Reply of the United States of America

INTERNATIONCOURTOFJUSTICE
PLEADINGS, ORAL ARGUMENTS, DOCUMENTS

CASE CONCERNING

ELETTRONICASICULA S.P.A.
(ELSI)

(UNITED STATESOF AMERICA v. ITALY)

VOLUME Il
Counter-Memorial;Reply; Rejoinder

COUR INTERNATIONEEJUSTICE
MÉMOIRES. PLAIDOIRIES ET DOCUMENTS

AFFAIRE

DE L'ELETTRONICASICULA S.p.A
(ELSI)

(~TATs-UNIS D'AMÉRIQUEc. ITALIE)

VOLUME Il
Contre-mémoi;éplique; dupliqueREPLYOF THE UNITEDSTATES
OF AMERICA

RÉPLIQUEDES ÉTATS-UNIS

D'AMÉRIQUE PART1. lNTRODUCTlON

This Reply addresses the numerous unsubstantiated, irrelevant, or incorrect
assertions made hy the Respondent in its Counier-Memorial, filed 16Novcmber
1987. The Respondent both illegally requisitioned Elettronica-Sicula, S.P.A.
("ELSI"), frustrating Raytheon's and Machlett's planned orderly liquidation of
ELSI, and interfered in the subsequent bankruptcy proceedings. Yet the Respon-
dent denies that ils ücts violated vanous provisions of the Treaty of Fricndship,
Commerce and Navigation between the United States and the Italian Rcpublic
("the Treatv"). which entered into force in 1949.and its Suoolement. which
èntered into force in 1961.This Reply is filed in 'accordance ;th the kourt's
Order of 17November 1987.
From 1956to 1967, Raytheon and Machlett invested substantial amoiints of
capital and other assistance in their Italian electronia subsidiary, ELSI, with the

expectation that ELSl would become self-sufficientin the ltalian market. Despite
its re~utation for quality products and its sizeable volume of sales. ELSl never
became a self-sufficient.ici alone orofitable. enterorise. Contrarv to Italv's asser-
lion;. Raythcon and Machlcit diJ noihing IO crcaie ELSl's linancial prol8lcm..
In c:irly 1967. Raythcon and Machlcit iiiiii:iied ~i c~imprrhensi~~e cîTori io
deicrniinc thc rcawns fur ELSI'stiii~inci.ilJifticulties The\~dciermincd ih~i CLSI
could survive in the Iialian market only wiih a substaniial improvement in ils
competitive environment: spccifically,hy partnership with an ltalian corporation
or substantial CO-operationby the Italian Government. In early 1967,Raytheon
and Maehlett decided that unless thev could secure a nlan to imorove ELSl's
coiiipeiiiivc environmeni. ihey would procecd wiih an iirdcrly ~;~uidaiionof
ELSl's assets within a yc:ir.This dccision \vas comniuniç~icd Io the Respondeni

Althouah the Res~ondcnt made brodd propoals for ELSl's coniinucd upcra-
tion, these required that ~ayiheon and Machlett make substantial
additional investments in ELSl with no prospect of recovering that investment,
white continuing to cover ELSl's losses. Raytheon and Machlett reluciantly
decided in March of 1968 to proceed with the orderly liquidation as planned.
Under that plan, Raytheon and Machlett would advance al1funds necessary to
allow ELSl to be sold as a going concern.
lnstead of allowing Raytheon and Machlett to liquidate ELSl in an orderly
fashion, the Respondent, in violation of ltalian law, requisitioned ELSI'Splant
and assets on 1 April 1968 allegedly because the orderly liquidation of ELSl
would cause "social unrest". At no tirne. however, did the Respondeiit ever
resume the operation of the plant or re-employ ELSl's workforce. Thisunjustified

and illegal requisition prevented Raytheon and Machlett from selling ELSl's
asseis and thus proceeding with the orderly liquidation as planned. Although
Raytheon and Machlett immediatelytook al1possiblesteps to have the reqiiisition
rescinded. the Resoondent refused to quash the order and indeed told Ravtheon
thdi iiu,iuld i,intinuc indctinitcl) Sincc tl.SI w.irdcpri\cd UCthe rcieniic uitli
which IO meci coniinuing lin.incul i)hligaiions. Rdyihcon and M3chlcti direcicd
ELSl iu filc ;ipeiitiiin in h;inkr.pi~v on 26 April 1968in :irct?rdanccuiih Ii;~li;in
law.
Following the filingof ELSl's petition in bankruptcy. the Respondent contin-
ued to exploit the situaiion in which the requisition had placed ELSl's assets,
eventually acquiring ELSl for itselt Only after ELSI had ken purchased by the
Respondent, the Respondent's administrative and judicial organs ruled that the364 ELETTRONICA SICULA

Respondent's requisition of ELSl was unlawful as a matter of Iialian law.
Unfortunately, the Respondent was required by its courts to pay only a small
fraction of the compensation it should have paid to remedy the damage the
Respondent caused. Accordingly, Raytheon and Machlett incurred substaniial
losses as a direct result of the Respondent's actions.
These actionsof the Respondent violated several provisions of the Treaty. The

Treaty violations in this case are clear from the ordinary meaning of the articles
ciied by the United States. The Respondent's broad asseriions ahoui the appli-
cation of the Treatv and what interes~ ~ ~ ~ ~ ~ ~s are unfounded: the Treatv
provisions cited b; the United States proiecl ~nited &tes sha;eholdersif
companies incorpordtcd in Itÿly. The reouisition and other conduct by the Re-
soon-dentwere both arbitrarv and discriminatorv. or,v.nted Ravtheon and Mach-
leil from ni3n.igingand conirolling an Iialian corpor3tion uhgix rharcs ihey had
I3ufully acquired. ;ind reculid in the inipa~rmcnt iiiihcir legally acqu~rrd right,
and inicresis - in violaiion of Ariiilc> Ill and VI1of the Trcaiy and Article I

of ihe Supplemeni. In addition. ihc rcquisiiion constiiuied 3 taking of R3yiheon'\
~nd Machleti's intcrciis in property uithuut due proccis aiid uiihi>ui adeqwte
com~ens;it~un.in iiolaiion of Ariislc V iif the'rre~iv. The Rc.iiondeni ;ilso i'dilcd
to c&nply with the obligation under Article V to afford and security,
by the unwarranted delay in ruling on the challenge to the requisition order and
by failing to aKord protection to ELSl's plant and premises. These violations,
singly and in combination, entitle the United Staies to receive full compensation
for the damages suKeredby Raytheon and Machlett.
ltaly does no1contest the jurisdiction of ihis Court. ltaly does assert that the
claims of the United States are inadmissible because local remedies, in ihe fonn

of a suit in Italian courts based on the Treaty, were not exhausted. The principle
thai local remedies be exhausted was followed in this case. All reasonable steps
weretaken to obtain compensation [rom the Respondent for the unlawful requisi-
tion of ELSI. Further resort to Italian courts on the basis of the Treaty is
unavailable or unreasonable. ln any event, the Respondent is estopped from
insisting on such action at ihis time. Consequently ihese claims are properly
before the Court. PARTII. STATEMENTOF FACTS

CHAPTER 1

THE DECISION TO LIQUIDATE ELSl

Section 1. ELSl Received Extensive Financial and Managerial Assistance from
Raytheon and Msehlell but Could no<Become Eeonomieally Self-sufficient

Bv 1967ELSl had become a resriected manufacturer ofsophisticated electronic
com'poncnts and eqiiipineni u,iihï modern, IUllyequipped plant in Palernio. ;i
repuiaiion for quality products. and a \igniticant viilumc of sales :ind eilpori
r;irn~nrs'. II hxd ken Kaythe<in'sand Mschleii's expeciation from the ouirci
that E~SI would gain access to Italian markets, develop new products, and
continue to become more efficient in its operations. ELSI, however, was never
able to achieve the financial self-sufficiency that Raytheon and Machlett had
anticipated2.
John Clare, chairman of the Board of Directors of ELSI, and other qualified
technical experts under his supervision, prepared an in-depth study of ELSl's

potential for survival in the ltalian market3., They determined that ELSl could
operate efectively in ltaly only with the addition of an Iialian partner, irifusion
of capital, introduclion of new products, and greater access to ltalian Markets4.
These conclusions. previously communicated to the Respondent, were summa-
rized in a report which was distributed to senior officiaisof the ltalian Govern-
ment, the Sicilian Government, IRIS, ltalian banks, and oiher members of the
ltalian establishment6.
The Counter-Memorial presents additional factors ihat allegedly contrihuted
to ELSl's inabiliiv to become financially self-sufficient. including ELSl's geo-

gr:iphic lo~.:iiion.ihc quxlitxnd prises O; FISl's produit\. and th: obsolr.rcencc
,ii\<ims oi EI.Sl's production linc.'. The Respondent ii,cli'eng:igcJ in u~txined
etLiristgixitrdt conlmcrcc IO the Mc~/o@i,irndregion b) publici/ed inccnti\c\'.

'Far adii;u,,i<iof ELSI',prudueiIliie<and markeii. wc \lcmurial. 1.p 47
for a di$zu\.ti>noI'ELSI'~tinanci~l~rldrmanrr. wi,Iimor!al. 1.p.47. .\lfiJ3\1of
Arthur Schenr. Former \'irePrrrlJrni-Cdn1rollrof Kx!ihron Compdn! 17 hpr 19x7
(Ann. 13).
' In 1967Raytheon and MachlettdesignatedJohn Clare. RaytheonVicePresidentand
Company. to pbrerLSl'r chairman. They also appomted severalother hlghly qualifiedl
persons to asrist ELSI.Memorial. 1.p.48.
.'Memorinl. 1, pp.48-49: Atiidavit of John D. Clare. Former Chairman. Raytheon
Europe International Company1 . 0Jan. 1987.para. 18(Ann. 15).
lrtituto per la RicostruzianeIndustriale("IRI") isa hpldingcampany owned and
controlledby the Respondent. It hasertensiveand wide-rangingcommerctaland banking
interestsdorninating.among other things,the telecommunicationse ,lectronics,arid engi-
neeringmarkets.Mçmorial. 1.p.49.IRl'sactions are thusattributabletu the Respondent.
Memorial.1.p. 85.
"emoriÿl. Ann. 15.para.20; Memarial,"Projecl fortheFinancingandReorganisatian
of the Company".1967Reportprepsredby Raythean-ELSI. S.P.A.(An" 22).
' Counter-Mernorial. rupro,pp.4-5.
Memorial.1.p.43.thus it is ironic that Resoondent now attemots to auestion Ravtheon's and
)rlachleti's de;i$ion 10 inicsi in the region Ikspitc numerous inquirici 10, and
proiiiises oi. ïppropriïic Ii;ilian auihoritics. ihcsc hencfit~ nctcr niaicri:ili~ed'.
Rrcci~t of these bencfiiq wiiuld hatc im~ruvcd EI.Sl's finsncinl cundiiion and
enhaiced its attractiveness to prospectivebuyers.

Further, ELSl had developed a reputation for the manufacture of high quality
and highly sophisiicated electronics'. In preparation for the introduction of color
television in Europe, ELSl had constructed a modern, up-io-date facility for
color television research and development pending the decision by ltaly and other
European countries as to the type of television system they would adopt3. In

addition, by 1967 ELSl had already moved from production of germanium
transistors, which had become technologically ohsolete, to the production of
silicon rectifiers4.
Of course, the reasons for ELSI's financial problems are no1 relevant to the
disoute befor~ ~his ~ourt and were merelv oresented as backeround information

in ihc Uniird States Memon31 ~haic\é; thc rc=sons for-El.~l's in~biliry to
bccumr ï profitable cnicrprisc. Rayihcon and Machleti wcrc siill eniiilccl Io put
ELSI through anordcrly liquidation undcr iheir oun control. Thecriiicïl question
ij whciher the Rapondcni wrungiully requisiii~ned the plüni. pre~cnierl 11s
ordcrly liquidaiion. pcrmiiicd the plant io bc occupied. and subsequcntly mïnipu-
lated ihe bankrupt& process to ils own advantage

Section 2. Raythmn's and Machlett's Good Faith Eiforts to Negotiate a Solution
to ELSI's Problems Were Frustrated by the Respnndent

Beginning in early 1967 Raytheon made it clear to the Respondent that ELSl
could not ooerate efectivelv in ltalv and that Ravtheon would not make addi-

iiunül capiiï'l coniributions ;iikeep I~LSI oprr<iiin; uiihout grcïter ci>-opcr;itiun
h? ihc Rcspondeni. In approximatcly 70 meetings wiih cahinrt levcl oficinls 01
the naiionol ïnd Sicilian Gotcrnmïnis. John Clarc and oihcr Kï)ihcon ulliciïls
prcscnicd numcrous spccific propo>ïl\ for Gorcrnmeni pïrincrship in CLSl and
Guvrrnmcni suppori for ELSI'S dc\,cloprnrni or ncu producis and markers'.

Ra\,ihcon oro~ored ihüt EI.SI find ïn Iialiün Dariner IRI. for exïmolc. domi-
natedthe 1ta.liai electronics industrv at this tiie and controlled imoirtant see-
ments of it, such as the rnanufactire of telephone components6. Ât first, the
Respondent made encouraging statements, but ihe Respondent was unwilling in

' The Respondent'sargument ihat ELSl's distancefrom ilssuppliers of glasstubesin
northern ltaly is relevani. if at all, onloneoof ELSI's product lines.cathode ray tubes.
Of course.the iransporiation subsidywould haveremovedany disadvantagein this regard,
hadthe Respondentpu1this program into eiTeci asit hadpromised.Mcmorial. 1,pp.48-49:
52.The Respondent'sargument with respect 10 semiconducton isalsa misplaced as trans-
portalion cosir of theseitemsis negligibl~relalive Io loial cosl.
Memarial. 1,p. 47.
' Rerpondeni'ssuggestionihai ELSl's productslackedreliablemÿrkets iralro mirplaced.
Counter-Memorial. supro. p. 4. ELSl was poised to enter the market for color television.
Furihermore. ELSl's saler Io Nato. while irregular by nature. were hardly "dwindling to
nothing". SCP Memorial. Ann. 22. App. 84. Noneihelesr. ELSl recognizedthai military
salescould not form an exclusiveoperating basisand forthat rason sought Io develop
new producis and mïrkels. Memorial. Ann. 22. 1.pp. 205-206.
' Memorial. Ann. 22. 1.p. 208.
Memorial. 1.p. 49.
Memorial. 1.pp.49-50: Afidavit of CharlesF. Adams. FinanceCommitiee Chairman
andDirector of Raytheon Company.17Apr. 1987,para. 30(Ann. 9); teeAnn. 15,para. 31.368 ELETTRONICA SICULA

the elecironi:~ induairy IO Ioi3te hu)ers on a w<)rlJ\ride bdrir Jnd Io ncp.2ti.ilc
the ternij for the .aleoi I:LSl's product Iinc>.rn;ixinii~ingthe retiirn for h<iih

crcditori and rh;ircholders. Further. Ra\ihci>n and M3chleti uould ha\? re;ili7cd
the substantial value of ELSl's intaneibk assets. includine the technical assistance
agreements that could be n&otiateduwith &ch ~urchase~~inally, with Raytheon
and Machlett in control of ELSl's liquidation, Raytheon could ensure that the
nlant. eauioment. and inventorv woufd bewell-mahtained and orotected,
' A truStee in bankruptcy, bi contrast, lacked the commercial and technical
expertise and the financial incentive to market ELSl or its product lines effectively
oi a worldwide basis to appropriate buyers'. Further, Chebankruptcy process
did not afford a vehicle for the marketing and sale of the intangible value of
ELSl as a going concern, including the premium that would be placed on
Raytheon's willingness to enter technical assistance and license agreements with

the ultimate purchasers. Moreover, Raytheon and Machlett recognized that the
bankruptcy process would not result in the sale of ELSl's assets quickly. Deterio-
ration in the assets causedby delay in the sale would. of course, diminish the
return to ELSl's creditors and shareholders. Finally, Raytheon and Machlett
sought to avoid the substantial administrative costs associated with the bank-
ruptcy process, costs which would not have been incurred under the orderly
liquidation.
Sale of ELSl's assets on a going concern basis' would have been sufficien1to
pay al1 of ELSl's liabilities in full, including amounts owed to Raytheon, and
return 391 million lire to Raytheon and Machlett as a small return on their large
investments they had made in ELS13. Of course, Raytheon had good reason to
believe that the bank creditors would settle their unsecured, unguaranteed claims
at no more than 50 per cent".

Section 4. At no Time Prior to 1 April 1968 WasIt Required by ltalian Law that
ELSI Be Placed in Bankruptcy

Prior 10the requisition, ELSl was never in jeopardy of bankruptcy or compul-
sory dissolution. Italian law would have required ELSI 10 file a petition in
bankrunt.v ,f it was imnossible for ELSI to fulfill ree-.arlv ils financial obli~a-
lion\'. Alternaiively. ElSl ctiuld ha\c bccn con%idcreddi..>.il\cd as 3 m3iter of
Italian Iaw only 11 ls ciipii31uerc <Ir.plctcdhrli)w 3 it.itut,)r) miniiiium .imoiint
(ai the rclr\.~nt tinie the rt3t~10ry minimum jrno-nt ul, onc million lire)''

' InthisAcase,book valueis theclosestavailableapproximationof going concer nalue.
See infraPart VI, Chapter 111.
Memorial,1,pp.52, 108.
* Ibid., p. 52.Willingnessof the banksio settletheirclaimrwithELSlat 40 to 50per
cent of theirvalueir furtherevidencedbythe banks' agreementto settlefor 50percent or
less of their claimsin the fallof 1968.Counter-Memorial, supro, p.24; sep olro Reply,
Ann. 1,para. 3.
Reply, Ann.I, para.4; ltalian Bankruptcy Act, Art . (Ann.1).
Article2441 of theltalian CivilCode states:
"If, byreasan of the los. ..[exceeding]aver one-thirdof the capital, [the capital]
fallsbelowtheminimumestablishedbyArticle 2327. thedirectors(2380)shallwithout
delay cal1the meeting (2365)to decide on the reduction of the capital and the
concurrent increasethereof to an amount not less than said minimum, or on the
rearganizationof the company."

Ilalion Civil Code, op. cpp.610-611; see ol.~oReply,Ann. 1,para. 5. REPLY OF THE UNITED STATES 369

ELSI never contravened these laws. Until ELSI was deprived of ils revenue hy
the requisition, ELSI consistently met and was in a position to meet al1 of ils

financial obligations'. ELSl's capital, even after taking in10 account losses, was
always well above the statutory minimum2. Thus, contrary 10 the Resporident's
unsuhstantiated assertions, ELSl had no obligation to file a petition in bank-
ruptcy, nor was it subject to compulsory dissolution. Raytheon and Machlett
were fully entitled to proceed with the orderly liquidation of ELSl's assets under
Italian law.

The Resoondent also maintains that ELSl was in violation of Article 2446 of
ihc It.ilianCi\iI Code riith rc,pr.<t tu iItc ii~e diits Ii>$.e$2nd in \.i~l:iliiin <~ithe
Ita1iatt Uankrupt<) :\:i duc IO II,b<>i~kkc<pingprdctiiei Thzw ~isertionr. likc
m:in\, ~iith.isc foiind in the C<>untci->lcnii>ri>l. 3rc ~rrcIc\.~nt1%)the :liimr hciorc
this Court. In the interest of accuracv. however. it must be noted that ELSl was
fully in compliance with Italian law,'both with're 3rd to capitalization require-
F
ments3 and with regard Io bookkeeping practices .

'
In ~JJii~diiihi.Rc>p<>nJcii ic;nii1.).ncrl~>.,kihr.f.id ili~t ih.>uk \.tlucriiFISI'.;
.~~SCI. *.i:~n;.~t~~iI~$rc.~it,cth.^ k1.SI.qlhdh~l~itc~$,vC,~unicr.Memoo~I, u.pr,.p 15.
l n . \ 1, h l Il Ktnlr. .\nn 1. 5
' Memorial, 1.p. 53, n.2; Rcply, A&. 1,para.5.
one-thirdcof ils capital, the sharehalders -praferea one-year gram period Cromthe dated
thev are or should be aware of such losses ltvoicallv at the lime thev review the balance
sh&ts) - mus1either reduce the c~m~any'~~~ital'in proportion 10-the losses to correct
the imbalance or make alternative arrangements for the disposition af the company. Ilalion
Civil Code, op. eir., p. 610. Following rhe review of the balance sheets Corthe fiscal year
ending 30 September 1966, ELSl reduced the value of ils stock, thereby diminishing ils
lasses. Raytheon and Machlett invested an additional 2,500 million lirein ELSI, thereby
bringing the company's capital to 4,000 million lire. Memorial, Ann. 13, Schedule BI.
Notwithstanding these efforts, ELSl's losses once again exceeded one-third of its capital in
the fiscal year ending 30 September 1967.This lime. however. ELSl's sharehalders voted
within the one-year gram period, to liquidate the company rather than adjust ils capital.
Se? Memarial. Ann. 32.This decision was in camplete compliance with Article2446. Reply,
Ann. 1.para. 6.
There is also na merit Io the Respondent's assertion that ELSI's books were not
praperly kept. Counter-Memorial, suprcip. 8. From the time Raytheon acquired a niajority
interest in ELSI, Caopers and Lybrand, an internationally respected accounting Bm,
audited ELSI'Sbooks. To allow lime foi.its foreign operations to close their year-enclbooks
and Io transmit their accounting data to Raytheon, Raytheon's Coreignoperations typically
closed their books three months prior ta Raytheon's consalidated report of Decernber of
each year. Under this system, Coopers and Lybrand audited ELSl's books and prepared
a year-end report for the year ending 30 Septcmber 1967.The books for the period through
31 Deccmber 1967. were kept on a normal bash at Palermo and a complete management
report for that period. consistent with theclosing of 30 September 1967.was transmitted
to Raytheon in the first quarter of 1968.The balance sheet at 31 March 1968was prepared
on a basis consistent with the valuations in the Caopers and Lybrand audit report of 30
September 1967 and a conservative exirapolation to 31 March 1968. Memarial. Ann. 13,
1. p. 133. Any abnormal delay in the preparation of ELSl's books was due solely Io
earthquakes in Sicilyand strikes at the plant in early 1968;these werebrief and unavoidable
interruptions in ELSl's baokkeeping operations and did no1canstitute violations of ltalian
law. Reply, Ann. 1, para. 7. CHAPTER II

THE REQUlSITlON AND RESULTING BANKRUPTCY

Section 1. Rather than Allow Raytheon and Machlett to Place ELSI through a
Lawful, Orderly Liquidation, the Respondent Requisitioned ELSl

Bv March of 1968.Ravtheon's and Machlett's dan for the orderlv liauid,tio.
ad\ in pl.icc :and the tird ,tep> oi iiiiplcm:niing IIIi:id kgun K.i)thcoii 2nd
M:iclilett h:iJ e\tenilc,l the Iine oi crcdit Torp4)ntcnt oithc ini;ill cr~dit<~rland
wss eneacc<l in discussi<)n~uiih tlic Itîlidn hank, ior ,siilcinent oi thc I;irre -
unsecure& unguaranteed debts.
One event alone prevented the orderly liquidation of ELSl's assets:the unlawful
requisition by the Respondent of ELSl's plant and equipment on I April 1968.
The requisition deprived ELSl of control of the plant and physical assets. It
prevented Raytheon and Machlett from proceeding with the sale of ELSl's assets

and prohibited ELSl's management from continuing as planned with limite*
production and sale of inventory at full value to waiting customers'.
As discussed in Part V. below. the reauisition was a deliberate act bv the
Kcrpc,nJent 1%)prcjcnt Rdythr<~n2nd \I;i~ltleit ir<>ntprucecdiiig iiith ihc iirdcrly
IiquiJrti<iniiiFljl'r ~srct.. Thc rcqiiisition ri-<purportedl) ior the purpojc JI
nroicciina "the ciun,imi< nublic intcrcst" th.11u;is tIire:itcni.J hv thc oron~i~crl
iiquidati:n2. However, dûring the requisition the Respondent never ie-obened
the plant, otherwise resumed production, or re-employed the plant's workers3.
Raytheon immediately tried to get the requisition rescinded4. On 9 April
Raytheon petitioned the Mayor to lift the requisition order, but received no
response4. On 19 April Raytheon appealed the requisition to the Prefect of
Palermo, and again received no response4. Determined not to foreclose any
possihility of re-opening the plant, officers of Raytheon and ELSl continued to

meet with ltalian officials even after the requisition of ELSI. The Respondent,
however, was still unwilling to come forward with any real proposals to improve
ELSI's competitive position5. The Counter-Memorial seeks Io portray the Re-

'Memorial, 1,pp. 52-53.Althoughthe requisitiondeprivedRaytheon and Machlett al
managementof ELSl'soperations,Raytheon and Machletd t irectedMr. RicoMerluzzoto
remaininthe plant taprotecithesecurityofthe plant. Mr.Merluzzoremainedinthe plant
Merluno,SlFormerorDirectorof Planning,Raytheon-ELSI.SPA, 17Apr. 1987davitof(Ann.A21).
Memorial,Requisilion Decree, Mayor of the Municipslityof Palermo, I Apr. 1968
(Ann. 33); Minutes of Meetingin Palemo beiweenMessrs. laseph Oppenheim, Howard
Hensleigh. Stanley Hillyer,and PresidentCarollo of Sicily,19/20Apr. 1968(Ann.37);
Mernorandumfrom the Presideno t f the SicilianRegion,20Apr. 1968(Ann.38).
' Mernorial,Ann.21, para.19.
Mernorial,1,p. 55.
In Aprilof1968ltalyproposedla liftthe requisilionorderfollowingthe establishment
of a specialmanagementteam of officialsfrom ELSI, the SicilianRegion.and IR1 Io
tionsto fundELSl'scontinuedopcration.dRantoption Raytheon and Machletthadcodetermined
theycould no longerpursue. In the sumrnerof 1968the SicilianRegionalso proposed a
plan that would have requiredRaytheon and MachlettIo advanccal1casts of ELSl's
operationswithoutanycammitment on the partof the Respondentas to the exactarrange-
ments the Resoondentwouldmakefor the sale of ELSl'sassets. REPLY OF THE UNITED SYATES 371

spondeni 3% cilger 10enter into 3 negoti:tted settleinent b) these proposïls'. but
the*c pr,~podI, <ireirrclctani 10 the question uhcthcr the requisition ~nd subse-

auent interference with the bankru~tc. Dr..ess violate the Treatv. In addition,
the Respondent's admitted use ofthe requisition to coerce ~a~theon and Machlett
inIo carrying indefinitely operating losses of ELSI is precisely the type of govern-
mental action which the Treaty condemns.
Although the requisition was on ils face limited Io six months. the President
of the Sicilian Region stated to ELSl's stockholders on 19April, and confirmed
in writing on 20 April, that the requisition would continue as long as necessary
Io achieve the Respondent's objectives regarding ELSI2. With regard 10 Ray-
theon's and Machlett's ability Io seIl ELSI, President Carollo stated that:

"Nohody in ltaly shall purchase, that is to say IR1 shall not purchase
neither for a low nor for a higli 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 Io favor anv sale while the olant is closed . .. In
the event that the plant shall be kept dosed, waiiing f;>rltalian buyers who
will never materialize, the requisition shall be maintained al least until the
courts will have resolved the case. Months shall go by3.."

Hence ELSI was deprived of income from the salc of ils assets and was thçrefore
no longer able Io meet ils financial obligations as they became due. Without any
hope for a change in this situation by the Respondent, Raytheon and Machlett
certainly could no longer advance funds Io ELSl for i(s continued operations.
ELSl therefore was required under Italian law to filea petition in bankruptcy on
26 April 1968.The bankruptcy petition explicitly and accurately stated that the

reason for the hankruptcy was the requisition of the plant on 1 April 196S4.

'Counter-Mernorial. supra,p. 22.The Respondentalso spcculatesthat the failureIo
reachan ogreemenlbetweenRaytheon and the Respondentwas "an attempt[byRaythcon)
solution".Counter-Memorial,whrupro.p.23.iThisunsubrtantiatedassertionmuri berejected.
Had the Respondent and IR1 ai any point made a concrete ofir to acquire ELSl as a
going concern or share ownershipwith Raytheonand Machlett, Raytheon andMachkit
would have acceded Io the plan. The hilure to resch agreementwas due no1 to the
reluclanceof Raytheonto rcacha negotiatedsolutionto ELSl'sproblem. Raytheon had
workedfor more than a year forjus1such a rîsoluiion. Failureinstead wasdue to the
Respondent's inability- or unwillingness- to committo such a solution.Seeg<aerally
Memorial,Ann. 22.Indeed. theRespondent'sunsubstantiatedassertion that it"did every-
thingitcould to helpELSlmust be rejectedforrirnilarreasons.Counter-Memorial .upra,
p.22.
Seegmerally, Meniorisl,Anns. 37.38.ThecontinucdncgotiîtionswiththeRespondent
arierthe requisition-apdid no1indicatetkat Raythconconsideredthe requisition"Io beys
littlcmorethan a temporarynuisance".Counler-Mernorial. supro,p.22. On the contrary
until theoral and writlcn statementsby the Presidentof the SicilianRegion.Raytheon
believedthat the order would soon be quashed. Although Raytheonand Machlctthad
been frustratedby the Respondent'srefusalto engagein meaningfulcooperation.until 19
April there were no indications thatthe Respondentwouldsanction thecontinunnceof
ille al actionsin ils trettment of ELSI.
'~emonal. Ann. 38.
Memorial, 1.p.57. Section 2. By Its Acts Subsequenlto the Requisition, theRespondentAlso
lnterfered with the Bankruptcy Procas to Its Own Advantage

Following the filing of ELSl's petition in bankruptcy, the Respondent contin-
ued to exploit the situation in which the requisition had placed ELSI, therehy
substantially aggravating the financial injury 10 Raytheon and Machlett. As a
leeal matter. the reauisition orevented the Trustee once he was aooointed on 16
rr ~
\Ta) hy the h~nkr;piï) cobrt from sclling the plant ~nd asscis ar othcrulsc
proteïiing the propcrty. Irlurcovsr. folloiiing the filing<iiihe bankrupiçy pciiiiun
ihr. Rcsii<inJcnt alliiued ihe local uorkforïc Io occuo~ ihc nl;ini. uhiih undouhi-
rdly di&ouragrd prospeclii.~ bu)ers ÿnd cer1;iinl) 'iihde itdilticuliIO shou IO
inlerestcd bu)ers ihc cornpÿny'\ plant andoihcr a>rr.i\'. E\cn afier ihe requisiiion
wriod cndcd, the hankrupicy souri', 1ca.eoi ihs ~l;ini by IKI? hiid ihe sjmc

éffect.The Respondeni prcxéedcdto oblain ELSI'S work-in-process for a price
below the value assignedby even the judicial valuator'.
In addition, the Respondent repcatedly and puhlicly announced its intention
to take over ELSl's plant through one of IRl's subsidiaries4. Givcn the extensive
power and dominance of the Respondent in the commercial environmcnt of Italy,

there can be little doubt that these announcements deterrcd othcr buyers from
hidding on ELSl's assetswhen the four auctions wcre held hy the bankruptcy
court5. Notwiihstandine ils announced intentions. however. Eletironica Teleco-
municazioni, S.P.A. ("ELTEL.'). the IR1 suhsidiary created to take over ELSI,
boycotted the first three bankruptcy auctions. seeking to buy only some of the
assetsai a lower price. Through a seriesof manoeuvers which had the effect of

controlling the saleof ELSl's assets,the Respondent, through ELTEL, systemati-
cally acquired ELSl's operations on a piccemeal hasis. at the expcnseof ELSl's
shareholders and creditors6. Taking advantage of the situation which it had
created. IRl's subsidiarv. Italtcl. S.D.A.. now usesELSl's olant to manufacture
telephone equipment one of the'new products proposed by ELSl in ils 1967
Report 10 ltalian officials7.

On II August 1969,morc than 16months after the appeal was filed, but only
40 days after ELTEL had completed its acquisition of ELSl's assets.the Prcfect
ruled that the requisition was illegal under ltalian law.

'The occupationrhould be dirtinguishcdfrorn thepre-requisilionstrikes andsporadic
sit-insa point which the Respondentconfuses.Counter-Mernoridl.rupru. pp.8. 11. 14.
First.thestrikeswercdirecledai the RespondentI.o persuade ito takeactionwithrespect
io ELSI. Mcmorial. Ann.21. para. 22. They werelimited Io brief interruptions of pro-
duciion opcrationsanddid no1resultin theclosureof the plant for an indefinileamount
oftirne.Only aïter Mr. Merluzzoleft the premisesfollowing the filing of the bankruptcy
peiitiondid theworkersactuallyoccupythe pldni for a sustainedperiod.
Memorial, 1,pp.60-61.
' lhid ..62.
Ihid ..ns. 37.38.46.
' Thai IRl's announcernen i asal thedirection of the Respondenitr confirmedin the
Countcr-Mernorial, supro,p.25.
For a cornpletediscussionof the bankruptcy processand ELTEL's systernatic
rnethodsacquiringELSl at a price favorableIo itselsecMernorial.1.pp. 58-63.
'Ihid i.63. PART III. JURISDICTION

J~risdiciion in ihis aise is bnsed on Ariicle 36 (II iiiihs Siaiuie <if the Couri.
as rciid in sonluilciion wiih ,\riir.lc XX\'I i~ithe IV48 Tre~t) oi Frieiidship.
C~iiimerx and Ka\inriion ithc "1rr.itv"l betuc.cn ihc United Sidie.; and ltaIsl
Alihgiugh :icccpi.inc~hy the'~cs~onde~i oi the Couri's ~urirJiiiion on thir hibis
15 no1 ncirarary. ihc Kespondcnt "full) rtcogni~sr" rhc Courl'r juri~diciion ovcr
ihis dispute a, IIrelates IO ihe intcrprcidiigin and ippl~calion of ihe FCN Tre~t)
..
and its'~u~~lement~.
The Respondent declines to object to the Court's jurisdiction. Since Rule 79
of the Rules of the Court requires ihat any objection to the jurisdiction of the
Court be made within the lime-limit fixed for the deliverv of the Counter-
Memoriïl. the Respondent 1snuw h~rrcd from rdiaing an ohjeilion The C~iunter-
.Menioriiil speculatcs. however. ihiijuri,diciion uiih re5per.tIO Ariicles 1' (1) and

(2) OC the Trcalv I<in douhi bcxause the Uniied Siaies his noi pui foru,ard ihcse
brbvisions pre;iously in diplomatic negotiations, in accordance with Article
XXVI'. The Respondent's view appears based on the fact thai while these
provisions were discussed throughout the Memoranduni of Law accompanying
the 1974 Claim, they were not specifically cited in the Memorandum's "Summary
of Legal Arguments".

The Respondent's view is wholly unjustiiied. The United States has repcatedly
raised with the Respondent since 1972 the legal claims now before this Court.
Each Treaty claim argued before this Court was presented 10 ihe Respondent in
the Legal Memorandnm submiiied to the Respondent in 1974'. Since the Respon-
dent has consistently refused 10 pay compensation for the damages sufered by

the United States. the dispute has not ken satisfactonly adjusted by diplomacy
and is now properly beforc this Court pursuant to Article XXVI of the Treaty.

'Memorial. 1, p. 68.
Counter-Mernorial. rupro. p. 26.
' Article XXVI of ihe Tresty statesihat disputes"which the High Contraciing Parties
rhall no1ratisfactorily sdjust by diplomacy" may be submiiied Io the Court.
The claim presenicd IO the Respondeniin 1972and again in 1974appearsin Volume
1of the "Unnumbered Documenis" annex io the Counter-Memorial. The Memoiandum
of Law in Support of the Claim of R,iytheon Company and the Machleti Laboratories.
Inc. Againrt the Govrrnment of Iialy in Conneciion wiih Rayiheon-ELSI S.P.A. :ippears
as Volume 2 of the 197211974claim. Sec supro. pp. 236. 245 (Art. 111(2)): pp. 236. 246
(Art. V (1)): pp. 236. 241. 264a.nd 276 (Art. V (2)); pp. 245. 247 and 264 (Art. V (3));
pp. 236.248 and 277(Art. VII); pp. 237.277(Treaty Prolocol. para. 2): pp. 236, 239.264.
277(Trcaty Supplemenl.Art. 1); pp. 237. 277(Treaty Supplenient.Art. V). PARTIV. ADMISSIBILITYOF THE CLAIMS

The Respondent contends that the United States claim is inadmissible hecause
Raytheon and Machleti failed to exhaust availahle remedies in ltalian courts.
Raytheon and Machlett, however, have exhausted in ltaly al1remedies availahle
under ltalian law. Consequently the United States claim is admissible hefore this
Court.
In the Inrerhandel case' this Court stated that in cases involving injury to a
foreign national, the principle of exhaustion of local remedies provides that the

respondent State be giventhe opportunity to redress the injury within ils interna1
system. The Court explained that:
"Refore resort may he had to an international court in such a situation,

il has heen considered necessary that the State where the violation occurred
should have an opportunity to redress it by its own means, within the
framework of ils own domestic legal system'."
In this case, the Respondent was accorded every opportunily within its own

legal systemto pay compensation for the injury caused hy ils actions. Suhsequent
to the requisition, Raytheon and Machlett directed ELSl officials to petition
formally the Mayor to lift his ordcr. When this produced no result, Raytheon
and Machlett directed ELSl officialsto appeal the Mayor's order to the Prefect
of Palermo. While the decision hy the Prefect was pending, Raytheon and Mach-
let1directed its representative on the creditors' committee to appeal decisions of
the bankruptcy judge. such as the decisions to lease the plant to ELTEL and to
seIl the plant, equipment, and supplies 10 ELTEL. Unfortunately these appeals
were denied hy Iialian courts'.

Eventually the Prefect declared the requisition to be unlawfu14. When the
Mayor appealed the Prefect's decision 10 the Italian Council of State and the
President of Italy, the appeal was dismissed and the Prefect's decision upheld5.
Raytheon's and Machlett's inierests as creditors of ELSl were represented in
the hankrupicy process by theTrustee, Giuseppe Siracusa. Following the decision
of the Prefect that the requisition was illegal, the Trustee brought suit against
the Respondent seeking damages for the unlawful requisition. After extensive
consideration of the facts and law underlying the injury to ELSI, the Court of

Palermo refused to award damages6. Subsequently the Court of Appeals of
Palermo reversed the lower court in part and found that damages were due for
ihe six-monih "use" of the plant, but no1 for the injury caused in preventing
Raytheon and Machlett from placing ELSl through an orderly requisition'. The

' Inirrh<i~zdclcasPer.clinliiioriObjecrI.C.J.Reporis1959,p. 27 ("lnlerlzand~lcase").
Inr<~rh<indcil ep. 27;sec'ul.sAniharielosclaim, 12Rrporrs oflnrernorionoAl rhirrol
Aiv<ir<lp.p.118-120 (1956) ("Awh<irieloclaim"): FinnirhShipoii,nerscase. 3 Reporrsof
Inlert~<ili«ArrlhirrolAii.orpp. 1503-1504(1934).
' Mernorial. Decree of the Civil and Criminal Tribunal of Palermo. 9 May 1969
(Ann. 64):Trÿnscripi of Bankruptcy Hearing. Civil and Criminal Court af Palermo.
13 July 1969(Ann. 741.
Memoriai. 1,p. 55.
Ibi<l.Judgment of the Court of Palermo. Decided 2 Feb. 1973. Filed 29 Mar.
1973.Regisiered 4 Apr. 1973. 1. pp375-376 (Ann. 80).
' Ibid..Judgment of theCourt of Appeals ofPalermo. registered24 Jan. 1974.1,p. 382
(Ann.81). REPLY OF THE UNITED STATES 375

Supreme Court of Appeals, after extensive consideration as to the facts aiid law
of the case, upheld the decision of the Court of Appeals of Palerme'.
The Respondent asserts that after al1 these efiorts to seek redress from the
Respondent, Raytheon and Machlett should also have brought suit in ltalian
courts based on the Treaty'. The Respondent, however, does not descrihe the

statutory basis on which such a suit could be brought, undoubtedly becausç there
is no basis for a suit under ltalian law for compensation based on Respondent's
violation of theTreaty. Raytheon and Machlett should not be required to pursue
an unavailable local remedy prior to presentation of their claim by the lJnited
States before this Court.
Treaties on1 can have elïect within Italy if they are incorporated in10an Italian
legislativc actY. Even then, the treaty is only effective as a matter of Italkin law
for those provisions which are complete in their essential elements; those ~~rovis-
ions which lack completeness remain inefiective4. Although the Treat and Sup-
plement at issue here were incorporated into Italian legislative acts Y, the pro-

visions argued before this Court are not complete enough to permit a suit for
compensation by a United States national against the Government of ltaly in
Italian courts6. Indeed, although there is provision in Article V for indemnifica-
tion bv the Government of Italv of those individuals or cor~orations who have
been dep&ed of their property:that Article is still not suffic;ently compleie. For
example, there is no indication whether such indemnification would be viewedas
"diritio soe..utivo" (s.biective rieh& . and therefore enforceable in the ordinarv
ci>uris. or ..intcrc\,c Icgiiiiiiio" (lepal inicrcjii. :inJ thcrcfor: cnii>rcc.thlin ihc
xiiinitr.~~c u r 'The8,thr.r :i-iclcs .iiihc Trcdi) plc~Jcd h! the Uniicd
ni cnt'.ihl . t'urihcr. rince Ka\ihcuti's ;incl Sliïhlcit'r
t : ire m l
claims are those oishareholders, Italian law would ~revent a suit sceking compen-
sation based on the illegal requisition becduse ltalian law reserves such ;iright
to ELSI alone, despite the existencc of the ~reat~'. As stated by Elio Fazzalari,
an esteemed Professor of Civil Procedure at the University of Rome. "The
Respondent's claim is groundlessg".
Professor Antonio La Pergola, then Professor of Law al the University of
Bologna and subsequently President of the Italian Constitutional Court, consid-
ered in 1971whether Raytheon could sue based on the Treaty and concluded

that further local remedies were not available. Professor La Pergola stated that:
". .. 1 feel that 1 have~to~conclude that in the situation at hand al1 the re-
quiremenii :tppsdr to hc rxtirticd for intcrn~tisn.il proteciion of thc \h:irz-

h,ildcrr 3f the K.i!thc<in-lil SiSp.1 uho .ire I.nile~lSi.xtc\ciii~cnr.ir iil10i.i

'Memorial,Judgmentof,the SupreineCourt of A~peals, 26 Apr. 1975(Ann.82).The
SupremeCourt of Appeals isnat capable of reviewing de nui,"the facts as foundby the
lower courts.
Counter-Memorial, .supra,p. 26.
' "lmplemeniatianofTreaties and Curnmunity Law",V Ilolion Yeorbookqf Inrrriirirional
iy, p. 265(1980-1981).
"lmplernentation of thePeace TrcsityWithItaly". II IralioiYeorhouk ofli~rrrii<rrionol
Lon,, pp. 364-365(1976).
' Counter-Memorial, supro, p.26.
(Ann.S2 to this Reply).ssorElioFazzalari,Universityof Rome.29 Feb. 1988. p.404. infm
' Ihid, p. 403, in/ra.
Ibid, pp. 403-404. in/r<i.
Ibid, p. 403, infra. the need to pursue interna1 remedies prior to the possible initiation of a
claim against the ltalian Government'."

The only ltalian case cited by the Respondent in support of ils argument is the
1961case of The Dursr Manufacruring Co. v. Banca Commerciale Iraliana'. Dursr,
however, merely holds that another provision of the Treaty - the "access to
justice" clause - relieves a party who files a petition for review by the ltalian

Supreme Court of the need for an authentication of the signature of the Italian
consul in New York by the Minister of Foreign Affairs. There were no damages
awarded in that case and it did no1 involve the Government of Italy.
Even if the Court believes that there was some possibility that a suit by
Raytheon and Machlett in ltalian courts based on the Treaty would have suc-
ceeded, the principle of exhaustion of local remedies does not require an injured

national to pursue a highly speculative and unlikely means of redress. The
principle is satisfied if there is no effectivelocal remedy "as a matter of reasonahle
possibility"" Indeed, the burden is on the Respondent to prove the existence of
a further remedy in ltalian courts4.In this case, local counsel advised Raytheon
that a suit hased on the Treaty could no1 succeed5. Further, the Supreme Court
of Appeals in Italy had already decided the amount of compensation owed by
the Res~ondent for ils unlawful actions6. Therefore. obtainine comoensation
through'a suit based on theTreaty was so unlikely that'it could nit he chsiderid

a remedy available as a matter of reasonable possibility.
In any event, the Respondent is estopped from asseÏting that there exists any
requirement to furtherexhaust local remedies7. Although for 15years the Respon-

' LetterfromAntonio La Pergola,Professorat the University of Bologna,to Raythean
Company,9 Dec. 1971(Ann. 3 to this Reply).Raytheon alsosought the advice of its
Italian caunsel, GiuseppeBisconti.who infarmedRaytheon on 6 Nov. 1971that "thereis
no remedy underIf Iian lawavailableto theshareholders of ELSlinrelationto thedamage
sulieredby them as a consequence of the requisifionby the Mayorof Palermaand the
subsequentevents".Letterfram Avv.GiuseppeBisconti,StudioLegaleBisconti,Rame,to
Rytheon Company. 6 Nov. 1971(Ann. 4 to this Reply).
64 Rivisiodi Dirirro1nrrrna;ionale (1961).pp. 117-118.
' Norn.exiunLoonr case. I.C.J. Reporo 1957, p. 39 (separate opinion of JudgeLauter-
pacht); BorcelonaTraclioncase. Second Phosr. I.C.J. Rrporrs 1970, pp. 144-145,and 284
(separaieopinionof JudgeGras).
. Ambarielos claim, p. 119.

~nlcrrxi(i~<>rir.xi.dil. nd<muzh'd <i&niiiir.n:y .? cunJu.1 or tipmiiin ihr p;,ri
a13 Si.~tiii,th<prc)uilvc01 ~naihcr 0.lnzonip~iiblcuith g~oJ I~iih Ag~in I idhniii
ihii \"ch in.'<?nttricnci\iein~iall\ in3dn~ts~b~uh~ ~ ~ ~ ~~~r~~~ ri\e, Ironih~l:it~r;~l
treatvrelations".~emi>le of hnh pihrarcase. I.C.J. Reoorrr1962. ... 40.42(.en.rate
opinbn of JudgeAlfiro).. REPLY OF THE UNITED STATES 377

dent entertained diplomatic representations by the United States on the hasis of
the Treaty (including the formal presentation of a diplomatic claim in 1974).al
no lime until the filing of iü Counter-Memorial did the Respondent suggest or
request that Raytheon and Machlett enter ltalian courts and sue on the basis of
the Treaty. lnstead the Respondent made statements that it was willing to go to

arbitration with the United States'. which discouraeed -urther resort to lt~~ian
courts. The Unitcd Si;itcs ha. rclicd'on thc Rcspondent's reprcsrni;itionr in pood
faith to thc Ilnitcd States' dctriment bccauîc - assurninp Corthe sakc ofarrumcnt
that an action based on the Treaty could be brouaht :the statute of limitations
on that action has now expiredf. Therefore, thé Respondent is now estopped
from asserting that there should have been further resort to local remedies by
Raytheon and Machlett.

For cogenldiscussions of theissu ef estoppel..TeBowelt,"EstappelBeforeInternational
p. 176(1957);MacGibbon."Ertoppelin Internation~lrirLaw".ea7Intrrn<irionoondit?omporn-.
rireLoa Quurrerl?.p. 468(1958).
' In responsctu the claimespouscdby the United States in 1974 on the basis of the
Treatyand curtomaryinternational law,the Respondenldid nutprotestthallocal remedies
had no1beenexhausted.but insteadstated that "the daim isjuridicallygroundlers. both
from theinternational and interna1pciintofview". Aide-Mémoiro ef 1978framthe ltalian
Ministryof ForeignAKairsto the UnitedStates.For a summÿryof the diplornaticeKorts
made Io resolvethis dispule.sep 1.ApplicationInstitutingProcecdingrSubmittçdby the
Governrnent ofthe UnitedSlatcsof .AmcricaAttachment2.
' The normallimeperiod forBling of a suitin Itÿliancourts seekingcompensation fur
damagcsarisingfrani unlawfulacts is fivyearsfromthe date on whichthe art occurred.
Iralion CiijCode. op. cil.Art. 2947. PART V. THECLAIMSOF THE UNITED STATES

CHAPTER 1

INTRODUCTION

Respondent's Counter-Memorial attempts to obscure the violations of the
Treaty by asserting inaccurate generalities about the Treaty and by attributing
to the United States arguments that the United States does not make. The
protections of the Treaty and the violations of it hy the Respondent, however,
are quite clear from the ordinary meaning of each article invoked by the United

States.
The United States bas shown that the Respondent, through the actions of its
agents and officiais,violated its legal obligations under the Treaty by: (1) unlaw-
fully requisitioning the ELSl plant on 1 Apnl 1968; (2) allowing ELSl workers
to occupy the plant; (3) unreasonahly delaying ruling on the lawfulness of the
requisition for18months uniil immediately after the ELSl plant, equipment, and
work-in-process had al1 been acquired hy ELTEL; and (4) interfering with the
ELSI hankruptcy proceedings, which allowed the Respondents to realize its
previously expressed intention of acquiring ELSI, for a price far less than its fair
market value.
All of these actions, singly and in combination, violated Articles III, V, and
VI1 of the 1949 Treaty and Article 1 of its 1961 Supplement, which hy its terms
is an integral part of the Treaty. The protections provided under the Treaty
relating to this disputefall into four categories:

(u) protection from interference with Raytheon's and Machlett's management
and control of ELSI;
(b) protection from impairment of Raytheon's and Machlett's investment rights;
(c) protection fromthe wrongful taking of Raytheon's and Machlett's property;
and
(d) protection and security for Raytheon's and Machlett's investment

Hclorc aJJrc.,ing ihc,c iour Ares\ ~iprote<tion iiridsr thc Trc.ii). hoae$cr. thrcr.
gericr~la>\crtionr h) ihc Rebponilcni IIthe <'oiiritcr-2lcniori31mA<hc .iJJrc~~ed
as a preliminary matter.
First, a spccific object and purpose of this Treaty was to encourage investment
hy corporations of one Party in the territory of the other Party'. The United
States does not argue that the sole purpose of the Treaty is to encourage invest-
ment" but certainly the articles advanced before this Court show that both

'As notedin the Mernorial,whenthe Respondentdebatcdthemeritsofthe Treaty. one
factor that wcighein itsfavorwasthe "urscnnteed" of iteconomy for foreigcapital.
Mernorial,1,p. 69.
The Respondentitself agrccs that the encouragementof investmentwas one of the
aims of the Treaty.Counter-Mernorial,supro,p. 31.Some other treaties of Friendship,
Commerce, and Navigation("FCN") entcredinIobythe UnitedStatessubsequentIo this
objectand purpaseial.al1oPthese treatiearenseeninhtheir substantiveprovisions,which REPLY OF THE UNITED STATES 379

Parties were concerned with the property and iniercsts therein of each Party's
corporations in the territory of theother. The 1961Supplement, which constitutes
"an integral part" of the Treaty'. staies in ils preamble that the United States
and ltaly were "desirous of giving odded encouragement to investments of one
country in useful undertakings in the other co~ntry"~. The use of the word
"added" shows that the original Treaty envisioncd protection of investment'. To
accept the Respondent's implied argument that the Treaty does not provide
protection for United States investments in Italy would cviscerate large sections
of the Treaty.
The emergence in recent years of bilateral invcstment treaiies ("BITS") bctween

the United States and developing countries is no1 relevant when interpreting this
Trcaty's protections for investments. BITS spccifically address just investment
issues ratherthan establish a comprchensive nctwork governing both investments
and other matters4. There is no reason why a laier series of treaties with other
countrics dealing specifically with invcstment should weaken the provisions of
this Trcaty with Italy, which deals with investment and other matters.
Second, the Respondent incorrectly asserts that the only standards operating
under ihis Treaty are a national treatment standard and a most-favored-nation
standard. The ordinary meaning of the Treaty articles at issue in this dispute
belies ihe Respondent's assertion. For instance, Article 1 of the Supplement
establishes an unqualified rule prohibiting arbitrary and discriminatory conduct
ihat prevents eflective control and management by United Statescorporations of
their subsidiaries in Italy or impairs their investments inthose subsidiaries. Article
V of the Treaty establishes an unqualified rule ihat property of United States

corporations shall not be taken without due process of law and without jus1

coursertreatiescrcÿteneitherrightnoriduliesforthird States.Srco1969ViennaConvention
on the Law ofTrcaties, Art.34.
'Trcity Supplcment,Art.IX.The VicnnaConvention an the Lawof Treaties, Art.31
(3).alnoprovidesthat any subsequentagreementbetweenthe partiesshall be taken into
accountwheninterprctingthe Treaty.
Treaty Supplement. Preamble(cmpharisüdded).Asstatcdintheratilicationbillpassed
in Italy."The supplementalAgreement . . is designedabovcal1Io fosterinvestmentin
ltaly using privatecapital from theUnited Stateswhich isthc most important. perhaps
even the only,countrytodaywhichhas suchresourcesai ilsdisposal".Counter-Memonal,
in this Replyto dernonstratethat the two parties hüdalaacommon understandings arofithe
meaningand purposeof theTreaty.Siandingalone.suchinternalratificationproceedings
cannot.of coursc.bindanotherparty.)
This Court has previouslyused the preambleof a treaty Io cstablishils object and
purpose.Cdseconcerning Rifhls ofitiirtionoflhe Unrle~lSlal~.rJ.~,d#ntenlI.CJ. Rpporrs
1952. p. 24.
' Applicationof the Treaty provisionswillnot accentuate an "imbalance"belweenthe
Parties.Counter-Memo~al.suprap . 32.Evenif ilcan besaidthatUnitedStatesin\ertments
in ltalyprcdorninatethe twoParties'çconomicrelationship.thc RespondentagreedIothis
Treaty no1jus1 IOprotecttheability ofltaliansto investin the UnitedStates,but to secure
Italian"gain" undertheTreatypredominatesthat af the UnitedStates.Whether thioneePartyhe
bencfitsal any givcnlimemorethan the othcr Partyis irrelevtntto the agreement ofeach
PartyIo abideby the provisionsof the Treaty.
Thc UnitedStateshas negariatedBITSwith Pdnama. Senegal,Haiti.Zaire.Moroco.
Turkcy, Cameroon, Bangladesh E,gypt andGrenada. None of ihesetreatiesisyetin force.
The BITSdraw on conceptsof protection which wcrc dcvclopedin the FCN treaties
subsequent IO WorldWarII. Anygreaterspecilicityof invcstmentprotectionsin the BITS
arc attributabletu innovationsthat addressconccrnsparticulürIoinvestmentsindçveloping
countrics.P. Gann. "The U.S.BilateralInvestmentTreatyProgram".21 StonfordJournal
~J'InlrrnorionoLloi,,pp.373-374(1985).compensation. Article III of the Treaty also establishes a virtually unqualified
rule permitting United States corporations to organize, manage and control
Italian corporations, subject only to certain guidelines under Italian law. In
Article VI1 of the Treatv. there is a standard of reciorocitv which reauires the

analyzed for each of the articles advanced by the United States.
Third, the Respondent is incorrect in implying that the United States' claitn
depends upon ELSIbeing a beneficiary under the Treaty. The Treaty provisions
al issue specifically protect the rights, interests, and property of United States
corporations such as Raytheon and Machlett, which invested in the ltalian
economy by means of an ltalian subsidiary. The rights, interest, and property
aiïected by the Respondent's actions belonged 10 Raylheon and Machlett, no1

ELSI'. In the caseconcerning the Barcrlona Traction, Lighr.and Po>i,erCompany.
Linzired, the Court recognized that whether particular rights and interests of
shareholders are protected as a matter of international Iaw may begoverned in
a particular case by the rules of an applicable international instrument'. The
nature ol the right. interest, or property at issue in this case is clear from the
ordinary meaning of the Treaty provisions that apply within each category of

protection. Those categories of protection are now discussed separately in light
of the Counter-Memorial.

' The argument of the UnitedSmtes before the UnitedStatesSupremeCourt in Sumi-
r,.,ii.S/i~,I~i$cr.,..Ini \ 4!,$/.~,t8(:~tc.ln th: i ~~t~!~i~~r->l~m~~r~~t~~il,pd,16, I>tn,~i
rili.tinioihtr c.!~, In9.m rg.trrzthcI1nitr.JStitr\argcicJ th~tthe 1 iiitcxSidi:. .r<h<~l.~rt
.>i;< Jiv.tiic3c<>rn.,r.iIidiA, "01 ;.~n.thli~n<lc.irhi,niirii.ul.ir Ihncuie.l Ar1i.l~ \'III
(1) ofhe United'States-~a~:in FCN ~reat~to avoidGplication afÜnned Statesfederal
Iÿw. Thai case dealt with languageparticular to Article Vlll (1) of that FCN Treaty.
Further, Sumirorno did na1 discuss in any way the rightof Japanesecorporationsto raise
claimsunderthat FCNTreatv in UnitedStates courts.
Judgrneiii.Secofid~huïr.'~.~.~.Reporrr 1970. paras. 54. 61,62. CHAPTER Il

INTERFERENCE WlTH MANAGEMENT AND CONTROL OF ELSl

The Respondent requisitioned the ELSI plant, delayed ils decision as to the
lawfulness of the requisition, and thwarted the normal bankruptcy process. in-
stead of allowing an orderly liquidation of ELSI. These actsconstitute interference
with Raytheon's and Machlett's management and control of their subsidiary.
Articles III and VI1 of the Treaty and Article 1 of the Supplement bar the
Respondent from engaging in suc11interference.

Section 1. Article III of the Treaty

Article III of the Treatv eu,r.ntees that United States corooratiotts mav
pdrtizipiitc III:orpdriitc entcrprice; urylni~cd tinder III:I;iw, ,1il;.il!,\rticlc If1
(2) ;rutci ï hru id right i~r I n~terlSt31ci ;<>rpor:iti<>n O "org.inire. contr<,ldiid
manage" ltaliancorporations engaged incommerce and manufacturing in confor-
mity with applicable ltalian law and regulations'. The facts of this case vividly
show a denial of tltis right to control and manage. The respondent, however,
tries to avoid application of the ordinary meaning of Article 111 (2) by making

several incorrect assertions.
First, the Respondent contends that the unlawful requisition of the ELSl plant
in "no way affected control by the shareholders" over ELSI, but rather "merely
concerned the management by [ELSI] of some property belonging to [ELSI]'".
Yet a fundamental right of shareholders in controlling and managing a non-
public corporation is the right to decide to liquidate or "wind-up" the husiness
of that corporation. Under Article 17 of the By-Laws of ELSI, the right "of
changing the legal naturc of the Company, of winding up voluntarily the Com-
pany" was reserved exclusivelyto shareholders owning shares having an apgregate

value of 90 per cent of the capital of ELSI3. After having made extensive
investmentsin ELSI, Raytheon and Machlett alone had the right and the responsi-
bility to decide to liquidate ELSl in an orderly fashion.

' Art.III (2)of theTreatystatesin part:
"The nationdls.corporations and associations ol either High Contracting Party
shullbe prrnzilred,in confarmitywiththe applicablelawsand regulationswithinthe
territoriesof the otherHighContracting Party. ro orgoni;<,.eonrrolundmarioXe cor-
porolions and associations 01 siich other High Contracting Party for rn,q<i~ini~n
conrnirrcial.niunu/iicruriirprocrsning,mining.educational.philanthropic.religious
and scientificacriviries.(Emphasisadded.)
Caunter-Memurisl. supra, p. 42.Contrary Io the Respondeni'sassertion.the United
Statesis not establishingan "autonomausprinciple 01 Pairtreatment".Counter-Memorial.
supra.p. 35.The UnitedSiatessimplypointsout that the Treaty as a whaleseeksto assure
investorrthai invertrnentswill begivetifairor cquitsblcircatment.Mernorial, 1,p. 72.The
concern with equitablctreatment is expresslystated in the Preambleto the Supplement,
whichof course conslitutesan integralpart of the Treaty.See Treaty SupplerncntA . rt. IX.
The existence ofotherstandards ol treatmentsuch as national treatmentand most-hvored-
~idliiiniri~.tlitdi. ~ n.11prr;l~dr.dppll..ili.i.iidr lrclimriil
' CL51 l?l'~llrc~~S~,:..~S p A. B\-l ;.tt\$13rI!..l~1\lt~'~brp~~rd~d ,\p~,o\cJ h>
the Sh~rrh.>l<lirIai\ir.ii>raiii.ir\Mccli~ii19 J.il!I9hl. Zr1 17 iAnn 5 10 ihl\ Kepl!.382 ELETTRONICA SICULA

Second, the fact that the requisition did no1 transfer ownership of ELSl to the
Respondent' does not make the requisition any less of an interference with
management and control. The requisition deprived any potential buyer of access
to ELSI's physical assets, thereby making sale of ELSl as a going concern

impossible. When President Carollo of Sicily informed Raytheon orally and in
writing that the requisition would he prolonged indefinitely unless Raytheon
abandoned its plan to wind up ELSI2, il was clear that Raytheon and Machlett
had completely lost their ahility to manage and control ELSI, leaving them only
the option of placing ELSl in hankruptcy as required by ltalian law3. Ultimately
the interference by the Respondent in the hankruptcy process even diminished
the right of Raytheon and Machlett to receive any of the benefits of a normal
hankruptcy sale, therehy forcing Raytheon and Machlett to pay off a greater

share of ELSl's guaranteed debts that went unpaid due Io the low proceeds from
the bankruptcy. Whether or no1 the requisition involved transfer of title, it
ohviously involved interference with management and control.
Third, the Resvondent seeks to ius.ifv i.s conduct ttnder the first sentence of
Article III (2) h! ~~~eriingthal the rcquiiituin \i:ls hl~d on .ln Itiit~n Ix\v .rnd
tlicrriorc \i;tc in "coniormtt! rrith ihr.:ipplicahle I:iiis :ind regulxtt<~ns"I'ïi uhilc
th31 cIi1u\c perntttr Ilnitcd St2ies corpur~tions tg)ore3ni/r. .ind si)ntr,)l Iisliin
cor~orations onlv within the euidelines established bqlocal law. it does not cal1

for'united ~tatescor~orationsto receive treatment ''no less favorable" than that
accorded to corporations owned by local nationals, which is the clause nsed in
the Treaty to trigger a national treatment standard4. Consequently the "applica-
ble laws and regulations" clause must be interpreted Io mean that the way in
which management and control may be exercised is suhject to regulation undcr
local law, but the right to manage and control may no1 be abrogated entirely,
reeardless of the treatment accorded to ltalian nationalsi.

Suhje.'t <ml) 10 ihtr c<initrdiiit. the gu:irJnies oI'ir?~tnieni in the lirst wniencc
6iip\rti:le III (21isunqu~lificd. Ilnq~i;iliiicJ%Ir"~hrol~t~'"rule\ .<rciiseJ in FC'ti,
to protect vital rights and privileges of foreign corporations in any situation,
whether or not a host governmenl provides the same rights to ils ownpopulation6.

'Counter-Memorial, supra, p.42
Memorial, 1,pp.55-56.
' Ibid.pp. 56-57. 73-74.
The "no lessfavorable" clause appearsin variousparts of the Treatywhere a national
irealmentstandard is intended.The clauscalso apwars in the second sentenceal Article
111 (?,.hl1 ihis .>:niencc~pplie, .'urp<>rdii>ci.\>nirollehv i.rrpJr.<ti<inin the iiihrr
pjrt). Hm:&,. r\rtl.lIII(2,dpp!lr..in~tion.tltri..itnirni,tmIir1.7thcri&hi<ariJpririleg:.
&ntrol and maRdgec lnELSI.tsti nclt.~l\.b~iII,)IO tl~cr"?hi,.,iR.t$~he~~ .!~JM.~:hl~~~ o~
HermanWalker. a highlyqualifiedwrirrrin this area whowasintimatelyinvolvedin
the negotiationof manyFCNs. notedthat the phrase"in conformitywithapplicablelaws
and reeulations".as il occursin thisTreatv."is framedin such a manneras to imnlvthst
itdoecnot constitute a reservationdetract;& from the treaty rights; andsuchphraseology ~ ~ ~
kas been omitted lrom subsequenttreaties". H. Walker."Provisions on Companiesin
UnitedStates CommercialTreaties", 50 Americon Journalo/Inlernorionol La.,, p. 373,al
p.384. n. 53(1956). In viewof the possibleambiguityof this qualification,however,the
SupplementaryAgreementprovidedstrongerprotectionbyabsolutelyprohibitingarbitrary
and discriminatoryinterference.whether or not in accordancewith local law. See infra,
Part V. Chap. Il,Sec.2.
H.Walker,"Modern TreatiesofFriendship,Commerce and Navigation". 42Minnesoin
Laiv Revieii,D.805.at DD. 811.823(1958). Mr. WalkerStatesthat inthesesituationsforcie"
nationalsare'toreceivé "not onlyequalprotection. butalso a certainminimumdegreenl
protection. as under internationallaw. regardlessof a Government'spossiblelapserwith
respect to ifsown citirens". H. Walker."Treaties for the Encouragemen and Protection REPLY OF THE UNITED STATES 383

In any event, the "applicable laws and regulations" clause cannot excuse the
Respondent's conduct in this case because the requisition of the plant by the
Respondent was nor in conformity with applicable laws and regulationi. The
Prefect of Palermo found the requisition to be illegal bccause it was no1directed
toward the goal stated hy the Mayor of Palermo. The highest ltalian court
confirmed the Prefect's finding. To bc in conformity with applicable laws and

regulations, it is not enough that the Mayor of Palermo referenced certain laws
when he requisitioned the plant. Ir mere reference to local laws satisfies Article
111(2). then al1 acts of the Respondent could be excused in this way and the
protection of Article 111(2) would be rendered meaningless.
Even if the first scntence of Article 111(2) is read as providing for treatment
no less favorable than is provided Io ltalian corporations, the presumptioii must
be that this Article was not meant to deprive United States corporations of
advantaees thev would have otherwise enioved under international law'. Hence
Art~ile III t?i in:ludes certiiii iiiininium st.ind.irJr of prote:ti<>iiiintlcr itltcrnd-

tion;il Ixtv.iiiclii<-i~gprotecti<>nïrorii iinla\i,lul inlerkrciic: \\,ith managr'nienl.ind
control'.
Th~ ~~,nder either the standard set forth in Article III (21or e,,n under a
national treatment standard, unlawful interference in themanagement and c:ontrol
of a United States-owned subsidiary violates Article III (2) of the Treaty.

Section 2. Article 1 of the Supplement
Article 1 (O) of the Supplement guaranfees that United States corporations

shall not be subiect to arbitrary or discriminatory measures in ltaly resulting
~articularlv,in o.eventine their effective control and manaeement of enterurises
iihiih the) h:i\c hccn p~mi~tc~dto c>t.~hlichdr d:quire in ï~xl!. '.Th., pri';ision
coiiiplcmcnts :ml rcinlircei the protccti<>n..i:~.orJcJ to R.i!thcon drid M.iihlctt
iindrr ,\rticle III h>csi;ibli.hinp .ic,~mplr.tcl?iinqu:iliiicd rule' proliib~iin,!intcr-

Lan,.rp. 229.at p.232(1956).Unqualifiedrulesstate the lawof the treatyitselfand mayoraliiu
be assessed. asrelevant.in accordancewithprinciplesof internationallaw.
' H. P. Connell. "United States Protectionof Private Foreign Investmentihrough
Treaties oï Friendship,Commerce.and Navigation". YArclii,,da Volkrrrrclils.p.256. al
p. 266(1961-1962)(quotingSchwarzenbergea rl note49: "Evenif the standard of irafiondl
treotmentis laiddawn in a treaty.the presumptionis that il has beenthe intentionof the
partiesto secure to theirnationalsin thismanneradditional advantagesb . ut no1to deprive
them of such rights as in any case. they wouldbe entitledto enjoyundcr inteniationzl
customarylaw or the generalprinciplesof lawrecognicedbycivilizednations").
When a State admits into ils territory foreign inveslmentsin the fom of juristic
persons,that State is bound ta extend to them the protectionof the law and ;issumes
obligationscancerninethe treatmentto be af%orded to them.Suchobligationsincludethe
obligation to refrainfromacts thatdepriveinvestarsof theright to exercisemanagement
and control aï theirinvestment. Scr.e.g..RPL,CIC~opperandBr<r.ssI,nc. v. OI,P~,SCPI~~L,uIP
InvesrnieniCorporaiion. 56 Inrerna~ioniilob,,Rrporrs. p.258.al pp.290-293,295(1980).
Respondentfuwasteafbreachofilsobligationsundercustomaryinternationalliiw daasrpreserved
by the Treaty.
' Art.1 (oJ of the Supplernentstates:

"The nationals. corporations iind associations of either High Contracting Party
shallno1 be subjecred ru orbilrarior <liscriniinoiorin.rea.yuwithinthe territoriesof
the otherHighContracting Partyresultingparticularly in:(ri)prei,enriithcirrfecli~~r
acquirethereinrn. .."(Emphasis added.)whichthey have beenpermittedto establish or

Sec xupra.note 6, p. 382.and acci~mpanying text.384 ELETTRONICA SICULA

ference with control aiid management by arbitrary and discriminatory conduct,
regardless of ltalian laws and regulations.
The Counter-Memorial strains to interpret the Respondent's actions as heing
directed only at ELSl and therefore as having no eifect on Raytheon and Mach-
lett's property'. Yet Article 1 (a) of the Supplement does not refer Io property
at all; it refers to control and management of enterprises established or acquired
in Italy, which is precisely what is al issue here. Raytheon and Machlett were
most certainly "subjected 10" measures in Italy "resulting in" the prevention of

their etïective control and management of ELSI. The Respondent pretends that
"the Company organs, through which this control and management were per-
formed. were able to function freelv also durine the neriod of the reauisition"'.
The "c&mpany organs" could still ?unclion, huï the; was nothing left for them
10 control and manage. This is precisely what Article 1 (a) of the Supplement
was designed to prevent3.
The Counter-Memorial tries to avoid Article 1 ,,i b, ar- -ne that lhe reouisi-
tion was not arbitrary because "arbitrary" means the same as "unreasonable"
and the requisition was a reasonable step 10take to deal with an emergency. The
requisition-was both arbitrary and unreasonable regardless of the prohlems of .

"social unrest" alleged by the Mayor of Palermo and used as the pretext forthe
requisition4. First, both the Prefect of Palermo and the ltalian courts declared
that the requisition was an unlawful act. An unlawful act is not a reasonable act
under any system of legal obligations. lndeed the Prefect himself found that the
law was "destitute of any juridical cause which may justify it or make it enforcea-
hle" and could not achieve the asserted objective of alleviating social unrest5.
Second, the subsequent fate of ELSl shows that once the Respondent requisi-
tioned the plant, the Respondent took absolutely no steps to alleviate the "social
unrest", such as by reopening the plant. The goal expressed in the requisition
order was no1obtainable by the act he took and was therefore arbitrary. Third,

even if the Resoondent's actions were reasonablv related to the eoal stated.
rcqui~iii<mine ,iplant ior poli~icdlrcdsons is no1 a legall) pr.rmisiblc gi:iI under
the Trc.ii!. InJccil. ihe Rcrp<inilcni \id> c~>mplclcl~unrchp,>nsiie to K.iythe,?n'\
and Ma.4ilcti'r ~ITort.: 10 ~iahili/c El SI iinanciall!. prciipi1;iilng the c<>n<liiiun.

'
to ils assertedacceptanceif thérulesafinte~~reitationsetaulyn Articles31and 32of ther

by the unite2 Statesestablkhesthekesoondent's&;anafulconduct. ~uriher the ordinarv

inacco;dancewithArticle 32,thesetoo EUnfirm the'intei~retationof theTreatv. .;/siai;
advancedby the United States.
Counter-Memarial. supra,p. 43.
' At the limeof the ratificationofthebillintroducedta implemenl the Supplement, the
trnp&i>ni rcfmd th1,)theeCrwricdn>l&.>f:.~p~i.tiln2r'I~:C~IC'h)n~iur.aIdndrt~~c~ip.~~mpc,c.
sons ir.m ihe iu~ r<inir.%;lingiair.\.jndihcir ircc.Ioaiitiman.igeihc i.>rnp.inieju.hirh
the,< nsiur~l or lkgd1pr.ri.xi>:ri.~hlir.>rpraiiire' C.>uotir-\fini.,riat.An" 1I .\l.pru
p. LZb.
' Counter-Mernorial. supra,p. 12.
' Memorial,Judgment of Prefectof Palermo,22 Aug. 1969, 1. p.362 (Ann. 76). See
Mernorial,1, p.64. The Prefectfaund that the requisitioncouldno1possiblyhaveachieved
ils stated purposes,becausethe requisition couldnot resultin the re-employment of the
workers or in the continuedoperationof the plant.386 ELETTRONICA SICULA

their sharesat al1times, Article VI1 was not violated. Even if the protection of
Article VI1 were limited to the shares. the value of Ravtheon's and Machlett's

shareswasessentially reduced to nothing. Prior to the réquisition, the shareshad
a value reflectina ELSl as a goinp concern, and the shareholders could control
and manage furÏdamental changes in the status of ELSI, such as an orderly
liquidation. After the requisition, howcver. Raytheon and Machlett were only

"free" to dispose of their shares by declaring ELSl bankrupt and by paying
portions of ELSl's guaranteed debts that would have been paid from proceeds
~ ~~ ~ . ~~~ , ~ia,~~~~~~~.
Yet Article VI1 is actually concerned with "immovahle property or interests

therein". "lntcrests" in property is a phrase sufficientlv hroad to include indirect
owner~h~o of orooertv riehk held throueh a subsidiarithat is not a United Stales
zorpor:it;on' c~~)iheo~, 2nd hlïchlc~'~ intcrcrts in E1.Sl.r plani. cquipnicnt.

and u.ork-in-proccss ucrc ohliicraicd hs ihc unlawSulrcqiiisition and subscqueni
ireatment in ihe bankruotcv. ..cess.The fact that the r&uisition oeriod wds for
\IY monthi is irrelcv~nt since Rnythcon and Machlett. (iiciny, n<,praspcci OS:in
ordcrl? liquidaiion. uere forcr'd to hnic ELSl dcilïrcd bdnkrupi within the iirst

month of ihe requisition.
The standard of treatment oneratine in Article VI1 is onc of reciorocitv. A
nniional iresimcnt siandard 1,applicd onl" ii ihc rcciproïity rinndard is hlgher
than ihc siïndard of nationïl trcatmeni To rstablirh thc rci~procit~ iïndard of
trcnimcni. ihc Uniicd Siaici hÿs shoun ihai under horh Dclïw~rc and Connccli-

cul 1:iu.corporaiions m:iy be di.;\ol\cd and iheir n~scis\olJ piirru:inr Io deicrniin-
aiions of ihrir bo:ird\ of direciors and \hïrch<)ldcrr'. If I>cl3\rïre or <:onnectiiut
were to interfere substantially with a parent corporation's right to dissolve ils
subsidiarv. evenif Tor a lawful public use.it would be oblieated to oav comoensa-

tion for ihni properi) '. Thc ~c<~ondcnt h:is niit ,liown thai ihi\'si~nd~rd OS
1rc:itmcni ishighcr ihan ih:ii :içr<~rdcdb) ihc Rc>pondcni Io 11soun c<irpur.ition~
Unlcss the Rcspondent c..xn.hou, ihat it inay illcgall) rcquisiiion :twholly ouned
subridi~rv of:in 1i;ilian corporntion. u,ithoui pd!inn compcnr:itidn to 1h;itcorpur-

siion. then ihc siandïrd oirciiprocity applic..

' SrurreriHouringCorp el 01.v. lslm~icRepublic of lrun.Awd. No. 314-24-1,p. 124(14
Aug. 1987): Amocu lnrer>ralion~ linaticeCorp.v. Governmeni of Iran,PartialAwd.No. 310-
56-3p.p.41-48 (14July 1987); SedmInc. v. Nolionol Iranion Oil Cornpan-v, Awd. Na. 309-
129-3.pp.22-23n.9(7July 1987)("Thc terrn'interestsin property'clearly is broadcnough
to encornparspropertyownedindirectlythroughsubsidiarycorporations").
Mernoriÿl.1.pp.81-82.
The duty Io cornpensateextendsbeyondpropertyrights taken solelypursuantIo a
formalexpropriationdecree.Mernorial.1.p.82. CHAPTER III

IMPAIRMENT OF INVESTMENT RIGHTS AND INTERESTS

The previous chapter concerned Treaty provisions that protected investors'
rights in managing and controlling their investment. This chapter concerns an
cqually significant protection against measures that impair the value of that
invcstment. Article 1(b) of the Supplement providcs that Unitcd States corpora-
tions shall not be subjected to arbitrary and discriminatory measures in ltaly
which result oarticularlv in im~airina eithcr their leaallv acauired riahts and

funds (loans, shares, or otherwisel".
This broad language envisions protection of ull financial commitments made
for the benefit of ELSI, whether in the rom of direct capital contributions, loans.
loan guarantees, or open accounts'. Further, the financial lors incurred hy
Rayiheon in defending the suits brought by ltalian banks subsequent to the
Respondent's arbitrary measures is also within the scope of the Supplement
because that 105srepresents a burden on or impairment of Raytheon's legally
acquired interests iii ELSI3. The requisition of thc plant. which caused R;iytheon
and Machlett to place ELSl in bankruptcy, and the subsequent acquisition of
the plant. assets, and work-in-process of ELSI, clearly impaired investment rights

and interests in ELSI. The requisition prevented voluntary liquidation of ELSI
and caused it to file for bankru~tc. .The imoairmenl continued with thc subse-
quent conJuct oi Italian ut fi ci ali^n :I,crics 31 conccrtcd ;iction\ IO 'icquirc Ihr
I:I.TEL the f:I.Sl pl;trit;ind dn;r..itIcri th.in i~irrn;irkct i:iluc. lc:ii.ing K.i!thr.i>n
id ~.is ELSI'Sout,t.indin,! cu~ra~itcr.dJcht, ;and 1,)dclcnd Id$i.iiiithro~c.t h).
ELSI'Sunsecured, unguar%eed debtors4.
Once again the Respondent argues chat theproperty of Raylheon and hlachlett
was not actually affected by the requisition hecause il was addressed to ELSIS.
But Article 1 (b) of the Supplement does no1 protcct against just direct seizure
of tangible property belonging to United States inveslors; it prohibits arbitrary

and discriminatory measures which "impair" United States corporation's rights
and interests in and loans to Italian entities? Clearly Raytheon's and M;ichlett3s
rights and interests were impaired. Acceptance of the Respondent's argument
would eviscerate the ordinary meaning of this article.

' For a discussion of thearbitrary and discriminatory natureof theRespondent's acts.
se<.supra.Part V, Chapter LI.Sec.2.
' The Respondent weks 10differentiatebetweensuchfinancialcommitments,Counter-
Memonal. .suprop. 48. but there isno basisin the language of thc Treaty for doing so.
Loan guaranteesrepresent asmuchof afinancialcommitment as anydirect loan.çspecially
where. as in ihicrisetheguarantoractually kas Iopay OR thelaan.The Respondentitself
hasrecognizedthat investmentswhich are eligiblcfor protcctionincludeequityinterestsin
thc form of loanguarantees. See O~ierorionaRl cgulurionsofrhe Mulrilorerol Irrvc.~tmcnt
Glluronve Agency, Art. 1.04(vi).signedby ltalyon 17Feb. 1986.
' /hi<l.at pp.85-88..
' Countcr-Mernorial, supra, p.43.
" The ordinarymeaningof"impair"suggests a widescope ofprotection. Thisinterpreta-
lion camportr with the desire of 1t:ilyin negotialingthe Supplement"to reniove any
obstacles10 the inflowof privateAmericancapiial . ..".llalianAnn. 9. supra,p. 112. CHAPTER IV

WRONGFULTAKINGOF INTERESTSIN PROPERTY

The Treaty also protects against government taking of property without com-
pensation. Article V (2) of the Treaty provides that property of United States
corporations within Italy shall oot be taken without due process of law and
without the prompt payment of just and effective compensation'. Paragraph I
of the Protocol Io the Treatv orovides that the orovisions of Article V (2) shall
"extend to interests held direc'tlyor indtrectly"'by United States corporations.
Both the Respondent's act of requisitioning the ELSI plant and ils subsequent
acts in acquiring the plant, assets and work-in-process singly and in combination
constitute takine- of o..,ertv without due orocess of law or iust com~cnsation.
The KesponJcni dgree, thdt Article \'(2)dcc~ids prr>tcciiun IO United Si.ite,
ct>rpor:ition>ag:tin\i ilie i:iktng <)l'propcri) ;iiid .igrcei ih~i ihis pr,>ic~.iiuds
c\tendeil b\ tlic Pr,~to:<,10 interc,is hcIJ iIircctl\ dr indtrecilv hi C'niieJ Si.itc.
company2.- Yet despite unambiguous languagé to the coniraiy, the Counter-
Mernorial implies that the standard of protection in the Protocol given to "inter-
ests held directly or indirectly" is somehow different than the standard of protec-

tion given to property in Article V (2) of the Treaty3. This is contrary Io the
explicit language of the Protocol which States:
"The ~rovisions of oaraeraoh 2 of Article V. orovidine for the oavment
of com&nsation, shali extend'to interests held dkectly o;indirectl; by . . .
corporations ... of either High Contractinr Party in property which is taken
within the territories of the other High Coitraciing Pariy."

There is no mention in the Protocol ofany dilïerent standard of protection from
that which exists in Article V; to the contrary. the Protocol "extends" Article V
(2). The weakness of the Respondent's interpretation is further made evident in
that the Respondent does no1 even try to establish what this diiierent standard
is or whether the standard was met in the treatment of Ravtheon and Machlett.
Thc Counter-Zlemori.iL dlao aK'rii ihat I'.r:igr.tph 1 3i the l'rsiocol ;~c~ordi
protc~ti.>n"onl, Io righi, IO pr<>pcri)" hec;iu,e the Iial~:~nic\i oi'ihc Pr<~io;oI
user the irord 'diriiii" cuhi-li s:in hc ir.in.laie.i."righi~'j and \'ienn~ C'ontcn-

lion Article 33 ,,1reo.ires aoolication ofthemore resGictive meanine4. Althoueh
"interests" properly reflects'the meaning of "diritti" in the ~rotocoÏ~, it must be
recognizcd that the Protocol extends Article V Io interests (or under the Respon-

' Article V (2)of the Treatyprovidesthat:
"Theproprrw ofnationals.corporationsandassociations of eitherHighContriicting
Party .;halno1hr lakm withinthe territoriesof the othcr High ConIractingParty
without due proccsr of law and rithou1 rhe prompr puymen1 "/jus1 and effrcrive
compen.uoiion."(Emphasisadded.)
Countcr-Memorial. rupro.p.40.
"bid.
' Ihid
"Dirilti" isalsotranslatedas "intererts" in otherpartof the Treaty,such as Art.VI1
(1) (0). REPLY OF THE UNITED STATES 389

dent's interpretation "rights") "held directly or indirectly" by Raytheon and
Machlett. Therefore il is clear that indirect rights io property are also protected'.
The Respondent denies that the requisition of the ELSl plant can beconsidered
an "expropriation" or "taking" of property, since it was simply a "requisition in
use" for which the Commune of Palermo received no financial benefit'. Yet a

"taking" is 8nerally recognized as including not merely outright e.xpropriation
of property . bu1 also unreasonable interference with ils use, enjoyment, or
disposa14.The requisition of the plant prevented an orderly liquidation of ELSI,
thereby causing Raytheon and Machlett 10 place ELSl in bankruptcy. The
Respondent then proceeded through ELTEL to acquirethe ELSl plant and assets
for less than fair market value. Consequently the Respondent's acts so substan-
tially interfered in the use and disposal of Raytheon's and Machlett's indirect
interests in the ELSl property that a taking occurred. This taking gave rise to a
right to compensation.
Whether the Commune of Palermo ultimately gained from the action of ils
Mayor is irrelevant. The Treaty does no1 require that the Respondent benefit
from ils taking; il is sufficient that Raytheon and Machlett were depnved of the

use and disposal of their interests in ELSI. In any event, the Respondent gained
considerably from this requisition because it prevented ;in orderly liquidation of
ELSl and led to ELTEL's acquisition of ELSl's plant, assets, and work-in-process
for far less than ELTEL would have had to pay had there been no interl'erence.

' The Respondent'srelianccon Article34(3)of the ViennaConvention on the Lawof
Treatiesisalsomirplaced.ByilstermsArticle33 (4)shouldno1 beusedunlessinterpretation
in accordancewith Articles31 and 32 does no1resolvethe diflcrcnce of meaning.An
analysisunder Articles31 and 32 of the meaningof "diritti" showsthat the Protocol.
placed in contexl asan extensionof Article V. goes beyondthe protectionacciirdedin
property,no1jus1"rights" in property.rince"rights" in propertyare alrcadypratectedbyn
Article V. Even if rcsort to Article33 (4) of the ViennüConventionis necessziry,thai
Articledoesno1cal1for application of themostrestrictivemeaning,but raihertheapplica-
tion of the meaningwhichbest recancilesthe two texls.hÿvingregard ta the objectand
purposeof the Treaty. Bothinternatiiinalcourts.cg.. Wemhofcüse [1968],Pub. Eu,.CI.
o/Hi<rnrinRiplirrSer.A(Judgmentof21 lune 1968).and cvenIialiüncourls,e.g.Alini.~terr>
della Dijsso v. Socicrl RintorchiororiNopoler<ini.Cassarione. 9 Dec. 1974. No.4106.
pp.307-309. have rejectedthe approachtaken hereby the Respondent.
Counter-Mernorial. supru. pp.11, 40.
' The ureof "beni espropriati"in the ltalian iextof theTredtyshouldnot be read as a
priation wasdevelopd in ArticleV prcciselyfor thepurposeof protectingthe investmcnto-
of capitalina braad senre.

"The advisabilityand importanceof this clause is quile evident becauseof the
peculiareconomicand financialstructureof our country,in whichthe accuinulation
ment. Theinfluxt alrforeigncapital representriinindispensablesupplemenlforloyour
country."

Memorial. Chamber of Depulies.ParliomcntaryProceedingsDocuments - llills and
Reports. N. 246-A.Pagc 4.PresentcdIo the Officeof thc Presidcnt2 Mar. 1949. 1.p. 117
(AnnFor anrextensivediscussionofntheconceptof"taking"and "expropriation"ininterna-
tionallaw. rerMemarial.1.pp.89-92. CHAPTER V

FAILURE TO PROVIDE PROTECTION AND SECURlTY

A final area of protection under the Treaty denied to Raytheon and Machlett
concerned the protection and security of their property. Article V (1) of the
Treaty provides that United States corporations shall receive in Italy the most
consiant protection and security for their property, and shall cnjoy in this respect
the full protection and security required by international law'. Article V (3)
provides that United States corporations shall receive in ltaly no less protection
and security than that accorded to ltalian corporations and other foreign cor-

porations.
The delay in ruling on the challenge to the requisition order until immediately
after the ELSl plant, equipment and work-in-process had becn acquired by
ELTEL was a denial of the level of procedural justice accorded hy international
law2. Normally the legality of the requisition would have been reviewed within
30 days after the date the ruling was sought, which in the case of ELSl was on
19 April 196S3.
A timely decision by the Prefeci could have avoided the need to place ELSl in
bankrupicy because while the voluntary petition in bankruptcy was filed on 26
April 1968, ELSl was not in faci declared bankrupt until 16 May 1968.Thus, if

the requisition had been rescinded, the bankruptcy could have been avoided by
ELSl asking the bankruptcy judge to deny the petition.
The occupation of the plant, which resulted in its deterioration and impeded
the Trustee's efforts to dispose of il, occurred with the tacit approval of the local
government authorities4. It no doubi discouraged potential buyers from inspect-
ing the plant and assets and generally chilled the process of selling ELSl for its
full value. Therefore this action also constituted a denial of "constani protection
and sccuritv". therebv violatine Articles V(II~,nd (3)~,f the Treaiv re,arduess of~ ~~
whether physical damage actually occurred from the occupation.
The Respondent implies that Article V only protects immovable property and
anv failurein ruline $thin a reasonable time or in orotectine the ÜlaG was not

"The . . .corporaiions . . .ofeither High Contracting Party shall wiihin
the territories of the other High Contracting Party receive protection and

' Art.V (1) of the Treatystatesin pertinentpart:
"The nationalsof each HighContractingParty shall recchjewithinthe ierritories
or theotherHighContractin~,Pirty,ihe mnr!cunsranrprurecrionund,securi~,for rheir
perronsand property, ands al1enjoy in thisrespect rhefull prorecrion <insecurir?
rryuircd inicrnolional lu,t.(Emphasiradded.)
Mernorial. 1.ou.99-100.
,..,.,. ..
hl. p liil Il I hc.Rc.poiiJcni iiincorrwi ih~iihe4;rupditoiirrfihc pl~iii by ihi
uurkrrs ocairrcd priortu ihr requiriiion Alihuudhr<imc briïl.inierrniilcnisirikrknoun
in Iialbas "hic;uo' iirikeruicurrr.dai ihr dani Driorio I ,\orill9h6.ihcrr.%JI oo lunc-
Furiher. the Respondentdid not do anythingto keepthe workersout of the plantparas. nor1to
"prcserve" the valueof the plant. REPLY 01: THE UNITED STATES 391

security with respect to the matters enumeraied in paragraphs I and 2 of

this Article."
Articles V (1) and (2) speak of protection and securiiy for "persons" and "prop-
erty", no1 "immovable property". Property in ils ordinary sense is no1confined
toimmovable property'. and whcn iheTreaty intends to cover immovable

property, such as in Article VI1. it expresslysays so.
In ihis case, the properiy of Riytheon and Machlett in Iialy was ELSl itself.
The entire entiiy of ELSl -plant, equipment, receivables,inventories, goodwill,
and oiher intangibles - was at stake when the requisition occurred. The Ilespon-
dent was obligated to protect ELSl from the deleterious elïecis of the unlawful
requisilion. The failure Io overturn the Mayor's order, and the failure to provide
ELSl with anv securitv from tresoass. de~rived Ravtheon and Machlett of the
seciirityand p;otectio~for their intestmeni to whichthey, as 100percent owners

of ELSI, were cntitlcd.

' For instance.under rulesof customaryinternational law. takingsof propcriyconcern
expropriationofall rightin theinvertment.notjurt in thrighttopassession ofinimavable
plantand equipment. Sec.e.g..RebiereCopper andBrars. /ne. vO>,rr.~e<Privafebivc.~fn,mr
Corpororinn.56 /nrer»lilionol LriReporl. pp.258.290.293. PART VI. COMPENSATION

CHAPTER 1

THE DUTY TO PAY AND MEASURE OF COMPENSATION

As sel forth in the United States Memorial. the Uniicd States is cntitled to
compensation in the full amount of the losses resulting (rom the wrongful conduct
of the Government of Italy'. Compensation should be measured in ihis case by
the injuries suiiered by Raytheon and Machlett2.
All of the injuries suRered by Raytheon and Machlett should be included in
the measureof compensation. A State may discharge its duiy to make reparation
by implementing measures designed to re-establish the situation prior to the
wrongful aci, i.c.resrirurioin inlegntnr3. Where it is not possible to resiore the
situaiion thai would have existed if the wrongful act had not been committed,
or restoration does not fully redress the injury caused by the State's unlawful act,
darnages should be awarded in lieu of restitution 10compensate for al1losses or
injury caused by a Staie's wrongful acts4.

' For acomplerediscussion ofRespondent's obligation 10 makefullcompensation, sec
XlcmThe Rrrpondrnicorrwil) notesthîi ihr los*.srulïcrcdb) niiiior~larenuinr;csürlly
idcnti~alio ihr>\c.uRerd bv the Siaic Couiiicr-\lcmoridl. <unru. rJ7.n.1 Hour.\rr.
internationaltribunalrand c&mrnentrtorshaverecogniredthat 'diimageto the nationalas
a resultof a violatioof a treatyor custamaryinternationallaw mayserve asa rneasure
of the compensation 10 the injured State. particularlywheras in thiscase. the ireaty
provisionwasdesignedto proteclthe partis' respectivenational5and the violationof the
treaty provisioncauseddirectfinancialloss10the nalional.Set Mernorial.1, pp. 103-106.
"ernorial. 1.p. 104
Ibid.pp. 104-106. CHAPTER Il

THE NATURE OF THE INJURY

Section 1. Raytheon and Machlett Suffered Financial Losses with Respect to
Loan Guarantee Payments, Return of lnvestment and Open Accounts
The requisiiion directly prevented the orderly liquidation of ELSI. Had the

Respondent no1 interfered with the liquidation. Raytheon and Machlett would
have recovered the market value of ELSl as a going concern in 1968.The book
value of ELSl - the closesi avaiiable approximation of going concern value in
this case' - was 17,053.5 million lire as of 31 March 1968.This amount would
have allowed payment of al1of ELSl's creditors in full (including Raytheon)',
payment of al1 administrative costs, and would have even returned 391 million
lire to Raytheon and Machlett as a small return of the large investments they
had previously made in ELSI. This amount would have been insufficientto recoup

Raytheon's and Machlett's investment in ELSI, since they still would have los1
over USSI I million in investments made since 1956.
By contrast, the Trustee in bankruptcy recovered only 6,373.8 million lire from
the sale of ELSl's assets 10 ELTEL. Ravtheon and Machlett. therefore. los1the
iull iülur iiitheir open accuunis uiih ELSI' .in,l. more imporiüntl~. irere rvquircd
IO pi!. :il1<iithe gu3r:inizrd loans'. ihus incurring ,omc 0.931.4 million lire in
losbci The diiferznse beiuren Ra$tlicon', and .Mschlcti'r nohilion hxd thcs hcen
permitted to procced with the orderly liquidation (rccov;ry of 391 millio;n lire)
and the losses they sustaincd as the result of the Respondeni's interference (net

loss of 6,931.4 million lire) is 7,322.4 million lire (USSI 1,739,200)'.

Section 2. Raytheon Incurred Substantial Legal Expenses

In addition, as a further direct consequence of the Respondent's actions in
violation of the Treaty, Raytheori incurred more than US$939,800 in outside

' Seei"fru,Pari VI.Chapter III.
* The United Stiitcshas declinedto clairncompensationbascdboth on sale ol'ELSl's
assetsfor book value und setilernentwiththe large unsecurcd.unguaranteedcreditorr.The
recoveredbook valucor greatcr.al1creditarclaimscould havehÿi hkenRasatisfiedin full.t
' Thai Raytheonand Machlettdeclinedto file a clairn for iheir open accountswith
ELSl in the bankruptcy pracess is irrelevantto the questionwhetherthey are entitledto
recover the lorses associatedwith the open accounis as a result of the Respi~ndeni's
violatians01 the Treaiv. However. il shouldk noted chatthe orincinalrearon Ravtheon
did no1seekrecoveryfor the omn accountsin the bankruptcyr>rocer;wasthe iner&pable
[.iciihiliduc1,the riquiiliionind Rrop,indr.nl'irub,e.pcnt hicrfcrcnsein ihs h~nkr"pir.).
proies.. K%)thrr>n .ind ~lxchlrtiwuuldnoi hatc recuveredruiliciïnic~niyn<ali<in inihr'
bdillrunl:~ orwvrr Io iuslili ihr caof nIinc2 cl.i>rfor ihrirr>nc.:iccouni$
~hê ~a;rt should;eiectihc~esr>ondent's>sserliotn hatthe~isnondent isnotresponsi-
hlc Cdrp.i)incnt>01 ihs~g~ar.inizcJlusnr Fir.i. a. Jcrnunrir;iir'<i,pr<i. l'\'.('h~piir
III.gu.iriiiir.Ihli, dri :1) 0 i>iin\i,\iiiienisps.'iii;~Il!prair;i~d h) ih~,I'rc~i)Cqu.ill!
Irnnuri.ini.R~iih:im'i du!-oFn.vki.iirncn<e, dr\.>:i.~iiJtriih nA\mcni<,filieu~:ir~ni:r.d
loanswould "61 have beeninc'urredbuifor the Res~andent's;eriuisican of ELSI 'Snt
Mernorial..1.p. 106. thereforc a direct loss cornpinsable unde; international law: Sue
Far a cornpletcdiscussionof Raytheon'sand Machlett'saclual financiallossesas
cornparcdIo ihc plannedorderlyliquidation, PP Mernorial. 1. pp.106-108.legal and related expenses in connection with the bankruptcy proceedings, in

defending against suits brought by ltalian bank creditors in ltalian courts, and
in pursuing its claim againsi the Respondent for ils actions against ELSI1. The
Respondeni's allegation that the legal expenses incurred by Raytheon were not
proximately caused by the infringement of the Treaty must be rejected. As a
factual matter, had the Respondent permitted Raytheon and Machlett to proceed
with the orderly liquidation plan, Raytheon would no1 have incurred these costs
since the banks would have been paid in full or in settlement.
Furthermore, reimbursement for legals costs arising from an unlawful act is
widely recognized by international tribunals2.

Section 3. Compensation Received by the Trustee for the Unlawful Requisition
Was lnadequate

The onlv ,~.moensation" oaid for the reauisition was limited to 114 million
Iirc.ionsiilcrcdtgih: the rcnial i.;iI~oi EI.SI Juring ihc requisiiion pcridJ Thc
Court di Appc;tlb diPalcrmi~rcjccted ihc cl~imIi! ihe Trurtcc for ihî d~nt~nution
ui thc \aluc of EI.Sl's :i\.crdnd l'orFI.SI'\ indb~lii\ in dii~orç<> is liantand
assets during the same period3. The amouni of théjudgment was piid to the
Trustee who, after deducting costs and expenses, distributed the proceeds to
ELSl's creditors4. This amount has been taken into account in the calculation
of compensation requested in this case.

' For a completediscussion ofthe legaland relatcdexpensesincurredby Raytheon,sec
Mcmorial. 1pp. 109.110.TheCounter-Memorialassertsthat R~ytheon wds awardedcosts
by Ilnlian lcgacouns. which include "Teescorresponding IO lawycrstüriffs". Counler-
Mcmorial. supro. p.49.Raytheondid receivenominalcouricosls,but thisamountwasno1
sufficientIo coveral1legalexpenws.
pp. 1998.?005.2020-2021.(1943).dirusring thecasesofIThonroigW. Muiher(UnirrdSlalesw.
v. Mc.rico) (awardincludedamount for legalexpensesincurredby claimantsto procure
the reiurn ofgold wized by Mexicaniroops) and the Louiro (United Storesv.Mc.xico)
(awÿrd includedamount for legal expenses incurredin praseculionof claim relatingto
wizureofcargo); L.Sohn andR. Baxter."Convention on the InternationalResponsibility
of StatesTor Injuriesta Aliens"("revisedHarvardDraft Convention"). repprinreinF. V.
Garcia-Amador. L. Sohn and R. Baxier.ReeenrCodifiearionofrhe LawofSIore Responsibi-
/ityfor InjurieIOAliens.p. 133(1974)(Art.36 stater thaa "clsimantshallbe reimbursed
for thoreexpensesincurredby himin the localand internalionalprosecutionof hisclaim
which are reasonablein amount and the incurrence of which was necessary10 obtain
reparationan the internationalplane").
' Ïhli.A"",A26,Aitachment CHAPTER III

ENTITLEMENT TO THE VALUE OF EI.SI AS A COING CONCERN

The startine noint for the calculation of comoensation is the value that would
hair bccn rçalized h! Raythcon :ind laihlett by the r:ilc of ELSI :is a going
conicrn in the ordcrly liquidation Ciiiing concern i,alue t!picall) includes the

fa#rmarkct i.31~~of the c<>mp~nv'3s.>icts3nJ the I'ulureprt)fitsor ihc comp;iny's
continued opcrations. In ELSI'; case, however, the actions of the ~es~indcnt
made it impossible for ELSl Io become self-sufficient.Thus, while those fitmilidr
with ELSl's operations and its potential for sale determined that the intangible
value of ELSl's product lines in an orderly liquidation would command a value',
it was not then - and is no1 now - possible 10 place an exact value on these
assets oron thc future earnings potential of each line.
The closest remaining approximation of ELSl's going concern value is the
book value of the assets as of 31 March 1968: 17.053million lire. Book value.
king merely an accounting tool, does not measure going concern value as such,
because it merelv values assets at acquisition cos1 less depreciation. This is so
also with resoeci IO anv asset. such~as Iand and buildinss, w-ich mav have
appreciatcd in value. It der, not mr'iisurcih~.actual niarket \.alue of the aarets
or ihe full int;ingihlc value of ihe rompan). and ihcrclorc under\tatcs ELSl'r rcal
economic worth2.
The Respondent does not argue that the Unitcd States is not entitled to the
value of ELSI as a going concern. Instead. the Respondent argues ihat book

value does not reflect the market value of the assets'. First, the balance sheet
drawn up as of 31 March 1968 was curreni within the framework of ELSl's
system of financial accouniing, was supporied hy reliable records, and thereforc
is the valuation that most closelyapproximates the value of ELSl's assets at that
lime*. Second. while book value does no1 take in10account the detenoraiion in
value of ELSl's assetsas a result of the delav caused hv the bankruotcv. Ravtheon
and Machlett are entitled to the value of ÉLSI al the lime of thé~es~ondent's
wrongful interference with the orderly liquidation, no1at the expiration of, or at
anv point during the bankruptcy process. It was the Respondent - not Raytheon
or-~achlett :who caused and interfered with the-bankruptcy proce& and
thcreby caused the dclay in the purchase of ELSl's assets. The Respondent,
therefore, is responsible for any decrease in the value of ELSl's assets due to ihis
delay.
The Counter-Memorial also impliesthat the Court should reject the compensa-
tion sought on the basis that il is supported by "documents originating from
ELSl or Raytheon or on affidavitsof persons closelyconnected with Raytheon"'.
Again, this assertion should he rejecied. International arbitrations have long
accorded probative value to affidavitsof inierested parties, particularly those that

' Mernorial. Ann. 13,para. 15.
Wf course.if the Respondenthad made availablethe investrneniincentives il had
prornised or hÿd othenvisebecorneinvolvedwith ELSl pnar 10 the requisilion.ELSl's
book value wouldhave beensubsfanliÿllyhigher.
' See Counter-Mernorial .upro,p.47.
SPP supro.Part II.Chapter1, Sec. 3.
' Counier-Mernorial ,upro. p47. CHAPTER IV

THE AWARD OF INTEREST

Compensation awarded should include interest, compounded annually, from
the date of the requisition until the date of theaward'. The circumstances in this
case no1 only cal1 for an award of interest but also require that the rate and
calculation of the total amount reflect the commercial realities of the case.
Raytheon and Machlett invested in ELSl with the goal of obtaining a retiirn on
their investment. These same commercial considerations were paramount iiiRay-

theon's and Machlett's decision to engage in an orderly liquidation of ELSI's
assets. The Respondent's requisition of ELSl's assets and interference with the
ensuing hankruptcy frustrated Raytheon's and Machlett's investment objective,
depnved Raytheon and Machlett of funds to satisfy ELSl's creditors, and caused
Raytheon and Machlett to pay ELSl's debts from ils own funds. Thus, the
Respondent is responsible for the loss of the use of the revenue and funds over
lime.
The Rcspoitden~ arks rhis Court no1 ti,~~3rdinicrcii bcc:iusethe applicsiiun
Io the Court could h:i\ï hccn made '.man) ~c~rsr.;irlicr"'. H<,ueicr. the Kcipoii-
dent presents no legal support for the proposition that delay in filing a claim is

a bar to an award of interest. The Respondent's argument is also basecl on a
faulty factual premise - that any delay in the filing of the claim is aitributable
to actions of the United States, Raytheon, or Machlett. The injured parties did
no1delav in seekinr redress for their erievances. The claims asserted in this case
uerc communicate~ 10 ihc ~es~onde~iimrncdiatcl) afier ihr requisiiion :ind hy
2 Jiploni.iiic cl.uni pro\idcd icithe Rcspondcni in 1972and formallg prïçenicd
in 1971 Suhscuucnt to the Pre\cnl;itioii of th21r.1~im.thc lx<>Goternmr.nt9 h.i%c
been in diolomatic communication in an atternot to reach a neeotiatcd sett~e~ent
of the dispute. In short, the Respondent can daim no prejudiG as a result of the
passage of lime which would entitle it to a reduction in or absolution frrim the
oblieation to oav inferest on this claim or fo altribute the delav to the claimants.

lnd&d, ~es~ondent has benefired from the value of ~aytheoi's and Machlett's
lost investment in ELSl since the lime of ihe requisition and should now be held
accountable for il.
The Respondeni's reliance on the CorJiuChannel case as a basis for denial of
an award of interest is misplaced3. The question of interest was no1 before the
Court in that case, as the United Kingdom did no1 assert a claim for iriterest.
Thus, the Respondent has presented no basis for a refusal to award interest in
this case.
lnterest awarded should be compounded annually'. The Respondent bases ils
opposition to an award of compound interest on the ground that it was not

awarded in the case involving British Properry inrite SpanishZone of ~orocco'.
Although the arbitrator in that case did award simple interest, he went on to

' For a cornpletediscussion ofthe awardof interest.see Mernorial.1, pp.110-115.
' Ibid.er-Mernorial ,upra.p. 49.
Mernorial. 1.pp. 114-115.
2 Reporrro~lntrrnoriuwlArbirrolAwurdr. p.650 (1924).citedin theCounier.Merno-
rialsupro, p. 49.recognize ihat there are situations where compound interest isproper'. An award

of compound interest is compelling in this case since Raytheon and Machlett
have lost the use of their funds for nearly 20 years. If Raytheon and Machlett
had not sulîered the financial losses they did, these funds would either have
eenerated additional earnines or would have been used to re~~v debt. These
u ~ ~ ~ u . ,
funds therefore would have generatcd either interest earnings or interest savings,
which in turn would have been devoted to profitable use. Each year that compen-
sation is no1 awarded to Ravtheon and ~achlett. the iniurv to them is in.fact

compounded. Thus, the actial loss to Raytheonand ~achiett is most ciosely
approximated by calculating interest at a commercial borrowing rate, com-
pounded annually SUBMISSIONS

Accordingly, the United States submits to the Court that it is entitled to a
declaration and judgment that:

(a) the claims brought by the United States are admissible before the Court
since al1reasonablelocal remedies havebeenexhausted;
(b) ltaly - by engaging in the acts and omissions describedabove and in the
Memorial, which preventedRaytheon and Machlett, United Statescorporations,
from liquidating the assetsof their wholly owned ltalian corporation ELSl and

caused the latte~ ~~ ~ankruotcv. and bv its subseauent actions and omissions -
viol=ted the international kga ibligaiions which' itundertook by the Treaty of
Friendship, Commerce and Navigation between the two countries, and the Sup-
plement thereto. and in particular, violated:

- Article 111 (2),in that Italy's actions and omissions prevented Raytheon and
Machlett froni exercising their right to manage and control an Italian cor-
poration ;
- Article (V) (1) end (3), in that Italy's actions and omissions constituted a
failure to provide the full protection and security as required by the Treaty
and by internutional law;

- Article V (2). in that Italy's actions and omissions constituted a taking of
Raytheon's and Machlett's interests in property without just compeiisation
and due processof law ;
- Article VII, in thnt theseactionsandomissionsdenied Raytheonand Machlett
the right to dispose of their interests in immovable property on lems no less
favorable than an ltalian corporation would enjoy on a reciprocal basis;

- Article 1 of the Supplement, in that the treatment aiiorded Raytheon and
Machlett was both arbitrary and discriminatory. prevented their effective
control and management of ELSI, and also impaircd their other legally
acquired rights und interests;

ir, th.ii. ouing 10thesei~iolatiiiiis of the Trc.11):inJ Supplemcnt. singl) ;ind in
comhin.ition. ihc Unitcd Si.iie, 1%cniitled1%)c.>mpens;itionin :in dm<)untcqu;il io
thc full ÿniouni 01'ihc d3ni:lc- suil.r~.d h,.H>ti.c,i)n :i1i11M:#chlt,ti ss ;iconsc-
quence,including their losseson investment, guaranteedloans, and openacçounts.
the legal expensesincurred by Raytheon in connection with the bankruplcy, in
defending against relatcd litigation and in pursuing ils claim. and interest <insuch

amounts computed at the United States prime rate from the date of loss to the
date of payment of the award, conipounded on an annual basis; and
(d) that ltaly accordingly should pay to the United States the amount of
US$12,679,000,plus interest, computed asdescribed above and in the Memorial.

18 March 1988 (Signed) Abraham D. SOFAER.

Agent of the United States
of America.

(Si~n<,d) Arnold 1. BURNS,

Deputy Attorney General,
Department of Justice. ANNEXES TO THE REPLYOF THE UNITED
STATES OF AMERICA

Annex 1

My name is Franco Bonelli. 1 am an attorney and counselor at law duly
admitted to practice inl1courts in Italy. 1graduatemagnacumlattde from the
Universitv of Genoa in 1960. 1am the senior Dartner in Studio Leeale Bonelli
where 1specializein commercial law. particularly bankruptcy law. In my practice
1have counselled numerous major private and public companies in bankruptcy
law and bankruotcv oroceedines. 1have held the chair of commercial law at the
. 2 .
University ofGenoa since 1976and wasa visitingprofessor at Stanford University
in the United States.am the author of several legal publications on commercial
law. 1am the founder and editor of CiurisprudenzaCommerciale and Diritro del
CommercioInternaiionale. 1have been involved both as arbitrator and as advo-
cale in various domestic arbitrations of commercial disDutesand in international
ïrbitrdiioni under the rulei of the Chamber of ~ommércein P~rir
I hate hcen ;i<kedio protide ni) opini,~non wheihzr Flettronica-Sicula, SpA
t"EI.SI"I wsentitled in 19hXin r>rucecduith an ordcrl~Iiuuidation undcr It:ilian
law, whether ELSl was obligatéd Io file a petitionin bahkruptcy prior to the
requisition on I April 1968, and whether any delays in ELSl's bookkecping in
early 1968 due to earthquakes in Sicily or strikes at the plant violated ltalian
law.
The following opinion is based on my experience in ltalian bankruptcy law
and my reviewof the Memonal of the United States Government, the Counter-
Memorial of the Government of Italy, and the accompanying annexes to each.

Eniirlemenrro an Orderly Liquidation
1. A company is entitled under Article 2448. n. 5, or the ltalian Civil CodIO
engage in an orderly liquidation of its assets upon a resolution of its sharehold-
ers to that efïect.
Raytheon and Machlett acted in accordance with this law when they voted

on 28 March 1968to liquidate the plant and assets of ELSI.
2. In ltalyitis widely recognized that an orderly liquidation generates a more
favorable return to the shareholders than does placing the company into
bankruptcy.
There are two orincioal reasons for this. First. a trustee in bankruotcv lacks
the knowledge or the industry and marketing expertise to locate a hierand
execute the terms of the sale at thealest return Io the shareholders. Second.
the trustee does not have the same-monetary incentive to maximize the sales
pnce as would the shareholders in an orderly liquidation. ANNEXES TO THE REPLY 401

3. In my experience it is common prac~icefor larger bank creditors in Italy to
settle claims for 40 or 50 per cent of value, rather than taking the risk of
receiving little or nothing in the bankruptcy process.

No Obligation Io Filea PeNtionin Bankruptcy
4. Based on my review of ELSl's financial data attached to Annex 13 of the

United States Memorial, it is my opinion that ELSl was under no obligation
to file apetition in bankruptcy under ltalian law. Under ltalian law, ELSI
would have been ohligated to filea petition in bankriiptcy only if its 1i:ibilities
clearly exceeded its assets or if it was impossible for ELSl to fulfil regularly
ils financial obligations. At no time during its operations, as summarized in
Attachment El to Annex 13 of the United States Memorial, did ELSl's
liabilities exceedthehook value of its assets. Moreover, as evidenced by the
United States Memorial, ELSl consistently met and was in a position to meet
al1of ils financial obligations.
1 have no reason to believe the book value was incorrect since itappears
from the United States Memorial that ELSl's balance sheets were audited by

the company's auditors and by the accounting firm of Coopers and Lybrand.
Therefore, if thehook value had been higher than the actual value, the book
value would have been diminished by virtue of Articles 2423and 2423 of the
Italian Civil Code.

No Jeopardyof CornpiilsoryDissolulion
5. Il is also my opinion that ELSI was never in jeopardy of compulsory dissolu-
tion. Under Article 2447 of the ltalian Civil Code, ELSl would have been
considered dissolved as a matter of law if its capital were depleted I~elowa

statutory minimum amount. At the relevant lime the statutory minimum was
1,000,000 lirc. Attachment BI to Annex 13 of the United States Memorial
demonstrates that ELSI's capital, even after taking into account losses, was
always well above the statutory minimum.

Cornpliance wirh Article 2446
6. 11is my opinion that ELSl was at al1times in compliance with Article 2446
of the ltalian Civil Code. When a company's losses exceed one-third of its

capital, Article2446 granrs the shareholden of a company a one-year grace
period from the date they knew or should have known of such losses either
to reduce ils capital or to take another appropriate action. As Annex 13,
Attachment BI, demonstrates, at the fiscal year ending 30 September 1966,
ELSl's capital was 4,000 million lireand its losses were 2,007.1 million lire.
As the same Annex demonstrates. in 1967the company devalued the capital
stock to 1.500 million lire to reduce the company's losses and invested an
additional 2,500 million lire to bring the company's capital back to 4,000
million lire.uring the fiscalyearending 30 September 1967,however: ELSl's
losses once again exceeded one-third of ils capital. This time, the company

did not adjust its capital and instead the shareholders voted to proceed with
the orderly liquidation of ELSl's assets. This decision was taken within the
one-year grace period authorized by A~rtie 2446 and was in al1respects in
conformity with ltalian law. Delays in ELSIS Bookkeeping

7. Any delays in ELSl's bookkeeping in early 1968that were due to earthquakes
in Sicilyor strikes at the plant were merely brief and unavoidable interruptions
inELSl's recordkeeping. In my opinion such delays do no1violate Article 216
or 217 or the ltalian Bankruptcy Act.

(Signed) Franco BONELLI,
Studio Legale Bonelli,
Genova.

Genoa, 2 March 1988.

DEPARTMENTOF STATE
DIVISION OF LANCUACE SERVICES

(TRANSLAIION)

LS NO. 125453
PHI

Chapter 1
On Declaring Bankruptcy]

S. Slareof insolvency.- The entrepreneur who finds himself in a state of
insolvency isdeclared bankrupt.
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. ANNEXESTO THE REPLY

Annex2

WRlTTENOPINIONINTHE CASE CONCERNINE GLEVRONICA SICULA S.P.ABB1~WI:BN
UNITEDSTATE S FAMERICA ANI>ITALY

My name is Elio Fazzalari. 1an1an attorney at law practising in ltaly and am
qualified to appear before the Supreme Court of Cassazione. I have becn ap-
pointed by the International Chamber of Commerce of Paris as chairman of
severalinternational arbiirations.

1 graduated in 1944from the law faculty of Rome University. 1 have beena
professor of civil procedurc since 1957.Since 1972.1have taught civil proccdure
ai the Law Faculty of Rome University.
1am a member of the International Association for Comparaiive Law and a
professor on the International Faculty of Comparative Law in Strasbourg.
1am the Director of the procediirallaw sectionof En~r./ope<li<l<'Iirillo.

1am the author of severallegal publications and treaties of civil procediire.

* * *

1was requested to provide my opinion as to whether Raytheon and hlachlett

exhaustedal1local remediesin Iialv with resDect10their claim berore the Intcrna-
tion31C:ourt of Jurti~.cin\iilving ihcir \uh\idiI:lcitronic.i-Sisul;i. Sp.,!.
The follouing opinion ISh.i.cd on ni). kn<>uIcdgcof Iisli~n ciwl I:iu and my
rcvieir of the 3lcmori;il oiihUniicd Si31crand of the Cit~rcrnmentofIt;ily.

In ils defencethe Staie of Iialy claims ihat, as a consequenceof the ehecution
order of the Iwo ireaties between ltalv and the United Statesof America (treaties
of 12July 1949and I September 19i0, respectively), theIialian intcrnaliaw has
been integrated with the provisions of the said trcaties and thcrefore Raytheon

and Machlett should have and co~ildhüve requestedcnforcement of thcsc provis-
ions in an ltalian court. On the other hand, the Respondent does not specify
which subjective position it assuniesmay have arisen in the ltalian interna1 Iaw
nor whichjudicial remedies ilassumesmay belong to Raytheon and Machlett.
Thus, Article V of the treaty. providing an indemnification for an individual

dispossessedof his own propcrty. is no1self-executing. In fact. in domestic law -
to the structure of which it is necessaryto make reference. and in our case to
ltalian law - an indemnification can be recognizedeither as"diritto sog~ettivo"
(enforceable in an ordinarv court) or as"interesse leeittimo" (which is a rliîïerent
;ituation, enforceable in an admi;iistraiive court): the of an indemnifi-
cation obligation does not imply a determination of which of the two subjective

oositions an individual has bcen awarded. and such soecific determination must
bederived from other provisions of Iialian law.
Also the provision of Article Iof the lntegrative Agreement is not a cornpletc
nom; in any case,a claim for damagesin an Italian court is subject to the same
specification as mentioned abovc with regard to Article IIIof the treaty: the404 ELETTRONICA SICULA

Italian legislator musi ïurther specify what kind of indemnification and/or com-
pensation is provided and whichcourt is competenlto deal therewith.
Similarly,as Italy has not introduced in ltalian law provisions aKording United
States citizens the additional protections of Articles III and VII, United States
citizens in ltalian courts may only assert the protection of ltalian law as applied
to al1companies in Italy.
Any claim for the additional protections created by Articles III and VI1 - as
well as those arising from Article 1of supplementary agreement and Article V of
the treaty - mus1 therefore be raised by the United States at the international
level.

II

Having excluded that the ireaty has introduced in10the interna1law claims and
judicial remediesstronger and different from those already available in the ltalian
legal system, we can only repeat that Raytheon and Machleit have exhausted al1
available remedies for the simple reason that there were no remedies available to
them.
In fact, in case of an arbiirary requisition of the assets of a company, the
shareholders do not have any claim against the requisition order, because such
claim is reservedto the company (in the case in issue ELSl exercisedthe claim).
Similarly, an action for compensation by the authorities. as a consequence of a
judicial declaration of the illegitimacy of the requisition, is reserved to the com-
.anv,which was the obiect of the reauisition and not ta its shareholders. And. in
.in! <;ire.if ihr ciimpiny h;is hccome b.inkrupt. an) ~udicii~alction ir re>er\ed to
the rezciier. iihilc the sh;irchulder. her.,?mccrcdit.irrof the hsnkrupicy (inthr.
rï,s in LSSU~.the recciier of CLSl e\crcised 311ilxinis uiihout jdccchsj.

Rome, 29 February 1988 (Signed) Elio FAZ~ALARI. ANNEXES TO THE REPLY

Annex 3'

LETTER FROM PROFESSO ARNTOXIO LAPERGOLA ~,FFSSOR AT THE UNIVERSITY
OF BOLMINA ,O RAYTHEOC NOMPANY D,ATED 9 DECEMBE1 R971

PROF. ANTONIO LA PERGOLA A,T~'Y.
ORDINARIUS OF THE UNIVERSITY OF BOLOGNA
Bologna, 9 Decemher 1971.

Raytheon Company
Lexington, Massachusetts 02173.

The quesiion poscd IO nie iiuhclhcr (giicn ,111the happcnings and iircum-

>lancessurrounding Raytheon-El Si S.p A oi Palsrnio and in thc c\.ïni ihat the
United Sidicj Goicrnmïni inicndi 10 mnkc 3 clïim :ig:,insi the I1;tlian<;i>rzrn-
nient for unl~~~iualcti :ig~injtihc L'Snati<inalsh3rehi>lilcrioi ihc s~idcompdn!,
the prtrequi.iiIc <>iexh;i~stl;il1.iiail~hlc los~l renieJies (:in he ionsidcr.ii
iuliillcd and :in iniernatitinal claini ad\ii;ihle
To respond to this qucry, I shall first have to look at the principles of interna-
tional law to determine at whai point an individual and, in particular, the
shareholder ofa commercial enterprise. can be legitimaielyhacked by the country
of which he is a citizen. in the case of injustice sufïered in a foreign State. Only

then can 1proceed to examine whether in this particular casethe essentialelements
for an international claim are given.
1.II is the common opinion of the scholars and of the judicial bodiesthat each

country has the righi io proteci ils citizens against injusli10which they may
lxsuhjected by foreign States. However, such protective action must be suhject
to the prerequisite that the individual has unsuccessfullyexhausted the rcmedies
efectively availahle undcr the constitution of the State in which the alleged
injustice has occurred. Yet the meaning and the scope of application of the local
rcdress rule would bc misunderstood if one were to maintain that exhaustingthe
availahle interna1 remedies constitutes the only condition that musi he satisfied
beforc international protectivc action can be taken. Whenever the country con-
cerned takes steps IOaci on behalf of one of ils citizens, il is in fact no1enough

that he has unsuccessfullv tried to obtain compensation for damage or injustice
suiïcred inthe,foreign ~t3te: the ;ti.ti.ln t:ni~ithe h;icd on :i~i~hif~.lcl,i~n~
ih:ti est;iblishz. lhc inicrnaiion31 rciponsihility ni the ioreipn Siaie Thcr<.i<~rcin
ihe case 31hmd. ilu.ould noi sunice if Ihe Amcrican ç!ti?cns :is ih;ireholdi>f
Raytheon-EI.Si. S.P.A. only tried local remedieswithout at the same lime making
sure that the other conditions are met which are required by internatioiial law,
so as to justify a possible claim against the ltalian Governmeni. It would he
another matter if one intended ni,t to file a claim or complaint. but, rather, to

' By a leiterof27 May 1988from the Deputy-Ageno t fthe UnitedSiates.thisfull
translationof ProfessorPergola'sletWJS submittedto supersedethepartial translation
originallysubmitted(Nou hy lltrRrhrirlr?.lextend generic diplomatic protection io such subjects at the moment that the
application of such broader rights of diplomatic protection - recenily last
discussed and redefined in the Vienna convention on diolomatic re.a~ion~ ~ ~I~ ~ ~ ~~ ~ -
April 1961. hui undouhiedl) hcisedon peneral iniern-iionnl I3w - is cleared -
uith the onl) and obvious eisept~<in ihïi no1e\en ceneric Jiplomaiic proieciion
can be exiended io subjects oiher than those connffted with-the taie by virtue

of citizenship - of the provision for the necessary requisites for proposing
international action. These requisites are essentially as follows: (a) Citizenship
of the individual concerned in the country filingthe complaint (nationality of the
claim). This is to be undcrstood in the sense that the individual mus1have had
that citizenship status from the lime he sustained the damage or injury resulting
from an unlawful act of a ForeignStaie, without interruption up to the lime at

which the State to which he belonrs has initiated the claim or fullv uo to the
moment at which the claim is decidëd upon by the appropriate judic;al &encies.
Some also feel that parallel to this requirement there should be an effective
"genuine link", no1jus1 an occasional or even involuntary connection, kiween
the injured party and the Siaie committing the injustice, which could be derived
for instance from a contract or from residency in the said State. (b) Another

requisite is thai the Siate againsi which a claim is intended is charged with the
perpetration of an international violation. This violation must consist in the
failure 10 observe an international rule which binds the State concerned to a
specifictreaiment ofthe citizensof theoiher country. In committing the violation,
il does no1 maiter whether the rule violated is one of common practice. Le..
consuetudinary rather than statutory in nature. It willdoubtless be more difficult
to prove the violation of a consuetudinary rule than that of a formal treaiy. with

the onus of proof being on the State filing the complaint. Proving a possible
violaiion of a contractual rule is presumably facilitated by the existence of a
written text on which the couri can rely in determining at which point the
violation took place. while ihere is no unanimity on the tenor of the consuetudi-
nary standards to which the State is bound in assuring the rights of foreigners.
if one leavesthe obligation to adapt the administration and operation of jurisdic-

lion to a minimum level of impartiality and of procedural guarantees out of
consideration.
It is immaterial at this point to consider other problematic aspects of the
definition of an international violation. 1 shall limit myself to the observation
that doctrine and jurisprudence are in agreement to the etTectthat a violation
fundamentally commiited against an individualmust beconsidered as an unlawful

act against the State to which the individual klongs (Movroniniutis PalesrMie
Concessions.P.C.I.J., Series A. No. 2). This isa definitepoint in the lawgoverning
claims which cannot be disputed, being based on the premise, under peaceiime
conditions, thai the individual is not an internaiional entity. It follows from this
uremise that the infraction of an international rule which binds the Statc~to ~ ~ ~ ~ ~~ ~~ ~
certain hehaviour toward the foreigner constitutes a violation of the rights of the

country of which the foreigner is a citizen; that is, of the right to demand that
the rule be observed or. in fact. the right to diolomatic protection which each
Sixte posiesscs on behlilioi ils subject~ II 1s.thcrciore. <ért.ilnih~i the iniern;i-
tionlil i<~mplainiis indicated. uhether the i.iol.iiionconsi.tcJ in an .ici OC inlusticc
again51ihc privaie indiiidulil or uhether itcon,iitJtc. a direct \iulation ui the
rights of theState filingthe complaint, quite apart from any particular behaviour
which the perpetrator of the violation may have shown toward ciiizens of thai

State. This stilldoes not preclude, when the State takes steps to provide protection
of ils citizen, the subjection of the claim to certain conditions which. logically,
cannot apply in the case where the complaining State claims to have been the ANNEXES TO THE REPLY 407

direct victim of the violation. These are exactly the prerequisites for a complaint
as 1 have stated them above, with that of attempted internal remedy being of
first priority. It has, in îact. been stated that the remedies in question must have

been exhausted bv the foreien individual. so lone as these are effective remedies
ih,~,h\c~ic 1,)ohi.iin indr&niti:;iiiori L>rihc d.;iri:iar,.inJ inlur, \u~i.iiiir.J. for
iiliich purpow il CJn bc ;i\ruiiisci th.11the .uhjcci h.i,. hcen rcquired or prcplrcd
1,)>i~b~iii i> ihc iiirirJicti.~n<II 'hc terriinrial Staie .~i~thnr~l~cii\i uhiiti exlent
foreign sovereigniy cannot be considered: Pur inpuremnonhabrijurisdictionem.
To this must be added that the proposition of a complaint regarding an injustice
suffered by the individual cannot in any way prescind from a substantiation of
the damage or injury sustained by the individual protected. It follows that this
form of violation is distinguished from that of direct injury committed against

the sovereign State. which latter is solely determined by whether there is a threat
or agitation aimed ai violation of the interests or rights of a State. Therefore, 10
clearly determine the damage or injury caused by the injustice, one miist take
inIo consideration thesubstance of that particular international rule the violation
of which is alleged by the compliiining State: the complaint must also indicate
in what form. acceptable under international law, the damage and injury claimed
by the individual should be remedied.
If one maintains that the requirement of damage and injury to the private

subiect can be set aside. one would also have to neeate anv basis for the entire
j!hicm oi rulcs nh~ch goteri1 ilic lniiidti,tii O; ~niern~iional:l;t~nis. in idci, the
rcqi~~reiiicnt "n.~iiirn.ilit!di the c1:iini" ihh.ircd dn thc :,inc.cpt .ic:<ir<l#ngto
rihizh ;tn) \ii)l~ii~~iof ihc iplierc of intircri di the inJiiiJu.il ic i,iniïm6iunt tu
a violation of the sphere of interest of the State. The very rule which requires the
exhaustion of internal domestic remedies presupposes that the individual has
sustained a dam~ge which has arisen to him from the violation of a privileged
juridical position to which he should bc entitled by virtue of the constitiition of
the territorial State and which damage can be remedied, in accordance ivith the

provisions of such constitution, without delay or denial of justice which, from the
perspective ofinteriialional law, would constitute a form of unlawful act by itself.
2. This is the essential framework of the ~rinci~leswithin which the investipa-
iion oi the ,pe;iiii :.fiscin quesiion niu\t hc coniliicicJ.
Ii iriiou nccera.lr) ts pilin1out Iidti.in .ippl!ilip thc>eprinciplcr. one cln put
,nt,) pr<>ncrpcr\p::t!\c tlw :~rcunlst.inic i11,itthe IIIJI~(KI,~:~I~In~hcjhch:ti:#lf the
cornplaint is'coniemplated, is the shareholderof an Italian company. This element
of the case in point can give rise to some doubt relative to the validity of the
claim. The scholürs and arbitral colleagues are in fact still debating the question

of whether ~rotection of the shareholders of a commercial comDanv should b. ,
prccludcd :onsidering the i;ici ih.11indi\iJu.il> :ire in\.il\zJ \il10.ir: orginilcd
in j.Iridi~.Ilcniiiier u.hich. iccordtng 1,)m<lrtSt.ltc iiirislilulidris. h.i\c rhcirusil1
pirticiil:ir ~eri<~niIit).ind nati<>n:.lil~u ~i.ih the rcsuli ih;it the ~h:ireliol.lr.r~ni)
be citizens-of various countries and ihat one can attribiite to thecorooration the
n.iii~n.ilit! tif.iioiiiitry dthcr ili.in ihc St:~tcrIO \\,hich the 4i.irchi>l<l:r\ hel<niig
T<iacccpi iniern.ition.il pr,)teitioii of the .hilrcholdcr a ~ihciutrcscr\:itioii ii<~ulJ
rhercfdre in\<>l\e .i I~itiiic<iI'thcni:iriilc of per>onalii\ id the <wnw.iiiy 1hii h.i>
in fact been advocated before at the permanent ~ouriat The wag;e by an expert

Italian jurist, Scialoia, who observed, in the Cunevaro case, that the right of the
Italian Government to protect ils own citizens is neither limited nor eliminated
by the foreign character of a company, because "if the rights of the company as
a legal person are distinguished from those of the shareholders. then they serve
in effect only the interests of the business partners". Others point out, however,
that the international proteclion aforded the individual partner or shai-eholder408 ELETTRON~CA SICULA

<an enpcndçr serious drau haiks an4 ejpeçi.~llyconflizis which ma) e\entuall)
in\ol\e dill'ercntSt.~tes.cdch pro\iding intrrn~tiondl protecliiin l'orils oan cili-
?en$\ih<~:ire al1rhdrch<~lder,of the aamr cvmvJn\ The Siaie charecd isith the
unlawful act would in such a case find irself ficini as many indivihal cases as
there are countnes initiating claims. If the shareholders of the foreign company,
on their part, are no! individuals but corporations, perhaps even of diflerent

nationalities. it could well be that thev act toeether and that cumulative claims
xre initi;ited, a11xgainsr lhc samr State, rejpecii\.cly on behdlf of the conipdny in
question and <ifthe indi\iJu;il harcholdcrs. In \icw of such prospects. arhitril
jurisprudence has had to proceed with great circumspection, largely guided by
considerations of equity, to find the right point of reconciliation between the
necessity of no1 unduly compromising the nght of diplomatic protection of each
State on the one hand and, on the other hand, the need to avoid a dilatation,
beyond reasonable limits, of the international responsibility of the States in which
operate commercial corporations constituted of individuals of diversecitizenship.
In a timely comment, Judge Bagge, arbiter in a few prominent controversies
connected with the protection of shareholders, writes on this subject that the
rules of intervention are semijuridical and semipolitical in nature, portending that

they willnot beapplied along criteria rigorous and inflexibleenough to prejudice
good relations between the sovereign States but rather in a way as to enhance
these relations. However, thejurisprudential precedents which tome seemrelevant
are few in number and relate predominantly to claims of the United States and
Great Bntain. These two countries have in fact found it necessary to protect,
with a certain frequency, the property interests of their citizens abroad, and in
particular those of shareholders. Protection has been exercisedat an earlier lime
through the interposition of good offices and without official intervention, and
from the DelagoaBay case (1889) (in Moore, Digestof InternationalLaw, 1906,
Vol.VI) with the institution of formal claims. 1 feel 1 can determine from the

decision in that case and from subsequent jurisprudential findings several most
essential principles which,as 1seethem, are today commonly accepted and which
in al1cases appear to me to be the most appropriate ones for the requirements
ofjuris aequi from which the right of international claims cannot diverge, especi-
ally in this delicate area.

(a/The company, as an entity distinct from individual partners or shareholders,
must have the nationality of the State against which the claim is directed. This
serves to preclude that the company as such can be protected by the State in-
tervening for the protection of the shareholders, so that the latter, if deprived of
the assistance of the State of which they are citizens, would bestripped of any
possible international protection (Delagoa Bay case, cited;Tlahualilo case, in
Hackworth, Digesi of IniernaiionalLaw, Vol.V, 1943).
(b) The company must be defunct or in the state of liquidation or bankruptcy
and such situation must be understood to be ascribable to an international

violation (Baasch andRonerKunhardt case in Ralstin,Venezuelan Arbiirationsof
1903 (1904); El Triunfo case, in Moore, Digest CI/International Law (1906),
Vol.VI; Romano-Americana case, in Hackworth, Digest, cited).
The reason for this requirement is twofold. First of all, the company must be
unable to claim injury of its own rights by the territorial State in any way other
than through a liquidator or receiver, and that, consequently, the individual
shareholders find themselves unable Io assure normal functioning of corporate
officesfor protection in the case of any possible violation of their rights which
may indireclly result from any damage inflicted on the company. Therefore, in
this case as well, internationaltutelage and diplomatic protection are the only ANNEXES TO THE REPLY 409

posiiblc ua!s Io ç~fcgu3rdthe righis of the sh~reholder ~nd Io ohiïiii indcmnifi-
aiion f,ir the damage susi~ined b) him. One muri iurihcr ~oniidcr ihat. givsn
that the company is dissolved or defunct or in a state equivalent to dissolution
or extinction, the right of the shareholders to simply partake of the profits of the
company ceases to exist and is replaced by the nght to a distribution/sliare in
any assets consisting of the company's remaining net value. Even in the applica-
tion of these ~rincioleson the oart of international iuris~rudence. one is debating
iihich rights ;an biinini~ililitei~.inildirecil) coniidercd'as iar as the \harelioldcr~
thcniseli,es xrc conîerned, u.hile it in ruled out ihït the critcgory of sut~qecti\,c
posiiion5 on ihc oart oiihc shareholders includes the >vandardor inhcrcnr rizhts
conferred on théshareholders governine the oreanization of the comoanv or a
right to remedy for mismanagement, theright toohtain a quota proporti<;nal to
the equity in the company in the case of liquidation constitutes - according to
the mmt-national juridical statutes - a diÏect proprietary right or one directly

pertaining to the shareholder as an individual;
(c) Provided that one can establish that, with the company ceasing regular
operation, the shareholder has suffered damages resulting from a violation of the
nehts attributed to him. the State of which the shareholder is a citizen caii lodee
a coniplliint tigüinsi the Siïte responjihle ior the vi<1l3iion
If :il1ui the elementi indic~tsd hy me rippcrir in the crise in puini. thcn direct
nr<itectionof thc ihareholder is to h consirlcred :idmi.sihle. u,ithuut rccard io
ihe existence of the company as an independent subject with ils own nghts. It
follows - and this is a rather important consequence - that the claim is not
subject to pnor exhaustion of interna1 remedies since the shareholder, in his
capacity as such, has no remedy to pursue within the territorial State to obtain
indemnification for the damages sufiered hy him. For the purpose of admissibility
of the international claim, a case in which no effective remedies existis in fact
equivalent to one in which the available remedies have been unsuccçssfully
exhausted.
The preceding considerations permit sufficiently precise consideration of the
aspects relevant to the solution of the questions posed to me in the case here at

hand.
Indeed, keeping in mind what 1have already had the opportunity to observe
with regard to the first requirement for the initiation of a claim on the part of
the State to which the shareholders belong - the perpetration of an international
violation - referencecan bemade to the orovisions of Article 1of the suonlemen-
ta& agreement, worked out in ~ashin~ion on 26 September 1951,to i6f:treaty
on commerce and navigation of 2 February 1948,and in particular to the clause
relating to the illicitcharacter of anv arbitrarv or discriminatorv measure resultine
in an 'obstruction of the effective controi and administracion of cntçrpris&
founded or acquired by citizens or juridical persans of one of the opposing
parties, or in prejudice to their rights and interests relative to business enterprises
and investments lincludine -. oarticular shareholdines)-,The international obliea--
lion of the opposing parties to refrain from discriminatory or arbitrary measures
against citizens of the otber State is also designed to provide a possibility for
securing, under normal conditions, capital and other special goods required for
the economic develooment of ventures derived from investments bv citizens of
ihs i\io ruuntrici. hesider ohiriiiin$ the hcnefii (11y~ci;il .isjirtxnce in tirsril.
~ustoiii<.ind t3riiFnixll~rs(in uhicli connecti<iiirefcrenic is niride 10 Ariicle 5 oi
ihc>xiJ a~rccmcnt. iviihrricciticrcurd io ihc ~ro\isionsertribli,hcd b\ thc Itlilidn

legislatioR effective as of the timëthe ~reaty or supplements thereio went into
effect) offered for investments for the purpose of the industrialization of the
Mezzogiorno (Southern Italy).410 ELETTRONICA SICULA

With the international rules thus established aeainst which the conduct of the
ltalian Government must be measured for determining the possible existenceof
an international violation - and 1 personally do not consider it possible nor
practical to refer, for this purpose, to any other norm, consuetudinary or con-
tractual - the problem faced isthat of ascertaining whether the factual situation
presented to me by Raytheon Company clearly contains the elements necessary
for the conclusion that the obligations arising from the said nom have been
\iolütcd.
Wiiliin the irxmcworh 01 the acIiori\ direcil! or inJtrçciI) :~itrihuiübl10 the
li.~lilinGcnernmçni. oithc ioriii.~lsitpr iaken. .ind oi.ill ihç uihcr c1reu111st3nc~.\
uhich h~re hroiiulii .ih61dtihe sidie iiii\treiiic hdrdbhip in uhich the Amerimn

shareholders of ~avtheon-EI.S~.S.n.A. have come to find themselves. one îact
cmcrgc, clwrl) and merit. ~pçci:ilaitcnti,>n As J con>cyiieiiscoi XIIihç c\.enir
u hizh h:i\e re>ultcdCrcim\:trious <<irp<,r.ii:dciicin, and wliich are .ilso dçcriixd
in the report submitted to the appropriate Judge by the bankruptcy liquidator
of Raytheon-EI.Si. S.P.A. on 28 Octoher 1968, Raytheon EI.Si. S.P.A. - after
the shareholders had an opportunity Corvÿrious recoveries either through the
conferment of large sums of risk capital or through direct financing or financing
uuaranteed bv them to the comnanv. .n v,ew of the losses incurred due to the
plant's location - was forced to adopt a program of reorganization of ils
productive structure which then yielded favourable results and in turn helped to
Ïeduce the administrative losses.
This program - designed to assure, through increased productivity of the
plant, greater competitiveness of its products - entailed sacrificesfor part of the
labour force employed, sacrifices which. ofcourse, did not meet with favourable

receotion on the part of the unions.
Oilicr dillicul~çs.\temniing lrom thc ,itu~t~.incon<erniiigcerilin pruduci Iinçs
of thc <rpcriiion. promptc,i ihc m.in<igenientdi K:i)thçtin-El Si S pA io declde
on the cc\,.iiion ,ii the ini1ustri;ila<ti\iiicsdiid, 1:iir.r.oi the cunimerçiil acii! itiçs.
and to propose to the shareholders the liquidation of the company for the purpose
of an orderly and well-planned sale of the company in its entirety. As a result of
this decision of the corporate management which was made public, the Mayor
of Palermo, in his capacity of a government official, and with the tacit approval
of the Central Government per provision of 1 April 1968,ordered the requisi-
tioning of the plant and of al1its equipment for a duration of 6 months, succes-
sivelyextended.
Raytheon-EI.Si. S.P.A. promptly reacted to this measure through the means
available under the Italian constitution. Meanwhile, however, beingdeprived of
the availahility of al1the material constituting its assets, the company was irreme-

diably obstructed and prejudiced inthe planned orderly liquidation of the opera-
tion. As a result, with substantial debts falling due which the company was unable
to pay for want of liquidity thus brought about, it was forced to file for a
declaration of bankruptcy. The bankruptcy was declared by verdict 7 of 16May
1968.
That iliçrequi*iiion iirdrr ir;isillçgil h~\ besn rcciigni7r.d hy ihç Preicct di
P~lermo IIIthe cliç~~ut~ooiii hi<contr<illingpouers o\cr th: sstiginaof ihe Sla!<,r
a* .<rovc,rnmcni oilici.il.Thç Preicçt hi\ confirmcJ ih:ii ihc \itu.iiion oirinan;i.il
diffi&lty which was followed by the declaration of bankruptcy of the company,
is a direct result of the fact that the firm was deprived of the availability of the
property through the intervention of the government authority.
However, as a matter of interest, it does not seem necessary to determine
whether the Mayor's action was unlawful since on the basis of the Italian
constitution this is a question which at this point concerns the hankruptcy office ANNEXES TO THE REPLY 411

(given the îact that in Italy it is cxclusivelywithin the power of the liquidaior of
the bankrupt company to support or resist any legal action on the basis ol'which
it is possible to definitively establish the contrariety of this action violates the
standards of interna1 law).
On the premise that the company is at this point deprived of any possihility

to iake action for the protcction of the rights which are specificallydue to them
due 10 the stalc of bankruptcy in which it finds itself, it is now a matter of
determining whether thc shareholders havc sutTeredany violation of their rights
as a result of the conduci of the ltalian State that may have been contrary to the
obligations internationally accepted hy ltaly according to the specificprovisions
of thc friendshio treatv. There seems to be no douht that the action bv the Mavor
of Palermo intérfered2tirstof al1with thc implementation and materialization'of
the liquidation of the business operation of Raytheon-EI.Si. S.P.A. after the
com~letion of which it would hive been oossible to determine whetlier the
sharcholdcr. aitcr p;i)meni of !hc~~orporaie~cbt. u,,>ulJh:ii.checn able 1,)obiain

rcimhurscmeni. III full or in p.311.(11the re\pccii\c xmounts paid b) ihrm and
possibly the allocation of a quota - proportional to their investments out of the
rcsidual net assets of the comoanv.
Aside [rom the direct causal connection existing between the requisition and
the state of payment difficulties,culminating in the hankruptcy of the company
tat the exDenseof the corDoralecrcditors in whosecollectiveand obiectiveinterest
the receiverisempowered 10take the most opportune remedial slepi), theconduct
of the ltalian Staie agency kas directly and definitivelyobstructed any possibility
to provide for the liquidation of the corporate assets by a sale. under terms
acceptable io the company. of the propcrty requisitioncd, as well as by any
suitablc agreemcnt the company could havc worked out with the corporate

creditors wiih whom, in fact, it had already arrived at preliminary agreements,
and which would also have left open ihc possibiliiy of recovering, if only in part,
the lar-e amounts which the shareholders had committed to the business.
Now, ihe :ici oiniaking IIimporsible io Iiquiiliic the ii,mp:in!. and to conduct
the :icl~\~iiic~h~;h n61rm;ill)lcad io ihc rile ofi<irpor.tic property, har dlrccil)
cul into ihc ilcar :inJ ipccilic rigttii of the sh;ireholdcr> '1hcrciitre. ihc conduri
of the Iialii~nStîic uhiih haishroiighi ;ih<iuiihis prcjudic1:ii~11u:itionils-:i-\i\
ihc right, .inJ iniercsi\ oi thc r\mcrir.,in sh:trcholders and the ne@ti\c ItlIpJCion
their investmcnis in the form of stock participation, iscertainly contrary not only
to the exorcss oroi,isions of the above-mentioned international rule but also to
~~ ~ ~ ~ ~ ~ ~
ihc very kiison'd'êtreof the latter whichis designed to assure an obligation to
the etTcciiveand cfficaciousrecoaniiion of the need to saferuard such rights and
inicrests.The conduct ofthe ~taG assumesin fact an arbitrcry and discriminatory
character in relation io al1the priiiciples of international law, and most of al1to
the principlc of good faith, which offer us a constant interpretative criterion for
treaties: It isclear that the terms arbitrary and discriminatory, used in theTreaty,
need no1clash with the notion of illicitness - esoeciallv if that is relateclto the
signitic.in~e<tiiiini<inl).iiirihutcd IO it in thc ~urispru<lcnscoi St2tc con\titu-
lions - in thc \cnw ih.41.irh~tr;~r)dr etcn d~~irim~n:~ic> ,ayn rcicr 10 :IwnJuct
tvhich 1s no1i<irrti.illiIli:ibui \iiIiuntrdry iu intcrn.iiion31rule\ At ihe bi)rdcr

line thcrc may bc an-aci or conduct on the.part of the State devoid of aiiy form
of control or accountahility, taking place within the parameters of interiial law,
where onc can corrcctly define as arbitrary a given mcasure alone for the fact
that il exceeds the limits of most essential reasonableness and good faith (which
arc the purpose of the trealy) even though there is not technically an abuse or
exccss in the cxercise of the largely discretionary powers of the public agency.
This definiiion is particularly indicated in that, in the case at hand, the arbitrary412 ELETTRONICA SICULA

nature of the measure taken by the Mayor of Palermo as a government official
is only the most obvious aspect of the picture in which are contained niany other
facts directly or indirectly chargeable to the ltalian State. These facts which, even
taken individuallv. are undoubtedlv svmntomatic of a tendencv to treat the
,,.
.\meric'~n\harr.h<>lderroi R~yiheon EISi Sp,\ iinot in a h,>stil;. hut ccrt:iinl)
no1 ;1 f.iv,~ur;iblr. dnncr. :tnd in thcir ,uni toi31 the? asiumc clcar rslr.i;insz ior
the purpose of expressing a judgment on the contrariety of the ltalian conduct
relative to the obligations under the Treaty. Among the facts hrought to my
attention are the following:

Massive intervention by the President of the Region (of Sicily) prior to the
declaration of bankruptcy of the company, openly aimed at ohstructing the
liquidation plan worked out by the company; the great publicity given hy the
ltalian Government, via radio and television, to the intention of a company of
the State-controlled IR1 group to proceed with the takeover of the plant, with
the eîïect of discouraging any potential pnvate buyer and of making impossible
the sale which latcr took place at a price substantially hclow the estimated value;
the behaviour of the IR1 credit banks towards the American shareholders in
pursuing drastic legal action in the ltalian courts for the purpose of creating an

onerous situation for them.
Based on al1these elements 1believe that one may be justifiably convinced of
the arhitrary nature of the Italian Government's conduct, consequently constitu-
ting an international violation.
As 1have stated earlier, tbat it is necessary for makiug the initiation of a claim
legitimate to also meet other requirements, but in Our case one cannot really

doubt that these are met.The fact is that the shareholders are American nationals
which satisfies the requirement of the nationality of the claim. They have further
established, through their interest and investments in an ltalian corporation, a
genuine link with the territorial State.
On the other hand. the comnanv .s u,doubtedlv of ltalian nationalitv. Since
the company belongs to the country which committed the violation, anotber one
of the elements is given in that the individual shareholder can be protected by
the country of whch he is a citizen. The company is furthermore in a state of
bankruptcy which is, inrer alia, a direct result of the requisition order. The

bankruptcy svatusprevents any direct initiative by the company to put itsclf back
into the situation in which it would have round itselfhad it not been for the illicit
action. O- ~he bas~s~of the nri.cinles.~onfirmed bv international iurisnr2.ence.
this constitutes another elementpermitting immediatc protection of the sharehold-
ers by the State of which they are citizens. Hence, the question of exhaustinr
interna1 remedies does not aiply since these remedies, in this situation, woulé
no1 have been dircctly available to the shareholders. The latter have suffercd a
specific injury of their interests since the illegal conduct of the State made the
liquidation impossible. Such conduct is by itself abstractly apt to cause damage

or iniurv. even if concrete auantification of such damage is an areumentati-e
poininot part of the probleh posed to me.
For the reasons developed ahove, 1 feel that 1 have to conclude chat in the
situation at hand a11therequirements appear to be salisficd for international
nrotection of the shareholde~s~of the Ravtheon-EI.Si. S.O.A. who are United
Siaici ciii/r.n>.\iiih<>uitlic nr.c'iripiir,ur. iiiisrn~l rcnicdir.. prior ihc'pgi\rihlr'
iiiiiiati,!tii.i~llini apnnrt thc Ii..,lianG~\crnmr.nt

(Sipud) Prof. Antonio LAPERGOLA,
LL.M. (Harvard).shareholders would not have a cause of action even under Article 2043 of the
Italian Civil Code, because: (a) the requisiiion was directed against ELSl and

not the shareholders even though ihe laiter eveniually sutïered damages; and(b)
ltalian law provides for a spccific remedy against the requisition which is the
aforementioned appeal to the Prefect. 1 know of no judicial decision in which
Article 2043 of the ltalian Civil Code was applied in similar circumsiances. It is
my opinion thai the shareholders of ELSl would have no remedy or no effective
remedy under Article 2043 of the Iialian Civil Code.
4. By way of conclusion, there is no remedy under ltalian law available to the

shareholders of ELSl in relation io ihe damage sutïercd by ihem as a consequence
of the requisition by the Mayor of Palermo and the subsequent events. In my
opinion there can be no question as io whether ihe shareholders have exhausted
al1(nonexistent) local rcmedies.

(Sixnecl) Avv. Giuseppe BISC~NTI.

Annex 5

EI.sI-- FI lilK(lhl(.hSICLLA SPA HI.-LAHIIAR1ICLI:S ot Ih(OKl~o~,~llos I
AI~I~HOV H~I)IlIIS&IAKI'IIOLI~ IRKF' Kl>l'i4RY Ml1 ll\<i01'1')1111.).901

[Nor reprodirre~l]