Proceedings in the case concerning the Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain) were instituted by an Application of 19th June 1962 in which the Belgian Government sought reparation for damage claimed to have been caused to Belgian nationals, shareholders in the Canadian Barcelona Traction Company, by the conduct of various organs of the Spanish State. There are certain very important principles of international law which emerged out of this case.
In the first phase (24th July 1964) of the judgment, The Spanish Government raised four Preliminary Objections and the Court rejected the first preliminary objection and the secondary objection and added the third and fourth objections to the merits.
In the second phase (5th February 1970) of the judgment, The Court found that Belgium lacked jus standi to exercise diplomatic protection of shareholders in a Canadian company with respect to measures taken against that company in Spain. In its judgment in the second phase of the case, the Court rejected Belgium’s claim by fifteen votes to one.
The Barcelona Traction, Light and Power Company, Limited, was incorporated in 1911 in Toronto (Canada), where it has its head office. For the purpose of creating and developing an electric power production and distribution system in Catalonia (Spain) it formed a number of subsidiary companies, of which some had their registered offices in Canada and the others in Spain. In 1936 the subsidiary companies supplied the major part of Catalonia’s electricity requirements. According to the Belgian Government some years after the first world war Barcelona Traction’s share capital came to be very largely held by Belgian nationals but this contention was denied by the Spanish Government.
Barcelona Traction issued several series of bonds, principally in sterling. The sterling bonds were serviced out of transfers to Barcelona Traction effected by the subsidiary companies operating in Spain. In 1936 the servicing of the Barcelona traction bonds was suspended on account of the Spanish civil war. After that war, the Spanish exchange control authorities refused to authorize the transfer of the foreign currency necessary for the resumption of the servicing of the sterling bonds. Subsequently, when the Belgian Government complained of this, the Spanish Government stated that the transfers could not be authorized unless it, were shown that the foreign currency was to be used to repay debts arising from the genuine importation of foreign capital into Spain, and that this had not been established.
In 1948 three Spanish holders of recently acquired Barcelona Traction sterling bonds petitioned that court of Reus (Province of Tarragona) for a declaration adjudging the company bankrupt, on account of failure to pay the interest on the bonds. On 12 February 1948, a judgment was given declaring the company bankrupt and ordering the seizure of the assets of Barcelona Traction and of two of its subsidiary companies.
Pursuant to this judgment, the principal management personnel of the two companies were dismissed and Spanish directors appointed. Shortly afterward, these measures were extended to the other subsidiary companies. New shares of the subsidiary companies were created, which were sold by public auction in 1952 to a newly-formed company, Fuerzas Electricas ~de Cataluina, S.A. (Fecsa), which thereupon acquired complete control of the undertaking in Spain.
Proceedings were brought without success in the Spanish courts by various companies or persons. According to the Spanish Government, 2,736 orders were made in the case and 494 judgments given by lower and 37 by higher courts before it was submitted to the International Court of Justice. The Court found that in 1948 Barcelona Traction, which had not received a judicial notice of the bankruptcy proceedings, and was not represented before the Reus court, took no proceedings in the Spanish courts until 18th June and thus did not enter a plea of opposition against the bankruptcy judgment within the time-limit of eight days from the date of publication of the judgment laid down in Spanish legislation. The Belgian Government contends, however, that the notification and publication did not comply with the relevant legal requirements and that the eight-day time-limit never began to run.
Representations were made to the Spanish Government by the British, Canadian, United States and Belgian Governments as from 19481 or 1949. The interposition of the Canadian Government ceased entirely in 1955.
Preliminary Objections (First Phase of the Judgement)
The Belgian Government filed the first Application with the Court against the Spanish Government in 1958. In 1961 it gave notice of discontinuance of the proceedings, with a view to negotiations between the representatives of the private interests concerned, and the case was removed from the Court’s General List. The negotiations having failed, the Belgian Government on 19 June 1962 submitted to the Court a new Application. In 1963 the Spanish Government raised four preliminary objections to this Application.
In its first Preliminary Objection, which was rejected, the Respondent contended that this discontinuance precluded the Applicant from bringing the present proceedings. The secondary preliminary objection which was also rejected was regarding the lapse of Article 17(4) of the treaty of 1927 on the dissolution of the permanent court to which the Article referred thus questioning the jurisdiction of the ICJ over the case. The third preliminary objection which was joined to the merits of the Spanish Government was to the effect that the Belgian Government lacked the capacity to submit any claim in respect of wrongs done to a Canadian company, even if the shareholders were Belgian. The fourth preliminary objection, which was also joined to the merits, was to the effect that local remedies available in Spain had not been exhausted.
The researcher will be dealing with the issues that arose out of the second phase of the judgment
1. Does Belgium have the Jus standi to exercise diplomatic protection of shareholders in a Canadian company?
2. Does Belgium have the right and jurisdiction to bring Spain to court for the actions of a Canadian company?
No Absolute Obligation
The Court observed that when a State admitted into its territory foreign investments or foreign nationals it was bound to extend to them the protection of the law and assumed obligations concerning the treatment to be afforded them. But such obligations were not absolute. In order to bring a claim in respect of the breach of such an obligation, a State must first establish its right to do so.
Municipal Laws (Distinction between Company and Shareholders)
In the field of diplomatic protection, international law was in continuous evolution and was called upon to recognize institutions of municipal law. In municipal law, the concept of the company was founded on a firm distinction between the rights of the company and those of the shareholder. Only the company, which was endowed with legal personality, could take action in respect of matters that were of a corporate character.
A wrong done to the company frequently caused prejudice to its shareholders, but this did not imply that both were entitled to claim compensation. Whenever a shareholder’s interests were harmed by an act done to the company, it was to the latter that he had to look to institute appropriate action. An act infringing only the company’s rights did not involve responsibility towards the shareholders, even if their interests were affected. International law had to refer to those rules generally accepted by municipal legal systems. An injury to the shareholder’s interests resulting from an injury to the rights of the company was insufficient to found a claim.
Diplomatic Protection only Exercised by the Nation State of Company
Where it was a question of an unlawful act committed against a company representing foreign capital, the general rule of international law authorized the national State of the company alone to exercise diplomatic protection for the purpose of seeking redress. No rule of international law expressly conferred such a right on the shareholder’s national State.
Special Circumstances (Exceptions to the General Principles)
The Court considered whether there might not be, in the present case, special circumstances for which the general rule might not take effect.
Two situations need to be studied:
(a) the case of the company having ceased to exist, and
(b) the case of the protecting State of the company lacking the capacity to take action.
As regards the first of these possibilities, the Court observed that whilst Barcelona Traction had lost all its assets in Spain and been placed in receivership in Canada, it could not be contended that the corporate entity of the company had ceased to exist or that it had lost its capacity to take corporate action.
So far as the second possibility was concerned, it was not disputed that the company had been incorporated in Canada and had its registered office in that country, and its Canadian nationality had received general recognition. The Canadian Government had exercised the protection of Barcelona Traction for a number of years. If at a certain point the Canadian Government ceased to act on behalf of Barcelona Traction, it nonetheless retained its capacity to do so, which the Spanish Government had not questioned. Whatever the reasons for the Canadian Government’s change of attitude, that fact could not constitute a justification for the exercise of diplomatic protection by another government.
It had been maintained that a State could make a claim when investments by its nationals abroad, such investments being part of a State’s national economic resources, were prejudicially affected in violation of the right of the State itself to have its nationals enjoy a certain treatment. But, in the present state of affairs, such a right could only result from a treaty or special agreement. And no treaty or special agreement of such a kind was in force between Belgium and Spain.
If we consider reasons of equity, a State should be able to take up the protection of its nationals, shareholders in a company which had been the victim of a violation of international law. The Court considered that the adoption of the theory of diplomatic protection of shareholders as such would open the door to competing claims on the part of different States, which could create an atmosphere of insecurity in international economic relations. In the particular circumstances of the present case, where the company’s national State was able to act, the Court was not of the opinion that jus standi was conferred on the Belgian Government by considerations of equity.
The Court took cognizance of the great amount of documentary and other evidence submitted by the Parties and fully appreciated the importance of the legal problems raised by the allegation which was at the root of the Belgian claim and which concerned denials of justice allegedly committed by organs of the Spanish State. However, the possession by the Belgian Government of a right of protection was a prerequisite for the examination of such problems. Since no jus standi before the Court had been established, it was not for the Court to pronounce upon any other aspect of the case.
Accordingly, the Court rejected the Belgian Government’s claim by 15 votes to 1, 12 votes of the majority being based on the reasons set out above.
The court’s ruling of dismissal of the case adequately demonstrates the differences between states and individuals and who is considered sovereign in the international realm. The court ruled in favor of Spain since Belgium had no jurisdiction to do so and the shareholders seeking compensation was not given diplomatic immunity. However, if the shareholders were to seek aid from Canada in which the company is headquartered and given correct identity, a lawsuit could occur. Thus an individual cannot bring a claim against a state since it is not given that authority. This case will be viewed as an excellent reference for cases dealing with organizations and sovereign immunity claims and how to correctly deal with them.