In the case concerning Barcelona Traction, Light and Power Company Limited,the claim is presented on behalf of natural and juristic persons, alleged to be Belgian nationals and shareholders of the Barcelona Traction, Light and Power Company Limited. The object of the Belgian application is reparation for damage allegedly caused to Belgian nationals (shareholders) by the conduct, said to be contrary to international law, of various organs of the Spanish State towards Barcelona Traction Company. Barcelona Traction Company was incorporated and had its registered office in Canada. Thus, the States, which the present case principally concerns are Belgium, the national State whose organs are alleged to have committed the unlawful acts complained of, and Canada, the State under whose laws Barcelona Traction was incorporated and in whose territory it had its registered office.
The following issues arise in this case : first, whether Belgium has a right to exercise diplomatic protection of Belgian shareholders in a company which is a juristic entity incorporated in Canada, the measures complained of having been taken by Spanish government in relation not to any Belgian national but to the company itself, secondly, what considerations govern determination of the nationality of a corporate entity ?
On the first issue, the International Court of Justice feels that limited liability company whose capital is represented by shares enjoys in municipal legal systems independent corporate personality and is a separate entity form the shareholder who, so long as the company is in existence, has no right to corporate assets. If the Court were to decide the case in disregard of the relevant institutions of municipal law, it would lose touch with reality. It is to rules generally accepted by municipal legal systems and not to municipal law of a particular State, that international law refers. The Court, in its following observation, does not deny the fact that a wrong done to the company frequently causes prejudice to its shareholders.
But the mere fact that damage is sustained by both company and shareholder does not imply that both are entitled to claim compensation. Creditors do not have any right to claim compensation from a person who, by wronging their debtor, causes them loss. In such cases, no doubt, the interests of the aggrieved are affected, but not their rights. Thus whenever shareholders’ interests are harmed by an act done to the company, it is to the latter that he must look to institute appropriate action; for although two separate entities may have suffered from the same wrong, it is only one entity whose rights have been infringed.
The Court considers that the adoption of the theory of diplomatic protection of shareholders as such, by opening the door to competing diplomatic claims, could crate an atmosphere of confusion and insecurity in international economic relations. The danger would be all the greater in as much shares of companies whose activity is international are widely scattered and frequently change hands.
The situation would be different if the act complained of is aimed at the direct rights to any declared dividend, the right to attend and vote at general meetings, the right to share in the residual assets of the company on liquidation. In such cases, the State of nationality of any
individual shareholder may intervene in his favour, regardless of the nationality of the company.
Some writers contend that diplomatic protection is permissible when it is exercised with respect to corporations constituted in or having the nationality of the respondent State. In support of this thesis, it is argued that otherwise those shareholders would be totally deprived of diplomatic protection. This argument, however, is untenable in view of the fact that to admit such an exception would be to make havoc with the system of international rules regarding the treatment of foreigners.
Coming to the second issue, the International Court of Justice points out that in allocating corporate entities to States, International Law is based, but only to a limited extent on an analogy with the rules governing the nationality of individuals. The traditional rule attributes the right of diplomatic protection of a corporate entity to the State under the laws of which it is incorporated and in whose territory it has its registered office. These two criteria have been confirmed by long practice and by numerous international instruments. This, notwithstanding, further or different links are at times said to be required in order that a right of diplomatic protection should exist. Indeed, it has been the practice of some States to give a company incorporated under their law diplomatic protection solely when it has its seat or management or centre of control in their territory, or when a majority or a substantial portion of the shares has been owned by national of the State concerned. Only then, it has been held, does there exist between the Corporation and the State in question a genuine connection of the kind familiar from other branches of International law. However, in the particular field of diplomatic protection of corporate entities, no absolute test of the ‘genuine connection’ has found general acceptance. Such tests as have been applied are of a relative nature, and sometimes links with one State have had to be weighted against those of another. In the present case, Barcelona Traction’s links with Canada are manifold. It was incorporated in Canada and had its registered office there. Its Board meetings were held in Canada for many years. In fact, Canadian nationality of the Company has received has received general recognition. Accordingly, the application of Belgian, government was rejected by the International Court of Justice.
CASE CONCERNING THE MILITARY AND PARAMILITARY ACTIVITIES IN AND AGAINST NICARAGUA (Merits)