Elettronica Sicula SPA - United States of America v Italy - Assignment Example

Name: Course: College: Tutor: Date: CASE CONCERNING ELETTRONICA SICULA S.P.A. (ELSI) (UNITED STATES OF AMERICA V ITALY) Introduction This paper will give a brief account of a case between The United States of America and Italy, commonly known as ELSI (Elettronica Sicula S.P.A)1 -an Italian Electronic Company. Official Citation is Elettronica Sicula S.P.A.(ELSI), Constitution of Chamber, Order of 2 March 1987, I.C.J Reports1987, P.3. Two USA companies owning ELSI between 1956 and 1968 sued the Republic of Italy for allegedly failing to guarantee them safety and protection as stated in a “Friendship, Commerce and Navigation” treaty (FCN) signed between the two parties in 1948; this was after the two US companies owning ELSI discovered that despite their financial input into ELSI and it’s expansion, ELSI still generated no significant profits an seemed to be in so much debt. They decided to sell ELSI’s assets to pay its debts and safeguard it from sinking further but their decision was cut short by the Italian government which sought to do things differently. The two US companies-Raytheon and Machlett laboratories-The case was carried out at the International Court of Justice under a chamber of five judges as requested by the US government and according to the statute of the court-article 26, paragraph 32. Members of Court elected to the chamber were:-President Nagendra Singh, Judges Oda, Ago, Schwebel and Sir Robert Jennings. The main issues that the court looked at included the legality of requisition of ELSI’s assets as carried out by the Italian government; whether or not it was the right procedure at that time or whether the two US companies had a legal right- above the Republic of Italy to liquidate ELSI’s assets as was initially planned. Several details surrounding ELSI’s requisition and liquidation by the two parties, Italy and US, respectively were also considered. One of the issues that arose as a dispute was whether the time limits for the appeal case presented by ELSI on 26th April, 1968 against Mayor Palermo’s order to requisition ELSI’s assets on 1st April, 1968 were sufficient-were they in order. In the final hearing of the case on 20th July, 1989, it was unanimously concluded by the chamber that the Italian Republic had no direct case to answer for breach of treaty agreements. And on the Bankruptcy petition filed by ELSI, it’s conclusion in November 1985 was not in favour of the two investors-Raytheon and Machlette; there were no compensations for them. There were differences in various judgements for instance judge Oda in a separate opinion felt that, the US has to prove injustice beyond mere allegations for the Italian government to be taken to task3. These rulings as will be discussed in the next sections have implications on general co-operation amongst foreign business partners; with such cases in mind, it will be difficult for foreigners to input much in foreign corporations for fear of being short changed after doing so much to improve the status of ‘dying’ businesses. Factual background, procedural history, and questions for the Court Summary of facts ELSI was an electronic plant established in Palermo, with about 900 employees as at 1967 and specializing in products such as microwaves tubes, x-ray tubes and cathode ray tubes among others. In 1967, ELSI- a former Italian company had been fully taken over by the US investors-Raytheon and Machlett- who discovered that despite ELSI making of profits, they were too little as compared to losses it had incurred before and debts accrued. The shareholders then took steps to safeguard ElSI’s future, by holding meetings with Italian government and private potential investors, to forge a way forward so that ELSI could be self reliant. The discussions bore no fruit and therefore ELSI’s managers resorted to liquidating the company’s assets-which stood at 18,640 million as at 31st March, 1968; which after liquidation would possibly fetch 10, 838.8 million lire. As at 1967, ELSI had debts amounting to 13,123.9 million lire. Therefore the sale of the entire business’ assets would help pay out most of the debts even by halfway (50%) rather than being declared bankrupt Around March 1968, the Italian government officials held a position that ELSI’s assets should not be liquidated but instead the company should be given to another investor who would salvage it and as well the 900 employees were to continue in employment. This decision was enforced on 1st April, 1968 by a mayoral order to alter any liquidation plans and consider requisition; ELSI appealed against the decision on 19th April, 1968 and further submitted a bankruptcy petition on 26th April, 1968, stating that the requisition process had impacted negatively on the company’s fair. ELSI was declared bankrupt on 16th May, 1968. But despite all the efforts the requisition process continued as a court in Palermo dismissed ELSI’s appeal against the requisition order4. It was later discovered by the Palermo Prefect that the requisition was illegal but still Raytheon and Machlett were not compensated effectively. They also suffered heavy losses after conclusion of the bankruptcy case-claimed to be due to the requisition-they were not compensated; all they had input into ELSI was in vain. Given that the two were ELSI’s main bank loan guarantors, they were also expected to meet the standing orders as agreed; they were sued by five Italian banks for failure to meet their obligations as ‘guarantors’ (of course Raytheon had not signed as a guarantor in the five-seemed like an internal Italian government affair because the five banks were under control of the government), now that the borrower-ELSI- was bankrupt the cases filed by the five were later withdrawn as there was no sufficient evidence linking ELSI to Raytheon in terms of loans borrowed from the five. The US claimed that, the actions as undertaken by the Italian government were against the FCN treaty of 1948 signed between the two countries and its supplement of 1951. Hence violating the rights and interests of foreign investors as stated in the treaty; the actions were termed as discriminatory and more of partial. Procedural History It is acceptable for parties to a treaty to seek court assistance in case of stalemates like the one stated above; under articles 36(1) of the Statute of the Court and article XXVI of the FCN treaty. The two countries had agreed to an International Court system in case they fail to agree, in interpretations of the treatyError: Reference source not found. Therefore the US which felt that its citizens had been short-changed with regard to the treaty agreements and international laws and procedurally, according to the treaty signed between the two, the first step is to exhaust diplomatic mechanisms of solving the crisis after which legal mechanisms can be sought. These were clearly followed according to the US; there were several meetings between ELSI and Italian government officials whose main agenda was to see how best ELSI would be safeguarded, as well as meetings between US government officials and Italian government (see attached copies of minutes in memorial of the US). Later in 1985 the two states agreed to enter into a legal suit. The case of ELSI between the USA and Italy is therefore both a jurisdiction and merit hearing. It is a Jurisdiction because the two parties agreed so in the treaty and a merit hearing because certain norms and simple laws of nature were overlooked when handling the case of ELSI. But the two may not be differentiated clearly since lack of merit led to jurisdiction matters such as when the Italian government was dealing with the requestion and bankruptcy issue. Questions the court should consider The court should consider whether Italy in its requisition orders and actions; how the requisition was carried out, how the bankruptcy case was handled and the government of Italy’s general action, towards the US shareholders of ELSI were within the treaty’s agreements and best interest. According to the US, the government of Italy had infringed various sections of the treaty; the right to protection of foreign investors by states, interference with management of private corporations and other private properties (including acquisition and disposal of any of the properties), and discriminating actions especially against jurisdiction efforts that ELSI’s management put forward to safeguard its activities. The Italian government had also not defined powers in its administrative ranks for instance who between the Mayor and minister for internal affairs was to issue an order for requisition to take place? Another consideration for the court is whether or not the Italian government was right to declare ELISI”s case an emergency. On the other hand while considering the case of the Italian government; it will be important to establish the profit and loss trends at ELSI and whether the government was right to take over the property whose loss would affects the lives of several employees and their families. The facts stated by the US should be systematically outlines to ensure a statement that is acceptable by their Italian counterparts. Whether the Italian government sought to interfere maliciously with ELSI”s management or it was a sign of genuine concern when it advised the US shareholders to partner with Italian shareholders. The court also needs to establish whether the decision by ELSI’s management to liquidate the company assets was a free will or necessity based (to pay many creditors). Establish whether the mayor has authority by law to make a decree such as that of the requisition order. Find out whether earlier decrees similar to those made against ELSI were consistent with the mayoral decree or if they were different what were the reasons and how different were the circumstance. Assess the legitimacy of ELSI and it’s shareholders’-Raytheon and Machlett-compensations offered as damages due to requisition and after the bankruptcy case. Establish who between the Italian government and ELSI’s mangers had the interest of the 900 workers at heart; who is falsely alleging the other of wanting to throw away the workers and to bar them from accessing the company hence infringement of labour laws. Was the Italian government discriminative in its actions such as the requisition appeal, was it delayed in the actual sense as stated by the US government? As additional points, the court should find out why IRI (Instituto Per la Ricostruzione Industriale) was the only one that would come to the aid of ELSI and why Raytheon wanted to follow “shortcuts” and not orderly liquidation procedure as required by the Italian government 5 Descriptive analysis: description of the Court’s decision The chamber of the court assigned the ELSI case concluded the case on 20th July, 1989 and in general, the position of the chamber was that the Italian government should admit to the application of the united states, although after investigation, it was found that Republic of Italy had committed none of the breaches it was accused of by the US. The court also stated that The Italian government had no obligation to pay (compensate) for the damages it was accused of having caused to the US companies-Raytheon and Machlett. The judicial portrayed more of an International Laws reasoning; most of the judges as will be described below were comparing the weight of the Applicants case versus the treaty and treaty against the International laws perspective. Majority judgements The chamber of the court 1) unanimously agreed that “it rejects the objection presented by the Italian Republic to the admissibility of the Application filed by the United States of America on 6th February 1987” 2) by four votes to one “finds that the Italian republic has not committed any of the breaches, alleged in the said Application of the Treaty of Friendship, Commerce and Navigation between the parties signed at Rome on 2nd February, 1948, or of the Agreement Supplementing that Treaty signed by the parties at Washington on 26th September, 1951”Error: Reference source not found and 3) by four votes to one “rejects accordingly, the claim for reparation made against the republic of Italy by the United States of America.” Error: Reference source not found Minority Judgements Judge Schwebel was the only opposer of the operative clauses employed by the rest of the four other judges- President Ruda, Judges Oda, Ago and Sir Robert Jennings. In his dissenting opinion, he had two opinions in mind 1) the international law, which he says must be respected and protected; with reference to the Italian government claim that ELSI did not exhaust all the local remedies, Schwebel argues that its not a must that all local remedies must be sough, but once a substantial amount has been accomplished, he questions the initial formation reason of creating such a rule. 2) He looks at the FCN treaty from a more protective (binding) than destructive manner; he says the treaty was meant to protect the rights of the citizens of the two states-US and Italy and also their independent corporations, he argues further that there is lack of integration of practicability and legality in the treaty hence the position of the US-as a foreign investors- is little at risk. Schwebel also stated that given the signing of the supplementary treaty by both parties-Us and Italy- it is a clear indication of protection for investors in either of the countries which he thought should have been the case in ELSI’s case hence there was no reason why the parties should think otherwise. Judge Oda gave a separate opinion, states that the US was over-indulged in the case of Raytheon and Machlette-they are private entities and are not liable to diplomatic protection under the international law. Oda also stated that the rights defined in the FCN treaties are not to protect shareholder-ship neither makes shareholders be recognized at a different level hence should be interpreted within its context; that is legally binding between a state and another or a company but not its shareholders. Which means US could better have stated ELSI’s case against Italy and leave out the shareholders-Raytheon and MachlettError: Reference source not found Critical analysis: critique of the Court’s decision. For there to be greater compliance to the international law in most of trans-national activities, states often sign treaties and enter into regional or bilateral agreements. This was much more of the US and Italy case as they sought to improve relationships between the two states in areas of commerce, general friendship and navigation hence the FCN Treaty. But sometimes, Treaties have textual issues that may be ambiguous and hence lead to variety of reasoning and interpretation. This may have been the case with the US and the republic of Italy. Probably there were other issues at the back of US’s mind about Italy hence the consistent thinking of each and every action by the Italian government as a smart move and probably in the negative dimension. Now to the judgement, it was right for the court to have wanted Italy to admit to accusations by the Applicant since anyone is guilty until proved clean by the court; as was the case of the Republic of Italy. The rulings by majority of members were too broad at one point; for instance the ruling against reparation by Italy to the US-originating shareholders may have been unfair-since there seemed to have been some form of discrimination by the Italian government especially in the case of IRI taking over ELISI but because some clauses in the 1948 treaty and the supplement of 1951 are conflicting it was impossible to sustain evidence against discriminatory claims made by the Applicant. In general, the US seemed to have misinterpreted most clauses of the FCN treaty hence most of their claims were dismisses-they had a weak case. Lastly the decisions on repatriation were most exciting as it was termed unfair but due to lack of strong evidence, as Italy’s moves were in most cases justified by law, rendered the judges helpless towards pronouncing the need for Republic of Italy to compensate ELISI and its shareholders. In conclusion, the chamber of the court tried as much as possible to balance all aspects of law both international requirement, laws binding treaty members and national level laws. But the case is a lesson to most foreign investors; as much as they sign treaties they should be sure of the interpretation of the treaties and be sure of the extent to which they are safeguarded by the treaties and whether the treaties are a reflection of the international laws. Otherwise in absence of the international laws’ protection, one can easily be short-changed; after all he/she is in a different territory and rules at home may not apply in a foreign land. References International Court of Justice. Pleadings, Oral Arguments, Documents: The case Concerning Elettronica Sicula S.P.A. (ELSI) (United States of America V Italy). Volume 11 Counter memorial; Reply; Rejoinder. Retrieved from http://www.icj cij.org/docket/files/76/9681.pdf 28 March, 2011 International Court of Justice. 1987. Reports of Judgements, Advisory opinions and Orders: The case Concerning Elettronica Sicula S.P.A. (ELSI) (United States of America V Italy) Order of 2 March 1987 Constitution of Chamber. Retrieved from http://www.icj cij.org/docket/files/76/6701.pdf 28 March, 2011 International Court of Justice.1989. Summaries of judgements, Advisory opinions and Orders: The case Concerning Elettronica Sicula S.P.A. (ELSI) (United States of America V Italy) Judgement of 20 July 1989. Retrieved from http://www.icj cij.org/docket/files/76/6709.pdf 28 March, 2011 Memorial of the United States of America. Retrieved from http://www.icj cij.org/docket/files/76/9677.pdf 28 March, 2011 Read More