matheson s'est borné à dire qu'un critère fondamental pour l'attribution à
I'Etat du comportement d'une entreprise «is whether that enterprise serves State
purposes, thus becoming a part of the State's apparatus)) (ci-dessusp. 326-327):
ce qui se serait, selon lui, clairement vérifiédans le cas de l'attitude de l'IR1 et
de I'ELTEL«in acquinng the plant and assets of ELSL » (ibid p.,27). L'orateur
a négligé évidemmendte considérerque l'achat de la fabrique de I'EI.SI fait par
I'ELTEL ne saurait êtrequalifiéd'acte correspondant aux buts de I'Etat qu'à la
conditiond'avoir établiau préalableque I'Etat italien poursuivait le but d'acheter
l'usine de I'ELSI (ce que nous contestons en fait ainsi qu'en droit).
Enfin. 2 propos du ;ar;ictirc icmpor;iirc ou Ji.liniiide Iï rr:qui;tion. le requ5-
rant üffirnicque tani IïriiesurcJc réquisition,le dé(.iutde re\oc:itioii de cc1acic,
I'~)ccupiitioiidc I'u\incId \cntr. de I'1:LTELd:ins Ic cadre dc la ~rocCJurc dc
faillite«were senous and irreversible intrusions inIo the essential rights and
interests of Raytheon and Machlett in the control and disposition of ELSI»
(ibid.). II arrive donc, par là, à établirles effets la réquisitionsur la base des
effetsde la faillite.
Qu'il me soit permis de répéterque: 1) l'efficacitéde la réquisitiondans le
temps ne saurait êtreétablieque sur la base de l'ordonnance de réquisition,dont
le terme final n'a jamais étéprolongé; 2) les actes ayant eu lieu postérieurement
n'ont euaucune influencesur la duréede la réauisition: 3)en oarticulier. la faillite
a été la conséquenced'und eemande des administrateu;~ de ELSI qSuIse fondait
sur l'état d'insolvabilité dcelle-ci; la faillite a donc ététout fait indépendante
de la réquisition.
Dans le nombre des dispositions du traitéde 1948dont les Etats-Unis affirment
Id violation par l'Italie, un rôle éminent revient à l'article 111.Nous l'avions
interprétéen employant les méthodesd'interprétation textuelle et fonctionnelle;
mais nous avions en premier lieu constatéet souligné(ci-dessus p. 216-219)que
le ~araeraohe 2 de cet article donne aux nationaux et aux sociétésde ch~a~ ~~
pÿriic contrÿctïnte l~r/<r<~ulcl.infomiémeniau\ loisst auh riglcnlciit\ en \~gucur
Jons le territoire dc I'auirr.p:irii<I'or,q<i,ttr. <,,trr<eted,rip<,ciesroiieiCi de
celle-ci,qui mettent en Œuvrecertainesactivités(commerciales.industrielles.et..). .
Le mêmeparagraphe donne en outre aux sociét'é contr6lées par les nationaux et
par les sociétésde chaque partie, et crééesou organisées en conformité aux lois
et aux règlementsen vigueur dans les territoires de l'autre, lafaculté de mettre
en Œuvreles activités susmentionnées. en conformité aux lois et aux rèeuements
cn \,ipur.ur.Juiqu'ii se poini. nous n'a\,<in>Fut que citer Ic icxic du pÿrÿgraphr.
cn quesiion, en onlsiiani uniqucnlrni I'cxprcssion lin;iie rclali~e ïux coniiition..
de traitement faites aux sociétés contrôlées.
M. Matheson a objecté que,contrairement au sens ordinaire ainsi qu'au but
évidentde cette disposition, le droit formel d'organiser, de diriger et de contrôler
des sociétés filialen'a été accompagné de notre part par aucune référencea la
prétendue«"operational" protection to the parent corporation from any inter-
ference with those rightsn (ci-dessusp. 329).En réalitéu , ne référencede ce genre366 ELETTRONICA SICULA
ne saurait êtrefaite qu'au-delà du texte de l'article III, paragraphe 2. C'est
entièrementen dehorsdu texte de cette disposition que notre adversaire a élaboré
l'idéed'une protection de la société mèrecontre toute interférence dans ses
activitésd'organisation, de contrôle et de direction, en ajoutant que ces mots
«necessarily imply a continuing right to direct the enterpnse and dispose of ils
assets)) (ci-dessus o. 329).
Nous ;,\,on, délhmis ïu clair ii Cgdrj.que lcdcm;inJcur Nit \oloniaircmeni
une r,iniu\ion :nirc I';iriiclcIII, p~rdgnphc 2.et I'ariiclcprcmicr de l'accord de
1951 Cc dernier oroicgc. ilchi vrai. les nation.iu\ ci le>sociétés <lechwue p3rlic
contre les mesurésn~ ~ ~ dans les territoires de I'autre oartie avant oour censé-
~ ~ , .
quence d'empêche lrcontrôleefecrifet I'udministrution des entreprises qu'ilsaient
établiesou achetées; mais ceci à condition qu'il s'agisse de mesu.es arbitraires
ou discriminatoires.
Au contraire. da.s~ ~article 111.naraera.he 2W .n ne s'occuoe oas de mesu. .
susccptihle~ J'cnirrver le sonirRlc ci I:t direction cfi~tii; J'unr filiale. pour lx
siniplc raisun qur ILIrcglc nc s'cicnd ph\ a Innotion d'inicri2rcncc dans ccr droii\.
En rialiié. I';irticlcIII. waragr3ohc 2. sc limite i ear3ntir ;lux wcieiis mercs cc
que notreadversaire q&lifie dédroit «formel» *organiser, de contrôler et de
diriger des sociétés filialesj:e souligne que ce droit n'est pas du tout formel. Les
côtés concrets de cette faculté coïncident plutôt avec l'aspect struclurel de la
réalité sociale:i, es~ ~x~rêmementimoortant. sur le olan nratiaue. aue les sociétés
mèresaient l'assurance de pouvoir librement rég~eri'or~~nisaiiondes filiales(par
leurs statuts), de pouvoir librement assurer leur contrôle (par la formation des
maioritéssuffisanies).de oouvoir librement aménager leur direction(oar l'entre-
. .
niisc dc, ïdminirtrsie~rj) Iiicn cnicndu. cci aspcci ~tru~iurclcsi aiiirc chi>>eque
I'ncii\iiéquoiiriiennc, 1113iS Ic Iihclli: de 1'arii:lc III, piragrdphc 2. pcrnict de
comprendre que c'est le premier et non pas la seconde qui forme l'objet decette
disposition.
D'autre part: est-ce qu'on pourrait admettre, dans la ligne indiquéepar notre
adversaire, une garantie de protection totale des investisseurs étrangers contre
l'interférence detoute autoritédans l'activitéeffectivede direction et de contrôle
des filiales locales, et cela en dépit de la condition de la conformité aux lois et
aux règlementsen vigueur? Evidemment pas. Nous avons déjà manifesténotre
contrariétéà l'égardd'une telle interprétation de l'article III, paragraphe 2, qui
nous semble absolument inadmissible. Nous aioutons enfin au'il faut éviter de
considérerle IibclléJe cet article i ir:i\.cr, des lunclics déformiinic~,du gsnre dc
ccllci LI soiii inipo>ci pxr I'idérf.i\c de la proir,crion dcs ~nie$ii\~rursCrr~ngers
Si <ininicr~rcic lx ri:clcen (1ucSl~on ç3ni cc genre de liinciic~, ilJc\icni plus iJ21lc
de reconnaître la difiérenceoui existe entre la facultéde contrôler et de dirieer
des associations (qui pourra'ient êtrede nature philantropique, religieuse8u
scientifique) et la prétendue obligation de non-interférencedans l'activitéquoti-
dienne de ces assoiiations.
D'autre oart. dans le cas d'esnèce.mêmesi on faisait découlerde l'article III.
~ ~ . , ~ ~~ ~~ ~ ~r ,
paragraphe 2, un droit de Raytheon et Machlett de poursuivre sans entrave leur
activité industriellepar l'entremise de I'ELSI, il ne faudrait pas oublier que cette
activitéa été arrê~é~ ~rla décisionde la sociétéelle-mêm avant aue la réauisition
ait eu lieu.
Un autre point qui a ététraité par M. Matheson dans sa plaidoirie de lundi
dernier concerne l'article premier de l'accord supplémentairede 1951, citépar
lui. orécisémentafi~ ~ ~ ~a~ ~rmeraue la réauisition ordonnée oar le maire de
Palernic éiaiiunc mesure srbiirairc (ci-desbui p. 3?9-331))
Permeiter-mol. Mcssicurs de kaCour. de prcndrc i.<ilunticrs3clc que Il dciense
des Etats-Unis n'a plus insisté sur leprétendu caractèrediscrimin&oire de cette mesure. En effet, la thèse de la discrimination mise en Œuvrepar les autorités
italiennes était nécessairemenltiéeBl'idéedu «complot» organisépar ces auto-
rités en vuede faire acheter à l'IR1 l'établissementde I'ELTEL, et cette idée
fantastique semble n'être plursetenue par nos adversaires. La matièrecontrover-
séea donc subi une petite réductioii,el je m'en félicite.
Mais les points de vue des Etats-Unis el de l'Italie sont encore partagésquant
au fait de considérerla réauisitioncomme arbitraire dans le cadre de l'accord de
1951seulementau motif qùelle a été annuléepar le préfetde Palerme. Laréponse
positive des Etats-Unis a été déjà critiqué deans ma premièreplaidoirie: ie me
suis fondésur une notion de mesure arbitraire qui a des connotations pr6ises,
c'est-à-dire les caractéristiquesd'un acte déraisonnable,capricieux et dépourvu
de toute justification, d'un acte coiiçu uniquement comme un moyen de porter
un préjudice injuste à quelqu'un (ci-dessus p. 229). Par contre, M. Mathcson a
cité des morceauxde la décisiondu ~réfetde Palerme oour affirmeraue I'ordon-
nancc de réquisition nc SC fondait Sur nucunc considéralionjuridijue mais SC
propos;iit simplement d'iill2gerla pression politique I<icalcM. Car~marza \oui
3.13rgsmcnlp3rli.dc cc sujet cematin mCme J';iloute. \i \(>uslc wrmette~. qu'atin
de démentirune telle affirmation (à part les Féponsesitaliennes aux questions
relatives à ce problème,poséespar la Cour), il suffirade signaler que:
1) Dans la décisiondu préfetde Palerme il n'est pas dit que la mesure de
réquisitionvisait uniquement un allégementde la pression politique locale. En
réalité,cette décisioncommençait par reconnaitre la compétencedu maire de
prendre la mesure dont il s'agit, ainsi que l'existenc- sur un plan théorique -
des conditions de grave nécessitépublique et de l'urgence, et précisaitpar la
suite que le but visépar la réquisitionne pouvait trouver sa réalisationpratique
par la mesure adoptée(contre-mémoire, «Unnumbered Documenls», II, p. 310,
pièce111-8[p. 113-1l4]/mémoire,annexe 76, 1,p. 362-363).
2) Cette précisionaide à comprerldre l'expression qui suit. Elle a ététraduite
par notre adversaire d'une façon, à notre avis, inappropriée(ci-dessusp. 329), à
savoir que I'ordrede réquisition étaidtépourvu de toutecausejuridique qui puisse
lejustifier et le rendre efficace; on doit par contre la traduire, et M. Caramazza
vient de le dire, par la phrase: «l'ordonnance est pourtant dépourvue,en termes
généraux,du fondement juridique qui puisse la justifier et la rendre efficace»
(contre-mémoire,~Unnumbered Documents», II, p. 310, pièce111-8[p. 11411
mémoire,annexe 76, 1, p. 362-363).
3) En tout cas, à la fin de la page suivant- après avoirdécritla situation de
l'entreprise, la réactionde la main-d'Œuvreet lesconditions de l'ordre public -
la décisiondu préfetajoutait des considérations sur la pression exercéepar la
presse (ibid. [p. 1ISllibid., p. 363).
II est donc absolument inexact de prétendreque le préfetait annuléI'ordon-
nance de réquisition au motif qu'elle était fondéesur le propos d'allégerla
pression politique locale. La mention de ce propos n'est qu'une considération
additionnelle, supplémentaire el certainement superflue par rapport au texte de
la mesure.
IIconvient d'ajouter,à l'égarddu fondement de la réquisition,que le maire de
Palerme avait placéau débutde son ordonnance sept «considérants», se référant
à un nombre correspondant de circonstances susceptibles,à son avis, de justifier
sa mesure, à savoir: la décisionde I'ELSIde fermer son établissement,les lettres
de licenciement, la réaction des syndicatset de l'opinion publique, le préjudice
pour I'économiede la province, les critiques de la presse, ledanger pour I'ordre
public, I'intérétéconomique général (contre-mémoire~ ,Unnumbered Docu-
ments*, II, p. 306, pièce111-2[p. 5-6]/requête,1, p. 39). Or, lorsqu'on essaied'établir si une certaine mesure a étéarbitraire ou non, la décision ultérieure
d'annulaii<in n: sdurÿii CtrcconsidtrCe suniiiic Ikiseule source d'iniornidiion II
cunvieni de tenir compte :iu\iidu icrtc de Id mssurc clic-mcmc, qiii rïtlcle la
m3nicrc de voir Id siiwütion wr I'autor~it apliflcc i prendre une ilccision. En
effet,la mesure de réquisition exiged'être évaiuée par rapport au moment où elle
a étéadoptée.
Ce critère s'applique aussià la question consistant à établirsi la condition de
la conformitéaux lois et aux règlements locaux (qui.figu-e dans le texte de I'ar-
ticle III, pdr3gr:iphc 2, du i~iité)pcui Arc considCrCercinplic dans I'hypoihèie
ou une mesure de 1'~uioritCs'x\cre Ctreillégdleet Avoir CIC ,innulLv.Je remxrquc
àcet égardque, comme il est clair, la mesure en cause c'étaitla réquisition; nous
n'acceptons pas que la réquisition rentre dans le nombre des actes prévus par
l'articleIII.C'est seulement, je l'ai déjàdit, I'article premier de l'accord de 1951
qui pourrait s'appliquer à la réquisition(si celle-ciétaitune mesure arbitraire, ce
que nous contestons), et cet article,à la différencede l'articleIII, ne prévoit pas
la condition de la conformité aux lois et aux règlements locaux. Cela dit, je
répondsà la question posée par deux observations.
La première: au moment où la réquisitiona été décidée e mtise en Œuvre,elle
était sans doute conforme à la loi, sous l'angle de la compétencedu maire et de
l'existence des conditions de l'urgence et de la nécessité:le décretdu préfetl'a
ultérieurement reconnu (contre-mémoire, «Unnumbered Documents)), II, p. 310,
pièce111-8[p. 112-114]/mémoire,1, p. 362-363). Quant au vice découlant de ce
que certains objectifsne pouvaient pas être atteintsparle moyen de la réquisition,
ilest évident que, jusqu'à ladate de la décisiondu préfet quia constaté ce vice,
la mesure produisait en droit italien les effetsjuridiques qui lui sont propres.
Deuxièmeobservation: la conformitéà la loi est une notion qui enelobe aussi
celle dc I'cxisicncede moyens de recours. Une meure cqi donc conliirnic iib lui
si le<ujciITappcpir un pr&judiccqu'ille d pro\oquC e.1 en inesure de (adresser
:i un iugc qui soii habiliirx rzdrcsscr le tortM. Matheson se pldint de 1'insul)i-
sancëpratique de cette solution, ou bien des inconvénients qu'elle peut présenter
(ci-dessus p. 330). 11a noté que cette solution ne serait pas en harmonie avec
l'article premier de I'accord de 1951 (ibid.); mais, je le répète, larègleoù figure
la condition de la conformité à la loi, c'est I'articleIII du traité, et non pas
I'article premier de l'accord supplémentaire.
Le demandeur a réitéréson point de vue d'après lequel l'article V, para-
graphe 2, du traitéaurait été égalemenvtiolépar I'ltalie, parce que celle-ciaurait
expropriéles biens de I'ELSI sans respecter ni la règlede «due process», ni celle
du paiement d'une indemnité juste et efficace(ci-dessus p. 330-3311,Dans notre
plaidoirie du premier tour, nous avons identifié trois questions à cet égard:
premièrement,s'il est vrai que la réquisitionordonnée par le maire de Palerme
rentre dans la notion d'expropriation (ci-dessusp. 221-223); deuxièmenenr,si les
actionnaires américains de I'ELSI avaient desdroits fondéssur l'article V, pa-
ragraphe 2, du traité(ibid., p. 223-225); troisièmement,si les conditions prévues
par cet article ont été respectéeosu non par l'Italie (ibid., p. 225-226).
Ouant à la nremièrede cestroisauestions. notre adversaire est, comme souvent,
trGsaiare d';xplicati,3ns:il,c limite l athrnier que<<undcr inicrn3iiondl Iau, the
xcis and omissions uithc Rcspondeni in ihis casccuniiitute a taking or cxpropria-
tion of orooertvn (ci-dessusD. 331).Cette oosition aurait le soutien d'une «ample
c\,idcncc,, ihd, .'en tout sas. l'i~ierpr~t:;iionJ13 rcglc sitCcirait dans le
que <<thcy pruteii propcrt) l'roman). unrca\iinablc intcrfcrsncs in ils usu,hcihcr DUPLIQUE DE M. CAPOTORTI 369
this be characterized as a "direct taking", "indirect taking" or "expropriation" »
\~~-des$"<nr.'..~,~
Nous ne pouvons que manifester notre surprise. Où trouve-t-on dans l'ar-
ticle V, paragraphe 2, la notion de unreasonable interference? D'autre part, à
supposer que les termes de raking ou d'expropriation soient absolument équiva-
lents, est-ce que cette équivalence s'étend aussi à la réquisition etau contrôle
temporaire des biens dont M. Matheson ne parle pas?
Et pourquoi notre adversaire persiste-t-il à nous dire qu'il n'y a aucune diffé-
rence entre raking et expropriation alors qu'il sait que le fond du problème est
ailleurs, se traduit par ceci: le mot anglais «taking» couvre égalementla réquisi-
tion (ci-dessus p. 330), tandis que le mot italien «espropriazione» ne comprend
pas la réquisitiontemporaire?
Nous restons donc sur l'idéequ'ily a des différencesréellesentre le texte anglais
et le texte italien de l'article V, paragraphe 2, ainsi qu'entre les deux textes du
protocole: l'un parle de cinterests held directly or indirectly »,l'autre de ((diritti
spettanti direttamente O indirettamenten.
On n'arrivera pas, je me permets de le penser, à surmonter les difficultés
découlantde ces différencessans recourir à la méthodeétablienar l'article 33 de
la con\,cntiiin de Vienne Je ne vcux pis nie rcpetcr i cc wjci En [oui 135. 11
rerÿii Ir;\ dificile de \ouienir qu'une rc~~uisirii~tempor:iirc, ielleque celleordon-
ncc par Ic mdirc dc i'.ilermc Iç 1" civrill9h8, rcntrc elTcciivemeniddn. le champ
d'a..lication de l'article V. .arar.,ohe 2
I>cu~ièincqueriton. cri-cc que Icsactidnn~irs~de I'EI.SItint .Ici droits li~ndés
sur la rcgle d<,niIIs'agit ! 1.a rtponre est ceriainement ntg,iii\e \i iin se Iiiiiiic
inierprcier I'ariicle V. p3ragra~h~ ? il ne ~rot6rc riiic les hien<dei n~tionliux ci
des personnes juridiques di èhaque dans lès territoires de l'autre (donc
dans l'espèce,les biens appartenant aux sociétésRaytheon et Machlett et non
pas à I'ELSI). Mais le protocole étend les dispositions du paragraphe 2, «qui
disposent le naiement d'une indemnité». auxdroits des nersonnes.iu~~d~ ~ ~,de . ~ ~~ ~
ihxquc partie sur les biens qui sont expropriésdans Icï icrritoirc\ de l'autrc. Ici,
on 3 aiLiirc encore une foi\ avec 13non-coïnc~dcnccdu tci;tc itxltçn .fiv:cle ICXIC
anglais: nous en avons déjàparlé.On a besoin de résoudreaussi le vroblèmeaui
JZ(i~uleJe I'cxprc,sion ~~i\positions qui disposent le pciicnieiii~'uncindeinnii;,>.
ainsi que le prohlcmc des droit, indirects rur Ics biens. M. M;ithesiin n'a fait nrn
d'autre que rcpctcr ion pciinide \,ut (ci-Jc$sui p. 3301;,ur ces points. au'il niiui
soit permis di faire de-méme, parce que noui estimons avoi; dit assez à leur
éearddans la nrécédentenlaidoirie.
I~roisième Gestion: es;-ce que~les conditions établies par le paragraphe en
question ont été rempliespar l'Italie? Notre adversaire a préféré ne pas dire un
mot à propos du respeci par l'Italie des règles de prokdure en matière de
réquisition,ni à I'égÿrddu paiement de l'indemnité liquidée par la cour d'appel
de Palerme. Son silence, ici, semble avoir été suggérp éar un certain embarras:
comment soumettre à la Cour une demande d'indemnisation qui fait pourtant
double emploi avec l'indemnitéperçue par le curateur de la faillite (à la suite
d'un jugement en trois instances)? Nous nous contentons de poser la question.
La dernière imputation que notre adversaire a reprise concerne la Drétendue
violation par 1'1iilicilc I'ariiill: V. p.irligaphcs I el 3, d.~traité,en ci,n,équenw
du d?f~utde protection Je, biens des socictcr dmtri~iincs iicti<innxircsdz I'FISI
Ce déiaui de proiccti<inicrJli drvcnu nialilfestc 3u nloment de I'occupaiion de370 ELETTRONICA SICULA
I'usine par les ouvriers: la force publique ne serait pas intervenue après la
réquisition (ci-dessusp.331-332).
Nous avions déjà objecté,dans notre plaidoirie précédente,que les para-
graphes 1 et 3 de l'article V concernent les nationaux et les sociétésde chaque
partie dans lesterritoires de l'autre: en l'espèce,lessociétésRaytheonet Machlett,
et non leur filialeitalienne àqui l'usineappartenait (ci-dessusp. 226). En présence
d'une affirmation faite par notre adversaire dans sa réplique écrite - à savoir
aue I'ELSIreu~ésentaitlesbiensde Ravtheon et Machlett en Italie - nous avions
prccis; dxns noire plaidoint qu'il est ineuci dc considérerune so:iCtc conimï
I'ohjeid'un droii ds proprict,: de sei actiunnairss: nous %\ionsrappel? 13 noiion
cl?mtntdire uu: les sitionn.iire ont plui5t un Jr<iitde !x~rti~'l~llolJ Iü h<>ilktk
dont ils sont'les associéset non undioit de propriétéayant pour objet la société
(ibid.).
M. Matheson a qualifié cette proposition d'« untenable» (ci-dessusp. 331); il
a dit aussi que «this would come as quite a shock to the shareholders around
the world, particularly those with 100percent ownership in a Company » (ibid.).
A notre tour, nous restons franchement choqués; à tel point qu'il nous semble
irrespectueux de rappeler que la propriétédu cent pour cent des actions n'estpas
la mêmechose aue la ~ro.rié.éde la société:deouis l'arrêt BarcelonaTraction.
nous croyions que la séparation juridique entre une société anonyme etses
associésétait entréeau nombre des connaissances acquises par tout le monde.
Monsieur le Président, Messieurslesjuges, cette remarque me donne l'occasion
de conclure en mettant au clair un dernier problèmed'ordre général.
Très souvent, aucours de notre travail de défensedans cette affaire, nous avons
eu le sentiment que toute précision juridique, tout effort d'interprétation rigou-
reuse du traité.toute résistanceou ODDositionaux constructions sommaires de
certaines thèses, recevait cheznotre &nent adversaire un accueil non seulement
froid, mais plutôt gênéo : n nous a accusésparfois de faire du formalisme (ci-
dessus D.335). Je réconnais.oour ma oart, aÜele resoect exagéré des formesdu
droii riirluedÿns ccriainei hy~uth~stsdocçu~ier Ir substïnce d;s riglcj juridiques
Nc.inm~~insu .ne idccquele nie rcl'u\ed'dccepicret que I'inierprL:tariondes riglcs
Jc droit ~iiisseArc facilitce en r1rcn3ntcomme poini de rcp2re le lang~gc si Id
pratique(auxquels j'ajoute le degré de connaissance du droit) de ceux qu'on
qualified'opérateursde la vieéconomique.Non, on ne peut pas simplifierle droit
jusqu'au point de lui faire dire seulement ce qui curropond aux intérêts des
ooérateurs économiaues. Ce n'est qu'au iuriste Que revient l'humble métierde
téchniciendu droit, a'ussibien que lèpnviiègede mettre en Œuvre cette technique
sans craindre de passer pour un formaliste.
L'audiencees1levéeà 12 h 55 THIRTEENTH PUBLIC SITTING (2 11189, 3 p.m.)
Presenl: [Seesitting of 13 II 89.1
STATEMENTBY THE PRESIDENT
The PRESIDENT: As 1said this moming, we have received a repIy1 by ltaly
to the questions2 put by some Memhers of the Court, and one of the replies lias
documents3 attached. Does the American delegation-obiect to the ~resentation
of these documents?
Mr. MATHESON: Mr. President, we do no1 object to these documents. We
would like to reserve the nght to suhmit comments when we have looked al the
information contained therein in detail.
The PRESIDENT: Very well. In this case we have discussed the procedural
matter in the Chamher; since the replies have been received hefore the closing of
the oral proceedings, we have decided as follows. Both the United States may
comment4 on the replies to questions that have been submitted by Italy, and the
Italian delegation will have the opportunity to comment5 on the United States
reply6 to the questions, in each case after the closing of the hearings.
' SeeCpp.e276-278,supra.o.85, ifra.
' See p.468, infra.
See p.472, infra.
' See p.471, infra.
See pp.449-456, infio. REJOINDER OF PROFESSOR GAJA
COUNSEL FOR THE GOVERNMENTOF ITALV
Professor GAJA:
1. The Applicant insists on its theory that the local remedies rule does not
apply in relation to claims under the FCN Treaty and the Supplementary
Agreement. This contention does not rest on firm ground.
It is difficult to see why Article XXVl of the FCN Treaty, on which the
jurisdiction of the Court is hased, shoiild be construed as affccting the application
of the local remedies rule (p. 285, supra), as the rule provides a bar only to the
admissibility of claims and no1 to jurisdiction. Nor can the fact that the local
remedies rule is expressly referred to in some treaties make it inapplicable with
reeard to claims ~n~er other treaties. This would run counter to the orovisions
oi ihc Vicnna Con\ention on the I.:iu OC Trc~iich ~onccining inierpriiiiiion.
Sl,~ieo\er. ihe evmnplc taken irum Article X ui ihc Cia~niini~cCo-,>perdliun
Acrceiiicnt hciivccnthe I:niicd Siaie\ and liait ihiil.1.oiliiilc iienilic.inccsiiicr
ilonly contains a proviso confirming the applicabil~tyof the rule. The relevant
paragraph runs as follows:
"Ii is iurihcr undcrjiood rhït nciihcr (iovcrnnicnt \iiIIcspi>uic .iclrim
pursu:int to ihir Article uniil ils iiariiin:ilhtsc\hau,lcdihc rcmcdies3\,aihhlc
io him in the Administrative and Juridical Tnbunals of the countrv in which
the claim arose." (20 UNTS, p. 66.)
It may he added that the applicability of the rule to claims under the FCN
Treaty had been clearly accepte* by the Applicant when suhmitting its Memoran-
dum of Law with the 1974Claim (Unnumhered Documents, II, pp. 264-267).
The Applicant also developed a more general argument. Mr. Matheson said:
"First, has the Respondent demonstrated that the local remedies rule
applies, as a matter of general international law, to the request of a State
under a treaty for a declaration that its rights have heen violated, and for
reparation as a result? In Ourview, the answer is no." (P. 284, supra.)
The only precedents invoked to support this proposition are the Finnish Ships
and Ambntieloscases.
Let u, tirst Iriokat the Fi~inislShip, Arbiir;itiiin Ausrd. ,\iIcr giving his intcr-
priuiion oi the Ciiuri's Judgmcnt in ihc Anrhdr~,~l~ a,rrc, \Ir. \l:ithcson r~id
"Likewise, in the Finnish Ships Arhitration, the Arhitrator found that the
local remedies issueonly applied to the principal claim of Finland - a claim
under customary international law, and not to the alternative claim of
Finland - a claim based on a bilateral agreement." (Claim of Finnish
Shipowners,3 RIAA, p. 1490.) (Ibid)
But what did the Arhitrator in fact say in relation to the alternative claim? He
said:
"To the alternative claim as definitely formulated, the question of the
exhaustion of ~~cal remedies is not relevant as this claim is based on an
inicrnttional ngrçcmeni u.hich dors n<iigi\.c ihc shipouncrs any kg;iI righi,
hut a purcl) murdl interest The shipouncrs, thtrciorc, cannili havc rscoursc, REJOINDER OF PROFESSOR GAJA 373
on that basis, to any municipal court." (3 Reports of international Arbilral
Awards,p. 1490.)
This clearly implies that the remedies, had there been any, would have had to
h-,~~~su~~-
The Applic;int's argument concerning ihc ..l~»h<rricl~ w~svc is cqually siirious.
TheCnuri onl) dcalt rrith ihequcsiion whcthcr ihcre w;isan obligation IO submit
the disouie io arbitration and dcsided thüi ihcrï was i1C.J H<,~orls1953.no 22-
23). ~he subsequent spmial agreement required the Àrhitration ~ommi'ssi'onto
determine :
"(a) The validity of the Ambatielos claim under the 1886Treaty having
regard to:
(ii,ihc qucslion r3isr.d hy ihc Lniicd Kingdom Go\,crnrnr.ni oîrlic rion-
r.hh.iuction ui 'cgd reniedie, in the English iuuri iiircrpe~.toi';ict\ allcgcd
IO constitiiie brcachec of anv 'rrc~i\." 1I? H<,porr,o/Inrcrnuii~i~!ulArh~rrol
The Arbitraiion Commission examined this question and found that the local
remedies rule was aool.c.ble and that remedies had not heen exhaustcd. How
could one thcn SJ) 1h;ii.a. Mr. M3thcson put il."the Commission did no1 have
111dccidc wheihrr thc rulc u,uuld appl~ ~s a mattîr of Iaw tu a dispute undcr a
treaty" (p. 284, supra)?
There is a more recent arbitration case in point. II was quoted in the Rejoinder
(II, p. 450) but totally ignored by the Applicant. The Award was given in the
case concerning the Air Services Agreementof 27 March 1946 (United States v.
France). The Arbitral Tribunal said:
"the rule of international law relating to the requirement of exhaustion of
local remedies. whenmakine a distinction between the State-10-State claims
in whi,,h the requiremeni a~plies. and cl3inis whirh arc no1 jubjc~,iio siich
a rcquiremeni. musi neccsnrily hüscthis dirtinctiun on ihc.~ur~dr~~ilch;ir;icicr
or ihc kyill ri~l«iionr/iiphetueen Stxer \\,hich I\ ini,oked in suppori <ifihe
claim. ~onseauentlv. with resnect to the aoolicabilitv of the loial rernedies
rule, a distinction ;i generall; made bet&n 'cases of diplomatic protec-
tion' and 'casesof direct injury'." (54 International Luw Reports, p. 304,at
p. 324.)
Despiie some wording in the rebuttal to the efect that the application to the
Court seeks to assert "broader rights and interests of the United States under
the Treaty .. .vindicating its own nghts and interests and clarifying the obliga-
tions of the Parties" (p. 284, supra; also p. 287, supra), one cannot escape the
conclusion that the present case is a case of diplomatic protection 10which the
mle consequently applies. Sufice it to notice that the submissions only consider
violations of Treaty provisions, obviously with reference to Raytheon's claim,
and that reparation is only sought for the damage allegedlycaused to Raytheon.
2. The Applicant again put fonvard the contention that the rule should not
apply because the United States seeks a "declaration that the FCN Treaty has
been violated, as well as reparation to itself for violations of the Treaty" (p. 285,
supra). However, the Applicant's submissions have not been modifiedaccordingly.
No alternative submissions have ken made. As thev stand - Mr. Hiehet ex-
plained it this morning - the submissions do no( read as if there was arequest
solely for declaratory relief and even less for an abstract interpretation of Treaty374 ELETTRONICA SlCULA
The passage in the United States Government's Memorial in the Inrerhandel
case which was quoted by Mr. Matheson (p. 285, supra) in order to contend the
inapplicability of the rule with regard to declaratory judgments should be read
in the context of the subsequent statement made by the Agent of the United
States Government, Mr. Becker, when the Swiss Government had made an
alternative submission reauestine a declaratorv iud,.ent- He said that "there is
ni>generÿland un~\rrsÿllyaccepted pr~nciplcexceplingal1rcquests for dcclaraiory
judgmcnti from the doctrine i~l'cxhausiionof IOCJIremrdics" (I.C.J. Pleading<n~,.
Interliundel. P. SU2) The \,iews exoresicd b> th? Unitcd Siaies Go\,crnment in
t~ ~lnterhandel caséare~~n ~~ ~,~ ~'~ ~ ~mewhat academic imoortance.~eiven t.-
pÿi,age tif the C~~urt's Judgmcnt in the same idje on the ~Iiernati\c suhmi.rst on -
a viissare to which I rererred in my .r.iious pleading . (I.C.J. Reoortr1959.p. 29:
p.'159, Supra).
3. The ltalian Governrncnt never waived the application of the rule, nor did il
maintain in the course of diplomatic negotiations, unlike the United States
Government in the Inrerhandel case (see I.C.J. Reports 1959, p. 27). that al1the
available remedies had been exhausted. The United StatesGovernment. neverthe-
less, filed a preliminary objection in that case with regard to the non-éxhaustion
of local remedies (I.C.J. Pleadinas,lnlerhandel, p. 303).Why should it beimprop. .
for the Italian Government to Ïaise the same objection?
Mr. Matheson's statement that the Italian Government only contended that
no remedies had been exhausted "after proceedings have heeninstituted with ils
concurrence" (p. 289, supra) isincorrect for two reasons. First, proceedings before
the Court have been instituted bv a unilateral aoolication of the Uniied States
Government. Second, as 1reia~~edin my previo;s'pleading (pp. 157-158, supra),
the ltalian Government had specificallyindicated to the United States Govern-
ment that it would raise the question of non-exhaustion of local remedies should
the United States Government institute judicial proceedings and no objection
was made to this communication.
4. According to the Applicant, there exists an exception to the local remedies
nile when a claimant has made a "reasonahle and good-Saith effort" to exhaust
those remedies (p. 288, supro).
If one could justify non-exhaustion of local remedies simply by stating later
that one had assumed in good faith that no remedies were available the rule
would have in practice little meaning. Anyway, this is not a case in which a
"reasonable and good-faith effort" has been made. The Applicant insists on
Raytheon's requests for opinions addressed to two Italian lawyers. One of them
was Avvocato Bisconti. Ravtheon's lawver in Italv. These o~inions were relerred
IO in the Memor<indum u? 1.3~ of 1674 as "opini<)ns ol"inacpendsni Iralidn
Icgd experts" (Unnumbercd D<vuments. II. p. 267) The Applicant has no!
contested the anslvsis that I made of Proles,or La Pereola's ooinion. showinc
that no argumentwas offered on local remedics in ltah and chat the opinion
had in al1 likelihood heen requested in order to justify recourse to the United
States Government (pp. 161-162, supra). No argument on the relevance of the
Treaty was either put to the lawyers or offered in their opinions. The question
of the effects of the Treaty in Italy was totally ignored. Was it "reasonahle"
not to take the Treaty into account when one intended to persuade one's
Government to bring a claim for one's benefit on the basis OSthe very same
Treatv and when the Court of Cassatio~ ~ ~ alreadv held the Treatv to~ ~ ~ .
appli&hle by ltalian courts?
5. While several remedies were no1 exhausted hy Raytheon, attention has
rightly heen focusedon what 1called the "radical remedy": a claim for compensa-
tion under Article 2043of the Civil Code. This would have allowed Raytheon to376 ELETTRONICA S~CULA
r;iilis:iy, thc Coiirt i.;innoi r~k.cpithe conierrlion i~iihe Esi<>nixnAgent ihai
thc ruls as tu the exhAu\iidn of It~calrcincdies doe noi apply in this case
hcwu\e I.iihuxnt;in I:iwrlïurdr nt?mc;ins of rcJre~s." (PT 1J ..\'cri+A 8.
.Y(>76, p 19.1
A similar point was made by Sir Hersch Lauterpacht in his separate opinion
in the Norwegian Loans case (I.C.J. Reports 1957, pp. 39-41). With reference to
this opinion MI. Matheson said: "As Judge Lauterpacht stated in the Norwenian
~oan~case. the rule onlv requires exhaustion of effectivelocal remedies thaïare
a\;iilahle'ci, 3mriier oi rc.i;iinablc po~sibilit)':' (2x8.~uprd.) Hui here is the
iull quotüti<inuiu.h~t Sir Hcrsch Lduterpacht in f.ici si~icd. "The Icg~lpusirriin
on the subject cannot be regarded as so abundantly clear as to mle out, as a
matter of reasonable wssihilitv. anv,effectiveremedv b,fore Norweeian courts."
(I.C.J.~cpoifs 1957, P. 39.)
This kind of reasoning could be easily transposed to the case in point. More-
over, in Our case there is little reason to doubt the applicability of the FCN
Treatv.bv.ltalian courts. The attitude of ltalian courts is friendlv towards the
self-executing character of treaty provisions. Three decisions by the ltalian
Supreme Court applied provisions contained in the FCN Treaty or in the Supple-
mentary Agreement as a matter of course; no question about their self-executing
character was raised. No doubts about that character were expressed at al1until
the Applicant voiced them in its Reply.
The Applicant looks for support for ils theory that the Treaty could not be
invoked essentially to an opinion of one of Rome'sState attorneys (p. 286,supra).
However, the reasons that 1 gave in my previous pleading to the eiïect that the
opinion has been misinterpreted and is anyway immatenal (p. 164,supra) have
not been challeneed. 1would onlv like to stress that in the ltalian leeal svstem
courts interpret Geaties and deciie on their effects in Italy independ&tly2from
whatever State attorneys or other Government officiaismay Say and that what
matters when it comes to decide whether a treaty provision may be applied is the
courts' attitude alone.
A significant precedent which is also not challenged by the Applicant is repre-
sentcd by the Corte di Cassazione decision that applied, again as a matter of
course, a provision of the FCN Treaty between Italy and the Federal Republic
of Germany which corresponds to the FCN Treaty provision concerning taking
of property (p. 163,supra).
Moreover, the Applicant's argument that the FCN treaty provisions are not
sufficiently specific to he applied by Italian courts makes little sense. Let us
assume for example that, as the Applicant contends, what is "arbitrary" under
Italian law is also "arbitrary" under the Su~~lementary Agreement. What kind
of ltalian leeislation would have been necessàrv in ordër to-make what is "arhi-
trary" under the Supplementary Agreement "&hitrary" under ltalian law?
Itis anyway to be noted that, if one held that most of the Treaty provisions
are not regarded as self-executing in Italy, one would have to expect~that, as a
result, infringements of obligations nnder the same provisions would very likely
occur. Why did the United StatesGovernment never make representations to the
Italian Government in order to have the implementing legislation, which is
supposedly necessary, enacted by the ltalian Parliament?
7. The present case only involves claims for the alleged violation of Treaty
provisions. These provisions were designed for the henefit of individuals and
corporations who are nationals of a Contracting State. They regulate in detail
the treatment of those individuals and corporations in the local State.The very
nature of these provisions implies that any question relating to their applicability REJOINDER OF PROFESSOR GAIA 377
should first he hrought Io the courts of the State in which the provisions are
invoked.
The local remedies rule simply meets the reasonahle need no1 Io encumher
diplomatic channels with claims under the treaty before local courts have had a
chance to consider the alleged infnngement. As Ienks put it, the rule is hased
"on the practicalconvenience of channelling the settlement of privale griev-
ances through the estahlished machinery of municipal law wherever possible
with a viewto reducing the strains placed hy such grievanceson international
relations and procedures" (The Prospectso/lniernationolAdjudicotion (1964),
p. 536).
Thus, nghts under the Treaty belonging either to a United States or an ltalian
national should not be invoked first in diplomatic protection, but should he
hrought to the test of local courts. If remedies have not heen used, as in the
present case, a diplomatic claim is inadmissible. No "rigid" application of the
local remediesrule is thus suggested: only an application of the rule. DÉCLARATION DE M. FERRARI BRAVO
M. FERRARI BRAVO: Monsieur le Président,Messieurs de la Cour, nous
arrivons à la fin des plaidoiries dans une affaire qui demandait l'examen de
nombreuses, très nombreusesen véritéq ,uestions de fait, ainsi que de bon nombre
d'importantes questions de droit.
Comme dans toute affaire où les questions de fait sont prépondérantes,au
moins d'un ooint de vue aua.titatif. et où. de surcroit. elles sont hautement
çonlroversécs(cl iciu malgr; ii>uicopinion coiiii.c.~pllillicplusieurs reprises
par ladélép~liondes t.lais-llnisj, I'iiude decetir aff~irea demirndcla prcseniation
d'un grand nombre de documents. En outre, nous avons aussi écoutéla voir de
personnes qu'une des parties a appelées entant que témoins ou experts. La
vivacitédes argumentations développéespar les Parties aura eu, faute d'autres
mérites, celuide ne pas avoir ennuyéla Cour.
L'Italie a mesenté beaucou~ de documents et les Etats-Unis en ont produit
plusieurs. L; nécessitkde recourir à une documentation supplémenla&es'est
manifestée parfoisdans laphase orale du procès(et d'autres documents ont été
ajoutés auxdossiers préexistants).Concernant ce sujet et d'un point de vue tout
à fait généralj,e voudrais faire deux remarques.
La premièreconsiste à rappeler que, en annexe à son contre-mémoire,I'ltalie
présenta troisgros tomes intitulés«Unnumbered Documents». Ces trois tomes
reproduisaient sans aucune omission le «claim» présentéen 1974par le Gou-
vernement des Etats-Unis pour le compte de ses deux nationaux, les sociétés
Raytheon et Machlett Laboratories, ainsi que tout document que les Etats-
Unis avaient cru bon d'annexer audit claim.
Malgréla dénomination~Unnumbered Documents» un index de la documen-
tation annexéeau claim de 1974se trouve aux pages 198à 204 du premier tome
(II, pp. xiv-xvi). C'est l'indexétablien son temps par Raytheon aux fins de la
consultation de ladite documentation.
Sansdoute, nous aurions pu établirun nouvel index, ce quiaurait facilite peut-
êtrele travail de la Cour. Si nous ne l'avons pas fai- et nous nous excusons
auprès du Greffe pour ce travail supplémentaireque nous lui avons imposé -
c'étaitnour une raison très simp.e...ue i. .nèreaue la Cour ann..uvera. La
raison est que nous n'avons rienvoulu changer au texte de la documentation qui
se trouvait disponible chez nous, pas mèmeune seule virgule.
Les trois tomes contiennent quelques documents qui nous semblent favorables
aux thèses italiennes, d'autres qui peut-ètre le sont moins; d'autres encore qui ne
nous paraissaient pas pertinents. Mais, après mûre réflexion,nous avons pensé
que dans une affaire telle que celle-ci, à propos de laquelle nous avons constaté
avec une certaine amertume la transformation du claim américainentre 1974et
1987 ainsi que l'augmentation vraiment astronomique du montant demandé à
titre d'indemnité,il n'aurait pas éhonnêtede notre part de donner un aperçu
seulement partiel de la documentation disponible. La Cour, dans sa sagesse,
choisira les documents au'elle considérera comme~ertinents.
La deuxièmeremarquérelative àla documentation concerne tous lesdocuments
présentéspar les deux Parties. La présente affairese rapporte à des événements
qui, en quasi-totalité,sesont produitsen Italie. Elleconcerne des mesuresadminis-
tratives italiennes, des lois italiennes ainsi que des accords internationaux dont le texte italien fait foiavec le texte en langue non italienne. C'est pourquoi il est
nécessairede vérifier avec uneattention je dirais méticuleusetoute traduction en
anglais des documents dont l'original est en langue italienne. Cela d'autant plus
que la terminologie juridique des pays de langue anglaise qui est celle de la
commonlaw n'a souvent pas d'équivalentpréciset automatique dans une lanaue .
1311ne.
Or. IAleciure des d,xurnents prriinent, x rC\,clCdans :ert;iini CAS des erreurs
de tr.iducti\~nci chque fuis que nous nsus en icimmc. rendu cumpic nou, Ici
in ign.ilces Mais ilest lori proh~ble 4uc J'xuirc\ irn~crlcctions eyistent.
doni la ikfcnse de I'ltnlicpourrait ne p;i\ >';irexperque. p~rii~ulièrenieniIorsqu'il
s'agit de ir3ducii~>nsfaitej en dehors dc I'ltalie. dans un cniironncmrni Iing~i5-
tique anglophone ou le risque de se tromper, même entoute bonne foi, estplus
élevé.
Voila pourquoi la defense de I'ltalie, qui déyà, à cause du regime linguistique
de la Cour, a dù travailler, tout au long de la présente affaire,à la différencede
la défensedes Etats-Unis, dans des langues qui ne sont pas les siennes, sepermet
de demander àla Cour de faire vérifiersoigneusement la traduction, chaque fois
qu'elle utilisera un document dont l'original est en langue italienne, car c'est
seulement ainsi que la Cour se forgera la certitude que le document en question
revétun sens déterminé et nonpas un autre qui, encore que voisin, pourrait ne
pas êtreidentique.
Cette prémisse m'aparu nécessaireétant donnéles caractèresspécifiquesde la
présenteaffaire.
Quant à l'affaire elle-mêmei,l n'est pas dans mes intentions de résumerles
arguments développéstant par notre défenseque par celle des Etats-Unis. II me
semble que tout ce qu'il étaitnécessairede dire a déjàétédit.
Nous croyons, avant tout, avoir démontréde la facon la plus convaincante
que l'exception présentée par I'ltalie, et par laquelle il est demandéà la Cour de
déclarer irrecevablela requète amkricaine parce que les actionnaires américains
de I'ELSI n'ont pas épuiséles voies de recours offertes par l'ordre juridique
italien. est oleinement fondée.Nous sommes confiants. oar ..nséau~n~. .~.s le ~ ~ ~ ~
jugenient de la Cour. qui \oudra hien diclarer irreceviiblc I;rcquCtc3mbric~ine
sans pdsser 3 I'eiiamcnJu iiinJ Je I'alTairc.
Nous avons présenté cette exceoiionnon seulement Darceaue nous crovons en
.an bien-fondé:nidis dussi parce bue la r$r Je l'epui;emcnr'préal.ibledes ioics
internes de reciiurs r\i dnc règlefonil;imcnt;iled~ droit inicrn1tion31qui pri>t>ge
I'iniCrit de iour Etït 3 rcsister aux demando iniu\iiiir'e\ que dei nïtionaux
influents adressent à leur Etat. comme le soulienait-M. ~ieheidans sa olaidoirie
du 23 hner Cciie règlea Ciéréaflirméerécckmcnt par l;~ommis,ion du droit
interniitional des Naticin\ Unies,i l'article22<luproiet d'articles(premièrepartie)
sur la resoonsabilité desEtats. Et ses conclusions. unanimes. oni trouvéïaoou'i..
de la C'ommissiunluridique de I'A~semhlée ghérale des Nations Unies.
IIaurait ;té peu raisonnable de notre pari de ne pas nox prévaloird'une regle
fondamentale du droit international alors que nous sommes convaincus qu'elle
est applicable en l'espèce.
L'acceptation de notre exception ne serait pas, comme l'a dit M. Matheson
dans sa plaidoirie finale le 27 février,une victoire du formalisme juridique. Le
droit international, dans toutes ses règles - et notamment dans celle-ci -, a
toujours égard au fond des problèines, en départageant les intérêts des Etats en380 ELETTRONICA S~CULA
ieu selon des critèresde iustice. Nulle considérationd'oooon..ité ne s'oonose .. ~ ~
donc I'application,dans la présrnieafl~ire.dc Iï reglede I'épui~emcnp trcakïhlc
des \oies internes de recours. dont le fonctionnement n'estpas. en l'absenced'une
exclusion expressedans le traité,mis en échecpar I'existencede celui-ci, comme
I'adémontrétout à l'heure M.Gaja.
D'ailleurs, avant de présenter leur requête,les Etats-Unis étaient bien au
courant de l'intention de I'ltalie de présenterl'exceptionen question.
Tout ce qui précède ne signifin eullement que I'ltalie ait peur de soumettre au
jugement de la Cour les faits qui se sont effectivementproduits. Elle ne craint
pas non plus l'application desnormes pertinentes aux faits tels qu'ilsseront établis
Dar la Cour sur la base des Dreuvesfournies Dar la oartie à laauelle incombe le
fardeau de la preuve. Bien a" sontrÿirc. Au ils oU<aCour dé&dcraitde nc pas
accepter I'cxception prl:liminaire prkientkç par l'Italie nous n'aunon, auiunc
crainte d'étrïjugéspour nos agissements la vigueurde notre défensecn témoigne.
En effet, nous sommes ~rofondément oeriuadés aue le Gouvernementdes
Etats-Unis n'a pas réussi fournir la preuve, dont'le fardeau lui incombait
pourtant, des faits qu'il a invoqués et dontnous contestons la véracitéI.I n'a pas
non plus prouvél'exactitude de son interprétation des règlesde droit.
La défensedes Etats-Unis, qui dans ce procèssont la partie demanderesse -
une circonstance qu'il nefaut jamais oublier - n'a sur aucun point démontré
que I'ltalie serait responsable d'avoir commis des actesillicitesinternationaux.
IIv a un manaue total de meuve des faits oui . .rraient iustifiercette conclu- ~~
aiun,~ndtanimcni'dccelled'un liendc ciiis:ilit>inin~errom~ii'cntrclesé~éncnicnts
qui cesont réellementproduits. IIn'ya. in outre. aucunc dI:monstr~ti<inciini,:iin-
ianic de I'eraciiiudc dc I'intcr~rCtÿtioniIi>nnl:cpar les Etats-Cnis des nonnes
pertinentes. La requête américaind eoit donc êtrerejetée.
En plus, et en tout état de cause, il n'existe aucune preuve que des faits
dommageables, pour lesquels uneindemnisation tout à fait adéquaten'a pas déjà
étéversée.se soient ~roduits au détrimentdes actionnaires américainsde I'ELSI.
J'ose dire que. s'il i a quelqu'un qui a kte Ikskpar le déroulement de I'aflaire.
c'cbtplu161l'IR1qui. d'une part. cipîrdu de grosses sommes d'argent a tra\crs
leshïnques qu'ellecontr6lait à cent Dourcent CIqui se sont vu dCbuulcrde Irur,
plaintes conlre la compagnie américainepar l& juridictions italiennes. L'IRI
encore, par l'intermédiaired'une de ses sociétésa ,chetait à un prix tout à fait
raisonnable, mais en réalitéa contre-cŒur, les avoirs restants de I'ELSI.
Cet IR1donc, qui, comme dans un ieude miroirs chinois. aooara.. et disoarait.
selon les con\en;~ncesde la défenseimérisainc. tant61 summe partie int<grant~
dc I'Ctst itdlicn. idnifit çomrnc cntit(. inJCpïndante. mai5 dont les agisscmeiits,
mème ceux qui ont causé des pertesà I'IRI elle-mêmeet des avantages aux
requérantsaméricains,sont invariablement misà la charge de I'Etat italien à qui
une indemnisation est demandée.
Monsieur le Président,Messieurs de la Cour, aucune perte, aucun dommage
qui n'ait pas étéla faute des actionnaires américainsde I'ELSI ne s'estproduit.
Partant, même si,dans une hypothèse qui nous semble tout a fait absurde,
quelque irrégularité était imputableà I'Etat italien dans le respect des traitésqui
le lient aux Etats-Unis, ceci n'aurait produit aucun effet dommageable dont les
Etats-Unis auraient le droit de se plaindre. Mêmedans ce cas la demande
américainedoit donc êtrerejetée.
En effet, Monsieur le Président,et, en regardant en arrière,je crois que ces
trois semaines de plaidoirie ont vu s'effacer, i..au'. disoaraitre totalement. le
fondement de la requêteaméricaine. Paroles, paroles,paroles, comme le disait
Hamlet, rien que des paroles. Mais des paroles écrites sursable et effacéespar Monsieur lePrésident, Messieurs dela Cour, dans sonintervention du 13février,
au tout début de la phase orale, mon éminent collègue et cher ami, I'hono-
rable Abraham Sofaer, agentdes Etats-Unis, déclarait ce qui suit:
<<Eci>nomicde\.elopmcni 2nd soci<ilprosrers are the cornmon conccrn of
ihe u.holc international commiiniiy. I3ycsi:iblishing Iegalnorms ihxi encour-
ageeconomic prosperityand the well-being of al1nations, we help strengthen
peaceful relations and CO-operationglohally. Chapter IX of the Charter of
the United Nations acknowledges that the development of economic and
social relations creates the conditions of stability and well-heing necessary
for friendly relations among nations." (Ci-dessusp. 12.)
Je suis toutà fait d'accord avec M. Sofaer sur cetteévaluation d'ordre e-néral
et je wu.< assurerI:iCour que le Guuvernement iialicn est plcinemeni c<inscicni
de I'imp(~riancc cl de lut~lité d'insirumenis interna1ion;iux tels que le 1r;iilc
J'amitiC. de commerce CI de nli\,igatiiin de 1948enire 1'1tli1ieri le>Eiais.Unis ou
l'accord supplémentaire de 19517Ce sont des instruments internationaux qui,
peut-être, s'iétaientnégociés aujourd'hui, seraient rédigédse façon quelque peu
différentecompte tenu deschangenients des réalités économiques et socialesqui
sesont produits partout dans le monde entre 1948et nos jours. Mais les bases
fondamentales decesaccords restenttoujours valables etde toute manière, tant
qu'ils existent dans leur libellé actuel, ces accords demandent à êtrerespectés
scrupuleusement.L'Italie, pour sapart, est sùrede lesavoir toujours respectéset
continue de les respecter.
De ce point de vue là, si la Cour décidequ'il lui est nécessaire,pour rendre
son jugement, d'aborder l'interprétation des traités en question, l'ltalie pense
n'avoir rien à craindre. Elle respectera scrupuleusementle jugement de la Cour
et, si celui-ci contient desélémentsd'interprétation destraitésen question, l'ltalie
en tiendra diiment compte pour orienter sa propre pratique vis-à-vis desdits
traités.
D'ailleurs, le présentdifférend. u.e les deux Parties ont olaidé au mieux de
leur capacité en'cherchant, comme ilse doit, à obtenir la iictoire, n'est qu'un
épisodedans l'histoire desrelationsentre deux paysamis, relations qui sedévelop-
pent d'une faqon heureuse etqui sedévelopperontencore plus de~cettemanièie
ri elles boni débnrrnisCesde quelque\ débrisd'une kp(~que;ci,olue dans Ik~quellc
le déséquilibreentre lesdeux I'artici ie faivait encore scniir
.M.lonsicurle Préiideni, Mess~euride la Cour. c'estiiI':iide de cesréflcxio~isqiie
I'ltalie, persuadéedu bien-fondéde sesthèses.seoréo. .à sesoumettre à votre
jugcmeni. 1.adéfensedu Go~\crnement ii:ilicn tous a cxpo\C, .tu miciix dc ses
rcrc<lurceiintellr.ciucllcr. serargumcni,. Fl.xconiiance qu'ils \eroni bicii accuiil-
lis. Elle diicnd donc :i\ccId plus giiinde sér2niiéd'e,prii le lugenieni Je 1.plus
haute instance iudiciaire inlernatioiiale. étant oersuadéeau; lésdécisionsde la
Cour intcrndii<~naledc Ju,tice ne pcubcni que'contribucr: p:~r II wule hrse du
droit. au dc\eloppemcni des relationr amicalesenirc les nations.
Dans cet esprit,je me permetsdelire maintenant lesconclusions finales présen-
téespar l'Italie. Elle coïncident avec celles présentées le 23 février dernier. Et
pour évitertout malentendu je les lirai en anglais, langue que j'ai employéelors
de la précédentelecture.
Voici cesconclusions:
May itpleasethe Court,
A. To adjuge and declarethat the Application filed on 6 February 1987by the
United StatesGovernment is inadmissible hecauselocal remedies havenot been
exhausted. B. If not, to adjudge and declare:
(1) that Article II1 of the Treaty of Friendship, Commerce and Navigation of
2 February 1948has no1 been violated;
(2) that Article V, paragraphs I and 3, of the Treaty has no1 heen violated;
(3) that Article V, paragraph 2, of the Treaty, and the related provisions of the
Protocol to the Treaty, have no1 been violated;
(4) that Article VI1of the Treaty has not been violated;
(5) that Article 1of the Supplementary Agreement of 26 September 1951has no1
been violated; and
(6) that no other Article of the Treaty or the Supplementary Agreement has heen
violated.
C. On a subsidiary and alternative hasis only: to adjudge and declare that,
even if there had been a violation of obligations under the Treaty or the Supple-
mentary Agreement, such violation caused no injury for which the payment of
any indemnity would be justified.
And, accordingly, 10dismiss the claim.
Monsieur le Président, Messieursles juges, aussi au nom des autres membres
de la délégation italiennej,e vous remercie de votre attention. CLOSlNG OF THE ORAL PROCEEDINGS
The PRESIDENT: On behalf of the Members of the Chamber, 1 thank the
Agents and counsel of both Parties for their assistance to this Chamber. Before
closing these oral proceedings, and in order to facilitate the future work of the
Chamber, 1think it is necessary to fix the time-limit for the wntten comments of
each Party on the replies to the questions put by the Judges of the Court to
which 1 referred at the beginning of Our sitting this afternoon. Therefore, 1fix
Monday, 13 March, as the lime-limit to receive the comments' to which I have
alreadv referred.
In accordance with our practice, 1request the Agents to remain at the disposal
of the Chamber for any further assistance il mav reauire. Subiect to this. and
thanking you again Gentlemen for your assistance, 1déclarethe oral procçedings
in this case closed.
TheChamber rosear 15.55p.m
'See CorrespondenceNos. 86and 85, in/ro. FOURTEENTH PUBLIC SITTING (20 VI1 89, 10am.)
Present: [Seesitting of 131189.1
READING OF THE JUDGMENT
The PRESIDENT: The present sitting of the Chamber formed by the Court
to deal with the case concerning ElerrronicaSicula S.P.A.(ELSI), brought hy the
United States of Amenca against the Republic of Italy, will in the nature of
thiiigsbe its final sittiiig, since its purpose is the reading in open court, in
accordance with Article 58 of the Statute, of the Judgment of the Chamber in
the case.
The facts of the case are complex, and many of them were the subject of
controversy hetween the Parties. Accordingly the Chamber has had to devote a
considerable part of its judgment to setting out the facts as it has found them,
with an indication where necessary of the controverted issues. In order to keep
the length of the present sitting within bounds, 1shall not only omit, in reading
the Judgment, the opening paragraphs giving the procedural history of the aîTair,
but also the lengthy statement of facts. In its place, and in order to set the legal
developments in the Chamber's Judgment in their factual context, 1shall read a
brief summary of the salient facts prepared hy the Registry, but 1 should em-
phasize that only the Judgment itself constitutes the authentic findings of the
Chamber.
[The President reads a summary of the facts stated in paragraphs 121047 of
the Judgment', and then reads from paragraphs 48 to the end2, with some
quotations omitted.]
1now cal1upon the Registrar to read the operative clause of the Judgment in
French, the other officiallanguage of the Court.
[Le Greffier litle dispositif en français3.]
Judge Oda appends a separate opinion to the Judgment of the Chamber; Judge
Schwebelappends a dissenting opinion to the Judgment of the Chamber.
In accordance with practice, the Judgment has heen read today from a dupli-
cated copy of the text, a limited stock of which will be available to the public
and the press. The usual printed tex1of the Judgment will be availahle in a few
weeks' time.
The Chamher has thus completed its task; and 1 declare the present sitting
closed.
(Signed) JoséMaria RUDA,
President.
(Signed) Eduardo VALENCIA-OSPINA,
Registrar.
'I.C.J.Reports 1989,pp. 23-41
Ibid, pp.41-82.
V.1.J. Reeueil 1989,p.81-82.
Oral arguments - Minutes of the Public sittings held at the Peace Palace, The Hague, on 27 November 1987, President of the Chamber, President Nagendra Singh, presiding, and from 13 February to 20 July 1989, President of the Chamber, President Ruda, presiding