Case Concerning Elettronica Sicula S.P.A (ELSI) US v Italy

Case decided by a Chamber of the ICJ 1968 ELSI (Italian Company) wholly owned by two US corporations, was to cease operations, Italian Authority pressed ELSI not to close the plant and not to dismiss the workforce, letters of dismissal were mailed to the employees. The Mayor of Palermo issued an order requisitioning ELSI’s plant and assets for 6 months US claimed that Italy, by the requisition of the ELSI’s plant have frustrated the plan for a ‘orderly liquidation’ of the company, violating certain provisions of the 1948 Treaty of Friendship, Commerce & Navigation. Art. III ‘nationals, corporations and associations of the …parties shall be permitted in conformity with the applicable laws and regulations … to organise, control and manage corporations … for engaging in commercial …activities’ US focused on the right of ‘control and manage’ Art V provides for ‘the most constant protection and security’ for nationals of other state, in 3 three different standards, required by international law, no less than the standard accorded to the national of the party, and no less than that accorded to national of 3rd country. Art V ‘property of nationals …shall not be taken … without due process of law and without the prompt payment of just and effective compensation’ US alleged that the interference of the government in the bankruptcy proceedings led to a less than fair market value Art I supplementary agreement ‘nationals … shall not be subjected to arbitrary or discriminatory measures …preventing the effective control and management’ Italy object admissibility on the ground of non-exhaustion of local remedies. US said that since XXVI treaty of Friendship did not say anything about the rule of exhaustion of local remedies, the intention of the parties was not to qualified diplomatic protection with the rule before international proceedings. Court held: Parties to a treaty can therein either agree that local remedies rule shall not apply to claims based on alleged breaches of the treaty or confirm that it shall apply, by it is unacceptable that an important principle of CIL should be held to have been tacitly dispensed with, in the absence of any words making clear an intention to do so.

What is the relationship of the court and a chamber? ‘a chamber formed to deal with a particular case therefore deals not only with the merits of the case, but also with incidental proceedings arising in that case’ Since it was the requisition order that is said to have caused the damage (losses incurred by ELSI owners as a result of involuntary change in the manner of disposing ELSI’s assets) and there are the core of the US complain, it was therefore right that local remedies be pursued by ELSI itself. ‘For an international claim to be admissible, it is sufficient if the essence of the claim has been brought before the competent tribunal and pursued as far as permitted by local law and procedures and without success’ After examining the action taken by ELSI in its appeal against the requisition order, the Chamber decided that courts had been fully siesed of the matter. Since it was for Italy to show the existence of local remedy and Italy has not been able to satisfy the chamber that there remained some remedy, the Italy’s objection non-exhaustion of local remedies was rejected. The requisition was found both by the Prefect and Court of Appeal of Palermo not to have been justified in the applicable local law. There were several causes acting together that led to the disaster to ELSI, of which the effects of the requisition might no doubt have been one. The possibility of orderly liquidation is purely a matter of speculation. The chamber is therefore unable to see here anything which can be said to amount to a violation of art III FCN Treaty. US alleged that property to be protected was ELSI itself, the chamber said that “constant protection and security” cannot be construed as the giving the warranty that property shall never in any circumstances be occupied or disturbed. The three standards of protection have been satisfied. Requisition, independently of the motives, … 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 art V, unless it constituted a significant deprivation of the owners interest in ELSI, however ELSI was at the moment insolvent. Arbitrariness is a wilful disregard of due process of law, an act which shocks, or at least surprise, a sense of juridical property. Nothing in the decision of the Prefect or in the judgment of the Court of Appeal of Palermo, conveys any indication that the requisition order of the Mayor may to be regarded in that light US espoused the cause of its nationals as shareholders in an Italian Company, as the court said in Barcelona, the rights of shareholder as such lie beyond the reach of diplomatic protection under General IL, the 1948 treaty was not intended to protect such rights of shareholders