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World Court Digest



II. Substantive International Law - Second Part
8. LAW OF ALIENS
8.2. Protection of Property

¤ Elettronica Sicula S.p.A. (ELSI)
Judgment of 20 July 1989
I.C.J. Reports 1989, p. 15

[pp. 70-71] The argument that there was a "taking" involving transfer of title gives rise to a number of difficulties. Even assuming, though without deciding, that "espropriazione" might be wide enough to include not only formal and open expropriation, but also a disguised expropriation, there would still be a question whether the paragraph can be extended to include even a "taking" of an Italian corporation in Italy, of which, strictly speaking, Raytheon and Machlett only held the shares. This, however, is where account must also be taken of the first paragraph of the Protocol appended to the FCN Treaty, which provides:
"1. The provisions of paragraph 2 of Article V, providing for the payment of compensation, shall extend to interests held directly or indirectly [si estenderanno ai diritti spettanti direttamente od indirettamente ai cittadini...] by nationals, corporations and associations of either High Contracting Party in property which is taken within the territories of the other High Contracting Party."

The English text of this provision suggests that it was designed precisely to resolve the doubts just described. The interests of shareholders in the assets of a company, and in their residuary value on liquidation, would appear to fall in the category of the "interests" to be protected by Article V, paragraph 2, and the Protocol. Italy has however drawn attention to the use in the Italian text - which is equally authentic - of the narrower term "diritti" (rights), and has argued that, on the basis of the principle expressed in Article 33, paragraph 4, of the Vienna Convention on the Law of Treaties, the correct interpretation of the Protocol must be in the more restrictive sense of the Italian text.

In the view of the Chamber, however, neither this question of interpretation of the two texts of the Protocol, nor the questions raised as to the possibilities of disguised expropriation or of a "taking" amounting ultimately to expropriation, have to be resolved in the present case, because it is simply not possible to say that the ultimate result was the consequence of the acts or omissions of the Italian authorities, yet at the same time to ignore the most important factor, namely ELSI's financial situation, and the consequent decision of its shareholders to close the plant and put an end to the company's activities. As explained above (paragraphs 96-98), the municipal courts considered that ELSI, if not already insolvent in Italian law before the requisition, was in so precarious a state that bankruptcy was inevitable. The Chamber cannot regard any of the acts complained of which occurred subsequent to the bankruptcy as breaches of Article V, paragraph 2, in the absence of any evidence of collusion, which is now no longer even alleged. Even if it were possible to see the requisition as having been designed to bring about bankruptcy, as a step towards disguised expropriation, then, if ELSI was already under an obligation to file a petition of bankruptcy, or in such a financial state that such a petition could not be long delayed, the requisition was an act of supererogation. Furthermore this requisition, independently of the motives which allegedly inspired it, being by its terms for a limited period, and liable to be overturned by administrative appeal, could not, in the Chamber's view, amount to a "taking" contrary to Article V unless it constituted a significant deprivation of Raytheon and Machlett's interest in ELSI's plant; as might have been the case if, while ELSI remained solvent, the requisition had been extended and the hearing of the administrative appeal delayed. In fact the bankruptcy of ELSI transformed the situation less than a month after the requisition. The requisition could therefore only be regarded as significant for this purpose if it caused or triggered the bankruptcy. This is precisely the proposition which is irreconcilable with the findings of the municipal courts, and with the Chamber's conclusions in paragraphs 99-100 above.

[p. 120 D.O. Schwebel] May the measure and amount of compensation awarded by the Court of Appeal of Palermo be viewed as "full and complete compensation" which provides an equivalent result to ELSI's never having been requisitioned? Surely not. Whether or not the requisition was the cause of ELSI's bankruptcy - indeed, accepting that it was not "the" cause - the requisition inflicted uncompensated damage upon ELSI and its creditors, including (a) ELSI's practical inability to sell its accounts receivable for 100 per cent of their face value; (b) ELSI's actual inability to complete its work-in-progress and sell that work and its inventory for their value (in the event, work-in-progress was sold for materially less than its appraised value); and (c) ELSI's actual inability to arrange the showing and sale of its plant, product lines and equipment and its inability to bring to bear its knowledge of its assets and of the industry so as to raise the maximum return from the sale of those assets (including intangible assets).