Understanding the Barcelona Traction case

For this new Public International Law article, let us study the Barcelona Traction case. The past two hundred years have seen the transformation of public international law from a rule-based extrusion of diplomacy into a fully-fledged legal system. Some decisions have contributed to the development of international law into an integrated whole, whilst also creating specialized sub-systems that stand alone as units of analysis. The significance of these decisions is not taken for granted, with contributors critically interrogating the cases to determine if their reputation is deserved. The Barcelona Traction case is one of the most important, and needed to be analyzed in order to understand Public International Law.

Barcelona Traction, Light and Power Company was a Canadian company, created in 1911 and that operated and provided light and power utilities in Spain. Its headquarters were in Toronto, Canada, it operated in Spain but was owned mostly by Belgian holding companies. The company Barcelona Traction managed to survive the Spanish Civil War without many damages and was still quite profitable. Because of its foreign investors, the company issued several series of bonds, principally in sterling. However, in the idea of Spain’s financial recovery after the civil war, the government banned the transfer of foreign currency from Spain.

As a result of a financial maneuver led by Juan March in order to take control over the society, the Court of Spain declared Barcelona Traction Company bankrupt on February 12 of 1948. Belgium, in order to protect its nationals and their interests, sought reparation for damage claimed to have been caused to Belgians nationals who were shareholders in the company. A first round of diplomatic negotiations started involving a few governments, such as Belgium, Canada, the United Kingdom, and the United States of America. As it was a society ruled by Canadian law, Canada proposed to settle the matter with arbitration which the Spanish government refused but agreed to form a committee of experts to study the dispute. Because the diplomatic negotiations were unsuccessful, the Belgian government filed a first request before the International Court of Justice on September 23, 1958, which was in 1961 interrupted as new negotiations took place. Understanding that these negotiations would go nowhere, Belgium filed a new request before the International Court of Justice on June 19, 1962.

Regarding the jurisdiction of the Court, Belgium and Spain are both parties to the Statute of the Court meaning that the Court is qualified and has jurisdiction to hear and to resolve the dispute, in which Belgium is using its diplomatic protection for the benefit of its foreign nationals and supports that Spain broke the international law rules concerning the way foreigners are treated. In 1963, Spain raised four preliminary objections to the Belgian complaint. In a judgement of July 24, 1964, the Court rejected the first two preliminary objections and joined the second two together. In the decision of February 5, 1970, the main question revolved around the thematic of diplomatic protection: does Belgium have the right to use its diplomatic protection for the Belgian shareholders of a Canadian company and therefore stand before the International Court of Justice or not?

In this case, the Court made a distinction between two separate entities: the company and the shareholder, which are ruled by different law. The company was Canadian and the shareholders were Belgians. The Court emphasized the fact that the harmful acts attributable to Spain aimed at the company’s rights and not at the shareholders’ own rights. A clear distinction has been made between a violation of a company’s right and the mere prejudice towards the shareholders’ interests. Thus, in its judgement of 1970, the International Court of Justice rejected the request of the Belgian government and declared Belgium as not qualified to stand before the Court as it did not have jus standi, or recognized rights, to exercise diplomatic protection for its nationals. The Nationality State of shareholders cannot sue diplomatic protection. Moreover, the Court stated that Belgium couldn’t sue Spain by itself as the Barcelona Company was ruled by Canadian law. There was no legal interest in the matter for Belgium to bring a claim. What also emerges from this judgment is the question of the obligation to treat foreign nationals in a certain way. Belgium thought that it could use this mean to support its claim.

One of the main benefit of this judgement is the recognition of the concept “erga omnes”. It’s a Latin locution which means “towards all” or “towards everyone”. For the legal domain, it means that a judicial decision is binding towards everyone, rights and obligations are owed towards all. These norms are imperative. Maurizio Ragazzi explained in his book, The Concept of International Obligations Erga Omnes, that “In the Barcelona Traction case, the International Court of Justice identified a category of international obligations called erga omnes, namely obligations owed by states to the international community as a whole, intended to protect and promote the basic values and common interests of all”.

The judgement of 1970 is a fundamental one in the way that it expressed this notion of erga omnes that is now considered as one of the pillar of the international law. It expanded this notion in the international community. The notion of erga omnes is associated with the notion of jus cogens which corresponds to a fundamental principle of international, accepted by the international community, considered as universal and superior to which no derogation can be granted. The notion of jus cogens was established by the Vienna Convention on the Law of Treaties of 1969.

The case Barcelona Traction, Light and Power Limited Company is of the greatest importance and value in the field of International Law, and more particularly for diplomatic protection and the promotion of the concept of erga omnes norms and rights. Jean Charpentier explained in his analysis of the case, the relations between the states are rigid which does not facilitate the flexibility at the base of multinational companies. He then explained that the only solution would be to ask the State to which they invest a right of direct access to ad hoc arbitral bodies.