CORRESPONDENCE 457
Final Submissions of rheGovernmeniof the UnitedSraresin rhecme concerning
Elettronica Sicula S.P.A.
The United States requests that the objection of the Respondent be dismissed
and submits to the Court that it is entitled to a declaration and judgment that:
(1) the Respondent violated theinternational legalobligations whichil undertook
by the Treaty of Friendship, Commerce and Navigation between the two
countries, and the Supplement thereto, and in particular, violated Articles
III, V, VI1of the Treaty and Article 1of the Supplement; and
(2) that, owing to these violations of the Treaty and Supplement, singly and in
combination, the United States isentitled to reparation in an amount equal
10 the full amount of the damage suffered by Raytheon and Machlett as a
consequence,includingtbeir losseson investment, guaranteed loans, and open
accounts, the legal expenses incurred by Raytheon in connection with the
bankruptcy, in defending against related litigation and in pursuing ils claim,
and interest on such amounts computed al the United States prime rate from
the date of loss to the date of payment of the award, compounded on an
annual basis; and
(3) that Italy accordingly should pay to the United States the amount of
US$12,679,000plus interest.
(Signed) Michael J. MATHFSON
84. lWE REGISl'RAR TO THE AGENT OF ITALY
27 February 1989
1have the honour to transmit to Your Excellencvherewith a coov of the final
submissions of ihc Umtrd Statcs of Amcrica in thécase conccrning f:l?irr~inic<i
SiculuS.pA IELSli, communiiïiîd Io the Court today by the Cnitcd Sidir.,
Ageni pursu2nt to Article ho, p~cigraph 2. of the Rules of Couri.
85. THE AGENT'OF ITALY TO THE REGISTRAR
2 March 1989
1 have the honour to transmit to you the text of the written replies' of
the ltalian Government to the questions put by Members of the Chamber on
23 February 1989in the case concerning ElerironicaSlculuS.P.A. (ELSI).
- -
' WiihIwodocumentsattached. Questionsby Judge Oda
A. Question 10 60th Parlies
"Suppose that the decision of the Prefect of Palermo (which was actually
given on 22 August 1969) had been given one year earlier, say in August
1968. could the trustee of ELSI. under Italian law. have withdrawn the
prev;;>uspeiiiiun io hankrupic) uhich had once bec" filrd <in9 Apnl 1968
and hs\e pruceeded to liquidate in ,pite of the judgmenr of hanhruptcy by
the Tnbunal of Palcrmu, whish wiii de1itere.i on 7 Ma) 196à?"'
The answer is no.
The reason for ELSI's hankruptcy was its insolvency and not the requisition
order. As ELSI remained insolvent, the declaration of bankruptcy could not be
revoked.
Bankr~~tcv mav be revoked hv the iudee onlv if there has been a written
oppositio~ to the heclaration of bankrupic;(~rti: 18and II)si thc Bankruptc)
I.au). Thr gruund, for an nppositiun arc either the iormal nullity oi the declam-
tion i>fhankruntcv: the Iack of the nrereuuisitej for a declaratiun of bankrunics
(i.e. that the b;nkkpt is not a busieessman or a commercial company); or ihit
the debtor is not in a state of insolvency.
In ELSI's case the declaration contained no formal error: it concerned a
commercial compiny: and the insol\,ency-.as admittcd by the dehior itsclf, which
hsd reque,vd its own bankruptcy. Thereiorc, the sctting aaidc oi the requisition
ordcr could in no u,ïy afl'ectthe Jeîlïration of haiikruptcy and its lcgal efTects
B. Questions 10 Italy
"1 Am I righi in undersianding that the order orrcquisition oi 1 April
1968did h~r ELSl l'romclosing the plant in [lie iramruork of a liquidation
Drocess,but did not, or could not, prevent its closure in the framework of
ihe bankruptcy pro~edure?'~
On 31 March 1968ELSl dismissed most of the workers, but did no1yet "close"
the plant entirely. The so-called "orderly liquidation" could have resulted in a
complete closing of the plant within a short penod.
The requisition order was to ensnre that no such closure could take place while
the requisition lasted.
Bankmptcy does not necessarily require the closure of a plant. The plant was
not in fact "closed during the bankruptcy proceedings either, although pro-
duction was very limited.
"2. What kind of management plan did the Sicilian regional government
have for the six-month period after issuingthe order of requisition on 1Apnl
1968? In fact the regional govemment continued to pay wages to some 800
employees until 15October 1968,even after the judgment of bankruptcy was
delivered on 7 May 1968.What conld have been the intention of the Sicilian
regional govemment in paying the wages after the procedure of bankmptcy
had started in May 1968?"'
' Seep. 276,supro.
' Ibid.
"bid. CORRESPONDENCE 459
The Sicilian government, whose position is entirely separate from that of the
Mayor of Palermo, had nothing Io do with the requisition process.
The order of reouisition bv the Mavor of Palermo. actine as an officialof the
central ~overnmek, must héseen as.an emergency keasu;e, undertaken at the
las1minute, and triggered hy the precipitous dismissal of 800 workers by ELSI.
The Mayor was Gunting on the back-up of the regional government to make
emergencypayments to the workers. Under Regional Law 13May 1968,No. 12,
ELSl's former employees wereto be paid as from 1March 1968;those who had
no1 been dismissed by the end of March, as from I May 1968. Payment was
characterized as "an extraordinary and temporary monthly allowance,equivalent
to the wages infact receiveduntil February 1968"("indennità mensilestraordina-
na di attesa pari alla retribuzione mensile di fatto percepita fino al mese di
febbraio 1968'7.
Thrrc p3yment%u.r.rr. net undcrt:iken lightly. Indeed. thc regi<inïlgo\ernmcnt
considered itIO bc appropriate and ncccs,ary I;>rihs purposc, ui'puhlic ordcr IO
a\,uid ihs ~ojsibilitv of were hïrdshiir tg>the iiorkers and to Iiinit social unrrit
in a year-(1968) chat was proviiig disastrous in Italy as in other European
countnes.
The region also wished to preserve the qualifications and abilities of the
workforce that had heen dismissed.(Regional Law 13May 1968,No. 12,Docu-
ment 37, attached to the Counter-Memonal'; Regional Law 6 August 1968,
No. 23, Document 38, attached to the Counter-Memonal'; Regional Law 23
November 1968, No. 31, Document 39 attached Io the Counter-Memorial';
Regional Law 7 lune 1969,No. 16, Unnumbered Documents, II, p. 264'.)
Quesrionsby Judge Schwebel
A. Queslionfabofh Parties
"Let us assume,arguendo,that it has no1heen proved that the requisition
was the cause of the bankruptcy. Does it follow that ELSI and its stockhold-
ers sustained no damage by reason of the ~equisition?'~
The question of the damages caused by the requisition was examined by the
Court of Palermo, the Court of Appeal of Palermo and was finally settled hy the
"Corte di Cassazione" whichconfirmed the appeal decision (see Annexes 79, 80
and 81 to the Memonal). It was held that no damage had heen caused by the
actions of the workers occupying the plant, by negligent custody or any other
factors.
The only damage suffered wastliat ansing from the unavailability of the plant,
and this was quantified as an amount equivalent to the interest at a rate of 5 per
cent per year of the value of the property.
B. Questionsfo Italy
"1. MI. Highet spoke this morning of, 1 believe it was, 7 billion lire in
low-interest loans extended bv Italian eovernmental authonties to ELSI.
May 1 ask how much lower ihan commercial rates of interest were these
low-interest loans, that is to Say,what was their real valueY4
'See Il.
Exhibit 111-ZIA,II, p.315.
' See p. 276,supra.
' Ibid. With regard to the question of the value of the low-interest rates, the Report
on the Financial Statements at 30 September 1967 for Raytheon-Elsi S.P.A.
prepared hy Coopers & Lybrand and filed with the Court on 17 Febmary 1989
by the United States, shows on page 8' that the interest rates on the loans by
IRFIS and by the Banco di Sicilia were at 4 per cent, while a further loan hy
IRFIS and a loan hy the Chase Manhattan Bank were at 5.5 per cent.
Meanwhile,the averageannual commercialrates ofinterest on current accounts
for the relevant period were as follows:
-Year Rate (%)
1956 10.00
1957 9.83
1958 9.66
1959 9.34
1960 9.02
1961 8.63
1962 8.37
1963 8.41
1964 8.94
1965 8.80
1966 8.36
1967 8.18
(Source: Documenttransmittedto uson request by the Bancad'Italiaand attached
hereto.)
"2. And much more generally, what in the view of the Respondeut were
the purposes of the requisition? Were those purposes achieved?"'
With regard to the second question, the purposes of the requisition were as
stated in relativelyprecise lems hy the Mayor in the Order of Requisilion. These
included the purposes of "protect[ing] the general economic public interest (al-
ready serionsly compromised)". This meant that he did not want the place of
work of so many citizens to close. They also include the "protect[ioii of the. . .
public order". This meant that he did no1want strikes and riots.
These two purposes, stated in the seventh paragraph, must be read in the light
of the immediately preceding four paragraphs of the Order of Requisition, which
stated that:
". . .ELSI's actions, beside provoking the reaction of the workers and
of the unions ginng rise to strikes (hoth general and sectional) have caused
a wide and general movement of solidarity of al1public opinion which has
strongly stigmatized the action taken considering that about 1,000families
are suddenly destituted".
". . That ELSI is the second fim in order of importance in the District,
and that because of the shntdown of the plant a serions daniage will be
caused to the District, which has been so severelytried hy the earthquakes
had during the month of January 1968".
". . .That the local press is taking a great interest in the situation and
. .. is being very critical toward the authorities and is accusing them of
indifferenceto this serious civic problem";
'P. 438,supro.
See p.276, supro. CORRESPONDENCE 461
and that
". . . the present situation is particularly touchy and unforeseeable dis-
turbances of public order could take place".
When read in the context of these findings by the Mayor, and that have not
been challenged by the United States, the motivation of the Mayor appears to
be candidly expressed and straightfonvard in purpose.
Were those purposes acbieved?
Yes, up to a point. There were no riots; no solidarity strikes; no destitution
of at least800 families; no serious additional damage caused to the District; and
no "unforeseeable disturbances of public order" took place. In addition, the
workforce was paid by the regional govemmentthrough the end of the requisition
penod, and beyond (see reply to question from Judge Oda').
However, the pnrpose of protecting "the general economic public interest" was
not achieved, at least in its entirety, because, as the Prefect had pointed out, the
measures adopted did not take account of the fact that the situation of the
Company was,sucb "as not to permit the continuation of the activity".
"3. The Respondent has pointed out that the Prefect's decision holding
the Mayor's order of requisition to be 'destitute of anyjundical cause which
may justify it or make it enforceable' depended on bis conclusion that the
order did not, and could not, achieve the goal to wbich it was directed.
However. the Prefect also held that the order was issued
'undcr the influcncc of the prcssurc crcïtcd by, and of the rcmarks made
by the local press; and thcrrfore we have to hold that the Mayor, in order
to eei out of the above and show the inirni <ifthe Puhlic Administraiion
to yntervene in one way or another, issued the order of requisition as a
measure mainly directed to emphasize his intent to face the problem in
any way'.
This holding of the Prefect appears to mean that the Mayor issued the
order not for defensiblejundical reasons but as a way of showing the public
that he was doing something, whether that something was lawful or sensible
or not: he issued the order 'to showthe intent of the Public Administration
to intemene in one way or the other'; the order was issued as a measure
'mainly' directedto 'emphasize bis intent' to face the problem 'in any way'.
Now my question is this, is a measure taken by a public autbority 'to
intervene in one way or another' with a view not towards resolving a
problem - and the Prefect held that the order could not resolve the prob-
lem - but in order to appease press and public criticism or win public
favour 'in any way' an arbitrary measureY2
We would, first, respectfully disagree with the question's characterization (in
its sentence after the quoted material)
". ..that the Mayor issued the order not for defensiblejundical reasons but
as a way of showing the public that he was doing something, whether that
something was lawful or sensible or not"
The question's characterization of what the Prefect said is incomplete.
What the Prefect said was that the Mayor issued the order also for the reason
mentioned ("also under the influence of the pressure created by, and of the
'Seep. 458, supra.
Seepp. 276-277,supra.462 ELETTRONICA SICULA
remarks made by the local press: and therefore we have to hold that the Mayor,
alsoin order to get out of the above and show the intent of the Public Administra-
tion to intemene in one way or another, issued the order of requisition as a
measure mainly directed tu emphasize his intent to face the problem in any way").
The answer to the question must therefore takc into account the full context of
the Prefect's review.
The auswer is, that if the measure was taken solely " 'to intemene in one way
or another' . . with a view not towards resolving a problem . . .but in order to
appease press and public criticism or to win public favour 'in any way' an
arbitrary measure", tben it probably would have been an arbitrary measure.
But, if there were other snbstantial and sinceremotivations behind the measure
in addition to that of appeasing public opinioii, i.e., "to protect general public
interest . . and public order" it would then by no means have been an arbitrary
measure.
It should be added that it would not he right to disqualify as arbitrary any
measure that seeks to a..ease nress and oublic criticism or win nublic favour.
ince uiihout doiibt nll mcacurcs irkcn hy public ;iuihoriiies in 4iinie oi great
stress 2nd p~rceiv~dgra\,ity willbc nlolivnied ai Iça(1in pdrt IO rcrpond IO public
criticism oÏ to win public favour. and presumably also to "appease" press criti-
cisms of inactivity. This is a natural consequence of a free preiiand a democrati-
cally elected government.
"4. In view of the fact that the Prefect found that the requisition by the
Mayor of Palenno of ELSI's factory was 'destitute of any juridical cause
which may justify it or make it enforceable', and undertaken in order to
permit the Mayor to show 'the intent of the Public Administration to
intemene in one way or another', can it be maintained that the requisition
nevertheless was, in the words of Article 111of the Treaty, 'in confomity
with the ao..icable laws and reeu-ations~ ~f Italv? Can an action which is
iaken '\iithout juridiclil iïusc' in order .to jh<i\i the inten.. .10 inicr\enc
in one way iir ünother' be an action not rncrrly under culour of the ldu but
'in conformitv with the ipnlislible Iÿus and reculaiiuns'! II not. rnil if the
position of thé~es~ondentis that these holdings of the Prefect wére inerror,
why was not an appeal taken from them? If no appeal was open or was
taken, does not that establish that the requisition was not in confonnity with
the applicable laws and regulations of Italy?"
This question mus! be broken down into four sub-questions, each of which is
expressed in a sentence of the question.
(i) To the first sub-question (first sentence), we respectfully demur from the
characterization of the requisition. As pointed out in our answer to the immedi-
ately preceding question 3: there were a number of reasons stated for the
requisition order. On the correct premise, then, that the requisition was under-
taken for several reasons, and that the language quoted from the Prefect must
be read in the context of the impossibility of achieving the requisition's purpose
not beinz coenizable or known to the Mavor of Palemo at that tirne. the answer
is ihrt ihe rcquisiiiun wa; 'in ciinformiij wiih the applic3ble 1.1~sand rcgula-
tioni" (and hy irnplicrtiiiii dlso ~ubjcciIO üny xrrectiun, or rcmedic, proiided
by these laws and regulations).
The Prefect expressly stated as follows:
' Seep. 277, supro.
Seepp. 461-462, supra. CORRESPONDENCE 463
"The lack of competence of the Mayor to issue autonomous orders of
requisition, according to Article 7 of Law of 1865,assumed by the appellant,
is ils0 to be reiectel. since the comnetence of the Mavor is almostunani-
mously admittédby doctrinal write& and Case Law" (~nnumbered Docu-
ments attached to the Counter-Memonal, Vol.II, p. 131 ').
Thus, the Mayor's order was taken to be "intra vires" since "the grounds of the
erave nublic necessitv and of the emergencv-.nd ur-.ncv which caused the
i\iuance of thc ordçr m3) be hçld 10 he c~i~ting".3lthough il ii,rquii5hcd on
ihc hwir oithc Mayor bcing rni\iakcn iiihis forecari of the rcsultsthdi could he
achieved by the order.
(ii) As to the second sub-question in the second sentence, the description by
the Prefect of the action as being "destitute of any juridical cause" is not an
accurate translation and, moreover, must be read in context. In actual fact, the
Prefect affirmedtbat :
A. the Mayor of Palermo had the competence to issue the requisition order,
B. "in theory . . the grounds of the grave public necessityand of the emergency
and urgency which caused the issuance of the order may be held to be
existing", but
C. the goal to which the order was directed could not he achieved by it, this
being "proved by the fact that the activity of the Company was neither
resumed, neithermight it be resumed".
Thus the phrase "the order is destitute ofany juridical cause which may justify
it or make it enforceahle" is an inaccurate and misleadina interpretation of the
ltalian "manca, pertanto, ne1provvedimento, genericam&te, la-causa giuridica
che possa giustificarlo e renderlo operante". This phrase is more accurately
translated by "the order, genencally speaking, lacks the proper motivation that
could justify it and make it effective" as is explained by the Court of Appeal (see
Annex 81 to the Memorial).
Therefore, the Prefect'sdecision does not refer to the legal basis of the act, but
rather to the appropriateness or the adequacy of the measure to achieve the
purpose for which it was intended.
Thus, the Prefect was actually only stating that the Mayor, in the exercise of
his powers, was mistaken in his forecast as to the eiïect of his order.
Therefore. when read in context, such a description does not result in a
categuric~lor iihsolute dcsïripti<)nuithc aci as hcing (in ihc \i,<irdsoiihç bçcund
suh-quesiion) "without juridical c;iuse". ;ind thc question is therefore not ans\ier-
able in these terms.
(iii) To the third suh-question, the answer is that there was no procedure for
appeal or judicial reviewavailable under Italian law. In actual fact, the Mayor
of Palenno attempted to have the decision reviewed by the President of the
Republic, but the auulication was held to be inadmissible for lack of standing -
(se; Annexes 77 and 78 to the Memonal).
(iv) To the fourth sub-question in the fourth sentence, the reply is that even if
there was no appeal available, or taken, and even if the requisition was rejected
hy the Prefect of Palenno, tbat does not mean that "the requisition was not in
conformity with the applicable laws and regulations of Italy", for the following
reasons.
The action of the ltalian State subsequent to the requisition must he deemed
to have included the Prefect's ruling as well as the award of compensation to
'See II,p. 310,and 1, p.362464 ELETTRONICA SICULA
ELSI as the result of a claim by the Receiver in hankmptcy for the loss of
facilities dunng the requisition.
It is the action of the Mayor of Palenno as so corrected or modified that
constitutes State action measurahle as action under the Treaty that is, or is not,
"in conformity with the applicable laws and regulations of Italy".
If the language of the Treaty (and Supplement) were to be understood
differently, it would be possible to imagine an endless senes of Treaty violations
that take etlect, or "bite", before Italy (or the United States) has had the
opportunity Io remedy them. This analytic process could well he applied, for
example, to action taken by the United States at a local levelthat had not been
yet remedied at a higher level, such as an appeal for rectification or annulment
through the federal or State court systems. The concept is analogous to the
concept of the exhaustion of local remedies, in so far as hoth ideas presuppose
that the host country should, if ~ossihle, be rendered the ou~ortunitv to rectifv
or correct wh31could othe~wise,in i~olalion,ha\e constituied a ~reaiy violation.
In aciuul Fiicithe rcquisiiion wdsrollowed by: first, ihe appeal 10 the Prefeci,
and sccond, the claim hroueht befure ihc Couri.; hy the Receii,crin bankrupicy.
It is thus not possible to hold that the requisition alone "was not in confohiiy
with the applicable laws and regulations of Italy".
Therefore, the quashing of the requisition hy the Prefect must be considered
as having ensured that the overall actions of Italian authonties conformed 10
what was required.
"5 Italy hüs siated in its plcadings and oral argument ihdi certain of
E1.Sl.s actions or inactions madr itiboard of directors cnminülly Iinble. If
ihis is so. uhy 1sii thdt no cnminal actions wïrî pursued agltinst them?"'
The answer to this question requires us Io set out the relevant provisions of
law.
First, Article 217 of the Bankmptcy law states:
'.Therc is.isünciion oi between six months' and tuo yenri' impnsonmrni
in the case of the declaration uf bankrupicy of an entrepreneur who
...
(4) hm aggrnvated his own hiinkruptcy by ahsiaining [rom rr'quesiingthe
dçclaraiion oi his biinkruptcy or by some other gros, ncgligencc."
Second, Article 218 of the Bankmptcy law states:
"Unlejs iiconstitutes an ewn niore sïrious otleiiw. the sanction of up io
tno years'imprisonmeni atwches to an entrepreneur carrying out n commcr-
cial activity who resorts or continues to resort to credit, concealing his own
bankmptcy."
There is absolutely no douht that this refers to offences which, where they
exist, require the Receiver to take action and the Public Prosecutor, if he has
knowledge of them, to take action ex officio. It must be borne however in mind
that the Receiver in the ELSI case could not possibly have had at the time a
c-molet~ ~ ~ ~ncal oicture of the affair such as we now have.
In addition, the chce of the Public ~rosec"tor in Italy is an officecompletely
independent from the governrnent, central or regional, and from administrative
oower. He becomesaware of matters onlv when thev are broueht to his attention.
In ELSI's case it is therefore reasona6le to assume that thëPuhlic Prosecutor
' Seep. 277, supra. CORRESPONDENCE 465
was never brought in either by the Receiver or the creditors, because of wholly
incomplete knowledge.
"6. Volume 1of the Unnumhered Documents submitted hy Italy with its
Counter-Memonal reproduces a translation of the dismissal letter sent by
ELSI to its employees. That letter states:
'You will he paid an indemnity in substitution of notice equal to the
amount of your remuneration for the period of the notice you are not
-~ven. Such n.~~~ ~will be counted for the o. .ose of calculatine-,our
sc\cranie bcn:fits. and,ilsuch bc ihc cÿsc, fur the purpose ofdny othcr
pavrnenis owiny. IO .ou, al1in 3ccordansc iiith ihc 13~sand agreements
In force.'
In view of the tenns of this letter, is there ground for complaining of lack
of notice?"
Absolutely. Thisletter violaied the relevant "applicable laws and regulations"
in force. In fact, it was whollyinconsistent with the applicablecollectiveagreement
(Interorganizational Agreement of 5 May 1965on Lay-Offs for Personnel Cut-
hacks, in Unnumbered Documents, Vol.1, pp. 354-362'), pursuant to which
advance notice of any collectivedismissalwas required to be givento the represen-
tatives of the unions concerned. This was in order to allow the unions to discuss
with management the proposed actions before they are taken.
These defects of failure to give notice would exist even if there were funds
available to make the suhstituted indemnity payments suggested hy ELSI. But
when one realizesthat the company was in a state of capital deficit,and complete
insolvency, the illusory offer to pay the workers does not in any way "remedy"
these deficiencies.
"7. The written supplement of the Respondent to the oral reply to my
question of 21 Febmary states that, 'The requisition kept the factory open'.
Open to do what? Was work performed in the factory, by whom, and with
what results, in the period in which the factory was requisitioned? In this
regard, it may be recalled that the Prefect's decision of 20 November 1969
holds that it was 'the factthat the activity ofthe company'was not 'resumed',
that the plant was 'not working'and that it was occupied by the dismissed
employees."'
As mentioned in our replyto Judge Oda'sfirstquestion to Italy4, the requisition
was designed to ensure that the factory remained open.
Although the maintenance of the factory in an open condition did not result
in a retum to full activity or production, the Mayor of Palermo made provision
for the temporary management of the plant immediately after the requisition.
In fact, on 6 April 1968, the Mayor issued a special order entmsting the
management of the plant to Mr. Aldo Profumo, the managing director of ELSI.
After Mr. Profumo refused to accept this appointment and to carry out the tasks
assigned to him in the interest of ELSI, on 16 April the Mayor appointed MI.
SilvioLaurin. the senior comnanv director to replacehim temnorarilv. Mr. Laurin
îcccpvd the appointnieni ah ihc Mayor .~ls~appointed kir. ~rmünrlo Celonc
and Mr. Nicolo Maggiù as his rïprssrnt~tivcs tu enforcc his urrlers in the factory. CORRESPONDENCE 467
It should be noted, moreover, that the company may approach the judge and
ask that, instead of being declared bankrupt, it be allowed to submit to the
creditors a proposed settlemeut (concordaro prevenrivo).The proposal must:
(i) contain realistic assurances by the dehtor that the preferred creditors will
receive 100per cent payment and that the unsecured creditors will receiveat
least 40 per cent of sums due within 6 months, or assurances of the payment
of interest in the case of a delny; and
\~~, ~~~~-~~t~ ~transfer of al1the dehtor's assets to the creditors (alwavs assumine
that the evaluation of these assets shows a possible return'to the creditor;
as indicated above: see Art. 160of the Bankruptcy Law).
The Judge would then appoint a judicial commissioner (see Art. 163 of the
Bankruptcy Law). The creditors are called to vote, reaching decisions by a
majority representing at least f of the credits (see Art. 177 of the Bankruptcy
Law). If thejudge holds the proposal to he inadmissible or if the required majority
isnot ohtained (seeArt. 179,Bankruptcy Law), thejudge will declare the debtor's
bankruptcy as his own initiative (see Art. 162 (2) of the Bankruptcy Law).
A request for a "concordaro prevenrivo" (for the creditors' acceptance) could
certainly have been presented bg ELSl in April 1968, but only if the above
orereauisites or conditions could have ken satisfied. The conditions were not
iresent, since: (i) the company's hooks were not in order; and (ii) ELSI's assets
were not sufficientto satisfy its creditors to the extent indicated above.
"2. For the purpose of determining whether the requirements of Italian
law as to the impact of losses on the capital of the company were satisfied,
was the manaee-ent of ELSI entitled. as a matter of ltalian law or of sound
accouniing prdciicc. in bd,c ii,clf on the book valucs in th? Septemher 1967
bdl~ncc,hcct (first column) 50 long as the 3djusimcnts (second columni h~d
not heen made in the company's hooks, or it was obliged for that purpose
either to make those adjustnients forthwith in the company's hooks or Io
use the adjusted figures (third column) Io determine the company's financial
and legal position?"
The answer to this question is as follows.
First, Article 2423 (2) of the Italian Civil Code States that
"the balance sheet and the orofit and loss account mus1demonstrate clearlv
and accurately ("con chiakzza e precisione") the company's position with
regard to ils assets and liabilities and the profits made or losses sustained".
The principle of the "truth" of the balance sheet is thus constantly acknow-
ledged in Italian doctrine and jurisprudence. In the application of the legal
orincioles of evaluation..the .rincinleof ru den ce" is likewiserecog-ized in that
cvaluation. Buih of ihrse prinsiplrs arc considercd to belong to public pulicy.
Considering ihesc principles 11 is no1 evcn imaginable ihat a cornpan). wi~uld
use book values in its accounts when these are in excessof the actual values. The
fact that the company did uot make the adjustments to its own books is not
relevant. In actual fact the books of account can be "rectified" with successive
carry-overs. The amendment to the books must be made as soon as possible,
showing the lesser value decided on by the directors.
Furthermore, it must be noted that the adjustments accepted by ELSI's man-
agement were:468 ELETTRONICA SICULA
1,309million lire for a reserve for inventories, instead of 407.8 million;
100million in losses in subsidiary companies; and
1,653million in losses in deferred costs.
This means that in the adjusted figures accepted by ELSI's management, a
deficit of 881 million (after baving lost and cancelled capital stock, reserves and
stockholders' subscription accounts) was in fact recognized (see p. 3', third
column, of the Coopers & Lybrand Report).
But the accountants' adjustments were even greater:
453.3 million in cxccss of nci re:!limblc v~luein in\cntonci (po4,ipage 2'
of Coopcrs & 1.ybr~nd.sReport)
463 6 million in relation to fixedrisseis((minipage 2?'of satdReport).
The above figurescame to a grand total of 916.9millionlirein losses,according
to the auditors' sue~estedadiustments hot acceoted bv the com.anv,,
Therefore, the c&~~an~'sdeficit, according 1; the a&ountants, was not 881.3
million lire, but was 1,798.2million lire (916.9+881.3).
Of course. the ahove-mentioned deficit of 1,798.2million lire was ascertained
hy Coopers & Lyhrand in relation to the year ended 30 Septemher 1967. By
March 1968,as we know, there had been 1,068.2million lire in further losses ta
add to ELSI's economic and financial disaster.
BANCAD'ITALIA:INTERESTRATEON CURRENT ACCOUNTS
(1956-1967)
[See p. 460, supra.]
LEITERDATED 9 MAY 1968 FROMTHE MAYOROF PALERMO TO GENEiAL LUlGl
MANCINI,DIRECTORGENERALOF TEE NATOHAWK MANAGEMENT OFFICE
CONFIDENTIAL
Palermo, 9 May 1968.
Dear General Mancini,
1 thank you for the kind welcome extended the afternoon of May 2 ta my
delegates Messers. A. Celone and N. Maggio accompanied by MI. S. Rovelli.
1apologize once again for being unable ta take part in the meeting on account
of previous business engagements deriving from my office, which 1 could no1
'P. 434,supra.
P. 433,supra. CORRESPONDENCE 469
postpone. In regard ta the matters discussedwith my delegates, 1wish ta confirm
and stress the following points:
I.Seizureand operationalplan
Rayihcun-Elji hïd announccd ilicirintention i<iu\pcnd aciivli) in the Pslcrmo
plan1 sincç the monrh of March 1968, alleging purportcd union and n.on.imii
reasons. As ta the latter in particular they lamentedthat their rcpeated requests
for oarticioation hv Italian oublic aeencies had been turned down. Durine the ~ ~ ~ ~
pcri8d of iheir an~<iunamcni io il& ihc Ra)thri)n-Elsi pl;inr, the? proc$ded
wiih liplan of mdss dicmisslilofikillcd personnel, and ai ihc end oi hlarch ihc)
sent out several hundreds of letters terminatine emulovment contracts.
The implementation of these decisions by ~aythèon:~lsi generated lively reac-
tions on the part of labour. The unions promoted a general solidarity strike; the
conipany cmployee, hcld proicsi iiisnifistaiiuns and: among oihcr ihingi, occu-
pied the factory and callcd io the aiieniion of boih city and national public
opinion ihe exircmely grlivcprohlcni crciiicd by al1the implic-iioni dcriviiig irom
a final termination of al1electronic activity in the Palermo area.
In this connection it is worth emphasizing tbat the Raytheon-Elsi plant repre-
sents a concrete reality in the economic life of Our province and of the entire
Sicilian Region. This reality consists in equipment, facilities, highly skilledlabour,
a management staff. domestic and foreign commercialrelationshios. al1witnessine
a sociaÏand cconomic poicniial of \uh\ïaniial kïring and no dohhi irrcplaczÿbl~
in ihc framcuork of cionomic planning in Sicily.
Undcr ihcsc circumstnnw3, thercfore, Kayiheon-Elsi'sdeci,iuns si>undcdmore
like an extreme effort to exert pressure on the central and regional government
organs ta get the partnership requested rather than like an absolute need arising
from an irreversihle corporate situation.
Actually, the threat of a plant shutdown as well as the mass dismissal of
uersonnel with al1 the conseauent immediate and future social nroblems. the
drrïdcd ddngcr of ihr dcsiru~~iion2nd dismcnikrmeni 01' iiso&pany w~ihdn
econoniic value compossd noi solcl) of corporJtc invesrmcnis bur also ai' ihc
skill and co-ooeration of the ~ersonnel and Ïelatinr human element. al1roused
ihc cuncern ui ihc xntrdl and rqy<inal gi>r.ernmcn~orgdns a1 ever). Icvcl. This
conccrn is pro\cd b) ihc dciailcd 2nd frcqucni articlcs appilanng inihc locdl and
national press to inform public opinion of the efforts made to preserve, also
through State intervention, an electronic industry in Sicily, and particularly in
Palermo, an area naturally preferable to any other industnal area because of the
presence on the spot of a complete plant and skilled engineering and labour
forces.
No iiiiempts wcrc ~icglcciediu discu>s and ncgotiliir. ni 311Icvels uirh the
R3)tlicon-Elsi rcpreicniatii.~~ Iloiic\cr. no profitlihle re>ulisucrc obiaiiicd he.
cause oix ngid atiiiudc assunicd by ihrc represcni~tii,cs. ün diiiiude difliculi tu
ex~lain othe; than in the lieht of ~reconceivedclearlv su. .lative intentions. For
ihcie reawnh IIuas ncccsidry for the adminiriraiii,~ aurhonty io step in, in urder
icikccp ihc siiu~tion frum drlerii)raiing in man) uï)s. such as:
(a) a dismantlement of a productive activity highly affecting the economy of the
city and the Region;
(b) a continuation of labour strikes likely ta jeapardize also other productive
sectors in the long run;
(c) a worsening of the state of tension of the Company personnel, which was
already perturhing public order and increasingly worrying the authorities
because of surely foreseeable consequential actions in the immediate future. The seizure order made necessary by the facts expounded above aimed and
aims at safeeuardine the economic interests of the oublic and the welfare of the
Palermo la&ur cokwnity, without attempting in any way to prejudice Ray-
theon-Elsi. The purpose of the seizure is not to freeze an operation, but to use
and preserve the work force and production facilities.
Therefore, an operational plant composed of different phases has been drawn
up. After completion of the first phase consisting in the taking of an inventory
and in the maintenance of equipment not operating for two months, a gradua1
resumotion of activitv iscommencina both in the framework of existinecontracts.
provided they refer 1; economic anfindustrial operations, and in theïramework
of new relationships with domestic and foreign customers. The above activity is
meant 10 represent a continuity of the company's economic operation and bill
subsequently be carried on by the Company 10 be formed with the participation
of IR1 and ESPI under the auspices of the Sicilian Government. As a matter of
fact, there are definite indications that foreign groups, with which ne-otiations
are well under wav. will verv likelv oarticioge in th& new comoanv.
The solution al;eady proposed 6 ihe ~aio Hawk ~ana~emek office verbally,
and now being submitted formally in writing, falls within the framework of the
above report, which embodies the reasons that make the seizure legitimate and
expound the goals that the seizure plans to achieve.
The contractual commitments already existing shall remain and he met by the
seizure administration, which is perfectly in a position to do so as may he
confirmed bv the Militarv Aaencies of the Ministrv of Defence in charee of
secunty andman~facturii~. ~here seems ta be a po&ibility, however, thatkay-
theon-Elsi may disregard the legal implications of the state of seizure and take
actions 10cancel the contracts and eventuallv to have them transferred to other
foreign c.;iahlichnients of Rayiheon cornpan), or of third partie,. Evçn ssrdming
the ieasibility of ,u~.han action (among other things iiuould conflici with the
\.ers intercris of the conipilny which. thercfore. should behappy riith th? continu-
ance of an industrial manufacturing activity) the contracts under reference or at
least those that have not yet been completed, would have to be replaced by the
Bureau with new contracts with different parties. Now, since most of the work
under these contracts is performed, as known, with equipment belonging to the
Nato Hawk organization, it would be uneconomical Io dismantle this equipment
and transfer it elsewhere. Also, it would take substantial time to train new
personnel and start a new product line. The Hawk Department of the Palermo
plant, on the other hand, has already acquired the highest degreeof specialization
in this field.
For these practical reasons it is deemed that the Palermo plant should be
preferred, and the existing contracts should be transferred to the govemment
seizing authority, which would also assume al1relating responsibilities, since the
said contracts involvean indusrrial acriviv, and the purpose of the seimre is the
preservation of such activity.
2. Conrracrs in course
The enclosedchart (encl. 1) 'summarizesthe status of the contracts in existence.
For each contract a delivery schedule for the near future is indicated. 1wish to
confirm that the production lines affecting the Hawk program have already
resumed their activity, and that the delivery commitments indicated in the chart
are based on this fact. CORRESPONDENCE 471
3. Equipment,materialsandpersonnel
With regard to the perplexities raised by you in the course of the meeting, 1
wish to point out the following:
(a) Al1the personnel connected with the program (executives, engineers,techni-
cians. skilled workers) have returned Io work and aereed to oDerate under
the new administration. 1 am enclosing (encl. 2)l-a notarizid statement
indicating the work force presently at the disposal of the seizing authority.
IbJ The orocürement of matefial needed to carrv out the work planned does not
presént, for the time heing, any difficulti as a result if the change in
administration. All the materials required for the normal production cycle
are in the company stores. Should any shortages occur in the future, no
narticular orocurement oroblems are envisa~e-since the necessarv materials
are freely available on the market.
(c) All the material and equipment property of the O.P.L.O.H. as well as the
classifieddocumentation are in oerfect order and condition under the surveil-
lance of both the S.G.S. and thécompany security service, whichhave never
ceased to operate.
1hope 1have given you, dear General Mancini, al1the necessary information
to disoel your uueasiness concernina the continuity in the work and supply of
the màterials reauired b,,vour oreaGzation.
I.ooking f~rxard i<hc.iring rrurii pu xi )dur carli~,.i~unienicn~~çc~~ncerning
the proçdurcs idbç folli>u.cJtu iorniïlix ihr ncu rel.iiinn.hips. I ihmkyou iur
your kind attention and assistance.
(Signed) BEVILACQUA.
86. THE AGENT OF ITALY TO THE REGISTRAR
13March 1989.
Pursuant to the invitation of the President ofthe Chamher of the International
Court of Justice in the ELSIcase, addressed to the Parties at the public sitting
of 2 March last2, 1 have the honour to transmit hereafter the comments of the
Italian Government to the re.olies3 eiven. on 27 February, by the Amencan
Government to the questions put hy Che~udges
Our comments are as follows:
''1hç ansucrj pvrn h) thc Applicani tu question, irom tlic IIcnch mcrçl)
contain .Isiatcnient «i ihc Applic3nt'CASC ilsdc\elopçd In the second round
of pleadings. These answers,-as well as the pleadings, present a senes of
assertions which either distort facts or are unsupported by evidence.
As the essential aspects of the Applicant's case were considered hy the
Resoondent in its rebuttal, a detailed consideration of each answer does not
apGar to be necessary at this stage of the proceedings.
However, the Respondeni would like to point out in particular two inac-
curacies in the Applicant's replies.
****
' Not provided.
See pp.371 and 383, supra.
' See pp.449-456, supra. ,
Written replies of Italy to the questions put by members of the Chamber of the Court on 23 February 1989