Summary of the Judgment of 20 July 1989

Summaries of Judgments, AdNot an official documentrs of the Internationa
l Court of Justice

CASECONCERNING ELE'ITRONICA SICULAS.P.A.(ELSI)

Judgmentof 20 July 11989

In itsjudgment,theChamberof theCourt1Formetd odeal "IN FAVOUR: PresidentRuda;JudgesOda, Ago and Sir
rejectedanItalianobjectiontotheadmissibilityoftheAppli- Robrt Jennings.
cation and found thatItalhad not commind any of the "AGAINST: JudgeSchwebel."
breaches, alleged by the United States, of the 'Treaty of
Friendship,Commerce and Ndvigationbetwtxn the Parties
signed atRome on2 February1989or theAj,pennentSup-
plementingthat Treaty.It acocbrdinrejectethe claimto
reparationmadebytheUnitedStates.
Judge Oda appended a separate opinion and Judge
Schwebeladissentingopinionto theJudgment.
In these opinions the Judges concerned stated and
explained thep~sitionsthey adoptedin regard to certain
pointsdt:altwithinthe Judgment.
TheChamberwascomposed as follows:PiresihntRub,
JudgesOda,Ago,SchwebelandSir robe^ Jannings.

ProceedingsandSubmissionsofthehrties
(paras.1-12)
Thecomplete textoftheoperativeclauseo:fthe Judgment The Chamberbeginsby recapitulatingthe variousstages
isasfollows: ofthe proceedings, recalling that the pctseconcernsa
dispute]inwhichthe UnitedStatesof America claims that
"THE CHAMBER, Italy,byitsactionswithrespecttoanItaliancompany,Elet-
"(1) Unanimously, tronica.$iculaS.p.A. (ELSI),which was wholly ownedby
"Rejectstheobjectionpresentbythe Italian Republic two United States corporations,the Rayheon Company
tothe admissibilityof theApplicationfiledinthiscaseby("Raytheon") and theMachlettLaboratoriesIncorporated
theUnitedStatesof Americ::an6February198'7; ("Machlett"), hasviolatedcertainprovisionsofthekaty of
"(2) Byfour votestoone, Friendship,CommerceandNavigationbetween the two Par-
"FindsthattheItalianR4:publichasnotcommittedany ties, corlcludedin Romeon 2 February 1948("the FCN
of the breaches, alleged in the said Applicao,f the lhaty") and the SupplementaryAgreemeritthereto con-
'IteatyofFriendship,Co~llrnerandNavilgatiolletween cludedon26 September1951.
the Parties signedat Romeon 2 Februar:1948or of the
AgreementSupplementingthat 'Ikeatysignedby thPar- Originslatadevelopmentofthedispute
tiesatWashingtonon26September 195 1. (paras.13-45)

"IRobertJennings.entRuda;JudgesOda~A , go and Sir In %7, Raytheonheld99.16%ofthe sharesinELSI,the
remaining 0.84% being heldby Machlen, which was a
"AGAINST: JudgeSchwebe,l. lishedinPalermo,Sicily,whereithadaplantforthe produc-
"(3) Byfourvotestoone, tionofelectroniccomponents;in 1967ithada workforceof
"Rejects,accordingly,the claim for reparationmade slightlyunder900employees.Its fivemajor productlines
against the Republic of Italy by the United States ofwere microwavetubes, cathode-raytubes, semiconductor
America. rectifieni,X-ray tubes and sarresters.

Continued on npage From1%4to 1966ELSI madeanoperatingprofit,butthis againsttheMiniste:rof theInteriorofItalyandthe Mayorof
was insufficientto offset its debtexpense:or accumulated Palermo for damages resulting from the requisition. The
losses.In February 1967, accordingto the United States, CourtofAppealofPalermoawardeddamagesforlossofuse
Raytheonbegan taking steps to endeavourto make ELSI oftheplantduringtheperiodoftherequisition.
self-sufficient.
The bankruptcy proceedingsclosed in November 1985.
At the same time numerous meetings wt:reheld between Ofthe amountrealized,nosurplus remainedfor distribution
companies, the purposeof which was stated to be to find totheshareholders,RaytheonandMachlett.

ence and to explorethe possibilitiesof other governmental 1. Jurjsdjctjonof theCourtandAdmissibilityoftheAppli-
support. (paras48-63)fExhaustion ofLocalRemedies

When it became apparent that thesedliscussions were An objectionto the admissibilityof the presentcasewas
theon and Machlett, as shareholdersin EI,SI, began seri- enteredbyItaly initsCounter-Memorial,onthe groundofan
ouslyto planto closeand liquidateELSI to minimizetheir allegedfailureof the two UnitedStates corporations,Ray-
losses.Anasset analysiswaspreparedbytheChiefFinancial theonandMachlett,on whose behalftheUnitedStatesclaim
Officer of Raytheonshowing theexpectedpositionon 31 is brought,toexhaust the local remediavailableto themin
March 1968.ThisshowedthebookvalueofELSI'sassetsas Italy.The Parties 8,greedthat this objectionbe heard and
18,640millionlire; asexplainedinhisaffidavitfiledinthese determinedintheframeworkofthemerits.
proceedings, italso showed "the minimtunProspects of
recoveryof values whichwe couldbe Sureof*in order to United Sm:s questioned whether the ruleof the
ensurean orderly liquidation process",dthe totalrealiz- exhaustionof local remedies could applyat all, as Article
ablevalueoftheassetsonthisbasis(the"quick-salevalue") XXVI(thejurisdictionalclause)of the FCNTreatyis cate-
wascalculatedtobe 10,838.8millionlire.The totaldebtof goricalin its andunqualifiedby anyrefeRnceto the
the companyat 30 September1967was 139123.9million localremediesrule.~talsoarguedthatinso farasitsclaimis
lire. The "orderlyliquidation" contemplatewasan opera- for a declaratoryjudgment ofa direct injuryto the United
tion fOIthe saleof ELSI'SbusinessOrits assets,en bloOI independentof the dispute over the alleged violation in,
separately,andthedischargeofitsdebts,fullyorotherwise, res~t ofRaytheonandMachlett,thelocal remediesrule is
outoftheproceeds,thewholeoperationbeingunderthecon- inapplicable.The <:hamberrejects these arguments. The
trolof ELSI'sownmanagement.Itwascontemplatedthat UnitedStatesalsoolxervedthatat notime until the filinof
creditorswouldbe paid in full, Or,if only the "quick-Sale theRespondent'sC<,unter-Memoriailnthepresentproceed-
value" was the unsecuredmajor'creditors ingsdidItaly suggestthatRaytheonandMachlett shouldsue
receiveabout50percentoftheirclaims, anc tlatthiswould intheltaliancourton thebasis Treaty,andarguedthat
be as more favourable than what be this amountsto an estoppel. The Chamber however found
expectedinabankruptcy. that there aredifficultiesin constructingan estoppel froma
On28March1968,itwasdecidedthattheCompany cease merefailuretomentionamatterataparticularpointinsome-
operations.Meetingswith Italianofficialsowevercontin- whatdesultory diplomatic exchanges.
ued, at whichtheItalian rigornuslypressed
nottoclosethe plant andnottodismissthe workforceO. n29 Onthequestion lWalremedieswere,orwerenot,
March 1968letters ofdismissalwere mailedto theemploy- thatthedamageclaillnedin thiscasettdhavebeencausedto
eesofELSI. Raytheonand Machlett is said to have resulted from the
On 1April 1968the Mayorof Palermoissuedan order, "lossesincurredbyELSI'sownersasaresultoftheinvolun-
effective immediately, requisitioningEL!iI's plant and changein the nlannerof disposingof ELSI'S assetsw:
relatedassetsforaperiodofsix months. and it is the requisitionorderthatis saidto havecausedthis
The Partiesdisagreeover whether, immediately priotro change, and which is therefore at the core of the United
the requisition order, there had been any occupation of Statescomplaint.Itwasthereforerightthatlocalremediesbe
ELSI'splantbythe employees, butitiscomnnongroundthat pursuedbyELSIitself.
the plantwassooccupiedduringtheperiodimmediatelyfol-
lowing the requisition. Afterexamining theaction takenby ELS~ in its appeal
On 19April 1968ELSIbroughtan administrativeappeal againsttherequisitiorderand, later,bythetrusteeinank-
againsttherequisitionto thePrefectofPalernlo. ruptcy,whoclaimed damagesfortherequisition,theCham-
betconsidersthatthemunicipalcourtshadbeen fullyseized
AbankruptcypetitionwasfiledbyELSI on 26April 1968, ofthematterwhichisthesubstanceofthe Applicant'sclaim
refemng to the requisitionas the reasonwhy the company beforetheChamber.Italyhowevercontendedthat iw t aspos-
had lostcontrolof the plantandcould not avail itselfof an municipalcourts, in conjunctionwith Article 2043 of the
which had becomedue and couldnot bemet. A decreeofnts ItalianCivilCode,whichwasnever done.
bankruptcywas issued the nibu~le di .&letVWon 16
May 1968. After examining the jurisprudence cited by Italy, the
Chamber concludesthatit is impossibleto deducewhatthe
The administrative appeafliledbyELSIagainst therequi- attitudeoftheItaliancourtswouldhavebeenifsucha claim
sitionorderwasdeterminedby the prefectof Rdermoby a hadbeenbrought. SinceitwasforItalytoshowtheexistence
decisiongivenon22August1969,bywhich annulledthe ofalocal remedy,ant1asItalyhas notbeenableto satisfythe
requisition order.The Parties areat issue on the question Chamberthat there clearly remainedsome remedy which
appealofthis character.me was or was not normalfor an Raytileon and Machlett, independentlyof ELSI, and of
ELSI's trustee in bankruptcy, oughtto have pursuedand
In the meantime,on 16June 1970 the trustee in bank- exhausted, the Chanber rejects the objection of non-
ruptcy had brought proceedings inthe Court of Palermo exhaustionoflocalremedies.
198II. Alleged Breacheo s fthe TreatyofFrierdhip, Com- manage.Thereferencein ArticleI11toconformitywith "the
merce andNavigationaid its Supplem?ntarA ygree- applicablelawsandregulations"cannotmeanthat, ifan act
ment is inconformitywiththemunicipallawandregulations(as,
accordingto Italy, therequisitionwasj, that would ofitself
(paras.64-67) excludemy possibilitythatitwasanactinbreachoftheFCN
Paragraph1oftheUnitedStatesFinalSubmissioinc slaims Treaty.Compliancewithmunicipal lawandcompliancewith
that: theprovisionsofatreatyaredifferentquestio~ls.
"(1) The Respondentviolated the international legal Thetreatyrightto bepermittedtocontrolandmanagecan-
obligationswhich it undertctokby the Wity of Friend- not be interpretedas a warrantythat thenormalexerciseof
ship, Commerceand Navigation betweenrthetwo coun- controlandmanagementshallneverbe distudnd; every sys-
tries, and theSupplementtlxereto,and in particular,vio- temoflawmustprovide,forexample,for inwrferenceswith
latedArticles11,V,VIIof theTreaty andArticleIofthe the normalexerciseofrights duringpublicemergenciesand
Supplement .. ." thelike.
Theactsofthe Respondentwhichareallegedtoviolateits The requisitionwasfoundbothby the Prefectandby the
treatyobligationsweredescrihcdbytheApplicant's counsel CourtofAppealof Palermonot to havebeenjustifiedinthe
intermswhichit isconvenienttocitehere: applicabllelocal law;iftherefore, as seemsto be thecase, it
"First, the Respondent violatedits legalot)ligations deprivedRaytheonandMachlettofwhat wereatthemoment
whenit unlawfullyrequisitionedtheELSIplanton 1April their most crucial rightsto control and manage,it might
1968whichdeniedtheELSI:stockholderstheirdirectright appearprimafacieaviolationofArticle111,paragraph 2.
to liquidatetheELSIassets.inanorderlyfashion. Second, According tothe Respondent,however, Raytheon and
the Respondent violatedits;obligationswhen it allowed Machlettwere,becauseofELSI'sfinancialposition, already
ELSIworkers to occupythe:plant. Third, theRespondent naked of those very rights of control and managementof
violateditsobligationswhenit unreasonab1,dyelayedrul- which theyclaim to havebeendeprived.The Chamber has
ing onthelawfulnessofthe:requisitionfor 16months until thereforeto considerwhateffect, if any,the financial posi-
immediatelyaftertheELSIplant,equipmentand work-in- tionofELSImayhavehadinthat respect,first asapractical
process had all been acquired by ELTEI,. Fourth and matter, andthenalsoasaquestionofItalian law.
finally,the Respondentviolated its obligr~tionwhen it TheessenceoftheApplicant'sclaimhasbeenthroughout
interferedwith the ELSIbrinkruptcyproceedings,which thatRaytheonandMachlett,whichcontrolledELSI,wereby
allowedthe Respondenttorealizeitspreviously4:xpressed therequisitiondeprivedoftheright,and ofthepracticalpos-
intentionofacquiringELSIforapricefarlassthanitsfair sibility, of conducting an orderly liquidationof ELSI's
marketvalue." assets, the plan for which liquidationwas however very
Themostimportantofthese:actsoftheRespondentwhich much boundupwiththefinancialstateofELSI.
the Applicant claimsto have been in violationof the FCN
'Ifeatyis the requisitionof the ELSI plantby the Mayorof Afternotingthattheorderlyliquidationwas analternative
Palermoon 1April1968,whichisclaimedtoInavefrustrated to theaimof keepingthe place going,andthatit was hoped
the plan for whatthe Applicantterms an "orderl:yliquida- Italian a.uthorities,and that the Italian authoritiesdid not
tion" of the company. It is fair to desc~ibethe other come to the rescue on acceptable terms, the Chamber
impugnedacts of the Respondentas ancillavyto this core observesthat the crucial questionis whetherRaytheon,on
claimbased ontherequisitionandits effects. the eveof the requisition,andafterthe closureof the plant
andthe dismissal,on 29March 1968,ofthemajorityofthe
A. ArticleIIIof FCNTreaty employees,was ina positiontocarryoutitsorderly liquida-
(paras.68-101) tionp1ar1,venapartfromitsallegedfrustrationbythe requi-
TheallegationbytheUnitedStatesofaviolationofArticle sition.
III of theFCNTreatyby Italy relatesto thefirstsentenceof
thesecondparagraph,which ~>rovides: dationwouldhave dependedupona numberof factorsnot liqui-
"The nationals, corporationsandassociiatioof either underthecontrolof ELSI'smanagement. Evidence hab seen
HighContractingParty shail'bepermitted,in conformity producedby the Applicantthat Raytheonwas preparedto
withtheapplicablelawsandregulationswithinthe temto- supplycashflowandother assistancenecessary toeffectthe
riesofthe otherHighContractingParty,toorganize,con- orderlyliquidation,andtheChamberseesno reasontoques-
trol and managecorporati.onsand associationsof such tionthatRaytheonhadenteredorwasreadytoenterintosuch
otherHighContracting My forengagingincomercid, acommitment;butotherfactorsgiverisetosomedoubt.
manufacturing, processing, mininge,ducsitioncd,hilan- After considering these other factors governing the
thropic,religiousandscientificactivities." matter-the preparednessof creditorsto co-operatein an
In termsof thepresentcase, theeffectof rhissentenceis orderly liquidation, especiallyin case of inequalityamong
that RaytheonandMachlettiareto be permitted,in confor- them, thelikelihoodofthesaleoftheassetsrealizingenough
mitywiththeapplicablelaws ;andregulations,withinthetem- to pay all creditors in full, the claims of the dismissed
tory of Italy, to organize, controland manageEZLSIT. he employtxs,thedifficultyofobtainingthebestpriceforassets
claimof the UnitedStates fcncuseson the rightto "control soldwitha minimumdelay,in view ofthe troublelikelyat
andmanage".TheChambercronsiders whetherthereisavio- theplantwhentheclosureplansbecame known,andthe atti-
lationofthis Articleif, astheitedStatesalleges,the req- tudeof theSicilianadministration-the Chamberconcludes
uisitionhadtheeffectofdeprivingELSIofbclththerightand that all thesefactorspoint towardaconclusionthat the feasi-
practicalpossibilityofsellingoffitsplantandassetsforsatis- bilityat 31March 1968of a planof orderly liquidation,an
factionof itsliabilitiesto itsditorsandsatisfactionof its essentiallinkinthechainofreasoninguponwhichthe United
shareholders. Statesclaimrests,has notbeensufficientlyestablished.
A requisitionofthiskindmastnormallyamounttoadepri- Finallytherewas, besidethe practicalities, thepositionin
vation,at least inimportanpart,of the rightocontroland Italianbankruptcylaw.If ELSI was ina stateof legalnsol-vency at31March1968,andif,ascontendedbyItaly,astate fullprotectionandecurityrequiredbyinternationallaw"; or
ofinsolvencyentailedan obligationonthecompanytopeti- indeedaslessthantllenationalorthird-StatestandardThe
tionforitsownbankruptcy, thetherelevant rightsofcontrol merefactthattheoccupationwasreferredto bythe Courtof
and managementwouldnot haveexistedto be protectedby Appealof Palermo iiSunlawfuldoesnot, in the Chamber's
the FCNTreaty.Whilenot essential to theChamber's con- view,necessarilymeanthat the protection affordellshort
clusionstatedabove,anassessmentof ELSI's solvency asa ofth~nationalstandardto whichtheFCNTreatyrefers. The
matterofItalianlawisthus highly material. essentialquestionis,whetherthe locallaw, eitherinitsterms
Afterconsi&ringthedecisionofthePrefectandthejudg- or in its application,hastreatedUnitedStatesnationalsless
men&of the courtsof mermo, the Cham&r observesthat wellthanItaliannationd~.This,inthe opinionoftheCham-
whethertheir findingsretoberegardedasdeterminationsas ber, has not been shown. The Chamber must, therefore,
a matterof Italian law thatELSIwasinsolventon31March rejectthechargeofZnY violationof ArticleV,paragraphs1
1968,orasfindingsthatthefinancialpositionfELSIonthat and3.
datewassodesperatethatitwaspastsaving,makesnodiffer- The Applicantsees a further breachof Article V, para-
ence;theyreinforce the conclusiothatthe feasibilityof an graphs 1 and 3, of the FCN Treaty,in the time taken- 16
orderly liquidationisnot sufficientlyestablisl~ed. months-before thePrefect ruledon ELSI'sadministrative
If,therefore, the managementof ELSI, at the material appealagainst theiiyor'srequisition order.Forthe reasons
time,had nopractical possibilityofcarryingoutsuccessfullyalready explainedinconnectionwithArticleIn, theCham-
a schemeof orderlyliquidationunderitsow11management, berrejectsthecontentionthat, hadtherebeena speedydeci-
and may indeed already haveforfeitedany right to do so sionbythePrefect,th~bankruptcymighthavebeenavoided.
underItalianlaw,itcannotbesaid thatit wasthe requisition Withregard to thf:alternativecontentionthat ~talywas
that deprivedit of this facultyof controland management. obligedto protectEI,SI from thedeleterious effectsof the
There were several causes actingtogether that led to the requisition,i~er alillby providingan adequatemethodof
disastertoELSI,ofwhichtheeffectsoftherequisitionmight overturningit, the Chamberobservesthat underArticleV
no doubthavebeenone. Thepossibilityof c~rderlyliquida- the "full protectionandsecuritywmustconformtothemini-
tionispurelyamatterofspeculation.The Chamberisthere- mum internationalst~mdar,upplementedbythecriteriaof
foreunableto seehereanythingwhichcanbesaidtoamount national treatmentand most-favoured-nationtreatment. It
toaviolationbyItalyofArticle1x1p, aragraph2, oftheFCN mustbedoubted whetherinallthecircumstances,the delay
Treaty. in the Prefect'srulingcan be regardedas fallingbelowthe
minimuminternationalstandard.As regards the contention
B. ArticleK paragraphs1and 3,of FCN li-eaty of failure to accor;national standardof protection, the
(paras. 102-112) Chamber, thoughnot entirely convincedby the Respon-
TheA~~licuu's'Iaimunderparagraphs and of dent'scontention that sucha lengthy &layasinELSI'scase.
Vof theFCNTreatyisconcernedwithprotectionandsecu- wasquiteusual,isnwedeless not thataUnationd
rityofnationalsandtheirproperty. standard,,of more rapid of
Paragraph1of ArticleV providesfor "the mostconstant appealshasbeen showntohaveexisted.Itisthereforeunable
protectionandsecurity" fornationalsofeachighContract- vooftheFCNsdT~~~.violationofparagraphs1and3ofArticle
ing F'arty,oth "for theirpersonsand property"; and also
that, in relationto property,the term b'nati~nals"shall be
construedto "inclu& corporationsandassociiitions";andin c. paragraph t,ofFCN Treaty
definingthe natureoftheprotection,theequiredstandardis (paras113-119)
establishedbyareferenceto "the fullprotectionandsecurity The firstsentenceof ArticleV,pmgmph 2, of the FCN
requiredby internationallaw". Paragraph3 elaboratesthis Treatyprovidesasfollows:
notionofprotectionandsecurityfurther,byrequiringnoless "2. The propertyofnationals,corporationsandassoci-
than the standardacmrdedtothenationals,corporationsand ationsofeitherHighcontracting Rury shallnotbe *n
associationsoftheotherHighContracting Party;and noless withinthefmitOries ofthe HighContncting Rrcl
thanthat the cO~mtions and withoutdue oflaw and withoutthe pay-
ciationsof any thirdcountry.Thereare,acccrdingly,three mentof justandefixtive COmpensatiOn~,
different standardsof protection, allof which have to be
satisfied. The Chamber notesa differencein terminologybetween
A breachof these provisionsis seenby the Applicantto ing" iswiderandlooserthan"expropriazione".heword"talc-
havebeencommittedwhenthe Respondent 66alloweELSI
workerstooccupytheplant". Whilenoting the.contentionof In the contention of the United States, first, bthe
Italy that the relevant "property", theplant in memo, Respondent's actfrequisitioningtheELSIplantanditssub-
belonged notto Raytheonand Machlea but to the Italian sequent acts in acquiring the plant, assets, and work-
companyELSI, the Chamber examinesthe matter on the in-progress, singlyandincombination,constitutetakingsof
basisofthe UnitedStatesargumentthat the"p~~perty"tobe property without due procesf law andjust compensation.
protectedwasELSIitself. Secondly,the UnitedStatesclaimsthat,byinterferencewith
The referencein ArticleV to the provisionof "constant the bankruptcy procdings, the proceed*
-tion and cannotbe construed thegivingof through theELEL companyto acquiretheELSIplant and
a warranty that propertyallneverinanycircumstancesbe for lesthan fairmarketvalue.
occupiedordisturbed.Inanyevent,consideringthat itis not TheChamberobservesthatthe chargebased on thecombi-
establishedthatanydeterioration intheplantmd machinery nationoftherequisitionandsubsequentactsisreallythatthe
wasduetothe presenceofthe workers,and thr~ttheauthori- requisitionwas the beginningof a process that led to the
tieswereablenot merelytoprotecttheplant buteveninsome acquisitionofthebulk oftheassetsof ELSIforfar lessthan
measur tecontinueproduction, theprotectioprovidedby marketvalue.Whatisthusalleged bythe Applicant,ifnotan
the authoritiescouldnot be regardedas fallingbelow "the overtexpropriation,i.ghtberegardedasadisguisedexpro-

200priation;because,attheendoftheprocess,itis indeedtitleto orderly liquidation.However, the Chamberconsiders that
proper itself thatis at stake. TheUnitedStateshad, how- theeffectoftheword"particularly", introducintheclauses
ever,duringtheoralproceedings,disavowedanyallegation "(a)" and "(b)", suggests thatthe prohibitionof arbitrary
that the Italian authoritieswere parties to a ~:ons]toracy(anddisciiminatory)actsisnotconfined tothoseresulting in
bringaboutthe changeofowne~rship. the situationsdescribedin "(a)" and"(b)", butisineffecta
prohibitionof such acts whetheror not they producesuch
Assuming, though withoutdeciding, that "expropriazi- results.t is necessary,therefore, to examinewhetherthe
one" mightbe wideenougthoincludeadisguiti expropria- requisitionwas,orwasnot,anarbitraryordiscriminatoryact
to the FCN lkaty, extending:ArticlehV,rparagraph2, tod ofitself.
"interests held directly or indirectlyby nationals" of the TheUnitedStatesclaimsthat therewas"discrimination"
FaTties. infavourofIRI, anentity controlledbyItaly;thereis, how-
ever,no sufficientevidencebeforethe Chamberto support
TheChamberfindsthatitisiiotpossibleinthisconnection the suggestion that therewas a plan to favour IRI at the
to ignoreELSI'sfinancialsitualtionandthecorisequentdeci- expenseof ELSI, and theclaim of "discriminatorymeas-
siontoclosetheplant andput aoendtothecompany'sactiv- ures" in the senseof the SupplementaryAgreementmust
ities. It cannotregard anyof the actscomplaiinedof which thereforeberejected.
occurredsubsequenttothe bankruptcyasbreachesofArticle In orderto showthat the requisitionorderwas an "arbi-
whichisnownolongerevenalleged.Evenifit werepossiblen, trary a"tinthe senseoftheSupplementaryAgreement,the
tosee the requisitionashaving;beendesignedtobringabout Applicant hasrelied(interalia) uponthestatusof thatorder
bankruptcy,asa steptowards disguisedexpropriation,then, inItalianlaw.It contendsthat therequisiti"was precisely
if ELSIwas already underan obligationto fi1a petitionof thesortofarbitraryactionwhich wasprohibited"byArticle
bankruptcy.or in sucha financial state thatsuiipetition I of the SupplementaryAgreement,inthat "1Jnderboththe
wuld notbelongdelayed, the requisitionwasanactofsuper- 'lkaty andItalian law,the requisitionwasunimeasonablnd
erogation. Furthermorethirequisition,independentlyofthe improperly motivated"; iwt as "found tobe illegal under
motiveswhichallegedly inspiredit, beingby itstermsfor a Italiandomestic lawforpreciselythisreason".
limitedperiod,andliabletobe:overturnedby;administrative Though examiningthedecisionsofthePrefectofPalermo
appeal,couldnot, intheCharr~kr'sview,amounttoa "tak- andthe Court ofAppealof Palermo,theChamberobserves
ing" contrarytoArticleV unless itconstituteda significant that thefactthatan actof a publicauthorityinay havebeen
deprivationof Raytheonand IvIachlett'sinterestin ELSI's unlawfulin municipal law d&s not necessarilymean that
plant; asmight havebeenthecaseif, while ELSI remained that act was unlawfulin international law.By itself, and
solvent,therequisitionhadbeenextendedandthehearingof withoutmore,unlawfulnesscannn..besaidtoamounttoarbi-
the administrativeappeal delayedI.nfactthebankruptcyof trariness. Thequalification givento an act by a municipal
ELSI transformedthe situatianless than a monthafter the authority(e.g.as unjustified,or unreasonableor arbitrary)
requisition. Therequisitico~ildthereforeonlyberegarded maybe a valuableindication,but idoesnot followthat the
as significantfor this purposeif it causedor triggeredthe act is necessarily tobe classed as arbitraryin international
banlauptcy.Thisis preciselytheproposition,whichis irrec- law.
oncilablewiththefindingsofdhemunicipalcourts,andwith Neitherthegroundsgivenbythe Prefectforannullingthe
theChamber's conclusions above. requisition,nor the analysisby theu*pf Appealof Pal-
ermoof the Prefect'sdecisionas a finding-&attheMayor's
D. Articlel ofSupplementaryAgreementto FCN Treaty requisitionwasan excessof power, with the.resultthat the
(paras. 12&130) orderwas subjectto a defectof lawfulness,signify,in the
Chamber'sview, necessarily andin itselfany viewby the
Article I of the Supplemer~tarAgreementto the FCN Prefect,orbythe CourtofAppealofPalermo,thattheMay-
most-favoured-nationstandards, providesasfollows:nal or or'sactwasunreasonableorarbitrary.Arbitrarinessisawil-
fuldisregardofdueprocessof law, anact which shocks, orat
"The nationgls,corporationsandassoci;itionsofeither least surprises,a senseofjuridicalpropriety. Nothingin-the
HighContractingPartyshallnotbe subjectedtc,arbitrary decisionof thehfect, or in the judgmentof the Court of
or discriminatorymeasurer;within theterritoriesof the Appealof Palermo,conveysanyindicationthat the requisi-
otherHighContractingPartyresultingparticularlyin:(a) tionorderoftheMayorwastoberegardedin thatlight.Inde-
enterpriseswhich theyhaw:beenpermittedt1oestablishor pendentllofthefindingsofthePrefectorofthelocalcourts,
acquire therein; or, (b) impairing theirother legally the Chamberconsiders thatit cannotbe said to havebeen
acquired rightsand interestsin suchenteqpriorsin the unreasonableor merelycapriciousfor the Mayorto seek to
investments' hich theyhave made, whetheintlneformof usehis powersinanattempttodosomethingaboutthe situa-
funds(loans,sharesorotbzrwise),materizds,equipment, tionin E'alermoat the momentof the requisition. TheMay-
services, processes, patents, techniquesor otherwise. or'sorderwasconsciouslymadeinthe contextof anoperat-
EachHighContracting PaKty undertakes nottodiscrimi- ingsystemoflaw andofappropriateremediesofappeal,and
nateagainstnationals,corporatiosndassociationsofthe treated;isuchby the superior administrativauthorityand
otherHighContractinghity as to their clbtainingunder the local courts. Thesee not at all themarksof an "arbi-
normal termsthecapital,n~anufacturinprocesses, skills trary" act.Accordingly, therewasno violationofArticleIof
andtechnolo--whichmay 'beneededforeconolmicdevel- theSupplementaryAgreement.
opment ."
The answer tothe Applicant's claim thatthe ~quisition E. Article VZ ZfFCNTbeaty
was an arbitraryor discriminatory actwhichviolatedboth (paras131-135)
the "(a)" andthe "(b)" claurwsof theArticleistheabsence ArticleVIIoftheFCN Treaty,infourparagraphs,isprin-
of a sufficiently palpabcor~nectiobetweenthe effectsof cipally concernedwithensuring the right"to acquire,own
therequisitionandthefailureofELSItocarryouti.tsplanned and disposeofimmovableproperty orintereststherein[intheItalian text, "beniimmobili.. .altridirittireali"]within Dissenting OpinionofJudgeSchwebel
the territoriesoftheotherHighContractingl'arty".
The Chamber notes thecontroversybetvlreenthe Parties Judge Schwebel agreed with the Judgmenitn what he
turningon the differencein meaningbetweenthe English, termedtwoparamountrespectswhich haveimportantimpli-
"interests", andtheItalian, "dirittireali",andtheproblemscationsfor thevitalityand growthofinternationallaw.
arisingoutofthequalification,bytheTreaty, fthe groupof First,theJudgmentappliesaruleofreasoninits interpre-
rightsonferredbythisArticle,layingdownalternativestand- tationof the reachof the requirementof the exhaustion of
ards, and subject to a proviso. TheChamber considers. localremedies.Itholdsnot thateverypossiblelocalremedy
however, that, for the applicationof this Article, there musthavebeenexhaustedto satisfy the local remediesrule
remainspreciselythe same difficultas in trying to apply but that, where in substance local remedies havebeen
Article In, paragraph2, of the FCN Treaty: whatreally exhausted, thatsuffices tomeetthe requirementsof the rule
deprivedRaytheonand Machlett, as shareholders,of their evenifitmaybethatavariationon the pursuitoflocalreme-
righttodisposeofELSI'sreal property,was nottherequisi- dieswas not playedout. Thisholdingthus confinescertain
tion but the precariousfinancialstate of EILSI,ultimatelypriorconstructionsoiftheruleto asensiblelimit.
leadinginescapablytobankruptcy.Inbankrulptcytherightto Second,the JudgmentlargelyconstruestheFCNTreatyin
disposeof the propertyof acopration no longer belongs wayswhichsustain ratherthanconstrainit asan instrument
evento thecompany,butto the trusteeactingfor it;andthe for theprotectionof .therightsof nationalsandcorporations
Chamber has already decidedthatELSIwason a courseto of the United States. and Ital. he Chamber declinedto
bankruptcyevenbeforethe requisition. TheChamberthere- accept a variety of argumentspressed upon it which, if
foredoesnotfindthatArticleVIIoftheFCN'Treaty hasbeen accepted, would have deprivedthe Treatyof much of its
violated, value.Inparticular,!heChamberdeclinedtoholdthat ELSI,
an Italian corporationwhoseshareswere ownedby United
States corporations,was outside the scope.of protection
affordedbytheTreaty.TheclaimsoftheUnitedStatesinthe
casewerenotsustained,butthatwas notbecause the Cham-
berfoundagainsttheUnitedStatesonthelawof t!heTreaty;it
Having found that the Respondent has not violatedthe foundagainsttheUni.tedStatesonthepracticalandlegalsig-
FCNTreatyinthe mannerassertedby theApplicant,it fol- nificancetobeattachedtothefactsofthecase.
lowsthat the Chamberrejectsalso the claimfor reparation TheTreaty andits SupplementaryAgreementwereto be
madeinthe SubmissionsoftheApplicant. interpretedasaunit, sincetheAgreementwasspecifiedtobe
"an integralpart" of the Treaty. Becausethe UnitedStates
SUMMARY OFOPINIO N SPENDHITO and Italy advancedccsnflictiinterpretationsof the Treaty
THE JUDGMEN OFTHE COURT which demonstrated that certain of its provisions were
ambiguous,thiswas a casein whichrecoursetothe prepara-
Separate OpinionofJudgeOh toryworkandcircum:rtancesoftheTreaty'sconclusionwere
inorder.Itwa$thefactthatItalyhadrequestednegotiationof
JudgeOda,inhisseparateopinion, agreeswiththeopera- theSupplementaryAgreementtomeettheascertainedneeds
tive findingsof the Judgment.He notes, however,that, in of U.S. investorsfor investmentin Italy.ilianparliamen-
initiatingthe proceedings, theUnited Statesespoused the tary proceedingsinratificationoftheTreatyandSupplement
causeof itsnationals(Raytheon and Machlet:)s sharehold- demonstratethatitwasthe intentofthePartiestogiveinves-
ersinanItaliancompany(ELSI),whereas,asrheCourtitself tors"guarantees against politicalrisks" and "freedom to
determinedinthe Barcelona TractioJudgme:not f 1970,the managethecompanies"whichinvestorsestablishedorpro-
rightsof shareholdersassuchliebeyondtheleachofdiplo- curedinimplementationof "theprinciplesofequitabletreat-
matic protection undreneralinternationala.w. ment" which are statedto be set forthin theTreaty.In the
In JudgeOda'sview, the 1948FCNTreatywasintended entire,detailedrecordofratification,thereisnotraceofsup
neitherto alterthe shareholders' stanor tr>ugmentthe port for t!heinterpretation that themanifold treaty rights
shareholders' rightsin anyway.Theprovisionsin theFCN grantedinvestorswere conditionedupon investmentbeing
'IfeatyuponwhichtheApplicantrelied,andwhichareexten- madeinacorporationofthe investor'snationality.
sively addressedinthe Judgment, were notintendedtoro-
tect the rightsof RaytheonandMachlettas sllareholdersof TherequisitiondeprivedRaytheonofits Treatyrighttocon-
ELSI. troland manage andhenceliquidate ELSI
The 1948FCNTreaty,likesimilarFCNtreatiestowhich
the United States is a party, enables oneitateparty to The Chamber'scaxdinalconclusion in thecase is that,
espousethecauseofacompanyoftheother Statepartyinan becauseofthepracticalitiesofELSI's financialsituationand
actionagainstthelattwhenthecompanyinquestioniscon- thelegalitiesofItalianbankruptcypractice,Raytheonwasno
trolled by nationalsof the party bringingleaction. The longerable, as of thedatof the requisition,to control and
UnitedStatescouldthushave broughtanactionforbreachof manage-and hence liquidate-ELSI and thus could not
certain provisionsof the 1948'Ifeatywhich entitled it to have kn deprivedbytherequisitionofits Treatyrighttodo
defend an Italian company (ELSI) in whichits nationals so. InJudgeSchwebel'sview, that conclusiowas incorrect
(RaytheonandMachlett)possessedacontrolliilginterest. forthe followingreasons.
YettheApplicanthadnotreliedon thoseprovisions,and First,ELSIhadbee11 advisedinMarch1968,on financial
the Chamberin its Judgmenthad madescarclelyany refer- andlegal grounds, thatit wasentitledto liquidatassets.
ence tothem.Eveniftheproceedingshad beenbrought asan inaprocesstobemana~geb dyELSI.
espousalof ELSI's cause, the Applicant,in Judge Oda's Second, asofthedyyoftherequisition,no legalorpracti-
view,wouldstillhavehadtoproveadenialofjustice.Thisit cal stepshad beentakeninanyquarterto placeELSIin, or
hadfailedtodo. forceEZLSiInto,bankn~ptcy. The requisitiowas anarbitrarymeasure which violatedthe
therequisition,themostseniorofficialsofSicilyandtheItal- Deaty
ianGovernment,whilegraphicallyinformedofELSI'spre-
carious financialcondition,pPessedELSI na to close the TheChamber's conclusionthattherequisitionof ELSI's
plant,nottodismisstheworkforce,andmost partici~lanot plantandqluipment wasnotan inbreach
togointobankruptcy,butrathertotakemeasllresinconcert of the l'reaty is based on three holdings*which Judge
withthe~~~lp iublicandpriv;atesectorstokc:eopn or re- Schwebelsawas unfounded:first, that theMemo Prefect
opentheplant andcarryoutliquidationoveralxrid oftime. andCoulrtof Appealdid not find the requisitionto be arbi-
me prime~ i ~ i ~of~ltaly md the hsidenl of$;icilyand trar yecond,that in internationallaw the requisitionwas
theirassociatespresumablyac.ted,andmustbe presumed to neitheru~nreasonablneor capricious;and third, that in any
haveacted,inaccordancewith,thelawofItaly.Thuswhether eventtheItalianprocessesofappealandredresstowhichthe
inthiscaseltaliaorunited statecounselare intheir requisitionorder was subject ultimately ensured thatthe
differinginterpretatioofItallianbankruptcylaw, itisclear was not
that the "livinglaw" ofItaayofthe timeoftherequisition
wasinconsistentwithItaly'scurrentpleaand.theChamber's (i) TherulingsofthePrefectandCourtofAppeal
acceptanceofit.Italyin1989shouldnotbeheardtomaintain ThePrefectheldthat theMayor,inissuingthe requisition
theoppositeofwhatit maintainedin 1968. order, relied on provisionsof law which, in conditionsof
Fourth, the chamber's cardinalconclusionis not fully grave publicnecessityand unforeseen urgencye,ntitle the
consistentwiththeholdingoftheCourtofAppal ofMemo M~~~~ torequisitionprivateproperty;but illthis case, the
on which the Judgmentrelies. That Court concludedthat prefect found, these conditions were present-from the
ELSI'sbankruptcywascausednotbytherequisitionbutby purely theoreticalstandpoint", a findingwMchappearsto
its prior state of insolvency.But it neither concludednormean thattheywere notactuallypresent.me ref^^^*^deci-
implied that such insolvency dissolvedexisting rightsof sionindicatesthat in factthoseconditionwerenotpresent
managementandcontrolofEI.,SI.Itratherawardeddamages ,in,, the hfectgs decision concludes that(a) the order
"derivablefrom theoperational unavailability"of the plantof requisition could not restorELSI'~ plant to opera-
order.ThustheCourt importedthatELSIcontinuedasofthetion tion or solve the company~sproblems; (b) the order in
dateof the requisition and thereafterto possessory fact did not; (c)the plantremainedclosedandoccupiedby
rights inELSIeventhoughit badbeeninsolventbeforethat former employeesand (4 public order was in any event
date. disturbedby the plant*sclosure:in short, that the requisi-
tion ordlerproved unjustifiedon all counts. The Prefect's
Fifth, Italy's expertsiffered among themselves as to holding that, since the requisition orderwas incapableof
whether ELSIwasinsolventalsofthe timeoftherequisition. whichmightjustifyit, isnotfarfrom statingthattherequisi-
sixth, andmost important,,thequestioof whc:herELSI tionwasill-motivatedandhenceunreasonableorevencapri-
was insolventasof 1~~ril1~8 essentiallydepend&onthe cious.
policy of Raytheon, whose resources were ample. The
ChamberacceptsthatRaytheonhadtransferredfresh capital Moreover,the Prefect heldthat the orderby its terms
topay small creditors; thatRaytheonwasredy topurchase showedthattheMayor issuedthe ordertoshowhis intentto
andthatRaytheonwaspreparedto advance sufficient cash-e; thananythingelse atbringingouthis intentionto tackle the
flowfundsto enableELSI toengagein an orderly liquida- problemjust thesame". ThePrefecttherereferredtothepro-
tion. Why then does it acceilptthe inconsistent conclusiovisionof the Mayor's order stating thtthe local press is
that, asofthe timeoftherequisition,ELSIwasinsolventor, takinga greatinterestinthesituati.n..being verycritical
if not, wasin anyeventfastslipping intobalkruptcy?If the toward theauthoritiesandisaccusingthemofindifferenceto
requisitionhad not intervened, and if ELSI's immediate this seriouscivicproble. ..**TheCourtofAppealof Pal-
cash-flowrequirementshadbe~nmetbyRaytheon,thusbuy- ermo characterized thatholdingof the Prefect as"severe"
ingtimeinordertosellassets,canitreallyb:heldthatELSI and as "showinga typical caseof excessof power" on the
wouldhavebeenforcedinto bankruptcy,at ;myratewhenit part of theayor-i.e., a classicarbitrary act.Moreover,
was?Even ifbankruptcy had eventuallycome, sucha later theCourtofAppeal taxed the Mayor with compoundin ge
date wouldhaveenabledRaqytheon materiallyto reduceits "unlawful" requisitionby failingto pay the indemnityfor
lossesrelativeto thosehichactuallywere:incurred.More- requisi1:iofor which the order itself provided-afailure
over,iftherequisitionhadnolli:ntervened,itwouldhavebeen whichisatoddswiththe dueprocess whichisantitheticalto
inthe interestofthe Italianbanksto havesettledtheirclaimsanarbitraryact.
againstELSIfor 40 or50pel:centofvalue.
An orderly liquidation,Judge Schwebelacknowledged, (ii) The unreasonableand capriciousnature of the
wouldhavebeenbesetby u~icertaintiesb ,utthey go notso requisition
muchto ELSI'sabilityande:ntitlementtoliquidateitsassets
astothecalculabilityofdm;ageswhich may befoundtoflow while havinga senseincustomaryinternationallaw, hasnow,
fromdenialof thatright. invariable,plainmeaning,but canbeappreciatedonlyinthe
Theconclusion thatby inlpositionoftherequisitionItaly particularcontextofthefactsofacase.Inthiscase,theorder
violateda viableright of Raytheonto conlroland manage of reql~isitionas motivated, issued and implementedwas
ELS Isthemorecompellinginthelightofthemeaning ofthe =bitrauysince:
'Reatywhichtheprocessesofitsratificationelucidate.Itwas
not consistent with investors' "unobstructed control" of -the legalbaseson whichtheMayor'sorderreliedwere
companiesthey "procured'" with the Treaty's "guaranty justified intheory;
againstpoliticalrisks",and withthe "principlesofequitable -the order was incapable of achieving, and did not
treatment"which thelkeatywasdesigned toensure. achieve,itspurported purposes;
203 -the order"also" wasissued "mainly" toappeasepublic However,asthe DraftArticleson StateResponsibilityof
criticismratherthanonitsmerits,a "typicalcaseofexcessof theUnited NationsInternationalLawCommissionputit:
power"; "There isabmch byaStateof aninternationalobliga-
-the order violatedits own terms by failing to pay an tionrequiringit to achieve,bymeansof itsownchoice, a
indemnityfortherequisition; specifiedresult,if, bythe conductadopted,theStatedoes
notachievetheresult requireof itbythatobligation."
ventELSI'sliquidationandpossibledispersalof its assets,a .
Thatfitsthiscase, forItalydidnotprovideELSIorits repre-
pupose pursued withoutregard toTreatyobligationsofcon- sentativewith"fullimdcompletecompensation"(astheILC
trartyenor(despite Italy's contention thattheseobligationsrequires)forwhatotherwisewasthearbitrary actofrequisi-
were bindinginternally). t16monthsafteritwasvromulaated,bvwhichtime ELSIhadt,but
sufferedimparable dknage k a ksilt of itThe Court of
(iii) ne proecssof appeal did remier thr
non-arbitrary which, however, mtalk no accountof principalelementsof
E~I's actual ~OSS~SIt a~~ordingly~O~~OWSthat ELSIWas
Italy'sobjectiveprocessesof administrativeandjudicial not placed in the pasition it wouldhave been in had there
review of the requisition order mightbe argued to have beennorequisition,orin anequivalentposition.Forthatrea-
tion, even if initially arbitrary, ultimately was not, thuson, Italian administrativeandjudicial processes,however
absolvingItalyof anyconsummatedbreachof international estimable,did notabsolveItalyofhaving committedanarbi-
responsibility. traryactwithinthemeaningoftheTreaty.