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Barcelona Traction Light and Power Company

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Kristina Vukoje

on 13 February 2013

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Transcript of Barcelona Traction Light and Power Company

The Belgian stockholders in Barcelona Traction lost money and wanted to sue in the International Court of Justice but…
In the court Judge Fornier ruled on the side of Spain and held that only the state in which the corporation was incorporated (Canada) can sue "... in view of the fact that the Barcelona [Traction] company does not possess Belgian Nationality and that in the case in point it is not possible to allow diplomatic action or international judicial proceeding on behalf of the alleged Belgian shareholders of the company on account of the damage which the company asserts it has suffered" Defense put forward by Spain Barcelona Traction Light and Power Company
Belgium v. Spain Belgium's Arguments Belgium brought an action for damages against Spain on the ground that its nationals as shareholders of the Barcelona Traction Company incorporated and registered in Canada, had been seriously harmed by actions of Spain resulting in expropriation
Belgium maintained its right to exercise diplomatic protection of Belgian shareholders in a company incorporated in Canada
The damage to the company resulted in damage to them as well-thus injuring their independent rights as shareholders
In declaring the BTLP bankrupt Belgium concluded that the Spanish Government had violated international law and caused injury directly to the company and indirectly to its Belgian shareholders by reducing the value of their shares Introduction Barcelona Traction, Light and Power Company, Ltd. (BTLP) manufactured and supplied electricity in Spain
It was originally incorporated in Canada, and maintained its headquarters in Toronto
After the Spanish Civil War the company remained largely undamaged with assets estimated at 10 million pounds sterling
For convenience of foreign investors BTLP had issued some of its bonds in pounds making the interest also payable in pounds
The Spanish government had imposed currency restrictions, and as a result BTLP was unable to exchange its Spanish pesetas for pounds, so it could not pay the interest
The reason of their refusal was it had not been proved that the said currency was to be used to repay debts arising from the genuine importation of foreign capital into Spain Introduction Cont'd Juan March (industrialist/banker/specialist in illegal activities) spotted an opportunity
In 1948, Juan March had investors quietly buy up bonds in BTLP (approx. 500,000 pounds)
In this case the company was financially sound, however, since they were unable to make the currency conversion they were "unable" to pay interest due on these bonds
The investors appeared in a Spanish court and asserted BTLP was in default on the bonds, and requested immediate relief
The Judge agreed, and awarded ownership of all BTLP’s assets to the new investors (mainly to Juan March) The Judgement The Issue Can a state put forward a claim on behalf of nationals who are shareholders in a company for damage done to the latter if that entity belongs neither to the claimant nor the defendant State, but a third country? Importance in International Law The decision in Belgium v. Spain demonstrates the importance of protections of corporate nationality in nominal (“paper”) terms over effective nationality (where the ownership effectively resides)
Unless a principle of law permits a country to support a national’s claim in the ICJ there cannot be an espousal
The case is also important as it demonstrates how the concept of diplomatic protection under international law can apply equally to corporations as to individuals
It also expands the notion of obligations owned erga omnes (in relation to everyone) in the international community Arguments Supporting Spain's Case The issue here is that it is Canada, not Belgium, who is the national state of Traction Co. therefore Belgium has no legal right to bring an action against Spain in the ICJ
Belgium does not have the right to bring about this action against Spain because Spain is not the national state of Traction Co. and therefore the action cannot even be brought to the ICJ

Key Parties Involved Spain Belgium Canada Juan March Juan March was widely known for his involvement in moneymaking illegal activities, for bribery and political influence, and for bending the law whenever he saw an opportunity for economic gain Belgium's Interests Belgium took an interest in the matter because Belgians owned 88 percent of the shares in Barcelona Traction
In this instance bondholders should be paid back their original investment in addition to the interest that was negotiated under the terms of the bonds before owners (shareholders) can salvage any assets from the company
As a result, only a small sum was paid to shareholders
The shareholders sought the assistance of their home states
BTLP’s investors appealed, but got no relief from the Spanish court
Belgium disagreed that Spain acted properly and after Spain became a member of the United Nations in 1955, Belgium filed a complaint before the International Court of Justice (ICJ) in 1958 Canada's Position Canada, among other states, complained to Spain of denials of justice and the violation of certain treaties which were applicable
Canada eventually agreed that the Spanish courts had acted properly in denying BTLP the right to transfer currency abroad and declaring the company bankrupt Questions to Consider 1. Did the ruling that emerged from the Barcelona Traction case adequately reflect the present state of international law?
2. Does international law provide some protection for the foreign shareholders of a company and, if so, to what extent?
3. Are the rights and interests of foreign creditors of companies protected by international law if the debtor company suffers an injury?
4. Are the rules on international responsibility also applicable to corporate entities? Legal Mechanisms Diplomatic Protection: The act by which a state on behalf of one of its citizens who is an injured party, intervenes when a rule of international law has been violated.

Rule of Law: The state of the shareholders of a corporation has a right of diplomatic protection only when the state whose responsibility is invoked is the national state of the company.

Expropriation: The government's taking of property from its owners.
Claims Made by Spain Belgium brought an action against Spain after the Canadian imposition had ceased
Canada was the only state legally in a position to bring about an action for damages against Spain
The Belgian action for damages against Spain for the expropriation of the assets of the Traction, Light and Power Company, Ltd. was justified by Belgium on the grounds that a large majority of the stock of this company was owned by Belgian nationals
This claim is not legal however, because the rule of law states that the state of the shareholders of a corporation (Belgium), has a right of diplomatic protection only when the state whose responsibility is invoked (Spain), is the national state of the company Claim Made by Belgium "... for the damage... caused to a number of Belgian nationals,... shareholders in the Barcelona Traction..., by the conduct,... contrary to international law, of various organs of the Spanish State in relation to that company and to other companies of its group" The attention of the Court was centered upon the question of whether Belgium was, under international law, entitled to present a claim to Spain on behalf of Belgian nationals, shareholders in a company, for damage allegedly inflicted by that State upon the company, which was incorporated in Canada
The court rejected the Belgian claim
Belgium had no claim against Spain for allegedly unlawful measures directed against Barcelona Traction, a Canadian company, Canada being the only state entitled to put forward a claim
Conclusion
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