Case Concerning Barcelona Traction, Light, and Power Company, Ltd.

(Second
Phase)

CASE CONCERNING THE BARCELONA TRACTION,

Judgment of 5 February 1970

In its judgment in the second phase of the case concerning the Barcelona Traction, Light and
Power Company, Limited (New Application: 1962) (Belgium v. Spain), the Court rejected
Belgium’s claim by fifteen votes to one.

The claim, which was brought before the Court on 19 June 1962, arose out of the adjudication in
bankruptcy in Spain of Barcelona Traction, a company incorporated in Canada. Its object was to
seek reparation for damage alleged by Belgium to have been sustained by Belgian nationals,
shareholders in the company, as a result of acts said to be contrary to international law
committed towards the company by organs of the Spanish State.

The Court found that Belgium lacked jus standi to exercise diplomatic protection of shareholders
in a Canadian company with respect to measures taken against that company in Spain.

Judges Petrén and Onyeama appended a joint declaration to the Judgment; Judge Lachs
appended a declaration. President Bustamante y Rivero and Judges Sir Gerald Fitzmaurice,
Tanka, Jessup, Morelli, Padilla Nervo, Gros and Ammoun appended Separate Opinions.

Judge ad hoc Riphagen appended a Dissenting Opinion.

Background of Events in the Case

(paras. 8-24 of the Judgment)

The Barcelona Traction, Light and Power Company, Limited, was incorporated in 1911 in
Toronto (Canada), where it has its head office. For the purpose of creating and developing an
electric power production and distribution system in Catalonia (Spain) it formed a number of
subsidiary companies, of which some had their registered offices in Canada and the others in
Spain. In 1936 the subsidiary companies supplied the major part of Catalonia’s electricity
requirements. According to the Belgian Government, some years after the first world war
Barcelona Traction share capital came to be very largely held by Belgian nationals, but the
Spanish Government contends that the Belgian nationality of the shareholders is not proven.

Barcelona Traction issued several series of bonds, principally in sterling. The sterling bonds
were serviced out of transfers to Barcelona Traction effected by the subsidiary companies
operating in Spain. In 1936 the servicing of the Barcelona Traction bonds was suspended on
account of the Spanish civil war. After that war the Spanish exchange control authorities refused
to authorize the transfer of the foreign currency necessary for the resumption of the servicing of
the sterling bonds. Subsequently, when the Belgian Government complained of this, the Spanish
Government stated that the transfers could not be authorized unless it were shown that the
foreign currency was to be used to repay debts arising from the genuine importation of foreign
capital into Spain and that this had not been established.

In 1948 three Spanish holders of recently acquired Barcelona Traction sterling bonds petitioned
the court of Reus (Province of Tarragona) for a declaration adjudging the company bankrupt, on
account of failure to pay the interest on the bonds. On 12 February 1948 a judgment was given
declaring the company bankrupt and ordering the seizure of the assets of Barcelona Traction and
of two of its subsidiary companies. Pursuant to this judgment the principal management
personnel of the two companies were dismissed and Spanish directors appointed. Shortly
afterwards, these measures were extended to the other subsidiary companies. New shares of the
subsidiary companies were created, which were sold by public auction in 1952 to a newly-
formed company, Fuerzas Electricas de Cataluna, S.A. (Fecsa), which thereupon acquired
complete control of the undertaking in Spain.

Proceedings were brought without success in the Spanish courts by various companies or
persons. According to the Spanish Government, 2,736 orders were made in the case and 494
judgments given by lower and 37 by higher courts before it was submitted to the International
Court of Justice . The Court found that in 1948 Barcelona Traction, which had not received a
judicial notice of the bankruptcy proceedings, and was not represented before the Reus court,
took no proceedings in the Spanish courts until 18 June and thus did not enter a plea of
opposition against the bankruptcy judgment within the time-limit of eight days from the date of
publication of the judgment laid down in Spanish legislation. The Belgian Government contends,
however, that the notification and publication did not comply with the relevant legal
requirements and that the eight-day time-limit never began to run.

Representations were made to the Spanish Government by the British, Canadian, United States
and Belgian Governments as from 1948 or 1949. The interposition of the Canadian Government
ceased entirely in 1955.

Proceedings before the International Court and the Nature of the Claim

(paras. 1-7 and 26-31 of the Judgment)

The Belgian Government filed a first Application with the Court against the Spanish
Government in 1958. In 1961 it gave notice of discontinuance of the proceedings, with a view to
negotiations between the representatives of the private interests concerned, and the case was
removed from the Court’s General List. The negotiations having failed, the Belgian Government
on 19 June 1962 submitted to the Court a new Application. In 1963 the Spanish Government
raised four preliminary objections to this Application. By its Judgment of 24 July 1964, the
Court rejected the first and second objections and joined the third and fourth to the merits.

In the subsequent written and oral proceedings the Parties supplied abundant material and
information. The Court observed that the unusual length of the proceedings was due to the very
long time-limits requested by the Parties for the preparation of their written pleadings and to
their repeated requests for an extension of chose limits. The Court did not find that it should
refuse those requests, but it remained convinced that it was in the interest of the authority of
international justice for cases to be decided without unwarranted delay.

The claim submitted to the Court had been presented on behalf of natural and juristic persons,
alleged to be Belgian nationals and shareholders in Barcelona Traction, a company incorporated
in Canada and having its head office there. The object of the Application was reparation for
damage allegedly caused to those persons by the conduct, said to be contrary to international
law, of various organs of the Spanish State towards that company.

The third preliminary objection of the Spanish Government, which had been joined to the merits,
was to the effect that the Belgian Government lacked capacity to submit any claim in respect of
wrongs done to a Canadian company even if the shareholders were Belgian. The fourth
preliminary objection, which was also joined to the merits, was to the effect that local remedies
available in Spain had not been exhausted.

The case submitted to the Court principally concerned three States, Belgium, Spain and Canada,
and it was accordingly necessary to deal with a series of problems arising out of this triangular
relationship.

The Belgian Government’s jus standi

The Court first addressed itself to the question, raised by the third preliminary objection, which
had been joined to the merits, of the right of Belgium to exercise diplomatic protection of
Belgian shareholders in a company incorporated in Canada, the measures complained of having
been taken in relation not to any Belgian national but to the company itself.

The Court observed that when a State admitted into its territory foreign investments or foreign
nationals it was bound to extend to them the protection of the law and assumed obligations
concerning the treatment to be afforded them. But such obligations were not absolute. In order to
bring a claim in respect of the breach of such an obligation, a State must first establish its right to
do so.

In the field of diplomatic protection, international law was in continuous evolution and was
called upon to recognize institutions of municipal law. In municipal law, the concept of the
company was founded on a firm distinction between the rights of the company and those of the
shareholder. Only the company, which was endowed with legal personality, could take action in
respect of matters that were of a corporate character. A wrong done to the company frequently
caused prejudice to its shareholders, but this did not imply that both were entitled to claim
compensation. Whenever a shareholder’s interests were harmed by an act done to the company,
it was to the latter that he had to look to institute appropriate action. An act infringing only the
company’s rights did not involve responsibility towards the shareholders, even if their interests
were affected. In order for the situation to be different, the act complained of must be aimed at
the direct rights of the shareholder as such (which was not the case here since the Belgian
Government had itself admitted that it had not based its claim on an infringement of the direct
rights of the shareholders).

International law had to refer to those rules generally accepted by municipal legal systems. An
injury to the shareholder’s interests resulting from an injury to the rights of the company was
insufficient to found a claim. Where it was a question of an unlawful act committed against a
company representing foreign capital, the general rule of international law authorized the
national State of the company alone to exercise diplomatic protection for the purpose of seeking
redress. No rule of international law expressly conferred such a right on the shareholder’s
national State.

The Court considered whether there might not be, in the present case, special circumstances for
which the general rule might not take effect. Two situations needed to be studied: (a) the case of
the company having ceased to exist, and (b) the case of the protecting State of the company
lacking capacity to take action. As regards the first of these possibilities, the Court observed that
whilst Barcelona Traction had lost all its assets in Spain and been placed in receivership in
Canada, it could not be contended that the corporate entity of the company had ceased to exist or
that it had lost its capacity to take corporate action. So far as the second possibility was
concerned, it was not disputed that the company had been incorporated in Canada and had its
registered office in that country , and its Canadian nationality had received general recognition.
The Canadian Government had exercised the protection of Barcelona Traction for a number of
years. If at a certain point the Canadian Government ceased to act on behalf of Barcelona
Traction, it nonetheless retained its capacity to do so, which the Spanish Government had not
questioned. Whatever the reasons for the Canadian Government’s change of attitude, that fact
could not constitute a justification for the exercise of diplomatic protection by another
government.

It had been maintained that a State could make a claim when investments by its nationals abroad,
such investments being part of a State’s national economic resources, were prejudicially affected
in violation of the right of the State itself to have its nationals enjoy a certain treatment. But, in
the present state of affairs, such a right could only result from a treaty or special agreement. And
no instrument of such a kind was in force between Belgium and Spain.
It had also been maintained that, for reasons of equity, a State should be able, in certain cases, to
take up the protection of its nationals, shareholders in a company which had been the victim of a
violation of international law. The Court considered that the adoption of the theory of diplomatic
protection of shareholders as such would open the door to competing claims on the part of
different States, which could create an atmosphere of insecurity in international economic
relations. In the particular circumstances of the present case, where the company’s national State
was able to act, the Court was not of the opinion that jus standi was conferred on the Belgian
Government by considerations of equity.

The Court’s Decision

(paras. 102 and 103 of the Judgment)

The Court took cognizance of the great amount of documentary and other evidence submitted by
the Parties and fully appreciated the importance of the legal problems raised by the allegation
which was at the root of the Belgian claim and which concerned denials of justice allegedly
committed by organs of the Spanish State. However, the possession by the Belgian Government
of a right of protection was a prerequisite for the examination of such problems. Since no jus
standi before the Court had been established, it was not for the Court to pronounce upon any
other aspect of the case.

Accordingly, the Court rejected the Belgian Government’s claim by 15 votes to 1, 12 votes of the
majority being based on the reasons set out above.

International Court of Justice Reports, vol. 1970, p. 3(1970). Barcelona Traction, Light, and
Power Company, Ltd. (Barcelona Traction) manufactured and supplied electricity in Spain.
Although doing business in Spain, it was incorporated in Canada and maintained its headquarters
in Toronto. The company issued corporate bonds to investors outside of Spain. During the
Spanish Civil War (1936–1939), the government of Spain refused to allow Barcelona Traction to
transfer currency from Spain to pay interest to the bondholders. The interest payments were
never resumed.

In 1948, several Spaniards purchased some of the bonds and then brought suit in a Spanish court
asking it to declare Barcelona Traction bankrupt because it had failed to pay the interest on the
bonds. The court did so and, following several motions and appeals, all of the assets in Spain
belonging to the company were finally sold by public auction in 1952. The proceeds from the
sale were distributed to creditors and only a very small sum was to be paid to shareholders. The
shareholders then sought the assistance of their home states in seeking to obtain a larger
settlement. Canada, among other states, complained to Spain of denials of justice and of the
violation of certain treaties it alleged were applicable. Canada, however, eventually agreed that
Spain had acted properly in denying Barcelona Traction the right to transfer currency abroad and
later in declaring the company bankrupt.

Belgium took an interest in the matter because Belgians owned 88 percent of the shares in
Barcelona Traction. It disagreed that Spain had acted properly and after Spain became a member
of the United Nations in 1955, Belgium filed a complaint before the International Court of
Justice in 1958. The proceedings were suspended and then discontinued while representatives of
the private interests concerned carried on negotiations. When the negotiations failed, Belgium
submitted a new application to the Court in 1962.

Spain promptly objected that Belgium could not sponsor Barcelona Traction's or its shareholders'
complaints because Barcelona Traction was a Canadian company.

JUDGMENT OF THE COURT:... When a State admits into its territory foreign investments or
foreign nationals, whether natural or juristic persons, it is bound to extend to them the protection
of the law and assumes obligations concerning the treatment to be afforded them….
SEPARATE OPINION OF JUDGE PADILLA NERVO [OF MEXICO]:... The history of the
responsibility of States in respect to the treatment of foreign nationals is the history of abuses,
illegal interference in the domestic jurisdiction of weaker States, unjust claims, threats and even
military aggression under the flag of exercising rights of protection, and the imposing of
sanctions in order to oblige a government to make the reparations demanded. Special agreements
to establish arbitral tribunals were on many occasions concluded under pressure, by political,
economic or military threats.

The protecting States, in many instances, are more concerned with obtaining financial
settlements than with preserving principles. Against the pressure of diplomatic protection,
weaker States could do no more than to preserve and defend a principle of international law,
while giving way under the guise of accepting friendly settlements, either giving the
compensation demanded or by establishing claims commissions which had as a point of
departure the acceptance of responsibility for acts or omissions, where the government was,
neither in fact nor in law, really responsible. In the written and in the oral pleadings the
Applicant has made reference, in support of his thesis, to arbitral decisions of claims
commissions—among others those between Mexico and the United States, 1923.

These decisions do not necessarily give expression to rules of customary international law, as ...
the Commissions were authorized to decide these claims "in accordance with principles of
international law, justice and equity," and, therefore, may have been influenced by other than
strictly legal considerations. ...

Now the evolution of international law has other horizons and its progressive development is
more promising, as Rosenne wrote:

There is prevalent in the world today a widespread questioning of the contemporary international
law. This feeling is based on the view that for the greater part international law is the product of
European imperialism and colonialism and does not take sufficient account of the completely
changed pattern of international relations which now exists....

Careful scrutiny of the record of the Court may lead to the conclusion that it has been remarkably
perceptive of the changing currents of international thought. In this respect it has performed a
major service to the international community as a whole, because the need to bring international
law into line with present-day requirements and conditions is real and urgent. The law, in all its
aspects, the jurisprudence and the practice of States change as the world and the everyday
requirements of international life change, but those responsible for its progressive evolution
should take care that their decisions do, in the long run, contribute to the maintenance of peace
and security and the betterment of the majority of mankind.

In considering the needs and the good of the international community in our changing world, one
must realize that there are more important aspects than those concerned with economic interests
and profit making; other legitimate interests of a political and moral nature are at stake and
should be considered in judging the behavior and operation of the complex international scope of
modern commercial enterprises.

It is not the shareholders in those huge corporations who are in need of diplomatic protection; it
is rather the poorer or weaker States, where the investments take place, who need to be protected
against encroachment by powerful financial groups, or against unwarranted diplomatic pressure
from governments who appear to be always ready to back at any rate their national shareholders,
even when they are legally obliged to share the risk of their corporation and follow its fate, or
even in case of shareholders who are not or have never been under the limited jurisdiction of the
State of residence accused of having violated in respect of them certain fundamental rights
concerning the treatment of foreigners. It can be said that, by the mere fact of the existence of
certain rules concerning the treatment of foreigners, these have certain fundamental rights that
the State of residence cannot violate without incurring international responsibility; but this is not
the case of foreign shareholders as such, who may be scattered all over the world and have never
been or need not be residents of the respondent State or under its jurisdiction.

In the case of the Rosa Gelbtrunk claim between Salvador and the United States, the President of
the arbitration commission expressed a view which may summarize the position of foreigners in
a country where they are resident. This view was expressed as follows:

A citizen or subject of one nation who, in the pursuit of commercial enterprise, carries on trade
within the territory and under the protection of the sovereignty of a nation other than his own, is
to be considered as having cast in his lot with the subjects or citizens of the State in which he
resides and carries on business. (Italics added.) "In this case," Schwarzenberger remarks, "the
rule was applied to the loss of foreign property in the course of a civil war. The decision touches,
however, one aspect of a much wider problem: the existence of international minimum
standards, by which, regarding foreigners, territorial jurisdiction is limited." ... Much has been
said about the justification for not leaving the shareholders in those enterprises without
protection.

Perhaps modem international business practice has a tendency to be soft and partial towards the
powerful and the rich, but no rule of law could be built on such flimsy bases. Investors who go
abroad in search of profits take a risk and go there for better or for worse, not only for better.
They should respect the institutions and abide by the national laws of the country where they
chose to go.