Barcelona Traction, Light, & Power Company Case

FACTS:
Barcelona Traction, Light, and Power Company, Ltd was a corporation incorporated in Canada, with Toronto headquarters, that made
and supplied electricity in Spain. It had issued bonds to non-Spanish investors, but during the Spanish Civil War (1936-9) the Spanish
government refused to allow BTLP to transfer currency to pay bondholders the interest they were due. In 1948 a group of bondholders
sued in Spain to declare that BTLP had defaulted on the ground it had failed to pay the interest. The Spanish court allowed their claim.
The business was sold, the surplus distributed to the bondholders, and a small amount was paid to shareholders. The shareholders in
Canada succeeded in persuading Canada and other states to complain that Spain had denied justice and violated a series of treaty
obligations. However, Canada eventually accepted that Spain had the right to prevent BTLP from transferring currency and declaring
BTLP bankrupt. Of the shares, 88 per cent were owned by Belgians, and the Belgian government complained, insisting the Spanish
government had not acted properly. They made an initial claim at the International Court of Justice in 1958, but later withdrew it to
allow negotiations. Subsequent negotiations broke down, and a new claim was filed in 1962. Spain contended that Belgium had no
standing because BTLP was a Canadian company.

JUDGMENT:
The International Court of Justice held that Belgium had no legal interest in the matter to justify it bringing a claim. Although Belgian
shareholders suffered if a wrong was done to the company, it was only the company's rights that could have been infringed by Spain's
actions. It would only be if direct shareholder rights (such as to dividends) were affected, that the state of the shareholders would have
an independent right of action. It was a general rule of international law that when an unlawful act was committed against a company,
only the state of incorporation of the company could sue, and because Canada had chosen not to, this was the end. The idea of a
"diplomatic protection" of shareholders was unsound because it would create confusion and insecurity in economic relations as shares
are 'widely scattered and frequently change hands'. The court also said that a state is bound to give the same legal protection to foreign
investments and nationals, either for natural or legal persons, when it admits them to its territory.
Padilla Nervo J said the following.

“ The history of the responsibility of States in respect to the treatment of foreign nationals is the history of abuses, illegal
interference in the domestic jurisdiction of weaker States, unjust claims, threats and even military aggression under the flag of
exercising rights of protection, and the imposing of sanctions in order to oblige a government to make the reparations demanded.

Special agreements to establish arbitral tribunals were on many occasions concluded under pressure, by political, economic or
military threats.
The protecting States, in many instances, are more concerned with obtaining financial settlements than with preserving
principles. Against the pressure of diplomatic protection, weaker States could do no more than to preserve and defend a principle
of international law, while giving way under the guise of accepting friendly settlements, either giving the compensation
demanded or by establishing claims commissions which had as a point of departure the acceptance of responsibility for acts or
omissions, where the government was, neither in fact nor in law, really responsible.
In the written and in the oral pleadings the Applicant has made reference, in support of his thesis, to arbitral decisions of claims
commissions—among others those between Mexico and the United States, 1923.
These decisions do not necessarily give expression to rules of customary international law, as ... the Commissions were
authorized to decide these claims "in accordance with principles of international law, justice and equity," and, therefore, may
have been influenced by other than strictly legal considerations. ...
Now the evolution of international law has other horizons and its progressive development is more promising, as Rosenne
wrote:
There is prevalent in the world today a widespread questioning of the contemporary international law. This feeling is based on
the view that for the greater part international law is the product of European imperialism and colonialism and does not take
sufficient account of the completely changed pattern of international relations which now exists....
Careful scrutiny of the record of the Court may lead to the conclusion that it has been remarkably perceptive of the changing
currents of international thought. In this respect it has performed a major service to the international community as a whole,
because the need to bring international law into line with present-day requirements and conditions is real and urgent.
The law, in all its aspects, the jurisprudence and the practice of States change as the world and the everyday requirements of
international life change, but those responsible for its progressive evolution should take care that their decisions do, in the long
run, contribute to the maintenance of peace and security and the betterment of the majority of mankind.
In considering the needs and the good of the international community in our changing world, one must realize that there are
more important aspects than those concerned with economic interests and profit making; other legitimate interests of a political
and moral nature are at stake and should be considered in judging the behavior and operation of the complex international scope
of modern commercial enterprises.
It is not the shareholders in those huge corporations who are in need of diplomatic protection; it is rather the poorer or weaker
States, where the investments take place, who need to be protected against encroachment by powerful financial groups, or
against unwarranted diplomatic pressure from governments who appear to be always ready to back at any rate their national
shareholders, even when they are legally obliged to share the risk of their corporation and follow its fate, or even in case of
shareholders who are not or have never been under the limited jurisdiction of the State of residence accused of having violated
in respect of them certain fundamental rights concerning the treatment of foreigners. It can be said that, by the mere fact of the
existence of certain rules concerning the treatment of foreigners, these have certain fundamental rights that the State of residence
cannot violate without incurring international responsibility; but this is not the case of foreign shareholders as such, who may
be scattered all over the world and have never been or need not be residents of the respondent State or under its jurisdiction.
 In the case of the Rosa Gelbtrunk claim between Salvador and the United States, the President of the arbitration commission
expressed a view which may summarize the position of foreigners in a country where they are resident. This view was expressed
as follows:
A citizen or subject of one nation who, in the pursuit of commercial enterprise, carries on trade within the territory and under
the protection of the sovereignty of a nation other than his own, is to be considered as having cast in his lot with the subjects or
citizens of the State in which he resides and carries on business. (Italics added.)
"In this case," Schwarzenberger remarks, "the rule was applied to the loss of foreign property in the course of a civil war. The
decision touches, however, one aspect of a much wider problem: the existence of international minimum standards, by which,
regarding foreigners, territorial jurisdiction is limited." ...
Much has been said about the justification for not leaving the shareholders in those enterprises without protection.
Perhaps modem international business practice has a tendency to be soft and partial towards the powerful and the rich, but no
rule of law could be built on such flimsy bases.
Investors who go abroad in search of profits take a risk and go there for better or for worse, not only for better. They should
respect the institutions and abide by the national laws of the country where they chose to go.

Mavrommatis Case

FACTS:

The authorities of the Ottoman Empire had signed in 1914 with the Greek entrepreneur Mavrommatis a concession contract for the
construction of a tram and the expansion of water and electricity supply in Jerusalem . The work was initially delayed because of the First
World War . After its end, Palestine was placed under the administration of Great Britain . The British government refused to uphold
the contract with Mavrommatis and awarded the concession to a British entrepreneur. Article nine of the XII. Additional Protocol to
the Treaty of LausanneHowever, it stipulated that concessions awarded by 1914 should be observed by the successor states (in this case,
Palestine and its mandate government). Following no negotiated agreement between Greece and the United Kingdom, Greece brought
an action before the Permanent International Court of Justice to uphold the rights of its national Mavrommati.

JUDGMENT:
In its decision, the Court alone dealt with the question of whether it was responsible for the dispute. First, the judges found that the legal
basis for a decision of the StIGH article 26 of the Mandate Treaty for Palestine was considered. This one saw that
"The mandate holder agrees that disputes between him and another member state of the League of Nations concerning the interpretation
or application of the provisions of the Mandate Treaty, unless the dispute can be settled by negotiation, be transmitted to the Permanent
Court of International Justice."
The court therefore had first to examine whether the conditions of Article 26 of the League of Nations had been met. The judgment
stated that, although claims by the national Mavrommatis itself were in dispute. However, international law requires states to protect
their nationals in the event that they have been harmed by acts of other states. Greece fulfilled this obligation by taking over the dispute
and making it an international dispute between the two countries. [1]
The Court also considered that the further requirement of Article 26 was that negotiations should first take place between the
parties. Although Cecil HurstAs a representative of the British Government, it was argued that, disregarding the negotiations between
Mavrommatis himself and the British Government, there was only very limited exchange of diplomatic documents between the
governments, so that negotiations could not be held, the judges did not follow this argument , They emphasized that the existence of
negotiations was a matter of individual case and could not be determined by the scope of the diplomatic writings. For example, even
very brief discussions between governments could be regarded as a negotiation within the meaning of Article 26 if, for example, they
were a continuation of talks already conducted between the national and one of the parties. The same is the case here.
Furthermore, the StIGH dealt with the question to what extent the dispute revolves around the interpretation or application of the
provisions of the Mandate Treaty. This question was also answered by the Court. The basis of the dispute is the refusal of the British
government to recognize the concession agreement of 1914. This behavior must be measured against Article 11 of the Mandate Treaty,
which read:
"The Government of Palestine shall take all measures necessary to promote the development of society and of the country and, subject
to the obligations of international law made by the mandate holder, shall be empowered to ensure control over natural resources or other
work and the construction of public facilities. There should be a development aimed at the needs of the country ... "
This article covers the concession given to Mavrommatis, as the article not only refers to activities of the Palestinian Government itself,
but also to those delegated to private individuals. The court reached this conclusion by interpreting the provision. Accordingly, all
international obligations of the mandate holder should be taken into account. These include the XII. Additional Protocol of the Lausanne
Treaty, since this was also signed by the United Kingdom. Accordingly, the dispute is one concerning the interpretation and application
of the contract.
As a result, the Court affirmed its jurisdiction in this case.