Keywords: Belgian, Spain, jurisdiction, shareholder, compensation

Facts:

In 1911, the “Barcelona Traction, Light and Power Company, Limited” was incorporated in Canada. It has its head office in Toronto. It established its various subsidiary companies in Spain for developing an “electric power production and distribution system” in Catalonia. Some of these subsidiary companies had their registered offices in Canada while some had the same it in Spain.

In 1936, the servicing of the Barcelona traction bonds, issued principally in Sterling was suspended by the Spanish government due to the civil war in Spain. After the war ended, foreign currency was needed to restart the servicing of the sterling bonds. However, the Spanish exchange control authorities denied from authorizing the transfer of the needed currency.

The Belgian Government reported this incident to the Spanish Government. The Spanish Government stated that for the authorization of the transfer could be done only when “it was shown that the foreign currency was to be used to repay debts arising from the genuine importation of foreign capital into Spain”. This was not established so the authorization of the transfer was not made.

Then, on 12 February 1948, judging the petition filed by of three Spanish holders of Barcelona Traction sterling bonds, the Court of Reus declared the company bankrupt. After this judgment, Spanish directors were appointed in the two subsidiary companies. Shortly after this, other subsidiary companies were also brought under the ambit of these measures.

In 1958, the Belgian Government filed an Application against the Spanish Government. However, in 1961, Belgian government decided to discontinue the proceedings.  It was decided that negotiations will be held between the representatives of the concerning private interests. However, the negotiations could not success. Therefore, on 19 June, 1962, the Belgian Government filed a fresh application in the Court. In the application, it claimed compensation for the Belgian shareholders of the company losses who suffered losses because of the acts of the Spanish State which were violative of the international law.

Preliminary objections:

It was contended by the Spain that the claims of Belgium are not admissible. Spain raised primarily four objections before the Court.

The first two preliminary objections stated that the Court lacks the jurisdiction to hear the presented case. As Belgium discontinued the earlier proceeding, it is barred now to institute a new proceeding.

The third objection was that the Belgian government did not have the “jus standi”. The fourth objection stated that all the local remedies available in Spain were not used. Both these objections were joined to merit.

Issues:

The Court mainly dealt with one issue i.e. “Can a State extend diplomatic protection to its nationals who are shareholders in a company which is incorporated in another State if the interests of the shareholders are affected due to a wrong committed against the company?”

First preliminary objection:

The Spanish government supported its first preliminary contention that Belgium government cannot institute the present proceedings because it had discontinued the earlier proceedings in 1961 on the basis of five arguments. They are-

• The act of discontinuing the initial proceedings was a “purely procedural act”.  
• Discontinuance of proceedings itself shows that no further action will be taken on that issue except when the party expressly reserves the right to start new proceedings.
• When an effort was made by the representatives of the Belgian interests to negotiate again with the representatives of the Spanish interests, they got refusal from the later side. Further, an understanding was there between both sides that the discontinuance of the application would lead to final abolition of the claim. The applicant denied this contention stating that their intention as just to terminate that proceeding and nothing else.
• The respondent was misled by the applicant about the import of the discontinuance. Because of this, the Respondent decided to negotiate and resultantly suffered prejudice.
• The initiation of proceedings was not as per the spirit and economy of the “Hispanic-Belgian Treaty of July 19, 1927”. As per this treaty, before submitting a dispute for adjudication, one should go through all the possible preliminary stages. In the initial proceeding which was discontinued, all these stages ere gone through. However, the same were repeated in connection with the present proceeding. This could not have been the intention of the Treaty. Therefore, the new proceedings are out of order.

The Court was of the opinion that the first and the second contentions are contradictory to each other. Therefore, the Court rejected both the arguments. Further, relating to third argument, it observed that the exchanges, upon which the Respondent is relying, took place almost totally between the concerned representatives of the private interests. For binding the governments on either side, it must be shown that the representatives acted in such a way as to bind their governments. The respondent failed to prove this a due to which the Court rejected this argument as well. Talking about the fourth argument, the Court stated that the Respondents did not face any lose by agreeing to the negotiations. Therefore, the fourth contention cannot be accepted. Rejecting the last argument, the Court observed that one cannot say that all the treaty processes are exhausted until there exists a right to initiate new proceedings or the case has been prosecuted to judgment. On the basis of all these observations, the Court rejected the First Preliminary Objection of the respondent.

Second preliminary objection:

For establishing the jurisdiction of the Court, the Applicant relied on Article 37[i] of the Statute of the Court and Article 17[ii] of the Hispanic-Belgian Treaty of Conciliation, Judicial Settlement and Arbitration (1927). It was contended by the applicant that the treaty of 1927 is still in force and both sides are parties to the Statute of ICJ.

The Respondent contended that although the 1927 Treaty is still in force, Article 17(4) has lapsed on the dissolution of the PCIJ in 1946. Along with this, Article 37 is only applicable to the States who were parties of the Statute before PCIJ was dissolved. However, Spain was admitted to the UN in 1955 i.e. after dissolution of PCIJ.

The Court observed that the intention of the drafters of Article 37 was to preserve maximum jurisdictional clauses from becoming inoperative due to dissolution of the PCIJ in prospective manner.

Mainly, three conditions are mentioned in Article 37 which includes:

1. “There should be a Treaty or Convention in force
2. It should provide for the reference of a matter to the PCIJ
3. The dispute should be between the States both or all of which are parties to the Statute”.

All three conditions are fulfilling in the present case; therefore, referring the matter to the International Court of Justice is possible. Based on these observations, the Court also rejected the Second Preliminary Objection.

Third and fourth preliminary objection:

The court had joined both these objections to the merits. While dealing with the question of “jus standi”, it was observed by the Court that a State is obliged to cover under the protection of law the “foreign investments and foreign nationals” that had been admitted to its territory. However, this obligation is not absolute in nature. If the State breaches this obligation, it must have a proper reason for doing so. If any question arises relating to an unlawful act committed against a company representing foreign capital, the national State of that company is only authorized under the general rule of international law to exercise diplomatic protection for seeking redress. However, there are some special circumstances in which the general rule may not apply. They are-

• The case of a company which does not exist now
• The case of the protecting State of the company which lacks the capacity of taking action.

The Court observed that although all the assets of Barcelona Traction are lost, the company’s corporate entity is still in existence. While taking about the second case, there is no dispute in the fact that the company if of Canadian nationality.

The company has been protected by the Canadian government for many years. If Canadian government has stopped to act on behalf of the company, it is not a justification for any other government to exercise diplomatic protection.

Judgment:

After taking into consideration various documentaries and other evidences submitted by both the sides, the Court rejected the claim of the Belgium government by 15 votes to 1. The Court stated that “the possession by the Belgian Government of a right of protection was a prerequisite for the examination of such problems”. The court observed that if they would adopt “the theory of diplomatic protection of the shareholders”, it would lead to numerous claims from different States which will pave a way to an insecure atmosphere in the arena of international economic relations. Therefore, the Court concluded that the Belgium government did not have the “jus standi” in this case. Due to this, the Court was of the opinion that there is no reason to examine remaining aspects of the case and pronounce decision on the same. 12 votes of the majority were based on this reasoning only.

Conclusion:

The decision of the Court to dismiss this case effectively shows the differences between “states and individuals”. It further demonstrates who is considered sovereign in the international arena. The decision of the Court was in favour of Spain as Belgium did not have jurisdiction to file an application and the shareholders who were seeking compensation were not given diplomatic immunity. Therefore, it is not permissible for an individual to bring a claim against a state. This case will prove to be a precedent for the cases dealing with organizations and sovereign immunity claims and will show the way to deal with them correctly.

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The Corfu channel case finds its origin in an incident which happened on 22 October 1946 in the Corfu Strait. On this day, two British destroyers struck mines in Albanian waters resulting into damage including serious loss of life.

The Government of the United Kingdom stated that Government of the People’s Republic of Albania was internationally responsible for the consequences of the incident. In order to make Government of the People’s Republic of Albania to pay compensation, the Government of the United Kingdom filed an Application instituting proceedings against the Government of the People’s Republic of Albania on 22 May, 1947.

On the other hand, Albania claimed that the United Kingdom had violated Albanian territorial waters. The Court, on 9 April 1949, held Albania responsible for the explosions and for the resulting damage and loss of human life suffered by the United Kingdom. Further, the Court found that Albanian sovereignty had been violated due to the later minesweeping by the United Kingdom. On 19 December 1949, the Court ordered Albania to pay the United Kingdom compensation.

KEYWORDS: Passage, Channel, mines, warships, sovereignty

FACTS OF THE CASE:

On 15 May 1946, the British warships passed through the Corfu Channel. However, they did not take the approval of the Albanian government for doing so and as a result, they were shot at. Later, on 22 October, 1946, a squadron of British warships (two cruisers and two destroyers), left the port of Corfu and proceeded northward through a channel previously swept for mines in the North Corfu Strait. Both destroyers were struck by a mine and were heavily damaged. This incident also caused many deaths.

The two ships were mined in Albanian territorial waters in a previously swept and check-swept channel. After the explosions of 22^nd October, the UK Government sent a note to the Albanian Government. The note stated UK government’s intention to sweep the Corfu Channel shortly.  London received the reply of the Albanian government on 31^st October. It stated that the Albanian Government would not give its consent to this unless the operation in question took place outside Albanian territorial waters. Meanwhile, the International Central Mine Clearance Board at the United Kingdom Government’s request decided in a resolution of 1^st November, 1946 that there should be a further sweep of the Channel. However, it should be subject to Albania’s consent.

On 10^th November, the United Kingdom Government informed the Albanian Government that the said sweep would take place on 12^th November. On 11^th November, the Albanian Government said that Albanian Government does not have any problem if the British fleet undertakes the sweeping of the channel of navigation. However, before carrying out the sweeping, it considered it crucial to decide what area of the sea should be deemed to constitute this channel. For this purpose, it proposed the establishment of a Mixed Commission. The Albanian government clearly stated that any sweeping undertaken without the consent of the Albanian Government inside Albanian territorial waters will be considered as a deliberate violation of Albanian sovereignty. Then, on 12^th and 13^th November, ‘Operation Retail’ was carried out by the United Kingdom government.

CONTENTIONS:

The British government claimed that Albania was responsible for the explosions and loss of life and had to compensate the UK government for that. The UK further held that as per the rules of international law, the passage on 22^nd October, 1946 was not invalid. The rules gave them the right to innocent passage through the North Corfu Channel as it is considered part of international highways and does not need a previous approval of the territorial state.

The Albanian Government denied that the North Corfu Channel belongs to the class of international highways. It stated that a right to passage exists through the North Corfu Channel on the grounds that it is only of secondary importance and not even a necessary route between two parts of the high seas. Therefore, prior approval of the territorial state for the passage was necessary.

ISSUES:

1. Whether the North Corfu Channel should be considered as a part of international highways?
2. Is Albania responsible under the international law for the explosions which occurred on the 22^nd October 1946 in Albanian waters and for the damage and loss of human life which resulted due to it?
3. Has the United Kingdom under international law violated the sovereignty of the Albanian People’s Republic by reason of the acts of the Royal Navy in Albanian waters on the 22^nd October and on the 12^th and 13^th November 1946?

DECISION OF THE COURT:

By analyzing the geographical situation of the North Corfu Channel, the Court concluded that it should be considered as belonging to the class of international highways. Therefore, there is no need of special approval by a coastal State in time of peace for passing through the channel.

The UK government claimed that on October 22^nd, 1946, they were not notified by the Albanian government about the existence of the minefield. As per the principle of state responsibility, the Albanian government should have informed the ships approaching that zone about the danger.

The Court, therefore, concluded that Albania is responsible under the international law for the explosions which occurred on October 22^nd 1946, in Albanian waters as well as for the damage and loss of human life which resulted from them. This raised a duty upon Albania to pay compensation to the United Kingdom.

However, Albania was in war with Greece at that time which means that the coastal state was not in time of peace. Therefore, by examining numerous contentions put forward by the Albanian government, the Court held that United Kingdom by the act of British Navy in Albanian waters on October 22^nd 1946 did not violate the sovereignty of Albania.

Further, it is admitted by the United Kingdom Government that they carried out ‘Operation Retail’ against the wish of the Albanian Government. Further, the international mine clearance organizations also did not give consent for the operation. Therefore, the operation could not be justified as the exercise of a right of innocent passage. In principle, international law does not allow a State to assemble a large number of warships in the territorial waters of another State and to carry out minesweeping in those waters. Therefore, the operation conducted on 12^th and 13^th November violated the sovereignty of the People’s Republic of Albania.

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INTRODUCTION

Conflicts are inevitable in any societal set-up. Earlier, the only way available to people was to hustle through litigation but with the advent of alternative dispute resolution methods, Arbitration gained prominence in India. It is a form of dispute resolution in which the parties choose their own adjudicator and mode and place of resolving their disputes whereby the arbitrator through the application of the laws of the land and after hearing both the parties speedily settle the dispute by passing an award in favour of the deserving party. The arbitrator hears both the parties and then relying upon the oral submissions and documents provided, issue a resolution.

KEYWORDS: Arbitration, Cost-effective, appeal, time, law

ADVANTAGES OF ARBITRATION

There are numerous advantages of going for arbitration over litigation. The major ones among them are as follows:

Cost effective

In arbitration, not much legal preparation is required. Most of the charges or costs incurred during the arbitration process are divided between both the parties. This makes this process much cheaper than the traditional litigation. 

Simple and informal procedure

In arbitration, the parties do not have to hire advocates to represent them. The parties can themselves present their issues and demands before the arbitrator. No formal mannerisms are used in this process which results in a comfortable environment.

Fairness

In traditional legal trial, neither part can choose the judge who will decide their case. However, in arbitration, both the parties have the liberty to choose arbitrator. This results in a fair outcome.    

Efficient and flexible

The traditional litigation takes too much time to resolve. It may also take years to solve a particular case. A legal resolution through arbitration is much quicker than litigation. Arbitration is more flexible in terms of scheduling. Arbitration hearings can conveniently be scheduled based on the availability of parties and the arbitrator

Convenience

In litigation, the date of hearing is to be determined by the Court. For this, the convenience of the parties is not kept in mind. Sometimes, the parties have to wait for long time to get court dates. However, in arbitration, parties have the right to agree upon a particular date as suitable for them and their witnesses.

Confidentiality

In Court, all the proceedings are open to public. However, in arbitration, any disclosure made by the parties in the proceedings is to be kept confidential. Therefore, the arbitration legal process is more private than litigation.

Finality 

The decision made by the arbitrator is final one. There is not any system of appeal in the arbitration process.

Agreeableness

In arbitration, neither party wins nor losses. Both the parties came to an agreeable outcome which is in compliance with their needs.

Full control of the process 

Both the parties have all the rights to determine by agreement the conduct of the proceedings. On the basis of it, the procedure is streamlined to suit the specific requirements of the case at hand.

How to draft an Arbitration Agreement? [Video]

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DISADVANTAGES OF ARBITRATION

Every coin has two sides. Along with numerous advantages, there are a number of disadvantages of arbitration that the parties should keep in mind if they want to go for arbitration. The major ones among them are as follows:

No Appeals 

The decision given by the arbitrator is considered as final. There is no system of appeal in arbitration process. Even if one party feels that the outcome of arbitration process was unfair, unjust, or biased, they do not have the option to appeal it.

Cost

Arbitration is generally considered as a cost-effective process as compared to litigation. However, this feature does not hold any significance in those cases in which minimal money is involved.

Rules of Evidence

In a Court of law, a judge has to follow specific rules and regulations while accepting evidence. However, it is not so in arbitration. Arbitrators can utilise any information that is brought to them.

Limited powers of arbitrator

The Court possesses the power to punish the litigants who are obstructive or dilatory in their conduct of the proceedings. However, an arbitrator’s powers are not as strong as to find someone in contempt of court.

Questionable Fairness in Mandatory arbitration

If the contract itself states that arbitration is mandatory in case any dispute arises then the parties do not have the flexibility to choose arbitration upon mutual consent.

Lack of transparency

The arbitration hearings are generally not made open to public and are held in private. This can be a positive as well as a negative feature of arbitration. This lack of transparency may turn the process biased and ultimately result into injustice.

Inconsistently following the law

Although it is right that the arbitrator has to follow the law but the standards are not clear. It is highly possible that the arbitrator may consider the “apparent fairness” of the respective parties’ positions instead of strictly following the law. This becomes more significant when our party would be favored by a strict application of the law.

Sample Arbitration Agreement [PDF]

CONCLUSION             

Arbitration is an attractive method of alternative dispute resolution that can provide an attractive alternative to the traditional legal system. Arbitration has its own advantages and disadvantages. All these pros and cons along with the particular transaction and the needs of the parties should be taken into consideration before agreeing to arbitrate a dispute.

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