Summaries of the Decisions
Elettronica Sicula S.p.A. (ELSI) case
(United States of America v. Italy)
Judgment of 20 July 1989
On July 20, 1989, the International Court of Justice delivered its judgment
in the case concerning Elettronica Sicula S.p.A. (ELSI) between the United
States of America and Italy.
Raytheon-ELSI S.p.A. (ELSI), an Italian corporation wholly owned by the
United States corporations Raytheon Company (Raytheon), which held 99.16 per
cent of the shares, and its subsidiary The Machlett Laboratories (Machlett),
which held the remaining 0.83 per cent, was established in Palermo, Italy, where
it produced electronic components.
ELSI had been in economic trouble since the 1960s. In 1967, representatives
of ELSI and Raytheon held numerous meetings with officials of the Italian
Government and of the Sicilian region in an attempt to secure governmental
support for ELSI. When it became apparent that these discussions were unlikely
to be successful, Raytheon prepared to close the plant. The balance sheet for
the end of September 1967 showed that under Italian law and accounting
principles the book value of ELSI's assets still exceeded its liabilities.
However, internal accounting adjustments in accordance with Rayhteon's
accounting policy showed ELSI insolvent. Raytheon therefore formally declared
that it would not subscribe to any additional loans made to ELSI. It was,
however, ready to financially support an orderly liquidation. The Italian
authorities pressed ELSI not to close the plant and promised help. The final
decision to close the plant was taken in March 1968.
On April 1, 1968, the Mayor of Palermo issued an order, effective
immediately, requisitioning ELSI's plant and related assets for six months. An
administrative appeal brought against the order was not decided by the Prefect
of Palermo until August 22, 1969. It was then held that the Mayor had exceeded
his powers and that the requisition had been unlawful. In the meantime, the
plant had been occupied and production had ceased. On April 26, 1968, ELSI filed
petition in bankruptcy. A trustee was appointed. In July 1969, ELSI was
purchased for far less than book value by a subsidiary of the State-controlled
IRI. An action for damages resulting from the requisition was dismissed by the
Court of Palermo. On appeal, the Court of Appeal of Palermo granted a small
portion of the claims. This decision was upheld by the Court of Cassation in
1975. In 1974, the United States transmitted a note to Italy enclosing a claim
on behalf of Raytheon, based on several alleged violations of the Treaty of
Friendship, Commerce and Navigation concluded between Italy and the United
States (FCN Treaty).
The United States application before the International Court of Justice was
filed in 1987. According to the wishes of the parties, the case was submitted to
and decided by a Chamber of the Court under Article 26(2) of the Statute of the
Court.
Italy entered an objection to the admissibility of the present case on the
ground of an alleged failure of the two United States corporations to exhaust
local remedies. The United States questioned whether the rule of the exhaustion
of local remedies could apply at all, as Article XXVI of the FCN Treaty was
unqualified by any reference to the local remedies rule. The United States
further argued that the local remedies rule was inapplicable in so far as its
claim was for a declaratory judgment of a direct injury to the United States by
infringement of its rights under the FCN Treaty. The Chamber rejected these
arguments. The United States also observed that Italy, until the filing of the
Counter-Memorial, had at no time suggested that Raytheon should sue in the
Italian courts on the basis of the Treaty, and argued that this amounted to an
estoppel. The Chamber, however, found that an estoppel cannot be derived from a
mere failure to mention a matter at a particular point in diplomatic exchanges.
After examining the actions taken against the requisition order, the Chamber
considered that the municipal courts had been fully seized of the matter which
was the substance of the Applicant's claim before the Chamber. Furthermore,
since it was for Italy to show the existence of a local remedy, and since Italy
had not been able to satisfy the Chamber that there clearly remained some remedy
which Raytheon, independently of ELSI, ought to have pursued and exhausted, the
Chamber rejected the objection of non-exhaustion of local remedies.
As to the merits, the majority found that it had not been sufficiently
established that an orderly liquidation of ELSI's assets would still have been
feasible at the time of the requisition. The Chamber first observed that Article
III of the Treaty, the right "to control and manage corporations", had
not been violated, since it had not been established that the creditors would
have given the company enough time for an orderly liquidation, or that the price
obtainable on a quick sale would have been sufficient. The Chamber felt that
since the feasibility of an orderly liquidation had not been sufficiently
established, the requisition order could not interfere with control and
management in any real sense. Thus the requisition, while unlawful, was not the
cause of ELSI's bankruptcy.
The Chamber also dismissed the claim that Article V, paragraphs 1 and 3, of
the FCN Treaty, which were concerned with the protection and security of
nationals and their property, had been violated. According to the Chamber the
toleration of the occupation of the plant by the workers did not cause any
material harm to ELSI. The delay in the administrative appeal was not regarded
as a denial of justice, since, under the Italian Law, there had been a means of
requesting a quick decision.
The judgment further found that no taking without a due process of law had
occurred contrary to Article V, paragraph 2, of the Treaty. The Chamber left the
question open, whether the Italian term "espropriazione" should be
interpreted in a stricter sense than the English term "taking". In
that respect, the Chamber found that although a requisition could be an
expropriation, it was not in the present case, since ELSI was already under an
obligation to file for bankruptcy.
The Chamber also concluded that the requisition order had not violated
Article I of the Supplementary Agreement to the FCN Treaty, which prohibited "arbitrary
or discriminatory measures". According to the Chamber arbitrariness would
require more than mere unlawfulness. But since the order was "consciously
made in the context of an operating system of law and of appropriate remedies of
appeal", it could hardly be an arbitrary act. Finally, the Chamber stated
that the right to dispose of property and interests, guaranteed by Article VII
of the FCN Treaty, had not been violated, since what really deprived the United
States shareholders of their right to dispose of ELSI's real property was the
precarious financial state of ELSI, which ultimately led to bankruptcy and thus
prevented the shareholders from disposing of the company's property.
Having thus found that the Respondent, Italy, had not violated the FCN
Treaty in the manner asserted by the Applicant, it follows that the Chamber
rejected the claim for reparation made by the Applicant.
