Legal Analysis: Barcelona Traction, Light and Power Company Case

This report provides a detailed analysis of the Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain) case. The report begins with an executive summary, followed by an introduction to the case, which was initiated in 1962 at the International Court of Justice (ICJ). The report outlines the facts of the case, including the formation and registration of Barcelona Traction in Canada and its operations in Spain, and the subsequent issues arising from the Spanish government's actions during and after the Spanish Civil War. The report then presents the arguments made by both Belgium and Spain, focusing on Belgium's claim for diplomatic protection of its shareholders and Spain's objections to the jurisdiction and admissibility of the case. The core issues for determination by the ICJ are identified, including the jus standi of Belgium to seek diplomatic protection for shareholders of a Canadian company and the legal personality of international companies. The judgment of the court, which declined Belgium's claims, is discussed, along with an analysis of the court's reasoning, including the principles of absolute obligation, the distinction between a company and its shareholders, and the rules regarding diplomatic protection. The report also covers the exceptions to these rules and the court's rationale for its decision. The report concludes by highlighting the significance of the case in international law and its implications for shareholder rights and state responsibility.

Barcelona Traction, Light and Power Company, Limited (Belgium
v. Spain)
By (Name)
The Name of the Class (Course)
Professor (Tutor)
The Name of the School (University)
The City and State
The Date
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Executive Summary
In this Case the Belgian government argued that the Belgian shareholders of
the Barcelona Traction Company suffered harm and injury as a result of
Spain’s action which led to expropriation. Belgium insisted that it had a right
to ensure diplomatic protection of its nationals who were shareholders in a
company that was registered and incorporated in Canada. The Spanish
government contended that the Belgian government did not have the
capacity makes claims about alleged violation done by Spain to a Canadian
company despite the fact that the shareholders were Belgian. This paper will
divulge the arguments that were made by the parties, the decision of the
court and the significance of the case.
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1.0 Introduction
The case of Barcelona Traction, Light and Power Company, Limited
(Belgium v. Spain) was commenced through an application made on 19th
June 1962 at the International Court of Justice where the Belgian government
was seeking compensation for damages that have been suffered by Belgian
national who shareholders in the Barcelona traction company. The Belgian
government alleged that the damage suffered by the Belgian shareholders in
the traction company was largely attributed the conduct of various Spanish
state organs. More significantly though, there are certain fundamental
principles of international law that emerged from the hearing and
determination of the case. It is imperative to note that the judgment in this
case had two faces.
2.0 Facts
Barcelona Traction, Light and Power Company, Limited was formed and
registered in 1911 Toronto, Canada where its head quarters were based. It
established various subsidiary companies and registered offices based in
Spain for with primary aim of bringing to life an electric power production
and distribution system in Catalonia (Spain). The Belgian government
contended that after the first world way most of the Barcelona Traction’s
share capital was owed by the Belgian national. The Spanish government did
not agree with the aforementioned assertion.
It bears noting that most of the bonds issued by Barcelona Traction were in
sterling. In 1936 servicing of the Barcelona Traction was suspended following
the Spanish civil war. When the war came to an end, the Spanish exchange
authorities did not allow the transfer of the foreign currency which would
enable the servicing of sterling pounds resume. The Belgian government was
aggrieved by the decision of the Spanish exchange authorities. Despite the
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litany of complaints from the Belgian government, the Spanish Government
argued that it could not facilitate the transfers unless it was evinced that the
foreign currency would be used to make payments for outstanding debts
that were arising from action importation of foreign currency to Spain, and
the Belgian government had not proved this.
The Belgian government made its first application stating their grievances
against the Spanish government in 1958. However, in 1961 it filed a notice
to discontinue the proceedings at the court and instead enter into
negotiation with the parties that represented various interests. The case was
removed in court. It is imperative to note that the negotiations did not
succeed. On 19 June 1962 the Belgian government lodged another
application in court. In 1963 the Spanish government brought objections to
the application lodged by the Belgian Government.
3.0 Arguments
3.1 Belgian’s Argument
Belgium relied on several grounds in its claim against Spain. The primary
argument Belgium brought to force was that the Belgian shareholders of the
Barcelona Traction Company suffered harm and injury as a result of Spain’s
action which led to expropriation. Belgium insisted that it had a right to
ensure diplomatic protection of its nationals who were shareholders in a
company that was registered and incorporated in Canada. Further, it argued
that since the Spanish government declared the Barcelona Traction
Company to be bankrupt, it violated vital principles of international law that
causing direct injury to the company and indirect harm and injury to the
Belgium shareholders as the value of their shares had been reduced
significantly.
3.2 Spain’s Argument
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Spain’s argument was based on 4 primary objections. The first preliminary
objection was rejected however the Respondents, Spanish government,
contended that the discontinuance of the proceedings implied that the
Applicant, Belgian Government, is not allowed to file any further application
relating to the matter in the same court (ICJ, 1970). The second preliminary
objection was made with reference to Article 17(4) of the treaty of 1927
where the respondent argued that the International Court of Justice ICJ did
not have the jurisdiction to hear and determine the matter since dissolution
of the Permanent Court of Justice. Article 17(4) of the treaty that was made
between Belgium and Spain in 1927 provided that if there was any dispute
between the two countries the matter shall be referred to the Permanent
Court of International Justice. It bears noting that this objection was also
rejected. The court relied on Article 37 of the Statute of the International
Court of Justice provides that any dispute that ought to have been referred to
the Permanent Court of International Justice shall be referred to the
International Court of Justice (ICJ, 1970). In the third preliminary objection the
Spanish government contended that the Belgian government did not have
the capacity makes claims about alleged violation done by Spain to a
Canadian company despite the fact that the shareholders were Belgian. The
fourth objection was that applicant had not exhausted all the local remedies
before it made its decision lodge an application before the ICJ (Flemming,
1965)
4.0 Issues for Determination
From the forgoing facts, background and argument by the parties the
primary issues that lent themselves for determination by the International
Court of Justice include; (ICJ, 1970)
a) Whether the Belgian government had the Jus standi to seek and
attempt to enforce diplomatic protection to shareholders of a company
that was incorporated in Canada and is thus Canadian (Briggs, 1971).
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b) Whether Belgian Government has the right to bring an claim against
the Spain government in Court for wrongs that were allegedly
committed by a Canadian company.
c) Whether international companies and their shareholders have an
international legal personality.
5.0 Judgment
The court declined to accepts the argument brought to force by Belgium with
a majority decision of 12 votes and one dissenting decision. The court made
t6he following declarations in its judgment;
a) Belgium did not have the jus standi to seek to ensure the diplomatic
protection of its nationals who held shares in the Barcelona Traction
Company (Briggs, 1971). According to international law it is only the
state where the company was incorporated that has the right to bring
such a claim and seek for compensation.
b) The court held that Belgium did not have any proper right to make a
claim against Spain since it was common ground that the company
was incorporate and registered in Spain. The court concurred with the
fact that the company had been adjudged bankrupt in Barcelona but it
affirmed that the company was still in existence and therefore the only
proper way was for the shareholders to make a claim through Canada
against Spain. The legal identity of the company was established in
company and therefore the court ruled that the claim made against
Spain was invalid ab initio.
c) The court held that not all companies or organizations have an
international legal personality. In fact it noted that companies including
Tractions are only allowed to use the country where they were
registered and incorporated to lodge a claim against another state.
The court thus rejected Belgium’s claim on the basis that individual
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shareholders do have international legal personality and cannot seek
to enjoy diplomatic protection that states enjoy (Mann, 1973).
6.0 Analysis
6.1 Absolute Obligation
The court made a general statement to the effect that when a state allows a
foreign company to make an investment in its country or allow foreign
people in its country an obligation to offer diplomatic protection arises.
However, the court observed that the moral imperative to offer the
diplomatic protection is not absolute (Tams and Tzanakopoulos, 2010).
6.2 Application of Municipal Laws in Distinguishing Between a
Company and Shareholders
Conversely, the court made a logical and reasonable diction of the rights of
the company and the rights of the shareholders. It noted that the company is
separate legal entity from the shareholders. In addition, it added that in any
matter relating to a company the proper claimant is the company. This
implies that if the rights of the company have been infringed the
shareholders do not have the standing to bring any claim in a bid to defend
those rights. Noteworthy, if the interest of shareholder has been affected
negatively by any action that is taken against the company, the pertinent
claimant is the company itself. The court relied on municipal law to make the
aforementioned finding and insisted that international law must be guided by
the same.
6.3 Diplomatic Protection
The court also noted that it is a general rule in international law that where
an unlawful act is committed against a foreign company is the role and
responsibility of the national state where the company was incorporated to
offer diplomatic protection in case there is redress to be sought. There was
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no rule pursuant to the principles of international law that allowed the
shareholders national to exercise this role.
6.4 Exceptions
However, it is apparent that the court gave exceptions to this rule. Firstly, it
must be evinced that the company has ceased to exist. With respect to this
exception the court observed that although Barcelona Traction had lost most
the assets that it had invested was also subject to the process of
receivership in Canada there was no cogent evidence to show that the
corporate entity entrenched in a company had ceased to exist. Secondly,
where the general above will not apply if the State where the company was
incorporated is not able to offer such protection. With respect to the second
exception the court observed that there was no dispute regarding the fact
that the company was incorporated in Canada. What is more is that the court
noted that Canada had always been offering diplomatic protection to
Barcelona Traction and that it had not failed to do so (Tams and
Tzanakopoulos, 2010).The fact that the Canadian government was reluctant
to take any action for the wrongs that committed against Barcelona Traction
did not imply that another government was in could come in as a substitute.
It was also noted that a state had the right to make a claim where its
nationals have made an investment abroad and that investment is part of
the national economic resources and that the right of that state to have it
national be accorded a certain treatment has been flagrantly violated.
However, it should be borne in mind that that such a right may only arise if
there is a treaty or a special agreement between the two states (Lee, 2006).
The court noted that there was no treaty or special agreement that had been
made between Belgian and Spain to accord the former the right to seek that
their national be accorded a certain treatment.
The court relied on the doctrine of equity and reasoned that a state will only
be allowed to seek redress in a bid to protect its national and shareholders if
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the national or shareholders are a victim of a blatant violation of
international law. The court took to the view that if would make a
declaration that gave any state the power to offer diplomatic protection of
shareholders, international economic relations between states would be
sour. The court determined that Belgian government did not have the Jus
standi to seek and attempt to enforce diplomatic protection to shareholders
of a company that was incorporated in Canada and is thus Canadian. Since
the court found that the Belgian government did not have the Jus standi seek
and attempt to enforce diplomatic protection to Belgian shareholders it
declined to make a determination concerning any other issue that was raised
in their application (Briggs, 1971).
This case brings to force a clear framework of how the courts and the
international community should deal with organizations, shareholders and
sovereign states (Lee, 2006).
7.0 Conclusion
The ruling given by the court demonstrates the difference of how states and
individuals are treated in international law and who is to be considered to be
a sovereign. It is evident that made a decision that favored the contentions
submitted by Spain on the grounds that Belgium did not have the
jurisdiction to make the claim against Spain. The decision implied that the
Belgian shareholders were supposed to seek redress from Canada where the
company was formed and its headquarters are based. It is worth noting that
the court highlighted the significance of the submissions and weight of
evident given in court by Belgium and Spain but reinforced the fact that
Belgium did not have the requisite jurisdiction to file a claim against Spain.
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8.0 References
Briggs, H.W., 1971. Barcelona Traction: the jus standi of Belgium. American
Journal of International Law, 65(2), pp.327-345.
Flemming, B., 1965. Case concerning the Barcelona Traction, Light and
Power Company Limited (New Application, 1962; Belgium v. Spain).
Preliminary Objections. Canadian Yearbook of International Law/Annuaire
canadien de droit international, 3, pp.306-314.
ICJ, B.T., 1970. Light and Power Company. Limited [Belgium v. Spain.
Lee, L.J., 2006. Barcelona Traction in the 21st century: revisiting its
customary and policy underpinnings 35 years later. Stan. J. Int'l L., 42, p.237.
Mann, F.A., 1973. The Protection of Shareholders' Interests in the Light of the
Barcelona Traction Case. American Journal of International Law, 67(2),
pp.259-274.
Tams, C.J. and Tzanakopoulos, A., 2010. Barcelona traction at 40: the ICJ as
an agent of legal development. Leiden Journal of International Law, 23(4),
pp.781-800.
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