Rejoinder of Italy

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; duplique REJOINDEROF ITALY

DUPLIQUE DE L'ITALIE INTRODUCTION

1. The Admissibility of the Application and the Applicant's Allegations on the
Merits: Some Introductnry Remarks

First of all, the Italian Government reiterates ils objection to the admissibility
of the application for the reasons set forth in Part III of the Counter-Mernorial'

and further developed in Part III of this Rejoinder.
With regard to the facts, it may be useful to summarize al the ouiset the
contentions made in the Applicant's Reply, which contains several discrepancies
with respect to the Memorial.
The unlawful hehaviour attrihuted hy the Applicant to the ltalian Government

allegedly consists of four well-defined acts or omissions, namely: the requisition
of the ELSl plant hy decree of the Mayor of Palermo acting in his cap;icity of
government official; the Prefect's delay in rendering a decision on the appeal;
the failure of public authorities to protect ELSI's property from the factory
workers' occupation; the interference in the bankruptcy proceedings in order to

discourage private purchasers and allow IR1 to buy up the plant at a price well
below its fair market value'.
All the ahove-mentioned hehaviour is alleged to he the result of a diabolical
plot hatched by the Italian public authorities at many different levels (Central
Government. or at least several ministries. reeional and local officiais.State-
owned companies, bankruptcy institutions, étc.jall done to take ;ver a ";echno-

logical jewel", i.e., ELSI, on the cheap.
This rilot alleaedlv led to the haiikru~tcv of ELSI. which would otherwise have
been wound up;n an "orderly liquida&on;'. It also meant that in the bankruptcy
proceedings the realizcd vdue of the company's assets was much smaller than
their true value so that Raytheon and Machlett suKered damage to the extent of

the difference between the actual amount received and what would have been
obtained ifELSl had been sold as a "going concern", or at least on the hase of

' Counter-Memorial submitted by llaly (Case concerning Eleltronica Sicula S.P.A.
(ELSI)), hereinafter rcferred to as "the Counter-Memorial".
' TheMemorial submitted by the United Statesof America (caseconcerningElettronica
SiculaS.P.A. (ELSI)) (hcrcinaiter refecrcd10 as"Memorial") ûlsocontained (1.pp. 65-66,
erprcially al p. 66, note 1)a further accusation againrt the ltalian authorities: publicly
ownedbanksclaimed that Raytheon. :is"dominant partner". should pïy ELSl'r unsecured
dchts.
This referencehasbeendrorrwd in thc Renly submittedby the United Statesof America
an 18 \jarch Ir88 ihcrriii~lt&rcicrred trîi .:Krpl) "1(secp 365..supr«land il,h~,uldbe
ackni,u.ledyr.dthai ihr Applliant no Ihmgcr~ntcndrlu purru? J claim on such p,,ant and
thr ardunicnis ruririariini11 Uniied Sirit, Ciovernrncniçounscl ha<iinn~renth rrslimù
that itvould be ~bsoluteïyuntenableand contradictory IO clairn tha16; r>ubliClyowned
Iiali~n hmkr uoulJ 20 &nsi iheir riun inrcrc.ri:sridrLin somronc uho ouéJ ihcm
rn<>nc!.ihui luring311ihrlr uo,ccured losnr i\%ihan~~uould h~ie ii.ihr lu,, incurreJh)
ihc b~tiksuaulJ h.iir hrrn ruuiialcni tnii.unon,i<irrrn, iahoui 4.OOUrn.ll.<inidihe nroiii
madeby IR1accordingto theChargesmadeby the~pplicant (Mernorial, Ann. 13.Schcd.E). REJOINDER OF ITALY 419

equipment'. The conclusion was reached that the pricc paid hy the purchaser
was quite reasonahle'. even whencompared with the estimated quick-sale value
statcd in the 1974Claim hy the Raytheon and Machlett Companies.
As to the occupation of the factory by the striking work force, it has been

pointed out thai it beganin early blarch 1968,when the plant wasunder exclusive
ELSl control, and noi afier the requisition. Moreover. the occupation did not
prevent the winding-up operations from heing carried out regularlyJ.
As to the delav with which the Prefect of Palermo rendered the decision
upholding ihe EI.SI appcsl ;ipinri the rc!quisii#on dccree (22 August 1969).
4ocumcnt.ir) e\idencc ha$bccn produicd IO<hoa.ihat the :i\cr.ige Iength uf such

nruccJurcr 15 I? munihh. \ilii:h I.iioi ~uhst;int1~11~lcsa ihan ihr. tinie ;.cruallv
iaken in that case(16 months). It kds also heen pointed out that each petitionCr
has the right 10 make a special request that the decision conccrning him be
expcdiied. In the ELSI case, this was dqne only on 9 July 1969'.
One further aspect has heen stressed:starting from 30 Septemher 1968 (Le.,
from the day on which the requisition decreeexpired). ELSl los1control of the

factory, as a result not of the requisition decree, but of hankruptcy. The delay
in the Prefect's decision was therefore not detrimental in any way. Lastly, with
regard to the Applicant's assertion that no adequaie compensation was paid, it
has been responded that, although the decreeof the Mayor of Palermo acknow-
ledged ELSl's right to such compensation, the actual payment of compensation
*,as postponed pending the appeal 10 the Prefect of Pdlermo, and then the

upholding of the appeal implied that the right to suchcompensation was replaced
by the right to compensationfor damagescausedby the requisition. To this eiïect
a sum of money was awarded hy the Court of Appeal of Palermo in ils decision
of 23 Novemher 1973, which was confirmed hy the Court of Cassatioii on 26
April 19765.Thc sum was actudlly paid 10the receiver in the ELSl hankruptcy
proceeding. Therefore, in the final analysis, ilkas to he acknowledged that the
Respondent fulfilled its obligation to compensate the damage caused by the

requisition of thç ELSI plant.

3. The Applicant's Failure to Provide Evidenceto Justify Its Claims

The Aoolicant and the Resoondent have thus eiven the Court two widelv
diiïering ;ersions of the facts relating to the present case.This means that thé

dispute between them concerns not only the diiïerent interpretation ol' Treaty
provisions but, to an even greater extent, the ditïerent statement of the facts to
which those legal provisions are to heapplied. However, the comparison between
the two versions in question cannot be based on the assumption that they have
equal weight, and that the Court is called upon simply to estahlish which of the
two parties can prove its arguments more fully and convincingly. This is no1 the
case. bfcause the Applicant, who claims to have been unfairly treated and there-

fore requestsa reparation from the Respondent, must demonstrate that ~hefacts
on which its claims are basedare true.
We know that, in international cases,it is very often impossible to identify an
Applicant and a Respondent since the parties may have concluded a special
arbitration agreement. Therefore, it is generally held that the probleni of the
burden of proof to be shared by the parties cannot he resolved in the samelems

' Counier-Mernorial, pp. 18-19,rupro.
Ihi<l..p. 20nipro.
' Ibid..p. 15,,n<pro.
lhid.. p17, sitpnl.
' The English tex1 ofthesedecisionscan be roundin Mernorial,Anns.81and82.and this proof is necessary - that there is a causal link between them: in other
words, it still has to be proved that there is any cause-and-efect relationship
between them.
In particular, it mus1 be pointed out that the most important circumstances
giving rise to damage the Applicant has complained of were a direct consequence
of the bankruot.v:,the non-availabilitv of the ELSl faciorv and olant aller the
rcqi"si1ion peridd iic .afier 30 Scptciiiher 1068).the i.>mpulrory li~uiJ:itiun of
ihc conip.iny's 3ssets and ihe ,ale of ihe pl.int IO the ELTCL s,inip.in). II 15.i
ucll-knoun F~ciihat ihc b~nkrunt;\ proceeJing u~s rcquetcd b\, ElSl I'herc-
fore, the Applicant could attribute ihe above-kentioned circumstances to the
Italian Government only by asserting that the filing for bankruptcy was caused

by the requisition. However, this assumption musi bcsupported hy evidence,
which has not becn forthcoming. On the other hand, the Respondent's evidence
to the contrary is suhstantial.
With reference to the gencral problem of the role of causation in the field of
State responsibility, il is interesting to rccall the principles adopted in the draft
Convention on the internaiional res~onsibilitv of States for iniuries to aliens.
cstablished hy the ~arvard~aw ~ch6ol in 1961 '.Article 1, par&raph 1. of the
draft stated the following principle: "A State is iniernaiionally rcsponsible for an
act or omission which, Ünder international law, is wrongful, is attributable to
that State, and causes injury to an alicn." In Article 14,paragraph 3, the concept
of causation was defined in the following lerms: "An injury is 'caused' . ..by an
act or omission if the loss or detriment suffered by the injured alien is the direct
consequence of ihai act or omission." Paragraph 4 added:

"An iniurv is not 'caused' hv an act or omission: la) if there was no
reasonabie relation beiween the Pactswhich made the acl or omission wrong-
ful and the loss or detriment suffered by the injured alien, or: (h) if, in the
case of act or omission creating an unreasonable risk of injury, the loss or
detriment sufered by the injured alien occurred outside the scope of the
risk."

The restriction of indemnifiahle damages to those which are the direct conse-
quence of the wrongful act of a State coincides with the prevailingjurisprudence
of international arbitraiion tribunals. This poinl will be further elaborated upon
when we comc to deal with the claim for damages presented by the Applicant.
For the lime bcing only two observations will be made: the only direct conse-
quenceof the requisition decreeof the ELSl plant issued by the Mayor of Palermo
on I April 1968 was its iemporary unavailability to the company to which it
belonged. For ihis reason, the damages granted by the Court of Appeal of
Palermo (decision later upheld by the Court of Cassation) were limited to the
conseauences of this unavailability.by.ifs owner calculaied as the euuivalent of 5
pcr ,,nt of thc \,nluc of thc requisiiion :i.\cisAs io the grcdicr lo\;er for \rhi~.h
ihe AppIir.int isclaiming conipcn.?iion. thcy ïriuiill) rcsuli frum the h:inkrupis!
ior which ELSI it,eli liled CIr>etitlun Thcs arc onl) tndirectly rclïtcd to the
requisition even if one accepted the Applicant's arguments that the unavailability
of the plant was the cause of the insolvency (which is clearly disproved by the
fact that ELSl had ceased al1commercial activities as a result of the decision of

16 March 1968of ils Board of Directors). The iruth is that there is absolutely
no relation beiween the rcquisition decree and the fact that the company was
liquidaicd Corbankruptcy.

' American Jouriiol ~JlnrerirorionLA,! V,ol.55,1961.pp. 548 f. 5. The Question of Attribution of the AllegedActs to the ltalian State

One further remark must be made concernine the wav the A~dicant has
prcrentcd the i~ct, conceriiing ihis c.r*e WChate :ircdy p<;inted,~ui'ih.ii.in the
dr:iii Coiivcnii,~nor1the rciponrihilii! of Stiics ior InjUrIcj icislicn.. er1dhlijli:d
hv thr. tl.ir\ird 1.2~khool iril')hl. one olihc prcsirihcd s<inJiiions for 1 St:itc
to be considered responsible for a wrongful in;ernational act is that the act or
omission in question must he "attributahle to that State". A similar provision is
contained in Article 3 of the draît articles on the fesponsibility of States, the first
part of which was provisionally adopted by the International Law Commission

in 1980'. This text also contains detailed provisions regarding what may he
termed "acts of State" under international law. While the first category of this
kind of acts logically consists of the behaviour of any State organ deemed to he
such under the law of the country (Art. 5), it is denied that the behaviour of a
person or persons no1acting on behalf of the State can he considered an "act of
State" (Art. II).
The reason for mentioning these two drafts is that the behaviour for which the
Applicant considers the ltalian Government to he responsible may indeed be
partly attributed to the Respondent, but must partly he attributed to others. In
fact, it is not denied that both the requisition decree issued by the Mayor of
Palermo in his cauacitv of eovernment official and the decision taken hv the
Prciccl of P;>lcrmo on Ille appcdl hy EI.SI <an hc attnhuted IO the Ii:ilian ~1.itc.

The smc cdiiniit hr' ciid. ho\ir.\r.r. of th<,.illcged inicricrcricc in ihe hsnkrupi:).
~roceedinp, in so far as it occurred throurh the action of the receiver (who, in
fact. reorësents the creditors and acts in their interest) under the control ofthe
bankriptcy judge. And ahove al1it is denied that one ;an attribute to the ltalian
State any decisions taken by an IR1 Company (ELTEL) or hy IR1 ilself outside
the exceptional case of a specific governieni directive, as itwas clearly shown
that the IR1 group is legally and efiectively independent from the Government.
With regard to the latter point, Article 7, paragraph 2, of ihc draft articles
provisionally adopted by the International Law Commission considers as an "act
of State" the behaviour of the oraan of anv aeen.-.which is not art of the
rtru.?urr' OCthe Si.ite or 01 ;I puhlic ierriiori.11c~>mmunit!",hui ii "cmput\crzd
b) thç intcrn:il Idur vi'thr. Siair. io cwrcirc poucrs of piibli~:luihorit) in so isir

as the organ has acted in such a capacity in the case in point". II is easy to show
in the present case that the organs of IR1 or of companies associated with the
IR1 group have no powers to act as a public authority under ltalian law and
therefore have not acied in such a capacity.
The indifierence of the Applicant about the existence of a causal relation
between the alleged losses and the actions defined as wrongful, and about the
limits within which such an action may be attributed to the Itiillian State is
displayed in numerous assertions contained in the Reply. Byway ofexample one
may quote the passages contained on page 363,supra, where it is stated that the
requisition "prevented Raytheon and Machlett from selling ELSl's assets and
thus proceeding with the orderly liquidation as planned". It is added immediately
afterwards that, despite the steps taken immediaiely by the two companies to

have the requisition removed, "the Respondent refused to quash the order and
indeed told Raytheon that it would continue indefinitely"'. It must be objected
that: (O) it was not the requisition, having only six months' validity, that

Cornnrirsion,1980.11,t2. pp.30K.ft Articlesis in the Ymrhook O/ rhe lnr~rnorionalLoti.
Reply. p. 363.rupro.prevented the sale of the ELSl plant and the orderly liquidation of the Company
after 30 September 1968; (b) any impediment was due to the bankruptcy re-
quested by ELSI, and ilhas yet to be proved that the latter was to be a

consequence of the requisition; (r) it is completely untrue that the Prefect of
Palermo refuscd Io quash the requisition decree; indeed, its decision was to quash
it; (d) il was never intended thal the requisition should continue indefinitely:
this would have implied a modification of the decree of the Mayor or Palermo
fixing the term as six months froin I April 1968, and such a modification was
never made: (el the declarations alleeedlv made bv the President of the Sicilian
Region on 19-?OApril IO ihr.clicci ~haiihe rcquiulion u.~uldconlinue aiicr 11s
norina1e\piry wcrcclc;irlym3dc by 3 non-compctcnt organ. ar person:il:iiiiicipli-
tion unwarranted and not confirmcd bv facts.~Thevcannot be-attributed to the
Italian Government. PART1.STATEMENTOF FACTS

In addition to the remarks already made in the Counter-Mcmonal. the
foliowing observations, concerning in particular:

(A) the requisition;
(B) the prefect's decision;
(C) the occupation by the work force:
(D) ELSl's situation and IRl's role:

are now submitted to the Court.

2. (A) The Reqvisition. ltalian Practice eoncerningthe Requisitinnof Plants
The adootion bv the Mavor of Palermo. actine as a eovernment official. of a
decree f~r're~uisiiioning the ELSi factori, whGb was then overruled by the
Prefect, isthe only allegalion of fact made by the applicant Government. All the
other allegations made by the Applicant are merek unproven assertions which

may be rejected out of hand.
2.1. It was pointed out in the Counter-Memorial' and will be repeated here,
thdt during the penod of lime undcr consideration, the requisition of plants by
mayors was a common occurrence throughout ltaly and was used mainly to
protect the jobs and salaries of the employees of companies thredtened with
closure, so that the companies' financial difficulties would not have a negative
efect on em~lovment. Moreover. the requisition of ~lants was ordered to elimi-
nate the negati;e effects on the local ec'onomyand'on law and order deriving
from a prolonged suspension of production in the requisitioned plant.
That this was a common practice among ltalian mayors at the tirne during
which also the ELSI requisition was decreed, is shown not only by judicial
decisions concerning them, as mentioned in the Counter-Memorial2 and which
will beagdin described in detail in the followingpages, but also by the discussions
by scholars of the general problern of the mayors' powerto requisition industrial
olants.
2.2.Iiis no coincidencc that an cssay b) Proics,or BigIix771Cierisa, publishcd
in 1969uhich concludcd ihai mayors 3iiually d,?ha\c the pousr of requisitioning
induririal ol;int.:under Article 42 of the Con~titution. In the essîv some ~relimi-

nary considcr.ttionisunsern the requirition dccrsr.hy the .Major of .Moniummano
(irsued on h Fcbruary 1964) ola plant. the closing Joirn oi uhich had IeJ 10 the
immedi:~isdi>misr;il oi 211 the workforcc .A, the .iuthor pointe~toui. ihiz.dc,~,rïi.
uas. ns 1,known. not unpii.ci.~ienied,%~ncc tlierr ;ire repciried csrr<\IIsiniilar
mrasurcs hating hccn taken hy nia)ors in s~niilarrirutionr'.

'Counter-Mernorial ,.13,supro.
'Ibid.
' See Dac. No. 33.
LinaBigliazziGeri,"Urgenteneeesrità.requisizioned'aziendae poleredel sindaco",
in Demoero:io e Diriilo1964.pp.93 R REJOINOER OF ITALY 425

The Mayor of Palermo at the lime, Dr. Bevilacqua, stated in his affida\,itl ihat
the requisition decree of the ELSl plant was in accordance with the policy
followed bv , ,ors of manv ltalian towns at that lime in similar circumstances.
Ilc cilso crpli~iil! mcntiuncd thc requi;iiion decrcc b) the hln!or of Florcnie
inued shoril, c3rlier uiih rcgxrJ io Ihc."Nuoio Pignone" Cumpany.
It may he-useful to describe the most significanCcases in order Coshow that
the Mayor of Palermo conformed IO the practice followed by mayors in oiher
parts of Iialy, both before and after the period in question.

One typical instance is the "Marzotto casen2, which gave rise to a çomplex
judicial litigation originating from the requisition of a plant decreed by thc Mayor
of Pisa on 25 June 1968 in response to the fact thai, in viewof the serious crisis
in the textile sector. activity had ceased pending structuring.
The underlying reasons for Ihc Mayor's decree are clearly expresse<lin the
decree itself.
At the bcginning il is stated,that themanagement of ihe Company had ordered
production to he suspended indefinitely in one of its factories employing some
850 workmen and clerical staff. The measure was considered to be "sociallv
unlicccpi.iblc". to h:ii.c ~auscd :I situation of .cverc h~rdship for the 3l;irzoiio
cmplii)ccr and ihcir I:iniilie,. ind to h.i\c c,~nscqiientl) sirimgl) ~c<ip.irdtfcdthe
econim) ,iiihc t<~an In rica, oittirNct th.ii ilie hl.irrstto pl;in.IIPti. .which
h.id kcn opcr;iiing in the ugiol sraor ior sc\cral Je:~Jr.s. ~.mpl,i)in: u,ell-iriiincd
~pccislistpcrsunncl. uai one oiihc ciirncrsionc.: of the cconomy ~~i'ihci,,un ;inJ

the :ircï wrrounding II. ihc <lccrec;ils0 piiinicd uui thai the su;pcn\ion oraciiiii?
would cause irrevarahle damaee to the iownshin. as the difficulÏeeneral eçonomic
situation facing ihe town woid not allow the'dismissed ~arzGio employees to
find employmeni elsewhere. Furthemore, the various contacts with the manage-
ment had not led to anv ~ositive results and it was no1~ossible to forecast when
the plant might open &;in. Thus, there was a serious'state of public necessity.
and urgent and exceptional measures had to be taken in order to ai,oid the
definitive closure of the plant and to preserve the plant and equipment so that
production could start again proinptly.
A requisition in similar circumstances was decreed by the Mayor of Piteglio
on 22 July 1968concerning ihe Lima paper mills owned by "Siahilimento toscan0
carta e affini". This was taken in order to averl a situation which had much in
common with the iMarzotto case.
Ii is of great inierest to read the grounds on which the requisition deçree was

issued, especially in view of the emphasis placed by the Mayor on the principle
of the "social function" of ownership (Arts. 41, para. 2, 42, para. 2, of the
Constitution)'. He descrihed as ";tntisocial" the behaviour of the comoanv. w,ich
hc crprcrsl! JcfineJ ar"rocinlly un~c~cpi.ihl~"'T . he s~idprin:iplc ati,slw~ indecd
IO crplaln thc requiremcnt or "urgcni nced". In ihis p~rricul;ir c;isc. rlii,itccd
w;is identificd3s the ieriour hlrrdshiri;ind irrcvïrahle damacc ihr o\\ncrs' ~tiiiude
would cause to the employees conc&ned and consequently ;O the wholetownship.
The ierms 'i>ublicinterest" or 'i>iiblicnecessity" (in Art. 7 of the Law No. 2248

' SeeAffidavit of Dr. Bevilacqui.doc. No. 2. That thiswu no1 an exceptionalrneasure
and that manyother such urgentmefisuresweretaken by Itÿliÿnrnayorsin sirnilarcircurn-
stancesis also confirmedby Dr. Rav~lli,the Prefectof Palrrmo al the limeof the events
in question.in hisAffidavit,doc.No. 8.
For an accuratereconriruction of the dispute.ree BigliazriGeri,L., "L'alïareMar-
zotto",in Ric giur /or. 1968.1.pp.415 ffFor the texof the SupremeCourtdecisionsee
Counter-Mernorial.doc. No. 23.
' See dm No. 33.of 1865': "senous and urgent public nccessity", or in Art. 834of the CivilCode2,
with reference to expropriation, "in the public interest") were giventhe broad
meaning of "general interest". Therefore, this was not intended as referring to
the interesi of the State or of public agencies,ut also to that of a widercategory
of subjects, such as the employeesand their families,and, by extension,the entire
townshio.
~quaily typical is the case of S.P.A.Torrington of Genoa, an associate of the

international Torring.on gr..p, which manufactured needles for the textile in-
dustry.
TheTorrington group came 10 ltaly in Octoher 1958when it purchdsed the
Aghi Zehra San Giorgio plant, which employed some 150 persons. The numher
of employeessuhsequently incrcased four-fold as a result of increased production,
which was remunerative for a time.
However, also as the result of deteriorating working conditions (strikes and
absenieeism), the economic situation look a turn for the worse in 1973-1975.
Considerable losses were incurred and ihe company was wound up.
The irade union organizations decided to occupy the plant. On 6 Novemher
1975the Mayor of Genoa requisitioned the same plant.
The Mayor's decree expliciily stated that the prolonged suspension of pro-
duction and the dismissal of the employees had had a serious eiïect on the
cconomy of Genoa. Social tensions had been sparked ORwhich would inevitahly

grow and even lead to spccificprohlcms of law and order.
While the Mayor's power to rcquisition plants was acknowledged in principle
hy the Consiglio di Stato, the requisiiion decree wasset aside for reasons relating
to the special circumstances of the case3.
2.3. Another case which aroused much interest was that of the Societa ltaliana
Industria Zuccheri (S.I.I.Z.)'.
By means of a decree of 16July 1974, the Mayor of Chieti requisitioned the
S.I.I.Z. sugar miIl of Chieti Scalo for a period of 90 days. The management of
the plant was entrusted to the Abruzzo Development Agency for the purpose of
carrying oui and administering the 1974sugar beet campaign. It was the company
which had the intention no1 10 carry out the sugar heet campaign in the Chieti
plant in 1974.
Bymeans of the requisition, the Mayor intended to ward off thc economic and
social damage which would befall the employees if the company ceased its

operations.
The use of the S.I.T.E. company may also be mentioncd '.
On 16Septemher 1974the employeesof the Padua hranch, as a result of threats
of dismissal to reduce staff, occupied the plant, thus preventing the consiruction
activities from heing carried on. On 29 Septemher 1974, the Mayor of Padua
ordcred ihe requisition of the S.I.T.E. plant.
A further case concerned the Soc. Manifattura del13Adda,whose plant was
requisitioned hy decree OCthe Mayor of Berbenno in ValteIlina on 20 February
1975, in order to ensure the continuity of its production, which was considered
essential for the economy of the area.

-
'SeeMernorial. Ann. 34.
Seedoc. No. 16.
' DecisianNo. 72of Consiglio diStato.drted 7 February1978. i8Counter-Mernorial,
Ann. 29.
For furtherdetailssee DecisionNo. 198 alT.A.R. of Abruzzo. dated 30 Decernber
1974.reproduced in doc.No. 7.
' SeealsoCounter.Mernorial. p.13.supra. The Manifattura's difficulties. together with those of the Fossati plant in
Sondrio,contributed 10the serious economic and social crisisafectinr the whole
valley. Consequently, also in Berhenno it was necessary 10 evaluate Chepossible
efects on law and order that such a state of uncertainty might have. Whilethe
administrative court upheld the company's appeal against the requisition, it
nevertheless noted that the Mayor's concerns overa possible worsening of the
situation and ils possible repercussions on Iaw and order werejustified'.
A further example is the case of the San Marco Company, the plant of which

was requisitioned in 1975 for the purpose of ensuring, in the interests of local
employment, the company's future activity and, thereby, to safcguard law and
o~~~... .
During the same year, by a decree issued on 2 Februüry 1975,the Mayor of
Sondrio provided for the immediate requisition of the plant of S.P.A. Cotonificio
Felice Fossati, in order to ensure the continuity of the company's activity,
considered essential both for the area's economy and for the public interest'.
For the same reasons. on 14 Seplember 1974, the Mayor of Brindisi requi-
sitioned the ~lant of Società Industriale del Meuoeiorno (SIDELM)4.
At the end of 1973the management of~l~~~~-ackno&ledged that consider-
able losses had been made in previous financial years. Furthermore, it expected
the situation to worsen owinr~to unfavourable market conditions. The manare- -
ment therefore decided to wisd up the Company.
The plant was then occupied by the work force.

The prolongcd ncgotiations and continuingoccupation worsenedthe discontent
of the work force and heiehtened trade union and social tension. The resultine
situation led the Mayor toissue a requisition decree on the basis of Article 7 07
Law No. 2248of20 March 1865.Appendix E. The requisition wasof sin months'
duration; the management of the plant was entrusted to the Progressa e Lavoro
Co-operative of Brindisi.
As reported by the administrative court in the decision on SIDELM's appeal'
the decree stressed that, in viewof public demonstrations and the spre;iding of
inaccurate and alarming information in the press, "the situation had become
untenable and unbearable". It also alluded to possible redctions by the trade
union organizations and the employecs. who had expresscd their intention "10
occupy the railway station very soon".
In the well-known Eridania ZuccherificiNazionali S.D.A.case6the reauisitions
ucre madr bcsausc the Company inicndcd IO clojc do\i,n the plants. anil îonsr-
quently dirmiss the work forrc. 11\vasconsidered urpcni iu rcassure the popula-

tion conccrning the iuture 3ctisit). of ihe pl.mts. xrhichuerc an inJispcns;ible hub
of economic II& for the whole area and the intention was IO pro~tectlaw and
order which had been jeopardized by the state of unrest reflected in al1 the
productive and commercial sectors.
It may therefore bc concluded that mayors had frequently resorted to the use
of their power to requisition industrial plants for reasons of law and order or
also in view of social unrest.

' For the tex1 olthe fulltranslationol the decirionsofthe administrativecourt,see
doîs.Nor. 9and 10.
Alreadycitedin Counter-Mernorial p. 13.supra.
' See Decision No. 21 1 of T.A.R. for Lombardy,dated 30 July 1975.doc No. 9;
Decirion No. 21 of the Councilal State.V Section, dated 18January 1977.in Counter-
Mernorial.doc. No. 28.
Counter-Mernorial ..13,rupro.
6 See ihid.doc.No. 25.
Ihih. p.14,rupro. The concept of "economic and social law and order" thus emerged. Indeed,
the requisition of plants for reasons of "law and order" was used as a means of
protecting public security in the economic and social sense.
Thecases reviewedabove show how the requisition decreeissued by the Mayor
of Palermo in 1968was a measure that many ltalian mayors have taken under
similar circumstances.

3. Instances of Requisition ofPlants in the United States
However, the criticism expressed by the United States Government over the

fact that, even in such a dificult period for the ltalian economy. the authorities
of this country could, as an extreme remedy for parlicularly serious crises, have
recourse to the temporary requisilioning of plants appears even more surprising
in view of the fact that in the United States such a practice is anything but
unknown.
"The relatively new technique of temporary taking by eminent domain is

a most useful administrative device: many properties, such as laundries, or
coal mines, or railroads. may be subjected to public operation only for a
short tirne 10 meet war or emergency needs. and can then be returned to
their owners (...Y:
this statement was made bv the United States Suoreme Court when. in 1951.it
was called upon to decide on another case of temborary taking of a plant by ihe
public authorities in the difficultyears of post-war reconstruction'.

The case in point is of particular interest for the present dispute as it concerned
a coal mine where production was virtually blocked due to a strike and which,
as a consequence thereof, the Federal Government had decided to requisition
and to operate under ils own responsibility for six months in order to avoid total
paralysis of coal-mining activities in the country'. For from considering the
requisition as such to be unlawful. the Supreme Court merely addressed the
question of the compensation to be paid to the owner of the mine as a result of
the requisition by the Government. In this context, the Court attempted Io
rationalize the subject of requisition or "temporary takings" in the light of ils
abundant case law. As the Court stated,

"[tlemporary takings can assume various forms . . There may be a taking
in which the owners are ousted from operation, their business suspended,
and the propcrty devoted to new uses (. . .).A second kind of taking is
where. as here. the Government. for oublic safetv or the orotection of the
public'welfare,'~takcst'he properiy in the senscof assumingihe responsibility
of its direction and employment for national purposes, leaving the actual
ooerations in the handsof its owners as eovernment officiaisa~oointed Io
chduet its afairs with the assets and equipment of the ~ontrolléd'com~any.
Exam les are the operation of railroads, motor carriers, or coal mines
(. ..)P..

' Peure CoolConiponyInc. v. UniicdSroier,71 SupremeCourt, p.670. al p.673.
Thesameminekas beensubjected to a totalof rour separatetemporary takings by
the Federal Govcrnment.ranginginduraiionfromthreemonthrIo one year. althoughthe
reason was alwaystherame.narnelythat "ofending strikes and rertoringthe production
of coal in thenationalinterest" (cfPwee Cou1CompanyIne. v. Uniied Siales, 161 F.
Supp. 952, aip. 955).
71SupremeCourt. 670. al p673. REJOINDER 01: ITALY 429

Without making at this stage a detailed examination of the criieria used by
United States courts when determining the compensation to which the owner is
eniitled in the case of the temporary taking of his plant by public auihorities, il
may be noted that it shows thai only in a few cases the principle of "just
compensation" has led to the granting of compensation equal to the "fair market

value" of the property taken. In cases in which, because of the economic crisis
andior sirikes in oroeress orior to the intervention of oublie authorities. the value

What i~here~irnpo;tant is to show that the practice of requisitioning plants in
cases of proven urgency and101 need to safeguard the general interests of the

economy and social peace is a remedy ihat has been used also by the United
Slates Government. Furthermore, while in ltaly ii is clear that the power of
requisitioning of the public authorities only exists if and to the extent that it is
expressly recognized by law, in the United States it is uncertain whether the
authorization of the legislator is in any case required or whether the taking of
private properiy for public use by an officer of the United States is admissible

"as an act ofGovernment" evenin the absenceof an explicitor tacit authorization
by ;in Act of Congress'.

4. (B) The Prefect's Decision

As already clarified in the Counter-Mernorial'. contrary to the Applicant's

assurnption, ELSl waited a good 19days before making ils appeal to the Prefeci
and more than one year before urging the Prefect to take itsdecision. The Prefect,
as shown by the Affidavitof Dr. Ravalli3, had formed the reasonable coriclusion
from ELSl's behaviour that the company had no sirong interest in the result of
the appeal.
This is confirmed bv the fact that ihe comvanv filed a petition for bankruvicv
barely one week alte; lodging the appeal $th ihe ~refèct.Thus, a favouiblé

decision of the appeal would no1have had as the consequence the free rnanagc-
ment of the assets.
What the Applicant siates on page 390, si~pru,of its Reply, namely that "if
the requisition had been rescinded, the bankruptcy could have been avoided by
ELSI", is totally inaccurate. It was ELSl's long-standing insolvency that led io

ils bankrupicy. Only if the state of insolvency had been uprighted - a neither
unlikely event within those few days - bankruptcy could have been avoided.
The truth is that the Prefect's decision:

(a) was irrelevani to ELSI'sstate of insolvency,and indeed the company filed
for bankruptcy without waiting for the decision on the apwdl and without urging
il; it was in any event irrelevant after the expiry of the-six monihs, in view 07
the tcmporary nature of the requisition;
(h) was rendered within the period of lime representing the average of this
type of appeü14;

--

' I'.iihr nepdti,: ;A: sir )t.i.t?ri.~YI<,..~li!he C<i ..r.>/ r .S.i%s<.i.sr,.rdrr.1
('rinii8ii.,nJ n,nr.uihr.cd,c. III3 1Supp 5hV.ai p 573. theCJIC in\.,lrcJ a rrquhiiidn
order i;<uetih, ~ ~ -~~rci.iraoi('urnnicrceiollowinc dn 1:re:ulitc (Jrdeh\ ihc Prï,iJcnt
been hi1 by a wavcshofstrikescdlednef& ancindcfiniteduration.sin the iiuniry. uhich had

' SeeCdoc.erNo 8.rial .. 16.supra.430 ELETTRONICA SlCULA

(c) was taken as soon as ELSl (or the receiver acting on its hehalf) urged the
decision, after 14 months.

Thcrefore Io argue. as Ihr Applicnnt docs on 1.pages 64-65 of its Mernorial.
and p~ge, 363and 373. .iiipr<oriti Kcplp.thai thc dccision tins rcndercii b? ihc
I'rclcctonls ;ifter ELTEI. h3d acquirr.d the cornmin! asceisaniounts ticaotiou~ls
exploiting a chance time sequencë to ohtain a iaciie cRcct.
It must likewisebe siressed that the complete reading of the Prefeci'sdecision,
does on
instead of a quotation of fragments out of context (as the Applicant
page 384, supru, of the Reply), leads to the appreciation thai the Prefectacknowl-
edged that the Mayor was entitled to exert the powers of requisition in accordance
with the laws referred to, although he actually quashed ihe order because in
actual fact it was no1 possible to achieve the intended resuli, i.e., the reopening
of the plant.

5. (C) The Occupation bgthe Work Force
The Applicant's assertions over the occupation of the plant are incorrect. The

work force occupied the plant more than two weeks before the requisition, as is
shown hy a judicial decision and press reports' and no1 aftenvards, as the
Applicant would have il'.

6. (D) ElSI's Situation and IRl's Role: the Applicant'sContentions

According to the United States Government, the ltalian Government and IR1
first hovcoited the attemot to oroceed with the "orderlv liauidation" of ELSI.
and then interfered with ihe hankruptcr proceeding so ait0 illow IR1 to acquire
the plant through one of its subsidiaries at a price lower than ils fair market

value.
This argument is hased on the following three assumpiions. which form the
heart of the Applicant's preseniation3:
* ELSl was a going concern, in good, although no1 perfect. financial health at

the time of the events in question;
* the ELSl industrial complex was competitive and thus attractive to ihe market
in that it was capable of the "manufacture of high quality and highly sophisti-
cated elecironics";
* finally. IR1 or one of its suhsidiaries is alleged to have "hoycotted" the first
three auction sales in order to decrease the market value of the plant which
was subsequently purchased by ELTEL.

All three of the above contentions are totally gratuitous in that the United
States Government does not produce a shred of evidence in support of them.
Furthermore, thcy arenot true. This objection, alrcady expressed in the Counter-
Memorial of the Iialian Government4. was not challeneed in the Reolv. as the
p.~.siic repciiiion of ihe cirigin31argumcnis rvhich h;iiebccn proi,ed ;n'l'a,~n<led
cannoi bc i;ikcn 3s 2 ch:~llcng~.Conscqucntl). ihc Iiiilian Go\ernmcni c3n

' CI ihrJn'i<ion or ihz<:i>urior Pdlcrnlo.~n lemortal. ,\nn80. in parilrul~rai 1.
p ?14 and thc *riirlcapp.irïd,n !.'Oro.Li)\Ixch I9hJ dw Sd !(,
Icmorial. 1.n 100 Ke~l,. n II?. cunru noie I Thr disiinciionkiuccn ~i1u.A ind
wc.iriona1 rii-liir.hh~rhu3s's;p~rrir.Jhihr.,\pplic~~iiI.~ckiil~n!siipporiingc\idenci.
Ili<iruihii thdi. ihr acïupdiioohdvinp 1.ilr.npl.~in Iÿrrh. ihcri ua, nt> rr.i;iiun
th? n.iriofEI.SI. uhiîh iihrl.aullh~d lee;ilinicrcin ihr maitcr
.. ..
SeeCounier-Mernoriil.pp. 4 K. supro REJOINUER OF ITALY 431

justifiably claim that the basic premises of the application are not fourided on
evidencepresented in either the United States pleadings, but is merelyconclusory,
assertive, and argumentaiive.

7. ELSl's Economic and FinancialSituation

ELSl's crisis, which was stabilized when the events in question occtirred, is
evident from the very statements made in the Memorial and Reply of the Appli-
cant Government, namely that:
(a) ELSl's debts, according to the Mcmorial, 1,page 52, amounted Io 16.66
billion lire;

(b) its assets, which had a book value of 17.05billion lire,could not. as even
Raytheon admits (Memorial, 1,p. 52).be assigned a quick-sale valueofmore
than 10.84 billion lire:
(c) there was consequently a negative balance of about 6 billion lire. and since
Raytheon itself admitted that ELSl was unable to mcet ils obligations, il
must be assumed that the part that could not be met amounted to at least
6 billion.
Nor can it be areued that the ahove-mentioned negaiive balance was dite solely
to the priihablc louer pricc sbt;iiiied on the m:iri.c;n tnc coiiric of a quick dc.
IndccJ. ELSl's it:itcol'insol\cnc) wouldccrtainl) hn\e heenknow 10.icc>n.cicn-

tioiir ni.in:trcmcni rinccIIhld bcsii in c\i>iencc.hrin<cI~tc 1967 Thrcc p<etni\arc
of interestk this regard:
(i) In 1967 ELSl incurrcd a loss of more thdn 2,000 million lire (after losing
326 million in 1962, 1.228million in 1963.284 million in 1964and 361 million
in 1965)' and n,as obliged to proceed to reduce and then increase ils capital.
Despite this. in 1967, ELSl agaiii los1more than one-third of ils capital, thus
revealing beyondany doubt that it was incapable ofproducing even theminimum
amount of income it needed to survive on the market. The disastrous trend that
now begins to be outlined is certainly not compatible with the image ofa "going
concern" and solvent enterprise suggestedbythe Applicant Government. Further-

more, this was formally recognized by Raytheon managementz.
(ii) The ELSl financial reports leave ample space for doubt. Dr. Giuseppe
Mercadante, who analysed them on behalf of the Bankruptcy Court. noted.
among other things: the need for writing down stock for an amount "oscillating"
between Lit. 1,500,000,000and Lit. 2,000,000,000', the inclusion of non-existent
assets in the balance sheet (for instance, an entry of Lit. 246.296.774against a
certain Neye Alfred Enateckmer of Quickborn (WestGermany)). when the goods
forwarded to this client had already been returned by the latter and were still
held in customs4; and again direct "accommodation bills discounted with the
banks" for an amount of Lit. l,200,000.0005. Consequently, ELSl's true losses
for 1967alone, which are obtainçd by adding to the amount entered under this
heading in the official balance sheet (Lire 2.681.300.000)the decreases in value

' SeeCounter-Memoriÿlp .. 4supro.
SeeProjcctfor the Finÿncingand Reorganizationof the Company - 1967Report
pr'pSeetheTechnical-AccountaneAMemydviceAon."Raythcon-ELSIS.p.A.".Counler-Memo-
rial,doc.No. 36. at p. 214rupra. ofthe newtranslationpresentedby the ltalian Gov-
ernment.
Ibid. p.212,supra.
' Ibid, p.216.supra.due to theabove-mentioned items, aciually wiped out the company's sharecapital,
even though the lattcr had only recently been increased: al1 this in a company
which, in order to achieve liquidity, had been obliged to discount "accommoda-

tion bills", i.e., bills that do no1 relate to any commercial transaction.
(iii) As indicated in the Affidavii of Mr. JosephA. Scopelliti', already in early
1968 Raytheon had Io transfer 150million lire to the First National City Bank
of Milan to cover the demands of an ELSl creditor who would no1 be fended
off with vague promises of future payment. ELSl was iherefore unable to meet

even the smallest of its commiiments with its own resources.~~hus re.ealin~ that
ils insolvency was not only economic, but also financial.
The concept of "orderly liquidation" sounds quite odd arainst such a back-
ground. Thii even more io. ai also the concept of "going concern" mentioned
by the United States Government displays some very peculiar fealures. The

production lines were closed and, in early 1968,the only activity of ELSl was to
comolete a numbcr of unfinished oroducts. Moreover. on 2 March 1968. the
\ii>rkcr< :i~iii.iII\~hcgxti .in ,>::iip.iiii>iihc pl~nt ;ind ihc ni.in.~gcmcni decmcd
II prudcnt ia rcm,>\c ,11ihc .iccouiiting tile.; (rtm th< bc.iJ i>llicc :ind t;ikc thein
tu .i .rn.ill .>tliccin \Iil:iI'liii$. thc o\cr:ill picturcW.,, .A>i<,lldus. ihç cJiiiriîny

had a chronic deficit; its production lines were shut down; its work force wai
occupying the plant: ils management had practically disappeared.

8. The Responsibility for ELSl's Crisis

The economic and financial disaster described above mav be attributed directlv
io crronct~u. :onip.inv ni.tii.igcmcn1 :ilid mi\guiJcJ ,pscui:iit,in h) K:i) ihciin 1.1
1, iniportsni in si.iic 11.he:.iii.i the Appli~.:lnl arongl! :ontciid, ih.it 'R~!iheoii
:ind Mxchlcit diJ nt~thinr to ,,rc.iie ELSI', fin.inii.il nroblcm~'
Suffice it 10 recall a Fe; financial figures:

/al Dr. Mercadante. in his 1968Reoort Io the Bankruotcv Court.. .ints out
th.ii. in tlic EI.SI tiii2nci~l rcpurh olthc prc\ioiir tlirec !c.iri. ihc rii)dltic.r p.ii<l

tu Ktiyiticon. the cost. oi K:i)thcon t:chni;~l :irriii:in:r. inil R~!thci>n tc:hnii;il
consultants' costsaooe..ed to be blown UD out of al1D.oDo.tion both in absolute
icrm .ind aimp~rcd iiith ihc sort oisiir\s!r anil c\pcrimcnts :ils.>p.,id I;ir h!
ihc Lonipan!. l>r Mcri<tJ.inic'\ report ,i.iic\ 1h.11 11IS nni clcar

"uh) the :,imp.in! spcni niuch iin stuJ~c,. rc>cdrcli iind Je\chiprncnt tti,it
counting aiiiting.1 othtrs the hiph co\t l'or tcchnic:il carisultanis) uliilc p.i\iiie

royalties to ils holding compaiy which should have permitted a weli-&a-
nized production adopting the production lines laid down by the same",

while "there are indications that the company, after a number of years' pro-
duction, had not yet defined ils production lines" and "that the main losses
resulted in the SCD sector (eleclronic equipment), revealing it to be a complete
failure and on which huge amounts of money had been spent;'".
(b) ELSl debts amounted Io an average of 12 billion lire, on which it had to

pay a huge amount of interest. In the previous three fiscal years', ELSI on
averagepaid interest of 800 million lire per year (lire of the time), excluding the
interest paid on medium-term loans. Taking into account the much smaller
amount of equity investedby Raytheon, this means that ELSl was undercapital-

' Mernorial,Ann. No. 17, 1. p.186.
3ee the Technical-Accountancy Adviceof Dr. Mercadante, supro,al pp. 215-216
' Ibid.,pp. 213-214,supro.ized from the siart and therefore doomed io go bankrupi unless it could obtain
a resounding commercial and industrial success'.
Dr. Mercadante pointed out that, if ELSl management had had "greater
technical reciiiude" ii would not have allowed the "large costs" on surveys and
research, etc., in view of the "fact that the overall aim of the company has not
bcen achicved alter so many ycars of activity"' and that these expenses were
"not justifiable"'.
One may add ihat obsolete equipment had been acquired by ELSI (e.g., the
semiconduclor production line, which proved Io be the most ruinous)".
Some reasonably critical analysis of the matter is quite sufficient to close the
argument of ELSl's "high quality" and "highly sophisticated eleclronics (which,
anyway, round no market) and to show thai Rayiheon and Machlett had more
than some responsibility in creating financial problems for ELSI.

9. The Obligation to File a Petition for Bankruptcy
In its Reply, the Applicant Govrrnment stresses the fact that ELSl management
was under no obligation simply to file for bankrupicy. To this eîïect it c:itesthe
opinion of Professor Franco Bonellis. Yel, the contention is groundless. In 1967,
Raytheon's official losses amounted to 2,681.30 million lire. According to Dr.

Mercadante, a further sum of 1,200-1,500 million lire must be added for over-
evaluation of stock and at least 300-400 million for non-existent credits. The
situation must have been worse6 since it would otherwise beimpossible to explain
the large gap of 6 billion lire heti\,een book value of ELSl's assets and the value
acknowledged by Raytheon itself in the case of a quick sale. This leads Io the
following conclusions: (a) ELSl's capital (amounting to 4,000 million) was
completely lost; (b) the failure to cal1 a meeting Io immediately restore share
capital io the minimum level required by law or, alternatively, to wind up the
company, actually represents an oKence committed by the management (see
Arts. 2447 and 2621 of the Civil Code7); (c) the management was liable for
prosecution for simple bankruptcy (sce Art. 217, Nos. 3 and 4 of the Bankruptcy
LawB) since, notwithstanding the company's insolvency, no petition for bank-
ruptcy was liled; and (d) the oîïence of misuse of credit (Art. 218 of the Bank-
ruptcy Law). in so far as the management. by conccaling the company's financial
difficulties, continued to live off loans. including the ISOmillion received from
Raytheon in early 1968 to pay 08 a recalcitrant creditor. Thus, it is clearly
established ihat not baving increased ELSl's capital. and baving come Io know
that ihe shareholders had no intention of doing so, ELSl's management should
have filed for bankruptcy9.
Under these circumstances. the hv~othetical "orderlv liquidation", envisaged

by the Applicant Governmeni, could&ertainly not take pla&. In faci, things were
quite diîïerent. Aîler acknowledging that il was unable to pay ils debts. as is

' SeeAiiidÿvit oflng. Busÿcca.Caunter-Memarial, p. 230.supra.and doc No.44.
Sec MercadÿnieReport, p. 216.rupni.
' Ihid..p. 213.
SecAlfiddvilof Ing. Busaccÿ.Counter-Memorial. doc. No. 44. and the Aflidavilal
In*. Rÿvalico.doc. No. 14.
SecReply.Ann. 1.
See.for instance.on the state of the art. the remaofsIng.Ravalico.doc. No. 14.
' SeeCounier-Memorial,doc. No.21.
For these considerationsand for the obligationof ELSl'smanagementIo filefor
bankruptcy. seethe opinionof PrafessorPierGiusto Jaeger.doc No. 32.clear from the fact that it was intended to satisfy unsecured creditors claims to

the extent of only 50 percent, ELSl was now trying to avoid bankruptcy in the
hope that the creditors would accept large cuts. At the same time, contrary to
the Applicant's contention, Raytheon never showed willingness to provide ELSl
with sufficient liquidity to proceed with an orderly liquidation.
Afier all, an orderly liquidation, and not only in the ltalian legal system,
requires the 100 per cent satisfaction of creditors, while Raytheon and ELSI

suggested 50 per cent.
In fact, the Applicant appears to consider the hypothetical "orderly liquida-
tion" as a remedv which would be available also to an insolvent debtor. . wh~ ~ ~ ~ ~
under ltalian law.an insolvent dehtor is from the outset under an obligation to
fileforbankruptcy, and therefore cannot maintain possession of its assets. manage -
them, and freely liquidate them.
Therefore, to speak of "orderly liquidation" as the natural way of winding up

ELSI, and io criticize ihe failure to allow Raytheon io do so, is also ihe result
of a distorted view of ihe applicable law to the case in point.
In this connection it is not inappropriate to recall that on I January 1968
President Johnson promulgated an executive ordcr esiablishing a mandatory
programme restraining US direct investmenl abroad'. Alihough not mentioned
in the US pleadings, this programme had a broad and important negative eiïect
on the abilitv of US businesses such as Ravtheon to lend or invest additional
~ ~ ~ ~ ~
Iùndr and ~urking c:tpii.~l I<Itheir inrcign sub>idi:irie.. <Ir10 pcrforni ptilranicu
of indr.hicdncrs oi \uch suhsidi:irics=
The r.rfcctoi thc Kcxul~iioni ad,: pdrticuldrl\, hdrhh on n.ircntr of siib~idi~ries
such as ELSI, opcratiig in Western Europe? .
The effeci of the Regulations was to force US parent corporations to offset
their "direct investments" in their suhsidiaries by making "long-term foreign
borrowings" in the Eurodollar market4. However. in addition to the increased

expense ofany such borrowing, under the Regulations a repaymeni would eventu-
ally be "charged against" the permissible aciivity of the US parent in future
years; in 1968 there was no way of knowing whcn and how this unprecedented
and severe Droeramme would be dismantleds.
Most imporGntly, for a new guarantee of indebtedness of a foreign subsidiary
to be authorized, there were requirements for certification ihat the uarent com-

pany "has no reason io believe,under existing circumstances, thai ihe affiliated
foreign national will be unable to pay or otherwise saiisfy such indebtedness
without resorl 10 performance under the guarantee6". No such certification could
have truthfully been made as to ELSI. Concerning payments of pre-existing
guarantees, the US parent would have had to "determine . .. in good faith that
(its foreign subsidiary) . . .has not sufficient funds available to it to pay such
indebtedness'".

No.' 11387,reproducedasAnns.(1)and (2) the oflFederalReserveenBankofd ENewtiYorkCircular
No. 6090 014 Januÿry 1968: ree doc. No. 25.
SeeRegulationsof theSecretary of Commerce.dated I Januÿry 1968(CFR Title 15.
Ch. X. Part 1000).reproduced as Ann.(3)of FederalReserve Bank Circular No. 6090,and
in articularSec. 1000.312 (O) and (e) of the Regulations.doc. No. 25.
~ee ibid.RcgulationsSec. 1000.319le).
See ibid.RcgulationsSec.1000.504 (b).
' See for example SDKC~ delivered bv the Vice-Presidenl.Tax-Leeal. of the National

~ ~ ~ -~ ~ ~ ~ ~ ~ ~ ~
' Ibid.Sec.2 (O) (2). The diiiiculties perceived by Raytheon in handling ils overseas business in view
of these regulations were mentioned neither in the Memorial nor in the Reply,
although doubtless they were a contributing (and governmental) cause of Ray-

theon's announced intent to terminale ELSl's operations in 1968'.

10. The Claims Brought by ltalian Banks Against the Sole Shareholder of ELSl

Perhaps the stubbornness with which the Applicant Covernment claims that
ELSl was entilled to proceed with an ordcrly liquidation and that thebankruptcy
petition became necessary only as a result of the requisition decree ;ind the
consequent loss of free access to ils plant, may find its reason in the fact that,
perhaps unconsciously, it tends to argue in terms of the bankruptcy law of the
United States. In fact, there are several basic differences between United States
law and ltalian law which will be clarified here in order to avoid further use of
concepts which, in spite of their identical nature, have completely diflerent mean-
ines when referred to one leeal svstem rather than to the other.
-,
knlikc Ii<iIi~nb;,nkrup1cy Ihu and that of the maIorit) or other ioniinenial
5) stems, 311OC rihich rire nutoriouily "crcditor orienlcd". ihr. main sharacicristi~.
oi (Inilcd St.ilc, b.inkrunti\ Iau.h,is al\r:i\r been thhi (if hein2 'dchtor oricnicd"
In other words, in ltaly, and in ~ontinéntal Europe in geieral, bankriiptcy is
mainly considcred as a sanction which befalls the insolvent debtor in nrder Io
safeguard the prevailing interest of the creditors in a prompt and equitable
satisfaction from the proceeds of the sale of the debtor assets. On the contrary,
in the United Statesbankruptcy is rather a means placed at thedebtor's disposal,
to discharge his previous debts and resume his activity on a fresh footing ("fresh
start doctrine") irrespective of ils insolvency2. Thus a bankruptcy petition may
be filed also by a solvent debtor ("Voluntary cases": Sec. 301, Bankruptcy Act),

whereas in case of insolvency, thecreditors may filea bankruptcy petition against
the debtor ("ln\,oluntary cases": Sec. 303, Bankruptcy Act), but there is no
obligation for the debtor to filea petition himself. Furthermore, even an irisolvent
debtor may choose between a bankruptcy petition under Chapter 7 of the Bank-
ruptcy Act ("Liquidation") and a petition for reorganization under Chipter II
of the same Act ("Reorganization"). In the first case, a trustee is appointed. who
proceeds to liquidate the debtor's property and consequently distribute ihe pro-
ceeds among the creditors. In the second case the debtor, who normally relains
his assets and continues to operate his business, prepares a "plan of rehabilitation"
containing a complete lis1of creditors divided up into classes, indicating those

'In materialfilcdwilh Ihe UnitedStatesSecuriiies and ExchangeCommission forthe
FiscalYcar Ended31Oecember1968(Form IO-KAnnual Repon PursuantIo Section13
or 15 (d) of the SecuriiiesExchangeAct of 1934.enclosingthe Prospectsof R~yiheon
Companydÿtcd 15April 1968 (secdoc. No. 24)).Raytheonsaid in respeclof ELSl and
ils other foreignsubsidiariesand affiliatesth"The pldnnedoperationsof thescforeign
companies arc dependent.ta an unpredictÿbledegree. upon UnitedStates go~ernment
regutalionson Foreigninvestments . . ."(p.8 ofProspectus:p. 30of filing);and in ltcm
al p. 12.Raythcanwrotethat "Continuationofthe UnitedStatesForeign DirectInvertment3)
Regulationwhichbecameeffectivein 1968mightrestrictthe Company'sabilityto develop
its internationaloperations",showinglhat theproblemwiththeseregulationspersistedfor
severalyearsafler 1968.
"One or the primarypurposesof the binkruptcy act is to relievethe honestdebtor
from the weightof oppressiveindebtednessand permit him 10 start afres. ..": Local
Loan Co. v. Hun~.292 U.S.234, a1p.244. On thispoint. seealso forfurtherreferencesIo
case IIW. King-Cook. Cmdirors'Righrs - Dchlor.~'Proleelionand Bnnkruplcy. ,Maithew
Bender.1985.pp.777K.;Epstein. Debror-CredilorLoir,3rdcd..WestPublirhingCo.. 1985.
pp. 138K.: CollicrBmkruprcyManuol. MatthewBender.1961.pp. 176 Kwho will sufer impairment of their rights and ihosc who will not. and how the
payments will be made. The plan will be binding for al1concerned if it obiains
the approval of the majority ofmembers of eachclassof creditors or. failing this,

ifit is considered "fair and equitable" by the competeni bankruptcy court.
What are the inferencesthat can be drawn (rom this with regard to the present
case?
First of all. there is no doubt that, at least as from March 1968. ELSl was to
bc considered as "insolvent" even under the Unitcd Statcs bankruotcv law.

Indeed. Section 19 of the Bankruptcy Act prior to the 1979 reform'reads as
follows: "A person shall bc decmed insolvent within the provisions of this Act
whenever the aggrcgatc of his property . . . shall not it a Fair valuaiion bc
sufficieni in arnount to pay his debts." ELSl had acknowlcdged ils inability to
pay the larger creditors more ihan 50 per cent from the proceedsof the sale of
ils asseis. Yei, the company would have bcen "insolvent" also under the new

criterion introduced wiih the 1979 reform (Sec.303 (II)): ". . . the debtor is
generally not paying such debior's debts assuch debts becomedue. . ."). In fact,
at the beginning of March. ELSl was going to lace a complete lack of cash, as
was confirrned by the company management itself. and specifically by John D.
Clare, who, ai a meeting with the Presidentof the Sicilian Region on 20 February

1968openly announced that "lu) Feb. 23 - Board Meeting; (hl Feb. 26-29 -
inevitable bank crisis; (cl March 8 - we run out of money and shut the plant" '.
Under United Statcs law. ELSl would, howevcr, not havc bcen obliged to file
a petition of bankruptcy, notwithstanding its insolvency. The company would
also have bccn frcc io choosc betweena (voluntary) bankruptcy pctition under
Chapter 7 and a (voluntary) pctition for reorganization undfr Chaptcr II. In the

first caseils assctswould have beenliquidated immediaiely, while in the second
caseELSl would have beenableto continue its activity. in the hope of convincing
ils creditors or. failing to get iheir approval, to have the judgc impose on them
the "plan of rehabiliiaiion" providing for ihe 50 per cent paymeni of credits or
even Iess.All this. of course. is only theoretical because.in praciice. it is anything

but certain firsi of al1 thai United States banks. placed in the same situation as
the Iialian banks vis-à-vis ELSI. would have waiied paiienily as long asthe latter
did. insicad of filine an involuntarv bankruntc~,oe.i.ion as thev werc entitled 10
do M~ireiiter. in CIrcorg;ini/ation procedure ~hr.c,~ntirniaiion of an aJ\sni:igeouc
pldn ofrchab,liiaii<)n 1,)*I:irge ciicni Jepend, on thcsciu.tl c.ip:ir.ity for recoi.r.ry
giiihc insolicnt .unriin\ :ml lil.SI :oulil h:irJIi hc.>:,i1,)mcct 1h;it rcutiiremcnt

. . . Be it as it miy. jt should not be forgotten that ELSl was a Company
incorporated under Italian Iaw and assuch was subjeci to the bankruptcy law of
Italy and noi that of the United States.

' Cf. doc No. 19.conttining the original handwritlen minutesof thc meeting.The
Counter-Memorialquotedthe passagein the minutcsof a meetingheld on 20 February
1968.in which the Presidentof ELSI. John D. Clare. was rcportcd as havingdrawn "a
preciselime ch~rtshowing lu) Fcb.23- BoardMeeting: (hJ Feb.26-29- inevitable
bankcrisis: (cl March8- we run out of monevandshuttheplant" (Counter-Memoridl.
p Y...upr.iH) J Icitcruf 13Januirr 19YX ;x<IJr~~~ridihc Ci,"rt'>Kegtstrsrtheapplii.ini
tiu~~,rnmrnii~ppliccl phui<,r<>po yfilitin:inur<riptrrrlioii<ifthc ,dmc mlnuieç>long
wiih aniltcmnl Io iustifr uht :trlifircnitiu hdd hr~n xnnc\ed tu the hfcmori:il 1he
ltalian ~overRmentireférstorefrain from makinganycommentonthisexplanaiion.but
u.,he; io pu,niou1thai ihc pliototup\01ih?mînulcripi \r.r,lu(ullyçc>niir&ihi ï:iur.tçy
ui ihr.q~oir.Jp.i,aagc The I3rc\iiienui CLSl rrdIIy dreu hl, prtiiic iiiiichîri" orcr 3
m<>nthkfiiri iht rcuul%iilondccree II \hi\Idct u.<<rurrorc>.irlin I~icrter,lun <nithe
minuter. the only coAceivable reason isthat whoeveralieredthe text of the minuteshe
thoughtthat itcould bcembarrasringfor Raytheon. REJOINDER OF ITALY 437

II. More. The "Lifting of the Corporate Veil" Doctrine in ltalian and United

States Law
Again with regard to possible misunderstandings that could arise over the

present case as a result of actual or supposed diferences between ltalian law and
United States law, the Rcspondent Government wishes to point out that the
action brought by the Italian banks against Raytheon and Machlett, as the sole
shareholders of ELSI, in order to rccover the credits claimed from the latter, can
in no way be considered as discriminatory, or worse, as the product of the
umpteenth plot carried out against the two United States companies.
It has alreadv hecn emohasized that iudicial action of this kind is normal
pr;ictice In 11:iIin \,leu ofihc uide,prc~d acsc'pt3nccin leg;~lihcor) :inil practic,e

(ii applying the principle ui the \.)le >harcholder's Ii;ibilit! for ihr. camplin) ,
ohlieliiiirns as rsi.iblirhcJ in i\riisle ?36? of ihc CiiiI Cipde. il.^ in the use In
whiFh a neeli"iule number of shares are attributed to another oartner who is a
pure figurehead '.
But since in ils Reply the Applicant Government continues to include among
the damages to be paid by the Ittilian Government also the legal costs incurred
by Raytheon and Machlett in the suits in question2, it is worth here. in addition

to recalling the remedies concerning the situation under ltalian law, to note that
the rcsult would be cxactly the same if the casc wcrc considered under United
States law.
In fact, also in the United States, the problcm exists as to whether and to what
extent shareholders are liable for the obligations of their corporation. The condi-
tions reauired "to disregar- the corporate entity". or "10 pierce the corporate
vcil" in 3 gibcn asc ,ire ;tiIconlrover\131. hi)uc\er. 311.iuthor~t~c.hrlprec th:xi.in
wmc ciriumsi.inccs and in roitir. p;irti~ul3r c.ircr. ihc c<>rpor3iwnma! hr' disrc.

eÿrded as an iniermcdi3tc b~.iueenihe ultim;itc pcrsoti or prsons or c~lrpordlitln
and the adverse party (.. .)'.
Generally speaking, the common significant Factors which would justiti disre-
garding a corporate entity have been under-capitolization. failure to observe
fomalities. non-payment of dividends, siphoning of of corporate funds by domi-
nant shareholders. the insolvenc~ of the debtor corooration at the lime, non-
functioning of other officers or directors, missing corporate records, usï of the
corporation as a front for the operations of the dominant shareholder4. The

coiclusion to disregard the corporate cntity may not, however, rest on a single
~ ~ ~ ~ ~ ~ ~~en~involve~ a ~onsideration of a numbcr of the above-mentioned
factors; in addition the particular funclion mus1 generally present an element of
injustice or fundamental unfÿirncss. Thus. to mention only those factors which
arc ofparticular interest in the present casc. the courts are in general more willing
to "pierce the corporate veil" when the dcfendant is a corporation rather than
an individual, and are particularly likely to find the parent business cntity liable

if, for instance. the subsidiary and the parent are running parts of the same
business. and the subsidiary is under-capitalired. and101 if the subsidiary kas
eventually been forced into bankruptcys.

' See Counter-Meinorial.p. 24. supra.
' FletcherCyclopedi;iCorporiiiions(1983). 1.pp. 388 fl:(wilhfurtherreference:I;oboih
case lawand scholarlywriting).
FletcherCyclopediaCorporations. cir..pp.428 fi(withfurthcr references);Hamilton.
T/ZP La11.o/C,>rp<>r<,li<»~,nd ed.. WestPublishingCompany1987.pp.81 R
FletcherCyclopediaCorporations. cil.pp. 455 ei seq.and pp. 472 et seq.(withfurthrr
referencer):Hamilion. TlzcL<ru of C<irporolion.sc.il.pp.91et seq. This being so, ii seems clear that on this issue there are striking similarities
between Italian law and ihe law of the United States or, more precisely, the law
applied within each of the individual States of the Union. On both sides of the
Atlantic Ocean there is no hard and fast rule as to the conditions under which
the corporate entiiy may he disregarded; at the same lime. according to both the
Italian and the United States law, as a general rule, the "corporate veil" may be
"pierced" and the liahiliiyof the shareholder(s) for theobligations of the corpora-
tion be affirmed, whcncvcr the corporate fiction is heing used hy the corporation

itself to defeat public convenience, justify wrong done either to third parties
dealing with the corporation or internally between shareholders, or to perpetrate
fraud or other reprehensihle conduct.
This is not the place io express an opinion on wheiher or not the ltalian courts
were righi when, although asked to do so by a number of banks having suffered
substantial loss because of ELSl's insolvency, they repeatedly refused to "pierce
the corporate veil" of that corporation and to allow the banks to recover their
credits directly from its two shareholders. More ihan one distinguished scholar,
when commenting on the decisions rendered, has argued that on that occasion
the courts may not have taken into sufficientacccount the fact that ELSl was a
typical example ofa wholly owned subsidiary - Raytheon owned 99.15percent
of the shares while Machleit. who held the remaining 0.85 per cent, iras just
another ii~holl~oii,ncdsubsidiari,ol Ravtheon - which lone before it went bank-
.. ,
rupt was kepi in a condition of clear undercapitalization hiits parent companyl.
In the light of the foregoing remarks, however, il should be clear at least that
there was absoluiely nothing unusual in the fact that the ltalian banks tried to
recover from Raytheon and Machlett what they had been unable to get from
ELSI. Any competent lawyer in either ltaly or the United States would have
urged the banks to do so, and it may well be that in the United States the banks
would havebeen more successfulihan they actually were beforethe Iialian courts.

12. The Quality of ELSl's Plant and Production

The considerations made so far concerning ELSl's insolvency already contra-
dict the contention thai the company purchased by Eltel was an industrial jewel,
to gain possession of which a sort of plot was hatched. lndecd it does seem
strange that such a highly productive company should have such a negative
economic performance and that ils promoters should make the decisions they

did (i.e., Raytheon decided no1 to invest further money in ELSI, while ELSl
dismissed the entire work force).
In fact, thefollowing has to be said:
(a) ELSI'Sproduction was ofa lowquality. The expert of the Bankruptcy Court,
Dr. Mercadante, cxpressly mentioned in his Technical-Accountancy Advice
goods king reiurned by customs and defective products left in customs.

etc.';
(b) an unhappy site had been chosen for the plant, with some of the sections
actually situated at difkreni levels3;

'See. among others. Pellini. "Unico azianista e controllo totaliiario indiretto". in
Giurirpruden:~ron>nwrriule19811 .1.pp 615FI: S.ScottiCarnuzri. Unico<~:ioni$!. ruppi,
"lrrrrnde pa!ru,,opc".Milan. 1979p.p. 30K
See Technical-AccountancA ydviceon "Raytheon-ELSI".S.p.A..Caunter-Mernorial.
dot. No. 36.
' See the Affidavitof Ing. Cavalli.doc No. Iand the Remarks of Dr. Alessandro
AlberigiQuaranta. in doc. 20. REJOINDER OF lTALY 439

(c) the way the plant was structured was completely negative, because il was
badly built and there was no adequate planning':
(d) the production lincs were lacking in concrete functionality. The products
had no market attraction and the semiconductor production had turned out
to be a failure. Only a small proportion of the television components wbich
were produced could be absorbed by the televisionset market. Other devices
for television were now obsolete as they applied to black-and-white TV,
while colour was becoming iiicreasingly popular in Italy. This is pn~vedby
the factthat when ELTEL purchased the Company, in 1969,il chaiiged ils
entire production2.

It is probably worlh reporting fully what was declared by lngegner Busacca.
who was working for ELSl al the lime and was in charge of microwave-tube
design, and by Mr. Ravalico. the manager of ELTEL. The words of those having
actually experienced the events are self explanatory.
According to lngegner Busacca:

"(.. .)As ai 29 March 1968Raytheon-ELSI had fivcproduction lines:
1. Semi-conductors.
2. X-ray tubes.
3. Black-and-white cathode ray tubes.
4. Telephone surge arresters.

5. Microwave tubes.
The Company's technical and economic situation can be descibed as
follows:

Semi-conducior line: the machinery was unserviceableand idle because it
had been designed for germanium technology. which had been obsolescent
for many years: an attempt was in progress to produce silicondiodes which.
although technically valid. had no significant market.
X-ray tube line: the machinery was very old and the manuf;icturing
processing was carricd out al great risk 10 the opcrators. The product was
quite good but there was no scope for the rescdrch required to develop il.
for improvcmcnt to the plant or for winning a sharc of the market away
from the Iarec clectromedical amtaratus constructors. who had their own
production lines. ..
The black-and-white cathode-ray tube line involved the majority of the
active work force in or>erations,and ought to have been automated but il

was not because black and white con~umption was heading for certain
decline. The processes were rather uncertain although the qualily often
happened to be good.
The telephone surge arrester linewas based on the exploiiation of a patent
and utilized makeshifi equipment and involved high risks, since Cobalt 60
radioactive malerial was included in the products during processing.
The microwave tube line was based on the market reprcsented by the
Hawk missilesystem and a small research activity had been started up.

On the whole the plant was to be considcred uncconomical: the plant
engineering and available technologies were gencrally obsolete. The ma-

' See the Affidaviiof Ing.Cavalli.doc.No. l. ofIng. Rÿvÿlico. doc. No. 14and the
AffidavitofIng. Cÿmmarÿtÿ. doc No. 13.
' See again the Affidavitsof Ing. Busacca.Counler-Mcmarial. doc. No. 44.of Ing.
Ravalico.doc. No. 14.and or Ing.Ciimmarata, doc. No. 13. chinery was intensively exploited, old and hard to manage. The work force
wascomparatively unskilled. A negligibleimpulse had been givento indepen-
dent research and there was no available plan to renew the production lines
(even by means of licensing)" (.. .)'.

According to Rag. Ravalico, on the other hand:
"(. . .)1RI 'interested' SIT-Siemens in proceeding with thc acquisition of
the bankrupt company. ELSI.

The term 'intercsted' is actually inexact, because no-one was 'interested'
in ELSl because of ils well-known technical obsolescence and commercial
incompetence. But to prevent trade union unrest - the year was 1968 -
and sit-ins in ViaVeneto in front of IR1 head office,it was necessaryto 'take
an interest in the business'.mainlv for reasons of law and order. 1o.rsonallv
directed the take-over operationiin my (.. .)officialcapacity.
After obtaining possession of the ELSl company. initially as lessees, we
found the following situation:

1. The general facilities were inadequate. dilapidated and badly designed
from the verv bceinnine. The commnv had not erown accordine to an
organic economicdeve~oiment plan.'lt had developed on a day-to-d& basis.
One of the consequences of this was that the production facilities had been
sited haphazardly, in temporary structures, etc. As a result, most of the
general facilities- after we had taken possessionof them - were only scrap
metal, and were sold oRas such, because they necessarilyhad to be replaced
by viable general facilities.
2. The uroduction lines were al1 old. broken down and obsolete. The
sr.iiiic.inilucili~ic(the niosi h~nkrupil. tticS-r-3~ iuh: Ilne.the II~IC~<>\I:~\C
o\en Iine eiz .iihiih h:id hem ,>iineficicnt pr<>.iu<iion :~p.i<ii\.rh ,.,i:itz..
were al1written ofal once as scrap. It was not that they were obsolescent
as a result of having been shut down pending the bankruptcy proceedings.

They were obsolescent due to prior industrial and technical reasons. An
attempt was made to salvage the TV cathode ray tubes line, and the line
producing microwave tubes for military use. The first was a failure, and the
second was successfulthanks to considerable intervention.
The cathode (picture) tube line was organized using absolutely outdated
technology, and it manufactured products that were completely useless on
the market. These were black and white 23"picture tubes that were totally
unsaleable on the Italian market in those years. And they were made using
glass from Russia, with absolutely prohibitive transportation costs to Pal-
ermo, asone can well imagine. Since the technology then being used was no
longer sound, an attempt was made to negotiate to be able to continue using
RCA technology. But even this attempt proved negative.
It was not enough to change the technology: it was necessary to start e.ï
nova, with huge new investments to caler for the demand of a market that

wasnow movinetowardscolour TV. ELSl's commercial network was almost
non-existent, and it had a bad commercial image.
The microwave tube line was continued, because the prospects existed for
the products to be absorbed on the market, providing work for a few dozen
members of the cornpany's 1,000-plusworkforce.
But it became necessary to renegotiate the assistance contracts with Ray-
theon, in order to be able to obtain the technical information and updates

'
Far thewholetex1 of the Affidavit.seeCounter-Mernoriald ,oc Na. 44 needed. in view of Raytheon's extremely, and quite unjustifiably, high royal-
ties. After a short lime. it became clear that this attempt could not proceed
further, and it became necessary to think about starting up work on com-

pletcly new products that would enable the company to retrain several
hundred workers for newjobs.
3. The stocks were not able to cover even the cost of managing them. The
stores wcre full of unsaleable picture tubes, above all, and old, wholly
unusable materials ihat were for the production lines that were going to he
sold oîi as scrap.
4. Through ELTEL S.p.A., which il controlled, SIT-Siemens had to invest
over Lire 4,000,000,000immediately in order to buy up Raytheori al the

judicial bankruptcy auction held on 12July 1969.
It later had to invest about 3,500 million between 1969 and 1972 to
restructure the plant, general facilities, and the machiner? and production
lines, and to retrain the workforce.
5. ELTEL then moved the uroduction of the electronic uarts of the uower
units for the telecommunica~ons facilities from Aquila CoPalermo, al the
former ELSl factory. The only way to keep the local jobs was to rebuild the
whole factorv. in oractice. because as Raitheon hadleft it. the factorv was
,. .
absolutely useless in technical and prod;ction terms, and had onlibeen
taken over as a bankrupt coiicern on purely social grounds."

". . .(e) the ELSl company was lacking not only in industrial features but
also with regard to its commercial functions. Among othcr things the over-
sized work force meani prohibitively high costs, such that the products,
which were in any case delicate, wcre not comwtitive on the market; (fi
the only real advdntage ELSl had was ils work force, even though it wai
too large for a compüny of that size. The work force appears to be technically
well trained (althouah no1cvervone arrees with this: see Ine. Busacca)'. and
this explains why someone ultimately purchased the company in question. . .

However, the existence of well-trained labour is no1 enouph to render an
oîi-market company attractive."

Furthermore, the company had ceased to be a going concern directly because
of the ELSl management. The halting of the production lines look place in early
March 1968'. Therefore, when the events lamented by the Applicant Government
look place. ELSl was no longer a functioning company. Thus. the hypothetical
orderly liquidation would therefore have involved no1 a company chat was
operating somehow or other, but the remains of a structure which had proved
so uneconornical as 10have been alrcady closed down. All that was worth keeping,
was the work force which the ELSl management had already proceeded to dismiss

and who saw their jobs disappe~ir.

'Counter-Mcmoridl.doc. No. 144
Seethe dismissallettcr addresncdIo thc ernployeerof ELSI, dated 16 March 1968
(dac. No. 21)and to Ing. Busÿcca (doc No. 22). Itwould be appropriateto point outhere
that a oartial- and rceretfullvunfruitful- c~ ~ ~ ~ ~ake ELSl onerativeaeain war
carried&~by the ~ayo; of hirnself.throughthe assignmentLionferGd up&
Ing. Laurin.an ELSl seniorcompÿnydirector - todirect andtake care of the plantduring
the requisitian.This remark.alrcÿdymade al pp. 9 and R of the Counter-Meinorial.ir
ignoredin the US Reply. 12.1 ELSl's Requets for Benefitsto Whichlt Was no1Entitled

One further consideration is to be added. Again in ils Reply the Applicant
Government complains of the failure to grant benefits that were promised (it is
not clear when or by whom), for which it blames the ltalian Republic.
The truth of the matter is that either ELSl was entitled by law to such benefits,

in which case it should have taken legal action if they were withheld (but this
was no1the Caseand ELSl did not in faci take any action), or it was not, as we
shall now proceed to demonstrate; in the latter case. the only alternative was for
ELSl to request that benefits to which it was not entitled be granted out of
"henevolence". This iswhat ELSl asked, receivingthe refusal that anyone request-

ing an illegal favour should expect to get.
Even for the type of production concerned, ELSl was not entitled to such
be~ef~ ~~
The Applicani complains of the failure to apply to ELSl's favour Article I of
Law No. 835of 6 Octoher 1950according to which the State Administration was
under an obligation to reserve the "supplies" of materials provided for in legisla-

tive decree No. 40 of 18 February 1947 to existing industrial facilities in the
Mtzzo~iorno (Southern ltaly). In particuiar, according to Article 16 of Law
No. 717of 26 June 1965, inforce at the lime of the events, the Government was
supposed to reserve 30per cent of its supply contract for companies operaiing
in the Mezzogiorno'.

Under ltalian law the supply contract is a contract by means of which one
.artv..in the oresent case. the~~overnmentl Durchas.s.;oods or services. on a
continulil hasi\. from iinother part? for ils o\vn ulr and (in ihc c;iscof ihe public
<idminiiraiion) to carry oui 11s5t;itiitory ixrk,. This nians thlit ihc ni;iieri;ilr in
question have to he purchased ready for use immediately, without requiring any
further assembly or conversion. This obviously did no1apply to ELSl's products,

since they were simple components and not finished products, and were therefore
of no use at al1to the Government, who would have had to seIl them to other
companies to he assembled and used in diîierent products. This is no1 allowed
by Iialian law, since it would mean that the Government would in some way act
as a "go-between" between private companies.

It is for these reasons. which are seen to he based purely on legal provisions
and do not include any intention to harass ELSI, that the ltalian Government
could noi grant the benefits requested, as also Minister Andreotti pointed out in
his speech in Parliameni of 25 July 1968'.
Aeain with reference to the henefils extended under ltalian lceislation to
cornianies operating in the Mezzogiorno. the Applicant notes thaialso other

norms involving special freight discounts for materials used or produced by such
companies were not applied to ELSI.
However. also, the above norms were not applicable to ELSl's products, and
fo~~t~ ~ -~~~~asons n~e~ir~slv outlined.
Article 15of LawNo. 717oh6 June 1965and the respectiveministerial decrees

implementing il. both dated 29 March 1967,provided for benefitsin the following

(O) raw materials and semi-finishedproducts 10be used for production purposes:

(h) building materials, machinery and anything else required for the reconstruc-
tion, transformation. extension and rnodernization of industrial plants;
(c) transport outside southern ltaly offn~shed products.

' Thetcxir of the relevantrulerare reproduced in doc. No. 34
SeeMernorial. Ann. 46. Raytheon requested precisely the application of the benefits provided for in
...~~.~~ ,~,1~~- -~.r~nce. as was stated also in the Mcmorial. the size and weieht -
of the products mednt high freight cosls.
However. as can be seen from the tex1of the provision, the only and decisive
condition for its application was represented by the Fact that the products con-
cerned werefin;sh~d products and therefore required no further assembly. This
was no1 true in the ELSI case.
Therefore, it was no1 possible Io grant even this benefit to ELSI.

It was therefore no1 that the ltalian Government caused damage to ELSI but
rathcr that ELSl was demanding benefits from the Italian Government in the
form of "aid" beyond what it was legally entitled to. After realizing that it had
made a bad investment and that it had mismanaged il, Raytheon in other words
did its best to pin the cos1of a11its own misiakes on the Italian Government. To
try and achieve this it exploitcd the need, which was p;irticularly strongly felt in
Italy at the lime, to protect jobs. Failing to attain this objective, the decision was
taken to close down the plant, an act which was also in line with the policy of
general reduction of United States investments abroad.

13. The Terms of the Sale

The Applicant Government contends that "either as a total package or indivi-
dually to maximize the realizable price"', "each product line could be sold as a
separale package, including the respective technology. contracts. custoiner and
suo..ier bases. and established name and reputation to buyers elsewhere in Italy,
Europe or Japdn"' 'i'hisinicrcncc i.. dran" b) Ihc ~~~li~;iniCi<ivcrnmcnlfrom
thc Ailid3\,it of Mr Scc>pclliti.But whÿt pr<>\pciiscould lhere have hccn lor suçh
;ih.iillr hiructured r>l;int.production llncr rcsuliing in >ilchI;irgcT.iilurc.,~ir,~duiir
of such little worth thatthey were often returned to the seller (and in ;iny case
had no market appeal), technologies that proved to bc so inefficientas to bring
criticism also from the Bankruptcy Court expert Dr. Mercadante? In order to be
able to rcason from inferences, stich as the likelihood of selling ELSl as a going

~onc~ ~'. .~th~ inferences must bç bdsed on adeauatc n remis es O.therwise thev
nid) IJrn out id hc p.Ircl! gr.iluitoui In thccdsc in poinl. ihe nccc,r:ir! prcniiicr
arc no! to hi (ouiid. hec~urc the poor indu,iri:il pcrtbrni.incc rcsulting IIIthe
EI.SI Jcb~cle. the i~roduciionand m:irkcting dcficicncicsohscricd. ihc ~iruc1ur:il
~hortcomin~s'foun'din the plant, al1add upto an overall picture of the Palermo
plant such as to rcnder improbable any course of action other than to seIl the
plant as a whole.

14. IRl's Role in the Acquisitionof the Plant

In the light of what has been seen above, il has little mcaning to speak of IRI's
interlering with the bankruptcy proceedings. It is easy to prove the inriccuracy
of the contentions presented by the Applicant Government in this context4.

IR1 was established by R.D.L. (royal-decree law) No. 5 of 23 January 1933,
convertcd into Law No. 512 of 3 May 1933'. It was subsequently modified by
R.D.L. No. 905 of 24 May 1937.An institution was set up, whose action would

'Scc the Reply. p. 367, supra
' Mcmarial. Ann. No. 17.
' Rcply. pp.368 r..supra.
Sce doc. No. 31., pp. 58 Rbe directed mainly towards the technical, economic and financial reorganiration
of national industrial activities.
IR1 became a public agency with a permanent structure, which was given the
task of managing the shareholdings in ils possession, of undertaking new indus-
trial ventures, also in co-opcration with private capital, and of carrying out
initiatives in the field of vocational training.
The Institute's aclivityhas therefore to be set in the broader framework of
State holdings, i.e., of publicly owned shareholdings in profit-making companies.
It is true that TRIenjoys financial independence, having its own "endowment
fund" (Art. 18 of the statuie as approvcd by decree-law No. 51 of 12 February
1948)'. It directly owns the shares that it posscsses, which differs from the
case of the direct participation of the State, which becomc part of the latter's
assets. IR1 operates in accordance with the profitability criteria typical of a
market economy. 11has its own organizational structure, consisting of a President,
a Vice-President, a Director-General, a Board of Directors, and a Board of

Auditors.
In other words, the IR1 group comprises a group of companies, which operate
in accordance with the laws of the free market.
The "social" side of State holdings cornes from the special attention focussed
on the creation and preservation ofjobs. However, the purpose of IR1 is neither
to salvage lame companies (for this purpose there is another agency in Italy,
GEPI. for those casesin which the salva~ineo. . lame comvanv ores.nts..articu-
Idrl! inipori:int \CICI<iI~I.ipe;i>jnor 1,)cng.,gc iiiiniii:tttte, .i..c.>riliiigio .h<>iccs
indJe h) puhlic :iiiihi>riiie\ Onl? o~~.i\i,,n:ill!.IR1 p.iriiyip.ii:.l in ilic .~cqui~iii,iii
oi unproiii:~hlc:oiilpinic,. aciiiic dn ihc in.iruciion\ 01 the 11~111~ti c?\ernntciii
In ihe telecommunications secior the IR1companies are grouped under STET,
a joint-stock company quotcd on the Milan Stock Exchange. Finmeccanica,with
whom ELSl had meetings ai the time il was seeking an ltalian partner, is no1a
"division" of IRI. but a ioini-stock comoanv which. likc STET. is whollv subiect
IO ihc noriiij r~ul:~ting prli .,IL,.>nipanic,. ~nil i, qu<,te4 ori ihc ,t,>;k ~.v.:h:inge
R.!?thr,,>nh:id :ilrc.iil! :oni.tcteJ IKI11 .I iinie iilien IiISIIi.iJniii !ci riiciII.
inchiiible da~iii H.itic\cr. lRl uai noi. and ~oiilil net. he inir.rc>ieiliicniering
into oartnershio with a comoanv in such disastrous conditions. ~ubseauentli

workers who had been thrown out of their jobs.
The heart of the matter remains the question of whether the ELSl company
was worthless or not. Wehave seen that the company had no value. This explains
why the attempts by the political authorities, especially the local authorities, to
find ways and means of salvaging it were unsucccssful. Thc cos1 of possible
comprehensive solutions for running an obsolete plant was obviously too high
for an organization that must compete according to the rules of the market. The
formula of the sale of ELSl as a going concern is constantly repeated by the
Applicant Government. The Reply goes as îar as to state that, while the ltalian
Government had publicly announced its intention to purchase ELSI, ELTEL, an
IR1 subsidiary, "boycotted the first three bankruptcy auctions, seeking to buy
only somc of the asscts at a lowcr price"'. However, this is contradicted both by
the facts of the prcsent case and by other events in which IR1 kas been involved.
Certainly, ELSl was of no interest to IR1as it was. This was confirmed by the
fact that, after the purchase, ELTEL had to spend largc amounts - as much as

' Secdoc. No. 28.
' Mernorial. 1.p. 58.446 ELETTRONICA SICULA

other words, by no longer going into the facts in detail, an attempt is made to
give the impression that the allened facts are obvious. On the contrary, these are
merely assertions, or inferences,which are wholly unproven and actually do no1
stand to reason.
The 1974Claim devoted considerable space (26 consecutive pages)' to describ-
ing, without proving, as mus1 again be emphasized, a hasically fraudulent plan
to acquire the allegedly valuable ELSl plant nt below its Fairmarket price.
The contention of the United States Government is based on the following
premises: the alleged existence of a sort of plot hatched by State holding compa-
nies, the Mayor of Palermo, hanks and the bankruptcy recciver, focused on a
valuahle company, that IR1 managed to acquire in an underhand way. As has
been pointed out above, no such valuable company existed and therefore the
hypothesis cannot be true. But the logical and legal coherence of the entire
argument is also open to criticism.
The sequence of events that emerges from the outline of the facts contained in

the 1974Claim is as follows:
* on realizing that il lacked the capacity to attain a competitive size on the
market, ELSI started looking for a possible ltalian partner;
* IR1 was approached, but was no1 interested;
* the banks, controlled by IRI, refused the proposais made by Raytheon and
the ELSl management;
* the Mavor of Palermo issued the reauisition decree:
* the baikruptcy trustee leased the to an IR1 controlled company;

* an IR1 subsidiary, ELTEL, purchased the plant after forcing the price down.
However :

(a) the need to find a strong partner is the first clue to the fact that ELSI by
itsclf was not capable of attaining a compctitive size. The tone used in the
Applicant Government's Reply was one of substantial reproach to the ltalian
Government and IR1 for not having rushed to ELSl's aid. No-one appears to
have explained, however, why thisshould have heen done, or, if il was true that
ELSl was a valuable company, for which compensation is now being demanded,
why the participation of a third pdrty, Le., of the State holding companies, was
heing begged ;
(b) IRl's refusal was explained al the lime by its lack of interest in investing
in a Companywith a production like ELSl's; and in fact. when ELTEL, an IR1
subsidiary, did purchase the company from the bankrupt's estate, il immediately
set about changing the production lines':
(c) the banks' refusal 10 accept an "orderly liquidationMwhich would halve
their credits is presented as an irrational and in any case spiteful attitude on their
part, and basically attributahle to IR], by whom il is assumed that the hanks
were controlled, and through it, by the ltalian Government. However:

(cl) when a debtor offers to pay only a part of his dehts, he is the one who
is normally reproached and not the creditor who refuses the deal. Furthermore,
under the ltalian Civil Code (see Art. 1 the creditor is entitled ta refuse
partial payment:
(c2) not al1 the banks to which ELSl owed money are controlled by IRI,
which in its turn cannot be portrayed as an agent of the ltalian Government, so

'Sec Counter-MemorialU . nnumberedDocuments. Vol.1.p. 233.supro [pp41-67].
'SForttheEnglinhtcxtof~rticlei1181.see doc No. 16.that the link between the hehavioiir of the banks to which the money was owed
and the Mayor or the Prefcct is non-existent: in this case it is hard to see what
the Applicant Government has Io complain about:

(d) in ltaly there is the separaiion of powers. especially between the judiciary
and the executive. Therefore. to assume that there could be a eoncerted :tttitude
between the receiverappointed hy the bankruptcy court, the Mayor of Palermo,
and IR1 is no1only a contempluous argument vis-à-visthe Italian judiciary, but
also an argument quite out of place.
Inal1probability the matier ismuch simpler than the highlyimaginativeversion
servedin the Memorial and Reolv of iheAoolicanl Government. The Resnondent

could simply rest its case on ihéstateme~t'ihat the Applicant Government has
produced no evidenceof linked behaviour. and linked unlawfully.betweencompa-
nies, local authorities and judges. And in viewof the seriousnessof such a charge.
reasonable caution should be exerted when assertine that such links existed.
Ilouc\er. the Lie!>allcgcd haie induscd the Iialian Go~crnment Io go bc)<inda
nicrc (iilsst\~,Jeni;il of rhc . .plicant's -rg~rnciii\ .inil in strrss ihc cnorini'! of
the aliegations.
ELSI was an unsuccessfuldeal. at least from 1962on, or rather an unsuccessful
speculation. because Raytheon helieved it was possible Io make a profit by
shelving the State and local authorities with the costs of an obsolete company,
therehy exploiting the need to create jobs in the M<~izoyiornu1A . ccording to hg.
Busacca, ELSI did not distinguish itsclfcither for ils technology. nor for the state
of its plant. According to Rag. Ravalico, ils products were obsolete and off
market. According to Dr. Mercad;inte. ELSl'sproducts wcrcdefcctive.According

to ils balance sheets, thecompany was undercapitalized. Ohviouslyal1 ilproduced
were losses, and more losses.
It was the ohvious concern ofthe Italian local and central authorities to provide
the niaximum uossibleemnlov.eri.. In hieh unem~lovmen. .eas like the Meiio-
yioriio. the cloiing of.i ciiiiipny normally gi\cr rise io icnsion 2nd a nceirary
degrcc oi\olidiiriiy. Ka)ihr.on ua, rc.td) IO takc dd\ant:igc a ial1[hi,. both at
ihc bcaintiirtc. uhen ithcnctitcd from financial tntlucr.n~entr.dnJ in the end. irhcn
the w&s oïits 168employees were paid by thc Sicilian Regional Government.
As part of the general pressure applied to save the company Raytheon contactcd
IRI. However, in vicwof the economic uselessnessof the ELSl plant. IR1 made
the correct managerial decision not to have anything to do with it. fully aware
that once it was caught up in the anàir it would have trouble coming out of it
unscathed. Raytheon tlien made iinother attempt using an illusory rehabilitation
plan in which it claimed that the banks were prepared to accepi 50 per cent
oavment. However. to anvone examinine the matter thorouehlv. it was clear that
-.
kosuih conclusiori uas karr;intc~ sin;, th'. ELSl pl;int had no m;irkci \.aluc
exccpt on the ,crap markci (and niost tif the plant na.. sciu:illy sold oll'a~scrap)'
u,hilenoçommitmcnt io "io\er" CLSlwiisforthsotn~nrfrom ths tnrcnt comolnv
(since the promises mentioned by the Applicant ~ove~nmentare'only hgpoiheri-
calj. With no further hope of (,i)receiving Government orders, as no reason
exists for giving them IO a company that produced badly. (b) of association with
the State holding system, which had no rcason to waste ils money on a company
that produced losses,and (c) of an agreed rehabilitation plan. which wasintrinsi-

' Therefore.for instance. ELSl benefitedframsort loans. which were pravidedfor in
rnentioningof thesesoftloann.. pp. 4 and 7.riqro. The Reply. however. avoidsany
See Afidavitof lng.Ravalico. doc. No. 14.cally unfeasible and in any case involved culs in the creditors' share which the
creditors would have no reason to accept, particularly since in ltaly the bank-
ruptcy proceeding is required by law: Raytheon stiffened its attitude in the hope
that the State holding companies or the local political authorities would give in

at the las1moment (the payment of the wages of 187employees by the Sicilian
Reoion raised ho~es of a ~ossiblebail-out)'. ELSl issued a communiaué.which
UA; gitsn ui~le:t;cul.rtion: io the erfeitth^;.3s fr,>mIOhl;irih I J(iX.ihcaimp.itiy
uoulJ <e.i>call ;icii\ilier xnd th11 hi îrom 29 M-rcli the ciiipl,>)sc~iioiild hc IJIJ
311: 111sintcrcrlin~ 10 noie ihc latic of llie klSl c<~niriiuniqiii: 11sdiJ in cilcet
that Raytheon had invested many billion lire, and that the italian Republic did
not intend to mount any rescueoperation. The only thing it omitted to communi-
cate, and indeed tended to ignore, wasthe fact that thecompanywas economically
worthless and financiallv ruined. and that the ltalian leoal svstem does no1
conridcr ihai ;in in\olic.ni Jchicir hds the righi id rezcivc -<idïroni ;in!hod),
p;irticularly irhcn hc is rc.ponsihlc. 3s TISI UJ~ rc~pt\nsihlo,Torh.i\ing \\;isteJ

someone else'smoney (seethe financing received)in products capable of making
onlv losses.
rir u:<i tu hc c\pe;ic.i. ihc CLSl uork forcc ingcd wicrsl dcm,>nsir.iiioiisl.
On 25 hl.ir~h J gcncr.il \irikr <i';~ciu.ill! i:illcd in 1':ileriit?ciprcs. i~lid~rii)
tiith ilic tlSl uorkcr' The Ii>c.il~uihoriiiei ucrc ihu- obli~cd io inleriene
R.t!ihcon. re:ili/ing ih.iII naii h~d ihc gipporiunii) ici hl.inic \>ihcra..ind noi11%
<luilcrror,. i~irilic cdntp:in!'j Jchsclc. dccidcd id spcul.tie on iltc c\ciiir Thi>
was the beginning of the complaints.
Il may he objected that this is only surmise. If it is, it is no different, however,
from the surmise contained in the contentions of the Applicant Government,

except for some fundamental aspects: the constant losses incurred by ELSI, out
of al1proportion to the capital invested, are an unchallenged fact; the ruinous
state of the ELSl company is an unchallengeable fact, sincc it can be worked out
(rom the figures and from the proposal to pay 50 per cent to the creditors; the
state of obsolescenceof the plant is equally unchallengeable, as il is confirmed
in several Affidavits. The fact is therefore that ELSl and Raytheon were aware
of the disastrous situation of the company and of the impossibility of presenting
to the market a company that was losing money so fast. And yct, despite these
facts, one still finds a request for compensation of a "full value" that has no
connection at al1with realitv.

' On the atiitudeshowed by ELSl's management in thosecriticaldays. see the article
publishedin L'Ora. doc No. 29.
On thispoint, ree also theAffidavitoCAvv. Maggio.doc. Na. 3. PARTII. THE JURISDICTIONOF THE COURT

Since the Iwo Parties expressly agree that the Court has jurisdiction over the
dispute, under Article XXVl of the Treaty, "in so far as il relates to the inter-
pretation and application of the 1948 Treaty and the 1951 Supplementary
Agreement"', it is hard to see why the Applicant finds il expedient to point out
that "the Respondent is now harred from raising an objeclion"'. Over many

years of negotiation on the claims put forward by the United StatesGovernment
on hehalf of Raytheon and Machlett, no intention ol raising an objection to the
Court's jurisdiction with regard to an application based on the Treaty has ever
been voiced by the ltalian Government.
The Respondent Government only expressed the view that. given the new
position taken by the United StatesGovernment on many issues in its Memonal,
the ltalian Government would have heen entitled to insist that "the basic
contentionsconcerningthe interpretation or the application ol the Treaty should
have first been put forward in diplomatic negotiation~"~. However, as the
Counter-Memorial made clear, "in the interests of a complete settlement of the

dispute. the Defendant Government refrains from putting forward" any request
for the Court "10 declare that the conditions set forth in Article XXVl of the
Treaty have not heen lulfilled"".
There is little accuracv in the ~eolv,, contention that "the United States has
rcpcatcdl\ r:tiscd uiih ihC Rcspondcnt \incc 1972the leg;ilclliims now heiorc thii
Court"' A\ a pcrublil oi the Mcnior:inJum of I.aw prescntcd tn 1974 and of the
S1ctnori:tI shous". the Annltc;tnt Cio\.crnment h3s ~irnific~nils altcrcd iti hnsic
contentions concekning th&Treaty and the ~up~lemeniar~ ~greement. This may
bean emharrassing fact for the Applicant Government Io acknowledge; it cannot

be denied by noting that the same Government has persistently claimed compen-
sation'.

'Counter-Mernorial.p. 26. supra. In quotingthis pass:rgethe applicantGovernment's
Reply (al p.373.supro) omitsthe words"in so far". Theomissionmaybe inadvertent.as
the jurisdictionof the Court over the disputeclearlyrests only on Article XXVl of the
Treaty,whichreadsus follows: "Any disputebetweenthe HighContracting Partiesas to
the interpretation or the applicationof thisTreaty. whichthe High Contracting Parties
shall satisfactorilyadjust by diplomacy, shallbe submittedta the InternationalCourt of
Justice.whenthe HighContractingPartiesshallagreeto settlementbysomeothçrspecific
meansReply.p. 373. rirpro.
' Counter-Memorial.p. 26..supra
lhid

. IlieRzpl) t p 3-3.,iJpr.,:oricluJr..ii i.)l.<i<sin;^ rhr.HcrponJrrirh~,.,iijirirnti?
rr.ii.5rtu p.<!ir,mptns:iiiirnf.,r thed~ni.tgi,~1Tcrr.J h! thc LniteJ Siatcs. [lit~ijpuir
h~, iiciihr.c.i*iiri.i;i~rilr :iJiu\hrJ J~iilumac\.I~J ii iiori...nirl! hrf<>rc!hi<Cvurt
pursuantto Article XXV~ alihe ~redi~ "' PARTIII. THE ADMlSSlBILITY OF THE CLAIM

The Italian Government has'contended in its Counter-Memorial that "the
United States Government's claim is inadmissible in view of the fact that local
remedies were not exhausted hy the two United States corporations on behalf of
which the claim is put forward"'. The Applicant Governmentattempts to justify
the admissibility of itsclaim in its Reply'. However, the United StatesGovernment

does not contest that the objection that local remedies were not exhausted may be
made in relation to a claim under the Treaty. It is also common ground that, in
order to establish whether local remedies have been exhausted, "the only possible
test is to assume the truth of the fact on which theclaimant State hases its ~Iaim"~.
One of the Applicant Government's contentions is that "the Respondent is
estopped from asserting that there exists any requirement to further exhaust local
remediesn4. It is diliicult tosee on what basis the existence of an estoppel could
be alleged. At no time did the Italian Government say that local remedies did
not have to be exhausted. Nor could a waiver be implied in the alleged fact that
"the Respondent made statements that il was willing to go to arhitration with
the United StateswS.Objections relating to non-exhaustion of local remedies have
frequently been considered on their merits in arhitration decisions over claims
put forward by a State against another State on behalf of individuals. As the
Arbitral Tribunal said in the Case concerning the Air Services Agreement of 27
March 1946 (United States v. France),

"the rule of international law relating to the requirement of exhaustion of
local remedies, when making a distinction between the State-to-State claims
in which the requirement applies, and claims which are not subject to such
a requirement, must necessarily base this distinction on thejuridicalcharacter
of the legal relarionship, between States which is invoked in support of the
claim. Consequently, with respect to the applicability of the local remedies
rule, a distinction is generally made between 'cases of diplomatic protection'

and 'cases of direct inj~ry'~."
Moreover. far from beine an unexoected issue. the auestion of exhaustion of
lowl rcnicJtc\ h:lJ hccn di\~usred .IIl;n$ili in thc \1cni~;3nduni$iil.a!i\ubniitrcJ
b) the ;\pplic:int Goicrnnitni in 1974 .Iti\.isrci,on.ihlc for the >anis Cio\crit-
ment to take into account the fact that the issue would have Io be considered in
arbitration or iudicial oroceedines. The Defendant Government's constantlv ex-
pressed viewtiat the ciaim is unkeritorious certainly does not affect the apilica-

lion of the local remedies rule. As the arbitrator noted in the Finnish Shipowners

'Counier-Mernorial.p. 27, supro.
Repiy.pp. 374-377,rupro.
'This passage,taken (rom the arbitral award in theAmhalielos case (12 Rcporrs of
InvrnarionalArbitral Awords,p. 119),was quoted in the Counter-Mernorial.p. 28, supro;
the Reply, p.374.rupro.nt.2, rererto the pagesorthe award containingthe same passage.
' Repiy, p.376,supro.
Ibid.p. 377,supra.TheReply, p.377, supra,alsacriticizesthe Respondentforhaving
failedto "suggest orrequestthat Raytheonand Machlettenter ltalian courts and sue an
the basisofthe Treaty". Does thisimplythat, accordingIo the Applicant,a Stateisunder "every relevant contention, whether it is well founded or not, brought
forward by the claimant Government in the inlernational procedure, mus1
under the local rcmedies rule have been invcstigated and adjudicated upon
by the highest competent municipal court'".

The Applic~nt Go\crnmcni xeks ,upp<>rtin the iircunisiance thai '-aiwming
for the sdkc <~l'argtinient1h:itan action h~scd on the Tre~l!. could hc hruughi
ihc staiuic of Iimit;itions on th.11;iction ha.<noo. cr~irerl"~ II is hard tu >ccirhy
the said circumsiance should be relevant. as il is well known that the local
remediei rulc f~lly hirs liiinirrn;~tion:nlclatm uhsn 1i)caIreniedies which have
noi hcen e\h:iusicd hcconic unavail;ihle: the arhiirdtion audrd in the r(n~htir<~~l~is
case3 provides a good example to this effect. In any case, the five-year deadline
set by Article 2947, paragraph 1, of the Italian Civil Code4 for claims relating

to damages arising out of a wrongful acl had already elapsed for any act
committed in 1968 by thc lime the United States Government submitted ils
claim on 7 February 1974on hehalf of Raytheon and Machlett5. Therefore, any
attitude that the Iiolian Government may have taken after that date can in no
way be considered as the cause of the remedy no1 having been exhausted.
The very attempt 10 build an argument of estoppel on such a slender hasis
convevs the imoression that. even in the Aoolicani Government's view. there are
no substantia~ 'reasons for overcoming théObjection to the admissibility of the
claim. The ohiection rests on the fact that Raytheon and Machlett - apart [rom
not taking adequatc steps to prevcnt some of the measures that the ~pplicant
Government assumes 10 he wrongfu16 - failcd to hring an action against the
ltalian State claiining compensationfor damages arising from the alleged wrongful

acts committed hy public authorities. The general rule in the ltalian Civil Code
concerning compensation for damages arising [rom wrongful acts - Article
2043' - is often invoked by individuals against the ltalian State and substantial

'Also this passage.which intakcn from 3 Reportsoj InarnolionnlArhilral Awords.
p. 1503,wasquoted in the Counter-Memarial.pp. 27-28. supra.The Reply,p. 374, supra,
nt. 2.again refersio the pagesof theawardcontainingthe samepassage.
' Scepl12Rcporrr,fltiremorionol ArbirrolA,i,urd.~p. 118.
Underthesaidparttgrtphthedeadlineis Bve ycürsfromtheday on whichthewrongful
actlookplace ("Therighttocompensationfordamügcsarisingfrom awronglulactexpires
fiveyearsalter the day inwhichthe wrongfulact look place").
' UnnumberedDocuments submittedby Italy.Vol.1.p. 232. supro.
For instance.Raythconfailedto appealto the Caurt of Cassation againstthedccirion
bytheCourt ofP:ilermoof20 lune 1969 oncerning ihe ternisof thefourlhauction.while
Machlett doer no1ao..ar to have taken anv s. .s Io challeneethe bankruotr:.iu..e's-
dtiiston
uhirhCcausesrurriiiglud~rn~pisliciiin~ihrrperson~mplie,thxi ihr urongduerrihir undcrdnt
dblie~iionio 0.1, ioninenraiidn lor ihdrcd~rnadcr" iihc Ii.ilianic~iulihfullir&n\l.iiiun
is r&roduced'in'doc. NO. 16). -.
Withregard to theclsim forcompensationofdumagesarisingframwrongful acts.which
is available under Article 2043of ihe IldlitanCivil Code, il is to be painted oui that
Raytheonand Machlett, ifconvincedthat the behtviour afltalianofficers(theMayor,the
Prefectof Palermo.etc.) had bcen irispiredby an intent ofjeopardizingtheir iriterestsin
favaur of IRI. could have also brought a criminal action againstsuch authonria, in
complianeewithArticle323of the ltalian CriminalCode("Innominateabuseof power")
(seedoc. 17).This criminalaction. if ruccessful.would also have implied. in lavour of
Raythwn and Machleil. a righi Io compensation.undcr Article2043of the llalian Civil
to compensationaccordingto Article185of the CriminalCode).sgivesriseto the nght
In other wordsihere weretwo avenues availableio the UnitedStatesshareholdersfor
seekingcompensation: a criminalsuitcoupledwith ucivilsuitor an independen!civilsuii. No set of facis similar to that io which the United States Government's

application refers was ever invoked before an ltalian court. The receiver. when
he brought an action for compensation', only complained of the requisition
decree2. Nor did he invoke - or indeed could have invoked, as he was acting
on behalf of ELSI, an ltalian Company under Article II, paragraph 2. of the
Treaty - any provision in the Treaty or the Supplementary Agreement. Hence,
the receiver's action can in no way justify the lack of initiative on the part of
Ravtheon and Machle~~.
in drdcr ILIiiintcnd th:ti ihcrc ucrc in,)loi.il rcmcJics :t\:iil.ib1,)R.i!.theon
and Xldclilett ihc .4pplic.11iiCo\crnmcnt rcier, in thrcc Jpinionr. !un ):i\cn ir,
K;t\ihcon in 1911and ihc thtrd one. lihich is d~tcd Fchru:ir\ I'IXX.riten Io ihc
~Gted States Government by Professor Elio Farralari, who had ac?ed over 13

years as Raytheon's counsel in relation to the claim - a faci which is mentioned
neither in the opinion annexed to the Reply nor in the Reply, but results from
documents exhibited by the Applicant Government'. The two earlier opinions
did not deal wiih the question of whether the Treaty could be invoked by
Raytheon and Machleti before Italian courts. The Reply's assertion" that Profes-
sor La Pergola "considered in 1971whether Raytheon could sue based. on the
Treaty" is unsound, no1only grammalically. Professor La Pergola's opinion is a
discussion of diplomatic protection of shareholders. In the English translation
annexed by the Applicant Government to its 1974"Mernorandum of Law", the

only argument given in theopinion with regard to local remedies runs as follows:
"The bank~ ~ ~-~~.atus orevents anv direct initiative bv the comoanv . .
towards reintegration or resioration in a situation in which il would have
found itself had il not been for the illicit action. On the basis of the principles
confirmed by internationalistic jurisprudence, this constitutes another ele-

ment permiiting immediate protection of the shareholders by the State of
which they ore citizens. Hence. the question of exhausting interna1 remedies
does not apply which remedies, in ihissituation, would not have been directly
available to the shareholders. The latter have suiïered a specific injury of
their interests since the illegal conduct of the Siaie made the liquidation
impossible5."

On the basis of Professor Fazzalari's "independent" opinion. the Applicant
Government puts forward only one argument in order to contend that the Treaty
would have been of no avail io Raytheon and Machlett. The argument runs as
follows:

providedthÿt thcydo so bcforethc transferorder is issued.They iirccntillcdta do this
irrespectiveofwhetherthey arc willingto rnakea higherofer ar whçthcrthcy arc rcporting
irregularitiesin the proceeding.
In thecase in point, Rÿytheonmade only a few.unsuccessfula.ppealsta ihelawercourt
an' Raylheon'scounselGiusepp Biscontiarguedin 1971ihat ihere was no musc ofaction
under Article2043of the CivilCode because"ltalian lawprovidesfor a speciAcrcrnedy
against the requisitionwhichis thc alorerneniionedappealta the Prefecl"(Unnurnbered
DocumentsrubmittedbyItaly.Vol.1.p. 278.supro[p. 1601)H . owever.thereceiverbrought
preciselysuch an action which WIIS~iartlysuccersful.The finaldecisionin thiscase was
given by the Court of Cassation on 26 April 1975. For thc Englishtranslationof the
decision.seeMernorial.Ann. 82.
For an Englishtranslationof th? receiuer'slawsuitseeMernorial.Ann. 79.
"ce Mernarial.Ann.13(Schedule K) and Ann. 40(ExhibitA).
' Reply.p. 375.rupro.
Unnurnbered Documents subrniitedbyltaly. Vol.1.p. 278supro [p. 1721. he English
translationof thcfullo~inionhanbeenarnlttedin Annex 3 to the Reply.454 ELETTRONlCA SICULA

"Although the Treaty and Supplement at issue here were incorporated
into ltalian legislative acts, the provisions argued before this Court are no1
complete enough to permit a suit for compensation by a United States
national against the Government of ltaly in ltalian courts'."

In other, and perhaps simpler, words, the United States Government's contention
is that ltalian courts would have ignored al1the provisions in the Treaty and the
Supplementary Agreement which could have been invoked by the two United
States companies notwithstanding the existenceof specificlegislation designed to
ensure the application in ltaly of the Treatyand the Supplementary Agreement'.
The Reply does no1quote, directly or indirectly, any singlecase in which ltalian
courts would have taken the view that any provision in the Treaty or the

Supplementary Agreement is not self-executing. The Applicant Government
attempts to diminish the importance of what the Reply calls the "only ltalian
case cited by the Respondent in support of its argument"'. This was a decision
by the ltalian Court of Cassation4 in which ArticleV, paragraph 4, of the Treaty,
which had been invoked hefore the Italian courts by a United Statescorporation,
was applied to its benefit. The Reply's comment that there "were no damages
awarded in that cases5 is misleading, since no damages had been claimed; nor
is the observation that the case "did not involve the Government of Italyn6 any
more pertinent: when a treaty provision is regarded as self-executing in the
relations hetween privale parties, it is certainly applied also in a case brought
against public authorities.
The Italian Court of Cassation confirmed ils attitude in favour of considering

the Treaty provisions as self-executingwhen il applied Article XIV of the Treaty
in a criminal case, In re Walsh7. In Italy, as the claimant Government rightly
noted in another contexts "[a]lthough the opinion of the Supreme Court is not
binding outside the case in which it is rendered, il is highly persuasive authority
in subsequent cases in ltalian courts". Hence, the two decisions hy the Court of
Cassation mentioned ahove give a strong indication of what would have been
the attitude of ltalian courts if Raytheon and Machleti had hrought a claim and
invoked provisions in the Treaty and the Supplementary Agreement.
An attitude in favour of the self-executingcharacter of treaty provisions was
shown by the ltalian Court of Cassation also when individuals invoked, in cases
broughl against public authorities, provisions of treaties like GATT which were
taken not to be self-executinghy some non-ltalian courts. For instance, Decision

No. 1455 of 21 May 1973. Minisrero delle Finonze v. S.P.A. Manifarrura Lune
Marzorlo, held that Article II (hl of GATT

' Reply,p. 375,supra.
TheIwolegislative aciswhichprovidedthe relevant"implementing arders" (ordinidi
eseeuiione) wererelerredto in theCounter-Mernorial ..28. supra.
Reply. p.376.supro.
DecisionNa. 2228 of30July1960, The Dur.rr Manufocruri~zCo.v. Banco Conrmercirik
Iraliuna.Thetex1 ofthisdecision,to whichtheCaunter-Memorial referredon p. 28..supra.
isreproducedindoc No. 11
' Reply.p. 376,.supra.
Ibid:
' Deosion No. 2579 of 6 Decernber1983-17February 1984. Comnii,~rionrTrihururiu
CenQ~eply. p. 376.supra.nt.r6.uced indoc. No. 12. "is immediaiely applicable. without the need for further legislative iiiterven-
tion. not onlv io the ~articioatine State bu1also to the subiccts of the interna1

system, whiih gives ;se di;ectly-to rights and obligation;'".
The Reply2 refcrrcd to a decision concerning Article 78, paragraph 4, of the

Peace Treaiy with Italy. which concluded that "the said Article constitutes a
relationship enforccablc in inlernal law"'. Wiih regard lo the same provision, in
Decision No. 107 of 14 January 1976, Minisrero rici Tcsoro v. Mander Rrorhers
Lld, the Supreme Court staled that the said paragraph.

"in providing that the ltalian Government be charged with the obligation
to indemnify citizens of the United Nationsfor lossessuffered. from wartime
evenis. following injury or damages caused to their property in Italy. gives

rise. along with an international obligation of the IValian State vis-à-vis the
other Contracting States, 10 a direct legal relation of a binding character,
between the first State and the individual citizens of the United Nations.
Such relation, complete in al1 ils essential elements, is immediately effective

in the domesiic legal system, without the further requirement ofa normative
act of intcgration or of implemeniation, and therefore, as was pointed out
by the Sezio~ii Unire of this Supreme Couri, il is actionable by the same
citizens beforc ltalian courtsJ".

This reasoning hardly supports the Applicant Govcrnment's assertion, with regard
to the Treaty, that

'~lthough ihcre 1, prai.iri<in in Ariiclc\'for indemnilic~tioil b! the ii<l\ern-
meni of 1131)of iht~sc indi\iJu~Is or c,>rpor;liioni uho hate bcen ilepriicd
of ihcir prtipcrt!. th:tt Article ir still no1 ~ulticienil! coniplcic'"

The Reply's further contention that

"since Raytheon's and MachlettP claims are thosc of shareholders, ltalian
law would prevent a suit seeking compensation based on the illegal requisi-

tion because ltalian law reserves such a righi to ELSl alone, despite the
existence oi' the Treaty'",

is an inaccurate rcndering of Professor Fazzalari's "independent" opinion to
which it refers: the final part of the opinion, in which the argument was put
forwa~ ~~, was wriitcn on the basis of "lhlavine excluded that the treatv has
introduced into the intcrnal law claims andjidiciai remcdies stronger and different
from those already available in the ltalian legal system"'. Hence, this argument.

' 96 11Foro Iroliono (1973). 1-2444.English translation in 2 Tlw Ir<ili<inYp<rrhookof
IniernorionolLoi< (1976).pp. 383 K. at p. 384.See doc. No. 5.
Reply. p. 375. supra.and ni.4.
Decirion No. 3592of13November 1974.Minisiero <le1Tesotov. Di Rofirlc. English
translation in 2Tlie IrolioiYeorhookof InrernorionriLou.(1976).pp. 366K. at p. 368.
' 99 11For" Iloliono (1976). 1-2463.English translition in 3 Thr Irolion Yecrrhoolof
InrernarionolLaw (1977).pp. 349 K. at pp. 349-350.See doc. No. 4.
Reply. p. 375.supra. Under Iialian law. the fac! th11 in someinstancesthere maybe
a doubt asto wheiher a remedyexintsbefore an ordinary court or an administrative court
neverim lies that no remedyexista or that a provision in a ircaty may be takçn as no1
beingseltexecuiing. The decisionquoted at note 3. rupro was in favour of thc cornpetence
of ordinary courts. No doubi, also ;iclaim for damagesundcr Ariicle 2043 of ihe Civil
Coderhould be brought before an ordinary court.
Reply. p. 375, st,pr<i.
' Ibid..Ann. 2. Part II.whatever ils merits. in no way affects the question whether the Treaty could be
invoked beforc ltalian co~~~~~-~
Th; ~ountcr-~emorial quoted a decision by the United States Court of Ap-

wals for the Fifth Circuit, which held that the treaties of Friendship. Commerce
and Navieation "are self-executine treaties"'. The Aoolicant Gove~nment has in
no way Challenged this appraisaï of the attitude ;<the United Srates courts
towards treaty provisions whose language is idcntical or similar to that of the
provisions which could havc heen invoked before Iialian courts. Nor has the
Applicant Govcrnment given any compelling reason why Italian courts should
have disregarded these provisions. The decisions quoted above point, on the
contridry,to an attitude which is certainly not lessfavourable to the self-exccuting
character of treaty provisions. Thus, Raytheon and Machlett. in seeking immedi-
ale recourse to diplomatic protection2. did no1 use the local remedies available

to them. as they werc rcquired to do under the local remedies rule. As was said
by Mr. Becker, the Agent for the United States Governmenl in the Inrerliandel
case:
"Even if by violation of a treaty an international wrong would have been

committed, that wrong still would not be sufiiciently definite and complete
so as to give rise io a claim betwcen States. In order to give rise to an
international claim a treatv violation must have become definite and com-
plet~; it must have passed.heyond the stage where domestic judicial action
of a country can reclify the violation3."

'The referenceIo the decisionin Spiessv. lrohundConipony. 643 FederolReporrer. 2d
Series.pp. 353 tT(1981)wasmade inthe Counter-Mcmorial.p. 29. rupro.nt. 1.
Documents rubmiitedby Italy. Vol.thea1mp.278. suprod[p. 1611)shows where their mÿin
ob'ectivewas as earlyus 1971
' I.C.J. P1eading.. rerhundeclase(Sw,irrerlundv. UnircdBuic~.~lp. 505. PARTIV. THE INTERPRETATIONAND APPLICATIONOF
THE 1948 TREATYAND THE 1951SUPPLEMENTARY
AGREEMENT

1. Aims Pursued by the 1948Treaty and Principles on Which It 1s Based

In Part Five of the Reply, in which the legal basis of the claim of the United
States is examined, some remarks are addressed in the first place to the question
of the aims characterizing the Treaty of Friendship, cornGerce and ~a&ation
of 2 February 1948.Thc ltalian Counter-Memorial' had stressed the importance

that the obiect and ournose of a treatv have in the interoretation of its oÏ<ivisions
in accordance with Àrt/cle 31 of the ~ienna convention on the Law of'~reaties'.
The Counter-Memorial cmphasized the great variety ofaims pursued by the 1948
Treaty and showed that the provisions to which the Applicant refers cannot be
interpreted solely as a function of the interests of United States investors in Italy.
~n~fact,as the Applicant asserts in its Reply, the Treaty provisions show that
"hoth Parties were concerned with the property and interests therein of each
Party's corporations in the territory of the othern3. However, for this very reason
it is essential to ascertain accurately the extent Io which the above-mentioned
provisions refer to the property and interests owned by the Raytheon and Mach-

let1corporations in ltalian territory.
A further preliminary question is that of the principles on which the 1948
Treaty is hased4. The Applicant argues that the principles of national treatment
and of most-favoured-nation treatment are not the only ones applied in the
Treatys. This is no( a pertinent criticism of Our reasoning which consisted in
pointing out that these are the only two principles explicilly mentioned in the
Preamble to the Treatyo. The Applicant itself referred toan earlier case in which
the Preamble was used by the Court to establish the object and purpose of a
treaiy7. This does not imply denying that "[tlhe operative standard of treatment
mus1 be analyzcd for each of the articles advanced hy the United StatesM8.

However, one should not neglect the significance of the phrase "in conformity
with the laws and rcgulations in force", which qualifies the standard of treatment
provided for in several articles of the Treaty.

' Counter-Memarial. pp. 30-31.supro.
' The Counter-Memonal, on p. 30.supra. noied ihat "[a]lthoughthe 1969Vienna
Convention on the Law of Trealiedoes not applyIo ihe interpretatiof the Treatyand
itsSupplerneniaryAgreement. therules on interpretalionincludedin the Conventioare
Io be consideredas correspondingIo those applicableunder gcncralinternationalaw".
Thisappears10be commongroundbetweentheParties,asinthe Replythe"United States
(p. 384,suprn.ni. 1). the Viennaconvention applyIo the interpretaiioofthis Treaty"
' Reply,pp. 378-379.supra.
See Counier-Mcmorial.pp. 34-36,iupro.
' Reply.p. 379.supro.
Counter-Mernorial.p. 34.supra.
' Reply,p. 379.IUPI<Int. 2.
Ibid.p. 380..supra. firmdistinction beiween the company's rights and those of ils shareholders '. This
distinction was bnsed on the nature of corporations' stock under domestic law:
which was considered to be relevÿnt alsoin international law in so Caras the
Ihiier m:ikej reierrnce IOihr."rule' generiillya~.ccpicJby municipal leg:il\yitcms
\\hich rr.si>gnbirdihc Iiiiiiicdcornpin) whuss capiial ii reprcienicd hy Yharcs"'
1»1,.dri,. the C<iiirtSi.iied ihsi "c\r.iii:i:onip:in, ih nii more th~n :imziin>
for its shareholders to achieve their economic purioses, so long as it is 'in esse',
it enjoys an independeni existence'".

In fact this isthe principle which,by means of provisionsassigning the national-
itv of thecomoanies to ihe one and to the other Partv to the Treatv. isconsidered
IO bc 3 ~und:;mcni:ilstarlin& point ~lsi hy ~reaii& of ~rirndsl;~~.C'ornniercc
:ind N;irigation II ii irue thai a s1ni11n1umher iiiclauses adopi in,irïJ u,hïi the
Ciiurt cnlls "the orosesi oi Iifiinr the veil": ihc Couri si;itcd ih~t thir proceis.
"being an excePtibnal one admiitëd by municipal law in respect of an institution
of ils own making, is equally admissible Io plu!, o sinlilor role in international
law", with the result thai "on the international plane also there may in principle
be special circumst3nces which justify the lifting of the veil in the interest of
shareholders"'. II is clear, however, that when certain clauses specificallyprotect
the interests of foreign shareholders in a national Companythey mus1be interpre-
ted restrictively and rigorously, as is in al1exceptional rules5. The argument put
forward bv the Anolicant accordine to which al1the nrovisions ofthe 1948Treatv
and thc. 1951Supplcmcr,iar) ~~rknientr intoked hy il are IO hr. <unsidercd ;i;
insirunlents ;irliirdiitg iiide range oi pr<)iciiion for Amcris~n \h.ircholderj or

ltalian companies docs not appe6 to have any Icgal basis

3. The AllegedInterference by Italy in the Management and Control of ISLSI.
Was Article III, Paragraph 2, of the Treaty Violated?

Let us nowcxamine cach of the claims advanced by the United States Ciovern-
meni, in the order in which they appear in the Reply. The first wrongful act
allegedlycommitted by the Respondent is to have interfered in the management
and control of the ELSl Company. This alleged act would have taken place,
according to the Applicant, first when it was decided Io requisition the pl;int and
equipment, furthrr when the decision by the Prefeci of Palermo on the ELSl
appeal against the rcquisition order was delayed and, lastly, when the bankruptcy
proceeding was thwarted. ltaly is thus alleged to have violated Articles III and
VI of the 1948Treaty and Article 1of the 1951Supplementary Agreement.
Article III is divided into two paragraphs and there is no allegation that ltaly

did not comply with the first of these paragraphs in the case in point. Therefore,
the Applicant has implicitlyadmitted that the Raytheon and Machlett companies
enjoyed the right of holding shares in ELSI under conditions no less favourable
than those granied to companies of any third country. The Applicant implicitly
recognizes also ihal ELSI, which was controlled by the said Iwo United States
comoanies. enio*,d the rieht to exercise the funclions for which il had been
created in conformity with the Italian law and regulations. upon terms no less
favourable ihan those accorded to corporations controlled by corporations of
any third country

' I.C.J. Renorlr 1970.P.34. para. 41. The dispute concerns paragraph 2 of Article III whichthe Applicant interprcts
as permitting the United States companies to organize, control and manage

ltalian commercial and industrial corporations subject only to the requirements
established by ltalian law. This right is alleged to have been violated by the
requisition decree.
Such a contention is unfounded. First of all, with regard to the interpretation
of the relevant section of Article III, paragraph 2, il was emphasized in the
Counter-Memorial' that the right of United Siates companies to "organize,
control and manage" corporations and associations in ltalian territory has bcen
granted by the Treaty "in conformity with applicable laws and regulations" in
Italy; in other words, without prejudice to the powers granted by law to the

ltalian authorities. In its Reply the Applicant admits that "the way in which
management and control may bc exercisedis subject to the regulation under local
law". altbough it adds that "the right to manage and control may not be
abrogated entirely regardless of the treatment accorded to ltalian nationals"'.
Furthermore, Article III, paragraph 2, is deemed to include "certain minimum
standards of protection under international law,including protection from unlaw-
Sulinterference with management and control'".
11seems clear that the rights in question are grantcd within the framework of
existing ltalian legislalion. In the case in point, the right ta organize ltalian

corporations and associations does no1appear to have been taken into consider-
ation by the Applicant. This is explained by the fact that ELSl was already
organized when the Raytheon and Machlett companies became its shareholders.
Control and management are instead concepts that refer to al1 those powers
which may be exercised by majority sharcholders, as member of the company's
Assembly: Le.,to elect the members of otber company organs.~to a~prove of the
linanci:il rcpiirt. ,Jperi i\i,>nuicoriip.in) ni.liiagcmcni. Iicll'ea. ;iliIic*cpuacrr
ucrc c~criised h) R:i!thctin mil M:ichleii iroiii the iinic ilii.!hcvinic in.ij.irii)
rh~rch~~ldcr ii FI SI And thi* h.ir nc\i.r hccii ih:illciigcd rith rcicrciiic 18,ilic

activity carried on by these companies in the period precedingthe requisition. As
to the later period, if it is admitted that management and control are protected
by the Treaty in conformity with the applicable local laws and regulations, al1
the interference the public authorities may exercise under these laws and regula-
lions mus1 be deemed to be compatible with the degrec of protection alîordcd
under the Treatv. lndeed such orotection cannot be considered to be extendcd
to the point thaithe United taies sharcholders are exonerated from the applica-
tion of imperative measures, which are binding for al1subjects; some of these
measures may have an effect on the powers to manage and control an ltalian

company. In this regard it should be noted that the ltalian legal provisions on
the basis of which the requisition decree of 1April 1968was issued without doubt
pursues public policy aims and could be characterized as police regulations.
What mus1 be ruled out anvwav. is that Article III. oaraeraoh 2. includes a

seen that general international law givesno protection to foreign shareholders in
national comoanies (therc is no need to makc anv further reference to the
61~i!i~,/~1/L?~1',I,~CZSCJ turilicri~i<~ret.lic 4ppl~c.in~iircll'a~\crij ihat the .i;iii-

dard iiiquc\tii>nincludcsth: 'prtitc~tion frvm unl;iufiiI iniericrcii:e uiih m;inagc-

' Counter-Mernorialp ..42. supra
' Reply. p. 382,.rupro.
' Ihidp ..383. supro.ment and conirol"'. and certainly no! proteciion (rom inierfcrence based on local
laws.
It remains to compare the faci which theApplicani allcgcs [O be unlawful wiih
the provisions of Article III. paragraph 2. In the Counter-Memorial it was firstly
noted that the requisiiion decrec oî I April 1968did no1alTecithe shareholders'
control of the ELSl company, but only thecompany's conirol of the requisitioned

assets'. Secondly, il was pointcd out that the clïcct of ihis dccree was only to
temporarily suspend,and not to ciirtail definitively.the company's conirol of the
resuisitioned assctsJ. Thirdlv. it has bccn emohasizcd that the invaliditv of thc
re~ui~itioiiJc~rcc. 3% ~sccrliilncdh!. ihc iIea.ii>ii,ofihc I3rcli.cI l':ilcrm<i.Joci
not iilicr the îdci tIi:iII ivas ISIU~J h! thc ic>mpctcIit.iuihclri~yon :Irc~uIiItIcg,il
basis'.
Thc Ao~licant contcnds in its Keolv5 that onlv the Unitcd Scates conmanies
which we'; ELSl's shareholders hid'the right to &cide upon its liquidation. and
that the requisition deprived al1potential purchasers of acccss to the plant. thus
makine it imoossible 10sel1it asa roine concern. Furthermore. accordinr io the
r\ppIic.int. lhc iIlcgitim.ic! 01 ihr' requisilion in \<, Idr :ij IIua.. n.it ~.:ip:ihlcoi

;ichicviiigthe purptsc Jc:lJrcil h! thc \Iii)<>rof I';ilcrm<iii<iuld1nie:inth:,i II u~s
I I II r f l I I : n 1.1 LJ~II~ the :iIl~~cd#nl~~rI'~~r~h~ tii:chcIi:il~:in
Governmeni in thc bankruptcy proceeding furihèr diminished ~a~thcon and
Machleit's right io rcccive any of the bencfits of n normal bankruptcy sale.
These conlcntions appear to be largely irrelevünt iind in any case groiindless.
The unlawîul act nllceed to have bccn committed bv ihc Italian Government is
10 h:i\c pre\,clitcd the United St>ic>~h:trch,>lilcr~ i'roiliiii:in.iglng;ind ic>nii.illing
ihc EI.SI domp.in) Ilha>21rcsid!hccn~,\pl;81nc~ 1lh.1tlic rcq~hitim of the i?l.Sl
company was dirccted iowards ils plant and equipmcnt. which thus became
tcmporarily unavailable Io thc owner. At the same lime. the United Staics
shareholders coniinued to exercisc management and control over the company.
This is shown by ihc Fact thai rhey allo~~cdthe Board of Directors io file a

petition for bankruptcy during ihc pcriod thai the rcquisition wds in îorce.
There are two loeical and leeal Raws in ihe areuments advanced bv the
Applicant: ihc tcndrncy to confuse the rights of the shsrcholders. whic'hare
protected by thcTrcaty. with thosc ofthe Itdlian conipany ELSI. and the tcndency
io prcscnt as clïects or the requisition whai wcrc in ;;ciual Tacteffecis of thc
bankruptcy. II ihcse two flaws arc removcd. thc situation bccomes clear. In
pariicular: il is truc that thc shareholdcrs had thc right to wind up the company.
but it was the biinkruptcy peiiiion resulting îrom insolvency and not the iempo-
rarv reauisition. which orcvented this riilht from bcine cxcrcised. With reeard to
thérigh; of acccss ta ih; plant by potenh purchaser;. suffice it to say thai "niil
30 Septcmbcr 1968lhis cntailed obtaining the approval of the custodians of thc
requisiiioned asseis. and afier tliat date. of the Recciver in the bankruptcy
proceeding: in cithcr case. however. the latter werc replacing ELSl's c<~mpany

officiaisand no1ils shareholders. As io the rights oî the Rüyiheon and hlachlett
Companies to rcccivc any benelil îrom the bankrupicy sale. these could came
in10 being only iit the end of the bankruptcy procccdings. They could have no
possible relation with ihc right io manage and control ELSI. In any case, the

' Reply. p.383. .iirpio;ind ni.2.
' Coumer-Mrniorial.p.43. supro.
/hic/.
' Rcply. p.381. sir/~i.<i."inierlcrencc" by the ltalian Govcrnment in the bankruptcy proceedings hasno1
been proved.
Moreover. the tcmporary nature ol the requisitioncannoi be overlooked whcn
discussing the effccts of the decreeby the Mayor of Palermo on the availability
of the requisiiioned assets.The fact that these efects ccased on 30 September

1968cannot be denied: it emerges lrom ihe text of the decree and was clearly
taken by the Court of Palermo as one of the lactors, when calculating the
compensation io bc paid io the ELSI bankruptcy Receiver. In ils attempt to
support its allcgation that the rcquisition completely preventcd the Unitcd Slaics
shareholders from managing and controlling ELSI. the Applicant has added to
the requisition period that of the hankruptcy, wiihout any concern for ihc fact
that the latter was not causcd bv the Italian Government.

I.'in:ill). ihc ;ircumjian:cth:ii ihc requi,iiion in quc,iioii \i,:i;onsidcreJ Io hc
illcgiiiiiiaic undsr It.ilian lasrdocr nui produrr it>nfliit hciuce~ithcs.<i<liiicasurc
.incl ihc phrare ''in coni;>rni~i\ iviih :..~li;3hlc I.iu4iiJ reciilation~ 'ioiit:iincd in
Arti~lc III. psr.igr.iph 2. ui ihe Tr~~iy. .A<ii.iic.J xhovc. ihi, phraw i\ u\cd ici
ii1ipo.c .igcncr.11rcstri:ii<ln un Ilic ,c,>pc ni the poircrr .ilni.in4ging ;id c,in-
irulltns It.ilian comii.iniz> .<itrihuicJIO CiiittJ Si.itcs \h.ircholJcr\. Aliliuiigh the

~refcciof Palermouliiniatelv . .uashcd the Mavor's decreeon the eround-o- ils
inefficacy in obtaining its siated piirposc. the requisition was nevcrthelessthe act
ol an authority duly cmpowered to take such a measure. In any case,Article III,
.arae-.oh 2. &n ccrtainlv no1bc usedto assertan oblieaiion. under international
I:iu for ihc 1iiili;in Guicrnnicnt itircpect ihc li:ili;iiiILii, gojcrning rcq.iiiiii<in:
ihc Ii;ilun Coicrnnicni ironl) undcr .in ohlig:<iion i<> recognirs cericiin puucrs
to loreign sharcholders - in particular to manage and control Italian com-

oanics - within the lramework ol ltalian leeislation. Moreover. if it is corrcci
th:it ihc rcquisiiiun did not 3ti'c~iihosc poiiers. ihc i.suc 01th~ spciitic rclci;iiicc
<iilhe phra~c"in coniormii!. uiih ;tpplic;~hlcIaui ;inJ rcgul.iiiun>" c;innut hc or
any use io ihc Applicani's assertion.

4. \Vas There a Violation of Article VIE, Paragraph i,of the Treaty?

11has already becn recallcd that. according to the United StatesGovcrnment.
inierlerencc by the Rcspondent in the powers ol management and control of
ELSl hcld bv the two shareholdine comoanies alleeedlv viol-,ed Articlc VI1 of
the 191s~rcii?. and pr3graph I \;iihts hrticl? in priicul.ir. It u:ijpuinicd 0.11
in ihc Counier4lcm<>ri;il' th:it ihir proii3ion pr.int, i<>~licnaiii~nalj. ;orpor;liioiis
and associations ofcach Pariy the right "10 acquire. own and dispose olimmov-
able propcrty or intcrcsis thcrein" in the territory of the other High Contracting

Pariy. under condition ol rcciprocity. A preliminary objection addrcsscd to thc
Applicant wds that the ELSl plant belongcd to ELSI, and ccrtainly no1 to ils
United States sharcholdcrs: the only relcvant asscts posscsscd by the Iatier
conipanics nitiy bc said to hc thc sharesthemselves.
Thc Applicani's Rcply' is bascdon two points. On the one hand it points oui
that Articlc VI1 rcfcrs to "immovable propcrty or intcrests thcrcin". and asscrls

that the terni "intcrcst in propcrty" is sufficieiitly broad to includc also ihe
hypothcsis of propcriy owned indircctly ihrough a subsidiary Company. Further-
more. the Applicant points oui that evcn if Raytheon and Machleit could claini
protection only lor their sharcs. one should take inio accouni thc fact ihat thcir
value was allegedly reduced to zero by the requisiiion.

' Counier-Mernorial. p. 41.v,pro.
Rcply. pp. 385-386. rtrpi<i. With regard to the first point it mus1be remarked that the terms coniained in
the English version of Article \'II, paragraph I, - "immovable property or
intcrests therein" -corresponds in the ltalian tex110the words "beni immobili
O olrri diririire<ili".thereby referring to the righi of ownership of immovable
property and 10 other absolute rights of a more limited extent. This must lead

anyone inierpreting them to exclude complctcly that the term "intcrcsts" can
have in the Treaiy the meaning ;ittributed to il by the Appellani. The Iàct that
ltalian law does noi recognize any "indirect" ownership of immovable property
(of which the two United States comoanies would be the owners in the oresent
case through an ltalian subsidiary owned by them) leads to the conclusiAn ihat
if the United Staies actually did iniend. al the lime of the 1948Treaty. I<-protect
property in the sense indicated by the Applicant. this intention did no1 emerge
or prevail. This is shown by the difference observed in the two texis. which are
equally authentic according to Article XXVll of the Treaty.
Therefore Article VII, by guaranteeingthe availability to Raytheon and Mach-
lett of immovable property o olrridirirrirruliin ltalian territory, certainly pro-
tected the availability of the ELSl shares lo ihem, but not that of the plant, of
which the latter company was sole owner. As for the allegalion that the market
value of ELSl shares was reduccd aoore..ablv as a result of the reauisition. il
niusi bc poinicd oui thai ihc protection .ilTordei io the Uniicd ~iaicssh.irehi)lJers
undcr ihc 1948Trsdi) -ould noi he cticnded i~ithe poini of gu:irantccing ihc
market value of their investments!

5.... or of Article 1of the 1951 Suppkrnentary Agreement?

The alleged violation by ltaly of the obligation to allow the Uniied States
shareholders of ltalian companies to excrcise the management and control of
such companies is, according to the Applicant. an act which is incompatible also
with Article 1of the Supplemeniary Agreement of 26 September 1951between
the United States and ltaly.
Under the provisions of this Ariicle the nationals, corporations and associations
of each Party "shall no1 be subjected to arbitrary or discriminatory medsures
within the terrilories" of the other Party whenever such measures woiild have
the eKect of: "(ri)preventing thcir effectivecontrol and management of enter-
prises which iheyhave been permiited to establish or acquire therein". A different
effect is considered in section (Ir), bu1 ihis will be discussed in the following
paragraph. By requisitioning the ELSl plant. ltaly is alleged to have violated the
above-mentioncd prohibition.
The first objection raised in the Counier-Memorial was thai the requisition
decree was addressed to the ltalian Company ELSl and no1to its shareholders'.
11was also pointed out that although the requisiiion temporarily deprived ELSl
of the availability of the requisitioned assets (plant and equipmeni), it did no1

prevent management and control of the company from continuing to be frcely
exercised by the statutory company organs with regard to al1aspccts of managc-
ment other than those requiring an immediate need to have access to the requi-
sitioned assets'. The Aoo..cant rcsnonded to these arguments above al1 bv a
Jogmaiic riatemeni. "R;i!iheiin ;andh1;ichleti ucrc riii>scrtainl! 'iub,ccied Io'
measurcs in lial) 'rcs~liing in ihc prcicnii<>nof their cflectiic conirol inJ
man;igcnicni of ELSI' " Wiih rqard Io ihc fici ih.11ihc cffccii\c conirol and

' Counter-Memorialp . 41, supro
' Ibid.
' Reply, p. 384.supra.464 ELBTTRONICA SICULA

management continued to be exercised by the company organs even during the
requisition period. the Appcllant preferrcd 10make theapparently ironical remark
that "the company organs could still function, but there was nothing left for
them to control and manage"'. What was within the funetions of these organs
and was in fact decided by them were Iwo acts of considerable importance: the
appeal against the requisition decree and the filingof the bankruptey petition!

In any case. even if the requisition measure adopted by the ltalian Government
had been addressed 10 the Raytheon and Machlett companies and not to the
ltalian company ELSI, it would havc come under the provisions of Article 1of
the 1951Supplementary Agreement only if it had had the characteristics of an
"arbitrary or discriminatory" measure. In the ltalian Counter-Mernorial the
interprctation of these two terms was discussed al some len~th'. Il was ~ointed
6)utlhat the term "drhiir.ir!" onl!. rcîsr, 1,3 mr.dSLIrc Ih.11iicomplclcly unJusii-
tied. uhich s:tn he c\pl~incd only a, a medns uscd b!. the authiiriiicsIO damage
2nd <ipprc\s :Iperson suh~cci 10 ihcir poucr. iuhse~~cnily.ihc tcrm "dircrimin;i.
tory" was defined as covering any measure introducing an unfavourahle distinc-

tion between the person to which ilis applied and other subjects in a similar
situation. for no other reason than to intentionally damage that person. The
applicant replied that the arbitrary nature of the requisition in question isdemon-
strated by the fact that the Prefect of Palermo declared it to he illegitimate. on
the grounds that any means that do not fit the expressed goal or are legally
impermissible. or are allegedly arbitrary and unreasonable'. Furthermore. ac-
cordingto the Applicant. the requisition wasdiscriminatory, because it was aimed
at favouring an enterprise controlled by the Government'. The IvalianGovcrn-
ment insists on its point of vicw and will try now to illustrate it more fully.

A significant comparison can be made. as was already done in the Counter-
Memorial, between thc prohibition of "arbitrary or discriminatory measures"
mentioned in Articlc 1of the 1951Supplementary Agreement betwcen ltaly and
the United States, and the prohibition of "unreasonable or discriminatory mea-
sures" contained in other Treaties of Friendship, Commerce and Navigation
stipulated by the United States (e.g.. the Treaty with lreland of 21 January 1950,
Art. V; the Treaty with the Netherlands of 27 March 1956,Art. VI. para. 3).This
points to a high degrec of corrcspondcnce betwcen the concept of arbitrary and
that of unreasonable. But quite aoarl from this observation. the conceot of
'.:lrbitriirynieasurc" hy lhc .
~uthoriiics implics no1onl! ihc 3hscnccoiiiny
redson. hui ihc ioiiil I:i~.kof iiny just1tic3li~:siid ihercl,irc ihc iinpossibiliioi
iniluding ihc 3ci in iiny oitc <IIihc s;iicgorics adciliicJ hy ~hcdonicstic lceal
system.Therefore. it is not enough for a méasureto b; illegaiunder such a systèm
in order to beable 10 infer automatically that the measure is "arbitrary" in the
light of an international treaty. Ilmay well be that an act is formally illegal
without heing arbitrary. In the case in point, the requisition decree was quashed
by the Prefect of Palermo on the grounds that it was not a suitable means of
ensuring the safeguard of jobs for the ELSl employees. Nevertheless. common
sense tells us that this does no1make it an "arbitrary" act. The authority which
issued the decree, the Mavor of Palermo. actuallv did have the nowcr undcr
~ ~ ~
ltalian law to adopt emcr&ncy measures concerni& private propertyJ; he gave
reasons for his decision and considercd that the circumstances of urgency and

' Reply,p. 384.supro.
' CReply.p.e385,supro. p.43-46.sripra.
Ihid.
See Art. 7 of Law No. 2248 01 20 March 1865.Ann. E.Memarial. Ann. 34. REJOINDER OF ITALY 465

serious public necessityexisted. The legality of his behaviour under any of these
aspects was not criticized or reviewed by the superior authority. On the other
hand, the difficult situation to which the reasons for bis action are related - a
situation characterized by the dismissal of the work force, social urirest, the
possible damage to the regional economy, substantial risk for law and order -
seems to indicatc that, dcspite the formal irregularity of an improper use of
power, the requisitiondecree was no1the result of any intention bythe administra-

tive authorities toharass ELSI (or ils shareholders). but was instead justified by
a number of circumstances.
Last but no1least, it is necessary to examine whether the measure in question
can be considered discriminatorv. It was alreadv noted that. in the context of
Trc;iiies of Fricnd.,hip. C<>mnierceand Nai,igztion. uhich arc inosil? hascd on
the principlcofn~tionïl treïtmciit, a diicriminïior) meïrurs iscsseniiallyequiiï-
lent to a malicious distinction based on the nationalitv of the beneficiaries.
According to McKean' :

"the word discriminate alone is commonlv used in the restricted senre of an
unfair, improper, unjustifiableor arbitrari distinction, and it isthis ;caning
that has corne to be employed in international law".

The same author insists on the "special meaning" acquired by the term "discrimi-
nation" in intcrnational legal use, pointing out that "il does not mean any
distinction or diferentiation. but onlv arbitrurv. invidious or uniustified distinc-
titins" IIIthe csre in point. cicn if one :i\%urncJih:it ihc rcqui$iiion haJ dircctl!
dllr.çtedthc CniicJ Stztes rh;irelii>lderr.noihing ;iuihorizes une io helic\,cthdi II
m:r\hd\e imnlicd the iniention io ;innlr 3 Jitlercnt ;ind unf;iir treatmcnt io the
unitcd ~tatei~~nvcstors. It is recalle'd'Lere that a Iare- numbe~ ~ ~examnles~.f
the requisitioning of plants of ltalian companies for reasons related to employ-
ment crises was mcntioned in Part I of this Counter-Reply. On the other hand,
the Applicant, realizing that it is impossible 10 assert ihat the requisition was
"discriminatory" in the sense defined above. asserted the existence of discrimina-
tion in favour of the ltalian Company controlled by IRI, which purchased the

ELSl assets at the bankruptcy auction. However. it seems unnecessary to dwell
on this flight of fancy. It would mean thai an alleged "plot" hatched by the
Italian Govcrnment, the bankruptcy proceeding officiais and the IR1 group had
already been arrünged in view of depriving Raytheon and Machlett of their
supposed technologicaljewel! Such a melhod of prescnting the facts of the case
is another clcar cxamplc of the superficiality with which the Applicant has
approached both the problem of the causal connection and that related to the
notion ofact of the Stztc when speaking of the wrongful acts allegedlycornmitted
by Italy.

6. The Alleged Impairment by ltaly of the United States Companies'Rights and
lnterests

The second act bv the Italian Government decmed to have violated the obliez- -
rion, impoicd on IIby ilic 1951Supplcineni;ir! r\greenicni uiih the CriircJ Stïlcs
conri\is in ihc 411cgcdinip.iirnientoi the intcrciir of ihc Ki)ihcon 2nd \l.ishlcii
L.onip.inicr.T1i.sconipl.~iniis h.ired ai Article I ni ihc ,lerccnient. \\hich hïr
been examined abovc.with specificreferenceto Article I (h).-whcn read logether.
the provisions put natiorials, corporations and associütions of either High Con-

' Themeaning of discriminationininternationalund municipalIsw.inthe BririçlYeor
Book of lnrrriiurioiilriii1970. pp. 177R466 ELETTRONICA SICULA

iractine Partv in a oosiiion not to be suhiected to arbitrarv or discriminatorv
mcaiu;es uiihin ihc'icrriiorie~of ihc uihcr~igh C'onirar.iinf L';tri!..rc\uliin&in
impniring ihc ,.rlitlcgallyacquircd righi and initrrrt. in ihc cnierpri\es 'uhich
ihey have heen permitted to establish or acquire herein" or in the investments
which thev have made. whether in the ionn of funds (loans. shares or otherwise).
matcrials. cquipmcni. scrviccs. proccsscs. paieni\. iechniqucr or oihcririse. Thc
mcnsurc \i,hirh ihc Applicant iisseris iu hc inconipatihlc uiih ihesc proiirions is
a-ain the rcauisition
The main objection io this contention consists in the remark that, if the
requisition measure was neither arhitrary nor discriminatory, as the ltalian Gov-
ernment submits, none of the provisions contained in the said Article can be
ao~licd to the oresent case. Moreover. the Claimant asserts that al1 the riehts
and interests impaired by the hankruptcy fall within the scope of the ah&
mentioncd Article 1 (b). This makes it necessary to rewat once again that the
bankruptcy. for which a petition was filed by-~~~l,-was not ciused by the
requisition. No proof whaisoever of a causal link has been produced hy the
Claimant because its argument is uniounded. In fact the bankruptcy was the
result of ELSl's insolvency, which precededthe requisition. In any case, however,
the action of theoreans conductine the hankruotcv oroceedinescannot bereferre~ ~
IO the Iialian Go\crnnicni. xnd ihis iscven more irue if one considrrr ihc actions
of Rxyihcon's crcdii<iri! Ilis quiie ah\urJ th:ii ihc Clniniant \hould ntiempi to
includc uiihin the scqw of3pplicniion of Articlr I (hl oiihc lc151Supplemcniary

Agreement. e\cn the financial lnrics sulkrïd h> Ra)ihron in dcvcnding iisclf in
ihc suil hriiught üg~insi IIhy the Iialian hanks IO which IIoucd mont!.'

7. The Allegd ltalian Taking of Interests in Property of Raytheon and Machlett

According io the Claimani the third of the alleged wrongful acts by the ltalian
Government consists in the "taking of interests in property" to the detriment of
the Raytheon and Machlett Companies.The provision invoked in thisconnection
is Article V. . -.eraoh 2. of the 1948Treatv. with reference Io Dara. -.h 1 of
the Pr~~iocnlU. ndcr ,lriiclc\'.parrlgrdph ?. ihc c\propriaiion dl'properi! belung-
ing io nalional corporAiionj and a\,oci;iiionr ol'either lligh Coniraciing Part)
uiihin the icrriti~ricsof the ,iiher i, inadrni\sihlc 'without duc oroccri olltu ;ind
without the prompt payment oi just and eKectivecompensati6n". The Protocol,
which bears the same date as the Treaty, establishes in ils first paragraph that

"The provisions of paragraph 2 of Arlicle V providing for the payment
of compensation shallextend Io interests held directlyor indirectly by nation-
al~,corporations and associations of either High Contracting Party in prop-
eriy which is taken within the territories of the other High Contracting
Party."
In the Counter-Memorial three arguments have heen clarified: firstly, that the
eiïecis of the requisition of ELSl assets were quite diiierent from those of an
expropriation; secondly, thai on the basis of an interpretation which iakcs into
accountalsotheltalian tex1ofthe Protocol, the provisions of Article V, paragraph
2, shall extend to the righrs and not to the mere interests of Unitcd States
companies in propcrty which is taken in Italy, Iastly. that the Protocol cannot be

interoreted as eivinr to the assets of an Italian cor~oration controlled bv United
~iaie. shïrcho~lcrs~hc s-iiic pr.rier.iionrlsis grdni&d IO 3 Ilnitcd Si.iiescorporrl.
lion undcr Ariiclc V' The ,\pplic:ini's rcpl) tn ihcsc nrgumcnis ni4? hc sumni.2-

'Counier-Mernorial p. 40,supra.468 ELETTRONICA SICULA

However. even if one assumes that ihe use of the expression "taking of prop-
erty" should be accepted (which would amount to subordinaiing the Iialian text
to the Enelish text!), a resuisition in use, which has the nature of a temvorarv
form of iovernment conirol over private properiy, could not be snid'to bé
equivalent in any case to a "tnking of property" as set out in the English texi of
Article V, paragraph 2, of the Treaty between the United States and Italy. The
vasi amount of literaturc on the subjcct in English seems io indicatc that the
above-mentioned forms of conirol should rather bedefined as "indirect takings"'
and that only the interferences in physical property "which significanily deprive

the owner of the use of his orovertv" amount 10a iakine of thai ~rooe...'. One
must rule out ihat an interterence iimited to six months. Le.. a shori suspension
of the availabiliiy of the assets. could be defined as a significant deprival of the
owner's use of property.
In conclusion. there arc good reasons for sharing the view expressed by the
United States Arbitrator George Aldrich in the case /TT-lslun~ic Repiiblic of
Irati':

"while the taking of control over privaie property by a government does not
auiomatically and immediately iusiifv the conclusion that the DroDertvhas
been taken by the governmeni.-. .such a conclusion is warranied LhGever
evcnts show that the owncr was deprivcd of fundamental property rights
and itappcars that such privation is not merely ephemeral".
In the case in point. the deprival of the use of the ELSl plant for the duration

of six months cannot be equated 10 the deprivation of fundamental property
rights.
Certainly, the Mayor of Palermo was cxercising a power granied to him for
reasons of public necessity in order io rcmedy temporarily a situation of social
unrest and to prevent disorders. In other words, he was using a regulatory power,
more precisely a police power. and the cxercise of such a power can hardly be
assimilaied io an expropriation measure4.
In a studyS based on practice, the following conclusion was reached:

"A Siatc's declaration that a particular interference with an alien's cnjoy-
ment of his vroDerlv is iustified bv the so-called 'volice vowcr' docs no1
preclude an inte;nationaitribunal irom making an independent determina-
lion ofthis issue. But if the reasons given are valid and bcar some plausible
relationship to the action taken. no atiempt may be made io search deeper
10sec wheiher the Siaie was aciivaied by some illicit motive.''

Evcn in the case law of the United States courts. there are some precedents
that are intcrcsting in the present contexi. In particular it is worth referring again
10 a case concerning the seizure of a coal mine by order of the highest authoriiies
of the enecutive power, Pewee Cou/ Conlpu,ty v.rhe Unired Stares Gr,vernttlenr6.
In its judgment of30 April 1951on that case, the Supreme Court said:

' See RosalynHiggins. "TheTuking of Propertybythe State". in CollecredCourre? of
rhcHopur Acodenly,$Inrrrnul;onul Loi<,. 1982.111.pp.322 R
Ihi<l.. 324.
' This opinion. concurrentwith that of the Tribunal.is cited by Swanson. "lran-U.S.
ClaimsTribunal: A PolicyAnalysis of the ExpropriationCases"in Cote Werrcrir Rpserve
Journo1o/Inrernarionol Loi<. 1986.p.327.
..-.,,..--..
' See Christie."What Constitutes a Takingof Property under InternationalLaw". in
the BririrhYeor BookqflnrernorionolLaw. 1962.p. 338.
" See Pari 1."1s.2 and3. p. 428.rupro. REIDINDER OF LTALY 469

"Where President issued Executive Order directing Secreiary of Intcrior
to take immediate possession of al1coal mines in which a strike or stoppage
has occurred or was threatened, and to operate or arrange for operation if
such mines, and the Secretary of Interior issued order for taking possession
of mine and required mine officiaisto agree to conduct operations as agents
for the government, there was a 'taking' of private property for public use

with the meaning of the Fifth Amendment."
Thus. noting that there had been a strike, which had stopped the normal
operation of a coal mine, the judgment stressed the fact that the order was
justified by public use, that is to say, by a motive which is equivalent to the public
purpose which justified the requisition decree adopted by the Mayor of Palermo

on I April 1968.
In his concurring opinion in the same case, Judge Reed said that,
". . .the relatively new technique of tcmporary taking by eminent domain
isa most usefuladministrative device: many properties (. ..)may be subjected

to public operations onlyfir a short rime Io meet war or emergency needs,
and can then be returned to their owners".
About the issue of compensation to be attributed to the owners, Judge Reed,
after considerine the uncertaintv of the measure of market value. concluded that:
'lhc rzitron~blc ~oluii<~n ir id 2u;iril ciimpencation IO the wner .isCIL-icrmincJ
h) ;i<ouri undcr ;ilihç r.ircuiii~t~incc s' thc p.irti~uI:ir:.tic''

Azcount ah,>.~ld aljo hç t~kcn .II.ic;xsciiçiiJcrl<i:i29 prll 1952b> ilic United
States District Court in the YoungsroivnSheet and ~ube ~om~uni' v. Sawyer
(Secretary of Stute for Commerce) and others, in which an Executive Order
issued by the President of the United States related to a dispute hetween anumber
of steel oroducine comoanies and their work force. The iudsmen, no.ed that the
Jiiputc ti.id noi hçen >ciilcdb!. iiiç.in. i>ic<~llciiiii.harg.iiiiiri?. dr:i> Ari.>ultof
ihc cilori. oi ihc Gt>\:rninciii. .iiiJih~i thc iiorker, h.id thirziorc .-on"~'.>.ntrikr..
I hç Cwrt dlco rc~~~illeih <rl. rws.>n, iin.l~,rli.iri~i.lle I'rr,>iJi~ni'.L\eciiiiie OrJcr.
stating, inier uliu: "ln order to ensure the.coitinued availability of stczl it was
necessary that the United States take possession of and operate the plants."
Another reason underlined the gravity of the situation, in that

". .. The breakdown of collectivebargaining negotiations created an immedi-
ately impending national emergency because interruption of steel manufac-
ture for even a brief period would seriously endanger the well-being and
safety of the United States in a critical situation."

Thus, even if one assumes the requisition of the ELSI plant a taking of property,
one could not deny that it was fullyjustified under the circumstances.

8. Discrepancy Betweenthe English andltalian Texts of Article V, Paragraph 2,
of the Treaty

Another problem arises, as it was previously noted, out of the discrepancy
between the English and ltalian tcxts of paragraph I of the Protocol of the 1948
Treaty in which the provisions of Article V, paragraph 2, are extended "Io the
rights (diritri)" (in the ltalian text) or to the interests (in the English text) held
direcilv or indirectlv bv nationals and coroorations or associations of either Partv
in property iaken in the territories of the'other Party. Also in this case rcferenie
has already been made to Article 33 of the Vienna Convention on the Law of
Trcaties from which the conclusion was drawn that only the more restrictive470 ELETTROPIICA SlCULA

meaning corresponding to the ltalian text may betaken as reconciling both texts.
The Applicant has stressed that also the rights indirect!,.held by nationals of
either Party are protected under the Protocol and considered that the United
States shareholders in question held "indirect rights" overthe ELSl plant, which
could therefore be taken by ltaly only in conformity with the provisions of Article
V. oararraoh 2. Howevcr, under ltalian law, the shareholders can hold rights
only toGards the Company and have no rights on the assets of the latter. The
international significanceof the distinction between the rights of a company and

the rights ofits shareholdersappears to be supported by the above-cited Borcelona
Trocrioni,demunt. "Indirect" riehts of shareholders in a comoanv .an .nlv be
thwe rrhich ulll accrue ai a ldic;\iep. ior initance. nfler the iamp3n) hl, becn
uound up. uhcn ihr sompcnsdtion initi~ll! grdnicd to ihe L.omp;in)sLcruer tii
ihoss who wcre shïrcholdrrs in il.This 1.rslated 10 the interorctati.>n oI p:irï-
graph I of the Protocol as a nom essentiallygoverning the payment ofcom&nsa-
lion for expropriated property; indeed, reference is made in the tex1 to the
provisions of Article V,paragraph 2, "which provide for the payment of compen-
sation".
Nor can it be said that the provisions concerning the property of United States
companies in Italy, contained in Article V, paragraph 2. can be extended to the
United States shareholders of the ltalian companies controlled by them. This
does not amount to a discussion of the levelof protection granted by the Protocol,
which explicitly extcnds certain provisions of Article V, paragraph 2. It is an
assertion that the owners of rights over the property taken, which are protected

bv oaraeranh I of the Protocol. do not include the United States shareholders
O? cont;olied ltalian cornPanies, but only refers to United States nationals,
corporations and associations holding rights over the taken property other than
ownership (e.g., usufruct). In other words, il is anything but certain that para-
graph I of the Protocol is one of the rules intended to "lift the corporate veil"
of an Italian company to which the taken property belongs. In any case, this is
by no means explicitly provided for.
It should also be noted that no investigation of the conditions prescribed by
Article V. paragraph 2 ("due process of law and prompt payment of jus1 and
effective compensation") was made in the Counter-Memorial for the simple
reason that the plant requisitioned belonged to ELSI. which, as is known, was
of ltalian nationalitv and therefore not entitled10anv orotection for ils orooertv
in ltaly under the yreaty. Even if one assumed thatihey were recogniréd;nd&
paragraph I of the Protocol, the only relevant rights of the United States share-
holders-would concern the payment of compensation for the "expropriated"

property. The advent of the ELSI bankruptcy after the requisition also had the
effect that the compensation for damages awarded by the Court of Appeal of
Palermo (in replacement of the compensation for the requisition of the plant)
was paid to the bankruptcy receiver.

9. The AllegedFailure by ltaly to Provide Proteetion and Seeurity for ELSI

The las1 of the four unlawful acts for which the Respondent was allegedly
responsible has been defined bythe Applicant as "failure to provide protection
and security", with referenceto Article V,paragraph 1,and Article V. paragraph
3,of the 1948 Treaty. Paragraph I guarantees the proteciion and security of
nationals and their proprty ofeither ConIracting Party in the terrilories of the
other Party. It also guarantees full protection and security as provided for under
international law (with reference to property, these guarantees are extended (rom
the nationals to corporations and associations). Paragraph 3 repedts the promiseof protection and security with respect to the matters enumerated in paragraphs
I and 2 "upon compliance with the applicable laws and regulations" under

conditions of reciprocity and most-favoured-nation treatment. The facts which,
accordine to the Aoolicant. denote the violation of the~ ~~orms~ ~ ~~- ltalian ~ ~ ~ ~
~overn&nt were &Sentiall'ythe occupation of the plant by the w&k force and
the Prefect'sdelay in upholding the appeal made by ELSI arainst the re(iuisition
decree'. But in addition to these tw< circumstances. the Anoiicant al.o.aeain
rnisci the issue of thc rzquirition. which rcîcrrcd IO ihz rniire cntiiy 01'ELSI".
Furiherniorc. he 'ompl~ins in ihi, rcspcci of the i.iilure IO proteci ELSI beciiuhe
"the rir<iriert\of Ka,ihr,<~nand .\lachlr.ii in Italv wii, ELSl itjelî".'

In 'the'cohnter-hiemorial it was already pointed out that the occupation of
the ELSl plant by the work force began prior to the requisilion3 and that the
Prefect'sdelay in rendering his decision on the appeal against the requisition lies
totally outside the scope of Article V, paragraphs 1 and 34. It was also pointed
out that Raytheon and Machlett have no right to complain of any failure to
protect ELSl and the ELSI plant because ELSl was an Italian Companyand the
plant belonged to ilS. In ils Reply the Applicant argues that paragraphs 1and 2
of Article V (referred to in oara. 3) euarantee the orotection and securitv of
-
'.persi,n..:ind propcrty". and not oîimmo~;iblc pr<~perty".This ii correct. but ii
herz irrelc\.ant (;il.;<bzcsusc il isoh\iuus th~t imm<i,3hlcpropcrty rcpreicnts ;i
category of property). What does appear relevant and therefore muscbe repeated,
is that, in the present case, the protection and security provided for in Article V,
paragraphs 1. 2 and 3, could only refcr to the property of the United States
companies Raytheon and Machlett in Italy, but that this property obviously did
no1include ELSl or the equipmerit and plant of this separate corporation entity.
In conclusion, the reference to Article V, paragraphs 1, 2 and 3, in the case in

point does no1 add any further arguments IO the Applicant's defence. It may
therefore be replied simply that the protection and security of the Raytheon and
Machlett Companies, and of the property they possessed in ltalian territory (i.e.,
money and ELSl shares) are basically extraneous to the subject of the present
dispute. PARTV. ISSUES RELATINGTO THE CLAlM FOR
REPARATlON

1. The Admissibilityof the Requestfor Reparation
The ltalian Government's Counter-Memorial highlighted the entirely sub-

sidiarv character of the comments exoressed bv the Resoondent in relation 10
ihe cl3im ior rcparaiion ndwnccd b! the IJniirJ Si.ites Ci<itcrnment'.
Thr Applir~nt takcs for gr;intcrl.in l'art VI ofihr Reply. thc rcrponsihil~tyoI
ihc Iiali3n Cio\.crnmcnifor 11sallercd .'wronrful conduci". 2nd ihcreforc asscri
to be entitled to compensation "in-the full amount of the losses" resulting from
that conduct2.
On the contrary, the arguments put forward by the Respondent justify the
assertion that no violation of the 1948Treaty and of ihc 1951Supplementary

Agreement was comrnittedby ltaly with regard to the requisition of the ELSl
plant. the bankruptcy requested by ELSl and ils final liquidation: therefore, no
reparation is due for the losses suffered by the United States shareholders of
~-~I.This exolainswhat wasdcfinedas thesubsidiarv nature of t~~ Resoondent's
commentsabout reparaiion:~th& are made for the hypothesis that theipplicant's
point of viewwould be accepted by the Court.

2. DecisionsHanded Down bythe ltalian Courts

In the ltalian legal system, an issue of compensation for damagcs resulting
from the requisition was raised hy ELSl and was settled by a judgment of the
Palermo Court of Appeal, dated 24 January 1974, which was confirmed on a
further appeal by the Court of Cassation3. As il was stressed earlier,the requisi-
lion decree of the Mayor of Palermo (1 April 1968)was appealed against by
ELSl (on 19April 1968),with the result that the Prefect of Palermo. by a decision
of 22 August 1969,declared the decree to be illegitimate, because it did not fit
the goal pursued4.

In this regard, it must be underlined ihat the requisition decreeonly referred
to the plant and the equipmeni belonging to ELSI. and noi to the company as
a whole. This is relevant, because it explains that the judgment of the Court of
Appeal of Palermo could not. and al al1events would no1 have been permitted
to make a global assessment of the state of the company taken as a whole: in
fact the claim submitted to the Court referred to a decree whose content was
clearly defined.
Furthermore. il waslogicalthat whenestablishingthe amount ofcompensation,

the Court should have worked on the basis of the value attributed to the assets
by the Technical Consultant appointed by the receiverin bankruptcy. This value
amounted to Lire 4,560,588,440'.
Using this value as a parameter, the Court calculated the damages occasioned
to the company over the six-monih period during which the requisition decree was in force to be Lire 114.014.711. This was based on a raie of 5 per cent of
the aforcrnentioned value throughout the said period, plus interest accruiiig frorn
I October 1968when the requisilion had ended.

3.UnlawfulCondnct by the State and the Obligation to Make Reparatii~nfor

an). Damage
Ii was recalled from the outset of this Reioinder. that no claim for re~aration
ii<iuldhaie hccn 3d\anccJ. unless a il~rectlink iidcmon~irited io crihi Iieiiieen
the xllcged ur'in~iiil :ici and ihr allepcd d:im3gc. io thc rrl'c,iih;il ihi li>rnier
was the cause of the latter. On ihc contrary. the foregoing account of the facts

surnmarizine the disnute clearlv shows that the conduct attributed Io the ltalian
Governmenï does 6t appear ;O be the cause of the alleicd damage. The first
conclusion IO be drawn is therefore that ihese facts or acts - mainly the requisi-
tioninc of the ELSl nlant, then the bankrudcy an. .he resultine liquida-.on -
<:iiiiiot hs dccin:d io h:ivc g1i.r.nrise 10 rezponsihilii) <IIthc piri OCilic Iiüli:<n
G<i\crnnisni. anJ Io itr illegi'J .iblig:iiis~id nisiLercpir.iii.>n 10 ihc G,i\criinicnl
of the United States.
On this subject, there is a principle which is inherent in the general theory of
responsibility. in domestic as well as in international law: the principle i~fcaus-
aliiy. To be able to impute responsibility to a person or corporation, it is not
sufficient that ihat person performed a specific action and that damage subse-
auentlv occurred. It is also essential to show that the action itself actuallv caused
Îhat d;;magc Thi. ir "si mïrcl) :ilogical requireiiieni. hut a praciicil neid. uhich
is ri.cogni7cdanJ ~llirmedin muni.ipzl and inicrn;ition31luJicial pract1r.c..
Thers arc utiiic nunierou, cases in h hi ch iudicial dc:irion, hiire staied thii ihc

iauviil rcl;iii<>nshiphcltrr.cn;i irrongiul coriduci 2nd thr. dmi.ifc ihthe csjen1i:il
c<>nditionior rcrprinsibilit!. :ind Iienccfor ihr.oblig:iti<~n1,)iiidciiinii! ihc lnjurcd
Siaie.
Examiningthe concept of causality has sometimesled thecourts to seewhether,
in individual cases, the causality was adequate 10justiîy a claim for reparalion.
The practice of adequate causality is hased on the following consideration: only
those conditions which made the damage probable, and henceaitributable to the
agent. at the very moment thcy came into being. may beconsidercd as coiiditions
of the damage. The adequate causality criterion is mainly applied in complex
cases, where the judge has more freedom to evaluate the facts. It seems to be
particularly appropriate for clarifying the many elements that are involved in the
presenl case.
The Respondent certainly sharcs what the United States Memorial states',
relying on the doctrine il refers ti~thcre (Reuter, Yntema): ". . . the injury for

which reparation isdue isthat which istied by a chain ofcausality to the wrongful
aci." But, ihis obviously implies thai damage which is no1 ticd by an adequate
chain of causality with a wrongful act attributed to a State cannot justify a claim
for reparation against that Siaie.

4. Causalit). Nexus andthe Measure of Reparation

About the measure of the reparation claimed for the allegcd unlawful acts
atiributed to Italy, the United States Reply adds nothing particularly new, and
mainly restates the argument set out in the Memorial. With referenceto the "duty
to pay", in particular, the United States do no more than restate general prin-

' Memorial. 1.p. 106.ciples, almost as if they were applicable without taking into account the specific
facis of the present case.
According to the Reply, it is an esiahlished principle of inlernational law that

". . . damages should be awarded . . .to compensate for al1 losscs or injury
causcd hy a State's wrongful acts"'; the conclusion is drawn that ". . . [alIl of
thc injuries suffered by Raytheon and Machlett should bc included in the measure
of compensati~n"~. But it is an equally unchallengeable principle of international
Iaw that an injury shall he linked in some way to an act of the State having
violated an international obligation - and the violation shall he proved as
existing and attributahle to that State - in order to entitle the injured Siaie to
reparaiion. As was stated hy Anzilotii'.

"(on] the hasis of the principle that in order to claim compensation for an
injury, the injury must he the result of an unlawful act, il is necessary to see
wheiher the causaliiy relationship exists and the relevance of it in conjunction
with the other causes".

In any case, it is esseniial to demonstrate that there exists a suliiciently close
cause-and-effect relationship hetween the act alleged to be at the origin of the
oblieation to indemnifv and the iniurv.it,elf.
The intcrnliti~in~ljudici:ll pr.iclicc ir rirm in c.\cl~ding the dhlig~tion id m;ikc
reparaiion ior an injiiry ihit 113snoi heen "prouvC aioir sic une c~mrCq~cncr.
reclle ci inévit3hls"' of ihe iniurtous aci. or srhcn ihe lattcr ;ici "ulis no1in Ictal
coniemnlation the oroximatecause of such a damaeen5. -

To more accura&ly appraise the United States ckms and the specific aspects
of ihis case, il is certainly an interestiny exercise io recall some of the grounds
on which international couris have ruledthat a suficient causaliiv nexus bctween
the alleged damage and a Staie's unlawful (or allegedly unlawful) act did not
exist.
One of these reasons is that the act aitributed to the State, while giving risc to
a situation that was favourahle to the occasionine of an iniurious event. cannot
beconsidered the direct cause because the event inlquestiondor the damage would
have occurred in any case, due to other circumstances not attributahle to the
Siate.

In the R6m.v Marlin case6, for example, the joint Franco-German Arbitral
Tribunal refused to award damages for the lost profits to a French distillery as
a result of an interruption of ils activities following seizure by the German
authoriiies durine the war. because - even wiihout the unlawful aci of seizure -
the distillery woild in any case have remained inactive as it was impossible for
it to receive during the war the French grapes needed for its products. The joint

' Reply. p.392, supro.
' Ibid.
' C<ir.rdi dirirro inierno:iunolPadova. 1955, p.431
"Proved thal ilhad beena true and inevitableconsequence" (unoflici;iltranslation),
Afuirc Yuille er Shorrridge(21October 1861).Lapradelle et PolitisReciteilder orhirragcs
interti~irionouxII,Paris 1932.p.78.
' Mexico-U.S. ClaimsCommission. ArnrnndoCnbor Lope: case (2March 1926). Reporis
o/lrircriiorionol Arbirrnl AwordVol.IV. p. 20See alsothearbitraliondecisionin Respon-
robilirtde I'AIIemqne 6 roison deracre.?conimisposrhieuremenrou 31juillrr 1914 CIavanr
que k Porrugolneporrieipe I /Oguerre (30 lune 1930) Reporrr of InrcrnorionolArhirrol
Airurdr. Vol.Il. p.1035; and the Italy-USAConciliation Commission ,oflnim case (Il
AprilRrcueil der tribunoui- orbi1rou.i-n!i.~Vol.rIV. p.415; secalso ihc Lo;ore Drejfus
case,ihid..p. 393: the Rousseou case.ihid..p. 379; and the Laiare case.ihid..Vol.VIII.
p. 495.German-Romanian Arbitral Tribunal, in the Carnubutu case' also concluded that
the requisifion of an asset cannot be considered the cause of the loss of profits
which might have been earned from selling that asset, considering that the state
of war made the latter course of action impossible. Even more tclling is the
Guillcrmot-Jaque-min case2, in which a French national sued for the return of
two apartments in Rome which she had rented to an ltalian public corpi~ration
and had been seized during thewar. The Franco-ltalian Conciliation Commission
concluded that as rents in ltaly had heen Frozen at that lime by law. everi

"sans le séauestre et sans les mesures orises Dar le séauestrataire. Mm'
Gu~lIcrntc~t-Ja,~qi~eni~ 5 c ira)uhcr,ili ri>-i-\!s dw, Jeux loc,ii~~rc>r,x:ictc-
iitcni dsits I:imime \itL.iiii>nque celle d<>nielle sr.pl.iini. 'li?ui lien d:
z.~u,,~l~tl>'aitdonc ~lcl'autcntr: le, rc$trbcimn>ULIC lc Guuiernc~itcni iranc.ii\
voudrait voir lever et les mesures prises par le G'ouvernementitalien àl'égard
des deux appartements en tant que hicns ennemis3."

5. Adequate Causality and the Obligation 10Make Reparation

In certain cases. the reason whv ,he causalitv link between the unlawful act of
the Stiie ;~ndinjury c.iii.cJ io .ipri\.itc pcr,dIi h;i>hem deciitcd togircrnoic ha5
hem the ?.ici th:%!ihi vici!ni'.:,>un con<luct(,Ir :Isiiii:it.iin crc.itcJ hy thitciim
hint>clii haJ cinnicJ hiiti IO ihr inrluencc i~iihe unl.i\$iul xi. rihich. \vithout
that conduct O; that situation, would no1 have caused any injury at all. An
example of this is the Dame Simone Reverondcase4, relating to a house tliat had
been auctioned in Italy during the war as a resulr of allegedly unlawful obstacles
placed in the way of the owner, a French citizen, and preventing her from
transferring to ltaly the necessary funds to pay the intcrest due on a mortgage
on that house. Since "la situation pécuniaire de Mm'Reverand était avant le

10juin 1940 obérée i tel point que depuis mai 1939 elle n'avait pu acquitter les
arréragesde sa dette hyp~thécaire"~,the Franco-ltalian Conciliation Coniriiission
concluded that "l'on ne peut soutenir dans ces conditions que c'est dû au fait de
la guerre que l'intéressée s'esttrouvée hors d'état de payer les arrérages en
question" 6.
There are other cases, in which the refusal Io grant compensation h;is been
determined not only by "le lientrop lointain qui rattache la perte au fait géné-
rateur", but also "par le caractire trop aléatoire du bénéficeespéré"'. This
happened particularly in cases where the damage for which compensation was

-~ -
' Recueildes rrihunouxrrrhiirauxmixtes.Vol.V, p. 228:and Klol:, ihidVol. Il,p.758.
' "Without therequisilionand wiihoutthe measurcstakenbythe sequestratar,Madam
Guillermot-Jacaueminwould havefuundherselfin exactlvthe samesituationvis-&visher
twotenants asÎhatofwhichshecomplains. . Anycausailinkisthereforemissingbetween
the restrictionswhichthe FrenchGovernmentwouldliketu seeremoved, andthemeasures
taken by the Italian GovernmentwithrespectIo the two sparlments as enemyproperty."
(Unofficialtranslation.)
Reportrq(lnrern<rlionoAl rbiiraAicards,Vol.XIII. p. 276:seealsothe RogerSudreoh,
case, ihid.p.680.
"The financialsituationaï Madam Reverand berore 10June 1940 was burdeiiedwith
debt to such adeereethat sinceMav 1939shehad no1 becn ableto . .the arrcarsof her
mart"In ihi~situationicitcannot be maintainedthat it is due to the war thar the party
concernedfoundherselfunableto paythe arrearsin question."(Unofficial1ransl;ition.)
' "The too distant link beiweenthe lors and the eeneratineevent" . . ."bv the ioo
chanci characterof the benefithopcd for."(unofficia translahn), Lapradelle étPolilis,476 ELETTRONICA SICULA

claimed dependedon loss of an income which was wholly contingent. even if the
allegedly unlawful act on the part of the State had no1 been committed.
One may cite on the sameline of thought, the Rurilofca.., in which the umpire
held that

"le casorésentéici n'est Dascelui de la Dertede orofits orevisibles orovenant
d'une iffaire en marche ou de bénéfiiescerta'ins privenant d'in contrat
inexécuté;c'est seulement le profit espéréd'une alfoire aventureuse injuste-

ment empéchéedans son accomplissement par le gouvernement défendeur.
Pour cette raison. lesgains escomptéspar les réclamantsne peuvent pas être
retenus parce que ces derniers sont totalement impuissants a démontrer
qu'un profit serait résultede l'affaire'."

Similarly. the umpire in the Rice caseconcluded that

"As to the portion of damagesclaimed which may hc imagined to arise
out of conseauential damaees, the um~ire desiresto lav down as one of the
rcJLI,Itcs ior eonsc~iienti~l dani:i-c thdi thcrc ni..si hc .i mdnifcit urong.
the ctTc?ioi rihich prcicnis ihe dir:;i and h.lhiiu.8l lliril'ul purruhi of gain.
or the i~irly ccri:iin prof,>iihc inliireil per~on.ur the proiii ,)l'an eiiterprise

judiciously planned. according tocuslom and business. A mere deviCe of
speculation, however probable ils successwould have bcen or may appear
to the projector, cannot enter into the calculation of consequential
damages2."

All theseconclusions were even more concisely summed up by the umpire in the
Moru and Aropo case.in the followine-words: "The loss is in the oresent caseof
a very speculative characier as depcnding upon most uncertain contingencies3."
In other words. with al1 the differences possibly resulting from the different

aspectsof the casesin point, international arbitration awards confirm the need
10take into account. when deciding on the obligation to makc compensation and
on the amount of reparation due. not only the link betwcen each wrongful act
attributed to the State and each injury for which reparation is sought, but also
of the influence of circumstances or acts not attributable to the respondent State

on bringing about that injury.

6. Methods for Assessingthe Damage. They are Unsafe in the Instant Case

Thc Applir.:ini shour Iiitlc coiicern ~ibuut the etisiencc of ,in ailequ:ite causal
Iink betscen ihc allcged iinldaful ;ici\ rh~cliitliiiribuic IO It~iIyand ihc dlini;ige

ior uh1r.hrcp.irjii<>niiclaimcd l'rom ihc p:irt ifihc Repl) Je:ilinc uiih Conipcn-
sation it would aupear lhat il was solelv the Mavor's reiuisition decreethat iave
rise to the alleged injury4. This decreeallegedly prcventédthe ordcrly liquidalion
of ELSI, forcing the Company to ask for bankruptcy. and thus making Raytheon

' "The case presenledhereis not that of a lossof the foreseeableprofitsof a dealin
progrcssor of thecertainbenefitscomingfrorn a contractwhich bas not beenperformed;
ilismerelythebcnefiiwhich was hoped 10comefrom an adveniurousdeal.theruIfilment
of whichhar been unjustlypreventedby the respondenG t ovcrnmeni. For ihisreason the
profitsexpecledby the daimanis cannolbe held back as the latter are totally unableto
demonsiraiethat a profil wouldhave resultedîrom thedeal." (Unoficial translation.)The
Ru<lloJJcasm eaybe roundin Englishin Reporiso/ln~ernurionolArhilral An,or&. Vol. IX.
pp.244If
' Moore. Hirior? and Digestofibe IniernulionnlArhilrurionsro Whicfrhe UnirrdSl01e.r
Hor Bm a Pm-.. IV. Washingion 1898.p.3248.
' Moore. op. cil.IV. p.3783.
Rcply.p. 392.vupru.liable for payment of ELSl's debts which had been guaranieed by Raytheon.
Becauseof this decree, Raytheon sufered the loss of the loans made to ELSI',
aswell as the charge of al1the legal and allied expensesrelating not only to the
bankruptcy proceedings and the present dispute, but also Io the defence of

Raytheon in civil suits instituted against it by some banks.
The previous pageshave amply demonstrated that no evidencewhaisoever was
given of the chain of causality which the Applicant alleges.Furthermore, it must
be recalled that this allcged chain of causality seemsto be mainly based on the
mere hypothcsis that Raytheon would have been able to obtain a quitc different

financial result in the event of an orderly liquidation. The Unitcd Statcs Ciovern-
ment maintains that ELSl's creditors would have obtained toial satisfaction if
this had been possible, and Raytheon would have avoided the aforementioned
repercussionsstemming from ELSl's ruinous state. According to the Applicant,
al1 this would have been possible because"had the Respondent not interfered

with the liauidation. Ravtheon and Machlett would have recovered themarket
value of E~SI as a going concern in 1968'".
In the previous pages.aswell asin the Counter-Memorial. the Iialian Govern-
ment is confident to have fullv demonstrated that al1the alleeations vut forward
by the United StatesGovernment against ltaly are unfoundedr~e could therefore

stop here, not seeingany purpose in commenting on the cvaluation of damages
which. in the opinion of the Respondent Government. did not exist or were not
imoutable to the ltalian authorities' behaviour. Howewr. for thc sakc onlv of
uholenc,,. ilie Ii;ili.in Go\:rnm~.iit \riIl t~iliririth< i.,lloain& p~gc.; sonic icu
ci>mtiiciits uii ihc critcri:~ u~cdb) tnc ,Ippli~:inii<,c\:ilti.,tc the d;iiii.tgcr ~llege,ll!
stitTircJ hv K;i\ihc<>n 2nd M~ihleti hcc~urc of It.ili.in iir.indi..l:,LI>
. ,
The Applicant contends thai the ivhulr book value of ELSI would have becn
realized in the liquidation process,the book value being considered as the closest
to its going concern value'. This seemshardly practicable for the purposes of
evaluating the injury allegedly caused to Raytheon. becauseaccordin8 to the

principle accepted by international law judicial practice. the onus is on the
claimant for reparation Io prove that

"soit en consultant le cours ordinaire des choses. soit en s'atiach;int aux
affaires de la partie lésée ou desdispositions prisespar elle. ilestprob<ihle -
non pas set,l~iiienrpossihl~~ - que celle-ci aurait réalisétel ou tcl profit si le
fait illicite nc s'était pasproduit4".

'According 10 the Applicint. ;ircount shnuld alsa be kiken, when computing the
damages. of whai Raytheonwuuld kivc cdrnedas a rcsultof the ordcrly liquid;ition. In
theattemptof showingthai thecompensationrequested is relativelymodcsi.theApplicant
stresseshow their amouni would at ail cventsbe insufficient"Io rccoupRiiytheon'sand
Machleti'r investmentin ELSI. sincerhey stilwauld have lori over US611million in
investmentsmaderince 1956"(Reply.p. 393.utpro). On whatconccivable basis shnuldthe
ltalian Governmenrbeliablefor thesrsums?
' Reply. p. 393,supru.
Ibid.. p. 395.rupro.Itshouldbe noicd that in the United StatesGovernment'rview.
unspecified"actions of the Respondeni""made it impossiblefor ELSl to becomeself-
sufficient": thereforeilwould have made ilimoossibleto cornoute"the future orofils of
theCompany'sconiinuedoperations"in.thevaiuationof ELSl as a gningconceni.
"Both by taking inta considerationtheordinary courseof evcntsand by conridering
the business of the irijured parly of the provisions il took. il is prohuhk - ,>O,niprp!~
porrihlc- thdi itwould have madesuchor suchother profit if Ihe illicieventhad no1
occurred."(Unotiicialtranslation.)Thr quovation isdrawnfrom thearbitrul awarcl Fuhioni
case. to whichtheApplicani rcfcrrcd<in srveraloccasionsin the Mernoridlundthe Reply. The hv~othesis of realizinn ELSl's enlire book value throurh liquidation must.
howevery'haveanneared uttërlv imorobable at the time. andeven imo~ss~ble to
~aytheon itse~i,~because ELS~'S own managementhad envisaged aquick-sale

value which was far lower than the book value. and insistently sounht - without
success - an agreement with ELSl's main erediiors based-on the payment of
only 50 percent of the amounts owing to them.
The truth, as demonsirated earlier, is that the scenario of realizing ELSl as a
"going concern" waswholly at odds with reality'. In this connection, it is worth
noting that, whilc the Memorial considered this as the most optimistic scenario,
the Reply surprisingly credits il with being the only possibility! The proof that
this does no1correspond with reality, despite the contentions of the Applicant.

may be found (beyond what is said in the relevant parts of the Counter-Memorial
and this Rejoinder) in the fact that in the 1974Claim, Raytheon's own valuation
of ELSl fell very far short of the so-called "quick-sale" value.
Now. the United States Government contends that such valuation was the
"worst case scenario" presented "for purposer of interna1corporate planning by
ELSl'sshareholders"'. However, the United States Government now rejectswhat
had been depicted as "a worst case scenario" by saying that il was used in the
1974Claim inrroduring negotiations "in a spirit of compromise"'. This statement

is really hard to swallow, and one cannot neglect considering thai two diflerent
valuations - one by the bankruptcy receiver, and one by ELTEL - show far
lower figures!
Havineunoted ihis. in nassine. the onus is certainlv no1on the Rcsoondent -
uliiidenic~~ih;il .in)ihiiig unl:iiiful JI kn Jonc ~n~h lcnccrc.jccic:iii!.oblg;iiion
1.1p:i! ciil!rcpir.itton Corthc .tllcgd injur) - 10 ruggcii an\ dlisrnxii\e nir.thoJ
of\alu3iion. As indicliisd :ilreaJ! in ihs <:<>unier-31emt>ri31ld i..tl)'s rsin.irks :ire
~ITercilsolel) 1 niednr ,if jhoir ing yp "the duhi,>u,contsntions uf las and ihr.

dijiortioni oi'C;icis"in ihc Applic,~nlr ruhmirsions.

7. Further Arguments on RefundingLegal Costs and Computing Interest

In addition io the considerations expressed in the Counter-Mernorial? some
further comments may be made on the issue of the legal expenses allegedly
incurred by Raytheon. Despite what the United States Government mainiains,
the legal costs sustained by Raytheon for proceedings instituied in ltaly against
it hy ELSl creditor banks cannot, at al1 events, be decmed io be "a direct

consequenceof the Respondent's ac~ions"~.On the conirary, ihey were a conse-
quence of ELSl's insolvency. Anyway these costs, as granted by the ltalian Court, mus1 be considered as
final. without anv further nossibilitv of claims on the oart of the Aoolicant.

The nccd to takc account of thi~~~licant's delay 'in submitting its claim to
the Court. in order to decide whether or not the Applicant is entitled to interest
on the amounts requested by it in reparation. is confirmed by international cases.
It has been affirmed in international decisions that the failure of the ïllegedly
crcditor Staie io take action may aiïect the awarding of interest. or at leasl. the
determination of the date from which the interest is calculated as accruing'.
This aoocars to bc fullv iustified if. in line with the orevailine doctrine. inlerest
is considered as a possiblc clemcnt of the reparation and as such. as a lump-sum

valuation of thc loss of profit steinming rrom the Tactthal the unlawfully injured
party eould not dispose of a sum equivalent to the damage occasioncd to it2.
From this ooint of vicw. the comoutetion of the interrst mus1 certainlv take
account of ihe obligation of thc injure* pürty. also sanetioned by international
case-law3. to reduce to a minimum the prejudicial consequenccs of the unlawful
act of which it claims to be victim.
In practical terms. it should be noted that the decisions of international arbitra-
tion lribunals about interests weie often inRucnced by considerations of equity.
This happened especially in cases in which the amounl involved would be far

higher than the "principal" amount due in reparation hecause of the long period
of lime with regard to which the interest would have to be calculated4.
Therefore. bcaring in mind that international case Iaw is virtually unanimous
in refusing to acknowlcdgc a right to interest - let alone compound interest5 -
the claim of the Applicant on ihis point is to be considered as lacking of a
sufficientjustification.

' Seethe Mui.<~,/olorioise.Lapradelle el Politisop. cil.II.pp. 203-105.
9nzilotti. "Sugli effetfidell'inadempienradi obbligarioni in1erii;irioiialiaventi per
og etto"na sommadi denaro". in Rii'i.rl<iili dirirro irir<~i?zcr913.pp. 54 K
See.for examplc.the Coipti.ci.cireLspradelleet Politis.op. ci,..1.p. 348. Aiid the
cascs cited by Derains. "L'r>bligation de minimiserle dommage dans I;ijurisprudence
arbiScethe. Moc<,</<iiiiciaseandqfparticularlythe'YiiillCISlio!.ri.iccase.citedabove.
The Iran-U.S. ClairnsTribunal "kas never awarded compound interest". Si.l,,onio
TechificolSy.sicnnv. Iran.ci!.The Iialian Governmeni makes the following submissions:

"May il ple~scihc Court.
To adjudge and declare that ihe Appliciiiion filcd on 6 Fcbruary 1987 by
ihe United States Governrnent is inadniissiblc bcca~isclocal remedics havc
not been exhausted.

If 1101.io adjudge and dccl;irc:
(1) That Article III (2) of ihc Trcoiy of Fricndship. Commcrcc and
Navigation of 2 Fcbruary 1948 haï no1 bccn violated:
(2) That Article V (1)and (3) or ihc Trwty has no1bccn violatcd:
(3) That Article V (2) of the Trciiiy h;is no1 ken violaied:
(4) That ArticleVI1 of the Trcaty bas no1 bccn violated:
(5) That Article 1of theSuppleincntary Agrccmcnt of 26 Scptcmbcr 1951
has no1 been violated:

and. nccordingly. io dismiss the claim."

18July 1988.

(S;giie<lLuigi F~RRAR BIRAVO.
Ageni ofltaly. DOCUMENTS ANNEXED TO THE REJOINDER
OF ITALY

Document 1

AFFIDAVI TF ING.CAVALLD I,ATED29 APRJL1988

[Italian te-rtnorreproduced]

(Translation)

1. My name is Giacomo Cavalli. 1was born in Bresciaon 1 Novemhr 1928,
and livein Via G. Garibaldi 16,Paderno Franciacorta (Brescia).1graduated (rom
Padua University in 1954in civilengineering,majoring in building construction.
From 1956 to 1977, 1 was employed by Società ltaliana Telecomunicazioni
SiemensS.p.A., where, during the relevant period 1969-1972,1was in charge of
the company's buildingconstruction and maintenance sector. 1worked, interalio,
on the construction or restructuring of the Castelletto-Settimo Milanesc, Terni,
Santa Maria Capua Vetere, L'Aquila1and 2,Carini (Palermo) plants, producing
thc working drawings and acting as works manager.
2. 1began to take an interest in the Via Villagrazia,Palermo, plant as soon as
it had been acquired by the SIT Siemens group company, ELTEL, which 1
presume occurred in 1969.
The initial impact was very dispiriting. 1 have rarely seen a plant of such
dimensions,whichhad beenexpanded without any overall plan, with construction

features that diKered completely from one department to another, badly con-
structed and in an extremely poor state of repair despite the fact that it was of
recent construction.
The company immediatelyembarked on an exacting restructuring prosramme,
with the twofold aim of continuing to keep certain product lines in operation,
organized on a more rational basis,and of adapting other areas for newproducts.
Work wasreauired on everv area of the ulant. not onlv to adavt it to ineet the
various produciion requireménts.but also to ensure that it cohplied with the
most elementary standards of industrial safety and hygiene.
1 recall the following, in particular:

3. It was necessary IO remove the heating units from the various places in
whichthey wereinstalled,almost invariably incontravention ofsafe.yr-gulations.
to new purpose-huilt premises.
4. As stated above, the plant had been built inseveral stages and without an
overall plan. As a result, the air-conditioning system was split up into a large
number of diîïerent units, making it difficult and uneconomical to run. The
refrigeration units were al1installed on the new premises, the air conditioning
units were grouped together into only a few units, and the air ducts htd to be
re-organized to meet the new production needs.
5. The sanitation facilities werevirtually entirely rebuilt, and were completed
with changing rooms in compliance with occupational hygiene standards.
6. The plant's dining facilities were very unhygienic, and they had to be
completely rebuilt, fittedwith modern equipment for both preparing and cooking
the food, and for conserving it in the refrigerators installed for the purpose. 7. The lavout of the oroduciion deoartments was com~letelvredesiened.elimi-
n3iing ï higr nunibcr if iiiiernal diiidine walli. pru\.idi"g uiih npprupriatc
ïrceis duori and corridors IOguar;intee persunal s;ifct) in the cveni of accidents
or panic, for whatever reason. The previous layout was unimaginably irraiional
as far as safety considerations were concerned. It should be recalled in this

connection, that the water supply system for fire-fightingwas compleiely recon-
structed, and numerous extinguishers were installedon the premises.
8. It should also be noted thai ihere was not even the most rudimentary civil
and industrial waste disposal system required by the laws in force at the time.
Waste water was discharged direcily into the Oreto River. Septic tanks were
insialled for the sanitalion facililiesand separating, deacidification and dilution
tanks were built for the industrial liquid waste. A complete wasiedisposal plant
was s.~~-~uentlv huilt.
9. The waterproofingof ihe roofs had to bc completelyre-done,sincethere were

so many leaka~e ointsthat it was no1advisableto deal with them individually.
~cad~ al1tKeflooring had lo be re-laid.
These were the main operations that Ican recallover 16yearson, without any
documentation available to me.
The restructuring work wascarried out, as far as possible, usingthe plant's own
labour force, because many of the production lines were out of use and whole
departments had to be dismantled.The work covered a period of over 18months.
Specializedcompanieswerecalled in only for the work requiringskilledworkmen.

(Signed) Giacomo CAVALLI.

In accordancewith Article 26of LawNo. 15of4 January 1968,the undersigned
Dr. Maria Pezzi, Notary Public in Bedizzole,entered in the Roll of the Notarial
Colleee of Brescia. herebv declares that Ine. Giacomo Cavalli. born in Brescia
on I~ovember 1'928and living in Via Garibaldi 16, ~adeino ~rancia&rte
(Brescia),and who is known to me, having renounced the presence of witnesses,
with my consent, made and signed the above declaration in my presence. afier
hearing my warning as to the penal consequencesto which he would be liable in
the case of untruthful declaraiion.

Brescia,29 April 1988.

(Signed) Maria PEZZI.

Document 2

AFFIDAVI OTFDR. BBVILACQU DAA,TED29OCTOBER 1987

[Iruliun leïi no/ reproduced]

1.My name is Dr. Paolo Bevilacqua. I was born at Pietraperzia (Enna) on 14
September 1923and am resident at No. 6 Via Brigata Verona,Palermo.
I graduated in medicine nt the University of Palermo in 1950. IIOCUMENTS ANNEXED TO THE REJOINI>ER 483

2. In 19681was Mayor of the Municipality of Palermo. and in my resulting
capacity of Government Official. 1issued an order io requisition with inimediatc
etïect and for the duration of six monihs the plant and relative equipment
belonging to Raytheon ELSl S.p.A.
The requisition order was issued in accordance with the powers granted to me
under Article 7 of law No. 2248 of 20 March 1965.Appcndix E and Article 69
of D.L. vo. P. Reg. No. 6 authorizing the Mayor io make provisions concerning
private property.
3. The requisilion ordcr, which remained in force for six months, w;is issued
in response to the serious consequences ihat the ihrcaiened closure of Raytheon,
and the resulting loss ofjobs. would have on bath the economy and on law and
order. At the time. Ravtheon was in Tact the Iarrest comoanv in the Palermo

area in terms of numbérof employees (about 1.060)and inyhismissa~s would
have had disastrous consequences for an equivalent number of Families.
The already precürious overall economic siiuation in the whole area would
also have been furiher weakened.
4. Also the situaiion regarding law and order was a matier of conçern: the
workers' protcst, supported by the trade unions. by the political forces and also
by church represeniatives was growing as the duys passed.
In vicw of the circumsiances 1 deemed it nccessary 10 issue the requisilion
order. also for the purpose of calming the growing discontent, whiçh could
otherwise lead io cxiremcly dangerous situations.
6. Furthermorc. ihc order itself was issued in accordance with the policy
followed in those years by the mayors of many other ltalian ciiies in similar
situations and circumsiances: only a short timc earlicr a similar mearure had
been taken in Florence for the "Nuovo Pignone".
7.Mv order. therefore. was not onlv iustified under existine law but also hv
current praciicc. A furiher reasoii for issuing ihe order was also 10avoid damage~,

caused by the "non use" of the Raytheon indusirial complex. Not onlv did the
order contain a orecise rcference to the oavment of comnensation. bit ii also
appointed someone to manage the cornpiniin the person 81 Ing. Profumo (and
subsequenily, Ing. Laurin, because of the latter's una\,ailability). 1therefore had
no punitive intentions vis-&vis the Company ownership; quite the contrary: my
aim was to make it oossible for normal comnanv a.ti.ities io be continucd in
.>rJer to s;iicgu:iril.oh,: :iIO k:cp ille plai11scri.icc;ihlc
b Tlie ocidp:iiion <iflhc pldnih) iliecniplo)cc\ 1ulii~'h.i~rtr.<luc,llhcii~rcihie
reùuisiiioni iuriicJ o..1.1hr.di.1 "20-i~ncr:~ii\c"nJturr. dficr the rcuui, !ion and
wis no obstacle to the continuation of ihose activities which were under
the circumstances.

(Sigiiod) Paolo BEV~LACQUA.

1,the undersigned Dr. Francesco Pizzuto' Notary Public in Palermo, entered
in the Roll of the Notarial Colleee oFPalermo. herebv certifiesthat the declarant
made the above declaration in ky presencc ifter being warned by nie of the
responsibilities and penal consequences involved in the case of false or reticent
declaration.
1ascertaincd the personal ideiitity of the declarant by personal acqudintance.

Palermo, 29 Octoher 1987.
(Signed) Francesco Pizzuro.

Notary Public. Document 3

AFFIDAV ITFAVV.MAGGIOD , ATED29OCTOBER 1987

[Italianre.rrno1reproduced]

1.My name is Nicolo Maggio. 1was born ai Palermo on 3September 1931and

am resident at 20 Via Madonie, Palermo. 1graduated in Law from the University
ofPalermo on 21 lune 1951.In 19681wasa lawyerernployed by the Municipality
of Palermo, a post which1had held since 1957.
2. The trade union situation in March 1968 was serious because of the an-
nounced closing of ihe Raytheon-ELSI due to ihe company's insolvency and the
management's intention in any case to transfer or close down the plant. The
tensions among the workforce were echoed in the City as the social forces and
trade union organizations had expressed their solidarity at al1levels.This solidar-
ity and the interest in the problem aroused in the eniire city and in political and
economiccirclescan be explained by the fact that, at the time, the plant employed
one of the largest labour forces in the Palermo district. This led to industrial
action and a general strike in support of the R.E. workers, who were defending
their jobs.Io dcmand that al1 suitable measures should be taken to avoid ihe
closurc of the plant, which, in an extremely civilizedîashion and without causing
any damage, was occupied bythe plant employeesthemselves.
3. The requisition order was issucd on I April 1968. 1 was appointed the
Mayor's Represeniative, togcther with Dr. Arrnando Celone. Ing. Profumo was
appoinied custodian of the plant, but had to be replaccd by Ing. Laurin as hc was

not to beround.
4. On the whole ihe plant workers were favourable to the requisition. They
understood thai it was aimed at getting the plant going again. There were no
problems such as "hard picketing, and so on.
5. The Mato HAWK systern production line was reaciivated. We proceeded
regularly with the contracts on hand.
6. 1 never took part in talks with IR1 or with any other possible purchasers
concerning the transfer of ELSI. The Raytheon management continued to run al1
these meetings.

(Signed) Nicolo MAGGIO.

1,the undersigned Dr. Francesco Pizzuto. Noiary Public in Palermo, entered in
the Roll of the Nolarial College of Palermo. hereby certify that the declarani
made the above declaration in my presence after being warned by me of thc
responsibilities and penal consequences involved in the case of false or reiicent
declaration.
1ascertained the personal identity of thedeclarant by personal acquaintance.

Palermo. 29October 1987

(Signed) Francesco Pizzu~o,

Notary Public. I~OCUMENTS ANNEXED TO THE REJOINDER 485

Document 4

DEC~SION N. 107 OF THE COURT OF CASSATIOD NA, TE[14JANUARY 1976,FORO
ITALIANO 1,76.1.2463 S.

EXCERPTS

(Translorion)

Corte di Cassazione: First Civil Section; Decisionof 14January 1976.N. 107

President Caporaso

Drafted by Carnevalc
PublicProsecutor Berri(concl.conf.)
Ministry of Treasury i8er.rus
Company Mander Brothers Ltd.
(Avv.Testa, Biffi).

Appeal confirmed Romc, 27April 1972

Civil jurisdiction- War events - lnjury or damages to assets of United
Nations ciiizens- ltalian jurisdictio- Subsistence.

(Law DecreeN. 1430of 28November 1947, implementalionof the PcaceTreaiy
between ltaly and the Alliedand Associate Powers,signed in Paris on 10January
1947.Arts. 78.83.)

The ltalianjudge is competent forjurisdiction in conneclion with the daim for
compensation Iiled hy a United Nations citizen against Italy under Article 78,
n. 4, of the Peace Treaty; he is directly legitimaied to exercise such jurisdiction
without being hindercd by the possible concurrent rcsort - on the part of the
citizen'sState- to any remedies before the International Conciliation Commis-
sion provided for in Article 83(1).
(Omissir.) The assumption underlying the allcged lack of /OCUS ~landi of
Mander Brothers in relation to the actionability of the claim to damages before

ltalian courtscannot be shared.
In ~csi>r&n~.c uith gcnçrally rrçognirrd prinsiplcr. an ~nternationaltrrai) nia)
dirczilyliiirthuiIOiub~~~.iI\liskine.in~n~ïrniit~~nSIlIIU~legrllrighiscniorcelihle
a-ainsi one of the contiacti-e States
In such an hypothesis, whereihe abstract situation envisaged by the ireaty as
attributive of the individual right is complete in al1its essential elements and the
treaty itself has bcen implemented in the municipal legal sysiem through one of
the od hoc procedures recognized in the domestic law of the State as to which
righr is Io be enforced, ihere arise two distinci obligations to he chargcd to the
State: one is effectiveon the international plane viyi-vis the other Contracting
State (or States) and ils breach, in so far as it gives rise to an international
responsibility.can in principle beenforced only hy another State beîore the com-
rxteni international iurisdiction: the other iselïectivcin the domcsti.le~.lsystem
\is-i-vis the protesicd suhjcci. ah<ijcntitlcd IOseck cnior;cnient ot the corre.
rponding righi kfore ihe Courts .,t'the .amedomcsric leg:il\!rien> The two forms ofjurisdictional protection. operating respectivelyin the interna-
tional legal system and in the municipal law of the burdened State. arc. as a rule,
concurrent in the sense ihat. exccpt for the case in which the treaiy expressly
provides for the assimilation of thedomestic remedies into the internaÏiona-lone;,

the protected subject may exerciseagainst the burdened State thejudicial rcmedies
made available in ils domestic legal svslem, independently from or concurrently
with the resort on the part of itsnational State Ïo the remedies provided for b;
the international legal systern.
In applying such principles,the Supreme Court sitting inplenary meeting (Seri-
oni Unire) has recently held (judgment of 13 November 1974, No. 3592), with
referenceto the specificquestion herewith proposed, that Article 78. paragrapb 4,
of the Peace Treaty between ltaly and the Allied Powers (the treaiy was given
eiïect in the domestic legal sysiem with d.1. No. 1430of 28 November 1947).in
providing that the ltalian Government bc charged with the obligation to indem-
nify citizens of the United Nations for losses suffered, from wartime events,
following injury or damages caused io iheir property in Italy, gives rise, along
with an international obligation of the ltslian State vis-à-visthe other Contracting
States, to a direct legal relation of a binding character, between the first Siate and
the individual citizens of ihe United Nations. Such relation, complctc in al1its
essential elements, is immediately eiïective in the domestic legal systcm, without
the further requirement of a normative aci of integration or of irnplementation,
and therefore, as was pointed out by the Seiioni Unire of this Supreme Court, il is
actionable by the same citizens before Italian courts. To this eiïeci no obstacle
can he found in ihejunsdictional compeience. rescrved by Article 83of theTreaty
IO the Soccial International Conciliaiion Commission with rerard-to disoutes
ari$ing from lhc iho\c-mintioned Ar1i:lc 78. in ihlit iuih inlernatiui1;iljuriidic-
lion can be resorted io onl) hy the Contr.ist~ngSiair.\ and h) no mclinshar hcen
iniended to provide a domesiic legal rcmedy open to the individual citizens con-
cerned.
The ruling established by ihis preccdent. which filsin10a consistent case law of
ihis Court, mus1 be firmly maintained in the prescnt case also, as no argument
bas bccn put forth 10jusiify the re-examination of ilsrutio.
With a second complaint chargingthe omitted and contradictory ruriodecidendi
on a decisive poini of the dispute. as well as the violation and the incorrect
applicaiion of Article 78of the PeaccTrcaty .. .the appellant asserted, first. thai
ihe Court had not considered ihat seizurc eiïected on the basis of wartime law in
rellitioIO the li~setsut'the brdnch otticr of ihc English tirni did not ç<~nitit.tr
rÿr c\.cnt u.ithin the mcaning oiArticlc 78of the I'elier.Tre;iiy (as did dcitruciion

for wartime ocerations. .ill-ëe. and so on). but was an internationallv lawful act:
and, second, that the Court had omiited to adjudicate on a decisivepoint. narnely.
on wheiher ihc loss suiïered bv the Mander Brothers firm was dependent upon
conjunctural events, that is. ipon the interruption of al1 comme;cial relations
between the Italian branch and the Home Offic ineEngiand during the war. in
which case. the damare would amount to a lucrumcessons, thereby hllin- outside
of the scope of treatyprovisions contemplating indemnification.
Neither of the two cornplaints atlached to this second ground of the appeal are
founded.
Asto the first, it shoulbe noted that the indemnity due 10the Mander Brothers
Company is that provided by Article 78. paragraph 4. subpara. (1)of the Peace
Treaty for compensation of losses and damages sulïered by United Nations citi-
zensas a consequenceofthe application of specialprovisions adopted wiih respect
to their property by Italianauthorities during the war. DOCUMENTS ANNEXED TO THE REJOINDER 487

Suïh indcninii). nui hcing of .ircpdr:iii>r!. ndiurc .ind ndi ixlling uiihiiiihc

,pherc oi' r~~cpon,ihilii! oi ihc piihlic ;idiiiinisir~tioni;>r Icp~l3.'1\.f~lliII> tlic
funrii~~ns di rr>iorinc ihz cconomic inicrr3is upici h! the c\ccution oi 3 iiic:isure
~ ~~~ed bv the 1tdlGn Stdte vis-a-vis the citizen who was formerlv an enemv;

and: in viéw of said funclion, the distinction between the lawful.or un~awEu~
character of the act that causedthe lossbecomesimmaterial.
With regard to the other comoliiint. it is sufficient to note that the lower Court
adequ."cI! c.;~mlticd th', poinr pri,poscd b!.ihc .ippcll;tni :incl. on ihc hdrui the

rciulti iiiihs tc~liiii~;il .ipprdir:il. ahQ.I. pcrformcd in ihc procceding. bzfarc
ihr C'itiI Court. ~.,~n;l~dc<ilhai thc d.im~fici ~.oinpl.iincJ JI' hy ihc M.inilcr Uroth-
ers Companyconsisted no1in missed pro6~s,but -in the objective lossin tlie value
of the firm's net assetsconsequent to the taking and evidencedby the comparison

between the inventory of such assetsa1the tirne of the execution of the seizure
and the situation ascertainedal the date the properties were returned 10the firm.
The appeal is thus unfounded as to al1the grounds on which it was submitted
and mus1therefore be rcjected (Oinissis).

Document 5

Declslo~ N. 1455oc THE COURT OF CASSATION D,ATED21 MAY1973,FORO
ITALIAKO, 1973,1,2443-2460

EXCERPTS

/I/alian re.randEnglishrranslorionnorreproduced]

Document6

[Iralian frrt alrdEirg(ishtranslationno/ reprudricedj

Document7

[Italian rexiandEnglishtranslarionnorreproduced] ELETTRONICA SICULA

Document 8

[fialion tex1no1reproduced]

1. My name is Giovanni Ravalli. 1was born on 21 June 1909in Monterosso
Almo (Ragusa), andam domiciled in Rome. at No. 179via C. Colombo. 1gradua-
ted in Law from the University of Calania on 30 Novemher 1930.
2.1 becameanofficial of the Ministry ofthe lnterior in 1932,and wasnorninated
Prefect in 1959.the rank with which 1retired in 1974.Among other posts, 1was

Prefect of Palermo from 1964 (O 1970,during the period in which the following
eventsoccurred.
3. The social and economic situation in Palemo and western Sicily became
particularly difficult in 1968after the earthquake in January that year; the situa-
tion was worsened also hy the ongoing trade union action which, the following
March, culminated in the occupation of the Raytheon-ELSI ractory hy the plant
employees.
4. 1 was given verbal notification of the decision hy the interim Mayor of
Palemo to reauisition the aforesaid olant iust orior to the notification of the

ordcr Io th<. Gliriier ioncc.rned. 11misi bés~ii lhai the rneasurc u,as nni an
ci;~cpiionlil one rince.duriiig the s:imr pcriod. in similar ciriumiianccs, numcrour
other such urgent orders wereissuedby other mayors in Italy.
5.What usuallv ,ano..s in such casesis that the owner of the reauisitioned
Company immediately appeals to the Prefect against the order. To rny surprise,
the Raytheon-ELSI Management did so only 19days after the issueof the order.
Furthermore. to mv knowledre -he oroductive aciivities of the olant hadalreadv
cc;i>r.l ;inJ ihc problcm i~cing the afi~rsssid .Miinagenir.nt ut13 raihcr th.11oi
obtiiining frum ihc Staic sutticicnt xid 10\ur\i\c ihc iertous cconomii crisis ihat

hlid arilicrcd the coinrianv ior sornr tinie. .I<i th,$ end. ihc R;iyihcon-EISI cnrn-
.anv,had made oveÏturis to the local (Regi.nal.and Municioal) and .en.ral
authnriticr. ~lio alicr the i\sol the rcquisiiiun nrdcr
6 Thc imprc>slon 1 €01 from thr liforcgoing wa.. ihai hoih ihc :+ppeïl againsi
thc rcquisiiion anil the hankruptcy pciition filcd wiih ihe Coiirt tif P;ilrrmo imrnc.
diaicl) alicruards ucrc mcrcly imtical mo\c, atmcd 31influcncing the Authuriiir~.
uho ucrc rcluctant in accepi ihe :iboir-nienti<incd rcqucsts fnr :iiJ Ihis ir con-
lirrncd by ihc C~ctihii neiihcr the C~irn~~nsnor. 2ftcr ihr dc:l:iraiiuii~iihaiik-
ruptcy, the Trustee, saw fit to make recoirseio the intimation procedure provided

for by Article 5 of the Consolidated Legislation of 3 March 1934in order to have
the Mayor's Order revoked until 9 July 1969.It was therefore possible 10 declare
the order illegitimate only on 22 August 1969, that is. many months after the
requisition had ceasedto haveany eiïect.
7. The occupation of the plant by the employees. which began before the
order was issued. was rnainly demonstrative in nature and caused no harm to
persons or any material damage. nor did ilhave any repercussionson law and
order.

Rome. 18December 1987,

(Signed) Giovanni RAVALLI. IIOCUMENTS ANNEXED TO THE REJOINOER 489

Notary Public
Rome, Via Capo Le Case, 3
Tel. 678.46.30

This eighteenth day of the month of December nineteen eighty-seven (18-12-
1987),in Rome, Via Capo Le Case three, in my office, 1,the undersigned A1t.y
Vincenzo Auguslo Fiduccia, Notary Public resideni inRome and enrolled inthe
Notarial Collegeof Rome, Velletriand Civitavecchia,
herebycerrfy

that Dr. Giovanni Ravalli, born at Monterosso Almo (Ragusa) on 21 June 1909,
domiciled in Rome at No. 179 Via C. Colombo, retired Prefect, whose personal
identity is known Io me, the Notary Public, hy direct acquaintance, having heen
warned by methe Notary Public in accordance with Article 26of Law No. 15of
4 January 1968, made the above declaration and signed it in my presence, Io
certify and authenticate which 1have affixedmy signature.

(Signed) VincenzoAugusto FIDUCCIA.

Document9

[lfalian rexfand Englishtranslarionnot reproduced]

Document10

[Iralian rexfand Englishtranslation nor reproduced]

Document 11

DECISION N. 2228OF THECOURT OFCASSATIOD NA, TE30JULY1960,RIV~ST AI
DIRI~TO INTERA'AZIONA 1LE1,, VO. LIV, PP.117-119

[Iralian re.xrand Englishtranslation nor reproduced]490 ELETTRONICA SICULA

Document12

[Iralian re.yrandEnglirhtransla~ion nor reproducedj

[Irolian resrno1reproducedj

My nameis Pio Cammarala, born in Palermo on 26 December 1937,a graduate
in law. resident in Milan in Via Gavirate. 16. In 1968-19721 was oersonallv. ~ ~ ~
in\ol\cd uiih the niaiicrs rclating tu ihr gcncral ~ccrciarial uork and opcriitioA
01'ihc SIT-Sicmen\ managcmeni bodies. dnd wdr appointcd h) Hedd Ortice io

represent the company inthe procedure for the auctionsale of the Ray-
theon ELSl Company.
The joint stock company, Eltel Elettronica e Telecomunicazioni was incorpo-
ratcd specifically for this operation, with a share capital of Lire 1,000,000,000,
which was subseauentlvincreasedto Lire 3.000.000.000.

During the perjod $or to this operation; 1akended severalsenior management
meetings to examine the request which the group had received to take ovcr the
Raytheon ELSl S.P.A. company.
From the verv beeinnine. the information available on the oroducts and the ~ -~ ~
comp~ny'r prospccl. IcJ senior nianagenieni 10 ihc conclusion thai 3cquisii1,)n oi

ihe Companyu,aj not a viablc propositiun
1-atcr.uhcn ihe conioanv rlis declarrd hankrunt. the ofii~.ial rcoori Ironi the
Trustee in Bankruptcy &aséxamined,and on-the-spot investigatioRswerecarried
out to ascertain- inreralia- the assets.

Our own experts found that the expert's valuation was no1realistic. and con-
cluded that account had mainly been taken of the land available for building
construction (!), while the facilities and mosl of the buildings neededto be com-
pletely rebuilt.
In short, il was deemcdmore viable to build a new Sactoryes novo.

However. for social reasons. ilwas decided to takc over the factorv a,d take ~-~~~-
on the employeesof the formerbankrupt Company.
No other buyer bidded at the various attempted auction sales, and when 1
suhmitted mv offer 1wasthe solebidder.
In m! iun;tion\ 3% Secreilir)IO ihc Board oi Direiiors and $cnior m3nagçmcni.

I later uiinc,rid the dificuli and costl) proccssoi rcstru:iuring ihc rador) u hich,
in order to be able to be started up in break-even, had to change il- layout and
product rangecompletely.

(Signed) Pio CAMMARATA. IIOCUMENTS ANSEXED TO THE REJOIWUER 49 1

1.Massimo Mczunotie, in my capacity as Noiary Public. aitesi that the abovc
signature was written inmy presenceby Dr. Pio Cammarata, born in Palermo on
26 December 1937.rcsideni in Milan in Via Gaviraie 16. whose identity 1 have
ascertained,in my capacity asNotary Public.

Milan. 26 May 1988

(Si~n~il)Massimo MEZZANOTTE.
Notary Public in Milan.

Document14

[Iiriliun reïr norreprn<i~rccd/

My name is lngo Ravalico, born ai Wiener Neustadi on 14 June 1917, and
resident in Milan in V. Monti 71.
From 1963 10 1975 1was the nianaging director of SIT-Siemens. now ITAL-
TEL, and in that capaciiy 1 was the most senior person responsible for the

manufacturinggroup belonging to SIT-Siemens.
IR1 "interested" SIT-Sicmens in proceeding wiih the acquisition of the bank-
rupt company, ELSI.
The term "intercstcd" is aciually inexact, becauseno-one was "interested in
ELSl becauseof its well-known technical obsolescenc and commercial incompe-
tence. But to prevent tradc union unrest- the year was 1968-and sit-ins in Via

Veneto in front of IR1 head office, it was ncccssary to "take an interest in the
business". mainlv for reasonsof law and order. 1 ~ersonallv directed the takc-
<i\.c,roperaiionin m) ai~ircmcntioned odic14I C;I~ICI'I~
Aiicr <ihi.iininp possessionof ihr ELSl conip;in). iniiixlüsIessccs.uc found
the following situation:

1. The gcneral kcilities wcre inadequate. dilapidatcd and badly designed from
the very beginning. The company had not grown according to an orgaiiic eco-
nomic developmeni plan. Ii bad developed on a day-10-day basis. One of the
consequencesofthis wasthat the production faciliiics had beensiied haphazardly,
in temporary structures, etc.As a resuli, most of the gcncral facilitiesafter we

had taken vossessionof them - wereonlv scrav mctal. and were sold off assuch.
hec;iuscthe) ncceis.iril) h;iIObe repl:iccdh) iiahlr gcncr~l i;icil~iie~
2.The pro,tu;iiaiiIinc, iicre >II old. hrokcn Joun and obsoleic The wmicon-
ducit~r Iinc (the niosi h,inkrupi). ihc X-rli> i~bc Iinc. ihc microwavc oicn line.
etc.. which had becn of incliiccent vroduction c,oac-tv ah orieine.were al1written
aff;tt once :thscrlp II uar not that the,!ucrc ubsolcsccni ar a rcsuli oi hatiiig

hçcn rhut duwn pcnding the h~nkrupiiy prosecdingr The) ucre obsolcrcsnt duc
tu prior induriri;il ;tnd tcchnic:il reli,ln>itempi ULISmade IO .al\agc theTV492 ELETTRONICA SlCULA

cathode ray tubes line, and the line producing microwave tube for military use.
The first was a failure, and the second was successful thanks to considerable
intervention.
The iïihode (picturc) tube Iine was urgïnizcd uring ïhsolutcl) ouid:itcd tcch-
nolog?. and ilni3nuC;icturcdproducts th31ucre c<implcielvu\eles~on the ninrkcr
Theçc ucrc blïck ;ind \i,hitc23"iiiciurc iuhii ihïtucrc iotiill\ uns3lc;iblcon ihc
ltalian market in those years. And they were made using glas; from Russia, with
absolutely prohibitive transportation costs to Palermo, as one can well imagine.
Since the technology then being used wasno longer sound. an attempt was made
to negotiate to be able to continue using RCA technology. But even this attempt
proved negative.

It was no1enough to change the technology: it was necessaryto start er nova,
with huge new investments to cater for the demand of a market ihat was now
mo\ingÏowilrds colour TV. Rliyiheon F1.Sl.s commcrcial nctuork was almusi
non-ci;isicnt. andIIhïd a bïd cammerciïl iniagc
Thc mirruuli\e tube line u,iirconiinucd. bccîusr ihc pr<ispcct\cxi\ied for the
products to he absorbed on the market, providing work for a-fewdozen members
of the como.,v's 1..00-o.usworkforce. ~~
But it became necessary to renegotiate the assistance contracts with Raytheon.
in order 10 be able to obtain the technical information and u~dates needed. in
viewof Raytheon's extremely,and quite unjustikably, high royajties.
After a short lime. it became clear that this attempt could no1proceed furiher.
and it became necessary to think about starting up work on completely new
products that would enable the Company to retrain several hundred workers for
newjobs.
3.The stocks were no1able to cover even the cos1ofmanaging them. The stores
were fullof unsaleable picture tubes, above aII,and old, wholly unusable materials
that were forthe production linesthat weregoing to be sold ORas scrap.

4. Through ELTEL S.p.A., which it controllcd, SIT-Siemenshad to invest ovcr
Lire4,000,000,000 immediately in order to buy up Raytheon at thejudicial hank-
ruptcy auction held on 12July 1969.
It later had to invest about 3.500 million between 1969and 1972to restructure
the plant, general facilities,and the machinery and production lines,and to retrain
the workforce.
5. ELTEL then moved the production of the electronic parts of the power uniis
for the telecommunications facilitiesfrom Aquila to Palermo, at the former ELSl
factory. The only way to keep the local jobs was to rebuild the whole factory, in
practice, because as Raytheon had left it. the factory was absolutely useless in
technical and production terms, and had only ken taken over as a hankrupt
concern on purely socialgrounds.

(Signed) lngo RAVALICO.

1.Massimo )rlcuanuiic. in my cïpaciiy as Nolïry Public. ;iiicsi ihai ihc aho\e
rignalurc uas uritten in m! prcrcnrc h) Mr lngo Rn\;ilico. hurn ai Wicnir
Ncusiadt un 14Junc 1911 ïnd residcni in .Mil;inin Via \'incenio Monti N. 71.
whose identity 1have ascertained. in mycapacity as Notary Public

Milan, 26 May 1988.

(Sigtied)Massimo MEZ~ANOTTI:,

Notary Public in Milan. DOCUMENTSANNEXE0TO THE REIOINDER 493

Document 15

[Iralian rextandEnglishrranslarionno1reproduced]

hument 16

ARTICLES834.835. 1181, 2043,2447, AND 2621 OF THE ITALIANCIVIL <:ODE

[Iralion rexrnorreproduced]

(Translarion)

834. Expropriation in the public interest. No one cbe deprived in whole or
in part of the property that he owns, exceptin the public interest, legally declared.
and on the payment ofjust indemnity.
The rules concerning expropriation in the public interest are estahlished by
soecial laws.

835. Requisitions. When serious and urgent public, military, or civil riecessity
occurs the requisition olmovahle or imrnovahle property (812) cbeordered. A
jus1indemnity is due the owner.

The rulesconcerning requisitioris are estahlishedhy speciallaws

( Translarion)

I IXI Partial pcrlormanc~. The ircilis~n rclcil;ipartial pcrlorii1;iilcc c\cn
thouah the pcrfurniancr i\di\isihlc. unlcss otheruisc proiidcd h) Iau or usage

(Tronslarion)

ARTICLE2043.COMPENSATIO FNR WRONCFUL ACTS

Any act cominitted either wilfully or through faull which causes wrongful
damagesto another person implies that the wrongdoer is under an obligation to

pay compensation for thosedamages.494 ELETTRONICA SICULA

2447. Reduction of capital below legal minimum. It by reason of the loss of
over one-third of the capital, it falls below the minimum established by Article
2327, the directors (2380)shall withoui delav cal1the meetin- (2365)to decide on
ihr rcduciion oflhe c;ipii;iland ihe iuncurr:nl inL.reJ,eihereoflo an Jniouni iioi
leçsthan s;iiJ niiniriiuni.or onthe reorgdnirdiiun ui the compdn)

( Translurion)

2621. False information and unlawful distribution of profits. Unless the act
constitutes a more serious offence a punishment consisting of imprisonment for
one to five years and a fine of four hundred thousand to four million lire is
imposed on:

1. promoters, founders, managers and directors, general managers. auditors,
and liquidators who, in reoorts. balance sheeis. or other information concernine
the af&irs of the cornpany: fraudulently represéntfacts which do not correspond
to the truth about the formaiion or the financial condition of the Compan~ or~
who conceal. wholly or in pari, facisconcerning such condition;
2. managers and directors and general managers who, in the absence of or
contrary toan approved balance sheet. or on ihe basis of a false balance sheet, in

any way colleci or pay profits which are fictitiousor which cannoi bedistributed.

Document17

ARTICLES 323 AND 185OFTHE ITALIAN CRIMINAC LODE

/Iroliun vïr nor reproduced]

ARTICLE 323. ABUSEOF AUTHORITYIN CASESNOT SPECIFICALLYPROVIDED

FOR IN THE LAW
Thc puhlic ullicil. rihgi.ihu>ing ihe pouer; inhereni IO hii ollicc. in urduIO

dam;ige or i-i\our ,6imconc.ciimniii5.in) 12113nn hichI;noi <onsidercd;inoilr.ncr.
in any law. may bepunished with detention up to two years or with ;ifine [rom
100,000Lire up to 2 million Lire. DOCUMEXTS ANNEXE11 TO THE REJOINDER

ARTICLE 185.RESTITUTIONANI> COMPICNSKr IORNDAMAGES

Under civil laws.any ofence niakes restitution compulsory. Any ofence which
has caused a material or non-rnaterial damage makes compensation coinpulsory
for the oiïender and for the person who, under civil laws,are responsible for his/

her deeds.

Document18

ARTICLE2S 3,25,26. 108AND 218 OFTHE ~TALIAN BANKRUPTC LYAW,
ROYAL DECRIC 0E:16MARCH1942.NO.267

(Iralian rr.yrnorr<,proclrrcrd]

The Court which has declared the bankruptcy is cornpetent for al1bankruptcy
proceedings; il deals with the controversies relative to such proceedings. which

do not fall within the field of competence of the delegate judgilrulcs on the
claims filed against the delegate judge's decisions. The Court may al any lime
~ ~ ~in chambers the trustee. thc b;inkruotcv and the creditors' cornmittee.and
replace the delegate judge with another hdic. The rulings of the Court on the
matters envisaaed in this article are issued with decree. whichis not subject to any
appeal

25.POWERS OF THE IIELBGATEJUDGE

The delegate judge is responsible for the bankruptcy proceedings, supervises
thework carried out by the trustee and, furthermore:

(1) reports to the Court on any matter for which a decision of the Court is
required;
(2) issues- or urges the competent authorities to iss-e urgent provisions
for the preservation of the estate:

(3) convenes the creditors' cornmittee in the cases provided for in the law and
when hedeems it appropriate;496 ELETTRONICA SICULA

(4) authorizes the trustee to appoint the persons required to deal with the
hankruptcy, except for the case when he himself - by virtue of law - has the
competence to appoint them;
(5) rules- as promptly as possible - on the claims filed against the trustee's
deeds;
161authorizes - with a wntten notice - the trustee to ~articioate in the
pr&edings both as plaintif and as defendant; appoints the couniel and the
attorneys: authorizes the trustee 10 carry out temporary tasks, save the cases
provided for in Article35.
The authorizaiion mus1always begiven for specificacts, and for each degree of
the proceedings;
(7) supervises the work carried out in connection with the bankruptcy by an
esoeciall. ..oointed oerson. removes him from the oost - if necessarv- and
p3!s hi.:fccs,;iller coniull31ion \ilth the lru<lee.
18) cÿrries oui- uiih the ir~sti.i.'\c,>-opcraiio- ;ipreliniin;tr) e\amin~tioii
iifdebts. rcal righii of third p~itic.,2nd rcl;iiiie doiumcniat~on

The delegatejudge's decisions are issued bydecree,

( Translafion)

ARTICLE 26.APPEAL AGAINST A DECREEOF THE DELEGATEJUDGE

Save contrary provision, an appeal against the decrees of the delegate judge
may be filed to the Court within three days from the date of the decree, on the
part of the trustee. ofthe hankruptcy, of the crediiors' committee, or of anyhody
whomay be concerned.
TheCourt rules with a decree in chambers.
The appeal does no1suspend the execuiion ofthe decree.

108. Proce(1ure sn rlzesaleofreal estore.The sale of realestate must be carried
out al an auction.
However, ihe delegaiejudge, - upon a proposal of the receiver, having heard
the Creditors' Committee and with the consent of the creditors eniiiled io claim
the assets of the bankrupt, with a right of preference on the real esiate,- may
order the sale wiihout an auction, should hc deem it more advaniageous.
The auctions are carried out upon an order of the delegalejudgelafter a request
of the receiver.and take place before the judge himself.except otherwise provided
for in Article 578 of the CivilCode.
Thejudge incharge may suspend ihe sale.should he deem that the offercdprice
isconsiderahly lower than thejust price. DOCUMENTS ANNEXED TO THE REJOINDER 497

An cwçrpt or the ordcr pr<i\,idingfor ihc sale ir nobyfihe recei\.crIo elich
oi the crcditors entitled Io clliim3ssctsof ihc h~nkrupl. wiih a right ofprelèrcnce
on the real estate, as wellas to the mortgage creditors

(Translation)

218. Unlaitfilraking ou1ofloans. Any entrepreneur - running a commercial

business- who takes out or continues to take out loans. without disclosine his
financial difficulties,is liable to detention up to two years, unless the fact repre-
sents an even more serious oiïence.
Except for any additional penalties under Chapter III, Title II, Volume No. 1.
of the criminal code, the sentence entails the prohibition to run a commercial
business. and to hold any senior executive posts for any Company up to three
years.

Document19

MINUTE SF THEMEETING OF 20FEBRUAR1 Y968

(For rhelerrer ofrhe DepuryRexisrrar, dared 13Januar)' 1988,seIII.Ckrrespon-
dence, No. 42; for the lerrer of the DepuryAgenr of rhe United Srores. dared
13January 1988,seeIII, Correspondence,No. 41; monuscriprdocumenrno1repro-
duced:for rhe ryped versionsee UnnumberedDocumenrsArrached 10rhi?Counrer-
Mernorialof ltalp, Exhibir Il-15.p. 2supra]

Document20

KI:\IAKI;S <DR Ai li\F~sDKoALRERIG QIIJARAST0 As ELTEI.'\ AIT1 ILI>
Rf.$cau<.iiPori:sii~i.. DA'IEa). 1971

[Iralian reïr and English rrunslarion nor reproduced]498 ELETTRONICA SICULA

Document21

LETTER TO THE EMPLOYE EFSRAYTHBON-ELS S.IP.A., DATBD 16MARCH1968

[Iruliunrerr notreproduced]

16March 1968.
Raytheon-ELSI S.p.A..

Via Villagrazia 79
Palermo

TO THE EMPLOYEES OF RAYTHEON-ELSI S.P.A.

It is with the deepest regret that the Management of Raytheon-ELSI S.P.A.
announces ihat the Board of Directors has this day resolved to cease Company
activities. The decision of the Board, taken after consuliation with the sharehold-

ers, is that production willcease immediately and that commercial activities shall
cease and the em~loveesbe dismisscd as from 29 March 1968,Le., immediately
aiier thcnit-lin&k';hareholdcrr ~tlled I;>r?X \(:~rih 1360
The m:ijOrii) rh:~rchiilder.Ra)lhcon Cornpari). h;is askcd the \lanagenient Io
rnake cle:tr tu Ka,iheon-E1.SI cm~lo\ces ihc iirelerr cnùrir ni;idc io a\oid ihr
~ ~ ~-rne.~ione~ ~ ~ent
During ihc tir\[ fcivmi~nthsof 1967.after a second rcnisal hy the Iirlian parincr
ai I~Clinle io makc LIfuriher finanii;il coiitrihuiion to ELSI. ihc R;i\ihe,>nCom-

pany and ils :inoiiaic The I\lachlcii Lahorai<iries. Incorp<)raicd.emhrkcd on a
hold progrînime to provide ii~rihr futurc of Rayiheon-ELSI This programme
involvedihe followirÏgactivities:

1. Purchase of the remaining 20 per cent of ELSl equity, valued at Lit. 300
million.
2. A rurthercontribution oïLi1. 2.5billion10ELSl share capital.
3. A further contribution of Lit. 1.5billion in the form of bank loans to provide
ELSl with the resources needed 10continue operations.
4. Rescheduling of the payments due io Raytheon Company from Raytheon-
ELSI for the previous sale of services to the former, currently amounting to Lit.
1.1billion.

5. Boostingof ELSl management by the inclusion of a group ofhighly qualified
persons selected fromthe Raytheon Company staff.
6. Search for new producis for ELSI, in particular by altempting to gel the
Governmcnt to apply the "third-party law" in favour of ELSl and also by obtain-
ing newproducts from Raytheon in America.
7. Search for a powerful ltalian partner. particularly from among State-holding
companies, capable not only of providing ELSl with financial support but also of
enhancing the company's rangeof products from ltalian sources, of helping ilto

obtain the benefits due to companies in the Mezzogiorno and, lastly, to provide
for ELSl's future within the framework of the national five-yearplan.
All ELSl employees mus1 be aware of the combined efforts made by the US

alid llalian management group in Palermo to try and place ELSl activities on a
firm long-term economic footing. DOCUMEXTS ANNEXED TO THE REJOINDER 499

ELSI-Raytheon employees may not be aware of the great efforts continuously
made ovcr the past 12 months to obtain support for the company from the
national and regional governments, and from Italian private industry. These
efforts also included numerous visits to ltaly by the Chairman of the Board of

Directors of the Raytheon Company, Mr. C. F. Adams, for top levcl talks. as
well ascontinuousefforts by the C:hairmanof the Board of Directors of Raytheon-
ELSl and members of the Raytheon Europe staff in Rome. These attenipts also
look the form of meetings, often many meetings, with the Presidency of the
Sicilian Region, ESPI. IRI, Finmeccanica. the Ministry of Industry. the Ministry
of State Holdings and the Ministry of the Treasury. Furthermore. al1 possible

efforts were made to gain the support of ltalian private industry.
The Raytheon Company, togeiher with the ELSl Management. have always
believed - and even in this sorrowful moment continue to believe - that the
incliision ol'a siroiig Il~li~li pariiicr uilling Io conir~buir~hoih in ihr iorin of nciv
products and with ~ulliiicni aninunis of ircsh c;ipit:il. :<iconipanicd by Ihc assur-

;inccsof ihc n~iioii~l Gmcrnm~v~ ih.it the funition iiihc Rd)ihetin.FLSI uiII bc
:tcknouIcJ~cd in ;in) long-tcrni nationdl pr<igr;imnic. Ka)ihcon-ELSI c<tuldhatc
heitinic ;ipri~iit,ihlc 2nd r\p.inding ionipaiiy v,i:isignilii.in1 roliiipl;i) in the
five-year plan for the development of the Italian electronics industry.
This point of view has been fully documented in three reports draun up for
ESPI in May, July and Decemher 1967, copies of which have ken circulated

among al1 the above-mentioned agencies, institutes and ministries. except the
Ministrv of the Treasurv. These reoorts oresented carefullv researched Pro-
grammé>for tlic introdkiion of n& ELSI producis. togciher uiih linancial
iorcs;lsis showing ihat the comptiny could achicvc protiiïhil~r) uiih the hclp of a
sironr Iialian parinCr and the ~ildiiion ofsuficient neu in\estments Much car<

was taken in thesereoorts also to demonstrate the useful ootential role that could
be played by ELSl inthe development of the Italian elect;onics industry.
The Raytheon Company invested many billions of lire to set up this industrial
organization with its plants, trained personnel. products and markets. In view of
the increasinu,v comoetitive markets it is unfortunatelv clear that the comoanv. .
cannot continue to exist without strong support from Italian sources.

The Management has clearly indicated the minimum indispensable ciid which
must be forthcoming from one or more strong Italian partnersin order to guaran-
teethe long-term economic health ofthe company. ln recentweekstülks of greater
than usual intensity have been field with many top-ranking members of the na-
tional and regional Governments. Unfortunately, these talks have not given rise
to any positive olfers capable ofsatisfying Raytheon-ELSI needs. In view of the

circumstances. the Board of Directors. with great sorrow and disappointment,
could only take the above decisions.

The Board of Dircclors. ELETTRONLC AICULA

Doeument22

[Italian rexr norreproduced]

(Transiaiion)
Rayiheon-ELSI S.P.A.

[On the original the stamp
with the date 29 March 68
is visible. (Signed)]
Dear Mr. Guido Busacca,

For many years Raytheon-ELSI has ken sufferingheavy losses.In their aware-
ness of the company's importance for the people of Sicilyand Palermo Ourshare-
holders have made contributions amountine to m-nv billions of lire to oromote
the company's success.
Over the past 12 months the Management has made considerahle efforts to
obtain cadial and new ~roducts from manv rovernment and industrial sources.
~ni~~rtu~iei) thc>ee~oris h312 conie IO ioÏhing. Rli)ihcon-ELSI is iherzforc

conipcllcd Io cease ils acti\ilic.~as iiis rapidly approaching a situliiion in uhich
operating resources willbe totally lacking.~
As a consequence the Management is compelled to dismiss al1its employees.
Only a small number of persons willhe retained to carry on al1the tasks involved
in managing the administrative, commercial and technical aspects raised by the
cessation of the company's activities. This small numkr of persons will also be
required to organize and sce Io the prompt payment of everything owing to the
employeesdismissed.
It iswiih deep regret that wehereby notify you of your immediate dismissal for
the above-mentioned ~~asons. In order to heln vou find another iob. the comnanv
. , . ,
agrecs Iocxoncr.iie )~IJ from any dulies prior Io or .ilier ihr pcriridofnoliliiaiion
which ui~uld he uorkzd in normal iircunisidnccs. Conscqucnily. li\irom iod;i).
your services are no longer required as the company has no longer any work to
offer.
You willhe paid an amount in lieu of notification equal Io your normal pay for
the period of lack of notification. This period will be valid for the purpose of
calculaiing your severance pay and any other sum owing to you. in accordance
with exisling legislation and agreements. It willhe the Management's responsibil-
ity to inform you as soon as possible ofthe total amount owing to you, as wcllas
of current provisions for its payment and of al1the relative administrative pro-
cedures.

The Management wishesto express ils appreciation for the work you have donc
for the compa.y a~d sincerely h~pcs .~u will find a suitable newjob in the near
future.

Raytheon-ELSI S.p.A

The Managing Director The Managing Director
(Signed) (Signed) DOCUMENTS ANNEXED TO THE REJOINDER 501

Document23

SECURITIESD EXCHANG CO~~MISSIOORM IO-K- ANNUAL REWRT
PURSUAN TO SECTIO13OR 15(D)OF THSECURITIEXCHANG AECTOF1934
FOR THFISCAYEAR ENDED31DECEMBE 1971

[Norreproduced]

Document24

SECURITIESD EXCHANG COMMISSIOANNUAL REPORTPURSUAN TOSECTION
13OR15(D)OF THESECURITIESCHANG AECTOF1934FOR THFISCAYEAR
ENDED31 DECEMBE1971

[Norreproduced]

Document25

FEDERAR LESERVEANKOFNEWYORKCIRCULAN RO.6090OF4 JANUARY1968

[Noireproduced]502 ELETTRONICA SICULA

Document26

/Nor reproducedj

Document27

FEOERA RESERVBEAPIKFNEWYORK CIRCULA NO.6102OF25 JANUARY1968

[Nor reprod~tced]

Document28

D.LGS. 12FEBRUAR 1948,NO.51,"APPROV AFTHE NEWSTATUT OF ISTITUTO
PERLARICOSTRUZIO INOEUSTRIA(1R.I.)"

[Iraliun rerr undEnglfshrrunslationnorreproducedl

Document29

"THEONLA YNSWE RROMIR1 ANDFINMECCAP1 I:HAANDSOFFCIE. ANSALDO
1sBI~R OVERITSRFJECTIONI"S.OL- 24ORE ,OCTOBE 1987

[Iruliun rerr andEnglishrruno1reproducerl]

Document30

[Iralian rexrundEnglishrrurnorreproducedj DOCUMENTS ANNEXED TO THE REJOIIIUER 503

Document 31

R.D.L. No. 5 OF 23JANUARY 1933SETT~NU CP OF THE "ISTITUTO PER LA
RICOSTRU~I~N INEDUSTRIALE ".TH HEADOFFICE IN ROME

[Ira/ian @.YIandEnglishrronslarion norreproduced]

Document 32

STATEMliN BTYPROFESSOPR IERGIUSTO JAECERD , ATED 17JUNEI!)88

1. Since Novcmber 1974,1 have been a Full Professor of Commercial Law at
the University of Milan Law Faculty. Previously, 1had been a Full Professor of
Commercial Law at the University of Parma, School of Economics, having been
appointed in 1968.In 1958,1graduated at the University of Milan Law School,
and, aiterwards, 1received the post graduate degree of Master of Laws from the

Harvard Law School.
I an1ii~underanil cditor .iithc Icg:<lrci~cuG.«<~I,I>IUJ~~ CU<,~~~~~~~r~,tI h:1\~
uritten man) article\ 4n.i ,111hwk /.LI.<~~U~,I:I<,,~C/LII~IIIII>JI<IU1~1ï11ne,/
~;illrt>~t,zhl~l.n, 1966.dn b.iiiLruplcy I:iu.bc.stJcanitin sorki .ind ~,nïC.isc-
book on corporation law. 1am admitied to practise beloie the Cassation Court
of Italy, and 1am a senior partner in a law firm in Milan, dealing mostly with
corporate law and bankruptcy law. Among Our clients, we counsel several large
multinational corporations, such as Union Carbide, International f:oods and

Beatrice.1have followed some of the most important bankruptcy and arrange-
ment proceedings which have taken place in ltaly in Ihe las1 ten years, such as
Rizzoli-Corriere della Sera and Mach Oil Refineries, in the capacity either of
Iawyeror trustee and commissii>ner.
1have beenreiained to analyze some aspects of the case beforethe Internationül
Court of Justice between the United States of America and Italy, concerning
Elcttronica Sicula S.P.A. (ELSI). and to give my opinion on the question whether
ELSI was in 1968under a legal obligation to filea pctition in bankruptcy or had

at that time an option to procced to a voluntary winding up. In order to render
this opinion, 1have reviewedthe Memorial of the US Governrnent, the Counter-
Memorial submitted by Italy, the documents attached thereto, and the opinion
given by my collegueand friend, Professor Franco Bonelli.
2. Thehcrs of rhecase. The iacts of the case are clear and undisputed. It has
been ascertained that ELSI had lost most (if no1 all) ils capital and was in the
position to satisfy no more than 50 percent of the amount owed to the unsecured

creditors.
3.No alfernariveberweenbankruplc),andvoluniorj~ wind~ng up. In this situation,
itis my firm beliefthat the Board of Directors of ELSl should have fileda petition
in bankruo.cv.,or al least. re.u~sted from the Palermo Tribunal 10be iidmitted to
the proicdure <iijudi~iar) ietllcmcni <~o!ici>ri/~ilopr~~ii.»r~lf~
H~nlrrupts! /~I//!!~~~~IJI^~judicl.lr) ~ctllcnlcnl ~#~tz~~~~/~ r~/~~llCIII.iIe
ihc titi,procïdurc\ pro\ided ii~rb) tlic ltali~n Rankriiptc) -\CIof 1942.>rhi:li
h~\e the rdnic l:g.il 2nd c~iiiioniicb,i>ii.e.. the insolicnc)tiithe Jcbtor Thcrs
1.;~nother priiccdiirc. :~llrd "~.oniri>llcd-idniirll~lr~ii~It,,~rtt~i,ziifr,,<.,,,-,~504 ELETTRONICA SICULA

rrollara),which however needsanother requirement, consisting in the "transient
difficulty" of the same debtor to pay his current creditors. In other words. the
debtor filing a petition to be admitted to the procedure of "amministrazione
controllata" has to submit to the Tribunal a plan showing that within a certain
neriod of time there is a reasonahle orobabilitv that his financial "difficultv" will
be overcome. Obviously this was nit the caséfor ELSI, the crisis of whiChwas
permanent and bound to worsen, without any hope of improvement, as shown in
the affidavits ofMessrs. Cammarata and Ravalico
On the oihcr hand. thï pri>~.c<luroei,udiriary ,cttlc.mcni ran bc rcqiicste,l by
the insolieni dcbtor iihï shuus tù bc able Io piy jll hi, secArcdcicrliiors xnd.il
Irasi -10pcr cent of the unsccurcd XrnoJniof dchl.; Thii pr<).-ediirein:i) hedefincd
therefore as an alternative .in-eiven cases) to hankru.ïc-. which however is not
compulser). bc~.~uic IIrcquc,is the Jïhldr'a ~iiit.si~i. n thc.iithcr hand. \i~lun-
t:iry winding uo dot, noi rcqucst buch analtçrw.iti\z l'hcdcn!on\tr.iii,>n OCthis
point is rather easy.
First of all, these legal institutes have "very difîerent purposes and effects:
(voluntary winding up) leads to the dissolution of the corporate organization and
assets and to the distribution of the resulting sum,afterthe creditors' satisfaction,
among the shareholders, whereas (bankruptcy) has the only scopeof a compulsory
and pro ratasatisfaction of thecreditors" (R.Costi, Chiusuradelfallimenfosociale
per insufficienzdell'arriedesrinzionedellasocieta,Ciur.comm.,1974.1,pp. 327ff.).
Moreover one of the effects of bankru~tcv is the leeal liquidation of the cor-
poration and, if insolvent, a corporationÙndergoing a;oluniary winding up must
be declared bankrupt.
The circumstance, to which Professor Bonelli seems to he inclined to recognize
an amount of relevance, that some creditors may consider more satisfactory a
settlement for 40 or 50 per cent of value ratber than taking the nsks connected Io
bankruptcy, isin rnyopinion, irrelevant.
The creditors mentioned in Professor Bonelli's opinion are the banks. which,
however, have better reasons than that to avoid bankruptcy of their creditors,
because the trustee is hound to obtain the annulment of payments obtained by
them as preference hefore the beginning of the procedure.
4. Casesinlvhichil is legallj compulsoryrofile apetition inbnnkruptcy.Accord-
ing to Article 6 of the Italian Bankruptcy Act of 1942 hankruptcy may be re-
quested by the creditors. Most authorities believetherefore, that the debtor has a
legal possihility (or even the right) to he declared bankrupt, which means that the
Board of Directors of a Cor~oration can never he blamed if..sine-theirreasonable
judgment, they file a petition in hankruptcy. There are some cases. however. in
which this step becomes legally compulsory. Article 217. note 4, of the above-
mentioned ltalian Bankru~tcv Act makes il a criminal offence (and provides for
the imprisonment of the dibtbr) the behaviour of the person who, n& requesting
his own bankruptcy, has caused his insolvency to be "more relevant" (if the
bankrupt isa corporation, the same provision applies to its Directors).
It can be argued that it is no1 always easy to estahlish when this consequence
has been caused hv the fact that the debtor kas omitted to file a oetition in
bankruptcy;but kien thecrisismet by the debtor jsso hëavy, ~hatit is'impossible
to reasonahly foresee anv recovery (as certainly was ELSl's case), the Directors
are hound to promptly and deciskely act in order to avoid, through the bank-
ruptcy, the aggravation of the insolvency.

Milan, June 17th, 1988

(Slyned) Pier Gius~o JAEGER. DOCUMENTS ANNEXED TO THE REJOINDER 505

I undersigned dott. Francesca Testa a Notary Public in Milan, Italy, do hereby
certify this document was signed by Mr. Pier Giusto Jaeger born in Trieste, Italy,
on 25 August 1936resident in Milan, S. Damiano St., No. 4, Milan, Italy 22June
1988.

(Signed) Francesca TESTA.

Document33

ART~CLE 41AND 42 OF THE ITALIAN CONSTITUTION

[Iralian orerioorreproduced]

(Translorion)

Article 41
Privaie econornicenierprise isopen 10all.

Ii cannot, however, beapplied in such a manner as to bein conflict with social
utility or when it isprejudicial to security, freedom and human dignity.
The law prescribessuch planning and controls as may be advisable for directing
and co-ordinating public andprivate economic activitiestowards social objectives.

Article 42

Ownership is public or privaie. Economic commodities belong to the State, 10
public bodies or to private persons.
Private ownership is recognized and guaranteed by laws which prescribe the
manner in which it may be acqiiired and enjoyed and its limitations, with the
object of ensuring its social function and of rendering it accessible10all.
Private property, in such cases as are prescribed by law and with provi:;ionsfor
compensaiion, may be expropriated in the general interest.
The law lays down the rules and limitations of legitirnate and testarnentary
inheritance and the rights of the State in relation Io same.506 ELETTRONICA SICULA

Document34

LAWNO.835 OF 6OCTOBER 1950,"RESERVATI ONSUPPLY AND
MANUFACTURIO NGDER SOR GOVERNMEO NTFICESI, FAVOU RFINDUSTRIAL
PLANT IN THESOUTHERR NEGION AND LAZIO A.ND DEFINITIOONF THEAREASTO
BECONSIDERE ADSINCLUDE N SOUTHERIN TALY AND THEISLANDS"

ARTICLE16 OFLAWNO.717 OF26JUNE1965,"REGULATIO OFACTION SOR THE
DEVELOPME ONTTHE SOUTH"

[Iralian re.xrnoi rrproduced]

(Translation)

LAW NO.835 OF 6OCTOBER 1950

Reservation of su~~lvand manufacturinn orders for eovernment offices. in
favour of industrial piaits in the southern &ions and ~azio, and definition of
the areas to be considered as included in southern ltaly and the islands.
1. Government officesare placed under the obligation of reserving the supply
and manufacturing orders referred to in LegislativeDecreeNo. 40 of 18February
1947,to industrial plants, including small-scaleand craft industries, in the pro-
vincesof Lazio,Abruzzo and Molise,Campania, Lucania, Puglie,Calabria, Sicily

and Sardinia. and the territories of the island of Elba. The administrative bodies
di ihc puhli~r.iilii,inil the natv arc placcd undcr ihc >ami <ihlig.iiionïr
regdrdsthe siippliesco\crcd h! I.egisl;iti\cNii.374ci>14June 1945.and
No. 503of 15Novemher 1946.
2. Government officesmust oubliclv issue a seoarate call. reserved to factories
:indiuii lndu~iric~in s<>uiheriltï1y':ind the i~l;iid*,iur ciiiiipeiitiie bidi for a
qu<~i.iiihc .uppl! .inJ mïnui'acturing orJcrr ,ii e.icIilinanci.il ywr. Tl115quota

niu\i nohc Ic>\ihdn one-liiih. jiiih the e\01those ruriplicsdnd m~nul'lc-
turing processes that technically cannot be divided up or thii cannot be carried
out by the aforesaid companies, as is to be fixedeach year with a decree of the
Prime Minister, in agreement with the Minister for lndustry and Trade, after
listening to the viewsof the governments and the boards of trade, industry and
agriculture of the provincesin question. The aforesaid decreewillhe published in

theOficial Gazette.
The percentage that is excluded from the quota of one-fifth will, however, be
recovered with a proportional increase in the manufacturing and supply orders
that the companies in the regions referred to in Article I are able to fill,so as to
reach a quota that is not less than one-fifth of the supply and manufacturing
orders for each financialyear. DOCUMENTS ANNEXED TO THE REJOINDER

REGULATION OF ACTIONS FOR THE DEVELOPMENT
OF THE SOUTH

16.Reservurionof 30per centofrhe siipplyuni1munifiicruringordersofgovern-
men1ojjices. Without prejudice to the regulations conlnined in law No. 835 of
6 October 1950,and respecting the more favourable dispositionscontained in the

lawsin force, the percentage ofiipplyand manufacturing orders laid down in the
aforesaid law No. 835 is raised to 30 Dercent in Cavourof industrial and craft
enterprises located in the territories listédin Article 3of law No. 646of 10August
1950and ils later inodifications and additions.
The same percentage is also applied Io al1the territories listed in Article I of
law No. 835 of 6 October 1950and its Iater modifications and additions.
The following are obliged to observe this quota: government offices,govern-
ment agencies, and also State corporations indicated with a decree of the Prime
Minister, issued following theroposa1 of the Minister for Special Measures in

the South, in agreement with the Minister for lndustry and Trade.
Each year the aforesaid government officesand agencies present the Minister
for Special Measures in the South and the Minister for lndustry andTrade with a
report coniaining information on the overall assignment of orders for supplies
and manufacturine-.s~eci,-inethe .uota reserved to the industrial and craft enter-
priics Ioraicd in ihc trrrirorics indicaicd in thc tirsi pliragr:iph abovc.
Within ,ix rn<>nth<)iihr entrs <iithe prç.,eni I>u into iorce. thr proiedurer ior
applying the provisions contained in the present article are to bélaid down in
regulations for implementation issued following theoposal of the Minister for
Special Mcasures in the South and in agreement with the Minister for Industry

and Trade

Document 35

LAWNO. 1589 OF22 DECEMBE1R 956,"~NSTITUTIONOF THE MINISTRY OF STATE
ECONOMIP CARTICIPATION"

[Iroiiun rerr norreproduced]

INSTITUTION OF THE MlNlSTRY OF STATEECONOMICPARTICIPATION

Article1.The Ministry of State Participations in lndustry is hereby instituted.
Arricle2. All tasks and preropatives which. in cornpliance with existing provis-
ions, faIIwithin the competence of the Ministry of Finance, are hereby devolved
upon the Ministry of State Participations in lndustry asr as participations so
far managed by the former Ministry, andState-owned enterprises are coiicerned. All tasks and vr.roeat-ves which. in comoliance with existine nrovisiu.s. fall . ~ ~
\iithin ihc conipctencs of the (:ciunal .ii hliniricr,. the Presidcncyof the Council
of Minisicrs, ilie hlini\ter Ciimniittcc<or ihe indi\~dut~lMinistrier iiiionnc:ti<>n
rrith IR1(transl.tt<~r'iniitr.: Initiiiite for Industri.tl Rc:un,truciionl. ES1 itr.insl:i-
101'snote: National Agency for Hydrocarhons), and of al1the oiher enierprises

directly or indirectlyState-controlled, are devolvedupon the aforementioned Min-
istry. Such enterprises shall he indicated in the decrees issuedby the President of
the Council of Ministers, in agreement with the Minister for State Participations
in lndustrv and the Minister involved. ~-
The deireer rh~ll bc puhlihcd in the 0[1i<t<iJ/iiurtiiil i,l'rlrHcpuhlii~.I.Irdli
AI1Siaie-ouncJ cnicrprircs and pdrti:ipJti<>nsh3re. reicrrcd 1,)in the r>rc\io~r
subparagraph are transferred to thé~inistry for State Participations in l~dustry.
The tasks and prerogatives falling within the competence of the Ministnes of
the Treasury, lndustry and Trade, in connection with the Fund for the financing

of mechanical industrv (FIML are also devolved uoon the new Ministrv.
Article3. The partiCipatio& referred to in the firegoing article shallae inserted
in the framework of independent management bodies, operating accordine to -
cutting-down-on-expenses criteria.
The first enforcement of participations shall have to be carried out within one
year after the coming into force of the present law.
The associative relations between the mainly State-controlled enterprises and
the trade unions of the other entrepreneurs shall cease within one year of the
entry into force of this law.

This provision does nnt concern the companies and bank concerns, indicated
in Articles 5, 40, paragraph (a), 41 of the royal lawdecree No. 375 of 12March
1936, and subsequent amendments, in Article 1 of the legislative decree of the
provisional Head of State of 23 August 1946,No. 370, and in Article 1 of Law
No. 445 of 22June 1950.
4. In order to co-ordinale the activity of the Ministry of State Economic Partici-
pation with the activity of the other Ministries concerned, as regards the determi-
nation of the general guidelines relative to the various sectors controlled by the
Ministry, a standing Committee is set up; if is constituted -in addition Io the
Minister of State Economic Participation -, by the Ministers of the Budget, of
the Treasury, of lndustry and Commerce, of Labour and of Social Security. This

Committee is charged with the yearly examination of the results achieved in the
vanous sectors.
The Committee is chaired by the President of the Council or - upon his
mandate - by the Minister of State Economic Participation. The other Ministers
concerned may beinvited to participate in its meetings.
5. The Minister of State Economic Particioation is a mernber ofthe Intermini~-~ ~
icri.il Coniniittee iur Reion~truciiiin, the Inicrniinirteri~l Committcc oi Crc,iii.
the Intcrministcn~l Commitice of Priccsand thc S1init:ri' Conimiiice for Souih-
-.....-., .

6. The Ministry of State Economic Participation is constituted by a general
Inspectorate, a Servicefor administrative aiïairs and personnel and a Service for
economic afiairs.
The lnspectorate is presided over by an officialwho shall beappointed General
Director by decree of the President of the Republic, upon a deliberation of the
Council of Ministers. Each of the two Servicesis presided over by an officialwho
shall beappointed General Inspecter.
During the first implementûtion of this law, and for no longer than fiveyears,
the posts under the previous paragraph may be assigned also to persons who do
not helong to the Ministry, to be appointed by decree of the Minister of State DOCUMENTS ANNEXED TO THE REJOINDER 509

Economic Participation, subject to a deliheration of the Council of hlinisters.
Such assignments may he revoked any time. The central Counting-House, which
de~ends from the Ministry of the Treasury, is set up at the aforementioned
~inistry.
7.The Government ischarged - within 12months from the entryinto force of
this law - 10organize the Ministry and to create the posts for the strictly neces-
sary ~rmanent staff, in relation to the real needs of the services, for an amount
of nomore than 100oosts. as wellas the reeulations concerning the persrinnel, on
the basis of the crileiion of transferring staÏf helonging to oth& ~ij?stries to the

Ministry of State Economic Participation, and of puhlishing competitive t:xamina-
tions foi any post of the career.
8. Until the posts for the permanent staff- under Article 7 -are created, the
Ministry of State Economic Participation may employ - on the hasis of a tempo-
rary posling - no more than 100 persons (permanent and temporary staff)of
other Ministries, to he suhdivided - according to the career and category - hy
virtue of a decree of the President of the Council, in agreement with the Minister
of State Economic Participation and with the Minister of the Treasury.
Moreover, specificprofessional assignment may he conferred - on a temporary
basis - upon technical experts who are not directly employed by the Ministry,
wiih a pay to be established by a decree of the President of the Council of
Ministers, in agreement with the Minister of State Economic Participation and
the Minister of the Treasury.

9. As regards the expenses necessary to the functioning of the Ministry of State
Economic Participation and to the fulfilment of its tasks in connection with
the State-owned enterprises until the relative hudget 1sapproved, such expenses
shall be covered hy the allocations of the expenditure estimate of the Ministry
of Finance, concerning the services transferred Io the Ministry of State Eco-
nomic Participation, supplemented with the amounts 10 be transferred from
the other Ministries, for the respective services for which the Ministry is
competent.
The new overheads shall be covered by withdrawing an amount - up to 25
million Lire - on the Chapter No. 627 of the hudget of the Ministry of the
Treasury for the fiscalyear 1956-1957.
The Minister of the Treasury is authorized to implement the necessary hudget
amendments hy virtue of his own decrees.
10.The last balance sheet and a plan for each of the autonomous administrative

bodies provided for in the first paragraph of Article 3aresubmitted to Parliament,
enclosed withthe budget estimate of the Ministry of State Economic Participation.
II. This lawcomes into force the day after itspublication in the O$icialBulletin
ofrhr Republicof [toly.