Elettronica Sicula SPA - Italy and the US - Case Study Example

CASE CONCERNING ELETTRONICA SICULA S.P.A. (ELSI) (UNITED STATES OF AMERICA v. ITALY) The chamber The Chamber was composed as follows: President Rub Judges Oda, Ago, Schwebel and Sir Robert Jannings. Time limits Fixes the following time-limits for the initial pleadings in the case: 15 May 1987 for the Memorial of the United States of America; 16 November 1987 for the Counter-Memorial of the Republic of Italy; and reserves the subsequent procedure for further decision Introduction Court that the United States wishes to instigate proceedings against the Republic of Italy. The United States desires that this Court establishes if Italy has dishonored the Treaty of Friendship, Commerce and Navigation between the United States and the Republic of Italy and the accompanying agreement to that treaty, through Italy's dealings with respect to an Italian company completely owned by two United States corporations, and, if so, the total value of compensation due. The details and contentions all issued in this proceeding are detailed in the application attached hereto. The Government of the United States of America hereby wishes, pursuant to Article 26, paragraph 3, of the Statute of the Court, that a chamber be created made up of five judges to listen to and decide this case. On the consideration that the Government of Italy agrees with this application, we will be glad to organize the talk with the President of the Court pursuant to Article 17, paragraph 2, of the Rules of Court, so that the President might establish the views of the parties concerning the members in the chamber. In agreement with Article 40 of the Rules of Court, the Government of the United States of America desires to notify the Court that its representative will be the Legal Adviser of the United States Department of State, The Honorable Abraham D. Sofaer. Facts This disagreement arises from seize of the Government of Italy of the plant and linked assets of Elettronica Sicula S.P.A. This seize was planned to and in fact did put off Raytheon and Machlett from going on with their verdict to conduct an orderly insolvency of ELSI which caused significant financial damage to Raytheon. As a consequence of the requisition, it was essential for ELSI to file a petition in Bankruptcy. From 1964 to 1966, ELSI made an operating profit but this was not adequate to clear off its debts expense or losses which had already accumulated. Therefore in February 1967, as United States claimed, Raytheon began taking steps to make ELSI self- sufficient. Meetings were held between February 1967 and March 1968 between Italian officials and companies, the plan of which was confirmed as; Italian partner with economic power and authority to go deep to know the potential of other governmental support. When nothing seemed to come up, Raytheon and Machlett who were shareholders began to plan on how to close as well as liquidate ELSI so that in the end, they will incur fewer losses. On 28 March 1968, it was ruled that the company stop operations. Meetings with Italian officials was sustained and the Italian Authority carefully pressed ELSI not to lock the plant and that they did not fire the workforce and on 29th, letters were sent to the staff of ELSI. On 1 April 1968, the mayor of Palermo gave an order which was to take effect at once, to requisite ELSI’s plant and associated possessions for a period of 6 months. On 19th April 1968, ELSI brought an administrative appeal in opposition to the request to the prefect of Palermo. On 27 and 30 March, the President of Sicily advised ELSI officials that the Government of Italy would, if required, requisition ELSI’s plant in order to stop the insolvency. This caution was confirmed true on 1 April 1968, when the Mayor of Palermo, taking the position of an official of the Government of Italy, gave an order requisitioning ELSl's wishes; and the needed tools for six months. The order which noted that the sack of employees and the closedown had caused public and press disapproval of local authorities and that “unseen disorder of public order could take place”, in the end said that a requisition was essential in order "to guard the general economic public interest . . . and public order . . .” No steps were then taken, nevertheless, to reemploy the workers or to release the plant back for service; nor did the public authorities attain any steps to keep the plant premises from an being taken over by the workers which began soon after. ELSl in vain appealed to the Mayor and other Italian officials to put aside the requisition order. On 19 April 1968, it filed an appeal with the Prefect of Palermo. The following day, 20 April, the President of Sicily put intimidation saying that the requisition would be retained for an indefinite period unless Raytheon deserted its insolvency plan. With debts nearing their due date and with no prospect of repossessing custody of ELSl's assets and making an orderly insolvency in the near future, ELSl's Italian counsel advised the Board of Directors that they were obliged to file a formally request in bankruptcy. A bankruptcy petition was for that reason filed on 26 April 1968 with the Civil and Criminal Tribunal in Palermo, which affirmed ELSI bankrupt on 16 May. On 25 July, the Government of Italy sort to make public its purpose to take over ELSl's assets during a branch of IRI. In following months, representatives of the Government of Italy and of Raytheon discussed a likely plan for such a take-over, which was to comprise a general payment of ELSl's creditors. However the Government got out of these deliberations. The bankruptcy judge designed three auctions, in January, March, and May of 1969, at which ELSl's plant and other property could be bought as a single unit, at a lowest set price. Even with the announced purpose of the Government of Italy to take over ELSI, ELTEL did not bid at these auctions nor were there other gidders; the intended government take-over of the plant had been revealed and by the time of the second auction, was well on the map to finishing point. The terms of the auction, additionally, disqualified those whom Raytheon made previously known as the most probable purchasers - foreign companies wanting to buy individual product lines. ELTEL was in the same way concerned in buying only some of ELSI’s assets – the plant and linked equipment - and al1 of the raw material and inventory of the exact products which ELSl had made. not like others who might have been attracted and needed to acquire only a portion of ELSl's assets, nevertheless, ELTEL was able to discuss with the bankruptcy authorities its own terms of sale. As a first step, ELTEL gave out the plant for a nominal rental, got hold of the work in process of bargain price, and resumed operations al ELSl's plant. Once it was firmly in control of ELSl's assets, the bankruptcy judge accepted this offer and ordered a fourth auction, at which the lowest bid was set at the discussed price. On 6 July 1969, therefore, ELTEL acquired ELSl's plant and equipment, and sure of its other assets, on the terms lastly agreed on 16 August 1969, 16 months after the requisition started but only six weeks after ELTEL had obtained ELSl's assets, the Prefect of Palermo cancelled the Mayor’s order of requisition finding that it was not reasonable by any legal grounds and, in addition, appeared to have been aggravated by inappropriate considerations. The wait in issuing this verdict stole ELSl of any helpful redress for the take over, which caused ELSl to file a petition in bankruptcy and in turn provided the chance for ELTEL to influence the sales price of ELSl's assets to its advantage. Opinions Judge Oda, in his divided view, was of the opinion that the operative result of the Judgment. He comments, though, that, in kick starting the proceedings, the United States supported the basis of its nationals (Raytheon and Machlett) as shareholders in an Italian company (ELSI), while, as the Court itself found in the Barcelona Traction Judgment of 1970, the rights of shareholders as such lie past the reach of diplomatic protection in general international law. In Judge Oda's observation, the 1948 FCN Treaty was planned neither to modify the shareholders' condition nor to supplement the shareholders' rights in anyway. The provisions in the FCN Treaty on which the aspirant was hoping on, and which are widely addressed in the Judgment, were not planned to guard the rights of Raytheon and Machlett as shareholders of ELSI. The 1948 FCN accord, like other FCN treaties to which the United States is a party, gives assistant to one State party to search for the cause of a company of the other State party in an act opposing the latter once the company in subject is controlled by nationals of the party getting in for the action. The United States may perhaps have brought an act which may have violated certain provisions of the 1948 Treaty which entitled it to defend an Italian company (ELSI) in which its nationals (Raytheon and Machlett) had a controlling interest. Yet the hopeful had not leaned on those provisions, and the Chamber in its Judgment had made hardly any reference to them. Even if the proceedings had been brought as a backing of ELSI’s cause, the claimant, in Judge Oda's view, would as well have had to verify a denial of justice. This was not done. Judge Schwebel was in unison with the Judgment in what he termed two principal respects which have significant consequences for the strength and growth of international law. Number one, the Judgment relates a rule of cause in its explanation of the arrival of the condition of the exhaustion of local remedies. It says that not all possible local remedy must have been fulfilled to suit the local remedies rule but that, where in essence local remedies have been fulfilled, that arises to meet the general requirement of the rule even though it may be that a breach on the quest of local remedies was not considered at length. This position thus limits certain prior building of the rule to a reasonable limit. Number two, the Judgment mostly interprets the FCN Treaty in a manner which sustains rather than limits it as a device for the guard of the rights of nationals and corporations of the United States and Italy. The Chamber refused to agree to a number of opinions pressed upon it which, if agreed to, would have stripped the Treaty of much of its value. Certainly, the Chamber refused to hold that ELSI, an Italian corporation whose shares were owned by United States corporations, was past the range of protection protected by the Treaty. The arguments of the United States in the case were not sustained, but that was not because the Chamber found against the United States on the law of the Treaty; it found against the United States on the realistic and legal implication to be engrossed to the particulars of the case. The Treaty and its Supplementary Agreement were to be read as a unit, since the Agreement was tagged to be "an integral part" of the Treaty. For the reason that the United States and Italy brought opposing reasoning of the Treaty which recognized that certain of its provisions were vague, this was a case in which recourse to the preliminary work and conditions of the Treaty's ending were in order. It was in reality that Italy had asked for negotiation of the Supplementary Agreement to convene the established needs of U.S. investors for investment in Italy. Italian parliamentary proceedings in authorization of the Treaty and Supplement reveals that it was the aim of the Parties to give investors "guarantees against political risks" and "freedom to manage the companies" which investors recognized or acquired in realization of "the principles of equitable treatment" which are affirmed to be in the Treaty. In the whole, full record of endorsement, there is no hint of holding for the explanation that the diverse treaty rights granted investors were conditioned upon investment being made in a corporation of the investor's nationality. Arguments of the Prefect and Court of Appeal The Prefect affirmed that the Mayor, in giving the requisition order, held on provisions of law which, in situations of serious public need and unexpected importance, allow the Mayor to requisition private property; but here, the Prefect established, these circumstances were there "from the purely hypothetical standpoint", a verdict which emerges to denote that they were not in reality there. The Prefect's choice show that in fact those circumstances were not there since the Prefect's choice winds up that (a) The order of requisition could not reinstate ELSI’s plant to function or resolve the company's harms; (b) The order in actuality did not; (c) The plant continued to be closed and engaged by former workers and (d) Public order was in any event troubled by the plant's shutting: simply, that the requisition order verified baseless ness on all counts. The Prefect's holding that, given that the requisition order was immobilized of achieving its supposed principle, it required the juridical cause which may give good reason for it, is not far from affirming that the demand was unjust and hence awkward or even whimsical. Furthermore, the Prefect affirmed that the order by its terms demonstrated that the Mayor gave the order to demonstrate his aim to interfere "in one way or another", as a pace "meant more than anything else at conveying out his meaning to deal with the hold up as well". The Prefect there referred to the stipulation of the Mayor's order directing that "the local press is pleasing a great importance in the state of affairs. . . being very grave in the direction of the powers that be and is accusing them of unconcern to this grave civic problem. . .". The Court of Appeal of Palermo exemplified that the place of the Prefect was "stern" and as "presentation a typical case of overload of power" on the part of the Mayor - i.e., a classic illogical act. Furthermore, the Court of Appeal levied the Mayor with compounding the "illegal" requisition by worsening to pay the guarantee for requisition for which the order itself offered - a failure which is at odds with the due process which is opposing to a random act. What is difficult or fickle in international law, while containing logic in normal international law, has no consistent, simple significance, but can be treasured only in the exact situation of the particulars of a case. In here, the order of requisition as supported, subjected and executed was subjective since: - The legal basis on which the Mayor's order depended was defensible just in theory; - The order was unable to attain, and did not realize, its supposed reasons; - The order in addition was subjected "mostly" to soothe public disapproval rather than on its virtues, a "typical case of surplus of control". - The order dishonored its own terms by not succeeding in paying insurance for the requisition; - a supreme reason of the requisition order was to stop ELSI’s insolvency and likely spread of its property, a point chased with no examination to Treaty compulsion of opposing tenor Criticism Italy's purposeful progressions of administrative and judicial analysis of the requisition order may be said to have guaranteed, by their continuation and request, that the requisition, even if at first arbitrary, in the end was not, thus freeing Italy of some completed violation of international duty. Nevertheless, as the Draft Articles on State Responsibility of the United Nations International Law Commission sets: "There is a breach by a State of an international obligation requiring it to achieve, by means of its own choice, a specified result, if, by the conduct adopted, the State does not achieve the result required of it by that obligation." That places itself right this case, for Italy did not offer ELSI or its delegation with "complete and total reimbursement" (as the ILC requires) for what in other words was the deliberate act of requisition. The requisition order was cancelled by the Prefect, but 16 months after it was publicized, by which time ELSI had experienced irreversible damage as an outcome of it. The Court of Palermo rewarded negligible damages for the requisition, which, on the other hand, took no account of principal elements of ELSI’s genuine losses. For that reason it follows that ELSI was not positioned in the place it would have been in had there been no requisition, or in an equal place. For that cause, Italian administrative and judicial processes, however admirable, did not clear Italy of having dedicated an arbitrary act in the sense of the Treaty. Conclusion The Chamber's fundamental close in the case is that, for the reason that the reality of ELSI's financial state of affairs and the legalities of Italian bankruptcy performance, Raytheon was not able, according to date of the requisition, be in charge of and run - and therefore settle the debts - ELSI and thus might not have been stripped by the requisition of its Treaty right to do so. Initially, ELSI had been recommended in March 1968, on monetary and legal basis, that it was allowed to liquidate its assets, in a procedure to be run by ELSI. Next, as of the day of the requisition, no lawful or realistic steps had been taken in any section to place ELSI in, or force ELSI into, insolvency. The Prime Minister of Italy and the President of Sicily and their friends most probably acted, and must be supposed to have acted, in accord with the law of Italy. Therefore whether in this case Italian or United States counsel are right in their conflicting analysis of Italian insolvency law, it is obvious that the "living law" of Italy as of the time of the bankruptcy was incoherent with Italy's present appeal and the Chamber's receipt of it. Italy in 1989 ought not to have been heard to sustain the differing of what it upheld in 1968. The Court concluded that ELSI's bankruptcy originated not by the requisition but by its previous state of liquidation. But it neither accomplished nor did it oblique that such liquidation dissolved accessible rights of management and running of ELSI. It fairly awarded compensation "derivable from the set unavailability" of the plant as the result of what it found to be an "illegal" requisition arrangement. Thus the Court introduced that ELSI sustained as of the date of the requisition and afterward to have ownership rights in ELSI even though it had been bankrupt before that date. The Chamber acknowledged that Raytheon had relocated fresh capital to pay small creditors; that Raytheon was prepared to purchase ELSI's large accounts receivable at 100 per cent of value; and that Raytheon was ready to advance sufficient cashflow funds to facilitate ELSI to engage in an orderly insolvency. Why then does it allow the contradictory conclusion that, as of the time of the requisition, ELSI was bankrupt or, if not, was in any event fast slipping into bankruptcy? If the requisition had not intervened, and if ELSI's direct cash-flow necessities had been met by Raytheon, thus buying time in order to sell assets, can it really be held that ELSI would have been enforced into bankruptcy, at any rate when it was? Even if bankruptcy had eventually come, such a later date would have enabled Raytheon materially to reduce its losses relative to those which actually were incurred. Moreover, if the requisition had not interceded, it would have been in the interest of the Italian banks to have settled their claims against ELSI for 40 or 50 per cent of value. An orderly insolvency, Judge Schwebel acknowledged, would have been beset by doubts, but they go not so much to ELSI's potential and right to liquidate its assets as to the calculability of damages which may be found to flow from denial of that right. The conclusion that by imposition of the requisition Italy violated a viable right of Raytheon to control and manage ELSI is the more compelling in the light of the meaning of the Treaty which the processes of its ratification elucidate. It was not consistent with investors' "unobstructed control" of companies they "procured", with the Treaty's "guarantee against political risks", and with the "principles of equitable treatment" which the Treaty was designed to ensure. Reference: Elettronica Sicula S.P.A. (ELSZ), Constitution of Chamber, Order of 2 March 1987, 1. C.J. Reports 1987, p. 3. Staff. International Court of Justice Database, World Legal Information Institute, last updated: 22 August 2006. Most recent document: 3 February 2006 Number of documents: 130 Bimal N. Patel, Shabtai Rosenne. The World Court Reference Guide: Judgments, Advisory Opinions and Orders of the Permanent Court of international Justice and the International Court of Justice (1922–2000), Martinus Nijhoff Publishers, 2002, ISBN 9041119078 http://www.guardian.co.uk/world/feedarticle/8780683 List of Contentious Cases by date of introduction List of Advisory Proceedings referred to the Court since 1946 by date of introduction Indiana State Teachers Ass’n. v. Indianapolis Bd. of Sch. Comm’rs, 101 F.3d 1179, 1181 (7th Cir. 1996). Futernick v. Sumpter Township, 78 F.3d 1051, 1058 (6th Cir. 1996). Timothy Zick, Angry White Males: The Equal Protection Clause and “Classes of One,” 89 Ky. L.J. 69, 88-89 (2000). Lauth v. McCollum, 424 F.3d 631, 633 (7th Cir. 2005). Engquist v. Or. Dep’t of Agric., 478 F.3d 985, 1013 (9th Cir. 2007) (Reinhardt, J., dissent). Scarborough v. Morgan County Bd. of Educ., 470 F.3d 250 (6th Cir. 2006); Hill v. Borough of Kutztown, 455 F.3d 339, 348-50 (3rd Cir. 2006); Whiting v. Univ. of Miss., 451 F.3d 339, 348-50 (5th Cir. 2006); Neilson v. D’Angelis, 409 F.3d 100, 104 (2nd Cir. 2005); Timothy Zick, Angry White Males: The Equal Protection Clause And “Classes Of One”, 89 KY. L.J. 69, 83 (2000–2001) (citing Joseph Tussman & Jacobus tenBroek, The Equal Protection of the Laws, 37 CAL. L. REV. 341, 344 (1949)). Nicole Richter, A Standard for “Class of One” Claims Under the Equal Protection Clause of the Fourteenth Amendment: Protecting Victims of Non-Class Based Discrimination From Vindictive State Claims, 35 VAL. U. L. REV. 197, 228–29 (2000). Rubinovitz v. Rogato, 60 F.3d 906, 911 (1st Cir. 1995); LeClair v. Saunders, 627 F.2d 606, 609 (2d Cir. 1980); Jennings v. City of Stillwater, 383 F.3d 1199, 1211 (10th Cir. 2004). Timothy Zick, Angry White Males: The Equal Protection Clause And “Classes Of One”, 89 KY. L.J. 69, 83 (2000–2001). Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15. Read More