Barcelona Traction

Barcelona Traction, Light and Power Company (BTLP) was a Canadian utility company that operated light and power utilities in Spain. It was incorporated on September 12, 1911 in Toronto, Canada by Frederick Stark Pearson. The company was developed by Belgian-American engineer Dannie Heineman.

It operated in Spain but was owned mostly by the Belgian holding companies SOFINA and SIDRO and became the subject of the important International Court of Justice case, Belgium v. Spain (1970).

Juan March

Juan March was a Spaniard from Mallorca in the Baleric Islands who had begun his career as a smuggler and had become an industrialist and banker. March was widely known for involvement in lucrative illegal activities, for bribery and political influence, and for bending the law whenever he saw a benefit. This was exemplified in his 1948 takeover of the Barcelona Traction, Light, and Power Company (BTLP) for a small fraction of its real worth.

BTLP was a utility company which provided power and streetcar services in Barcelona; originally incorporated in Canada, it was mostly owned by Belgian investors. BTLP had come through the Spanish Civil War largely undamaged, and was quite profitable. Its assets were about £10,000,000 (about $500,000,000 in 2010). However, for the convenience of some of its foreign investors, BTLP had issued some bonds denominated in pounds, and the interest on these bonds was payable in pounds. The Spanish government had imposed currency restrictions: BTLP was unable to exchange its Spanish pesetas for pounds, and so could not pay the interest.

This was not viewed with any great alarm by the bond-holders; BTLP had plenty of pesetas and would pay the interest arrears whenever the currency restrictions were relaxed.

However, March scented an opportunity. Agents secretly acting for him quietly bought up the bonds (about £500,000). Then in February 1948, they appeared in a Spanish court, asserted that BTLP was in default on the bonds, and demanded immediate relief. The judge agreed and awarded ownership of all BTLP's assets to them (in fact to March). BTLP's foreign investors appealed, but got no relief from Spanish courts. The Belgian government appealed to the International Court of Justice but to no avail: the final resolution coming in 1970, eight years after March's death.

Lawsuit

The government of Spain under Franco in the 1960s placed restrictions on foreigners doing business in Spain. 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, holding that only the state in which the corporation was incorporated (Canada) can sue. The decision in Belgium v. Spain is important in public international law because it demonstrates the importance of protections of corporate nationality in nominal ("paper") terms over effective nationality (siège social) where the ownership effectively resides. Unless a principle of law permits a country to espouse 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 expanded the notion of obligations owed erga omnes (in relation to everyone) in the international community.

In detail

Case Concerning Barcelona Traction, Light, and Power Company, Ltd. (Second Phase)

International Court of Justice, 1970.

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.

Acquisitions

• Tranvías de Barcelona (1912)
• Ferrocarriles de Barcelona (1911-1913)
• Compañía Barcelonesa de Electricidad (1912)
• Saltos del Segre (1912)
• Energía Eléctrica de Cataluña (1923)
• Sociedad Española Hidráulica del Freser (1923)
• Compañía General de Electricidad SA
• Electricista Catalana SA
• Saltos del Ebro SA (1930)
• Hidroeléctrica del Segre (1933)
• Saltos de Cataluña SA (1935)
• Sociedad Productora de Fuerzas Motrices (1941)

See also

• List of International Court of Justice cases

External links

• ICJ case summary